They still don't get it. I think partly because they live in the first world country.
The initial reason why BTC took off was pure speculation based on the fact it's fixed supply + unknown but may be bright future.
As speculators started gambling, people who sell drugs and other illegal goods saw a great potential in moving their money as they know they eventually can exchange it to fiats by dumping BTC to speculators.
At this point BTC got its real value as self-fulfilling prophecy.
Following speculators and drug dealers, wealthy people living in countries like China, Russia saw great potential to move money out of their countries.
Self-fulfilling prophecy continues.
If there was no war on drugs and over-regulation of cross-border money transfers, BTC would not be taken off.
As first crypto-currency, BTC didn't need fast transactions, low fees etc, since there was no alternative for these people anyway.
Currently, there are technically better crypto-currencies than BTC but BTC is still alive because of strong network effect and it's safety was tested by time (after all it has longest chain in the world).
The whole story about discussions around BTC showed that you can have Phd in Economics and still suck at economy and simple reasoning beyond standard stuff you've been taught in university.
I could be wrong, but I think you’re missing the real point here. Wall Street firms are in the business of influencing markets to their favor. When I see Jamie Dimon or MS slamming bitcoin, I assume they’re also readying a big buy in case their statements move the price a little bit lower. That kind of arbitrage is not illegal in bitcoin world (yet). I don’t think you should parse these kinds of statements in earnest. In fact, I think they indicate the opposite of what they say on their face.
Because of the immense amounts of money involved, there will always be some nation which will allow crypto exchanges back to fiat. In fact this is the problem the "big boys" have in regulating crypto...create a tight noose and a smaller country will see the opportunity and set itself up to be crypto coin financial center. Once you convert to some form of fiat (JPY, CNY, EUR, whatever), you can then convert to anything else on the global markets. None of this requires you to travel to that remote country as it all happens on a website.
This is a relatively minor problem that big central banks have....they would rather have this problem then the other problem: Create a really tight noose and people stop bothering to even convert back to fiat and simply pay each other in crypto. At that point the game is up and 100 years of deficit spending, political graft, inflation...all of "modern" finance ends.
Alternate explanation. These "rich" are in fact criminals. Now let's qualify that statements, but some things have become big business:
1) sending drugs ("real" medicine drugs/actual drugs/fake drugs) across state lines. You see, the government doesn't really check the mail very thoroughly, so you can just order heroin and have it mailed to you. (and these people also transact along themselves, for obvious reasons. That used to be a big weak point in the system and a way to trace it)
2) hostaging things (and, I'm sure, people). IT has become critically important for pretty much everything, and can be sabotaged. Properly sabotaged you can demand a ransom.
3) avoiding government scrutiny on things. This can go from tax evasion to just outright being an enemy over the government, or simply protecting what's yours. Now keep in mind that, despite people thinking otherwise, governments are the same type of organisation from a game theory perspective as a mob. Avoiding these might be judged moral, even by you, and may even be a necessity for life (e.g. Venezuela).
You might think "third world country", and mostly you'd be right. But do include Greece, Venezuela, Russia, Ukraine, Turkey and Cyprus as markets where it is seeing very significant usage. For significant portions of the population, governments took away their ability to transact in their local currency (in Greece's case there was at least a plan by mr. Varoufakis to provide a "local" currency, but all others have simply not provided a usable alternative, instead denying there is a problem). So bitcoin has filled a serious and necessary void there.
You see, governments force you to transact in their currency, but they provide no support at all. In reality, dollar transaction either happen in a way that was not even new in 300 BC, and probably was not new in ~4500 BC (ie. cash), or using for-profit institutions of questionable integrity (VISA, ask any online merchant).
The fact that an underground economy like this can exist at all, with people unable to easily defraud each other allows for such economies to exist and grow.
As for the value, it is generally accepted that a currency's value is a direct result from the movement of value (not money) in said currency (so savings destroy a currency's value, and having money go around and not be hoarded anywhere increases a currency's value). This is why the dollar is so much higher than most other currencies. So conveniently, for most altcoins you can get a decent guess for the value of the currencies by counting the transactions. Because transactions aren't free, this can't be scammed for free, so there must be some level of truth in this.
Clearly, bitcoin is comparable in value to many fiat currencies.
Now you might ask if a bitcoin economy is useful or if we should support or oppose it, and of course all bankers will oppose it. Now of course there's 2 reasons for that. They may personally believe or not believe this is a good idea, but keep in mind that most are intelligent enough to understand that their livelihoods depend on bitcoin not growing too large.
Personally I think bitcoin is a very typical early market currency. It is a "gold standard" and it'll crash, for similar reasons the gold standard crashed. Ironically, because bitcoin is a criminals currency, people seem to be very reluctant to actually store value in bitcoin, and this is currently a great strength of bitcoin the currency. There is no other currency where the entire money supply circulates every 2 month (e.g. that's ~12 times as fast as the US dollar), and that's a lower bound in the bitcoin case and an upper bound in the US dollar case, to that factor could and should be larger.
To be fair: if you are being locked up, having your money in crypto isn't going to do you much good. Apparently Swiss banks have been working overtime to repatriate Saudi funds that have been held there for over 50+ years.
Does you no good, yes. But to your family? Friends? Conspirators? More importantly if you store ur illicit gains in Crypto, it becomes that much harder for the govt to seize. No Swiss banks here to help the govt seize your wallet and private keys.
I've spent lots of time pondering why Bitcoin's valuation is going up in the face of an ever-increasing number of technically superior options and the continued degradation of the Bitcoin's performance for transactions.
I don't think network effect is the right answer, or at least not from the obvious perspective of the users. Those of us who actually transact with crypto tend to use Bitcoin as a last resort because of the transaction times and fees. A newbie entering the space should learn that very quickly and seek out superior options for transferring value.
The real network effect is on the side of the exchanges. BTC is the universally available trading pair, and many times the only option. So right now, if you want to invest in any other cryptocurrency, you will very likely need to go through Bitcoin to get there.
Someone versed in Econ 101 might say that buying BTC in order to sell it right away for another token should have no net impact on the price of BTC. To counter that, let's look at what happens when I want to invest in token X with USD.
To do so, I most likely need to first buy BTC with USD, driving up the price of USD/BTC. When I go to sell my BTC for token X, the price of X in BTC goes up, or the price of BTC in X goes down. This happens without any immediate effect on the price of BTC in USD.
The ever-increasing price of BTC captures one of the fundamental problems with this space from the perspective of the inventor. It's much easier to get your fiat into crypto than it is to get it out.
This is why I'm a huge fan of Coinbase and GDAX. Being able to trade LTC for USD is great for LTC, and being able to trade ETC for USD makes it relatively easy to get into alts without having to touch Bitcoin itself.
> wealthy people living in countries like China, Russia saw great potential to move money out of their countries.
Fun will start when the Chinese government will start to monitor bitcoin transactions and jail people for working around capital control. With the perfect transparency of bitcoin transactions, it looks like a really poor choice to escape China IMHO.
I'm kind of hazy on what the "self-fulfilling prophecy" you mention is. Half your comment implies that Bitcoin has value only because people think it has value, and the other half details legitimate use cases while ignoring them in the next sentence.
Agreed - this MS analysis is weak. More of a press piece without much critical thinking. See this link below for the best analysis I've read on Bitcoin, from a hedge fund that started buying it in 2015 and now has it as 50% of AUM.
“While other payments networks typically charge the greater of ~3% and $0.15, Bitcoin’s transaction fee tends to be a negligible fraction of the transaction, if any at all.”
That article seems quite dated (2015). The fees and transaction times for btc today are much worse:
* An alternative for the increasing number of situations where governments have made transacting in the local currency impossible or impractical, usually for political reasons (ironically, bitcoin is losing this function because of transaction fees)
Examples: Greece, Cyprus, Ukraine, Venezuela, Russia and others.
If there is no viable alternative, can you at least understand why bitcoin (or more likely ethereum actually) is superior to a lot of other things ?
* A way to move money internationally (buy on exchange, send bitcoin, sell on different exchange)
* An asset that can be moved internationally freely
* A currency that supports economies that wouldn't be able to exist without a bitcoin currency (which of course includes the drug trafficking thing)
Let's assume bitcoin remains at ~13k USD for 6 months and the exchanges keep going. Don't you think that being paid in bitcoin would be a lot more practical in a number of cases, the most obvious one to me would be cross-border freelancing.
I think the frenzy around bitcoin has just exposed the fact that many people in tech are in it for the money and don't really care about building products that positively "change the world."
If you look at btc usage, it seems like about 97% of blockchain transactions are speculation. I.e buying/selling on exchanges as opposed to it being used to pay for goods and services.
When you factor in transaction costs and the time it takes transfers to go through, it seems pretty safe to say that btc in its current form is not being used as money. This is nothing new.
The question now is what if anything is btc worth as a store of value? I’d love to see an article dig into that question a bit more. All the parent article has to say on this topic is:
“Like digital gold? Maybe. Does not have any intrinsic use like gold has in electronics or jewelry. But investors appear to be ascribing some value to it.”
Again, a very selective headline, since the analyst is essentially saying there are no "fundamentals" to bitcoin, nothing to really anchor it's price.
Yes, the value could be zero - if no-one wants to buy it. But currently, some do, and so the "value" is whatever they are willing to pay, either in terms of dollars, or head of cattle, or whatever.
Of course if "value" is defined as "intrinsic usefulness" then it perhaps is actually worth nothing at all, very much like any fiat currency (though in paper form I guess those have some "firewood" or "toilet paper" value).
I sometimes wonder if pieces like these, trying to value bitcoin actually understand what they are doing. Cryptocurrencies are entirely new and trying to fit it within an existing fixed framework is an issue.
The main question is - How do we look at it? Is it a currency, store of value, derivative, medium of exchange, technology?
This valuation seems to focus on the medium of exchange and currency aspect.
But there are other ways to approach it. One of the easiest and maybe amateurish way to look is through the mining and electricity costs. Sure, it is like a self fulfilling prophecy - more you mine, higher the difficulty and hence higher electricity costs, then you mine more, difficulty increases and it goes in circles. Obviously the electricity costs are alone not enough to justify the current value. But it certainly will not be zero.
If businesses are expected to conduct large transactions in Bitcoin, its price has to be high, owing to the fixed supply. Otherwise there will literally wouldn't be enough Bitcoin available to make transactions work.
That said, I think cryptocurrency ought to be cheap, so people don't hoard it. All this speculation hype has been fantastic for awareness, but I hope it dies down so that people can start actually transacting in cryptocurrency.
"I think cryptocurrency ought to be cheap, so people don't hoard it."
More importantly it needs inflation. I just don't see how a currency with builtin deflation can ever be used for anything but a value store. I still don't get why this isn't more widely discussed. Am I missing something?
It’s discussed at length by its critics. IMO bitcoin proponents can’t avoid this problem and mostly hand-wave it away with vague statements or long treatises about how the banking system should (but doesn’t) work.
Blockchain is great tech and bitcoin is a wonderful speculation tool/pyramid scheme but the current situation is an anomaly (as the transaction speeds and prices are showing).
You're right. I recently thought, if a bunch of very very wealthy people asked someone to create a new digital swiss bank account for them, this could be the result.
Agreed on that point as well. The irony is that controlled inflation is perfectly possible with a cryptocurrency: just keep the block reward constant over time, don't decrease it. I'll never understand the "fixed supply" thing.
I think in a few years though people will stop referring to the currency in bitcoins and refer more to Satoshi's. A Satoshi could still be a spendable unit. Although with the fixed supply it could still be too expensive to spend.
I've also heard about idea that Bitcoin could mearly be like your savings account at your bank. You would then transfer that into another digital currency to buy stuff.
An alternate digital currency would have to be more convenient than Bitcoin for transactions -- enough to make up for the transaction costs of transferring Bitcoins in first place.
But that does nothing to address concerns of hoarding. Either people come up with a way to have inflation in Bitcoin, or it's going to be hoarded. This is Gresham's law, and can't be appealed.
Realistically, I think Bitcoin needs leadership and marketing if it is to grow as big as other currencies, because I don't see people referring to their everyday money as "satoshis".
To paraphrase AMC's HCF, I believe Bitcoin is not the thing, it's the thing that gets us to the thing.
Transferring to another currency to spend your money seems awfully inconvenient. You have transaction costs, time delays, and have to worry about exchange rates. How is that better than the current system?
Keep in mind that you need to know the duration of transactions as well as the volume. Eg, the time between an employee getting paid and the employee paying rent, or a construction project being funded and the materials purchased.
If $1 trillion worth of transactions happen per year and each transaction lasts a month you need around $100 billion in currency. Ten years between transactions and you need $10 trillion. If there is less than a day between money being received and spent you need maybe $3 billion worth of currency to support a transaction volume of $1 trillion per year.
Fama would say it's priced accurately given the known information about it, but he would also agree that the price should change as more information is discovered about the nature of bitcoin. The efficient market hypothesis isn't about the price being "right," it's about it reflecting the available information.
I don't think that's necessarily as good as it gets. You can have commodity backed currencies. These are much more stable but much more difficult to manipulate which is a power many governments want.
One is not necessarily better then the other. You can't force growth in a commodity backed currency by incentivising certain usages by messing with inflation.
Which is ultimately backed by the American people's toleration of the government that holds those powers. Its a layer of abstraction that bitcoin lacks, which makes USD much more less volatile than bitcoin (along with a bunch of other things).
Also: you want to buy things with USD (or invest/lend) because USD kept under a mattress will deteriorate. While Bitcoin by structure is supposed to never deteriorate, just increase in value.
Everyone else's saying this: the value of Bitcoin is either zero or infinity[]. This was clear way from the beginning, and while I regret not cashing in on the bubble before.
[] This assuming the normal continuation of capitalism and the global concert of nations where there is openness to commerce and multiple fiat currencies. Of course, in Mencius Moldbug's dream (who first called for something like bitcoin in '08) where strong authoritarian government prevents other currencies from hanging on... it's an utopia. We might as well trade in time credits.
The ability to buy something does not equate to value of a currency.
This is a pretty bad example but if I write a check to you for $10 I have given you a $10 note. It's backed by my promise to you that I have the money. You cannot buy anything directly with the check. It's made out to your name. All you can do with that currency is trade it into a bank for another currency we all use.
Another example may be gold. If I have you a gold bullion I hardly think you'd have an easy time spending it at a store (unless you're in Dubai). This doesn't mean gold doesn't have inherent value and it also doesn't mean gold is not a currency.
Actually, bitcoin transactions do not require trust. As long as no node controls more than half the network processing power, the ledger can’t be faked. The value of a single bitcoin is a measure confidence in the bitcoin network as a useful means of transacting business. Confidence in the network is more analogous to Visa or other credit cards than to dollars or other national currencies.
Trust? This word depends on context. Do you trust your spouse? Do your trust your waiter? Do you trust the news? Do you trust that the sun will come up?
I will grant that both Bitcoin and dollars depend on trust. But both are grounded as well. Bitcoin to physical computing devices and dollars to real estate.
That is, Bitcoin is as real as all of the SHA-256 calculations per second across the network and dollars are as real as the mortgages per square mile across the nation.
What does real estate have to do with the dollar? 1 dollar does not entitle you to any US land. Inflation is not driven by land or land development.
The value of the dollar is stable because people trust it to be stable and because there is a financial system that lets people use it for things they want to do. It fluctuates based on (money) supply and demand.
With Bitcoin you are trusting (or speculating) that someone will want to buy it from you in the future. You don't need to trust that no one will suddenly print more though.
Modern fiat currency is backed only by debt. The fact that money can be backed by debt implies that there agents have a sufficiently sophisticated ability to judge trust of other agents. It's not extremely relevant that trustworthy behavior is enforced by the state.
When/if Bitcoin becomes accepted everywhere and all bitcoins have been mined, but we keep producing new stuff we can buy, the value of a single bitcoin approaches infinity.
Maybe there should be a centrally agreed upon authority that can change the size of the money supply by fiat. That seems like that would fix most of the problems with Bitcoin.
At a cost of being the very problem decentralized cryptocurrency was meant to solve.
But a cryptocurrency doesn't have to be designed with a deflationary monetary policy hardcoded. Monero, for example has a steadily decreasing block reward that will bottom out at 0.6 instead of Bitcoin's 0. Ethereum is also designed for a steady increase in supply if I understand correctly.
I can’t tell if you’re being sarcastic, but you’re proposing the kind of trusted centralized banking institution that Satoshi explicitly sought to eliminate. It’s literally in the first line of his whitepaper.
It fixes most of the problems with currencies in general, that’s why basically every single currency has this authority backing it called ”central banks”.
As others have mentioned, these institutions is exactly what Satoshi wanted to supplant.
This is a great point, that no one really discusses much. Think of BTC from the point of view of a child born today. This child has no opportunity to purchase a coin for 1, 5, 5000 or 50000 dollars. How is it an equitable system of payment, where all the rewards favour early adopters?
The initial reason why BTC took off was pure speculation based on the fact it's fixed supply + unknown but may be bright future.
As speculators started gambling, people who sell drugs and other illegal goods saw a great potential in moving their money as they know they eventually can exchange it to fiats by dumping BTC to speculators.
At this point BTC got its real value as self-fulfilling prophecy.
Following speculators and drug dealers, wealthy people living in countries like China, Russia saw great potential to move money out of their countries.
Self-fulfilling prophecy continues.
If there was no war on drugs and over-regulation of cross-border money transfers, BTC would not be taken off.
As first crypto-currency, BTC didn't need fast transactions, low fees etc, since there was no alternative for these people anyway.
Currently, there are technically better crypto-currencies than BTC but BTC is still alive because of strong network effect and it's safety was tested by time (after all it has longest chain in the world).
The whole story about discussions around BTC showed that you can have Phd in Economics and still suck at economy and simple reasoning beyond standard stuff you've been taught in university.