"Bitcoin is based on math and deep computer science."
The tech certainly is, but the value is not. The value is based on simple supply and demand. Currently, because the price is rocketing, there's huge demand. That will end when people get scared of the bubble bursting. Then the price will tumble. This is Economics 101 stuff.
The difficulty in creating an economy is not tech. That's relatively easy. The hard bit is creating a system that people can trust in the long term. That's not something anyone is going to crack overnight.
Exactly. It doesn't matter if it was based on puppies and rainbows, the valuation of it is entirely based on speculation. There's zero intrinsic value to a Bitcoin.
The "math and deep computer science" part is mostly an anti-cheating mechanism. If it was too easy to produce Bitcoins, they'd be worthless. If it was too hard, nobody would care. The mining process is an attempt to balance between these two concerns.
In any event, even debased fiat paper money can be burned to heat your house. What exactly can you do with a mostly random string of data, anyway?
> Be careful when you use words like 'intrinsic.' It may be argued that fiat-currencies are 'intrinsically' without value either.
No, that's not arguable, its part of the whole point of fiat currencies is avoiding intrinsic value and replacing it with fiat.
Commodity currencies rely on the intrinsic value of the commodity to provide certainty that the currency will be exchangeable for goods and services (providing a lower limit on exchange value.) They also rely on the inherent supply characteristics of the underlying commodity to control the supply of the currency.
Fiat currencies rely on the issuing government (or participating governments, in the case of something like the Euro) accepting it for taxes, fines, and government services for the same purpose, as paying some or all of these is common enough that it provides demand for the currency, and rely on active management by a central bank to control supply of the currency.
Bitcoin's mechanism for control of the supply of the currency are algorithmic, and much has been said about them, but the value basis is ... less clear.
Intrinsic value is highly subjective. Paper money has about 0 (you can burn them for a few seconds, right). Gold has some uses, true, but value is (as someone said above) is simply created by demand. (Gold is worth zero if no one wants to buy gold. Its perceived intrinsic value can disappear (well, most of it) as soon as people stop thinking that its valuable. Of course, its very unlikely to happen, because we're programmed since childhood to think that gold is valuable.
The price has little to nothing to do with the Bitcoin economy, which has just about quadrupled in size in the past two months (vs the price going up x12).
Bitcoin has a lot fof potential. Sure the price is going to fluxuate in the short-term from hedgefunds and investment bankers getting into it. But even if 90% of those who got into it in the past 3 months got out right now, the price would be tripple what it was three months ago and the economy would be doing swimingly in comparison.
Just because Bitcoin is based on solid cryptographic principles doesn't mean it's based on solid financial principles. This is a common mistake I have been seeing all along.
In the end it doesn't matter what your currency is made of, people are going to trade on credit mostly. The creation of fiat currency in the first place was less an attempt to scam the world into devaluing its currency than it was to bring the physical medium in line with the way the economy works anyway.
Many say that one of the biggest advantages to bitcoins is the anonymity of the currency, but in the end, it'll probably be its downfall as well. When people can't place a name and location on their debtors, loss aversion tends to kick in.
Fortunately or unfortunately, the potency of a legal tender is not a matter of "deep math or deep computer science" but a matter of confidence and scarcity. That is all.
In the past, people bought things with precious metals. These had to be scarce to be of value. This is the basis of modern day "money or currency". Let's take the dollar for example. Because it does not physically exist and is rather made-up, it is scarcer than gold or silver, hence more conceptually sound and more highly prized. And because, somehow, there is broad agreement on the dollar's tenability, it works so well. These two factors -- confidence and scarcity -- are the fundamentals of supply and demand. They are the only things Bitcoin must fulfill to take hold as a broad legal tender.
Today, Bitcoin is rather scarce because its creation is exceedingly computationally expensive and arcane. This meets condition one. Condition two, confidence, is not yet satisfied today by Bitcoin. Broad confidence takes time. Until both are met and sustained for a long and tried period of time, Bitcoin will not gain broad acceptance. This means Bitcoin very well could.
one criticism i've heard of bitcoin is of its independence of influence from monetary policy is also its achilles' heel. there's no mechanism to alter supply subjectively and the global supply is fixed to a logistic curve.
a problem arises where when one loses/destroys their bitcoins, there is not enough counter measure to recover the lost supply. it's like burying treasure with a sealed guarantee that the value of it will be gone forever-- an unsoundly characteristic of any currency with high ambition
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[ 2.9 ms ] story [ 39.6 ms ] threadThe tech certainly is, but the value is not. The value is based on simple supply and demand. Currently, because the price is rocketing, there's huge demand. That will end when people get scared of the bubble bursting. Then the price will tumble. This is Economics 101 stuff.
The difficulty in creating an economy is not tech. That's relatively easy. The hard bit is creating a system that people can trust in the long term. That's not something anyone is going to crack overnight.
The "math and deep computer science" part is mostly an anti-cheating mechanism. If it was too easy to produce Bitcoins, they'd be worthless. If it was too hard, nobody would care. The mining process is an attempt to balance between these two concerns.
In any event, even debased fiat paper money can be burned to heat your house. What exactly can you do with a mostly random string of data, anyway?
This 'anti-cheating' mechanism is a big part of what makes a currency valuable.
No, that's not arguable, its part of the whole point of fiat currencies is avoiding intrinsic value and replacing it with fiat.
Commodity currencies rely on the intrinsic value of the commodity to provide certainty that the currency will be exchangeable for goods and services (providing a lower limit on exchange value.) They also rely on the inherent supply characteristics of the underlying commodity to control the supply of the currency.
Fiat currencies rely on the issuing government (or participating governments, in the case of something like the Euro) accepting it for taxes, fines, and government services for the same purpose, as paying some or all of these is common enough that it provides demand for the currency, and rely on active management by a central bank to control supply of the currency.
Bitcoin's mechanism for control of the supply of the currency are algorithmic, and much has been said about them, but the value basis is ... less clear.
The price has little to nothing to do with the Bitcoin economy, which has just about quadrupled in size in the past two months (vs the price going up x12).
Bitcoin has a lot fof potential. Sure the price is going to fluxuate in the short-term from hedgefunds and investment bankers getting into it. But even if 90% of those who got into it in the past 3 months got out right now, the price would be tripple what it was three months ago and the economy would be doing swimingly in comparison.
Your friend is right.
Many say that one of the biggest advantages to bitcoins is the anonymity of the currency, but in the end, it'll probably be its downfall as well. When people can't place a name and location on their debtors, loss aversion tends to kick in.
In the past, people bought things with precious metals. These had to be scarce to be of value. This is the basis of modern day "money or currency". Let's take the dollar for example. Because it does not physically exist and is rather made-up, it is scarcer than gold or silver, hence more conceptually sound and more highly prized. And because, somehow, there is broad agreement on the dollar's tenability, it works so well. These two factors -- confidence and scarcity -- are the fundamentals of supply and demand. They are the only things Bitcoin must fulfill to take hold as a broad legal tender.
Today, Bitcoin is rather scarce because its creation is exceedingly computationally expensive and arcane. This meets condition one. Condition two, confidence, is not yet satisfied today by Bitcoin. Broad confidence takes time. Until both are met and sustained for a long and tried period of time, Bitcoin will not gain broad acceptance. This means Bitcoin very well could.
a problem arises where when one loses/destroys their bitcoins, there is not enough counter measure to recover the lost supply. it's like burying treasure with a sealed guarantee that the value of it will be gone forever-- an unsoundly characteristic of any currency with high ambition