Bitcoins are more like domain names than any other asset

[bhu]

We've been working on a program called The Bitcoin Phenomenon for SQ1.tv.

In my view, the closest analogue to bitcoin as an asset is .com domain names, not a currency. Let me explain:

At heart, bitcoin is a protocol. Its initial value was derived from people speculating about its future. Bitcoins were virtually free to mine at its origin. Today, it is considerably harder to create this asset, a bitcoin. Additionally, there is a strong network effect forming the value of bitcoin...the more people that use bitcoin or play in the bitcoin ecosystem, the more valuable bitcoin is as a protocol and the value of each individual bitcoin grows as result.

Back in 1993, .com domains were free. You could register any .com for free. And almost all were available. The next year, Netscape Navigator was launched. And people could see the potential of the commercial web. And a nominal charge was added for registering domains. For one reason or another, the .com standard resonated with both consumers and businesses. Dot-com became synonymous with the web. Over time, the aggregate value of .com domains went through the roof as .com was the commercial standard. The only distinction is that some domains have more value than others whereas each bitcoin has the same value.

Similar to the supply constraint of 21 million, the number of memorable, pronounceable dot-com domains is limited. To find an unregistered .com of any commercial value is difficult, but not impossible; this is similar to mining today. And to those that suggest the supply constraint of bitcoin will hold back its commercial adoption, it should be noted that the scarcity of viable .com domains did not inhibit the growth of the commercial web.

In my view, bitcoin speculation is very similar to domain name speculation from 1994-1997. Its value is entirely predicated on the wide-spread adoption of the protocol.

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[xxjs]

We've been working on a program called The Bitcoin Phenomenon for SQ1.tv.

In my view, the closest analogue to bitcoin as an asset is .com domain names, not a currency. Let me explain:

At heart, bitcoin is a protocol. Its initial value was derived from people speculating about its future. Bitcoins were virtually free to mine at its origin. Today, it is considerably harder to create this asset, a bitcoin. Additionally, there is a strong network effect forming the value of bitcoin...the more people that use bitcoin or play in the bitcoin ecosystem, the more valuable bitcoin is as a protocol and the value of each individual bitcoin grows as result.

Back in 1993, .com domains were free. You could register any .com for free. And almost all were available. The next year, Netscape Navigator was launched. And people could see the potential of the commercial web. And a nominal charge was added for registering domains. For one reason or another, the .com standard resonated with both consumers and businesses. Dot-com became synonymous with the web. Over time, the aggregate value of .com domains went through the roof as .com was the commercial standard. The only distinction is that some domains have more value than others whereas each bitcoin has the same value.

Similar to the supply constraint of 21 million, the number of memorable, pronounceable dot-com domains is limited. To find an unregistered .com of any commercial value is difficult, but not impossible; this is similar to mining today. And to those that suggest the supply constraint of bitcoin will hold back its commercial adoption, it should be noted that the scarcity of viable .com domains did not inhibit the growth of the commercial web.

In my view, bitcoin speculation is very similar to domain name speculation from 1994-1997. Its value is entirely predicated on the wide-spread adoption of the protocol.

That's weird. Bitcoin is money.

[empoweoqwj]

So are valuable .com domain names.

[spiral_mind]

It's a decent comparison. What you're describing is really an extension of basic supply and demand, not necessarily only related to what happened with .com domains. The lower something's price the more demand for that product there will be. Giving something with a fixed supply away for free (or nearly free) naturally attracts a ton of people's interest if that asset could eventually have any value.

[Melbustus]

I think many of the similarities/associations you've outlined are more or less correct, but mostly 2nd order. Bitcoin's 1st order property is that it's great money, for all the typical reasons why something can be deemed a good money, including: scarcity, durability, recognizability, fungibility, portability, divisibility, etc... All of these add up to reducing the friction of exchange, and that's what money is all about. Bitcoin excels in that domain (friction of exchange reduction), and so, I think it can simply be called a "great money".

So, again, while I think many of the connections/similarities you've drawn to domain names have merit, they're dwarfed by bitcoin's excellent medium-of-exchange properties, and therefore if I had to pick one class of thing that bitcoin is, I'd easily say "currency".


 

[bhu]

It's a decent comparison. What you're describing is really an extension of basic supply and demand, not necessarily only related to what happened with .com domains. The lower something's price the more demand for that product there will be. Giving something with a fixed supply away for free (or nearly free) naturally attracts a ton of people's interest if that asset could eventually have any value.

It's beyond this. From personal experience, when I heard of bitcoin being described as a currency that was a threat to sovereign currencies, I rolled my eyes and was dismissive (still am.) Once I heard it described as a low-level communication protocol like SMTP, I understood bitcoin's implications and commercial potential. Most VCs and entrepreneurs are betting on the latter.

From personal experience, I have never bought gold (it's archaic), but I have bought 4-figure, 5-figure (BondFunds.com), and higher domain names (MunicipalBonds.com), etc.

The difference in the initial value is this: Almost all sovereign currencies were initially either pegged to gold or to another established currency; as such the initial risk of adoption was neutralized. (The pound and dollar were pegged to gold for a long time. Many Arab currencies are pegged to the dollar currently.)

With both bitcoin and .com domain names, the initial value is a speculation on the eventual ubiquity and adoption of a protocol. And just as people used to scoff at a person spending a thousand dollars on a domain name, many look at bitcoiners in the same skeptical way. And people complain about bitcoin hoarders the same they used to about domain squatting.

Bitcoin and domains also are not actually owned by the individual; it is a record in a ledger. (Yes, paper money is also largely digital, but it can be held in widely, immediately identifiable paper form.)

Lastly, if the bitcoin protocol is not adopted, bitcoin is worthless. Just as .net or .biz domains largely are. The bet is on protocol adoption driven by network effects.

What is easier for people to understand: "Yo, bro, bitcoin is an electronic currency that is going to take over the world," or "uh, it's like buying domain names before everyone knew what to do with .com domains, bro." The first is grandiose; the second sounds plausible.

[eldentyrell]

domain names are not fungible

[bhu]

domain names are not fungible

the analogy is not perfect, of course. 

Currency issuers are members of the UN and have armies; gold is mined using earth-moving equipment. Nothing is a perfect comparison.

Domains names and bitcoin are as close than anything else.

[countryfree]

BTC and domain names are totally different. All bitcoins are equal, but all domain names are not. sex.com is worth more than mydirtydog.com. Then everybody can use BTC whereas my parents would not know what to do with a domain name. Also owning a domain is not anonymous, there has to be one registered legal owner.

[mechs]

You really should look into Namecoin which is merge mined with BTC.

[bhu]

BTC and domain names are totally different. All bitcoins are equal, but all domain names are not. sex.com is worth more than mydirtydog.com. Then everybody can use BTC whereas my parents would not know what to do with a domain name. Also owning a domain is not anonymous, there has to be one registered legal owner.

I mentioned that as a difference in the original post.

I think it works the same as an asset class in the aggregate. Owning a bitcoin is a share of the aggregate protocol while a domain is a specific destination within the protocol.

The comparison holds true in big picture terms. For any speculator buying bitcoin to hold, studying the appreciation of domain names in the aggregate is the closest thing.

Countries issue bonds and pay bond interest in sovereign currency; central banking systems are set up in sovereign currency; taxation power backed by force and property seizure is denominated in sovereign currency; legal contracts and disputes are adjudicated in sovereign currencies. Sovereign currencies are accepted by all merchants within their respective nation states. So currency and bitcoin are totally different too.

[bhu]

.com domain names are under control of a single entity that can, and in fact regularly is, exercise it to confiscate domain names from their owners. Moreover these authority is also delegated to third parties.

Bitcoin is decentralized and cannot be confiscated bar agreement of negligence of the owner of the corresponding private key.

This is rather a key difference that sets them apart. But there is also all the other properties of money besides scarcity, such as fungibility, divisibility, portability, noncounterfeitability (sysadmins can easily counterfeit non https protected domains on LANs), durability (gotta pay for dotcoms to a central authority and their agents or they are gone). See here for example: http://coin4.me/2012/05/properties-of-good-money-bitcoin/ .


Now back to basic claim of this thread

Bitcoins are more like domain names than any other asset

No, it is not. Bitcoin is more like gold than it is like .com domain names. If someone disagree, then this someone is gotta prove his point, for example by making comparison between bitcoin, gold and .coms on all properties of money.

The difference is that I can create BHUcoin with the exact same properties of bitcoin and nobody would accept it....just like no one cares about .biz domains. The adoption of the protocol is what is the key value driver.

Prove the point? Gold is physical. It has chemical properties. I can use it on my teeth or for bling. Gold doesn't merely exist electronically as a record. I'll bet in the year 2141, people are mining for gold. Gold is held by central banks. If the Internet died tomorrow and all electricity ceased to exist, gold would still exist. Gold existed before the Internet and written language. If human beings ceased to exist, gold would still exist. Gold might exist currently on Mars or Jupiter.

[bhu]

Prove the point? Gold is physical. It has chemical properties.

Seriously? We just start taking things out of context, like that? Like silver is different from gold because they are different elements in the periodic table? Right?

Continuing your train of thought we now have to conclude that silver is more like .com domains than it is like gold because silver and gold have different amount protons and electrons, correct?

 End of discussion then. I thought we are talking about money, turns out we are talking about geology or chemistry or some other shit. If so, I then obviously have been wrong and have nothing more to say.

Sorry that I offended you, Vladimir. I don't consider bitcoin or gold money. I think of bitcoin as an asset. That's why it is in the title of the thread: "Bitcoins are more like domain names than any other asset"

I consider money to be the sovereign currency in the state that you live in...that I can use at a moment's notice within said nation-state to buy milk.

My only point is that the investment characteristics of bitcoin are more like domain names in 1994-1997 than anything else.

Even the characteristics of the market participants are different: 100% of bitcoin buyers and 100% of domain name buyers have computers.

This is not trivial. Today, the world's largest buyer of gold on an annual basis are Indians. The majority of purchasing is done during wedding season post-Monsoon. Tens of millions of Indians buy gold....villagers, largely rural etc. It is India's second-largest import after oil. One of the reasons why gold is bought is the lack of formal banking in Indian villages and another reason is to be able to transfer wealth to the bride when she joins the groom's family. The vast majority of gold buyers in the world, I would venture, do not have access to a computer. You are welcome to look at the World Gold Council's website: http://www.gold.org

The average person buying bitcoin today is a highly-technical person speculating on the future adoption of a protocol. The characteristic of the btc buyer is similar to the domain buyer, online poker player, etc. (And no, I'm not comparing .com domains to online poker.) It is a demographic observation.

[bhu]

LOL, I guess we are like those 3 blind men describing the elephant. Ohh it is iike a column, no it is like a rope etc...

So let's now assume for a second that we are not in a chemistry lab...

Bitcoin as money: I would just comment that above you have fixated on one property 'wide acceptance' and claimed that being 'legal tender' is mandatory for money to be money (it helps but definitely not mandatory). It is more complex than that. But, let's just skip all it.

Yea I will agree that yea Bitcoin is "computer required" kind of money/asset. But hey, we are almost at the point when there are more mobile phones on the planet than the headcount. Which renders the point almost moot.

Now, back to your original "bitcoin and .coms as asset class". First of all, it is kind of cool that it is not only me now who is saying that bitcoin is a brand new asset class. But then it is like we fixated again like those blind men with elephant on one property, namely scarcity. And even allowing for that there are lots of scarce assets out there: land, gold, commodities, real estate, patents, politician's honesty, the list goes on.

Just having requirement of a computer being involved does not necessarily make domain names so much similar to bitcoin. Yes, there could be similarities but I think what some people are saying here there are also differences.

I'm going with the elephant being a column

Let's forget the properties of bitcoin as we are unlikely to convince each other. Let's look at the demand characteristics. Who the buyers of bitcoin are is likely to give us insights into how the main buyers are likely to perceive market conditions and how the asset will perform in the short to medium term.

My bets:

1. Less than 5% of bitcoin owners/community have ever owned gold, maybe 10% if I'm off. The bitcoiner is young. They are not looking to preserve wealth as much as they are looking to get rich. In my view, this shows a lack of substitutability between gold and bitcoin in the eyes of its primary holders.

2. The owners of bitcoin expect bitcoin to grow in value considerably over the price of gold. Gold was over $800 for a brief period in 1980. Stocks have vastly outperformed gold over the past 30 years. If you take the 1981 or 1982 lows to the price today, the S&P 500 or the Dow would have outperformed gold. I doubt any bitcoiner is looking to make 5x over 30 years like they would have with gold. By the way, dollars saved in a savings account at an average of 5% risk-free interest would itself have compounded to 4.3x the initial savings over 30 years (1.05 to the 30th power). (Bitcoiners please note: People don't keep cash in pillows for 30 years, it earns interest even in a savings account. Over 30 years, the risk-free FDIC insured 1-year yield was around 5%. Gold has barely kept pace.)  

3. The bet on bitcoin is not a bet against the dollar or "fiat" for most bitcoiners. It is a speculative bet on the adoption of the protocol. I do not believe that bitcoin holders merely expect bitcoin to move lockstep with gold or oil.

4. If the protocol takes off and is widely used, you could see a $10,000 bit coin, but this would have nothing to do with US or western rates of inflation. The asset value of a bitcoin is decoupled from inflation. It is influenced by adoption of an electronic communication protocol.

For an asset where the upside is purely predicated on adoption of a protocol, the closest thing I've seen are .com domain names. The utility wasn't clear to most. You had to be tech-savvy to see the potential. The earliest adopters were the nerdiest.

You got to see my point.

[herzmeister]

The comparison is surely not perfect, but I also use it for people who don't understand that something "virtual" and "not backed by anything" can have value.

[b!z]

All Bitcoins are created equal. My 1 BTC is no more expensive or rare than your 1 BTC.

[mirthworm]

You really should look into Namecoin which is merge mined with BTC.

Ditto. "Namecoin is a cryptocurrency that acts as a decentralized DNS." http://en.wikipedia.org/wiki/Namecoin

[lophie]

All Bitcoins are created equal. My 1 BTC is no more expensive or rare than your 1 BTC.

Disagree, Some would pay more for coins closer to coinbase than others. If you know what I mean  .

[muasktak10]

The op is right, and to the guy who said his explanation is 2nd order while it being money is first order. Then technically you just labeled everything that can be traded as money, which is accurate, but then the deciding factor of comparison should naturally go to 2nd order as there is no distinguishing between different forms of value.

[AKCoins]

The main difference with Bitcoin is that it has high liquidity. You can trade BTC for USD, EUR, etc. 24/7 on multiple exchanges around the world in large volumes.

You cannot readily convert .com domain names into cash and vice versa. At least not in the same manner as BTC.