Topic: Re-visit the question: What is bitcoin's value backed by? - page 3. (Read 9149 times)

Eisenhower Standard!

Fiat currency is inflating, Bitcoin is deflating, so price of Bitcoin will rise naturally.
With every exchange between Fiat and Bitcoin the exchange rate will rise at least with the ammount of inflation.

So everyone who is holding Fiat is actually stupid cause Bitcoin is not loosing while every one else is.

Everyone that just holds Bitcoin will keep their values reather than all the Fiat money users who in-fact loose money in the speed of inflation.

This fact changes when you also look at the market value, here is Bitcoin dangerous cause the market is small and the volatility high.

It seems... not so much anymore.
http://thegenesisblock.com/analysis-silk-roads-historical-impact-bitcoin/

Told ya

hahahahaha

 

Soooooo.... yup. 

Not to zero, there is no theory that suggests unbacked currency are always worth zero (or bitcoin would be zero as well)... The dollar plunged by a third during the '70s, though.

At about the time the gold backing for the dollar was removed, there was also the establishment of the EPA, and massive federal government appropriation of land and land use rights associated with that.  This was a genius move by Nixon to co-opt his hippy opponents into giving him a new backing other than gold, by taking much land into the government treasury. December 2, 1970 The wilderness Act seized a bit over 9 million acres. (Now over 100 million, and growing).
To end the effect of Gresham's law on the dollar vs gold, and to prevent a run on the dollar, stabilize the economy, and decrease unemployment and inflation rates, on August 15, 1971, Nixon issued Executive Order 11615, pursuant to the Economic Stabilization Act of 1970, which imposed a 90-day maximum wage and price ceiling, a 10% import surcharge and most importantly, "closed the gold window", ending convertibility between U.S. dollars and gold, leaving only "Full faith and credit" in its wake.


They act similarly for those reasons.  The difference being the "legal tender" issue.  Taxes must be paid in dollars, and any debt may be discharged by payment in dollars (thus all debts public and private).

You are free to specify other terms contractually, but in a legal court dispute, unless you can get "specific performance" the best you are going to get is dollars as a debt satisfaction, though the amount may be based on the value of something else (such as bitcoin).

Look at this statement: USD will have a relatively stable value in the future because it have a relatively stable value in the past and now therefore the price will be relatively stable in the future

The value of money is decided by a consensus, and when people reached a consensus, it will just hold that value even the supply and demand changes. In USD's case, that consensus is reached through people's historical experience, so even the gold that originally backed USD have been removed, its value still kept relatively stable (In theory when the gold back it was removed, it should drop to zero)

In bitcoin's case, the consensus will be that this money will always rise in value because of its limited supply and unlimited demand. People won't reach such consensus if they don't know about supply and demand theory in economics, but I suppose that more and more people will gain such basic economy knowledge over time

So, the consensus about USD's value is reached by historical experience, while the consensus about bitcoin's value is reached by economics theory, they are both psychological phenomenon but that's what essentially drives people's behavior

It's not an asset "will be more valuable in the future because it will be more valuable in the future". What I mean is whatever number you come up with as a value for it now, has to involve estimating/guessing the uncertain future. Of course, if an asset is doing useful work right now, that also has to be counted.

In bitcoin's case, since it isn't really doing much important now (unless you count safeguarding the share of early adopters as important), it's usefulness to the world isn't realized in the present, but only in some possible future.

Dollars are designed to always be decreasing in value, to encourage investment say the Keynesians.  So measure the market in something that isn't changing it's worth, such as gold.


Since the "bottom" of the market at the last crash, the market has gone down.  But in nominal dollars it seems higher, doubled!  But the Dollar is not worth as much.
Still due to dollar inflation, market investors owe a lot of money in capital gains taxes, because the stock prices are hitting new highs, so selling them is a "profit".

I'm not much for currency investment, but I do respect Gresham's law when it applies.  Yes I would rather spend my dollars and would rather accept bitcoin payments.  Am not so worried about the carry risk with bitcoin, the average has been in my favor.  I also enjoy spending my bitcoin, but I do so preferentially with those with whom I have some personal compassion or ongoing business relationship, because I want them to still be around if there is some currency crisis.

I also like to spend bitcoin with folks that are new to bitcoin or just curious.  It provides a great way to introduce someone who is just contemplating it.  For every new person we bring into the new monetary economy, we do each other a favor that will never be forgotten.

Who among us does not remember their first bitcoin transaction?

This is from the perspective of a speculator, who just want to make some quick profit in fiat money. Admittedly, speculation always affect the short term price discovery

People will gain much more confident in bitcoin if they understand why today's fiat money system is fundamentally flawed. Unfortunately they were born into this established system and they seldom question the rationality of its current design

Most of the children think the sun goes around the earth, since they feel that earth is static and sun is moving. Same, most of people think fiat money has a constant value but anything else's price is fluctuating. This misbelief has costed them a fortune, they will sooner or later realize this, it is just a matter of time

Arros, I just don't buy the proposition that Bitcoin will be more valuable in the future because it will be more valuable in the future therefore the price will be higher in the future therefore the value is higher now, without first asserting some cause for the future rise in value or some cause for the present value.

That reason for the rise in value doesn't even have to be substantial or valid because we can have another conversation about that. Bitcoin will be more valuable in the future because people love words with the letters "B" and "T" in them? OK fine, I'll accept that or at least argue it as a separate point. Bitcoin will be more popular because people want to believe that they will get rich and can delude themselves into believing that it will go up whether it will or not, which is likely to become a self-fulfilling prophecy bubble market? Well, that's something too.

What isn't something (alcohol poisoning? that's a thing?) is to claim that it is valuable today because it will be worth more tomorrow than it is today without establishing either that it *is* worth something today or that it might go up. If you're asking where the value is coming from, the answer can't be that the value is coming from its value. That just doesn't mean anything, that's all.

smscotten, I was not ignoring risk. Why would I say it "Works like a lottery ticket" and "the chance of success is very small, people gamble on it" if I were? (That bitcoin will most likely fail and have it's market price crash to 0 in the next decade or so is in fact my guess, but that's not important here.) The market price right now is a reflection of both the very small chance of success and very high payoff just in case a miracle happens.

In fact, market price is often the most convenient way to estimate value because it's readily available. Value of any asset naturally involves future events which are uncertain, and as such, we usually can only use educated guesses to come up with an numerical answer. Market price is a kind summary of market participant's guesses, often as reliable (or not) as other complicated methods people come up with.

Regarding my "right to mine" example, the point is any value you can attribute to it, be it very high or very low, positive or otherwise, is neccessarily derived from what may happen in the uncertain future. You shouldn't need further information to see that. Whatever you may or may not find in that site, whatever prices those things may or may not sell for, and whether the government collapse or not or just reneage on their promise to screw you, are uncertain future events. When a government auctions such a right, people use their educated guess to estimate their numerical answer for value and use that to work out how much to bid.

Different people will have different estimations and that's just the nature of it. Value in this context is a variable people estimate to help with their decision making. It's not some kind of idealistic concept, or for moral commentary. It's a pragmatic concept that is involved in decision making.



Relating back to the actual topic of this thread, bitcoin's value hinges on the future. Part of it is the long term success as a currency system, and part of it is whether someone may buy your bitcoin off your hands at some profitable price in the next few months etc. For people who are not buying food or some such with it, it's value is entirely derived from future events. Therefore, people can only come up with their estimate by guessing now. Since the big payoff contingency is extremely unlikely (my guess and market participants mostly seem to agree), I whimsically said it's "backed by dreams of getting rich with a lot of luck."

Bitcoin's value is supported by people's confidence etc, but that is different than being backed.
The world is so unaccustomed to a backed currency, that the meaning of backing is at risk of being lost to time.

Just like anything else that is accepted as payment it is backed by people's confidence. Yes SHA256 is so far been secure it is people's confidence that backs it which is then backed by peoples money, time, efforts, talent, etc.

You haven't given me enough information about the mine. I would say that the mining rights anywhere have some value. Whether that value exceeds the cost of bringing that value to market is an open question. I don't know enough about geology to frame an example properly but if there are 20 other lots which are near to the one you're offering (near enough to have similar mineral properties but far enough that we wouldn't be chasing after the same of whatever mineral it is we're mining for) and three of those hundred mined a billion dollars worth of whatever it is in a year while the other 17 each mined 10 million dollars' worth, I'd estimate that plot's value at 158.5 million dollars. If I knew that it would cost 200 million dollars to mine that land, yeah, I'd say it was basically a worthless stake, though clearly it has value, simply value that does not meet the cost to get it.

I'm not dismissing future value, I'm saying that you can't count as "value" the highest possible profit, ignoring risk. Without having some hypothesis about the measure of the risks of profit or loss, there isn't any set of numbers from the future that you can attach to current value to modify that. If you have some piece of information about factors that increase the likelihood of higher value over time, then you can count it. But in this nebulous example the added value comes from whatever those factors are. The added value does not come from the increase in value. The increase in value doesn't just cause itself.

So, smscotten, would you say the "right to mine" in my example has value? Do you think newspaper would say such a right "has no value"? Do you think economics literature would say such a right to mine "has no value"?

What do you think is the value of source materials from which people can make desireable things people consume? They are valuable only because people anticipate they can be converted into some things they can sell at some future time. There is also uncertainty involved in how the conversion process will go and whether people will actually buy from you etc.

Value is derived from the final act of consumption which is often in the uncertain future. If we want to get numerical, we do need to be more clear about how things like uncertainty are handled (or not  ). However, that's very far from dismissing anticipation of the future as the basis of value with which people use to make decisions now, like buy or sell.

Well, if we were talking economics jargon, we wouldn't ever use the word "value" without prefacing it to specify whether we mean nominal, real, future, present etc value. But any present valuation based on future value must also incorporate risk into the formula. Otherwise, to take your example, every lottery ticket would be valued in the millions of dollars.

Granted, you did use and even emphasize the word "if" which makes a premise of the increase in value. Yes. If you determine with certainty that the value will increase, you should include that value. But to take that and turn it around and say that that uncertain future increase (which could just as easily be a decrease) is the what gives the currency present value, well, you're not describing any kind of value, you're describing what I believe the economists like to call irrational exuberance.

If I use "value" like you apparently do, then I should say the right/license to mine a site issued by a government has no value because whatever you may or may not be able to dig up from that site, and whatever price you may be able to sell those things for are in the future and anticipation of future value is not value?

You're of course free to create your personalized jargon but whenever you read economics writing, value calculation always includes any return anticipated in the future.