If I were a bank, I'd stay far away from any non-bitcoin cryptos that I'm not an issuer of. Why would I want to own a coin that someone else is able to freely devalue, in addition to conventional currencies?
On the other hand, if I were a bank, bitcoin presents a compelling argument. The supply is finite.
You're a bank. Three of your regulators
(a) Board of Governors of the Federal Reserve System
(b) Federal Deposit Insurance Corporation
(c) Office of the Comptroller of the Currency
release a "Joint Statement on Crypto-Asset Risks to Banking Organizations". It contains the following text:
"Based on the agencies current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices. Further, the agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities or have concentrated exposures to the crypto-asset sector."
The Joint Statement is dated January 3, 2023.
So, after this warning, what's your next move.
(This thread is hilarious. The title has now changed twice.)
How being the supply finite is relevant? This idea that being scarce implies value makes no sense.
You realize we can go on github and setup a bitcoin network too, we call it BitcoinYC, our coins have the same properties of bitcoins, why would that have a value?
Please repeat with me:
- currencies (wheter fiat or crypto) have no value. You can't do anything with them, maybe watch dead national heroes printed or them. They hold no assets and don't generate value.
- Currencies have a price though, in other currencies, assets or services. E.g. Both usd and bitcoin are worthless but both have prices set by demand vs supply
- scarcicity does not mean value. Intrinsic value means value. E.g. water has tremendous value but low price. Gold has tremendous value and price. A car has some value, a business has a value. But currencies only have a price.
If we are defining value, I would not say that value is equivalent to intrinsic value, or else the phrase "intrinsic value" would be redundant. Currencies have value even though they do not have intrinsic value. Notably, this value is as a medium of exchange, a unit of account, and as a store of value.
Bitcoin's capped supply increases its ability to store value, and so too does its demand increases. Yes, you could make a currency the exact same as Bitcoin, but it probably wouldn't be as good as a long-term store of value, because its network is smaller.
If we are defining value, I would not say that value is equivalent to intrinsic value, or else the phrase "intrinsic value" would be redundant.
Nothing has intrinsic value, value is a relational and marginal property - I value things differently than you, and you value the first litre of water differently than the thousandth. And even then the value of something is not fixed and may change over time, you probably now value things differently than you did as a child.
We should get rid of them since they have no value. Personally I like them because they facilitate trade and finance on a global, immense scale and allow for decentralised price discovery and information distribution. But then does trade and finance have value?
..wait maybe money networks do have value
which you'd better hope is not within your life time, because the implications is that the US has fallen, and that a new world order would've taken over. It is unlikely that you, as a citizen of the west (presumably) is going to fare as well as you are today.
Scarcity has driven value before [0]. And the more scarce, then more valueable. This being combined with other characteristics necessary to be money: Divisibility, fungibility, salibility across time and space.
Some examples: wampum seashells, mammoth ivory beads, glass beads. None of these have "intrinsic" value.
By the way, the main point of the article I linked is that since humans like to collect random, valueless things (like seashells on the beach) then there must exist an evolutionary explanation for that. Meaning, the behavior must have been selected for.
> This idea that being scarce implies value makes no sense
You’re putting words into their mouth, they didn’t say scarcity was important at all. They said that it was compelling the supply was finite. We can only guess what they meant since the comment didn’t elaborate, but they maybe meant that if there’s known, fixed quantity of BTC in existence there’s no chance of a big surprise quantity of BTC appearing from nowhere, and causing a price crash (like the Spanish mining silver in South America eventually did for the price of silver).
Personally I don't find that very convincing (BTC price already fluctuates wildly and there are enormous BTC “deposits” that could suddenly cause a crash if they were used) but maybe that's not what was meant either. Either way, I don't think projecting a non-obvious meaning onto this comment and using it lecture people on price-vs-value is very persuasive.
Precisely - there's a chance Craig Wright's bonded courier shows up with the missing pieces that allow him to produce the key necessary to access them ;) Hence:
> there are enormous BTC “deposits” that could suddenly cause a crash if they were used
Of course that Craig Wright thing was a hastily cobbled together lie he came up with based on Back To The Future, but there's still the outside chance the real "Satoshi" could show up and do something.
> You realize we can go on github and setup a bitcoin network too, we call it BitcoinYC, our coins have the same properties of bitcoins, why would that have a value?
Miners will only mine the blockchain with the longest proof-of-work. They won't mine yours, as Bitcoin's preexisting blockchain is longer. This principle was explained in the Bitcoin paper and is the heart of what makes Bitcoin work. Miners can only use their electricity for one thing at a time, thus the competition to secure the underlying asset (energy) forces what might seem to be otherwise unrelated projects to in actuality compete against each other.
Change the word mining to computing, and it’s more intuitive.
A network of nodes compute stuff together, making data available across the network. It’s like asking why is a distributed network valuable.
During the process of computing, the network validates stuff about the data, guaranteeing it properties, so that people can rely on it to a certain degree when reading from and writing to it.
> if I were a bank, bitcoin presents a compelling argument. The supply is finite.
I've worked at a number of banks now and what keeps them up at night isn't how much money they could make or what competitive technologies like Bitcoin are doing.
It's their ability to consistently operate with the increasingly tight regulatory guard-rails imposed by the government. And Bitcoin's incompatibility with KYC and AML regulations render it unpalatable for most financial organisations.
So many financial institutions use Watchtower for their risk assessment framework and I think they are adding crypto risk management to their portfolio
I'd stay away from BTC too, its poor environmental effects invite regulation and they have no plan to pay for chain security in a way that scales as issuance drops off.
If you like the "limited supply" thing (I don't) you might be interested to know that other chains exist that can even have negative issuance, and while there is a plan to eventually stop issuing BTC, right now the supply of BTC is actually increasing (1.72% at the moment i think).
Ultimately if you want people to hold your cryptocurrency as a store of value rather than spend it, and you are using an expensive means like POW to secure the chain, then its going to be difficult to pay for securing the chain just with transaction fees, calling the whole "limited supply" thing into question.
If you don't have issuance then the cost of securing the chain for all the people with value on the chain is an externality bourne entirely by those making transactions. Unless you have a plan to keep demand for transacting extremely high then the chain is unsustainable.
Yep. To put some numbers on this, transaction fees are currently about 1% of the block reward[1]. As of the next halving next year, transaction fees would have to grow by 50x to make up for the lower block reward.
Bitcoiners I talk to either haven’t gamed out the long term, plan to sell before then, or have some wishy-washy story about how Coinbase et al. will mine as a loss leader to keep the industry running.
I think the idea is that if big institutional holders like Coinbase subsidize mining at a loss, the for-profit miners become less necessary. To be clear, I'm not defending this theory, it's just the most reasonable theory I've heard.
As it happens, mining is currently also subsidized by a bunch of retail investors flocking into the publicly traded miners, given that most of them are currently losing money per coin on a unit basis once hardware depreciation is factored in.
> I think the idea is that if big institutional holders like Coinbase subsidize mining at a loss, the for-profit miners become less necessary.
I suppose it's one possible future, but I'd be shocked to hear a bitcoiner say it, since it would effectively turn a decentralised chain into a chain run by a consortium of large financial companies.
I agree, but the other path I've heard proposed is for miners to force a hard fork to lift supply cap and keep subsidizing the network with inflation. I think that's even less true to bitcoin's original ethos.
(I also think it overestimates the power that miners have to unilaterally hard fork and have the community accept it, but so goes)
You're probably right on both counts. Having said that, if the analysis is correct, then it means that users will eventually drive the chain to a place where it's experiencing regular attack. At that point they'll probably not stay around and will look for other options.
I think he means the compelling aspect is its fixed monetary policy. Gold deposits can be discovered (Uganda) or asteroids mined. Governments actively change their monetary policy. But bitcoin, for the first time in history, sets monetary policy in stone and gives all participants perfect information (in the game theoretic sense). I'm not saying that's overall good or bad, but it certainly makes predicting the future easier!
> But bitcoin, for the first time in history, sets monetary policy in stone
There’s nothing preventing Bitcoin miners from modifying the Bitcoin supply algorithm and inflation rate, except for their collective unwillingness to do so.
Bitcoin block rewards go down over time in Bitcoin terms—but so far the long term trend has been that the rewards have gone up in USD terms. We have never seen a sustained, long-term decline in the block reward in USD terms.
When we have seen short-term declines in the USD-denominated block reward, the hash rate has also declined—meaning a good number of miners have stopped mining.
What happens if the price of Bitcoin stagnates in the long term? Will miners still mine when the block reward is slashed again? Or will they decide to modify the algorithm to ensure that they remain profitable?
To change the algorithm, all three of miners, users, and nodes would have to agree to the change. If there is any disagreement, the network continues running under current consensus rules.
While the block reward remains high in USD terms, I think you’re right with regards to the power balance. But if the reward falls low enough—which very well might happen, if the price of Bitcoin stagnates and if transaction fees stay low—then there won’t be enough miners to secure the network without some kind of change to the algorithm.
The Bitcoin Cash fork happened when prices were rising and the inflation rate was still high. What would the balance of power have been if the block reward were 1/16 what it was at that time? What if the only miners willing to stay in the network were trying to exploit it in some other way, because the block reward was insufficient an incentive?
In that kind of environment, both users and miners might start looking to make changes.
Isn't it that the less miners, the lower the difficulty therefore each miner that continues to mine will win the block reward more often because of less competition?
The security issue with less miners is the whole 51% attack, but even with a substantial drop in miners, it would still mean the attacker would need many thousands of nodes. Seems like that kind of energy and spend would be more profitable mining.
The problem is that if you stop increasing the supply, then you're relying entirely on transaction fees to reward miners.
But transaction fees are determined based on supply and demand for transactions, not based on how much value on the chain is secured by them.
These are only tangentially related, and the strategy of 'store of value' makes them even less well coupled.
Unless there is high demand for transacting, then the economic pressure will be for the cost of attacking the chain to come down, and double spending the value stored on the chain will increasingly become more appealing than transaction fees.
The current equilibrium relies on the supply increasing.
> The whole selling point of Bitcoin is that nobody can do that.
It is absolutely possible but not practical. The selling point of bitcoin in this regard is that the work needed to take over the network is relative to the size of the network.
You can 51% a small shitcoin all day. It might cost you $50,000 to do it and now you control a coin that has become worthless because it got hacked by you.
It's not practical right now, but if block reward and bitcoin price go way down then what are the options? Only the most die hard bitcoin fanatics are going to mine at a loss without getting anything in return. Are there enough of them to prevent 51% attacks?
I would not be surprised if a large crypto exchange takes over bitcoin mining some time in the future. Crypto gamblers don't really care about decentralisation or censorship resistance. They only want the number to go up.
> But bitcoin, for the first time in history, sets monetary policy in stone and gives all participants perfect information
This is as true as saying that the United States Department of Treasury sets the supply of dollars in stone. Bitcoin is as fixed as the relatively small number of parties who run the network want it to be. If enough of them wanted to fork it, remove the deflationary model, change their rewards, etc. most users would be dragged along for the ride because there’s no anchor.
What would be the shared motive for any of that tho? Like considering the requirements for forking (and the likely crash / loss of value) does that not present more of an anchor than most / all fiat systems which are regularly debased?
Say the mining rewards fall off as planned and electricity prices go up. What percentage of miners is going to stand up for purity of the original vision versus voting for them to make more money? As we’ve seen so many times already, wasting lots of resources doesn’t make cryptocurrency middlemen any less tempted to abuse their positions, there’s nothing like the democratic accountability which keeps most sovereign currencies more stable than Bitcoin, and every major holder knows that they’re holding the weakest fiat currency and will only profit if they cash out ahead of everyone else.
You don't need to cap supply to set emission in stone. People are already discussing how to amend bitcoin's emission to deal with the future lack of security when reward is dominated by tx fees.
An uncapped emission like 1 coin per second forever would be more immutable as it is simple as possible (not to mention much fairer) and leaves no uncertainty about long term security.
Creating new digital currencies is also rampant. It seems to me that a finite representation of the current wealth of the economy (the money in circulation) is not even desirable. New things are being created all the time that increase that wealth. It seems reasonable to be able to adjust the amount of currency in circulation to reflect that.
I personally find Bitcoin much easier to send to family than a chunk of gold, and Bitcoin’s block reward results in a far more favorable inflation rate than many currencies. There’s more to money than these two aspects, but they are IMO solid positives for Bitcoin.
You're obviously talking about supply inflation there, because price inflation (the more usual definition of inflation) measured in bitcoin has been about 250% over the last year.
In the USA? Not much. Bitcoin is a decent choice for sending your money across borders though! It could also be a gift if you think holding it long-term would be valuable. I remember my grandma buying me bank bonds as a kid for the same reason.
You don’t have to use an exchange to send a cryptocurrency. I personally use them to buy crypto, but then I send my assets to a hardware wallet asap. From there, you can send it anywhere you’d like.
Chunk of gold - go down to the local gold broker pay a fee to get dollars. Bitcoin - pay a fee to get it exchanged for dollars so that you can buy something before it loses it's value ($60K -> $17K).
They likely saw the $65K and listened to all the people that said it was going to $100K and never sold - watching it plummet. The "what if" scenario is pretty useless considering the entire point of any currency is to maintain value - which allows the predictable purchase of things creating an efficient market.
One of the original arguments for BitCoin was that it would maintain it's value during inflationary periods - clearly something it has not achieved. The justification for BitCoin seems to be a moving target - depending on whatever the perceived problems are - Dr BitCoin's economic cure all.
Would you trust any asset to hold its value if it goes 20x in a short period? I feel like Bitcoin will be less volatile down the road when adoption has picked up.
Aka it’s less of a crazy speculative investment and more of an actual currency.
The problem is that BitCoin is treated in a speculative manor which is generally not a good thing for currencies. Currencies are also traded but the fluctuations are generally small - when they start to get big (think Argentina) the country has a problem. An please don't say Dr BitCoin's magic elixir will fix all that because it has already demonstrated it can be forked (creating new bitcoin out of nothing) and lose value in an inflationary period. Both things touted as reasons to support it. Currencies serve a purpose - primarily to allow the exchange of goods and services. As far as I know I cannot purchase much of either with BitCoin without first converting to $$$. So it is not really a currency now or likely ever will be.
You can own both gold and Bitcoin. At a minimum unless you think those who think bitcoin is ultimately worthless are right, it’s a way to diversify a gold-like asset class along the axis they are similar.
Let's compare a highly valuable and needed metal with 6000+ years of history as a solid investment, with...cryptocurrencies and their proven record of having no real life utility but lots of speculation. Makes sense.
> Let's compare a highly valuable and needed metal with 6000+ years of history as a solid investment
Hi, I've worked in the global mineral exploration industry for decades, both as a mine worker, an exploration geophysicist, and as a compiler of a global DB that now backends the S&P mineral intelligence division.
Let's clear up some things about gold.
1) It's valuable because it's valued ..
That's pretty much it, it's kind of rare, its shiny, it "stands alone" as a noble metal that doesn't easily react.
2) Much needed - it's used in jewellry, it's essential in high end long life zero maintaince space electronics ... a great deal of other uses (Gold Speaker Cables!!) are just pure performative BD (ie. it's not "essential") - other metals are in the same ballpark for conductivity, etc.
3) The greatest single application for gold, once mined at great expense, is to be formed into ingots and sit about as bullion as "proof" of work (digging a super pit and spending > billion to recover it per annum) and proof of wealth.
It's more or less solid crypto that persists after the power goes out, can be worn as shiny jewellery, and has some neat niche applications that it is essential for.
I'm not a huge cyrpto fan, although I did hang on the cypher punk boards where the bitcoin paper was first announced (as I have a math background) - I'm no fan of the vast amount of energy wasted (IMHO) on both gold extraction and bitcoin mining.
They're saying that gold is a cryptocurrency-like asset. Gold's value is primarily that looks cool and it serves as proof of work: the work of finding, mining, and processing it.
So basically, cryptocurrency (i.e. proof of work limited shiny token) has "a long history of a solid investment that goes back to ancient times on a global scale"
According to the ancestor post, gold's unique practical properties (like for electronics) constitute very little of its market value. Most of its value comes from its unique property of looking pretty and its scarcity due to work needed to obtain it, which is again the same as cryptocurrency.
Permissionless, as in don’t need anyone’s approval and anyone can participate, transfer of value backed by trustless, as in don’t need to trust anyone’s word for it, global consensus system.
Your sarcastic reply was unnecessary, if you read my post you’ll see I carved out the case you’re talking about. Time will tell.
If you can’t see literally any axis along which Bitcoin and gold are comparable, then I can’t really help you. It’s obvious there are some ways the two are comparable, even if you think these comparisons are weak or ultimately insufficient to hold up the price.
....Actually, lots of people have been saying cryptocurrency is or would be more compelling than gold or fiat for several years now, and deriding those of us who disagreed with phrasing like "how do you like being poor?"
Miners will one day decide to hardfork bitcoin to increases the mining rewards, hence increasing the supply. They will of course need to prepare the narrative, and say "it is for the good of bitcoin".
It might be in 10 years, or in 50 years. But on a long enough time-scale, you can be sure of one thing: Bitcoin will change, because it's man-made and because it's mutable/forkable.
I hadn't really considered this before, but I think there's a good chance they'll do something to increase their take-home if bitcoin becomes cheap enough relative to the mining reward that its security becomes threatened. Right now there are lots of people mining bitcoin at a paper loss due to speculation. If they go out of business after a few years, or are forced to sell because "number goes up" doesn't happen, there will be an exodus of mining power, which could then lead to the Bitcoin network being vulnerable to double spend attacks (these have already happened a number of time on networks with less hash power, like Ethereum Classic [not ethereum])
If double spends looked imminent, or started occuring, I think it would make sense to fork to increase the block reward. Of course, bitcoin has forked before and it becomes a political issue. Personally, the big block wars (and subsequent Bitcoin Cash split) was where I got off the Bitcoin train.
But if a fork happened, and the network that didn't adopt the higher block reward started getting 51% attacked, I do think people would move over to the new network (and that would become "bitcoin")
It's entirely political. The miners and related business interests that profit off of bitcoin have a lot of influence and a lot of clear incentives, but any message signed by Satoshi could completely alter the direction of bitcoin.
No, but lets say a the big traditional instances do not accept the non-forked chain. Only the forked one. How good would that chain be for your average new user that is forced to accept transactions on the new chain.
>Miners will one day decide to hardfork bitcoin to increases the mining rewards, hence increasing the supply.
This line of thinking is a fundamental misunderstanding of who holds the power to change the rules of a system like Bitcoin. It's not the miners, they just enforce the rules. Economic actors are the ones who agree on which rules miners enforce.
That hard fork the miners created? It's worthless, just like every other time miners have tried to change the rules.
That's a good thing. It means that they found a sound argument for it. Sound argument has to be something that keeps bitcoin alive and valuable to users. Bitcoin always follows the path which makes it survive. It can mutate, but only if the mutation makes it stronger.
> On the other hand, if I were a bank, bitcoin presents a compelling argument. The supply is finite.
The supply of most cryptocurrencies is finite. That in itself is completely meaningless.
> Disclaimer: I don't own any crypto or bitcoin.
Nor have you read about many of them, then?
'finite' bitcoin is also only finite by consensus, as are all the rules around it. As emission continues to decline, it's entirely possible the ecosystem could change the rules.
And that's before we talk about what 'finite' means in the context of forks, be they source-code forks that spin up a new chain with an all-new supply of pretty much the exact same thing, or chain forks that instantly create new cryptocurrencies with the same history as the existing one.
And more importantly their model is actually build on currency not being finite. Transactions make only so much money. Making loans that is non-finite money scales much higher.
Compelling against the US dollar which is "printed" by the trillions and is constantly losing value based on arbitrary decisions of people with effectively no accountability
Good job nobody's advising you to invest in dollars then!
FYI the 'trillions printed in the last two years!' line is a meme, not a reality, and those running the currency are accountable democratically, in a way that cryptobros are not.
> Those running crypto networks are accountable legally.
How? Aren't 99% of cryptocurrencies unregulated, ergo Ponzi schemes, pump and dump, trades by the same (hidden) identity? That's also a feature why a lot of people and finance institutions are drawn to them.
Plus, did anyone take to account Ethereum, for example, for forking it?
> On the other hand, if I were a bank, bitcoin presents a compelling argument. The supply is finite.
Finiteness is a neccesary but not sufficient condition for something to be valuable. Lots of things are finite that are stupid investments. Its not like banks are investing in vintage comic books.
Finiteness is not even necessary for value (ideas being the go-to example). Its necessary for a price (actually non-finite things are free, assuming they're produced in a free market).
I don't know that ideas are really the best example. Most of the valuable ones (in the money-sense) are valuable more due to the person attached to them, and their ability to implement the idea or improve on it.
Why would a bank use Bitcoin instead of forking it? If a bank uses Bitcoin, they are buying out the early holders who got in cheap. They’d be better if with a fork - plus they can fix a lot of issues with scaling, cost, and energy usage.
Not in any practical sense. There's enough water in the universe to have a whole private solar system made entirely out of water for every single human.
What you’re describing is hypothetical. Following the dictionary definition of practical, our supply of water is limited to what we can actually use — and since people usually want fresh water, that means it’s limited to the point where there have been many conflicts over it.
On the other hand, if I were a bank, bitcoin presents a compelling argument. The supply is finite.
Disclaimer: I don't own any crypto or bitcoin.