Is there any fundamental value to the cryptocurrencies? I mean, I closely watched the dotcom boom and a lot of the startups seemed stupid. For example, pets.com made no sense to me; shipping a fifty-pound bag of dog food to your house but charging the same price as local retail stores doesn’t seem a viable business model. But now chewy.com seems to have figured out how to make money in the pet supply business.
It took a decade or two of development in shipping logistics to make the business model work. As well as people getting used to the idea and willing to pay a bit more for the service. It’s not like the idea of getting stuff shipped to your door is useless. After all, if I don’t pay someone to pick up the cat litter, I have to do it myself. And my time is worth more than the $15/hr or whatever that the delivery people make. So it doesn’t fail the sniff test, it’s just that pets.com was hoping to figure out the logistics before running out of money, and they failed to do that.
I mentioned back in post #49 that they’re pretty useful for capital flight and evading currency controls of authoritarian governments, which IMO will provide a floor for how far their prices can drop, even if hyperinflation never materializes and the dollar remains the world’s reserve currency.
The other thing is that the pet supply retailers hoped that you wouldn’t just buy the heavy bag of dog food, but might also opt for a new leash or a dog toy or whatever. Lots of this stuff has much higher margins than pet food and is cheaper to ship.
Bit coins are numbers that are hard to find, but that everybody recognizes if you show them.
The numbers are signed and broadcast. Once you’ve signed and broadcast the number, it’s known, but only you have the secret signature key that proves it belongs to you.
I want bitcoins for the same reason I want a Paypal account. I can store money there and exchange it later for other things. Today, incidentally, Paypal is also where my bitcoin is kept. The thing about bitcoin, though, is nobody can create more of it without everyone agreeing to that increase. It’s rare. It’s scarce. That’s reason enough for people to want it, and therefore reason enough for me to want it.
It’s pretty simple, really. It’s a way to hedge against the US dollar, like gold, but in a form I can keep on my smartphone. It’s got durability, portability, divisibility, uniformity, limited supply, and acceptability. There’s no reason it can’t be money. There’s no reason to think it isn’t money.
How is that relevant, when you’re choosing not to keep it on your smartphone?
Sure, but if the US dollar collapses, there’s only one of those (the bacon) that a shopkeeper would have any realistic interest in. The rest of those would be worthless or almost worthless.
If the US dollar collapses, so will Bitcoin.
Altho a currency based on bacon would be delicious- but rather messy. 
I guess my main question on any cyber-currency is where does the software or whatever actually reside? My understanding is that they reside in a “digital wallet” which basically exists as software on the web, mobile or desktop or as some sort of hardware appliance? And as long as you have your “private key” (basically a long crypto password), you basically have access to your Bitcoin? But does it all just automatically stay in sync and how? Like if I install the wallet software on a desktop or device without internet connection, does it simply not work?
FWIW, I go through Coinbase, but that’s basically just a third party provided much in the same way Etrade connects me to my stocks.
I would argue that Bitcoins aren’t 100% bubble in that people agree that there is some utility in using Bitcoin as a means of storing or transferring wealth. I would say that Bitcoin are perhaps closer to gold in that sense. While gold does have some value as jewelry or in as electronic components, historically the main reason gold is valuable is because people decided it’s valuable.
Right, that’s point I was making. Maybe some time in the far future, some other currency like the Euro or Yuan will have replaced the dollar in a stable, long term, slow shift away from the dollar type scenario. But any sudden collapse of the dollar is going to cause huge problems. Things that would make COVID-19 and it’s fallout look like a spring shower in comparison. Bitcoins aren’t going to help in that scenario, anymore than gold would. The roving hoards in an apocalypse won’t be trying to rob the guy carrying a sack of gold. They’ll be laughing at him for being an idiot and carrying around something heavy and useless while they look to rob the guy carrying a sack of flour or case of bottled water. They’ll be laughing just as much at the guy with bitcoins.
Is it though? Google, Amazon, and the railroads all have actual value. I can conveniently search for something I don’t know the answer to with Google, buy something that the local stores don’t carry with Amazon, and if I was in the business of dealing with bulk goods, get them shipped to me on the railroad. Bitcoin doesn’t have any such (legal) use that I can see.
I’m not quite sure what you mean by capital flight. Do you mean people who live in authoritarian regimes exchanging their currency for the currency of stable Western nations? If so, I don’t see how Bitcoin helps, as it’s not at all stable. As far as currency control of authoritarian government, I think Bitcoins would be easier to ban, not harder, in comparison to other fiat currencies which can be hidden as paper bills if push comes to shove. Gold would probably be a better option than Bitcoins for this purpose.
The main function of money is essentially to “keep score.” Those other things are important in as much as they make it easier to keep score, but that’s still what the underlying purpose of money is. I don’t see how Bitcoin is better at that than dollars.
This is not quite right.
A “digital wallet” is basically a convenience. If you want to use your cryptocurrency at a store, there has to be a way for you to make that transaction without a lot of hassle. A digital wallet facilitates this. It doesn’t have to ‘contain’ the currency as such.
As for where the cyber-currency resides, it’s all about the database. For cyber-dollars, this can be a bank’s database, for example. And for electronic transfers, there are protocols for dealing with that ledger.
For most crypto-currencies, it’s in the form of the blockchain, which is a distributed peer-to-peer database. The database itself in some sense “is” the currency. It has a record of all transactions for every bitcoin (or ether or doge or whatever). So, your crytpocurrency is, in a real sense, everywhere. Your digital wallet instead more or less contains access credentials so you can use them without running home to find your private key every time.
Since every bit of the cryptocurrency is publicly viewable, the encryption is what ensures it can only be used by you and nobody else. That’s the important part. “Regular” money works the same way. Paper checks originated in that way - you had a piece of paper, backed by some trusted organization, that said you had X amount of money that could be used without the inconvenience or insecurity of carting around a bunch of gold. ID checks and so on are the analog equivalent of the encryption - an attempt to verify your (and your money’s) credentials to ensure you’re actually good for it.
I was referencing this Investopedia link (which is not to say it is necessarily correct)
But the question remains, where does that database reside? By distributed peer to peer, I’m imagining something more akin to Napster, Gnutella, or Kazaa back in the late 90s / 2000s where the database is essentially “distributed” across every computer running the software. Is that a correct interpretation?
No: at least in the original Bitcoin concept, you download the whole thing.
ETA the “wallet” though, basically consists of relatively short secret keys that you can just print out on a piece of paper if you want. You are supposed to keep these private (not distributed), so sucks for you if they are lost or stolen.
That’s always the problem with analogies. They always fail when pushed too far.
If you see the second sentence in that article, it even agrees with what I wrote. “Technically, Bitcoins are not stored anywhere. For every individual who has a balance in a Bitcoin wallet, there is a private key (secret number) corresponding to the Bitcoin address of that wallet.”
It’s loosely correct to say a digital wallet is where a Bitcoin is “stored”. As in, a digital wallet might be the only way to access them. So losing your digital wallet means losing access to your Bitcoins.
So the Bitcoins would still be out there in the internet and if you had a backup of your private key somewhere, you would still own them. But if not, losing the wallet is equivalent to losing access to your Bitcoins which is, in a very real sense, losing the Bitcoins themselves even if they are out there for anybody to see. This has happened to several people now. The coins are still out there, i.e. recorded in the blockchain, but totally inaccessible for additional transactions.
Pretty much. Everybody has a copy of the ledger and everybody is forced to play nice. Some individual could make up their own entry and try to ‘steal’ a coin but their copy of the blockchain wouldn’t match anybody else’s and wouldn’t be accepted.
There is a potential hazard in that scheme, though. If somebody had control of a majority of Bitcoins, they could dominate the blockchain. They could approve any/all changes to the blockchain and even overwrite the ledger itself. The highly distributed nature of cryptocurrencies is necessary to prevent this.
Hey, if the US dollar collapses, I’ll bet the local shopkeeper will be very willing to accept cocaine or blowjobs.
Me neither, but it’s not completely impossible that there’s something I’m not seeing.
I think the general idea of a purely digital currency potentially has value. I’m not sure that Bitcoin specifically has that value, and I do think it is currently overvalued relative to where it will eventually fall.
If I’d have noticed it when it was small, I might have gotten in. But the way it is now, I foresee it being much more likely that I’d lose money. The only reason I might use any digital currency right now is the ease of spending it, and it doesn’t actually seem any easier right now to spend Bitcoin.
When a person “owns a bitcoin”, what that means is that they know (on a piece of paper or in a computer file or memorized in their own head; the details don’t matter) a specific number. They can use that specific number to transfer some or all of their bitcoin to the specific number known by anyone else. The numbers themselves are fairly short-- You can, in fact, comfortably fit one on a piece of paper, and memorizing one wouldn’t even be out of the question if you were determined at it. The entire blockchain, that records who’s transferred to whom when, is much larger, too large for everyone who owns bitcoins to keep their own personal copy of it, but not everyone needs to.
Good points. Sorry for misunderstanding you.
Oh, gold is pretty so they might take it anyway. But a whole bar might buy you a single can of beans. I suspect rounds of ammo would be the new currency. “I will give you three rounds of .22 for that can of beans.” “Make it five or one round of .223”.