The Guns of Bitcoin (2017)
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Bitcoin's value is multifaceted. From a very simplistic perspective, it can be compared to gold. Things get more interesting when you value aspects such as it being:
- Fully digital
- Verifiable by the common individual
- Sent and received with no interference from third parties
- Free from supply emission increases or control
Each of these is especially hard to come across in any other form of money. Combining them is unprecedented.
Being protected from double spend or 51% attacks by having everybody in the world cooperate, because it is in their own selfish interest to do so, is indeed unprecedented.
The current price seems extremely undervalued. I believe it is due to factoring-in the legal risks for when government realize a currency they can't control (block people they don't like, see eurodollars) or inflate at will (regardless of the reason, good or bad, it's about control) is a threat that must be legislated away.
The other points you mentioned are what's really interesting to me, the verifiable property is one that physical currency has struggled with for a long term and the ledger aspect has no equivalence in physical currency exchange[1] - it's really neat!
1. Except, of course, for my most favorite currency ever the Rai stones https://en.wikipedia.org/wiki/Rai_stones which are essentially a built-in fiat currency that no one ever actually counts or carries but instead the ownership was/is tracked entirely by oral history which is amazing.
It doesn't really matter which fork is "dominant", the artificial scarcity seems extremely artificial in a most brittle way and not that scarce from a respectable technical viewpoint.
You can certainly try to build a definition of "dominant" based on mining "hashpower", but that's a social/economic/political/geopolitical minefield much more than it is a technical factor inherent to bitcoin's underlying data structure, because the underlying data structure is forks ("dominance" is a lucky/expedient edge case).
You aren't likely to convince me that one branch is more scarce than the others because I can see how big the whole tree is, and especially because I can see how many other trees are in the forest already.
(ETA: To make it clearer, you especially aren't going to convince me because I think Proof of Work is a waste of processing power. The real scarcity is processing power, and again, that's a political/economic game, that only props up artificial scarcity so far. Certainly not far enough that I trust the bitcoin tree to remain scarce in the long run. Not a question of if, but a question of when.)
Anything that forks off of bitcoin is an entirely separate network, asset and market. You can in fact fork Bitcoin today and attempt to create a market, will your new coin be valued as a Bitcoin and derive its current ~9000 USD price? So the value of a fork coin is not in its approximation to Bitcoin. It's merely tied to how much fire power you have to convince others to buy it.
Regardless of how you personally view the best use of cpu cycles, the market overwhelmingly disagrees. The network total hashrate has done nothing but go up and to the right since inception. Which is to say, that the market also disagrees with your theory that Bitcoin will lose scarcity (therefore value) over time.
Based on which signs or hypothetical scenario are you imagining that this whole systems turns back on itself and breaks?
"You can in fact fork Bitcoin today and attempt to create a market, will your new coin be valued as a Bitcoin and derive its current ~9000 USD price?"
Yes. They're called shit coins. I'll make 21,000,000 shit coins in my currency and sell you one for $9,000. You can, make your own shit coins and just sell one of your shit coins back to me for $9,000. Money need not exchange hands.
How about this? I will sell you an arbitrary magic number for $9000. It's value is only good inside those that trade these magic numbers. The only difference between my offer and bitcoin is that many people are trading these magic numbers.
What makes you think I will buy your shitcoin for $9000?
And that is a world of difference. If I sold a Bitcoin for half the market price, anyone rational would take that offer without thinking. Your shitcoin on the other hand has no persistent or reliable market value and you would not be able to find a buyer.
This is an easy one to answer. Proof of work as implemented in bitcoin is the largest, weirdest incentivized, most highly distributed preimage attack [1] ever run against any hash algorithm that we know of in human history. The history of hash algorithms suggests that humanity has yet to invent a perfect hash algorithm (whether or not you agree that perfect hash algorithms are even mathematically theoretically possible), which makes it very clearly a matter of "when" the distributed preimage attack succeeds in breaking the hash algorithm altogether rather than "if".
> the market overwhelmingly disagrees
The "market" isn't by definition a rational actor and may just be a mob swept up into fervor. Ponzi schemes in general prey on weaknesses in a market's mentality or emotionality to follow bad long term advice for short term gains. (That example should work whether or not you also agree that bitcoin-style mining difficulty is also directly a unique modern variant of a Ponzi scheme.)
In any case, this scenario has very well been accounted for. The Bitcoin network can fork its consensus rules when such drastic requirements require it. Such as to a different hashing algorithm, and snapshotting of its previous state.
> Ponzi scheme This goes back to square one, which is that in the absence of understanding the value of bitcoin, a scheme is the only logical explanation.
We are now sitting at 10 years and $XXB ponzi scheme. Perhaps one of greatest schemes in history? Maybe it will unravel in the next 10? Time will tell.
It is exactly this reason I find bitcoin incredibly scary. The catastrophe that happens if bitcoin "succeeds" in breaking SHA-2 is directly part of why I think Proof of Work is at best a waste of processing power, and at worst a catastrophe we are watching in real time.
> In any case, this scenario has very well been accounted for. The Bitcoin network can fork its consensus rules when such drastic requirements require it. Such as to a different hashing algorithm, and snapshotting of its previous state.
Which again is my point earlier: forks are natural parts of how bitcoin operates and directly a part of the underlying data structures. It doesn't exist without forks. You couldn't build bitcoin without forks. It isn't considered likely it would continue to exist in the future past certain points (including catastrophic ones) without forks. So the distinction of which fork is the "one true fork" is a political economics game, not a technical distinction in any way.
It is indeed very simplistic to compare it to gold and this is sadly part of the Bitcoin narrative. Gold has a recognition as an store of value based on its network effects while Bitcoin network effect is pretty low in comparison. We can imagine than if a Bitcoin2 is created with similar economic properties and gain more traction it will automatically replace the Bitcoin1 as a store of value. Obviously, this can happen to gold either but with much less probability thinking on all the financial network gold is part of.
I am saying we don't have yet that Bitcoin2 yet and the sum of people and organizations using cryptocurrencies is pretty low comparing to their potential of a Bitcoin2 occurring with more user base.
Not sure I understand why you believe Bitcoin's network effects are lower than golds. The more people willing to accept a unit of Bitcoin, the more useful Bitcoin becomes.
Also, gold's store of value power is also attributed from its stock to flow ratio (the difficulty of inflating gold supply). Bitcoin has an even better stock to flow ratio, which is why its often compared to gold.
Gold is more connected to the regulated financial world than Bitcoin. The network effect is not only about user base but interrelation with other systems. Not saying that Bitcoin could not have a bigger place but it is not there yet.
It might just be semantics, but when you say gold has stronger network effects than bitcoin, I'm imagining that an additional user provides X value to the gold system, but an additional bitcoin user only adds X-1 value to bitcoin. Which I believe isn't true, both networks probably follow the same marginal utility curves.
Retail users rarely use USDT to buy/sell goods or exchange with one another. It is also not really permissionless because you need to register with the administrators of USDT and wire a bank transfer if you ever want to convert your USDT to USD. All fiat backed stablecoins have this inherent flaw of having an intermediary party to "parent" transactions. An example of this is Tether banlisting addresses of suspected stolen coins.
Additionally, Bitcoin network is backed by its ability to detect and refuse counterfeit coins.
You can do most of the above with Visa or Venmo as well, however you run the risk of tax reporting, transaction reversal, fraud, negligence, changing fees...
When Visa works, it works well. But when it fails, it fails in quite bad ways that Bitcoin does not.
'cut off your nose to spite the king'
In any case i'll remove pine floors from my diy tiny house project checklist.
it's easy enough to find 200sqft (that's a 20' cargo container's worth) of high quality unmatched leftover flooring from a sale.
Why? Is it the sap?
Our dining table was like that when I was a kid. You could see all sorts of writing in it from too much pencil pressure when doing homework.
Very common misconception. Dollars have value because there is demand for them (governments, other governments, other people and institutions). Bitcoin also has value because there is demand for it. As does your house, expensive art, etc.
Why does anything have value? Because someone else will pay your for it. I can say my pencil is worth $1 billion, but it doesn't really unless someone else will execute the trade.
Usually that concept in that quote is a baseline of demand. The government will accept tax payments in US dollars, but they will probably demand no BitCoin, stamps, bullion, etc.
That said, tax payments are not the only type of demand.
Of course, things get more complicated because money exists across time, credit, and inflation. But as a simple model it explains why, for example, money tends to get devalued when it stops being accepted as tax. Just as a circuit stops flowing when you disconnect either pole.
Money can be thought of like a battery - sorta, but more like a bank of batteries - each one of us has a certain earning and spending potential that constitutes the voltage we're contributing to the economy - and it's all of us tiny batteries that contribute a much large proportion to the over all monetary flow than the big contributors like government (who are, by comparison, in the minority).
1. https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...
2. https://en.wikipedia.org/wiki/United_States_federal_budget
Why would it matter how quickly the government could cycle through the national wealth, which includes all private assets? The M1 money supply, at 5.2T[1] and using your 3.5T tax revenue figure, would take less than two years to cycle through.
Also, just for a moment, the statement: "Dollar has value, because even if no one will want dollar, government will buy it for dollar." - that's a fair bit of nonsense, outside of the dollar having an exchange value the dollar has no value - fiat currency (and even precious metals TBH) only have value to to the continued demand for them and if that demand falters or if people stop valuing a dollar at as many whoppers as it used to be valued - then bad things start to happen really fast and the government is pretty powerless to stop it once it starts.
The notion that fiat money has value because governments demand it in taxes, might set a non-zero value for the money, but it does not set a specific price level.
For instance, I could make a trade for dollars at the exact moment that I pay taxes, and it wouldn't matter what the actual value of the dollars is at that point. I would hold the dollars long enough to pay the taxes but no longer, so my reserve demand for the dollars is minimal. The effect on my finances is exactly the same if one dollar buys a pair of leather boots or a single shoelace.
So: positive value, but no specific purchasing power.
If you don't want to hold the fiat, you can always send taxes on a continual basis to the collection agency (most people do this with each paycheck, via the automatic withholding).
In the case of a rapidly inflating fiat currency, you would make the trade, since you are probably going to lose value holding the dying fiat.
This has massive tax implications in the United States. Imagine donating a piece of art, which you claim is worth $1 million. But the question of who is allowed to make that claim is quite complex, and often goes unnoticed unless the IRS chooses to investigate.
A couple of articles on this:
Inflated art appraisals cost U.S. government untold millions https://www.latimes.com/local/la-me-irs2mar02-story.html
The secretive panel of art experts that tells the IRS how much art is worth https://www.washingtonpost.com/lifestyle/magazine/the-secret...
Sure, but there is a reason why dollars will have value in future: the quantity of outstanding dollar-denominated debt and future tax liabilities vastly exceeds the number of dollars in circulation. As people will need to have dollars for future repayments in future, you won't have trouble finding people to execute a trade of dollars you have for things you want. The [central] banking system can also vary the amount of dollars in circulation to link the supply of a currency on a given day to its demand and keep prices in line.
Conversely there's little reason to believe that anybody will need most of the Bitcoin in circulation in future [very little BTC denominated debt, and all other payments or speculative holding can be made with other currencies, crypto or otherwise], and no other stabilising mechanism. So whilst you can say your BTC is worth at least what you paid for it, it really isn't unless you're lucky enough to find someone else to offload it to.
This is just plain wrong. Currencies have value themselves for their utility as a means of exchange, not because of taxes. This idea that raising taxes increases the value of a currency is bonkers.
> Currencies existed well before governments minted them.
Sure. Nevertheless, to accept a currency as a medium of exchange when it has no value to you personally (bank notes, gold, etc) you need to have confidence that you can exchange it to somebody else for something you do care about, regardless of who mints it.
> Plus the dollar was once backed by gold: you can transition from a convertible system to a fiat system, which has nothing to do with fiscal policy.
Yep. As stated, "[taxes] aren't the only method" to bootstrap a currency, and in practice transitioning from a gold backing to fiat seems to work smoothly (somehow...it's not hard to imagine an alternate reality where the public heard their dollars wouldn't be exchangeable for gold, the public lost faith in the dollar, and the dollar tanked as a result).
In fact it might be otherwise: taxes are a deterrent to use currency, which is why barter is so often used by people and small businesses to avoid the tax-man today.
The tax argument for the value of USD is because people have future debts denominated in USD (taxes), and they become aware of the amount of those debts in USD before those debts are due. If those people want an asset perfectly matched to that future liability, then they want USD. The demand is from that saving period, not the actual payment (which you correctly note is brief, just however long the transaction would take). Most discussions either express this distinction unclearly or miss it altogether, including the linked article.
This isn't some fringe idea it is being developed by governments around the US. I remember reading about some city in America that will take Bitcoin directly for tax but I can't find the article.
The state can demand, using their guns, that you pay them in the coin of their realm.
At that point, you need to come up with those coins, or face their guns.
You can have your BTC be decentralized and seizure-resistant at that point, but that will not stop the Leviathan from jailing or killing you. The "guns" of the article are the actual guns of the IRS.
Read without annoying app/account wall
https://louwrentius.com/cryptocurrencies-are-detrimental-to-...
Bitcoin guarantees the supply remains fixed. But inflation is also a function of demand, and that is well outside its control.
Or are you claiming that was not "unpredictable"?
No it isn't. Inflation is a general rise in prices in an economy, period, of which change in the amount of money in circulation is only one possible cause [it can also circulate faster or slower due to change in demand, supply constraints, import prices etc].
The original thread was about benefits. Fixing the money supply growth rate isn't a benefit if your asset's purchasing power drops over 60% in two and a half years. And money supply growing quite considerably turns out not to be a drawback when prices grow predictably and slowly and the system allows for the money supply to contract again if prices overheat.
Your 60% drop claim is rather vapid considering I could pull any other arbitrary time horizon and give you a massive increase in purchasing power.
You are welcome to prefer to use 'inflation' as it was used 100 years ago instead of as it is used now, but 'awful' and 'silly' were compliments once....
> Your 60% drop claim is rather vapid considering I could pull any other arbitrary time horizon and give you a massive increase in purchasing power.
No, what is vapid is the pretence that an asset has the advantage of 'zero unexpected inflation' when it's lost purchasing power at a rate which would be termed hyperinflation were it a national currency. It's a bit like defending the validity of immortality elixirs by arguing that over other time frames, the patient survived.
If that was hyperinflation, what would you call Bitcoin's 150% leg up between December 2018 and today?
Even Mises acknowledges there are two parts to the system and that it's, in the end, about relative pace. If that is so, the phenomenon must still be able to occur regardless of how frozen your supply, just off the second variable.
"Our fringe school likes to use two common terms opposite from how everyone else does, hence you are wrong" isn't an actual argument, by the way.
char* inflation = austrian? monetary: price1. It helps evade financial censorship imposed on legal businesses and individuals. Ex: 4chan is financially censored, and can only take bitcoin and other Cryptos as payment despite having broken no law.
2. Financial Privacy (in say, monero). Ex: Support controversial causes without having to worry about losing your job in case of a leak.