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Comment by jamroom | Hacker News Reader

But does Bitcoin really have a floor related to the energy put into the mining? Since the energy cost is paid for by the miners, do other players in Bitcoin "respect" that floor? I don't see that - there's nothing keeping a Bitcoin from going all the way to zero - regardless of the energy consumed in it's production, and Krugman argues that gold (and the feds) have a bottom that is greater than zero.

My understanding could be wrong, as my understanding of Bitcoin would definitely be at the "noob" level :)

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No, the floor is unrelated to the energy put into mining. The intrinsic value of Bitcoin is the ability to facilitate financial transactions.

Brinks' entire CIT vehicle business is based upon just a subset of this function, and we can agree their value is not zero.

Bitcoin is able to facilitate transactions because of the power put into the computers running the Bitcoin network. Mining Bitcoin provides the functionality for validating the block chain. So, power into the network provides the value of security.

Newer mining equipment doesnt use as much electricity. Power is a variable but not an important one.

Regardless, power is used to run the equipment. There's a correlation here.

Our whole economy relies on energy, which ultimately comes from the sun, theres a correlation, doesnt mean its important as you are trying to imply

Bitcoin happens to currently use power that way, other coins don't; mining is not the only way to facilitate transactions and facilitating transactions is where the value is, regardless of the method used to do it. Power is but one of several options so the value can't be there.

So, bitcoin's ability to store value is due to its ability to be a medium of exchange?

I think Bitcoin does have a soft floor because that cost would form the natural price target for a miner trying to trade, but the cost is avoidable by switching to proof of stake as done in PeerCoin and Nxt. The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal; you could make a better argument for something like PrimeCoin, which attacks a major computation problem, having this kind of utility.

So as I see it Bitcoin is already obsolete; there are new coins that achieve the transaction capabilities for cheaper - they can be used in more potential applications, thus they're more interesting speculative instruments.

The specific benefit of proof of work mining comes in insuring more people have a chance to enter during initial distribution, but it still massively favors the early entrants and especially the people who have the hardware environment to mine efficiently.

"The crypto problems solved in Bitcoin don't have the intrinsic utility of a precious metal."

So gold was used extensively 2000-3000 years ago. Exactly what was its intrinsic utility then? Plating astronaut helmets and high-conductivity, corrosion-resistant electronics?

The intrinsic utility of gold was that it was eminently verifable. It's got a characteristic ductility and it was a yellow metal. You could easily verify if it was 100%, 80% etc. In other words, to the ancients, the intrinsic utility of gold was "its trust model". Sound familiar?

Jewelry.

that's not in any way "intrinsic" value.

Yes it is. The intrinsic value of food is that you can eat it; the intrinsic value of art objects is that you like them. All "intrinsic" value refers to is the use you can make of something without exchanging it for something else. If you were the only person in the world, and you appreciated the appearance of gold, than gold would be intrinsically valuable to you.

I will accept this. How then is it not the case that "if you were the only person in the world, and you appreciated bitcoin, then bitcoin would be intrinsically valuable to you."

The logical implication is sound, I just don't think the premise holds. If you were the only person in the world, a bitcoin would just be a random-looking sequence of numbers and letters, which really would be worthless.

Then can't I find the function of bitcoin intrinsically valuable?

You mightn't like my tastes but I don't like your gold necklace either.

But for the case of jewelry, its usefulness as such depends on it being valuable. So the buck can't stop there: what other use propped up its value?

The usefulness of gold as jewelry is not only its value; it also does not tarnish or rust, which is a very useful property for jewelry.

Nor does glass or plastic-coated aluminium. There are lots of shiny things that people don't want in their jewelry. If diamond were as common and cheap as glass, we'd probably see just as much diamond jewelry as glass. They're not massively "better" at being shiney. Even artificial gems are worth less in than natural ones even if they have fewer defects!

Neither of those things were around or refined enough like gold was when gold became the traditional metal for jewelry. Gold has a large first-mover advantage here that is being propped up by human psychology.

> Nor does glass or plastic-coated aluminium.

Glass is not easy to work into jewelry on its own (or at least wasn't 2000-3000 years ago). Plastic-coated aluminium didn't exist 2000-3000 years ago.

Your comments across multiple domains of knowledge have been on fire lately. Fantastic work!

While I don't think this analogy works without flaw, I do think that it draws a powerful connection between something that is widely regarded as a store of wealth, and something that is vying to compete in the same space.

No it wasn't. It was that it was rare, and that it was pretty, and so rich people (the rulers) tended to buy it.

And then, promptly, they also repeatedly ran their economies into the ground by conquering and mining tons more gold, and inflating their currency into worthlessness.

And this happened over and over - the Spanish did it, the Chinese did it, the French did it. Every gold economy before the invention of actual economic thought destroyed itself with gold.

>So gold was used extensively 2000-3000 years ago. Exactly what was its intrinsic utility then?

Well, usually, the intrinsic utility of gold and silver was that they could be used as jewelry and/or used as instruments of worship. Most bullion money has evolved from substances considered divine.

Remember the Golden Calf?

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