Hacker News Reader

Comment by roenxi | Hacker News Reader

There is genuine value in that, a similar operation has been performed using silver & gold for thousands of years. Gold is an almost exactly the same in that respect - energy gets burned on the owners behalf, and they can prove it happened.

The difference that I'm keeping an interested eye on is even if gold mining ceases, the energy required to produce a new gram of gold doesn't really change so a gram of gold still proves as much as it ever did. It isn't so clear yet that Bitcoin proves anything without an active mining network.

View on HN

> the energy required to produce a new gram of gold

Gold is valuable because people buy it. People don't buy it because of some hypothetical amount of energy that went into producing it, they buy it mostly because it's shiny and rare (and sometimes because it doesn't corrode much or conducts well).

The energy cost to produce is relevant to its price only in so far as it feeds into the supply / demand equation.

If it took little to no effort to get gold, then it wouldn't be valuable. The only reason something like gold is valuable is because it's scarce, and it's scarce because it requires a lot of work to extract. Am I missing something here?

Yeah, you are partly right.

Prices depend on supply and demand. Gold is scarce, thus supply is low, and is useful (beautiful, can conduct electricity), thus demand is high.

Bitcoin is scarce, yeah, as it requires a lot of energy to produce it. But it's not really useful for now, people buy it only for speculation. So demand exists, but it might fluctuate a lot.

I would argue that gold also derives most of its value from speculation, not its physical properties. There are metals with even more favorable properties that are even scarcer, yet they are valued less.

Platinum for instance was at one point considered the level "above gold", but it has since been overtaken. Gold simply is the better brand. It's the same for Bitcoin versus all other digital currencies.

> But it's not really useful for now, people buy it only for speculation.

Speculation itself is useful. Bypassing the financial system is useful.

A price of $18,000 per unit of Bitcoin might sound ridiculous, but it needs to be considered that the market cap of Bitcoin, representing most of the world's cryptocurrency market, is only $200 billion. That is comparable to the assets of a medium-sized US bank.

Gold is scarce because there's just not a lot of it in the bits of the earth we can reach.

Uranium fuel takes a lot of effort to refine, but it's still cheaper than gold; partially because it's simply more common in the crust.

> The only reason something like gold is valuable is because it's scarce, and it's scarce because it requires a lot of work to extract.

These things are true but not necessarily so. Things can be scarce without being difficult to refine from raw materials (a stamp). Things can be difficult to extract without being particularly scarce (aluminium). Things can be valuable without being scarce (TVs), things can be scarce and not valuable (an original artwork by my 4 year old daughter).

The only thing that makes something valuable is that it is valued by people. People are weird and have lots of different reasons for valuing things. There are lots of things I could burn an insane amount of energy and money on that would not result in anything valued by others.

The idea that something should be valued based on the work that went into creating it is interesting as a hypothetical idea but not something that is very relevant to the actual world we live in.

If anything, you've got it backwards:

> it's scarce because it requires a lot of work to extract

It requires a lot of work to extract because it was so valuable that all the easy-to-extract gold was taken and put in jewelry and vaults.

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:

– boring grey in colour

– not a good conductor of electricity

– not particularly strong, but not ductile or easily malleable either

– not useful for any practical or ornamental purpose

and one special, magical property:

– can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

-Satoshi Nakamoto, August 2010

Without the miners bitcoin transactions are impossible. Its value is entirely due to the mining network's activity.

Why would gold mining cease if availability of gold hasn't changed? It would mean everyone is willingly choosing to leave money on the table.

If Bitcoin mining becomes unprofitable, Bitcoin users could incentivize it through increased transaction fees.

One of the wrinkles is that bitcoin mining is an adaptive system. If mining becomes entirely unprofitable, then miners will drop out, and mining will become easier. This process will continue until equilibrium is achieved where participating miners are making only a very small amount of money based on their energy costs.

Of course, what you say about transaction fees is true too - if miners are receiving less in 'mined' bitcoins, then they are likely to demand more in fees. You can already see this happening - when I first used bitcoin, nobody charged any fees at all, relying only on the mining rewards for covering their mining costs.

Reply on news.ycombinator.com