4 ms·

Bitcoin's killer app is its function as a store of value. It's hard to see this when there are plenty of things that are storing value better at the moment, lik

by natrius 12y ago

Bitcoin's killer app is its function as a store of value. It's hard to see this when there are plenty of things that are storing value better at the moment, like traditional currencies and assets. But I don't think that will hold indefinitely (especially given our asset bubble), and that will lead people to look for ledgers with predictable supply, like gold and Bitcoin. Then again, maybe I'm crazy.

dwaltrip 12y ago
Spot on. Used with its full potential (multi-sig, time-lock, etc), and due to its fixed supply, bitcoin offers the most secure (but not the least volatile) way to store units of account. It provides the by far the most protection against malicious actors who would attempt to wrest control from the asset holder. How much this actually matters to most people (and thus its affect on the price of BTC) is an open question.
tptacek 12y ago
Isn't extreme volatility a very bad attribute for a store of value?
- natrius 12y ago
  Buy low, sell high. For now, at least. Play out the end of an asset bubble in your head. Lots of people sell their assets, and now have dollars. The job of our policy makers is to make sure dollars don't increase in value at all, and don't decrease in value too quickly. But if lots of people are exchanging assets for dollars, the demand for dollars makes the value go up. Our policy makers will take a variety of actions to make their value go down by up to 2% a year. If we're lucky, they'll be able to stave off deflation. So if you've sold your assets and want to store your value, you really want some sort of ledger with a predictable supply so your value can go up, not stay the same or decrease by 2%. Gold is traditional the ledger that people seek when these sorts of things happen. But enough people will choose Bitcoin to raise the price significantly, which will make others choose it as well. Gold might be the right bet, but Bitcoin is a more functional ledger (easy to store, easy to transfer, etc.), and the upside is higher. But again, maybe I'm crazy.
  - hnnewguy 12y ago
    >Buy low, sell high. For now, at least. Being as how a transaction requires two parties, this is not possible for everyone.
  - tptacek 12y ago
    That's a description of a speculative asset, which is a concept that's orthogonal to a store of value. For instance, a speculative asset that plummets in value can be valuable (to short sellers and put option holders). In particular: the effectiveness of a store of value is based on its ability to retain its value over time. The effectiveness of a speculative asset is based on its users ability to transact based on predictions (up or down) of its future value, regardless of its true value.
    - natrius 12y ago
      That's a good point; perhaps I was a bit loose with words. Its killer app is that it's a great speculative asset.
      - tptacek 12y ago
        Okay, but that is also (not being snarky) the killer app of a deck of cards.
        natrius 12y ago
        Do you have any thoughts on the scenario I described?
        tptacek 12y ago
        Bitcoin is an especially bad store of value. It is subject to stark and unpredictable devaluation, followed by manic upswings that increase its volatility and harm its utility to normal business, which selects out the boring currency users that would be the backbone of a sane valuation and selects in toxic speculators that amplify its volatility in the next iteration of the cycle.
- IkmoIkmo 12y ago
  Not really. Bitcoin's value has gone up by thousands of percent the past few years. That's volatility. Volatility isn't just up and down. It can be just up. Now generally I'd agree you don't want massive volatility, but that's a function of its age. A market of 50 thousand users is easy to manipulate by one rich guy. A market by of 1m users is still easy but harder. A large 100m user market is really hard to manipulate. This means volatility should keep dropping as bitcoin grows. Second, a market where most users are speculators is more volatile than one where most are users. As bitcoin becomes larger it'll only do so on the back of genuine consumer adoption. That, too, causes volatility to drop. Does practice confirm the theory? Yes. Every single year bitcoin volatility has dropped since inception. It's always trending down. All the talk about volatility isn't so interesting to me as it's a function of its youth.

by natrius 12y ago

dwaltrip 12y ago

Spot on. Used with its full potential (multi-sig, time-lock, etc), and due to its fixed supply, bitcoin offers the most secure (but not the least volatile) way to store units of account. It provides the by far the most protection against malicious actors who would attempt to wrest control from the asset holder. How much this actually matters to most people (and thus its affect on the price of BTC) is an open question.

tptacek 12y ago

Isn't extreme volatility a very bad attribute for a store of value?

natrius 12y ago
Buy low, sell high. For now, at least. Play out the end of an asset bubble in your head. Lots of people sell their assets, and now have dollars. The job of our policy makers is to make sure dollars don't increase in value at all, and don't decrease in value too quickly. But if lots of people are exchanging assets for dollars, the demand for dollars makes the value go up. Our policy makers will take a variety of actions to make their value go down by up to 2% a year. If we're lucky, they'll be able to stave off deflation. So if you've sold your assets and want to store your value, you really want some sort of ledger with a predictable supply so your value can go up, not stay the same or decrease by 2%. Gold is traditional the ledger that people seek when these sorts of things happen. But enough people will choose Bitcoin to raise the price significantly, which will make others choose it as well. Gold might be the right bet, but Bitcoin is a more functional ledger (easy to store, easy to transfer, etc.), and the upside is higher. But again, maybe I'm crazy.
- hnnewguy 12y ago
  >Buy low, sell high. For now, at least. Being as how a transaction requires two parties, this is not possible for everyone.
- tptacek 12y ago
  That's a description of a speculative asset, which is a concept that's orthogonal to a store of value. For instance, a speculative asset that plummets in value can be valuable (to short sellers and put option holders). In particular: the effectiveness of a store of value is based on its ability to retain its value over time. The effectiveness of a speculative asset is based on its users ability to transact based on predictions (up or down) of its future value, regardless of its true value.
  - natrius 12y ago
    That's a good point; perhaps I was a bit loose with words. Its killer app is that it's a great speculative asset.
    - tptacek 12y ago
      Okay, but that is also (not being snarky) the killer app of a deck of cards.
      - natrius 12y ago
        Do you have any thoughts on the scenario I described?
        tptacek 12y ago
        Bitcoin is an especially bad store of value. It is subject to stark and unpredictable devaluation, followed by manic upswings that increase its volatility and harm its utility to normal business, which selects out the boring currency users that would be the backbone of a sane valuation and selects in toxic speculators that amplify its volatility in the next iteration of the cycle.
IkmoIkmo 12y ago
Not really. Bitcoin's value has gone up by thousands of percent the past few years. That's volatility. Volatility isn't just up and down. It can be just up. Now generally I'd agree you don't want massive volatility, but that's a function of its age. A market of 50 thousand users is easy to manipulate by one rich guy. A market by of 1m users is still easy but harder. A large 100m user market is really hard to manipulate. This means volatility should keep dropping as bitcoin grows. Second, a market where most users are speculators is more volatile than one where most are users. As bitcoin becomes larger it'll only do so on the back of genuine consumer adoption. That, too, causes volatility to drop. Does practice confirm the theory? Yes. Every single year bitcoin volatility has dropped since inception. It's always trending down. All the talk about volatility isn't so interesting to me as it's a function of its youth.