Dogecoin just broke $2B

I responded to this question elsewhere [1]. TL; DR Economies can change modes. The American economy was hyper inflationary in the 1970s, then deflationary in the early 1980s and the flipped back to a long-run trend growth of inflation until the dot-com bust.

The gold standard for measuring price level changes is to measure actual prices. The inscrutability of the Bitcoin economy forces the use of proxy metrics, e.g. the exchange rate between U.S. dollars and Bitcoins. This is appropriate given the entire legitimate Bitcoin economy is a subset of the U.S. dollar economy, with prices in Bitcoin often being pegged to an implied U.S. dollar price.

[1] https://news.ycombinator.com/item?id=16097280

That...isn’t cash. It’s a demand deposit at a local bank. Even riskier than Treasuries.

Asset, perhaps (there is rightful quibbling as to whether e.g. a bond was ever worth zero; it didn't exist and then came into existence with a positive value, but that's nitpicking). Currency, no. The first U.S. dollars minted were far more valuable than one U.S. dollar today.

To utilize bitcoins, you do not need to go through the now extremely electricity intensive process of mining them each and every time. For example, the electricity transaction cost to send my friend a coin for payment for something, is trivial. Their cost to hold that coin is also relatively trivial, they did not have to expend vast electricity cost to mine it just so they can receive it; they don't have to buy tens of thousands of dollars worth of hardware to hold or acquire that coin, etc.

> By that definition all physical mining doesn't create any value, since people are just "swapping" their currency for whatever you dug out of the ground

Mining leads to dramatically higher utility value extraction of the thing being mined in most cases (which is typically the point of the mining), other than eg raw gold or silver store (both of which also have some industrial use value that can significantly amplify their foundational value).

You generally don't pull coal or oil or lithium from the ground to utilize it as a value swapping device. You mine them to put them into an industrial process that dramatically increases their value. Bitcoins are almost exclusively mined as a value store / value swapping device, as is the case with gold.

Mining is one of the great examples of net new wealth creation, mostly thanks to unlocking of energy over centuries of scientific advancement. You could hardly have picked a worse example.

For example unlocking oil, which is considered a form of mining for economic purposes, takes a non-acting asset in the ground, which can then be unleashed due to its immense energy concentration. Our technological progress can further improve the utilization. Plastics as a global, highly useful industry for example, was impossible a thousand years ago; scientific progress unlocked that new net value.

Bitcoin doesn't actually store electricity, whereas oil continues to retain its energy potential whether we think it's valuable as an energy source or not (eg if we all switch to solar). That's a literal property of oil. If the world replaces Bitcoin with the next great coin and its value goes to zero (whether in 7 years or 27 years), there's no electricity actually stored by the value-dead coins. It's the very real difference between oil having tangible chemical properties and Bitcoin being digital.

Coal as another example along with oil, takes a non-acting thing from the ground, which can then unleash vast energy that previously was not being utilized. Scientific processes can further unlock and enhance that value, make it dramatically greater, as was the case in its original entry into the economy.

Further, industrial processes can then amplify the things mined from the ground. In 1750, we had no means to utilize oil meaningfully, and then progress on chemistry allowed us to unlock that potential.

Farming and timber are two other good examples of new net value creation systems derived from dramatically amplifying an existing thing.

Blockchain and the services built on top of it, are where most of the net new value will be created ultimately. As in the case of the industrial applications of things mined from the earth, or farm land, etc. Bitcoin will very likely remain a value swapping entity. Blockchain, assumingly leading to all sorts of new services in the coming years, will likely enhance economic productivity, which is where net new wealth comes from. Most new wealth created is derived from time/labor saved and similar (thus oil applied thanks to science has been an extraordinary net new wealth generator). Bitcoin is not a very meaningful device toward that, its transaction costs have made it heavily impractical as a potential superior transaction system or currency (in which case it could have acted as a productivity booster, eg by saving people time or fees). Other crypto coins that possess superior properties to bitcoin for those purposes may fill that role.