> ..., ignoring that the ability to independently verify the money supply and being able to transfer money across political boundaries without censorship is probably the most important intrinsic value one could hope for in a MoE/SoV.
So, here's what I don't get about Bitcoin. Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
To me the "value" and the "price" of Bitcoin seem to be completely unrelated, and that makes me skeptical that it is an investment.
It feels like investing in a hammer -- I love what a hammer can do for me when I want to hit a nail, but that doesn't mean that the price of a hammer should be related to the house I can build with it.
> But those capabilities exist whether a Bitcoin is priced at $1 or $25,000
This is simply false. If the value of Bitcoin was $1, you would not be able to store or transfer large amounts of wealth with it. Based on current circulating supply (not accounting for lost coins) the market cap at $1 per Bitcoin would be $18,590,606. At that market cap, there's simply no way to store/move a billion dollars, because there just isn't enough value in the network.
Price going up makes the network more valuable, which allows you to store and transfer more money. Since money storage and transfer is the whole point of bitcoin, price is actually a very important feature, and a proxy for the usefulness of the network. Currently you can store and move billions using the Bitcoin network, and I believe within the next 5-10 years you'll be able to store and move trillions.
> So, here's what I don't get about Bitcoin. Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
Higher prices means Bitcoin is capable of moving bigger capital. At $1, you can't move around $10m worth of bitcoin (that's like half of the possible supply). At $35k, moving $10m and trading it is a piece of cake. $10m liquidity is available in many markets now and do no move the price.
Since the supply is limited, the price is just a gauge for demand.
But BTC will never be the best or only way to do that, so once it actually is priced to a real function (transfer capability) it won't be scarce or unique. You can print an infinite amount of alternative coins or stable coins (or even other services without crypto at all) to do transfers including intl transfers.
"BTC will always go up as demand for it will always go up" is nicely self reinforcing as long as it is believed by enough to be true, but the price can go to $1 without issue once it is not.
But since it seems quite likely to at least 3x or 10x or who knows before that sad end occurs, I'm not exactly recommending you short it.
> Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
Isn’t that just because there is a limited supply of bitcoins and lots of people want to buy them? Just the same as saying that an expensive fast sports car is great, but would be just as great if it cost $1.
But is there really a limited supply? A second bitcoin chain with the same rules but a new genesis block would provide the same technical capabilities. The limiting factor is just the willingness of people to spend compute mining original bitcoin vs this hypothetical second chain. If we collectively wanted to, we could create an arbitrarily large number of bitcoin-like tokens
You'd have to convince the whole ecosystem - miners, exchanges, wallets, buyers, sellers, etc. - to switch over. It's the same network effect that protects Microsoft or Google or Facebook or even Nike: changing peoples' behavior is hard, and in general beyond the resources of new entrants unless the incumbent really screws up.
(Arguably, Bitcoin's rise is precisely because of the incumbent really screwing up. If someone created a new currency in the 1970s or 1990s - and people did - folks would laugh at them. It's only because trust in the government and mainstream financial system is so low - and the Fed continues to print trillions of dollars to paper that over - that Bitcoin has gained a foothold.)
"If we collectively wanted to..." is never an answer. People don't make collective decisions, they make individual ones. Adoption requires convincing lots of people, individually, that your new solution is better. You can get a boost from peer pressure, but you have to start the flywheel going yourself.
You don't need to convince miners at all. If BTCs future is in using it, it has to convince the future companies and stores to not use other coins or services. Or to a buyer today to still have as much demand even after the speculation is gone (which is currently its main/only function).
Wallets, miners, etc won't really matter at all if Square and Amazon etc have a plugin that uses a stable coin of each currency along with BTC. The world will have infinite transfer capabilities of other "scarce" non-fiat and fiat pegged coins without BTC (including other electronic currency based services).
> You'd have to convince the whole ecosystem - miners, exchanges, wallets, buyers, sellers, etc. - to switch over. It's the same network effect that protects Microsoft or Google or Facebook or even Nike: changing peoples' behavior is hard, and in general beyond the resources of new entrants unless the incumbent really screws up.
Quite a few projects have tried exactly this, and none of them have succeeded. What makes you think your attempt would succeed?
That's my point - the thing that makes bitcoin "scarce" is not that there is a fundamental limit to the number of bitcoin-like tokens that exist, it's just that there's inertia against creating more.
I don't mean "if we collectively wanted to" to suggest that people will just up and choose to do so tomorrow, only to say that it's that lack of collective will, rather than true scarcity, that restricts the number of bitcoins.
And not only that. Once the last block is mined, the only revenue for the miners will be transaction fees. If anyone insists on a large future valuation of BTC, it follows there will be massive future transaction fees. Massive transaction fees dissolve any advantages stemming from network effects.
Indeed there are already many forks of bitcoin and alternate cryptocurrencies like monero, ether, etc. It's fascinating how people assign value to an asset created out of nothing that will never show revenue.
Makes you wonder if you could get people to buy shares in a company that promises no revenue but markets itself as "exchange traded gold".
> It's fascinating how people assign value to an asset created out of nothing that will never show revenue.
The USD is created out of nothing currently and does not show revenue (if anything, the US government only creates massive debts that will have to be paid in the future thru massive taxes hikes, or inflation, or both). The only reason why the USD has any value is because it's the single piece of paper that is authorized as a currency in the US, and that people 'trust' it somehow (especially outside of the US). The day the trust is gone, it will be worth absolutely nothing.
Well as a citizen of the US I also have to pay taxes with it, giving it at least a small amount of utility that other objects do not have. But in general this is true, yes.
There are tons of crypto forks that have essentially no market value. How do you explain that, if anyone can simply create more value out of nothing? It seems clear that this is not what is happening.
People have created hundreds of “bitcoin-like” tokens. Go look at coinmarketcap.com. They aren’t fungible with Bitcoin though. It seems Bitcoin has maintained much higher demand due to its first mover advantage and network effects. The other coins don’t seem to offer a compelling reason to pay the very high costs of having everyone switch over.
I think it is sort of similar to why gold stands alone among the precious metals as the biggest one that people hold onto purely as a token.
I don’t really know what the long term picture is though. Or whether Bitcoin and friends are a “good thing” at all.
Indeed, the value of actual bitcoins relies not just on the theoretical capabilities of the software, but also the fact that lots of computers are actually running that software. I don’t see that as surprising or paradoxical at all.
> Why are those capabilities enough to drive the price of a Bitcoin up?
The market values those capabilities because it is the only asset in the entire universe of fungible assets that has that feature.
A) Bitcoin's ability to support that assurance is tied to the consensus model of bitcoin. The harder or more expensive it is to change anything at all let alone contentiously, the greater amounts that people will want to store as bitcoin.
B) Other market participants value other things about bitcoin, or at least demand it. So there simply is a market.
It's only scarce when it isn't very useful and the market has little real adoption, as now, where the only real reason 99% of people have it is speculation.
If we actually needed a lot of cross border transfers, you can print an infinite amount of different coins/systems to duplicate that function (this is ignoring BTC actually has more money printing via Tether than any other "currency"). This isn't even including just having new systems for moving electronic US dollars around in Apple wallets etc, and cashing into local currency as needed through other services.
Bitcoins "real" value is a storage of value, which is currently based on speculation desires of holders, which in theory could hold forever (or at least longer than you can remain solvent as a short or long enough for you to 10x or 100x so who cares) but could also disappear forever and not be missed once gone.
The only moat is belief, which really who knows if that is sticky or not. There is no tangible functional moat.
>you can print an infinite amount of different coins/systems to duplicate that function
But what does it take to bootstrap trust? The idea of conjuring instruments to move money has a long history. I found value in knowing that such a system already exists: Hawala[0] which means "transfer" or "trust". Its existence clamps, in my mind, the possibilities of the "how do we make value transfer systems" question. The Bitcoin network with its proof of work clamps the other side of that question. In some way, the altcoins and other various systems of payments exist somewhere between these two systems.
Bitcoin's current speculation is based on the theoretical "it'll replace fiat", otherwise what other utility does it have?
Gold technically can be melted down to be used for jewelry, wiring, etc. so in theory it would never go zero. If BTC doesn't work out and no one ever uses it to transact, then in theory it can go to zero.
Hammers should cost $10, but it is new invention and not everybody is convinced yet. Early adopters are selling hammers for 0.03$ waiting for more people to want to buy hammers.
Also, there are multiple factories producing hammers and there is no one entity to tell others what hammer price is/should be.
Bitcoin is deflationary (fixed supply) and cyclic.
If the world economy were held in fully minted bitcoin, each bitcoin would be worth ~$4.2 million USD.
Investing in bitcoin is like investing in abstract gold without an industrial or art use fallback. Rather, the transfer across boundaries piece is the fallback, the actual goal is to claim a deflationary estate and then get the world to use the medium to drive up value. Of course when popularity really increases fees will have to counter the rate of deflation, which will roughly equal economic growth, or nobody would ever trade out of it, and at the point it's the real collapse.
It's inflationary, since more bitcoin are mined every ten minutes or so.
Sure, the code says that it will stop when 21 million are mined, but there's no real guarantee that the code won't change before we reach that point. Or, the blockchain might fork (again) and now there are double the coins.
If you don't trust a coin to operate according to your expectations (e.g. a 21M limit), you can verify the source code and/or run a node yourself. This way you can yourself guarantee that all transactions happening on the network (that your node is part of) operate according to rules that you agree with.
There are already multiple forks of Bitcoin, yet it doesn't seem to change market's perception and valuation of the original Bitcoin.
It's inflationary, since more bitcoin are mined every ten minutes or so.
That's not how it works… think about it.
How can bitcoin be inflationary when the number of coins being produced decreases every 4 years?
There's a fixed supply—over 88% of all the bitcoin that'll ever exist have already been mined.
Yes, every 10 minutes or so, 6.25 new bitcoin come into existence but every 4 years, the block subsidy is cut in half and will continue to be cut in half until the final block is mined. The next halving is May 7, 2024.
Sure, the code says that it will stop when 21 million are mined, but there's no real guarantee that the code won't change before we reach that point.
There's over $500 billion (and growing) in market capitalization that is based on the limit being 21 million bitcoin and not ever changing. This was already litigated by the bitcoin community.
Or, the blockchain might fork (again) and now there are double the coins.
Again, this isn't how it works.
There could be dozens of forks; that doesn't matter. Only the longest chain with the most work on it matters. All of the hashing power would continue on the one true bitcoin chain while the forks languish.
Bitcoin is open source; anyone can download the source code, make a few changes and launch a new chain. But it would get virtually zero support.
You may not be aware of the number of bitcoin forks that have been attempted and failed… Bitcoin Cash, Bitcoin XT… you might want to do some reading: https://www.exodus.io/blog/bitcoin-fork/
The limit could only be changed through consensus. It‘s s democratic process. People holding BTC would have no incentive to devalue their own holdings, so they are unlikely to agree with raising the limit. This is why people treat the 21M cap as fixed.
So, here's what I don't get about Bitcoin. Those capabilities are great. But those capabilities exist whether a Bitcoin is priced at $1 or $25,000. Why are those capabilities enough to drive the price of a Bitcoin up?
To me the "value" and the "price" of Bitcoin seem to be completely unrelated, and that makes me skeptical that it is an investment.
It feels like investing in a hammer -- I love what a hammer can do for me when I want to hit a nail, but that doesn't mean that the price of a hammer should be related to the house I can build with it.
What am I missing?