Gold is less useful than most people think:
> In a 2012 paper entitled "The Golden Dilemma",[1] Claude Erb and Campbell Harvey examined some common assumptions about gold. First they looked at gold as an inflation hedge, analyzing gold returns from 1975 (the year the U.S. came off of the gold standard), through March 2012. They found that, due to its real-price volatility, gold had not been a good inflation hedge over the short- or long-term.
* https://www.pwlcapital.com/will-gold-save-the-day/
It's only of note because of historical accident and it's use in certain cultures (along with silver as well). The Incas had piles of gold, but only used it for jewelry and such, and not as a currency.
* https://www.tourinperu.com/blog/inca-gold-culture-invasion-r...
If we didn't have the culture references of the Gold Standard, I don't think most people would accept a shiny rock as anything special. Or at least gold (Au) specifically, and not any other Period 6 element:
* https://en.wikipedia.org/wiki/Period_6_element
Is there perhaps something special about Group 11 element (Cu, Ag, Au) that they should be treated as "currency"?
* https://en.wikipedia.org/wiki/Group_11_element
They are certainly useful from a tooling perspective in some ways, but beyond that?
Gold isn't being treated all that differently to the other period 6 or 11 elements. Although it does sometimes get randomly good tax treatment due to its history which keeps it entrenched as the first choice for a monetary metal. But fundamentally it is being sold at cost to mine + a margin, same as everything else. My memory is anything with similar properties to gold has a similar price. The bulk of its value comes from nobody being able to produce the stuff for much less than $50k/kg US.
If history was erased, the price of gold would go down a bit because demand drops, but it would still be somewhere similar to $50k/kg US - to a first approximation people can't produce gold more cheaply than that. The price might even go up if the cheap producers are big bulk-mining operations.
Just because something is expensive to produce doesn’t mean that it’s worth that much.
Well ... it kinda does? If a commodity cannot be produced for less than $X, then the price of that commodity is not going to be that far below $X. The price can vary away to anywhere you like to signal for producers to open and close in the short term, but the equilibrium price point is ~= cost of production and the market will trend in that direction.
I'm going off one article [0] but there is enough gold to make a 28m x 28m x 28m cube. That isn't a lot of gold when compared to the 8 billion humans in the world and the amount of metal we go through (of iron, aluminium, copper, etc). Unless something really novel happens in the mining space, the price is never going to be low enough that an ordinary person can have a big block of gold. It will stabilise on the cost to mine pretty quickly.
There are other metals that are just as good as gold (like platinum) that get less press but are similarly priced.
[0] https://www.usgs.gov/faqs/how-much-gold-has-been-found-world
This sparks an interesting thought (for me) - gold mining (and really, any mining) is intertwined in modern times; copper mining produces gold as a by-product for example. We derive palladium and platinum from refining for other metals, we get sand for concrete from gold mining, etc. Point being, the mining industry is interwoven as to what is extracted for refinement, the by-products of that refinement (and the environmental destruction :() which of course is all economically intertwined. A mine probably won't shut down, it would probably shift to another focus?
But Bitcoin is mined for one thing (itself) and produces environmental waste (heat, etc.) with no by-products (another coin?) and no other mining (Monero?) produces Bitcoin as a by-product. So it makes me think that while it sounds good on paper to compare Bitcoin to Gold, it really doesn't work like that in real life.
I don't think this says anything about why the gold price is what it is. If gold suddenly gained lots of value then it would still be cost + margin, because new mines would open up in places where gold mining had previously been unprofitable.
This price chart, especially since early 2019, seems to suggest otherwise:
> These metals, especially silver, have unusual properties that make them essential for industrial applications outside of their monetary or decorative value.
Sounds special to me. There are lots of things we would make out of gold and silver if they were more common. Gold has quite a bit of inherent value independent of cultural accidents regarding beauty.
> But copper—used in shell casings—was a high-priority commodity during the war. So Marshall and Nichols struck on the idea of using silver as a substitute. Congress had authorized the use of up to 86,000 tons of Treasury Department silver for defense purposes.
(...)
> Nichols met with Undersecretary of the Treasury Daniel Bell on August 3, 1942, to inquire about borrowing 6,000 tons of silver from Treasury vaults. In his memoirs, Nichols relates that Bell indignantly informed him that the Treasury’s unit of measure was the troy ounce—though not all present at that meeting recall any unpleasantness.
(...)
> Scrap recovery and cleanup operations were so successful that over the course of processing, more than 1.5 million pounds of silver were collected and returned to Treasury, much of it likely originating from earlier and unrelated silver processing. That more than offset a much smaller amount—11,000 pounds—of borrowed Treasury silver that was unaccounted for.
(...)
> The busbars were massive conductors about a foot square that carried current to the magnet coils. During their manufacture, armed guards again stood by, this time with pieces of paper positioned to catch drill dust as workmen bored holes in pieces of silver in preparation for fastening them together.
https://www.americanscientist.org/article/from-treasury-vaul...
It's the sign of the peak of the bull market. There is going to be hangover.
They are all struggling with poor transaction throughput/high fees, huge bandwidth for nodes, deflationary money supply, etc...
Signalling a great big crash, waiting to happen.
*Edit: speaking about crypto as a whole not specifically doge coin. BTC and ETH first to market with digital solutions to antiquated economic problems. But I'm not joking when I say the cut of Musk's jib puts a significant non-zero chance that he announces Doge will be the official martian currency. PT Barnum or not, I wouldn't completely discard the idea.
The problem is nobody can tell where the top is, and there IS a top, these things don't grow forever (you can't have infinite growth and it becoming infinitely valuable).
Now there are multiple things that might happen when growth stops:
* 1) The price stabilises and bitcoin/crypto becomes a major standard currency, which people want to use and spend. This certainly isn't going to happen for btc due to transfer fees, but could feasibly happen to a different coin. I think this is unlikely because there are several factors that actually stop crypto being an ideal currency (e.g. non-reversibility in case of fraud or dispute resolution).
* 2) The price stabilises and everybody keeps their money in crypto because it is a store of value. Personally I find this unlikely as I think most bitcoin 'investors' actually want to see their money increase in value rather than the value stay static.
* 3) The price stabilises and crypto doesn’t manage to become a standard currency which is easy to use everywhere - and although initially people hold their money in bitcoin to see if there is another rise, when it doesn't come people start to withdraw funds to realise their gains (if bitcoin isn't growing what's the point holding it?). As people sell bitcoin the value drops and never goes back to it's high. As more people exit the bubble is burst.
I personally think number 3 is by far the most likely outcome, however it's impossible to tell where the top is. I think the most sensible approach is to acknowledge it’s likely a bubble, and if you invest funds to acknowledge you are effectively making a gamble that the bubble won’t pop yet (and you are confident that you will realise when to sell before the rest of the market does and not hodl all the way down like we saw with gme).
The amount of institutional investment this round offer legitimacy and absolute scale of potential that can't be overlooked by anyone that's been paying attention.
Honestly, for the amount of forward thinking technologists that call this nook of the internet home, there is a ridiculous blind spot for cryptocurrency. It's actually ridiculous to me that such forward thinkers could be such luddites.
Will it take another decade before you realize we're there - or if not yet, where this is going?
But I am very disappointed in BTC and ETH. BTC did not become “A Peer-to-Peer Electronic Cash System,” and we haven’t seen the explosion of uses-cases I hoped to see from ETH (like tokenization and trading of real-world assets). There’s a ton of froth and solutionism in this space, which is OK, but it also understandably puts off a lot of people who see it as a scam-ridden wasteland.
That’s to say nothing of the Tether black swan to come.
Monero is the 'ideological' best cryptocurrency in my opinion, and I've hedged my bets across a handful of coins that I think at least offer something valuable to the future space.
Bitcoin has the first mover advantage and although bastardized into a 'gold like store of value' completely detached from its original use case I'd still want to own a decent amount because why fight momentum.
I agree with everything you say (wild west token scams, tether backing and sketchy accounting) but I think there is too much benefit at the core for one to disregard the entire space. The cream will rise to the top.
I understand that people are disappointed by this thus seeing the idea of BTC as a whole as a "failure", but given the fundamental properties of the system (finite supply, distributed network) it was never possible for BTC to become a currency used widely in everyday high volume transactions. Impossible.
Hal Finney even recognized this in early discussions predicting BTC wouldn't be used in high volume but more likely as a reserve asset, which BTC can absolutely be. Functioning as a digital gold, despite people's aversion or annoyance at this concept. Acting in concert w/ other payment methods or fiat currencies used for payments, taxes, commerce, transactions. A store of value to complement inevitable debasement or dilution of uncapped supplied fiat.
And that's fine, because the beauty of satoshi releasing it as open source spawned an entire ecosystem of ideas and implementations, so while his 'baby' may not be what he envisioned the basic idea and problems solved live on through evolution.
It certainly has when you consider that by cash Satoshi meant cash as a bearer instrument.
Unlike a federal reserve note—a piece of paper—that represented the thing that’s valuable—gold, bitcoin itself is the thing of value.
For ETH to trade real-world assets it needs everything else that the real world already provides: laws, courts, verification systems. Hell, it actually needs that even for digital systems.
This is why, try as people might (in over a decade) they have yet to achieve literally anything that isn't a currency with it.
You can represent them, but that's about it.
For Ethereum contracts to be enforceable in the real world (and even in the digital world) you need significantly more than just representation.
Black swan refer to unexpected events, right?
There are literally no fundamental societal aspects that cryptocurrencies modernize. Unless you call speculation "not modern".
These are all just words that amount to nothing but marketing. To be all that these coins need to painstakingly re-create all the institutions that make passports, money etc. possible: laws, courts, trust systems, enforcement etc.
There's literally nothing in the "fundamental societal concepts" that they modernise.
You realize that this a) doesn't constitute a fundamental societal concept and that b) sending secrets outside of government control isn't even a novel idea?
> and fundamental development of the society.
There's still nothing new or fundamental introduced by cryptocurrencies, and they rely on existing concepts old as time to even function outside their bubble.
Eth 2.0 for example was talked about for years, I'm still here getting wrecked on fees.
Lightning network for reducing BTC fees is another beauty we hear less about now days.
Wondering what's the chance of it becoming the speculative anything-goes plaything of the entire big biz financial world without a central bank to keep them (at least marginally) in check.. and with lotsa money of the 'small people' on the line?
I can't for the life of me figure out why HN keeps hating on bitcoin for the past 10 years since ive been following this site has but has been pretty much spot on about every other tech related subject. It initially discouraged me back in the early days but once you GET it, you realize its one of the biggest technological breakthroughs in the history of mankind.
I think with bitcoin you simply can't read about it but actually get your hands dirty and fully use it to really understand the potential it is going to have.
Of course not. Anyone is free to make a settlement on Mars and choose their own currency.
i don't believe that anyone trading doge isn't aware this is a ponzi. the only question may be if it's by design or by accident.
or maybe memes have value after all...
The book Money by Jacob Goldstein is the best thing I have read on this. It covers the useful fiction that is money and how it has has shaped societies.
From the inception of coins in ancient Greece, the first stock market to current day cryptocurrencies. When people first came up with coins and paper money, don't you think people questioned their value?
"At the heart of the story are the fringe thinkers and world leaders who reimagined money. Kublai Khan, the Mongol emperor, created paper money backed by nothing, centuries before it appeared in the west. John Law, a professional gambler and convicted murderer, brought modern money to France (and destroyed the country's economy). The cypherpunks, a group of radical libertarian computer programmers, paved the way for bitcoin.
One thing they all realized: what counts as money (and what doesn't) is the result of choices we make, and those choices have a profound effect on who gets more stuff and who gets less, who gets to take risks when times are good, and who gets screwed when things go bad."
For the record I am in on crypto including Dogecoin, just as I am in on FAANG, just as I am in on index funds, just as I am in on property. I honestly people not diversifying would be hubris.
The major popular currencies are very sticky and very difficult to stop believing in them.
Whatever you might think about the US declining compared to China and other issues, there's still a $21T economy with the economic activity of 330M people behind it.
And if you're doing business in this country the US government will demand that you pay your taxes in USD. There's a lot more inertia in the USD than people into crypto give it credit for. Everyone in the country could, in theory, wake up tomorrow and all decide to use something different, but in reality that won't happen.
Crypto can (and most likely will) crash hard and while its getting big enough now that the damage will likely ripple through the economy a bit, but the US economy will go on.
And I'd strongly recommend Galbraith:
https://www.amazon.com/Money-Whence-Came-Where-Went/dp/06911... https://www.amazon.com/History-Financial-Euphoria-Penguin-Bu... https://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp...
All but one of those is positive sum. One of them is negative sum.
> I honestly people not diversifying would be hubris.
There's an infinite set of things you can diversify into. Speculative mania does't have to make the list. It can, but it certainly doesn't have to.
I personally believe everyone should allocate 5% of their portfolio to GameStop. There's only 69 million shares outstanding, that's not enough for all the world's millionaires to own just two! I'm as in on GameStop as I am index funds, and real estate, and various tech picks.
Therefore you will get the denomination requested whether you believe it or not.
And since that rule applies everywhere in the world now there is nowhere to hide.
Thank you! This is the book I've been looking for. I've recently read about adjacent subjects like value and finance, but this is the thing that links those things together that I've wanted to read.
It goes straight to the top of my reading queue.
Here’s my beef, though: Dogecoin, BTC, etc. have failed to replace cash money or be used for any sort of significant, regular, money-like use-case.
Monero is maybe the most legitimate cryptocurrency at the moment, as it allows for (and is really used for) darknet purchases. That’s a real use-case.
This is the point Taleb is making too.
And also that established payment services have kept improving their services enough that BTC's superior agility isn't that pronounced anymore.
Not only that, but it's a derivative (or perceived derivative!) of an underlying value, which in turn can be another derivative!
A long time ago, that was Gold, which in turn is a derivative of food and everything else that can be purchased by Gold.
Early U.S. pennies, for example, had pictures of wheat stalks on them, the idea "you can use this coin to buy wheat (food)" (storage of value of food) is present in that picture...
If you really want to go back in time, when you have food that doesn't rot and doesn't decay over long periods (for example, dry noodles), then we can see the noodles themselves as "storage" for the "value" of the underlying wheat (which decays much faster when not in noodle form).
In fact, you might argue that nature's nuts (walnuts, hazelnuts, peanuts, etc., etc.) -- because they were food that could be stored for a long periods of time without rotting -- were the first historical "storage of value", and thus the first currency...
Perhaps that's why everyone is so "nutty" -- about money! <g>
Also, in any system where object A (stock certificate, money, IOU, metal, physical object, digital identifier, etc.) -- is a storage of value for some underlying value, or something which is value derived from somewhere else, or a chain of derivatives -- you have the potential (in those systems) for
a) Ponzi Schemes (correctly or incorrectly called this)
and
b) Hyperinflation
and
c) Hyperdeflation
and
d) The possibility of eventual worthlessness from either extrema...
Fun Fact: Ancient Rome, near its end of life, resembled a giant Ponzi Scheme... <g>
(Bernie Madoff, in the scope of his crimes, was "small potatoes" -- compared to the last days of Ancient Rome! <g>)
Then, on a related note (same principle, in effect), there's the following "Rick And Morty" clip:
"Changing 1 to 0"
Re bitcoin, he makes the argument that all currencies face a moment of crisis and only survive when Govt's do 'whatever it takes' to save them.
Who's going to come to the rescue of Bitcoin when that day comes, he doesn't say since the answer is rather obvious.
Example 1: reduced faith in a government to repay its debt decreases the demands for its fiat bills, which decreases their relative value, which prompts them to print more to repay its debt, and so on.
Example 2: Cowrie shell money stopped being accepted by colonial power to settle debts with it, it's value decreased, requiring private companies to import more of it to pay for what they want.
With those feedback loops it's hard to know what came first, but it's not obvious that excess supply prompted reduced demand -- it might as well be the other way around.
At the end of the day it’s just another phenomenon. Cryptocurrencies are many things to many people. You may lament for the person that looses a few hundred dollars but what about all the people who spent money on Pokémon Go just because they wanted to get involved in an activity with their friends.
There’s nothing wrong with getting hurt if you chose to ignore the risks and risked more than you were willing to lose.
I used to take part in "Dogecoin Socks for the Homeless" events. It was wonderful, everyone was trying to make something good out of what we all knew to be a meme. I am shocked now to look back on those wallet addresses which once held ~$1,500 and see they'd be worth $285,000 (had I held). Of course, it might be that I'm just angry I wasn't the one to become rich, but the mania right now is really, seriously, insane.
Many people who are FOMO-ing in thinking this will make them millions with a few hundred dollars invested will be hurt when the "number go up, number go down" cycle turns to "number go down."