I love (and agree with) this sentence!
I don’t think this is quite correct.
While a tulip has some brief value as a pretty object, after a few days it is worth absolutely nothing, even as a token upon which to financially speculate. It no longer looks pretty, it physically rots away, so its useless as a form of physical currency. Tulips are easily prone to extreme inflation if there is a bumper harvest. And even if you just consider tulips as a nominal name for a number in a bank account it has no advantages.
Bitcoins are far superior. Bitcoins are permanent tokens once created. They don’t rot away. The system is designed and operated to make it necessary to expend very considerable effort to obtain them (which has stopped extreme inflation). And finally, if bitcoin actually takes off as a form of practical currency it has some real advantages - it is easily electronically traded in a verifiable way using blockchain.
Fine. They are not tulips. They are beanie babies or dotcom stocks. I (and it looks like I’m not alone here) maintain they are a bubble. Bubbles burst. It is possible to profit from a bubble with smarts and luck. Most people are left with worthless items when the bubble bursts.
Suppose we tried to base a currency on solving crossword puzzles. Those tricky British ones. You solved the puzzle and then used the solved puzzle as currency. So even if you don’t solve puzzles yourself, you can obtain them from other people who do.
But why would anyone invest value in a solved crossword puzzle? The fact that effort was spent in solving the puzzle doesn’t put value into it.
And that is essentially what bitcoins are. Sure, they take up a lot of computer time to solve. But the results don’t produce any value.
Bitcoins are 100% bubble.
No, you have only dealt with perhaps one of the reasons I gave why bitcoin is superior to other random objects.
The USD’s supposed inherent value due to it being backed by the US government is much overstated. The reality is that it’s seen as valuable because it’s seen as valuable. Any circumstances in which the USD became shaky and you needed to rely on its government backing, would likely be the same circumstances in which the US government was unable to save you.
Bitcoin could in theory reach the level where it was accepted to a degree approaching that of a government backed currency. I rate it’s chances very (very) low but that’s more a matter of my scepticism that it will ever gain the required critical mass than anything else.
OK, they probably isn’t the best word to use. Mining difficulty is adjusted after every 2016 blocks as part of the underlying algorithm. As mentioned above, it adjusts up or down based on the how long it would take to mine the next block trying to keep it around 10 minutes.
I dont know if I would go that far. Last I checked, here in the USA at least, US currency must be accepted for “all debts public and private”. If I attempt to pay in Bitcoin, no law requires the other party to accept.
“Bitcoin could in theory reach the level where it was accepted to a degree approaching that of a government backed currency.”
Yes, and there’s (according to my understanding of quantum mechanics) a non zero probability that the sun will spontaneously turn into a ball of peanuts and caramel. I am not holding my breath for either event. Absent ‘critical mass’ you will have, at best, a currency accepted among a small community (like OTTOMH Ithaca Hours). At worst, you have a bubble.
So its an immutable part of the algorithm? Self adjusting?
This is a much is understood provision. It means that if you already owe someone USD, they are required to take USD in settlement of the debt.
It doesn’t mean that anyone is obliged to become indebted to you at all. In a situation where the USD is in danger, no one will lend it to you. So the fact you could in theory pay with USD won’t help you.
In other words, if your local shopkeeper says I’ll sell you a loaf of bread but only for bitcoin, you can’t force him to sell you the loaf bread for USD. So if the USD were to collapse, this law would do you no good at all except with respect to existing debts.
I don’t know enough to declare it ‘immutable,’ but yes, self adjusting.
I’ve read before that the only really fundamental value of dollars is that that is what you have to pay your taxes in.
And how exactly is this evidence that bitcoins are comparable to dollars? Who is the equivalent body that is backing up bitcoins the way the United States government backs up dollars? Satoshi Nakamoto?
You describe a scenario in which dollars could theoretically lose their value. But you’re ignoring the fact that bitcoins are currently at a level far below the one you describe.
It’s a theory. David Graeber essentially makes this argument in Debt: The First 5000 Years.
He says money arose from taxation. The local tyrant would tell his subjects that they had to pay him an annual tribute of some arbitrary object; let’s say pink seashells as an example. Because everyone knew they would have to give the tyrant some pink seashells, pink seashells would acquire a value. People would desire them in order to avoid making the tyrant angry. So not only would they go down to the coast and try to gather pink seashells, they would also trade pink seashells in exchange for other goods and services. All in order to have enough pink seashells on hand when tax time arrived.
And because pink seashells had this value and the tyrant had a supply of them through his taxation, he could turn around and use his pink seashells to keep himself in power. He could pay his soldiers and bureaucrats in pink seashells and they would be happy, knowing that other people would trade them goods and services for those pink seashells. The tyrant had created a cash economy via his demand for pink seashells.
Firstly as I made very clear in my final sentence I don’t think they are comparable. Don’t strawman. I have merely said that (a) bitcoin has advantages over tulips and (b) USD is not so qualitatively different as you might think. I have never said they are comparable.
My point of departure is not that the two currencies are comparable but that the oft-cited reason for the solidity of the USD is not as real as it seems. My view is that the USD is largely solid because of its extreme “market penetration” i.e. it is accepted by everyone so everyone accepts it because they know it is accepted by everyone.
As to your second sentence, you are completely missing my point. What I’m saying is, the United States doesn’t back up USD to the extent that you think for reasons already stated.
“misunderstood”, sorry
Yes, it’s clear I’m not following your argument and seeing the point you are making.
My understanding is you’re saying dollars are not as stable as most people believe because they are only backed by the United States government and that entity might not be able to back them up in some future situation. And without that backing, dollars would be worthless.
My counterargument was that bitcoins are already in that situation. No government or other entity is backing up bitcoins.
So either a currency can have stable value even if no larger entity is backing them up; in which case, dollars could survive without the United States government. Or currency cannot have a stable value without some entity back them up; in which case, bitcoins have no stable value and are just riding on a bubble.
What am I missing?
But what does it mean for the United States government to be “backing up” the US dollar? Unless, we’re just back to the taxes thing.
My key point.
Try reading my posts and looking for the bit where I say what I think the key thing is that makes the USD reliably valuable. I’ve said it at least twice and maybe three times.
How actively is Bitcoin being used for goods and services? Is it mostly being hoarded like gold?
Yeah, a shop owner could demand I pay for a loaf of bread in Bitcoin. As I am in the US and the price on that little plastic fastener doodad is in dollars, that would be odd. Which brings me to another point- all the Bitcoin transactions that I know of have been using a valuation in USD. It’s been “I will sell you this for $10 worth of Bitcoin” and so forth.
While there are some differences between Bitcoin and Beanie Babies, I don’t see them as significant. I also see ‘forgetting your password and being unable to access your Beanie Baby wallet’ as a much less likely problem.