Bitcoin’s Wild Ride Shows the Truth: It Is Probably Worth Zero

1. User A holds a publicly visible wallet with 1000 bitcoins in it.

2. User B publicly gives User A 10 bitcoins.

3. User A now holds a publicly visible wallet with 1,010 bitcoins in it.

4. Over the course of a month, User A distributes all 1,010 bitcoins across a thousand new publicly visible wallets, in seemingly random amounts. These wallets are publicly visible, and the transactions are publicly visible.

5. Nobody knows who holds the keys to any of those wallets. Presumably, at least 10 bitcoins worth of money belonging to User B is held in some combination of those wallets, but figuring out which ones belong to User A vs User B suddenly becomes very complicated.

6. This becomes even more complicated if there are more than two users in the scenario. What if there are actually a thousand users that the money is being mixed between?

This is the premise of bitcoin mixer services. It is at least somewhat possible to "anonymize" and "launder" public bitcoin transactions on the public ledger via this method. This is especially true if someone uses multiple mixer services to launder the same money split across a bunch of wallets.

Or at least that's my understanding? I've never actually done it.

Euros are backed by specific classes of assets, and USD is backed by US government debt, and since 2008 a lot of real estate (which was under water for a long time, but coming above water over time).

The US does not just 'print money' and inject it into the economy.

The Fed takes US Gov debt out of the market at market prices, and replaces them with USD of the same value - or the reverse of that.

At least at the 'central bank' level.

Now - when it comes to the notion of 'fractional reserve banking' - that's another issue entirely.

Want to own real estate? Then you also need to acquire some currency to pay your property tax bill.

Want to buy food to eat? Even if you pay for the food with some other form of payment, you still need some of the local currency to pay the sales tax on that food.

Want to get compensated for your labor? Even if you want your compensation to be in some other form, you still need some of the local currency so that you can pay your income tax bill.

Want to hire someone to do something? Even if they accept some other form of payment, you still need some of the local currency to pay their payroll tax.

That creates a guaranteed base level of demand for the currency that will never go away, so the currency will always be worth something unless the government collapses or prints too much money.

But 'monetary policy' is a very valuable instrument, in fact, necessary in many occasions, such as deep recession, economic shock, or war.

Greece and Spain right now do not have their own currency. Their monetary policy is dictated by greater powers - like Germany. The Euro is a 'strong currency' - it's the only way a currency union can work. There are very strict rules for how money is created.

When an economy crashes or sinks, sometimes governments want to print some easy money to 'stimulate' the economy, and a weaker currency will help exports.

Also - one 'price' that will not change easily is wages. Powerful, government sector unions will never accept a pay cut. Neither will private citizens really.

But in reality - 'the nations workers' simply are not as productive - and 'everyone needs to take a pay cut'. Not gonna happen.

Instead of 'pay cuts' companies and govs just 'hire less' hurting the economy even more.

Welcome 'monetary policy'. It's a tricky game, but they can inflate away debt, and push wages down a little bit, vis-a-vis other nations - to reflect the new condition of the economy.

Also - war, and existential shock. Monetary policy tools are important then for nations to survive sometimes.

It's a risky thing, and prone to mismanagement and certainly when politicians get their grubby hands on the Central Bank - it usually runs amok. This is the 'historical' reason a lot of people like 'Gold standards' and 'hard money' - because some tin-pot dictator can't dilute their cash.

But intelligently managed currency has elasticity - which helps smooth over bumps.

Is the short answer.

It's also worth noting that the volatility of gold production has historically played against its function as a store of value, as fluctuations in its price have had impacts on the larger economy.

All of this is to say that the only reason gold has extrinsic value as money - why so many societies have seen it as money - is because it has natural properties that map reasonably well into the needed functions of a currency. It's not unique among natural currencies, rather just a first among equals.

Interesting fact about gold, for a while private gold possession was banned in the US. So even in that regard it is not a to Bitcoin...

That's WAY better than a bank wire, and even better than the increasingly effective service that Transferwise provides. It's also beneficial to at least one party because no bank can reverse the transaction.

    ... the fact that some geniuses were laughed at does 
    not imply that all who are laughed at are geniuses. 
    They laughed at Columbus, they laughed at Fulton, 
    they laughed at the Wright Brothers. But they also 
    laughed at Bozo the Clown.

    Carl Sagan