Gold as a metal has an inherent value though. If not only for jewelry, it also has important uses in electronics. The value associated with bitcoin seems purely sentimental.
Not only is Bitcoin purely sentimental, it represents has huge costs in the form of raw energy.
Bitcoin's only claim to value is that it is an artifact of an act of ritual sacrifice. One might imagine a precedent in some system of tokens issued by some ancient priesthood.
That's as tangible as anything else. Nobody would say that there's no demand for musical instruments, or baseballs, because they are optional parts of life that aren't food or shelter.
Gold has intrinsic value in part because people seem to intrinsically like it for what it actually is, not just it's utility in exchange. That's fundamentally different.
"intrinsic" seems to imply an innate persistence despite not being able to justify such innateness, just empirical persistence. It just implies things that are arguably not justifiable needlessly. gold has been persistently valuable. The universe doesn't give it an innate value.
Seeing as how cultures that considered gold a highly valued item developed independently in Europe and uncontacted pre-Columbian America, and the preference remains global today, there's clearly something durable about this concept.
you could say that the reasons for valuing gold probably aren't going to go away anytime soon as far as anyone can guess. though even then, the market value of gold has fluctuated by a factor of like 10 in recent history as the durable abstract reasons for wanting it have not apparently changed as much. did anything intrinsic about gold change from 1980-1981, when the price crashed 82%?
It's not clear how much demand for gold would increase at say 1/10th the price, but based on other commodities we would probably use more than 10x as much would would represent a solid price floor.
Bitcoin on the other hand has no price floor and can effectively go to zero. Though, in practice much like beanie baby's or other fads people are likely to hold on to good vs sell it for 1/1,000th the price hopping for a comeback. You would expect long term bitcoin sales below 1 cent per coin to be very rare until eventually the network collapses.
> Bitcoin's only claim to value is that it is an artifact of an act of ritual sacrifice. One might imagine a precedent in some system of tokens issued by some ancient priesthood.
I mean, in this respect the analogy to gold is not an awful fit.
Edit for less smug more content: sacrifice is an interesting lens through which to look at bitcoin. You could argue that burning "excess" compute power is the real point, not the tokens.
Also, gold is not scarce by any means, just expensive to mine.
1. You can't create new bitcoin at any time - not after all blocks are mined 2. Same as bitcoin, Gold needs to be mined. This is basically "conjuring" gold. 3. Wiped cryptocurrency can be returned. 4. Gold can be destroyed as well.
Bitcoin Cash did exactly that. New value was conjured up out of nowhere - Bitcoin didn't drop, and every owner of a Bitcoin suddenly had $2-3k worth of Bitcoin Cash.
> Wiped cryptocurrency can be returned.
... What? Are you sitting on a SHA-256 exploit we don't know about?
Let me break it up to you again:
1. Bitcoin (In it's current form) has a limited supply. If nothing changes, there will be a time when new Bitcoin cannot be mined anymore.
2. Forking Bitcoin does not mean new Bitcoin is created. You are confusing value and supply. Forking creates an alternative currency (which can be called anything you want) that uses the former ledger of Bitcoin to distribute its initial wealth.
3. It is not a guarantee that addresses with lost secrets will be lost forever. Like you said, SHA256 exploits, or maybe quantum computing would be able to recover them.
It's going to get really exciting at tax time, when people declare bankruptcy, go into a nursing home and need to prove they don't have assets for Medicaid, etc.
> Like you said, SHA256 exploits, or maybe quantum computing would be able to recover them.
That's an insane defense of the point. Sure, if that stuff happens, you'll be able to retrieve lost coins. And non-lost coins. So will everyone else. Bitcoin's value would be instantly zero.
Houses are lived in. Stocks act as a cashflow for companies. Even if the world economy collapses you can still use a solid gold bar as a blunt instrument to kill an animal and eat it.
Cryptocurrencies have exactly 0 secondary uses.
These events both seem very unlikely right now, but they provide a last-resort value for an ownership interest in Amazon.
(I don't mean to support other people in this thread who are criticizing cryptocurrencies for their lack of inherent value, but stocks do have a particular basis for their value that cryptocurrencies commonly don't.)
I'd take ownership in Apple all day over any coin, as I suspect more people out there value the Apple Stock over the ever-increasingly tough to exchange Bitcoin.
In other words, owning a non-dust amount of Satoshis gives you some useful property. Anything scarce and useful will have value and market will price it. Anything with a price and good properties to become means of exchange, unit of account or store of value could under some circumstances become a form of money.
Similar as with gold. You can use it in electro-industry. That's its secondary value for people who see value in electronic devices. If you were to explain why gold is valuable in electro-industry to a member of native african tribe, he would not see that value, because electricity and electronic devices is something not considered in his mind. You are in the same boat with Bitcoin here :-)
The point is - crypto-currencies are fairy dust. There is nothing real or tangible about them.
I guess what I am trying to say is that there is a lot more that goes into value than utility. That's why I do not think that people always act rationally. Clearly there is something irrational about people's relationship with gold that makes it valuable. I don't see why crypto cannot have a similar irrational evaluation. Sure, it could go "poof" tomorrow, but I don't know if that will stop people from seeing it as valuable.
Not really. Pyrite has a vaguely similar color to gold and flakes of it can be easily be visually mistaken for gold in certain contexts, it doesn't generally closely resemble gold, even cosmetically.
Most money in circulation is 0/1's on hard drives.
I'm bearish on cryptocurrencies because frankly the entire thing is hilarious but modern currencies aren't entirely dissimilar.
I think this thread started out with someone saying that crypto-currencies aren't very useful as currency, but as assets (like a gold bar) instead. And then it was argued that they're not very good as assets either.
Being backed by demand from the entire economy of a stable polity is certainly better than being backed by sunk (energy) cost fallacy and speculator enthusiasm.
I think the gold comparison is quite close.
Crypto has exactly zero real world utility or inherent value. You, Joe Schmoe, do not by yourself and your own desires dictate what does and does not have inherent value.
Maybe that's not put very well. Look at it like this.
Primitive civilizations (some of which still exist today) may store their wealth in something like cattle. Often exactly cattle in fact. Obvious real world utility. But cumbersome to trade, can't grow the economy fast, lots of drawbacks and it limit how complex the culture can become.
As civilization gets more complex it moves on to other mediums. Next might be useful metals (tin, bronze, iron). Less immediate use than cattle, slightly more abstracted. Then maybe precious metals or stones, less practical use then the previous stage, even more abstracted. But easier to move around, trade, store and calculate with. Then currency, even more abstracted and even less practical use. Then digital currency in the form IOUs and ledger balances which is essentially what we have now. 0 practical use. Essential for any modern economy.
Point being, "real world use" has nothing to do with value as a currency, a store of wealth or an economic unit in this time and place. The worth is abstracted functionality. And it's entirely possible, in fact even likely in my opinion that blockchains are an evolution along these lines, a next step in abstracting units of trade and ledgers of wealth.
A gold bar has inherent use because there are (and, more importantly, will be) people who will buy it to smelt it and make jewelry.
I agree with the observation that the difference is that gold is that which doesn't go away when you stop believing in it. Bitcoin does.
There is a difference between simulated gold, and actual gold, that is. At least, under current conditions.
Most of the value is what we ascribe to it. Close on 80% is used in jewelry. It doesn't actually make you money, there's no universal law that makes it more valuable over time. It's just stuff we like, same as art or classic cars or Bitcoin. We've just liked it for longer than those things, so we trust it more. but that isn't guaranteed.
You can use non-greater fool assets to make money. A stock is a piece of a business that earned you money over time. A truck can be used to make money. Gold can be fashioned into more-valuable stuff but the real assets are the craftsmanship and tools. Gold is the commodity.
Well not exactly, the largest consumer of gold are Indians and they buy gold jewellery to show affluence. Most of the jewellery is passed down generations.
Still, is extremely valuable and has been extremely valuable for hundreds of years. It's got the added benefit of being something that people can show off to display their wealth. Even if it's arbitrary why we value gold in the first place (I think aliens looking at our society would find our gold obsession strange), it's probably not going anywhere as a store of wealth. If I buy gold today, unless Armageddon happens, it's very very likely that it will still be highly valuable in 10 years times.
Bitcoin might be valuable in ten years, but like many manias in the past (for example, tulips in 1637 Holland), its value will probably fade at some point unless it has some inherent usefulness as a medium of trade for other useful goods. Gold might eventually lose it's value as well, but it's been artificially inflated for millennia so I'm not betting on it collapsing anytime soon.
The price of gold isn't really related to it's use in electronics however.
> The value associated with bitcoin seems purely sentimental.
Scarcity is a factor. Admittedly not all things that are scarce are valuable but it's a necessary precondition.
There are other examples of items that lack inherent utility but have value and they too are often used to store wealth: art, antiques etc. spring to mind.
If everyone decided tomorrow that Ming Vases were rubbish they would cease to be valuable. That's surely as "sentimental" as Bitcoin - value based on scarcity and consensus.
If you don't have enough dirt, then you can't grow food and everyone dies.
But why is dirt not valuable? Well, that's because the supply of dirt vastly outstrips demand.
The same could happen for gold.
Actually, if the price started trending that way, I imagine other factors would have a bigger effect on the economy before it reached that stage.
If we see a widely traded and daily useful crypto-currency in use for general goods and services, we'll see a deleveraging of the banking system.
Right now how often do you exchange a real Dollar or Nickel for goods or services. Chances are your token of exchange is your credit or debit card, with a balance maintained by a bank.
Would be very interesting to imagine the world we will live in if the banks are no longer keeping the ledger for society.
Based on what? Cryptocurrency markets went from zero to doing practically every financial fraud, scam and deception in the book in a matter of months. Excessive leverage? See Tether. Ponzi scheme? See Bitconnect. Backroom dealing to help the well connected? See Ethereum.
Banks don't lever up, lie about the value of their holdings and borrow short to buy long because they're evil and destructive. They do it because there are massive monetary incentives to do those things. Those same incentives are present in cryptocurrencies. The only difference is the regulators haven't tuned in yet.
> banks are no longer keeping the ledger for society
Banking laws would be updated to regulate Coinbase, Bitfinex, et cetera.
Finally, you could also reduce it to the fact that possession and distribution of pretty objects can increase your likelihood of reproduction. From an evolutionary standpoint, access to reproduction is an inherently valuable thing.