Investment is where you find something producing value in the real world and then buy and hold a piece of that. You're expecting a long stream of returns from the value being produced. Speculation is where you are making a bet on price movements in a way where economic productivity is irrelevant.
When people buy and sell commodities and currencies, they're speculating. They don't care about utility. There's no economic value being created, so one's investment doesn't grow during the time you hold, say, gold. Instead, it's a zero-sum activity: considering all participants together, wins and losses are equal. (Well, technically, losses are larger than wins, because there are always overhead costs.)
Bitcoin is easy to mistake for an investment, because it's meant to be deflationary. (It was even easier to mistake for one during the period where it only went up.) But I don't think holding Bitcoin means you own a slice of an economically productive asset. I think it's just a bet that the commodity price will go up, in the same way you bet if you buy gold or euros.
[1] Warren Buffett has talked about this distinction a lot, over the years. E..g: http://www.businessinsider.com/warren-buffett-investors-vers...
And a piece of art is not a productive asset either. Yet, it can and will have value. I don't think there is anything inherently wrong with that.
I'm happy to invest in things that I believe are likely to go up in value, whether those are companies, mineral rights, art, watches, Bitcoin, or water deposits.
What else? However, gold has some utility as jewelry etc. Cryptocurrencies are (currently) pure speculation.
At the moment, Bitcoin's primary non-speculative use case is light financial crime: money laundering, capital control evasion, ransomware, buying various illegal stuff, ponzi schemes, etc. I agree that it's possible that one day trustless, distributed ledgers will deliver enormous amounts of value. But it's important to distinguish between delivered value and potential value.
Frankly, I'd probably rather use smart contracts with regular currency. If there was some kind of scam or theft then the financial institution might be able to reverse some of the charges.
Most of the advantages of cryptocurrency don't really sound like advantages to me.
Even financial markets will do it as needed. I used to write trading software. Some of our traders were trading on the DTB; being German, they were sticklers for rules. One day our traders jumped on something and made a lot of money. But it turned out that somebody at another company had fat-fingered an order at a very low price for a very large quantity. Large enough that it would have destroyed their company.
The exchange decided there was no point in that, so they unwound all the trades. I thought our guys would be mad. They were a little disappointed to lose the expected profit, but they were otherwise fine with it. They didn't see any sense in that kind of destruction just for a short-term gain.
Never mind the fact that if widespread inflation or deflation occurs, the value of bitcoin will suffer as well.
Although bitcoin is a speculative investment, it can be argued to have some utility. Unfortunately, that utility mainly revolves around making purchases the government doesnt agree with.
People in the past have traded using seeds as fiat, but they wore shiny or coloured things like shells, polished stones, polished metals.
Human vision is attracted to shiny and brightly coloured artefacts, it's not entirely subjective. This is why you can trick a child to accept a shiny coin in exchange for a high value item, or currency note, or even for a higher value coin that has less polish.
Gold's utility as jewelry stems from its high value as a precious metal.
It's circular reasoning though, since we're also saying that it's high value is underpinned by its use as jewelry.
E.g. the Incas used gold for jewelry despite it being fairly abundant.
False. Cryptocurrencies are _mostly_ speculation. Go to any dark web site and everything for sale is being transacted in crypto. Look at XRP - there are clearly large commercial organizations using that crypto for business purposes.
If you were a jewelry-maker, I suppose you could call buying gold an investment.
I'm buying shares of an S&P 500 index now with the intention of selling them at a higher price in ~40-50 years. Am I a speculator or an investor?
This may be hidden from you if the index fund (or your broker) automatically reinvests. But either way, you own economically productive assets that a) create value for customers, and b) throw off a stream of cash. Even if the S&P 500 is at the exact same level in 50 years, you'll still gain significantly. That's obviously not true of commodities (e.g., gold, silver) or currencies.
It’s also odd not to acknowledge that banks have had electronic transfers for decades. You wait seconds for a card transaction and almost every financial institution allows you to do transfers without visiting a physical office.
AFAIK, Bitcoin takes a minimum of 10 minutes assuming that I wish to pay the going transaction fee, or as long as 3 days (or even never!!!) if I use a de minimis fee. And that's assuming a significant risk that the value of the value transferred will not have the same value by the time the transaction actually goes through.
I'm not saying this is actually happening, but when/if it does, it will work no differently than other currencies.
I'm not a fan of BTC or cryptocurrency, but I think there is definitely a case that nefarious use could bootstrap it into a real asset.
> there’s no value in any particular set of random numbers
What is the "intrinsic value" in e.g. an iPhone? Would that value exist without humans? I would say no, it only has value because people are willing to pay for it. So I'm left wondering what principled distinction you can draw between a particular set of random numbers and a particular arrangement of metal and glass, both of which people want, to determine that one has intrinsic value and one does not.
The iPhone, or any other phone, has the intrinsic value of being usable as a computing device, entertainment device, communications device, camera, thrown weapon, etc. If you want to be pedantic about it, the components that make up the iPhone have the intrinsic values of being usable for one or more of the above functions, and the materials that go into those components have the intrinsic value of being usable in industrial/commercial products or processes.
A bitcoin literally has no use inherent use on its own. It's simply a number. The exchange of these numbers has no intrinsic value, it would be like me and Adam exchanging a 2 and a 3 (not dollars or anything other units, literally just the numbers). Any value from the exchange is an additional layer of context imposed by me and Adam on the transaction--it's not intrinsic to the bitcoin itself.
Okay, but you're just shifting the value down the line. What makes computing or entertainment valuable, other than the fact that they are things humans want?
I don't think it is a very good store of value - we mostly need store of value in the special cases of wars, extreme crises, and similar stuff - for normal times we can invest our money into businesses that really produce something. But bitcoin does not seem to be very usable in these circumstances. It is not well tested. It is also in danger of being replaced by some other cryptocurrency. And I don't thing there is space for more than two or three of them - just like money gravitated into gold and silver.
I have always question who says this. What makes you think deflation would be bad?
My conspiracy is that governments require inflation to print themselves out of bad policy. Without government abilities to do this, the government performs poorly. Common citizens do not lose 2-4% of their income in inflation.
Literally economics 101. Investment grinds to a halt and progress along with it.
Also, inflation means everyone needs to be investors or the money they worked hard for evaporates. Why should we force Joe Sixpack into being an investor for the good of the economy? He should be able to focus on earning money from his trade without having to worry about investing due to inflation being forced upon him.
Well, it's discouraged, but yes, basically. Under inflation, you need to invest money just to stay even. The lower inflation is, the less urgent the need to invest. With deflation, you're somewhat incentivized not to lend. A fixed money supply guarantees deflation, so yes, this would significantly reduce lending and the economic growth that lending stimulates.
> Also, inflation means everyone needs to be investors or the money they worked hard for evaporates. Why should we force Joe Sixpack into being an investor for the good of the economy?
If Joe Sixpack lives paycheck-to-paycheck he can ignore inflation entirely, it doesn't affect him a whit. Once he gets some savings, if he doesn't like risk he can buy bonds or something and continue ignoring inflation. But since you brought it up and since this seems to be a point of confusion for a lot of people, yes, let's see how a fixed money supply would affect Joe Sixpack.
If the government stops printing money, we are guaranteed to get deflation any time the GDP grows, right? With money supply held constant, "The US currency deflated by 2% last year" is equivalent to saying "The US GDP grew by 2% last year." And what makes the GDP grow? Joe Sixpack and his friends, out there mining ore or building furniture or otherwise increasing the amount of value in the world.
2% deflation also means that anyone with savings sees the buying power of their savings increase by 2%. If Scrooge McDuck has $5M in his mattress, his inflation-adjusted net worth increased by $100,000. He can retire and spend the rest of his life living very comfortably on the equivalent of $90k/year, and despite him doing no work, despite him incurring no financial risk, somehow every year he'll get a little wealthier.
How is that possible? Who's paying for his life of luxury? Joe Sixpack. Deflation is quite literally a tax by capital on labor. As long as the GDP is increasing, arguing for deflation is tantamount to saying, "I think some of that GDP growth created by workers should go to anyone with money." AFAIK this is universally understood to be a Bad Thing (tm) by virtually everyone.
He'll have to part with some of his wealth whenever buying something, and eventually it will still run out. It's not a stock that produces dividends, you have to spend the principal to take advantage of the value growth. Think of it as owning a $5M home that you have to sell a part of each time you buy something, even though the house increases in value.
> How is that possible? Who's paying for his life of luxury? Joe Sixpack. Deflation is quite literally a tax by capital on labor.
Joe Sixpack's salary would increase in value by default. As in, by default salaries would track GDP growth, how does that look like a tax to you? Companies will have to actively tell people "we're going to reduce your salary", which helps workers in the negotiation.
> How is that possible? Who's paying for his life of luxury? Joe Sixpack.
Or whoever is after the currency, just like whoever wants to buy a house pays for equity value growth.
> "I think some of that GDP growth created by workers should go to anyone with money." AFAIK this is universally understood to be a Bad Thing (tm) by virtually everyone.
As opposed to "I think some of that GDP growth created by workers should go to banks so that they can charge interest on everyone else and make easy profits."
How will you pay for things if you dont spend Bitcoin?
I find 0 of those good. Upgrading your car when you dont need to is wreckless spending. Maybe the Economy changes to become more conservative and less environmentally damaging.
Going out to eat + vacations are unnecessary expenses. And btw, I completely doubt people are going to stop doing those 3.
> Upgrading your car when you dont need to is wreckless spending.
But that's what creates the used car market, which is much bigger than the new car market. When people stop buying new cars it means tons of layoffs, which means tons of reduced spending by all the previously employed auto workers, which means more businesses lay people off, etc etc.
I'm sure you do. But the chef who makes their living cooking food doesn't. The person who makes their living running tours doesn't. And the people employed by both definitely don't.
Personal Consumption Expenditures make up ~70% of the US GDP. Unless you really enjoy recessions you don't want to see it go down.
From what I can tell, the evidence on the expected deflation you're talking about paints a different picture: https://www.bis.org/publ/work186.pdf
You ask why people would buy stuff when they'll be cheaper later, but then again, why do people buy stuff now when they could put the money on the stock market and take it out later, when it will be worth more than the product costs?
I wouldnt use an entry level economics class to judge technology that eliminates risk of government hyperinflation and lowers/eliminates cost of transactions.
The economic benefits of free/low cost transactions and money that can be saved/spent rather than invested may have its own benefits.
I didn't, the question was "What makes you think deflation would be bad?". That is entry level economics and has nothing to do with technology.
Deflation via credit default has shown to be harmful to wider economy 2x times in US history (monetary shocks). I am not aware of any conclusive study that a deflationary currency is bad for investment and progress. The easy counterpoint is Gold, which is often deflationary (when economic growth outpaces gold mining). We have had 10k years of investment that have shown your basic statement is false (deflationary currency causes investment to grind to a halt).
Inflationary fiat or credit based currency is a relatively new invention (1972 in the US). I have not seen any serious analysis showing that real investment has radically improved since going off the gold standard. Real investment has been growing for decades as real wealth increases, inflationary currency hasn't changed that very much AFAIK.
The dollar has been fiat since the 1930s. The gold standard from 1933-1972 was essentially in name only.
45-72 was bretton woods era which was still fixed price to gold.
It was only after 1972 that the value was allowed to be free floating, not tied to an amount of gold https://en.wikipedia.org/wiki/Nixon_shock
Without inflation, i.e. fixed money supply, it would be impossible for a majority of loans to be repaid with interest, or give a positive return to investments. Note that this fact is independent of how well the borrower or business performs. (This is like a zero-sum game).
So, it would be irrational for investors or lenders to part with their deflationary money, as the net profit is always zero (or negative because of other costs).
I am very interested to know if there is a way around this problem.
Bitcoin seems to be best for hording and spending. It holds value and can be transferred easy and cheap.
You can still have companies using currencies that incentivise loan/investing. Bitcoin currently exists and the loans keep being written.
I think as bitcoin grows its going to become big and boring. No 10x gains, not even 2x gains, like 10% swings over the course of a year. It wont be fun, it will be a store of value if you dont trust fiat. Right now I think its crazy undervalued which is causing the explosion of crypto. As BTC gets bigger, investment will start to look better as it provides better returns.
It can't get any bigger, the transaction limits, the "halvings", the liquidity issues after over a decade of operation, so I guess that experiment has run its course.
Ergo, there must be a hole in your theory somewhere.
Regardless of whether or not a deflationary end-state is better or worse, it seems non-controversial that the transition from our current situation to a deflationary one would be absolutely brutal. We're talking about turning the global economy on it's head.
It won't help how choosy investors are, or how well the economy performs. The money supply is fixed. So for someone to make 120 bitcoins from an investment of 100 bitcoins, someone else has to lose 20 bitcoins, which would be other investors, or the public (workers / consumers).
We currently have many currencies, if Bitcoin is so absurdly better, then maybe there would be a transition. Otherwise I'm sure many currencies will be used based on the application.
The alternative really is between low inflation and price stability. Government tends to prefer low inflation because it encourages people to invest their assets in a productive way and because it's actually pretty difficult to avoid any inflation via monetary policy.
In a deflationary model, old money gets more and more valuable with time. In 50 years, it's possible that one Bitcoin will be worth 10M€.
What happens then when someone finds a stash of 100k BTC on their grandpa's attic? They can destabilise the whole economy.
With inflationary currencies it's never an issue - a money is either in circulation, or "evaporates". If you find your grand-grandfather's savings on the attic, they won't be worth too much (even if it's still a fortune). If you find your grand-grandfather's crypto-savings, you're a trillionaire, and a king of the world.
these happened all the time before central banks were created; see the two-century CPI plot: http://www.businessinsider.com/chart-inflation-since-1775-20...
Intentional monetary inflation creates a value gradient, wherein the first spend of a new dollar can buy more than the second spend, and so on, until the knowledge that the new dollar is in circulation has normalized.
Now, what happens when you always spend new dollars into circulation through the same entity, but then remove old dollars at the same rate from those who only acquire dollars after they have been value-normalized? If you are an entity that can create new money, and destroy old money, you effectively get a discount on everything you buy. To a lesser extent, the same applies to anyone that can hoard a large enough quantity of money. You can withdraw a quantity from circulation, wait for prices to normalize for the new money supply, then buy at a lower price from hoarded money until people realize the circulating supply is now larger and raise their prices.
The counter to this is to restrict fiat money creation and discourage hoarding. Bitcoin already has a fixed-in-stone schedule for the creation of its money supply, but there is no way to stop someone from accumulating a large quantity, and then using the size of that hoard to act like a central bank.
The beauty of Bitcoin and the whole crypto "space" is that they are more than just mere ponzi schemes. Don't let the pedants get to you--the crypto space transcends the entire gamut of frauds, scams and schemes. They're not only ponzi schemes but pyramid schemes, MLM scams, a pump & dump scams, exit scams, exchange scams, securities fraud, and a bunch of other named and unnamed scams you'd find in wikipedia.
Often times these scams are deeply layered, with scammers scamming other scammers.
Sometimes just best to simplify the whole thing as "a scam" instead of iterate through every single sub-scam, sub-fraud and sub-scheme that exists within the entire ecosystem. The whole thing is really quite remarkable and would be much more enjoyable to watch if it wasn't such a massive drain on earth's resources.
You're right though, it is more than just a mere ponzi scheme: https://en.wikipedia.org/wiki/Heaven%27s_Gate_(religious_gro...
Peer to peer using coinbase(email) for free and instant to friends.
Shift card for free and instant at merchants.
Bitcoin is beyond blockchain, companies have built products to trade BTC instantly, free, using the infrastructure already existing. The transaction time 'problem' doesnt really exist if you are into crypto, you know how to use it.
And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
Fiat has ushered in an absolutely amazing period of global growth that has made us unbelievably wealthy. But there is inflation, so why not go with the thing that has no history?
Inflation has destroys savings for the masses who keeps cash more than investment. We've seen this a half dozen times in the last 100 years.
The gold standard was one of the worst fiscal policies ever. Its use was directly responsible for the destruction of millions of lives. Arguing to bring it back shows incredible nativity and a severe lack of history.
I suggest you read up on how horrible of an idea the gold standard was before you spout this kind of nonsense.
Can you propose some reading material?
Since around 1980, all the "amazing global growth" has largely gone to those who own and hold financial instruments, while those who make and those who serve have just been treading water all this time.
I can't imagine how unbelievably wealthy I would feel if my class's wages had risen commensurate with increases in productivity, but I certainly don't feel all that rich now.
I'm sure it's just a coincidence but the 1980s was the beginning of the "off-shore everything" trend.
I bought BTC at 200, 400, 800, 1200, 3000, 11,000, and 7,000.
I like BTC wayyy better than USD. If I need to spend 2$ at taco bell, I'll just use my bitcoin.
This a completely emotional argument, there's no logic behind it, you could also regret spending $2 at Taco Bell instead of on Bitcoin.
It's the same thing.
The currency you're using is USD, since that's how Taco Bell set their prices and it's how you're measuring the value of your bitcoins (via the exchange rate).
I've yet to see any business set their prices in bitcoin. Everyone accepting bitcoin payment is setting their prices in fiat currency (e.g. $2), and accepting an equivalent amount of bitcoin (based on market rates); i.e. treating bitcoin as a payment gateway rather than a currency.
How so? What matters is the price at the time of transaction, no?
Shift card had like a 10$ fee for printing the card, but its free and instant.
The only time I did an on-chain transaction in the last 3 years was moving money to another exchange to buy alt-coins.
So you used a "totally not a bank, but really a bank" bank, eh?
2FA > a piece of paper under my bed.
But also I keep my bitcoin in lots of places, a few bucks in coinbase for free transactions is like keeping cash in my wallet.
It's a matter of opinion. However, the only reason for bitcoin to exist is to avoid banks and payment processors. Hence it's illogical to make heavy use of coinbase/etc. regardless of what opinion you have.
Bitcoin has many downsides (volatility, no recourse, vast energy usage, paranoid wallet security, high fees, long confirmation time, etc.) and one upside (no need to trust processors/banks).
If you think that processors/banks are bad, then you might find that the upside outweighs the downsides, and make many on-chain bitcoin transactions. Yet you shouldn't use coinbase/etc. in this case, since they're a bank/processor, hence you'd be removing the only upside that bitcoin has.
On the other hand, if you don't think that processors/banks are bad, then the upside of bitcoin isn't worth all of the downsides. You might as well use regular currency, with all of its advantages over bitcoin (instant payments, lower fees, lower volatility, recourse, less paranoid security, etc.). In this case there's no need to use coinbase/etc. because there's no need to use bitcoin.
Those intermediaries do serve a role in converting between traditional currencies and cryptocurrencies, but it only makes sense to use them occasionally, e.g. buying a stash of bitcoins and immediately 'withdrawing' them to your private, on-chain-only wallet. If you're regularly converting back and forth, or maintaining a non-zero balance on their systems, you would always be better off doing something else (either sticking to fiat, or sticking to crypto).
Not true. If your purpose is holding inflation-resistant money, payment processors and bitcoin banks may be perfectly ok.
I increasingly feel that pro-crypto arguments are mostly motte and bailey. So Bitcoin is better than fiat because it's decentralized and censorship-resistant, with everything forever stored in the blockchain. It's also more convenient and efficient than fiat in daily use - when we discard all the decentralization and anti-censorship guarantees, skip the blockchain and use it as a private-issued, unregulated fiat.
That is an option.
I dont care about 'trust' when I spend 2 dollars at taco bell on my shift card. I dont care about 'trust' when I give my friend 200 dollars with coinbase email.
5 bitcoin? Yeah I'll take that out of coinbase.
But this is a payment platform IMO. I use paypal and venmo too. They dont charge fees and I dont really care about decentralization magic.
This isn't at all different from the way many people separate their investments and savings accounts from their checking accounts, except that in this case, the investment/savings accounts get "magical crypto guarantees."
This isn't rocket science.
I dont keep most of my bitcoin in coinbase.
The only thing I will say is that I keep my bitcoin in MANY locations and MANY wallets.
my bad
If bitcoin is "beyond blockchain", than what is it? Just a table of transactions in a Real Database™? If yes, whats the point?
You've just layered a very bank-sounding, very-centralized construct on top of your space-age "trustless" decentralized blockchain. How is it at all revolutionary since you've basically gone and re-invented a much shitter version of the credit card and traditional (evil) fiat banking.
> And I dont trust USD like I trust BTC. Historically Fiat currencies are awful.
I feel like bitcoin people live in some kind of alternate reality that I simply don't understand. Is it the fact that they have so much invested in the concept that they lose the ability to think clearly? Is it a cult? A religion?
I'm not sure, but it sure is an interesting phenomenon.
I can tell. You seem to think Bitcoin is another inflationary currency.
The excitement is that, Donald Trump doesnt have control over Bitcoin. China doesnt have control over bitcoin. No government does. People with computers have control over it. There are 21,000,000 Bitcoin ever ever ever. No amount of awful government can change that.
>How is it at all revolutionary since you've basically gone and re-invented a much shitter version of the credit card and traditional (evil) fiat banking.
Like I said, Bitcoin is rare and digital. I think you are complaining about payment processing companies. I have had an excellent experience using these companies with no fees on instant transactions.
Provably false. Bitcoin has been forked into multiple chains numerous time, creating many more then 21 million tokens. Given that there is no trademark on the term "Bitcoin", some of these forks can rightfully claim themselves to be The True Bitcoin.
In addition, there are thousands of other non-forked blockchains that are nearly identical to bitcoin, save for a few minor configuration changes.
> Bitcoin is rare and digital.
Absolutely false. Bitcoin is digital and infinitely creditable. This has been proven over and over again.
This is absurd. You could say the same for the dollar and the canadian dollar. You seem to think a new currency devalues every other currency.
It's already banned in some countries, and many tax it. Evading those laws comes with risks, so many or most people comply. Exchanges end up being forced to hand some data over to the IRS/others. Overall, governments seem to have control over it nearly the same as they have control over the trade of anything else.
What I don't understand is how you think your are insulated with bitcoin. If Trump does something so catastrophically stupid that USD is worthless, what will be the effects on the worldwide economy? How will bitcoin insulate you from something like the 07 recession, it won't make finding a job easier. At least the gold peppers can claim there is some value left in gold in a hypothetical nuclear post apocalypse, BTC instantly becomes worthless without widespread internet access. Without network access, what value is in a blockchain?
Obviously you're not 100% protected, but you're more protected from anything that doesn't affect the entire world.
Or do you think that holding dollars exposes you to an Amazon bankruptcy just as much as holding Amazon gift cards?
> BTC instantly becomes worthless without widespread internet access. Without network access, what value is in a blockchain?
Have you looked around at the world you live in? If network access ceases to exist the entire economy will collapse, I don't think Bitcoin is your biggest worry there.
I thought China had over 50% of the mining power
It's applying the formula of the shit book "The Secret" ("if you want it really hard, the universe will give it to you") to getting rich...
In 2020, Bitcoin will inflate slower than most fiat currencies. The culture enforces that this rate will not increase arbitrarily. Storing it in a digital safe you control will prevent seizures.
Are fiat people living in a cult or can they present arguments in good faith?