6 ms·

There is literally no fundamental value to bitcoins. Spikes and crashes are absolutely to be expected in such a situation.

drcross 14y ago
same as the dollar and euro then. They are not backed by anything except the status quo.
- tvladeck 14y ago
  not 100% true. you have to pay taxes in dollars. the currency is backed by the value of not going to jail.
  - wordplay 14y ago
    You may have hit on something here. There is no guarantee that any item will be worth any amount of another item. You can make claims about the relative likelihood that some item will be exchangeable for some quantity of another item, but you cannot claim that in every future scenario your item will be exchangeable for any amount of another item. Just because a transaction looks more like barter than commercial doesn't magically convert the ideas underpinning fundamental economics. At this level of understanding economics is more a study of sociological systems and less about banking, fiat currencies, and all the other modern mumbo-jumbo we go on about these days. This is really key when discussing some utopian reality where we've untethered ourselves from any form of currency--an exchange of value is tied to the very earliest societal systems. Unless society shrinks back into nomadic wandering tribes some form of value exchange (aka: currency) will exist.
  - thatthatis 14y ago
    I've seen a lot of good arguments on the value/worthlessness of fiat currency, but I'd never seen fiat currency defended as having the value of not going to jail. That's an amusing and on its face compelling argument.
    - waps 14y ago
      Actually this rule isn't limited to taxes. EVERY debt you may have in the united states HAS to accept a pre-agreed dollar amount as payment in full. The value of the dollar is "guaranteed", in theory, by the law that states that anything for sale inside the borders of the united states can be bought for dollars, without exceptions. As to how guaranteed that makes a dollar, that is a matter of opinion. It is a lot better than Bitcoin imho.
- Cushman 14y ago
  The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?
  - Houshalter 14y ago
    No, it's not backed in the sense that it has a concrete value. No one is guaranteeing that a US dollar will buy you exactly a gallon of gas, an ounce of gold, or a bushel of wheat or anything like that. It is "backed" in the sense that people need it to pay taxes, but exactly how much value that gives it is completely uncertain and only determined by the supply and demand of people spending it/accepting it. If there were to be a major economic shift, the value could change to be literally anything relative to the value of other goods (without the supply and demand of those goods actually changing.) It could even completely collapse and be worth nothing under the right conditions. If it was actually backed in the traditional sense it would be guaranteed to be worth some amount of some good or combination of goods, regardless what happens, regardless how many people are spending it or accepting it.
    - Cushman 14y ago
      And who guarantees that an ounce of gold will buy me some amount of wheat? Or that a bushel of wheat will give me some amount of energy when eaten? Only a very powerful entity can make such guarantees. On that basis I would say that the word of the United States is far more intrinsically valuable than any physical object.
      - Houshalter 14y ago
        Gold has generally had stable value throughout history, but you are right that it isn't guaranteed. Other commodities like wheat are a little harder to use to back a currency, but from year to year they are fairly stable and pretty much guaranteed to have some value whatever happens. But US dollars aren't guaranteed to do anything for you either in such a situation. The currency could hyper-inflate tomorrow for all anyone knows, and it has no intrinsic value other than the requirement to pay taxes with it. It seems to work fine as a currency and maintain stable value, but the point is it really isn't backed by anything.
- thatthatis 14y ago
  Dollar/Euro are backed by central banks who dynamically maintain money supply to maintain a promise of low price inflation. Their fundamental value is derived from fiat. It's similar, but not the same.
  - stevewilhelm 14y ago
    I am constantly amazed how little Bitcoin fans value large, stable, global financial and legal institutions like the US or EU. Without them, Bitcoin, the Internet, and most of the other aspects of their comfortable lives would exist.
    - Houshalter 14y ago
      There are a lot of reasons why people are skeptical of those systems. How could you not be at least a little? And I doubt the internet and life as we know it wouldn't exist if things were different, but it depends a lot what that means.
      - thatthatis 14y ago
        There's a fascinating potential circularity in what you're saying. If you invest in bitcoin because you don't trust governments, but bitcoin relies upon the internet, and the internet requires governments to stay up; then there's a sad potential future where a government-skeptic bitcoin investor is exactly right but because of the prerequisites for bitcoin to maintain value ends up with nothing.
    - psionski 14y ago
      - the legal system is a huge disappointment (CISPA, SOPA, etc.) - the financial system is a huge disappointment (worldwide financial crisis) It's not that we love Bitcoin (sure, it is an interesting piece of technology, but it's money, and money is a dirty word), we just dislike the alternatives.
      - thatthatis 14y ago
apw 14y ago
That's not quite true is it? A distributed cryptographically-guaranteed ledger has fundamental value, no?
- thatthatis 14y ago
  Its an interesting thought. What's the upper bound on what a ledger could be worth? That said, the value of the ledger derives almost entirely from the value of the items transacted in the ledger. Therefore, I'd say that the ledger value is derivative of the market value and thus doesn't itself convey an intrinsic value to the coins.

drcross 14y ago

same as the dollar and euro then. They are not backed by anything except the status quo.

tvladeck 14y ago
not 100% true. you have to pay taxes in dollars. the currency is backed by the value of not going to jail.
- wordplay 14y ago
  You may have hit on something here. There is no guarantee that any item will be worth any amount of another item. You can make claims about the relative likelihood that some item will be exchangeable for some quantity of another item, but you cannot claim that in every future scenario your item will be exchangeable for any amount of another item. Just because a transaction looks more like barter than commercial doesn't magically convert the ideas underpinning fundamental economics. At this level of understanding economics is more a study of sociological systems and less about banking, fiat currencies, and all the other modern mumbo-jumbo we go on about these days. This is really key when discussing some utopian reality where we've untethered ourselves from any form of currency--an exchange of value is tied to the very earliest societal systems. Unless society shrinks back into nomadic wandering tribes some form of value exchange (aka: currency) will exist.
- thatthatis 14y ago
  I've seen a lot of good arguments on the value/worthlessness of fiat currency, but I'd never seen fiat currency defended as having the value of not going to jail. That's an amusing and on its face compelling argument.
  - waps 14y ago
    Actually this rule isn't limited to taxes. EVERY debt you may have in the united states HAS to accept a pre-agreed dollar amount as payment in full. The value of the dollar is "guaranteed", in theory, by the law that states that anything for sale inside the borders of the united states can be bought for dollars, without exceptions. As to how guaranteed that makes a dollar, that is a matter of opinion. It is a lot better than Bitcoin imho.
Cushman 14y ago
The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?
- Houshalter 14y ago
  No, it's not backed in the sense that it has a concrete value. No one is guaranteeing that a US dollar will buy you exactly a gallon of gas, an ounce of gold, or a bushel of wheat or anything like that. It is "backed" in the sense that people need it to pay taxes, but exactly how much value that gives it is completely uncertain and only determined by the supply and demand of people spending it/accepting it. If there were to be a major economic shift, the value could change to be literally anything relative to the value of other goods (without the supply and demand of those goods actually changing.) It could even completely collapse and be worth nothing under the right conditions. If it was actually backed in the traditional sense it would be guaranteed to be worth some amount of some good or combination of goods, regardless what happens, regardless how many people are spending it or accepting it.
  - Cushman 14y ago
    And who guarantees that an ounce of gold will buy me some amount of wheat? Or that a bushel of wheat will give me some amount of energy when eaten? Only a very powerful entity can make such guarantees. On that basis I would say that the word of the United States is far more intrinsically valuable than any physical object.
    - Houshalter 14y ago
      Gold has generally had stable value throughout history, but you are right that it isn't guaranteed. Other commodities like wheat are a little harder to use to back a currency, but from year to year they are fairly stable and pretty much guaranteed to have some value whatever happens. But US dollars aren't guaranteed to do anything for you either in such a situation. The currency could hyper-inflate tomorrow for all anyone knows, and it has no intrinsic value other than the requirement to pay taxes with it. It seems to work fine as a currency and maintain stable value, but the point is it really isn't backed by anything.
thatthatis 14y ago
Dollar/Euro are backed by central banks who dynamically maintain money supply to maintain a promise of low price inflation. Their fundamental value is derived from fiat. It's similar, but not the same.
- stevewilhelm 14y ago
  I am constantly amazed how little Bitcoin fans value large, stable, global financial and legal institutions like the US or EU. Without them, Bitcoin, the Internet, and most of the other aspects of their comfortable lives would exist.
  - Houshalter 14y ago
    There are a lot of reasons why people are skeptical of those systems. How could you not be at least a little? And I doubt the internet and life as we know it wouldn't exist if things were different, but it depends a lot what that means.
    - thatthatis 14y ago
      There's a fascinating potential circularity in what you're saying. If you invest in bitcoin because you don't trust governments, but bitcoin relies upon the internet, and the internet requires governments to stay up; then there's a sad potential future where a government-skeptic bitcoin investor is exactly right but because of the prerequisites for bitcoin to maintain value ends up with nothing.
  - psionski 14y ago
    - the legal system is a huge disappointment (CISPA, SOPA, etc.) - the financial system is a huge disappointment (worldwide financial crisis) It's not that we love Bitcoin (sure, it is an interesting piece of technology, but it's money, and money is a dirty word), we just dislike the alternatives.
    - thatthatis 14y ago

apw 14y ago

That's not quite true is it? A distributed cryptographically-guaranteed ledger has fundamental value, no?

thatthatis 14y ago
Its an interesting thought. What's the upper bound on what a ledger could be worth? That said, the value of the ledger derives almost entirely from the value of the items transacted in the ledger. Therefore, I'd say that the ledger value is derivative of the market value and thus doesn't itself convey an intrinsic value to the coins.