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Bitcoin doesn't have value, it has a perceived value. Similar to brass rings used in West Africa, provided the tribe agree on using it, it works as a tool of exchange, ie. money. The price, on the other hand, gravitates to the cost of producing a bitcoin, same can be observed in commodities. Lack of intrinsic value prevents bitcoin's relative stability, but it can be used as money since we have empirical evidence of using objects as money without intrinsic value within communities.
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David Yermack argument is not fair and shows his bias towards fiat money. There is hardly anything that hasn’t been used as money, rock salt in Ethiopia, brass rings in West Africa, cowrie shells in Uganda; anything can be used as money. Bitcoin can be used as money provided a community agrees on its perceived value. Today, the bitcoin value is determined by market speculation, hence there is volatility. Bitcoin is similar to gold, its a commodity. Bitcoin's real price would gravitate towards the cost of bitcoin production. For example; average cost to produce a bitcoin is 5800$ for miners, hence price would be around 6000$ in absence of speculation.
As a thought experiment consider, there was a community who lived in isolation on the internet. They never heard about dollars. The services and goods they offer would be denominated in bitcoin. Due to the limited supply model of Bitcoin, the community would have a deflationary economic system. When we bring dollar in the picture, we perceive bitcoin store of value in dollars, rather than in bitcoins. Thereby arguing about volatility. Gold has existed and traded in society for so many years, if Bitcoin is artificial gold, then it only existed for 10years. It is unwise to rebuke such an infant system, with current monetary models.
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I think Ethereum and its competitors have the highest chance to replace BTC as currency. The reason I believe is that BTC lacks intrinsic value, enabling BTC to be only accepted by those who perceive BTC as valuable. Any other cryptocurrency that has intrinsic value, higher than BTC have more potential to replace fiat. A detail explanation can be found here, https://medium.com/@anvay.rane/are-we-about-to-redefine-money-again-4bed5344ebaa |
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To reach the goal it was designed for. Peer-to-Peer electronic cash system without trusted third-party for micro internet transactions.
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Even for BTC or alternative cryptocurrencies to be eligible as money, they need to satisfy all attributes of fiat. To replace fiat, you don't have to be different but rather better than it. Fiat has intrinsic value, no matter how much we argue. The intrinsic value comes from coercion, pay your taxes or go to jail. Fiat has extrinsic enforcement by governments issuing denominated currencies, to determine its value. A 5 dollar is always a 5 dollar.
BTC lacks intrinsic value, people might falsely argue, sending transactions is the intrinsic value of BTC. Sending transactions doesn't give an edge for BTC to compete against traditional currencies. Until BTC doesn't have intrinsic value, replacing fiat would be difficult. One scenario where bitcoin would work as currency is when the global population, consider it acceptable similar to cowrie shells accepted by the people of Uganda.
I am bullish on Ethereum having a higher chance to dethrone the fiat currencies.
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We, humans, have evolved and so did the tool used as money. We have experienced problems with fiat currencies in third world countries, due to hyperinflation. As we moved away from cowrie shells to metal coins, metal coins to fiat money, I believe we will move away from fiat to cryptocurrencies.
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Currently, they are not aware of the state of bitcoin and how to regulate it. Relaxation in the ban would occur.
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Good article, with bitcoin the money will be redefined because it is not an simple technology but it is revolution, it changes everything related to money.
True. As we can see shape and form of money changed as we evolved solve old problems money had. Bitcoin does solve a crucial problems fiat money face, if the community accepting bitcoin grows, bitcoin has the potential to be used as a global currency. |
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Bitcoin hasn't failed as a currency at all. Bitcoin is like cowrie shells, a community perceives value for bitcoin hence will always be used as a form of money. The size of the community is variable with the upper bound of the global population. Once the bitcoin receives mass acceptance, the price of bitcoin would gravitate to the cost of producing a bitcoin, having a lower volatility than today. It depends on how you understand money, I have written an article outlining how money evolved historically and how cryptocurrencies can bring a drastic change in the money we use today, based on empirical arguments. https://medium.com/@anvay.rane/are-we-about-to-redefine-money-again-4bed5344ebaa |
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I have been working on an Ether-coupled stable price system, Zeny. Money over the period of years has existed with intrinsic and extrinsic attributes. I strongly believe stable private money must possess both intrinsic and extrinsic properties. The gold standard is a prominent example of such stable money possessing both intrinsic and extrinsic properties. The difficulty in acquisition of more gold to increase the circulating supply breaks the equilibrium of 1:1 ratio. To honestly support a global economy backed by gold would require an infinite amount of gold acquisition. I am trying to express two simple principles, a. Price system adjusts the circulating supply using dynamic reward rate to incentivize contraction. b. Every Zeny is backed by a commodity (gas execution time) controlled by a set of decentralized actors. Assuming that the Ethereum universe UE maintain utility value, the time within the universe UE will have continual demand. Time would be an infinite resource supporting global circulating supply and verifiable using decentralized mechanisms. The condition b. provides Zeny an intrinsic value and enforced exchange rate from zeny to that x amount of time brings advantages of extrinsic value. The first draft of the concept is available at https://github.com/arne9131/Zeny/blob/master/Zeny_Next_generation_Money%20(2).pdfArne |
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I have been working on an Ether-coupled stable price system, Zeny. Money over the period of years has existed with intrinsic and extrinsic attributes. I strongly believe stable private money must possess both intrinsic and extrinsic properties. The gold standard is a prominent example of such stable money possessing both intrinsic and extrinsic properties. The difficulty in acquisition of more gold to increase the circulating supply breaks the equilibrium of 1:1 ratio. To honestly support a global economy backed by gold would require an infinite amount of gold acquisition. The system proposed relies on the following two simple principles, a. Price system adjusts the circulating supply using dynamic reward rate to incentivize contraction. b. Every Zeny is backed by a commodity (gas execution time) controlled by a set of decentralized actors. Assuming that the Ethereum universe U E maintain utility value, the time within the universe U E will have continual demand. Time would be an infinite resource supporting global circulating supply and verifiable using decentralized mechanisms. The condition b. provides Zeny an intrinsic value and enforced exchange rate of one Zeny to 1.54 dollars worth amount of time brings advantages of extrinsic value. The first draft of the concept is available at https://github.com/arne9131/Zeny/blob/master/Zeny_Next_generation_Money%20(2).pdf Arne |
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