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The article simply points out PoW imposes a huge cost on the system, and that such a cost is assumed by the token holders whether they like it or not. This has

by lottin 4y ago

The article simply points out PoW imposes a huge cost on the system, and that such a cost is assumed by the token holders whether they like it or not. This has been known for a long time.

aeternum 4y ago
Yet gold also has a huge cost for secure storage and has throughout history. Gold remains a store of value, thus the argument seems quite weak.
- cowtools 4y ago
  Gold is useful in chemical and industrial processes. Bitcoin obviously has no use other than money, so I don't know if they are completely comparable in this sense. If people decided that gold was not valuable as money, it would retain at least some value based on its usefulness alone.
  - eldenwrong 4y ago
    Its has other uses, like Microsofts decentralized identity or document vérification storage
    - cowtools 4y ago
      does it? If you simply fork bitcoin, won't you also get those properties?
      - eldenwrong 4y ago
        Yes. Just like if you fork the amazon website you become amazon.
  - ChaitanyaSai 4y ago
    Thought-provoking post, but this is an argument I just don't get. Oxygen and CO2 are useful in chemical and industrial processes too. If you want something more limited, then Aluminium. That's the value Gold will retain if people decided it was of no use as long-term money. Gold's use in industry has very little to do with its value. What am I missing?
  - rufusroflpunch 4y ago
    I consider Bitcoin’s use only as money to be a good thing for Bitcoin. It has no competing uses, thus has ultimate comparative advantage as money. The best monies throughout history had no competing consumption uses.
    - ben_w 4y ago
      An interesting idea. I think digital and paper currency[0] are the obvious competitors however, so it isn't uniquely the ultimate comparative advantage. [0] Ok, I guess you can burn paper money or use it as a chair, I think Weimar hyperinflation had examples of that…
    - lottin 4y ago
      What makes you think having no competing uses is an advantage?
  - aeternum 4y ago
    This is an oft-cited example, but if you look at the numbers, the industrial demand is mostly insignificant. If for some reason people lost interest in gold as a store of value, the industrial market would be so oversaturated that the gold price would likely be very nearly zero.
- lottin 4y ago
  The key difference is the people who secure the gold aren't paid in gold, so the act of securing it doesn't create a selling pressure.
  - cowtools 4y ago
    This is a very critical point! But surely the gold-owner would have to cash out some of their gold to pay the guard in cash? Does it make a difference if he pays the guard in gold and then lets the guard cash it out?
    - lottin 4y ago
      The owner would buy less gold, i.e. the gold they intended to buy minus the cost of securing it, but they don't have to sell gold. Buying less of something and selling an equivalent quantity of it is not equivalent.
  - notahacker 4y ago
    The key difference is that there's an entire network that needs securing with a minimum cost to secure. By contrast you can secure your own gold for free by burying it in the ground if you so wish, and other people not securing it properly didn't prevent people from transacting with gold throughout history. The gold storage cost is the equivalent of buying a cold wallet and keeping it in a safe place (crypto has that as well, but it's not a problem). The 'mining' is the equivalent of subsidising a banking system
- jevgeni 4y ago
  Cost of storage for gold is nowhere close to the cost requirements of CCs.
- caf 4y ago
  Does it? The Protection Department of the United States Mint spends about $50M / year, and they look after the United States Bullion Depository which has over $10B worth of gold in deep storage - so no more than 0.5%/year.
  - aeternum 4y ago
    BTC miners make around 20mil / day and with a 400B market cap, that's around 1.78% / year so definitely higher. But I'd argue the United States Mint also relies at least partly on the US military. The Protection Department would not last long against a nation-state attack. In contrast, BTC has no nation-state or military protection.
    - caf 4y ago
      It doesn't matter about the US military, because the gold market doesn't have to prop up the US military - it gets that ride for free. The point isn't "who is cheaper" in some theoretical sense, it's that as a practical matter the nation of Bitcoinia is importing a large amount of electricity from the USD, RMB, EUR etc economies. This is equivalent in effect to what the gold market as a whole has to pay in storage/holding costs for physical gold. If physical gold holding costs were to rise substantially for some reason, that would significantly reduce the returns available from holding gold.
- Cthulhu_ 4y ago
  Isn't bitcoin's cost exponential though?

by lottin 4y ago

The article simply points out PoW imposes a huge cost on the system, and that such a cost is assumed by the token holders whether they like it or not. This has been known for a long time.

aeternum 4y ago

Yet gold also has a huge cost for secure storage and has throughout history. Gold remains a store of value, thus the argument seems quite weak.

cowtools 4y ago
Gold is useful in chemical and industrial processes. Bitcoin obviously has no use other than money, so I don't know if they are completely comparable in this sense. If people decided that gold was not valuable as money, it would retain at least some value based on its usefulness alone.
- eldenwrong 4y ago
  Its has other uses, like Microsofts decentralized identity or document vérification storage
  - cowtools 4y ago
    does it? If you simply fork bitcoin, won't you also get those properties?
    - eldenwrong 4y ago
      Yes. Just like if you fork the amazon website you become amazon.
- ChaitanyaSai 4y ago
  Thought-provoking post, but this is an argument I just don't get. Oxygen and CO2 are useful in chemical and industrial processes too. If you want something more limited, then Aluminium. That's the value Gold will retain if people decided it was of no use as long-term money. Gold's use in industry has very little to do with its value. What am I missing?
- rufusroflpunch 4y ago
  I consider Bitcoin’s use only as money to be a good thing for Bitcoin. It has no competing uses, thus has ultimate comparative advantage as money. The best monies throughout history had no competing consumption uses.
  - ben_w 4y ago
    An interesting idea. I think digital and paper currency[0] are the obvious competitors however, so it isn't uniquely the ultimate comparative advantage. [0] Ok, I guess you can burn paper money or use it as a chair, I think Weimar hyperinflation had examples of that…
  - lottin 4y ago
    What makes you think having no competing uses is an advantage?
- aeternum 4y ago
  This is an oft-cited example, but if you look at the numbers, the industrial demand is mostly insignificant. If for some reason people lost interest in gold as a store of value, the industrial market would be so oversaturated that the gold price would likely be very nearly zero.
lottin 4y ago
The key difference is the people who secure the gold aren't paid in gold, so the act of securing it doesn't create a selling pressure.
- cowtools 4y ago
  This is a very critical point! But surely the gold-owner would have to cash out some of their gold to pay the guard in cash? Does it make a difference if he pays the guard in gold and then lets the guard cash it out?
  - lottin 4y ago
    The owner would buy less gold, i.e. the gold they intended to buy minus the cost of securing it, but they don't have to sell gold. Buying less of something and selling an equivalent quantity of it is not equivalent.
- notahacker 4y ago
  The key difference is that there's an entire network that needs securing with a minimum cost to secure. By contrast you can secure your own gold for free by burying it in the ground if you so wish, and other people not securing it properly didn't prevent people from transacting with gold throughout history. The gold storage cost is the equivalent of buying a cold wallet and keeping it in a safe place (crypto has that as well, but it's not a problem). The 'mining' is the equivalent of subsidising a banking system
jevgeni 4y ago
Cost of storage for gold is nowhere close to the cost requirements of CCs.
caf 4y ago
Does it? The Protection Department of the United States Mint spends about $50M / year, and they look after the United States Bullion Depository which has over $10B worth of gold in deep storage - so no more than 0.5%/year.
- aeternum 4y ago
  BTC miners make around 20mil / day and with a 400B market cap, that's around 1.78% / year so definitely higher. But I'd argue the United States Mint also relies at least partly on the US military. The Protection Department would not last long against a nation-state attack. In contrast, BTC has no nation-state or military protection.
  - caf 4y ago
    It doesn't matter about the US military, because the gold market doesn't have to prop up the US military - it gets that ride for free. The point isn't "who is cheaper" in some theoretical sense, it's that as a practical matter the nation of Bitcoinia is importing a large amount of electricity from the USD, RMB, EUR etc economies. This is equivalent in effect to what the gold market as a whole has to pay in storage/holding costs for physical gold. If physical gold holding costs were to rise substantially for some reason, that would significantly reduce the returns available from holding gold.
Cthulhu_ 4y ago
Isn't bitcoin's cost exponential though?