Can Bitcoin replace the dollar?

[amencon]

1) Pricing Something in Something.

What is a Price?

"In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services." WIKI

I can price something in something.

Example 1: A ocean front villa costs 10 Ferrari.

This statement has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (10 ferrari) have value (to society, not necessarily the individual). A Ferrari has value because it is pretty, a form of transport and fast.

Exampe 2: A ocean front villa costs 1000 ounces of gold.

This statement also has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (1000 gold) have value (to society, no necessarily the individual). Golds value is that it is pretty and rare. Everybody can understand the concept of pretty.

1) a) When people judge how fair a trade is for a villa for 1000oz of gold they aren't judging the villa against how "pretty" gold is.  If that were the case then something (villa in this case) would always be judged to be worth the exact same amount of gold since gold has remained equally pretty for as long as we've used it. b) In fact what happens is that people think of what other things the villa is worth as well as what other things the gold is worth to determine if the trade is fair or not.  In this case "other things" would be money of some sort most likely (that's essentially it's job after all).  

2) Much of gold's value is speculative, it is not valued based on it's utility or "intrinsic value" as some like to call it.  So the villa is being compared to a speculative value placed on something, replace that with it being compared against the speculative value of bitcoins and it's really the same difference.

1) a) No because sometimes people judge the worth of the villa higher and sometimes lower. The same goes for gold. Sometimes pretty things are in high demand and sometimes they are in low demand.
b) money is not the point at this moment. I am only displaying how a comparison of the value of valuable things (somethings) has meaning.

2) No its not. I am not referencing the price of gold. Yes the price of gold can change. But its value for society cant change. We will always think its pretty (this has been burnt into our brain). Its like water: It will always be necessary for humanity. Now the price of water can change. But we are not talking about this. Again in the section you quote I am showing how you can compare the value of somethings with one another. This has nothing to do with price.

Now Bitcoin itself has not value. I cant do anything with a bitcoin. That I can give it to you at little cost does not change this fact. This part comes later (Something for Nothing).  Bitcoin does however have a price. This price can change in future just like golds price can (we are in agreement here).  

For people using Gold as a store of wealth, isn't it's "value" really just determined by what someone can trade for it on the market (price)? 

If someone stores their wealth in Gold they will want to someday trade back that Gold for something else again.  What they can trade that Gold back for will be determined by the speculative price of Gold and not Gold's utility or how pretty it is. 

2) If anything all Gold's utility, industrial usage and being pretty (what you consider it's "value" right?) does is put a floor on Gold's price if it's speculative value were to shrink away some day.  A floor low enough that Gold would no longer be considered a good store of value and where most of it's holders would have dumped it on it's way to the floor price.

2) See people holding gold bars like gold for itself. They like the look of it. Yes they have not made jewelry out of it. But that is irrelevant. You can not say what part of the market price is down to it being held and what part is down to it actually being used for jewelry. People who hold it only hold it because they know that it has value in and of itself. Because they know its pretty and decorative and thus has value. If it had no value to begin with they would not be able to use it as a store of value, as something that has no value can not have value in the future when you want to retrieve the value.

Again NOBODY would be holding gold, is it has NO value. Therefore every bit of golds market price is dependent on it being pretty. Nobody would have started to save something that is nothing (no value).

Gold became valuable because it possesses various qualities that make it useful as a medium of exchange and a store of wealth, let's call this Gold's utility.  It's an element that is scarce, prohibitively costly to create, doesn't tarnish or corrode over time, more malleable than other metals making it more easily divisible etc.

Most people hold gold for it's speculative value that was built up due to it being ideal to fit the medium of a store of wealth due to it's utility.

Bitcoin became valuable because it possesses various qualities that make it useful as a medium of exchange and a store of wealth as well.  Some direct parallels can be drawn.

I think the problem is that you have some antiquated notion that only corporeal utility traits should be counted as "value" when in reality value is subjective and is whatever the collective marketplace decides on for any asset, virtual or otherwise.

I think we have fundamentally different definitions of what constitutes value and the role it plays in a commodity or currency's price.  To sway me to your side of the argument you will have to demonstrate how the value of Gold to be used in jewelry is fundamentally different than the value in a given utility trait of the Bitcoin network.  Gold being used as jewelry and Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary are both judged as valuable by various people.  Why does one impart "value" to Gold while the other doesn't for Bitcoin?

[porc]

1) Pricing Something in Something.

What is a Price?

"In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services." WIKI

I can price something in something.

Example 1: A ocean front villa costs 10 Ferrari.

This statement has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (10 ferrari) have value (to society, not necessarily the individual). A Ferrari has value because it is pretty, a form of transport and fast.

Exampe 2: A ocean front villa costs 1000 ounces of gold.

This statement also has meaning and everybody will have an opinion on whether this price is to high or to low as the good (villa) and the price (1000 gold) have value (to society, no necessarily the individual). Golds value is that it is pretty and rare. Everybody can understand the concept of pretty.

1) a) When people judge how fair a trade is for a villa for 1000oz of gold they aren't judging the villa against how "pretty" gold is.  If that were the case then something (villa in this case) would always be judged to be worth the exact same amount of gold since gold has remained equally pretty for as long as we've used it. b) In fact what happens is that people think of what other things the villa is worth as well as what other things the gold is worth to determine if the trade is fair or not.  In this case "other things" would be money of some sort most likely (that's essentially it's job after all).  

2) Much of gold's value is speculative, it is not valued based on it's utility or "intrinsic value" as some like to call it.  So the villa is being compared to a speculative value placed on something, replace that with it being compared against the speculative value of bitcoins and it's really the same difference.

1) a) No because sometimes people judge the worth of the villa higher and sometimes lower. The same goes for gold. Sometimes pretty things are in high demand and sometimes they are in low demand.
b) money is not the point at this moment. I am only displaying how a comparison of the value of valuable things (somethings) has meaning.

2) No its not. I am not referencing the price of gold. Yes the price of gold can change. But its value for society cant change. We will always think its pretty (this has been burnt into our brain). Its like water: It will always be necessary for humanity. Now the price of water can change. But we are not talking about this. Again in the section you quote I am showing how you can compare the value of somethings with one another. This has nothing to do with price.

Now Bitcoin itself has not value. I cant do anything with a bitcoin. That I can give it to you at little cost does not change this fact. This part comes later (Something for Nothing).  Bitcoin does however have a price. This price can change in future just like golds price can (we are in agreement here).  

For people using Gold as a store of wealth, isn't it's "value" really just determined by what someone can trade for it on the market (price)?  

If someone stores their wealth in Gold they will want to someday trade back that Gold for something else again.  What they can trade that Gold back for will be determined by the speculative price of Gold and not Gold's utility or how pretty it is.  

2) If anything all Gold's utility, industrial usage and being pretty (what you consider it's "value" right?) does is put a floor on Gold's price if it's speculative value were to shrink away some day.  A floor low enough that Gold would no longer be considered a good store of value and where most of it's holders would have dumped it on it's way to the floor price.

2) See people holding gold bars like gold for itself. They like the look of it. Yes they have not made jewelry out of it. But that is irrelevant. You can not say what part of the market price is down to it being held and what part is down to it actually being used for jewelry. People who hold it only hold it because they know that it has value in and of itself. Because they know its pretty and decorative and thus has value. If it had no value to begin with they would not be able to use it as a store of value, as something that has no value can not have value in the future when you want to retrieve the value.

Again NOBODY would be holding gold, is it has NO value. Therefore every bit of golds market price is dependent on it being pretty. Nobody would have started to save something that is nothing (no value).

Gold became valuable because it possesses various qualities that make it useful as a medium of exchange and a store of wealth, let's call this Gold's utility.  It's an element that is scarce, prohibitively costly to create, doesn't tarnish or corrode over time, more malleable than other metals making it more easily divisible etc.

Most people hold gold for it's speculative value that was built up due to it being ideal to fit the medium of a store of wealth due to it's utility.

Bitcoin became valuable because it possesses various qualities that make it useful as a medium of exchange and a store of wealth as well.  Some direct parallels can be drawn.

I think the problem is that you have some antiquated notion that only corporeal utility traits should be counted as "value" when in reality value is subjective and is whatever the collective marketplace decides on for any asset, virtual or otherwise.

 I think we have fundamentally different definitions of what constitutes value and the role it plays in a commodity or currency's price.  1) To sway me to your side of the argument you will have to demonstrate how the value of Gold to be used in jewelry is fundamentally different than the value in a given utility trait of the Bitcoin network.  Gold being used as jewelry and Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary are both judged as valuable by various people.  Why does one impart "value" to Gold while the other doesn't for Bitcoin?

1) The best question asked to me since I registered to this board. Great! Yes Bitcoin is scarce (though possible replacement by other cryptocurrencies make less safe), divisible and so forth.

However money has always been valuable for itself (as you seem to recognize). The reason for this is that money is one part of the transaction. If I give you something (good) I want something that is valuable in return. If you give me nothing, I must fear that nothing will eventually not be accepted for something.

Now why is gold something? As you stated it can be used for jewelry and it looks great even in bar form.

Now Bitcoin cant just cheat this requirement. You say you have identified the value of bitcoin:

" Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary"

The problem is that 1 BTC has no value for itself. The network however, (Bitcoin) is transferring BTC. (I am using the signs now to differentiate between the network and 1 bitcoin).

Thus the network does not have the ability to transfer wealth as bitcoin is not wealth but nothing.

I jokingly (I hope you forgive me ) describe it like this:

"ability" of Bitcoin network: transfering nothing at a cost.

I have already argued this with another bitcoiner. See below if you are interested:

You say bitcoin has value. You say I have to just read this post to understand:

1) Bitcoin has no intrinsic value, 2) the network does. Thats what everyone is missing altogether and or misrepresenting.

3) The networks value is derived from it's ability to send value across political and geographic borders, nearly instantly and dirt cheap, with minimum effort. Additionaly it enables this without the risks commonly found in traditional financial instruments and value stores. Risks like hyper-inflation, manipulation, ceisure or other meddling by governments or institutions for whatever reason.

The ability to move value is enormously valuable.
 

1) He agrees with me that Bitcoin has no value for itself (like for example water that quenches thirst, food to feed my children). This statement is obviously true, as I cant do anything with 1 bitcoin.

2) He says the network of miners gives bitcoin value (how? the bitcoins are not a claim on the mining equipment. I cant sell the mining equipment or take it in my possession. Again dollar bills once where a claim on gold that I could take in my possession).

3) He says "the networks value is derived from its ability to send value instantly and dirt cheap".

Now when he refers to "sending value" he is talking about bitcoins. Because after all you are sending bitcoins. However as he has established in the first part of his first sentence "Bitcoin has no (intrinsic) value". So he is contradicting himself.

To summarize the information he gives us: 1 Bitcoin has no value (=nothing) and this absence of value can be sent at a cost.

Now how exactly is this convincing?

As I said previously: Incurring costs (energy which is something) to send nothing does not make nothing valuable. It is a waste of energy.

[amencon]

1) To sway me to your side of the argument you will have to demonstrate how the value of Gold to be used in jewelry is fundamentally different than the value in a given utility trait of the Bitcoin network.  Gold being used as jewelry and Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary are both judged as valuable by various people.  Why does one impart "value" to Gold while the other doesn't for Bitcoin?

1) The best question asked to me since I registered to this board. Great! Yes Bitcoin is scarce (though possible replacement by other cryptocurrencies make less safe), divisible and so forth.

However money has always been valuable for itself (as you seem to recognize). The reason for this is that money is one part of the transaction. If I give you something (good) I want something that is valuable in return. If you give me nothing, I must fear that nothing will eventually not be accepted for something.

Now why is gold something? As you stated it can be used for jewelry and it looks great even in bar form.

Now Bitcoin cant just cheat this requirement. You say you have identified the value of bitcoin:

" Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary"

The problem is that 1 BTC has no value for itself. The network however, (Bitcoin) is transferring BTC. (I am using the signs now to differentiate between the network and 1 bitcoin).

Thus the network does not have the ability to transfer wealth as bitcoin is not wealth but nothing.

Hmm I see what you are saying.  I'm still stuck on why one coveted property gives value and another doesn't.  If I'm not mistaken Mises's Regression Theorem serves to explain why the non exchange value of Gold was necessary to "bootstrap" a recursion of valuing Gold for it's exchange properties into the future.  However doesn't this theorem only explain why bitcoins couldn't become valued for their exchange properties rather than why they have no value currently?  In actuality doesn't the existence of Bitcoin cast doubt over the validity of this theorem itself?

Sorry I know I said I wanted the "how" before but now I realize I also would like to know the "why".  Why does valuable exchange properties not give Bitcoin value?  Why does the value need to come from a property not related to Bitcoin's ability to serve as a medium of exchange or store of value?  Who decides what properties lend to something's value or not?  Why would we listen to them anyway?

I jokingly (I hope you forgive me ) describe it like this:

"ability" of Bitcoin network: transfering nothing at a cost.

Hah, actually that does sound like a clever one line summary of your argument.

My take on it however is how can you call something nothing if it can be exchanged for things of value?  Doesn't this ignore the reality staring you in the face?

You've given me good insight on the opposing view to mine regarding this frequently debated topic, thanks for that regardless of what else comes from our discussion.

I'm a bit loathe to bring it up but I've heard some others make the argument that before there was any exchange value in bitcoins it was still desired by some as "nerd tokens", an interesting piece of software to experiment with, and therefore doesn't violate Mises's theorem at all.  Feels a bit weak to me, trying too hard to pigeon hole Bitcoins to fit an antiquated theory but maybe I'm wrong there.  Thoughts?  Could the novel nature of the software be a value for bitcoin outside it's use as medium of exchange or store of value?

[Ibian]

Why do we keep having these tiresome back and forths on what value is? There is nobody who owns bitcoin who doesn't value it. Let's let that be the end of it.

[porc]

1) To sway me to your side of the argument you will have to demonstrate how the value of Gold to be used in jewelry is fundamentally different than the value in a given utility trait of the Bitcoin network.  Gold being used as jewelry and Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary are both judged as valuable by various people.  Why does one impart "value" to Gold while the other doesn't for Bitcoin?

1) The best question asked to me since I registered to this board. Great! Yes Bitcoin is scarce (though possible replacement by other cryptocurrencies make less safe), divisible and so forth.

However money has always been valuable for itself (as you seem to recognize). The reason for this is that money is one part of the transaction. If I give you something (good) I want something that is valuable in return. If you give me nothing, I must fear that nothing will eventually not be accepted for something.

Now why is gold something? As you stated it can be used for jewelry and it looks great even in bar form.

Now Bitcoin cant just cheat this requirement. You say you have identified the value of bitcoin:

" Bitcoin's ability to transfer wealth over large distances almost instantly between any 2 parties with no third party intermediary"

The problem is that 1 BTC has no value for itself. The network however, (Bitcoin) is transferring BTC. (I am using the signs now to differentiate between the network and 1 bitcoin).

Thus the network does not have the ability to transfer wealth as bitcoin is not wealth but nothing.

1) Hmm I see what you are saying.  I'm still stuck on why one coveted property gives value and another doesn't.  If I'm not mistaken Mises's Regression Theorem serves to explain why the non exchange value of Gold was necessary to "bootstrap" a recursion of valuing Gold for it's exchange properties into the future.  However doesn't this theorem only explain why bitcoins couldn't become valued for their exchange properties rather than why they have no value currently?  In actuality doesn't the existence of Bitcoin cast doubt over the validity of this theorem itself?

Sorry I know I said I wanted the "how" before but now I realize I also would like to know the "why".  Why does valuable exchange properties not give Bitcoin value?  Why does the value need to come from a property not related to Bitcoin's ability to serve as a medium of exchange or store of value?  Who decides what properties lend to something's value or not?  Why would we listen to them anyway?

I jokingly (I hope you forgive me ) describe it like this:

"ability" of Bitcoin network: transfering nothing at a cost.

Hah, actually that does sound like a clever one line summary of your argument.

My take on it however is how can you call something nothing if it can be exchanged for things of value?  Doesn't this ignore the reality staring you in the face?

You've given me good insight on the opposing view to mine regarding this frequently debated topic, thanks for that regardless of what else comes from our discussion.

2) I'm a bit loathe to bring it up but I've heard some others make the argument that before there was any exchange value in bitcoins it was still desired by some as "nerd tokens", an interesting piece of software to experiment with, and therefore doesn't violate Mises's theorem at all.  Feels a bit weak to me, trying too hard to pigeon hole Bitcoins to fit an antiquated theory but maybe I'm wrong there.  Thoughts?  Could the novel nature of the software be a value for bitcoin outside it's use as medium of exchange or store of value?

1) You already assume that the person holding something will accept nothing in return and thus say that nothing is something because it can be exchanged for something. However that ignores the elephant in the room:

Why should anybody exchange something for nothing. See gold could never have BECOME money if nobody wanted to exchange something for it. Without its beauty value no money value. They are linked and cant be separated.

Also, if you give me gold, I can be certain that in future somebody will want it, because humans have always found gold beautiful. This will not change, just like the fact that we need water to survive does not change. Again our brain reacts positively to golds image, we like to touch gold and so forth. So I can be certain, that gold will be exchanged for something in the future.

Now again, why should somebody exchange nothing for something. The answer you give: he can dump nothing on the next guy who gives something does not answer the question.

Also, how can I be sure that something is exchanged for nothing in the future. Again its trust that is not warranted. For Gold I know, because its beautiful. For bitcoin I dont, as its not valuable for itself. What adds insult to injury, is that I dont even know if bitcoin will be the most popular coin. It could be a different coin.

So people saying that golds beauty is only a small part of its value, as its mainly used as money are totally incorrect. Gold money value is DEPENDENT on its beauty. Without beauty no money value. Or to state it differently: Money has inherent value. Without inherent value the object cant become money.

2) Hardly convincing.

[Peter Lambert]

porc is the most long-winded troll I have ever seen.

Bitcoins will never completely replace all the other forms of money, but they don't have to. 1) Bitcoins are great for some things, not as great for others. I see bitcoins taking over the role of gold and USD as a reserve currency. 2) Bitcoins are also great for making international payments and online payments.

3) People keep saying that taxes somehow make everybody accept fiat dollars, that is silly. You could do all your business in bitcoins and the at the end of the year just trade the little bit you need into fiat to pay taxes. If bitcoin catches on, the government could even add a way to pay taxes using bitcoins; the government IT people are notoriously incompetent, but making a bitcoin payment processor can't be much harder than the system they currently use to collect tax payments electronically. The US government already holds hundreds of thousands of bitcoins, they might decide they like them.

4) While the price of bitcoins is currently so volatile that pricing things using them is hard, that will change over time. Already there are a handful of people who earn income in bitcoins, and they say it really changes the way you view prices. As more people switch to the mindset of pricing things in bitcoins, and as large contracts are made in bitcoins, and as the financial sector finally build strong mechanisms for options and futures on the bitcoin price, the price will stabilize and bitcoins will become more readily usable for pricing in contracts.

1) For what things are Bitcoin great? 1 a:What can I do with a Bitcoin?

1 b:How can something of value (gold) be replaced by something of no value (bitcoin)?

2) To what extend are they great to make international payments? If I pay with nothing (bitcoin) for something (goods), how is that a great payment method?

3) Straw man. Government forces us to use dollars, they make any other media of exchange use either unpractical or if turns out to be practical despite their laws (Liberty Gold), they make it illegal. Its not about only paying taxes in it. Its that they enforce the media of exchange monopoly of the dollar. They force us to accept dollars for payment fo debts as well.

4) Why should the price of something that has no inherent value whatsoever stabilize? After all I cant find a fair market value, as it has no value to begin with.

5: Simple Questions. Instead of answering especially question 1) you call me a troll.

Don't worry, we can keep feeding the troll indefinitely. I think we have already explained this to you, but we can keep trying until you understand.

1 a: You can send a bitcoin to anybody in the world. You can use a bitcoin transaction as a timestamp. You can use bitcoins as a random number generator. Most importantly, you can trade a bitcoin for something with the value of a bitcoin. You do not seem to understand how they have value, but look around and you will see there are people who want bitcoins. They have value because people want them. As long as there are still people who want to get bitcoins the bitcoins will still have value.

1 b: Bitcoins will never replace the function of gold as a great conductor, or as a component of jewelry. But they can take the function gold has as a store of wealth. The price of gold reflects the value assigned to it as people want it, not to have it but so that they can trade it for something else later. But if you hold physical gold you have to store it somewhere, and it is heavy and hard to transfer, and it is hard to verify it is real. Instead people will realize that they can hold bitcoins instead, someday when they want something useful they will trade their bitcoins to somebody else and get something useful in return. And bitcoins can be stored on a slip of paper, or in the electronic cloud, or in your head, or scratched on a sheet of gold and buried in a stone box, even in multiple places at once. Bitcoins are easy to transfer when you want to sell them, and they are easy to verify they are real.

2: They are a great international payment because they ignore national boundaries and geographical distances. Clearly there are people who are willing to trade things for bitcoins, so your statements are bogus. Let's say you want me to do something. You do not even need to know where I am, just a bitcoin address. So you trade something of value (however you want to define that) to somebody for a bitcoin, you send that bitcoin to me, and I do the thing you want. See, wasn't that easy? And if I decide I do not want to hold this bit of nothing, I can find somebody near me to trade for something of real value. So overall, you ended up with a little less of whatever it is you value, I did the thing you want and end up with something I value. All with no regard to national boundaries.

3: Yeah, keep whacking that straw man you made. The government says you have to accept dollars, and you have to pay dollars for taxes. But that does not mean you cannot also accept bitcoins. If all your customers are holding bitcoins, would you refuse bitcoin payment? No, sellers are trying to get their customers money, and so they try to make it as easy as possible for people to give them money. Once bitcoin catches on, everybody will make sure they are set up to accept it.

4: The price will stabilize because otherwise the speculators make money doing nothing. As more and more money goes into bitcoin speculation, it will force the price into a narrow range. It will take more and more money to affect the price, and so price movements will be smaller. That is just the way markets work.

5: You are a troll because you keep asking the same questions and ignoring the answers you get. You are a troll because you ask questions not to get the answer, but to get other people worked up. That is pretty much the definition of trolling.

[deisik]

5: You are a troll because you keep asking the same questions and ignoring the answers you get. You are a troll because you ask questions not to get the answer, but to get other people worked up. That is pretty much the definition of trolling.

In short, attention whore drama queen...

[amencon]

1) You already assume that the person holding something will accept nothing in return and thus say that nothing is something because it can be exchanged for something...

No I reject your premise that bitcoin is "nothing".  The problem I have with your argument is that you begin it with the assumption that for money to be something (have "value") it must have useful, valued traits outside of being money.  It's this assumption I'd like to debate, not all the conclusions you arrive at after that assumption is made.

As I said, as I understand it, the regression theorem requires any potential thing to have value to people outside of being money for it to become valued as money in the future.  This would be a great argument, pre-bitcoin adoption, as to why bitcoin would never grow to function as money.  Now that bitcoin exists and has grown to be used as money at least in some limited capacity, we have some empirical evidence that contradicts the deductions made by Mises to create this theorem.

So let's step back the discussion and hear anything you have that explains why money must have be valued for traits outside of being money to have value as money.  The best I've heard you come up with so far is that you trust the longevity of physical traits more than you do virtual ones, but that sounds like more your problem than a problem with bitcoin itself.  Others with your line of thinking have and will likely continue to slow Bitcoin's rate of adoption and growth (by not adopting it due this dogmatic belief), but I don't see it invalidating all the value placed on it by others.

It appears to come down to you feeling more comfortable with a money that possesses a long-standing physical trait that is valued that you believe should give your money a psuedo floor price in case of speculative value collapse.  You are free to value an oz of Gold that has a fraction of it's price very unlikely to go away due to a "utility" value trait more than an amount of bitcoin with equal exchange price, but that doesn't mean they are fundamentally different actors as money to those that use them.

Isn't the assertion that, bitcoin has no value because money must have value outside of being money to have value and bitcoin doesn't have value outside of being money, circular reasoning?

Why do we keep having these tiresome back and forths on what value is? There is nobody who owns bitcoin who doesn't value it. Let's let that be the end of it.

I have no doubt that there have been countless variations of this back and forth already in this sub-forum, however I've very rarely read much from here and I'm fascinated by porc's position.  He's not the only one that thinks this way and I'm curious to flesh out how he comes to his conclusions since they are a quite popular with a large section of investors and differ so grossly from my own thoughts.  Sometimes it's formally making the argument you believe in that leads you to realize your position isn't as strong as you thought it was and potentially change how you think.  Sorry to bore you.

[TimOsman]

Anybody that would like a detailed, yet easy to understand explanation of the difference between value and price, I would recommend picking up one of Benjamin Graham's books on investing. His two major works were Securities Analysis and Intelligent Investor and you can't go wrong with either one. They form the basis for Warren Buffet's investment strategy that he has used to build Berkshire Hathaway over the last several decades into one of the largest companies in the world.

In short, price is not the same as value, but value provides a magnetic pull on price. Speculators and other market forces will always be tugging at price in one direction or the other, but the underlying value will pull back until the price swings back to equilibrium with value. How to apply that to bitcoin? Well, don't equate price with value. You must do a separate analysis of the underlying value of a bitcoin because eventually the price will catch up to that, whichever direction that might be. Also keep in mind that it's a fools game to try and time the market. The price will always come back in line with the value but it might take days, weeks, months or sometimes years before it happens. It will ALWAYS happen, but the rate that it happens is far less predictable.

[medUSA]

This is a long text, but I think it contains some interesting arguments. To understand if Bitcoin can replace the dollar (or what is needed mentally for this to happen) we have to understand how we price things, why the dollar is used and how gold was established as a media of exchange.

You wrote a loooog essay on the topic "Can Bitcoin replace the dollar?",
only has 10 odd lines (section 3) about the central issue,
and guess what? No solid points are presented!

I do like to read well laid out arguements, even from people with views different from my own.
But having read the whole passage, I can't seems to grasp your point?
(do excuse me if I am the only one not understanding your "arguments")

So in simple words, do you believe Bitcoin can replace the dollar?

[porc]

1) You already assume that the person holding something will accept nothing in return and thus say that nothing is something because it can be exchanged for something...

No I reject your premise that bitcoin is "nothing".  The problem I have with your argument is that you begin it with the assumption that for money to be something (have "value") it must have useful, valued traits outside of being money.  It's this assumption I'd like to debate, not all the conclusions you arrive at after that assumption is made.

As I said, as I understand it, the regression theorem requires any potential thing to have value to people outside of being money for it to become valued as money in the future.  This would be a great argument, pre-bitcoin adoption, as to why bitcoin would never grow to function as money.  Now that bitcoin exists and has grown to be used as money at least in some limited capacity, we have some empirical evidence that contradicts the deductions made by Mises to create this theorem.

So let's step back the discussion and hear anything you have that explains why money must have be valued for traits outside of being money to have value as money.  The best I've heard you come up with so far is that you trust the longevity of physical traits more than you do virtual ones, but that sounds like more your problem than a problem with bitcoin itself.  Others with your line of thinking have and will likely continue to slow Bitcoin's rate of adoption and growth (by not adopting it due this dogmatic belief), but I don't see it invalidating all the value placed on it by others.

It appears to come down to you feeling more comfortable with a money that possesses a long-standing physical trait that is valued that you believe should give your money a psuedo floor price in case of speculative value collapse.  You are free to value an oz of Gold that has a fraction of it's price very unlikely to go away due to a "utility" value trait more than an amount of bitcoin with equal exchange price, but that doesn't mean they are fundamentally different actors as money to those that use them.

Isn't the assertion that, bitcoin has no value because money must have value outside of being money to have value and bitcoin doesn't have value outside of being money, circular reasoning?

No its not circular reasoning. Remember: Intrinsic value is one of the essential properties of money, that allows it to fulfill its functions. Without intrinsic value, gold could not fulfill its monetary role. You want to seperate golds intrinsic value from its monetary value, however that is impossible, as without intrinsic value gold has NO monetary value. The reason you insist on seperating these two aspects of gold, is because you want to believe that bitcoin can function as money despite its lack of intrinsic value.

Now lets look at the functions of money, in order to appreciate, why it HAS to have intrinsic value.

1) Store of value.

 To act as a store of value, these forms must be able to be saved and retrieved at a later time, and be predictably useful when retrieved. WIKI

Now what would happen, if in future nobody would accept my gold as payment for goods and services. Well, I could make jewelry out of it and wear that jewelry or I could decorate my house with it.

What happens when nobody accepts my BTCs? Well, I could do ABSOLUTELY NOTHING with my BTCs in this case. So already we see, that bitcoin actually has enormous counterparty risk, as it is only worth what somebody is willing to pay for it. If nobody wants my BTCs I am left with ABSOLUTELY NOTHING (i.e. bitcoin).

Now obviously I want to have a high degree of certainty, that somebody will want to exchange my store of value with other valuable things, as otherwise I would have an excess of one resource, that I would be stuck with.

What is golds guarantee in this regard? Well, it says: I am beautiful, people have loved my look since dawn of man, and have thus always been willing to accept me as payment for other valuable goods and services. Thats REAL backing.

What is BTC guarantee in this regard? Well it says: I am worth nothing, but people have agreed to exchange me for something, because they want to save transaction costs, and because they like exchanging me peer to peer (no third party or bank). Now without reading futher how convincing does that sound to you (pretend like you have never heard of BTC, or that BTC has collapsed in price)? Lets continue: In future people might not accept nothing for something. In future they might switch to a different coin, that is technologically superior (thus my wealth is stored in myspace and suddenly facebook comes along). In future the transaction costs might explode due to prohibitive regulation, so that the artificial agreement to exchange something for nothing collapses. In future, maybe people will prefer real backing over backed by nothing, especially if real backing can be transferred electronically (digital gold). In future people might think that it was crazy to accept nothing as payment, just to safe on transaction costs. In future there might be reputable trustees, and people might regain trust with third parties. In future maybe people decide that instant payment is not that important to them, as money is fungible. In future people might realize that bitcoin is not anonymous and that it is not internet or gold 2.0. Bitcoin might stay highly volatile as the believe in an artificial agreement (with huge counterpary risk) is extremly volatile.

Now from my perspective the situation is even worse: Right now people are ONLY accepting nothing for something, because they strongly believe that nothing will go up in price (after all it has been going up in price in the past, so it must be true for the future ). Eventually some early adopter will want to cash out, and if there is nobody there to take his position, the price will fall through the floor.

So I believe, that bitcoin because it does not have value, cant be relied upon as a store of value. It is entirely dependent on the counterparty honoring an pseudo agreement. So bitcoin actually has enormous counterparty risk. Gold is a great store of value, as people will always accept it because it is beautiful. It is burnt into our brain. It has no counterparty risk, because the counterparty cant help but love and accept it (like with food and water).

Thus intrinsic value is ESSENTIAL for one of moneys core functions: store of value. Money value cant be seperated from intrinsic value, as it is DEPENDENT on it.

2) Medium of exchange

Same arguments apply. Right now people exchange something for nothing, due to an artificial pseudo agreement (transaction costs, peer to peer if you ask bitcoiners). I believe its even worse: Right now people ONLY accept it because it is going up in price. As soon as it crashes, people will stop accepting it, as it is irrational to agree to exchange something of utility for something of no utility in order to save transaction costs.

[hashbox247]

Interesting stuff to read

[Peter Lambert]

No its not circular reasoning. Remember: Intrinsic value is one of the essential properties of money, that allows it to fulfill its functions. Without intrinsic value, gold could not fulfill its monetary role.

And here we have the crux of the issue. You keep saying this, but empirically it has been shown to be false. Therefore we reject your arguments. Money does not require an intrinsic value. Bitcoin, and also Ripple, and even all the credit based fiat currencies of the world used today, show that this is just not true. Money is an idea, it can exist without a physical object helping the simple minded understand it.

[LAMarcellus]

 Why is Bitcoin valuable?

This is perhaps the most important topic to address, as nothing else matters if Bitcoin has no value. What makes Bitcoin worth anything? Isn't it just "fake"? Isn't it just a made-up pretend virtual currency? Many say, "I can't hold it, I can't see it, and thus it's artificial and not worth my time." Let's challenge this understandable initial reaction. Let's demonstrate why Bitcoin is valuable, and very much worth one's time.

Financial privacy has long been symbolized by the notorious "Swiss bank account." Yet, anyone with a Swiss bank account has to trust that bank, and as we've seen in the last couple years, "bank privacy" even in Switzerland is a myth - banks there have been bending over for the US government and divulging customer information. So imagine having a private, numbered Swiss bank account, but without having to bother with the Swiss bank itself. That is Bitcoin. Instead of placing your trust in a regulated bank governed by fallible humans, Bitcoin enables you to place your trust in an unregulated cryptographic environment governed by infallible mathematics. 2+2 will always equal 4, no matter how many guns the government points at the equation.

Bitcoin is thus the only currency and money system in the world which has no counter-party risk to hold and to transfer. This is absolutely revolutionary and you should read the preceding sentence again. Gold advocates will point out that physical gold bullion has no counter-party risk, but that is only true for storage in your own home. Store it in a vault or bank and you have counter-party risk. And sending gold? You have to trust all sorts of people if you wish to transfer your gold somewhere else or spend it across distance.

Bitcoin means complete ownership of money both in storage and transfer. Nobody can prevent you from having it. Nobody can prevent you from spending it. Even if one's home is broken into, or even if the government issues a "confiscation order" (as they did with gold in 1933), one's Bitcoins are perfectly safe. Try fleeing a country with $1,000,000 in bullion without the government knowing about it. Easier said than done. With Bitcoin, it's almost easier done than said - you could put $1,000,000 of Bitcoin on a USB drive, or even write the private key on a piece of paper, or just email the wallet file to yourself to be retrieved outside the country.

Starting to see the value? Never in the history of the world has an individual had this ability. It is unprecedented.

No really, WHY is Bitcoin valuable???

At this point, skeptics should say, "okay fine, you can store and spend Bitcoins without interference, but what gives them initial value? Why do they have a price?" It's a very good question, and even expert economists have struggled with the answer.

But really, the answer is simple. Bitcoins have value because A) they are useful and B) they are scarce. Combine those two attributes in any asset and you will discover it has a price. The moment the first Bitcoin was traded to someone in exchange for something else, an exchange rate (market price) was established. Subsequent exchangers agreed or disagreed with that rate, and made further trades accordingly. Bitcoin thus spontaneously developed a price, as do all things in an open market if they are sufficiently useful and sufficiently scarce.

Let's look at value a little further, because it's a contentious issue with Bitcoin. There are many (including Paul Krugman) who believe Bitcoin isn't worth anything and is no more than a speculative bubble fad.

I wouldn't expect Krugman to "get it," but wiser/real economists need only observe metals to start understanding why Bitcoins have value. After all, any strong advocate of gold or silver as money should hopefully understand why these metals should be money. The answer is that these metals tend to be chosen in an open marketplace as money, because their specific properties make them useful as a means of exchange. It is the properties of gold and silver—unique to these metals—which make them excellent money. They are scarce, fungible, uniform, transportable, have a high value-to-weight ratio, are easily identifiable, are highly durable, and their supplies are relatively steady and predictable. Contrast other goods like chickens, or seashells, or sand, and you discover that none of them are as good on the above attributes as precious metals. Chickens can't well be cut in half or recombined, seashells are not uniform, and sand is too plentiful to be used as money. Why not other metals... why don't we use iron as money? It's not scarce enough - you'd need carts of it at the store to go shopping.

As any Austrian economist can tell you, money is merely that commodity in an open market which best satisfies the properties necessary for useful exchange. Gold and silver take the cake every time a violent government doesn't get in the way... or at least, this is true historically. But, this doesn't mean that gold and silver are "perfect, infallible money." Indeed, there are practical problems. One can't easily divide and combine silver coins to make change. One can't easily send large values of gold across distance without hiring security and waiting for transport. One must pay storage fees, or risk theft at home. And, while difficult, it is possible to make fake gold and silver ingots and pass them off in trade as real.

So then it follows that if gold and silver are not perfect money (though admittedly the best we've had), perhaps mankind could discover or invent something that was even better. This is the Bitcoin experiment - the question of whether Bitcoin, with its specific attributes, is an even better form of money than what the marketplace currently enjoys (or in the case of state fiat, is forced to use). If the Austrians are right, and a marketplace tends to chose the medium of exchange which best works as money, and Bitcoin's specific attributes make it excellent money, then perhaps the marketplace will, over time, increasingly use it for such.

The answer so far, is yes. Bitcoin is finding more and more niches for early adoption, which further supports its market price, providing confidence to holders that it will retain value, and this further lends Bitcoin to be used for still more purposes. It's an organic and messy process, full of trial and error, potholes, brilliant innovations and terrible failures. But that's what an open marketplace is, no? Every day a more resilient economy is being built, and not at the point of a gun, but voluntarily - not by decree of Bernanke, but by spontaneous, self-interested private order.

Many have made the argument that "nothing backs Bitcoin." And this is true. Bitcoin cannot be redeemed for any fixed value, nor is it tied to any existing currency or commodity. But, neither is gold. Gold is not backed by anything - it is valuable because it's useful and scarce. Cars are not backed by anything, they are merely useful as cars and thus have value. Food is not backed, nor are computers. All these goods have value in proportion to their usefulness and scarcity, and one merely needs to see the usefulness of Bitcoin to understand why, without backing from any government nor corporation, without being tied to any fiat currency or existing commodity, it commands a price on the market and rightly so.

http://evoorhees.blogspot.com/2012/04/bitcoin-libertarian-introduction.html

[hieroglyph]

I'm gonna say no because the Dollar has uses Bitcoin can't accomplish.  Such as fast transaction from person to person in an instant, not however long the blockchain takes.  But over long distances Bitcoin steals the show IMO.

[deisik]

I'm gonna say no because the Dollar has uses Bitcoin can't accomplish.  Such as fast transaction from person to person in an instant, not however long the blockchain takes.  But over long distances Bitcoin steals the show IMO.

This is not an inherent property of dollar, it is made possible by a payment system. Actual processing of payments can take up to a month (if we are talking about MasterCard or Visa), if I'm not mistaken. I think this can be done for Bitcoin as well if such a need would arise (it will if Bitcoin persists). If you transfer funds from one wallet to another in Coinbase, the transaction is instant too (even from one account to another)...

[Peter Lambert]

I'm gonna say no because the Dollar has uses Bitcoin can't accomplish.  Such as fast transaction from person to person in an instant, not however long the blockchain takes.  But over long distances Bitcoin steals the show IMO.

This is not an inherent property of dollar, it is made possible by a payment system. Actual processing of payments can take up to a month (if we are talking about MasterCard or Visa), if I'm not mistaken. I think this can be done for Bitcoin as well if such a need would arise (it will if Bitcoin persists). If you transfer funds from one wallet to another in Coinbase, the transaction is instant too (even from one account to another)...

I think he is referring to handing somebody some cash.

The bitcoin equivalent is using physical bitcoins, or for small amounts you can just do the transaction with 0 confirms which is pretty much instant.

[amencon]

To act as a store of value, these forms must be able to be saved and retrieved at a later time, and be predictably useful when retrieved. WIKI

It's funny you quoted the WIKI, but scroll down and on that same page you see "digital currency, e.g. Bitcoin" listed as an alternative store of value...

Now what would happen, if in future nobody would accept my gold as payment for goods and services. Well, I could make jewelry out of it and wear that jewelry or I could decorate my house with it.

What happens when nobody accepts my BTCs? Well, I could do ABSOLUTELY NOTHING with my BTCs in this case. So already we see, that bitcoin actually has enormous counterparty risk, as it is only worth what somebody is willing to pay for it. If nobody wants my BTCs I am left with ABSOLUTELY NOTHING (i.e. bitcoin).

In either case you would lose most of your wealth stored in the medium.  The difference seems to be subjective, you feel that your Gold is more likely to be worth something down the road than bitcoin.  This can absolutely contribute to your choices of medium to store your wealth in but doesn't make one money and one not.  There is no fundamental difference other than your comfort in chances for loss of price moving into the future.  There are events of varying probabilities that could render either worthless.  To say one is money, because it passes some arbitrary threshold of likely odds  (of your choosing apparently)  to remain desired by others that the other doesn't, seems silly to me.

Now obviously I want to have a high degree of certainty, that somebody will want to exchange my store of value with other valuable things, as otherwise I would have an excess of one resource, that I would be stuck with.

What is golds guarantee in this regard? Well, it says: I am beautiful, people have loved my look since dawn of man, and have thus always been willing to accept me as payment for other valuable goods and services. Thats REAL backing.

What is BTC guarantee in this regard? Well it says: I am worth nothing, but people have agreed to exchange me for something, because they want to save transaction costs, and because they like exchanging me peer to peer (no third party or bank). Now without reading futher how convincing does that sound to you (pretend like you have never heard of BTC, or that BTC has collapsed in price)? Lets continue: In future people might not accept nothing for something. In future they might switch to a different coin, that is technologically superior (thus my wealth is stored in myspace and suddenly facebook comes along). In future the transaction costs might explode due to prohibitive regulation, so that the artificial agreement to exchange something for nothing collapses. In future, maybe people will prefer real backing over backed by nothing, especially if real backing can be transferred electronically (digital gold). In future people might think that it was crazy to accept nothing as payment, just to safe on transaction costs. In future there might be reputable trustees, and people might regain trust with third parties. In future maybe people decide that instant payment is not that important to them, as money is fungible. In future people might realize that bitcoin is not anonymous and that it is not internet or gold 2.0. Bitcoin might stay highly volatile as the believe in an artificial agreement (with huge counterpary risk) is extremly volatile.

Now from my perspective the situation is even worse: Right now people are ONLY accepting nothing for something, because they strongly believe that nothing will go up in price (after all it has been going up in price in the past, so it must be true for the future ). Eventually some early adopter will want to cash out, and if there is nobody there to take his position, the price will fall through the floor.

So I believe, that bitcoin because it does not have value, cant be relied upon as a store of value. It is entirely dependent on the counterparty honoring an pseudo agreement. So bitcoin actually has enormous counterparty risk. Gold is a great store of value, as people will always accept it because it is beautiful. It is burnt into our brain. It has no counterparty risk, because the counterparty cant help but love and accept it (like with food and water).

Thus intrinsic value is ESSENTIAL for one of moneys core functions: store of value. Money value cant be seperated from intrinsic value, as it is DEPENDENT on it.

2) Medium of exchange

Same arguments apply. Right now people exchange something for nothing, due to an artificial pseudo agreement (transaction costs, peer to peer if you ask bitcoiners). I believe its even worse: Right now people ONLY accept it because it is going up in price. As soon as it crashes, people will stop accepting it, as it is irrational to agree to exchange something of utility for something of no utility in order to save transaction costs.

All this really only seems to speak to your comfort level in respect to the future of Gold vs Bitcoin.  Go far enough and maybe we mine asteroids and Gold goes out of vogue, so it's no longer scarce and nobody wants it for jewelry.  Does that mean Gold is nothing because there are potential futures where it is no longer desired and therefore no longer traded?

You've made a great case for why Gold is the safer investment.  It has a long history and has some properties that makes it less likely to go to 0.  I don't see anything that demonstrates either Gold or Bitcoin is "nothing" or that Bitcoin can't be money.

[pand70]

Noone wants bitcoin to replace dollar or any fiat currency whatsoever.
It's like people wanting email to replace traditional mail services. It's ridiculous and no one cares for that.

[qiwoman]

A bitcoin-based economy could never function as long as we also have usury (interest on loans). It's not the dollar that matters, it's the fundamentals of our economic system.

I agree also because the Chinese hold Trillions of USD Backed Bonds it will be hard to convert because then all that money would be worthless.. This will have to happen over a period of at least one to two generations for a transition t a fully decentralized digital economic system can function normally. It's like comparing a zero emissions living and gas and oil..These old Dinosaurs are not going to let go of their old ways just yet.but we can keep trying to make it happen.