This may be a dumb question, but whats the underlying value of regular money? From my understanding it used to be backed by gold but isnt anymore, and governments print more when they need it?
What did I miss?
My understanding of what backs Bitcoin is: By mining Bitcoin, you are provably putting yourself into a financial loss and therefore are provably motivated to turn that around into a profit. Buying Bitcoin is also equivalent to mining in this regard. That means around the world, millions of people are motivated to the tune of nearly a trillion dollars to ensure that the system continues to not only keep working, but grow more valuable.
I guess I'm asking why this isnt valuable? It seems like a large portion of the world has agreed to trade assets in USD and assign various values of there assets to the value of USD, and much smaller portion of the world has agreed to do the same with BTC, so the differences is that you have to pay your taxes with one and you dont with the other?
Gold mining is destructive and incurs an energy expenditure. Economically, it incurs a capital expenditure and a venture must demonstrate a risk profile, a probability of return justifying the venture. The two endeavors have similar profiles, with bitcoin though the amount you can mine is predetermined. In gold, it is soft predetermined in that it is known generally that it gets more difficult over time to extract and more expenditure is needed, more powerful techniques must be developed. In the bitcoin world this is straightforward, "more powerful techniques" are just more transistors per square inch configured to hash SHA256. The "more difficult over time" is just competition with people who have already developed more efficient machines. Capital expenditure is pure energy, not digging pits or pumping solvents or electrolytes into veins. And scarcity is absolute.
For Bitcoin though, it sounds like you are defending Bitcoin as an investment, which I don't agree with. Unlike Bitcoin, the US Dollar is not considered an investment. It's just a currency, a medium of exchange. It loses some value over time, and we're ok with that. Bitcoin is pretty difficult to use as a currency, so people usually promote it as an investment instead.
Here is what I have to say about it as an investment: where is the money actually coming from for the returns? In order for the price to keep going up, people have to keep adding more money to the pool. This is pretty clearly a negative sum game, where the players on average must lose more than they win. Some people may win, but they are mathematically in the minority. Most people who appear to be winning are only winning on paper right now. If everyone who was currently holding tried to withdraw their money and cash out, who would be the ones buying them out? It's not clear. There is no utility to the thing that they own. It's essentially just a number in a spreadsheet.
An economist might give you a more intricate answer, but basically the underlying value of the (fiat) money today is basically the power of the issuing country's economy and government (who is the one guaranteeing the fiat validity)
In a free market, we would expect the inefficiencies to be removed from the economy over time. New competition, new ideas, etc.
In the case of BTC, removing PoW would remove the downward price pressure it sees today. The miners don't really want BTC, they want USD.
Historically, the main advantage of the gold standard is that it doesn't require a high degree of state capacity to function, and of course throughout most of human history, state capacity was pretty damn low. But we live in an era where states largely have high state capacity, which allows us to move to economic standards that require that capacity to function effectively. Trying to argue for a system that increases inefficiency so that it can eliminate the need for a high state capacity government feels like a step backwards to me.
[1] I don't think this is a good argument, tbh.
Bitcoin is none of those things, it's a cryptographic exercise in waste, producing nothing of value.
That's why.
But don't expect countries/societies to go back to anything resembling the Gold Standard (as leaning on bitcoin would be), as it was clearly a worse deal than issuing their own fiat currency.
BTC has only demand, really. The number of circulating BTC doesn't affect demand for it. But given the number of failed crypto currencies out there, we do know that the True Price of crypto is 0. There is no use for it once demand has whittled away to nothing.
> If I invented my own currency and no one wanted it, the true price of my currency would be 0, but that doesn't then mean that the true price of all other currencies is 0 does it?
For crypto the true price is zero. There are an infinite number of possibility and cryptographically secure numbers. There are an infinite number of potential crypto currencies.
LUNC is pretty much zero. Why? Demand? Was demand the only thing propping up the price? Despite all the potential utility that LUNC gave users? Does the utility of bitcoin only depend upon demand?
https://coinmarketcap.com/currencies/terra-luna/
USD has very high demand, and despite the Democratic president or Republican president, the volatility of the value has been much less than BTC.
> I dont really understand why the same cant be said for people agreeing to trade with BTC, other than that the supply is governed by an algorithm that everyone has agreed upon, whereas the supply of the USD is governed by the government, international politics, lobbying, etc.
I personally didn't agree to the algorithm. The US population didn't vote on it. Why does a minority of people get to affect the price of energy for the majority?
BTC is now at 2% of energy use in the US. So what value do I get other than paying higher prices for my energy when ethereum PoS seems to have worked just fine without issue and uses orders of magnitude less energy?
Then it is interesting that, with gold being less valuable nowdays than fiat money, central banks (or countries) are still the largest buyers of gold.
One effect is that the government currency is the unit of value for tax accounting. For the US, you need to figure out what your income is in dollars in order to do your taxes. For assets in other currencies, you need to convert.
Another effect is taking tax payments in government currency. However, I suspect it would be much the same if the government did the currency exchange for you? Whoever does the exchange will drive up the demand for government currency.
If a government issued money but never imposed/enforced penalties for failing to pay debts, that money would probably be pretty useless (less underlaying value), and some other form of money would emerge (probably one backed by actual value, like gold/scarce resources).
History doesn't suggest that trading with papers that can be exchanged with gold works better, is my understanding. The U.S. was on a gold standard during the great depression.
That I can spend it.