Topic: why can't bitcoin be based on something that has value? - page 8. (Read 1949 times)

This is the market man, the degree of adoption is still low, you gotta pioneer trough it. Taking shortcuts gets back to you many times in life and bitcoin didnt take them yet. It all depends on the degree of adoption, if it reaches closer to 100% in the future, then it becomes the worlds unit off account and you can divide all worlds assets(400 trillion) by 21 million and then you know what it can be worth. So it’s up to you to speculate how many people it can reach in what timeframe, i just showed you the max potential, it will be somewhere between this and where we’ve already been, if we already knew we would be there already.

This would play out differently in practice, tying yourself to an asset also means you can never outperform it. So Bitcoin 2 would just be a worse version of the real world asset and not outperform it. If it can’t even outperform the asset it’s backed by, then it won’t be able to outperform bitcoin too.

The price fluctuations of bitcoin will become less and less anyways as the degree of adoption rises, pure money doesn’t need bs tied to it, like i said. The fluctuation will be zero once the unit of account phase sets in, so bitcoin 2 didnt actually solve something that wasn’t already being accounted for and actually limits it’s potential for some temporary price stability.

There’s a saying nothing good in life comes easy, if the market gave you a stable asset, it also means it will stay in the place where it’s at, you can’t have both at the same time here. So if Bitcoin 2 is just a worse version of gold for example, why should someone use it over gold? Comfort is never free, it means you’ll be giving up something else, everyone would love something that never bears a risk, but to win you gotta beat the competition and not bow to them for some temporary comfort and stability.

Essentially bitcoin 2 would just stick a different label to an asset and bitcoin, but is neither of the two. Sure i could name my son lionel ronaldo in the future, but it doesn’t mean he would perform like them. This is the catch here.

Nope it's not going to make Bitcoin obsolete, there will just be a split of the community. But together they'd still be using Bitcoin.

BTC is not just a perceived value. Bitcoin is backed by the community. The miner's machine had to make all its effort to mine them. That's a real value, you can compare it to a worker who worked his day job which an employee pays for his day.

So I understand what everyone is saying here, I read through all the comments. But here is where I stand on the issue. Just so everyone knows.

I think bitcoin is not stepping up to the plate when it just says to people to "figure out what I'm worth, I can't tell you". So of course a system like that will never have any issues with any type of real world asset. I mean the way bitcoin is set up right now, it could run inside someone's brain if they had enough mental capacity. But it wouldn't really mean anything.

Now lets say one day there comes a bitcoin 2. This bitcoin 2 is backed up by a real world asset. And people agree on the value of that asset. Not everyone uses that asset but they don't have to. But then can if they want to. that is, convert their bitcoin2 into that asset if they want to. Or they can sell their bitcoin2 to someone else on an exchange much like they do with legacy bitcoin. Bitcoin2 just provides more uses for the coin. The good thing about it is that if this asset is stable in price then bitcoin2 will not have wild price fluctuations and will be a better store of value than bitcoin1. People will be able to put their money into it without having to worry that the price of it will go down or up too much.

Thus my conclusion is that if this bitcoin2 could ever come into existence then it would make legacy bitcoin obsolete. No one would want to use the old bitcoin anymore.

Because one component of money is being a store of value, and for this it needs relative scarcity compared to other goods. Money that isn’t scarce just looses more and more value over time, everything around you gets more expensive and your money worth less, a bad situation to be in.

Humans are too bad at predicting the future to be able to handle this correctly. We see it right now, where inflation gets out of hand and all they can do is manipulate statistics, so it looks better than it actually is, instead of actually fighting inflation. The problem is human decision making will mess the supply up, so a fixed one is better, apart from also making it a better store of value.

This is a feature not a bug, it might sound unintuitive at first, but being backed up by an inferior form of money is a disadvantage. It doesn’t bring any benefits, and no one would need have the need to use the currency that needs backing, because they could just use the asset that it’s backed by directly. Why buy a crypto that’s backed by gold, instead of buying gold directly, it just doesn’t make sense. I say this overly simplistic to get the point across, because there’s reasons why gold fails as a medium of exchange, most people use crypto as a store of value at the moment, that’s why i won’t get in deeper now.

Bitcoin is something complete in itself, it doesn’t need other bs that’s inferior to it.

First of all, this is not a weakness, money isn’t an economic resource, it’s there to facilitate trade, it doesn’t make sense to make products out of money.

For the simple reason of fungibility, another function of money, each unit should be exactly the same as the other. This is not the case with jewellery and gold coins, they’re different so they’re desired differently, which is bad for money. No person that used gold as money, will use it to make a product out of it. Even gold coins have different desirabilities depending on when they were made and by who, this is bad for fungibility. Pure money doesn’t need another use to be desirable, just like no football club wouldnt hire messi, because he isn’t good at basketball.

I’ve seen this mixing between money and economic resource many times now, i think some people have a hard time separating this. But don’t forget the market can separate between the two pretty well and made Bitcoin the most successful asset of the last decade(outperformed gold and everything), doesn’t seem like a weakness to me, this wouldn’t be possible by being tied to gold.

Being backed by something also opens up a whole new array of attack vectors and market manipulations, as a side note.

Electricity has value, doesn't it? If it costs x Watts to mine a bitcoin it's going to be worth something close to the value of that power. Currently it appears that the production cost of 1 bitcoin is above 21k USD so that's where the value should be at the very least.

You say that bitcoin is based on people's perception of value. Isn't hat with all things? How do you know what your apartment or a house is worth? You know you paid some money for it, you know your neighbor sold a similar apartment for certain amount of money, you know that if you rent it out you can make that much money every year. This allows you to put a price tag on it but if people won't buy you will probably lower it.

If people were buying my bitcoin for 60k USD it means that was a real price or a price in a given range. Now thy're ready to pay 20k so we know the price is somewhere between those numbers.

Op, your argument is indirectly pegging to value. The reason you are talking about the tangibility of bitcoin is it's value. Your question is the kind of questions that came when bitcoin was newly introduced to the world. For me, I would say that bitcoin has grown above this type of question. There are many tangible things that are of great and there are some tangible things that does not have value.
When we talk of fiat, you believe it because it's in the form of paper? If yes, is the value of dollar in the paper it's printed on? No! The value of dollar is abstract just like bitcoin.
The recent rise in the government adoption of CBDCs should fault your claim of bitcoin being pegged to another assets in order to have value.

if i should emphasis on how Bitcoin is different from other currencies. My suggestion goes this way. The difference between bitcoin and other currencies is that Bitcoin a valuable asset that have different method of regulations and automatically base on its regulations because of it's decentralized kind of life, other currencies that's known and also popular to the society centralized currency which can be monitored and controlled by a specific sector. So the different is very clear from my perspective.

Bitcoin very clearly has a production cost. That leads it to be “backed” by electricity, which is arguably an extremely valuable resource. If you know how to produce Bitcoin without paying any cost, please let me know. I’d love to have some free Bitcoin. This argument also completely ignores the value of securing the blockchain for immutable payments. If you know, you know…

Bitcoin doesn't have production cost, because if miners stop mining, the difficulty drops, so the production cost drops too, and it could drop so low that you could mine it alone on an old laptop, basically sustain the whole network with nearly zero investment, just like Satoshi was doing in early days. So, the costs of mining have no influence on Bitcoin's price - they are miner's problems to figure out.

The best basement for Bitcoin is the Proof-of-Work algorithm and its Protocol. The disappear of Satoshi Nakamoto is another solid basement for value of Bitcoin. It supports the decentralized protocol of Bitcoin, and developments etc.

With Proof of Work, no more Bitcoin can be mined if there is no miner, no hashrate to mine it. Miners need to have mining rigs (computer, GPU in the past and ASICs now), electricty and more. There is cost to mine Bitcoin and it is another basement for its price.

It was designed to be that way. The power consumption on mining it is already sufficient to backed its value. Its not come from thin air like fiat which has unlimited supply and only trust backing it.

Imagine how much power and it cost that Bitcoin miners already consumed for a relentless Bitcoin mining until to this point. The current design is working since Bitcoin was created. I don't need why we need to change on something that needs centralization for holding all those collateral.

bitcoin is NOT just some random value people choose as their value. which then becomes the price.
bitcoins value is not based on the random whim of the day of speculators

stop imagining the price as a single line that also represents value.

instead imagine 2 lines

the base line is the store of value. (VALUE backing it (its more stable and doesnt move in a volatile manner)
above that is the price. (the 'premium' that is speculative and random and unbacked by most fundementals0

the value line is not build on the whims of random speculation of peoples random thoughts of price of a random number they choose at any given time.. but instead its based on alot of fundamental economic costs.

EG if X% percent bought below $17k and Y% bought above $17k. they have actual costs and values they wont sell below or want to buy above.

also mining costs where even the most efficient asics at the cheapest wholesale asic hardware cost using the cheapest electric available on the planet.. have a base cost that no one can mine for less than.. meaning everyone else with higher costs wont be able to mine for that amount and would happily buy at that amount or more.

you can gauge some value support by looking at the LONG TERM lows of a 2-4 year period where the price refuses to drop below. this becomes the bottom value..

the amounts above that where the price moves hourly-dayly-monthly at a more volatile speculative price. is the speculative stuff above value

..
take gold. its base value is about $900 and that is the value store amount. then when you look at the markets swinging from $1.2k-$1.9k. thats the speculative unbacked area
(golds 20year low=$300.. golds 15year low=$600.. golds 10year low=$900.. )

the prices(speculative random) above these lows are the random stuff you think is the unbacked thing.
.. your just missing that there is a backed value line hidden below/within the price

Where do you get that from? For years BTC was mined at a loss by people who found it interesting.
Even now there are people mining with older inefficient miners who loose money every day even at $50k or $60k per BTC.
As people stop mining difficulty drops so the remaining miners make more. If the price drops even more, more people may drop out and the remaining people will get more BTC
That's the way the system works. That's the way it's supposed to work.

As an altcoin example it looks like that as of the next difficulty change (tomorrow) LTC will have a 25% drop in difficulty since the beginning of June when it's price plummeted.
Would take a bit longer due to the 14 day adjustment of BTC but if miners dropped out the same will happen. But looking at the BTC difficulty, miners are not dropping out.


-Dave

Won't disagree! But why someone will invest their time and money into something which no one wants? When a global community invests their time and money into something, it means it has value and demand. A production cost must be factored in while calculating the value of bitcoin, otherwise it doesn't makes sense!

If the market price of bitcoin goes below its production cost, the entire network will be doomed as new supply will stop. Everything goes hand in hand here!

I don't see any reason that will encourage backing bitcoin with something, the backup may need another backup and it goes on. The value of bitcoin is open for everyone to see. The price, mathematical solving, and blockchain technology stays with bitcoin. It can be said that it's backed by its value because bitcoin can't be tagged valueless, just that people have less confident in bitcoin unlike the Fiat currency. An attribute that will grow, given time and multiple personal experiences about the usage of bitcoin.

this article said something relavant

Things that are valuable are backed by the belief that they are valuable. Coins used to be backed by gold, but gold also has quite a bit of faith in the belief that it is valuable, although it can be argued that with gold you can make durable objects but to analyze this would be to enter into a long debate that would divert us from the main issue.

In this case the Bitcoin is worth because many people give it value, and if you wonder why they give it value it is because of its intrinsic properties, but as I said before in value attribution there is always a part of shared belief that it is valuable.

Note that in ancient Rome, salt was considered much more valuable than it is today:

Did you know the word 'salary' has nothing to do with money, and everything to do with salt?

In ancient Rome, it was salt and not money that was used for commerce or trading. The soldiers who worked for the Roman empire got a handful of salt in return as their payment each day.

What was the salt backed by? On the belief that it was valuable. You could argue that it was used to salt food, as in the case of gold, which is used to make objects, but that property seems ridiculous today to give it the value it was given in ancient times.

I guess OP didn't understand how financial market works, as @pooya87 explained fiat is not back by something, not even by gold (if that is what you think of).

In fact:

https://corporatefinanceinstitute.com/resources/knowledge/economics/fiat-money-currency/

So there is no flaw in bitcoin system, and it was created just like that.

Well, let's look at Fiat currencies....

All Fiat currencies has perceived value, because it is backed by a promise from a government to honor the value that are printed or minted on the note or coin.

If you really look at Bank notes, you find that it is made from cotton paper and linen (The same material used in the manufacturing of say aprons, bags, towels, napkins, bed linens, tablecloths) ...... and the only value linked to it, is the signature of the government official that promise to honor the value that are printed on that.  

How many people still believe that governments have the best interest in mind for their fellow citizens? How many corrupt governments are looting and stealing tax payers money?

I will rather support a currency that do not use politicians to manipulate it's value to suite their hidden political agendas.     (Bitcoin's value is based on supply and demand from people globally... not government officials)

First of all, Bitcoin is a technology. No reason why it should be backed by something, and If you want it to back, that will remove the whole point of decentralization.
It is backed by miners around the world processing the transactions of the users on the network. It's more than an asset. 

The value of things is always subjective; it may vary significantly from one person to another. Some people don't value bitcoin at all, claiming that spending energy on its mining is a waste of resources, whereas others may value bitcoin because it allows them to make unstoppable transactions, which can be settled in seconds without the participation of any trusted intermediaries. A fixed total supply is one of the main features that make bitcoin valuable to some people simply because these people understand that no other assets in the world have similar peculiarities.


If it is imaginary, then you can use your imagination to make yourself rich by imagining thousands of imaginary bitcoins. If you can't do that, then there is something wrong with your conclusions.


Production cost doesn't invest in bitcoin value at all, miners produce bitcoins because they are valuable, not the other way around. If you invest your time and labor in something no one needs, this thing will have zero price despite production costs.