
Bitcoin: A call-to-arms for technologists - ljlolel
http://www.jperla.com/blog/post/bitcoin-a-call-to-arms-for-technologists
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onion2k
"Bitcoin is based on math and deep computer science."

The tech certainly is, but the value is not. The value is based on simple
supply and demand. Currently, because the price is rocketing, there's huge
demand. That _will_ end when people get scared of the bubble bursting. Then
the price will tumble. This is Economics 101 stuff.

The difficulty in creating an economy is not tech. That's relatively easy. The
hard bit is creating a system that people can trust in the long term. That's
not something anyone is going to crack overnight.

~~~
astrodust
Exactly. It doesn't matter if it was based on puppies and rainbows, the
valuation of it is entirely based on speculation. There's zero intrinsic value
to a Bitcoin.

The "math and deep computer science" part is mostly an anti-cheating
mechanism. If it was too easy to produce Bitcoins, they'd be worthless. If it
was too hard, nobody would care. The mining process is an attempt to balance
between these two concerns.

In any event, even debased fiat paper money can be burned to heat your house.
What exactly can you do with a mostly random string of data, anyway?

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nsomaru
Be careful when you use words like 'intrinsic.' It may be argued that fiat-
currencies are 'intrinsically' without value either.

This 'anti-cheating' mechanism is a big part of what makes a currency
valuable.

~~~
dragonwriter
> Be careful when you use words like 'intrinsic.' It may be argued that fiat-
> currencies are 'intrinsically' without value either.

No, that's not arguable, its part of the whole point of fiat currencies is
avoiding intrinsic value and replacing it with fiat.

Commodity currencies rely on the intrinsic value of the commodity to provide
certainty that the currency will be exchangeable for goods and services
(providing a lower limit on exchange value.) They also rely on the inherent
supply characteristics of the underlying commodity to control the supply of
the currency.

Fiat currencies rely on the issuing government (or participating governments,
in the case of something like the Euro) accepting it for taxes, fines, and
government services for the same purpose, as paying some or all of these is
common enough that it provides demand for the currency, and rely on active
management by a central bank to control supply of the currency.

Bitcoin's mechanism for control of the supply of the currency are algorithmic,
and much has been said about them, but the value basis is ... less clear.

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Double-O
Fortunately or unfortunately, the potency of a legal tender is not a matter of
"deep math or deep computer science" but a matter of confidence and scarcity.
That is all.

In the past, people bought things with precious metals. These had to be scarce
to be of value. This is the basis of modern day "money or currency". Let's
take the dollar for example. Because it does not physically exist and is
rather made-up, it is scarcer than gold or silver, hence more conceptually
sound and more highly prized. And because, somehow, there is broad agreement
on the dollar's tenability, it works so well. These two factors -- confidence
and scarcity -- are the fundamentals of supply and demand. They are the only
things Bitcoin must fulfill to take hold as a broad legal tender.

Today, Bitcoin is rather scarce because its creation is exceedingly
computationally expensive and arcane. This meets condition one. Condition two,
confidence, is not yet satisfied today by Bitcoin. Broad confidence takes
time. Until both are met and sustained for a long and tried period of time,
Bitcoin will not gain broad acceptance. This means Bitcoin very well could.

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LuminousPath
In the end it doesn't matter what your currency is made of, people are going
to trade on credit mostly. The creation of fiat currency in the first place
was less an attempt to scam the world into devaluing its currency than it was
to bring the physical medium in line with the way the economy works anyway.

Many say that one of the biggest advantages to bitcoins is the anonymity of
the currency, but in the end, it'll probably be its downfall as well. When
people can't place a name and location on their debtors, loss aversion tends
to kick in.

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ebbv
Just because Bitcoin is based on solid cryptographic principles doesn't mean
it's based on solid financial principles. This is a common mistake I have been
seeing all along.

Your friend is right.

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jameshsi
one criticism i've heard of bitcoin is of its independence of influence from
monetary policy is also its achilles' heel. there's no mechanism to alter
supply subjectively and the global supply is fixed to a logistic curve.

a problem arises where when one loses/destroys their bitcoins, there is not
enough counter measure to recover the lost supply. it's like burying treasure
with a sealed guarantee that the value of it will be gone forever-- an
unsoundly characteristic of any currency with high ambition

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interg12
Let's not pretend bitcoin is based on "deep computer science" - it's based on
fundamental macroeconomics and our understanding of how currency works.

