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It is a privately created fiat currency, bundled together with an anonymity scheme for transactions. The anonymity scheme means there is some reason to grant on

by vrotaru 15y ago

It is a privately created fiat currency, bundled together with an anonymity scheme for transactions. The anonymity scheme means there is some reason to grant one-time seigniorage to the original currency issuers. Eventually the anonymity scheme, in some form or another, will be available without the fiat currency. At that point, or more likely before then, the fiat currency will fall to near-zero in value Mr. Cowen is somehow overlooking the relative scarcity factor. Speaking strictly about bitcoins and dollars, we know how much bitcoins will be there in the next 100 years, and we have no idea how many dollars will be the in 2113?

tptacek 15y ago
The disconnect here may be that he isn't dignifying the notion that scarcity automatically connotes value, in the sense that for instance my toenails are also more scarce than dollars, and always will be, but are not more valuable than them.
- vrotaru 15y ago
  he isn't dignifying the notion that scarcity automatically connotes value Sure. But if we are speaking about competing mediums (media?) of exchanges, scarcity matters. Not the only factor that matters, but one of.
  - tptacek 15y ago
    That's nonresponsive to Cowen's point, which is that as soon as Bitcoin stops being an efficient way to conduct anonymous transactions (and "probably before then"), Bitcoin's scarce fiat currency will be worth near zero. You say, "yeah, sure, but scarcity matters". Well, actually, Cowen says it doesn't in this case.
    - vrotaru 15y ago
      Well, actually, Cowen says it doesn't in this case. Can I (bit)coin the Tyler Cowen fallacy? So Tyler Cowen says it doesn't matter? Frankly, I have a hard time trying to remember when it was last time that I heeded to TC financial (or other) advice. Maybe, when that moment will come people will just not bother asking TC what they should do.
      - tptacek 15y ago
        You are refuting a straw man appeal to authority instead of the actual argument, which is so short it fits in just a couple of sentences and is included in its entirety upthread. You sound very insecure about your point of view.
        vrotaru 15y ago
        Your/TC argument above mistakes a handy feature of bitcoin protocols for the whole thing, and then argues than as soon as that feature will be replicated everything will be lost. Well, good luck with that.
forensic 15y ago
US Dollars are backed by the US government who requires that taxes be paid in them, and pays them out to employees. This is what makes dollars valuable. Their scarcity is far less relevant. Bitcoin needs to be backed by some kind of utility to have value. Scarcity alone is not enough.
- vrotaru 15y ago
  US Dollars are backed by the US government who requires that taxes be paid in them, and pays them out to employees. That's a lot of trade outside of US which is done in USD and not in local currencies. Are you going to argue that USD is not used as medium of exchange outside of US because you cannot pay taxes with them?
  - tptacek 15y ago
    No, that's not his argument at all. You can't pay taxes in Bitcoins in any industrialized economy in the world. Nobody is arguing that the Euro has no value, just that Bitcoin won't.
    - forensic 15y ago
      Bitcoins may have value for the anonymization, the lack of fees, and the ease of micropayments. It's not essential that a fiat currency is backed by a government, it's just the easiest way to create a fiat currency. Bitcoin right now is essentially backed by those merchants who accept it in exchange for goods and conventional currency. Bitcoins have value RIGHT NOW due to this backing, at least partially. Their long-term value is less clear, of course.
      - tptacek 15y ago
        Efficient transactions schemes are not necessarily good stores of value, as Cowen points out; more importantly, if that's primarily where Bitcoin's value is derived from, Bitcoin will be worth zero when a better transaction scheme arrives.
patio11 15y ago
Mr. Cowen is somehow overlooking the relative scarcity factor. But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block. Bam, Patiocoins, with guaranteed scarcity, anonymity, and a new goldrush phase -- so if you got dumped rather than pumped, you have a new opportunity to start at the top of the pyramid scheme this time. The equilibrium is that sooner or later expected returns on starting a new distributed pump-and-dump dwarf expected returns of getting in late on bitcoins. And then poof.
- deleted 15y ago
  [deleted]
- aero142 15y ago
  Couldn't I make the same argument for choosing another precious metal other than gold and convincing the world treat that as money. It seems to me that the only argument against it is that historically it hasn't happened. (except for cigarettes, Yap Rai, silver, platinum, and others I'm probably forgetting.)
  - arohner 15y ago
    It's somewhat arbitrary which precious metal we use, but it's not entirely arbitrary. There's the usual reasons we use e.g. gold for money. It's fungible, ductile, rare and essentially impossible to forge. That rules out cigarettes and Yap rai as stable currencies. As far as gold vs. silver vs. platinum, the inflation rate (i.e. the rate at which new metal comes out of the ground) is also important. Gold inflates slower than silver, simply because there's more silver in the ground. As far as gold vs. platinum, it's important to look at what happens if the world decided to move to gold or platinum as a currency. Gold is already used as a store of value, while platinum isn't. If everyone moved to gold as currency, it would become far more valued. If the same happened to platinum, its value would go stratospheric. There are essentially no platinum reserves (compared to gold), so its price would be even more volatile, and its price would spike far more than gold. Platinum is also much more concentrated, geographically. There are like 5 working platinum mines in the world, and like 4 of them are in South Africa. South Africa has more of the world's platinum than the middle east has of the world's oil supply. Those objections are not insurmountable, but human civilizations have been using gold & silver as currency for thousands of years, but the same is not true of platinum. Don't underestimate inertia.

by vrotaru 15y ago

tptacek 15y ago

The disconnect here may be that he isn't dignifying the notion that scarcity automatically connotes value, in the sense that for instance my toenails are also more scarce than dollars, and always will be, but are not more valuable than them.

vrotaru 15y ago
he isn't dignifying the notion that scarcity automatically connotes value Sure. But if we are speaking about competing mediums (media?) of exchanges, scarcity matters. Not the only factor that matters, but one of.
- tptacek 15y ago
  That's nonresponsive to Cowen's point, which is that as soon as Bitcoin stops being an efficient way to conduct anonymous transactions (and "probably before then"), Bitcoin's scarce fiat currency will be worth near zero. You say, "yeah, sure, but scarcity matters". Well, actually, Cowen says it doesn't in this case.
  - vrotaru 15y ago
    Well, actually, Cowen says it doesn't in this case. Can I (bit)coin the Tyler Cowen fallacy? So Tyler Cowen says it doesn't matter? Frankly, I have a hard time trying to remember when it was last time that I heeded to TC financial (or other) advice. Maybe, when that moment will come people will just not bother asking TC what they should do.
    - tptacek 15y ago
      You are refuting a straw man appeal to authority instead of the actual argument, which is so short it fits in just a couple of sentences and is included in its entirety upthread. You sound very insecure about your point of view.
      - vrotaru 15y ago
        Your/TC argument above mistakes a handy feature of bitcoin protocols for the whole thing, and then argues than as soon as that feature will be replicated everything will be lost. Well, good luck with that.

forensic 15y ago

US Dollars are backed by the US government who requires that taxes be paid in them, and pays them out to employees. This is what makes dollars valuable. Their scarcity is far less relevant. Bitcoin needs to be backed by some kind of utility to have value. Scarcity alone is not enough.

vrotaru 15y ago
US Dollars are backed by the US government who requires that taxes be paid in them, and pays them out to employees. That's a lot of trade outside of US which is done in USD and not in local currencies. Are you going to argue that USD is not used as medium of exchange outside of US because you cannot pay taxes with them?
- tptacek 15y ago
  No, that's not his argument at all. You can't pay taxes in Bitcoins in any industrialized economy in the world. Nobody is arguing that the Euro has no value, just that Bitcoin won't.
  - forensic 15y ago
    Bitcoins may have value for the anonymization, the lack of fees, and the ease of micropayments. It's not essential that a fiat currency is backed by a government, it's just the easiest way to create a fiat currency. Bitcoin right now is essentially backed by those merchants who accept it in exchange for goods and conventional currency. Bitcoins have value RIGHT NOW due to this backing, at least partially. Their long-term value is less clear, of course.
    - tptacek 15y ago
      Efficient transactions schemes are not necessarily good stores of value, as Cowen points out; more importantly, if that's primarily where Bitcoin's value is derived from, Bitcoin will be worth zero when a better transaction scheme arrives.

patio11 15y ago

Mr. Cowen is somehow overlooking the relative scarcity factor. But you can create an arbitrarily high number of bitcoin-like electronic currency units, simply by taking the exact bitcoin implementation and changing the genesis block. Bam, Patiocoins, with guaranteed scarcity, anonymity, and a new goldrush phase -- so if you got dumped rather than pumped, you have a new opportunity to start at the top of the pyramid scheme this time. The equilibrium is that sooner or later expected returns on starting a new distributed pump-and-dump dwarf expected returns of getting in late on bitcoins. And then poof.

deleted 15y ago
[deleted]
aero142 15y ago
Couldn't I make the same argument for choosing another precious metal other than gold and convincing the world treat that as money. It seems to me that the only argument against it is that historically it hasn't happened. (except for cigarettes, Yap Rai, silver, platinum, and others I'm probably forgetting.)
- arohner 15y ago
  It's somewhat arbitrary which precious metal we use, but it's not entirely arbitrary. There's the usual reasons we use e.g. gold for money. It's fungible, ductile, rare and essentially impossible to forge. That rules out cigarettes and Yap rai as stable currencies. As far as gold vs. silver vs. platinum, the inflation rate (i.e. the rate at which new metal comes out of the ground) is also important. Gold inflates slower than silver, simply because there's more silver in the ground. As far as gold vs. platinum, it's important to look at what happens if the world decided to move to gold or platinum as a currency. Gold is already used as a store of value, while platinum isn't. If everyone moved to gold as currency, it would become far more valued. If the same happened to platinum, its value would go stratospheric. There are essentially no platinum reserves (compared to gold), so its price would be even more volatile, and its price would spike far more than gold. Platinum is also much more concentrated, geographically. There are like 5 working platinum mines in the world, and like 4 of them are in South Africa. South Africa has more of the world's platinum than the middle east has of the world's oil supply. Those objections are not insurmountable, but human civilizations have been using gold & silver as currency for thousands of years, but the same is not true of platinum. Don't underestimate inertia.