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Bitcoins Are Digital Collectibles, Not Real Money
- zeteo 14y agoSorry to submit yet another Bitcoin article, but this one turned out to be somewhat of a revelation for me. Thinking of bitcoins as digital collectibles seems a much better metaphor than thinking of them as money. Collectibles have a fixed supply, and their value depends on some concept that people are interested in. Consider e.g. Nazi memorabilia from WW2: fewer and fewer are discovered each year, the total supply is fixed, their value depends a lot on hobbyists' varying interest in WW2. Bitcoin is also unusual for a digital good in that it has a fixed supply, and its value depends a lot on enthusiasts who are interested in cryptocurrencies, fixed money supply etc.
- sageikosa 14y agoMemorabilia market prices vary by the quality and history of the piece; pieces with "richer" history fetch higher prices. BitCoin behaves more like a commodity. I expect derivative instruments based on BitCoin mining rates any day now.
- zeteo 14y agoThe comparison is obviously to a single type of item. Say "Mauser HSc, excellent condition, provenience unknown". But there's no reason why individual bitcoins can't acquire additional value once history accrues to them. Let's say celebrity X publicly buys a bitcoin and spends it in a well-publicized event. People will probably bid extra to acquire this "famous" bitcoin afterwards.
- TylerE 14y agoBitcoin doesn't work like that. There isn't some sort of serial number assigned, or anything.
- zeteo 14y agoEach bitcoin has an attached chain of transactions. If it's a matter of public record that a certain address belonged to say, Stephen Colbert, then you can definitely brag that you own Colbert's bitcoin. (That he donated to the Libertarian Party or something.)
- sageikosa 14y agoWhile it may be possible to value BitCoins that way, that's not the driving force behind current price tracking, any more than a 1933 double eagle or 1804 silver dollar affects the price of gold or silver.
- zeteo 14y agoI'm not saying BitCoins are currently used this way. It was just a thought experiment to prove they can acquire extra value from association with particular people or events. Just like other collectibles.
- jondtaylor 14y agoI don't think this is the case. My understanding is that wallets have transactions attached.
- glomph 14y agoThere is actually quite a bit of discussion into 'coloured' bitcoins, which would basically work exactly like that.
- jondtaylor 14y agoI may be mistaken but I don't think Bitcoins (the units themselves) have an identity like that only wallets are entities. It's similar to how a celebrity would drink water and water would be worth more than the rest. Once the debit and credit occurs who is to say which coins are from what source...
- redxaxder 14y agoBitcoin is also unusual for a collectible in how much it can be subdivided.
- deleted 14y ago[deleted]
- Ingaz 14y agoBitcoin was not money but a digital resource analogous to gold or oil by design. I'm a little surprised that in 2013 somebody do not know this.
- tome 14y agoGold and oil both have uses that are not based on them being scarce goods. Gold is arguably more similar to bitcoin than oil is, but neither is really analogous.
- tallowen 14y agoIf Bitcoins are valued at around $100 dollars a piece is it possible for me to make a $10 dollar purchase using bitcoins?
- clawrencewenham 14y agoYes, they can be subdivided by up to eight decimal places.
- ChrisClark 14y agoAnd I believe that they could be changed to divide even further if necessary in the future.
- cachance7 14y agoThat bitcoins are infinitely divisible is one of the ways in which problems associated with deflation are mitigated once the 21M bitcoin cap is reached. https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_the_finite_amount_of_Bitcoins_create_excessive_deflation.2C_destroying_Bitcoin.3F https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_t...
- mpyne 14y agoDivisibility doesn't really help with the overall money supply however. There's also the loss of currency that occurs from loss of Bitcoin wallets. Even without deflation I think there would still be problems with high variance of BTC just from the psychological aspects of the currency. With central banks you can at least say that there are persons whose job it is to watch currency exchange rates and take one or more of many available actions to curb both inflation and deflation. As far as I can see you just don't have that with BTC (and by design). You can't increase the money supply, any action to decrease the money supply is permanent, and how can you change interest rates for loans when all of the money is already issued? I just can't imagine BTC being useful for transactions in general (especially important stuff like payroll) when the inherent variance in value seems to require systems akin to what a high-frequency trader would use. It might be useful as a commodity for similar reasons that gold is (but with the improvements that come from its high divisibility).
- CallingIit 14y agoAnd another article on the farcial financial train choo choo! Btw, we need more perpetual motion, cold fusion, and red mercury investor stories posted too.
- nate_martin 14y agoHow many articles have been posted to HN now saying this exact same thing? We get it. Bitcoin is being treated as a commodity instead of a currency. However, the problem is not with the currency system but rather the people buying and selling BTC. Bitcoin itself has everything it needs to become a legitimate currency. The author also may not have realized that the coins are divisible (to 10^-8) and that all Bitcoins will be mined by 2140 (not 2040 as he claims).
- zeteo 14y ago>We get it. Bitcoin is being treated as a commodity instead of a currency. Collectibles are a very specific kind of commodity. The price of potatoes doesn't vary because there are potato enthusiasts out there extolling their virtues.
- venomsnake 14y agoI think that closest analogy are the goldbugs.
- devonbarrett 14y agoor so you think... ;)
- nate_martin 14y agoI think that collect-ability doesn't really have anything to do with this situation. This is a classic asset bubble, and people could really care less what the actual asset is.
- dragonwriter 14y ago> The price of potatoes doesn't vary because there are potato enthusiasts out there extolling their virtues. Sure it does. Which is why industry associations (whether for potato farmers or any other goods) send lots of money promoting the virtues of their products. The only difference between potatoes and collectibles (and investment assets more generally) in this regard is that with potatoes (etc.) the promotion mostly centers around the use-value of the product, and with collectibles (and other investment assets) it centers around the future resale value. Though lots of things in the real-world are hybrids, really, as commodity markets in potato (etc.) futures demonstrate them being both promoted and traded as investment assets, and real estate is often promoted directly for hybrid use-value/investment-value.
- scott_meade 14y ago21st century Beanie Babies
- adambard 14y agoI hope it's not considered ad hominem to point out that the man who wrote this piece considers fiat currency in general a mistake: http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-fiat-dollar-as-unreliable-as-my-1971-fiat-124-sedan/ http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-fia... Dude is just really into gold, which apparently has intrinsic value?
- jamesaguilar 14y ago"Without integrity, nothing works." That's not a law of the universe, and what does it even mean besides? Like, formally, what does it mean to economics? Sounds like nonsense to me.
- tlrobinson 14y agoBitcoin isn't a great form of money right now, but that doesn't mean it can't be in the future. I predict a lot more of these bubbles, but over the long term, unless it's displaced by a better system (which is certainly possible) or regulated out of existence, the trend will be upwards and greater stability.
- Houshalter 14y agoOf course bitcoins value is volatile, it's relatively new and being adopted and accepted. I blame the people speculating on it like crazy without any idea what the fundamental value actually is (and to be fair it's impossible to know until it stabilizes and the bitcoin economy becomes established.) But this is only temporary, a necessary evil when a currency is starting out. However it is arguably a good thing though, because all the attention and people buying it hoping it will increase in value, is exposing a lot of people to it that otherwise wouldn't have been. It's helping it grow much faster. >To replace our entire dollar base money with Bitcoins would require that each Bitcoin be valued at more than $370,000. I'm confused by what he means by this. Bitcoin is infinitely divisible. Even if there was only one bitcoin in the economy it could still be used perfectly fine as a currency. >In contrast, a good monetary control system would fix the value of the currency unit (in terms of gold or something else real) and then adjust the size of the monetary base on a moment-by-moment basis in order to maintain this value in the markets. This doesn't really make too much sense either. It takes a long time for arbitrary changes in the currency supply to have any effect. And all they can do is print more money, which makes everyone else's money worth less and therefore makes them worse off. One interesting thing I've been thinking about is that since it's digital currency inflation and deflation can be corrected for a little. People could have their sites change prices based on the current inflation or deflation rate (if they really care about it so much.) This was harder to do with real world price tags. It's not a solution of course but it might help a lot. Usually the criticism of changes in a currencies value is that prices don't adjust fast enough to deal with it. But with the internet information is transmitted and changes can be made instantly. >No modern economy could survive the constant, grinding deflation that having a fixed monetary base would eventually produce. So this is more controversial, but I don't see why not. A currency that actually increases in value rather than decreases would have a huge advantage over everything else. Because if you had a choice what would you store your money in? It also insures that bitcoins can never artificially be devalued by any central organization. Sure new bitcoins can be mined, but that's heavily limited and a necessary evil to distribute the first bitcoins fairly. As for them being collectibles that may be true for some people, but they have a few very good advantages to them that can't be beat by other currencies and that insures they will always have a use as a currency with some people. Mainly that they are anonymous and don't have transaction fees. I have seen a lot of interesting uses for them that would be unfeasible in real world currencies. Like people giving each other small tips over the internet.
- weavejester 14y agoMany comparisons have been made between fiat currency and Bitcoins, but to my mind that's wholly missing the point. The Bitcoin protocol represents a way of digitally transferring a scarce resource without the need for a central authority. I suspect this is going to be a big deal eventually, because when we created a protocol for digitally transferring information without the need for a central authority, we wound up with the Internet. Comparing Bitcoin to a fiat currency like the dollar is a little like comparing TCP/IP to the English language.
- mpyne 14y agoI think this is actually a great way of looking at it.
- zeteo 14y ago>The Bitcoin protocol represents a way of digitally transferring a scarce resource without the need for a central authority. Sure, but what you need is a way to exchange things without recourse to central authority. You can transfer bitcoins to the local bar, there's no way to ensure they transfer you back a drink. This is precisely why exchanges like Mt. Gox have become prominent - how else can you make sure the buyer transfers dollars to your bank account? So all you have are donations without recourse to central authority - which sounds a lot less revolutionary.
- weavejester 14y agoWhen dealing with physical objects, sure, you have the same problem as regular currency. You need to rely on the weight of the law and the reputation of the seller to give you the material item you requested. However, (a) that's not a deal-breaker, otherwise fiat currency wouldn't work, and (b) you can programmatically enforce rules on the transfer of intangible assets. For instance, Namecoin adapts the Bitcoin protocol for the purchase of domain names, which are a limited but intangible commodity. If I buy a domain name with namecoins, the network itself enforces the sale. Even when dealing with something that requires a central authority, like regular currency, Bitcoins have worth. For instance, if I want to transfer money between service A and service B, Bitcoins can act as a common intermediate protocol. Although the two endpoints are still required, we can replace a lot of the inbetween mechanism, and reduce the dependencies between the two services.