Why are you so dismissive of this new technology? Can you expand on your idea?
I'm skeptical of the idea that Bitcoins have value in the way commodities and other things which can be traded and exchanged have value.
People might find some use for blockchain technology, but the speculation around the value of Bitcoins is ridiculous. It's a bubble like any other bubble. The notion that a Bitcoin can remain at a $2000 value is absurd.
The current top comment says "Internet companies during the dotcom bubble had market value of several trillion dollars. The total market cap of crypto-currency is still only ~$70 billion. I agree with the principle, but this boom is still pretty modest." Well there you go. I have an old worn sock with a hole in it that I am throwing away. It is worth $500. It is worth $500 because I am willing to pay $500 for it. I am capable of creating a bubble of that size. Even a $70 billion bubble can be created apparently. Once it reaches a certain point it will pop. Your point about Mooncoins points to it - as a Bitcoin is worthless, clones like Mooncoins can be created as speculative bubbles. Eventually it will no longer be a micro-economic oddity like my $500 sock, but will bump up against the market as a whole and collapse like every other speculative bubble.
It's not blockchain technology, which may or may not have worth at some point. It's the speculative bubble on cryptocoin choice.
As I said, Pets.com and Webvan made sense on some level. Just not the valuations they had at the time. And Bitcoins valuation is even sillier than theirs, since Webvan was not a bad idea, it just had a few problems including being ahead of its time.
However, dismissing Bitcoin as a bad commodity (because it cannot be used for anything) misses the mark. Instead, look at Bitcoin not as a commodity, but as money. Money (particularly paper money) has no intrinsic worth. What makes it valuable are its properties, and functions bestowed on it by consensus: counterfeiting resistance, fungibility, medium of exchange for payments, storage of value, unit of account.
Can Bitcoin fulfil those functions? That remains to be seen, and I'm skeptical on storage of value (too volatile) and unit of account (too volatile, nothing is denominated in it), but it works to an extent as a payment mechanism (though worse and worse now, with the increasing transaction fees).
The paper dollar bill is, and always has been, completely worthless in and of itself. It is just a piece of paper. Just like Confederate bills were and are pieces of paper, just like the Papiermark was and is a piece of paper. US bills have a history, just as German bills do.
In 1914, the German Mark, or "Goldmark" was redeemable for gold. The Mark/gold link was broken in 1914 and the Mark became the "Papiermark". By 1923, hyperinflation had made the Papiermark near worthless and it was replaced by the Rentenmark and then in the next year this was replaced by the Reichsmark.
Swinging back to the USA, the words "redeemable in gold" were removed from the hundred dollar bill in 1934, and then by 1971 Nixon had closed the gold window entirely. Sort of. Because if he really had, he could have just taken the thousands of tons of gold in Fort Knox and paid down the US debt. But he couldn't. Because that gold still backs the dollar. The dollar was an abstraction of gold before 1934 and 1971, a promise. Then it became an abstraction of the abstraction. It's still on some level backed by the gold in Fort Knox, Trump and the Fed chair could just reopen gold/dollar reconversion if need be, and a hard floor would suddenly appear under the dollar.
Bitcoin has no such floor. There are no thousands of tons of gold waiting in the wings for Bitcoin, no nuclear armed #1 (going on #2) world economy with the power to tax and receive tax payments backing it. We don't even know who created Bitcoin.
It's an odd argument - the only commodity people can find which has no apparent value is the dollar (or euro), so that's what people compare it to.
If this was 1917, you might be asking me why the Papiermark had worth when it was not backed by something, and thus Bitcoins must have value. What people found out was that the Papiermark unhooked from gold did not have value, as the German government of the time didn't give a damn about its value. It's kind of the same argument - Papiermarks in 1917 had value, so Bitcoins must have value. People found out in the 1920s that Papiermarks didn't have value as the implicit promise of government gold conversion went away.
On question that bugs me, but don't have enough knowledge bout Bitcoin: are the transactions public? (I believe they are). So anybody could map the wealth of the members of the bitcoin network? If it were used instead of cash my money movements could me monitored by anyone, eg. my employer?
A few thoughts on that:
- Real wages rise when the currency deflates (good for working class, think about the effect of wealth inequality)
- Debt becomes a problem (bad for indebted, such as government)
The main official reason why deflation would be a bad thing is that it discourages spending. I think it discourages non-necessary spending. People will still eat, they just wait a few months more to buy their TV. However, they can buy more TVs now or other things because they have more disposable income.
I don't think forcing people to spend is in any way a good thing, neither economically nor ecologically.
But enough of this, I want a non-inflationary currency to save in. If there are enough of me, that's sufficient to make something "have a value".
Re the public transactions, I assume that sooner or later it can be tracked to a high probability. However, I also think this is the case with other non-cash transactions, so while it's not relatively better than fiat in that sense, it's still not worse either. For me that's ok since I'm not in the money laundering or tax evasion business.
about public transactions I beleive this is a real privacy problem. The government can track my spendings every day (well, not cash, but eletronic transactions which are the bulk of my money movements) even now (when a judge has signed a permit for them). The problem is if anyone can do that. I have given up some privacy to the government, but not to the random guy.
Now my question is: is this concern of mine about public traceability existing with bitcoin technology, or not? (only the technical aspects please. the philosophical side is out of scope here)
- until an amount in your possession has been spent, you can avoid that anyone knows who the corresponding BTC belong to (= you) by just using a new address when receiving the coins. Public knowledge about "having possessed coins" is only after a transaction and only if the random guy new that at least one of the last sources belonged to you.
- when you send BTC somewhere, nobody knows if these still belong to you if all outgoing amounts are sent to new addresses.
- There are "mixing services" that intend to "mix" amounts of several addresses, so traceability can be mitigated but IMO people have mixed feelings about them.
- There might be legal issues in case traceability becomes much better. E.g., coins might be blacklisted because they were gained illegally. Since you can trace those coins, it could be legally possible (though technically challenging) to "forbid" these coins and accuse of money laundering whoever accepted them anyway.
- There are other coins that are more concerned with this, I think monero (See sibling comment) is the most popular. You can always check what the dark market accepts to see what's good for you :)
- Finally, one mitigation is to keep only small amounts in many addresses, so all your counterparties only know a subbranch of your "transaction DAG" ("directed acyclic graph").
My own take is that all this means that nobody can ever track with certainty how much you have, only your "turnover". This holds as long as your counterparties (e.g., exchanges or employer) are not compromised and sufficiently well intended.
If prices deflate 5%, a worker can buy 5% more of his salary, making him effectively richer (ceteris paribus). There is no need for savings, future income is sufficient.
Secondary effects like unemployment are likely to occur but still you'd need to show that 5% of deflation cause 5% workers dismissed so that the net effect is the same. If only 3% of the workforce are dismissed, the poorer got effectively richer.
Tech products have been deflating constantly, yet no one stopped buying them (to the contrary, they got cheap enough so that a lot of people were able to buy them, think smartphones).
So you might not agree with me on a general rule but bear in mind deflation has positive effects. All innovation causes deflation.
Here is a pretty good infographic outlining the gist of it: https://www.monero.how/monero-infographic
The transactions are public because that's the only way account balances can be tracked in this system. There's no 'amount' associated with an account id at any point in time, as there is for a banking database. In Blockchain, all the money an account has to spend is the net of the transactions made to and from that account. In traditional banking, even if you deleted the transaction history, it would work, because the account balances would be correct. This incentives people to fudge the history and the final balance via fraudulent transactions. Blockchain prevents that, since it never stores the balance, and old transactions are set in stone.
As to your second point, yes, mapping the wealth is possible. But so is obscuring the account holder's ID. To get your money, you just need a private key, a little string of characters, to verify that account. Also, account creation is incredibly easy (literally just a function call returning a 256-bit hash). So, no one knows who is who on the network. Some transactions may go from a person to themselves, others may go from a person to another for services rendered. It's basically impossible to tell once the transaction volume grows large enough.
Crypto has no inherent value except as a policy failure. At least so far. I have yet to see a large scale proof, but potentially at least block chain tech has value for reducing transaction costs in shipping or other fields.
Money is expatriated via Bitcoin from the PRC to, say, Vancouver. The point is that with a currency, people would be comfortable leaving it as Canadian dollars or US dollars. This is not what happens though, the Bitcoin is converted to Canadian dollars, and is then perhaps converted into other things, such as real estate.
It is more like a concert ticket or gallon of milk in this case - something which might be valuable for a time, but then loses its value. The Papiermark in the early 20s could be used to move money around as well.
No one is OK leaving their money in hard currency. That's why we invest it, or put it in interest bearing accounts. Leaving it under your mattress leads to losses to inflation. In that sense, currency is very much like a gallon of milk or a concert ticket, though it loses its value much more slowly in a healthy economy.
With BTC, we actually have the opposite problem, deflation. It is increasing in value every day, whereas with a normal fiat currency it is more efficient to have a low, stable rate of inflation (where the individual unit of currency loses its value over time).
So I don't disagree with you completely. You're right that BTC should be more like a concert ticket than it is. The important question is why it isn't.
Diamonds have value because we all have agreed that they have value. That's a really powerful concept to internalize. Similarly why does Gold have any value? Why does the American Constitution have any power?