It is like if you and I took turns paying for lunch periodically and we used a ledger to track who paid what, and who owes who. The ledger itself is bitcoin. The ledger paper is worthless, but the entries on it "have value." For you and I, the ledger "has value" because that's where the history is.

If you printed 50 new blank ledgers, they wouldn't have value because they don't have the history and our mutual agreement.

Bitcoin is the worldwide ledger (WWL).

Except it takes usually 2 to 3 days for the ink to dry in the ledger, and costs you $3 every time you wrote in it, and consumed more electricity than your house does in a week, and you do it this way because you want it to be trustless.

His analogy isn't perfect with all respect to bitcoin, but it is for that explanation. And transaction fees doesn't really matter when it's used as long term value storage for a significant amount of money. The small transaction fee is basically irrelevant.

I don't get it. why is it a store of value? what makes it have value? For example, suppose I just got paid and I buy bitcoin today. What is the force that will make my bitcoins not be worth 0.5X over the next 20 years ?

ok, so I had an upsight, to borrow Neil Stephenson's terminology. Speficifcally, that POW coins are inherently flawed. There is no fundamental reason to own one of them.

POS coins on the other hand, are a different animal. If you own a POS coin, you get paid transaction fees for helping verify transactions. Thus, POS coins make fundamental sense, can be valued accordingly and create a reason to actually own the coin - and should, therefore, prove a better store of value than POW coins. Of course, POS is somewhat theoretical, but if Ethereum can pull it off, it should supersede bitcoin. Now, ELI5 why I am wrong, please.

Try this article from Paul Sztorc:

http://www.truthcoin.info/blog/pow-cheapest/

Definitely not ELI5 material though.

ok, I skimmed through it. I admit, I didn't get it. However, I don't think it addresses my fundamental point: there is no reason beyond speculation to own a POW coin. There is a reason, independent of speculation, to own a POS coin.

> there is no reason beyond speculation to own a POW coin.

The incentives of a pow coin align with the users, not the owners, so there's no reason any user would prefer to use another incentive structure.

> There is a reason, independent of speculation, to own a POS coin.

It is not trustless. You are reliant upon the owners not re-writing the consensus rules to your detriment.

POW relies on self-interest, though.

For example, if you own the most of a particular POW coin, it is not in your interest to corrupt the ledger because you will suffer the loss of faith in the currency worse than anyone.

but if you are one of the owners, how can owners rewrite the rules to your detriment? or, why would they? whether you own $10k worth of coins, or $10 million, in the case of POS, the incentives are aligned and the coin owners earn transaction fees. In the POW case, what underpins the value of the coin?

> In the case of POS, the incentives are aligned and the coin owners

Biggest owner wins. That's why it is not trustless. The only long-term game-theory outcome for the system is a monopoly. Owners own the miners, and dictate the rules to the users. Otherwise known as our world financial system.

> In the POW case, what underpins the value of the coin?

The network effect of the decentralization, i.e. the nodes. It is the nodes that are peers in the peer-to-peer cash of bitcoin. It is they who hold the blockchain, validate transactions, and validate blocks. Because there are so many of them (185,000 and counting) unless you can effectively convince all of those nodes to adopt consensus changes, the existing consensus rules apply.

PoW alone doesn't make something valuable. Its successful implementation does.

Not sure I follow. Biggest owner has the same incentives as the smallest owner - to keep the dollar price of the coin as high as possible. So, what I am asking is, in the case of a POW coin like bitcoin, what is the force, beyond pure speculation that keeps the coin worth X and not 0.5 X?

> Biggest owner has the same incentives as the smallest owner

Biggest owner can steal smallest owners money because biggest owner controls the consensus rules. So no, the incentives aren't aligned.

> what is the force

The only one that matters : Supply and demand, and no ability to cheat the system. The only thing that is happening is more and more people are recognizing it.

Biggest owner can steal smaller owners money, maybe, depending on the POS design. But that would make no sense. I mean the biggest owners have the biggest stake in the integrity of the network, no? supply and demand can clear at X and at 0.5X, so that doesn't answer the question for me.

Then you fail to understand the incentive structure. The only game-theory outcome to a PoS system is a monopoly. That's the reason why there aren't any successful ones. Because they require trust.

Agree, I fail to understand what you mean. If I'm a large owner of a POS coin, why would I want to steal smaller owners' coins ? Don't I want them to trust the system and keep buying more coins ?

What about a hybrid PoS/PoW system? In reality, bitcoin as PoW is also near monopoly, more like oligopoly, still requiring trust.

If you think this you don't understand the technology, and therefore don't understand its value.

Elaborate? I mean mining pools in China with the oligopoly bit. Are you saying that's not a problem? I would say the current bitcoin PoW scheme is inherently seeking to end up in a few actors having most of the power due to the higher and higher barriers of entry to mining on custom silicon. ELI5 why I'm wrong?

Nodes define and police consensus in bitcoin, not miners. Miners have a single choice : mine for bitcoin according to node consensus rules, or don't. That is the only power they have.

in theory. But in practice, if tomorrow fork XYZ comes out and miners decide to mine that fork, instead of the current one, the current one is finished. So, don't they hold all the power in practice ?

No. You completely don't get how it works. Only by mining according to bitcoin consensus rules do they get bitcoin rewards. Their fork relies upon you using their node client in order to give them tokens. If nodes don't switch clients, no one even knows the fork exists.

This entire episode over the past year has demonstrated this again and again. Miners talk a big game, but in the end, they do as they're told.

WWL, now that’s good...checks domains

Uh... you have to physically store those things? Easy to steal? Can't send to someone across the country instantly? Bitcoin is way better than gold or dollars when you are in an unstable country. People in Venezuela are huge crypto-heads for that reason

> Easy to steal?

Bitcoin is perhaps the most commonly stolen store of value the world has ever seen. It has its advantages, but being difficult to steal (or lose permanently!) is not one of them.

Perhaps it's easier to steal in different ways. Computer-based hacks, bugs, social based attacks (phishing, etc.) sure... but harder to break into a house and steal, as the private key can be hidden better. Easy to assume the safe is where 20 gold bars are.

Pretty sure cash is the most commonly stolen store of value in the world.

Source please.

Right, but you could create a crypto thingie that is tied to gold or dollars. I agree with what you said but it doesn't tell me how to calculate the price of bitcoin

It can get seized by the government. Any traditional assets or physical assets that is. Bitcoin and crypto is significantly harder to do that. You basically need to get the private key. IMO, this is the main reason that it is a a superior store of value compared to gold, dollars or traditional assets. If your government is corrupt then it is reasonable that the police will seize your gold. Not much of a store of value if it can just be taken away from you.

Understood, but that doesn't explain why it's a store of value meaning why can't bitcoin cost 5k vs 10k

supply vs demand. More and more people are getting introduced to bitcoin, understanding it and buying into it. There's also a cap on the total number of bitcoins, so scarcity is another factor. Just like why gold is worth X instead of X/2

> More and more people are getting introduced to bitcoin, understanding it and buying into it.

That's pretty much the definition of a pump-and-dump scheme.

ok, but gold sometimes is worth X and sometimes X/2, if you actually plot the chart of gold. Gold is not exactly a great investment

Why are you easily able to see gold as having intrinsic value but not Bitcoin? Both are valuable because a lot of people say so. There is no other value but utility and most currencies, including the dollar, do not have any utility other than their ability to function as currency.

Gold has physical value, right ? For example, used in electronics, jewelry, etc. but gold is a terrible investment so if bitcoin is like gold should we also assume it's a terrible investment like gold ?