Bitcoin's Value is Decentralization
paulbohm.com
paulbohm.com
You can make anything look great by considering only the positives, you can make anything look terrible by only considering the negatives. The question at hand is about the balance, not whether BitCoin has any positives at all.
But it's very clear that it is interesting. It essentially solved globally consistent distributed naming and non-web-of-trust PKI on the side, and almost no one noticed.
Where the asterisk means that it has not yet stood the test of time. It seems like a solution, but none of us should be quite sure yet that it actually works as advertised.
The code can be forked and used to power another coin system, let's call it Webcoin, which will have the same properties. The cryptographic, decentralized and uniqueness properties are therefore a value of the code.
The value of Bitcoin is related to this specific implementation, i.e. the marketing that caused people to put their money in this specific fork of the code and permitted early adopters to cash in.
At some point in the future, a country might choose to use the code to power its own currency system and to back it with the economic activity performed within (which is taxed via taxation). That would give intrinsic value to the coins; today Bitcoins is just marketing implemented on top of a well-written open source decentralized code-base.
No... no, I don't think so. You seem to be using "value" as a synonym for "property", which is not at all how I meant it. I meant it as, errr, value. Both the code and the BitCoin network have positive entries on their value balance sheets, but I don't know that their total is positive, or that it will be positive enough to work.
> Bitcoins have intrinsic value if they enable desirable interactions that are not possible without them.
Yes, any fiat currency has the 'intrinsic' value of enabling some kinds of interactions that are not possible without them. For example, hard-to-counterfeit pieces of paper have an intrinsic value. The problem is that such things are often substitutable: the real value of most paper currencies comes, circularly, from the fact that we've decided to settle on this set of hard-to-counterfeit pieces of paper, not a different one. That's why it's fiat currency, because its value as currency fundamentally derives from the fact that people have agreed to use it as currency.
The same applies for Bitcoin; the general idea could be a good one, but Bitcoin is not the only possible implementation. If we settle on this implementation over others (perhaps because it was first), it is for reasons closer to fiat money than for reasons advocated by "hard money" proponents that they have value.
It probably shouldn't have gone into the economic value of bitcoin specifically, since it doesn't address most of the economic arguments against bitcoins.
or for that matter, any human activity's.
The gold in the plating on my headphone jack has intrinsic value to me, measured nebulously in its quality and reliability. It has value to me, but it has no value to the market. My demand for gold-plated headphone jacks is currently zero and my headphones will never be a part of market supply. Supply/demand cancel out, so the market ignores me, and I ignore the market. But the value is still there.
Intrinsic value can indirectly affect the market by increasing demand. Obviously, at some point in the past, I had demand for a gold-plated headphone jack, and the market supplied it at a specific rate of exchange.
The question is, how does the value of intrinsic properties of gold, such as its ability to conduct electricity, compare to the value derived entirely from social factors, like its history as a medium of exchange and its current status as a trading commodity?
Social value is not intrinsic value, but it's still real value. The fact that everyone agrees something has value means I can trade it. We're getting extremely close to monetary value but not quite there yet. In theory, the socially-determined value of a currency could be measured in the same abstract life-enhancement unit as real intrinsically-determined value, and this unit still doesn't have to be money.
Monetary value isn't necessary until you actually participate in the market. And so I guess there is a couple of questions:
(a) If you could come up with a unit to measure all value, how does the intrinsic value of gold compare to the social value of gold?
(b) How does the intrinsic value of gold's effect on its market value compare to the social value of gold's effect on market value.
For example if you want to compare the value of a solar-powered calculator in 2011 to the value of a viking longship in 1011, market value doesn't work because the markets are simply not compatible. But there is still value there, both relative to people of the time and in an absolute sense.
We can get more specific than this. US citizens use the US dollar because the law says that US taxes must be paid in dollars and because whenever a credible competitor to the dollar has arisen (like the use of casino chips in Las Vegas) the US Secret Service shuts it down.
Actually, it's the other way around. Since rate of supply is fixed by the protocol, the cost of producing that supply has no influence on the price.
But the price does have an influence on how much the suppliers are willing to pay. Hence total bitcoin computation power follows price (with a delay due to time to acquire new hardware or repurpose existing hardware).
Every market has friction and costs associated with its security. This is fundamentally no different than a bank hiring a security guard. If someone comes up with a solution to this problem which lacks this cost, it would of course be preferable, but no one has yet done so.
The thing that matters is the size of the transaction in bytes. This size is essentially proportional to how many cryptographic key pairs are involved in the transaction. If your $40b are associated to a single key pair, then it doesn't matter whether you send $40b or $1. If they're distributed over many different key pairs, then it does matter - but then again, you could have $1 distributed over just as many different key pairs.
"Bitcoin makes it feasible to pay for internet relays that anonymize or reroute traffic - that is, it makes it easier to remove central control and fight censorship"
And who doesn't want to fight censorship amirite? Surely there are no negative repercussions to letting people reroute traffic anonymously.
I understand where such a snarky statement comes from, but let's take a step back. Bitcoin has generate such enormous debate because it is not clear to anyone---security researchers, economists, or otherwise---what Bitcoin entails. It has some desirable properties, some undesirable properties, and has, imho, made people think a lot about the concept of fiat currency and how to go about extending the advantages paper currency has to the "digital domain" (and I use that phrase loosely).
I think it is great that lot of people are looking at Bitcoin in many different angles and since this is the first of its kind, I am sure people and society (including governments) will learn from pitfalls (security, economics or otherwise) to build a better system tomorrow. So let's not attack people who are trying to explore what Bitcoin gives us and what it doesn't.
what do you think, are there gonna be sufficient incentives in the future to decentralize certain services?
You bring a very good point, one that I hadn't considered at all.
Although I'm not sure, I think the "work from at least 50% of honest nodes" is an issue. The more demand you have to create work for decentralised services, the more you split and weaken said services.
For example, if x is a major player with 33% of workin one decentralised system, they are more likely to have > 50% in smaller systems. So they would have power in smaller systems being able to usurp them at will.
One way around this would be to have a lot of players in each system, such that it would only be realistic to have a few % at a time (each). However, this again would most likely be undermined by any state actors who would ultimately be able to produce much more than anyone could if they wanted.
But I'm baffled as to why anybody would want to use it? For it to become useful we'd need to go to the extraordinary lengths of replacing substantial infrastructure, at a very great cost - to replace proven technology that scales extremely well?
And it wouldn't surprise me if Harold Camping was mining Bitcoins on the church computer. The end is nigh!
Some might therefore consider it desirable to have a DNS system outside of this control to compliment the existing system.
It's the first time people can actually truly freely trade without fear of monitoring or tracking. Of course that's its value.