Topic: why can't bitcoin be based on something that has value? - page 7. (Read 1988 times)

think about it more deeper then that.
as what you say sounds like people have just come up with a random number they are willing to pay, and paid that. meaning bitcoins value is just random number..

this is wrong.
the market PRICE is random. no one can predict what its going to be tomorrow..
no one pays the exact same amount as another person..
but this is the PRICE.. not the VALUE

so think deeper.. not at the price.. but at the actual value backing it underneath.

same with houses its not the random house market price of whatever house is being sold at any given minute.. its value is based on an underlying minimum value no one would sell their house for less in the region/planet more long term.. (the comps bottomline)

if the minimum comp for the entire planet is 10 hours min wage/sq foot.. then all houses on the planet are above that in price.. so the underlying minimum value backing all houses is atleast 10 hours min wage labour/sq foot

yes some people might personally value the coin more but the overall min value of the entire economy. that number that no one can sell below.. that is the whole economy value amount that backs it all.

above that is the speculative more volatile extra amount added on

I agree with you generally, Franky, but I don't think speculation is the right term here. I'd use supply and demand. If at any point in time there are more sellers than buyers, the price drops. But as you said the price is not linked to value and as educated investors and traders we should make a clear difference between the two.

I think OP is spreading misinformation or he isn't aware of Bitcoin technology at all. Bitcoin is a decentralized cryptocurrency backed by the community. A decentralized currency how will backed by a centralized organization? You are the owner of your Bitcoin, so who can backed it without you? Haven't you already backed it when you bought it? Think about it deeply. You are paying for Bitcoin. That's how it's backed by the community and holders.

i think what the summarised answer(in question form analogy) to what the topic creator is asking is:

why arnt house prices fixed a stable square metre amount that all houses are backed by

totally forgetting the features and utility of what a house is and does and forgetting that people in different regions have different supply or demand. even if a house ultimately on the market does show houses do have value and when comparing the square metre 'comps' per year shows a more stable value rate than the volatile market price of houses sold each hour of the day

in short the market price of each house sold hourly is not the same as the average/minimum comps. but that does not mean that houses have no underlying value

a house does not need to be backed by gold or pegged to something else.
its intrinsic underlying value is the 'comps'
bitcoins underlying value is the mining costs (asics and electric)
golds intrinsic underlying value is its mining costs (diesel, digger and sluice machines)

the price is then the speculative buffer/layer of cheap or premium volatility amount above this underlying value that backs it

if it depend on something what is the special of bitcoin??? adoption is all. psycology makes adoption.

K let me give you an example.

Let’s say 1 litre of oil is 1$.

If you want Bitcoin to be „backed“ by another asset you need to introduce something that says 1 Bitcoin = 1 litre of oil(or whatever other asset you’re thinking of) for example. This already gives it a fixed value, it won’t ever be worth more than 1 litre of oil, because if it reaches higher prices than oil(Lets say 1 Bitcoin was 2$), people just can redeem their oil for Bitcoin and sell it right away, they essentially bought a Bitcoin for 1$ and sold it for 2$ in this example, making the price of 1 Bitcoin go back to 1$ over time, because there will always be new people coming, buying oil for Bitcoin and then selling it for profit, it would be free money from a flawed system. This system doesn’t work. That’s why it becomes fixed exchange rate, even if you try to let the market find a price. When Bitcoin would be under 1$ you could get oil for cheaper than its market price, making the market price always hover around the backed asset.

Then theres the problem of storage.

Who stores your oil? This doesn’t work in a decentralized way, because then you need to trust random people to keep reserves and redeem them for you. So a central entity is needed. In both ways it requires trust to work, with random people or central entity.

There’s no asset that can do this in a decentralized way that doesn’t require trust, and apart from this, i outlined above how it’s a dumb decision to be backed by something, because then there’s a limit on success, it could never hold more value than its reserves and thus not become universally accepted money, because it needs to be able to hold more value than 1 asset class can offer. If Bitcoin succeeds, it backs the world, not the other way around.

I hope you get this part now.

This is something so many people are preaching since so long against,

don’t
use
centralized
services
to
buy
Bitcoin(especially not Coinbase),

There is decentralized alternatives, there is decentralized exchanges, there is p2p ways, you can buy and sell Bitcoin for cash and so on. You don’t need anyones permission to do this, it’s completely legal.

There is too many factors working in the market to understand this fully, it’s traded 24/7/365 worldwide, any tiny impact can influence the price, this happens fast. Then there’s other factors from centralized services giving out more paper Bitcoin than they have in their reserves, to unregulated banks overleveraging into Bitcoin with billions and then almost getting liquidated. Prices can’t be predicted accurately, it will stay volatile for quite some time, that’s the only thing that’s sure.

In 2020 there was buying opportunities for 5000$ still, only consistency and patience get rewarded here, but no one can guarantee you a profit.

This is about buying Bitcoin, because you understand what it offers, because you believe it will succeed, because you want the money system to be fixed, because you want control over your money back, this is no free painless money. It’s a wild ride, it takes time to get, it means a lot of studying, it means taking responsibility, but it’s also fun tho.


Im not saying it cant work without the internet again, but im saying the internet isn’t leaving anytime soon, so it won’t.

Maybe we’re living in different universes, where fiat was a good store of value once, but nowadays it’s working against the working class and they’re too unaware of what inflation means. They don’t question why they can barely afford anything anymore and less and less over time, this has nothing to do with going trough bad times or not whining, that’s what older generations don’t get, this is caused by economic decision making by the system, the outcome is already determined beforehand. Money will flow to the top automatically over time and concentrate there, this is the predetermined constant that won’t ever change in fiat, which makes it a terrible store of value for regular people. Sounds more like a ponzi scheme to me, where everyone else but a few people get left with nothing over time.

So what can you use Bitcoin for?

The first stage of Bitcoin will mean it will become established as a store of value, this is the most popular use case now. You can already use it as a medium of exchange, you can already use it as a unit of account, and this will increase over time. You can become your own bank, custody ur own funds, work when banks don’t, become resistant against censorship, transact permissionlessly worldwide, have a fixed supply which means your relative Bitcoin amount will never decrease in relation to the to total supply(no inflation), which means the money you worked 30 years for, can’t loose 10% every year, because someone at the top decides so. So you better want Bitcoin to succeed, except if you enjoy working for free and gifting that money to someone, who already has too much at the top.


I’ll give you time to read this part.

Is Bitcoin really not backed by anything of "value"? Really? So those miners needed for mining Bitcoin are worth nothing? The internet costs nothing? What about the electricity? Is it free too?

Bitcoin is very much backed by diverse sources of "value". Even though those sources are backed by a fiat value as well as production costs and so on. If electricity were to double in price tomorrow, don't you think that this would have an effect on the price of Bitcoin?

Bitcoin is backed by tradition value, but its most valuable property is being the next generation of money. If you can't see that then have fun with your fiat. Im sure scraps of paper with a value which is decided by corrupt and clueless politicians is going to stay around forever...

Fiat isn't backed by anything either. It just has value because people think it has value. In the case of Bitcoin, its value comes from its decentralized and censorship-resistance design. Even though it's not issued by a reputable entity such as a central bank, the mere fact that it's sound money no one can shut down makes it an extremely-valuable cryptocurrency. Unlike Fiat, people are the ones who determine Bitcoin's price on the market. I'd say the max supply of 21 million coins is perfect for Bitcoin. No more coins will be mined, meaning there should be no inflation in the long term (which translates into higher market prices).

Ultimately, it's all about utility (not the price). As long as Bitcoin works as intended, nothing else matters. Just my opinion

There is no need for trying to control the exchange rate assuming you mean what the asset can be bought and sold for. Its price should be determined by the market. That means it can go up and down. We're not talking about it having to be some type of stable coin. I dont see why you need a central entity to redeem the asset either. it just depends on what the asset is. Some assets might not need a central entity. Some might.
tether is a stablecoin that's its goal is to be worth exactly 1 usd. so tether's backed asset is supposedly us dollars. people replace their usd all day long with tether. why? so they can buy cryptocurrencies with it. or invest it into interest earning platforms (gamble). you can't use 1 usd to do anything digitally. that's why tether exists to turn it into a digital form. you seem to have the notion in your head that the goal of a cryptocurrency is to go up in value. i say it's to perform a useful utility to people.

no one is forcing people to invest in ponzi schemes. those will always be with us. but i do agree with the point that in order to be useful it needs to not rely on a central organization or entity. you can't have centralization for a backed asset it just leads to problems.




Why are you assuming that I would want my cryptocurrency being backed by some fiat currency? It can be backed by some non-fiat asset. You can't back it with fiat anyway because guess what. The government controls fiat and the government is a central entity. Centralization.

that's why centralized systems are useless in this context.

Let me guess. You're talking about bitcoin. All of that sounds nice in theory. But guess what I do need peoples approval to buy bitcoin. I have to depend on my bank to allow me to send money to coinbase. Then I have to trust coinbase to not freeze my funds once I send them there. Then I have to trust coinbase again when I buy bitcoin to let me send my bitcoin off their platform. I need their permission to do all of these things. And then they will report me to the government too maybe. Then if I ever want to cash out my bitcoin I need to send back to coinbase and hope they don't freeze my bitcoin and allow me to sell it. Once I sell it i have to trust them to not steal my money but to honor my instructions to send it to my bank account then i have to trust my bank not to freeze those funds once they get in the bank account.
Bitcoin is not trustless in practice. As this example shows. It requires depending on multiple central authorities for the average person.

Why is bitcoin only selling for $20,000 now when it used to be 3 times that? Did it become 3 times less value for some reason?

Me wondering how gold and fiat existed prior to the 1990s. I guess they didnt.

Fiat is a great store of value. I can buy almost anything I want with it. Including things that I can't buy using bitcoin or any other crypto for that matter. I've yet to find a use case for bitcoin myself. Do I need to look harder?

ponzi scheme.
But does it really have a cap? that could be changed via consensus.


but everything needs to be backed up by something. even fiat is backed up by the us government.

now, people that bought into bitcoin when it was $60,000. they've lost a good chunk of change. so they'll need to hodl to get back to break even. but as long as it has a utility for them i guess their fine right? is that what you're saying?

Since you can't just print bitcoin and the supply has a cap, then your arguments here are moot.

That is irrelevant. There are always people who are gambling on anything including the direction wind is going to blow! That doesn't change the fact that bitcoin as a currency provides many utilities that gives it value and it doesn't need to be backed by anything.

I can say that we are still early these days, still, the majority of the people don't know what Bitcoin is and don't know how it works.
For me, I can consider Bitcoin as digital gold, as you can see there are a lot of people using gold as store value or investment, not the one we saw physically like wearing it for accessories or jewelry.
Bitcoin is also created as mode of payment, that's the real world use for me of Bitcoin, using for payment.

The problem with backing is that you need to introduce a fixed exchange rate and always need an entity from which you can redeem your assets from. This leads to two problems:

1. You’re limiting the potential of the actual asset(e.g. 1 Tether will never be worth more than 1 usd, 1 backed bitcoin would never be worth more than the backed asset itself), this becomes a problem, because there’s no reason that someone should replace all their usd with tether for example, it just never makes sense to primarily use this asset over the actual backed asset. You can’t use another assets value and discover your own at the same time. You have two give up one of the two. A Bitcoin that is a cheap copy of another asset serves no purpose, so the answer which one to pick is clear.

2. It requires trust, because you will always need to trust an entity to hold enough of the backed assets and redeem them. Even with a digital backing, we saw how well that worked for Luna. This would give up decentralization and would defeat what Bitcoin actually is, and thus make it useless.

Bitcoin is a really cleverly designed system, there’s reason why it is like it this, you can’t just change the properties without changing what made it successful in the first place.

Your backed currency can go to 0 too, that’s what you keep forgetting. Centralized systems are easy to stop by the government, they can lie about their reserves, they can refuse to redeem the backed assets, they can give out more currency than backing exists, they can run away with the money. The list goes on. Everything falls apart with this asset, if someone inside the central entity doesn’t work honestly just once in all its lifetime.

Now you have another asset that is decentralized and doesn’t have the problems i mentioned above. Is designed by computer science, cryptography, math, economics, game theory, psychology and a strong community. Has no need to have something else attached to it. Is the first currency that works trustlessly on the internet. Most successful asset of the last decade. Triggers people worldwide but can’t be stopped. That doesn’t need anyones approval, and is strong in reality and not just with words. Is an actual alternative to the current failing money system, and the only alternative there’s ever been that doesn’t require a central entity to work. Is gaining more and more people every day. Gives you full ownership over your wealth. Hardest asset to confiscate.

Which one of the two do you need to have more faith in to not go to 0? Which one of the two requires less trust of you to work? What you mentioned above is a far worse situation.

This point is redundant with what i mentioned above, Bitcoin is the most decentralized asset there is, so how would the other „decentralized asset“ gain its value then, and be so superior that Bitcoin needs it? There is a logical flaw here. There’s no shortcut to letting people find Bitcoins value themselves, why is this so hard to accept?


Fiat and gold depend on the internet the same as almost anything else does on this planet now. We can’t expect an asset that came out in 08/09 to have the same acceptability, as gold or fiat yet. But over time this will fix itself and we can see this trend already happening. How was the internet used in the 90s and how is it used now? The Unit of account phase comes last and isn’t relevant for the initial adoption stages. Because Fiat is a terrible store of value, and Bitcoin will be adopted as hard money first.

I hope it became clear now why it can’t be backed by anything else but itself.

That's why a cryptocurrency can't be backed by gold and be decentralized. But there should be something that can backup a cryptocurrency and still allow it to be decentralized. That's really the best type of situation because then the cryptocurrency has an objective value which is whatever the value of the underlying asset is. With bitcoin since it is backup by nothing, then it has no objective value. So nothing is really stopping it from going to zero except peoples faith and trust in it.

Now alternatively, consider oil. Oil has uses. it makes gasoline which runs cars. It has an objective value and people are willing to pay for it. If they lost faith in gasoline due to high prices then they can buy an electric car but that doesn't meant that gas price goes to 0. Likewise, a cryptocurrency that was backup by a decentralized asset should be able to maintain its value no matter what people thought about it whether it was too high price or not. Whether they used an alternative or not.

Except that bitcoin requires computers and the internet. Fiat and gold don't depend on any of that. And until people can buy everything they buy with fiat using bitcoin then "I don't think so".


You seem to agree with fiat being not backed up by anything. not sure why. you do realize that when fiat is backed up by nothing they can just print it at will, further devaluing it and thus your paycheck. everything you buy will cost more. because prices will go higher to compensate for the reduction in purchasing power of the dollar. your paycheck though won't get bigger to the same degree. so you might need to gamble some of your money in the crypto markets maybe buy some bitcoin and hope it goes "up".

First of all, decentralization and backing are two things that are almost incompatible with each other, because who is the central entity you will be redeeming from? How will you verify the reserves? What about the fungibility issues of gold? Who stores the gold and keeps it safe?

Second of all, you would have to tie the value of bitcoin to a fixed amount of gold, you would need to create a fixed exchange rate, which brings in new economic problems and attacks.

Third of all, this will always fail and makes 0 sense, it makes the primary asset useless. It just becomes a servant for gold, it will never become worth more than gold, because the fixed exchange rate. Why should we spend all this energy to mirror the gold price, when this can already be done more easily. It doesn’t actually help Bitcoin and we gotta go trough these huge fluctuations in the beginning, shortcuts won’t help.
 
Bitcoin is better money than gold or fiat.

Then what is ForEx used for?
People are already speculating on all fiat currency values. The more volatile they are the more they will be speculated on.

It's about age and maturity. As I said, gold has existed for thousands of years and have been considered valuable for a long time but bitcoin is a toddler in comparison.

"Used to be".

People's belief doesn't come blindly, it is based on the utility that medium of exchange provides them and its supply. If bitcoin, like any other form of money, stopped providing utilities that gives it value then it will lose that value and could even become worthless.

It depends on the size, it could be an extinction level event in which case who cares about price of x and y because humanity will no longer exist

Ideally bitcoin would be a medium of exchange and not something that people obtain just to speculate on its price. They would just use bitcoin as a tool to buy things. Kind of like they use fiat. Now I do realize there are people that speculate on usd/euro but that's a very niche group. that's not the purpose of us dollar for people to sit around speculating on its relative value vs some other currency.

Well in the last 11 years, it's more stable than bitcoin's price. Alot more stable. Bitcoin has much wilder price fluctuations. That's not a good thing for a store of value.

So maybe that's why gold has had fluctuations in its price in the past for similar reasons? But again as I pointed out to you, bitcoin is more volatile than gold. when it comes to price.

fiat used to be backed by gold in the united states. that's how it should have stayed. by the way you pose your question, you seem to be suggesting that fiat not being backed by anything is ok. that's right bitcoin is backed by absolutely nothing except peoples' belief that it has value. if one day they decided it didn't have any value anymore, bitcoin's price could plummet. and that would harm alot of people.

I just used gold as a convenient example of an asset. Gold is not necessarily an ideal asset to back up a digital coin with though. The ideal thing to use would be something that you didn't have to trust was stored in a vault somewhere.
If each individual user was able to create the asset, store the asset and consume the asset so much the better. Then it would not be centralized. Something like that is a bit more complicated than standard bitcoin it is more highly advanced. But if it ever came into existence I think people would be excited about it.

But I do realize that it wouldn't necessarily mean the end of legacy bitcoin. But it would usher in a new era of cryptocurrencies which did not rely upon people just trusting that something has value when it is not backed up by any real asset. That's why people invest in real estate because you can see it, use it and touch it. your money is secured by it. So it's not going to zero.

Just as an example. Say an asteroid was going to hit the earth in a year. Or 5 years or whatever. What do you think would happen to the price of bitcoin? What do you think would happen to the price of gold? What do you think would happen to any type of cryptocurrency that was not backed up by a real asset that they could use without having to sell the cryptocurrency for fiat in order to use it?

It's not backed by "something", but it is really useful in the Dark Markets to buy Heroine from Mr. Drug Dealer. It's very useful to go around a government's oppressive policies, like capital controls imposed on Chinese citizens. Did you know that only $50,000 is allowed to be sent per year outside of China per person? Bitcoin can break down political strongholds ser. It has a bigger role to play than Gold, and we don't know what it really is yet. The cat is out of the bag though.

You are focusing on other aspects of bitcoin and you are right but the point was to focus on the "currency" aspect of bitcoin and as a medium of exchange it is the same as any other medium of exchange namely fiat.

You are naive if you think any "asset" exist in the world that has a stable price! For example gold that people think is stable, is not stable at all. It's just that gold that existed for thousands of years is not not as volatile as bitcoin that existed only 13 years. Otherwise gold has gotten dumped hard and pumped hard. They also recently found a massive amount of gold that they are going to extract and enter circulation that could dump gold price in the following years to come!

Again you didn't answer my question, fiat is not backed by anything so why should bitcoin?

If Bitcoin is backed up with gold, does it mean that it is already better off? Or does it actually make it worse?

What if Bitcoin is backed with gold? And then the supply of which is rising and rising and the source is also getting wider and wider with the outer space also contributing greatly no end. Bitcoin would then devalue. Or what if the hundreds or thousands of tons of gold back up were bombed because of a stupid war? Would Bitcoin suddenly turn to 0 overnight? Or is it better this way, that Bitcoin is backed with codes etched in stone?

golds price is about $1700.. its value is about $900
but i bet in al your years you never looked at the $900 number or thought about gold even having a number below the price..

but then now knowing both figures.. what is gold worth to you.
are you able to start a gold mine to get gold nearer the $900 level. or is it not worth the investment effort. is it more worthy to you to buy now at the market price. or are you not really needing gold right now and think it might be worth it later to buy if it comes down closer to the $900 amount.

see even gold. thousands of years being traded and still people cant categorically say a whats worthy to them amount, as each person has a speculative different thought on it, but all thoughts are on amounts at $900+

...
as for your other comment.. not stepping upto the plate and creating a bitcoin 2 stablecoin:
an asset backed by another asset!?. is not as much of an asset as you think. its just a convertible note of a asset..
a real asset has value in of itself.

bitcoins asset value is derived from its mining cost.. the actual cost of acquiring it. into existence thats not due to any asset that done the actual work.

meaning. if a fresh token can be created for a penny. but then is pegged as priced at $$$ because of some other asset that actually had cost/work required to bring the actual asset to existence. then the fresh token is not valued as an asset..  its just a convertible token/note.
(ots why bank notes are not assets. but even in the goldbacked era of last century. bank notes were just convertible notes that cost penny to make but were not the asset. the gold backing it last century was the asset.)

these days a dime costs more then a dime to create a dime. so a dime is a more valued asset than a bank note.
...
take the difference between PoS and PoW
ethereeum when it detonates to PoS will change from being worth over $1k value to being worth only a few dollars value. and any price above value is speculative emotion.

bitcoins main value is the baseline mining costs that actually does cost many many thousands of dollars per coin right now.

golds base value is derived from the diesel and sluice machines that are paid for to mine it. its base value is over $900 right now.

if you are just wanting to create a new coin that has no cost in its creation but just magically gains $XXXX due to it somehow representing another asset.. then that new coin is not itself the asset.

i know you want to only look at the PRICE and think its volatility is not backed.. you are right. but you then talk about it as if the price is the value. which it isnt

EG
take real estate.
if you look at any region and look at the base sq metre prices of many homes.. and look at the base line that no one is selling below. thats the true value..
then when you look at the real estate prices of the home as as a whole you can then look at which homes are selling closest to that value or are exceedingly expensive at a premium.

house prices are not stable. and houses PRICES are not their VALUE. you have to find the value below the price to then see how good or bad the price is. to then work out if that house is worth it.

if you just want a stable coin that never changes. heck you dont even need to back it with a reserve(legally and morally you should. but its not needed). you just form an exchange where you only offer swaps at 1 for 1 and never deviate. never offer premiums or discounts. never have a orderbook of varying prices. never change the price. and boom you have created a stablecoin.

if you just want a coin thats backed by a real world rare mineral or something you can lock up in a vault as a reserve. thats possible too. but that rare mineral may adjust in price AND value meaning you then have to adjust the value/price of the coin. which then comes with risks of it detaching its backed 'value' if you are not careful.

however..
if you ignore the bitcoin PRICE. and stop thinking of the PRICE as the value. and instead realise the VALUE is a lower number. then you might start seeing bitcoins VALUE is not volatile and unstable. but just like other things in all markets. assets that have underlying value. also then ontop have the speculative discount/premium price

same as gold same as real estate