11 ms·

The erratic price prevents it from being a store of value or a unit of account. So it is a currency that clocks in as a medium of value transfer only. Even then

by hawkice 12y ago

The erratic price prevents it from being a store of value or a unit of account. So it is a currency that clocks in as a medium of value transfer only. Even then, the transfer involves another currency on either end in almost all cases.

marcell 12y ago
> The erratic price prevents it from being a store of value Not true in itself. Consider the stock market: it's value has been unstable for the past two decades, yet it is still one of America's most popular stores of value. Consider also gold and housing, two other popular stores of value that also have unstable pricing. The erratic price does however prevent it from being a unit of account.
- derefr 12y ago
  I don't know if stocks themselves are really stores of value. There are synthetic products based on the value of certain stocks (index funds, hedged futures, options, etc.) that are stores of value, though. Which makes me think that you could probably build stable stores of value on top of BTC if you wanted, without losing the decentralization of BTC. You could even take the price of one of those products as a unit of account.
- qznc 12y ago
  Most stocks are a poor store of value. That is why people widely diversify. This makes Bitcoin more of a hedge against failings of our bank systems.
- onion2k 12y ago
  The value in the stock market requires many different stocks so the risk from volatility can be averaged away. That's why every good investor spreads their portfolio across different stocks in different markets. If there was just one stock traded on an exchange very few people would use it as a way to store their investment value.
- sgt101 12y ago
  Housing is a store of value in a way that gold and bit coins aren't; if the price of housing crashes to 0 you can still live in the houses. Also, the price of housing is highly likely to only crash to the cost of building a new house - wear and tear + scarcity costs for land. There is a speculative component in house prices, and this is a concern for anyone who is "storing value" in them, but there are fundamental uses for housing far beyond the fundamental uses for gold. Equities have a value story too. The dividend on stocks represents a future earnings value which is tradable. Also Equities provide voting rights which have value. Fiat currency has a value story; the states monopoly of violence provides it with the ability to collect tax from economic activity where that monopoly holds true. Tax revenues are a future income stream that has value; hence the underpinning of fiat. Bitcoin has rarity and speculation only.
  - rythie 12y ago
    Are you sure you can live in a house worth 0? - most places with low house prices also have no jobs, broken infrastructure (electric, water, roads, shops etc.) and high crime. For a house to drop to 0 the location would have to be really bad and you wouldn't and perhaps couldn't live there anymore.
    - peteretep 12y ago
      No idea why you're getting down-voted. The assumption that houses are some kind of special asset because they always give a dividend of "you're able to live there" ignores an almost infinite number of exceptions to that.
  - zaroth 12y ago
    Well, the key difference is you pay property taxes on a house. And as long as you keep doing that, and paying all associated upkeep, you can hopefully see appreciation. Oh, and you can live in it. The point is, there's no analog to the digital nature of placing a conversion value based on the bits of a certain integer value stored in a distributed blockchain. The latest round of blockchain technology is showing, bc is good for a lot more than currency. In fact, there are many things that BC can do much better even than it can be a currency. My point is, I bet on the long-term value of bc technology, but actually not on the long term value of Bitcoin as a digital asset. For example, very soon enough you will be able to cheaply, easily, and freely store your USD or whatever currency you want on a blockchain, and use it to spend and trade freely. Choose any blockchain and conversion rate / resolution you want and issue a legally binding IOU. Of course the trick is handling redemption!
- nroets 12y ago
  Investors have historically demanded a large premium before storing value in the stock market. "To quantify the level of risk aversion implied if these figures represented the expected outperformance of equities over bonds, investors would prefer a certain payoff of $51,300 to a 50/50 bet paying either $50,000 or $100,000." https://en.wikipedia.org/wiki/Equity_premium_puzzle https://en.wikipedia.org/wiki/Equity_premium_puzzle
- glesica 12y ago
  Housing prices were stable until the mid-90s.
  - jtbigwoo 12y ago
    Except for the 1930's. And didn't California have a bumpy ride in the 1990's?
    - glesica 12y ago
      There were definitely blips and long-term appreciation. Here's a paper [1] on housing prices around the world, pretty interesting stuff. I guess my point was, having seen some of these graphs, there is a pretty clear transition in the 90s where the "role" of housing in the economy seems to change (although the graphs in the paper I referenced show the growth starting as early as the 60s, so who knows). [1] http://piketty.pse.ens.fr/files/Schularicketal2014.pdf http://piketty.pse.ens.fr/files/Schularicketal2014.pdf
scoofy 12y ago
Bitcoin is not a currency, it will never be a currency. Why? Capital gains tax, that's why. Bitcoin is a commodity, period. While the anarco-libertarians may see paying taxes as optional, people who actually have something to lose pay their taxes... These capital gains complications of using bitcoin as barter essentially eliminate the usefulness of this commodity, as opposed to cash, for anyone of serious importance in the developed world, and since that won't happen, there will be little push for any adoption beyond a fringe group. Without serious investors holding bitcoin, there benefits of transactions via bitcoin with currencies trades at both ends are problematic, because nobody wants to be left holding the coins. It will be useful as a substitute for wire transfers, it will be useful as a store of value in the developing and under-developing economies, but other than that i see no long term use for bitcoin that makes it significantly different from gold. The benefit of gold being that there is significantly less chance of theft. Solve the capital gains problem and maybe we'd have something, but i cannot imagine a scenario in which that happens beyond a bank removing FIFO capital gains after every transaction... which would frustrate most users.
- icebraining 12y ago
  The benefit of gold being that there is significantly less chance of theft. That's not possible. Simple counter-example: create a Bitcoin address, then engrave the private key in a gold bar and destroy the digital copy.
  - AnthonBerg 12y ago
    Does this make sense as a counterexample?: Take a picture of the gold bar, you have now stolen the Bitcoins without taking the bar.
    - logicallee 12y ago
      Yes, the counterexample is very good. (If we accept its premises that without the information the bitcoin cannot be stolen - this is not true due to 50% attack and other reasons. Gold cannot physically disappear but bitcoin can logically disappear by network consensus or a new version of the bitcoin network that no longer accepts it and which people adopt for some reason. This was done early in bitcoin's history.) But if we accept the premise, then anyone physically close enough to take a picture (let's wrap the gold bar in a dust cover, so that this entails unwrapping it) can physically steal it. i.e. if you prevent someone from physically stealing it, such as keeping it in a vault, then to a good approximation you've also prevented them from unwrapping its dust cover and reading the engraving. I guess exceptions would be if you have workers who work in your vault but go through metal detectors to make sure they haven't stolen the gold, or the gold is somehow physically too heavy to move in one piece quickly, or somehow you can react to it being stolen and prevent the gold from actually leaving, but not if it remains in the vault. This is getting silly though- it's just as easy to engrave something and then hide it in cast iron that is very hard to get into without tools. I think physical protection from theft is very close to physical protection of a piece of engraving.
zenon 12y ago
The major use of bitcoins currently seems to be as a store of value: http://www.coindesk.com/analysis-around-70-bitcoins-dormant-least-six-months/ http://www.coindesk.com/analysis-around-70-bitcoins-dormant-...
mrweasel 12y ago
The erratic price could also hurt the economy, if Bitcoin was widely adopted. Customers will be careful in spending their Bitcoins, if they believe that the price will be higher tomorrow. Likewise business would either overprice, rather than running the risk of losing money, if they cannot convert their Bitcoin to something more stable fast enough. Both are elements that could lead to decreased spending.
- skylan_q 12y ago
  The erratic price could also hurt the economy, if Bitcoin was widely adopted. The price wouldn't be as erratic, as it would be normalized against all the goods in the economy. Just as gold was when it was money.
netcan 12y ago
The way I think of bitcoin and cryptocurrencies is as a huge thing looking for a ledge to hold on to. It's pretty likely that it will fall off and crash but if it manages to cling to the cliff and get to stable ground, it's a big deal. So, value store, unit of account.... some other gainful employment this technology can create by blending it together with other things.... Any way for bitcoin to be useful at this point helps it cling to the cliff.
jasode 12y ago
>The erratic price prevents it from being a store of value or a unit of account. Which doesn't matter. That's the entire point of the author's article. It's unfortunate that the majority of HN comments are about "currency" and "medium of value" in response to this particular article. The author tried to talk about The Other Interesting Thing that seems to be flying under everyone's radar: the authentication of information by distributed digital consensus instead of a central institution. That's why the author tried to use the Linux analogy. While many folks were measuring success via the meme/joke "2001, 2004, 2014, etc is the Year of the Linux Desktop!", Linux has quietly "won" on the backend servers, on Android phones, on cable DVR boxes, in Raspberry Pi, etc. The desktop as a health indicator of "Linux success" becomes irrelevant. Linux: ignore "desktop war" and substitute "servers, internet-of-things, embedded devices" Bitcoin: ignore "currency vox populi" and substitute "decentralized trust of information." To meta analyze why the discussion about Bitcoin's "other" tech possibilities is always derailed by "currency" and "fluctuations", I think it's due to: --The word "coin" embedded in the name "bitcoin" --5 years of breathless hype stories (on HN and elsewhere) around bitcoins rising --Silk Road money laundering, etc Since bitcoin is so tainted now with "currency", we need a mental reset. Here's what the author is saying the world wants: The time is ripe and the underlying technology exists (internet reach, cryptographic hashes, etc) for the adoption of a decentralized authentication of information platform. Let's think about it. If we were to list the technical requirements for a "decentralized authentication of information" service, it would include things like cryptographic hashes, block chains, a transaction API, etc. Basically, it would end up looking a lot like Bitcoin! We could call the service GitHogAnyInfo (to riff on the names of decentralized source code Git Mercurial). Or call it ConsensusInfo or whatever. Just call it any name that does not have "coin", "doge", or "money" embedded in it. If you do that, everyone's brain shuts down and we get trapped in the discussion about "currency fluctuations". For example, look at these: https://www.globalsign.com/en/timestamp-service/ https://www.globalsign.com/en/timestamp-service/ https://www.digistamp.com/technical/how-a-digital-time-stamp-works/?q=1 https://www.digistamp.com/technical/how-a-digital-time-stamp... Neither of those services have "currency" anywhere in their description. Can a bitcoin-as-info-platform instead of bitcoin-as-currency compete with, or replace services like those? That's the thesis the author is trying to convey. That's the angle the SV investors are envisioning.
skylan_q 12y ago
Greater adoption gives it more "moneyness", which in turn means we measure things against it more and more. As adoption picks up and it acts more as a medium of exchange, the value of it normalizes not only against other currencies but other goods.

by hawkice 12y ago

marcell 12y ago

> The erratic price prevents it from being a store of value Not true in itself. Consider the stock market: it's value has been unstable for the past two decades, yet it is still one of America's most popular stores of value. Consider also gold and housing, two other popular stores of value that also have unstable pricing. The erratic price does however prevent it from being a unit of account.

derefr 12y ago
I don't know if stocks themselves are really stores of value. There are synthetic products based on the value of certain stocks (index funds, hedged futures, options, etc.) that are stores of value, though. Which makes me think that you could probably build stable stores of value on top of BTC if you wanted, without losing the decentralization of BTC. You could even take the price of one of those products as a unit of account.
qznc 12y ago
Most stocks are a poor store of value. That is why people widely diversify. This makes Bitcoin more of a hedge against failings of our bank systems.
onion2k 12y ago
The value in the stock market requires many different stocks so the risk from volatility can be averaged away. That's why every good investor spreads their portfolio across different stocks in different markets. If there was just one stock traded on an exchange very few people would use it as a way to store their investment value.
sgt101 12y ago
Housing is a store of value in a way that gold and bit coins aren't; if the price of housing crashes to 0 you can still live in the houses. Also, the price of housing is highly likely to only crash to the cost of building a new house - wear and tear + scarcity costs for land. There is a speculative component in house prices, and this is a concern for anyone who is "storing value" in them, but there are fundamental uses for housing far beyond the fundamental uses for gold. Equities have a value story too. The dividend on stocks represents a future earnings value which is tradable. Also Equities provide voting rights which have value. Fiat currency has a value story; the states monopoly of violence provides it with the ability to collect tax from economic activity where that monopoly holds true. Tax revenues are a future income stream that has value; hence the underpinning of fiat. Bitcoin has rarity and speculation only.
- rythie 12y ago
  Are you sure you can live in a house worth 0? - most places with low house prices also have no jobs, broken infrastructure (electric, water, roads, shops etc.) and high crime. For a house to drop to 0 the location would have to be really bad and you wouldn't and perhaps couldn't live there anymore.
  - peteretep 12y ago
    No idea why you're getting down-voted. The assumption that houses are some kind of special asset because they always give a dividend of "you're able to live there" ignores an almost infinite number of exceptions to that.
- zaroth 12y ago
  Well, the key difference is you pay property taxes on a house. And as long as you keep doing that, and paying all associated upkeep, you can hopefully see appreciation. Oh, and you can live in it. The point is, there's no analog to the digital nature of placing a conversion value based on the bits of a certain integer value stored in a distributed blockchain. The latest round of blockchain technology is showing, bc is good for a lot more than currency. In fact, there are many things that BC can do much better even than it can be a currency. My point is, I bet on the long-term value of bc technology, but actually not on the long term value of Bitcoin as a digital asset. For example, very soon enough you will be able to cheaply, easily, and freely store your USD or whatever currency you want on a blockchain, and use it to spend and trade freely. Choose any blockchain and conversion rate / resolution you want and issue a legally binding IOU. Of course the trick is handling redemption!
nroets 12y ago
Investors have historically demanded a large premium before storing value in the stock market. "To quantify the level of risk aversion implied if these figures represented the expected outperformance of equities over bonds, investors would prefer a certain payoff of $51,300 to a 50/50 bet paying either $50,000 or $100,000." https://en.wikipedia.org/wiki/Equity_premium_puzzle https://en.wikipedia.org/wiki/Equity_premium_puzzle
glesica 12y ago
Housing prices were stable until the mid-90s.
- jtbigwoo 12y ago
  Except for the 1930's. And didn't California have a bumpy ride in the 1990's?
  - glesica 12y ago
    There were definitely blips and long-term appreciation. Here's a paper [1] on housing prices around the world, pretty interesting stuff. I guess my point was, having seen some of these graphs, there is a pretty clear transition in the 90s where the "role" of housing in the economy seems to change (although the graphs in the paper I referenced show the growth starting as early as the 60s, so who knows). [1] http://piketty.pse.ens.fr/files/Schularicketal2014.pdf http://piketty.pse.ens.fr/files/Schularicketal2014.pdf

scoofy 12y ago

Bitcoin is not a currency, it will never be a currency. Why? Capital gains tax, that's why. Bitcoin is a commodity, period. While the anarco-libertarians may see paying taxes as optional, people who actually have something to lose pay their taxes... These capital gains complications of using bitcoin as barter essentially eliminate the usefulness of this commodity, as opposed to cash, for anyone of serious importance in the developed world, and since that won't happen, there will be little push for any adoption beyond a fringe group. Without serious investors holding bitcoin, there benefits of transactions via bitcoin with currencies trades at both ends are problematic, because nobody wants to be left holding the coins. It will be useful as a substitute for wire transfers, it will be useful as a store of value in the developing and under-developing economies, but other than that i see no long term use for bitcoin that makes it significantly different from gold. The benefit of gold being that there is significantly less chance of theft. Solve the capital gains problem and maybe we'd have something, but i cannot imagine a scenario in which that happens beyond a bank removing FIFO capital gains after every transaction... which would frustrate most users.

icebraining 12y ago
The benefit of gold being that there is significantly less chance of theft. That's not possible. Simple counter-example: create a Bitcoin address, then engrave the private key in a gold bar and destroy the digital copy.
- AnthonBerg 12y ago
  Does this make sense as a counterexample?: Take a picture of the gold bar, you have now stolen the Bitcoins without taking the bar.
  - logicallee 12y ago
    Yes, the counterexample is very good. (If we accept its premises that without the information the bitcoin cannot be stolen - this is not true due to 50% attack and other reasons. Gold cannot physically disappear but bitcoin can logically disappear by network consensus or a new version of the bitcoin network that no longer accepts it and which people adopt for some reason. This was done early in bitcoin's history.) But if we accept the premise, then anyone physically close enough to take a picture (let's wrap the gold bar in a dust cover, so that this entails unwrapping it) can physically steal it. i.e. if you prevent someone from physically stealing it, such as keeping it in a vault, then to a good approximation you've also prevented them from unwrapping its dust cover and reading the engraving. I guess exceptions would be if you have workers who work in your vault but go through metal detectors to make sure they haven't stolen the gold, or the gold is somehow physically too heavy to move in one piece quickly, or somehow you can react to it being stolen and prevent the gold from actually leaving, but not if it remains in the vault. This is getting silly though- it's just as easy to engrave something and then hide it in cast iron that is very hard to get into without tools. I think physical protection from theft is very close to physical protection of a piece of engraving.

zenon 12y ago

The major use of bitcoins currently seems to be as a store of value: http://www.coindesk.com/analysis-around-70-bitcoins-dormant-least-six-months/ http://www.coindesk.com/analysis-around-70-bitcoins-dormant-...

mrweasel 12y ago

The erratic price could also hurt the economy, if Bitcoin was widely adopted. Customers will be careful in spending their Bitcoins, if they believe that the price will be higher tomorrow. Likewise business would either overprice, rather than running the risk of losing money, if they cannot convert their Bitcoin to something more stable fast enough. Both are elements that could lead to decreased spending.

skylan_q 12y ago
The erratic price could also hurt the economy, if Bitcoin was widely adopted. The price wouldn't be as erratic, as it would be normalized against all the goods in the economy. Just as gold was when it was money.

netcan 12y ago

The way I think of bitcoin and cryptocurrencies is as a huge thing looking for a ledge to hold on to. It's pretty likely that it will fall off and crash but if it manages to cling to the cliff and get to stable ground, it's a big deal. So, value store, unit of account.... some other gainful employment this technology can create by blending it together with other things.... Any way for bitcoin to be useful at this point helps it cling to the cliff.

jasode 12y ago

>The erratic price prevents it from being a store of value or a unit of account. Which doesn't matter. That's the entire point of the author's article. It's unfortunate that the majority of HN comments are about "currency" and "medium of value" in response to this particular article. The author tried to talk about The Other Interesting Thing that seems to be flying under everyone's radar: the authentication of information by distributed digital consensus instead of a central institution. That's why the author tried to use the Linux analogy. While many folks were measuring success via the meme/joke "2001, 2004, 2014, etc is the Year of the Linux Desktop!", Linux has quietly "won" on the backend servers, on Android phones, on cable DVR boxes, in Raspberry Pi, etc. The desktop as a health indicator of "Linux success" becomes irrelevant. Linux: ignore "desktop war" and substitute "servers, internet-of-things, embedded devices" Bitcoin: ignore "currency vox populi" and substitute "decentralized trust of information." To meta analyze why the discussion about Bitcoin's "other" tech possibilities is always derailed by "currency" and "fluctuations", I think it's due to: --The word "coin" embedded in the name "bitcoin" --5 years of breathless hype stories (on HN and elsewhere) around bitcoins rising --Silk Road money laundering, etc Since bitcoin is so tainted now with "currency", we need a mental reset. Here's what the author is saying the world wants: The time is ripe and the underlying technology exists (internet reach, cryptographic hashes, etc) for the adoption of a decentralized authentication of information platform. Let's think about it. If we were to list the technical requirements for a "decentralized authentication of information" service, it would include things like cryptographic hashes, block chains, a transaction API, etc. Basically, it would end up looking a lot like Bitcoin! We could call the service GitHogAnyInfo (to riff on the names of decentralized source code Git Mercurial). Or call it ConsensusInfo or whatever. Just call it any name that does not have "coin", "doge", or "money" embedded in it. If you do that, everyone's brain shuts down and we get trapped in the discussion about "currency fluctuations". For example, look at these: https://www.globalsign.com/en/timestamp-service/ https://www.globalsign.com/en/timestamp-service/ https://www.digistamp.com/technical/how-a-digital-time-stamp-works/?q=1 https://www.digistamp.com/technical/how-a-digital-time-stamp... Neither of those services have "currency" anywhere in their description. Can a bitcoin-as-info-platform instead of bitcoin-as-currency compete with, or replace services like those? That's the thesis the author is trying to convey. That's the angle the SV investors are envisioning.

skylan_q 12y ago

Greater adoption gives it more "moneyness", which in turn means we measure things against it more and more. As adoption picks up and it acts more as a medium of exchange, the value of it normalizes not only against other currencies but other goods.