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Comment by monokh | Hacker News Reader

The common mistake is to try to compare Bitcoin to a predefined experience of money.

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.

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> From a very simplistic perspective, it can be compared to gold.

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.

Just gonna quickly fork this gold and call it silver

What you describe is exactly the property of Bitcoin. Have a look at how many forks have tried to create "Bitcoin2". Some even with overwhelming support from powerful actors. If they fail like they have during Bitcoin's infancy, later on they have no chance.

> What you describe is exactly the property of Bitcoin. Have a look at how many forks have tried to create "Bitcoin2".

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.

Gold has a recognition as an store of value based on its network effects while Bitcoin network effect is pretty low in comparison.

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.

> 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.

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.

I see, you're saying gold is basically more established in the current financial system.

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.

Tether (USDT) has more volume than Bitcoin which could mean that the network effect ironically turns to stable coins connected to fiat money taking advantage of permissionless protocols and not caring about the native assets like Bitcoin or Ethereum.

Stable coins like Tether are mostly used by large exchanges for liquidity purposes.

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.

Gold is a very good comparison (especially since it is inherently pretty worthless much like bitcoins) but I think the core currency quality it has is the limit of supply. One of the more amusing qualities of the fallout world to me was always the usage of bottle caps as a currency. Oh sure we have a pretty much infinite supply now but in a post-war setting it's a relatively common material (we don't use rhodium for currency because it's rare in absolute terms and also very hard to come by) that isn't going to increase in volume - that said more recent games have under cut that with the sheer commonality of nuka cola, and it also seems like a rather easy currency to forge per the volume it takes to transact an exchange.

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.

The fixed supply is the most interesting aspect. There could be an extremely huge gold deposit, or someone could figure out how to extract it from the ocean efficiently, or an asteroid / planet made of gold discovered and mined. But there will never be more bitcoin. More bitcoin would just fork the chain, and it wouldn't be bitcoin anymore.

Forks are so easy in practice though that it seems magic/wishful thinking to assume there's anything particularly special about one branch's artificial scarcity. It seems axiomatic that in using a tree-based structure branches should be the natural and expected state and pretending the other branches don't exist is a fascinating strategy that I just have a rough time thinking holds over the long term, especially when trying to maintain something like artificial scarcity.

Fork of bitcoin is not bitcoin. Only 21 million bitcoin will ever exist and that’s a self-fulfilling prophecy. Whether that 21 million bitcoin branch will remain the dominant in terms of use and hashpower is under question, but there will only ever be 21 million bitcoin.

My exact point is that this is a fun "semantic" game. From a technical standpoint, the entire merkle tree is bitcoin, because that is the root data structure, however you want to "brand" individual forks/branches they are always going to be inter-related. The fact that forks already exist today seems to clearly undermine the idea that there are "only ever 21 million bitcoin" because even just taking "Bitcoin Gold" and "Bitcoin Cash" into account alone represent an "additional" 42 million possible bitcoin. (That's before you take in the dozens of other bitcoin forks, and the larger picture of how generally non-scarce cryptocoins are in the general forest beyond the bitcoin tree.)

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 are confused. If you try spending bitcoin cash on bitcoin network you will fail, because bitcoin cash utxos are not bitcoin utxos and bitcoin cash is not bitcoin. There are no additional 42 mil bitcoin, there are additional 42 mil of some other tokens spendable on some other networks.

I don't think I am confused. I told you I have a different viewpoint on this. You are claiming different branches of the same tree are magically distinct from each other because they have different names and magic runes sketched into them with a pencil, and all I see is a single tree in a huge forest full of trees. I don't think I'm going to convince you of my viewpoint, but my viewpoint is not confused.

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.)

Your viewpoint on forks doesn't really check out. It's based on a misunderstanding of how related these forks are to Bitcoin.

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?

In history, large numbers of people have committed grievous mistakes under the notion of "It's popular so it must be the right thing." Axis powers during WWII, e.g.

"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.

> I'll make 21,000,000 shit coins in my currency and sell you one for $9,000

What makes you think I will buy your shitcoin for $9000?

I just need one person to. And again, money need not exchange hands.

> The only difference between my offer and bitcoin is that many people are trading these magic numbers.

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.

Again, your argument is that it's popular, so it must be good. Illicit drugs are also popular -- but how many people have died from overdose?

> Based on which signs or hypothetical scenario are you imagining that this whole systems turns back on itself and breaks?

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.)

[1] https://en.wikipedia.org/wiki/Preimage_attack

Don't you think we have other problems too if Sha-2 is broken? I'm going to assume that you aren't worried about the numerous other applications where this scenario would be catastrophic?

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.

> Don't you think we have other problems too if Sha-2 is broken? I'm going to assume that you aren't worried about the numerous other applications where this scenario would be catastrophic?

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.

Those are value adds for a currency. But the article here is speaking about the core value of a currency. Essentially for an asset to be useful it's value must be backed by something and it must be possible to both defend and deploy that asset in a reasonable way. Bitcoin has not yet made the case that is practically useful for anything other than a volatile store of value.

I would say that it has made the case for it based on how many people have used it to exchange value internationally, trustlessly, at a very low cost.

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.

Also, add the open source part meaning everyone can audit how it works and fork it if needed, and the network effects preventing said forks.

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.

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