The erratic price prevents it from being a store of value or a unit of account. So it is a currency that clocks in as a medium of value transfer only. Even then, the transfer involves another currency on either end in almost all cases.
Not true in itself. Consider the stock market: it's value has been unstable for the past two decades, yet it is still one of America's most popular stores of value. Consider also gold and housing, two other popular stores of value that also have unstable pricing.
The erratic price does however prevent it from being a unit of account.
There is a speculative component in house prices, and this is a concern for anyone who is "storing value" in them, but there are fundamental uses for housing far beyond the fundamental uses for gold.
Equities have a value story too. The dividend on stocks represents a future earnings value which is tradable. Also Equities provide voting rights which have value.
Fiat currency has a value story; the states monopoly of violence provides it with the ability to collect tax from economic activity where that monopoly holds true. Tax revenues are a future income stream that has value; hence the underpinning of fiat.
Bitcoin has rarity and speculation only.
The point is, there's no analog to the digital nature of placing a conversion value based on the bits of a certain integer value stored in a distributed blockchain.
The latest round of blockchain technology is showing, bc is good for a lot more than currency. In fact, there are many things that BC can do much better even than it can be a currency.
My point is, I bet on the long-term value of bc technology, but actually not on the long term value of Bitcoin as a digital asset.
For example, very soon enough you will be able to cheaply, easily, and freely store your USD or whatever currency you want on a blockchain, and use it to spend and trade freely. Choose any blockchain and conversion rate / resolution you want and issue a legally binding IOU. Of course the trick is handling redemption!
For my education could you expand on your thoughts around "The point is, there's no analog to the digital nature of placing a conversion value based on the bits of a certain integer value stored in a distributed blockchain". I think that you are making an interesting point here but I haven't quite grasped it so am intrigued.
EDIT: This is distinct from various toy applications of the "you could do this with a blockchain..."
Therefore, speculating on the viability, power, and relevance of the state.
Or to the NPV of the future cash flow generated from renting it.
The implied point here (I think) is that bitcoin is a bad store of value because it has rarity and speculation only, not real value. This is incorrect though: consider the counterexample of gold. Gold is the oldest store of value around, but it really only has rarity and speculation going for it. Around 90% of the gold in the world is either sitting in a vault somewhere, or used as jewelry [1].
So for your implied point to be true, either (a) gold must be a bad store of value, or (b) there is something that distinguishes gold from bitcoin.
I am frightened of someone with a machine gun (or half a dozen mates with battle axes) and I would probably agree to share my farm produce with them in exchange for them not killing me and my family and for them preventing other people from killing me and my family.
This was the partially the origin of gold's value. The monopoly of production and distribution of gold and the tie to radical threatened violence. In addition gold is pretty and can be used in electronics, but these are minor components in its value. Mostly we retain the cultural memory of a time when digging up gold was done by slaves owned by folk who had a propensity to murder, and therefore having gold enabled the deployment of murder.
Bitcoin might have the same sort of association to value as gold once did if one day state actors decided that it was an appropriate proxy to violence. Non state actors are may also decide to use it that way - "honour your bitcoin debt or find a horses head on your pillow!" However, if they do/did then they would find that eventually state actors would step in and take over control. The problem for bitcoin is that it is not good as a fiat currency by design, so those that have the capability to do violence are unlikely to adopt it as a fiat currency in the long term.
It is not good because it is deflationary due to the finite supply of bitcoin and the increasing difficulty of finding new ones. This is a bit worse than the situation with gold because we might find a big load of new gold somewhere, while we know exactly how many bitcoins we might ever extract, and we can say more or less when we will get the last one.
This is bad news for contracts underpinned by violence, because it means that the longer the contract is the harder it will be to fulfil it, because the greater the demands on the supply of the items required to fulfil. Thus, if I sign up to take a loan from my bitcoin obsessed local feudal overlord to build a barn or other item enabling wealth creation then I will have to know that I will produce more wealth from it in the future than I could if I were to have it today. Otherwise the value of the contract to my lord will be negative, so he/she won't hand over the loan.
So bitcoin as a fiat currency will be a disincentive to wealth creation. Like gold eventually ended up being when the early mines got worked out and extraction got really hard.
This is not to say that crypto-currency might not be adopted by state actors, but it is to say that bitcoin won't be adopted by state actors or a functioning underground economy either. This means that it is a bit less good than gold as a store of value now, and a huge lot less good than gold as a store of value in the past. Gold is living on borrowed time as a value store, bitcoin has no time as a value store.
While the anarco-libertarians may see paying taxes as optional, people who actually have something to lose pay their taxes... These capital gains complications of using bitcoin as barter essentially eliminate the usefulness of this commodity, as opposed to cash, for anyone of serious importance in the developed world, and since that won't happen, there will be little push for any adoption beyond a fringe group.
Without serious investors holding bitcoin, there benefits of transactions via bitcoin with currencies trades at both ends are problematic, because nobody wants to be left holding the coins.
It will be useful as a substitute for wire transfers, it will be useful as a store of value in the developing and under-developing economies, but other than that i see no long term use for bitcoin that makes it significantly different from gold. The benefit of gold being that there is significantly less chance of theft.
Solve the capital gains problem and maybe we'd have something, but i cannot imagine a scenario in which that happens beyond a bank removing FIFO capital gains after every transaction... which would frustrate most users.
That's not possible. Simple counter-example: create a Bitcoin address, then engrave the private key in a gold bar and destroy the digital copy.
But if we accept the premise, then anyone physically close enough to take a picture (let's wrap the gold bar in a dust cover, so that this entails unwrapping it) can physically steal it. i.e. if you prevent someone from physically stealing it, such as keeping it in a vault, then to a good approximation you've also prevented them from unwrapping its dust cover and reading the engraving.
I guess exceptions would be if you have workers who work in your vault but go through metal detectors to make sure they haven't stolen the gold, or the gold is somehow physically too heavy to move in one piece quickly, or somehow you can react to it being stolen and prevent the gold from actually leaving, but not if it remains in the vault. This is getting silly though- it's just as easy to engrave something and then hide it in cast iron that is very hard to get into without tools.
I think physical protection from theft is very close to physical protection of a piece of engraving.
Whereas gold is actually, physically heavy. Not only do you have to be local to steal it, you actually need a good deal more then just being there. Moreover, physical security has the benefit of having straightforward to follow principles - i.e. no one's breaking into a sealed vault by walking through the walls because of the time it takes the vault door to open and close.
As opposed to the digital realm, where you can steal cryptokeys by listening to coil whine.
Not so with gold. Either you have it or you do not.
Mind you I have some bitcoins(hopefully still intact) and no gold.
I don't think that's an apt analogy because, at the very least, a thief still has to physically enter your home, putting them at a much greater risk of detection as well as risk of arrest, personal injury or death while attempting to burglarize a home. There is also additional risk in the effort required to locate and break/steal a physical safe. Further, the population of potential attackers is much wider with bitcoin compared to gold since it is impractical for bots or thieves abroad to steal physical gold from your house.
On the other hand, tax authorities globally have taken a variety of approaches. To take one liberal example, Denmark doesn't tax personal bitcoin gains at all.
So, value store, unit of account.... some other gainful employment this technology can create by blending it together with other things.... Any way for bitcoin to be useful at this point helps it cling to the cliff.
Customers will be careful in spending their Bitcoins, if they believe that the price will be higher tomorrow. Likewise business would either overprice, rather than running the risk of losing money, if they cannot convert their Bitcoin to something more stable fast enough. Both are elements that could lead to decreased spending.
The price wouldn't be as erratic, as it would be normalized against all the goods in the economy. Just as gold was when it was money.
Which doesn't matter. That's the entire point of the author's article.
It's unfortunate that the majority of HN comments are about "currency" and "medium of value" in response to this particular article. The author tried to talk about The Other Interesting Thing that seems to be flying under everyone's radar: the authentication of information by distributed digital consensus instead of a central institution.
That's why the author tried to use the Linux analogy. While many folks were measuring success via the meme/joke "2001, 2004, 2014, etc is the Year of the Linux Desktop!", Linux has quietly "won" on the backend servers, on Android phones, on cable DVR boxes, in Raspberry Pi, etc. The desktop as a health indicator of "Linux success" becomes irrelevant.
Linux: ignore "desktop war" and substitute "servers, internet-of-things, embedded devices"
Bitcoin: ignore "currency vox populi" and substitute "decentralized trust of information."
To meta analyze why the discussion about Bitcoin's "other" tech possibilities is always derailed by "currency" and "fluctuations", I think it's due to:
--The word "coin" embedded in the name "bitcoin"
--5 years of breathless hype stories (on HN and elsewhere) around bitcoins rising
--Silk Road money laundering, etc
Since bitcoin is so tainted now with "currency", we need a mental reset. Here's what the author is saying the world wants:
The time is ripe and the underlying technology exists (internet reach, cryptographic hashes, etc) for the adoption of a decentralized authentication of information platform.
Let's think about it. If we were to list the technical requirements for a "decentralized authentication of information" service, it would include things like cryptographic hashes, block chains, a transaction API, etc. Basically, it would end up looking a lot like Bitcoin!
We could call the service GitHogAnyInfo (to riff on the names of decentralized source code Git Mercurial). Or call it ConsensusInfo or whatever. Just call it any name that does not have "coin", "doge", or "money" embedded in it. If you do that, everyone's brain shuts down and we get trapped in the discussion about "currency fluctuations".
For example, look at these:
https://www.globalsign.com/en/timestamp-service/
https://www.digistamp.com/technical/how-a-digital-time-stamp...
Neither of those services have "currency" anywhere in their description. Can a bitcoin-as-info-platform instead of bitcoin-as-currency compete with, or replace services like those? That's the thesis the author is trying to convey. That's the angle the SV investors are envisioning.
http://hashingit.com/analysis/33-7-transactions-per-second
http://hashingit.com/analysis/35-the-future-of-bitcoin-trans...