Bitcoin and Gold

http://blog.oleganza.com/post/67872772342/bitcoin-and-gold

by oleganza • 13 years ago

41 90 13 years ago

blog.oleganza.com

rlwolfcastle• 13 years ago

There is one difference between gold and bitcoin. When you break the encryption on gold, it is still gold.

bbwharris2• 13 years ago

You can also hold gold and make useful items out of it.

NateDad3• 13 years ago

Really? Like what?

http://en.wikipedia.org/wiki/Gold#Applications

Gold seems not to be the best choice of materials for very many things.

It's valued because it's pretty and rare. That's basically it.

Holding it physically is an anachronism. Most people who own gold don't put it in a vault in their basement.

patrickg_zill• 13 years ago

Another is that gold does not require a working computer or Internet access; and also, no matter how bad your website security is, your gold cannot be taken via the Internet.

scotty793• 13 years ago

Gold requires social network to work. Can be stolen via internet if you don't hold it youself and the company that holds if for you has web interface.

oleganza20• 13 years ago

The bet is that advantages of Bitcoin over risks of gold outweight risks of Bitcoin and advantages of gold.

Today 90% of the economy needs connection and international trade. We rely on networks, computers and cryptography to support our lifestyle, remote labor, airplane travels and so on. Gold is almost useless for that. It's not programmable, it's not transferrable easily, there's a lot of risk and we all tried it already and we ended up with central banks having all the gold, promising none of the gold and printing tons of paper money which is backed by a promise to pay interest by issuing more of these promises. Small guys can't earn a lot of gold. It's way too easy to confiscate or control for someone who is bigger than you.

It's time to try something different, more suitable for modern era.

hatu2• 13 years ago

Gold has kept it's value for thousands of years, maybe tens of thousands. It's a bit silly to compare the two.

yawniek• 13 years ago

gold also has an offline mode, worldwide adoption and a commercial use. plus whats exactely the difference between bitcoin and all other altcoins other than technicalities. sooner or later there will be lots of competition

scotty793• 13 years ago

Like there's huge competition to ebay.

iand• 13 years ago

Breaking the encryption on bitcoin is like the hunt for the philosopher's stone. We know it's possible to transmute elements into gold, but doing it on a scale capable of disrupting the market is beyond our reach currently.

hatu2• 13 years ago

tl;dr: Author loves Bitcoin

oleganza20• 13 years ago

Author makes a case for unique feature of Bitcoin: asymmetry in security which may prevent what happened with gold-based economy - accumulation of physically-representable wealth in hands of the very few using force. This unique feature has never been tested before in the economy in the entire history of mankind.

mariusz796• 13 years ago

With bitcoin very few still control most of it. And they use force... asic brute force :)

applecore3• 13 years ago

It's possible that bitcoins have value because they're more useful as a form of money than precious metals like gold or fiat currencies like dollars.

They're durable, portable, perfectly fungible and divisible, scarce and limited, easily recognizable, trivial to verify, impossible to counterfeit, and cheaper to store, protect, and transfer.

oleganza20• 13 years ago

I'm not saying why they have value. There are many reasons and everyone picks his own favorite one.

I'm saying that if bitcoins are valuable, then there are certain interesting properties of the new global economy that make it different from gold/oil/resource-based economy we have today.

mariusz796• 13 years ago

Durable? When you lose your passphrase or wallet hash all the bitcoins in it are lost.. forever.. With gold there is hope that at some point in time someone will find it and be able to use it.

applecore3• 13 years ago

Durability, in the context of money, simply means that it doesn't physically degrade over time.

In that sense, bitcoins are perfectly durable.

T-zex• 13 years ago

I really do not understand this Bitcoin promotion in comparison with gold. I think that majority of people do not have gold, never had and never will. It would reach a much bigger audience if Bitcoin was compared to credit cards and Paypal.

oleganza20• 13 years ago

There is huge speculative value in gold as a "store of wealth" and there are reasons why gold was in hands of many and now in the hands of few. Looking from this perspective helps understand why Bitcoin might be valuable in the long run for many people.

cturner• 13 years ago

Gold has a strong market as a store of value that doesn't depend on government. The characteristics that make it good for this: it is naturally scarce, doesn't degrade, it's easily divided, you can hold a lot of value in a small amount of physical weight (compare to silver), it's fairly easy to exchange for local currency at a time of your choosing. Hence, it has historically functioned as a store of value.

Bitcoin has been designed to have the same advantages. It's weaker because it's more complex to deal with (at the moment). But it's stronger than gold in that - so long as the algorithm holds - its scarcity is guaranteed, and it's easy to use for electronic transactions.

Bitcoins compete with gold for mindshare with people who want to be able to store value in a way that isn't subject to the whims of government - who can start printing lots of money at any time of their choosing and thereby wipe out people with savings.

michaelt• 13 years ago

If bitcoin is a means of exchange but not a store of value, you need some extra means of exchange to convert your stored value into bitcoins and for the recipient to convert their bitcoins back into stored value. And if you've got that extra means of exchange, what do you need bitcoin in the middle for?

I mean, why go My bank -> Debit card -> Bitcoin exchange -> My wallet -> Merchant's wallet -> Bitcoin exchange -> Bank transfer -> Merchant's bank when you could just go My bank -> Debit card -> Merchant's bank?

pearkes• 13 years ago

A friend of mine, Steve, noted that gold-backed economy logically evolved into the mess we are now

Here is where you lose me.

Other articles, just like this, fall apart in the same places.

Maybe it is the irony of this statement.

Why is it ironic?

I'm reading your blog post, hosted on Tumblr, on the east coast of the United States, judging on the pings from where I am in Germany. The communications travel over fiber-optic cable in the Atlantic Ocean. This cable was laid by a partnership between commercial telecommunications companies[1]. Tumblr is supported by this "mess" of an economic system, and thus gives you a platform to talk on. Tumblr's hosting provider leverages this "mess" of an economic system to invest in making it's infrastructure better, cheaper and more reliable for Tumblr.

Why is this rhetoric so unaware of history? Why does it carry such a negative outlook on the incredible things that this imperfect economic system has delivered us?

By all means continue questioning, improving or changing the system we have arrived at as a collective humanity. But please, do not pretend everything is a horrible mess that only some minor [crypto-currency, technology] can fix. Admit that what we've done so far has largely been pretty damn good.

Will the new ideas help? Hopefully, likely!

[1] http://en.wikipedia.org/wiki/Transatlantic_communications_ca...

oleganza20• 13 years ago

It's a fallacy to look at what you can see and not count in opportunity cost and what could have been done if there were no economical disasters created by governments all over the world. We'd probably had flying cars already and free wi-fi everywhere if people were allowed to save money and invest how they like.

During Putin's regime computers got 12 times faster too. Is it thanks to "stability of the economy" that Putin provided?

varjag• 13 years ago

Flying cars are a social problem more so than technical. Not even a super-fiat currency like Bitcoin would solve that.

jafaku• 13 years ago

Agreed, the same fallacy is used by brainwashed soldiers and other people to defend wars. They say we wouldn't have the GPS, the Internet, canned food, etc., and that we shouldn't complain, and that it's ironic that we do it using the Internet.

sbl• 13 years ago

The article made many references to the economic gap between the rich and poor, stating that the "big banks" had all the gold, while everyone else had "worthless IOU's."

The "mess" isn't suggesting that the world is an unlivable dystopia. It refers to the fact that there are a few people with a lot of money, and only they have the ability to handle that much money. Bitcoin flattens the playing field, thus resolving the "mess."

waps2• 13 years ago

This is only true if you make the BIG assumption that everyone has valuable contributions to make to the global economy. There's various evidently false things it depends on, like that no-one is both successful and hoards money just for the fun of it.

So this is not true. I would even argue it's very, very not true, and that the medieval economy illustrates this. It was a lot like a bitcoin economy : unfalsifiable money (gold) in limited supply. Most people unable to contribute in any meaningful sense.

What did we see ? Equitable distribution of goods and services (and gold) ? Hell, no.

Of course, bitcoin is in the moronically stupid position that it both depends on the economy it has doesn't exist (power, and bitcoins MUST be divided over many players that don't trust eachother for bitcoin to work) and it itself is a centralizing force.

And that's ignoring the fact that it depends on preimage-attack resistance of SHA256. That's currently true, but keep in mind that it's 12 years old and the previous standard, MD5, held out for ~17 years. Whilst I would say it'll likely last a bit longer than MD5, it's (overwhelmingly likely) not immortal.

nateabele• 13 years ago

A friend of mine, Steve, noted that gold-backed economy logically evolved into the mess we are now

While the statement is not explicitly clear, I wouldn't call the above assessment a fair characterization of its intent.

It is widely acknowledged that paper currencies evolved as a proxy for gold in day-to-day life, which gave rise to the fractional reserve system, which gave rise to paper currency as a measure of debt rather than a measure of value, which gave rise to the ever-widening wealth gap, and so on and so forth.

JackFr2• 13 years ago

which gave rise to the ever-widening wealth gap

That is not widely acknowledged. While the wealth gap may be experiencing recent growth, especially in the postwar period, over the period in which paper currency replaced gold, the wealth gap has improved dramatically.

headgasket5• 13 years ago

the bitcoin protocol as a p2p open ledger is the interesting idea, and as such it is a valid proposition as a transaction system. Contract signing for example.

The derived value store has not much going for it IMHO. It suffers from a reverse network effect; as the block chain becomes heavier, it becomes clumsier, and a clone -- alt is more and more attractive, and a few simple clicks away. (no lock was a down side argument that was around when google became a home run(vs MS) but has yet to materialize; lately they might be setting themselves up for it to happen tho)

As soon as the expansion of demand(is all this demand really real?) comes to an end, bitcoins are susceptible to become tulip bulbs. You cannot pay any taxes in bitcoins, and this is how prices on everything are indexed in our fiat world.

oleganza20• 13 years ago

I'd argue that for blockchain to function as secure ledger, miners must be motivated to do so. So you have to make a currency out of it anyway.

headgasket5• 13 years ago

yes that's perfectly right. But the value of the currency should then become indexed to the cost of securing the ledger over the long run. At this point I would think that's it not the case for btc. IMHO developing ASICs for SHA256 hashing is not a grand development for humanity; it's an expected capitalist response to the fact the the p2p system is valuable. It's a capitalistic proof of the bitcoin protocol.

But as a ledger gets bigger it gets more expensive to secure and harder to use; at one point the best economic alternative is to start a new one, based on the same principle, but not the same POW. And then start a new one. So the value resides in the p2p protocol not the currency itself which is a temporary corollary store that exists while the network is growing.

shocks3• 13 years ago

put some money in a “brain wallet” that has no traces anywhere at all.

Please do not do this.

headgasket5• 13 years ago

yeah, did that. Lost the password too. If I find it I can guarantee those BTC are hitting this market yesterday.

shocks3• 13 years ago

There are already scores of people building rainbow tables of brain wallets. Someone will, eventually, put that BTC on the market for you. :(

oleganza20• 13 years ago

It's an option, not a requirement. Which only adds value, not reduces it. Mom and pa can split the key in 5-of-10 via SSSS (Shamir's Secret Sharing Scheme) and send portions to all their trusted friends. It'll be safer than putting savings in the bank. We just need some decent UI and apps for that.

shocks3• 13 years ago

No. Deterministic wallets just a bad idea. By using a deterministic wallet it becomes infinitely easier to brute force and your funds are at substantial risk. Even if you think you're using a strong password. There are already people spending a lot of computational power to build rainbow tables of brain wallets.

Please do not encourage people to use deterministic wallets, you are doing them a disservice.

digitalengineer7• 13 years ago

Bitcoins certainly took a look at gold. You have to 'mine' it and it's limited like gold. It's dividable as well, for easy transactions. Unlike gold you can send them over the world. There is one problem however. They have no intrinsic value. That's why gold became money, everybody around the world wants it (or know they can accept it and swap it for a (local) currency). Right now the only reason people want bitcons is because they think somebody will want them in the future. With gold, people want gold to itself.

Bitcoin is not gold. It's a currency at best. Even fiat currency is backed by the full faith in governement. Bitcoins seem to be valuable because a lot of people are hoarding them instead of using them. Looks like a bubble with people wanting in on the action...

applecore3• 13 years ago

Here's Satoshi's response to the "intrinsic value" problem:

https://bitcointalk.org/index.php?topic=583.msg11405#msg1140...

oleganza20• 13 years ago

Quoted that for you:

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: - boring grey in colour - not a good conductor of electricity - not particularly strong, but not ductile or easily malleable either - not useful for any practical or ornamental purpose

and one special, magical property: - can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it.

I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

(I'm using the word scarce here to only mean limited potential supply)

orblivion4• 13 years ago

Well, I'm glad Satoshi got right to the point. So many defenders come up with these roundabout counterarguments. "There's value in the system" "As I understand, its intrinsic value come from being so easy to spend across the world"

The bottom line is, there is a belief that there can be a currency bootstrapped into an exchange rate, with no compelling reason to have it other than to pass it on to the next. It's a hard one to argue either way, but I'm still holding out in camp "no".

Here's a simple engineering analogy since I'm among engineers. In both cases, valuation is based on some sort of subjective valuation (advocates love to point this one out, which is why I don't use the phase "intrinsic value" anymore, they're right that there's really no such thing). In both cases, prices can swing wildly. This is because there is a positive feedback loop constantly pushing prices in either direction, from people subjectively reacting to previous prices and wanting to follow suit. However the consumable commodity has an additional negative feedback loop, from people always ready to buy if prices get low enough, without regard to future expected prices, because they just want a pretty ring.

NateDad3• 13 years ago

Nobody wants gold because they want gold. They want gold because it has value, and that value is purely based on what someone else will give you for the gold. There's no intrinsic usefulness to gold that makes it worth $1000 per ounce, or whatever the current price is.

orblivion4• 13 years ago

Yes, gold is selling for quite a lot right now, and it's probably not because people spontaneously developed a taste for jewelry. Having established gold's price due to valuation from those who do like jewelry, gold is a convenient way to store and transfer buying power. As such, people snatch it up, availability goes down, exchange rates go up. Given those considerations, it still must rely on people bidding those higher prices for jewelry, but now it's only available for the higher bidders among them. However, especially in the economic climate, there is another source of valuation, which is speculation that in the future, prices will go up. Based on this phenomenon, the price of gold could conceivably rise up, yes, past the point where any consumer would want to buy it for jewelry. But this is only because speculators believe that in the forseeable future, USD will be devalued so much that some will be willing to buy for jewelry at that higher rate.

Finally, there is another form of speculation, which I will call "Hot Potato Speculation". This is the one you're talking about. This is speculation based purely on other people's speculation, which in turn is based on other people's speculation, ad infinitum. This is the "greater fool" scenario. It adds a lot of volatility to the market. Hot Potato speculation does surely exist in the gold market, just as it does in any market. But the valuation based on jewelry consumption serves as a negative feedback loop to keep it in check. Further, valuation based on gold's storability and transferability as a currency piggybacks on it and bolsters it further. Long-term, informed speculators, who will not be spooked by a small price fluctuation, bolster it further. So, the first three sources of value serve as protection against fluctuations from Hot Potato Speculation.

However for Bitcoin, Hot Potato Speculation is all that exists.

stevedekorte5• 13 years ago

"Even fiat currency is backed by the full faith in government."

What does this mean? Government won't give you another commodity in exchange for fiat. Is it faith that government will give you a dollar in exchange for a dollar?

digitalengineer7• 13 years ago

Exactly. The American dollar is backed ONLY by the good faith of the U.S. government. It is not backed by gold at any Federal Reserve Bank as it used to be until 1933. After 1933 privately held gold was confiscated and it's price in dollars revealed upwards.

cashmonkey85• 13 years ago

Gold's intrinsic value is such a small percentage of its market value it's basically irrelevant.

mariusz796• 13 years ago

Gold is needed in health care, electronics, space, physics... The supply is limited, and unlike bitcoin someone can't just rename gold to dolg and start mining the new version. Bitcoin, at it's current price is not cheaper than gold. I would argue that it's more expensive, considering its limited use.

oleganza20• 13 years ago

Gold production value is maybe 10-20 times lower than it's speculative value. Just check how much gold is sitting in vaults and not being sent to factories. If it's only demanded for production, then the price would be much-much lower.

Bitcoin has many uses too, not only for reservation demand. It has scripts to protect contracts without expensive court system, blockchain can be used as a secure timestamp service, or a global name registry. It's full of opportunities apart from protecting your wealth.

mariusz796• 13 years ago

You're forgetting that at any point, any government can prohibit using bitcoin, as they did previously with gold, and may prohibit using these scripts. What's left?

zwily• 13 years ago

How can you say that Bitcoin is more expensive than gold? I'm not sure how you'd even compare them.

stevedekorte5• 13 years ago

And what percentage of gold's current value would be supported solely by it's industrial applications? A fraction of a percent? This hardly seems like an intrinsic value argument - almost all of gold's real intrinsic value is that heavy elements are hard to produce and among them, it and silver have the best combination of scarcity and other properties to make them suitable for a physical implementation of a secure distributed account system. Likewise, paper also had great value as a physical implementation of a document storage system.

eshvk• 13 years ago

I will buy your argument when 1 billion people across south asia start hoarding bitcoins instead of gold jewelry with the hope that their daughter can be covered with it when she gets married.

rrhyne2• 13 years ago

You won't be able to afford to buy his arguement if you wait that long.

rrhyne2• 13 years ago

The conspiracy theorist in me says the powers that be will not abide a non fungible currency. Fractional reserve banking, the fed's actions to stimulate the economy through printing, these things dont't work with bitcoin.

oleganza20• 13 years ago

I'm optimist because:

1. Bittorrent is not shut down. And in average, people are getting freer with new tech, not more controlled. Some vocal revolutionaries are still easy to find and catch, just like in Jesus times. But average guy who is not specifically targeted, he's quite free.

2. Government is always a parasite on productive society. If it gets too heavy, it breaks the economy and dissolves without something to eat. If productive people start working with Bitcoin, that's where the value will be and govt will have to adjust and feed from that. BTC can be confiscated and monitored, but not outright banned. Gold was not destroyed when fractional reserve system was bootstrapping. It was relocated from weak hands to armed ones and then used to trade between other well-armed hands. Gold still maintained value, and very big one.

NateDad3• 13 years ago

Honestly, the speculation around bitcoin is the least interesting part about it. The fact that you can do secure person to person transactions with no intermediary is awesome. The fact that it is a "push" system and not a "pull" system (the way credit cards work) is a huge advantage.

The technology is really cool. It's just been unfortunately overshadowed by the get-rich-quick types, druggies, and libertarian/anarchists.

seanalltogether• 13 years ago

You are too late, the stock market already beat bitcoin to the punch on this one. We've been trading virtual assets for quite a long time now, and gold simply went from being a hard asset that you hold in your hand to a virtual asset that sits in a warehouse somewhere. Bitcoin is just another symbol on the ticker.

3pt14159• 13 years ago

It isn't the same thing. For example, if you owned gold through eGold (fairly common place back in the day) you'd still be waiting to get your money back after the feds raided it. Sure they held the physical gold in Dubai somewhere, but the US government shut it down and they ultimately control what you can and cannot transfer for all electronic forms of gold.

digitalengineer7• 13 years ago

Except that you don't really own the stock. In almost every instance when you buy or sell securities with a broker, your name is not actually on the stock or bond certificate. The name that appears on the certificate is that of your broker, and this is referred to as being held "in street name".Ask the people who were MF Global clients how much rights they had after the meltdown. E.g. none. They got to line up at the end of the queue of debtors.

Bitcoins is more like stocks with Direct registration.

oleganza20• 13 years ago

Bitcoin is even better. You own it completely privately without even "direct registration" with any one third party, even the government registry like in case of stocks. Paper USD that you own is "direct registration" and it still does not belong to you. Government takes a bite from it when it wants by printing more paper dollars like yours. You can only own physical stuff like paper of the dollar itself (but not the value), and Bitcoin. Everything else is promises, not ownership.

http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi...

headgasket5• 13 years ago

Warren Buffett on Gold:

1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

1.1 How would Martians looking at ProofOfWork brute force SHA256 hashing and cryptographic scarcity feel any different?

2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

2.1. Gold is inherently speculative. So is bitcoins, as a currency; with the caveat that it only exists if the p2p network still exists, if not there is absolutely no actual use for btc.

3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything."

3.1 IMHO bitcoins as a currency could not have emerged in any other time than in a time where the governments of the world are on a serious QE binge in a desperate bid to prevent a double dip and an extremely damageable deflation era, like the 33-39 one, that can only be resolved by the reset a global conflict brings. If we can snap out(inflate out) of the current slump, bitcoins as a currency will not hold up, nor will gold. Gold is already on the decline...

4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

4.1 This is a key point for all the speculators out there. You will get burned. Buy solid earnings of management-owned moat-protected business. Invest in startups. Invest in brains. Dont get burned by this artificial bubble and the prospect of easy money. There is no such thing. Talk to all the house flippers. They were holding concrete: hard assets; protected solid future earnings is where value is. Growth in in brains.

5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

5.1 Gold is safer than bitcoins in the fact that it does not depend on an honest p2p network to exist individually.

6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth — for a while."

6.1 This is the same for bitcoins, if when the expansion of demand comes to an end the whiplash is going to hurt. The bc protocol is a very interesting concept that IMHO will certainly find a use, and as such the POW will have a value; but it will eventually be indexed to the actual energy costs and expected future earnings.

7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that."

7.1 The goose is running miners. That opportunity is long gone for btc. If you are interested and fired up about bitcoin, I would suggest investing in a bitcoin startup. That's your best bet; investing in brains. Not things. Esp. not virtual things.

Cheers and good luck!

oleganza20• 13 years ago

Good points worth debating.

1. People do silly things because they have "reservation demand" and over time, speculatively, they figured out the most marketable commodity to hold for later spending (gold, silver, bitcoin etc.) Since it's purely speculative, not based on immediate consumption, and always kept in someone's cash balances, it may look silly to martians. But it's useful for people nonetheless. See: http://blog.oleganza.com/post/43378777734/on-circulation-of-...

2. See above. Yes, money is a speculative asset because it's what it is by definition. It's used only to satisfy "reservation demand", or need to hold something ultra-marketable for spending anytime because of uncertainty.

3. It's only fear for those who hedge against USD. There are many ways to do that, not only by buying gold or bitcoins. When you decide to invest particularly in Bitcoin, it's this particular speculation about future acceptance, not fear of USD going down.

4. Same argument that disregards reservation demand. Also: it does not make sense when all gold is a single cube owned by one man. Money is useful when there are many actors holding some portions of it and willing to hold even more. Then you have liquidity. If only you have something unique, it does not become money. Even if it's all gold in the world.

5. Bitcoin depends on p2p network the same way bitcoin and gold depend on the market to value them. Miners are highly motivated to play nice with each other to keep BTC value high. They are also motivated to censor bad spammy actors who try to destroy network or censor transactions. Like, every gold owner is motivated in having good ways to transfer, store and validate gold to keep their value and liquidity in place. There's no dependence on "good will", it's all driven by individual greed and speculation, like with gold.

6. This argument applies to all money, any money. Any good money would have to grow in price as demand for it grows (so it looks like a pyramid). Gold was growing in value too as it was more and more liquid and widely accepted. The quick growth does not tell us if it's tulip mania or real fantastic tool. In both cases the price would have to grow like crazy. You have to look into fundamentals - real reasons why people are making a bet that it will become a huge thing.

7. Another argument which misses reservation demand. Holding cash is useful to owner of that cash as it provides freedom to make choices any time. Holding a stable company allows keeping that cash balance above zero. People work for money directly or indirectly just for that - to have economic freedom to make decisions when they please, depending on the situation.

headgasket5• 13 years ago

IMHO the right asset to hold for reservation demand is either one you can directly pay you taxes with: the sovereign entity's currency in which you operate (or exist in case of a moral entity) or a marketable security with moat-protected earning power. It has worked wonderfully for Mr Buffet. I have done quite OK with the same principle; YMMV.

That being said, the idea of bitcoin p2p proof network and attached mining reward is fascinating. I dont think "reserve demand" is the killer app for it, something yet to come will be IMHO.

My current hand does not warrant investing my most precious asset of all, time, in this. But a killer app could at any moment change that.

I see you are looking at iOS applications. That may very well be where it resides.

Cheers and good luck,

JackFr2• 13 years ago

Why should Bitcoin have a monopoly? If Satoshi2 comes up with another process, similar but differing only in the mining computation, my Bitcoin2's should be equal in value, or at least at guaranteed at an exchange rate based on compute intensity required.

I assert that they would not be my Bitcoin2's would be worth less. This highlights the observation that literally all of bitcoins value comes from confidence that the network of willing participants is permanent and robust. This makes it different than gold -- gold is gold, whereas one crypto-currency is entirely different than another crypto-currency. This also makes it different than other fiat currencies whose network of participants is compelled by law.

digitalengineer7• 13 years ago

We can't have a currency competing with the US dollar. If I was the US, I'd love a domestic (crypto) digital dollar. If bitcoin fails people lose faith, and I present the solution for a modern society: the Digital Dollar, unbreakable crypto and easy for world-wide use and backed by the full faith of the US government/NSA. And: I could tax every transaction, even the smallest ones on Craigs List/eBay.

oleganza20• 13 years ago

Gold is also a bet, just like Bitcoin, that it's the most marketable commodity (more than 90% of value is in this speculation, not in production demand). People tend to come up with valuing most the money which is most liquid, most accepted by others. If Bitcoin2 comes along it should be so incompatible with Bitcoin1 and so much superior that people would want to make that bet again with Bitcoin2. Most probably, though, Bitcoin1 would be extended since it's possible and so many people desire these new features. If not enough people desire new features, then another currency wouldn't be as liquid as the first one.

Universe wants one money, anyway: http://blog.oleganza.com/post/54121516413/the-universe-wants...

LogicalBorg• 13 years ago

Another nutty Bitcoin article, equal parts nonsense and hype. Don't forget that ownership of gold can be transferred digitally just like ownership of Bitcoins. A real investor would know that already. Plus it's a false dichotomy to claim that because Bitcoin becomes valuable gold must become valueless. Both can have value. Finally, Bitcoin is subject to substitution replacement (by altcoins) or technological obsolescence (by someone inventing a better coin), but gold just isn't, since it is one of the fundamental chemicals of the universe.

oleganza20• 13 years ago

"Digital ownership" of gold is a lie. You own promise, not the thing. You can own bitcoin and can do that in a way that no one can access it except you. It's easy to prove: you can create a random key, move some money there and erase that key from everywhere. Now that money is not accessible by anyone forever. Ability to destroy stuff is what ownership means. If you lock up gold in a vault, it still can be cracked and opened. If you trust some bank to store gold for you, they own it and promise to deliver it when you want. But you own promise, not gold. And that promise was constantly broken by banks and governments throughout history.

http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi...

On altcoins: http://blog.oleganza.com/post/54121516413/the-universe-wants...

dpacmittal• 13 years ago

He missed the point where gold is an actual tangible item and has a massive market of jewellery.

Bitcoin and Gold

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