7 ms·

Bitcoin's value is decentralization

93 points by ujeezy 14y ago

Codhisattva 14y ago
There is no such thing as "intrinsic value". All value is perception and subjective. Complicated arguments may enhance perceived value in others but keep in mind the subjective nature. Once confidence collapses, "intrinsic value" flees out the door.
- TazeTSchnitzel 14y ago
  Yes. Gold has no intrinsic value, but humans have a tendency to assign it a value, hence it is treated as if it has one.
  - tomkinstinch 14y ago
    Gold does have value: as an industrial commodity for coating electrical contacts and for IC wire bonding, among other uses. Its elemental characteristics are unique. This value is probably much lower than its present market value though.
    - icebraining 14y ago
      It only has value for people who value the results of those applications. It's still not an intrinsic value, only subjective.
      - tomkinstinch 14y ago
        Fair enough.
      - deleted 14y ago
        [deleted]
      - Codhisattva 14y ago
        With that in mind, I tend to think that the only items that come closest to having intrinsic value are food and potable water.
        oleganza 14y ago
        Consider marginal utility. 100th glass of water is probably useless for you. Also, in some situations a person may value something higher than a glass of water, even if he's thirsty.
- robertskmiles 14y ago
  This is true. The easiest way to make this clear to someone is to ask them to define 'value', and note that they can't do so without either a) talking in terms of people and their subjective beliefs or b) relying on words that are just synonyms for 'value'.
  - erikpukinskis 14y ago
    You can avoid talking about people's subjective beliefs about good or services, and instead talk about their subjective beliefs about their lives. You can then measure the curve of subjective satisfaction with their lives and value can be defined as "the impact of a good or service on the satisfaction curve of a recipient's life". Tying value to the subjective experience of the outcomes is qualitatively different than tying value to subjective beliefs about the goods or services. For example, someone might buy a million dollar McMansion because they subjectively believe it's valuable to them, and then discover that they're miserable in it because it's horribly designed, poorly constructed, and expensive to maintain. That's fundamentally different from someone who buys a house that is cheap to heat and cool, makes their everyday tasks easier, and causes the release of pleasure chemicals in a sustainable and helpful way. The latter has intrinsic value in a way the former doesn't. Edit: You can also define value as the ability for a good to increase your overall wealth. So, some goods have a cost, and do nothing to my net worth (lottery ticket). But some, if you look at the longer term, have a cost, but also add to my net worth (buying a soy milk maker). If you put a dollar value on your experiences, this can cover everything.
guylhem 14y ago
This is an excellent article explaining very well the Byzantine general's problem and how bitcoin provides a solution. However, even if I agree with the answer, I don't agree with its "jump to the conclusion". Here is my take on that: Whether one's believes in decentralization or in centralization, another of bitcoin core assets is that it is not deflationary for prices. All currencies have price deflation built it, for some macroeconomic reasons about motivating agents that I don't fully understand yet. It could be a good thing for economic growth, or it may not be. Let's leave that issue aside. The important thing is that Bitcoin doesn't. Being convertible with other currencies means its value can only rise (following the definition of deflation!) So the only question is whether the rise in relative value - bitcoin inflation - will be faster than the fall of the goods prices' in the other currencies. And that's where the decentralization part plays its role and the article gives the right answer : if you believe in decentralization and in parties acting in their own best interests, it will be faster. If you believe in centralization and people acting for the others best interest, it won't be faster. Bitcoin is a fun experiment on human behaviour :-) In the end, bitcoin value will still rise - if only because it provides a way to escape from the deflationary currencies. The only question is how fast. There are negative interest government bonds being sold right now - IIRC, Germany and France do that. Why one would make sure to take a fall when a conversion in bit coin means that the value can be preserved? The question of whether it is a good thing for economic growth remains. It doesn't seems to be. I don't have bitcoin wealth. I wish I did because it seems like a very good placement at the moment.
- seanalltogether 14y ago
  All currencies have price deflation built it, for some macroeconomic reasons about motivating agents that I don't fully understand yet. It could be a good thing for economic growth, or it may not be. Let's leave that issue aside. Just to be clear, the reason that governments increase the currency supply is that citizens will do it with or without them. The most fundamental currency is a promissory note, an I.O.U. Every time you write someone an IOU you inflate the supply of currency, because the holder of that IOU can pass that around to others in the form of payment. Instead of sending your bushel of apples to the shoemaker who made your shoes, you now have to send half to the bread baker, and half to the candle maker as that IOU was spent. A currency that doesn't grow will be naturally replaced by one that does. This is my biggest problem with bitcoin.
aprescott 14y ago
Maybe I'm mistaken, but I think the specific value of 12 in this example is an error from using an original description at http://www.mail-archive.com/cryptography@metzdowd.com/msg09997.html http://www.mail-archive.com/cryptography@metzdowd.com/msg099... — the original description uses the value of 2 hours (12 * 10 minutes), whereas Paul's does not.
- enki 14y ago
  author here: i've written 12x10 minutes, and the original description writes 12x10 minutes. is there something i've missed? it takes 10 minutes to find a solution, but only after 12 solutions have been found (the chain has been extended 12 times total), can the authenticity of the first of those 12 be guaranteed.
  - aprescott 14y ago
    The original description uses the value 12 because of the prior value of 2 hours, whereas you seem to just have N generals and no such hourly time from which to derive 12, plus this: The existence of the 12-block chain is proof that a majority of them has participated in its creation. Why is the existence of 12 verifications proof that a majority of N have participated?
    - enki 14y ago
      because an attacker controlling less than 50% of the computational resources can be lucky and find the first solution before anyone else. he can even be lucky twice or thrice. but to be lucky 12 times against everyone else with less than 50% of the resources, is statistically improbable. 2 hours is the result of those two values (12 being statistically relevant, and 10 minutes a chosen parameter of problem difficulty), not an input variable.
zby 14y ago
Sure bitcoin is an interesting solution - but there is a problem with cost of all that busy work.
- enki 14y ago
  author here: there's a cost with storing gold in the ground and securing it, and there's a cost with printing counterfeit-resistant paper and finding and jailing counterfeiters (and a cost with not doing so - unbounded inflation) an interesting question then is: are the above costs greater than the cost of operating bitcoin? it might seem so at first, but don't be so sure and run the numbers on the back of an envelope. also walk around downtown in SF and NYC and look at the amount of skyscrapers that are nothing but banks, scratch your head, and ask yourself what value they're actually adding.
  - _red 14y ago
    >also walk around downtown in SF and NYC and look at the amount of skyscrapers that are nothing but banks, scratch your head, and ask yourself what value they're actually adding. True. But I suppose one would need to define "what is a bank". From a pure "money warehouse" definition they don't deserve to be that big, however from a lending / investment perspective there is more value there. I think in the end, a decentralized lending scheme (Mike Hearn has spoken and written on this subject) integrated to bitcoin as the possibility to radically change the social order. It will very hard to fund wars without a printing press.
    - enki 14y ago
      bitcoin's problem is that the financial sector is massively regulated - you're going to jail if you attempt to compete. creating a website where you can store $10, send it to me, and then let me withdraw it, is a 5 year felony in california. that's even when the site is complying with all anti-money-laundering and know-your-customer regulation that could be argued for because of terrorism. it's purely a licensing issue. bitcoin's influence probably won't significantly grow until people find legal workarounds/ways to comply (of which there are plenty, but likely implementing them takes someone committed at least a year), or something happens that makes enforcement of the law unlikely. i personally know of a sizable number of bitcoin startups with working/finished software and a great marketing strategy, that gave up in the face of financial regulation and threatened jail time.
negamax 14y ago
Even from the comments and my own understanding is Bitcoin acts more like an asset. It be very tough to run an economic cycle using it. Imagine someone ordering a truckload of clothing and promising salaries to the workers but by the time it's ready, value of Bitcoin would go up, hence that person will receive less Bitcoins unless specified. The buyer i.e. holder of Bitcoin will always try to delay payment, so they will have to pay less amount.
- enki 14y ago
  the dollar and euro are also assets in that way. you're usually just not aware of its fluctuations (against each other, against other currencies, and against commodities) look at any of the US dollar indexes, which examine the exchange rate of the dollar against other currencies to shake the belief that the dollar is stable: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1349549800008&chddm=98923&chls=IntervalBasedLine&q=NYSEARCA:UUP&ntsp=0&ei=135wUOCtEOKuiAKYggE https://www.google.com/finance?chdnp=1&chdd=1&chds=1...
  - negamax 14y ago
    Not quite. My point is Bitcoin is more like gold rather than any fiat currency. Gold can still be inflationary by finding new mining rigs and asteroid mining in the future but Bitcoin has a upper limit. So it will always be an asset against all fiat currencies. Which will hinder trade as the way I have listed above.
- lojack 14y ago
  I believe the term you're looking for is a commodity. Keep in mind that commodity based currencies (like gold) have existed for thousands of years. Bitcoin acts more like a commodity than these because there's a specific upper limit on the maximum quantity and you can't discover new bitcoins (at least after they are all mined. But yes, this could be considered a good thing (no one can control it) or a bad thing (no one can control it).
- icebraining 14y ago
  Why would they receive less bitcoins? If you agreed to pay 30 bitcoins, that doesn't change just because the BTC has increased in value. Conversely, when I agree to pay $200 to a lender, he can't tell me after than I have to pay $203 to cover the inflation costs. What happens in that people make those agreements with the inflation/deflation rates already in mind, and Bitcoin actually has an upper hand since its rate of growth follows a stable pattern, unlike currencies that can be printed at whim.
mistercow 14y ago
The problem with this article is that in the very second sentence, the author switches from discussing bitcoins themselves to discussing the bitcoin monetary system as a whole. Of course the whole system has intrinsic value, but that is a separate issue from whether or not the currency itself has intrinsic value. In fact, it is generally necessary for a non-commodity currency not to have significant intrinsic value.
- enki 14y ago
  How is bitcoin a non-commodity currency? If bitcoins have value because they allow you to do things you couldn't otherwise do (my point), it's a commodity. why is it desirable for a currency to be a non-commodity currency?
  - gizmo686 14y ago
    Bitcoins do not have value anymore then a paper dollar has value. People are willing to accept it as payment knowing that others will also accept it as payment. You can (and I have) set up your own bitcoin system and get as many as you want. The only difference with that one and the main network is that the main network is bigger, and has a genesis block that people recognize as identifying it as the main bitcoin network. If everyone changed their programs to recognize my genesis block as the correct one, then all of the main bitcoins will be worthless.
    - kybernetikos 14y ago
      > Bitcoins do not have value anymore then a paper dollar has value. Actually slightly less, since paper dollars always have at least their joule value.
      - gizmo686 14y ago
        Is their any way to use that without commiting a federal crime?
        14y ago
Tycho 14y ago
The next period of history could be defined as the post nation-state era, and of all the supranational technologies and institutions that will make this so, bitcoin could be the most important. I'm talking about the ability of governments to restrict the activity of citizens and also to fund themselves from said activity.
- htmltablesrules 14y ago
  There will always be nation-states. Always. Put ten strangers on an island and they will organically form a hierarchy and political alliances will happen. There will never be a government-less world as long as we're human.
  - Tycho 14y ago
    I wasn't imagining that they would cease to exist, just that they would lose a lot of their relevance/expediency/executive.
  - jcbrand 14y ago
    There's a big difference between a government-less world and one without nation-states. Also, for the majority of human existence nation states didnt exist.
    - eru 14y ago
      Yes. Just imagine a world dominated by city-states.
  - erikpukinskis 14y ago
    Certainly there will always be governing structures, of all scales, but the question is: which governence happens at what scale? The federalism of the United States is a play to push power to a more state-sized scale (taxation, education) while still allowing for powers at a larger scale that need to be there (civil rights, defense, EPA). Anarchism isn't really about abolishing power structures, it's about pushing more things down into even smaller structures (cults of personality, architectures, local cultural practices, etc). The idea behind what your OP is saying isn't that nation-states will go away, it's that many of their current roles will be pushed off into larger, global structures whose "muscle" is not military, but cryptographic.
shalmanese 14y ago
It's not clear from the page but this article was originally written in May 2011.
- enki 14y ago
  thanks! date added to template!
Greynum 14y ago
This was on hacker news last year
rumcajz 14y ago
Nice. Imagine that domain names were mined for rather than assigned by random registration authorities.
gwern 14y ago
My take: http://www.gwern.net/Bitcoin%20is%20Worse%20is%20Better http://www.gwern.net/Bitcoin%20is%20Worse%20is%20Better

93 points by ujeezy 14y ago

There is no such thing as "intrinsic value". All value is perception and subjective. Complicated arguments may enhance perceived value in others but keep in mind the subjective nature. Once confidence collapses, "intrinsic value" flees out the door.

TazeTSchnitzel 14y ago
Yes. Gold has no intrinsic value, but humans have a tendency to assign it a value, hence it is treated as if it has one.
- tomkinstinch 14y ago
  Gold does have value: as an industrial commodity for coating electrical contacts and for IC wire bonding, among other uses. Its elemental characteristics are unique. This value is probably much lower than its present market value though.
  - icebraining 14y ago
    It only has value for people who value the results of those applications. It's still not an intrinsic value, only subjective.
    - tomkinstinch 14y ago
      Fair enough.
    - deleted 14y ago
      [deleted]
    - Codhisattva 14y ago
      With that in mind, I tend to think that the only items that come closest to having intrinsic value are food and potable water.
      - oleganza 14y ago
        Consider marginal utility. 100th glass of water is probably useless for you. Also, in some situations a person may value something higher than a glass of water, even if he's thirsty.
robertskmiles 14y ago
This is true. The easiest way to make this clear to someone is to ask them to define 'value', and note that they can't do so without either a) talking in terms of people and their subjective beliefs or b) relying on words that are just synonyms for 'value'.
- erikpukinskis 14y ago
  You can avoid talking about people's subjective beliefs about good or services, and instead talk about their subjective beliefs about their lives. You can then measure the curve of subjective satisfaction with their lives and value can be defined as "the impact of a good or service on the satisfaction curve of a recipient's life". Tying value to the subjective experience of the outcomes is qualitatively different than tying value to subjective beliefs about the goods or services. For example, someone might buy a million dollar McMansion because they subjectively believe it's valuable to them, and then discover that they're miserable in it because it's horribly designed, poorly constructed, and expensive to maintain. That's fundamentally different from someone who buys a house that is cheap to heat and cool, makes their everyday tasks easier, and causes the release of pleasure chemicals in a sustainable and helpful way. The latter has intrinsic value in a way the former doesn't. Edit: You can also define value as the ability for a good to increase your overall wealth. So, some goods have a cost, and do nothing to my net worth (lottery ticket). But some, if you look at the longer term, have a cost, but also add to my net worth (buying a soy milk maker). If you put a dollar value on your experiences, this can cover everything.

guylhem 14y ago

This is an excellent article explaining very well the Byzantine general's problem and how bitcoin provides a solution. However, even if I agree with the answer, I don't agree with its "jump to the conclusion". Here is my take on that: Whether one's believes in decentralization or in centralization, another of bitcoin core assets is that it is not deflationary for prices. All currencies have price deflation built it, for some macroeconomic reasons about motivating agents that I don't fully understand yet. It could be a good thing for economic growth, or it may not be. Let's leave that issue aside. The important thing is that Bitcoin doesn't. Being convertible with other currencies means its value can only rise (following the definition of deflation!) So the only question is whether the rise in relative value - bitcoin inflation - will be faster than the fall of the goods prices' in the other currencies. And that's where the decentralization part plays its role and the article gives the right answer : if you believe in decentralization and in parties acting in their own best interests, it will be faster. If you believe in centralization and people acting for the others best interest, it won't be faster. Bitcoin is a fun experiment on human behaviour :-) In the end, bitcoin value will still rise - if only because it provides a way to escape from the deflationary currencies. The only question is how fast. There are negative interest government bonds being sold right now - IIRC, Germany and France do that. Why one would make sure to take a fall when a conversion in bit coin means that the value can be preserved? The question of whether it is a good thing for economic growth remains. It doesn't seems to be. I don't have bitcoin wealth. I wish I did because it seems like a very good placement at the moment.

seanalltogether 14y ago
All currencies have price deflation built it, for some macroeconomic reasons about motivating agents that I don't fully understand yet. It could be a good thing for economic growth, or it may not be. Let's leave that issue aside. Just to be clear, the reason that governments increase the currency supply is that citizens will do it with or without them. The most fundamental currency is a promissory note, an I.O.U. Every time you write someone an IOU you inflate the supply of currency, because the holder of that IOU can pass that around to others in the form of payment. Instead of sending your bushel of apples to the shoemaker who made your shoes, you now have to send half to the bread baker, and half to the candle maker as that IOU was spent. A currency that doesn't grow will be naturally replaced by one that does. This is my biggest problem with bitcoin.

aprescott 14y ago

Maybe I'm mistaken, but I think the specific value of 12 in this example is an error from using an original description at http://www.mail-archive.com/cryptography@metzdowd.com/msg09997.html http://www.mail-archive.com/cryptography@metzdowd.com/msg099... — the original description uses the value of 2 hours (12 * 10 minutes), whereas Paul's does not.

enki 14y ago
author here: i've written 12x10 minutes, and the original description writes 12x10 minutes. is there something i've missed? it takes 10 minutes to find a solution, but only after 12 solutions have been found (the chain has been extended 12 times total), can the authenticity of the first of those 12 be guaranteed.
- aprescott 14y ago
  The original description uses the value 12 because of the prior value of 2 hours, whereas you seem to just have N generals and no such hourly time from which to derive 12, plus this: The existence of the 12-block chain is proof that a majority of them has participated in its creation. Why is the existence of 12 verifications proof that a majority of N have participated?
  - enki 14y ago
    because an attacker controlling less than 50% of the computational resources can be lucky and find the first solution before anyone else. he can even be lucky twice or thrice. but to be lucky 12 times against everyone else with less than 50% of the resources, is statistically improbable. 2 hours is the result of those two values (12 being statistically relevant, and 10 minutes a chosen parameter of problem difficulty), not an input variable.

zby 14y ago

Sure bitcoin is an interesting solution - but there is a problem with cost of all that busy work.

enki 14y ago
author here: there's a cost with storing gold in the ground and securing it, and there's a cost with printing counterfeit-resistant paper and finding and jailing counterfeiters (and a cost with not doing so - unbounded inflation) an interesting question then is: are the above costs greater than the cost of operating bitcoin? it might seem so at first, but don't be so sure and run the numbers on the back of an envelope. also walk around downtown in SF and NYC and look at the amount of skyscrapers that are nothing but banks, scratch your head, and ask yourself what value they're actually adding.
- _red 14y ago
  >also walk around downtown in SF and NYC and look at the amount of skyscrapers that are nothing but banks, scratch your head, and ask yourself what value they're actually adding. True. But I suppose one would need to define "what is a bank". From a pure "money warehouse" definition they don't deserve to be that big, however from a lending / investment perspective there is more value there. I think in the end, a decentralized lending scheme (Mike Hearn has spoken and written on this subject) integrated to bitcoin as the possibility to radically change the social order. It will very hard to fund wars without a printing press.
  - enki 14y ago
    bitcoin's problem is that the financial sector is massively regulated - you're going to jail if you attempt to compete. creating a website where you can store $10, send it to me, and then let me withdraw it, is a 5 year felony in california. that's even when the site is complying with all anti-money-laundering and know-your-customer regulation that could be argued for because of terrorism. it's purely a licensing issue. bitcoin's influence probably won't significantly grow until people find legal workarounds/ways to comply (of which there are plenty, but likely implementing them takes someone committed at least a year), or something happens that makes enforcement of the law unlikely. i personally know of a sizable number of bitcoin startups with working/finished software and a great marketing strategy, that gave up in the face of financial regulation and threatened jail time.

negamax 14y ago

Even from the comments and my own understanding is Bitcoin acts more like an asset. It be very tough to run an economic cycle using it. Imagine someone ordering a truckload of clothing and promising salaries to the workers but by the time it's ready, value of Bitcoin would go up, hence that person will receive less Bitcoins unless specified. The buyer i.e. holder of Bitcoin will always try to delay payment, so they will have to pay less amount.

enki 14y ago
the dollar and euro are also assets in that way. you're usually just not aware of its fluctuations (against each other, against other currencies, and against commodities) look at any of the US dollar indexes, which examine the exchange rate of the dollar against other currencies to shake the belief that the dollar is stable: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1349549800008&chddm=98923&chls=IntervalBasedLine&q=NYSEARCA:UUP&ntsp=0&ei=135wUOCtEOKuiAKYggE https://www.google.com/finance?chdnp=1&chdd=1&chds=1...
- negamax 14y ago
  Not quite. My point is Bitcoin is more like gold rather than any fiat currency. Gold can still be inflationary by finding new mining rigs and asteroid mining in the future but Bitcoin has a upper limit. So it will always be an asset against all fiat currencies. Which will hinder trade as the way I have listed above.
lojack 14y ago
I believe the term you're looking for is a commodity. Keep in mind that commodity based currencies (like gold) have existed for thousands of years. Bitcoin acts more like a commodity than these because there's a specific upper limit on the maximum quantity and you can't discover new bitcoins (at least after they are all mined. But yes, this could be considered a good thing (no one can control it) or a bad thing (no one can control it).
icebraining 14y ago
Why would they receive less bitcoins? If you agreed to pay 30 bitcoins, that doesn't change just because the BTC has increased in value. Conversely, when I agree to pay $200 to a lender, he can't tell me after than I have to pay $203 to cover the inflation costs. What happens in that people make those agreements with the inflation/deflation rates already in mind, and Bitcoin actually has an upper hand since its rate of growth follows a stable pattern, unlike currencies that can be printed at whim.

mistercow 14y ago

The problem with this article is that in the very second sentence, the author switches from discussing bitcoins themselves to discussing the bitcoin monetary system as a whole. Of course the whole system has intrinsic value, but that is a separate issue from whether or not the currency itself has intrinsic value. In fact, it is generally necessary for a non-commodity currency not to have significant intrinsic value.

enki 14y ago
How is bitcoin a non-commodity currency? If bitcoins have value because they allow you to do things you couldn't otherwise do (my point), it's a commodity. why is it desirable for a currency to be a non-commodity currency?
- gizmo686 14y ago
  Bitcoins do not have value anymore then a paper dollar has value. People are willing to accept it as payment knowing that others will also accept it as payment. You can (and I have) set up your own bitcoin system and get as many as you want. The only difference with that one and the main network is that the main network is bigger, and has a genesis block that people recognize as identifying it as the main bitcoin network. If everyone changed their programs to recognize my genesis block as the correct one, then all of the main bitcoins will be worthless.
  - kybernetikos 14y ago
    > Bitcoins do not have value anymore then a paper dollar has value. Actually slightly less, since paper dollars always have at least their joule value.
    - gizmo686 14y ago
      Is their any way to use that without commiting a federal crime?
      - 14y ago

Tycho 14y ago

The next period of history could be defined as the post nation-state era, and of all the supranational technologies and institutions that will make this so, bitcoin could be the most important. I'm talking about the ability of governments to restrict the activity of citizens and also to fund themselves from said activity.

htmltablesrules 14y ago
There will always be nation-states. Always. Put ten strangers on an island and they will organically form a hierarchy and political alliances will happen. There will never be a government-less world as long as we're human.
- Tycho 14y ago
  I wasn't imagining that they would cease to exist, just that they would lose a lot of their relevance/expediency/executive.
- jcbrand 14y ago
  There's a big difference between a government-less world and one without nation-states. Also, for the majority of human existence nation states didnt exist.
  - eru 14y ago
    Yes. Just imagine a world dominated by city-states.
- erikpukinskis 14y ago
  Certainly there will always be governing structures, of all scales, but the question is: which governence happens at what scale? The federalism of the United States is a play to push power to a more state-sized scale (taxation, education) while still allowing for powers at a larger scale that need to be there (civil rights, defense, EPA). Anarchism isn't really about abolishing power structures, it's about pushing more things down into even smaller structures (cults of personality, architectures, local cultural practices, etc). The idea behind what your OP is saying isn't that nation-states will go away, it's that many of their current roles will be pushed off into larger, global structures whose "muscle" is not military, but cryptographic.

shalmanese 14y ago

It's not clear from the page but this article was originally written in May 2011.

enki 14y ago
thanks! date added to template!

Greynum 14y ago

This was on hacker news last year

rumcajz 14y ago

Nice. Imagine that domain names were mined for rather than assigned by random registration authorities.

gwern 14y ago

My take: http://www.gwern.net/Bitcoin%20is%20Worse%20is%20Better http://www.gwern.net/Bitcoin%20is%20Worse%20is%20Better