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Comment by DennisP | Hacker News Reader

The author is assuming that (a) someone who's making all their ordinary purchases with ETH instead of VISA isn't holding any ETH, but making a separate buy on an exchange for each individual purchase, and (b) anyone who receives ETH immediately sells it for some other currency, despite living in a world where it's possible to use ETH for all purchases. These seem like questionable assumptions at best.

There's an underlying assumption that a cryptocurrency must be either a store of value or a medium of exchange, but not both, which is a bit odd since every fiat currency is both, and gold was both for thousands of years.

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That brings up a good point I should make explicit, which is that I think those two sources of value are separate but not necessarily mutually exclusive. I think you can consider them individually and then add them up. John Pfeffer makes this argument too, that the two sources of value likely don't affect each other too much, allowing you to consider them separately.

That makes some sense, but I think there's also significant friction in the conversion. If I'm a store owner getting paid in ETH (or whatever), and I can buy a lot of my supplies with ETH, then it makes sense to just keep the ETH and buy my supplies with it, instead of paying unnecessary exchange fees. And if people do that, you don't have super-high velocity anymore. You're just an everyday currency like dollars (which are also mostly digital these days).

In fact, if people were to contact an exchange for every transaction, it's hard to see how there'd be any advantage over just using legacy financial systems.

I used to put a lot of stock in velocity of money considerations but now I'm thinking it doesn't have that much predictive value. All it's really saying is that the GDP is defined as the number of transactions, times the nominal amount of those transactions, times the real-world value of the currency unit. The currency price could be anything and the equation still holds true. If you assume a maximum achievable velocity, you can work out the minimum currency price for a given GDP, but the price could also be arbitrarily higher than that.

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