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Comment by grovulent | Hacker News Reader

I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. And if this isn't the case - then people will go off it.

When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.

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Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.

I think it's better to think that bitcoin is a currency for some, and a commodity for others.

As a commodity, gold always had an intrinsic value separate from its value as a currency. So if the authority stamping the coin disappeared, I could always melt down the gold and sell it as a simple commodity.

In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.

Is gold's intrinsic value anywhere near what it's currently trading at?

edit: I think I mean it's "use value". The value of gold if it were not used a store of value.

Of course gold's value is inflated because of its dual role as a value store and as a commodity with practical applications.

Even if gold loses favor as a value store, there will be some minimum boundary on its price based on its usefulness in practical applications. That is not true of bitcoin.

The GP was implying that bitcoin has a commodity value, which it does not. It merely has value as a means of exchange. What that means is that bitcoin does not benefit from same lower price boundary that gold does. Therefore, it is much riskier.

What good would bitcoins do for you after a Hurricane Katrina-like event when there is no communications network or electrical service to speak of? What about gold?

So how much is gold's commodity value really? I've heard $30/oz thrown around (no idea how accurate that is).

If that's true, 30/1600 is about 2%, yet gold is still perceived as a fairly safe store of value.

There's a lot of assumptions built in there... but it's besides the point: n% is infinitely better than 0% for any value of n > 0.

Also, the claim that "gold only became a currency when it was stamped" is wrong. The value of gold on the commodity markets today does include a value store component and none of it is stamped.

When the czar's family fled russia they didn't grab rubles, the grabbed jewels. Why? Because their currency was worth nothing but their jewels could be traded for value in a very transparent manner wherever they might end up.

Commodities that are consumed are priced on the marginal cost of production. Saudi Arabia can pump oil for less than $5/barrel, but what drives the prices are the costs of fracked shale and frontier plays like UDW. Gold is the same. Generally, gold is found in sulfide mineralization deposits or in placer deposits (weathered ore bodies, ie nuggets in alluvial deposits). Most new mines are the former, which requires massive mining and ore treatment (on the order of grams of gold per ton of ore, which is then crushed and leached in acids). So it's expensive to produce. Usually it's found with silver and copper, and some miners will account for it after credits for selling those metals, but you can assume $800-1000 USD/oz for production costs after fully capitalizing the development of the mines, at least the last time I looked into it several years ago.

I'd say that that utility is sufficiently valuable enough to allow BitCoin to survive. Just look at the precursors, like Hawala, and the more modern stuff like Western Union. If nothing else, BitCoin will find a niche like them (and possibly replace them).

Gold has been used as currency (medium of exchange) at multiple points in history. It's not now. People are trying to use bitcoin as a currency atm - but it's very difficult with its fluctuations in value. It may perhaps be more successful as a medium of exchange in the future - but that won't be for a while.

The notion of "money" is quite well defined. You need 3 properties:

1) Store of value. Much easier to store gold/USD/Bitcoins than the food you will need in the future.

2) Medium of Exchange. Can be used to exchange for real goods, thus avoiding the headache of barter.

3) Unit of Account. e.g. is easily divisible.

Bitcoins aren't great at #2, but gold is terrible at #3. If bitcoins prove to be a lasting store of value, then it will almost certainly be more "money" like than gold.

Bitcoin hasn't yet proved it can do either 1 or 2 yet. If it succeeds in either it will do better than gold is currently doing as currency.

But I wasn't trying to measure currency dick size. I was just making the point that not being good at 2 doesn't necessarily hurt its ability at 1.

A person who bought ~1600 USD worth of bitcoin last year instead of an OZT of gold would be quite pleased with the performance of bitcoin in category #1.

The other way, 99.999999% or more of human population disagree with him.

I wasn't disagreeing with anything you said. I was trying to tighten up the language around "what is a currency". From a conceptual level, BitCoin is much more currency friendly than gold due to both divisibility and ability to process electronic transactions.

If I see a currency rising in value faster than Gold itself, I'm going to want to get in on the value.

Fact is, if I had "invested" in 100 BTC only 5 months ago when it was hovering around USD$10, that would have cost me about $1000. And now it would be worth $10000. There are not that many investments that have that kind of return in such a short time. You'd have to be dumb to believe that people aren't doing exactly this. You don't see 1000% returns and just ignore it and wonder about its utility. Right now, it's a volatile and risky currency exchange being intentionally used to ride the rising popularity into a cash la-la land.

At some point people are going to convert this toy back to a real-world currency and take their winnings home with them. I don't know what's going to happen then, but I don't believe it will be good. Perhaps 'stabilizing' would be a good optimistic name for it.

What's a good way to short bitcoin?

https://bitfinex.com allows short sales on bitcoin.

If you really want to - Borrow $x bit coins - sell $x bit coins - wait for price to drop - buy back $x bit coins - return $x bit coins to lender.

Now the speculators are in........

Do you know of any places that make loans in Bitcoin?

I know some people use https://btcjam.com/

Good luck. I hope it goes better for you than the people planning to do it 3 weeks ago. Or 3 months ago. Or a year ago.

Sell high, buy low.

That strategy works unless this is the lowest it will ever be.

Right. Like it was higher 3 weeks ago. Or 3 months ago, or a year ago?

Thinking the same thing. It'll be interesting to see somebody going out sorosing the BTC "economy".

mpex.co

There are derivative markets where you could purchase an option to sell bitcoin at a set price in the future. If the price falls below your target by then, buy up cheaper Bitcoins and sell them at profit.

take some forwards @ mpex.co

Well - I was making the point that not being used as a currency of exchange does not hurt it's chances at serving as a store of value. In fact, volatility isn't necessarily bad either if you are using it to store wealth only and you take the long view. What would hurt its ability as a store of value would be a sustained and systemic trend downward in value (i.e. inflation). Short of complete collapse of the currency - this is unlikely given bitcoin's inherent deflationary nature.

Complete collapse is entirely possible. If governments crack down on exchange sites that allow for convertibility - that'll pretty much be it. I'd be very surprised this hasn't happened. I think they are waiting for all the major players to be massively invested in bitcoin so that when they pull the plug it'll take a very long time for an alternative to rise from the ashes.

I hope this doesn't happen. But what world do we think we're living in really?

Not a world that can sustain 100% growth month-over-month :)

Yeah, I think it can, if USD collapses.

This is not rational thinking. Simply because something has gone up in the past does not mean it will continue to. The returns for the past 5 months have been insane, but that doesnt mean it was a good investment 5 months ago because thats based entirely on results oriented thinking. In a casino, if a roulette wheel hit black 10 times in a row, somebody letting it ride on black the whole way would have made a fortune, but that doesnt mean it would have been a good bet, it means the people making those bets got lucky. It also doesnt affect the chance of the wheel hitting red or black on the next spin, so it doesnt tell us anything about the future.

> In a casino, if a roulette wheel hit black 10 times in a row, somebody letting it ride on black the whole way would have made a fortune, but that doesnt mean it would have been a good bet, it means the people making those bets got lucky.

Equating a currency to a game of chance based on independent events—now that's irrational thinking.

My conclusions might not be valid, this isn't something I'm an expert at, but I really don't think that's a good example.

A better example is some stock that went up 10X in the last 5 months.

the problem is that you did not base any of your arguments on actual facts. you just said "if you would have invested 5 months ago, your investment would have grown by a factor of 10." when that is the logic presented, the analogy holds. if you were to give specific reasons why you believe bitcoins grew at that rate AND why the will continue to grow, then it would be a different argument [not that it would necessarily be correct]. however, my point is that when you do not have any sound logic underlying your "investment" it is truly the same as gambling.

The difference and what a lot of people seem to miss is the scarcity of bitcoin and the fact that its makers and followers are bootstrapping a new global economy. Having only $1B in liquidity is not enough to participate in all global markets. If bitcoin successfully acquires fractions of all global markets, there is but only one direction the exchange rate can go, and that is up until there are hundreds of billions of dollar value in bitcoin. Divide that by the 11 million bitcoins in current circulation, and each one will be worth thousands and thousands of dollars.

Call me a skeptic as I see this like speculation, but where I've seen that kind of return, turned out to be really clever ponzi schemes and enough supply of dumb enough "investors". Oh yea, I remember that fun time when the housing market in my area went up 5X in 4 years. It was all fine till people ran out of actual money. The rest is history.

A currency can't make value out of nothing for long. Eventually reality will set in. I think that's the moral of this story.

A currency can't make value out of nothing for long.

Why, my dear fellow, that is exactly how every government-backed currency works today!

And, thanks to its inflationary nature, it becomes virtually worthless over time:

Although inflation has remained low in recent years, it ravages the value of paper money over time. A dollar in 1900 is only worth about $0.04 in today's currency.

Quoted from: http://finance.yahoo.com/blogs/daily-ticker/bitcoin-prices-b...

Ah yes, of course, but that currency is undergoing inflation. Bitcoin is rapidly deflating. Huge difference.

My point was simply that no currency is backed by "stuff" any more. I was responding to your criticism of Bitcoin ("A currency can't make value out of nothing for long").

Of course Bitcoin is deflating - it was designed that way. And of course fiat currencies are inflating - there is no limit to how much can be printed except reason, which is apparently in short supply.

If gold rose as fast as Bitcoins are rising, people would be shorting it hand over foot. They don't have that opportunity with Bitcoin, so the ship of fools sails on unimpeded until the supply of fools is exhausted, as in any bubble. Which could nonetheless take awhile and make some people very rich, provided they are smart enough to get out in time. Not everyone lost in the real estate bubble.

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