9 ms·

The fact that something is scarce doesn't make it a store of value. Scarce simply means is in short supply, but prices aren't determined by supply alone, they

by lottin 6y ago

The fact that something is scarce doesn't make it a store of value. Scarce simply means is in short supply, but prices aren't determined by supply alone, they are determined by supply and demand. Moreover, if an asset is in fixed supply, then its price is determined entirely by the demand. This means such an asset will only be a store of value if the demand for the asset remains strong over a long period of time, which is something the asset issuer/producer has zero influence on.

ur-whale 6y ago
>they are determined by supply and demand You are correct, but only in theory: this requires the precondition that people are rational economic actors. In practice, people are weird, and the scarcity of supply creates a demand. There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value". Examples: - Beanie babies - Magic the gathering cards - Pokemon cards - Baseball cards - DaVinci paintings (where anyone can have an 8k x 8k exact reproduction, but the original is worth a fortune) - etc...
- runeks 6y ago
  > There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value". Yes. Temporarily. And a much less weird feedback loop is enough to annihilate all of this “value” at some later point in time (the “crash”).
  - randomsearch 6y ago
    A good example of this is stamp collecting. A grandparent carefully collected stamp albums for his grandchildren. They are now pretty much worthless, because the fashion for stamp collecting has gone. I hope he enjoyed the process of collecting.
    - ForHackernews 6y ago
      Is that true? Time to buy the dip in stamps! Then, I can issue NFTs for my old stamps.
- pjanoman 6y ago
  Scarcity alone is definitely not enough to create value. The one piece of artwork I've made in my life is a scarce resource, but that doesn't mean I have people buying it up like its an NFT.
  - Veen 6y ago
    This is true, you need demand too. But NFTs make scarcity possible in a domain in which it was not possible before (digital art, for example). You have demand from collectors and speculators who want to create a market for "scarce" digital art. You have supply from creators who are quite happy to meet that demand. And you have NFTs, a way to make digital art scarce (for some definition of scarce.)
- iso1631 6y ago
  > DaVinci paintings And there's the demand -- money laundering and smuggling ill-gotten gains (nazis had a lot of paintings)
- kortilla 6y ago
  No, the scarcity alone isn’t enough. There has to be some existing interest to make the “exclusivity” something people actually care about. Each one of my paintings is completely unique and there are very few. Nobody cares and wouldn’t pay any premium for them.
throwaway_isms 6y ago
The money behind big tech has mastered manipulating demand and that is exactly what you are seeing in the Ethereum/NFT ecosystem. It is one giant fraud bankrolled by unlimited capital that can artificially increase prices at which point there becomes demand from people in fear of missing out, once the early capital has the suckers locked in the prices plateau at first as the capital stops buying and driving the price up, and then begins a steep crash as they cash out and lock in the gains, this only causes fear and panic among the late entries that made investments at the peak which they couldn't afford to lose...rinse and repeat. The NFTs may be even more blatant and egregious than the ERC20 coins in terms of fake sales driving up interest, media and demand for shit no regular investor will ever flip. A lot of it is just transparent fraud and money laundering, with the people involved not even shying away from it but openly justifying it on the basis they feel the stock market and art collectors have always engaged in the same misconduct. Take Elon Musk, openly pumping Doge...I'm not judging, I get the humor in it, but a lot of people have been crushed over the years in the crypto bubbles, yesterday was a prime example where Elon was likely the sole cause of Doge exploding in value (maybe 5x in a few days and 100x over a month) and as the big money way slowly cashing out these massive media campaigns were behind a marketing scam of "DogeDay" essentially making their killing on the backs of the poor uneducated late investors. One would hope his Tweets shined a bright light on the dystopia of it all, but it seems everyone is either so greedy or in such bad positions financially they would rather take part. My guess is now that they have reaped their profits at the expense of the little guy, they will buy back in with the profits and we should see another pump following the -25% DogeDay scam.
- inter_netuser 6y ago
  There are people who have been bankrupted by rugpulls and sharp selloffs. All of this is just going to invite more regulation and completely strangle the industry. As usual, the greediest have to ruin it all for the rest of us.
- nmfisher 6y ago
  I struggle to have any sympathy for "the little guy". Noone's lying to them, noone's defrauding them, noone's stealing anything or embezzling from them. It's just greed, plain and simple. If you pile into a get-rich-quick scheme but end up holding the bag in, then more fool you. I still think it should probably be regulated to prevent idiots from losing their life savings. But I won't pretend the losers are ethically any different from the winners. No matter whether you're early or late to the party, you're all just hucksters looking for a quick buck from a pump-and-dump.
delaaxe 6y ago
The drawings I made as a kid are very scarce, but completely worthless. Demand is what creates value, not scarcity, although scarcity has an amplifying effect
- koheripbal 6y ago
  Scarcity is also not something that you want from a currency, fundamentally. A currency needs to be abundant when needed, and scarce when oversupplied. That's the point of controlling the money supply based on economic growth rates, and the entire reason we have a Fed. I believe strongly that cryptocurrencies have a strong future, but what is really needed is a crypto that automatically manages its money supply. In the same way a car engine uses an oil pump to automatically ensure engine oil pressure is consistent when the car is revving vs when it is idle. I also think there are better ways to incentivize mining rather than fixed crypto rewards. A better way would be a multi-year bond instrument that would pay coin dividends well into the future so that miners are vested in the future success of the coin, and not just the immediate pump & dump.
  - chii 6y ago
    > automatically manages its money supply. that's an interesting question and premis - automatic monetary policy. I wonder if good monetary policy could be encoded as a set of rules that can be followed by a machine.
    - delaaxe 6y ago
      You could even use an oracle network to feed economic data to the chain
      - koheripbal 6y ago
        I think it's easier than this. The Blockchain should be able to calculate the velocity of money just by the amount of currency flowing in the last x blocks. That alone should do it. There's also some potential for a bond-market whereby miners BID for bonds, and thus the Blockchain can determine the community expected future inflation rate, and factor that into its calculation of money supply growth.
dmihal 6y ago
Exactly, Ethereum is a better Store of Value than Bitcoin, not only because it is scarce, but because it provides utility, which creates demand. People need ETH for: * Paying transaction fees to use the network. For example, Visa is now settling payments with card issuers using USDC on Ethereum, so Visa needs to pay these fees with ETH. * Collateral in financial applications: Over 11 million ETH (over $24 billion) have been locked as collateral in various financial protocols * Staking & validating: In the same way that Bitcoin miners must purchase mining hardware to earn money, Eth2 validators must purchase ETH to earn staking rewards
- ObserverNeutral 6y ago
  No. The greatest motivation for Crypto success are hatred and fear. BTC is succeeding because people hate/fear Central Banks printing money , so people love BTC and hate Central Banks. Ethereum doesn't put itself up against the printing of money but against companies instead. Google, Apple, Spotify etc. People don't hate those companies and to the extent that they do....they manifest their hate by asking Government to tax them more, not migrating to a super hard to use and super costly decentralized platform to undercut their power. The consumer doesn't think in those terms.
  - dmihal 6y ago
    People hate Robinhood after they blocked users from trading. Decentralized exchanges like Uniswap are impossible to shut down.
  - asenna 6y ago
    If you think the point of decentralized systems are to ONLY replicate Google / Apple / Spotify services but in a decentralized manner, then you're mistaken. When the internet came along, it wasn't to only replicate the Post-office or to just make mails faster. The internet enabled a lot of things you couldn't even predict at that time (or perhaps some could, if they truly understood the tech). There are lots of things that the blockchain enables that you just cannot do in the traditional world even today. Couple of examples: - You can use your tokens as collateral, borrow stablecoins and pay off your mortgage while the loan pays itself off from the interest being generated by the collateral - you do not have to pay back the loan => https://alchemix.fi/ https://alchemix.fi/ - (Borrowed from another user in this thread) Flash loans provide the ability to atomicly borrow infinite money for the duration of a transaction, with no collateral or credit. This money can be used for arbitraging or just to provide working capital for a complex operation. If the loan isn't repaid by the end of the transaction, the whole transaction is cancelled. => https://www.youtube.com/watch?v=mCJUhnXQ76s https://www.youtube.com/watch?v=mCJUhnXQ76s There's clearly going to be a lot more use-cases in the future. Finance is only the first field which is getting explored at the moment.
astoor 6y ago
> "prices aren't determined by supply alone, they are determined by supply and demand" What we saw with the ICOs in 2017 and early 2018 is that there was a surge in demand for Ethereum to participate in the ICOs, which in turn sent the price shooting up. However, when new ICOs started to dry up in mid-2018 the demand also dried up, and when the companies that received all the Ethereum started to cash out the supply shot up, sending the prices right down. We could see something similar with NFTs.
ObserverNeutral 6y ago
> Scarce simply means is in short supply, but prices aren't determined by supply alone, they are determined by supply and demand You can't predict demand, nobody can. So all things being equal (demand being unpredictable) you are better off holding something which is in low supply. People are absulutely scared to death about inflation. It's deeply rooted in our brain and rightfully so. The first governments would dilute their citizen by adding lead to coins and reduce the silver %. The same thing has been going on for millennia. This is the reason why people hate inflation and have a strong preference for deflation.
- kybernetikos 6y ago
  > You can't predict demand, nobody can. You can't predict demand perfectly, but you absolutely can predict demand. In fact that's exactly what everyone is doing when they speculate. There are also processes that help you predict floors to demand - e.g. that you must pay US taxes in US dollars.
  - ObserverNeutral 6y ago
    > You can't predict demand perfectly, but you absolutely can predict demand. In fact that's exactly what everyone is doing when they speculate. If you want to make money you have to be pretty accurate in your prediction. Nobody knows what Bitcoin or the S&P will do tomorrow. It's all rooted in psychology and we don't understand anything about it. We don't even know where ideas come from
Paradigma11 6y ago
The point is that customers are already paying a lot of fees in Ethereum for financial services on the blockchain. Right now that money goes to run a lot of powerplants and gpu farms but will sometime in the future go to Ethereum staker. PoS coins are a combination of money, store of value and investment in a financial service "cloud".
- asenna 6y ago
  It will actually not be going to the Ethereum staker, the "base-fee" is going to be burned (removed from supply) and no one gets it, that's what EIP-1559 does (expected to arrive in the July London hard-fork) To add to this, the overall issuance of ETH yearly is going to reduce from about ~ 4+ Million ETH in the PoW model to about ~ 1.x Million ETH in the PoS model, because the PoS security does not require as much issuance.
  - Paradigma11 6y ago
    You can only burn a little since: 1.)If you burn too much the whole pricing and ordering mechanism for operations does not work any more. Burning is only going to lead to big players in mining/staking and consumers making direct side arrangements. 2.) There is less incentive to stake since burning benefits all regardless if you stake or not. Its essentially a stock buyback. But sure you still have the inflationary block generation as rewards.
    - Paradigma11 6y ago
      "But sure you still have the inflationary block generation as rewards." To be more precise: You are still penalized by dilution/inflation if you dont stake.
- spinny 6y ago
  The move to PoS will probably bring the gas price down a bit, sharding will bring gas price down and add speed to the network
asenna 6y ago
You're right, prices are determined by supply and demand but that's exactly what this article is about. Ethereum has always had demand (due to the growing ecosystem of DeFi, NFT, etc) but the supply was arbitrary. What's coming with EIP-1559 fixes this by directly linking the supply (or rather burning of tokens) to the demand of the network.

by lottin 6y ago

ur-whale 6y ago

>they are determined by supply and demand You are correct, but only in theory: this requires the precondition that people are rational economic actors. In practice, people are weird, and the scarcity of supply creates a demand. There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value". Examples: - Beanie babies - Magic the gathering cards - Pokemon cards - Baseball cards - DaVinci paintings (where anyone can have an 8k x 8k exact reproduction, but the original is worth a fortune) - etc...

runeks 6y ago
> There is therefore a weird feedback loop between the supply and the demand, and scarcity alone is enough to create "value". Yes. Temporarily. And a much less weird feedback loop is enough to annihilate all of this “value” at some later point in time (the “crash”).
- randomsearch 6y ago
  A good example of this is stamp collecting. A grandparent carefully collected stamp albums for his grandchildren. They are now pretty much worthless, because the fashion for stamp collecting has gone. I hope he enjoyed the process of collecting.
  - ForHackernews 6y ago
    Is that true? Time to buy the dip in stamps! Then, I can issue NFTs for my old stamps.
pjanoman 6y ago
Scarcity alone is definitely not enough to create value. The one piece of artwork I've made in my life is a scarce resource, but that doesn't mean I have people buying it up like its an NFT.
- Veen 6y ago
  This is true, you need demand too. But NFTs make scarcity possible in a domain in which it was not possible before (digital art, for example). You have demand from collectors and speculators who want to create a market for "scarce" digital art. You have supply from creators who are quite happy to meet that demand. And you have NFTs, a way to make digital art scarce (for some definition of scarce.)
iso1631 6y ago
> DaVinci paintings And there's the demand -- money laundering and smuggling ill-gotten gains (nazis had a lot of paintings)
kortilla 6y ago
No, the scarcity alone isn’t enough. There has to be some existing interest to make the “exclusivity” something people actually care about. Each one of my paintings is completely unique and there are very few. Nobody cares and wouldn’t pay any premium for them.

throwaway_isms 6y ago

The money behind big tech has mastered manipulating demand and that is exactly what you are seeing in the Ethereum/NFT ecosystem. It is one giant fraud bankrolled by unlimited capital that can artificially increase prices at which point there becomes demand from people in fear of missing out, once the early capital has the suckers locked in the prices plateau at first as the capital stops buying and driving the price up, and then begins a steep crash as they cash out and lock in the gains, this only causes fear and panic among the late entries that made investments at the peak which they couldn't afford to lose...rinse and repeat. The NFTs may be even more blatant and egregious than the ERC20 coins in terms of fake sales driving up interest, media and demand for shit no regular investor will ever flip. A lot of it is just transparent fraud and money laundering, with the people involved not even shying away from it but openly justifying it on the basis they feel the stock market and art collectors have always engaged in the same misconduct. Take Elon Musk, openly pumping Doge...I'm not judging, I get the humor in it, but a lot of people have been crushed over the years in the crypto bubbles, yesterday was a prime example where Elon was likely the sole cause of Doge exploding in value (maybe 5x in a few days and 100x over a month) and as the big money way slowly cashing out these massive media campaigns were behind a marketing scam of "DogeDay" essentially making their killing on the backs of the poor uneducated late investors. One would hope his Tweets shined a bright light on the dystopia of it all, but it seems everyone is either so greedy or in such bad positions financially they would rather take part. My guess is now that they have reaped their profits at the expense of the little guy, they will buy back in with the profits and we should see another pump following the -25% DogeDay scam.

inter_netuser 6y ago
There are people who have been bankrupted by rugpulls and sharp selloffs. All of this is just going to invite more regulation and completely strangle the industry. As usual, the greediest have to ruin it all for the rest of us.
nmfisher 6y ago
I struggle to have any sympathy for "the little guy". Noone's lying to them, noone's defrauding them, noone's stealing anything or embezzling from them. It's just greed, plain and simple. If you pile into a get-rich-quick scheme but end up holding the bag in, then more fool you. I still think it should probably be regulated to prevent idiots from losing their life savings. But I won't pretend the losers are ethically any different from the winners. No matter whether you're early or late to the party, you're all just hucksters looking for a quick buck from a pump-and-dump.

delaaxe 6y ago

The drawings I made as a kid are very scarce, but completely worthless. Demand is what creates value, not scarcity, although scarcity has an amplifying effect

koheripbal 6y ago
Scarcity is also not something that you want from a currency, fundamentally. A currency needs to be abundant when needed, and scarce when oversupplied. That's the point of controlling the money supply based on economic growth rates, and the entire reason we have a Fed. I believe strongly that cryptocurrencies have a strong future, but what is really needed is a crypto that automatically manages its money supply. In the same way a car engine uses an oil pump to automatically ensure engine oil pressure is consistent when the car is revving vs when it is idle. I also think there are better ways to incentivize mining rather than fixed crypto rewards. A better way would be a multi-year bond instrument that would pay coin dividends well into the future so that miners are vested in the future success of the coin, and not just the immediate pump & dump.
- chii 6y ago
  > automatically manages its money supply. that's an interesting question and premis - automatic monetary policy. I wonder if good monetary policy could be encoded as a set of rules that can be followed by a machine.
  - delaaxe 6y ago
    You could even use an oracle network to feed economic data to the chain
    - koheripbal 6y ago
      I think it's easier than this. The Blockchain should be able to calculate the velocity of money just by the amount of currency flowing in the last x blocks. That alone should do it. There's also some potential for a bond-market whereby miners BID for bonds, and thus the Blockchain can determine the community expected future inflation rate, and factor that into its calculation of money supply growth.

dmihal 6y ago

Exactly, Ethereum is a better Store of Value than Bitcoin, not only because it is scarce, but because it provides utility, which creates demand. People need ETH for: * Paying transaction fees to use the network. For example, Visa is now settling payments with card issuers using USDC on Ethereum, so Visa needs to pay these fees with ETH. * Collateral in financial applications: Over 11 million ETH (over $24 billion) have been locked as collateral in various financial protocols * Staking & validating: In the same way that Bitcoin miners must purchase mining hardware to earn money, Eth2 validators must purchase ETH to earn staking rewards

ObserverNeutral 6y ago
No. The greatest motivation for Crypto success are hatred and fear. BTC is succeeding because people hate/fear Central Banks printing money , so people love BTC and hate Central Banks. Ethereum doesn't put itself up against the printing of money but against companies instead. Google, Apple, Spotify etc. People don't hate those companies and to the extent that they do....they manifest their hate by asking Government to tax them more, not migrating to a super hard to use and super costly decentralized platform to undercut their power. The consumer doesn't think in those terms.
- dmihal 6y ago
  People hate Robinhood after they blocked users from trading. Decentralized exchanges like Uniswap are impossible to shut down.
- asenna 6y ago
  If you think the point of decentralized systems are to ONLY replicate Google / Apple / Spotify services but in a decentralized manner, then you're mistaken. When the internet came along, it wasn't to only replicate the Post-office or to just make mails faster. The internet enabled a lot of things you couldn't even predict at that time (or perhaps some could, if they truly understood the tech). There are lots of things that the blockchain enables that you just cannot do in the traditional world even today. Couple of examples: - You can use your tokens as collateral, borrow stablecoins and pay off your mortgage while the loan pays itself off from the interest being generated by the collateral - you do not have to pay back the loan => https://alchemix.fi/ https://alchemix.fi/ - (Borrowed from another user in this thread) Flash loans provide the ability to atomicly borrow infinite money for the duration of a transaction, with no collateral or credit. This money can be used for arbitraging or just to provide working capital for a complex operation. If the loan isn't repaid by the end of the transaction, the whole transaction is cancelled. => https://www.youtube.com/watch?v=mCJUhnXQ76s https://www.youtube.com/watch?v=mCJUhnXQ76s There's clearly going to be a lot more use-cases in the future. Finance is only the first field which is getting explored at the moment.

astoor 6y ago

> "prices aren't determined by supply alone, they are determined by supply and demand" What we saw with the ICOs in 2017 and early 2018 is that there was a surge in demand for Ethereum to participate in the ICOs, which in turn sent the price shooting up. However, when new ICOs started to dry up in mid-2018 the demand also dried up, and when the companies that received all the Ethereum started to cash out the supply shot up, sending the prices right down. We could see something similar with NFTs.

ObserverNeutral 6y ago

> Scarce simply means is in short supply, but prices aren't determined by supply alone, they are determined by supply and demand You can't predict demand, nobody can. So all things being equal (demand being unpredictable) you are better off holding something which is in low supply. People are absulutely scared to death about inflation. It's deeply rooted in our brain and rightfully so. The first governments would dilute their citizen by adding lead to coins and reduce the silver %. The same thing has been going on for millennia. This is the reason why people hate inflation and have a strong preference for deflation.

kybernetikos 6y ago
> You can't predict demand, nobody can. You can't predict demand perfectly, but you absolutely can predict demand. In fact that's exactly what everyone is doing when they speculate. There are also processes that help you predict floors to demand - e.g. that you must pay US taxes in US dollars.
- ObserverNeutral 6y ago
  > You can't predict demand perfectly, but you absolutely can predict demand. In fact that's exactly what everyone is doing when they speculate. If you want to make money you have to be pretty accurate in your prediction. Nobody knows what Bitcoin or the S&P will do tomorrow. It's all rooted in psychology and we don't understand anything about it. We don't even know where ideas come from

Paradigma11 6y ago

The point is that customers are already paying a lot of fees in Ethereum for financial services on the blockchain. Right now that money goes to run a lot of powerplants and gpu farms but will sometime in the future go to Ethereum staker. PoS coins are a combination of money, store of value and investment in a financial service "cloud".

asenna 6y ago
It will actually not be going to the Ethereum staker, the "base-fee" is going to be burned (removed from supply) and no one gets it, that's what EIP-1559 does (expected to arrive in the July London hard-fork) To add to this, the overall issuance of ETH yearly is going to reduce from about ~ 4+ Million ETH in the PoW model to about ~ 1.x Million ETH in the PoS model, because the PoS security does not require as much issuance.
- Paradigma11 6y ago
  You can only burn a little since: 1.)If you burn too much the whole pricing and ordering mechanism for operations does not work any more. Burning is only going to lead to big players in mining/staking and consumers making direct side arrangements. 2.) There is less incentive to stake since burning benefits all regardless if you stake or not. Its essentially a stock buyback. But sure you still have the inflationary block generation as rewards.
  - Paradigma11 6y ago
    "But sure you still have the inflationary block generation as rewards." To be more precise: You are still penalized by dilution/inflation if you dont stake.
spinny 6y ago
The move to PoS will probably bring the gas price down a bit, sharding will bring gas price down and add speed to the network

asenna 6y ago

You're right, prices are determined by supply and demand but that's exactly what this article is about. Ethereum has always had demand (due to the growing ecosystem of DeFi, NFT, etc) but the supply was arbitrary. What's coming with EIP-1559 fixes this by directly linking the supply (or rather burning of tokens) to the demand of the network.