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I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to als

I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. And if this isn't the case - then people will go off it. When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.

kaonashi 14y ago
Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.
- nawitus 14y ago
  I think it's better to think that bitcoin is a currency for some, and a commodity for others.
- numbsafari 14y ago
  As a commodity, gold always had an intrinsic value separate from its value as a currency. So if the authority stamping the coin disappeared, I could always melt down the gold and sell it as a simple commodity. In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.
  - tlrobinson 14y ago
    Is gold's intrinsic value anywhere near what it's currently trading at? edit: I think I mean it's "use value". The value of gold if it were not used a store of value.
    - numbsafari 14y ago
      Of course gold's value is inflated because of its dual role as a value store and as a commodity with practical applications. Even if gold loses favor as a value store, there will be some minimum boundary on its price based on its usefulness in practical applications. That is not true of bitcoin. The GP was implying that bitcoin has a commodity value, which it does not. It merely has value as a means of exchange. What that means is that bitcoin does not benefit from same lower price boundary that gold does. Therefore, it is much riskier. What good would bitcoins do for you after a Hurricane Katrina-like event when there is no communications network or electrical service to speak of? What about gold?
      - tlrobinson 14y ago
        So how much is gold's commodity value really? I've heard $30/oz thrown around (no idea how accurate that is). If that's true, 30/1600 is about 2%, yet gold is still perceived as a fairly safe store of value.
        3am 14y ago
        Commodities that are consumed are priced on the marginal cost of production. Saudi Arabia can pump oil for less than $5/barrel, but what drives the prices are the costs of fracked shale and frontier plays like UDW. Gold is the same. Generally, gold is found in sulfide mineralization deposits or in placer deposits (weathered ore bodies, ie nuggets in alluvial deposits). Most new mines are the former, which requires massive mining and ore treatment (on the order of grams of gold per ton of ore, which is then crushed and leached in acids). So it's expensive to produce. Usually it's found with silver and copper, and some miners will account for it after credits for selling those metals, but you can assume $800-1000 USD/oz for production costs after fully capitalizing the development of the mines, at least the last time I looked into it several years ago.
        numbsafari 14y ago
        There's a lot of assumptions built in there... but it's besides the point: n% is infinitely better than 0% for any value of n > 0. Also, the claim that "gold only became a currency when it was stamped" is wrong. The value of gold on the commodity markets today does include a value store component and none of it is stamped. When the czar's family fled russia they didn't grab rubles, the grabbed jewels. Why? Because their currency was worth nothing but their jewels could be traded for value in a very transparent manner wherever they might end up.
  - danpat 14y ago
    I'd say that that utility is sufficiently valuable enough to allow BitCoin to survive. Just look at the precursors, like Hawala, and the more modern stuff like Western Union. If nothing else, BitCoin will find a niche like them (and possibly replace them).
- grovulent 14y ago
  Gold has been used as currency (medium of exchange) at multiple points in history. It's not now. People are trying to use bitcoin as a currency atm - but it's very difficult with its fluctuations in value. It may perhaps be more successful as a medium of exchange in the future - but that won't be for a while.
jcampbell1 14y ago
The notion of "money" is quite well defined. You need 3 properties: 1) Store of value. Much easier to store gold/USD/Bitcoins than the food you will need in the future. 2) Medium of Exchange. Can be used to exchange for real goods, thus avoiding the headache of barter. 3) Unit of Account. e.g. is easily divisible. Bitcoins aren't great at #2, but gold is terrible at #3. If bitcoins prove to be a lasting store of value, then it will almost certainly be more "money" like than gold.
- grovulent 14y ago
  Bitcoin hasn't yet proved it can do either 1 or 2 yet. If it succeeds in either it will do better than gold is currently doing as currency. But I wasn't trying to measure currency dick size. I was just making the point that not being good at 2 doesn't necessarily hurt its ability at 1.
  - fnordfnordfnord 14y ago
    A person who bought ~1600 USD worth of bitcoin last year instead of an OZT of gold would be quite pleased with the performance of bitcoin in category #1.
    - leishulang 14y ago
      The other way, 99.999999% or more of human population disagree with him.
  - jcampbell1 14y ago
    I wasn't disagreeing with anything you said. I was trying to tighten up the language around "what is a currency". From a conceptual level, BitCoin is much more currency friendly than gold due to both divisibility and ability to process electronic transactions.
calinet6 14y ago
If I see a currency rising in value faster than Gold itself, I'm going to want to get in on the value. Fact is, if I had "invested" in 100 BTC only 5 months ago when it was hovering around USD$10, that would have cost me about $1000. And now it would be worth $10000. There are not that many investments that have that kind of return in such a short time. You'd have to be dumb to believe that people aren't doing exactly this. You don't see 1000% returns and just ignore it and wonder about its utility. Right now, it's a volatile and risky currency exchange being intentionally used to ride the rising popularity into a cash la-la land. At some point people are going to convert this toy back to a real-world currency and take their winnings home with them. I don't know what's going to happen then, but I don't believe it will be good. Perhaps 'stabilizing' would be a good optimistic name for it.
- jaibot 14y ago
  What's a good way to short bitcoin?
  - SlipperySlope 14y ago
    https://bitfinex.com https://bitfinex.com allows short sales on bitcoin.
  - TranceMan 14y ago
    If you really want to - Borrow $x bit coins - sell $x bit coins - wait for price to drop - buy back $x bit coins - return $x bit coins to lender. Now the speculators are in........
    - NegativeK 14y ago
      Do you know of any places that make loans in Bitcoin?
      - shazow 14y ago
        I know some people use https://btcjam.com/ https://btcjam.com/
vannevar 14y ago
If gold rose as fast as Bitcoins are rising, people would be shorting it hand over foot. They don't have that opportunity with Bitcoin, so the ship of fools sails on unimpeded until the supply of fools is exhausted, as in any bubble. Which could nonetheless take awhile and make some people very rich, provided they are smart enough to get out in time. Not everyone lost in the real estate bubble.

kaonashi 14y ago

Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.

nawitus 14y ago
I think it's better to think that bitcoin is a currency for some, and a commodity for others.
numbsafari 14y ago
As a commodity, gold always had an intrinsic value separate from its value as a currency. So if the authority stamping the coin disappeared, I could always melt down the gold and sell it as a simple commodity. In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.
- tlrobinson 14y ago
  Is gold's intrinsic value anywhere near what it's currently trading at? edit: I think I mean it's "use value". The value of gold if it were not used a store of value.
  - numbsafari 14y ago
    Of course gold's value is inflated because of its dual role as a value store and as a commodity with practical applications. Even if gold loses favor as a value store, there will be some minimum boundary on its price based on its usefulness in practical applications. That is not true of bitcoin. The GP was implying that bitcoin has a commodity value, which it does not. It merely has value as a means of exchange. What that means is that bitcoin does not benefit from same lower price boundary that gold does. Therefore, it is much riskier. What good would bitcoins do for you after a Hurricane Katrina-like event when there is no communications network or electrical service to speak of? What about gold?
    - tlrobinson 14y ago
      So how much is gold's commodity value really? I've heard $30/oz thrown around (no idea how accurate that is). If that's true, 30/1600 is about 2%, yet gold is still perceived as a fairly safe store of value.
      - 3am 14y ago
        Commodities that are consumed are priced on the marginal cost of production. Saudi Arabia can pump oil for less than $5/barrel, but what drives the prices are the costs of fracked shale and frontier plays like UDW. Gold is the same. Generally, gold is found in sulfide mineralization deposits or in placer deposits (weathered ore bodies, ie nuggets in alluvial deposits). Most new mines are the former, which requires massive mining and ore treatment (on the order of grams of gold per ton of ore, which is then crushed and leached in acids). So it's expensive to produce. Usually it's found with silver and copper, and some miners will account for it after credits for selling those metals, but you can assume $800-1000 USD/oz for production costs after fully capitalizing the development of the mines, at least the last time I looked into it several years ago.
      - numbsafari 14y ago
        There's a lot of assumptions built in there... but it's besides the point: n% is infinitely better than 0% for any value of n > 0. Also, the claim that "gold only became a currency when it was stamped" is wrong. The value of gold on the commodity markets today does include a value store component and none of it is stamped. When the czar's family fled russia they didn't grab rubles, the grabbed jewels. Why? Because their currency was worth nothing but their jewels could be traded for value in a very transparent manner wherever they might end up.
- danpat 14y ago
  I'd say that that utility is sufficiently valuable enough to allow BitCoin to survive. Just look at the precursors, like Hawala, and the more modern stuff like Western Union. If nothing else, BitCoin will find a niche like them (and possibly replace them).
grovulent 14y ago
Gold has been used as currency (medium of exchange) at multiple points in history. It's not now. People are trying to use bitcoin as a currency atm - but it's very difficult with its fluctuations in value. It may perhaps be more successful as a medium of exchange in the future - but that won't be for a while.

jcampbell1 14y ago

The notion of "money" is quite well defined. You need 3 properties: 1) Store of value. Much easier to store gold/USD/Bitcoins than the food you will need in the future. 2) Medium of Exchange. Can be used to exchange for real goods, thus avoiding the headache of barter. 3) Unit of Account. e.g. is easily divisible. Bitcoins aren't great at #2, but gold is terrible at #3. If bitcoins prove to be a lasting store of value, then it will almost certainly be more "money" like than gold.

grovulent 14y ago
Bitcoin hasn't yet proved it can do either 1 or 2 yet. If it succeeds in either it will do better than gold is currently doing as currency. But I wasn't trying to measure currency dick size. I was just making the point that not being good at 2 doesn't necessarily hurt its ability at 1.
- fnordfnordfnord 14y ago
  A person who bought ~1600 USD worth of bitcoin last year instead of an OZT of gold would be quite pleased with the performance of bitcoin in category #1.
  - leishulang 14y ago
    The other way, 99.999999% or more of human population disagree with him.
- jcampbell1 14y ago
  I wasn't disagreeing with anything you said. I was trying to tighten up the language around "what is a currency". From a conceptual level, BitCoin is much more currency friendly than gold due to both divisibility and ability to process electronic transactions.

calinet6 14y ago

If I see a currency rising in value faster than Gold itself, I'm going to want to get in on the value. Fact is, if I had "invested" in 100 BTC only 5 months ago when it was hovering around USD$10, that would have cost me about $1000. And now it would be worth $10000. There are not that many investments that have that kind of return in such a short time. You'd have to be dumb to believe that people aren't doing exactly this. You don't see 1000% returns and just ignore it and wonder about its utility. Right now, it's a volatile and risky currency exchange being intentionally used to ride the rising popularity into a cash la-la land. At some point people are going to convert this toy back to a real-world currency and take their winnings home with them. I don't know what's going to happen then, but I don't believe it will be good. Perhaps 'stabilizing' would be a good optimistic name for it.

jaibot 14y ago
What's a good way to short bitcoin?
- SlipperySlope 14y ago
  https://bitfinex.com https://bitfinex.com allows short sales on bitcoin.
- TranceMan 14y ago
  If you really want to - Borrow $x bit coins - sell $x bit coins - wait for price to drop - buy back $x bit coins - return $x bit coins to lender. Now the speculators are in........
  - NegativeK 14y ago
    Do you know of any places that make loans in Bitcoin?
    - shazow 14y ago
      I know some people use https://btcjam.com/ https://btcjam.com/

vannevar 14y ago

If gold rose as fast as Bitcoins are rising, people would be shorting it hand over foot. They don't have that opportunity with Bitcoin, so the ship of fools sails on unimpeded until the supply of fools is exhausted, as in any bubble. Which could nonetheless take awhile and make some people very rich, provided they are smart enough to get out in time. Not everyone lost in the real estate bubble.