4 ms·

Exactly. Bitcoin is a commodity, not a currency.

by Duff 15y ago

danenania 15y ago
What's the difference?
- cube13 15y ago
  Commodities are things people buy. Currencies are what people use to buy commodities with.
  - icebraining 15y ago
    So what's the Swiss Franc right now?
    - scott_s 15y ago
      Note that people treating the Swiss Franc as a commodity is harming the Swiss economy. See http://www.npr.org/blogs/money/2011/08/19/139791374/the-friday-podcast-switzerlands-too-strong-for-its-own-good http://www.npr.org/blogs/money/2011/08/19/139791374/the-frid... and http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to-everybody-else-go-away-now http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to...
      - icebraining 15y ago
        Yes, that's why I chose that example. The thing is, currencies are and have always been a commodity with many traders. Bitcoin being treated as a commodity does not prevent it from being a currency.
        scott_s 15y ago
        The reason I cited those examples is that once currencies cross a certain commodity-threshold, they become much less useful as currencies. cube13's characterization is a simplification, but I think it still captures their intended uses. Bitcoin's deflation, and the Swiss franc's high value compared to other currencies, harm their ability to act as they were intended to. Right now, I agree with Duffy's original point, which is that bitcoin is more of a commodity than a currency.
        Duff 15y ago
        A penny is made of zinc, but not all zinc is a penny. A square is a rectangle, but not all rectangles are squares. Scott is on the right path -- there's some sort of threshold where a substance is more valued as a transaction medium than for its intrinsic value.
        icebraining 15y ago
        But Bitcoin has no intrinsic value. So what's the threshold there?
        Duff 15y ago
        Intrinsic value is set by the marketplace. Right now, the market perception is that prime numbers (or whatever bitcoins are) are scarce, valuable resources.
        bji 15y ago
        Bitcoins are not simply prime numbers. They are account balances in a system that distributes the validation of account balances in such a way that is cryptographically secure, trustable, and decentralized. Provably correct, tamper-proof accounting balance sheets are nothing to sneeze at and it was really a stroke of genius to discover the algorithmic means to create such a thing that is the cool thing about Bitcoin. I personally believe that it will never achieve anything other than niche status as a currency for trading illegal goods; it will be used for other types of transactions, but it will be a very small number of transactions when compared to contemporary financial transaction systems like, e.g. credit cards, or paypal. I say this only because in practical terms it is not very easy to use, and furthermore, its benefit of being pseudoanonymous is also is downfall; very safe for the recipient to receive bitcoins but very risky for the sender to send them since the sender has absolutely no insurance or any recourse in the transaction. There is no authority to appeal to for transactions gone bad, and even if you could sue over bitcoin transactions and the courts would understand them, the pseudoanonymity would make it very difficult to know who to sue.
        15y ago
    - Duff 15y ago
      A currency that people are hoarding because they feel that the faith and credit of Switzerland is proportionally better than other currencies, especially the Euro.
- sliverstorm 15y ago
  "A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market... Examples are petroleum and copper. The price of copper is universal, and fluctuates daily based on global supply and demand." You could say a commodity is like a currency many people can produce. Considering how commodities are often produced, the term "Bitcoin mining" is shockingly apt.
- anigbrowl 15y ago
  Volatility. An ideal currency is immune to supply and demand and is simply a medium of exchange for actual commodities (which can be burned/eaten/used to manufacture things). Of course no currency can meet this ideal, but maintaining stability is a key task of a central bank.
  - pessimizer 15y ago
    I'd like to add that being useful isn't a negative for something's properties as a currency - for example, the reason cigarettes become a currency in a lot of jail/P.O.W. situations is because they are always liquid due to smokers needing to smoke. Often in those situations, cigarettes come into the economy as a ration (or a purchase limit) that people get whether or not they are smokers, and the economy revolves around getting this commodity that everyone gets to the minority that need it. Pretty quickly, you end up with non-smokers trading cigarettes with each other, because you can always get whatever you want through paying a smoker in cigarettes. Bitcoin could benefit from that if it encouraged a very large drug market, because people need their drugs. If an easy, comfortable bitcoin drug market could get a lot of volume, it would become a lot easier to buy a cup of coffee or a car with it, and the prices would rise and fall based on the relationship of the ease of purchasing drugs with bitcoin vs. the ease of purchasing drugs in dollars. Maybe money laundering could keep bitcoin stable, too. In any case, to be successful, IMO bitcoin will have to be driven by something other than belief in bitcoin. The use of the USD? It can be used to pay US taxes.
- zeteo 15y ago
  Post is being downvoted, but it's a valid point. Lots of things have been used as currencies. WW2 POWs used cigarettes; some Pacific islanders used huge, immovable rocks. If anything, BitCoin is much more like a currency, because, unlike commodities, it has no other use.

Exactly. Bitcoin is a commodity, not a currency.

by Duff 15y ago

Exactly. Bitcoin is a commodity, not a currency.

danenania 15y ago

What's the difference?

cube13 15y ago
Commodities are things people buy. Currencies are what people use to buy commodities with.
- icebraining 15y ago
  So what's the Swiss Franc right now?
  - scott_s 15y ago
    Note that people treating the Swiss Franc as a commodity is harming the Swiss economy. See http://www.npr.org/blogs/money/2011/08/19/139791374/the-friday-podcast-switzerlands-too-strong-for-its-own-good http://www.npr.org/blogs/money/2011/08/19/139791374/the-frid... and http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to-everybody-else-go-away-now http://www.npr.org/blogs/money/2011/09/06/140211340/swiss-to...
    - icebraining 15y ago
      Yes, that's why I chose that example. The thing is, currencies are and have always been a commodity with many traders. Bitcoin being treated as a commodity does not prevent it from being a currency.
      - scott_s 15y ago
        The reason I cited those examples is that once currencies cross a certain commodity-threshold, they become much less useful as currencies. cube13's characterization is a simplification, but I think it still captures their intended uses. Bitcoin's deflation, and the Swiss franc's high value compared to other currencies, harm their ability to act as they were intended to. Right now, I agree with Duffy's original point, which is that bitcoin is more of a commodity than a currency.
      - Duff 15y ago
        A penny is made of zinc, but not all zinc is a penny. A square is a rectangle, but not all rectangles are squares. Scott is on the right path -- there's some sort of threshold where a substance is more valued as a transaction medium than for its intrinsic value.
        icebraining 15y ago
        But Bitcoin has no intrinsic value. So what's the threshold there?
        Duff 15y ago
        Intrinsic value is set by the marketplace. Right now, the market perception is that prime numbers (or whatever bitcoins are) are scarce, valuable resources.
        bji 15y ago
        Bitcoins are not simply prime numbers. They are account balances in a system that distributes the validation of account balances in such a way that is cryptographically secure, trustable, and decentralized. Provably correct, tamper-proof accounting balance sheets are nothing to sneeze at and it was really a stroke of genius to discover the algorithmic means to create such a thing that is the cool thing about Bitcoin. I personally believe that it will never achieve anything other than niche status as a currency for trading illegal goods; it will be used for other types of transactions, but it will be a very small number of transactions when compared to contemporary financial transaction systems like, e.g. credit cards, or paypal. I say this only because in practical terms it is not very easy to use, and furthermore, its benefit of being pseudoanonymous is also is downfall; very safe for the recipient to receive bitcoins but very risky for the sender to send them since the sender has absolutely no insurance or any recourse in the transaction. There is no authority to appeal to for transactions gone bad, and even if you could sue over bitcoin transactions and the courts would understand them, the pseudoanonymity would make it very difficult to know who to sue.
        15y ago
  - Duff 15y ago
    A currency that people are hoarding because they feel that the faith and credit of Switzerland is proportionally better than other currencies, especially the Euro.
sliverstorm 15y ago
"A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market... Examples are petroleum and copper. The price of copper is universal, and fluctuates daily based on global supply and demand." You could say a commodity is like a currency many people can produce. Considering how commodities are often produced, the term "Bitcoin mining" is shockingly apt.
anigbrowl 15y ago
Volatility. An ideal currency is immune to supply and demand and is simply a medium of exchange for actual commodities (which can be burned/eaten/used to manufacture things). Of course no currency can meet this ideal, but maintaining stability is a key task of a central bank.
- pessimizer 15y ago
  I'd like to add that being useful isn't a negative for something's properties as a currency - for example, the reason cigarettes become a currency in a lot of jail/P.O.W. situations is because they are always liquid due to smokers needing to smoke. Often in those situations, cigarettes come into the economy as a ration (or a purchase limit) that people get whether or not they are smokers, and the economy revolves around getting this commodity that everyone gets to the minority that need it. Pretty quickly, you end up with non-smokers trading cigarettes with each other, because you can always get whatever you want through paying a smoker in cigarettes. Bitcoin could benefit from that if it encouraged a very large drug market, because people need their drugs. If an easy, comfortable bitcoin drug market could get a lot of volume, it would become a lot easier to buy a cup of coffee or a car with it, and the prices would rise and fall based on the relationship of the ease of purchasing drugs with bitcoin vs. the ease of purchasing drugs in dollars. Maybe money laundering could keep bitcoin stable, too. In any case, to be successful, IMO bitcoin will have to be driven by something other than belief in bitcoin. The use of the USD? It can be used to pay US taxes.
zeteo 15y ago
Post is being downvoted, but it's a valid point. Lots of things have been used as currencies. WW2 POWs used cigarettes; some Pacific islanders used huge, immovable rocks. If anything, BitCoin is much more like a currency, because, unlike commodities, it has no other use.