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Note that should you be rescued the suit case full of millions will still worth millions. The suitcase, stuffed with medium of exchange, holds value across tim

Note that should you be rescued the suit case full of millions will still worth millions. The suitcase, stuffed with medium of exchange, holds value across time. This is the key concept to understand the issue at hand. For a medium of exchange to become useful, it must first become able to hold value, preferably long term, months/years. The only way an asset can do that, if there is demand to hold the asset for long durations, committed long term investors. Bitcoin is an experiment in bootstrapping a neutral money system from scratch. If you look at bitcoins money velocity, it’s much closer to M2, than M1. Thus comparing it to investment assets, or bonds, is much more relevant today than to payment systems. It’s a store of value for now, maybe a little speculative, sure. Once it grows large enough and value becomes more stable, it can become a decent medium of exchange then. This implies market capitalisation in many trillions, and if it proves to be successful: displacement of many other store of value. Negative yield bonds, gold. Maybe even real estate and rental yields on that are actually negative in real terms in many markets. We will see. As such it would represents a cloud economy of sorts with large amounts of wealth stored in it, trillions of dollars. That would require a correspondingly sizeable security budget to protect.

lottin 4y ago
Maybe I misunderstood you, but I thought your point was that it's okay if maintaining the bitcoin network is very expensive because securing the GDP is even more expensive, which is a flawed argument, because bitcoin doesn't remove the need for securing the GDP. Bitcoin's performance needs to be evaluated according to how it compares to other monetary systems in terms of cost-effectiveness, not against the cost of securing GDP. Regarding the question of bitcoin's utility as money. The defining trait of money is that it's used widely as medium of exchange, not that it holds value. An asset has to hold value reasonably well, for it to be able to be used as money, but holding value is not what makes an asset money. Some assets depreciate quickly and don't hold value, but most don't, most assets do store value and yet are not money. Is bitcoin a good store of value? No, it isn't, because a good store of value not only has to hold value over long periods, it also needs to have low volatility. Using a high volatility asset such as bitcoin as a store of value, means there's a big chance you may forced to sell it at times when its market price is well below your purchase price. Lastly, I don't know what "bitcoin's velocity" is. As far as I know, the velocity of money is a concept from the Quantity Theory of Money. The basic assumption that this theory makes is that GDP is sold and paid for with money. If you wanted to apply QTM to bitcoin, first you'd need to locate a country that sells its entire GDP in bitcoin, and only then you could calculate bitcoin's velocity, in principle. This velocity would be specific to this country. Then again, I'm not aware that such a country exist, so I don't know what you mean by bitcoin's velocity or why it is relevant to this conversation.

lottin 4y ago

Maybe I misunderstood you, but I thought your point was that it's okay if maintaining the bitcoin network is very expensive because securing the GDP is even more expensive, which is a flawed argument, because bitcoin doesn't remove the need for securing the GDP. Bitcoin's performance needs to be evaluated according to how it compares to other monetary systems in terms of cost-effectiveness, not against the cost of securing GDP. Regarding the question of bitcoin's utility as money. The defining trait of money is that it's used widely as medium of exchange, not that it holds value. An asset has to hold value reasonably well, for it to be able to be used as money, but holding value is not what makes an asset money. Some assets depreciate quickly and don't hold value, but most don't, most assets do store value and yet are not money. Is bitcoin a good store of value? No, it isn't, because a good store of value not only has to hold value over long periods, it also needs to have low volatility. Using a high volatility asset such as bitcoin as a store of value, means there's a big chance you may forced to sell it at times when its market price is well below your purchase price. Lastly, I don't know what "bitcoin's velocity" is. As far as I know, the velocity of money is a concept from the Quantity Theory of Money. The basic assumption that this theory makes is that GDP is sold and paid for with money. If you wanted to apply QTM to bitcoin, first you'd need to locate a country that sells its entire GDP in bitcoin, and only then you could calculate bitcoin's velocity, in principle. This velocity would be specific to this country. Then again, I'm not aware that such a country exist, so I don't know what you mean by bitcoin's velocity or why it is relevant to this conversation.