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Comment by Closi | Hacker News Reader

Well the idea of most commodities is that they are purchased because they have utility and can be transformed into something which when sold generates income - Oil is turned to electricity, Sugar is turned into coke, iron is turned into steel which is turned into cars e.t.c.

And the price is determined by supply and demand. Regardless I'm not putting my money into commodity trading anyway because unless you are a manufacturer hedging, or a hedge fund with specific supply / demand modelling, it's not a good thing to hold your personal money in. But these goods have utility and that is why hedging exists - people want them because they want to do something to them in order to generate returns/profit. You buy oil for $1 and utilise your capital to generate electricity worth $3.

Commodities aren't a currency, and don't claim to be, including gold. Gold used to be a currency, but it no longer meets the acceptability criteria.

Bitcoin produces...?

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An asset that can be:

- stored inside of your brain and walked around with

- transferred to another person with no intermediary and trust relationship

- relied upon to increase in value over time because of its issuance fundamentals

- the birth of a trillion-dollar new asset class

Numbers 1, 2 & 4 are accurate.

Number 3 isn't backed up by any type of economics - bitcoin increases in value over time as long as new people enter bitcoin in order to pay the people who bought into bitcoin earlier. It's zero sum (for the non-mining population at least). A fixed supply of something doesn't mean it will increase in value over time.

Miners, who supply new BTC to market, are constrained by mining expense to only sell at a price higher than what it cost them to mine. If they cannot meet this price, they mine less, and fewer BTC are produced.

Various modelling based in these simple economic fundamentals has produced accurate predictions of BTC pricing over time:

https://medium.com/@100trillionUSD/bitcoin-stock-to-flow-cro...

> If they cannot meet this price, they mine less, and fewer BTC are produced.

This is a misunderstanding of how BTC are mined - network difficulty will adjust so the same amount of BTC are produced.

Mining economics are also the opposite way around - mining difficulty increases until roughly the cost of electricity utilised to generate a bitcoin plus participation to the cost of the ASIC miner plus some small amount of profit = approximately the bitcoin price. These economics are the reason that bitcoins require so much energy to produce - as the cost of bitcoins go up, so does the amount of electricity required to make them. Note that this is true in the long run, but not necessarily true in the short run, as it takes time to ramp up the number of miners.

I don't actually agree at all with the linked article - it starts with the premise of past returns approximate future returns, and fails to explain any fundamentals behind the asset. Then it just draws a logarithmic line, which has no end to it, so in this model bitcoin becomes more valuable than everything in the world pretty quickly, and then still proceeds to become infinitely valuable, which is obviously a nonsense. It still doesn't get away with the fact it's a zero sum game for everyone except the miners.

That's true and I don't understand all these people promoting the scarcity argument. There are plenty of very scarce things on Earth that are worth absolutely nothing.

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