
Why Is Bitcoin Valuable? - nnx
https://taylorpearson.me/why-is-bitcoin-valuable/
======
MsMowz
The most interesting part of the cryptocurrency phenomenon has been the rise
of pseudo-academic writing to support individual coins or the concept itself.
Every time a new coin emerges, there's a detailed advertisement that's styled
like an economics journal article. At the same time, there's low-level
sophistry like this article to assert that cryptocurrency is going to solve
social problem X.

People who believe cryptocurrency is going to prevent autocracy have lost all
grasp on reality.

~~~
kjullien
You should check out a project like Cardano then, they make their research go
through academic peer review before they do anything. They also write their
code in a way that you can prove it is an actual implementation of what the
paper said (if I'm remembering correctly,but I'm not very familiar on the
topic so I won't say much more about that, you can research it if you want).

~~~
bamazizi
Cardano is the perfect example of hot air blurring the lines of sales vs.
science.

------
foepys
Why do all crypto currency enthusiasts assume that when a government cannot
guarantee monetary stability there will still be reliable, always on, high
bandwidth internet connections to sync distributed ledgers across the globe?

Also: Does any crypto currency have anything in store to protect itself
against bad nodes? I don't mean nodes that send invalid packages but nodes
that act like real nodes but just eat transactions and blocks without relaying
them. Flood a network with a few million of these nodes, don't relay addresses
of valid nodes and the network will split eventually.

~~~
nsomaru
> Flood a network with a few million of these nodes, don't relay addresses of
> valid nodes and the network will split eventually.

Could you direct me to the theory supporting this assertion? Was considering
doing a simulation of this but need some kind of model.

~~~
foepys
That's a thought I came up with a couple of months ago but I wasn't able to
find time to test it out myself. From my point of view this seems like a very
viable, albeit expensive attack vector without any potential to make money.
The only result is destroying confidence in the network, so state level
attacks might be the only reason to apply it.

~~~
jebeng
I think there are a few viable, but expensive attack vectors that have been
well known within the community for years. But one thing that's always bugged
me is how many people out there seem to think that a cryptocurrency could
survive being an actual target by a sufficiently powerful state. The economic
damage alone just by the whisper of an actual 'war on Bitcoin' would be
devastating, without anyone actually lifting a finger. Let alone putting
resources into actual attacks on technical, economic, and social levels.
Doesn't really matter if a few enthusiast cypherpunks around the world can
keep a few nodes going and technically say 'bitcoin is not dead, see!' when
the economic model and security is fundamentally based on continued demand for
BTC.

I've been really interested in Bitcoin and have followed it closely since
Satoshi was still active, and consider myself a pretty big fan of it in
general. But the general arrogance and delusion about the reality of where
real power is in the world is a bit cringeworthy. And it's always been that
way in the community.

It might get interesting in the future if two or more states have competing
interest in Bitcoin(or whatever). I can imagine some hypothetical situation
where the US political tide turns very anti-BTC, but say China has enough
money tied up in it that it's incentivized to attempt to defend it. Like say
if enough people in positions of political power have significant portions of
their wealth tied up in it. That's possible, I guess. Sounds messy though for
something that relies on economic confidence.

Either way, so far all the luck has been on the side of Bitcoin, as really
there's been little to no political pushback against the technology itself.
That's pretty awesome, and it's made for a very interesting 7 years or so
since BTC really woke up and people around here and elsewhere started
seriously discussing it. But the political risk is very real and understated
imo. The technical risk is interesting in theory for sure, but just knowing a
sufficiently powerful state has the ability to attack is probably more than
enough to cause massive economic damage without actually pulling any
technological triggers.

------
oskarla
Bitcoin and other cryptocurrencies are currently the perfect products to sell
to people who want to get rich, preferably quickly. That will always be a huge
market in our economic system.

~~~
qeternity
"But this time, it's different!"

\- Every scam victim ever

------
roma1n
OK, so Bitcoin is censorship-resistant. Good. But a practical alternative that
would allow high-volume, cheap transactions could blow it off the water. This
is weird; I keep seeing 'justifications' of Bitcoin's current value and future
success that, to me, can simply be reduced to a sunk-cost fallacy. I have read
for instance that Bitcoin's worth 'is the area under curve of the energy
expense of the miners' (sunk-cost fallacy) or that it has a "pareto-like"
quality, being the first largely capitalized cryptocurrency, that would make
it immune from failure.

Are there any justifications for Bitcoin that cannot be explained by a
cognitive bias?

~~~
erikb
> Are there any justifications for Bitcoin that cannot be explained by a
> cognitive bias?

Are you aware that you can put nearly everything in this sentence instead of
Bitcoin and it still holds just as true?

Free markets haven't really made the world totally fair. Democracy hasn't
really given all people the ability to choose. Your job hasn't really paid you
as much as you've produced value for your boss. Marrying your wife was a
questionable choice, to some degree. And your parents also don't really love
each other anymore. Your life isn't really meaningful to anything but the
fantasy you run yourself in your head to explain it.

We live off of the cognitive biases that we are able to believe in. Enjoy
having some cognitive biases left as long as you still have some.

------
velcro
I don't understand people who cite current network speed/overload, transaction
problem/cost and co as the reason why Bitcoin (or any crypto) will fail in the
future.

Nothing is set in stone - its software, all of these things are fixable and
are being worked on. Its still so very early in the game.

If you compare crypto to a traditional startup project - I'd say user
engagement and growth is more valuable than a perfect product from the start.

~~~
zerostar07
> user engagement and growth

I wouldn't compare those. Most of the altcoin trading is completely
speculative, not even in the sense that they "believe in the future of the
coin", a lot is purely speculative profit-making (e.g xrp), pump-and-dump
chasing and herdish behavior. Very few coins have substantial engaged
_followers_ (e.g. raiblocks) and only the top 2 have actual users. I 'm a
believer in the technologies but they are in such early alpha stage that it's
not justified to expect that most of them will even prove to work.

The biggest issue for me is the distribution of coins, with most ICOs
unashamedly aiming to make the founders and investors billionaires from day 2.
Even if their products prove succesful, i think a forked, clean chain will win
over more followers.

------
elyobo
Interesting article, but more an argument for why a large class of cryptocoins
might be valuable, or even more so, why an ecosystem of cryptocoins might
collectively value, rather than an argument for why Bitcoin _specifically_ is
valuable.

------
dnate
I don't really understand all the negativity towards bitcoin on HN these days.

Back when it was new nobody would shame or outright insult people who invested
in it. But somehow that's totally the norm now. Why does it matter whether the
coin is worth 10$ or 10000$?

It was and still is a disruptive concept that solves many issues with our
current centralized currency system.

Sure it also has a lot of issues itself. But can't we simply appreciate the
technology for what it is: a Proof Of Concept.

------
donpark
It had potentials but none of that matters with lack of protection against
overhyped valuation. It's not a currency if it what you paid for a cup of
coffee could've bought a Ferrari the next day. And blockchain is more like
plumbing than some star-fangled magic. Last time I got excited about plumbing
is...never mind.

~~~
ThomPete
Why people still make comparisons to bitcoin as a currency is beyond my
understanding. It's more like gold than like a currency. Judging it as a
currency makes no sense.

The volatility will go down over time and even if we were to compare it to
currencies go back in history and you will see plenty of fluctuating
currencies. A stable currency is a fairly new phenomenon and it comes with a
price (you have to grow the economy)

------
ThomPete
Bitcoin and any other interpretation of the blockchain is valuable because
they create a physical fabric in the digital space. It will take time to
implement but its going to be commonplace for the next generations. It allows
for an increased complexity regardless of how the individual creator is doing.
There is a lot of scams and snakeoil salesmen a lot of fools gold, just like
there were in the golddigger years and the wil get booted out sooner or later,
but the value of this decentralized fabric especially with regards to bitcoin
is invaluable for any future decelopment of infrastructure.

------
mygo
Why is it valuable? Because we keep talking about it. Because we hear about
people who made their wealth using the inter webs and we want to make money
and we have credit cards and we speculate. Oh well. Since the dollar must
circulate, we have to give monetary value to things. And if not bitcoin it
would be something else.

------
rhapsodic
Bitcoin is no different than any other non-commodity currency. It's only
valuable because people believe they can, or will eventually, be able to use
it to acquire something with intrinsic value. Without that confidence, it's
worthless.

Personally, I have lots of confidence that the USD in my bank account will one
day, at a time of my choosing, get me intrinsically valuable things like cars,
a home, food, cloths, etc. With bitcoin, I have very little confidence that
will occur. So it's not very valuable to _me_. Nor do I have confidence that
there will always be a "greater fool" handy to purchase any bitcoin I might
buy for more than I paid for it. I think bitcoin will inevitably collapse.

TFA talks about "citizens protecting themselves from irresponsible or
malicious governments and companies", but that's not a problem I'm aware that
I have. If it were, then I might be interested in owning bitcoin.

~~~
nefitty
Do you have the same mindset in regards to physical gold? Gold has very
little, if any, intrinsic or practical value, yet generations of humans have
been motivated to acquire more of it. With digital currencies like Bitcoin, I
think we're seeing the birth of a new type of scarce resource that will
motivate generations of people to come.

~~~
rhapsodic
_> Do you have the same mindset in regards to physical gold? Gold has very
little, if any, intrinsic or practical value, yet generations of humans have
been motivated to acquire more of it._

That statement is self-contradicting. If people covet gold for reasons other
than what they might exchange it for, that means it has intrinsic value. And
in addition to the satisfaction some people get from decorating their bodies
with gold, it has many other practical uses. It's used in all types of
electronic devices, including the computer you're reading this on.

And as a medium of exchange, gold does not rely on a global computer network
being available. (But in a post-apocalyptic world, gold probably would not
have as much intrinsic value as it does currently. Whiskey, guns and
cartridges would probably be a better bet.)

The only thing scarce about crypto-currency is the energy it consumes, and the
world's tolerance for its environmental impact. Aside from that, what prevents
anyone from creating a new one?

It's all about the mindset. As long as enough people believe bitcoin is
valuable, it will be valuable. I could be wrong, but I don't think that will
continue to be the case long term. I think crypto-currencies will continue to
exist and will have some practical uses, but, IMO, their values relative to
USD are going to be, shall we say, "adjusted" to a more sane level sometime in
the future.

------
hal9000xp
Back in 2004, I lived in shithole country called Uzbekistan, I wanted to buy
some US stocks but my bank refused to transfer MY money because of strict
currency control in Uzbekistan. This was probably the first time in my life I
realized that I don't actually own money stored at bank, it's just bank
temporarily allows me to use my money and at any whim bank would reject to do
so.

In 2010, I lived in a little bit better but still crappy country called
Russia, I returned to my old idea to buy US stocks. This time is was possible
but I had to make high-quality translation of agreement with US broker (i.e.
Google translate wouldn't be accepted) and wait for a week to get permission
to wire transfer my money to US brokerage account.

In 2012, I wanted to do some small business and I wanted to do everything
legally (I was still naive at that time) so I approached my bank in Russia and
said that I want to setup website which accepts credit card payments from US.
My bank said they wouldn't allow me to do this.

Then I thought I can open foreign bank account. I tried to open bank account
at HSBC in Hong Kong and was rejected for being Russian citizen (that's
literally was a reason!). I also was rejected at every single bank in Europe.

And even if I succeed to create shell company in some offshore islands and
some account at some not very much reputable bank, I would still have great
problems to legalize this money in Russia as I understood from talking to
lawyers (again, I naively wanted to do everything legally).

So being citizen of two wrong countries, I quickly realized how tightly
government and banks control my money. At one hand Russia and Uzbekistan
restrict me to move my capital abroad. On the other hand, even if you manage
to move your capital abroad, western countries refuse your money. I could call
this the Great Western Wall.

So now, I highly appreciate cryptocurrencies. If you have BTC, ETH, XRP nobody
would stop you to send money anywhere. It's so much valuable! The only
drawback is extreme volatility of these currencies. But with creation
decentralized stable cryptocurrency DAI, this changing game even more.

I think the only people who hate cryptocurrencies are those bloody
conformists, big brother lovers who never experienced first hand how shitty
traditional financial system is.

~~~
bsaul
Do you think that once/if crypto currencies become mainstreams, they won't be
regulated just as much by shite governments ?

To believe that the most fundamental social human issues can be solved by
technology is a bit of an utopia imho. Greed, lust for power, envy, etc. Those
are part of human nature, i don't think they will disappear thanks to some
elaborated algorithm. Unless you want algorithms to take control of social
interactions (which is another kind of shite society).

~~~
hal9000xp
The governments can only slowdown cryptocurrency revolution but they can't
stop it.

BTC, LTC are traceable, so you can still track down owner (although it may be
extremely difficult in some cases).

But with technologies like zero-knowledge proof in ZCash, you have untraceable
money.

So at some point, when cryptocurrencies hit mainstream, you may see the
situation when people start exchange goods and services directly in ZCash or
Monero. I just don't see how government can shutdown this.

I don't see how governments can crackdown cryptocurrencies completely. So in
long term, impact of cryptocurrencies on global economy is inevitable.

~~~
PakG1
The same way they investigate individuals or businesses they suspect of lying
on their tax returns. Look for suspicious patterns, investigate records,
reward guilty ones with fines or jail time.

------
orionblastar
Supply and demand curves are what make things valuable or not. Bitcoin has a
finite set of coins in its network. Most people only buy fractions of a
bitcoin because one full bitcoin is too pricy for them.

People used to earn Bitcoins using GPU mining rigs. ASIC miners made that
obsolete. GPU mining is no longer profitable but the average person does not
know or understand that.

I've seen stores like Microcenter sell out of expensive GPUs and expensive
power supplies to power them. My son last year had to build a new gaming PC
after his old one blew out. His GTX video card was $240 last year, but now
sells for $640.

If Bitcoin is the new gold rush, the people selling shovels and supplies to
miners at higher than normal prices will sell GPUs power supplies and high end
Clubs and motherboards.

I am using Coinbase since the new year. I invested $1 in Bitcoin and $1 in
Litecoin. They are only worth 75% as much now. It was just dipping my toe in
the waters before jumping in. I am not going to jump in until I learn more
about it. Buy low and sell high and don't invest any money you can't afford to
lose or do without before it raises back up to sell for a profit.

~~~
erikb
> I am using Coinbase since the new year.

Why put money in a gold rush after the rush? Can you explain the logic behind
it? Like, have you never heard about it before 2018?

Honestly if Bitcoin stabilizes around $300/coin it's still a huge profit to
the people who started it and invested early (I bout around $90/coin).
$12k/coin certainly is ridiculous. But I don't understand why people would
even put a single dollar into something at such a point.

~~~
sumedh
> But I don't understand why people would even put a single dollar into
> something at such a point.

because they think it will go higher

