This is in fact a very intelligent point.  I have to say that I was first attracted in principle to such things as primecoin, because they solve at least some obscure mathematical problems during mining.  But you are right that what constitutes "useful work" is part of what the market has to decide, and will change over time, so it would be silly to cast it in stone in any successful cryptocurrency.

That said, there is indeed a fundamental difficulty with PoW.  In order for it to make the blockchain safe, a lot of work has to be done.  On the other hand, that is a cost for the use of the currency (a kind of tax on its usage if you want to).  During the early mining phase, that tax is essentially paid for by inflation (the phase we are in).  Later, the tax will be the fees that have to be paid.
If it is true that the cost of PoW is comparable to the inflation right now, that is, 10%, now that would be terribly huge.  As long as bitcoin adoption is growing, that's not so much of an issue, but imagine that the whole world economy is taken over by bitcoin.  It would mean that 10% of the world economic resources would go into PoW ?  It is what I touched upon in that other thread https://bitcointalk.org/index.php?topic=865870.0

I have no idea how much world resources are spent today to the fiat banking sector (I don't mean, how much money the banking sector is handling, but how much the banking sector's functioning is costing: salaries, real estate .... of banking and financial institutions).  The cost of the fiat banking sector is the fiat equivalent of the economic cost of PoW for cryptos.

2.

True, but the value of something is not given by the cost of production.  That has a long time been a problem in the value theory of money (and value theory in general), until von Mises pointed out exactly that error.

If it costs so much to keep bitcoins safe, that's more a disadvantage than an advantage.  The cost of production is a price bottom of the offer curve.  There's not necessarily a demand that corresponds to it (or it can be a very small demand).  If bitcoin needs to spend a billion $ of worth per year just to keep it up and running, then that is more a cost of usage (in competition with other stores of value) than anything else.

If I have a very expensive way to make absolutely disgusting food, not many people are going to buy my unique, expensive, and terrible tasting food.  It is not because there is only an expensive way to make it, that it will be valued so much by the costumer.

The question is: why would they do that ?

(I'm not saying they won't ; I'm asking what do you think would drive them to do so).

A means of exchange is always a store of value, between the moment of earning, and the moment of spending.  The wiki article talks about intrinsic value, which is often the genesis of a means of exchange (originally postulated by Menger).  It is often a medium with high intrinsic (usage) value, and also high tradability.
In as much as that means of exchange has a total "stored value as value store" which is far below its market cap as a useful good, its value is essentially given by its intrinsic value, and not its monetary value.

However, for assets which have low, or zero, intrinsic value, such as gold and bitcoin, all of their value is derived from its monetary function, that is, from the demand for it as a store of value. 

Now, you will argue that that goes against my argument, and that such a medium must become first a store of value before becoming a medium of exchange.  My point is that a medium of exchange *automatically* implies a function of store of value (because of the finite holding times between earning and spending), and that this is a much more *solid* way of conferring the function of storage of value, than the pure store of value function without it being a medium of exchange.

Bitcoin has no function as store of value without medium of exchange on short holding times.  There's no point in converting your salary from fiat to bitcoin in the beginning of the month, and to convert those coins back to fiat each time you want to purchase (in fiat, as bitcoin is then, under this hypothesis, not a medium of exchange, and only fiat is). 
Holding fiat for the rest of the month is just as good.  The hassle isn't worth it.

So the only pure store of value function of bitcoin is in the long term.  My point is that that needs a lot of trust if there is no "to the moon" speculation drive anymore, which won't exist anymore if we "are at the moon". 

On the other hand, merchant adoption can confer the store of value function to bitcoin in the short term, because you hold it between getting it and spending it.  That doesn't need much trust.  If I can BUY stuff in bitcoin, I wouldn't mind my salary to be paid in bitcoin.  And automatically, bitcoin becomes a store of value, for a few weeks, the time I spend it.  I don't have to worry about its long-term exchange rate variation. 

In the beginning, I would want my salary to be paid in bitcoin, but calculated in fiat, as for me, bitcoin could just as well go to $10, - as it could go to $1000.-   Most merchants would also do so.

Only after years of practice, and after bitcoin would take up value because of its exchange storage of value, people may start trusting bitcoin on the longer term (without "to the moon" speculation drive).

It did well during about 5000 years.  Now it is only a store of value, based upon that historical record and the trust it engenders.

A means of exchange is exactly that: a store of value, but with the aim of using it as a means of exchange.  The store of value comes from the fact that there is a time lapse between the obtaining of your means of exchange (for instance, as a salary) and the moment of spending it (say, 2 weeks later).  
During these 2 weeks, the value of your delayed exchange is stored in the currency.   It is what gives the currency a market cap.  It comes about because it makes the velocity finite (inverse of the holding time).

What I wanted to say is that it needs less trust to store your wage in a currency for 2 or 3 weeks, rather than to store your retirement in a store of value for 20 years.  Moreover, the currency has on top of that the advantage of being able to be exchanged directly for stuff, while your store of value, if it is not a currency, first needs to be converted into a currency and then into goods and services.

Stores of value which have no other fundamental than "trust that it is a good store of value", need, well, a lot of trust.  Gold has that trust, because of its 5000 year history.  Famous paintings have that trust too, if they are old and famous enough.  New paintings don't.  They can be speculative assets.

The stocks in the stock market have discounted cash flows for them.  

Bitcoin is not money yet.  Bitcoin acts as digital collectibles for the moment.  In order for bitcoin to be money, you have to be able to walk into a store, see the stuff priced in bitcoin, and pay in bitcoin.  Without thinking about it.  Like you do with $ in the USA, or with Euro in Europe.

On the contrary.  A store of value needs much more trust than a currency, because the holding times are much shorter for a currency, and the possibilities to exchange it are much larger with a currency.

It is much less risky to be paid in an asset as a currency and spend that currency on several goods and services, than to store your retirement in that asset if trust in the asset is limited, because the currency, you keep it for a few weeks.  The retirement, you keep it for 30 years.  

I wouldn't mind be paid in bitcoin if I could spend my bitcoin when going to the supermarket, and buying petrol and so on.  I wouldn't care about the long-term evolution of bitcoin.  Hey, during one month, it won't change too much, right ?  However, I have no idea about in 20 years.

I don't mind getting paid in fiat either.  Actually, today, I need fiat to be able to buy my groceries !  So if I would be paid in bitcoin, I'd convert them to fiat to do my shopping.  Because with that fiat, I can buy stuff all over the place.  With bitcoin, not (yet).

Using a currency is much less risky than using a store of value in the long run.

So it is merchant adoption, after all !


Possible, but that is what I call merchant adoption.  "store of value" without merchant adoption, replacing gold, but not the money to buy your car with, is hard to believe.  That's my point.


Why ?   Look at some paintings of some or other famous painter who is dead, so his paintings are collectibles like bitcoin.  Now, if bitcoin remains a funny curiosity within a certain circle of technology adepts, slowly growing at about the rate of inflation of bitcoin, why wouldn't it be possible ?   Maybe we are already on the top of the adoption curve of "funny curiosities".  Personally I don't think so, and I don't hope so, but it is a possibility.
Rembrandt paintings are worth a lot of money, but I think, less than the current market cap of bitcoin.  So should we expect bitcoin, as a technological curiosity if it never grows out of that status, to be so much more worth than the collection of Rembrandt paintings ?

Maybe bitcoin, as a curiosity, already came to maturity ?

Just to illustrate that it is perfectly well possible that bitcoin stays at about $400 too.  It would then be a reliable store of value for those few people interested in this kind of stuff, just like collectors of Rembrandt paintings are.  They are expensive too, but don't go to the moon either.

No, that is what brg444 was claiming here https://bitcointalk.org/index.php?topic=873102.msg9652987#msg9652987

Namely that bitcoin would first be a store of value before becoming a currency.  By definition, people interested in "store of value" are investors, and we know that most people now are speculators.

My claim is that the real fundamental of bitcoin is as a currency, to buy stuff with.  What you are talking about, too !


Indeed.  Merchant adoption.

However, things will be the other way around: bitcoins will then be $100 000.- BECAUSE you are wanting your salary in bitcoin, because you want to store your bitcoins you earned to spend them directly to buy stuff, and that the guy you're buying from is also using his coins to buy his supplies from and so on.  And then the coins get their value from P x Q = M x V.
From the demand for holding currency to be able to buy stuff with.

Merchant adoption.

And that will then be the true fundamental which will make bitcoin have $100 000.- and after several years like that, you will not hesitate putting your life savings in bitcoin for your retirement, because you know that bitcoin, as long as it is used as a currency, will keep more or less that value.  It can then also become a reliable store of value.

But that will not happen 5 years from now.

The stock market has fundamentals which are based upon the cash flow generated by real enterprises.  You cannot compare the stock market which is based upon expected discounted cash flow with the speculative value of collectables such as gold or bitcoin and of which the value in case of "store of value" only resides in the long-term trust one has in its acceptance of value, which, in my opinion, can only grow over a long period.

In as much as bitcoin is a currency, though, the monetary formula will give its price as a function of its use as a currency.  It is the way gold got its value historically: as a currency.

Sure, but to develop that trust, will take a *long* time.  If an asset has grown wildly from $10 to $100 000.- in a few years time, you take it normally that this is a high volatility, and that the opposite motion will be potentially just as quick.  You don't consider that as a store of value for the long term.

We've seen that last year, people have bought at $1200.- and end up a year later around $400.-  Do you think that after that example, people would buy in with a lot of money at $100 000.- ?
So what would convince anyone that if the price rose in 5 years time to $100 000.- that it can stay there for 20 years ?  Only by observing it for 20 years before engaging in it with serious money ! Which by itself will mean it cannot stay there !  And btw, all hodlers of today would try to cash in at such a price !

Again, this is different from the speculative market which is high risk, high gain which is the main driving force of the bitcoin price right now, but which only makes sense when the price is low of course !

This is why I think that bitcoin as a store of value at high prices is not possible in the near future.  If bitcoin would stay for 10 years at $400.- (and slightly rising to compensate for dollar devaluation) then people would start considering it as a store of value around that price. 

Bitcoin at $100 000.- because as store of value is imo not sustainable in the near future.

It is sustainable by (gigantic) merchant adoption on the other hand.

No, almost nobody is holding coins right now just to keep the value and to get that value back 20 years from now with the certainty that the value will more or less be held.

Almost everybody holding coins right now is hoping for a significant value increase.  If the reason for holding coins is value *increase* and not *value holding*, then the scheme will fail of course once the hope for value *increase* will stop - that is what I wanted to illustrate.

If you buy at $300, you can hope for $10 000.  But in order to sustain $10 000, something must change.  You cannot buy at $10 000, with the same incentives as buying at $300.  The hope to buy at $10 000, and to reach $3 000 000 is much lower I would think, than to buy at $300 and hoping for $10 000.  Moreover, the influx of value needed at $10 000 to support the money supply inflation is much larger than at $ 300.

If the buying and holding incentive is the huge increase in value, we are exactly on the same incentives as a Ponzi: it will fail at a certain point, because at a certain point, to sustain the price, the influx of value needed is too high, and the prospect of still higher prices becomes essentially nihil.  At that point the price will plummet, and all people having bought at $50 000 will panic-sell.

The only store of value has buying incentives without any expectation of significant increase in value.  If you buy gold, you are not hoping on a factor 30 of value increase in a few years.  You hope that it will keep its value (which means, higher price as compared to a devaluating fiat).  You may hope for slight increase, and you are not afraid of a small decrease.

Almost nobody is holding bitcoin to KEEP its value in my opinion.  If you would know that your coins will have doubled in price 10 years from now, you wouldn't hold your coins.  You're hoping for the moon.  But if you count on other people hoping for even more moon to get yours, it's going to crash, because that's exactly the drive of a ponzi.

If bitcoin were held as a store of value, then everybody should be happy if the price is almost constant, or would rise slowly to compensate for Dollar inflation.  Most hodlers don't hold bitcoin for that.

So they are NOT doing it right now.

The guy is showing himself:

But you know that that can't last.  That's like a Ponzi.  Why would the "latecomers" enter bitcoin at high prices ?  You buy a coin at $400 because you hope for $10 000.-.  But why would you buy a $10 000.- coin ?  Hoping for $ 100 000.- ?  Ok who's going to buy $ 100 000.- coins ?  Hoping for $10 000 000.- ?   No.  So the guy won't buy the $ 100 000.- coins for his retirement.  Meaning the guy buying at $ 10 000.- won't find a buyer at $ 100 000.-.   ...

Something is a store of value if you take it that it will KEEP its value more or less, not that you speculate that it will significantly increase if that is the only drive.  Because that will obviously come to an and one day, like a Ponzi.

I think we discussed this already, but store of value needs long-term trust.  Gold has a 5000 year record.  State bonds have century-level trust.  How do you think people will build up trust in bitcoin as a long-term stable store of value ?  Who would dare to buy $10,000.- coins to set aside for his retirement 30 years later ? 


Bitcoin is now inflationary like a real 3rd world country fiat: 10% a year nominally, but in fact much more as a lot of coins are in fact out of circulation for the moment.  It will take about 8 years before the inflationary nature of bitcoin will be of the order of the nominal Dollar and Euro price inflation.

People will not hoard huge amounts of value for a long time with such an uncertain future and in such an inflationary environment as compared to things like state bonds and gold.  The only reason to hoard coins is that one is speculating for "the moon" (low probability - high return). 

Monetary assets like gold historically first became currency, and only later, through the currency aspect for a long time and build-up trust, also a store of value.  I would like to see any reasoning that could indicate conservative pension funds wanting to invest a lot in bitcoin for a store of value over 20 years or so... 

I don't see why, honestly.  Merchant adoption doesn't care much about the actual price (usually converted from the actual exchange rate).  I would think that the actual fundamental of bitcoin in merchant adoption is probably less than $100.- at the moment.  But that doesn't stop adoption as a means of payment.  

It could be that merchant adoption doesn't work out.  And then, *in any case* bitcoin is over in the long run.  Nobody's gonna hold coins with which you can't buy anything ever.  And most hodlers do so with speculative hopes of "the moon", not as a "stable" store of value without much hope of just getting out what they put in.  The real share of the gold market is also small for the moment.

Bitcoin will live (and rise to the moon), or fall into oblivion with merchant adoption.

That's very important.  Apple's worth 700 billion, because there is real fundamental value there.    The market cap of Apple is real: if all the apple shares are sold over one year's time, there will probably be enough takers and the market cap will hold, because it has fundamentals.

Bitcoin's market cap isn't really 5 billion.  There's only a very small liquidity that is actually exchanged.  If half of the coins were sold next year, the price would plummet.  If you are holding 1 million coins, you cannot really make $350 million.  By the time you've sold half of them, the price would probably be something like $100.- or less.

That is because for the moment, the fundamentals of bitcoin (merchant adoption, and share of the gold market for instance) cannot even sustain the current market cap if bitcoin were totally liquid (if all coins were regularly exchanged).

I would guess that the highest fundamental at this moment is the black market share treated in bitcoin.

Bitcoin is as of now still a hugely speculative asset, speculative in the sense of people counting on a strong price increase in the future.  That's why many hold their coins: expecting it to be worth several $1000.- or even much more.
However, I have a hard time believing such a price is sustainable if the fundamentals don't follow.  There could be a (manipulated) surge, but I can't believe that most coins could be exchanged at such a high price - it would automatically lead to a price crash afterwards when holders would want to cash in (that is, if the coins became liquid).

So in order to have a high sustained coin price, the fundamentals must rise.  Merchant adoption is the way.  Bitcoin is way below apple, because what is actually bought with bitcoin is way below what Apple brings on the market.
I don't think that will come overnight.

I don't expect a significant price increase in 3 months time.   Bitcoin is a long, long term investment.  I would get out of bitcoin if there wasn't a price increase in 20 years :-)

I guess this is what opposes liberals, libertarians and anarchists :-)

I've been thinking a lot about these issues, and my idea is that a violence monopolist is unavoidable.  If there is no violence monopolist, that vacuum will attract one.  In the end, rules are always imposed by a violence monopolist, whether it is a formal state, a war lord, or the local maffia boss, or your wife with a rolling pin :-)  That is a sad fact about the world: power comes out of the barrel of a gun, and rules are imposed by power.

So if there is no organized violence monopolist, then the violent associations in self-defense will end up becoming one, and impose whatever rules it likes, with decision procedures (aristocratic, oligocratic, democratic, theocratic or whatever-cratic) and you can kiss your fundamental rights good-bye.  And if there is an organized violence monopolist (a "state"), then you can kiss your fundamental rights also good-bye, but there may be some way to impose part of them in some kind of constitutional way.