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But why are people willing to exchange something of value for it? Because they can trust in it serving as a secure way to transfer tokens of ownership. And that
by mckirk 6y ago
But why are people willing to exchange something of value for it? Because they can trust in it serving as a secure way to transfer tokens of ownership. And that is only possible thanks to the PoW computations, which have to be expensive enough that attacking the system would be more costly than the value you could extract through an attack.
So, in a sense its value indeed derives directly from the work put into the system. Which is not to say there aren't alternatives (I'm really curious how Proof of Stake will change the Crypto landscape), but at least for BTC, that's how it is currently.
- jonhendry18 6y agoDoesn't sound like it's worth torching the only inhabitable planet for.
- inter_netuser 6y agoIt also happens to be a huge incentive for clean nuclear power. I'm sure you don't want that though, because solar+batteries will power interplanetary civilizations somehow.
- tsimionescu 6y agoIt's a huge incentive for more power, not for any particular kind of energy. In fact, the value of BTC is actually putting a floor on how efficient it is to close down a fossil-fuel plant.
- mckirk 6y agoI see PoW more as a stepping stone to bootstrap a crypto currency, and I think it might just go away over time. Ethereum has done it this way: First you build a stable blockchain, secured through tremendous amounts of power. Then, once your system has been widely adopted and people have "skin in the game", you switch to Proof of Stake to minimize power consumption while still maintaining security. PoS is the better solution, environmentally speaking, but it necessarily depends on there already being value in the system that people can be held accountable with and thus kept honest. But to reach that state, people have to trust your system first, and if you're not an already trusted entity, PoW is one way of achieving that initial phase of trust building.
- tsimionescu 6y agoPeople also invested in Bernie Madoff's Ponzi scheme, and that one didn't cost as much energy as the Czech Republic. Even more interestingly, it seems likely that some people were investing in Bernie's scheme while knowning that it is fraud - they trusted that others trust it, not that it's secure. Point being, trust and trust-worthiness are two separate things. Most people investing in Bitcoin have not in any way confirmed for themselves that the algorithm is trust-worthy, they just trust that others are also willing to buy it so that they won't be left defrauded. Hell, people have been defrauded by the likes of Mt Gox, and the network didn't collapse entirely.
- mckirk 6y agoTrue, when you break it down, people will ultimately invest in anything they "trust" (well, hope) to rise in value, no matter how trustworthy they inherently are. So you will indeed have a lot of people that invest in BTC simply because they see others doing the same, since that means they might be able to make a profit. But there's also the people that invest long-term because they think crypto currencies have a lot of potential to be adopted more widely in the future, which entirely depends on their trustworthiness. Without that second group, any sufficiently negative news would cause the BTC price to collapse completely -- and to be fair, there's always the risk of that happening (Tether sends its regards), but the underlying "trust in the benefits of the system itself" at least gives a floor for its price that's above $0.