On the other hand, if I were a bank, bitcoin presents a compelling argument. The supply is finite.
Disclaimer: I don't own any crypto or bitcoin.
"Based on the agencies current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices. Further, the agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector."
The Joint Statement is dated January 3, 2023.
So, after this warning, what's your next move.
(This thread is hilarious. The title has now changed twice.)
Here's the link for anyone else who was wondering. https://www.federalreserve.gov/newsevents/pressreleases/file...
You realize we can go on github and setup a bitcoin network too, we call it BitcoinYC, our coins have the same properties of bitcoins, why would that have a value?
Please repeat with me:
- currencies (wheter fiat or crypto) have no value. You can't do anything with them, maybe watch dead national heroes printed or them. They hold no assets and don't generate value.
- Currencies have a price though, in other currencies, assets or services. E.g. Both usd and bitcoin are worthless but both have prices set by demand vs supply
- scarcicity does not mean value. Intrinsic value means value. E.g. water has tremendous value but low price. Gold has tremendous value and price. A car has some value, a business has a value. But currencies only have a price.
You can pay taxes to stay out of jail with fiat, which seems desirable.
If you had only Deutsche Marks to pay would that help you avoid prison?
No. Because they have no value, same as USD, on top of that, they have no price either because there's no demand for Deutsche Marks.
Legal tender of the country I live in allows me to pay taxes and stay out of jail -> it has value for me
Miners will only mine the blockchain with the longest proof-of-work. They won't mine yours, as Bitcoin's preexisting blockchain is longer. This principle was explained in the Bitcoin paper and is the heart of what makes Bitcoin work. Miners can only use their electricity for one thing at a time, thus the competition to secure the underlying asset (energy) forces what might seem to be otherwise unrelated projects to in actuality compete against each other.
I can dig up rocks in a field and they won't be valuable just because I'm tired and sweaty and don't have anything else to show for it
A network of nodes compute stuff together, making data available across the network. It’s like asking why is a distributed network valuable.
During the process of computing, the network validates stuff about the data, guaranteeing it properties, so that people can rely on it to a certain degree when reading from and writing to it.
P.S. Currencies allow you to exchange debt obligations with entities you don't know and for certain entities to issue debt.
P.S.2 I think you should formally define your denotation of value, as you do not seem to follow the usual definition. Same for price.
which you'd better hope is not within your life time, because the implications is that the US has fallen, and that a new world order would've taken over. It is unlikely that you, as a citizen of the west (presumably) is going to fare as well as you are today.
But I know the USA would manufacture some bogus claims about dangerous weapons and go to war rather than letting it happen.
Nothing has intrinsic value, value is a relational and marginal property - I value things differently than you, and you value the first litre of water differently than the thousandth. And even then the value of something is not fixed and may change over time, you probably now value things differently than you did as a child.
Some examples: wampum seashells, mammoth ivory beads, glass beads. None of these have "intrinsic" value.
By the way, the main point of the article I linked is that since humans like to collect random, valueless things (like seashells on the beach) then there must exist an evolutionary explanation for that. Meaning, the behavior must have been selected for.
[0]: https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/C...
You’re putting words into their mouth, they didn’t say scarcity was important at all. They said that it was compelling the supply was finite. We can only guess what they meant since the comment didn’t elaborate, but they maybe meant that if there’s known, fixed quantity of BTC in existence there’s no chance of a big surprise quantity of BTC appearing from nowhere, and causing a price crash (like the Spanish mining silver in South America eventually did for the price of silver).
Personally I don't find that very convincing (BTC price already fluctuates wildly and there are enormous BTC “deposits” that could suddenly cause a crash if they were used) but maybe that's not what was meant either. Either way, I don't think projecting a non-obvious meaning onto this comment and using it lecture people on price-vs-value is very persuasive.
Like from Satoshi's huge stash?
> there are enormous BTC “deposits” that could suddenly cause a crash if they were used
Of course that Craig Wright thing was a hastily cobbled together lie he came up with based on Back To The Future, but there's still the outside chance the real "Satoshi" could show up and do something.
I've worked at a number of banks now and what keeps them up at night isn't how much money they could make or what competitive technologies like Bitcoin are doing.
It's their ability to consistently operate with the increasingly tight regulatory guard-rails imposed by the government. And Bitcoin's incompatibility with KYC and AML regulations render it unpalatable for most financial organisations.
If you like the "limited supply" thing (I don't) you might be interested to know that other chains exist that can even have negative issuance, and while there is a plan to eventually stop issuing BTC, right now the supply of BTC is actually increasing (1.72% at the moment i think).
Ultimately if you want people to hold your cryptocurrency as a store of value rather than spend it, and you are using an expensive means like POW to secure the chain, then its going to be difficult to pay for securing the chain just with transaction fees, calling the whole "limited supply" thing into question.
If you don't have issuance then the cost of securing the chain for all the people with value on the chain is an externality bourne entirely by those making transactions. Unless you have a plan to keep demand for transacting extremely high then the chain is unsustainable.
Bitcoiners I talk to either haven’t gamed out the long term, plan to sell before then, or have some wishy-washy story about how Coinbase et al. will mine as a loss leader to keep the industry running.
1: https://bitinfocharts.com/comparison/fee_to_reward-btc.html#...
The profits for miners = the security budget. The chain will work fine regardless, it's just less secure.
As it happens, mining is currently also subsidized by a bunch of retail investors flocking into the publicly traded miners, given that most of them are currently losing money per coin on a unit basis once hardware depreciation is factored in.
I suppose it's one possible future, but I'd be shocked to hear a bitcoiner say it, since it would effectively turn a decentralised chain into a chain run by a consortium of large financial companies.
(I also think it overestimates the power that miners have to unilaterally hard fork and have the community accept it, but so goes)
Do you think that the most important thing about the value of something is the finite supply of it?
Fiat currency is theoretically infinite since we abolished the gold standard, but seems to be compelling.
Why would bitcoin be more compelling than gold (a finite store of wealth) or fiat currency (a fluctuating/volatile/infinite store of wealth)
Hi, I've worked in the global mineral exploration industry for decades, both as a mine worker, an exploration geophysicist, and as a compiler of a global DB that now backends the S&P mineral intelligence division.
Let's clear up some things about gold.
1) It's valuable because it's valued ..
That's pretty much it, it's kind of rare, its shiny, it "stands alone" as a noble metal that doesn't easily react.
2) Much needed - it's used in jewellry, it's essential in high end long life zero maintaince space electronics ... a great deal of other uses (Gold Speaker Cables!!) are just pure performative BD (ie. it's not "essential") - other metals are in the same ballpark for conductivity, etc.
3) The greatest single application for gold, once mined at great expense, is to be formed into ingots and sit about as bullion as "proof" of work (digging a super pit and spending > billion to recover it per annum) and proof of wealth.
It's more or less solid crypto that persists after the power goes out, can be worn as shiny jewellery, and has some neat niche applications that it is essential for.
I'm not a huge cyrpto fan, although I did hang on the cypher punk boards where the bitcoin paper was first announced (as I have a math background) - I'm no fan of the vast amount of energy wasted (IMHO) on both gold extraction and bitcoin mining.
There's nothing in the world with such a long history of a solid investment that goes back to ancient times on a global scale.
So basically, cryptocurrency (i.e. proof of work limited shiny token) has "a long history of a solid investment that goes back to ancient times on a global scale"
If you can’t see literally any axis along which Bitcoin and gold are comparable, then I can’t really help you. It’s obvious there are some ways the two are comparable, even if you think these comparisons are weak or ultimately insufficient to hold up the price.
Or just use dollars.
No thanks :)
One of the original arguments for BitCoin was that it would maintain it's value during inflationary periods - clearly something it has not achieved. The justification for BitCoin seems to be a moving target - depending on whatever the perceived problems are - Dr BitCoin's economic cure all.
Aka it’s less of a crazy speculative investment and more of an actual currency.
If I send $1000 USD to my friend in Australia using bitcoin how much AUD do they receive? And what does that process look like?
https://www.investopedia.com/tech/history-bitcoin-hard-forks...
Creating new digital currencies is also rampant. It seems to me that a finite representation of the current wealth of the economy (the money in circulation) is not even desirable. New things are being created all the time that increase that wealth. It seems reasonable to be able to adjust the amount of currency in circulation to reflect that.
This is as true as saying that the United States Department of Treasury sets the supply of dollars in stone. Bitcoin is as fixed as the relatively small number of parties who run the network want it to be. If enough of them wanted to fork it, remove the deflationary model, change their rewards, etc. most users would be dragged along for the ride because there’s no anchor.
There’s nothing preventing Bitcoin miners from modifying the Bitcoin supply algorithm and inflation rate, except for their collective unwillingness to do so.
Bitcoin block rewards go down over time in Bitcoin terms—but so far the long term trend has been that the rewards have gone up in USD terms. We have never seen a sustained, long-term decline in the block reward in USD terms.
When we have seen short-term declines in the USD-denominated block reward, the hash rate has also declined—meaning a good number of miners have stopped mining.
What happens if the price of Bitcoin stagnates in the long term? Will miners still mine when the block reward is slashed again? Or will they decide to modify the algorithm to ensure that they remain profitable?
In fact, a majority of miners did try to strongarm a fork 5 years ago, and they failed, because the users did not agree. There was even been a book written about it. https://www.amazon.com/Blocksize-War-controls-Bitcoins-proto...
If they tried again, they would fail again -- literally nobody would agree to a fork whose purpose is to enrich miners at the users' expense.
The Bitcoin Cash fork happened when prices were rising and the inflation rate was still high. What would the balance of power have been if the block reward were 1/16 what it was at that time? What if the only miners willing to stay in the network were trying to exploit it in some other way, because the block reward was insufficient an incentive?
In that kind of environment, both users and miners might start looking to make changes.
The security issue with less miners is the whole 51% attack, but even with a substantial drop in miners, it would still mean the attacker would need many thousands of nodes. Seems like that kind of energy and spend would be more profitable mining.
But transaction fees are determined based on supply and demand for transactions, not based on how much value on the chain is secured by them.
These are only tangentially related, and the strategy of 'store of value' makes them even less well coupled.
Unless there is high demand for transacting, then the economic pressure will be for the cost of attacking the chain to come down, and double spending the value stored on the chain will increasingly become more appealing than transaction fees.
The current equilibrium relies on the supply increasing.
It is absolutely possible but not practical. The selling point of bitcoin in this regard is that the work needed to take over the network is relative to the size of the network.
You can 51% a small shitcoin all day. It might cost you $50,000 to do it and now you control a coin that has become worthless because it got hacked by you.
I would not be surprised if a large crypto exchange takes over bitcoin mining some time in the future. Crypto gamblers don't really care about decentralisation or censorship resistance. They only want the number to go up.
An uncapped emission like 1 coin per second forever would be more immutable as it is simple as possible (not to mention much fairer) and leaves no uncertainty about long term security.
Until It isn't.
Miners will one day decide to hardfork bitcoin to increases the mining rewards, hence increasing the supply. They will of course need to prepare the narrative, and say "it is for the good of bitcoin".
It might be in 10 years, or in 50 years. But on a long enough time-scale, you can be sure of one thing: Bitcoin will change, because it's man-made and because it's mutable/forkable.
If double spends looked imminent, or started occuring, I think it would make sense to fork to increase the block reward. Of course, bitcoin has forked before and it becomes a political issue. Personally, the big block wars (and subsequent Bitcoin Cash split) was where I got off the Bitcoin train.
But if a fork happened, and the network that didn't adopt the higher block reward started getting 51% attacked, I do think people would move over to the new network (and that would become "bitcoin")
This line of thinking is a fundamental misunderstanding of who holds the power to change the rules of a system like Bitcoin. It's not the miners, they just enforce the rules. Economic actors are the ones who agree on which rules miners enforce.
That hard fork the miners created? It's worthless, just like every other time miners have tried to change the rules.
The supply of most cryptocurrencies is finite. That in itself is completely meaningless.
> Disclaimer: I don't own any crypto or bitcoin.
Nor have you read about many of them, then?
'finite' bitcoin is also only finite by consensus, as are all the rules around it. As emission continues to decline, it's entirely possible the ecosystem could change the rules.
And that's before we talk about what 'finite' means in the context of forks, be they source-code forks that spin up a new chain with an all-new supply of pretty much the exact same thing, or chain forks that instantly create new cryptocurrencies with the same history as the existing one.
Banks don't make money by owning assets. That's not their business model.
FYI the 'trillions printed in the last two years!' line is a meme, not a reality, and those running the currency are accountable democratically, in a way that cryptobros are not.
Those running the currency are accountable to the democratic system of the countries they operate within, even if they are not directly elected.
Those running Bitcoin mining and nodes are accountable to nobody.
How? Aren't 99% of cryptocurrencies unregulated, ergo Ponzi schemes, pump and dump, trades by the same (hidden) identity? That's also a feature why a lot of people and finance institutions are drawn to them.
Plus, did anyone take to account Ethereum, for example, for forking it?
Except they can't be fired, and there's absolutely zero pressure for a presidential candidate/sitting president to hold this person accountable.
Finiteness is a neccesary but not sufficient condition for something to be valuable. Lots of things are finite that are stupid investments. Its not like banks are investing in vintage comic books.
Finite supply is overrated [1].
[1] https://john-tromp.medium.com/a-case-for-using-soft-total-su...
The same stands for USD and any other fiat currency. All of which are being debased right now.