Assuming Bitcoin can not be hacked or whatever term fits, I have heard the reason for people valuing Bitcoin was there will only ever be so many of them, the quantity is known and this may be more valuable then gold, which is ever increasing as more is mined.
My question is even if Bitcoin is ‘secure’ and of fixed amount (some still to be issued), is it unique? In that can’t someone else make a similar currency which is equally secure and of fixed amount. Thus ending it’s uniqueness and fixed quantity?
There are a number of competing block chain currencies already. Although one or more (including Bitcoin) could potentially lead to one becoming a millionaire, it is way too much a risk for (risk-averse) me. Of course, that’s probably why I will never be rich.
Yes I know there are other cryptocurrencies, but my question is that the claim that Bitcoin is of limited quantity but anyone can also create such a ‘currency’ does that really mean that ‘bitcoin’ is really of unlimited quantity (as it is just one in a field of many of the same thing)?
The answer to your first question is, the (only!) value of a Bitcoin is whatever someone is willing to give you for it. Indeed the supply is finite in the sense that there is are a total of however many “coins,” but these are just decimal numbers that can be subdivided. Which answers your second question: the point of the exercise, according to the original paper, is that no entity, say a central bank, can create more of them. You can (and people have) create “similar” coins, but the main network will not accept them as Bitcoins. It is unique in the sense there is a canonical list of Bitcoin transactions and incompatible changes (eg increasing the supply of coins) would have to be implemented by every single user upgrading their client program.
But of course a fixed supply of bitcoin (or anything else) only results in ever-rising prices if demand is also ever-rising. And I think the question raised by the OP is basically this: Bitcoin is a cryptocurrency. There are many cryptocurrencies, and no limit to the number of cryptocurrencies that can be brought into existence. Why, therefore, should we expect demand for Bitcoin to be ever-rising? What purpose can Bitcoin be applied to that cannot be served by a different cryptocurrency? Is the finite supply of Bitcoin meaningful when there is a potentially infinite supply of alternatives-to-Bitcoin?
Does the fact that bitcoins have a limited supply make it unique? No. Plenty of things have limited supply (Picasso paintings for example). Does it make it intrinsically valuable like a Picasso? I don’t think so. Bitcoin isn’t a ‘thing’, it’s a medium of exchange. There is no difference between owning one bitcoin or a percentage of a bitcoin, other than price. Anyone can own a percentage of a bitcoin by buying it, it will always be available. Bitcoin is a brand of currency and it’s the first and best known. Being first has value.
The other cryptocurrencies all use a different means of producing their “coins.” They are also completely separate, and thus have their own separate value. Each one is its own currency, in the same way a US Dollar and the Japanese Yen are different currencies.
The limited nature of Bitcoins is really only useful in the sense that is creates an increasing barrier to entry over time. The fewer coins there are left, the more it costs to produce them, so you don’t accidentally produce a duplicate. This functions in the same way that a government has a monopoly on creating money.
It is also a potential downside, though. Right now, while cost has gone up, the value of Bitcoin has risen enough to compensate. And, to remain solvent, better methods are created, which decreases cost. (They also move to cheaper countries.) But if Bitcoin were to ever not rise enough to cover the cost of “mining,” then the incentive to create them goes away.
That’s not to say that an economy can’t still exist once the supply is set. But it changes the dynamics considerably. I’m not sure entirely how it works, but I would assume it would have some of the same problems as when we backed currency in gold or silver, which also have limited supply.
Those other currencies won’t be bit-coin. Your question is a bit like asking if the US dollar could be brought to its knees by the Canadians printing more Canadian dollars. Or by every other country changing the name of their currency to dollars. Those other currencies would lack the history of the US dollar, the backing of the US government and economy, and they wouldn’t automatically be accepted by everyone accepting USD.
Now bitcoin has, at least for now, established a value for itself based on all its qualities (and a lot of optimism). New cryptocurrencies may influence how we perceive some of those qualities, but the limit to creating new bitcoin is not one of them, at least not in the way you’re thinking.
Nothing is stopping you, or anyone else, from creating another social network. A better social network, even. What makes Facebook special then? The network effect.
Everybody uses Facebook. They could switch to Myspace, or SnapGram, or something brand new. But the main draw of a network is that the people you want to network with are already on it. Which causes a chicken and egg problem. Nobody wants to use the new network until everybody is on it, which they won’t be, because they don’t want to use it until they are. So everybody sticks with Facebook. It’s the same issue with Bitcoin.
Well, not quite. Right now Bitcoin is not really a currency. It’s a commodity. Which means nobody is using it to buy stuff, except dollars. It’s entirely possible some other cryptocurrency will be the one that markets and shops start accepting in exchange for goods and services. But once that happens, that’s when the network effect takes over. People won’t want to use other crytpocurrencies because stores won’t take them. Stores won’t take them because nobody uses them.
Right now Bitcoin is the most popular cryptocurrency, which makes it likely that when stores start accepting crypto (and some of them already do, just not very many), Bitcoin is what they’ll take. But that’s not a given. Perhaps one of the others will take off in popularity, or a new one will be invented that people like better. Which is a big part of the risk you take when you invest in Bitcoin today.
People value Bitcoin because they value Bitcoin. As an actual currency it’s horrible. Aside from the fact that it’s accepted nowhere, imagine if you used Bitcoin to purchase a pair of socks a few years ago. I’m pretty sure those socks didn’t increase in value 1000%
An alternative to Bitcoin type cryptocurrency is something like Tether. A block chain currency pegged (or tethered, get it?) to the US dollar.
On the one hand you don’t have to worry about wild swings in value outside of the US dollar’s motions, on the other hand … well, you’re going to need a lot of other hands.
Firstly, the company behind it has had issues. Secondly, for the real dollars it keeps to pay for cashing out the currency banks keep cutting them off so they have to shift banks all the time. Thirdly, if you’re legit just use real banks with real money transfers. Fourth, they don’t have to keep in liquid reserve all the value of the total currency, just enough to pay foreseeable redemptions. (Insert George Bailey speech here.) Fifth, do you really trust these people to safely invest the non-liquid reserve money?
Nonetheless, in certain ways Tether looks a lot more solid than Bitcoin. Think about that.
To the OP’s contention I’d say that some Bitcoin cheerleaders make much of the fact the supply is inherently limited. And may be further limited (ref BigT) if the cost of production starts to outstrip the value.
As long as Bitcoin is a fungible commodity vs the other cryptocurrencies as speculative commodities, both current and future, then that limited supply is mostly puffery. It’s factually true, but it’s not a major underpinning of the dollar price of a Bitcoin.
If/when Bitcoin becomes an actual widespread medium of exchange ahead of almost all other competitors, then the limited supply will certainly underpin the dollar price of a Bitcoin. To the point of leading to runaway deflation.
Oddly enough that’s one of the largest obstacles to merchants and consumers adopting Bitcoin as a currency instead of as a speculative commodity. Somehow the cheerleaders keep forgetting to mention that part.
Said another way, Bitcoin may well continue in its runaway speculative bubble until the moment the world notices Bitcoin has priced itself out of being an actual currency and something else has started to successfully fill that niche. At which point the price of Bitcoin will crash to zero dollars as fast as the market figures this out.
Late add:
IMO the deep association between Bitcoin and illegal or black-market merchandise will prevent it from ever overcoming that Original Sin. Applepay or Google or Chase or somebody will invent a white-hat currency that will displace Bitcoin completely from its small toe-hold in the legit marketplaces. That won’t be good for Bitcoin’s dollar price when it happens.
Even after that there may still be a demand for a black-market currency. Which role Bitcoin may fill. But only as long as the governments of the world choose to let it exist. And as long as some major hack doesn’t raid the major wallet supplier(s).
Bitcoin transaction fees have been soaring along with the dollar value. It now costs well over $20 to process a single bitcoin transaction, and even then it takes a few hours.
This problem is getting steadily worse, and there is no solution in sight. Bitcoin is simply not scalable to handle a high transaction load. This is why Bitcoin can never replace ordinary currencies, and why it’s not, and never will be, a viable or serious means of exchange.
There is a limit to how much they can be split, there is a fundamental unit which is, from what I understand is not divisible by design (it will not be accepted as a valid transaction)