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and let's revisit this discussion 5 years from now. right now there is so much fluctutation within BC it might as well be tulips. maybe it will become a stable

and let's revisit this discussion 5 years from now. right now there is so much fluctutation within BC it might as well be tulips. maybe it will become a stable currency, maybe it won't.

mpg33 13y ago
Hate when people use the tulips comparison. The basic protocol of bitcoin that allows people to send value anywhere in the world and solves the double spend problem must have some value unto itself. I don't know it's worth $0.10, $100, or $1000000 per bitcoin to use the protocol but to compare it to a plant seems kinda ridiculous.
- g8oz 13y ago
  But those attributes can be replicated by another crypto-currency right? So the distinct edge of both bitcoins and tulips are the maddened crowds. They have that in common.
  - andrewla 13y ago
    This is actually a really good point that I don't feel has been adequately answered -- usually people say something like "well, bitcoin has momentum" or somesuch, which strikes me as being nonsense if you accept the idea of why bitcoins have value as being an intrinsic property related to their fungibility, scarcity, and non-consumability; in theory the same things that give all currencies their value. The only explanation I've come up with that sounds plausible is that a new currency, even just Bitcoin with a different genesis block, should be as valuable as Bitcoins, but fails the test of scarcity -- it's too easy to counterfeit them by double-spend attacks because of the smaller power of the network. I don't trust this idea, though -- it smacks of post-hoc reasoning. I guess by extension the value of a proof-of-work-backed currency in aggregate should be bounded by the expected cost of a 51% attack given rational actors; doing this math for the Bitcoin network would either give strong evidence that the current pricing is irrational or weak evidence that it is rational.
    - mike_esspe 13y ago
      There are some rare metals, other than silver and gold, that did not become a currency, despite having all the same features. Why?
      - andrewla 13y ago
        I wouldn't even make the claim that silver and gold functioned as money. In pretty much all circumstances that I'm aware of, the scarcity (in the slightly unconventional sense I'm using it) and fungibility of gold and silver money is not great -- debasing with cheaper, more common metals resulted in differing standards of purity. Most often, when gold and silver were used as currencies, it was because some dude punched his profile on one side of the coin, and because doing that as a private citizen was difficult and/or punishable by gruesome torture, the value of the money was related to how powerful the head on the coin was because that related to the probability that the coin wouldn't turn green. This doesn't really answer the question you posed. Now I'm totally in the realm of post-hoc reasoning, though, and I can't really think of a concrete way of falsifying this argument, but I'll go for it anyway. Gold and silver occur naturally near the surface in relatively pure forms; gold especially since it doesn't really allow with anything. As a result, these metals were present in antiquity, and as systems of money grew up, they were good candidates because people thought they understood the scarcity -- an understanding that turned out to be proven incorrect several times in the history of coinage, with reasonably disastrous impacts on savers in those metals. Of course, "being used in antiquity" was not one of the properties I defined above. Arguably fungibility is a factor if the metals were not easily identifiable or distinguishable from other metals.
    - kamjam 13y ago
      usually people say something like "well, bitcoin has momentum" or somesuch Which is exactly why its so difficult to replicate "easy functionality" such as Facebook, Twitter, Instagram et al.
- kaoD 13y ago
  A plant has a value in itself. People consider tulips beautiful. I don't know it's worth $0.10, $100, or $1000000...
- TomGullen 13y ago
  The easiest way to refute the tulip argument is simply point out Bitcoins total money stock is fixed at 21 million units, wheras you can plant new tulips at will. (The skill/time required to do this is irrelevant to the point).
  - deleted 13y ago
    [deleted]
  - gwern 13y ago
    Actually, the interesting thing about tulips is that that's not true. I don't mean to single you out here, but this is a demonstration of how most people know jack shit about Tulipomania (even though many of them are perfectly willing to bloviate about it and compare Bitcoin to tulips). One of the revolutionary things about tulips at that time was that the unique patterns caused by https://en.wikipedia.org/wiki/Tulip-breaking_virus https://en.wikipedia.org/wiki/Tulip-breaking_virus were only partially inherited: after a few generations, the bulbs are too weakened to survive, and the particular pattern disappears permanently, no matter how lovely and beautiful it was. If you read up on a book about Tulipomania, you'll notice there are no contemporary photos of tulips like Semper Augustus. Because Semper Augustus no longer exists. So you can 'plant new tulips at will' the same way you can 'paint new Rembrandts at will' ie. slap some paint on a canvas and hope it looks vaguely similar and that's the best you can do, since you can never ever get another real Rembrandt or real Semper Augustus.
    - TomGullen 13y ago
      Interesting thanks, what's a good book to read abou it all then?
      - gwern 13y ago
        If you just want some correctives to the popular mythology of Tulipomania, you can start with _Famous First Bubbles_: quick read which demolishes a lot of the platitudes and simplifications, and covers the virus & other issues.
- orblivion 13y ago
  If you have interest, and the patience to excuse my long-windedness (still learning to write concisely), I give a pretty thorough counter-argument to this here: http://ill-logic-politik.blogspot.com/2013/08/the-fallacies-at-root-of-bitcoins-value.html http://ill-logic-politik.blogspot.com/2013/08/the-fallacies-... In short, that's begging the question. It's like saying "tulips are great because it lets me give people tulips".
oleganza 13y ago
Fluctuation is somehow "upwards". That's not a fluctuation, that's normal exponential growth of something with network properties. If people discover a pile of gold and start grabbing it and selling, its price would also increase exponentially until everyone has a piece of that gold. Than we can talk about stability.
aredington 13y ago
BTC aren't quite tulips, but the criticism is well founded that it isn't yet a good currency. A perfect currency would possess the following qualities: Perfectly Fungible Perfect Liquidity Perfect Stability Right now bitcoins are commodities. Any bitcoin is equally valuable as any other bitcoin; bitcoin's value derives from its purchasing power and from its exchange rate to other mediums of exchange. It has great liquidity and fungibility. However it has inherent stability problems as well as ambient ones: Currently it experiences volatility by virtue of transactions not being demoninated in BTC, and of its exchange rate to other mediums of exchange. A large part of this is because it is consistently attracting large pools of people who wish to acquire it. The recent price spike appears to be a consequence of Chinese interest in acquiring bitcoin rapidly increasing. Eventually the number of people who want to possess bitcoins will grow as a function of the population on the planet, rather than as a function of new groups of people deciding it has become appealing. This will introduce some stability. However, there's a fundamental flaw in that the pool of bitcoins is fixed, and that possessors know the finite size of the pool of bitcoins a priori. This exerts deflationary pressure on BTC, and as others have noted, discourages its spending. BTC is vastly more liquid than gold is, for example, but the stability of its value will always be an impediment to its usefulness as a currency. This doesn't spell the doom of Bitcoin; it doesn't need to be a perfect currency, just a better currency than other currencies. It is already the most liquid commodity on the planet. It is at least as fungible as USD; attempts by coinvalidation to ruin this notwithstanding. Should the deflationary pressure of bitcoin compared to its circulation become sufficiently small, it will have inherent qualities to make it the best currency available, which can lead to it becoming more widespread. A currency with lower transaction costs in time, and which has growth characteristics which trend toward following the value of productive output of the human race will certainly be better. USD are inherently worse.

and let's revisit this discussion 5 years from now. right now there is so much fluctutation within BC it might as well be tulips. maybe it will become a stable currency, maybe it won't.

mpg33 13y ago

Hate when people use the tulips comparison. The basic protocol of bitcoin that allows people to send value anywhere in the world and solves the double spend problem must have some value unto itself. I don't know it's worth $0.10, $100, or $1000000 per bitcoin to use the protocol but to compare it to a plant seems kinda ridiculous.

g8oz 13y ago
But those attributes can be replicated by another crypto-currency right? So the distinct edge of both bitcoins and tulips are the maddened crowds. They have that in common.
- andrewla 13y ago
  This is actually a really good point that I don't feel has been adequately answered -- usually people say something like "well, bitcoin has momentum" or somesuch, which strikes me as being nonsense if you accept the idea of why bitcoins have value as being an intrinsic property related to their fungibility, scarcity, and non-consumability; in theory the same things that give all currencies their value. The only explanation I've come up with that sounds plausible is that a new currency, even just Bitcoin with a different genesis block, should be as valuable as Bitcoins, but fails the test of scarcity -- it's too easy to counterfeit them by double-spend attacks because of the smaller power of the network. I don't trust this idea, though -- it smacks of post-hoc reasoning. I guess by extension the value of a proof-of-work-backed currency in aggregate should be bounded by the expected cost of a 51% attack given rational actors; doing this math for the Bitcoin network would either give strong evidence that the current pricing is irrational or weak evidence that it is rational.
  - mike_esspe 13y ago
    There are some rare metals, other than silver and gold, that did not become a currency, despite having all the same features. Why?
    - andrewla 13y ago
      I wouldn't even make the claim that silver and gold functioned as money. In pretty much all circumstances that I'm aware of, the scarcity (in the slightly unconventional sense I'm using it) and fungibility of gold and silver money is not great -- debasing with cheaper, more common metals resulted in differing standards of purity. Most often, when gold and silver were used as currencies, it was because some dude punched his profile on one side of the coin, and because doing that as a private citizen was difficult and/or punishable by gruesome torture, the value of the money was related to how powerful the head on the coin was because that related to the probability that the coin wouldn't turn green. This doesn't really answer the question you posed. Now I'm totally in the realm of post-hoc reasoning, though, and I can't really think of a concrete way of falsifying this argument, but I'll go for it anyway. Gold and silver occur naturally near the surface in relatively pure forms; gold especially since it doesn't really allow with anything. As a result, these metals were present in antiquity, and as systems of money grew up, they were good candidates because people thought they understood the scarcity -- an understanding that turned out to be proven incorrect several times in the history of coinage, with reasonably disastrous impacts on savers in those metals. Of course, "being used in antiquity" was not one of the properties I defined above. Arguably fungibility is a factor if the metals were not easily identifiable or distinguishable from other metals.
  - kamjam 13y ago
    usually people say something like "well, bitcoin has momentum" or somesuch Which is exactly why its so difficult to replicate "easy functionality" such as Facebook, Twitter, Instagram et al.
kaoD 13y ago
A plant has a value in itself. People consider tulips beautiful. I don't know it's worth $0.10, $100, or $1000000...
TomGullen 13y ago
The easiest way to refute the tulip argument is simply point out Bitcoins total money stock is fixed at 21 million units, wheras you can plant new tulips at will. (The skill/time required to do this is irrelevant to the point).
- deleted 13y ago
  [deleted]
- gwern 13y ago
  Actually, the interesting thing about tulips is that that's not true. I don't mean to single you out here, but this is a demonstration of how most people know jack shit about Tulipomania (even though many of them are perfectly willing to bloviate about it and compare Bitcoin to tulips). One of the revolutionary things about tulips at that time was that the unique patterns caused by https://en.wikipedia.org/wiki/Tulip-breaking_virus https://en.wikipedia.org/wiki/Tulip-breaking_virus were only partially inherited: after a few generations, the bulbs are too weakened to survive, and the particular pattern disappears permanently, no matter how lovely and beautiful it was. If you read up on a book about Tulipomania, you'll notice there are no contemporary photos of tulips like Semper Augustus. Because Semper Augustus no longer exists. So you can 'plant new tulips at will' the same way you can 'paint new Rembrandts at will' ie. slap some paint on a canvas and hope it looks vaguely similar and that's the best you can do, since you can never ever get another real Rembrandt or real Semper Augustus.
  - TomGullen 13y ago
    Interesting thanks, what's a good book to read abou it all then?
    - gwern 13y ago
      If you just want some correctives to the popular mythology of Tulipomania, you can start with _Famous First Bubbles_: quick read which demolishes a lot of the platitudes and simplifications, and covers the virus & other issues.
orblivion 13y ago
If you have interest, and the patience to excuse my long-windedness (still learning to write concisely), I give a pretty thorough counter-argument to this here: http://ill-logic-politik.blogspot.com/2013/08/the-fallacies-at-root-of-bitcoins-value.html http://ill-logic-politik.blogspot.com/2013/08/the-fallacies-... In short, that's begging the question. It's like saying "tulips are great because it lets me give people tulips".

oleganza 13y ago

Fluctuation is somehow "upwards". That's not a fluctuation, that's normal exponential growth of something with network properties. If people discover a pile of gold and start grabbing it and selling, its price would also increase exponentially until everyone has a piece of that gold. Than we can talk about stability.

aredington 13y ago

BTC aren't quite tulips, but the criticism is well founded that it isn't yet a good currency. A perfect currency would possess the following qualities: Perfectly Fungible Perfect Liquidity Perfect Stability Right now bitcoins are commodities. Any bitcoin is equally valuable as any other bitcoin; bitcoin's value derives from its purchasing power and from its exchange rate to other mediums of exchange. It has great liquidity and fungibility. However it has inherent stability problems as well as ambient ones: Currently it experiences volatility by virtue of transactions not being demoninated in BTC, and of its exchange rate to other mediums of exchange. A large part of this is because it is consistently attracting large pools of people who wish to acquire it. The recent price spike appears to be a consequence of Chinese interest in acquiring bitcoin rapidly increasing. Eventually the number of people who want to possess bitcoins will grow as a function of the population on the planet, rather than as a function of new groups of people deciding it has become appealing. This will introduce some stability. However, there's a fundamental flaw in that the pool of bitcoins is fixed, and that possessors know the finite size of the pool of bitcoins a priori. This exerts deflationary pressure on BTC, and as others have noted, discourages its spending. BTC is vastly more liquid than gold is, for example, but the stability of its value will always be an impediment to its usefulness as a currency. This doesn't spell the doom of Bitcoin; it doesn't need to be a perfect currency, just a better currency than other currencies. It is already the most liquid commodity on the planet. It is at least as fungible as USD; attempts by coinvalidation to ruin this notwithstanding. Should the deflationary pressure of bitcoin compared to its circulation become sufficiently small, it will have inherent qualities to make it the best currency available, which can lead to it becoming more widespread. A currency with lower transaction costs in time, and which has growth characteristics which trend toward following the value of productive output of the human race will certainly be better. USD are inherently worse.