Bitcoin is dead. Long live bitcoin. | Hacker News Reader

Bitcoin is dead. Long live bitcoin.

blog.metatony.com

14 pointsnot_that_noob21 comments

> One of the properties of a good currency is that over time it’s value must slowly creep downward.

Isn't a big part of the thesis behind bitcoin that this mainstream economic belief is false? After all, mainstream economic theory since at least the Great Depression would also say that central authorities (generally governments) should be very hands-on with their control of the money supply, which is another belief that bitcoin is clearly designed to challenge. I know very little about economics both mainstream and heterodox, but I think it's unfair to make this claim without at least mentioning that the designers of bitcoin are almost certainly aware of the belief and are deliberately challenging it.

> It has all desirable values of gold

No it doesn't. Bitcoin is only valuable as long as it's valuable. Yes, that's tautological, but it's also true. Bitcoin is only valuable as long as people are willing to pretend it has value. However, gold has an intrinsic value that it possesses whether or not people are willing to invest in it, because gold is useful for more than just investing (for example it's used in jewelry, dentistry, electronics, etc). If everyone in the world decided tomorrow to stop investing in gold, you could still sell any gold you had for an amount based on its utility. But if everyone in the world decided tomorrow to stop investing in bitcoin, its value would immediately plummet to $0.

In today's economy, gold is rarely used for its intrinsic value. Most of the gold in the world today is used simply as a store of value. The value of gold on the market today is not tied at all to its uses outside of investing.

AFAIK, gold's value for non-investment use (i.e., "intrinsic" value) is a small fraction of its actual price today. I don't have a citation for that, but investment buddies have told me that. (Maybe someone reading this can give a citation?)

So, basically, gold has ceased to be priced at all based on intrinsic value, and entirely based on the projected fact that people will continue to want to use it as a store of wealth in the future, so therefore, you will be able to trade your gold for something else valuable. (Which is exactly the projected fact that is keeping Bitcoin going.)

Arguably, Bitcoin's property of being easily transferred and stored greatly outweighs the property of gold that there are real-world uses.

But if everyone in the world decided tomorrow to stop investing in bitcoin

If.

At this point, it's pretty clear (to me) that that will never happen, short of global government intervention. If there is a major dip in Bitcoin price, investors will buy it back up. Bitcoin has established itself as a useful way to store and transfer value for investors. For everyday transactions, I think it's in the process of proving itself.

Never? It's faaaar too early to make that claim. What if the cryptography is broken? Or if another crypto-currency comes along that's demonstrably better, to the point that everyone stops buying bitcoin and starts buying this new currency instead? These are but two scenarios that would cause bitcoin to lose its desirability, and therefore its value.

> Never? It's faaaar too early to make that claim.

It will never be more certain than it is right now. What are you waiting for?

> What if the cryptography is broken?

Sorry, but I trust ECDSA and SHA256. Quantum computers may be a concern eventually, but I think there are mitigation strategies for that.

> Or if another crypto-currency comes along that's demonstrably better, to the point that everyone stops buying bitcoin and starts buying this new currency instead?

What if a unicorn flies out of the sky and starts pooping rainbows? There is no possible crypto-currency that is demonstrably significantly better.

> If everyone in the world decided tomorrow to stop investing in gold, you could still sell any gold you had for an amount based on its utility.

The worth of that guarantee depends on what that amount is. If the utility-based price is 1% of the price I paid for the gold, then I'm still ruined; it might as well be 0%.

Realistically, however, gold's utilitarian value does not even come close to accounting for its actual value. Sure, you wouldn't lose all your investment if the gold market suddenly collapsed, but you would still lose the vast majority of it.

Even in Misesian economic theory, the utilitarian value is primarily accountable for originally popularizing a commodity's use as one or more of the three uses of currency (store of value, transfer of value, measurement of value), not for its continued use in those roles.

This is a common misconception. Because a bitcoin is fundamentally a proof of work, it has some "intrinsic value" in the same sense that gold has "intrinsic value." A bitcoin is proof that a certain amount of difficult computation has been performed by or on behalf of its owner, which can be used anywhere proof-of-work systems like Hashcash can be used.

The work itself is completely meaningless though. The only reason the proof of work is worth anything is because people place a value on bit coin, and bitcoin relies on the proof of work. So the proof of work's value is dependent on bitcoin, not the other way around.

Proof-of-work systems have nothing to do with the "meaningfullness" of the actual work being done. The work just has to be difficult. Hashcash existed long before bitcoin, so your last sentence is incorrect. In fact, Bitcoin is itself based on Hashcash, and the idea of using POW as a means of exchange also predates bitcoin. See this:

http://en.wikipedia.org/wiki/Proof-of-work_system#Reusable_p...

Does anyone have some research links on analysts/opinion leaders and their hype cycles?

I remember Nouriel Roubini bashing Gold on Twitter like never before all of the sudden starting about two weeks before the gold "crash". The whole thing happened without any significant "new" developments taking place (at least from my laymen perspective). These boom and burst cycles seem a lot like echo-chamber hyping. I would so love to see some research on how these echo waves start and succeed/fail.

I couldn't make myself keep reading after this:

"The Federal Reserve, ... increasing the money supply ... by simply creating money out of thin air ..."

Ok so far...

"... which the Treasury then dutifully prints out as paper notes."

Um, what? Most money in circulation is never printed.

Also, bitcoin is NOT anonymous unless you're extremely careful about how you get it and how you spend it.

Sure it is. Get it from someone you don't know for cash at localbitcoins.com and spend it at a public computer. (To do that safely, you probably need to use a client like The Armory which would free you from needing to load your wallet onto a public computer.)

Transactions on localbitcoins.com are far from perfectly anonymous. Relatively anonymous, sure.

Why do you say that?

I mean, nothing is perfectly anonymous if government agents are already tracking you and have bugged your home and workplace.

ObFuturamaLaughHarder: http://www.youtube.com/watch?v=FopyRHHlt3M

Instead of showing me a graph of gold price versus bitcoin price, at a time when analysts say gold has declined due to a lack of inflation in the world, as well as the Cyprus crisis, you should show me a graph of total amount of gold held as a store compared to total amount of bitcoins held as a store as that would demonstrate people actually switching out of gold for bitcoins.

Until then, I'm going to assume this is either a post of ignorance or perhaps just HN spam.

My instinct says the same thing on Bitcoin acting as surrogate for gold in the near term (Say the next 4-5 years or so). I also think that the way it is structured could help it fulfill its currency aspirations in the long term by its ability to be broken apart into tiny little pieces.

Our brains (and economy) are not really used to working in decimals of something on a day to day basis, but if Bitcoin eventually settles around 1,000 or so you could see people start using it this way.

You're right. 99% of the bitcoins owned today will never be spent on purchases. I wonder if this is simply due to ease of use. What can you really buy with them? If they were accepted everywhere would this be different?

The issue I think is that even if it were accepted everywhere, if it's value was going up, I won't want to spend it. Just by waiting I am guaranteed a solid rate of return. This is similar to deflation in the broader economy - people stop spending when they can buy more in the future for the same money.

The so-called "hoarding problem" was debunked decades ago:

http://mises.org/money/2s9.asp

It's still orthodoxy among academic economists, but there isn't any historical evidence that it's actually true.

More recently, this article in Forbes explains the issue more succinctly:

http://www.forbes.com/sites/timothylee/2013/04/11/bitcoin-do...

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