8 ms·

Gold is stable in isolation. If you bury gold in your backyard, and dig it up 20 years later, you will still have the exact same amount of gold. The exchange ra

by pyrale 6y ago

Gold is stable in isolation. If you bury gold in your backyard, and dig it up 20 years later, you will still have the exact same amount of gold. The exchange rate between gold and other things won't change that. On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it. This has a cost, which is currently paid by newcomers. But if btc becomes stable (i.e. there are no new entrants willing to pay a premium to get in), current holders have to accept depreciation to pay for mining costs. Since btc is not backed by any kind of real world asset, there is no other source of profit. An investment that is only worthwile as long as it attracts newcomers is in essence a ponzi scheme.

iambateman 6y ago
Do you have a sense of what that depreciation factor is? If it’s nearly equivalent to overall population growth, it may not matter. (For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.)
- naravara 6y ago
  > For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.) It has managed to outdistance both the dotcom bubble and the housing bubble at this point. Although the tulip bubble went from the 1590s to the 1630s, so there is some precedent for these boondoggles to run for a surprisingly long time before gravity catches up.
- pyrale 6y ago
  Someone else quoted $10B worth of electricity yearly, at current price. Given that number, and knowing that it evolves with market cap, that's about 1% depreciation/year.
bob33212 6y ago
Good point. The problem is that some people think it is a currency instead of an investment. Other people think it is an investment instead of a currency. It can't be both. Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Investments have cost more overtime otherwise no would would invest. But both groups are buying and driving up the price. Also, there is a 3rd group that thinks it is a hedge. With hedges you don't really care if the price is going up or down. You want it to give you options. For example, you may buy a stockpile of food or toilet paper, not because you are hoping to turn a profit, but to give you an option to avoid going to the grocery store during another panic buying situation.
- gruez 6y ago
  >Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Isn't this only true with the removal of the gold standard?
  - freeone3000 6y ago
    It's part of the reason the gold standard was removed. Currency deflation made loans expensive, for two reasons: the time value of money was higher in 1933 than it was any point since; and since loans are in nominal dollars, deflation causes loans to be more expensive in real dollars, even disregarding interest. 1932 had -10.3% inflation -- this added an additional 10% interest to every loan, on top of the 17% prime rate (because why lend money?). A 27% effective loan rate is ruinous for business, especially agriculture. The gold standard was removed in 1933, interest rates dropped to 12%, inflation increased wildly to 0.3%, and people could borrow money again.
- _dps 6y ago
  > Currencies have to be less valuable over time, otherwise no one would ever spend the currency. I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue. 1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation. 2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation. 3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly. Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.
saalweachter 6y ago
I'm sympathetic to the argument that Ponzi schemes inherently have a small group propagating the fraud while presenting the illusion of a real business, so describing Bitcoin as a Ponzi scheme may be technically inaccurate. If I understand the tweets correctly, Taleb, et al, are basically saying that the mining pool functions as the insiders in a Ponzi scheme, by outcome if not intent. The argument is that a Ponzi scheme isn't just zero-sum speculation, with some people winning and some people losing: it is negative-sum, for the speculators, because the insiders were siphoning off money the entire time. In this situation, the siphoning comes in the form -- among other things -- of the 6.25 BTC / 10 minute block rewards [$20B / year at present], which the miners sell to pay their costs [$10B / year of electricity at present?] and their own paydays. Because these "insiders" have been taking out money the entire time, when all of the investors go to get their money back, there won't be anywhere near as much money as they put in left to get out.
- ArchD 6y ago
  How is BTC mining a Ponzi scheme in a way that gold mining isn't? Neither require any insider information and new entities can join in the mining. In fact BTC mining has lower barriers to entry because it doesn't require license, land rights, etc.
  - birdyrooster 6y ago
    Well for one, gold is a precious metal with great electro-conductivity properties, never rusts and can be worked at low (relatively speaking) temperatures. Kinda useful for all these chips we need and other electronics. Try to do that with Bitcoin.
    - orestarod 6y ago
      That's not where its high value comes from though. And the vast majority of gold is not used in the industry.
      - birdyrooster 6y ago
GuB-42 6y ago
Bitcoin will stay forever as long as someone has a copy of the blockchain (around 300GB now). The cost of which is negligible today. Mining is only necessary for making transactions, and it doesn't have to be expensive. It only is because of the competition. That expensive competition is important for stability but in theory, the entire system could run on a smartphone. And it could run without newcomers. If everyone in the world had bitcoins, making it impossible to have newcomers, it would still have value, in fact a lot more than it has now. Bitcoin may be a bubble, but it is not a Ponzi scheme. Gold has some value as a technical material and because of its (subjective) beauty, so it will never crash down to zero, but it could lose a lot of its value if we decided that it is not worth hoarding.
- keithtom 6y ago
  What about chain re-org attacks? Without miners the next blocks would be easy to attack and then you lose immutability along with creditability.
- notSupplied 6y ago
  That "someone with a copy of the blockchain" is not going to be credible enough to rehydrate Bitcoin. Mining is not just for transactions, but for maintaining the ongoing legitimacy of the blockchain, which is where the real value of Bitcoin lies.
- bartvk 6y ago
  > Bitcoin may be a bubble Also, what is not a bubble nowadays. Just look at the gold price, the housing price, etc. https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubble_in_2020 https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubbl...
gm3dmo 6y ago
https://www.google.com/amp/s/www.bbc.co.uk/news/uk-wales-55658942.amp https://www.google.com/amp/s/www.bbc.co.uk/news/uk-wales-556... Burying bitcoin in a garbage pit hasn't paid off yet but given time and patience. Who knows?
tim333 6y ago
That's not really true. You could bury a bottle in the backyard with the address and private key written on paper and still have the bitcoins in 20 years. If no one is running the blockchain software you could get the most recent copy of the chain / software and start it up. With both gold or bitcoin if there are no buyers then you won't be able to sell it for much. It might actually be entertaining to bury a bottle with $10 worth of bitcoin - it might be worth quite a lot when dug up like that guys hard drive in a refuse tip he wants to dig up. Or not of course. ("A man who says he threw away a hard drive loaded with 7,500 bitcoins in 2013 is offering his city $70 million to dig it up from the dump" https://www.businessinsider.com/man-offers-council-70-million-dig-up-bitcoin-hard-drive-2021-1 https://www.businessinsider.com/man-offers-council-70-millio...)
- nly 6y ago
  There have been buyers of gold for thousands of years though
- Valakas 6y ago
  Gold is a metal made in the burning core of dying stars. It doesn't really care about buyers and economy. We use gold for many purposes other than as a store of value, and that is exactly why it became a store of value. It is useful BESIDES being a store of value. Heck if you don't like gold, buy platinum or some other exotic material. Stores value just as well. Bitcoin is useless besides being a store of value. That makes it a bad store of value.
csomar 6y ago
> On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it. That's not correct. Once you receive your transaction within a block, they are there forever assuming you keep a copy of that blockchain. If miners stop mining, you'll be able to mine yourself within 14 days with a regular computer.
- legolas2412 6y ago
  The value of Bitcoin is not just the blockchain. It is the distributed consensus on it being the correct blockchain. So, Bitcoin relies on others believing that this version of the blockchain is authoritative. Nothing like this in gold. It is an atom which does not require any extra belief from the society.
HeadsUpHigh 6y ago
The are trx fees for this exact reason. The network can continue to be profitable even without the mining of new bitcoins.
question11 6y ago
https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme 1) require an initial investment and promise above-average returns 2) money cannot be withdrawn for a certain period of time in exchange for higher returns. High investment returns with little or no risk.? Overly consistent returns? Your argument is that if I buy an ETF for gold and they charge 2% to keep the gold safe and manage it. This etf is a ponzi scheme as they need have holders to keep the thing going. As the transaction fees go to miners you could then argue VISA and mastercard are ponzi schemes?
redwood 6y ago
It's not enough to simply bury the gold. You have to guard its whereabouts and that cost something

by pyrale 6y ago

iambateman 6y ago

Do you have a sense of what that depreciation factor is? If it’s nearly equivalent to overall population growth, it may not matter. (For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.)

naravara 6y ago
> For what it’s worth, I’m with you for the most part. Just curious. I’ve been short-term wrong on BTC since $102 and I’m trying to figure out if I’m long-term wrong as well.) It has managed to outdistance both the dotcom bubble and the housing bubble at this point. Although the tulip bubble went from the 1590s to the 1630s, so there is some precedent for these boondoggles to run for a surprisingly long time before gravity catches up.
pyrale 6y ago
Someone else quoted $10B worth of electricity yearly, at current price. Given that number, and knowing that it evolves with market cap, that's about 1% depreciation/year.

bob33212 6y ago

Good point. The problem is that some people think it is a currency instead of an investment. Other people think it is an investment instead of a currency. It can't be both. Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Investments have cost more overtime otherwise no would would invest. But both groups are buying and driving up the price. Also, there is a 3rd group that thinks it is a hedge. With hedges you don't really care if the price is going up or down. You want it to give you options. For example, you may buy a stockpile of food or toilet paper, not because you are hoping to turn a profit, but to give you an option to avoid going to the grocery store during another panic buying situation.

gruez 6y ago
>Currencies have to be less valuable over time, otherwise no one would ever spend the currency. Isn't this only true with the removal of the gold standard?
- freeone3000 6y ago
  It's part of the reason the gold standard was removed. Currency deflation made loans expensive, for two reasons: the time value of money was higher in 1933 than it was any point since; and since loans are in nominal dollars, deflation causes loans to be more expensive in real dollars, even disregarding interest. 1932 had -10.3% inflation -- this added an additional 10% interest to every loan, on top of the 17% prime rate (because why lend money?). A 27% effective loan rate is ruinous for business, especially agriculture. The gold standard was removed in 1933, interest rates dropped to 12%, inflation increased wildly to 0.3%, and people could borrow money again.
_dps 6y ago
> Currencies have to be less valuable over time, otherwise no one would ever spend the currency. I don't have an opinion on BTC (or gold for that matter) but this widely-distributed meme is simply untrue. 1) If I have a bar of gold, and it will buy me 1% more bread loaves in a year's time, but I can invest it in something that will trade for 2% more bread loaves next year, then I will spend it because despite appreciation it is not my best source of appreciation. 2) I have living/operating expenses that I consider to supersede my need for financial return. If I don't pay for shelter and food, I won't be around in a year to enjoy the 1% more bread loaves I would get from appreciation. 3) Empirically/historically, over long time frames, gold appreciates in real terms (slowly). And yet people spent gold coins and gold-backed notes regularly. Now, if a currency is appreciating much faster than anything else in the economy I agree you can have a deflationary spiral and a liquidity problem. But this is because the economy is collapsing — ordinary sources of growth have disappeared or reversed. This is a very special situation, and is not a general argument that currencies must depreciate.

saalweachter 6y ago

I'm sympathetic to the argument that Ponzi schemes inherently have a small group propagating the fraud while presenting the illusion of a real business, so describing Bitcoin as a Ponzi scheme may be technically inaccurate. If I understand the tweets correctly, Taleb, et al, are basically saying that the mining pool functions as the insiders in a Ponzi scheme, by outcome if not intent. The argument is that a Ponzi scheme isn't just zero-sum speculation, with some people winning and some people losing: it is negative-sum, for the speculators, because the insiders were siphoning off money the entire time. In this situation, the siphoning comes in the form -- among other things -- of the 6.25 BTC / 10 minute block rewards [$20B / year at present], which the miners sell to pay their costs [$10B / year of electricity at present?] and their own paydays. Because these "insiders" have been taking out money the entire time, when all of the investors go to get their money back, there won't be anywhere near as much money as they put in left to get out.

ArchD 6y ago
How is BTC mining a Ponzi scheme in a way that gold mining isn't? Neither require any insider information and new entities can join in the mining. In fact BTC mining has lower barriers to entry because it doesn't require license, land rights, etc.
- birdyrooster 6y ago
  Well for one, gold is a precious metal with great electro-conductivity properties, never rusts and can be worked at low (relatively speaking) temperatures. Kinda useful for all these chips we need and other electronics. Try to do that with Bitcoin.
  - orestarod 6y ago
    That's not where its high value comes from though. And the vast majority of gold is not used in the industry.
    - birdyrooster 6y ago

GuB-42 6y ago

Bitcoin will stay forever as long as someone has a copy of the blockchain (around 300GB now). The cost of which is negligible today. Mining is only necessary for making transactions, and it doesn't have to be expensive. It only is because of the competition. That expensive competition is important for stability but in theory, the entire system could run on a smartphone. And it could run without newcomers. If everyone in the world had bitcoins, making it impossible to have newcomers, it would still have value, in fact a lot more than it has now. Bitcoin may be a bubble, but it is not a Ponzi scheme. Gold has some value as a technical material and because of its (subjective) beauty, so it will never crash down to zero, but it could lose a lot of its value if we decided that it is not worth hoarding.

keithtom 6y ago
What about chain re-org attacks? Without miners the next blocks would be easy to attack and then you lose immutability along with creditability.
notSupplied 6y ago
That "someone with a copy of the blockchain" is not going to be credible enough to rehydrate Bitcoin. Mining is not just for transactions, but for maintaining the ongoing legitimacy of the blockchain, which is where the real value of Bitcoin lies.
bartvk 6y ago
> Bitcoin may be a bubble Also, what is not a bubble nowadays. Just look at the gold price, the housing price, etc. https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubble_in_2020 https://en.wikipedia.org/wiki/Greenspan_put#Everything_Bubbl...

gm3dmo 6y ago

https://www.google.com/amp/s/www.bbc.co.uk/news/uk-wales-55658942.amp https://www.google.com/amp/s/www.bbc.co.uk/news/uk-wales-556... Burying bitcoin in a garbage pit hasn't paid off yet but given time and patience. Who knows?

tim333 6y ago

That's not really true. You could bury a bottle in the backyard with the address and private key written on paper and still have the bitcoins in 20 years. If no one is running the blockchain software you could get the most recent copy of the chain / software and start it up. With both gold or bitcoin if there are no buyers then you won't be able to sell it for much. It might actually be entertaining to bury a bottle with $10 worth of bitcoin - it might be worth quite a lot when dug up like that guys hard drive in a refuse tip he wants to dig up. Or not of course. ("A man who says he threw away a hard drive loaded with 7,500 bitcoins in 2013 is offering his city $70 million to dig it up from the dump" https://www.businessinsider.com/man-offers-council-70-million-dig-up-bitcoin-hard-drive-2021-1 https://www.businessinsider.com/man-offers-council-70-millio...)

nly 6y ago
There have been buyers of gold for thousands of years though
Valakas 6y ago
Gold is a metal made in the burning core of dying stars. It doesn't really care about buyers and economy. We use gold for many purposes other than as a store of value, and that is exactly why it became a store of value. It is useful BESIDES being a store of value. Heck if you don't like gold, buy platinum or some other exotic material. Stores value just as well. Bitcoin is useless besides being a store of value. That makes it a bad store of value.

csomar 6y ago

> On the other hand, for btc to keep value, you need people to mine it from to the moment you buy it to the moment you sell it. That's not correct. Once you receive your transaction within a block, they are there forever assuming you keep a copy of that blockchain. If miners stop mining, you'll be able to mine yourself within 14 days with a regular computer.

legolas2412 6y ago
The value of Bitcoin is not just the blockchain. It is the distributed consensus on it being the correct blockchain. So, Bitcoin relies on others believing that this version of the blockchain is authoritative. Nothing like this in gold. It is an atom which does not require any extra belief from the society.

HeadsUpHigh 6y ago

The are trx fees for this exact reason. The network can continue to be profitable even without the mining of new bitcoins.

question11 6y ago

https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme 1) require an initial investment and promise above-average returns 2) money cannot be withdrawn for a certain period of time in exchange for higher returns. High investment returns with little or no risk.? Overly consistent returns? Your argument is that if I buy an ETF for gold and they charge 2% to keep the gold safe and manage it. This etf is a ponzi scheme as they need have holders to keep the thing going. As the transaction fees go to miners you could then argue VISA and mastercard are ponzi schemes?

redwood 6y ago

It's not enough to simply bury the gold. You have to guard its whereabouts and that cost something