Hacker News Reader

Comment by okintheory | Hacker News Reader

Actually, the explanations for why bitcoin has value coming from different supporters is quite different, e.g. some argue it is useful as a means of payment, some argue it isn't but it will be, some argue it is only useful as a store of value. If you read "The Nature of Money" by George Ingham, you'll see that many economists think of money as something that is simultaneously: (1) A means of payment (2) a unit of account (3) a store of value. And historically, all successful currencies have been backed by a state that created demand for the currency by taxing people in it. Bitcoin is arguably doing very poorly on (1) and (2), which from a historical perspective makes it prospects look very uncertain.

View on HN

> many economists think of money as something that is simultaneously: (1) A means of payment (2) a unit of account (3) a store of value.

Just some further notes on this. The word "is" is a bit ambiguous here. To clarify, those are "properties" of money instead of what money "is made of", like a knife is sharp, while what knife actually is made of is steel. In the same way, (modern) money is debt. To have money existing means that someone owes someone something.

Now, of course, bitcoin is not debt. Nobody owes you anything if you own bitcoin. You may just be lucky to find a greater fool to sell it. And yes, someone might think it makes a better money because of that. Unfortunately for bitcoin, just like what makes a good knife is that it is sharp, a good money that is a good means of payment, good unit of account and good store of value. And by any reasonable measure bitcoin is utter failure on all of those.[1] So I find it hard to believe bitcoin will ever be money in any reasonable sense. Being good at those would require the value of money to be relatively stable against other goods, and in the current world that is just not going to happen without some mechanism actively managing the value of the money. And bitcoin has no such mechanism available by definition.

[1] If you believe in the "store of value" story, please give me a reasonable quantitative measure for judging how good a store of value an asset is, and by using that measure, compare bitcoin to more traditional store of values and show that bitcoin is not an utter failure.

To become a Unit of Account, you generally need to become a Means of Payment. To become a Means of Payment, you need to be a store of value.

Why would you price a product or service in something without value? Why would you denote all prices in something that nobody is pricing in?

Your blanket argument that all successful currencies have been backed by a state is obviously wrong. Gold, Salt, Rai stones, sea shells all had value and were used as currency without governments taxing in them. Rai stones especially are a very interesting use case of money.

Writing 'state' is arguably inaccurate if you read it as 'nation state', but taxation in gold by city states goes way back to early city states and more generally gold has a very long history of being accepted as payment by governments. I'm not sure about salt. I'm not convinced Rai stones are a meaningful counterpoint -- reading about them they only appear to act as money in a fairly weak and impractical sense.

Secondly, I did not say that Bitcoin has to be money to be valuable. Rather that Bitcoin is not likely to be 'money' in any serious way, and this makes the 'store of value' proposition precarious. But I don't think it's inconceivable that bitcoin might still be worth a lot 100 years from now.

Bitcoin can have value even if it's not money. So, gp's point stands.

The point was that Lagarde is a complete idiot for saying that Bitcoin has no (future) value? But, a fairly sound argument can be made that this is a plausible prediction, in part on the basis that Bitcoin is likely fail as 'money', which makes its long-term position as a 'store of value' precarious. So, I don't think the point is fair.

> backed by a state that created demand for the currency by taxing people in it.

As well as making it a means of commerce which means its value has to be relatively stable so people can 'figure out' what their time/stuff is worth vs someone else's value.

All crypto-currencies suffer from massive fluctuations making it difficult to value vs say a pair of jeans. It invariably gets compared to a fiat currency.

Reply on news.ycombinator.com