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You're missing the point entirely. It's about opportunity costs. If you try to use a deflationary currency for any economic activity then you get bitten by def

You're missing the point entirely. It's about opportunity costs. If you try to use a deflationary currency for any economic activity then you get bitten by deflation, you end up losing money. The fact that the total revenue you get back is still worth the same (in butter or what-have-you) is irrelevant. You still had to buy equipment, you still had to pay people wages, and so forth in that currency to start with. But if you had not invested that money to start with you'd be even wealthier. The major point is that bitcoins or dollars aren't actually worth anything intrinsically. They have no value. Value exists in goods and services. With a deflationary currency people are discouraged from economic activity which produces more goods and services because it causes them to lose money.

bigiain 13y ago
I think I was making a _different_ point. I think BTC is a perfectly fine transactional tool. Much like credit cards. I can buy and sell things with my credit card, but I can't eat positive or negative numbers on my bank statement - in one sense it's not "real" until I turn those numbers into something of "value", perhaps butter - perhaps some other abstraction of "value" that I trust, like dollars. Dollars as an "asset" are reasonably safe. Using dollar assets for investment in other value-generating activity is fairly well understood. But ask anyone from Greece or Zimbabwe if they'd entrust their families future to their local fiat currency… BTC as an "investment" or "asset" are quite different. There's _very_ much more reason to hold on to BTC rather than invest them in any activity that's going to return less than several hundred percent annualised returns (there's a _very_ good reason why Silkroad's major commodities were what they were). If I can expect to double the dollar value of my bitcoin holding just by waiting another few weeks, of course I'm not going to invest any of that into widget raw materials or manufacturing plants. But there is definitely a US property market style risk for people sitting on large number of BTC. The notional "value" keeps going up at a startling rate - but it's still a crap shoot - there's nothing _guaranteeing_ you'll get any value at all out of your BTC - it's even less "sure" then US residential property market or Credit Default Swaps or Collateralized Debt Obligations from a few years back. It's not impossible you could buy "$25kUDS worth of BTC" today, and find you've got _nothing_ next year, instead of $50k or $100k or $500k - there were _lots_ of investors and property speculators with expectations like that 5 or 10 years ago≥
- InclinedPlane 13y ago
  Given that bitcoin only has notional value: if it's not used as a currency, with prices denominated in it, then what supports its value? If nothing does then you have the recipe for a speculative bubble, and crash, and little else. At least gold can be made into pretty jewelry and electronics.
  - bigiain 13y ago
    It's pretty much the same as post-fund-raising stock market "value". Snapchat is "worth" 4 billion dollars in exactly the same way as a bitcoin is worth $1000 - enough people _believe_ it's "worth" that much that you can buy and sell some form of notional ownership of them - at least in small amounts – based on that value. If everybody stops believing in bitcoin or Snapchat, that value will plummet and perhaps disappear. The government will try to prevent that happening to USD, but ask a Greek or Zimbabwe person how their fiat currency has gone as a "reliable store of wealth". So long as people keep believing in BTC it _might_ maintain a real value - it does provide some real-world convenience to some people, so it's not impossible that it'll maintain long-tern value I guess. I can't help but think though, that there's way more people "talking it up" because they have enough BTC stashed that another order of magnitude increase in BTC conversion rates will have many of them jumping to exit with "fuck you" amounts of money - with the inevitable deflation as their BTC all hits the market in a big rush…
    - InclinedPlane 13y ago
      Hardly. Those companies make things. The provide services to people. That's real, concrete value. Companies can be over valued, but certainly there is some value even in snapchat. There is zero non-notional value in bitcoin. It's just a currency. But if it's only used as an investment and not a currency then it's unlikely to retain value indefinitely. Fiat currencies certainly have some similar problems, but because they are used heavily as currencies much of those problems are mitigated. Everyone around me is getting paid in dollars, everything at the store is denominated in dollars. Taxes are in dollars. Etc. Because of economic activities there is a tremendous amount of inertia to the value of the dollar. The only inertia inherent in bitcoin is the market valuation, and that is dependent on, effectively, a pyramid scheme. Once the value of bitcoin starts falling everyone will want to divest from it as quickly as possible, merely accelerating the collapse. This is economics 101, we've seen countless speculative bubbles before, if you don't believe that speculation is a risk in the BTC market then you're just unaccountably naive. If the BTC market started falling at the same rate it is going up right now, and persisted in doing so for 6 months what would you do with your BTCs?

bigiain 13y ago

I think I was making a _different_ point. I think BTC is a perfectly fine transactional tool. Much like credit cards. I can buy and sell things with my credit card, but I can't eat positive or negative numbers on my bank statement - in one sense it's not "real" until I turn those numbers into something of "value", perhaps butter - perhaps some other abstraction of "value" that I trust, like dollars. Dollars as an "asset" are reasonably safe. Using dollar assets for investment in other value-generating activity is fairly well understood. But ask anyone from Greece or Zimbabwe if they'd entrust their families future to their local fiat currency… BTC as an "investment" or "asset" are quite different. There's _very_ much more reason to hold on to BTC rather than invest them in any activity that's going to return less than several hundred percent annualised returns (there's a _very_ good reason why Silkroad's major commodities were what they were). If I can expect to double the dollar value of my bitcoin holding just by waiting another few weeks, of course I'm not going to invest any of that into widget raw materials or manufacturing plants. But there is definitely a US property market style risk for people sitting on large number of BTC. The notional "value" keeps going up at a startling rate - but it's still a crap shoot - there's nothing _guaranteeing_ you'll get any value at all out of your BTC - it's even less "sure" then US residential property market or Credit Default Swaps or Collateralized Debt Obligations from a few years back. It's not impossible you could buy "$25kUDS worth of BTC" today, and find you've got _nothing_ next year, instead of $50k or $100k or $500k - there were _lots_ of investors and property speculators with expectations like that 5 or 10 years ago≥

InclinedPlane 13y ago
Given that bitcoin only has notional value: if it's not used as a currency, with prices denominated in it, then what supports its value? If nothing does then you have the recipe for a speculative bubble, and crash, and little else. At least gold can be made into pretty jewelry and electronics.
- bigiain 13y ago
  It's pretty much the same as post-fund-raising stock market "value". Snapchat is "worth" 4 billion dollars in exactly the same way as a bitcoin is worth $1000 - enough people _believe_ it's "worth" that much that you can buy and sell some form of notional ownership of them - at least in small amounts – based on that value. If everybody stops believing in bitcoin or Snapchat, that value will plummet and perhaps disappear. The government will try to prevent that happening to USD, but ask a Greek or Zimbabwe person how their fiat currency has gone as a "reliable store of wealth". So long as people keep believing in BTC it _might_ maintain a real value - it does provide some real-world convenience to some people, so it's not impossible that it'll maintain long-tern value I guess. I can't help but think though, that there's way more people "talking it up" because they have enough BTC stashed that another order of magnitude increase in BTC conversion rates will have many of them jumping to exit with "fuck you" amounts of money - with the inevitable deflation as their BTC all hits the market in a big rush…
  - InclinedPlane 13y ago
    Hardly. Those companies make things. The provide services to people. That's real, concrete value. Companies can be over valued, but certainly there is some value even in snapchat. There is zero non-notional value in bitcoin. It's just a currency. But if it's only used as an investment and not a currency then it's unlikely to retain value indefinitely. Fiat currencies certainly have some similar problems, but because they are used heavily as currencies much of those problems are mitigated. Everyone around me is getting paid in dollars, everything at the store is denominated in dollars. Taxes are in dollars. Etc. Because of economic activities there is a tremendous amount of inertia to the value of the dollar. The only inertia inherent in bitcoin is the market valuation, and that is dependent on, effectively, a pyramid scheme. Once the value of bitcoin starts falling everyone will want to divest from it as quickly as possible, merely accelerating the collapse. This is economics 101, we've seen countless speculative bubbles before, if you don't believe that speculation is a risk in the BTC market then you're just unaccountably naive. If the BTC market started falling at the same rate it is going up right now, and persisted in doing so for 6 months what would you do with your BTCs?