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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

by 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?"

by gojomo 14y ago

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?"