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No one day, week, month or year determines the essential qualities of something. Fiat currencies have also faced unpredictable discontinuities of value: bank h

by gojomo 14y ago

No one day, week, month or year determines the essential qualities of something. Fiat currencies have also faced unpredictable discontinuities of value: bank holidays, confiscations, hyperinflation. After decades, some of these were partially ameliorated in well-run countries... but still flare up as risks in times of crisis. What you call a 'flight to abstraction' I call an interest in the enduring essence of this new thing. Yes, the froth that's in today's headlines is a speculative bubble. So what? Everything grabbing headlines is a speculative bubble of attention. And, there are a lots of speculative financial bubbles. Sometime they precede real, but slower, explosions of value. That's the interesting topic, and calling a 'bubble' has no probative value on that longer-term question. Pick any particular day in 2014. I'll bet you $100 that the value of 1BTC in USD on that day will be higher than today's pre-freeze MtGox traded price ($124)... which is itself almost double the value on some currently-operating exchanges. If we're on, just let me know your chosen date in 2014.

tptacek 14y ago
In the last 50 years, at what point has the US dollar swung so wildly that you couldn't safely use it to denominate the cost of a $99 (2013 dollar) good or service? Because for BTC those points included "all of today and yesterday". You can see how your reasoning is broken with your 2014 comparison, when you say "pick a day in 2014 and BTC will probably be higher". You don't seem to grasp that upswings are just as disruptive to a currency as downswings.
- gojomo 14y ago
  I have no interest in, and don't think Bitcoin's success depends on, using it as a unit to advertise the purchase price of a good or service. Even so, Bitcoin can still work as a cheap payment mechanism -- via intermediaries which insulate buyers/sellers from exchange-rate risk, using Bitcoin simply for the fast irreversible software-controlled transfer of value. The cost of such hedging may be less than the cost of traditional fees and chargebacks. But maybe Bitcoin's not even best understood as a 'currency'. That's just a word, whose broad semantic boundaries were fixed in the early 20th century, before anything like Bitcoin, or even the Internet and general-purpose computers, existed. So arguing over whether Bitcoin is a good 'traditional currency' is boring. What's interesting is whether Bitcoin is valuable, on its own terms as something new, and whether it will be more valuable in the future. A bubble this day/week/month/year doesn't tell us much about that question. Volatility only affects some uses -- like your example of publishing prices of other things in Bitcoin. Other potential users are, or could be, indifferent to volatility, as long as the trend is up. Some will even like volatility, if that volatility is usefully uncorrelated with other assets. And if your pronouncement isn't that it's an overvalued, speculative bubble, but simply that it's going to have upswings and downswings, but is just as likely to be more valuable at any future point as less, then so what? Often ultimately-valuable equity shares in some new project go through wild value swings, because long-term success is so hard to predict and sensitive to so many unknowns. I'm not a fan of the limited 'payments system' framing of "what Bitcoin is", but maybe you can think of a way to pick a date in the future where we can objectively assess whether Bitcoin is growing as a payment mechanism or not. At that point we'll know whether the volatility has destroyed Bitcoin's value as a payments system, or whether Bitcoin's use in payments has thrived despite (or maybe even aided in non-intuitive ways by) the headline-grabbing volatility. Offer a testable prediction generated by your insight, and we'll test it! The test of my insight, that Bitcoin is something valuable whether it's a currency or not, is: is Bitcoin worth more in 2014 than 2013? And further out, are all balances controlled by Bitcoin principals (keys), on the Bitcoin chain or future 'baby Bitcoins', more valuable at future dates than their cost-to-acquire today?
  - tptacek 14y ago
    This is an odd argument, suggesting as it does that Bitcoin has some value independent of its utility as a currency. What else could its value be? I assume you already grok that anything, from toenail clippings to used tissue paper, can spark a speculative bubble. All you need is a story convincing enough to get the ball rolling, and then momentum takes over.
    - gojomo 14y ago
      There are many things, tangible and not, that are valuable and traded other than 'currency'. Why do you see Bitcoin only through that lens? Innovation has created many things that are valuable, which didn't even have names before they existed, and much of the value comes simply from mutual consensus. Joint stock companies. Intellectual property. Domain names. Mineral rights. Publicity rights. Bonds. And many would say also: fiat currencies themselves are a consensus, but useful, hallucination. There's always a bit of self-spawning alchemy in this process. "We choose to broadly value this, because when we broadly value this, other good activities ensue." Again, my framing is: one of Bitcoin's aspects is as (divisible, transferable, even votable) equity in something with interesting novel characteristics. There are a lot of people, working on a lot of interlocking things, for which Bitcoin balances will be the price-of-participation. If that coordinated-action superstructure throws off enough value to its participants to be self-sustaining, each unit will continue to grow in value. And sure, current volatility makes 4-year-old Bitcoin worse, for many uses, than the best 100-plus-year-old fiat currencies (USD). Bitcoin also has capabilities no 'currency' has ever had before. Your argument seems to be, "it's not been stable enough yet for quoting prices of things, so it's no good for anything" and "it's been in some crazy bubbles, so it can never be useful or valuable". New hard-to-value things are volatile. Only experience creates stability. As you note, anything can suffer a bubble... sometimes the underlying thing continues to build real value, and sometimes it doesn't. Merely observing that it's bubbly so far is just frothy gossip. Yes, and...?
      - MrMan 14y ago
        So your insight is: bit coin is something new, that has inherent value, and is unlike anything that came before it, just like other things that were new. And your contention is that bitcoin's primary function is "to go up in value?"
- moe 14y ago
  In the last 50 years, at what point has the US dollar swung... Bitcoin is only 4 years old. If you want to compare it to the US dollar then you should compare it to the dollar from 217 years ago, not the dollar from 50 years ago.
  - tptacek 14y ago
    No, the comparison doesn't happen in a vacuum. 4-year-old Bitcoin must compete with the 217-year-old dollar, not with economy of the times of the Articles of Confederation. I think I was being generous by supplying a 50 year window of comparison.
    - moe 14y ago
      Makes no sense. At the least you'd have to compare today's dollar with bitcoin in 217 years (when both are mature - if they still exist). Since that's not possible dollar-comparisons are probably best avoided.
      - tptacek 14y ago
        No, Bitcoin is not an abstraction. People are trying to "use" it today.
        moe 14y ago
        Abstraction is the keyword here, I really don't agree with yours. Bitcoin and USD are not the same abstraction. USD is a currency and Bitcoin is an entire monetary system. One that's different enough that initial friction is entirely unsurprising. It has the potential to change how a core function of society works (money transactions). Much more so than e.g. the invention of the credit card, or electronic banking. Such a shift is quite obviously not happening within 4 years or anywhere close to it. At this point it's still a tiny experiment that may very well fail. But apple/orange comparisons don't do it justice. And since this all happens between consenting adults I'm sometimes a little confused by the negativity.
    - 14y ago

by gojomo 14y ago

tptacek 14y ago

In the last 50 years, at what point has the US dollar swung so wildly that you couldn't safely use it to denominate the cost of a $99 (2013 dollar) good or service? Because for BTC those points included "all of today and yesterday". You can see how your reasoning is broken with your 2014 comparison, when you say "pick a day in 2014 and BTC will probably be higher". You don't seem to grasp that upswings are just as disruptive to a currency as downswings.

gojomo 14y ago
I have no interest in, and don't think Bitcoin's success depends on, using it as a unit to advertise the purchase price of a good or service. Even so, Bitcoin can still work as a cheap payment mechanism -- via intermediaries which insulate buyers/sellers from exchange-rate risk, using Bitcoin simply for the fast irreversible software-controlled transfer of value. The cost of such hedging may be less than the cost of traditional fees and chargebacks. But maybe Bitcoin's not even best understood as a 'currency'. That's just a word, whose broad semantic boundaries were fixed in the early 20th century, before anything like Bitcoin, or even the Internet and general-purpose computers, existed. So arguing over whether Bitcoin is a good 'traditional currency' is boring. What's interesting is whether Bitcoin is valuable, on its own terms as something new, and whether it will be more valuable in the future. A bubble this day/week/month/year doesn't tell us much about that question. Volatility only affects some uses -- like your example of publishing prices of other things in Bitcoin. Other potential users are, or could be, indifferent to volatility, as long as the trend is up. Some will even like volatility, if that volatility is usefully uncorrelated with other assets. And if your pronouncement isn't that it's an overvalued, speculative bubble, but simply that it's going to have upswings and downswings, but is just as likely to be more valuable at any future point as less, then so what? Often ultimately-valuable equity shares in some new project go through wild value swings, because long-term success is so hard to predict and sensitive to so many unknowns. I'm not a fan of the limited 'payments system' framing of "what Bitcoin is", but maybe you can think of a way to pick a date in the future where we can objectively assess whether Bitcoin is growing as a payment mechanism or not. At that point we'll know whether the volatility has destroyed Bitcoin's value as a payments system, or whether Bitcoin's use in payments has thrived despite (or maybe even aided in non-intuitive ways by) the headline-grabbing volatility. Offer a testable prediction generated by your insight, and we'll test it! The test of my insight, that Bitcoin is something valuable whether it's a currency or not, is: is Bitcoin worth more in 2014 than 2013? And further out, are all balances controlled by Bitcoin principals (keys), on the Bitcoin chain or future 'baby Bitcoins', more valuable at future dates than their cost-to-acquire today?
- tptacek 14y ago
  This is an odd argument, suggesting as it does that Bitcoin has some value independent of its utility as a currency. What else could its value be? I assume you already grok that anything, from toenail clippings to used tissue paper, can spark a speculative bubble. All you need is a story convincing enough to get the ball rolling, and then momentum takes over.
  - gojomo 14y ago
    There are many things, tangible and not, that are valuable and traded other than 'currency'. Why do you see Bitcoin only through that lens? Innovation has created many things that are valuable, which didn't even have names before they existed, and much of the value comes simply from mutual consensus. Joint stock companies. Intellectual property. Domain names. Mineral rights. Publicity rights. Bonds. And many would say also: fiat currencies themselves are a consensus, but useful, hallucination. There's always a bit of self-spawning alchemy in this process. "We choose to broadly value this, because when we broadly value this, other good activities ensue." Again, my framing is: one of Bitcoin's aspects is as (divisible, transferable, even votable) equity in something with interesting novel characteristics. There are a lot of people, working on a lot of interlocking things, for which Bitcoin balances will be the price-of-participation. If that coordinated-action superstructure throws off enough value to its participants to be self-sustaining, each unit will continue to grow in value. And sure, current volatility makes 4-year-old Bitcoin worse, for many uses, than the best 100-plus-year-old fiat currencies (USD). Bitcoin also has capabilities no 'currency' has ever had before. Your argument seems to be, "it's not been stable enough yet for quoting prices of things, so it's no good for anything" and "it's been in some crazy bubbles, so it can never be useful or valuable". New hard-to-value things are volatile. Only experience creates stability. As you note, anything can suffer a bubble... sometimes the underlying thing continues to build real value, and sometimes it doesn't. Merely observing that it's bubbly so far is just frothy gossip. Yes, and...?
    - MrMan 14y ago
      So your insight is: bit coin is something new, that has inherent value, and is unlike anything that came before it, just like other things that were new. And your contention is that bitcoin's primary function is "to go up in value?"
moe 14y ago
In the last 50 years, at what point has the US dollar swung... Bitcoin is only 4 years old. If you want to compare it to the US dollar then you should compare it to the dollar from 217 years ago, not the dollar from 50 years ago.
- tptacek 14y ago
  No, the comparison doesn't happen in a vacuum. 4-year-old Bitcoin must compete with the 217-year-old dollar, not with economy of the times of the Articles of Confederation. I think I was being generous by supplying a 50 year window of comparison.
  - moe 14y ago
    Makes no sense. At the least you'd have to compare today's dollar with bitcoin in 217 years (when both are mature - if they still exist). Since that's not possible dollar-comparisons are probably best avoided.
    - tptacek 14y ago
      No, Bitcoin is not an abstraction. People are trying to "use" it today.
      - moe 14y ago
        Abstraction is the keyword here, I really don't agree with yours. Bitcoin and USD are not the same abstraction. USD is a currency and Bitcoin is an entire monetary system. One that's different enough that initial friction is entirely unsurprising. It has the potential to change how a core function of society works (money transactions). Much more so than e.g. the invention of the credit card, or electronic banking. Such a shift is quite obviously not happening within 4 years or anywhere close to it. At this point it's still a tiny experiment that may very well fail. But apple/orange comparisons don't do it justice. And since this all happens between consenting adults I'm sometimes a little confused by the negativity.
  - 14y ago