Does much of gold's market cap eventually go to Bitcoin?

[iCEBREAKER]

Thanks n8rwJeTt8TrrLKPa55eU.

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[niko]

That would be about as appealing as idk, wearing bank account number around your neck. But if you really think you gonna set a trend with that - go ahead and do it. You could be the biggest supplier for bitcoin bling.... And I even think if there is another, much larger bitcoin bubble some people ought to do it...  

Of course the irony would be if the thing then contains any gold in the physical form in the first place, like at least the gold contacts if not the casing  

Never underestimate primal urges: http://en.wikipedia.org/wiki/I_Am_Rich

If Bitcoin ever gains traction, there will be idiots displaying their public address barcodes to show how loaded they are.

like me!   --> http://blockchain.info/address/1Gyrsur3XcEoGjCarnXvGTVAS3rvjsdVm3

...and there will always be idiots like me who actually spend time checking 

[kjj]

I would say so far bitcoin has had about 0% effect on gold capitalization.

Really, we have been using gold for 6000 years, bitcoin for 3. While bitcoin has done a wonderful job in decentralizing its counterparty risk, it still has counterparty risk in that it relies on multiple existing infrastructures like the bitcoin network, the internet, and the power grid.

That's not what counterparty risk is.  Counterparty risk is when someone owes you.  What you are saying is merely being part of a modern society.

You have a car.  About 98% of the usefulness of a car actually comes from things other than the car:  roads, gas, mechanics.  They aren't counterparties, and that isn't counterparty risk.  That is, er, societal risk or something, because your society could decide (somehow) to stop having those other things.  The good news is that for most of us, if those infrastructures go away, we'll be dead long before we have to worry about money.

With gold you can trade where there is no internet connection and no computers. It can be instantly identified by its very high density without the need for mind boggling math, and it can be explained to a 3 year old.

Gold is not just for governments and rich people. Common folk like me can buy it up a little bit at a time. I have a couple dozen oz and as such I get to hold my wealth just like the big boys do.

I am pretty sure gold will be the go to commodity for the very wealthy until such a time as transmutation of atoms because cost effective.

Gold trades easily where the gold physically is.  Bitcoin trades easily where the bitcoin network is, which at this point is pretty much everywhere all the time.  I'm going to have to give the advantage to bitcoin on this one.  There is no reason why you couldn't trade gold electronically too, which would even that field, but the only way to do that is to trust a counterparty to owe you gold and reassign their debt to the new owner.  (There are services that do exactly this, of course)

By the way, congratulations on your stack.  I'm more of a silver guy myself because I can afford bigger stacks of it, which are more fun to play with, but I have a couple of tiny gold coins and they sure are pretty.

[sunnankar]

That's not what counterparty risk is.  Counterparty risk is when someone owes you.  What you are saying is merely being part of a modern society.

I think there is a conflation of four different types of risk.

With gold or bitcoins you can hold it yourself or have a third party hold it. With FRN$ you can hold it yourself or lend it to a financial institution. Usually a financial institution needs to be involved to transfer value over distance. Thus, FRN$ are the blood while banks, Paypal, credit cards, etc. are the veins.

Gold or bitcoins you hold yourself are subject only to exchange rate risk.

Gold or bitcoins you have a third party hold are subject to exchange rate risk and performance risk. Performance risk is the risk that a party will perform their contract.

FRN$ you hold yourself are subject to exchange rate risk and currency risk; they can become absolutely worthless.

FRN$ you lend to a financial institution, like with fractional reserve banking, money markets, etc. are subject to these four types of risk: exchange rate risk, currency risk, performance risk and counter-party risk which is the financial ability of the counter-party to perform the contract.

This is where Bitcoin becomes extremely powerful because it is both the blood and the veins. In performing that service when you use it yourself it eliminates performance risk and counter-party risk.

[Melbustus]

I would say so far bitcoin has had about 0% effect on gold capitalization.

Well, I, for one, have bought some bitcoins with money I would've otherwise used for gold, but yeah, obviously the impact is essentially nothing right now. When I use the word "eventually" in this thread's title, I mean, decades/generations.

Really, we have been using gold for 6000 years, bitcoin for 3. While bitcoin has done a wonderful job in decentralizing its counterparty risk, it still has counterparty risk in that it relies on multiple existing infrastructures like the bitcoin network, the internet, and the power grid. With gold you can trade where there is no internet connection and no computers. It can be instantly identified by its very high density without the need for mind boggling math, and it can be explained to a 3 year old.

Agree with kjj above about definition of counterparty risk. But your underlying point, that bitcoin relies on more infrastructure than gold, is of course valid. However, your implication that one must fully understand the cryptography on which bitcoin is based in order to understand that bitcoin has value is just silly. Humans very willingly assign value to all kinds of things they don't fully understand (like federal-reserve-notes, for example).

Gold is not just for governments and rich people. Common folk like me can buy it up a little bit at a time. I have a couple dozen oz and as such I get to hold my wealth just like the big boys do.

How does this not hold true even more so with bitcoin?

I am pretty sure gold will be the go to commodity for the very wealthy until such a time as transmutation of atoms because cost effective.

For now, yes. In say, 10yrs, if bitcoin is accepted by a decent number of merchants and the general public has heard of it, I think it won't be too strange for people to hold X% of their "hard money" portfolios in bitcoin. Maybe not in place of gold at that point, but in addition to (eg, maybe the X% of total portfolio is a point or two bigger allowing for the btc holdings). Eventually, I'm positing that people may decide that they're holding bitcoin and gold for the same reasons (except the end-of-the-world folks who will hold mostly guns and seeds anyways), and that bitcoin has the same properties as gold plus a whole lot more. Thus, a tendency to hold more btc instead of gold long-term. But who knows....that's why I'm asking the question. Curious to see if there seems to exist a good theoretical reason why that would never happen.

[cypherdoc]

That's not what counterparty risk is.  Counterparty risk is when someone owes you.  What you are saying is merely being part of a modern society.

I think there is a conflation of four different types of risk.

With gold or bitcoins you can hold it yourself or have a third party hold it. With FRN$ you can hold it yourself or lend it to a financial institution. Usually a financial institution needs to be involved to transfer value over distance. Thus, FRN$ are the blood while banks, Paypal, credit cards, etc. are the veins.

Gold or bitcoins you hold yourself are subject only to exchange rate risk.

Gold or bitcoins you have a third party hold are subject to exchange rate risk and performance risk. Performance risk is the risk that a party will perform their contract.

FRN$ you hold yourself are subject to exchange rate risk and currency risk; they can become absolutely worthless.

FRN$ you lend to a financial institution, like with fractional reserve banking, money markets, etc. are subject to these four types of risk: exchange rate risk, currency risk, performance risk and counter-party risk which is the financial ability of the counter-party to perform the contract.

This is where Bitcoin becomes extremely powerful because it is both the blood and the veins. In performing that service when you use it yourself it eliminates performance risk and counter-party risk.

as the only one around here who seems to have traded the majority of his gold/silver in exchange for Bitcoin, I will add one more form of risk; that of security.

i used to have 2 safes full of pm's.  when i was not home or travelling, i used to worry about someone breaking into the safes as my one and only level of security.

now, with Bitcoin and w/o getting too specific, i think in terms of having five levels of security built in revolving around the safe door, multiple distributed copies, passworded usb keys, self destruct capabilities, encrypted wallets.

[cypherdoc]

not only does Bitcoin accomplish the store of wealth function, it is also currently serving as an efficient medium of exchange.

gold isn't doing anywhere near as well at the latter. 

[cypherdoc]

Next question then is: How much privately held gold is there? Well, I believe it's estimated that about 150,000 tons have been mined to date, and it looks like governments directly control about 30,000 tons (http://en.wikipedia.org/wiki/Gold_reserve). So, 120,000 tons in private hands. Interestingly, according to that wikipedia page, about 50% of the world's gold exists as jewelry. This is a need bitcoin cannot fill that I hadn't considered.

Remember, some portion of that has been consumed.

To answer the question, though, I think 10% of private gold is a reasonable maximum.

the key thing is that we have to estimate how much gold there is b/c it keeps changing.  miners continue to dig it up, much is hoarded away uncounted, and its possible that we'll be able to manufacture it in the near future.  and then there's the whole deep sea and asteroid argument which i don't put much stock in. 

i'd much rather deal with the certainty of a mathematical algorithm.  the fixed supply is not going to change as Bitcoin has already successfully dealt with inflatable alt chains.

most fiat currency today is digital.  i think that's really what Bitcoin is competing with.

[Melbustus]

not only does Bitcoin accomplish the store of wealth function, it is also currently serving as an efficient medium of exchange.

gold isn't doing anywhere near as well at the latter. 

I agree with this. I started this thread to see if someone could point out a good theoretical reason why bitcoin will never replace gold, and I don't think anything solid has been stated yet. Again, my assertion that bitcoin is a monetary superset of gold (eg, does what gold does, but better...plus awesome medium of exchange for the modern world). Bitcoin only fails vs. gold if there's no internet, which I think is valid to fold into the analysis, but is ultimately a long-tail (eg, 2nd order) consideration.

To be clear, though, I do agree with some of the other folks in this thread that bitcoin and gold will effectively be used as compliments for a while (many years), though ultimately (decades) they seem like supplements with bitcoin being the "better money".

[cypherdoc]

a couple of personal experiences.

i just found out Friday that not only am i being charged 2-3% of gross revenues on average by my processor for CC tx's but also that they have been charging me $30/mo for not having answered a PCI Compliance Questionnaire each year.  this has been going on for years w/o my knowledge.  they claim they notified me about this requirement in the fine print of my monthly statement once a year.  i've also caught them gradually increasing the % fees from time to time and slipping in all sorts of other fees.  it's an ongoing battle.  the costs of actually implementing the PCI Compliance is expensive and burdensome as well.

i have found that in the 4 short months since i've started my subscription service that dealing with Bitcoin has been a much more efficient and cost effective method of payment for services.  granted, i'm exchanging an information based service for Bitcoin as opposed to durable goods but still the point holds.  i can easily see how a wallet like Armory could be adapted to a Walmart or Costco model.

[jl2012]

Gold is industrial metal and jewelry. Bitcoin is nothing but currency.

I consider bitcoin to be mostly a monetary superset of gold. I use the word "mostly" because bitcoin is not physical, is (currently) not recognizable by the general population, and cannot serve a purpose in a non-electronic society scenario.

But obviously it has all of gold's other qualities (the ones that provide most of gold's inherent utility/value), and usually does them better (eg, divisibility, known/limited supply, durability, etc). Plus totally new, and desirable, qualities (transactability, etc).

So....in the rosiest of scenarios for bitcoin and humanity (ie, still a coherent civilization that involves electronic technology, no big flaws found in bitcoin, etc), does bitcoin simply replace gold since it's inherently more desirable in such a world....ie, some corollary of Gresham's law in play...?


(please note that for the purposes of this question, I'm pre-supposing that there's been no 51% attack, gov hasn't killed bitcoin, protocol is still solid and scales ok, etc, etc...)

[Melbustus]

Gold is industrial metal and jewelry. Bitcoin is nothing but currency.

Industrial and jewelry demand make up a tiny fraction of gold's current price. Gold was $300/oz not long ago, with roughly the same industrial/jewelry demand as now. Gold's price is driven predominantly by its perceived monetary value. I feel like you didn't read the thread (or even bother to think *a little* about the points made in my first post) before posting your above irrelevancy.

[db]

I am pretty sure gold will be the go to commodity for the very wealthy until such a time as transmutation of atoms because cost effective.

Or rather until asteroid mining becomes cost effective. Which could actually be pretty soon.

[cypherdoc]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.  its really a nifty tool that provides the ultimate in security.

edit:  sorry if i'm straying from the topic at hand but these little things i'm talking about have only reinforced my outlook on the transition from gold to Bitcoin.

[Melbustus]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.  its really a nifty tool that provides the ultimate in security.

edit:  sorry if i'm straying from the topic at hand but these little things i'm talking about have only reinforced my outlook on the transition from gold to Bitcoin.

Not off topic... Supports my position that bitcoin is a monetary SUPERset of gold.

I feel what you're saying too - every time I fire off some coins from my wallet to some service (or vice-versa) without exposing any sensitive information or having to type in a bunch of irrelevant data (or wait 3 days (eg: EFT)), I always think "Ahhh, this is indeed how money should *actually* work in the 21st century.".

[niko]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.

Would you please clarify the "w/o exposing private keys" part? Just like your private keys are subject to theft on a compromised machine, so is the seed for deterministic wallet. Besides, a key pair is a key pair - deterministic or not.

[kjj]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.

Would you please clarify the "w/o exposing private keys" part? Just like your private keys are subject to theft on a compromised machine, so is the seed for deterministic wallet. Besides, a key pair is a key pair - deterministic or not.

Private key -> public key is a trapdoor.  Knowing the public key had better not tell you anything about the private key, or we've got HUGE problems, far beyond the mere $100,000,000 market cap of bitcoin.

With that in mind, Armory lets you add addresses (or public keys) for monitoring, while the mainline client only accepts private key imports.  But don't get mad, the reference client has a lot of stuff that it must handle, even though Armory can skip it.  They do different jobs, in different ways.

[niko]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.

Would you please clarify the "w/o exposing private keys" part? Just like your private keys are subject to theft on a compromised machine, so is the seed for deterministic wallet. Besides, a key pair is a key pair - deterministic or not.

Private key -> public key is a trapdoor.  Knowing the public key had better not tell you anything about the private key, or we've got HUGE problems, far beyond the mere $100,000,000 market cap of bitcoin.

With that in mind, Armory lets you add addresses (or public keys) for monitoring, while the mainline client only accepts private key imports.  But don't get mad, the reference client has a lot of stuff that it must handle, even though Armory can skip it.  They do different jobs, in different ways.

Still don't get it - cypherdoc mentioned generating new addresses without exposing private keys. How would that work?
 

[cypherdoc]

let me add that to really appreciate how easy it is to use Bitcoin in commerce one should try Armory.

it allows me to control multiple wallets, use watching only wallets to monitor offline balances, import keys, and most importantly generate addresses for new subscribers on an ongoing basis w/o exposing private keys.  this is made possible by the deterministic wallet.

Would you please clarify the "w/o exposing private keys" part? Just like your private keys are subject to theft on a compromised machine, so is the seed for deterministic wallet. Besides, a key pair is a key pair - deterministic or not.

Private key -> public key is a trapdoor.  Knowing the public key had better not tell you anything about the private key, or we've got HUGE problems, far beyond the mere $100,000,000 market cap of bitcoin.

With that in mind, Armory lets you add addresses (or public keys) for monitoring, while the mainline client only accepts private key imports.  But don't get mad, the reference client has a lot of stuff that it must handle, even though Armory can skip it.  They do different jobs, in different ways.

Still don't get it - cypherdoc mentioned generating new addresses without exposing private keys. How would that work?
 

the wallet that is generated within Armory is deterministic based on a seed and a chain code.  this is distinctly different from the Satoshi client.  this is kept as an offline wallet on a computer only accessible by the owner of a large store in the back room.  "watching wallets"  of this same offline wallet are  placed on computers at the cashier checkout stands.  these watching wallets have the capability of generating a brand new address for each customer that comes thru the store when paying for an item.  these watching wallets do not have private keys associated with them so the cashiers can't steal the btc.  the cool thing about the owner's offline wallet and the cashiers watching wallet is that they generate the same addresses ad nauseum sequentially from the seed and chain code.  the only difference again is that the cashiers watching wallets don't have the private keys.

edit:  i didn't say this quite correctly.  each cashier would have a watching wallet connected to its paired distinct offline deterministic wallet.

[kjj]

the wallet that is generated within Armory is deterministic based on a seed and a chain code.  this is distinctly different from the Satoshi client.  this is kept as an offline wallet on a computer only accessible by the owner of a large store in the back room.  "watching wallets"  of this same offline wallet are  placed on computers at the cashier checkout stands.  these watching wallets have the capability of generating a brand new address for each customer that comes thru the store when paying for an item.  these watching wallets do not have private keys associated with them so the cashiers can't steal the btc.  the cool thing about the owner's offline wallet and the cashiers watching wallet is that they generate the same addresses ad nauseum sequentially from the seed and chain code.  the only difference again is that the cashiers watching wallets don't have the private keys.

edit:  i didn't say this quite correctly.  each cashier would have a watching wallet connected to its paired distinct offline deterministic wallet.

Hmm.  I'm going to have to read his source.  That doesn't seem possible to me, unless it is really generating the list of private keys and deleting them.