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Comment by strgrd | Hacker News Reader

"I am still quite bullish that a basked of cryptocurrencies will be worth in the trillions within the next 10 years. The primary short term driver for crypto value with be the generational replacement of gold as a store-of-value for a specific subset of the population. The longer term drivers of crypto value will be new forms of programable money and on-chain securities."

What subset of the population is going to replace gold with crypto? Because it won't be the entire generation burned by ICO scams and bullish investment into whitepapers they don't understand.

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There's been this pattern within crypto where each new bubble brings in new people, while the people burned in the last bubble leave in disgust and long-time hodlers from 2 bubbles ago cash out their winnings and do other things with their lives. Many of the most active developers and evangelists from 2011-2013 are doing other stuff now, and the ones that haven't are engaging in juvenile pissing matches with their millions (cf. Roger Ver and Craig Wright). Many of the folks burned by Mt. Gox left in disgust in 2014. Many of the current big exchanges (eg. CoinBase) were founded by people who got in after the 2011 bubble. Ethereum was founded by folks who got in after the 2013 bubble, and were initially skeptical of this whole cryptocurrency things. There's probably a wave of new cryptocurrency startups being founded in garages & dorm rooms right now by people who were too young to really participate in the 2013 or 2017 bubbles but don't want to miss out on the next one. The folks who got burned by ICOs are mostly already gone, or they're sitting around being bitter and predicting Bitcoin = $0.

It's not all that different from the dot-com boom; I (mostly) missed out on the bubble from 1995-2000 since I was in high school at the time, but kept studying computers & web technologies in college and caught the mass adoption wave afterwards. I had a number of classmates and coworkers (at internships), slightly older than me, who rode the dot-com bubble right into the ground, losing both their jobs and their life savings. Many of them left tech altogether and became economists or traveled abroad or bounced around between temp work. They basically swore off investing in tech stocks, but one of the folks I'm thinking of thought she'd make a pretty penny by buying 3 houses and investing in hedge funds in 2007.

It's human nature to believe that bad things that happened to other people aren't going to happen to you, and as a species we're remarkably bad at learning from other people's experience. The set of folks actually burned by ICOs is a relatively small subset of "all people" though - IIRC at the peak of the bubble there were only about 10M Bitcoin investors in the U.S. and only a small percentage of them actually invested in ICOs. That's like 3% of the population, still very much in early-adopter territory.

Web technologies created immense practical usage value right from the start. The fact that cryptocurrencies will do the same is very, very debatable. For now, the only valuable use case I know of is for illegal activities (ransomware, tax evasion, buying illegal stuff). Which is a sizeable market, but not one which is going to see mass adoption.

Thanks for the comment - My hypothesis is that people growing up today in their 20s and 30s who would have normally bought gold in their 40s and 50s will buy crypto instead. So it will be a generational shift versus a replacement for existing older gold holders. (Could be wrong of course).

I don’t buy it - gold has a natural floor, for one thing. I can sell it to make pretty earrings or fancy computer cables. The risk of it losing all its value is basically the risk that we will move to a post-scarcity Star Trek style society with matter replicators. Crypto.. not so much.

Why does this floor influence your choice to purchase it over some other commodity to store value (crypto or otherwise?) What do you think that floor even is? (My working assumption right now is gold could lose 99.9% of its value if it was priced based upon it's utility as a metal and not as a culturally agreed upon store of capital.)

I would think that most people buy gold as a safe-haven investment, so in this case its floor and/or non-correlation would be very important.

So your logic is that "people buy gold because other people believe it's a safe investment"? That same logic applies to crypto - if people stop believing that gold is a good investment and start believing that crypto is a good investment, gold will cease to be a good investment and crypto will become a good investment.

I think gfodor is asking something more along the lines with "What can you do with gold that you cannot do with anything else you can buy?" There are valid answers to that - gold is a catalyst in several chemical reactions that won't work with any other metal, it's corrosion resistant, it's shiny, it's a very good conductor that's quite malleable. But I'm with him in surmising that if people only used gold for its metallurgical properties, absent any historical sentimental attachment, the price would drop 99.9%. Gold is actually quite abundant; 190kt have been mined so far [1], most of which is either locked up in jewelry or being hoarded as an investment, so if people ceased to believe it was valuable there'd be a very large oversupply for the few real industrial uses.

[1] https://www.gold.org/about-gold/gold-supply/gold-mining/how-...

That’s still far more uses than if people think a particular coin has lost its value. When thinking about a store of value for loss-averse people, the intrinsically useful, always-been-valuable mineral I can hold in my hand seems like a psychological winner over numbers in a blockchain that require an industrial society with the blockchain to keep churning. My take was that people were speculating in bitcoin to get rich, not to weather government collapse.

Iron is much more useful. It also requires more energy to extract.

iron is far more abundant though.

The price of a commodity depends more on the energy, labor, and technology required to extract it and consequent market power of the main producers than on its abundance in the earth's crust. Otherwise strontium ($1000/kg, 360 ppm in crust) would be a lot cheaper than tin ($16/kg, 2.2 ppm).

Ignore the utility of gold, I feel that just muddies the waters.

The volatility of crypto makes it a terrible store of value. While people may use it as such, it is primarily a speculative asset.

OTOH, gold has historical precedent assuring its stability. So while that could suddenly change, its going to take a fairly sizable event to shift the perception. Like a nuclear holocaust or something.

If there's any generational shift in this thinking it's purely naivety.

So my perspective is basically that crypto is a terrible store of value, but gold is also a terrible store of value. Take a look at the price of gold since the Nixon Shock:

https://goldprice.org/gold-price-history.html

At the time of my birth, gold was worth $800/oz. By the time I was old enough to ask "What's gold?", it had fallen to $300/oz. It was up to $500 by 1991, then began a long slide down to almost $200 in 2000. Then it rapidly zoomed to $1900 during the Financial Crisis, and has since fallen back to $1200. If you invested in gold in 2009, you would've lost 40% of your money in constant dollar terms, and almost 6x relative to the S&P 500.

It's even worse if you zoom out to the 100 year history. Private ownership of any significant amount of gold was outlawed from 1933-1974, and owners were required to turn in their gold for $20.67 or face 10 years in prison.

It's not Millenials who are being naive here (well, maybe they are too). It's the generations before them who believe there's any such thing as a reliable store of value. Everything is speculative - things are worth only what other people will pay for them, and there's a long history (still continuing in places other than the developed world) of people not even doing that and just taking them at the barrel of a gun.

When the shit hits the fan, everything is terrible.

Which asset is "safest" / will reduce the least in value in times of turmoil?

Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

So you'll have to convince a billion+ humans that gold is only worth it value as a metal before it loses 99.9% of it's value.

I never claimed to think this will happen, I was stating that the "floor" on gold is very low if it did happen as per the OP.

Floor is better when it is higher - would you agree with that statement? But if floor is important and it is better when higher - then the best store of value would be a basket of long lasting useful commodities. Like iron. Their floor is practically their current market value.

The mere existence of a price floor isn't particularly relevant; if your nest egg goes down to 1% it's basically the same as going to 0%. You've still lost your shirt.

I don't know what the floor for industrial uses actually is though; if it's 10% of the current speculative price that might be germane, but if it's lower it might not.

Isn't that a big shift to expect given gold's track record as a store of value going back to almost the beginning of recorded history?

It is a big shift and I could be wrong. However, horses are also something we used for transportation going back to the beginning of recorded history... (lots of other examples too).

Crypto has a lot of aspects that make for a superior store of value (easy to move, seizure and censorship proof etc). Obviously, also has some drawbacks too like difficulty to custody...

I feel like the recent 51% attack against Etherium shows that seizure and censorship proof isn't strictly true.

Note that there was a 51% attack against ETC which is not Ethereum (ETH). ETC already had very little usage and was known to be insecure before the attack.

Probably less than 0.001% of the population considers ETC to be the "real Ethereum"

That may be the case but don't pretty much all coins have this potential issue?

Also given the failures of crypto so far I don't see any evidence that a programmable money/securities revolution would come from crypto. I would bet that a conventional tech company (think a PayPal/Robinhood hybrid) could do it much better.

The whole point of crypto is that its not centralized. Your argument has little merit.

Why must programmable securities/money be decentralized?

10 years is enough for a newer generation to rise and make money. Those in the 15-25 right are quite adapt with Crypto. They'll be the next investors. Granted, if they are wise they won't put all of their liquid there. But if the 30-60 of the current world put a little in crypto; its' market value will fly out of the sky.

But why would they put money into crypto? There is some reason to use crypto as a currency (anonymous transactions), but there is no particular reason to use it as a store of value (hard to comply with anti-money-laundering regulation, hard to protect from fraud, hard to pass through audit, etc)

The same reason why you'd put money on Gold or the Stock market. Exposure. People are not putting money on crypto because they are not exposed to it. Ever wonder why the stock market bubbles out of fundamentals?

Because there's a chance it will go up 10x and no other asset will.

Sorry if I didnt understand sarcasm, but in case you are serious, "speculation" is not the same as "store of value." Whether crypto is a good speculation target is a difficult question, but most do not sell crypto as a "speculation target" as its primary attribute. It is also unlikely that something whose primary attribute is speculation can have a positive roi long term.

I'm not being sarcastic (this time). When crypto people say "store of value" I'm pretty sure they mean (long-term) speculation.

Also consider that people may be investing for a different reason than what they say.

There's a chance that lottery tickets go up 1,000,000x. There's a chance that vintage NES controllers go up 100x. There is a chance that baseball cards go up 100x.

Literally all things have a an arbitrary growth ceiling.

I don't even know that many people who "store value in gold". The ones that do are usually also the people screaming that the sky is falling, at which point I favor guns, ammunition, and food & water.

Some days ago:

We can confirm that there was a successful 51% attack on Ethereum Classic [1]

[1] https://news.ycombinator.com/item?id=18849961

The value of crypto currencies is strongly linked to the available processing power that can be rented for a short amount of time. An attack must never be profitable. So the value of cryptocurrencies cannot grow arbitrarily. Just Bitcoin is quite secure because you cannot easily rent the specialized hardware.

The coming generations who will need a store of value for digital assets which they value much more than older generations do.

Those who grow up today who don't get burned by ICO scams but will get to know it as a natural thing, just like the internet was for the millinials.

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