Bitcoin Forum
April 18, 2019, 07:22:00 PM *
News: Latest Bitcoin Core release: 0.17.1 [Torrent]
 
   Home   Help Search Login Register More  
Pages: « 1 [2]  All
  Print  
Author Topic: Does Money Even Need a Use Value?  (Read 2050 times)
oXo
Full Member
***
Offline Offline

Activity: 182
Merit: 100


View Profile
July 12, 2014, 04:41:55 PM
 #21

As BTC are not consumed for direct use value (like gold or any other commodity) there is no risk of a deflation caused by an sudden increase of direct use value of the commodity.

The same pertains to pure fiat (not backed by anything). Actually, that was one of the reasons it came into existence and got universal acceptance (exclusion of externalities, such as finding a gold asteroid, for example).
The correlation isn't as strong as it used to be when fiat was backed by gold, but I think that fiat is still essentially backed by the production capacity and assets of a country.  That's more of an abstract concept, but the strength of a currency is generally based on the strength its country's economy, factoring in things like amount of debt, the ability to repay debt, trust in the country/currency, etc.

Fiat like USD doesn't need to be backed by anything.  Its legal  tender so by law you have to pay your taxes in fiat.  Its the only acceptable form of payment.  The amount of taxes are correlated to GDP so you are correct.  The price (compared to other currencies) fluctuate on economics

Because its mandated that people have to pay taxes w fiat, the demand is always there.  This guaranteed demand is what makes USD stable.   As long as US economy is stable
The US dollar is backed by the US economy.

Which is why I invested in bitcoin  Wink
1555615320
Hero Member
*
Offline Offline

Posts: 1555615320

View Profile Personal Message (Offline)

Ignore
1555615320
Reply with quote  #2

1555615320
Report to moderator
100% New Software
PC, Mac, Android, & HTML5 Clients
Krill Rakeback
Low Rake
Bitcoin Poker 3.0
Bad Beat Jackpot
SwC Poker Relaunch
PLAY NOW
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
1555615320
Hero Member
*
Offline Offline

Posts: 1555615320

View Profile Personal Message (Offline)

Ignore
1555615320
Reply with quote  #2

1555615320
Report to moderator
1555615320
Hero Member
*
Offline Offline

Posts: 1555615320

View Profile Personal Message (Offline)

Ignore
1555615320
Reply with quote  #2

1555615320
Report to moderator
1555615320
Hero Member
*
Offline Offline

Posts: 1555615320

View Profile Personal Message (Offline)

Ignore
1555615320
Reply with quote  #2

1555615320
Report to moderator
ShakyhandsBTCer
Sr. Member
****
Offline Offline

Activity: 448
Merit: 250


It's Money 2.0| It’s gold for nerds | It's Bitcoin


View Profile
July 12, 2014, 06:54:26 PM
 #22

As BTC are not consumed for direct use value (like gold or any other commodity) there is no risk of a deflation caused by an sudden increase of direct use value of the commodity.

The same pertains to pure fiat (not backed by anything). Actually, that was one of the reasons it came into existence and got universal acceptance (exclusion of externalities, such as finding a gold asteroid, for example).
The correlation isn't as strong as it used to be when fiat was backed by gold, but I think that fiat is still essentially backed by the production capacity and assets of a country.  That's more of an abstract concept, but the strength of a currency is generally based on the strength its country's economy, factoring in things like amount of debt, the ability to repay debt, trust in the country/currency, etc.

Fiat like USD doesn't need to be backed by anything.  Its legal  tender so by law you have to pay your taxes in fiat.  Its the only acceptable form of payment.  The amount of taxes are correlated to GDP so you are correct.  The price (compared to other currencies) fluctuate on economics

Because its mandated that people have to pay taxes w fiat, the demand is always there.  This guaranteed demand is what makes USD stable.   As long as US economy is stable
The US dollar is backed by the US economy.

Which is why I invested in bitcoin  Wink
Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
hollowframe
Sr. Member
****
Offline Offline

Activity: 266
Merit: 250


View Profile
July 14, 2014, 06:06:28 AM
 #23

As BTC are not consumed for direct use value (like gold or any other commodity) there is no risk of a deflation caused by an sudden increase of direct use value of the commodity.

The same pertains to pure fiat (not backed by anything). Actually, that was one of the reasons it came into existence and got universal acceptance (exclusion of externalities, such as finding a gold asteroid, for example).
The correlation isn't as strong as it used to be when fiat was backed by gold, but I think that fiat is still essentially backed by the production capacity and assets of a country.  That's more of an abstract concept, but the strength of a currency is generally based on the strength its country's economy, factoring in things like amount of debt, the ability to repay debt, trust in the country/currency, etc.

Fiat like USD doesn't need to be backed by anything.  Its legal  tender so by law you have to pay your taxes in fiat.  Its the only acceptable form of payment.  The amount of taxes are correlated to GDP so you are correct.  The price (compared to other currencies) fluctuate on economics

Because its mandated that people have to pay taxes w fiat, the demand is always there.  This guaranteed demand is what makes USD stable.   As long as US economy is stable

In a broad sense any money is backed by the utility it provides, either as a payment of taxes or as a means to purchase goods and services (including a utility for speculation, of course).
Utility for speculation is essentially worthless until the utility becomes utility for some other value.
CoinsCoinsEverywhere
Hero Member
*****
Offline Offline

Activity: 532
Merit: 500


View Profile
July 15, 2014, 04:12:34 PM
 #24

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
This is something that concerns me a little bit.  How do you ascribe a particular value to the network/miners?
painlord2k
Sr. Member
****
Offline Offline

Activity: 451
Merit: 250


View Profile
July 16, 2014, 12:00:31 AM
 #25

Fiat like USD doesn't need to be backed by anything.  Its legal  tender so by law you have to pay your taxes in fiat.  Its the only acceptable form of payment.  The amount of taxes are correlated to GDP so you are correct.  The price (compared to other currencies) fluctuate on economics
Because its mandated that people have to pay taxes w fiat, the demand is always there.  This guaranteed demand is what makes USD stable.   As long as US economy is stable
The US dollar is backed by the US economy.

Which is why I invested in bitcoin  Wink
Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.

Legal tender laws simply state the currency people is forced to accept as repayment of debts.
The government is not interested in being paid with pieces of paper, they are interested in give them away in exchange of something useful to them (goods and services).

The USD (or better the Fed.Res. Note) is not backed by the US economy, it is backed by the full faith and credit of the USoA. Nowaday a lot more faith than credit I would suggest.
With one Fed Note I have no claim on any output of the US economy.

The difference between a USD and a BTC is the USD can be printed in unlimited quantities out of thin air. Bitcoin can not.
Without its legal tender status the USD would lose its value. Bitcoin have no legal tender status to give it value, so it can not be taken away.

What back Bitcoin is the cost of censoring one or more transactions on the blockchain. It is a very high cost.
madken7777
Full Member
***
Offline Offline

Activity: 182
Merit: 100


View Profile
July 16, 2014, 03:57:46 AM
 #26

Transaction only happen when two parties exchanges good of equal value. Hence all money need to have value (regardless on how the value is derived).
FoeRest
Member
**
Offline Offline

Activity: 112
Merit: 10


View Profile
July 16, 2014, 04:02:55 AM
 #27

the value came from the first trade.... pizza  Wink and then well mostly drugs  Roll Eyes .... and now fiat  Angry
CoinsCoinsEverywhere
Hero Member
*****
Offline Offline

Activity: 532
Merit: 500


View Profile
July 16, 2014, 04:45:38 AM
 #28

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.

Legal tender laws simply state the currency people is forced to accept as repayment of debts.
The government is not interested in being paid with pieces of paper, they are interested in give them away in exchange of something useful to them (goods and services).

The USD (or better the Fed.Res. Note) is not backed by the US economy, it is backed by the full faith and credit of the USoA. Nowaday a lot more faith than credit I would suggest.
With one Fed Note I have no claim on any output of the US economy.

I'm not sure it's faith or credit anymore...just legacy.

The difference between a USD and a BTC is the USD can be printed in unlimited quantities out of thin air. Bitcoin can not.
Without its legal tender status the USD would lose its value. Bitcoin have no legal tender status to give it value, so it can not be taken away.

The USD has value because a bunch of people came together and said that the country needs a national currency to facilitate payments and trade.  They created the dollar and declared that it has value.  How is bitcoin different?  Satoshi created a technology that could be used as a currency to facilitate payments and trade in a manner that's independent of any particular government.  A community developed around that idea, and they declared that it had value.  Over time, more and more people have agreed with that idea, and we are where we are today.

What back Bitcoin is the cost of censoring one or more transactions on the blockchain. It is a very high cost.

Yes, it is a high cost now.  But one thing I've wondered about this is why is the cost required to be high?  Why couldn't bitcoin function just fine at $100?  Or $10?
bl4kjaguar
Hero Member
*****
Offline Offline

Activity: 546
Merit: 500


View Profile WWW
July 16, 2014, 03:55:08 PM
 #29

Some of you have been repeating a myth:
"Fiat currency is backed by the production of the nation".

This is propaganda which originates from the FED.

Today, it is more accurate to say that fiat currency is backed by the decisions of central bankers, since they are the ones controlling both the supply and the value of that money.

1CuUwTT21yZmZvNmmYYhsiVocczmAomSVa
hollowframe
Sr. Member
****
Offline Offline

Activity: 266
Merit: 250


View Profile
July 16, 2014, 11:33:11 PM
 #30

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
This is something that concerns me a little bit.  How do you ascribe a particular value to the network/miners?
It is the service that the network provides - keeping confirmed transactions secure and confirming transactions.
painlord2k
Sr. Member
****
Offline Offline

Activity: 451
Merit: 250


View Profile
July 17, 2014, 11:58:18 AM
 #31

Transaction only happen when two parties exchanges good of equal value. Hence all money need to have value (regardless on how the value is derived).

Voluntary transactions happen only when both parties exchange something the value less for something they value more.

Party A give away something he value less than what he acquire from B.
Party B give away something he value less than what he acquire from A.

If both were valued the same, no exchange would happen, because the act of exchanging them has a cost.

A give away Good1 to B in exchange for Good2 only if the subjective value of Good2 is greater than the subjective value of Good1 plus the cost of the exchange.
painlord2k
Sr. Member
****
Offline Offline

Activity: 451
Merit: 250


View Profile
July 17, 2014, 01:05:17 PM
 #32

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.

Legal tender laws simply state the currency people is forced to accept as repayment of debts.
The government is not interested in being paid with pieces of paper, they are interested in give them away in exchange of something useful to them (goods and services).

The USD (or better the Fed.Res. Note) is not backed by the US economy, it is backed by the full faith and credit of the USoA. Nowaday a lot more faith than credit I would suggest.
With one Fed Note I have no claim on any output of the US economy.

I'm not sure it's faith or credit anymore...just legacy.

Tradition (cit. Ben Bernanke)

Quote
The difference between a USD and a BTC is the USD can be printed in unlimited quantities out of thin air. Bitcoin can not.
Without its legal tender status the USD would lose its value. Bitcoin have no legal tender status to give it value, so it can not be taken away.

The USD has value because a bunch of people came together and said that the country needs a national currency to facilitate payments and trade.  They created the dollar and declared that it has value.  How is bitcoin different?  Satoshi created a technology that could be used as a currency to facilitate payments and trade in a manner that's independent of any particular government.  A community developed around that idea, and they declared that it had value.  Over time, more and more people have agreed with that idea, and we are where we are today.

The difference is in the bunch of people propping up the Fed.Res. Note impose the use of it with violence and threat of (dollar is a measure of weight in gold or silver).
The people advocating for Bitcoin never used or threatened to use violence to anyone.
In fact, the use of violence reduce the value of the Fed Note, but it is not a problem because it is already zero.

Quote
What back Bitcoin is the cost of censoring one or more transactions on the blockchain. It is a very high cost.

Yes, it is a high cost now.  But one thing I've wondered about this is why is the cost required to be high?  Why couldn't bitcoin function just fine at $100?  Or $10?

Because the value of the revenues of the miners is linked to the value of the bitcoin.
Higher the value, higher the PoW cost, higher the security of the network.
Erdogan
Hero Member
*****
Offline Offline

Activity: 896
Merit: 1000



View Profile
July 17, 2014, 02:59:16 PM
 #33

Transaction only happen when two parties exchanges good of equal value. Hence all money need to have value (regardless on how the value is derived).
Not equal value. The two parties must both consider that the value of the goods he is buying, is larger than the goods or money he is selling. So both parties win. Else there would be no trade.



░░░░░░░██████████████████████████████████████████████████████████████████████████████████████████░░░░░░░
████████████████████████████████████████████████████████████████████████████████████████████████████████
████████████████████████████████████████████████████████████████████████████████████████████████████████
░███▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀▀███░
░███░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░███░

      ████      █████████▄ ▀██████████▀  ▄████████▄       ▄█████████▄     ████ ████       ███             
     ██████     ███    ▀███▄   ████    ▄████▀  ▀█████   ▄████▀   ▀████▄   ████ █████      ███             
    ████████    ███     ████   ████  ▄███▀             ████  ▄███▄  ████  ████ ██████▄    ███             
   ████  ████   ███    ▄███▀   ████  ████             ████           ████ ████ ███ ▀███   ███             
  ▄███    ███▄  █████████▀     ████  ████             ████  ▀▀▀▀▀▀▀  ████ ████ ███   ███▄ ███            ▀
  ███  ██  ███  ███  ███       ████  ████▄             ████  ▀███▀  ████  ████ ███    ███████   ▄█████▄█ ▄
 ████ ████ ████ ▀███  ███▄     ████   ▀████▄    ▄█████  ▀████▄   ▄████▀   ████ ███     ▀█████   ██    ██ █
████        ████ ▀███  ████    ████     ▀██████████▀      ▀█████████▀     ████ ███       ████ ▄ ▀█████▀█ █

░███░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░███░
░███░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░███░
████████████████████████████████████████████████████████████████████████████████████████████████████████
████████████████████████████████████████████████████████████████████████████████████████████████████████
░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░██████░░░██████░░░██████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░
░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░█████░░░░░████░░░░░█████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░
░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░████░░░░░░░██░░░░░░░████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░
░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░███░░░░░░░░░░░░░░░░░░███░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░

██
████
██████
████
██
WEBSITE
▬◎▬◎▬◎▬◎▬
TWITTER

██
████
██████
████
██
FACEBOOK
▬◎▬◎▬◎▬◎▬
INSTAGRAM

██
████
██████
████
██
LINKEDIN
▬◎▬◎▬◎▬◎▬
MEDIUM

██
████
██████
████
██
CoinsCoinsEverywhere
Hero Member
*****
Offline Offline

Activity: 532
Merit: 500


View Profile
July 17, 2014, 05:04:03 PM
 #34

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.

Legal tender laws simply state the currency people is forced to accept as repayment of debts.
The government is not interested in being paid with pieces of paper, they are interested in give them away in exchange of something useful to them (goods and services).

The USD (or better the Fed.Res. Note) is not backed by the US economy, it is backed by the full faith and credit of the USoA. Nowaday a lot more faith than credit I would suggest.
With one Fed Note I have no claim on any output of the US economy.

I'm not sure it's faith or credit anymore...just legacy.

Tradition (cit. Ben Bernanke)

Yes, that's what I meant by legacy (legacy: "something transmitted by or received from an ancestor or predecessor or from the past <the legacy of the ancient philosophers>" http://www.merriam-webster.com/dictionary/legacy).

Quote
The difference between a USD and a BTC is the USD can be printed in unlimited quantities out of thin air. Bitcoin can not.
Without its legal tender status the USD would lose its value. Bitcoin have no legal tender status to give it value, so it can not be taken away.

The USD has value because a bunch of people came together and said that the country needs a national currency to facilitate payments and trade.  They created the dollar and declared that it has value.  How is bitcoin different?  Satoshi created a technology that could be used as a currency to facilitate payments and trade in a manner that's independent of any particular government.  A community developed around that idea, and they declared that it had value.  Over time, more and more people have agreed with that idea, and we are where we are today.

The difference is in the bunch of people propping up the Fed.Res. Note impose the use of it with violence and threat of (dollar is a measure of weight in gold or silver).
The people advocating for Bitcoin never used or threatened to use violence to anyone.
In fact, the use of violence reduce the value of the Fed Note, but it is not a problem because it is already zero.

So you believe that the dollar retains its value because of threat of violence?  You don't think that people mutually agree that it's useful to have a common currency, even if the Fed has power over it?

And how do you figure that a Fed Note has a value of zero?  I can go to a store and exchange it for goods or services, so apparently it's still worth something.

Quote
What back Bitcoin is the cost of censoring one or more transactions on the blockchain. It is a very high cost.

Yes, it is a high cost now.  But one thing I've wondered about this is why is the cost required to be high?  Why couldn't bitcoin function just fine at $100?  Or $10?

Because the value of the revenues of the miners is linked to the value of the bitcoin.
Higher the value, higher the PoW cost, higher the security of the network.

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
This is something that concerns me a little bit.  How do you ascribe a particular value to the network/miners?
It is the service that the network provides - keeping confirmed transactions secure and confirming transactions.

Yes, I understand that transaction confirmation is a valuable service, but how do you put a particular price on it?  The average amount of money spent on confirming a transaction today (including hardware, electricity, and profit) is obviously orders of magnitude higher than it was a couple years ago.  The only difference between then and now is higher security.  The bitcoin network will function just fine whether it's operating at 1 terahash/sec or 1 exahash/sec.  Now, I agree that security is important, but how much security do you need?  You'd have trouble outspending a multi-billion-dollar financial institution, and you'd never be able to outspend some of the biggest governments of the world.

I realize that the cost of transaction confirmation is linked to the price of bitcoin, but what if bitcoin fell to $100 and stayed there?  A bunch of miners would turn off their hardware, the market would rebalance, and bitcoin would continue just fine with a lower network hash rate.  If this is false, please tell me why.  If it's true, then how can you tell me that bitcoins should actually be worth ~$620 each right now?

(And btw, as I have some bitcoin, I'd like to believe that it is backed by something valuable, but I'm having a hard time seeing how the mining network has to have any particular value.)
the joint
Legendary
*
Offline Offline

Activity: 1806
Merit: 1008



View Profile
July 17, 2014, 08:45:07 PM
 #35

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.

Legal tender laws simply state the currency people is forced to accept as repayment of debts.
The government is not interested in being paid with pieces of paper, they are interested in give them away in exchange of something useful to them (goods and services).

The USD (or better the Fed.Res. Note) is not backed by the US economy, it is backed by the full faith and credit of the USoA. Nowaday a lot more faith than credit I would suggest.
With one Fed Note I have no claim on any output of the US economy.

I'm not sure it's faith or credit anymore...just legacy.

Tradition (cit. Ben Bernanke)

Yes, that's what I meant by legacy (legacy: "something transmitted by or received from an ancestor or predecessor or from the past <the legacy of the ancient philosophers>" http://www.merriam-webster.com/dictionary/legacy).

Quote
The difference between a USD and a BTC is the USD can be printed in unlimited quantities out of thin air. Bitcoin can not.
Without its legal tender status the USD would lose its value. Bitcoin have no legal tender status to give it value, so it can not be taken away.

The USD has value because a bunch of people came together and said that the country needs a national currency to facilitate payments and trade.  They created the dollar and declared that it has value.  How is bitcoin different?  Satoshi created a technology that could be used as a currency to facilitate payments and trade in a manner that's independent of any particular government.  A community developed around that idea, and they declared that it had value.  Over time, more and more people have agreed with that idea, and we are where we are today.

The difference is in the bunch of people propping up the Fed.Res. Note impose the use of it with violence and threat of (dollar is a measure of weight in gold or silver).
The people advocating for Bitcoin never used or threatened to use violence to anyone.
In fact, the use of violence reduce the value of the Fed Note, but it is not a problem because it is already zero.

So you believe that the dollar retains its value because of threat of violence?  You don't think that people mutually agree that it's useful to have a common currency, even if the Fed has power over it?

And how do you figure that a Fed Note has a value of zero?  I can go to a store and exchange it for goods or services, so apparently it's still worth something.

Quote
What back Bitcoin is the cost of censoring one or more transactions on the blockchain. It is a very high cost.

Yes, it is a high cost now.  But one thing I've wondered about this is why is the cost required to be high?  Why couldn't bitcoin function just fine at $100?  Or $10?

Because the value of the revenues of the miners is linked to the value of the bitcoin.
Higher the value, higher the PoW cost, higher the security of the network.

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
This is something that concerns me a little bit.  How do you ascribe a particular value to the network/miners?
It is the service that the network provides - keeping confirmed transactions secure and confirming transactions.

Yes, I understand that transaction confirmation is a valuable service, but how do you put a particular price on it?  The average amount of money spent on confirming a transaction today (including hardware, electricity, and profit) is obviously orders of magnitude higher than it was a couple years ago.  The only difference between then and now is higher security.  The bitcoin network will function just fine whether it's operating at 1 terahash/sec or 1 exahash/sec.  Now, I agree that security is important, but how much security do you need?  You'd have trouble outspending a multi-billion-dollar financial institution, and you'd never be able to outspend some of the biggest governments of the world.

I realize that the cost of transaction confirmation is linked to the price of bitcoin, but what if bitcoin fell to $100 and stayed there?  A bunch of miners would turn off their hardware, the market would rebalance, and bitcoin would continue just fine with a lower network hash rate.  If this is false, please tell me why.  If it's true, then how can you tell me that bitcoins should actually be worth ~$620 each right now?

(And btw, as I have some bitcoin, I'd like to believe that it is backed by something valuable, but I'm having a hard time seeing how the mining network has to have any particular value.)

In what way and/or to what degree do you think the cost of transaction confirmation is linked to the price of bitcoins?  I agree generally with this statement, but I think the relationship is complex and quite possibly moot, other than the fact that we know that the value of bitcoins depends upon network functionality.

It seems to me that we're talking about the value of a lot of things, and these things conceptually overlap each other.  First, we are considering the value of bitcoins.  Second, there's the value of the network.  Arguably, third and fourth could be the value of transaction processing or the value of the protocol/codebase.  Fifth, there's market cap, and this could be valued differently than the network.

One way to approach finding the value of something is to consider that ascribing a value to something invokes the question, "To whom is it valuable?"  And then there's the follow up question, "Why?"

It seems the simplest valuation of the Bitcoin network is that it's at least as valuable as the market cap with an unknown upper bound.  Part of my reasoning for thinking this is that market cap (i.e. whether a market cap actually exists, not its exact value)  is entirely dependent upon network functionality.  To me, there's something self-evident about the idea that if something is entirely dependent upon something else to exist, it can't be more valuable than the thing it depends on.

I'm not sure if it's possible to ascribe an exact value to the network because there seems to be a mathematical uncertainty regarding various methods that all seem equally plausible.  For example, I imagine that one could come up with a lot of good ways to determine the value of added network security.  Furthermore, I imagine one could define the boundaries of things like "transaction processing" and "network" in different-but-plausible ways which would affect how one determines the value of these things.

So, moving to bitcoins themselves, I would think that if the price of bitcoins dropped to $100, then the network should be worth less, too.  It also seems to me that there's no theoretical reason why the price couldn't stay there so long as enough fiat kept flowing into the market throughout the duration of Bitcoin's inflationary period.

Now, asking what price bitcoins *should* be at is a question that confuses me, and that's because I can approach that in different ways, too.  It's kind of like asking what an antique pocket watch *should* go for at an auction.  There's no real specific answer, but you could say something like, "Well, based upon the last 10 auctions, the average selling price was $500, and the most recent sale was $550."  With this information, you could arrive at different conclusions, but they'd still be vague (e.g. "the watch should sell for at least $500"; "the watch should sell for at least $550).

I guess I'll go with an Occam's-Razor-esque valuation of bitcoin and say that bitcoin should be worth about what it's trading at right now.  Unfortunately, this type of answer doesn't yield much utility.

hollowframe
Sr. Member
****
Offline Offline

Activity: 266
Merit: 250


View Profile
July 17, 2014, 11:58:09 PM
 #36

Bitcoin is very similar to the US Dollar, but instead of being backed by the US economy, bitcoin is backed by the bitcoin network aka the miners.
This is something that concerns me a little bit.  How do you ascribe a particular value to the network/miners?
It is the service that the network provides - keeping confirmed transactions secure and confirming transactions.

Yes, I understand that transaction confirmation is a valuable service, but how do you put a particular price on it?  The average amount of money spent on confirming a transaction today (including hardware, electricity, and profit) is obviously orders of magnitude higher than it was a couple years ago.  The only difference between then and now is higher security.  The bitcoin network will function just fine whether it's operating at 1 terahash/sec or 1 exahash/sec.  Now, I agree that security is important, but how much security do you need?  You'd have trouble outspending a multi-billion-dollar financial institution, and you'd never be able to outspend some of the biggest governments of the world.
[/quote]It is very hard to put a price on what the miners are doing now as they are still receiving a large block subsidy and have low transaction volumes. I think that once the block subsidies are halved two more times, the TX fees will better reflect the true value of what the miners do for the network.
CoinsCoinsEverywhere
Hero Member
*****
Offline Offline

Activity: 532
Merit: 500


View Profile
July 21, 2014, 07:54:42 PM
 #37

Yes, I understand that transaction confirmation is a valuable service, but how do you put a particular price on it?  The average amount of money spent on confirming a transaction today (including hardware, electricity, and profit) is obviously orders of magnitude higher than it was a couple years ago.  The only difference between then and now is higher security.  The bitcoin network will function just fine whether it's operating at 1 terahash/sec or 1 exahash/sec.  Now, I agree that security is important, but how much security do you need?  You'd have trouble outspending a multi-billion-dollar financial institution, and you'd never be able to outspend some of the biggest governments of the world.

I realize that the cost of transaction confirmation is linked to the price of bitcoin, but what if bitcoin fell to $100 and stayed there?  A bunch of miners would turn off their hardware, the market would rebalance, and bitcoin would continue just fine with a lower network hash rate.  If this is false, please tell me why.  If it's true, then how can you tell me that bitcoins should actually be worth ~$620 each right now?

(And btw, as I have some bitcoin, I'd like to believe that it is backed by something valuable, but I'm having a hard time seeing how the mining network has to have any particular value.)

In what way and/or to what degree do you think the cost of transaction confirmation is linked to the price of bitcoins?  I agree generally with this statement, but I think the relationship is complex and quite possibly moot, other than the fact that we know that the value of bitcoins depends upon network functionality.

Yes, the relationship is complex.  It's probably more appropriate to talk about transaction cost as a function of bitcoin price.

It seems to me that we're talking about the value of a lot of things, and these things conceptually overlap each other.  First, we are considering the value of bitcoins.  Second, there's the value of the network.  Arguably, third and fourth could be the value of transaction processing or the value of the protocol/codebase.  Fifth, there's market cap, and this could be valued differently than the network.

One way to approach finding the value of something is to consider that ascribing a value to something invokes the question, "To whom is it valuable?"  And then there's the follow up question, "Why?"

It seems the simplest valuation of the Bitcoin network is that it's at least as valuable as the market cap with an unknown upper bound.  Part of my reasoning for thinking this is that market cap (i.e. whether a market cap actually exists, not its exact value)  is entirely dependent upon network functionality.  To me, there's something self-evident about the idea that if something is entirely dependent upon something else to exist, it can't be more valuable than the thing it depends on.

What exactly do you mean by valuation?  Are you talking about the dollar amount for which you can buy something, or a value that can be used to compare it with other similar things (e.g., you talk about market cap)?  I assume you mean the latter because you obviously couldn't just go out and buy all bitcoins for the current market cap of about $8B.  Nor would it cost you that much to go out and buy all the network mining equipment.  Market cap can be useful for comparing with things like stocks and commodities, but it's too simplistic to be used as an accurate "trade-in value."

I'm not sure if it's possible to ascribe an exact value to the network because there seems to be a mathematical uncertainty regarding various methods that all seem equally plausible.  For example, I imagine that one could come up with a lot of good ways to determine the value of added network security.  Furthermore, I imagine one could define the boundaries of things like "transaction processing" and "network" in different-but-plausible ways which would affect how one determines the value of these things.

So, moving to bitcoins themselves, I would think that if the price of bitcoins dropped to $100, then the network should be worth less, too.  It also seems to me that there's no theoretical reason why the price couldn't stay there so long as enough fiat kept flowing into the market throughout the duration of Bitcoin's inflationary period.

Now, asking what price bitcoins *should* be at is a question that confuses me, and that's because I can approach that in different ways, too.  It's kind of like asking what an antique pocket watch *should* go for at an auction.  There's no real specific answer, but you could say something like, "Well, based upon the last 10 auctions, the average selling price was $500, and the most recent sale was $550."  With this information, you could arrive at different conclusions, but they'd still be vague (e.g. "the watch should sell for at least $500"; "the watch should sell for at least $550).

I guess I'll go with an Occam's-Razor-esque valuation of bitcoin and say that bitcoin should be worth about what it's trading at right now.  Unfortunately, this type of answer doesn't yield much utility.
I like the way you broke this down.  It made me think in ways I hadn't.

So let me try to approach this a little differently.  It seems like the ideal for a currency is to have it backed by something tangible that just about everyone agrees is valuable, like gold.  Being able to trade in your currency for that commodity gives the currency a lot of stability as the supply of gold is stable and known.  The backing of a currency can also be abstracted the way USD is now, where its value is basically attached to the economic output of the country.  As the economic output of a country varies, the value of such a currency is less stable and less predictable.  So then we come to bitcoin.  I can attach at least a conceptual value to a currency backed by a commodity or economic output, and I can understand the factors that determine that value.  But with bitcoin, I have no idea how to value a mining network and the ways in which it changes.  This concerns me because without some way to judge the value of the network, there's nothing to give bitcoin stability, which makes it impossible to predict where its price will go.

Do you have any thoughts on this?  I can see how you could look at the total amount of money invested in mining hardware and electricity, but I don't see the need for any specific correlation between money spent on building the network and the price of a bitcoin because it seems very fluid to me.  As I said before, the bitcoin protocol will work just fine whether you have a 1-terahash network or a 1-exahash network.  The only difference is security.  Some people may be willing to "pay extra" for more security, but I don't know that that's something many users are truly concerned about (meaning they won't use bitcoin unless the network is a least as large as X-hashes/sec).

I guess what this comes down to is that I'm trying to figure out if there are fundamental reasons that will "force" the price of bitcoin to increase over time (all other things being equal).  Just like with a stock, if a company continues to grow their profits, the price of the stock will eventually go up.
polynesia
Legendary
*
Offline Offline

Activity: 1358
Merit: 1000



View Profile
July 22, 2014, 01:20:57 AM
 #38

Transaction only happen when two parties exchanges good of equal value. Hence all money need to have value (regardless on how the value is derived).

Value is what people ascribe to it. So anything (dollars, btc, shells) can be used for exchange as long as people believe that it has value.
Pages: « 1 [2]  All
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!