It’s difficult to get clear and definite information, but as far as I can make out the Japanese Government *will *accept payment of taxes in Bitcoin via authorized dealers. Obviously nobody is required to accept Bitcoin instead of Yen. It’s just an option.
So I suppose you could say it’s quasi-legal tender.
which means the dealers/exchanges convert it to yen with which they pay the government.
Sounds as if they are happy for those dealers to pay them in Yen. The trick would be about to who takes the hit on exchange rate variations. I very much doubt you will find any government provide a statement of monies owing that is cast in more than one currency. When a government agrees that your debts to them are a fixed number of Bitcoins, then it is legal tender. I would imaging you go to a dealer with your Bitcoin and tell them how many Yen you need, and to pay the government. It won’t be the government that is short if the exchange rate drops.
Currently it seems that the government will let you turn your Bitcoin into Yen via any of their authorized dealers (ie those with all the tracking and the $300,000 + $100,000 to spare) and then will let you use that money to pay them; with the slight allowance that the dealer might be able to transfer the money directly - which of course the government will love as it sheets home the provenance of the money. No messy bags full of untraceable cash.
Again, here Bitcoin is a commodity, not a currency.
Overall I agree with your POV on Bitcoin as it’s been fleshed out over your several posts.
Yet right now the big tit-for-tat marring the thread is the two of you essentially arguing over competing versions of the word “backing”. Rather than unpacking the bundle into the various components that give rise to the idea in society that money is somehow “backed” and therefore safe (enough) to take and give in exchange for real goods and services. As well as safe (enough) to hold over some span of time between the taking and the giving.
IOW … IMO what most folks mean by “backing” is the nebulous something(s) that makes them believe the currency/money is safe (enough) to use. There are a lot of necessary conditions and no single sufficient condition. Attempting to defend a single most-necessary condition is IMO a fool’s errand.
A beautiful post. Thank you. Had it appeared earlier in the thread there’d be more light and less heat.
Which also demonstrates that Bitcoin and the rest of their ilk are ultimately misnamed. It’s a cryptomoney, not a cryptocurrency. Which mis-naming invites all sorts of failures to communicate and failures to understand.
Admittedly one of the goals of Bitcoin specifically was to retain the anonymity of ordinary paper cash & metal coinage. They weren’t necessarily trying to create a money, only a currency. But it was economically and historically illiterate of “Nakamoto” to think he could create a currency that wasn’t also a money.
What are you supposed to do if the dollars in your mattress collapse in value? Protest on the steps of the US Treasury to demand an equivalent quantity of gold? Nixon ended that in 1971.
One of the big issues with cryptocurrencies is they’re only accessible to a fairly small percentage of the population.
Be honest: Would your parents* know how to get Bitcoin without looking it up on the internet?
Let’s be fair here: Even small children are aware of the concept of “money” and if you asked a bunch of five year olds where money came from, the answers will probably be variations on “Mummy or daddy’s wallet” or “A secret tree where it grows” or “Iron Man”. The point is, they know that money is a physical thing which comes from somewhere and can be exchanged for toys and lollies and iced creams.
Not only are cryptocurrencies hard to obtain for the average punter, they’re even harder to spend. Sure, there’s the odd hipster cafe or pizza place that accepts them, but it’s not like you can take them to your local Big Chain Supermarket and use them to buy food, or pay your power bill with them, or use it for your rent or mortgage… you get the idea.
To the average person in the street, Bitcoin is for nerds, people buying drugs and other highly illegal shit off the Dark Net, and something to do with ransomware demands.
What would be interesting would be to see what happened in the government of a fairly small country like Nauru or East Timor decided to make a cryptocurrency their national currency. Ultimately, money is worth what it’s worth because the government says it is and everyone believes them - so what if the government said money is worth whatever the computer algorithm says it is?
The idealist in me would like to think it’d be an interesting experiment but the realist in me thinks the situation would end up more like somewhere such as Venezuela or the Soviet Union.
*Not yours, Mr or Ms “My parents are computer scientists at Cambridge” SDMB poster
Good and interesting post, but I have to take issue with this part:
I think you have a misunderstanding here. The mining reward is determined algorithmically and is paid directly to the miner in bitcoin. The miner expects their marginal profit to be driven by anticipated market price minus marginal cost of mining. The value of the coin itself is based on its expected utility as a store of value.
The cost of production does contribute to a “floor” on value in that miners won’t work unless the projected coin value is less than their outlay in computing power. The coin I hold right now represents much more in dollars than the power required to produce it. Conversely if everyone stopped using bitcoin, I wouldn’t be able to retrieve an equivalent value of computing power. So as you can see, bitcoin’s value is tied much more to demand as a store of value than the actual cost of producing it.
As I explained above, value of bitcoin is only indirectly related to its convertability to compute power. When mining becomes prohibitive, bitcoin value will be driven entirely by its utility as a means of exchange and a store of value. When Japan legitimized use of bitcoin, the price quadrupled… not because of any change in computing power, but because more people wanted the utility of bitcoin (and some speculation, to be fair).
To draw analogy to a real commodity… the economy of gold doesn’t rise and fall based on how much it will cost to mine new gold. Nor so much whether people want to use it as raw material in real products. Its price fluctuations are due to its exchange rate with other stores of value, because gold itself is seen as a store of value. Should we ever be unable to mine new gold, people will continue to use it in this way, and its price should increase due to scarcity.
that’s just it. the USD is the major “reserve” currency held the world around. If the USD collapses in value, the world is already in bad shape and Bitcoin (or any other cryptocurrency) is not going to do anyone any good.
if the value of Bitcoin collapses, only a handful of nerds will care.
which means- since BTCs are finite in number- it’s “deflationary” which is not necessarily a good thing in a modern economy.
this is what I don’t get about people who argue gold standard vs. “fiat currency.” What is gold’s inherent value? What is it useful for? Why is its stated value any less of a fiction than “fiat” money?
Yet I didn’t personally mention “backing” at all in my last post, except with you tagged at the end. It’s difficult to tat something with no more tit.
No, that’s not it. What is causing the discomfiture of people who might prefer to scroll down, than to wade through, is the more fundamental notion of why things have value in the first place. That is the locus of the very, very bad arguments in this thread, and it is those bad arguments that I have focused exclusively on, not any particular definition of “backing”. Quite to the contrary, I have fully accepted other people’s different notions of backing, as long as those notions managed the minimum requirement of being self consistent.
That has, unfortunately, not always been the case. Even basic self-consistency has been too high a hurdle.
The nature of the inconsistency has been pretty much constant in the given arguments, appearing in one of two ways: first, the argument that X has no particularly value, therefore Y should also have no particular value. The problem is that all of the many manifold differences between X and Y are comprehensively ignored. (Bitcoin vs sudoku puzzles is the most egregious example of this but there are others.) The second path of bad argument: Y and Z are manifestly different, therefore it makes sense that Z has value and Y does not have value. Except that the reasons given for Y and Z to be different are either pre-defined to make them different, or when they are made properly general, it’s clear that the general notion encompasses both Y and Z equally. (The most ridiculous example here being the football owner analogy, in which literally every sentence remained correct after a replacement to Bitcoin was done. Y and Z were equally valid, according to the actual argument given, but as soon as that was pointed out it was ignored.)
Now, you can personally appreciate the meta-argument I’m making right now in this post. You are blessed with full literacy in English. You just don’t care, which is why the thread has been “marred” in your view.
Maybe I personally have a skewed perspective on this myself, but I nevertheless believe that this is important.
I’m something of a collector of economic fallacies. I see a lot of them, I sift through them, I categorize them. Fallacies about “value” are particularly interesting because they are so very fundamental to everything else. And that is what the tit-for-tat is actually about. Not: what is backing, but rather, what is value? What does it mean for something to be valuable? What does it mean for something to be reasonably valuable? And maybe you don’t believe it, but the discussion is actually getting close to the kernel of this problem. That is what the whole “real assets” thing is all about, which is why so much of my last post focused on it. Some assets are real, you say? Okay then, what makes them real? I have starkly simplified my posts for the specific reason of focusing on those very fundamental questions, partly because higher-level discussion was clearly pointless but also because those fundamental questions interest me.
Given the track record of this thread, I should not reasonably expect a consistent answer to those questions.
But I might just see an answer that I haven’t seen before.
You’re interested in the other aspects of this conversation, like the difference between crypto-currency and crypto-money. That’s a very important thing to discuss. In fact, I’ve been down that path before. I was personally saying on this board in 2011 that Bitcoin seemed to work more like a virtual gold than it did a genuine currency. (I misunderstood some technical things at the time, but still, a decent thread.)
But I can dig up that thread if you want to see what I mean about collecting fallacies: people were making some of the same errors six years ago that other people are making today. Misunderstandings about money tend to follow patterns, and I tend to study those patterns. What I’ve landed on here is something that, for the moment, seems different from what I’ve ever seen before. Part of that might merely be how spectacularly defective the “logic” has been, but another part of it seems to be how a poster might approach the question of what makes an asset “real” vs… something else.
Is the code owned by a company a “real asset”? If it’s not a “real asset”, then what exactly makes it not qualify? Why do people pay for it if it’s not “real”? That’s where I want this to go. I just have to put the steps on the logical path much closer together, in this particular case, than most of us are accustomed to handling.
Just so you know…
Bitcoin falls to near one-month low with $12 billion wiped off value since record high 30 days ago (Wed 12 July)
The bitcoin price hit a near one-month low on Wednesday of $2,272.32.
Bitcoin’s market capitalization is off around $12.2 billion since it’s all-time high of $3,025.47 on June 11.
On May 12 Bitcoin was trading at $1677.
So May 12 - Jun 11: up 80%
Jun 11 - July 12: down 25%
On Nov 25, 2013 it was $979
On Aug 24, 2014 it was $224
This kind of volatility makes it great for speculators who want to gamble, but not so great for a reliable currency.
Thank you for demonstrating my point that computing power isn’t the major determinant of bitcoin price. As the market value is whipsawing around, it’s nothing to do with the cost of mining a new coin.
It’s perfectly fine to argue “I find it too volatile to be reliable”. That’s an individual judgment based on your personal risk tolerance. I can’t critique someone’s personal risk tolerance… only their risk assessment (in areas where I’m familiar). But Bitcoin is at a market cap of $38 billion. Clearly a large number of people are comfortable with the risk.
My argument isn’t that crypto is better or worse than dollars. I’m just pointing out that the value of dollars depends on items of faith that Bitcoin doesn’t.
That’s a different argument. I’m not a gold bug, so I won’t argue strongly for it. But gold does have lots of industrial and scientific use, and it’s a scarce metal, so there are real supply/demand dynamics that partly drive its value. However I believe most of its price is from its utility as a currency risk hedge. Not a very compelling strategy if all your savings are in dollars, but maybe a pretty good idea if your nest egg was in Venezuelan bolivars.
Thank you for the time and effort on a fine post.
You saw rightly that I had lost interest in the current state of the tit-for-tatting and so my last comment directed at you was obsolete by a couple posts; it was a rehashing of yesterday afternoon’s battles. I apologize; that was sloppy of me.
I think you’re spot-on with the thought that “what is value and how can we recognize it?” is the center of much of economics in general and the study of money in particular. And that confusion (more like unexamined assumptions from childhood) on this point is certainly the root of most of the various ill-founded contentions of the various posters.
IMO you were right in 2011 that Bitcoin was/is (mostly) a virtual gold. Or a Francis and HMS Irruncible said recently, it behaves more like a virtual commodity than a virtual currency/money. The end of Bitcoin mining will be a watershed event. But not in the apocalyptic sense Francis proposed. It will definitely be the beginning of a new phase in Bitcoin’s history. A phase marked perhaps by ongoing growing real demand with no countervailing increase in supply. IOW, a monopolist speculator’s ultimate wet dream. Hence the anticipatory buying even now well in advance of the event.
Just as we see with actual commodities, great bubbles and slumps can happen for reasons either fully logical or utterly irrational. Most often a mix of both.
The humor IMO is in the gold bugs who say a bull run in gold isn’t an irrational rise in the “value” of gold, but rather a rational drop in the “value” of e.g. dollars or yen. ISTM the original Bitcoinistas were/are cut from the same cloth. Most current Bitcoin holders (distinct from transactional users) are ordinary financial speculators, albeit those willing to work in unusual assets, not just e.g. NYSE common stock. They’re chasing trading gains, not following an ideology.
well, USD is technically “backed” by the US economy, no? That can be quantified via various measures e.g. GDP. There’s always uncertainty but I don’t see that as requiring a ton of “faith.”
No, I agree with you here. I was really trying to say that the conversion value of Bitcoin is going to be within some reasonable range of the cost of creation. Obviously, while Bitcoins are being regularly minted one would expect the cost of production to represent a pretty solid floor. If it costs (say) $1000 in compute and power to mine a Bitcoin, one would not expect Bitcoins to trade for $100 or $10,000. Any premium over the cost of creation represents the speculative value some see in it. One would expect this ratio to be much the same no matter what the creation cost was, as it depends upon current sentiment and expectations. Thus Bitcoin value is creation cost * market sentiment ratio. When Bitcoins cease to be mined, this ceases to work.
We agree here as well. My point is that right now there is an internal economic engine inside the Bitcoin economy. Mining coins is paid for in coins. Trading in coins is paid for in coins. The economy is expanding as there are more coins being mined. How Bitcoin transitions from an expanding economy where money can be made mining to a static one where money can only be made with services is not clear. Economies provide significant multiplier effects over the value of the core “engine”. Whether Bitcoin has enough utility outside its own microcosm to survive when it loses its internal engine is another matter. Dark Web and ransoms won’t cut it. IMHO it won’t survive it. But that opinion is worth what you paid for it. (And I’ll take that in US Dollars thanks.)
True, but largely irrelevant, because the dollar does in fact have the needed faith.
In a sense, but only because most actors in the US economy have faith in dollars. If people ceased to have that faith, then the US dollar would cease to be backed by the economy. If enough people decided that bitcoin was more trustworthy than dollars, then the dollar would collapse, even while the US economy continued to hum along. At that point, you would be able to fairly state that bitcoin was backed by the US economy.
Not in the sense we use it in the operating world of the investment and finance. The real asset is the physical asset.
Not being a physical thing like a building or a machine.
Unfortunately the usage of ‘real asset’ is often mistaken by the non professionals not used to the financial economics jargon as being the moral statement (real = good).
And in the opposite, the non-real assets seens as not being actually ‘good’ or genuinely valuable assets.
So I asked the professor about the effect of quantum computing on Bitcoin. In short, and I am paraphrasing here, quantum computing can make mining a cryptocurrency, such as Bitcoin, easier. Quantum computing would likely render Bitcoin dead, as it could be used to crack the crypto. However, some people are already developing quantum-resistant (they claim immune) cryptocurrencies. Also, the kind of quantum computers needed to assault even Bitcoin simply don’t exist nor are likely to exist very soon without an unexpected breakthrough.
I’m not sure I agree with this. It could cost $1000 to mine a new Bitcoin, and the value of that new Bitcoin could be $1, or $0. If no one wants to trade your new Bitcoin for a new hamburger, then your Bitcoin won’t be worth a thing, it’s just a mathematical curiosity. Sure, nobody would mine new Bitcoins if it costs $1000 and Bitcoins are trading below $1000. That doesn’t mean Bitcoins can’t fall below that cost. And of course Bitcoin mining gets harder and harder as each new one is mined, and it will eventually stop when all possible Bitcoins have been mined. And that makes the cost of mining a new one infinite. But when that happens, the already existing Bitcoins will not have infinite value.
I don’t see how Bitcoin mining actually provides value. Sure, it’s a method of creating new Bitcoins, and it’s how the current stock of Bitcoins were created and assigned original ownership. But that was just a way to create a supply of Bitcoins and put them in the hands of people who would use them. If I were to design Lemurcoin, I wouldn’t have the mining feature, I’d just give myself all of the original Lemurcoins, and then spend them on hamburgers. Of course I’d have a hard time finding a person willing to exchange Lemurcoins for hamburgers. But mining isn’t a way for people to provide some economic service which is then paid automatically in Bitcoins. It’s just a way of creating Bitcoins. If those Bitcoins have an exchange value then it’s valuable to mine Bitcoins. If they don’t, it isn’t.
Bitcoin has a major advantage over Lemurcoin, in that people really do exist who will accept Bitcoins as payment, and there does not exist even one person who will accept Lemurcoins. That means even if you think Bitcoins are ultimately nonsense, you might very well use Bitcoins as a medium of exchange, because you know that as of today there really are people who really will accept it. You might not want to hold Bitcoins longer than it takes to complete your transaction, but even with the wild speculative swings in the value of Bitcoin you probably won’t get wiped out if you used them for only an hour or so. And it’s hard to imagine anything that would cause the value of Bitcoin to drop to zero in just a few days. I mean, it’s easy to imagine the value of any hypothetical cryptocurrency dropping to zero, Lemurcoins just did.
But even if there are forces that will eventually drop Bitcoin to zero, it’s not going to happen literally overnight, it’s going to take some time. So while holding Bitcoins is very risky, transacting in Bitcoins is only slightly risky. And the main risk is not that Bitcoins will drop radically in value as you’re using it, the main risk is that you don’t know what you’re doing and will screw up somehow and do it wrong and send your money to some guy in Nigeria and get a bag of wooden nickels instead of Bitcoins.
If the real use of Bitcoins is as a medium of exchange so you can buy and sell electronically, you can already do almost all of that much more easily with dollars. If I want to send money to some guy in Nigeria, I can send him dollars, I don’t need to use Bitcoins. The only reason I might want to use Bitcoins is if I don’t want a record of that transaction to exist. The problem is that the record of the transaction does exist, it’s in the blockchain. The good thing is that the relationship between me, the Bitcoin transaction, and the Nigerian guy might be hard to establish.
And of course a Bitcoin bank could exist, and one famously did, MtGox. And it ceased operation in a manner similar to the early history of banks when somebody stole all the deposits and skittered away into the night.
Right, but the developer(s) designed it to have an indefinite lifetime, and the fan boys seem to believe this, but quantum computing will almost certainly obsolete the current blockchain at some point.
The only possible salvation I can see is if there’s a point during the evolution of quantum computing where an unbreakable quantum based coin can be created, but the current blockchain can’t be hacked.
At that point, if such a point ever exists, bitcoin could be converted to the new quantcoin before obselescence. Of course that would require some sort of centralized trust and control that would be anathema to the “libertarian spirit” of the bitcoin community.