Indeed, and the fundamental principle is that for everyone in your first equation, there's a corresponding fool in the second equation.  Because zero-sum.

One has to be very cautious when people start claiming that for THIS particular case/situation/paradigm shift, the "old laws of economics" don't hold any more.  It is one of those group think indicators of "bubble".  It was true for the South Sea bubble, it was true for the dot com bubble.  I don't know if you are old enough to have heard all those fancy theories at the end of the 90-ies over the "new economy", where value production wasn't necessary any more and one could build business models integrating permanent loss as long as there was growth.

When you look at things like facebook and google, who, at first sight, seem to have followed the "new economy" paradigm of giving away products for free against "growth", they ended up producing value as publicity vendors to their addicts of "free products" which are nothing else but tasty bait for publicity and data mining.

When I hear some here about bitcoin, this has a particular resonance effect in my ears.

This is one theoretical path (which I outlined several times): the speculators of today are the visionaries, which see the true value of bitcoin in the future, and are just quicker than others to go for the "real price".

However, and that's my whole point, that would mean that these people are EXPECTING bitcoin to have a *usage* value (as store of value/currency) that is on or above the current market value.  In order for that to be true (which is not impossible) it would mean that the demand for bitcoin as store of value/currency (and hence going into Fisher's formula) would have to essentially overtake the demand for bitcoin inspired mainly/only by "expectation of rise in price" (what I call "greater fool theory").  Now, if we assume that already TODAY the demand inspired mainly/only by "expectation of rise in price" is about the TWENTYFOLD of the demand for currency/store of value (without necessary expectation of rise in price) by the numbers that we pulled out of our nose but that people seem not to contest (95% "demand because it will rise" vs 5% demand for "use as currency/store of value at same price"), then hoping for a more than 20-fold increase in "true adoption" seems to me very optimistic, although not impossible.

My whole point is namely that this "true adoption" is rather hindered by a too high market price today (which, as I explained several times, increases the costs of the use of bitcoin, and hence diminishes its competitive edge which is exactly supposed to be the motor behind that "true adoption").


I still think that the MAIN demand for bitcoin is "greater fool".  My test for that is: suppose that all people demanding/holding bitcoin would KNOW somehow (because the angel Gabriel whispered in their ears, because some super smart extraterrestrial from Sirius told them, or for whatever reason) that bitcoin's price is NOT going to rise above inflation in the coming decades, would they still hold/demand bitcoin ?

If the answer to that question is "yes", then that's true adoption, they are using bitcoin as a store of value/currency because it gives them an edge.  If the answer to that question is "no", then they are ONLY holding/buying bitcoin because they expect a price rise, and we are in "greater fool theory".  My assumption is that 95% of the holdings/demand for bitcoin fall in that category today.



Huh, no.  I assume that Jonny will have a few percent more value than Kevin, the inflation of fiat (which isn't very high these days).  These few percent went in fact in the economy as seigniorage by whoever created new dollars (people who got cheap loans).  There is no fundamental difference between the value transfer with a deflationary currency, and an inflationary: the only difference resides in WHO gets it.  In a deflationary currency, all currency spenders get the value you hold (for a while).  In an inflationary currency, those with the privilege of seigniorage get that.  In a modern fiat system, that is NOT the central bank, but that are the people subscribing cheap loans.  Loans are the thing that creates money in the modern fiat system, and the receivers of seigniorage are the people/institutions getting loans for cheaper than they should (mainly the state with state loans and financial institutions).

As bitcoin is for the moment still inflationary, I wouldn't even think that there's much difference between the inflation of dollar and the inflation of bitcoin.


Yes, that is a competitive edge of something like bitcoin or gold over fiat.  I don't deny that.  But I would think that for the moment, the volatility risk on bitcoin is much higher than the gain you can hope to make by escaping inflation.



Every financial asset is based upon "subjective beliefs" but these have to turn out to be true or they break down.  A monetary asset is a infinitely recursive belief system: you are willing to obtain it against value, because you believe that you will obtain value against it, and you believe that because you think that the next person accepting it, will also believe it.

But you better be right in your beliefs (even though they are "subjective") or you are a bag holder.  So I wouldn't call that "subjective beliefs" but rather "uncertain hypotheses".  There's a difference.  I like chocolate 3 times more than apples.  That's subjective.  You may prefer apples over chocolate.  However, me estimating your preference of apples over chocolate is "subjective", but is in fact more "uncertain".  I have to guess, and bet.  If I make a mistake, I will lose.


I think they prefer dollars.


That's what I don't believe.  Maybe, one day.  I don't think that billionaires are in bitcoin because they want to secure their wealth ; I think that millionaires are in bitcoin because they hope to become billionaires.  And that's what has to stop at a certain point, and when that stops, the main reason for the demand for bitcoin is to crumble (like with every asset for which most of the demand is based on the expectation of a future price rise).  That doesn't say anything about the true value of the asset. 

Using bitcoin to pay on a gambling site, is indeed true usage of bitcoin with a competitive edge. 

Listen, I'm NOT saying that bitcoin is worthless.  I'm simply saying that bitcoin's market cap, at the moment, is dominated by other things than its usage (namely what I call "greater fool theory") and I don't think that's a good thing.  That's all.

It would be way better that bitcoin's market cap was more in agreement with its usage as a store of value/currency, and much less as a "greater fool theory" asset.

I think that some people here are confusing the critique I'm having on the current way bitcoin is TRADED and the actual value of the bitcoin system.  It is a bit like when I'm saying that feeding caviare to the pigs is a bad idea, that I'm criticising caviare.




Again, that's real bitcoin usage.  That's not what I'm complaining about.


That reasoning of the deflationary spiral only holds if the asset you're talking about is the main/sole currency.  It doesn't make sense if there are myriads of "value storage" competitors.

I know how this goes:
- I produce value and I get money for it.  If I use that money as a store of value, during that time, I've put net value into the economy, and I don't pump it out again by consumption.  So I let everyone else "profit" from that value during a certain time.  This happens through the deflationary effect that my holdings generate: me holding money increases the demand for money, and hence (through Fisher !) other people's money's value, with ideally the same amount as I refused to consume directly but put in.

However, in the case of just holding bitcoin over holding fiat or gold, this implies just a SHIFT from fiat or gold to bitcoin, not an overall increase in "monetary asset value".  If I were *in any case* holding value, I do not change anything to the economy by preferring bitcoin over gold.  I just decrease gold's value and increase bitcoin's.

Moreover, this deflationary effect doesn't increase the buying of capital goods over consumption goods (which is what investing is about).  It will increase the buying of goods in the same ratio.  If other people are mainly consuming, then my value will be used for consumption, not for acquiring capital goods.

If I explicitly invest in production, then my investment will explicitly improve the amount of capital goods, and increase economic production in the future.

This is why "holding value" is not investing.  It is letting value to the others, in the same ratio consumption/capital as they used to, the time I put this value aside.  And moreover, if it is just a choice of WHAT store of value, then this only plays on the relative prices of both storages.


Its value is not used to buy production capital, and it doesn't produce (much) value - the only value it produces, is the competitive edge it brings over other means of storage of value.  This is why its price shouldn't be much higher than strictly necessary for the value it produces.

If a company worth $1000 000,- in production capital, can produce, say, for $100 000,- yearly, with a yield of 10% yearly, that's way, way better than a company that needs $ 100 000 000,- in production capital to produce the same value yearly, namely $100 000,-., with a pitiful yield of 0.1%.

The "company worth" of a monetary asset which is unavoidable, is given by Fisher's formula.  If it needs to transport $1000 000 000,- a year and it needs to be kept on average, say, 2 weeks, then a market cap of $ 40 000 000,- is unavoidable.  That's comparable to the "capital goods" in a company, and the market cap of its stock.  If by transporting $ 1000 000 000,- a year, it brings a competitive edge of $1000 000,- a year (that's the value that is PRODUCED by bitcoin, over other systems), then with its given market cap, it has a yield of 2.5%.

However, if by speculation, the market cap is blown up 10 times more, to $ 400 000 000,-, it still doesn't produce more "competitive edge" than before, namely $ 1000 000,- a year, but now its yield is only 0.25% which is worse.

That's my whole point.


But I agree with that.  That doesn't change the fact that a monetary asset's "capitalisation" is given by Fisher's formula.

What bad facts ?


Proof of work serves to make mutability difficult, and essentially serves to burn seigniorage, so that the currency creation doesn't bring much to the creator.   As seigniorage is in general seen as unfair, the burning of seigniorage makes bitcoin to be seen as a fair system, and hence can help create the belief system of its value (an openly scammy system has difficulties establishing a belief system of value).

Bitcoin economics is such that, apart for a small margin, competition between miners will destroy most of the created bitcoin value by PoW, and that's good, but at the same time, a huge waste, and a cost to the entire system, but which also provides for security of its ledger.



Just claiming that something is nonsense doesn't make it nonsense.

I divided the demand for bitcoin in two classes:
- the demand as a store of value (which would remain if bitcoin's price were known not to rise significantly in the future) which is the only sustainable demand a collectible can have - that store of value can be gold-like in the long term (call it M2, whatever), and store of value in the short term (currency).  The value of bitcoin as a store of value with a competitive edge over other stores of value is its economic contribution, and so its fundamental value.  This demand is independent of any consideration of future rise.
- the demand for it motivated mainly by the hopes for a price rise, which I call speculative, and which is the source of "greater fool theory".

I considered, that there is 20 times more demand motivated by the second reason than the first.  That is, if some god would come from the sky and let all potential bitcoin holders and buyers know that the price would remain essentially stable in the far future, I presume that demand and holding of bitcoin would drop a 20-fold today.  We more or less agreed on that (5% real usage, 95% in for "moon").

If you take these starting points, my conclusions cannot be avoided.

I always say "currency or longer-term store of value".  M0, M1, M2, MB and all other M-type asset classes are of this type.  They are *collectibles* functioning as *store of value*.  "currency" is just a word for "store of value in the short term".


And it doesn't have anything else, that's the whole point.  Its only value proposition is "store of value" (by definition, because it is a collectible without any cash flow or other contractual obligations linked to it).  It is like gold, silver, and dollars.  All of them stores of value, so "currencies" in the wide sense (that is, if you extend the hold times to longer than just between earning and spending on a regular basis, but for instance, to put value aside for a big expense later, or for retirement, or for one's children, like you would put gold aside).



So it is easier to make such a deal in fiat than in bitcoin, hence bitcoin has no competitive edge here.  Unless for one or another reason, we cannot do it in fiat (for instance, with a smart contract, or because it is illegal).  The value bitcoin has in this case over other systems is hence, most of the time, zero.


Sure, but these things are equal whether we take bitcoin or dollars as our means of payment.  It is only different if we use a smart contract.  If not, the risks are the same, but on top of that, with bitcoin, I have a volatility risk that is much lower with fiat.  So bitcoin has no edge, and is hence, as a value booster for the deal, totally useless.


It is less attractive, because a hedge against volatility is needed, which is much less the case, all else equal, for another payment system.  So if that volatility is too important, bitcoin loses entirely its value proposition as competitive edge over other payment methods.  Unless, as I said, I cannot use another method for one or another reason.  Then bitcoin has value, because without it the deal can't work.

Whether I will get paid or not is independent of the payment method, so it is not bringing in any competitive edge (unless I use a smart contract, to eliminate counterparty risk - THEN there is extra value to it).

If the logic works, then the way one arrives at it doesn't matter, does it.


Look, there is a NET OUTFLOW of value from the bitcoin system, which is the cost of mining.  That's done on purpose: seigniorage has to be destroyed.   The higher the amount of seigniorage, the higher the amount of destroyed value from the bitcoin system. 

There is also value creation in the bitcoin system: the competitive edge people obtain by using bitcoin over other means of currency/store of value.  That competitive edge is essentially independent of the market cap, and hence of the value outflow.  I will make one exception: the competitive edge may increase somewhat because at higher value outflow, so at higher difficulty, the network is more secure ; however that higher technical security is offset by a higher incentive to attack it, so it is absolutely not certain that the real security of bitcoin increases (that is, that the probability that your transactions will be reversed, or that the network as a whole will entirely be corrupted decreases) if difficulty increases, with increasing market cap, and increasing incentive to attack.
So, one can conclude that the competitive edge that bitcoin's usage over the usage of other currencies/stores of value in a particular case can bring, is independent of market cap.  This "bringing of competitive edge" is the value creation of bitcoin in the economy.

The total value created by the bitcoin system is the competitive edge it brings for each transaction that is a genuine usage as a currency or a store of value, and is hence simply proportional to the amount of genuine usage, independent of market cap.

If the value destroyed by the bitcoin system is proportional to market cap, and the value created by it is independent of it, then one cannot conclude anything else but that the net value that bitcoin brings to the economy decreases with increasing market cap, no ?

However, the value it creates will increase with *genuine* adoption (that is, to use as a currency, or a store of value).

As such, we see that bitcoin's maximal value creation happens when all of its market cap is due to genuine adoption.  It is the minimal unavoidable market cap, given by Fisher's formula: a certain usage as store of value cannot avoid to cause a certain market cap.  THAT market cap is the point where bitcoin creates most value in the economy.

The higher the ratio of the actual market cap over the minimal necessary to sustain genuine usage, the lower the value the bitcoin system creates, and at a certain point, this can go negative.

In a formula:

U is genuine usage (amount of store of value, as a currency, or a longer term store of value)
S is speculative usage

M is total market cap: M = F x (U + S)  (F is a factor from Fisher's formula)

Created value is proportional to C = E x U, where E is the competitive edge that real usage of bitcoin brings over other systems.

Destroyed value by mining is D = m X M, where m is a factor that comes from mining.

Value balance of the bitcoin system: V = C - D = E x U - m x M = E x U - m x F x (U + S) = (E - m x F) x U - m x F x S

What we see is that, if the competitive edge bitcoin can bring to genuine usage, is larger than the market cap that that usage implies and the destruction of value by mining, so if E - m x F is positive, then bitcoin has the potential to create value (if that is negative, bitcoin is lossy in all cases, it has not sufficient edge to compensate for minimal mining).

We also see that the speculative part only decreases the value creation of the system.  In our case, S is 20 times higher than U, so this term could very well render bitcoin lossy.

That is my logical point.

.

Because the higher the speculative part of the price, the higher the volatility, and the higher the mining cost of the network, and hence the cost of using it.  If the cost of using it (volatility risk plus using cost) increases, this eats away the competitive edge that bitcoin can bring over other means of payment, and hence diminishes the incentive to adoption for genuine usage.


Absolutely not, if it is speculative.  I'm all with you if market cap goes up because of currency usage, because that gives it a solid demand which has higher and higher inertia.  The criteria to pick one currency over another for competitive edge reasons are usually not very variable, so that demand shouldn't fluctuate much.  However, speculative demand varies A LOT as a function of rumours, technical analysis and price fluctuations inducing beliefs in rise and fall.  So the higher the speculative part of an asset, the higher the volatility.   The frequency spectrum of that volatility depends, however on the temporary expectations of the speculators, so it isn't necessarily high-frequency volatility.

But an asset that has in three years time, come down a factor of 6 and rose again a factor 3 in a year's time, is not exactly something with low volatility.  

For a currency, price going up is just as much a problem as price going down.  If I agree with you that you do a job for 20 bitcoin the next 2 months, and in 2 months, bitcoin has doubled, then the price I have to pay you is twice what I had in mind when we made the agreement.  If I have to hedge that by buying right now the coins that I will pay to you in 2 months, then I have to immobilize that money, which is not exactly something that will give it a competitive edge to use it over another way of payment.  It might be that I didn't earn them yet and was coun Of course, you, on the receiving side, will be happy, but essentially, this has put a lot of uncertainty in the use of bitcoin in an agreement, making it a less attractive means of payment than fiat if fiat can be used.

Because someone wanting a song hires them to write a song, or to sing.  Like theatre actors play classical (IP free) pieces.  Like an electrician is making a living by installing wires in houses, and doctors are making a living by curing people.   And because they like it and do it for free.

By far most income of IP doesn't go to their inventors, but rather to people profiting from inventors in a hierarchical exploitation mechanism.  Engineers inventing stuff in a company get a salary, that has nothing to do with the income that that company and their share holders will generate from owning that IP.   


Because someone pays them to find a solution to their problem they'd like to get solved.  Once the solution is known, then we can move on to the next problem, instead of creating artificial scarcity.

There are two fundamental sources of "undeserved wealth".  These are intellectual property, and owners of natural resources.  When you look at the big fortunes in the world, they come from these two things, which are NOT related to production of wealth, but rather to an introduction of artificial scarcity.  Natural resources are everybody's and so their value should go to everybody ; intellectual property is making something that is free of cost (sharing knowledge) into a scarce product.  They are the levers of unlimited wealth transfers to their owners, unrelated to the production of further scarce goods and services.

That has nothing to do with it.  The P/E ratio gives you the price of the capital over the YEARLY value production.  If your company is going to last for more than 20 years, the price is even less than the value it is going to produce over its existence.

The value a *currency* produces is only the competitive edge it brings over the use of other currencies, in one way or another.  That is an infinitesimal fraction of the volume.  If I can do a deal with bitcoin for a value worth, say, $100 000,- and by doing it with bitcoin, and not with a bank transfer or VISA or whatever, I can win, say, $100 in costs, then the produced value of bitcoin in this transaction is $100.  Not $100 000,-.  This is like the value produced by a truck: it is, after deduction of all its costs, the competitive edge using the truck has brought me over using, say, a train, because the costs are lower, I can reach a customer that I couldn't reach with the train, I can help my customer faster than the competition that uses a train, ...  This competitive edge is only a small fraction of the value the truck transports.

A currency is like a truck: it transports value.  But the produced value of a currency is not the value it transports, but only the small edge it can bring over other ways to transport value.


Sure, but that is only "greater fool" stuff.  That isn't the value that bitcoin produces.  The value bitcoin produces is the little edge it brings in those transports of value that you can better do with bitcoin, at lower cost, faster,.... than with other means of transporting value, such as the fiat system.


Most of them are not users but gamblers.


But a stash of bitcoin held by someone doesn't buy capital goods.  Savings create capital if they are used to buy capital goods.  There's a difference between holding and investing: economy 101 too.


Of course not.  How does someone doing research on bitcoin obtain capital goods when bitcoin goes up, because the coins are held more tightly by speculators ?  Nobody's buying capital goods anywhere.


I perfectly agree with you, but speculating on bitcoin is not transferring money frictionlessly, on the contrary, it increases friction: because of the higher volatility (risk is higher, which has to be hedged), and mining is more expensive (which is paid for by inflation and fees).


That is exactly the value of bitcoin, and it is that which is NOT most of its usage or market cap.  It is exactly that what is harmed by too high a market cap.


These two concepts have nothing to do with each other.   The P/E ratio of stock is the price of the asset "for eternity" as compared to the yearly PRODUCTION of value.  If you hold the share for 20 years, you will have, with no growth, paid back the price of the asset.  So a P/E ratio of 20 just means that you expect the company to exist for 20 years (I'm oversimplifying: one should use discounted cash flow of course).

https://en.wikipedia.org/wiki/Discounted_cash_flow

On the other hand, the ratio of speculation over fundamental value (Fisher) is just the inflation of the speculative bubble over the true value of the asset.

If you want to compare it to stock, it would be rather like the following: the sum of all the assets of a company is X, and the sum of all its shares is 20 X.

A company that is "worth" (if you would sell all of its assets), say, $10 million would have a market capitalisation of $200 million.  Everybody would claim that its stock is way, way overpriced and is in a full speculative bubble - or that they are on something and that their actual assets will soon rise to $200 million by the exceptional inventions that they are doing.


That is bluntly not true.  Holding assets doesn't invest them.

Read this:

http://moneyfortherestofus.net/mny060-hoarding-investing/


Hahaha, that's of course funny.  You are simply suggesting that cancer reseachers join you in the greater fool theory game, and hope for more greater fools that will buy enough bitcoin at higher prices still so that they can make a benefit.  You are suggesting that they become greater fools that will find still greater fools. 



What gives value to the US dollar is Fisher's formula, and its use as a currency.  The same thing that gives about $30 of value to bitcoin.

If people were now hoping on "increased adoption" of the dollar, and its value increase, so that they would pile up hoards and hoards of dollar bills, such that the dollar rose a twenty-fold in value, with people hoarding more and more of it, because its value increased (because of that demand), that would be an extremely unhealthy situation for the dollar.  Its value would be much more volatile, it would suffer a very speculative bubble, and it would of course, at a certain point, come crashing down when it wouldn't increase any more, and all people that were only holding piles of dollars hoping for it to increase, would start spending them because they lost hope in still a lot of increase, which was their main motive to hold it it the first place. 

You'd have the dollar come crashing down.

I think that digital property rights should be brought down, like all forms of intellectual property rights.
Forbidding people to share information goes against the deepest forms of human interaction.
(thinking that having fun with sex is a sin, does so too BTW...)

Gedanken experiment: suppose a mighty organisation wants to take over bitcoin for whatever reason that is not financial.  They want to do this in the most brutal way one can think off: make an entirely new block chain, starting with Satoshi's genesis block as it is, and distributing it, so that it will be the accepted block chain by all nodes: in other words, it should be of similar block height, and include some more PoW than the actual, current block chain.

They give themselves a year to pull off the feat.

How much $$ do they need to do so grossly ?

My rough guess is that it will be somewhat in the ballpark of the current market cap of bitcoin, but it could be in fact about 7 times higher too.

Essentially, they would need to buy/construct A LOT of hardware, and use A LOT of power to re-calculate a new chain.  In what ballpark would the price of such an act range ?

Again, note that although they would, at that point, own all of bitcoin (all the addresses they would generate would be theirs of course), this would probably kill bitcoin.  Their aim wouldn't be to make financial win, but another political goal, whatever it is (for instance, destroy bitcoin).  How much do they need if they give themselves about one year to do so ?

As to the cryptographic locking in of the boot loader ; as long as that boot loader accepts to install free systems on top of it, I don't mind it too much.  At a low enough level, there's in fact no clear distinction between hardware and firmware/software.  It is a kind of engineering decision what's going to be pure hardware, and what's going to be more a software/firmware implementation.  If you use propriety hardware, there are *in any case* things you cannot change, and things that you even don't know how it's done, and what exactly is done.    So whether some low-level software/firmware is locked down by cryptographic techniques, or whether exactly that same function was burned into silicon, at a certain point, doesn't matter.   It can seem frustrating that "software" that is "outside of the chip" and is "executed" at boot time (or all the time) cannot be modified because it needs a cryptographic signature, but that "software that is out of the chip" implements a function that could have been just as well burned into silicon on chip, and you wouldn't know about it, or complain about it.
In my professional life, I live exactly on the hardware/software boundary (in scientific applications, where all this stuff doesn't matter in fact).  So I'm perfectly well aware that the choice of putting something in hardware or doing it in software, or in between in firmware, is essentially a matter of engineering decisions.
When one doesn't know the hardware, in any case, one is in the hands of the hardware designer.  The hardware can do anything in any case.  Whether that hardware "locks" a piece of low-level software to it, doesn't change anything fundamentally.  Whatever one can complain about in this software, could have been burned into the hardware too.  The fact that engineers decided to put it into software only gave them less performance and more flexibility (which is usually the trade off in these cases).  You can see software-locked-to-hardware as nothing else but a kind of "hardware extension".

There are two things that matter:
1) at a sufficiently high level, it should be possible to put free software on it (for instance, the OS)
2) one should be able to verify that the low-level software that is locked down, is not modified (by calculating a hash for instance).

It is only truly Orwellian if it is imposed by violence.  I would think that anybody has the right to sell any device he likes, and if those devices are *technically* made such that you can't use them for your purposes, and are cryptographically locked onto the manufacturer's signatures, that's his good right, even though it is a kind of scamming the customer, if that was not clearly stated when the device was sold.  If you don't like that, and you are informed about it, you have the right not to buy that stuff.

If your furniture manufacturer has clearly informed you about the technical way his bookcases work, and will avoid storing any book that was not bought from a certain store, then it is up to you to buy the bookcase or not.  What would be wrong, is if violent agents such as a state would come and use violence on you because you tried to modify your bookcase ; but if technically it is done such that you CAN'T modify your bookcase, that's your problem.  You shouldn't have bought it.  I for sure wouldn't buy it.  But the seller should be perfectly clear about the cryptographic limitations he has built into the stuff he sells you.

Thumbs up.  Well said.  Agree with everything.

So in the end, this is somewhat reassuring, Apple has nothing against privacy, but rather against obviously illegal financial constructions.   But I agree fully with your DRM stance.  It is one reason that I don't buy Apple products (or others) that enforce this too much - even though on the lowest levels, even Intel itself enforces such things now, but at least, OEM can, or cannot, make use of it.  As far as this will remain possible, I will always try to buy stuff that has the least of "lock in" possible, even though for low level stuff, this starts to become unavoidable.

After their removal of DASH, one could have thought that they were against anonymous coins.  But Icebreaker was right: it is probably the financial structure of the DASH DAO and which put them off, given that Monero is more anonymous than DASH and is now accepted (apparently).

Maybe.  But if you look at Fisher's formula, and if you assume that the time between acquiring a bitcoin (by earning it, buying it on an exchange, mining it....) and spending it at one of these merchants' places is, say, two weeks (like the average holding time of a monthly salary is, say), then a coin goes around 25 times a year.   So a market cap of $ 1 billion would correspond to a yearly turn-over of $ 25 billion worth of merchandise bought with bitcoin.  I have serious doubts that these 250 000 merchants each have a bitcoin-related turn-over of $ 100 000,- each.  I don't think that the use of bitcoin corresponds to a world market with a yearly turn-over of $25 billion.

And if that were the case, we would only have 10% of the current market cap.  If bitcoin's market cap today were used entirely in the above way, one would have a $250 billion yearly turnover bought with bitcoin.  I simply don't believe that.  I even don't believe that it is $25 billion.

This is my whole point: the real currency usage of bitcoin is minuscule as compared to its actual market cap.  Not implying that bitcoin has no usage, but that its market cap is huge.


Absolutely not.  That is exactly my point.  Whether bitcoin is at $1, $10, or $10 000 doesn't change ziltch to its value if the amount of usage as a currency is the same.



All this is marketcap independent, and is already over and done.  The capital control will rather be induced more when the market cap rises.


That's actually its biggest failure.  The idea was that individual nodes would mine, not that this would become an oligarchy of a handful of industrial miners.


All this is related to its use as a currency, not to the 95% of speculative market cap.


Again independent of its market cap (as long as it isn't meant as a financial gambling toy).


That "base" is for the moment about 1/20 of the market cap of bitcoin.  


On the contrary.  That's the best form of mining one can have.  The reason why one cannot have bitcoin today with the mining tech of 2012, is simply because the market cap is too high, which makes for too much seigniorage which has to burn, and the emission rate which is ill-defined in bitcoin.


Wow.  10%.  My bank only takes 2%.  That's peanuts as compared to the taxes and social duties I pay, which amount to about 50%.  If I handle legally, it costs me 50% with normal banking, and, say, 48% using bitcoin, but including the volatility risk, you see the point.  There isn't any for using bitcoin when doing legal business.  For me, it wouldn't change a thing.


Speculation is the act of acquiring an asset with the sole aim of selling it at a higher value, right ?

That's not what a monetary asset is for.


Buying potatoes to eat them is not speculation.  Speculation is the act of acquiring an asset with the *sole* (or main) motivation of selling it for a higher value.  Speculation is not "taking economic risk".  Every economic act contains economic risk.

Investing is the act of acquiring directly or indirectly production capital with the aim of obtaining a reward for the produced value with that capital.

There's NOTHING in bitcoin that improves when its market cap increases by the act of speculation.  The market cap of bitcoin is a (necessary) nuisance.  The lower it is, the better.  But a monetary asset can simply not exist without SOME market cap, due to Fisher's formula.  But the lower it is, for a given usage, the better. Especially if its cost of usage is proportional to its market cap.  If the market cap has to rise because of increased usage, then that rise in market cap, although in itself something evil, is a signature of more usage, which is good.  But that's about it.

It seems that there really are people here that when one points out a potential problem with bitcoin *as well* as with other altcoins, that they suffer from some dissonance. 

I only say that if the price of an asset is mainly made up by demand by people hoping for a price rise, that one is in the schoolbook example of "greater fool theory", and that an inevitable speculative bubble is (being) formed - that's an undeniable fact.

Now, I'm pointing out that most of bitcoin's (and altcoin's) market cap is indeed, made up of demand coming from people "hoping for a price rise".  The 95% is a ballpark estimate of this, it could be 80% or 99%, it is a matter of speaking, and apparently JJG kind of agreed with that number.

My "attack" was not so much against bitcoin particular, but people have to realize that if the main drive for demand (and hence price, and hence market cap) for an asset is *hope for price rise* then there is a serious risk that one is in a speculative bubble, to say it mildly.  Whenever a speculative bubble arises, there is always group think that denies this, and that talks about "paradigm shift" and the like.  Like the "new economy" in the dot-com bubble.

I also pointed out that one cannot really "invest" in a crypto currency, but only GAMBLE on it, if one doesn't *use* it.  A crypto currency is invented to be used, and its usage is "store of value".  In the short term, that's called a "currency", and in the longer term, a "store of value" (like gold).  But one doesn't "invest" in a store of value, one only STORES value in it.  The USAGE of the monetary asset is its "value proposition": the fact that one can use it as a currency (to earn it and to spend it), or the fact that one can store value in it.  This usage can open possibilities (of earning and spending, or of longer term value storage) that *didn't exist before* and that's the true economic production of value such a crypto currency has.

For instance, buying stuff on dark markets is something that is difficult to do with VISA, and a crypto currency opens that possibility. Or doing small transactions to the other side of the world.  Or this, or that.  All those usage cases where a crypto currency opens a new possibility that didn't exist before, or that did cost much more before or that was much riskier before, or that took longer before, is the economic value production of that crypto currency.  It is what I call "the competitive edge it brings".

This is production of value, when one uses crypto in an economic activity that brings value.  But apart from that, just "investing" in crypto to hope for its rise, is just *participating in a zero sum game*.  So all "investors" are nothing else but gamblers that win as much as one of their peers looses.   Their "investment" doesn't increase any value production of the crypto currency in the economy.  Whether they hold their stash and buy more of it or not, doesn't increase the competitive edge the crypto currency can bring (on the contrary).

This, in contrast to an investor in company stock, where the investment is used to buy more production capital.  If you buy new stock issued by a company, you are giving money to that company that it will use to acquire production capital and bring it more competitive edge.  If you buy and hold bitcoin, eth, .... , then nothing improves economically somewhere for a *user* of that crypto (on the contrary).


You can stop at "gambling".  Indeed.


It depends what you call "go mainstream".  If that is "bitcoin will be used in general as a currency/store of value WITHOUT an expectation of its price rise as its main drive" then yes.   I agree with you, but this is not what we are witnessing over the last years.  I have the impression that bitcoin is, after these years, still (or even more) driven by "expecting a higher price" and not by "usage".   I pointed out that it is very well possible that one day that will come, but also, that this will be hampered by exactly the consequences of the way too high price right now.


Mining is the price of the system (I fully agree that it is necessary, but it is a necessary evil).  The higher the price of the system, the lower the competitive edge it can bring.  So the minimal amount of mining that "works" would be optimal.  That amount of mining is directly proportional to the price.  It could hence be 20 times less if all those gamblers hadn't blown up the price of bitcoin 20-fold over its necessary value to be used as a store of value.

That's not nothing: 20 times less cost of production !  This is why I say that this speculation harms the usage.



I seriously doubt that regulators would look so hard at it if its market cap where smaller and banks wouldn't be looking at it, but maybe you're right there.


The whole thing is that bitcoin's main value proposition is that you can in principle do such now without banking, and hence without licence (yes, totally illegal).  Once you've paid your licence, and once you're paying your taxes, what point is there to use anything else but a normal bank ?  Bitcoin is exactly bringing economic value there where you have to be outside of the legal system.


The point is that of course, if banks use it, it will be totally regulated, and its use in illegal affairs, which is the main value it can bring, is then in any case dead.


I think we went through a period of stability because speculation had diminished.  But with the halving and all the BS that was told around it, it is back in full force. 

I'm not saying that BTC has no value at all.  I would say, read what I've written, but it is probably TL;DR.

In short: bitcoin has of course a big value proposition: it is a currency/store of value.
My "complaint" is that in the current situation, the actual "market cap" of bitcoin USED as a currency/store of value is probably only 5% of the current market cap, and that that is the ONLY real value of bitcoin (as of today).

I'm complaining about the fact that 95% of the current bitcoin market cap is made up, essentially, by greater-fool-theory, that is, people that are in bitcoin ONLY because they expect its price to rise significantly.

My argument is that that is bad, and is potentially even killing the genuine adoption of bitcoin where it DOES have value, namely as a currency/store of value, because it brings deadly volatility, too much cost in mining, too much attention by regulators and institutional "investors"... it doesn't bring anything that helps bitcoin be where it has value, namely as a (free - like in freedom) store of value/currency.  On the contrary, it HARMS bitcoin.


That's just a matter of scale.  What matters is how much an individual user of the system is scammed.  When bitcoin went up to $1200 and then came down to $200, bitcoin essentially lost a factor of 6 in value of its potential users.  At this moment, bitcoin is a worse currency/store of value than most big fiat currencies.  This volatility was entirely due to speculation, not to variability in "genuine usage".