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0 pointsericb12y ago0 comments

There is generally nothing anchoring the value of any asset trading above the costs of the inputs required to make it.

For example, any real estate with a premium for its "better location," suits by Armani, sunglasses by Gucci carries a similar premium. This applies to gold as well--a huge part of the value is the expectation that others will continue to like shiny things.

Nothing anchors their price, or premium, other than a system of social beliefs and expectations. Specifically, beliefs about how others will perceive them are all crucial in how people value these items.

The same is true for bitcoin. It starts with a belief that others will also prefer to store value in currency with a higher utility--storable with no fees, and instantly transmissible lower fees--lower friction. It isn't so much the greater fool theory as it is the starting of a journey toward a Nash Equilibrium. But first everyone has to come to a belief about how they, and others view the currency. http://en.wikipedia.org/wiki/Nash_equilibrium

Once this has happened and additionally the markets have become more liquid, things can level out. Right now, the world-brain is confused about how it feels about bitcoin.

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nayefc12y ago

Unfortunately, it won't.

Money supply is a function of many things that an authority needs to control as an adjustment lever for the economy. A currency with a scheduled-deflation is not the solution.

There are no problems with our currencies today. This is a solution to a non-existent problem. We have problems in the finance world that Bitcoin does not solve.

For example, regulating how money supply can adjusted, or lending & risk.

How do you expect to operate a modern economy with Bitcoin when the whole concept of lending and credit will never exist (due to the shortage of the money)? What about in 50 years when the population goes up and we'll need more money in the system?

The government will never collect taxes, or issue bonds, in a currency that is not a function of the current state of the economy (but a function of time), and one that is scheduled to stop issuing any more "bills" (coins) at some point.

ericbOP12y ago

I guess the reason I don't give this argument any weight is that it is a theoretical argument about money supply and governance when the decisions to use this currency or not are made by average joes who decide whether it is in their self interest. I understand your argument as essentially saying that this currency will cause a tragedy-of-the-commons problem.

The thing is, I think that acknowledges that its popularity is inevitable--tragedy of the commons can only arise when people see something in their interest that is detrimental to society. But as an average joe, given a variety of assets, some deflationary, some not, storing my wealth in the deflationary one is in my interest.

The government never has to use it. I can always convert a small portion of my increasing-value bitcoin holdings into inflationary fiat at the last minute to pay the bill.

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