Comment by jordanpg | Hacker News Reader

Comment by jordanpg | Hacker News Reader

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From Bitcoin's own FAQ [1]: "One could argue that gold isn't backed by anything either. Bitcoins have properties resulting from the system's design that allows them to be subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the Subjective Theory of Value."

Like it or not, Bitcoin has a PR problem. It needs be liked and trusted in addition to "extremely useful, in principle." For all of the grumbling about central banks, most of us enjoy the benefits of them and trust them at some gut level, even if we don't realize we're doing it.

> If Bitcoin does fail, a large part of the blame will be one the shoulders of so many software and IT people who make a flash decision that Bitcoin was "tulips" or a "ponzi scheme", and who refused to change their minds in the face of evidence otherwise

It might also fail, in part, because the community failed to realize that a quasi-fiat currency like Bitcoin has to solve the social problems at least as much as it needs to solve the technological ones.

[1] https://en.bitcoin.it/wiki/Myths#Bitcoins_don.27t_solve_any_...

One couldn't argue that gold isn't backed by anything. There's no argument to be made, the Bitcoin FAQ is flat out wrong.

Gold, at a minimum, is backed by the infinite, perpetual demand by people for luxury goods. It's also backed to a lesser extent by industrial uses.

Such demand guarantees some level of value for gold.

Bitcoins are worthless precisely because the Subjective Theory of Value is wrong. Benjamin Franklin, Adam Smith and all the early economists thought the Subjective Theory of Value was wrong. Because it is wrong.

Bitcoin is a little scam which justifies itself against the backdrop of a much bigger scam.

Gold is valuable because it takes effort to find, mine and refine. People want to exchange other valuable things for it because it is useful - dentists use it to fill teeth, it is used as an electronics coating since it conducts electricity well, and so forth. People have used gold as a currency for thousands of years, but that is only because it has traits that make it a good commodity, such as durability, portability, uniformity and divisibility.

Bitcoins have no value of this type. Which is why it has fallen from $1160 to $326, and will fall to $0.

"The theory is wrong because it is wrong". Thanks for that.

My wife's dentist didn't use gold for her teeth, Copper and silver are better conductors. Gold's only useful quality is that it doesn't tarnish. Ask yourself this, on a desert island, what's more valuable, 5 pounds of potatoes or 5 pounds of gold? I'd pick the potatoes, myself. Sounds like the value is subjective to me...

sure, but I think the point was that if suddenly everyone stopped trading gold it could still be useful to someone. Whereas if everyone stopped trading bitcoin it would not be useful to anyone.

Wrong, the Bitcoin blockchain has many uses. For example: http://proofofexistence.com/

everyone stopping trading gold would only happen if everyone stopped using gold, so how is it still useful. Imagine, if you would, a machine that can make as much of something as you want, replicating it from nothing. Put gold through it. Is there anything about the gold that would prop it's value up above the pure value of the effort required to push the button? If gold is valued because of both scarcity and subjective value, what makes bitcoin any different? It has scarcity, and people subjectively value it.

Except that gold's value is not evenly remotely tied to its use value. If it were, gold would be worth a small fraction of its current price.

Precious metals are a commodity like any other commodity. They are valuable because people had to spend effort finding and mining them, and because people find them useful enough to exchange other valuable commodities for them. Their price, measured across decades going thousands of years back, is tied to their use value.

It is true the prices can be manipulated over the short term - in 1979, the Hunt brothers made silver go from $6 an ounce to $48 an ounce before it crashed back down. Over the long term though, the value of commodities are tied to their value - how hard it is to find and mine gold, and whether people find it useful enough to exchange other valuable things for it.

In other words, their subjective value? Gold has no value to me at all, as I don't have any use for it. If you tried to sell me gold, the only reason I'd buy it is if I could immediately resell it for a profit. My subjective value of gold is, therefore, $0.

The price of gold is not really determined by it's subjective value. It's determined by the cost to mine the stuff. The reason 5 lbs of potatoes cost like $5 and 5 lbs of gold costs like $90,000 is because that's what it costs to dig them up even if you prefer the potatoes.

Why does the price of gold fluctuate so much? Is it reLly because it becomes harder or easier to mine gold?

Potato prices jump around based on demand and supply just like any other commodity: http://www.wesleyjohnston.com/users/ireland/past/famine/blig...

If you were starving on a desert island I'm willing to bet you'd pay significantly more than $5 for 5lbs of potatoes if need be, because of their subjective value.

Likewise, people spend $$$ to mine gold because it's (subjectively) worth $90,000 for 5 lbs. If gold was as effectively rare as it is today, but easier to 'harvest' when you did find it, it would likely be worth about as much as long as all the other subjective factors still held.

Even today Saudi Arabia can pump oil for obscenely low prices (single digit USD per barrel), but it still sells near the market rate.

Congrats, you just decided that gold miners are the most altruistic people in the world, charging people only what it costs to mine the gold, not what the market would bear. I wish other companies could be so generous!

Also, I would recommend "Making Money" by Terry Prachet. Good book that actually explores a lot of the same ideas behind gold as the basis of a currency. In essence, the main character eventually realizes that the gold doesn't actually mean much, the true value of currency is that the society says x money gives you y goods.

Ah - that was a simplification. If it costs $1000 to mine and sells for $2000 then short term the miners will make a profit but long term people will build more mines. This is a slow process - 10 or 20 years but eventually supply exceeds demand, the price drops to $700 or some such, the miners go bust and the cycle repeats. But generally the price stays within a factor of two or so of the production cost.

so you talk about supply and demand, yet think cost is set purely by suppliers? What do you think would happen to the cost of potatoes if only 10% of last years harvest was harvested this year. It would go up, but only to the point where the supply vs. demand equalized, i.e. 90% of people wouldn't be buying potatoes cause they cost way too much, but there would be 10% of the people(like my wife) who would still be willing to buy them at $50 for 5 pounds, cause she values potatoes that much(she's got a serious fixation on potato soup). I.e. the value of a good depends on the person doing the valuing, i.e. subjective value.

It is also very difficult and expensive to dig into the ground with your bare hands and fish out worms, but if you did so you wouldn't be able to charge huge amounts of money for your hand-fished worms. Why? Because worms have almost no subjective value.

> Gold is valuable because it takes effort to find, mine and refine.

Other way around, people spend effort to find, mine and refine gold precisely because it's subjectively valuable.

That's always been the ironic thing to me about Bitcoin, is that by establishing that people can attach subjective value to things (like computer bits), it proves that fiat currencies can work too precisely because subjective value exists.

Likewise I doubt Bitcoin would ever fall all the way to $0, simply because there will always been enough believers "holding the bag" and trying to loop people into the "Internet funbux" club to maintain the value at some low (but non-zero) level.

>[gold has] durability, portability, uniformity and divisibility.

You could argue bitcoin effectively has those qualities too. It also has a cost to mine which may peg its cost in the same way that the cost to mine gold does its.

The thing that worries me about bitcoin as an investment is it can be replaced easily by dogecoin or whatever-coin with basically the same properties whereas there is nothing else quite like gold.

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