Topic: A more rigorous look at bitcoin's fundamental value - page 2. (Read 4418 times)

No, a lot of people seem to think that, but it's not the case. Bitcoins are a poor long-term store of value.

Their fundamental value is that people want to use it to transport value over space.

Like from the U.S. to Africa. People also want to do it securely, anonymously, and without a central authority.

THAT is the inherent value of bitcoins, folks. Forget it at your own peril.

If I could I'd be rich.  Human value subjectively and that is subject to the standard cornucopia of bias chief among them hyperbolic discounting.  It could be tested empirically to see how people react under certain sets of conditions.  Whether or not those conditions told us anything useful about the real world would then again be open to interpretation.  It is the dismal science.  Not science proper.

$300 per oz cost of production was for year 2000 and gold was trading at close to that. The production cost of gold is higher now $450.

I was going off of memory for production costs and just looked it up and saw it has gone up. So gold is 3 times production cost not 5. And yes that includes all costs

Interesting read

How could this be? What will it cost me to mine an oz of gold? $300? no. 100oz? $30000? No. 100000oz? Why wouldn't someone be taking this free money if it was there? Maybe you don't consider buying the mine part of the cost?

Don't forget that Gold was valued at it's cost of production for almost 10 years.
Right now gold is 5 times it's cost of production.

Bitcoins cost of production are about $1

Your thoughts were indeed clear to me, thank you for sharing.

In the end, it'll be supply versus demand.  Over 7000 new BTC are mined per day.  If even 10% of that is sold, plus normal sell orders, that is a lot of $ value that must be coming into the system on a daily basis.  Will that continue?  I don't know, but I hope so! 

Everyone knows that market demand for bitcoins sets their price.  But there is a lot of debate over what creates that demand.  Who is buying all those coins from miners?

Proof-of-work systems are a little counter intuitive.  We will look at the similar asset gold to explain them.  People dig gold out of the ground, sell it to others who put it in a vault in the ground and sit on it.  Why bother?  Proof-of-work guarantees scarcity.  I know that nobody can magic more gold into existence.  It's going to take X amount of time/labor/material/human ingenuity to get more gold.  Therefore I know gold won't suddenly become common since those other resources are limited.

So you have this scarce resource.  Is scarcity enough?  

No.  It must be scarce and in demand.  People buy gold because they think they can sell it to someone else later for the same or more of other things they want.  Gold is a way to transport value across time.  

Why does the gold buyer assume there will be equal or higher demand in the future when the person they sell it to also just wants to sell it for the same or more than he paid?  At the end won't someone HAVE to be left holding a bunch of useless rocks?

Not if the supply of gold increases more slowly than the class-of-people/number of dollars seeking to transport their value over time.

What prevents a sudden crash?

Nothing! The check on this is that people don't want to transport value over a week typically.  They want to transport value over a span of years.  The longer this investment window the more the supply of a good will be restricted.  Restricted supply of existing gold (in addition to new mined gold, the buyer doesnt care) relative to the total amount of gold in existence helps ensure that there won't be a sudden drastic price decrease.

Now you can go back and replace the word gold with bitcoin.  The creation of new bitcoins is similar to gold in that it is a small amount relative to those coins already in existence.  But what about the other factor?  What is the investment window of bitcoin?  No one knows.  Many proclaim it to be a bubble and will sell at the first sign of correction.  Many hoarders claim they are in it for the long haul.  Whom you believe will sway the market more is up to you.

The fundamental value of bitcoin is that people want to use it to transport value over time.  The characteristics of bitcoin generally discussed such as a lack of inflation and decentralization merely make it more attractive as an asset to fulfill this role.  If the number of people/dollars willing to hold bitcoin for this purpose grows faster than the rate of creation of new coins plus the rate at which current holders decide to sell theirs price will continue increasing.

I'm actually not sure how clear this is.  I'll answer questions but don't be surprised if I simply point you to a wikipedia article.