How Bitcoin Could Become a Viable Currency | Hacker News Reader

How Bitcoin Could Become a Viable Currency

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48 pointsscottcanoni63 comments

Here's my proposal: let's forget exchange rates. Let's not confuse them with inflation[0]. That's a red herring. Exchange rates are important for BTC's legal users now because there's not (yet) production in BitCoin's economy. Apart from drugs[1], BTC is pure store of value, and it should be analyzed as such.

This is important for this discussion, because exchange rates ultimately won't matter that much. By "ultimately", I mean that phase of development when (if) BitCoin becomes a full currency, that is, when there's somebody, some corporation, operating and trading significantly in the currency. I won't lend the status of currency to any commodity which is not used this way.

And what's clear is that both BitCoin and gold are shit currencies. Even conceding the exchange rate could stabilize enough for a modern day Rockefeller[2] to pull it to a success, you still would have to contend with the deflation inherent in this "currency".

There's a reason why gold is traded in commodities markets -- and not as a currency. There's a reason why banks and states trade and store USD, instead of gold. You simply can't grow an economy like it's the 20th century with gold, or BitCoin. In fact, BitCoin is even more ruthless than gold. 19th century economies could at least pray for the discovery of a gold vein, to alleviate their deflationary comedowns. BitCoin denies even this possibility with the cold, germanic efficiency of a mathematical proof.

[0] The exchange rate we run against our future selves, if you will.

[1] Which doesn't count anyhow, since you would agree there's a risk markup on them for their illegal status, which makes dubious extrapolating any analysis from them.

[2] An improbably apt group of entrepreneurs, who even more improbably would decide to bet their future fortunes on a currency designed by computer geeks with a penchant for goldbuggering.

I agree that the critical problem with Bitcoin is the inability to inflate at a controlled rate. It inevitably follows from the idea of having a decentralized currency - something has to control currency creation rates, and if you aren't going to trust an organization of people, then math is the only alternative, which is kinda both empowering and limiting. Because of that alone, if nothing else, I don't think we'll ever have a major economy in Bitcoin only.

That doesn't mean there's no use for it though. There may well be purposes and segments of the economy that find it very useful, and it may even be possible at some point for people in some niche markets/occupations to exist entirely in a Bitcoin economy. It'll just never be very big compared to any first-world national currency.

The fact that Bitcoin is deflationary is purely a product of the software/protocol. Given consensus to change it, one could make it inflationary easily. E.g. by having blocks always pay out 25 btc as a reward or even have successive blocks pay out increasing rewards.

Even though it's deflationary, I don't see that as necessarily a problem since it is infinitely divisible, which fiat currency is not. It may just take time for people to start thinking in hundredths and thousandths instead of hundreds and thousands. If Bitcoin becomes less volatile in the future and deflates at a predictable rate, then I could see it being used more as currency.

Interesting to think of the reverse of "when I was a kid, a Snickers bar only cost 5 cents," e.g. "what I just paid for my new Macbook only bought me a pair of shoes ten years ago."

Deflation, meet downward rigidity of wages (and other prices).

Basically, the problem with deflation is that everybody who has only one (or very few) income stream, but at the same time many expenditure streams (especially fixed contract expenditure streams) is going to fight very hard against reduction in that income stream.

And empirical data suggests that that fight tends to be fairly successful, too. This is why deflation is poison for economic activity.

And empirical data suggests that that fight tends to be fairly successful, too. This is why deflation is poison for economic activity.

I suspect that demanding constantly increasing income would be rather less successful if the system weren't rigged to make expenses never decrease.

The empirical data is not about constantly increasing income. It's about a number of things, but the most striking is that in a deflationary environment, wage (and other price) changes have an abnormally large peak at a change of zero; this peak does not fit into any simple assumption about how price changes should be distributed (in particular, it is clearly not a normally distributed effect).

It's a lot easier to give someone a raise than to cut someone's salary, even after explaining them all about how 1 bitcoin is worth more now than when he or she started working for you.

It would still be inferior to modern fiat currency from a macro-economic perspective, because whatever your rule is going to be, it will not adapt to the development of the economy.

Think of it this way: The abundance of money should somehow correlate with the abundance of real resources. When this correlation breaks down, bad things happen to the economy.

In modern fiat currencies, the supply adapts automatically, without government intervention to the development of the economy, via the mechanism of bank loans. When a bank makes a loan, the money supply grows. When a loan is paid back, the money supply shrinks.

Bitcoin cannot work that way by design, which makes it a bad choice for a common-use currency - at least from the perspective of macro-economic behavior.

To be clear, I don't think bitcoin that good a currency either. I wanted to point out that the deflationary aspect is an arbitrary (and I think stupid) restriction.

You are right, modern fiat currencies can adapt and that is the main thing bitcoin lacks. My understanding was that happened mainly as a result of central banks who can adjust all kinds of parameters. This is antithetical to Bitcoin's entire design principles, let alone the underlying technology (which could me modified to accept some parameters modifications from a board of governors).

Normal banks can't do that. To the extent that they do cause things to happen, can't they do that with Bitcoins. I.e. issue loans and collect payments with them.

But you're only looking at bitcoins as a replacement for fiat. What if it worked in conjunction alongside the dollar. You can have both. Just like gold is not used as currency but alongside printed money.

I think that's quite a plausible future for Bitcoin, though I find it hard to give an estimate of likelihood and of the relative relevance that Bitcoin will have.

The next-most plausible (though I think much less likely) future is that the hype will die down, there will be widespread disappointment, and it will turn into a kind of ghost town.

One big problem of Bitcoin is that in terms of efficiency, pretty much any centralized service can beat the shit out of it. If you think of Bitcoin as a ledger, and then look at the amount of resources spent on maintaining that ledger, and compare it to the amount of resources required to run a simple centralized ledger... well, Bitcoin loses big time.

This means that whenever Bitcoin comes close to having a large mindshare for everyday internet transaction, there is a serious window of opportunity for non-Bitcoin startups to take its place.

The only market where this logic doesn't apply is the Silkroad-type market and the stuff that caters to gold-bug/libertarian ideologists.

On a related note: It boggles my mind when people bring up Bitcoin as a way of doing distributed work, it is nearly the exact opposite of how you would want to do distributed work, increasing the duplicated workload tremendously.

I agree with you that Bitcoin is an expensive ledger to maintain. That said, it's nonsense to say that low transaction costs (that's what efficiency means to the end user) is the sole factor for anyone besides Silkroad users and ideologists.

People pay a lot for security, and the problem with centralized systems is that they grant the organization running them both the means and incentives all the rents it can get away with, not only directly with added fees, but by using abusive tactics to pass the costs of fraud onto the user (see PayPal's infamous freezing policy) and by skimping security as much as it can.

Of course, you can reduce the likelihood of such events by adding external auditing, insurance, regulation, etc, but all of that adds friction which will inevitability result in increased transaction costs (TANSTAAFL).

If risk was irrelevant, nobody would invest in treasury bonds.

I'm probably missing something, but why can't Bitcoin work that way? Say I deposit 10 BTC in Coinbase, which records that as a liability in their books, and then they lend out 8 BTC to someone else. Isn't that the definition of fractional reserve banking?

Fractional reserve banking effectively creates more money. Assume you have to keep 20% available, you can lend out 80% of your deposits. You lend that out, but your depositors still have access to "spend" their money, so you've increased the money supply by 80%. Now suppose the borrowors repeat this process at a second bank, and that bank loans out 80% of their deposit, we now have 164% extra money in the system, all available for spending.

If you try the same with BTC, it's not possible. You give me 10BTC to hold, I loan out 8 BTC, you can't spend from your 10 anymore (well, 8 of it). The total currency in the system is unchanged, just who can use it has changed.

You lend that out, but your depositors still have access to "spend" their money

They have access to their money because the bank keeps a reserve that is enough for covering regular activity, but if the depositors as a whole tried to withdraw more than that, the bank can't simply invent USD with which to pay its depositors. That's why banks default when there's a run.

And of course, Bitcoin banks could also keep a reserve of BTC, so I really don't see why you can't have fractional reserve banking with Bitcoin.

Only partial for that reason. If everyone demanded all their money, yes, it would break the bank. But if 30% of the money were requested, and only 20% were held in reserve, the bank can still act as if it has the money. There's no similar mechanism for bitcoins.

Sure, but that doesn't mean that new money can't be created with a Bitcoin-based fractional reserve banking system, it just means they wouldn't have a central bank acting as a lender of last resort - though they could still get loans from other banks.

I guess my point is, under the system present in the US and (to my understanding) many or most other countries, you have more dollars floating around than there actually are, a fair chunk is technically non-existent, but still used in transactions.

With bitcoin, unless you're using bitcoin as the backing for another system, you don't have excess floating about. If there are 100BTC in the world, the system doesn't allow the ledger for all bitcoin addresses to sum up to anything over 100BTC. This breaks, for better or worse, the lending model that fractional reserve banking depends on. Now, if BTC is treated like a commodity and is the backing of some other currency (like gold used to be), then that other currency could be used in an economic system that uses fractional reserve banking.

But my point is that the system doesn't have to support it, you can have "technically non-existent" Bitcoins like you have technically non-existent dollars. The bank can just tell you in your balance that you have Ƀ30 without actually having them according to the ledger.

correct. Which is how all dollar fractional reserve banks operate.

The sum of balances they report to depositors is much greater than the currency they actually have.

I hadn't thought of that before. So bitcoin is like gold in this regard, when gold was used as currency.

It occurred to me that bank notes today are the ancestors of a receipt that promised you a certain quantity of gold. Cash is just a promise - an abstraction from the underlying thing of value.

Whilst bitcoins are limited, you can create as many promises as you like - you just need an extra layer on top of bitcoin. Does this solve the loaning problem?

You would still have bitcoin as the base, like the gold standard but with none of the physical limitations of actual gold and with people still being able to easily transact in bitcoins.

I'm not sure whether having two things that you can pay with - bitcoin / promise of bitcoin - would be implementable. Would it require another crypto layer on top of bitcoin, with some parallel blockchain?

Gold standard: http://en.wikipedia.org/wiki/Gold_standard

This is an interesting read about bank notes: http://www.bankofengland.co.uk/banknotes/pages/about/history...

I think it's possible that introducing reserve banking on top of Bitcoin could solve the lending problem for a while, just like it solved the lending problem on top of gold - for a while.

In the end, though, the same problems would crop up again after a while: bank runs, the attempt to deal with bank runs via a central bank, the tendency for downward spirals in countries with a trade deficit, and so on. Eventually, countries would have the same incentives to get out of a "Bitcoin standard" as they had with the gold standard.

> Think of it this way: The abundance of money should somehow correlate with the abundance of real resources. When this correlation breaks down, bad things happen to the economy.

citation please. The abundance of real resources in the cpu, memory, and storage markets have been outgrowing the dollar supply for several decades (evidence by the steady drop in prices even with a much larger dollar + credit supply). Nothing bad has happened to those markets. The growth of real resources varies wildly from resource to resource. If your first statement was true, shouldn't we see see resources that are not correlated with the dollar supply have 'bad things happen'?

Also its almost impossible to measure 'abundance of real resources', so any fiat currency pegged to that metric will not be aligned.

> There's a reason why banks and states trade and store USD, instead of gold.

Suppose you accumulate a lot of debt in a currency backed by gold. Further suppose that you control that currency, and have the power to change or remove the gold backing. It becomes very tempting to, say, issue some new currency with lower or zero gold backing to wipe out your debt.

Which isn't a currency backed by gold then, its a fiat currency. A gold backed currency can easily inflate if new gold mines are discovered - it just uselessly doesn't track with the production of things people need.

Exchange rates are important because they indicate a bigger design flaw than the fixed supply: there's no entity with the ability to prop up demand. By contrast, responsible governments with effective tax collecting powers can generally exert a large degree of control over the purchasing power of their currency. The dollar is backed by all taxable economic activity in the United States. Stocks, which often end up worthless after promising starts, are at least backed by assets that can generate future cashflows. Bitcoin is backed by faith.

Even if BTC is better to transact with in every conceivable way, businesses will still need hard currency to pay their taxes, which makes exchange rate and liquidity risk a very real concern if you're trading real assets for BTC.

> a bigger design flaw than the fixed supply: there's no entity with the ability to prop up demand.

That's a strange comment, considering that seems to have been one of the fundamental deliberate choices made in the design of the currency, and is one reason why a lot of Bitcoin enthusiasts are attracted to the currency.

"You simply can't grow an economy like it's the 20th century with gold, or BitCoin"

Well, the past 4 years have proven you wrong.

Explain how the Bitcoin economy has been able to grow so much since 2009? Why is it that 10,000+ merchants decided to use Bitcoin through Bitpay alone? Why is it that Bitcoin gains more and more users every day?

The answer is that, even if deflation was a problem, which is itself debated [1], Bitcoin's advantages such as being censorship-resistant are unparalleled by any other currency, and that alone gives Bitcoin the ability to succeed where no other currency could.

[1] http://www.forbes.com/sites/jonmatonis/2012/12/23/fear-not-d...

But Bitcoin isn't a currency for vendors, that is how the problem was solved. It is an investment strategy for consumers and a transaction method for vendors, but not truly a currency.

He was talking about whether Bitcoin will ever become a currency not backed by USD (or whatever) and postulating why that will never be the case.

Bitcoin is currently surviving off its liquidity, not its value as a currency.

Liquidity is one of the values of a currency. You might want to study up some more on what currency is, and what it is not.

I have yet to see a scholarly article showing that productivity caused deflation (currency held constant while increases in population or productivity cause prices to drop) has caused economic problems. There is much evidence of currency removal caused deflation (when a large amount of currency or credit is quickly removed from the system causing prices to drop) wreaking havoc on the economy.

I am interested if you have seen any documented evidence of the former?

Also, in the US under the gold standard (1776-1910), we saw history's greatest increase in individual wealth ever recorded (measured by per capita GDP). Yes it was more volatile than under a fiat currency, but it's hard to argue that a constant or slow growing currency dampens economic growth with that data point.

> Let's say, for example, a vendor is considering whether to begin accepting bitcoin. She will need to be able feel relatively certain that, when she leaves the storefront in the evening, she will have nearly the same amount of value on balance when she returns the next morning.

Fortunately, vendors don't have to take on any such risk. There are services (e.g. CoinBase, BitPay) that let sellers accept bitcoin without ever holding a bitcoin balance. These services effectively instantly convert bitcoin revenue into something less volatile (e.g. USD).

that does not address the volatility issue at all - even if bitcoin are converted immediately to dollars or euros, because they fluctuate so wildly, no business would be able to know if the amount they receive will even cover their cost or if suddenly they are charging way way 'too much'.

Potentially they could internally set their prices in dollars, and multiply by the exchange rate to get their current bitcoin price.

I think BitCoin could be a great answer to the global dissatisfaction with the dollar as the world reserve currency. Why not use bitcoin as a non-political global reserve currency, and as an intermediary between national currencies, rather than as an everyday currency that intends to replace anything.

http://blockchain.info/charts/tx-trade-ratio

Transaction to Trade ratio is going up. For whatever reason, a significant portion of BTCs (in some data-points... as much as 60% of BTC transactions) have been in exchanges.

IE: BTC is probably going through a bubble right now, as any commodity. In the first few weeks of October, there were periods where MOST transactions were purely for speculation / trading.

http://blockchain.info/charts/trade-volume

Trade volume is on the rise. I don't know why or how, but a group of investors has decided to start speculating on BTCs.

------------------

Instead, for BTC to be a "useful currency", people need to transfer BTCs between each other and stop speculating on BTC / USD exchanges. Whenever there is a rise of speculators, I'm going to bet on a bubble.

One tidbit that continues to bother me regarding the long-term viability of bitcoin is how long the encryption processes it relies on will stay secure. IIRC bitcoin relies on ECDSA for signing and SHA-256 for hashing.

Pretty much all forms of encryption have a shelf-life until they are broken, especially when you consider quantum computing on the horizon. What happens when ECDSA becomes viable to break, or when they start finding SHA-256 collisions? Would the currency just collapse, or is there some way provided to change the system's cryptography methods?

Bitcoin was designed to be quantum-resistant and upgradeable: https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_bre...

Bitcoin was most certainly not designed to be quantum-resistant or upgradable (don't trust the wiki for these sorts of things). Thankfully we have discovered ways in it could be upgraded to be quantum-resistant without horribly breaking legacy nodes, but that's a very different statement.

'Discovered'? If I may quote Satoshi https://bitcointalk.org/index.php?topic=202.msg2133#msg2133 :

> True, if it happened suddenly. If it happens gradually, we can still transition to something stronger. When you run the upgraded software for the first time, it would re-sign all your money with the new stronger signature algorithm. (by creating a transaction sending the money to yourself with the stronger sig)

Hardly sounds like he's going 'guys! this is a serious problem but I just realized that we happen to have a work-around available!'...

That post doesn't address the underlying problem. How is the new signature opcodes introduced? How is consensus reached among a mix of nodes that may or may not understand the new signature scheme?

Back in 2010 this could have been handled by hard-forking and requiring everyone to upgrade. In fact in the very early days there were various hard-fork changes that were not even well documented at the time - you simply upgraded your client and things worked. That is no longer an option: the bitcoin ecosystem is simply too big.

Since then we've worked out ways in which soft-fork changes can be introduced which do not result in consensus errors. This was first tested in the wild with pay-to-script-hash in 2012. P2SH outputs are treated as anyone-can-claim outputs by older clients. More recently there has been work on proposals for adding Lamport signatures without the introduction of new opcodes. This is all definitely new work.

> Back in 2010 this could have been handled by hard-forking and requiring everyone to upgrade.

...and it still can, since if QC breaking your bitcoins isn't enough motivation to upgrade, nothing is.

> This is all definitely new work.

Yes, if you insist any solution has to be soft-forking, then I suppose that's valuable new work which Satoshi did not expect...

Is the volatility graph of Bitcoin in this article really representative?

Some people have mentioned that in the huge price spike in April, there were not actually that many people buying, and then there is this article on Bitcoin spreads that calls into question whether Mt. Gox is the best measure: http://www.forbes.com/sites/beltway/2013/09/03/how-bitcoin-s...

The spreads are so weird because of the difficulties with fiat currencies. Mt. Gox allows you to deposit/withdraw BTC no problem, but it charges a notorious premium if you want to withdraw USD. As a result, the BTC-USD prices are elevated by the premium.

Sites like Coinbase or Bitstamp that don't charge as much to deposit or withdraw will probably be a more accurate way to judge BTC-USD.

The article is right on one point: Bitcoin is volatile. No one denies that.

However the article is wrong that "volatility must decrease for it to survive". If anything, the fact it has not only survived for 4 years, but succeeded by gaining market share and gaining value (1000x since 2010!) despite its volatility shows that the market does not care that much about volatility.

I would say volatility must decrease for it to thrive. Bitcoin needs to transition from a currency for speculators to a currency for consumers.

Correct: thriving, not surviving. (I would not have made my remark, had the author used "thriving" in place of "surviving").

And we are not yet at the point where Bitcoin needs to reduce its volatility to further grow. My prediction is that there is still room for Bitcoin to grow (and it will), over the next 1-2 years, and yet volatility is going to remain just as pronounced as today. I say this because so far, its adoption curve shows no sign of slowing down.

Yet it looks exactly like the peak -> crash curve of its own history. People we claiming the same thing of real estate in the US in 2008 as well. Yet the correct analysis is still that there's no real reason for Bitcoin too grow - it can't extinguish tax obligations, and any move by governments to tax BTC profits will tank it because payment will have to be made in their currency, not BTC. No one has any reason to hold onto BTC if they're not speculating.

When the article talks about Bitcon's need to "survive," I interpreted it to mean "survive [as a currency]." Bitcoin makes a fine speculative trading vehicle for those with the cojones to expose themselves to big positions. But as a currency, it does need to "settle down." Think about it from the perspective of a business intending to transact in Bitcoin and prepare for the years ahead. Inventory management, logistics, financial planning, and all the other necessities of running a business as a going concern are extraordinarily difficult when the currency one accepts is fluctuating this wildly.

Exchanges, such as the late Silk Road, do not hold their own inventory, and so those types of businesses make some degree of sense. (Even still, they'd have a very hard time attracting investment, if they ever sought it, because the company's fundamental financial position would change on a daily basis.)

But businesses other than open exchanges face some very serious difficulties when conducting business in BTC. This is one major source of the liquidity issue. The other is that speculative holders and traders far outweigh transactors in terms of the currency's total trading volume. BTC changes hands quite often, but not typically in the form of business transactions, which one would expect of a currency. Far more often it's in the form of buy and sell orders, like a commodity.

Bitcoin has a market cap around $2 billion. To be a major currency, it needs a much larger cap, maybe a hundred billion. A major price increase would count as volatility but it's the only path from here to there.

It doesn't have to be a major currency. No one (I think) is suggesting it replace the dollar. Maybe it can be a minor currency that works along with the dollar. There are certain things you can do with bitcoins that you can't with fiat.

$100 billion would only be about the size of the Australian dollar. That seems like a feasible level to me.

Volatility doesn't bother as long as i can convert it to USD as fast and painless as i do with USD/EUR or Gold/USD.

But, i can't. So it's kinda worthless.

Ah, but that's improving rapidly. Coinbase does BTC->USD in less than 24 hours and USD->BTC instantly (with level 3 verified accounts).

Actual coins? That I can use at the store and in vending machines? That I can use at the restaurant to buy food?

I think a BTC-denominated debit/credit card would actually be the real sign of its mainstream viability.

The transaction speed is an issue for physical purchases too. Only checks take longer to clear, and they're pretty marginal.

That would kind of defeat the purpose of Bitcoin. The main advantage is the transaction system, rather than the store of value.

The transaction speed isn't really much of an issue as long as the block reward is much higher than the value of your transaction. For most modest transactions, like food and consumer goods, just seeing the transaction come across the network is good enough. It's possible to beat this, but doing so requires a large enough effort that nobody would bother doing it to get lunch when they could be getting dozens of block rewards worth thousands of times more instead. Waiting for one confirmation takes around 10 minutes and is likely to be good enough for anything of less value than buying houses and cars and other things that are 5+ figures in USD.

It would defeat the purpose of Bitcoin if it replaced Bitcoin. Since it would be built on top, it's just a service on a cryptocurrency foundation instead of whatever your government prints.

In that case a credit/debit card could basically be an immediate guarantee of payment (3rd party guarantees, collects small % to cover abuse/running costs. basically credit cards now, minus chargebacks), as opposed to what Bitcoin provides.

Bitcoin volatility won't decrease for a long time. Right now we're in the first major phase of Bitcoin's evolution, wherein the global financial system slowly wraps it's collective brain around what Bitcoin is, how it behaves, and what it's good for.

Even experts in cryptocurrency don't agree about any of those things, so global consensus about those three things is a long way off.

A few basics are starting to emerge:

* Bitcoin is good for transactions that governments don't want you to make.

* Bitcoin is good for transactions between vastly different financial and legal systems.

* Bitcoin is good for storing money in your brain.

* Some subset of people feel Bitcoin is a good investment.

But even now, there are many people with money, not to mention many financial experts, who are not so sure about these things. With every WSJ article we creep closer and closer to consensus, but it is still quite far off.

That said, eventually the global financial markets will start to agree about these uses, and a generally accepted model will emerge. I suspect this will take at least 20 years, which is the length of time it will take for us to start having University Faculty who went through their entire undergraduate education with Bitcoin existing and at least partially understood by their professors.

That model will be something like:

    Bitcoin market cap = I + f(V)

where V = volume of global transactions for which Bitcoin is the best choice

f(V) = the float required to make those transactions

I = the amount of capital for which Bitcoin is the best investment vehicle

And of course we need models for each of these... V is going to be some portion of illegal transactions, some portion of inter-border transactions, etc. We really have no idea what this is right now.

Until then the price of Bitcoin will be very chaotic, which will influence the I term, but not the V term. The V term is just a pure result of how many people have need for a Bitcoin-like currency, and what percentage of those people are aware of Bitcoin and have the technical means to use it.

BUT, when the global financial markets do start to reach consensus on the model, then Bitcoin will stabilize. And I don't mean it will stabilize as a deflationary currency, I mean it will literally be flat. Because the financial markets have NO problem pricing deflation into their models and they absolutely will. The price will go up to where you can't make money investing in Bitcoin during a reasonable slice of a human lifetime, and then level off.

And I suspect Bitcoin will stabilize MUCH more than traditional currencies. Because there will be no capriciousness of international politics or policy, the Bitcoin price model will be based on much more stable factors: global crime, global population, etc. And those things are much easier to model than things like U.S. foreign policy.

So anyone who is thinking either A) Bitcoin has a chance at stabilizing in the next 10 years, B) Bitcoin will deflate forever, or C) Bitcoin will never stabilize, I just don't agree. It's just going to take a while.

Could it be argued that:

  Gold Market Cap = I + f(V)

with V ≈ 0, since gold isn't used for many transactions? (AFAIK)

Why hasn't gold stabilized entirely? Are there reasons why it's affected by capricious international politics or policy, but Bitcoin won't be?

If I had to guess, I'd say that Bitcoin, like gold, will be affected by e.g. future economic delveragings that cause people to expect that the government might print money.

> Are there reasons why it's affected by capricious international politics or policy, but Bitcoin won't be?

Well not being used for transactions probably makes it less stable. Gold is mostly just an investment, which means it can vary a lot based on the other available investment vehicles. Bitcoin has many real world uses, which I think will add stability.

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