7 ms·

Bitcoin and Gold

41 points by oleganza 13y ago

rlwolfcastle 13y ago
There is one difference between gold and bitcoin. When you break the encryption on gold, it is still gold.
- bbwharris 13y ago
  You can also hold gold and make useful items out of it.
  - NateDad 13y ago
    Really? Like what? http://en.wikipedia.org/wiki/Gold#Applications http://en.wikipedia.org/wiki/Gold#Applications Gold seems not to be the best choice of materials for very many things. It's valued because it's pretty and rare. That's basically it. Holding it physically is an anachronism. Most people who own gold don't put it in a vault in their basement.
    - mariusz79 13y ago
      That computer that you're using most likely has some gold in it.
      - oleganza 13y ago
        Computer does not need tons of gold. Tons of gold are working as a decentralized ledger of wealth, just like Bitcoin. They are being stored in vaults, not used in producing things. Computers and other things are getting a small fraction of all gold.
    - bbwharris 13y ago
      I see your point. We are comparing a specific sequence of bits to a physical earthly material. Not really the same thing.
- patrickg_zill 13y ago
  Another is that gold does not require a working computer or Internet access; and also, no matter how bad your website security is, your gold cannot be taken via the Internet.
  - scotty79 13y ago
    Gold requires social network to work. Can be stolen via internet if you don't hold it youself and the company that holds if for you has web interface.
- deleted 13y ago
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- deleted 13y ago
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- oleganza 13y ago
  The bet is that advantages of Bitcoin over risks of gold outweight risks of Bitcoin and advantages of gold. Today 90% of the economy needs connection and international trade. We rely on networks, computers and cryptography to support our lifestyle, remote labor, airplane travels and so on. Gold is almost useless for that. It's not programmable, it's not transferrable easily, there's a lot of risk and we all tried it already and we ended up with central banks having all the gold, promising none of the gold and printing tons of paper money which is backed by a promise to pay interest by issuing more of these promises. Small guys can't earn a lot of gold. It's way too easy to confiscate or control for someone who is bigger than you. It's time to try something different, more suitable for modern era.
  - hatu 13y ago
    Gold has kept it's value for thousands of years, maybe tens of thousands. It's a bit silly to compare the two.
    - scotty79 13y ago
      It's better to compare gold with horses an bitcoin with railroads.
    - oleganza 13y ago
      The internet was around for 20 years and paper books for centuries. Who needs paper anymore? You can sign contracts with a digital signature in a more secure manner than with a drop of an ink.
    - stevedekorte 13y ago
      Paper also had great value for document storage for thousands of years.
- yawniek 13y ago
  gold also has an offline mode, worldwide adoption and a commercial use. plus whats exactely the difference between bitcoin and all other altcoins other than technicalities. sooner or later there will be lots of competition
  - scotty79 13y ago
    Like there's huge competition to ebay.
- iand 13y ago
  Breaking the encryption on bitcoin is like the hunt for the philosopher's stone. We know it's possible to transmute elements into gold, but doing it on a scale capable of disrupting the market is beyond our reach currently.
hatu 13y ago
tl;dr: Author loves Bitcoin
- oleganza 13y ago
  Author makes a case for unique feature of Bitcoin: asymmetry in security which may prevent what happened with gold-based economy - accumulation of physically-representable wealth in hands of the very few using force. This unique feature has never been tested before in the economy in the entire history of mankind.
  - mariusz79 13y ago
    With bitcoin very few still control most of it. And they use force... asic brute force :)
    - oleganza 13y ago
      ASIC makers have the biggest risk and cost in investing into BTC than anyone else. And miners have the most incentive to keep BTC fungible and liquid to keep its value. These guys would have to liquidate a lot of bitcoins smoothly to cover their massive costs and not to deeply disrupt the markets. And they are not interested in playing bad games with people's transactions as this will cause either of two things: the value of BTC may easily go down, and their blocks may be censored by other miners who don't like the value to go down. Every miner thus is motivated to be nice to everyone and maintain his business even if he has 80% of hashrate. Some pools were even addressing concerns of 50% power by limiting their own userbase. No pool wants BTC price to crash only because it got too big and frightens people.
applecore 13y ago
It's possible that bitcoins have value because they're more useful as a form of money than precious metals like gold or fiat currencies like dollars. They're durable, portable, perfectly fungible and divisible, scarce and limited, easily recognizable, trivial to verify, impossible to counterfeit, and cheaper to store, protect, and transfer.
- oleganza 13y ago
  I'm not saying why they have value. There are many reasons and everyone picks his own favorite one. I'm saying that if bitcoins are valuable, then there are certain interesting properties of the new global economy that make it different from gold/oil/resource-based economy we have today.
- mariusz79 13y ago
  Durable? When you lose your passphrase or wallet hash all the bitcoins in it are lost.. forever.. With gold there is hope that at some point in time someone will find it and be able to use it.
  - applecore 13y ago
    Durability, in the context of money, simply means that it doesn't physically degrade over time. In that sense, bitcoins are perfectly durable.
T-zex 13y ago
I really do not understand this Bitcoin promotion in comparison with gold. I think that majority of people do not have gold, never had and never will. It would reach a much bigger audience if Bitcoin was compared to credit cards and Paypal.
- oleganza 13y ago
  There is huge speculative value in gold as a "store of wealth" and there are reasons why gold was in hands of many and now in the hands of few. Looking from this perspective helps understand why Bitcoin might be valuable in the long run for many people.
- cturner 13y ago
  Gold has a strong market as a store of value that doesn't depend on government. The characteristics that make it good for this: it is naturally scarce, doesn't degrade, it's easily divided, you can hold a lot of value in a small amount of physical weight (compare to silver), it's fairly easy to exchange for local currency at a time of your choosing. Hence, it has historically functioned as a store of value. Bitcoin has been designed to have the same advantages. It's weaker because it's more complex to deal with (at the moment). But it's stronger than gold in that - so long as the algorithm holds - its scarcity is guaranteed, and it's easy to use for electronic transactions. Bitcoins compete with gold for mindshare with people who want to be able to store value in a way that isn't subject to the whims of government - who can start printing lots of money at any time of their choosing and thereby wipe out people with savings.
- michaelt 13y ago
  If bitcoin is a means of exchange but not a store of value, you need some extra means of exchange to convert your stored value into bitcoins and for the recipient to convert their bitcoins back into stored value. And if you've got that extra means of exchange, what do you need bitcoin in the middle for? I mean, why go My bank -> Debit card -> Bitcoin exchange -> My wallet -> Merchant's wallet -> Bitcoin exchange -> Bank transfer -> Merchant's bank when you could just go My bank -> Debit card -> Merchant's bank?
pearkes 13y ago
> A friend of mine, Steve, noted that gold-backed economy logically evolved into the mess we are now Here is where you lose me. Other articles, just like this, fall apart in the same places. Maybe it is the irony of this statement. Why is it ironic? I'm reading your blog post, hosted on Tumblr, on the east coast of the United States, judging on the pings from where I am in Germany. The communications travel over fiber-optic cable in the Atlantic Ocean. This cable was laid by a partnership between commercial telecommunications companies[1]. Tumblr is supported by this "mess" of an economic system, and thus gives you a platform to talk on. Tumblr's hosting provider leverages this "mess" of an economic system to invest in making it's infrastructure better, cheaper and more reliable for Tumblr. Why is this rhetoric so unaware of history? Why does it carry such a negative outlook on the incredible things that this imperfect economic system has delivered us? By all means continue questioning, improving or changing the system we have arrived at as a collective humanity. But please, do not pretend everything is a horrible mess that only some minor [crypto-currency, technology] can fix. Admit that what we've done so far has largely been pretty damn good. Will the new ideas help? Hopefully, likely! [1]: http://en.wikipedia.org/wiki/Transatlantic_communications_cable http://en.wikipedia.org/wiki/Transatlantic_communications_ca...
- oleganza 13y ago
  It's a fallacy to look at what you can see and not count in opportunity cost and what could have been done if there were no economical disasters created by governments all over the world. We'd probably had flying cars already and free wi-fi everywhere if people were allowed to save money and invest how they like. During Putin's regime computers got 12 times faster too. Is it thanks to "stability of the economy" that Putin provided?
  - varjag 13y ago
    Flying cars are a social problem more so than technical. Not even a super-fiat currency like Bitcoin would solve that.
    - oleganza 13y ago
headgasket 13y ago
the bitcoin protocol as a p2p open ledger is the interesting idea, and as such it is a valid proposition as a transaction system. Contract signing for example. The derived value store has not much going for it IMHO. It suffers from a reverse network effect; as the block chain becomes heavier, it becomes clumsier, and a clone -- alt is more and more attractive, and a few simple clicks away. (no lock was a down side argument that was around when google became a home run(vs MS) but has yet to materialize; lately they might be setting themselves up for it to happen tho) As soon as the expansion of demand(is all this demand really real?) comes to an end, bitcoins are susceptible to become tulip bulbs. You cannot pay any taxes in bitcoins, and this is how prices on everything are indexed in our fiat world.
- oleganza 13y ago
  I'd argue that for blockchain to function as secure ledger, miners must be motivated to do so. So you have to make a currency out of it anyway.
  - headgasket 13y ago
    yes that's perfectly right. But the value of the currency should then become indexed to the cost of securing the ledger over the long run. At this point I would think that's it not the case for btc. IMHO developing ASICs for SHA256 hashing is not a grand development for humanity; it's an expected capitalist response to the fact the the p2p system is valuable. It's a capitalistic proof of the bitcoin protocol. But as a ledger gets bigger it gets more expensive to secure and harder to use; at one point the best economic alternative is to start a new one, based on the same principle, but not the same POW. And then start a new one. So the value resides in the p2p protocol not the currency itself which is a temporary corollary store that exists while the network is growing.
shocks 13y ago
> put some money in a “brain wallet” that has no traces anywhere at all. Please do not do this.
- headgasket 13y ago
  yeah, did that. Lost the password too. If I find it I can guarantee those BTC are hitting this market yesterday.
  - shocks 13y ago
    There are already scores of people building rainbow tables of brain wallets. Someone will, eventually, put that BTC on the market for you. :(
- oleganza 13y ago
  It's an option, not a requirement. Which only adds value, not reduces it. Mom and pa can split the key in 5-of-10 via SSSS (Shamir's Secret Sharing Scheme) and send portions to all their trusted friends. It'll be safer than putting savings in the bank. We just need some decent UI and apps for that.
  - shocks 13y ago
    No. Deterministic wallets just a bad idea. By using a deterministic wallet it becomes infinitely easier to brute force and your funds are at substantial risk. Even if you think you're using a strong password. There are already people spending a lot of computational power to build rainbow tables of brain wallets. Please do not encourage people to use deterministic wallets, you are doing them a disservice.
    - oleganza 13y ago
      Do not confuse "deterministic wallet" with "brainwallet". Brainwallet is very dangerous, but also very powerful. It's not for mommy and daddy, but for people who know what they are doing and have reasons to hide money very well. There's nothing inherently bad with it. It all depends on the UI you are using. Decent UI may generate a deterministic list of private keys, so don't even lose privacy. Electrum does something similar, but you have to remember 12-word seed. With super-expensive KDF you may have decent protection even with a shorter passphrase (expensive meaning taking 30 seconds and 1 Gb of memory). "Deterministic wallet" is the one which generates all the keys deterministically from the single seed. Preferably, it also uses deterministic signatures. This is much better than fully random one like in BitcoinQT because you can create a good random seed just once (using /dev/random plus some explicit random user input to protect against shitty or backdoored RNG) and then have a guarantee that all subsequent addresses and keys are not affected by an RNG you use. Also, you don't need to back up your wallet more than once if you can derive all future addresses from one seed. You only need a good cryptographic hash function for that. SHA256^2 or SHA3 seems like good enough to me.
digitalengineer 13y ago
Bitcoins certainly took a look at gold. You have to 'mine' it and it's limited like gold. It's dividable as well, for easy transactions. Unlike gold you can send them over the world. There is one problem however. They have no intrinsic value. That's why gold became money, everybody around the world wants it (or know they can accept it and swap it for a (local) currency). Right now the only reason people want bitcons is because they think somebody will want them in the future. With gold, people want gold to itself. Bitcoin is not gold. It's a currency at best. Even fiat currency is backed by the full faith in governement. Bitcoins seem to be valuable because a lot of people are hoarding them instead of using them. Looks like a bubble with people wanting in on the action...
- applecore 13y ago
  Here's Satoshi's response to the "intrinsic value" problem: https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 https://bitcointalk.org/index.php?topic=583.msg11405#msg1140...
  - oleganza 13y ago
    Quoted that for you: As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)
mariusz79 13y ago
Gold is needed in health care, electronics, space, physics... The supply is limited, and unlike bitcoin someone can't just rename gold to dolg and start mining the new version. Bitcoin, at it's current price is not cheaper than gold. I would argue that it's more expensive, considering its limited use.
- oleganza 13y ago
  Gold production value is maybe 10-20 times lower than it's speculative value. Just check how much gold is sitting in vaults and not being sent to factories. If it's only demanded for production, then the price would be much-much lower. Bitcoin has many uses too, not only for reservation demand. It has scripts to protect contracts without expensive court system, blockchain can be used as a secure timestamp service, or a global name registry. It's full of opportunities apart from protecting your wealth.
  - mariusz79 13y ago
    You're forgetting that at any point, any government can prohibit using bitcoin, as they did previously with gold, and may prohibit using these scripts. What's left?
    - oleganza 13y ago
      Bittorrent is working well even though every user is not a stakeholder.
    - jimktrains2 13y ago
      Prevent the use of a computer program? Sure, you may not be able to purchase things locally with it, but it's just a computer program and information, you can hardly prohibit with any force. Look at tor.
    - mariusz79 13y ago
      jimktrains2 if the gov decides that bitcoin should be made illegal, most people won't bother with it. And if you can't use it locally what value does it have at that point? Gold you can at least bury in your backyard and hope that if not you, then your grandchildren will get something out of it.
eshvk 13y ago
I will buy your argument when 1 billion people across south asia start hoarding bitcoins instead of gold jewelry with the hope that their daughter can be covered with it when she gets married.
- rrhyne 13y ago
  You won't be able to afford to buy his arguement if you wait that long.
rrhyne 13y ago
The conspiracy theorist in me says the powers that be will not abide a non fungible currency. Fractional reserve banking, the fed's actions to stimulate the economy through printing, these things dont't work with bitcoin.
- oleganza 13y ago
  I'm optimist because: 1. Bittorrent is not shut down. And in average, people are getting freer with new tech, not more controlled. Some vocal revolutionaries are still easy to find and catch, just like in Jesus times. But average guy who is not specifically targeted, he's quite free. 2. Government is always a parasite on productive society. If it gets too heavy, it breaks the economy and dissolves without something to eat. If productive people start working with Bitcoin, that's where the value will be and govt will have to adjust and feed from that. BTC can be confiscated and monitored, but not outright banned. Gold was not destroyed when fractional reserve system was bootstrapping. It was relocated from weak hands to armed ones and then used to trade between other well-armed hands. Gold still maintained value, and very big one.
NateDad 13y ago
Honestly, the speculation around bitcoin is the least interesting part about it. The fact that you can do secure person to person transactions with no intermediary is awesome. The fact that it is a "push" system and not a "pull" system (the way credit cards work) is a huge advantage. The technology is really cool. It's just been unfortunately overshadowed by the get-rich-quick types, druggies, and libertarian/anarchists.
seanalltogether 13y ago
You are too late, the stock market already beat bitcoin to the punch on this one. We've been trading virtual assets for quite a long time now, and gold simply went from being a hard asset that you hold in your hand to a virtual asset that sits in a warehouse somewhere. Bitcoin is just another symbol on the ticker.
- 3pt14159 13y ago
  It isn't the same thing. For example, if you owned gold through eGold (fairly common place back in the day) you'd still be waiting to get your money back after the feds raided it. Sure they held the physical gold in Dubai somewhere, but the US government shut it down and they ultimately control what you can and cannot transfer for all electronic forms of gold.
- digitalengineer 13y ago
  Except that you don't really own the stock. In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. The name that appears on the certificate is that of your broker, and this is referred to as being held "in street name".Ask the people who were MF Global clients how much rights they had after the meltdown. E.g. none. They got to line up at the end of the queue of debtors. Bitcoins is more like stocks with Direct registration.
  - oleganza 13y ago
    Bitcoin is even better. You own it completely privately without even "direct registration" with any one third party, even the government registry like in case of stocks. Paper USD that you own is "direct registration" and it still does not belong to you. Government takes a bite from it when it wants by printing more paper dollars like yours. You can only own physical stuff like paper of the dollar itself (but not the value), and Bitcoin. Everything else is promises, not ownership. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi...
headgasket 13y ago
Warren Buffett on Gold: 1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” 1.1 How would Martians looking at ProofOfWork brute force SHA256 hashing and cryptographic scarcity feel any different? 2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.” 2.1. Gold is inherently speculative. So is bitcoins, as a currency; with the caveat that it only exists if the p2p network still exists, if not there is absolutely no actual use for btc. 3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything." 3.1 IMHO bitcoins as a currency could not have emerged in any other time than in a time where the governments of the world are on a serious QE binge in a desperate bid to prevent a double dip and an extremely damageable deflation era, like the 33-39 one, that can only be resolved by the reset a global conflict brings. If we can snap out(inflate out) of the current slump, bitcoins as a currency will not hold up, nor will gold. Gold is already on the decline... 4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.” 4.1 This is a key point for all the speculators out there. You will get burned. Buy solid earnings of management-owned moat-protected business. Invest in startups. Invest in brains. Dont get burned by this artificial bubble and the prospect of easy money. There is no such thing. Talk to all the house flippers. They were holding concrete: hard assets; protected solid future earnings is where value is. Growth in in brains. 5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.” 5.1 Gold is safer than bitcoins in the fact that it does not depend on an honest p2p network to exist individually. 6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth — for a while." 6.1 This is the same for bitcoins, if when the expansion of demand comes to an end the whiplash is going to hurt. The bc protocol is a very interesting concept that IMHO will certainly find a use, and as such the POW will have a value; but it will eventually be indexed to the actual energy costs and expected future earnings. 7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that." 7.1 The goose is running miners. That opportunity is long gone for btc. If you are interested and fired up about bitcoin, I would suggest investing in a bitcoin startup. That's your best bet; investing in brains. Not things. Esp. not virtual things. Cheers and good luck!
JackFr 13y ago
Why should Bitcoin have a monopoly? If Satoshi2 comes up with another process, similar but differing only in the mining computation, my Bitcoin2's should be equal in value, or at least at guaranteed at an exchange rate based on compute intensity required. I assert that they would not be my Bitcoin2's would be worth less. This highlights the observation that literally all of bitcoins value comes from confidence that the network of willing participants is permanent and robust. This makes it different than gold -- gold is gold, whereas one crypto-currency is entirely different than another crypto-currency. This also makes it different than other fiat currencies whose network of participants is compelled by law.
- digitalengineer 13y ago
  We can't have a currency competing with the US dollar. If I was the US, I'd love a domestic (crypto) digital dollar. If bitcoin fails people lose faith, and I present the solution for a modern society: the Digital Dollar, unbreakable crypto and easy for world-wide use and backed by the full faith of the US government/NSA. And: I could tax every transaction, even the smallest ones on Craigs List/eBay.
- oleganza 13y ago
  Gold is also a bet, just like Bitcoin, that it's the most marketable commodity (more than 90% of value is in this speculation, not in production demand). People tend to come up with valuing most the money which is most liquid, most accepted by others. If Bitcoin2 comes along it should be so incompatible with Bitcoin1 and so much superior that people would want to make that bet again with Bitcoin2. Most probably, though, Bitcoin1 would be extended since it's possible and so many people desire these new features. If not enough people desire new features, then another currency wouldn't be as liquid as the first one. Universe wants one money, anyway: http://blog.oleganza.com/post/54121516413/the-universe-wants-one-money http://blog.oleganza.com/post/54121516413/the-universe-wants...
LogicalBorg 13y ago
Another nutty Bitcoin article, equal parts nonsense and hype. Don't forget that ownership of gold can be transferred digitally just like ownership of Bitcoins. A real investor would know that already. Plus it's a false dichotomy to claim that because Bitcoin becomes valuable gold must become valueless. Both can have value. Finally, Bitcoin is subject to substitution replacement (by altcoins) or technological obsolescence (by someone inventing a better coin), but gold just isn't, since it is one of the fundamental chemicals of the universe.
- oleganza 13y ago
  "Digital ownership" of gold is a lie. You own promise, not the thing. You can own bitcoin and can do that in a way that no one can access it except you. It's easy to prove: you can create a random key, move some money there and erase that key from everywhere. Now that money is not accessible by anyone forever. Ability to destroy stuff is what ownership means. If you lock up gold in a vault, it still can be cracked and opened. If you trust some bank to store gold for you, they own it and promise to deliver it when you want. But you own promise, not gold. And that promise was constantly broken by banks and governments throughout history. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi... On altcoins: http://blog.oleganza.com/post/54121516413/the-universe-wants-one-money http://blog.oleganza.com/post/54121516413/the-universe-wants...
dpacmittal 13y ago
He missed the point where gold is an actual tangible item and has a massive market of jewellery.

Bitcoin and Gold

41 points by oleganza 13y ago

rlwolfcastle 13y ago

There is one difference between gold and bitcoin. When you break the encryption on gold, it is still gold.

bbwharris 13y ago
You can also hold gold and make useful items out of it.
- NateDad 13y ago
  Really? Like what? http://en.wikipedia.org/wiki/Gold#Applications http://en.wikipedia.org/wiki/Gold#Applications Gold seems not to be the best choice of materials for very many things. It's valued because it's pretty and rare. That's basically it. Holding it physically is an anachronism. Most people who own gold don't put it in a vault in their basement.
  - mariusz79 13y ago
    That computer that you're using most likely has some gold in it.
    - oleganza 13y ago
      Computer does not need tons of gold. Tons of gold are working as a decentralized ledger of wealth, just like Bitcoin. They are being stored in vaults, not used in producing things. Computers and other things are getting a small fraction of all gold.
  - bbwharris 13y ago
    I see your point. We are comparing a specific sequence of bits to a physical earthly material. Not really the same thing.
patrickg_zill 13y ago
Another is that gold does not require a working computer or Internet access; and also, no matter how bad your website security is, your gold cannot be taken via the Internet.
- scotty79 13y ago
  Gold requires social network to work. Can be stolen via internet if you don't hold it youself and the company that holds if for you has web interface.
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oleganza 13y ago
The bet is that advantages of Bitcoin over risks of gold outweight risks of Bitcoin and advantages of gold. Today 90% of the economy needs connection and international trade. We rely on networks, computers and cryptography to support our lifestyle, remote labor, airplane travels and so on. Gold is almost useless for that. It's not programmable, it's not transferrable easily, there's a lot of risk and we all tried it already and we ended up with central banks having all the gold, promising none of the gold and printing tons of paper money which is backed by a promise to pay interest by issuing more of these promises. Small guys can't earn a lot of gold. It's way too easy to confiscate or control for someone who is bigger than you. It's time to try something different, more suitable for modern era.
- hatu 13y ago
  Gold has kept it's value for thousands of years, maybe tens of thousands. It's a bit silly to compare the two.
  - scotty79 13y ago
    It's better to compare gold with horses an bitcoin with railroads.
  - oleganza 13y ago
    The internet was around for 20 years and paper books for centuries. Who needs paper anymore? You can sign contracts with a digital signature in a more secure manner than with a drop of an ink.
  - stevedekorte 13y ago
    Paper also had great value for document storage for thousands of years.
yawniek 13y ago
gold also has an offline mode, worldwide adoption and a commercial use. plus whats exactely the difference between bitcoin and all other altcoins other than technicalities. sooner or later there will be lots of competition
- scotty79 13y ago
  Like there's huge competition to ebay.
iand 13y ago
Breaking the encryption on bitcoin is like the hunt for the philosopher's stone. We know it's possible to transmute elements into gold, but doing it on a scale capable of disrupting the market is beyond our reach currently.

hatu 13y ago

tl;dr: Author loves Bitcoin

oleganza 13y ago
Author makes a case for unique feature of Bitcoin: asymmetry in security which may prevent what happened with gold-based economy - accumulation of physically-representable wealth in hands of the very few using force. This unique feature has never been tested before in the economy in the entire history of mankind.
- mariusz79 13y ago
  With bitcoin very few still control most of it. And they use force... asic brute force :)
  - oleganza 13y ago
    ASIC makers have the biggest risk and cost in investing into BTC than anyone else. And miners have the most incentive to keep BTC fungible and liquid to keep its value. These guys would have to liquidate a lot of bitcoins smoothly to cover their massive costs and not to deeply disrupt the markets. And they are not interested in playing bad games with people's transactions as this will cause either of two things: the value of BTC may easily go down, and their blocks may be censored by other miners who don't like the value to go down. Every miner thus is motivated to be nice to everyone and maintain his business even if he has 80% of hashrate. Some pools were even addressing concerns of 50% power by limiting their own userbase. No pool wants BTC price to crash only because it got too big and frightens people.

applecore 13y ago

It's possible that bitcoins have value because they're more useful as a form of money than precious metals like gold or fiat currencies like dollars. They're durable, portable, perfectly fungible and divisible, scarce and limited, easily recognizable, trivial to verify, impossible to counterfeit, and cheaper to store, protect, and transfer.

oleganza 13y ago
I'm not saying why they have value. There are many reasons and everyone picks his own favorite one. I'm saying that if bitcoins are valuable, then there are certain interesting properties of the new global economy that make it different from gold/oil/resource-based economy we have today.
mariusz79 13y ago
Durable? When you lose your passphrase or wallet hash all the bitcoins in it are lost.. forever.. With gold there is hope that at some point in time someone will find it and be able to use it.
- applecore 13y ago
  Durability, in the context of money, simply means that it doesn't physically degrade over time. In that sense, bitcoins are perfectly durable.

T-zex 13y ago

I really do not understand this Bitcoin promotion in comparison with gold. I think that majority of people do not have gold, never had and never will. It would reach a much bigger audience if Bitcoin was compared to credit cards and Paypal.

oleganza 13y ago
There is huge speculative value in gold as a "store of wealth" and there are reasons why gold was in hands of many and now in the hands of few. Looking from this perspective helps understand why Bitcoin might be valuable in the long run for many people.
cturner 13y ago
Gold has a strong market as a store of value that doesn't depend on government. The characteristics that make it good for this: it is naturally scarce, doesn't degrade, it's easily divided, you can hold a lot of value in a small amount of physical weight (compare to silver), it's fairly easy to exchange for local currency at a time of your choosing. Hence, it has historically functioned as a store of value. Bitcoin has been designed to have the same advantages. It's weaker because it's more complex to deal with (at the moment). But it's stronger than gold in that - so long as the algorithm holds - its scarcity is guaranteed, and it's easy to use for electronic transactions. Bitcoins compete with gold for mindshare with people who want to be able to store value in a way that isn't subject to the whims of government - who can start printing lots of money at any time of their choosing and thereby wipe out people with savings.
michaelt 13y ago
If bitcoin is a means of exchange but not a store of value, you need some extra means of exchange to convert your stored value into bitcoins and for the recipient to convert their bitcoins back into stored value. And if you've got that extra means of exchange, what do you need bitcoin in the middle for? I mean, why go My bank -> Debit card -> Bitcoin exchange -> My wallet -> Merchant's wallet -> Bitcoin exchange -> Bank transfer -> Merchant's bank when you could just go My bank -> Debit card -> Merchant's bank?

pearkes 13y ago

> A friend of mine, Steve, noted that gold-backed economy logically evolved into the mess we are now Here is where you lose me. Other articles, just like this, fall apart in the same places. Maybe it is the irony of this statement. Why is it ironic? I'm reading your blog post, hosted on Tumblr, on the east coast of the United States, judging on the pings from where I am in Germany. The communications travel over fiber-optic cable in the Atlantic Ocean. This cable was laid by a partnership between commercial telecommunications companies[1]. Tumblr is supported by this "mess" of an economic system, and thus gives you a platform to talk on. Tumblr's hosting provider leverages this "mess" of an economic system to invest in making it's infrastructure better, cheaper and more reliable for Tumblr. Why is this rhetoric so unaware of history? Why does it carry such a negative outlook on the incredible things that this imperfect economic system has delivered us? By all means continue questioning, improving or changing the system we have arrived at as a collective humanity. But please, do not pretend everything is a horrible mess that only some minor [crypto-currency, technology] can fix. Admit that what we've done so far has largely been pretty damn good. Will the new ideas help? Hopefully, likely! [1]: http://en.wikipedia.org/wiki/Transatlantic_communications_cable http://en.wikipedia.org/wiki/Transatlantic_communications_ca...

oleganza 13y ago
It's a fallacy to look at what you can see and not count in opportunity cost and what could have been done if there were no economical disasters created by governments all over the world. We'd probably had flying cars already and free wi-fi everywhere if people were allowed to save money and invest how they like. During Putin's regime computers got 12 times faster too. Is it thanks to "stability of the economy" that Putin provided?
- varjag 13y ago
  Flying cars are a social problem more so than technical. Not even a super-fiat currency like Bitcoin would solve that.
  - oleganza 13y ago

headgasket 13y ago

the bitcoin protocol as a p2p open ledger is the interesting idea, and as such it is a valid proposition as a transaction system. Contract signing for example. The derived value store has not much going for it IMHO. It suffers from a reverse network effect; as the block chain becomes heavier, it becomes clumsier, and a clone -- alt is more and more attractive, and a few simple clicks away. (no lock was a down side argument that was around when google became a home run(vs MS) but has yet to materialize; lately they might be setting themselves up for it to happen tho) As soon as the expansion of demand(is all this demand really real?) comes to an end, bitcoins are susceptible to become tulip bulbs. You cannot pay any taxes in bitcoins, and this is how prices on everything are indexed in our fiat world.

oleganza 13y ago
I'd argue that for blockchain to function as secure ledger, miners must be motivated to do so. So you have to make a currency out of it anyway.
- headgasket 13y ago
  yes that's perfectly right. But the value of the currency should then become indexed to the cost of securing the ledger over the long run. At this point I would think that's it not the case for btc. IMHO developing ASICs for SHA256 hashing is not a grand development for humanity; it's an expected capitalist response to the fact the the p2p system is valuable. It's a capitalistic proof of the bitcoin protocol. But as a ledger gets bigger it gets more expensive to secure and harder to use; at one point the best economic alternative is to start a new one, based on the same principle, but not the same POW. And then start a new one. So the value resides in the p2p protocol not the currency itself which is a temporary corollary store that exists while the network is growing.

shocks 13y ago

> put some money in a “brain wallet” that has no traces anywhere at all. Please do not do this.

headgasket 13y ago
yeah, did that. Lost the password too. If I find it I can guarantee those BTC are hitting this market yesterday.
- shocks 13y ago
  There are already scores of people building rainbow tables of brain wallets. Someone will, eventually, put that BTC on the market for you. :(
oleganza 13y ago
It's an option, not a requirement. Which only adds value, not reduces it. Mom and pa can split the key in 5-of-10 via SSSS (Shamir's Secret Sharing Scheme) and send portions to all their trusted friends. It'll be safer than putting savings in the bank. We just need some decent UI and apps for that.
- shocks 13y ago
  No. Deterministic wallets just a bad idea. By using a deterministic wallet it becomes infinitely easier to brute force and your funds are at substantial risk. Even if you think you're using a strong password. There are already people spending a lot of computational power to build rainbow tables of brain wallets. Please do not encourage people to use deterministic wallets, you are doing them a disservice.
  - oleganza 13y ago
    Do not confuse "deterministic wallet" with "brainwallet". Brainwallet is very dangerous, but also very powerful. It's not for mommy and daddy, but for people who know what they are doing and have reasons to hide money very well. There's nothing inherently bad with it. It all depends on the UI you are using. Decent UI may generate a deterministic list of private keys, so don't even lose privacy. Electrum does something similar, but you have to remember 12-word seed. With super-expensive KDF you may have decent protection even with a shorter passphrase (expensive meaning taking 30 seconds and 1 Gb of memory). "Deterministic wallet" is the one which generates all the keys deterministically from the single seed. Preferably, it also uses deterministic signatures. This is much better than fully random one like in BitcoinQT because you can create a good random seed just once (using /dev/random plus some explicit random user input to protect against shitty or backdoored RNG) and then have a guarantee that all subsequent addresses and keys are not affected by an RNG you use. Also, you don't need to back up your wallet more than once if you can derive all future addresses from one seed. You only need a good cryptographic hash function for that. SHA256^2 or SHA3 seems like good enough to me.

digitalengineer 13y ago

Bitcoins certainly took a look at gold. You have to 'mine' it and it's limited like gold. It's dividable as well, for easy transactions. Unlike gold you can send them over the world. There is one problem however. They have no intrinsic value. That's why gold became money, everybody around the world wants it (or know they can accept it and swap it for a (local) currency). Right now the only reason people want bitcons is because they think somebody will want them in the future. With gold, people want gold to itself. Bitcoin is not gold. It's a currency at best. Even fiat currency is backed by the full faith in governement. Bitcoins seem to be valuable because a lot of people are hoarding them instead of using them. Looks like a bubble with people wanting in on the action...

applecore 13y ago
Here's Satoshi's response to the "intrinsic value" problem: https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 https://bitcointalk.org/index.php?topic=583.msg11405#msg1140...
- oleganza 13y ago
  Quoted that for you: As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose and one special, magical property: - can be transported over a communications channel If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I'm using the word scarce here to only mean limited potential supply)

mariusz79 13y ago

Gold is needed in health care, electronics, space, physics... The supply is limited, and unlike bitcoin someone can't just rename gold to dolg and start mining the new version. Bitcoin, at it's current price is not cheaper than gold. I would argue that it's more expensive, considering its limited use.

oleganza 13y ago
Gold production value is maybe 10-20 times lower than it's speculative value. Just check how much gold is sitting in vaults and not being sent to factories. If it's only demanded for production, then the price would be much-much lower. Bitcoin has many uses too, not only for reservation demand. It has scripts to protect contracts without expensive court system, blockchain can be used as a secure timestamp service, or a global name registry. It's full of opportunities apart from protecting your wealth.
- mariusz79 13y ago
  You're forgetting that at any point, any government can prohibit using bitcoin, as they did previously with gold, and may prohibit using these scripts. What's left?
  - oleganza 13y ago
    Bittorrent is working well even though every user is not a stakeholder.
  - jimktrains2 13y ago
    Prevent the use of a computer program? Sure, you may not be able to purchase things locally with it, but it's just a computer program and information, you can hardly prohibit with any force. Look at tor.
  - mariusz79 13y ago
    jimktrains2 if the gov decides that bitcoin should be made illegal, most people won't bother with it. And if you can't use it locally what value does it have at that point? Gold you can at least bury in your backyard and hope that if not you, then your grandchildren will get something out of it.

eshvk 13y ago

I will buy your argument when 1 billion people across south asia start hoarding bitcoins instead of gold jewelry with the hope that their daughter can be covered with it when she gets married.

rrhyne 13y ago
You won't be able to afford to buy his arguement if you wait that long.

rrhyne 13y ago

The conspiracy theorist in me says the powers that be will not abide a non fungible currency. Fractional reserve banking, the fed's actions to stimulate the economy through printing, these things dont't work with bitcoin.

oleganza 13y ago
I'm optimist because: 1. Bittorrent is not shut down. And in average, people are getting freer with new tech, not more controlled. Some vocal revolutionaries are still easy to find and catch, just like in Jesus times. But average guy who is not specifically targeted, he's quite free. 2. Government is always a parasite on productive society. If it gets too heavy, it breaks the economy and dissolves without something to eat. If productive people start working with Bitcoin, that's where the value will be and govt will have to adjust and feed from that. BTC can be confiscated and monitored, but not outright banned. Gold was not destroyed when fractional reserve system was bootstrapping. It was relocated from weak hands to armed ones and then used to trade between other well-armed hands. Gold still maintained value, and very big one.

NateDad 13y ago

Honestly, the speculation around bitcoin is the least interesting part about it. The fact that you can do secure person to person transactions with no intermediary is awesome. The fact that it is a "push" system and not a "pull" system (the way credit cards work) is a huge advantage. The technology is really cool. It's just been unfortunately overshadowed by the get-rich-quick types, druggies, and libertarian/anarchists.

seanalltogether 13y ago

You are too late, the stock market already beat bitcoin to the punch on this one. We've been trading virtual assets for quite a long time now, and gold simply went from being a hard asset that you hold in your hand to a virtual asset that sits in a warehouse somewhere. Bitcoin is just another symbol on the ticker.

3pt14159 13y ago
It isn't the same thing. For example, if you owned gold through eGold (fairly common place back in the day) you'd still be waiting to get your money back after the feds raided it. Sure they held the physical gold in Dubai somewhere, but the US government shut it down and they ultimately control what you can and cannot transfer for all electronic forms of gold.
digitalengineer 13y ago
Except that you don't really own the stock. In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. The name that appears on the certificate is that of your broker, and this is referred to as being held "in street name".Ask the people who were MF Global clients how much rights they had after the meltdown. E.g. none. They got to line up at the end of the queue of debtors. Bitcoins is more like stocks with Direct registration.
- oleganza 13y ago
  Bitcoin is even better. You own it completely privately without even "direct registration" with any one third party, even the government registry like in case of stocks. Paper USD that you own is "direct registration" and it still does not belong to you. Government takes a bite from it when it wants by printing more paper dollars like yours. You can only own physical stuff like paper of the dollar itself (but not the value), and Bitcoin. Everything else is promises, not ownership. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi...

headgasket 13y ago

Warren Buffett on Gold: 1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” 1.1 How would Martians looking at ProofOfWork brute force SHA256 hashing and cryptographic scarcity feel any different? 2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.” 2.1. Gold is inherently speculative. So is bitcoins, as a currency; with the caveat that it only exists if the p2p network still exists, if not there is absolutely no actual use for btc. 3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything." 3.1 IMHO bitcoins as a currency could not have emerged in any other time than in a time where the governments of the world are on a serious QE binge in a desperate bid to prevent a double dip and an extremely damageable deflation era, like the 33-39 one, that can only be resolved by the reset a global conflict brings. If we can snap out(inflate out) of the current slump, bitcoins as a currency will not hold up, nor will gold. Gold is already on the decline... 4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.” 4.1 This is a key point for all the speculators out there. You will get burned. Buy solid earnings of management-owned moat-protected business. Invest in startups. Invest in brains. Dont get burned by this artificial bubble and the prospect of easy money. There is no such thing. Talk to all the house flippers. They were holding concrete: hard assets; protected solid future earnings is where value is. Growth in in brains. 5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.” 5.1 Gold is safer than bitcoins in the fact that it does not depend on an honest p2p network to exist individually. 6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth — for a while." 6.1 This is the same for bitcoins, if when the expansion of demand comes to an end the whiplash is going to hurt. The bc protocol is a very interesting concept that IMHO will certainly find a use, and as such the POW will have a value; but it will eventually be indexed to the actual energy costs and expected future earnings. 7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that." 7.1 The goose is running miners. That opportunity is long gone for btc. If you are interested and fired up about bitcoin, I would suggest investing in a bitcoin startup. That's your best bet; investing in brains. Not things. Esp. not virtual things. Cheers and good luck!

JackFr 13y ago

Why should Bitcoin have a monopoly? If Satoshi2 comes up with another process, similar but differing only in the mining computation, my Bitcoin2's should be equal in value, or at least at guaranteed at an exchange rate based on compute intensity required. I assert that they would not be my Bitcoin2's would be worth less. This highlights the observation that literally all of bitcoins value comes from confidence that the network of willing participants is permanent and robust. This makes it different than gold -- gold is gold, whereas one crypto-currency is entirely different than another crypto-currency. This also makes it different than other fiat currencies whose network of participants is compelled by law.

digitalengineer 13y ago
We can't have a currency competing with the US dollar. If I was the US, I'd love a domestic (crypto) digital dollar. If bitcoin fails people lose faith, and I present the solution for a modern society: the Digital Dollar, unbreakable crypto and easy for world-wide use and backed by the full faith of the US government/NSA. And: I could tax every transaction, even the smallest ones on Craigs List/eBay.
oleganza 13y ago
Gold is also a bet, just like Bitcoin, that it's the most marketable commodity (more than 90% of value is in this speculation, not in production demand). People tend to come up with valuing most the money which is most liquid, most accepted by others. If Bitcoin2 comes along it should be so incompatible with Bitcoin1 and so much superior that people would want to make that bet again with Bitcoin2. Most probably, though, Bitcoin1 would be extended since it's possible and so many people desire these new features. If not enough people desire new features, then another currency wouldn't be as liquid as the first one. Universe wants one money, anyway: http://blog.oleganza.com/post/54121516413/the-universe-wants-one-money http://blog.oleganza.com/post/54121516413/the-universe-wants...

LogicalBorg 13y ago

Another nutty Bitcoin article, equal parts nonsense and hype. Don't forget that ownership of gold can be transferred digitally just like ownership of Bitcoins. A real investor would know that already. Plus it's a false dichotomy to claim that because Bitcoin becomes valuable gold must become valueless. Both can have value. Finally, Bitcoin is subject to substitution replacement (by altcoins) or technological obsolescence (by someone inventing a better coin), but gold just isn't, since it is one of the fundamental chemicals of the universe.

oleganza 13y ago
"Digital ownership" of gold is a lie. You own promise, not the thing. You can own bitcoin and can do that in a way that no one can access it except you. It's easy to prove: you can create a random key, move some money there and erase that key from everywhere. Now that money is not accessible by anyone forever. Ability to destroy stuff is what ownership means. If you lock up gold in a vault, it still can be cracked and opened. If you trust some bank to store gold for you, they own it and promise to deliver it when you want. But you own promise, not gold. And that promise was constantly broken by banks and governments throughout history. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoin-you-cant-own-your-dollars http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi... On altcoins: http://blog.oleganza.com/post/54121516413/the-universe-wants-one-money http://blog.oleganza.com/post/54121516413/the-universe-wants...

dpacmittal 13y ago

He missed the point where gold is an actual tangible item and has a massive market of jewellery.