As someone holding 0 BTC, 15,400% makes me smack my forehead so hard you can barely understand.
That said, for people with 0 BTC who are licking their lips: "beware, past performance is no guarantee of future results" is a truism in finance. Make sure you understand everything you invest in.
If we wanted to give every person on earth some Bitcoin, you would end up with 0.00217700 which is roughly $2 dollars.
If you purchase a full BTC and it becomes huge, you could make your money back easily, but even if you purchase a 1/10th at $70, you would be well off.
I personally set up a weekly buy of like $10 and just move it from an exchange to a wallet I own. You do not need 1000 BTC, 1-2 would be a worthwhile investment if you're up for it.
Warning to anyone doing this: Bitcoin can be addictive, you buy your first half, then you want one, then you want two, then you want five and then you get ten... and then you sell your house.
The problem with this logic is that it assumes that Bitcoin mining security is still sufficient once we're close to the 21 mil limit- This is starting to become a tenuous assumption and likely some sort of currency demurrage will need to be instituted within the next decade.
I did not say Bitcoin would take off or be worth millions. I merely said the only bad time to buy Bitcoin is after every person on Earth has some, at that point, it may be too late.
Your investment philosophy is based on the hope that Bitcoin soars in value, possibly driven by some type of global uptake. Neither of those is going to happen.
Why would everyone on earth have Bitcoin? The vast majority of people don't have any non-cash assets, and many don't have any cash assets either.
Yes, because a digital method of making payments will never take off. Paypal would like a word with you as well.
> vast majority of people don't have any non-cash assets, and many don't have any cash assets
Think about it, it's a currency that behaves like cash virtually. You can transfer it anywhere that internet exists. Western Union would like a word here too. There's thousands of people around the world that are unbanked because of many reasons.
> Why would everyone on earth have Bitcoin?
They wouldn't.
Bitcoin settlement is 10 minutes. Try transferring money to another country and having it "ready to go" in 10 minutes with lower fees than Bitcoin. The business-to-business remittance market is worth Billions and that's not even counting customers.
> CXO at Fortune 500
I never subscribed to the whole 'It's going to take over the world', because it won't. However, the technology's upside cannot be denied and you should have the tools to analyze them as a CEO, CFO or CTO. The reason for "my logic" was to point out that there is no "bad time" to throw $5 into Bitcoin.
> Yes, because a digital method of making payments will never take off. Paypal would like a word with you as well.
I didn't say there wouldn't be a future digital method of payment. I'm talking specifically about Bitcoin.
Slightly off topic, Paypal is due for a challenger as well. It's aging gorilla in that space.
> Think about it, it's a currency that behaves like cash virtually. You can transfer it anywhere that internet exists. Western Union would like a word here too. There's thousands of people around the world that are unbanked because of many reasons.
There's no reason that has to be Bitcoin. In fact, Bitcoin has a number of problems that make it unworkable as a "world currency".
> They wouldn't.
You specifically said, "Before everyone has one."
> Bitcoin settlement is 10 minutes. Try transferring money to another country and having it "ready to go" in 10 minutes with lower fees than Bitcoin. The business-to-business remittance market is worth Billions and that's not even counting customers.
There's no reason a better platform won't arrive that works both within the borders of a country and across it's borders. Ten minutes per confirmation is a long time. For anything more than a pack of gum you probably want more than one confirmation as well (say at least 5 or 6 for an international wire transfer). That combined with the block size issue, global DDOS vulnerability, and history of Bitcoin companies either fleecing customers or getting fleeced by hackers means it's going to be a long road.
> I never subscribed to the whole 'It's going to take over the world', because it won't. However, the technology's upside cannot be denied and you should have the tools to analyze them as a CEO, CFO or CTO.
Being blind to the downsides and limitations is arguably much worse.
> The reason for "my logic" was to point out that there is no "bad time" to throw $5 into Bitcoin.
Throwing money in a bucket because "Something good might happen" is generally a bad idea. Larger amounts of money make it a bad idea at a larger scale. Being "Only $5/week" doesn't make it a better idea, it just limits the damage. If you're writing off the $5/week as a total loss and consider this pure speculation, then sure go nuts. But I wouldn't preach this as a long term investment recommendation to anybody.
Also, early December 2013 would qualify as a particularly bad time to buy Bitcoin though dollar cost averaging would handle part of that.
> For anything more than a pack of gum you probably want more than one confirmation as well
Actually, if it's a trusted partner, 1 confirmation is enough. Hell, if it's someone you do regular business with, 0 confirmations may even do it. Businesses that regularly transfer thousands across borders could do use this to settle transactions every night.
> There's no reason that has to be Bitcoin.
There's no reason it doesn't have to be Bitcoin.
> global DDOS vulnerability,
You can't DDOS the network since it's so far spread out.
> history of Bitcoin companies either fleecing customers or getting fleeced by hackers means it's going to be a long road.
There is an incentive to scam your users and for your company to be attacked. You get money immediately by just packing up and running or attacking a company that holds customer funds.
> You specifically said, "Before everyone has one."
Yes, the best time to purchase Bitcoin if it's in your "list" would be before everyone has one.
> early December 2013
There was only one Bitcoin sold at the high price of 1024. Current price is 700ish. Once we pass that 1024, there will be no time where it was a bad time to buy bitcoin.
> wouldn't preach this as a long term investment recommendation to anybody.
Depends on your definition of long term. I consider mine to be 5-10 years but I'm less risk averse than that the average investor.
You are comparing an investment with an expected value of -30% to another which could go either way. I'm struggling with the logic of how minus thirty is the better choice here.
It's tempting to describe bitcoin as "investing", but it's really gambling. I could say I bought $30K in lottery tickets and ended up making a few million off it, but I wouldn't call it investing.
It might sound like semantics, but too many people mistake gambling for investing and end up losing their shirts.
I made this mistake. Bought £1500 worth of btc a couple of years ago, and they've appreciated nicely. I didn't feel so clever during the year-long downswing, though. I've started putting most of my money in an index fund and only a small amount in gold each month (I'll probably start splitting my gold budget between gold and bitcoin at some point). I learned that investing isn't about making speculative bets but figuring out where your money needs to go to best fit with your life goals.
I was reading lots of perma-bear/libertarian bloggers, the type who predict impending financial apocalypse. I still think they have a case, which is why I still sock away some of my monthly savings in gold/btc. But I also now realise that you can't bet your entire future on one possible outcome, hence the bulk of my money going into the index fund. If I save up enough that it becomes worthwhile I might look into the Buffet strategy of individual stock picking (he says with a small amount to invest you can make superb returns in well chosen small-caps).
The difference is in expectation of return. In retrospect, bitcoin is a great "investment," but looking at the hundreds of other failed cryptocurrencies it's clear that early buyers of bitcoin got extremely lucky.
It's the same as seed stage startup "investing," which is likewise really gambling, and you either have to diversify heavily, get very lucky, or have the ability to influence the outcome yourself to win in the long run.
How is it "gambling" any more than, say, stock is? Because stock prices vary based on actual real events? Well, bitcoin prices vary based on actual real events as well.
Buying stock is buying interest in a company. Buying an individual stock certainly does have a significant speculative element, but in aggregate companies are expected to make money, and so stocks are expected to either increase in price or pay dividends.
Buying bitcoin as an investment is more like forex trading (in fact, that's almost literally what it is), which is zero-sum.
I would argue that buying a single stock is gambling, but buying into a fund, or taking the time to research and invest in hundreds of stocks, is investing.
I think he means you have to be careful with that kind of bitcoin wealth, especially if you store your bitcoins yourself. All it takes is one criminal to find this out, and there will be all kinds of people trying to get it. It's pretty trivial to break into someone's apartment and torture you till you give up your bitcoins.
Torture? It's possible but I'd lay long odds that in most cases a targeted phishing or malware attack would be both easier and cheaper — and far less likely to get a serious law-enforcement response. Someone being held captive for money would make the national news and the perpetrators would have a tough time heading for the nearest country without an extradition treaty; “rich guy shouldn't have clicked on that link” might not even make the local news.
Given the number of high-profile embarrassing security failures in the bitcoin world, I would not make that assumption. Defending against a skilled attacker is hard and there aren't many targets where someone can make that kind of money with as high a likelihood of success or little personal risk.
Congrats on the excellent returns. I'm just a spectator/occasional BTC user, but I love the crypto world.
We're in the middle of a shadow war/revolution being fought by many different actors using technology, legislation and ideology, and it's by and large happening under the nose of the everyday public without many of them realising. Fortunes, freedoms and lives are being won and lost, and underpinning it all is mathematics and computer science.
Every now and then I'm hit with a sudden feeling of living in the future, and it's things like this which trigger it.
Can someone help me understand how a network that can only do 3.2[1] transactions-per-second stand up as anything other than a speculative commodity? How can BTC possibly survive at such slow (and increasingly expensive) transaction speeds?
Roughly, you're paying the miners. They (half of them) have to mine your transaction into the blockchain and they could be using that time to mine. So your transaction competes against mining time.
That's roughly why it's slow and expensive. I'd never use BTC unless the kidnappers demanded it.
That "cost per transaction" chart is misleading. It includes the 25BTC per (roughly) 10 minutes that gets created and is given to the miners.
The actual transaction costs are way under a dollar, and it is, by far, the cheapest way to move the money, it's cheaper than the European SEPA, which is normally 0.9 EUR.
If you don't include the 25BTC in the costs, you're pretending that the electric costs of running all the bitcoin miners to 'secure' the chain don't exist.
Bitcoin is a very expensive and inefficient way of transacting.
Yeah, but the miners pay for it, not the users of the network. Thus, it is not a transaction cost, but yeah, it is the cost of running the network. You're confusing the two.
The cost per transaction is incredibly cheap, if you don't include the cost!
The 12.5 BTC per block is given to the miners as incentive to keep mining and verifying the transactions. Also, the cost of mining rapidly converges on 1 BTC per 1 BTC mined (both theoretically and in practice). Thus, that is actually the cost for the bitcoin system to process transactions.
(Ignoring for the moment the BIP66 incident and the discovery that many miners were literally not bothering to actually verify the previous block, in order to save a few seconds per block.)
Mining is done on ASICs while verifying transactions and building blocks is done on CPUs so they don't really compete. If a transaction includes fees, miners have essentially no reason not to mine it.
CPUs mining that transaction into the blockchain will be even slower than ASICs (100M hashes/sec vs 1G h/sec). Moreover, a LOT of miners have to do this work and it doesn't clear until the last one does the work.
This is slow. It's not cheap simply because it's done on cheaper HW.
They said CPUs are NOT used to mine and it's true. All (successfull) mining is done on ASICs.
Also, not every miner must do this work. The transaction "clears" as soon as ONE miner solves the puzzle then includes the transaction in that block. The other miners only have to verify it which takes a only a tiny fraction of the amount of work needed to solve the puzzle.
It is slow but it's almost always faster than international (as well as domestic for some of us) wire transfers. Also, there are a lot of people working to make it faster.
It's currently a pretty crap currency for most people in the world but it has potential to completely change the world. This potential is reflected in the market cap.
I'll agree the 12.5BTC reward is pretty high but that's spread out across all the users as a "group cost"
The network basically decides that providing the last 10 minutes worth of processing power is worth 12.5BTC and amount decreases every 4 years so the "group cost" will drop while the "individual cost" will rise.
This is why the "fees are high" issue has come up, Bitcoin just reduced the block subsidy to 12.5BTC as opposed to 25BTC, while in the 50BTC era, transactions were often free of any charges.
Even with all of that, an average user will pay less than the credit card fees charged to the shop so most shops would be wise to accept it, even if only to sell it for USD immediately.
The block reward "costs" the user only the amount by which the currency is devalued as a result of new coins being introduced (inflation). This cost is tiny and only getting smaller.
If you're also counting the costs of running the network, you should call up Visa and ask them how much it costs them for you to be able to buy a cup of coffee with your credit card. The number will be so much higher.
And eventually the rewards will vanish and be replaced with transaction fees of the same value. Right now you pay in terms of lost value due to the increased supply of coins. The cost of running the network is the cost of transactions.
Well, for one thing, this is an artificial limitation set in code. The only thing right now preventing them from upping that, is caution.
I believe, though, that there will be an upper limit transaction speed on a decentralized network which will be slower than that possible on a centralized network. This is why folks have talked about using bitcoin as an end-of-day "settlement" currency and doing the day-to-day in your local fiat.
Here's the thing- Bitcoin will thrive whenever the shit hits the fan somewhere (see: Venezuela right now). A currency controlled by no government* and weighing 0% of gold while being completely electronic, suddenly becomes quite appealing under those circumstances. Which then makes it a pretty good hedge.
* arguments about chinese miners controlling most of the mining market are allowed
The most important thing about off-chain transaction mechanisms - sidechains, Lightning Network - is that they don't exist. They've been trapped in development hell for years without any sign of emerging.
It obviously can't work for a lot of applications on its own. Another limitation is that blocks are only every 10 minutes, so you're at an hour wait for the recommended 6 confirmations.
Worst case, you could imagine most Bitcoin trading going through something like Paypal, which would have some advantages over USD (you can't print Bitcoin) but many obvious disadvantages.
Better though, Bitcoin has a built in scripting language that lets you implement more complicated logic on top. The lightning network is one way to do that, which coalesces payments into only a few on chain transactions, and allows instant confirmations, with the tradeoff that nodes must remain online part of the time (compared to Bitcoin where nodes never need to be online, other than to receive and send transactions).
> I think I pay about 11 cents per transaction. Way less than credit cards!
Yes but you're currently competing against a lumbering, outdated and over-regulated marketplace that's ripe for renovation.
What do you think will happen the minute these banks get real competition? They will update their network and make transactions cost 5c, or N-1 where N is the current BTC transaction cost. They will always be ahead because their limits are self-imposed and solved through simple software, not intentionally and computationally difficult.
And they already are! I can instantly send money to all of my friends with venmo paying no transaction fees. And I don't even have to argue with them about the inherent value of US dollars and the problems with fiat currencies!
What you said is true. Banks can always lower their transaction costs as they see fit(competitions) and beat BTC transaction fee anytime. So transaction cost might not be an advantage in such situation.
But people might still use BTC and pay up that extra cost because of its special property: true ownership.
Bitcoin remains volatile as hell. The market is seriously thin, with single large trades sending it up or down $30. The "price" isn't one, which is why the whales can't realise the supposed valud of their holding except in a dribble.
The actual use case is 95% speculation. Next is drugs, next is ransomware. Even the actual market use case (drugs) hate using Bitcoin and find it a huge pain in the backside.
Currency is a collective delusion. It's valuable if everyone believes it is, which is why precious metals trade higher than their usefulness in industry.
I don't think Bitcoin's delusion will last more than another decade. We'll probably find a way to design a delusion that distributes value "fairly" rather than to a class of nerd overlords. But until then, it's a fun story to watch.
Right, that's exactly my point. Bitcoin's only value is in the transactions it can make. If there are no transactions, there's no way for it to be a store of value, contra the GP.
Fiat currencies aren't technically any different, but you can use them to pay taxes and their value is insisted on by armies, which does count for something.
> Bitcoin's only value is in the transactions it can make.
Bitcoin's value is that it's
* Fungible
* Divisible
* Verifiable
(All qualities that gold has, but Bitcoin does them a lot better)
as well as being
* Stupidly easy to store and transport
* Extremely difficult/impossible to confiscate
* Not subject to devaluation due to an as-of-yet undiscovered deposit
> If there are no transactions,
There are, as of now, on the order of five transactions per second. How many times per second do you think people are trading gold?
> Fiat currencies aren't technically any different
Well, there's at least one difference; fiat currencies can be easily devalued by inflation. Gold can't be inflated by fiat, but it could be inflated by the discovery of a large deposit (or asteroid mining). Bitcoin can't be inflated at all, period.
> but you can use them to pay taxes
If you have an asset, you can sell the asses to pay taxes or court-ordered payments. The small friction involved in converting the asset to fiat money is factored into the price of the asset. (Incidentally, one of the benefits of Bitcoin is that it's less beholden to taxation than traditional clearing house/bank-held assets).
> and their value is insisted on by armies
I've seen this meme a few times, and I honestly don't understand how anyone can say or write this out and not think to themselves "Wait, this doesn't make any sense at all.". I'm pretty people started saying this as a joke.
What is this even supposed to mean? If I attempt to sell something for USD above a certain price, is the army going to kick down my door and threaten me until I place a higher value on the dollar?
> Gold can't be inflated by fiat, but it could be inflated by the discovery of a large deposit (or asteroid mining). Bitcoin can't be inflated at all, period.
Is this really true though? Couldn't a leap forward in quantum computing make mining BTC considerably "easier" and thus inflate and devalue the supply of BTC on the market?
Not as far as we know. Even with grover's algorithm, all hash algorithms in Bitcoin should still (probably) be secure. Even if there were a huge leap in processing power, the mining difficulty would increase automatically. Even if someone had infinite processing power, all they could do is mine the rest of the coins more quickly; there is still a hard cap on the total future number of coins.
Quantum computing has implications for the transmission of coins but has no implications for mining. There is no evidence that QC is going to make it easier to invert hash functions.
I thought so too, but SHA-256 should apparently be susceptible to Grover's algorithm, which would make mining O(sqrt(N)) instead of O(N).
Of course, a practical quantum computer would also likely break public key cryptography, so you could just take other people's coins instead of doing all that tedious hashing.
You can quantify how much the value of gold is through actual physical use value and how much is through mere speculation. So yes, 'using it in jewellery and circuits' is a perfectly fine explanation.
It's not a binary choice. Things don't have to be pure speculation or pure 'real' value.
People have been desiring gold for longer than documented history. It's beautiful to look at. It has inherent value, which is evident in the fact of it's desirable beauty and long history.
Even in worst case scenario that it's comparable in value to dull, metallic gray Rhenium for its industrial applications: $42 an ounce is better than BTC's worst case $0. You'll always be able to exchange gold for bread.
> People have been desiring gold for longer than documented history.
Yes, it's been around longer than Bitcoin. Not really sure what you're trying to indicate there.
> It's beautiful to look at.
Which is responsible for a very small fraction of its value. Most gold is not used in jewelry.
> It has inherent value
There is no such thing as "inherent value". Humans assign value to things. Most of the reasons that humans assign a high value to gold (fungibility, divisibility, unforgeability) also apply to Bitcoin, only more so.
I find a lot of engineers approach this topic so objectively. "Beautiful to look at? Pfffah! That doesn't compute, therefore it's incorrect."
Here's some additional benefits of gold:
* gold requires minimal knowledge to protect. To steal it you have to physically break into their home. They may be armed and they may kill you in the process. (My father can't protect his computer to save his life, but Lord save the poor soul who breaks into his home!)
* it's historically been very easy to trade gold for food.
* gold is worn on the body to show status and to look good. (Of course a software engineer is above such lofty extravagances which simply don't make sense)
* gold has industrial applications.
* you can look at gold and hold it in your hand. It's quite shiny and surprisingly shiny.
None of these things apply to BTC. Gold has inherent value because people inherently want it. Isn't 10,000 years of people digging it out of the ground evidence of that?
Either you didn't comprehend what I said, or you're intentionally being obtuse; I love the aesthetics of gold as much as anyone, but that simply does not account for the price of gold from an economic perspective. The vast majority of gold is sitting around in vaults, not being looked at by its owners.
> gold requires minimal knowledge to protect.
That's true, but you also can't protect it very well. Governments have a bad tendency to take people's gold away at certain times (even the US has done it before), and good luck protecting against that. It's not exactly hard for standard-issue thieves to get away with either. Bitcoin may take slightly more effort to protect, but you get a lot more for your effort.
> it's historically been very easy to trade gold for food.
You're just re-stating the fact that it has value.
> gold is worn on the body to show status and to look good.
Yes, this is one use of gold, as I already mentioned, and as I also already mentioned, this only accounts for a small fraction of gold's value.
> gold has industrial applications.
While true, this again is a very small market compared to the use of gold as a value store.
> you can look at gold and hold it in your hand.
That's true, and convenient, but hardly a necessary feature of a store of value. I can't hold in my hand the money in my bank account or my copper holdings. I still value them.
> It's quite shiny and surprisingly shiny.
OK, I think you have a repetition problem.
> None of these things apply to BTC.
And none of them are particularly relevant.
> Gold has inherent value because people inherently want it.
People don't "inherently" want it any more than they inherently want rubidium. It's just a metal; and yet, due to a confluence of circumstances and the network effect, it's subjectively very valuable for pretty much everyone.
> 10,000 years of people digging it out of the ground
You're repeating the fact that gold has been around for a long time.
Card transactions also take days to settle, cost orders of magnitude more in interchange (depending on the value transferred), and can have significant chargeback risk.
When you buy a new $2,000 MacBook, for example, you're paying $20-40 in extra interchange (after your card rewards!) for that protection. While I agree it's worth it in a lot of situations, in other situations it would be nice to be able to opt out.
But if somebody else steals my credit card I can still get a $2000 fraudulent charge reversed. BTC is created intentionally to prevent that from happening. Theft is your money being gone forever.
Actually that's not really true, as we've seen with other crypto currency the stakeholders can simply vote to fork and thus invalidate the transactions of every other person.
But it's much more difficult to steal my Bitcoin because I don't go around typing the private keys in plaintext nor are they printed on a plastic card I carry around in my wallet.
Credit cards need velocity limits and insurance and fraud checks and all that stuff mostly because their actual security is godawful.
Anyways all I'm saying is that for certain people and certain transactions, Bitcoin is superior to credit cards. For everything else there's Mastercard.
My company receives money deposited into their account the same day the charge occurs. While it may take days to settle with the merchant provider, they hide that to us, the end user.
I have some tens of thousands of dollars in bitcoin, and I keep track of all the Bitcoin/Blockchain news because I do think the technology has potential.
However my impression after following all these "bitcoin influencer" people on Twitter is: all they talk about is how Bitcoin will take over the world, again and again, and again, and again.
They don't even try to come up with a new spin. It's always the same message, they basically write blog posts and articles about how Bitcoin is a game changer, yada yada.
I expected to gain some insights following these people, as in they would actually come up with some fresh ideas, etc. But no, all they do is just the rehash of the same stuff.
It reached the point where I feel like I'm going through the movie "groundhog day", so I unfollowed all these people and only follow a couple of bitcoin related blogs.
Seriously, the circle jerking in the bitcoin community is too excessive.
Anyone who is involved in the "bitcoin community" has a vested interest in seeing the price increase. You're never going to get critical or even neutral information from someone with such an obvious conflict of interest.
This is what I don't really get. If you want BTC to make it as a currently, you shouldn't want it to gain value in such a sudden way. I guess the fact that they all have a position book makes that irony clear to me.
The problem is speculation. Since it's an "open currency", the price is set by the market.
If every exchange says $1000, then you won't want to buy my Bitcoin for $1200. Supply and demand can cause issues.
For example, Bitcoin rose about 15% when Donald J Trump was elected since he said he wanted to tax remittances. Guess what? You can't tax something that's not controlled by the US government.
Of course you can. You can tax it at the exchange, when it becomes something controlled by the US gov't. And you can tax companies selling products or services for BTC.
No, but Mexico can tax it for Mexico. And then there are international agreements. Any state would love to tax anything that moves and bitcoins are no exception.
Yes! This! For actual, practical use, you want price stability. Bitcoin supply grows steadily at decreasing rate. So the system is somewhat deflationary, by design. But the bubbles have been caused by speculation, and outright fraud. I've read that Mt Gox (or someone who compromised it) caused the bubbles in 2013-2014.
It's not. I use bitcoin to pay for a few online services, including my hosting. I love it. It would be absolutely awesome if bitcoin succeeded, even if the price remained the same (I know it's mathematically impossible, but still). A currency that no single government/entity can stop or freeze. A currency that no government can dilute. It's kind of like digital gold, except the amount of gold in the universe is practically unlimited.
There's this SMBC comic [1] that brought up the fact that no matter your position or opinion on a subject, you can always find something to support it on the internet. When people compare growth graphs to made up cycle/hype graphs I feel it's a little bit like this; the comparison ends up uncanny because you, perhaps subconsciously, looked for graph that matched a certain narrative in the first place.
There are many ways to interpret what data says, so it's easy to fall into this trap, all you need is a certain preconceived idea and suddenly all you are looking for is confirmation, which you'll always find if you look hard enough.
The bitcoin price up or down doesn't correlate with "bitcoin taking over the world". It could crash down to 0.5$ and still takeover more of the worlds transactions. What matters is this graph https://blockchain.info/charts/n-transactions?timespan=all
Indeed. It would be one thing if he had similar plots of non-crypto-currency market cap. over time, but as far as I can tell this graph is completely unique to bitcoin.
Analogies are dangerous, but I don't think we have seen either the "peak of inflated expectations" or the "trough of sorry" yet when it comes to bitcoin.
That is true. As a heuristic, I think the hype cycle is useful just to stand for the idea that "important work gets done often times when the market has given up". It is not useful to say "[insert your asset here] has recovered from a slump, so it is all good now".
Bitcoins have no value. Nothing is more an indication of quantitative easing and bubbles and so forth than Bitcoin. A $12 billion market cap, as worthless as the $12 billion valuation of some unicorns.
Warren Buffett and Charlie Munger have both been around 85 years and know when something has value and when it doesn't. "Rat poison" is what Munger calls Bitcoin and Buffett also notes their worthlessness.
Why does a Bitcoin have value? There is no answer to this question. They're as worthless as Ponzi's postal reply coupons. One day, like Flooz and Beenz and other worthless "electronic currencies" before it, Bitcoin will come crashing down into worthlessness.
It's surrounded by scammers - Mt. Gox, Butterfly Labs was raided, on and on. That should tell you something.
> It's money (a currency). Money has value because someone says it has value and someone else agrees. Congrats, bitcoin has value!
Commodities have value. Until 1971 in the US, US currency had implied value because it could be exchanged for a commodity - gold, which the US has thousands of tons of in Fort Knox and other places. Then in 1971, Nixon stopped the exchange of currency for that gold.
But the tons of gold are still in Fort Knox. Why? Why store thousands of tons of gold? Obviously it is still backing the currency. Any currency panic can be ended by starting the conversion back up. US currency went from an implied conversion to an implication of an implication. It is still backed by those thousands of tons of gold though, although not explicitly.
Bitcoin is backed neither explicitly nor implicitly by an useful commodity.
Your second paragraph seems to be heading in the direction that bitcoin doesn't have value because it lacks the robustness of being backed by a useful commodity. This is only vaguely less than orthogonal though. The robustness of a currencies value, while related, is not the same thing as the value of said currency.
If the gold disappears tomorrow dollars would not become worthless. People would still use them as value stores which can be exchanged for goods and services (despite a lot of questions about where the gold went). Similarly, Bitcoin is (now) exchanged for goods and services which have value.
Then comes the interesting question of "why is gold valuable?". If we assume the apocalypse and you have gold and I have guns, bullets, and canteens you could bet your boots I'm not interested in trading.
If you're certain bitcoin is valueless AND you're right I urge you to continue convincing me. This could be one of the best short opportunities since the housing crisis of 2006.
Gold is a commodity has value because it can conduct electricity, fill teeth and so forth. Historically it has been used as a currency because it is portable, uniform, divisible and durable. It has had value for thousands of years, through many of the calamities of history. Guns tend to have many laws with regards to them, and lose value over time - the muskets of the late 18th century are near worthless except as collector's items.
Commodities have value due to their utility. Dollars were useles in 1968, but you could exchange them for a useful commodity. The value was implied. With the exchange cut off, it is an implication of an implication.
It possibly could survive even more indirection. The US government could begin emptying Fort Knox gold ton by ton, implying it would tax or somehow get commodities from taxpayers or traders if necessary to back the currency. Then it becomes even more abstract. Right now a currency panic could be stemmed by simply turning gold convertibility back on. Gold has no magic properties, it just has the qualities of a good currency (portable, divisible, durable...)
Germany used to keep the majority of its gold reserves outside Germany. In 2013 it began pulling this gold back to Germany. Why? Why bring it back now? Why have gold reserves at all? In the industrial countries, paper currency was exchangable for a useful commodity until around 1971 when the US closed the window, which is around when all countries closed the window.
Also, currencies have what is probably a 10,000 year history, perhaps even longer in some form. What is called fiat money has existed for at least 900 years. Other financial mechanisms of this type have been around longer. The desire of governments to go into debt, to run printing presses and have the paper which comes out have a price, is not new. Our current system has existed for less than half a century, and in my view won't outlast panics, wars and such. Which has a simple meaning - at some point in the future, the US or Germany or some major industrial economy will be forced to open its gold window again to stem some future panic.
> but you could exchange them for a useful commodity.
That sounds useful though. That sounds like dollars have (or represent or store) utility.
Really, it sounds like you're making the point that Bitcoin isn't a commodity and is therefore valueless, which I have a tough time agreeing with (the marketplace also currently disagrees with the idea). Neither real-estate nor services are a commodity and they both have economic value.
If that's not your point it seems that there is a misunderstanding of what "useless" and "has no value" mean in the context of describing Bitcoin (and dollars?), and that we've not come to terms on what those phrases exactly mean so that we ensure we're examining the same set of thoughts built with the same set of words.
You don't see intrinsic value in bitcoin as a commodity. But what if I told you that controlling bitcoin token gives you right to make a new data entry in a global, immutable ledger which cannot be censored and does not have to be maintained by a 3rd party. This can be used for example to do proof of existence, proof of publication or storing hash of important information "forever" (book keeping). This definitely has value for some. And this useful property is to bitcoin as conductivity is to gold. It does not dictate its monetary value, it determines its lower-bound value as a digital commodity.
A Bitcoin has no inherent value. The only value attributed to Bitcoin is that someone, somewhere had to spend electricity to create a Bitcoin.
Sort of like when you eat in the morning, go to work and get a paycheck, your work has value.
Now, is the Bitcoin price crazy? Maybe a little bit, but it's reacted very strongly to the Donald Trump election since it's considered to be alternative to existing remittances that cannot be taxed (IE, remittances to Mexico).
Now in regards to your scammers, Mt Gox was the only exchange and you know 'power corrupts... I forget the saying'
Butterfly Labs got raided because they took a lot of money from the community for mining gear and delivered nothing.
The scammers do tell me something. In my view Bitcoin has some real utility and 'value' precisely for the same reason that it attracts so many scammers. As long as people want some form of digital, hard to track, irreversible way to exchange things that can't be duplicated then Bitcoin will have some value. Drugs, guns, donations to political organizations, scamming, etc etc. Those are big forces with a fair amount of market value; If Bitcoin is the best way to trade in them then of course it will have value.
Bitcoin and other blockchains are not currency, they are platforms and infrastructure. Currently, Bitcoin doesn't have a lot of intrinsic value, but as more and more core services (DNS, identity, etc...) migrate over to the blockchain/s it will eventually increase its value and come out of the _initial_ speculative phase.
The blockchain is essentially a globally distributed transactional log, that allows you to build things that require synchronization and consistency, it just so happens that moving assets is the most obvious application.
Currently it's pretty slow, but work is being done, specially in ethereum to speed it up. Things like proof of stake over proof of work as well as sharding should make it a lot faster, and capable of processing several thousands of transactions a second. Ethereum is also the next step in the evolution of the blockchain, with the addition of a Turing complete virtual machine it is now possible to execute arbitrary code and have a truly programmable block chain. This allows it to be used for virtually anything without having to roll your own blockchain, for example you can program a truly distributed naming system that would allow alyisyng anything out there to human readable names, from IPs to to arbitrary hashes in a distributed file system, or even fisical people, granted they have a virtual presence of some sort and and a unique hashed handle.
The other important aspect of it is the possible symbioses with the distributed/decentralized web or web3 or next web. Decentralization seems to be the theme for the next several years, and I personally am extremely optimistic about some or all of it becoming real and currently actively trying to contribute to it in any way I can.
However for decentralization to become economically vaiable an intrinsic way of incentivation is required and this is one more place where the blockchain will be what makes it possible.
To sumarize:
* Blockchain is a platform not a currency
* It enables synchronization on a global distributed scale
* "Next web" and blockchains go hand in hand. On the one hand providing the backbone infrastructure required to run some critical parts of web3, on the other providing a transparent digital aset management system which you can build incentivation on top of.
On a side note, I wouldn't necessarily trust Buffet and company on this one, for one, it requires a pretty good understanding of the technologies involved to be able to make any sort of informed prediction, and I'm not sure if you can perform any sort of typical fundamental analysis on it at all, which is a common practice in his business line, and yes currently the bitcoin price might be somewhat speculative, but that will change as more and more core infrastructure relies on it.
As for scammers, raids and etc... That's pretty common in a nascent complex and deregulated environment such as this, remember the WWW at the beginning ;)?
