Comment by nazgulnarsil | Hacker News Reader

Comment by nazgulnarsil | Hacker News Reader

Bitcoin has aggravated the "layman talks out his ass about economics" problem again.

1. Gold is a proof of work system just like bitcoin. When someone accepts gold as payment for some other commodity or service they are doing so under the assumption that the value will be stable because it takes at least X amount of time/labor/ingenuity/money to "create" more gold by mining it. This is what backs non-consumption commodities.

2. Fiat currencies ARE backed. They are just usually backed by a service and not a commodity. The USD for example is backed by several things: the fact that it is the reserve currency for buying oil (all oil is sold in US dollars), the fact that dollars are avoid-prison coupons for tax burdens (how most fiat currencies have been backed), confidence that the US will inflate less than other regimes and meet its obligations, confidence that the US will enforce debt obligations denominated in USD with their military if necessary.

I'm getting pretty tired of ALL CAPS hyperbole about gold and fiat currency.

I don't know much about economics, but...

Gold isn't really a non-consumption commodity. It's used in things like jewelry and compter circuits.

In other words, it doesn't just work because everybody agreed that it's a good mechanism for trade. It works because it actually has underlying value. Or, at least, I can't rule out that possibility, because it DOES have underlying value.

But it has much less underlying value than other consumption commodities. Copper is more more useful than gold, for example.

That gold is overinflated doesn't diminish the fact that it has a utility outside of it's use as a financial instrument.

The paper used to print dollars also has intrinsic value, but you wouldn't want to argue that it's a good choice as currency just because you can burn it.

Okay, now i'm veering into positions where i don't have a sound enough background in economics to be totally confident in the statements i am going to make. I'm sure there's economic research on this, and i'd further hazard a guess that there's probably not agreement on the subject:

Sorry, let me be more clear. The criteria for a sound investment as an asset is different from the criteria determining soundness in a currency (from the perspective of an individual holding an asset or currency).

I say that on the basis of a variety of discussions on what money is and what it's supposed to represent. The point of making sound investment is that you have faith that even if plans go horribly awry, you are exchanging your money and interest for an asset of some concrete worth (at least in the ideal).

The point of currency is to provide a broad-based and stable mechanism to ensure liquidity in economic markets. The whole point of US dollars and what the Fed is trying do is provide a solid fundamental basis upon which the US economy can function.

We can argue about the intrinsic worth of currency, but i don't think that's the point of currency. So, do i think gold is a good investment? No, i think it's way over-inflated, but if you have a big pile of gold, you'll be able to do something with it. Do i think gold is a good currency? Absolutely, positively, one-million-times NO. I think that using gold back currencies is being pushed by people (shysters) who want to further inflate the value of gold, and by people who have bought the bad arguments that the shysters have been pushing.

tl;dr: good asset != good currency

I think you're trying to distinguish between properties that make something a good way of transporting value over time and properties that make it good as a medium of exchange. You're right that these things aren't necessarily the same because they are overlapping, but not congruent, sets of properties.

True, but if you break down the value of gold then it's maybe a dollar an ounce from practical uses and 1500 dollars an ounce from the fact that it's a seven-thouand-year-old asset bubble.

Or, to put it another way, suppose tomorrow I figure out a way to replace gold with some much cheaper tin-copper alloy in all its industrial applications. That's not gonna decrease the value of gold all that much. (Note that I don't really count jewellery as an industrial application -- gold is used in jewellery because it's valuable, not because it looks any prettier than other metals).

gold is used in jewellery because it's valuable, not because it looks any prettier than other metals

I'm not so sure about that. Gold is used in jewelry because (a) it looks cooler than silver/tin/copper/etc.; and (b) because it is really rare.

So I'm proposing the chain is:

Looks good & rare -> Valuable

I think if you were missing either "looks good for jewelry" OR "rare", it wouldn't be valuable and it wouldn't work as a medium of exchange.

This is a historical perspective. These days you could also use:

Used in industrial applications & rare -> Valuable

but I doubt that would drive the value of it up to where my former hypothesis does, if it's right.

Look at Platinum. More expensive than gold, largely commercial use (jewelry is about 25%).

Also comparatively harder to work than gold.

Gold is used in jewelry because: * It is malleable * It is resistant to corrosion/tarnish

The thing that makes it most unique WRT jewelry is that it's pretty.

It's easy to make jewelry out of wood, glass, and lots of other things.

But gold is way more rare than copper!!!

Gold isn't really a non-consumption commodity. It's used in things like jewelry and compter circuits.

Yes, but... (you know the drill) World gold reserves are 60 times its annual production, which means that gold is mostly a non-consumption commodity.

Yes, and there is a simple reason why gold is mostly a non-consumption commodity: because it is more useful as a monetary commodity. It has a distinct combination of physical properties which give it monetary properties. It is durable, malleable, divisible, rare, compact, portable, easily recognizable, and beautiful.

There are many good reasons to use steel instead of gold for flatware, kitchen sinks, and refrigerators, in spite of the fact that steel corrodes and gold does not. This does not make gold "useless", it just means that gold has better uses.

Emeralds are very durable and far more rare than gold, but they are generally unsuitable as a monetary commodity because they are not malleable and easily divisible.

One distinct advantage of gold over bitcoin is that transacting in gold does not require a network connection of any kind, nor even the existence of computers.

Thank you, sir, for the coinage 'avoid-prison coupons'. (Your comment is currently the only source Google finds for that particular phrase.)

But surely the condition that it's hard to make more of something is necessary but not sufficient to make that something a good "money" candidate. People expect e.g. gold to continue to be money-like mostly because of its multi-thousand year history as money. So in that very large respect, gold is quite different from bitcoin.

I am interested in bitcoin, though, because of the obvious fact that it has something that neither gold nor dollars, euros, etc. have - it can be used anonymously over the internet. So it's possible to see it becoming popular enough to be "money", which is something important you can't say about something that is merely scarce. (I have to admit that I don't think it's likely, though, and I think investing all of your savings in it is a terrible idea.)

... can be used anonymously over the internet

Bitcoin transactions are easily traceable, so to achieve anonymity you must take care to avoid associating your IP address with spend locations.

You can use gold over the internet as well, using a system such as https://loom.cc to handle the accounting. But again, to achieve anonymity you must take care to avoid associating your IP address with spend locations.

That flares up every few months. It's pseudo-intellectual herpes.

Several countries are trading oil directly with each other in non-USD currencies now.

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