In my view, it's not a currency until people stop speculating and start using it like a currency.
So yes, it's a collectible with ridiculously high transaction costs that make it difficult for me to use as a currency.
In this light, how is Bitcoin any different?
Note that currency has two functions: store of value (Bitcoin) and medium of exchange (Ethereum? Ripple? Carbon credits? Other?). That we can split these functions should not be surprising. Plus, our modern money system is a fairly new invention and it's clearly being disrupted. Hell, even the idea of an electronic ledger to track stock ownership was only really developed in the 1980s by Cede and the DTC -- and it still takes 2 days to fully settle.
Bitcoin is a collectible. It is very much like gold, which has a far longer history and similarly high transaction costs. Gold, in my view, is also a collectable, and it's frequently advertised as such. (Just look at the gold coin ads and compare to BTC.)
Controversial view: fiat currencies are also a collectible. The difference being it's universally accepted tender, its government enforced, you're taxed in it, transaction costs are cheap, and insanely fast (moving money can be a pain). This is what makes fiat a proper currency. Also, while we like to make fun of central banks for money printer go brr, there's real value in the stability they provide. The Great Depression was a disaster because of the lack of monetary response, and banks of the world have learned since.
Also, there are heavy incentives for governments to drive use of their currencies, and there's a LOT of competition from governments to dethrone USD. China, for one, is trying to internationalize the renmimbi and dethrone USD in its sphere of influence. Do you really think they're going to give BTC the space to thrive?
Now, let me be clear, my view on crypto is nuanced--I'm very exited about DeFi and ETH2, but my longterm view on BTC is a bit sober.
Yes, projected earnings. Speculation. Just like cryptocurrencies.
People rationally buy 5% perpetual yields to cream the asset, not HODLing in the hopes some other buyer will come.
Absolutely I would make a case about the net present value of future distributions - the clearing IRR is currently around 4%, having been around 5% last year.
Similarly real estate pays rent or owners equivalent rent (the value the owner derives from living in it rather than paying market rents). Here, the market seems to clear around 2-3% net of maintenance, having previously cleared around 6% when interest rates were higher.
Bonds pay interest, albeit at this time the clearing yield level is very very low.
What is the clearing yield of bitcoin? Undefined, because it has no expected future intrinsic cashflow payable to the owner.
Bitcoin hodlers have only one possible way to collect a future cashflow, sale to another person for either fiat or goods/services.
I know only few people who own crypto as pure speculation. Most are using too (at least from time to time)
I only partially care if it goes /2 or x100. Its still money
I’ve been following Bitcoin for more than seven years and absolutely nothing about it has fundamentally changed. It has always been a “currency” majority owned by dodgy shadowy characters. It’s always been slow. It’s always been unscalable (by design!). It has always been a get rich quick pyramid scheme.
It doesn’t matter what its USD value is. It’s a scam. Always was, always will be.
Our current financial system is also layered similarly btw. When you buy something with your credit card, it doesn't settle right away.
Is Bitcoin the best thing to use as an settlement layer?
You can use eth or any of the thousands of other crypto-currencies, Bitcoin benefits from being the most secure and also having the largest network effects due to being the earliest. When it comes to money, security is the most important thing and Bitcoin offers the most secure settlement layer.
I was giving an example that Bitcoin and layer 2 solutions are related, similar to how dollars and credit cards are related. My point was if the layer 2 networks have value, it doesn't mean Bitcoin doesn't have any value.
Even in the cases you raise, dollars still probably will have some value. I don't see the dollar collapsing any time soon.
Is Bitcoin the best settlement layer? I'm not sure yet. IMO, Bitcoin / cryptocurrency in general does have some value since it is enabling new technologies, like layer 2 solutions, to be developed, when they otherwise would not have been. I think new technology is valuable.
This is the case of having a better technology doesn't matter, Bitcoin came at a very lucky time and also grew organically for many years and had arguably the fairest coin distributions (most coins nowadays are shilled very heavily by it's developers and investors). It's also the most secure and well-known.
Because of those things, it'll be very difficult if not impossible to unseat Bitcoin when it comes to store of value/currency. Bitcoin also sees development in form of lightning network. For all other use cases, I think eth covers most bases and has also developed a very large network of users and developers.
So whatever next big crypto project comes needs to be not just "better", but like at least 10x better.
Monero isn't just claiming this though. It actually delivers on its promises. It's actually private, authorities are having trouble tracing it. Criminals are already switching to Monero. Transactions are fast and the fees are low. It's mineable by ordinary CPUs, no centralized ASIC/GPU mining operations in China. Since mining is more decentralized, nobody opposes improvements to the Monero blockchain like the bitcoin and ethereum miners do.
> at least 10x better
Monero is pretty much infinitely better. If any coin is positioned to unseat bitcoin it's Monero. If there's any sanity left in this cryptocurrency market this will happen one day.
Ethereum: Market Cap: Fr 261,435,750,490 Volume: Fr 39,931,852,584
Its not like Bitcoin is standing up there alone. Sure still far stronger, but the times where its only bitcoin and the others is likely over.
If XMR usage got big enough it would very much need layer 2 even more, the developers themselves acknowledge this and are upfront about it. These very basic computing problems that have been repeated ad nauseam for a decade now do not magically go away and are actually a lot worse for monero due to ring transactions being much heavier.
Are you really going to store a 2 TB blockchain that needs days of compute to initially confirm so you can transact with your friends privately? The first layer has insane amounts of PoW security baked in at this point, it's not for general consumption anymore.
I'm sure they'll be able to solve any problem that comes up. Monero isn't plagued by miners blocking progress like bitcoin is. I believe the coin will continue to improve.
> Are you really going to store a 2 TB blockchain that needs days of compute to initially confirm so you can transact with your friends privately?
Isn't it possible to prune the blockchain on local nodes?
As well as all the rangeproofs that further bloat the chain size. Other confidential blockchain designs allow the removal of rangeproofs for all spent outputs (ie the vast majority).
If it were to freeze at it's current price, it would only be able to power a very small economy of 1T$, that's nothing considering it's borderless and digital.
It will never become a global reserve currency for the same reason gold is no longer a basis for money. It is better to inflate your way out of problems (print money to bail out key institutions) than to deflate your way out of them (great depression). Better is defined as causing less harm to individuals.
Inflation sucks for more people than deflation. It causes social strife, environmental destruction through overconsumption, a widening gap between the rich and the poor, more expensive healthcare for lower classes, stress and the need to live on the corporate treadmill, a general inability to identify worthwhile investments versus ponzi schemes because TINA, pushing more people into partial servitude to the economic system by encouraging borrowing.
It's great for the rich, though. Lowered interest rates things like financial games, leveraged trading, and corporate agglomeration become favored. And the devaluing currency pushes average joes to participate in the wall street casino, which is good for CEOs.
It's not the deflation of the great depression that was causing starvation. Remember that during the part of the great depression where people were starving (nobody was starving at the onset), the government was doing things like buying food and burying it on the premise that this would create demand and stimulate prices.
I'd counter by saying that the strongest decades of median real wage growth and general GDP growth were during the high inflation 1960s and 1970s.
I'd argue that the fact nobody was starving at the beginning of the great depression means that the economic mess didn't cause the starvation is a bit of a straw man. Of course, at the beginning, people don't immediately find themselves in destitution, they draw down savings. The destitution begins when the economic disruption becomes prolonged.
I can't find any primary sources on the government policy of destroying food, but I'd conjecture the reason it was done (if it happened) was to support nominal food prices and therefore the apparent credit-worthiness of farms in a highly deflationary environment. Of course, the real problem was that there was insufficient aggregate demand to support the nominal food price, i.e. deflation combined with wage-price downward stickiness caused the market to fail to clear.
No I'm not. The one is the primary mechanism that is being used to create the other.
> Of course, the real problem...
The real problem was policymakers believing dumb shit, if we're being charitable, confusing correlation for causation.
How about 1860-1900. A deflationary era when median wealth increased ( even without taking into account that a chunk of the population was liberated from chattel slavery) and the us went from failed state to international colonial expansionist superpower
Moving money in higher amounts can get expensive as fuck.
I know a few people who made $50m before they were 30. The act of spending money is now fun for them, almost independent of the outcome. Incredibly high donations to twitch streamers, denominated in BTC, tickle their fancy.
Every other person I know who owns BTC is either trying to speculate by owning a lot of it or believes that putting 5% of their investment portfolio is good for diversification. In the same way that I don't spend VTI at the store, these people don't spend BTC at the store.
If you agreed to work for a company for X monero a month, and the value of monero (relative to USD or your local currency) dropped by 90% a few months later, would you continue to work at the originally agreed upon rate?
And on the opposite end, if a coffee shop sold lattes for Y monero, would you be okay with continuing to pay Y if monero shot up by 1000%?
What you could do against the fact that the USD is heavily losing on value is a different topic tho.
On the same note: You are likely getting paid in $. Your currency lost about 4% in value against the CHF in the last months. Is this something you worry about? I guess not.
Unlike Bitcoin, the value of gold in a given market has a tangible backing that isn't purely speculative.
[1] https://www.statista.com/statistics/299609/gold-demand-by-in...
It's like saying, "Bitcoin has residual value because you could always sell the GPU mining equipment"
I'm not sure your analogy of GPU mining hardware makes sense to me. You can have Bitcoin without having GPUs. Just like you can have gold without having a mining operation.
So if Bitcoin crashes to some hypothetical value tied to consumability, you're left with nothing. Whereas gold is still something you could sell for industrial and fashion use.
I don't think there's a good analogy between cryptocurrency and gold because they're not very similar at all unless people only narrow the scope to long term holdings and ignore risk/speculation.
That's generally true for all currencies. If everyone suddenly switched to believing "X-sovereign-currency" doesn't do anything but legitimizes that sovereign and has military and human rights costs to maintain the illusion of that legitimacy, its value would plummet.
Currencies are not real, their value is in our collective heads, or at the tip of the gun, or because you can pay taxes in it or get sent to jail. Yes, in general they're nice because it makes transactions less of a pain, but that isn't specifically true for any one currency.
These all seem very real. And not something that will disappear (or even drop) if media attention or nerd interest moves elsewhere.
Cryptocurrencies exist in a digital and decentralized world. They will outlast governments.
Bitcoin isn’t a cash competitor, it’s a gold competitor - and it’s a pretty good one.
Part of something like gold is the shared social belief in it as a store of value. Bitcoin has this and there’s enough time and infrastructure behind it at this point that I’d bet it’s likely to keep it.
That plus its scarcity guarantee and disconnect from the federal monetary policy of any one country or bank makes me bullish on its future in the long term.
I’m also bullish on ethereum, but for different reasons.
Gold has inherent uses as a precious metal. Bitcoin mining only computes SHA256 hashes for no actual purposes.
That’s just objectively false, though. Yes, a small group of people collect Bitcoin because they believe it will become a currency and therefore rise in value. But most people who collect Bitcoin think it will rise in value because they see it rising in value.
Occam’s razor, dude.
My point was that, if the author’s argument is true, bitcoin will only have value as a pure collectible if people maintain some wider narrative that opposes the argument in the essay.
No one would collect a sterile piece of cardboard devoid of any story, just as no one would collect “Digital token #385839, definitively devoid of use”.
I’m not saying Bitcoin needs to become a useful currency to maintain a value. I’m saying it needs to have people believe it will, or to believe some other narrative about it which makes them consider it as more than a collectible.
Gold's current value is not related to its function as a material for jewelry, but from a myth that it is a store of value. If people would stop believing the myth, the cost of gold would plummet and stabilize around the value it provides as a material for jewelry.
Similarly, "art is lovely" is a really stretched argument. If you want, you could print your transaction block hash and consider it pretty as a math-art concept.
So yes, bitcoin needs people to believe in its value to remain valuable, much like everything else that is not a raw utility - nations, religions, money, corporations, gold, baseball cards, and so on.
Heck, even Ferraris would become much cheaper if people only valued them for their function. They cost a lot primarily because we value them highly due to myths and scarcity.
imagine if tomorrow, we suddenly find ourselves mining gold from asteroids, and that gold suddenly became super-abundant. Would the price of gold drop to match just the material usage value (e.g., for jewellery and electronics)?
As someone who gets regular offers for my 3 minute art pieces without promoting this anywhere or so. Literally just by having them. I have to disagree
I can't explain it but people definitly collect useless items
Is this the "greater fool" argument against Bitcoin?
I wish it'd just lose it's value already so that liquidity will flow into all the much better coins out there. Not likely to happen though...
A large aspect of currency/store of value/whatever is social/network effects.
Would like to hear more of your theory, in my view Bitcoin is a fossil whose community is intent on keeping it a fossil. All energy towards improving the network are focused on Layer 2. Transactions per second will not be increased, max supply will not be increased... the various forks of bitcoin speak to this. Why do you believe Bitcoin can keep an edge?
People want to collect bitcoin at current valuations because they are convinced it will become a currency/store of value of the future and hence rise in value.
If everyone suddenly switched to believing “Oh bitcoin doesn’t do anything but it is a fun collectible which also has mining costs to track ownership” its value would plummet.