That constraint is only really required because paper money can be minted in a way that BTC (or gold) cannot. That's why the distinction is relevant in the case of cryptocurrency. The overall point is that the ship has mostly sailed with regards to whether Bitcoin can be a deflationary store of value like gold. The question now is who will provide the vaults to hold the new "gold bars". These vault providers are not really comparable to central banks.
> The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly
I think there's a strong argument to be made (derived from history) that having a purely gold-backed currency be the sole and legal tender is bad. That said, there's a third option: "porque no los dos?". Do we know for certain that there's anything inherently disastrous about a society that has BOTH fiat-backed legal tender as a hedge against "Wildcat banking" alongside "digital gold" backed currency as a hedge against fiat-backed legal tender?
I think the answer is "probably not". I'd even go so far as to argue that we've already been doing that for the last 70-odd years; people still use gold as a hedge against the USD. Bitcoin is just digital gold that derives value because it's easier to trade Bitcoin for bread than gold bars (in theory).
I am always entertained by the line of argument that goes, "Do we know for certain this new twist will be as hugely destructive? If not, what the heck, let's find out!"
Personally, I think the burden of proof goes the other way. Especially when after 12 years of Bitcoin innovation in practice it's so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.) If hobbyists want to speedrun reinventing financial regulation that's ok by me, but I'd rather they do it without the collateral damage.
That's especially obvious in contrast with actual digital money efforts like MPesa, which have real user bases, scale perfectly well, and aren't ongoing ecological disasters.
Well, I'm glad I could provide you some entertainment!
> Personally, I think the burden of proof goes the other way.
Well, it's not exactly a brand new experiment, we already know what happens when you have a deflationary store of value alongside fiat currency, and we see that in Gold today. The concept isn't strictly unheard of. I think what's debatable is if the last 70 or so years of gold alongside fiat currencies is sufficient enough information for us to conclude that having things like gold and gold-like assets won't be disastrous to a financial system.
> so far mainly useful for scams, ransomware, market manipulation, money laundering, and other kinds of light financial crime. (Plus speculation of course, but there were plenty of options for that before.)
This is true of paper cash, too. There’s a common saying that if cash were invented today, it would be illegal, since it’s hard for the government to track and they wouldn’t like it, which I find amusingly true. The preponderance of bad people using a tool doesn't immediately render the tool itself bad.
Bitcoin (and crypto) has been around for only 12 years now. Is it perfect? No absolutely not, there are a ton of kinks that need to be ironed out. Costs and speed need to be improved (probably through L2 protocols), we need to find ways to reduce energy consumption and use green energy as much as possible, we need to make sure that the money flowing into schemes like Tether is legitimate. I think the proponents all know that there is still lots of work to be done, and it feels like the detractors think that the adherents don't know that.
What's especially entertaining to me, personally, is that I have no horse in this race; I don't work with or for any crypto institutions and I hold a tiny amount of play BTC/ETH just for curiosity's sake. I am neither a proponent nor a detractor. But the sheer amount of misinformation and strawmen arguments leveled against BTC has has pushed me to seek out the strongest possible arguments in favor of BTC, so thanks for that.
If Bitcoin is the same as gold, then we don't really need Bitcoin. But its point is being different. So you can't handwave away concerns based on it being exactly the same.
I'm not saying Bitcoin isn't perfect; nothing is. My point is that Bitcoin has not demonstrated any significant value certainly not in excess of its costs and harms, and it's had plenty of time. Bitcoin and Android are basically the same age. Bitcoin is still at best a niche, probably a shrinking one. Android is coming up on 3 billion users worldwide, providing clear daily value.
> If Bitcoin is the same as gold, then we don't really need Bitcoin
This argument doesn't make much sense. It's like saying if rubies are the same as emeralds, then we don't need rubies. Also, there can be multiple types of assets! Nobody wants to put all of their eggs in one basket. Bitcoin can coexist with gold.
Bitcoin is also arguably superior to gold in that it's MUCH easier to pay for bread with a little bit of bitcoin, and MUCH harder to do the same with gold (who's going to chop up the gold bar?). In fact, if I were to use the same zero-sum argument as above, one could even say: "if Bitcoin is the same as gold, then we don't really need gold" (again that's also a bad argument, both can coexist and gold is sometimes better)
> But its point is being different. So you can't handwave away concerns based on it being exactly the same.
You're right that gold and Bitcoin are different, but things can be different while still being "the same" at a fundamental/conceptual level. Cars and bicycles are different, but they still serve the same underlying need: transportation.
> My point is that Bitcoin has not demonstrated any significant value certainly not in excess of its costs and harms, and it's had plenty of time. Bitcoin and Android are basically the same age. Android is coming up on 3 billion users worldwide, providing clear daily value.
I think this is a really strong argument that Android is more valuable than Bitcoin (in some subjective sense), I agree with you that Android is extremely valuable and "good". That said, this is not a particularly strong argument that Bitcoin is absolutely valueless. The value of Bitcoin is in the eyes of the "behodler", and some people seem to value it a lot. People are using it as a safe haven from their country's poor monetary policies (happening in Nigeria and Argentina right now, has happened in Venezuela and Zimbabwe before). That's clearly non-zero value.
And if your argument is that value is strictly a function of its utility, well then I'd like to introduce you to the economic concept of the Diamond-water paradox (https://www.investopedia.com/ask/answers/032615/how-can-marg...) which is the fundamental underpinning for the Subjective Theory of Value.
> Bitcoin is still at best a niche, probably a shrinking one.
We agree that Bitcoin is currently a niche, but I'm not sure that I agree that it's a shrinking niche. As of the last month, major institutional investors like BNY Mellon and BlackRock have started to include it in their asset mixtures. Major companies like Square and Tesla have started to hold some of their cash reserves in Bitcoin. Canada just approved North America's first Bitcoin ETF, trading on the TSX. I'm not sure how we can conclude that Bitcoin is shrinking with all of this institutional activity.
> It's like saying if rubies are the same as emeralds, then we don't need rubies.
If rubies didn't exist and somebody were setting out to invent them at the cost of major ecological harm plus enormous waste and collateral damage to financial novices then that would be a decent comparison. Except that rubies have intrinsic value, whereas Bitcoin doesn't, making it a yet worse analogy.
> different but [...] still being "the same"
I am going to take this as an exercise in aggressive point-missing on your part. If you still don't get the point, feel free to ask.
> Bitcoin is absolutely valueless
I didn't say Bitcoin was valueless. Again, you seem to be aggressively missing the point.
> BNY Mellon and BlackRock
That's not proof of value. Traders will trade anything with enough volatility, because that's how they make money. Making money is frequently distinct from creating value. I'm speaking specifically of value, which again, Bitcoin has not demonstrated net value creation, especially when compared with other things that started at the same time, and especially when there's a full accounting of costs.
"Around 60% to 70% of bitcoin is currently mined in China, where more than two-thirds of electricity generation comes from coal. But bitcoin mining facilities are concentrated in remote areas of China with rich hydro or wind resources (cheap electricity), with about 80% of Chinese bitcoin mining occurring in hydro-rich Sichuan province. These mining facilities may be absorbing overcapacity in some of these regions, using renewable energy that would otherwise be unused, given difficulties in matching these rich wind and hydro resources with demand centres on the coast."
"Electricity generation in other key bitcoin mining centres are also dominated by renewables, including Iceland (100%), Quebec (99.8%), British Columbia (98.4%), Norway (98%), and Georgia (81%). Globally, one analysis estimates that the bitcoin is powered by at least 74% renewable electricity as of June 2019. Another analysis of data from 93 mining facilities (representing 1.7 GW, or about a third of global mining capacity) estimates that 76% of the identified energy mix includes renewables."
"Furthermore, we show that Bitcoin mining is mainly located in global regions where there are ample supplies of renewable electricity available. And finally, we calculate an estimate of the renewables penetration in the energy mix powering the Bitcoin mining network at 73%, making Bitcoin mining more renewables-driven than almost every other large-scale industry in the world. Our renewables estimate has marginally dropped since our last report, reflecting increased levels of mining in low-renewables regions such as Kazakhstan. However, we still caution that our location estimates likely have error margins of ±5% and should be considered within that context."
Of the BTC mining that isn't on renewables, it would be interesting to see how the net CO2 output compares to diamond/gold/ruby mining, not to mention the labor exploitation.
> Except that rubies have intrinsic value, whereas Bitcoin doesn't, making it a yet worse analogy.
What intrinsic value do rubies have? They're just used for jewelry. It doesn't really "do" anything. Bitcoin is the same. It doesn't "do" anything, and its value is subjectively derived by the people that use/hold it. Much like jewelry, when it's not being used as a store of value, it serves a somewhat superficial use case, and that's censorship resistant transaction.
> I am going to take this as an exercise in aggressive point-missing on your part. If you still don't get the point, feel free to ask.
> I didn't say Bitcoin was valueless. Again, you seem to be aggressively missing the point.
You'll have to help me out here, because whatever point you think you're making simply isn't coming across. You just said "Except that rubies have intrinsic value, whereas Bitcoin doesn't...", while also saying "I didn't say Bitcoin was valueless". It's hard to follow.
> That's not proof of value.
My point about BNY Mellon, BlackRock, Square, Tesla, Canada, etc was meant to be in response to your claim that Bitcoin use is "shrinking". The entire argument here is that Bitcoin is (among many things) a store of value. Its worth as a store of value is entirely predicated on whether others think that it's a store of value. The fact that institutional investors are also beginning to treat it as a store of value suggests that it might not be "shrinking", per your conclusion.
> I'm speaking specifically of value, which again, Bitcoin has not demonstrated net value creation
Calculating "net" value creation is debatable, because different people have a different point of view on how to measure the cost (eg how "bad" the electricity usage is). But, we can talk about the output: and that it has provided an easy-to-use store of value, comparable to gold, which can be used as a hedge against fiat currency. It's being used in regimes with poor monetary policy:
You, personally, may not see any value in that, and that's fine! But we go back to the Diamond-water paradox; you probably derive more use from a glass of water (or an Android phone, to your earlier point) than Bitcoin, but utility alone doesn't determine the price/value of the thing.
Large-scale hydro is major ecological harm. And even for something less damaging, that's still massive energy use that could be used for something else. Bitcoin is displacing other activity.
I don't get the impression that you understand value at all, except as a stick to beat people with in arguments. Given the volume, glibness, and excess confidence with which you write, trying to argue you into understanding it doesn't seem like a good use of my time, especially given your tendency to treat your personal feelings as objective fact. If you actually aim to learn, you could start with the Lean look at value; they write some pretty accessible stuff. But I'm done here.
Please don't do this sort of tit-for-tat flamewar on HN. I know it's extremely difficult not to get sucked in (believe me, I know), but when the comments get to this stage, the path of curious conversation was abandoned a long time ago. We're trying for something else here.
I'll step over and forgive the personal attacks because I'd like to think that I've refrained from doing the same with you.
> Large-scale hydro is major ecological harm. And even for something less damaging, that's still massive energy use that could be used for something else. Bitcoin is displacing other activity.
Sure, but you or I don't get to decide how people spend their time, or where they focus their activities. And you also didn't address the fact that this needs to be compared, apples-to-apples, with the mining of conceptually similar assets like diamonds, rubies, gold, etc.
> especially given your tendency to treat your personal feelings as objective fact.
Actually I'm arguing the exact opposite; that value is purely subjective. Just like you, I myself don't derive much value in Bitcoin (something we agree on!). The point I'm trying to make is that just because you and I don't find value in it, doesn't mean that the value doesn't exist. My entire argument here is that my personal feelings don't matter, and importantly, neither do yours.
That argument of subjectivity is a lot more uncomfortable for people because it means that you have to just sort of accept that some people see value in something that you don't. That's the idea I'm trying to convey to you. The only objective fact is that everything is subjective.
The Diamond-Water paradox isn't some "feeling", it's a real economic theory that attempts to explain the exact question you've been grappling with. You've been asking all the right questions, they're just questions that have already been asked before when dealing with conceptually similar assets (obviously not "the exact same").
> I don't get the impression that you understand value at all
Oh you've more than made it clear that you have this impression. You just haven't done the best job explaining to me why that is.
> If you actually aim to learn, you could start with the Lean look at value; they write some pretty accessible stuff. But I'm done here.
I'm more than happy to learn! But you'd have been better off in this conversation if you spent less of your time attacking me or expressing indignation at the mere fact that I'm making my points and more of your time making the specific case for why the Subjective Theory of Value doesn't hold or what the "Lean look at value" is and why it's compelling (I'd even believe you if you fully articulated it).
Please don't do this sort of tit-for-tat flamewar on HN. I know it's extremely difficult not to get sucked in (believe me, I know), but when the comments get to this stage, the path of curious conversation was abandoned a long time ago. We're trying for something else here.
> The whole reason we have a strong central bank is because we tried the alternative before and it worked terribly
I think there's a strong argument to be made (derived from history) that having a purely gold-backed currency be the sole and legal tender is bad. That said, there's a third option: "porque no los dos?". Do we know for certain that there's anything inherently disastrous about a society that has BOTH fiat-backed legal tender as a hedge against "Wildcat banking" alongside "digital gold" backed currency as a hedge against fiat-backed legal tender?
I think the answer is "probably not". I'd even go so far as to argue that we've already been doing that for the last 70-odd years; people still use gold as a hedge against the USD. Bitcoin is just digital gold that derives value because it's easier to trade Bitcoin for bread than gold bars (in theory).