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You can create a currency with the backing of something of value - even the promissory notes of solid citizens - but you cant create a currency from nothing - i

by bdfh42 15y ago

You can create a currency with the backing of something of value - even the promissory notes of solid citizens - but you cant create a currency from nothing - it has no value. While not intending (I am sure) to be a pyramid scheme (artificial value from short term demand) this is how it will/has inevitably turned out. The concepts underpinning Bitcoin however have a future - as long as the mining is done where wealth is accumulated and not on a GPU.

raganwald 15y ago
I like your comment, however you described Bitcoins as “A pyramid scheme (artificial value from short term demand)." I think the term “speculative bubble” better describes value being primarily driven by short-term demand. A pyramid scheme is described as: A non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. Now, if you needed to pay $100 to become a Bitcoin miner and you received $50 from every other person you recruit to mine Bitcoins, this would be a pyramid scheme.
- mruser 15y ago
  Indeed. I, for one, profited quite well for a few months as one of the many driving speculative conversion rates. I also predicted the short-term effect of the speculation and exited early. I do not see Bitcoin recovering any time soon.
  - bdfh42 15y ago
    QED
TomOfTTB 15y ago
Most of the world's currencies don't have backing these days. Even when they do have some kind of commodity backing them the governments don't tell people how much backing is there (The U.S. Government for example won't tell people how much gold they have in reserve). Backing isn't relevant if you don't know how much of it there is. All a currency really needs to be valuable are two people who have faith in it and who have resources they want to trade with each other. Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Bitcoin has, in theory, an equally valid limiting factor
- gnaritas 15y ago
  > Most of the world's currencies don't have backing these days. Not true. They have the backing of their government's tax payers. Backing doesn't need to be a hard asset like gold, it can merely be the full faith and credit of said government. > Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Again, not true; backing is important because you want to know your money is safe, not because it's impossible or difficult to inflate.
- jerf 15y ago
  The real backing that a US dollar has is not its gold. It is the fact that the US government has declared itself obligated to accept tax payments in terms of US dollars, and it will not accept anything else. That's the dollar's base case, and the reason why coming off the gold standard didn't bring the house down is that was really always the true value of a dollar. The gold was an illusion, suitable for an era in which people couldn't think abstractly enough to understand what the true backing was, but one that we can now be rid of. The recursion of the value of government fiat money does indeed have a base case. This is why a government is so tied to its currency. In some sense it isn't a true cause and effect relationship, both the stability of a government and the stability of its currency is tied to the same third factor, its credibility. "All a currency really needs to be valuable are two people who have faith in it" Which is an equivocation game, in that "have faith in it" must itself be motivated by something at least locally rational or it won't work. I have faith in the ability of a dollar to buy off the men-with-guns who will come and take all my stuff and ruin my life if I don't pay my taxes. All government fiat currencies are thus in fact backed by something real. I don't entirely disagree with the BitCoin community that that is a more tenuous backing than one might abstractly like, but I do not see anything in practice that would be better; value stores are intrinsically ephemeral and there is nothing you can do about it. The reason why BitCoin is crashing is that it was built on the false premise that currencies have no backing, so we might as well create a cryptocurrency with no backing. But that's false. BitCoin is actually special in having no backing of any kind, and that is why failure is and will continue to be inevitable. The whole thing was built on a false foundation.
  - 15y ago
yuvadam 15y ago
I beg to differ. How is a bitcoin different from a Dollar? A Dollar is a piece of paper denoted with an acceptable value. Bitocins are mined on a GPU, Dollars are printed on paper. You cannot guarantee that dollar is indeed backed by a piece of a golden bar, since it is very much not the case.
- mechanical_fish 15y ago
  How are Mechanical Fishdollars different from US Dollars? US dollars are legal tender in the USA. Which means that if I'm in the USA and I give you some US dollars to pay off a debt, the debt is legally defined as paid. This is not necessarily true for Fishdollars: One can agree to accept them as payment for a debt, but one is under no obligation to do so, and if you go to court to claim that your mortgage payments aren't late because you mailed 10,000 Fishdollars to your bank the court is going to be considerably more skeptical than if you'd paid in US Dollars. Legal tender is, of course, a fluid concept. If the Fishdollar becomes legal tender in a country with a microscopic economy consisting of two people, it's not very useful because you might not be able to cash out your collection of Fishdollars: The citizens might not have anything that they'd like to trade for Fishdollars. What you really want in a currency is an issuer which has a really big economy with lots of money moving around. That's one reason why everyone loves US Dollars.
  - yuvadam 15y ago
    Exactly. 'Legal tender' is just a matter of perspective. If tomorrow the US economy flops, US Dollars plummet in value. In a fictitious world where government-controlled money lost all value, bitcoin is the alternative. And sure, bitcoin has yet to prove significant adoption. But please don't preach that bitcoins are useless just because they're 'mined on GPUs'.
    - tomkarlo 15y ago
      "Legal tender" is a matter of fact, not perspective. The USD dollar is not going to plummet because the economy "flops". (We've tried that.) In the end, what we consider a "flop" is really just a very small adjustment in growth rates, generally temporary. It's painful, but it has relatively little effect on overall economic productivity. At the end of the day, people have to pay taxes in USD. They have to pay their rent or mortgage in USD. They're only going to be interested in bitcoin if they can dependably convert it back into USD at a moment's notice, and there isn't large amounts of volatility in the exchange rate. That only happens if you've linked the value of the currencies. Otherwise, you're asking people to do currency speculation, which not only isn't advisable, it generally isn't possible, since they have an ongoing stream of income and spending to match, not a huge pool of cash that they're holding onto. There may be some short term arbitrage as prices move up or down, but it will still end up being largely neutral to them, since only a small % of their annual income will be in bitcoins at any one moment.
wmf 15y ago
I don't think that's necessarily true: http://en.wikipedia.org/wiki/Wampum#Currency http://en.wikipedia.org/wiki/Wampum#Currency
pkulak 15y ago
Really? Would you like to back that up? I mean, it's a good thought, and sounds good, but people say it _all_ the time without giving reasons. If something is limited, for whatever reason, it can become valuable. We see that all the time. If something is valuable, it can be used as a currency. Maybe something is not as stable when its value is tied to itself only? Bitcoin could sure make a good case for that. But, then again, Gold's value is backed by nothing but scarcity (with its value at $1600/oz I'd say its value as a metal is no longer a significant factor, if it ever was) and it's stable enough.
- bunderbunder 15y ago
  If by "stable enough" you mean "not very stable at all." http://www.wolframalpha.com/input/?i=price+gold http://www.wolframalpha.com/input/?i=price+gold A graph that looks like that is nature's danger siren. As they say in prospectuses, "past performance does not guarantee future results."
  - pkulak 15y ago
    It looks a bit better when you adjust for inflation: http://blog.thomsonreuters.com/index.php/graphic-of-the-day-inflation-adjusted-gold-price/ http://blog.thomsonreuters.com/index.php/graphic-of-the-day-... But you're right, not as stable as the US dollar. Still stable enough that people buy it as a store of value though.
    - bunderbunder 15y ago
      I'd say it looks even less stable. Adjusted for inflation, the dips and spikes are much deeper, and people who bought gold in 1980 still haven't made their money back. Not that it really matters. Right now, people aren't buying it because it's stable. Quite the opposite: People are buying it because the price has been increasing rapidly, and this world is sadly full of individuals who confuse what a thing costs with what a thing is worth, and who have neither the imagination to contemplate the possibility that whatever is happening right now might not keep happening indefinitely, nor the attention span to remember just how quickly and radically it can fail to keep happening indefinitely. Consider this: just a few short years ago, people were arguing that real estate was a very sound investment. They did so on the grounds that the price of real estate had been increasing rapidly for years, and that everyone else was buying it too.
rorrr 15y ago
Value is whatever people decide. Gold or dollar are not supported by anything but people's desire to have them. Well, gold is also limited, at least on this planet. Bitcoins have more value to me than gold. It's digital (no need to store a brick of gold in a safe), it's almost anonymous (very hard to track to a real person), transactions are free, it's limited in quantity (like gold).
SkyMarshal 15y ago
Bitcoin has value in unique utility: - no transaction fees you would normally pay to an intermediary - works internationally, anywhere the Internet is, no exchange rates for cross-country transactions - anonymizable - cryptographically ensured trust (solved the Byzantine Generals problem) All these things can create demand, not too dissimilar from the way gold's luster does, or the Dollar's reserve currency / oil currency / US tax currency status does. Currencies fluctuate, BTC is no exception. But rumors of its death due to total lack of value are exaggerated.

by bdfh42 15y ago

raganwald 15y ago

I like your comment, however you described Bitcoins as “A pyramid scheme (artificial value from short term demand)." I think the term “speculative bubble” better describes value being primarily driven by short-term demand. A pyramid scheme is described as: A non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. Now, if you needed to pay $100 to become a Bitcoin miner and you received $50 from every other person you recruit to mine Bitcoins, this would be a pyramid scheme.

mruser 15y ago
Indeed. I, for one, profited quite well for a few months as one of the many driving speculative conversion rates. I also predicted the short-term effect of the speculation and exited early. I do not see Bitcoin recovering any time soon.
- bdfh42 15y ago
  QED

TomOfTTB 15y ago

Most of the world's currencies don't have backing these days. Even when they do have some kind of commodity backing them the governments don't tell people how much backing is there (The U.S. Government for example won't tell people how much gold they have in reserve). Backing isn't relevant if you don't know how much of it there is. All a currency really needs to be valuable are two people who have faith in it and who have resources they want to trade with each other. Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Bitcoin has, in theory, an equally valid limiting factor

gnaritas 15y ago
> Most of the world's currencies don't have backing these days. Not true. They have the backing of their government's tax payers. Backing doesn't need to be a hard asset like gold, it can merely be the full faith and credit of said government. > Also for the record the only reason backing is important at all is because backing means there's a finite amount of currency that can be created. Again, not true; backing is important because you want to know your money is safe, not because it's impossible or difficult to inflate.
jerf 15y ago
The real backing that a US dollar has is not its gold. It is the fact that the US government has declared itself obligated to accept tax payments in terms of US dollars, and it will not accept anything else. That's the dollar's base case, and the reason why coming off the gold standard didn't bring the house down is that was really always the true value of a dollar. The gold was an illusion, suitable for an era in which people couldn't think abstractly enough to understand what the true backing was, but one that we can now be rid of. The recursion of the value of government fiat money does indeed have a base case. This is why a government is so tied to its currency. In some sense it isn't a true cause and effect relationship, both the stability of a government and the stability of its currency is tied to the same third factor, its credibility. "All a currency really needs to be valuable are two people who have faith in it" Which is an equivocation game, in that "have faith in it" must itself be motivated by something at least locally rational or it won't work. I have faith in the ability of a dollar to buy off the men-with-guns who will come and take all my stuff and ruin my life if I don't pay my taxes. All government fiat currencies are thus in fact backed by something real. I don't entirely disagree with the BitCoin community that that is a more tenuous backing than one might abstractly like, but I do not see anything in practice that would be better; value stores are intrinsically ephemeral and there is nothing you can do about it. The reason why BitCoin is crashing is that it was built on the false premise that currencies have no backing, so we might as well create a cryptocurrency with no backing. But that's false. BitCoin is actually special in having no backing of any kind, and that is why failure is and will continue to be inevitable. The whole thing was built on a false foundation.
- 15y ago

yuvadam 15y ago

I beg to differ. How is a bitcoin different from a Dollar? A Dollar is a piece of paper denoted with an acceptable value. Bitocins are mined on a GPU, Dollars are printed on paper. You cannot guarantee that dollar is indeed backed by a piece of a golden bar, since it is very much not the case.

mechanical_fish 15y ago
How are Mechanical Fishdollars different from US Dollars? US dollars are legal tender in the USA. Which means that if I'm in the USA and I give you some US dollars to pay off a debt, the debt is legally defined as paid. This is not necessarily true for Fishdollars: One can agree to accept them as payment for a debt, but one is under no obligation to do so, and if you go to court to claim that your mortgage payments aren't late because you mailed 10,000 Fishdollars to your bank the court is going to be considerably more skeptical than if you'd paid in US Dollars. Legal tender is, of course, a fluid concept. If the Fishdollar becomes legal tender in a country with a microscopic economy consisting of two people, it's not very useful because you might not be able to cash out your collection of Fishdollars: The citizens might not have anything that they'd like to trade for Fishdollars. What you really want in a currency is an issuer which has a really big economy with lots of money moving around. That's one reason why everyone loves US Dollars.
- yuvadam 15y ago
  Exactly. 'Legal tender' is just a matter of perspective. If tomorrow the US economy flops, US Dollars plummet in value. In a fictitious world where government-controlled money lost all value, bitcoin is the alternative. And sure, bitcoin has yet to prove significant adoption. But please don't preach that bitcoins are useless just because they're 'mined on GPUs'.
  - tomkarlo 15y ago
    "Legal tender" is a matter of fact, not perspective. The USD dollar is not going to plummet because the economy "flops". (We've tried that.) In the end, what we consider a "flop" is really just a very small adjustment in growth rates, generally temporary. It's painful, but it has relatively little effect on overall economic productivity. At the end of the day, people have to pay taxes in USD. They have to pay their rent or mortgage in USD. They're only going to be interested in bitcoin if they can dependably convert it back into USD at a moment's notice, and there isn't large amounts of volatility in the exchange rate. That only happens if you've linked the value of the currencies. Otherwise, you're asking people to do currency speculation, which not only isn't advisable, it generally isn't possible, since they have an ongoing stream of income and spending to match, not a huge pool of cash that they're holding onto. There may be some short term arbitrage as prices move up or down, but it will still end up being largely neutral to them, since only a small % of their annual income will be in bitcoins at any one moment.

wmf 15y ago

I don't think that's necessarily true: http://en.wikipedia.org/wiki/Wampum#Currency http://en.wikipedia.org/wiki/Wampum#Currency

pkulak 15y ago

Really? Would you like to back that up? I mean, it's a good thought, and sounds good, but people say it _all_ the time without giving reasons. If something is limited, for whatever reason, it can become valuable. We see that all the time. If something is valuable, it can be used as a currency. Maybe something is not as stable when its value is tied to itself only? Bitcoin could sure make a good case for that. But, then again, Gold's value is backed by nothing but scarcity (with its value at $1600/oz I'd say its value as a metal is no longer a significant factor, if it ever was) and it's stable enough.

bunderbunder 15y ago
If by "stable enough" you mean "not very stable at all." http://www.wolframalpha.com/input/?i=price+gold http://www.wolframalpha.com/input/?i=price+gold A graph that looks like that is nature's danger siren. As they say in prospectuses, "past performance does not guarantee future results."
- pkulak 15y ago
  It looks a bit better when you adjust for inflation: http://blog.thomsonreuters.com/index.php/graphic-of-the-day-inflation-adjusted-gold-price/ http://blog.thomsonreuters.com/index.php/graphic-of-the-day-... But you're right, not as stable as the US dollar. Still stable enough that people buy it as a store of value though.
  - bunderbunder 15y ago
    I'd say it looks even less stable. Adjusted for inflation, the dips and spikes are much deeper, and people who bought gold in 1980 still haven't made their money back. Not that it really matters. Right now, people aren't buying it because it's stable. Quite the opposite: People are buying it because the price has been increasing rapidly, and this world is sadly full of individuals who confuse what a thing costs with what a thing is worth, and who have neither the imagination to contemplate the possibility that whatever is happening right now might not keep happening indefinitely, nor the attention span to remember just how quickly and radically it can fail to keep happening indefinitely. Consider this: just a few short years ago, people were arguing that real estate was a very sound investment. They did so on the grounds that the price of real estate had been increasing rapidly for years, and that everyone else was buying it too.

rorrr 15y ago

Value is whatever people decide. Gold or dollar are not supported by anything but people's desire to have them. Well, gold is also limited, at least on this planet. Bitcoins have more value to me than gold. It's digital (no need to store a brick of gold in a safe), it's almost anonymous (very hard to track to a real person), transactions are free, it's limited in quantity (like gold).

SkyMarshal 15y ago

Bitcoin has value in unique utility: - no transaction fees you would normally pay to an intermediary - works internationally, anywhere the Internet is, no exchange rates for cross-country transactions - anonymizable - cryptographically ensured trust (solved the Byzantine Generals problem) All these things can create demand, not too dissimilar from the way gold's luster does, or the Dollar's reserve currency / oil currency / US tax currency status does. Currencies fluctuate, BTC is no exception. But rumors of its death due to total lack of value are exaggerated.