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Comment by dvt | Hacker News Reader

I'm genuinely curious when the fat lady will stop singing in regards to Bitcoin. I sort-of understand the allure of ETH and its derivatives ("programmable money" does bring something new to the table), but BTC is supposed to be a "value store" yet is down 30% from November; or it's supposed to be a "currency" but you can't use it as one; or it's supposed to be "decentralized" but mining is monopolized by a handful of mining pools. If it looks like a speculative financial instrument and it quacks like a speculative financial instrument, it's probably a speculative financial instrument.

Maybe I'm just not smart enough to understand BTC.

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> BTC is supposed to be a "value store" yet is down 30% from November

It certainly would be hard to argue against the fact that gold and silver are stores of value. (Even if you don't invest in them, it's pretty clear that the vast majority of market demand for precious metals comes from store of value.) Yet silver is currently 55% off its peak, just a few years ago gold was 40% off its peak.

Store of value doesn't imply that an asset can never decline in price. It implies that an asset is likely to hold its value when other assets in your portfolio are down significantly, or even worse when other assets are seized or destroyed.

> It's supposed to be a "currency" but you can't use it as one

The dollar is a currency, but the majority of dollar owners live in foreign countries where you can't pay for things in dollars.

> "decentralized" but mining is monopolized by a handful of mining pools

The concentration of miners is essentially irrelevant at current levels to decentralization. From a user's perspective decentralization matters because of the possibility of censorship. Bank of America can freeze my account. To censor a transaction in the Bitcoin network for more than 1 day would require controlling 99% of the hash power in the network. Consequently a Bitcoin transaction has never been censored in the history of the network.

> It certainly would be hard to argue against the fact that gold and silver are stores of value.

I don't think gold and silver are stores of value, but (certain) Rolexes and Ferraris are. And so is real estate.

> The dollar is a currency, but the majority of dollar owners live in foreign countries where you can't pay for things in dollars.

Not sure if you've done much traveling, but the USD is basically usable everywhere.

> Bank of America can freeze my account.

I think this is a solution looking for a problem. It's extremely rare that a bank will freeze an account for non-legitimate reasons. But I mean, sure, you're technically correct: there's a non-zero probability BofA will freeze your account.

> I think this is a solution looking for a problem. It's extremely rare that a bank will freeze an account for non-legitimate reasons. But I mean, sure, you're technically correct: there's a non-zero probability BofA will freeze your account.

It’s lucky I guess that you don’t hold any unpopular political views. Let’s hope for your sake it stays that way. If you for example wanted to donate to Wikileaks or Julian Assange’s defense or the Canadian Truckers - the banks would very likely want to censor those transactions. Or imagine you held political views that called into question the validity of the big banks or you if you wanted to get in the business of sex toys or some other ‘immoral’ industry, suddenly censorship resistance matters quite a bit.

Just because Bitcoin’s censorship-resistant properties haven’t benefited you personally yet, doesn’t mean they don’t offer the world value by means of freedom to engage in commerce - even if the bankers would prefer you didn’t.

Why is it hard to argue gold and silver aren't a good store of value? I've never considered them a good store of value, and I don't think I know anyone in my circle that hold silver/gold as a store of value. If one really wants to avoid investing in equities and estates, T notes are much less volatile and a better store of value than gold/silver.

T notes don't store value wrt inflation, which is what precious metals are supposed to hedge against. Earlier chat about metals holding value when equities/bonds are selling off is misleading, imo.

If you think about it like gambling it makes sense.

It takes about $14 billion per year to maintain the current price given that new bitcoins are "mined", so that's the theoretical supply inflation right now not subtracting deflation from lost coins.

The gambling industry worldwide revenue is $219 billion.

That's just one theory of its value if its purely used for speculation. That said I still believe it could totally collapse at any time or perhaps hit an all time high and slowly decline from there, with several smaller rallies on its way down.

It takes about 14 billion per year to maintain the current price given that new bitcoins are "mined"

14 billion what to maintain the current price? How does that work?

I think what GP means is that X amount of new bitcoins are "mined" every year, which is to say that X new bitcoins spring into existence from nowhere, so if the current exchange rate is Y dollars per bitcoin then XY dollars needs to flow into bitcoin per year for bitcoin to retain its current market capitalisation.

And I guess XY = $14 billion but I haven't bothered to look the numbers up.

I got 17bn, but with constantly changing prices a rough figure is fine.

Here's the previous day's block reward and current price. https://bitinfocharts.com/bitcoin/

The other thing about mining is the their costs are in hard currency, so there's not much opportunity to "hodl".

Those mined coins need to be sold once the electricity bill is due, so to maintain a stable price bitcoin needs an ongoing net dollar investment proportionate to the current price (taking halvings into account).

> It takes about $14 billion per year to maintain the current price

I would put this in the "speculation" bucket.

First: as surprising as it may seem, not all miners sell their coins (it's cheaper to mine coin than to buy them, therefore someone wanting to invest 10M in BTC is better off buying mining equipment and paying for the power to run it).

Second: it's very likely that, the exact supply of Bitcoin there ever will be being a known quantity, the "cost" of as-of-yet-unmined coins is priced in.

Nope. I'm pretty sure you understand it perfectly.

What's the difference between BTC and a GOOG share ? Google doesn't give any dividend and the GOOG share has not any voting right. But even the GOOGL share there is a voting right, but Google founders will have the majority anyway.

So what's the difference ? In both case you posses a piece of electronic paper that can be exchanged on a market and there is no other benefit.

Not defending BTC, I'm just curious

Google has assets (both physical like servers and virtual like user data) and revenue, the liquidation of which can make the shareholders whole.

With BTC, there’s no underlying asset.

But the piece of paper that is GOOG stock has nothing to do with servers.

You can't go to Google give them GOOG stock and say "give me some servers for that, please".

If you've got enough, yeah you can

No, you can't because Larry Page can step in, wave the golden action in your face and say "nope".

> With BTC, there’s no underlying asset.

lolwut

BTC defines computation/energy as a tradable asset -- that's literally the whole point of it.

To clarify the point the parent is making; if BTC goes belly-up, how will you get those “computation/energy assets” returned to the coinholders?

Parent is just pointing out a fundamental difference on how the underlying assets actually relate to the security.

A GOOG share has a claim on current company assets and potential future profits.

BTC has a claim of brute force sha256 2x key in the past.

Michael Dell took DELL private. He was able to raise the money to buyout DELL and was able to gain control of their plants, bank balances, etc. He could change how Dell operated and now he can choose to keep the profits within the company, distribute it to owners, or take all of it as his salary.

(note, I’m using Michael Dell as a stand in for whatever the buyout consortium was).

You can’t do anything like that with BTC.

But here’s the thing. Dividends exist. Many public companies pay dividends. The fact that Google does not pay a dividend is simply reflective of the fact that a majority of its owners (which is what shareholders are) believe that any additional earnings are best invested back into Google. (That’s the principle…in practice there are also tax disadvantages to dividends that make them further unattractive).

If a majority of owners didn’t believe that, they can make Google pay dividends.

Google often buys back stock, so that's money going to investors that comes out of Google's revenues. That's positive-sum for investors. (The amount of money so far isn't nearly enough to justify their market cap, but presumably more will come over the years.)

For Bitcoin, by design, the only possible source of revenue is other investors buying in later. This is zero sum in the long run for investors, and negative sum for anyone currently holding or buying in (since some people have sold). But it's an infinite game so the long run might never come, and you can do well if you don't hold too long.

Isn't Google buying back stock is just another inverstor willing to gamble on value of GOOG stock?

I wonder why corporations buying back their stock is even legal. Isn't it quintessential insider trading?

No, you're confused. Google isn't like other investors because they control the supply of stock. They don't need to buy stock since they can create it. Google owning its own shares doesn't do anything just like writing an IOU to yourself doesn't do anything.

This is a way of returning money to shareholders, like paying a dividend. It's taxed differently because it increases the price of the stock, so it's capital gains.

But after they buy back their shares they can later sell them on the market, right?

Or do they instantly destroy them as they buy them back?

Either way the result is the same, they can buy them when they are cheap and resell/emit them when they are expensive. And they have internal knowledge of the company. And that's insider trading.

I suppose it's true that there is trading happening and there are insiders who are doing it, but that's not what "insider trading" is. A company can use its own information internally to benefit shareholders and it's perfectly legal. Insider trading is when you learn of information that doesn't belong to you. It's a violation of trust.

As I understand it a company does not generally hold its own stock like other investors do [0]. You should think of it more as a sink/source for the stock. So the company can just arbitrarily create as much of its own stock as it wants. Obviously doing this will dilute existing shareholders, so companies won't do this unless there's a good reason to. Likewise, when the company buys back stock, that stock just disappears, so now every other shareholder has a larger fraction of the company.

[0]: I think the main exception here is that there might be an employee equity pool. The board will approve a certain number of shares to be created for the pool, and then they'll sit around and gradually be transferred to employees as their stock grants vest.

Google stock has a lot of signals for price: profit, user retention, growth, outlook, leadership, new products, etc. And of course a level of FOMO if people decide that google is the next big thing that may irrationally drive up the value for years.

Bitcoin has a single signal for price: Price. That's why people get in and drop it. This can make for certain feedback loops. But not only in one direction. (that it also has some uses has so little bearing on its price action that its hardly worth mentioning from a price perspective. The two do not correlate, eg, a 50% drop in bitcoin does not mean 50% or even 5% less usage to transfer money from A to B)

All blockchains are just databases that anyone can write to by paying in the transferable database units. People are willing to do that.

Don't worry about the sales pitches for why other people hoard the database units. It periodically fits their risk profile, or it doesnt. Who cares.

I like using the database, I expect to continue being able to.

Other platforms don’t have the same features regarding the tradability of the unit. Dealbreaker.

> …down 30% from November…

And up over 300,000% over its lifetime…your point in measuring from November arbitrarily? This statement doesn’t seem like “genuine curiosity” to me and more like your mind has already been made up.

With figures like that, are you really disproving his point (that it's a speculative financial instrument, not a value store)?

I don’t recall trying to disprove the point at all

>Maybe I'm just not smart enough to understand BTC.

There is one aspect of BTC that IMO does not receive enough attention.

Can you think of any other asset that:

    1) strictly no one knows you own, yet you do own it absolutely, short of losing your mind or dying.

    2) can't be seized by anyone, especially if 1) holds true

    3) is highly likely (because of - among other things - finite, known-ahead-of-time supply) to preserve (or even increase) its value and therefore shields your wealth from erosion.

Bitcoin is not a perfect match for these requirements:

    for 1, you have to be a little careful how you acquire it and spend it (direct mining is the best way)
    for 2, you also have to be careful how you manage your keys
    for 3, you have to average out volatility over sizable stretches of time (~2 years)

Still, there isn't IMO anything around that fits the bill as close as BTC does.

A lot of people have a lot of negative things to say about BTC, but the fact remains: theses 3 properties are highly desirable, hence IMO the reason why BTC in such high demand.

All the negative arguments against BTC (power usage, ransomware, no intrinsic value, there's a million clones of it, unbearable volatility, can't be used as a currency, maxes out at 7 tps, miners will bail when rewards goes down, and all of the other "wont you think of the children" type arguments) don't carry much wait in the face of these 3 properties.

The majority of retail investors in BTC are not buying it for the above properties - they are buying it on exchanges that report to the taxman as a speculative asset. For these users, both 1 and 2 are not Satisfied (the bank knows you invest in crypto, and the exchange holds your crypto, you don’t have control over it). (3) is getting harder to claim every day but time will tell.

> they are buying it on exchanges that report to the taxman as a speculative asset

I believe you are correct for the vast majority of small retail crypto investors, and you are also correct that many of them are in a get-rich-quick type mindset. I feel sad for them, but ... there's no known cure for human nature.

But none of these arguments contradict the fact that the asset does have these desirable properties, and that it does create strong demand, especially from HNWI type investors.

As for 3) I disagree: it has always been very hard, and it's actually been much harder in the past.

A 30% downswing like the recent one is total peanuts compared to what happened in the early days. I seem to recall a time where it went from $30 down to $2 in a matter of weeks.

Here is Every Reason Bitcoin Will Not Fail[1]. I believe some of what you mentioned is at least partially addressed.

[1]: https://safehodl.github.io/failure/

Nice list but what if governments don't ban bitcoin, but make it more onerous to trade, tanking the price. it would only take one major bloc to do this for price movement to happen.

I'm part of that not so smart crowd also. I was naive and easily scammed, I bought some Bitcoin around 2013 or so, I think it was $100 for a Bitcoin then. Where do you think I should have stored my value instead?

Sorry for being off topic but can you please email hn@ycombinator.com? I want to send you a repost invite.

> Maybe I'm just not smart enough to understand BTC.

I don’t think that’s true. I suspect it is more likely that you’ve given Bitcoin only a cursory study where you compared it to a very inefficient database, recognized that on-chain transactions are slow and expensive, energy-consumption is significant, and it isn’t as easy to spend as US dollars - and so you dismissed it as a fraud.

Everyone I know who eventually embraced Bitcoin, initially rejected the idea - myself included. It is not easy to appreciate the brilliance of Bitcoin unless you first understand the problem it is trying to solve.

Unfortunately few of us really understand what fiat money is and how it is created - or at least that was true before Bitcoin forced us all to investigate. One of the funniest implications of Bitcoin is that now every time the talking heads on CNBC or CNN mention US dollars, they now refer to it as fiat.

Bitcoin proponents call it the hardest money ever created. Unlike fiat, Bitcoin is virtually impossible to debase. The supply of Bitcoin is predictable for the next 10 minutes or the next thousand years. No other currency has a predictable inflation policy. No other currency is resilient to the desires of centralized actors to manipulate the money supply.

Here is an exercise I like to do on any complex topic I don’t fully understand. I ask myself what the proponents know that I don’t know? (and vice versa, what do I know about the subject that the proponents don’t get?)

Here is a list of mostly billionaires who all hold and advocate for Bitcoin. Ask yourself, what do they know about Bitcoin that you don’t? Also, what do you know that they don’t which makes you so confident it is a scam?

Bitcoin Proponents:

Elon Musk, Barry Silbert, Mark Cuban, Michael Saylor, Mike Novogratz, Tyler & Cameron Winklevoss, Paul Tudor Jones, Tim Draper, Bill Miller, Stanley Drunkenmiller, Anthony Scaramucci, Jack Dorsey, Steve Wozniak, Tim Cook, George Soros, Mark Zuckerberg

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