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Comment by isamuel | Hacker News Reader

Krugman, a week ago:

> I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange.

http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/

This guy:

> [I]f bitcoin has an intrinsic value, it is as a medium of transferring value globally with almost no transaction costs, an incredible boon to the citizens of developing countries who work in developed nations and currently pay 10% commissions to send home remittances.

You can't say that the man doesn't know his debate opponents.

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Very few people understand and are not afraid to say where the value comes from. Bitcoin is a collectible. Network does not care how much 1 BTC is worth, the price is determined simply by the amount of people willing to hold a coin or two. Why they want to hold it? They believe there's enough or even increasing amount of other folks sharing the same belief. And if it holds true, then they get awesome payment network which gives them real purchasing power: to spend their money as they please when they want. So the value is essentially based on leap of faith or some sort of a bet. As time goes on and more people get serious about their belief, the stronger the reliability of BTC as a "store of wealth". Like with gold.

See also excellent article by Nick Szabo (who is a candidate for being Satoshi): http://szabo.best.vwh.net/shell.html

Like with Amway?

Or social security?

> Bitcoin is a collectible.

So are Beenie Babies.

Beenie Babies are not good collectibles because you can make as much as you want. And even if they were, they are bulky and not really divisible to be used as money. Gold and gold coins is much better in that respect.

Value based on belief that the value will increase makes the currency extremely volatile. (I am tempted to believe the characterization of Bitcoin as "an infinite bubble generator".)

So I think the question people will come to ask themselves, eventually, is: given that the currency is volatile, what amount of it is worth holding anyway just to save me the inconvenience of buying Bitcoins before I go to spend some? The average answer to that, multiplied by the number of people using Bitcoin at all, will, I think, put a floor under the demand for Bitcoin. I don't think it will be a large number per person: maybe $20 worth. But multiply it by a large number of users, and the total number of Bitcoins sitting in wallets -- which, critically, won't get sold even during downward price swings -- may be quite substantial.

Volatility is a result of uncertainty. The more people share the same belief, the more stable this belief will be. You see tons of people around you confident in short-term safety of USD and you stay confident too instead of selling every buck for gold, silver, gun powder and bitcoins. When Bitcoin becomes world money, it will be so stable (and slowly appreciating) that people can price goods in BTC directly.

>. Bitcoin is a collectible.

Bitcoin was a money transfer tool to move money out of China

That's a huge reason it spiked, and why it stopped spiking (when they shut that down)http://www.nytimes.com/2013/12/06/business/international/chi...

Did it stop spiking? It's up from $750 to $900 (mtgox price) in 7 days.

Bitcoin can be used to "move money" only when it's valuable. So it must be valued and collected by some people beforehand, so others can sell it to them in exchange for currencies on the other side of the border.

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