

Bitcoins Are Digital Collectibles, Not Real Money - zeteo
http://www.forbes.com/sites/louiswoodhill/2013/04/11/bitcoins-are-digital-collectibles-not-real-money/

======
zeteo
Sorry to submit yet another Bitcoin article, but this one turned out to be
somewhat of a revelation for me. Thinking of bitcoins as digital collectibles
seems a much better metaphor than thinking of them as money. Collectibles have
a fixed supply, and their value depends on some concept that people are
interested in. Consider e.g. Nazi memorabilia from WW2: fewer and fewer are
discovered each year, the total supply is fixed, their value depends a lot on
hobbyists' varying interest in WW2. Bitcoin is also unusual for a digital good
in that it has a fixed supply, and its value depends a lot on enthusiasts who
are interested in cryptocurrencies, fixed money supply etc.

~~~
sageikosa
Memorabilia market prices vary by the quality and history of the piece; pieces
with "richer" history fetch higher prices. BitCoin behaves more like a
commodity. I expect derivative instruments based on BitCoin mining rates any
day now.

~~~
zeteo
The comparison is obviously to a single type of item. Say "Mauser HSc,
excellent condition, provenience unknown". But there's no reason why
individual bitcoins can't acquire additional value once history accrues to
them. Let's say celebrity X publicly buys a bitcoin and spends it in a well-
publicized event. People will probably bid extra to acquire this "famous"
bitcoin afterwards.

~~~
TylerE
Bitcoin doesn't work like that. There isn't some sort of serial number
assigned, or anything.

~~~
zeteo
Each bitcoin has an attached chain of transactions. If it's a matter of public
record that a certain address belonged to say, Stephen Colbert, then you can
definitely brag that you own Colbert's bitcoin. (That he donated to the
Libertarian Party or something.)

~~~
sageikosa
While it may be possible to value BitCoins that way, that's not the driving
force behind current price tracking, any more than a 1933 double eagle or 1804
silver dollar affects the price of gold or silver.

~~~
zeteo
I'm not saying BitCoins are currently used this way. It was just a thought
experiment to prove they can acquire extra value from association with
particular people or events. Just like other collectibles.

------
nate_martin
How many articles have been posted to HN now saying this exact same thing? We
get it. Bitcoin is being treated as a commodity instead of a currency.
However, the problem is not with the currency system but rather the people
buying and selling BTC. Bitcoin itself has everything it needs to become a
legitimate currency. The author also may not have realized that the coins are
divisible (to 10^-8) and that all Bitcoins will be mined by 2140 (not 2040 as
he claims).

~~~
zeteo
>We get it. Bitcoin is being treated as a commodity instead of a currency.

Collectibles are a very specific kind of commodity. The price of potatoes
doesn't vary because there are potato enthusiasts out there extolling their
virtues.

~~~
dragonwriter
> The price of potatoes doesn't vary because there are potato enthusiasts out
> there extolling their virtues.

Sure it does. Which is why industry associations (whether for potato farmers
or any other goods) send lots of money promoting the virtues of their
products.

The only difference between potatoes and collectibles (and investment assets
more generally) in this regard is that with potatoes (etc.) the promotion
mostly centers around the _use-value_ of the product, and with collectibles
(and other investment assets) it centers around _the future resale value_.

Though lots of things in the real-world are hybrids, really, as commodity
markets in potato (etc.) futures demonstrate them being both promoted and
traded as investment assets, and real estate is often promoted directly for
hybrid use-value/investment-value.

------
adambard
I hope it's not considered ad hominem to point out that the man who wrote this
piece considers fiat currency in general a mistake:

[http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-
fia...](http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-fiat-dollar-
as-unreliable-as-my-1971-fiat-124-sedan/)

Dude is just really into gold, which apparently has intrinsic value?

~~~
jamesaguilar
"Without integrity, nothing works." That's not a law of the universe, and what
does it even mean besides? Like, formally, what does it mean to economics?
Sounds like nonsense to me.

------
weavejester
Many comparisons have been made between fiat currency and Bitcoins, but to my
mind that's wholly missing the point.

The Bitcoin protocol represents a way of digitally transferring a scarce
resource without the need for a central authority. I suspect this is going to
be a big deal eventually, because when we created a protocol for digitally
transferring _information_ without the need for a central authority, we wound
up with the Internet.

Comparing Bitcoin to a fiat currency like the dollar is a little like
comparing TCP/IP to the English language.

~~~
hazov
I'm not a network engineer but I believe Tier 1 and Tier 2 networks are needed
for the Internet to exist. They do not act as a central authority, but the
Internet itself needs them to work like it do now.

I simply do not understood what you wanted to say by your last paragraph.

EDIT: To clarify my point is that I believe the internet is poorly
decentralized, it simply means some guys has too much power to shutdown
traffic from entire networks to even reach the Internet if they wish or when
it's convenient to them, if we ever have another large scale global war I
believe this will happen.

~~~
weavejester
My understanding is that's more an artefact of how the Internet is physically
laid out, rather than as something inherent to the TCP protocol itself. If we
took all the machines on the net and put them in one huge building, we could
construct a far more decentralised network architecture.

Regarding my last paragraph, both the English language and TCP/IP could be
broadly said to be protocols for distributing information, but are also
obviously so completely different it makes little sense to draw any parallels
between them.

------
Houshalter
Of course bitcoins value is volatile, it's relatively new and being adopted
and accepted. I blame the people speculating on it like crazy without any idea
what the fundamental value actually is (and to be fair it's impossible to know
until it stabilizes and the bitcoin economy becomes established.)

But this is only temporary, a necessary evil when a currency is starting out.

However it is arguably a good thing though, because all the attention and
people buying it hoping it will increase in value, is exposing a lot of people
to it that otherwise wouldn't have been. It's helping it grow much faster.

>To replace our entire dollar base money with Bitcoins would require that each
Bitcoin be valued at more than $370,000.

I'm confused by what he means by this. Bitcoin is infinitely divisible. Even
if there was only one bitcoin in the economy it could still be used perfectly
fine as a currency.

>In contrast, a good monetary control system would fix the value of the
currency unit (in terms of gold or something else real) and then adjust the
size of the monetary base on a moment-by-moment basis in order to maintain
this value in the markets.

This doesn't really make too much sense either. It takes a long time for
arbitrary changes in the currency supply to have any effect. And all they can
do is print more money, which makes everyone else's money worth less and
therefore makes them worse off.

One interesting thing I've been thinking about is that since it's digital
currency inflation and deflation can be corrected for a little. People could
have their sites change prices based on the current inflation or deflation
rate (if they really care about it so much.) This was harder to do with real
world price tags. It's not a solution of course but it might help a lot.
Usually the criticism of changes in a currencies value is that prices don't
adjust fast enough to deal with it. But with the internet information is
transmitted and changes can be made instantly.

>No modern economy could survive the constant, grinding deflation that having
a fixed monetary base would eventually produce.

So this is more controversial, but I don't see why not. A currency that
actually increases in value rather than decreases would have a huge advantage
over everything else. Because if you had a choice what would you store your
money in? It also insures that bitcoins can never artificially be devalued by
any central organization. Sure new bitcoins can be mined, but that's heavily
limited and a necessary evil to distribute the first bitcoins fairly.

As for them being collectibles that may be true for some people, but they have
a few very good advantages to them that can't be beat by other currencies and
that insures they will always have a use as a currency with some people.
Mainly that they are anonymous and don't have transaction fees. I have seen a
lot of interesting uses for them that would be unfeasible in real world
currencies. Like people giving each other small tips over the internet.

~~~
mpyne
> Because if you had a choice what would you store your money in?

That's actually noted as one of the problems with a deflationary economy.
People tend to store their capital instead of spending it or investing it,
which puts a hamper on economic growth (or even maintaining the economic
status quo). If your job depends on receiving income then you can appreciate
why it also depends on other people _spending_ money.

> It also insures that bitcoins can never artificially be devalued by any
> central organization.

Countries have actually sometimes arranged to devalue their own currency to
help with the local economy by boosting exports, so in that sense it is
beneficial to have a central organization in your country's control to do
that. Given the ongoing economic crises in Europe I'm just not sure how good
an idea it is to have economic policy so completely decoupled from currency
policy.

But on the other hand that feature of Bitcoin does make it very useful as a
collectible or commodity. You can "invest" in it without worrying that the
Central Bank of Satoshi will make your dilute your investment tenfold or
worse.

~~~
Houshalter
>If your job depends on receiving income then you can appreciate why it also
depends on other people spending money.

Well the point is prices adjust. If people aren't spending money, then prices
just fall until the people that are spending money can afford it. Sure you
make less income, but everything is cheaper too so it's not a loss. Actually
it's a gain. The same amount of goods are in the economy, but since some
people aren't buying things, everyone else can afford more things. The pie is
the same size but the people saving money haven't taken any slices of it,
leaving more for us.

Besides when people save money, they generally invest it or put it in a bank
which loans 90% of it back out.

>Countries have actually sometimes arranged to devalue their own currency to
help with the local economy by boosting exports, so in that sense it is
beneficial to have a central organization in your country's control to do
that.

Exporting more things isn't necessarily a good thing. Ideally we could import
everything we need and not have to actually work to produce things to export.

~~~
mpyne
> > If your job depends on receiving income then you can appreciate why it
> also depends on other people spending money.

> Well the point is prices adjust. If people aren't spending money, then
> prices just fall until the people that are spending money can afford it.

But remember that the reason the prices are dropping is because no one is
spending money. This is a _positive_ feedback loop: the only reason that
sellers are dropping prices is because they are under extreme pressure to make
_some_ income somehow. So they drop prices and receive a bit of income. So
these businesses are then unable to pay _their_ suppliers, who are forced to
either drop their prices or suffer default, and so on straight up the chain.

So it's not that deflation itself is hazardous per se, but that it tends to
amplify its own effect. If you reach the "flashover" point the whole economy
goes to crap, much as what happened when the mortgage failure rate finally got
high enough with the sub-prime mortgage derivatives.

> Exporting more things isn't necessarily a good thing. Ideally we could
> import everything we need and not have to actually work to produce things to
> export.

That would perhaps be ideal, but it can't possibly occur that every country
only imports and doesn't export. Someone has to lose in that transaction. Is
that ethos really what we want to base a global financial system on?

~~~
Houshalter
>So it's not that deflation itself is hazardous per se, but that it tends to
amplify its own effect.

It will stabilize eventually though as no new people start saving instead of
spending, or as the people who were saving eventually need to buy things or
decide to finally cash out and spend their money.

>That would perhaps be ideal, but it can't possibly occur that every country
only imports and doesn't export. Someone has to lose in that transaction. Is
that ethos really what we want to base a global financial system on?

The point was that we shouldn't strive to export more things as if that was a
good thing in and of itself. The benefit of exports is the foreign money you
get in return, and the benefit of that is the imports you can get in exchange
for it.

------
tallowen
If Bitcoins are valued at around $100 dollars a piece is it possible for me to
make a $10 dollar purchase using bitcoins?

~~~
clawrencewenham
Yes, they can be subdivided by up to eight decimal places.

~~~
ChrisClark
And I believe that they could be changed to divide even further if necessary
in the future.

~~~
cachance7
That bitcoins are infinitely divisible is one of the ways in which problems
associated with deflation are mitigated once the 21M bitcoin cap is reached.

[https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_t...](https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_the_finite_amount_of_Bitcoins_create_excessive_deflation.2C_destroying_Bitcoin.3F)

~~~
mpyne
Divisibility doesn't really help with the _overall_ money supply however.
There's also the loss of currency that occurs from loss of Bitcoin wallets.

Even without deflation I think there would still be problems with high
variance of BTC just from the psychological aspects of the currency. With
central banks you can at least say that there are persons whose job it is to
watch currency exchange rates and take one or more of many available actions
to curb both inflation and deflation. As far as I can see you just don't have
that with BTC (and by design). You can't increase the money supply, any action
to decrease the money supply is permanent, and how can you change interest
rates for loans when all of the money is already issued?

I just can't imagine BTC being useful for transactions in general (especially
important stuff like payroll) when the inherent variance in value seems to
require systems akin to what a high-frequency trader would use. It might be
useful as a commodity for similar reasons that gold is (but with the
improvements that come from its high divisibility).

------
tlrobinson
Bitcoin isn't a great form of money right now, but that doesn't mean it can't
be in the future.

I predict a lot more of these bubbles, but over the long term, unless it's
displaced by a better system (which is certainly possible) or regulated out of
existence, the trend will be upwards and greater stability.

------
scott_meade
21st century Beanie Babies

------
CallingIit
And another article on the farcial financial train choo choo! Btw, we need
more perpetual motion, cold fusion, and red mercury investor stories posted
too.

