While I agree with him that Bitcoin is a terrible currency, I think the "store of value" thing is nonsense as well. Stores of value need to have relatively stable value. Bitcoin is hugely volatile. That's great for speculation, but nobody with any sense would use it as the equivalent of a savings account.
I've come around to the idea. I don't hold any bitcoin anymore, and the best chance to get rich is gone, but I can see a future where something digital (hence fundamentally ethereal) acts as dense and largely unregulated store of value, for the people who need it. In the same way the drug trade currently uses artworks and commodities when it needs to move value across national boundaries, they can use hashes or something like that. Transaction costs to convert those from/to cash are actually higher and slower than bitcoin will likely ever be (i.e. a week or two, and several hundrend USDs, will still be acceptable).
We'll never pay taxes or coffees with bitcoin, or hold savings accounts, but it will still act as a commodity.
The second best time to plant a tree is today.
Such a strategy is dangerous when you're looking at a Ponzi scheme, or a pump and dump, or anything else that is designed to leave the late entrants as the bag holders.
I'm not saying that's what Bitcoin is, just that it's dangerous to be a late entrant to an investment and you should be more wary
(As a side note, this role for gold is clearly legacy: look at how little gold China stores, compared to their overall reserves.)
this not backing ?
> look at how little gold China stores
by metric tones china is on 6th place in world, what do you mean ?
> this not backing ?
It's the opposite. Originally you said "Gold Market is backed by Governments". This is governments being (partially) backed by gold.
>> look at how little gold China stores
> by metric tones china is on 6th place in world, what do you mean ?
Their economy is the largest in the world. How much smaller are their gold holdings, compared to those in first place?
So you're saying that Bitcoin isn't a store of value, but you speculate that it will be in the future.
Consider the classic store of value asset: gold. It's up 17% compared to a year ago, and down 11% compared to its peak last august. Sure, it's less volatile as bitcoin, but it's hugely more volatile compared to t-bills or a FDIC insured bank account. Does that mean gold also isn't a good store of value?
Gold is generally considered a last resort for the case where the US completely falls apart. But if that happens, I'm not sure gold is going to be much use - the global economy will be screwed enough that everybody suffers, gold or no gold.
If all civilisations collapse, yes. But if your civilisation collapses, a neutral store of value is easier to own than e.g. a portfolio of foreign bonds in a handful of offshore accounts.
Do you mean that very few people use gold as their only/primary store of value? I am sure many people have small amounts of their net worth in gold. Similarly I think Bitcoin is a promising technology but that doesn't mean I think users should allocate a significant percentage of their portfolio to it.
Even if gold isn't a means of currency, you can still trade for it because someone will be interested in buying it. After the collapse bonds and paper money will be worthless, but you can still trade gold for things.
Currency is whatever we use to avoid having to create 10-way exchanges. (Baker offers the cobbler 600 loafs off bread for a pair of shoes, but cobbler doesn't want that many because they will obviously go stale, so we need to bring in dozens of other people who need bread and can trade something else to the cobbler). Gold is a good choice for this, but is isn't the only possible choice.
Of course, signalling your importance and status is also necessary in primitive society, and wearing a little gold does the trick.
EDIT oh found another cool one, "Gold, with its malleability and incorruptibility, has also been used in dental work for over 3000 years. The Etruscans in the 7th century BCE used gold wire to fix in place substitute animal teeth."
I can think of two, but perhaps you can think of more.
First is the local society collapse because of war. Could happen to everyone, and while your armies might win in the long run, you might be forced to flee. At that point gold is useful because it is small enough to hide on your person, thus meaning you have a chance to get it out to a safer area. You might not be able to prove you own foreign bonds (or maybe you can, but it takes years of paperwork). Gold still has value to the rest of the world in this, so if you can get out with it that is a good thing.
A nuclear nation decides to end it all and shoot randomly targeted ICBMs everywhere. In this case the few percent of the world that survives by luck will need to start over. It is just your village, you can't travel far because of the wastelands surrounding you. Gold is useful because it can be formed into tools. Iron is better, but harder to form, and you may not have fuel to spare to heat it (proper heat treatment of steel is one of the things that makes iron useful). Gold also is pretty and so there will still be the jewelry aspects.
Neither of the above require the gold be currency, though it is a good choice for currency in general in the latter case when starting over. (not the only good choice) Scarcity is part of what has always made gold useful. You could get it in enough quantities that most travelers could carry their wealth around in that form (when not in the form of trade goods - traveler implies trader in those historical days)
Both of the above are long shots. I don't personally invest in gold because I find the risks of the above low enough that I don't bother to insurance against them.
After a few years things start to settle down. Trade with your neighbors becomes possible for some division of labor. However trade works better if there is a currency. Paper money is either degraded (the most common bills last a couple years), and the replacements are all obviously bad copies. What is needed is something that is easy to verify, that is hard to copy, has some intrinsic value, isn't so common that you need vast quantities, and something you are willing to trade. There are many choices for this, but gold is one of the better ones. Even if something other than gold is chosen, it is rare enough, and valuable enough (for good looks, and it is somewhat easy to for into useful shapes) so you can expect to find a market for your gold. Many of the things you can choose instead are either useless (computers without the entire power grid can't do anything), or so common that nobody will care (why would I want your iron when there are junk cars everywhere with plenty)
Note that in order for this to work you need to actually have the gold in hand. If you invest in gold without a safe to store it in, then it does you no good. Even if you can get to Fort Knox, whoever is there first won't recognize your claim to the gold inside.
You also need to consider inflation, thousands is a nest egg. millions is more than the local economy needs. People don't need to accept your gold, unless you are the local warlord, and then you don't need gold.
Gold has been used as a store of wealth since at least ancient times. So it’s not quite a fair comparison.
And the whole economy doesn’t need to collapse for an asset to be valuable. The reason Bitcoin is up is because people looking to maintain wealth are looking to broaden portfolios. S&P is overvalued for some, the US dollar is weak for some. Fed rates are still low, bond yields are low. If you take into account inflation those CDs and Money Markets you mention lose money. An extremely good CD will currently earn you 1% interest, meanwhile inflation will remove 2%.
So it doesn’t need to be nonvolatile for it to be seen as part of a portfolio of wealth management, and it definitely doesn’t need to only be a last resort against complete economic failure since almost nothing qualifies.
If you don’t already have a fully balanced and diversified portfolio, you may not need or be ready for Bitcoin yet... but that doesn’t mean there’s not trillions of dollars that are ready for it.
Or it could be like tulip bulbs, beanie babies, or International Postal Reply Coupons (what Charles Ponzi sold everybody on investing in). Or it might not be a new asset class at all. It's not like there's a finite supply of integers.
It doesn’t matter if there are a finite supply of integers. I’m guessing you are alluding to being able to “print more Bitcoin” by moving decimal places or changing code or some such. That’s probably not going to happen, since you’d have to convince 51% of Bitcoin holders to dilute their own stake, since that’s how the consensus algorithm works. And if you don’t, we’ll then you have a fork, and as we’ve seen with Bitcoin cash etc, those typically don’t hold value, because fundamentally the value of a store of wealth is that everyone agrees that it’s a store of wealth.
No one ever agreed or assumed beanie babies or tulips were stores of wealth. Those were speculative bubbles based on the assumption that tomorrow you could sell it for more.
Bitcoin doesn’t need to be worth more tomorrow to make it valuable. It simply needs to hold wealth in a convenient, transferable, counterfeit proof manner that’s also not easily manipulated. And it does all of those things very very well. Ethereum likewise stores value, and also permits useful decentralized finance systems that also provide for storage and transfer of wealth.
If you told dollar holders 100 years ago, that the money in their pocket would only be good based on the good faith of the US Federal Reserve they’d look at you cock eyed, because back then the dollar was gold backed. To the average joe, that gave them confidence in its value.
And don’t get me wrong I’m not a gold bug that thinks we should go back to the gold standard. Just the opposite. Instead what the US did was brilliant. They simply said “trust” “believe” that the dollar is valuable and will remain valuable.
And it’s been incredibly successful, again because it comes down to faith in the ability to hold wealth and have others respond in kind when transferring that asset.
So do you believe the US dollar will hold value over the next 20 years? If you base it on the word of the government then that’s not as different as the the word of millions of Bitcoin miners. (Democratic consensus) If you base it instead on the value of the underlying economy using the dollar as a wealth exchange medium, well then again, Bitcoin currently does 87 billion USD worth of transactions per day.
So it should be pretty clear that it’s incredibly different than tulips or beanie babies. If it’s not clear, I’d research a little more about the concepts of wealth historically, along with macro economics and monetary policies the world over.
https://en.m.wikipedia.org/wiki/Wealth
https://en.m.wikipedia.org/wiki/Store_of_value
If you think Bitcoin is an odd thing to believe in to store value and wealth, check out this island that uses giant stones...
https://www.npr.org/sections/money/2011/02/15/131934618/the-...
Bitcoin is also a speculative bubble. It has no use value. It is not in any way living up to its original goal as electronic cash. (Contrast transaction volume and adoption with MPesa, for example.) Its main practical uses are speculation and some financial crime.
Well, I left one out. It's also great for market manipulation. The recent runup has been driven by "the largest fraud since Madoff": https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
Eventually, like all frauds, you run out of dumb new money and accounting chicanery. That day will come: https://davidgerard.co.uk/blockchain/2020/12/13/tether-is-to...
I only have a notion that ignorance is ignorant.
I can back up all my arguments with facts, information, research study and understanding.
Your articles on Tether is just red herring fallacy since your original argument has no merit.
As for Bitcoins uses, there are many. For instance I recently acquired large amounts of bullion at a steep discount via bitcoin. Why? Because it’s cheaper and less trouble transaction wise for the bullion seller. All above board. All taxes reported. Nothing criminal.
Defi loans allow collateralization of crypto assets. People in business are currently using them to secure extremely large multimillion dollar notes in minutes to do business transactions. I’ve been in the rooms when these occurred. Again all above board, all tax legal.
Simply using banks for certain situations are a pain.
Clearly you’ve never experienced such situations, hence why it seems a scam to you.
I guess you’re smarter than me and Elon Musk. I would absolutely believe it if you had facts and arguments that didn’t have logical fallacies.
There’s political arguments on both sides of the crypto currency debate. Your arguments seem politically motivated. I have no political agenda.
The discovery of fission changed the world. There was no keeping it under wraps or going backwards after the physics were discovered.
The ability to transfer and store wealth online via blockchain and consensus algorithms will exists from now on. There’s no going back. It’s simply a fact of information science and physics.
Remember this discussion. Think on it when in 30 year’s cryptocurrency is considered a norm, and when multiple governments finally transition to digital currencies.
Or you know... you can quote more non relevant, poorly educated sources to support a point you wish for. It’s like the old timers laughing that the internet was just a play thing in the 90s... Now if the internet went down it would be a national emergency.
Oh... and here’s an actual intelligent article from a fairly respected source rather than some random blogger. Here’s the important point
“Many people think that bitcoin is a bubble, and that's predicted on the concept that bitcoin has no value. But there's reason to believe that that just isn't true. By definition, bitcoin is scarce. And the cryptocurrency may have utility as a superior way to store and exchange wealth.”
Edit: I also hope you understand that this debate is an intellectual exercise, not a personal issue. So I am somewhat annoyed that you would call my comments tedious :). No one should accept ignorance. And disagreement is wonderful, but it should be an educated discourse. Silent downvoting or flagging of things that are unpleasant isn’t the way forward. I tend to only downvote comments that are provably factually incorrect, make comments that are based on ignorance or misunderstanding, non constructive, or outright hostile.
If you truly are interested in open understanding, it’s not a bad thing to say “I am ignorant on this subject.” In the past when I have said that, I have learned a lot.
Cryptocurrency and Bitcoin causes emotions or brings up political divides for a lot of people... I can only begin to guess at the reasons why. But burying your head in the sand or listening to the “bubble” crowd chorus is doing yourself a disservice.
That you think a pseudo-debate is a good idea explains why you're flooding the zone with nonsense, condescension, and a refusal to even look at what you're saying and how you're saying it. Which is indeed tedious. Maybe you don't have any better ways to spend your time, but I sure do.
Damn... guess that Socrates was a dominance driven asshole then huh?
It’s only “dominance driven” if you take it personally. If instead you realize that strong conversations are a way to elucidate clear logical thought and arguments on both sides, then you see it as a tool for understanding.
> condescension, and a refusal to even look at what you're saying and how you're saying it
That’s not me. I’ve been adding to the discussion with fact, and discourse. You’re the one who has quickly taken to dismissive ad hominem attacks.
> Maybe you don't have any better ways to spend your time, but I sure do
Says the man who’s cultivated a karma of 38876. You clearly spend wayyyyyyy more time on here than I do. Again, you turned this personal quickly... why?
Look if your so badly triggered by a discussion on HN about bitcoins, to the point where your thinking this is condescending and dominance driven on my half then do yourself a favor and read this book or at least the article.
The Coddling of the American Mind: How Good Intention... https://www.amazon.com/dp/0735224897/ref=cm_sw_r_sms_awdb_im...
https://www.theatlantic.com/magazine/archive/2015/09/the-cod...
And maybe that’s condescending? Or maybe I’m trying to actually help (which I am).
You don’t know me... I don’t know you. But I recognize areas when I know less than someone else and I open myself up to it. Did your teachers in school “condescend to you”?
Reread all the discussions and you’ll simply see that I attempted to shine information and fact where there was ignorance.
Not every human being has equal knowledge and understanding of all fact. I know for a fact I have a greater understanding of this than you do.
And when you post ignorant things, or post conspiracy theories then I respond in kind. And yes, I do have better things to do. But honestly it pains me there is so much ignorance, and conspiracy stuff online rather, retweeted and reposted without thought, than actual facts.
If enough people sat down with those Trump supporters who marched on the capital and actually condescended to them for a bit to get them to face reality and fact, you could get through to some of them. Not all. But some. And that’s the start of change.
So which kind of person are you. Do you take criticism and seek more knowledge, or will you come away from this never questioning yourself and only seeing condescension in differing opinions?
Good luck, and if you believe it or not, I do wish you the best.
Usually constructive comments would get some actual criticism or disagreement rather than just downvotes.
I get it... BTC sour grapes just downvote. Same thing happened when I called out the GME fiasco when that was $300 a share.
But pro tip so you’re not sour grapes in the future. Put aside you’re egos, and instead of downvoting things here that scare you or you simply disagree with. Try using HN as a learning tool.
If you disagree with something.. comment first... then downvote. Discourse, discussion, debate. Those are the paths to learning and understanding.
What’s the benefit of downvoting rather than posting evidence to counter my posts.
Since you don’t it means you don’t have relevant facts and instead seem to quell posts you disagree with.
That is a fact. I don’t “believe” the sky is blue due to light scattering ... I know it. And it doesn’t require “a line to the mind of God”. It’s called science, knowledge... education.
It is a fact that cryptocurrencies have value as a store of wealth and are not ponzi schemes.
Just because you don’t understand it doesn’t make it a belief on my end. Just like if you don’t understand why the sky is blue from how light interacts with nitrogen molecules, doesn’t make it a belief on my end.
We could debate the current price of Bitcoin. We could debate whether it’s in a bubble (which happens all the time in legitimate asset classes like real estate or the stock market). We could debate if the fact that only certain sectors of the population have access is detrimental. We could even discuss if Tether is pumping up Bitcoin through manipulation. (My opinion, since I and everyone currently have very limited data on it, is that it is, but ultimately to a very small degree). And tether in the way you brought it up, is a red herring here because one lone bad player doesn’t negate everything.
But dismissing cryptocurrencies as Ponzi schemes, tulips or beanie babies is simply ignorant and without fact. If there were facts that could support that conclusion, that would be worthy to discuss, but “extraordinary claims require extraordinary evidence”
Here are facts: COVID is a pandemic. Bitcoin is a store of value.
Here are opinions based on fact: The COVID pandemic has caused enormous suffering. Bitcoin is a good store of value.
Here are beliefs: COVID is humanity’s punishment. Bitcoin is going to ruin the world.
Here are prejudices: COVID is a caused by 5G or Chinese conspiracy. Bitcoin is a Ponzi scheme.
More reading on fact, belief, opinions etc:
https://writing.colostate.edu/guides/teaching/co300man/pop12...
https://chem.tufts.edu/answersinscience/relativityofwrong.ht...
In places like India, gold jewelry has a prominent cultural value (a part of most wedding rituals, for example). So its desired and even required no matter its price - though demand is, I imagine, pretty elastic. The volatility of gold prices competes with 8% inflation,
Even if gold is volatile, it competes favorably in an investment environment where 1) cash inflates at 8% a year 2) private banks can often be risky, with many going bankrupt over the years 3) the average person has no access to US T-bills 4) gold can be melted any time to make jewelry anew, so one can always be fashionable (keeping the use-value of the material fresh) 5) gold can be pawned in emergencies, in practically every town 6) where access to digital banking may be spotty, transporting jewelry is an easy way to transport wealth
A store of value has many attributes that make it a good store of value - ubiquity, tradability, use-value, transportability, its value relative to the other options in the investment environment.
> Does that mean gold also isn't a good store of value?
You answered your own question. There's a good reason to prefer FDIC insurance. If your fashion choices require you to avoid fiat currency, that's on you.
Few financially savvy entities keep gold as a store of value.
Y is like X to a lesser degree, and no it's not as good as Z, but does that mean Y is bad? We're only talking about X and no it's not a good store of value given the other options.
Maybe we should all just acknowledge that money is made up and any security it provides depends on tons of interconnected systems made up of people largely unaccountable to the layman.
Edit: I think the mistake people make is trying to create stability on unstable ground.
Land.
But yeah, fair point. It's pretty much the only 99% safe asset.
Is it just that the system of storage will have Ongoing operational cost like a vault has ongoing costs to protect gold?
Has anyone modeled what these costs might look like?
How are these questions still being asked, and more amazingly, still being upvoted? First off, there will not be a time when "all the bitcoins are mined". Mining rewards are on a geometric curve that approaches 21 million but never touches it. Second, transaction fees also go to miners, so even when mining emissions are negligible, transaction fees will keep the miners incentivized to keep mining.
This is all pretty much in the intro of the whitepaper, and the first thing you should learn if you spend 5 minutes looking into this technology.
These questions are still being asked because people like you still spout the wrong answers. There will be a time when "all the bitcoins are mined" - its in the source[0].
[0]: https://github.com/bitcoin/bitcoin/blob/master/src/validatio...
On larger timescales, this isn't really that much of an issue.
Volatility is also trending downwards. The bigger it gets, the more stable it becomes.
To be clear, there is no mechanism, logic or reason (at least revealed to me) why this would be true. Vice versa, increased amount of trading typically increases volatility.
Define amount. If you mean number of trades, then the effect is decreased standard deviation if the average trade is smaller as a percentage of total market capitalisation. That seems completely logical.
See: pretty much every study in to HFT.
If that's the case, then bitcoin owners will only dump their holdings if a) they fear that the bitcoin network is about to collapse for some reason or b) they need to put the value stored in those bitcoins to use.
The mechanism is that you get flows hitting both sides simultaneously (56 buyers vs 44 sellers) that tend to cancel out, instead of a single player (3 buyers vs 1 seller or vice versa) dominating the flow.
BTC volatility will go down as adoption goes up.
I don't think it's at all clear that Bitcoin adoption will go up. It's never been useful as a currency for most people, and Tesla aside, merchant adoption has been in retreat for years. KYC/AML laws are reducing its utility for financial crime. Its only real advantage is in speculation and market manipulation. But both of those depend on volatility.
Large cap stocks weren't engineered for stability, but they're lower tail-risk than mid cap stocks, which are lower tail-risk than small cap stocks, and so on.
The same phenomenon has been broadly true across all markets over all of human history, and the underlying mechanism (heterogeneous flows) is well understood and rather intuitive.
Whether or not BTC adoption increases is not relevant to what I was saying. My only claim is that volatility will decrease if adoption increases, counter to the misplaced scepticism of the post I was replying to
If BTC adoption decreases instead, then volatility should increase, ceteris paribus.
Perhaps not the most fun thing to hedge against, but just like buying life insurance it's a good idea.
In extreme meltdown scenarios, you can broadcast Bitcoin over FM radio, the data rates are literally low enough. Spending bitcoin requires sending _hundreds_ of bytes, which again is small enough that you can drop down to very robust and simple technologies if you need to.
Bitcoin has no "wasteful energy requirement". It adjusts the amount of hashing you need to do based on the amount of competition that's doing hashing. If 80% of the hashrate suddenly disappears, Bitcoin runs slowly for a couple of weeks and then significantly drops the hashrate requirements for the network to progress.
For efficiency, many Bitcoin mining farms are established within a couple hundred meters of the power plants producing the electricity, which means that Bitcoin also generally has minimal dependence on the global electricity grid, even though it consumes an enormous amount of electricity.
Bitcoin's robustness to societal meltdowns is one of the things that makes it really interesting.
Bitcoin can't even build a significant user base now. Approximately nobody buys anything with it. Compared with debit cards or cash or mobile money systems like MPesa, it's a rounding error. If it's not better than any of the existing payment systems, it's not going to get better in some sort of prepper-fantasy collapse.
also, volatility only matters if you sell it. if you're holding as a store of value, then you've done extremely well over the long term.
For example, inflation of a given currency is measured using a basket of goods and services, not other currencies.
"1 Tulip bulb will always be 1 tulip bulb. It's just that people but them with a bunch of different currencies and all the other currencies have been really volatile relative to tulips (though not relative to one another)."