Do you think Bitcoin is a safe store of value?

[jb85]

i guess you're right that if bitcoin is ONLY a means of xfering wealth across currency restrictions and nobody uses it as a store of value, then there's not much inherent value.  if the avg holding period is very low (high velocity), you don't need much currency for a fairly large economy...

 

in practice, i think it will be hard to get the holding period really really low, and that should provide at least a base for a quasicurrency that people hold in the "offshore internet". i could definitley be wrong about that though

[wachtwoord]

i never got the whole bitcoin as ONLY a way to xfer money.  Having a blockchain with a bunch of miners is an incredibly INEFFICIENT way to manage a database.  Pretty much the only benefit is that its relatively trustless.

 

Only benefit? That is the main thing! The entities that the market trusts today (nation states and large financials) are inherently untrustworthy in this context (and have proven to untrusthworty) because it's in their benefit not to be. Once the first 5÷ of the market gets that the end game will be well underway.

[rkbabang]

I purchased some bitcoin for the first time last week.  I bought 2 BTC at about $185 each.  Speculation, of course.  I'm just going to sit on them and see what happens.  Maybe buy a few more if the price drops significantly from here. I used coinbase.com.

 

My theory is that in 25 years 1 bitcoin is going to either be worth the equivalent of $1M 2015 USD with people using nanobitcoins for most transactions (people will get paid in bitcoin, buy everything in bitcoin, oil and stocks will be traded in BTC, etc)... Or it is going to be worth $0 and be long forgotten.  It is either going to catch on in a huge way or die out completely.  I don't see any other mid-way scenario being possible.

 

If Bitcoin becomes the dominant technology for transferring money, why would holding the instrument make you fantastically wealthy? It's like what Buffett said comparing Bitcoin to checks. Checks were a great way to transfer money as well. Does that mean you should buy checks in the hope they will appreciate in value?

 

If bitcoin is only used as a western union to transfer between other currencies* then you are correct.  And maybe that is the mid-way case that I have forgotten, where bitcoin has some value, but not very much more than today.  But if people move away from government money and start using bitcoin as a currency, i.e. they get paid in it, save it, stocks are traded in it, oil is traded in it, all other commodities are traded in it, etc ... the value of a single bitcoin will have to be many orders of magnitude what it is today.  Why?  Because bitcoin can not be deluded or inflated.  There will only ever be about 21 million bitcoins.  If this is the main currency used on planet Earth 25 years from now, what will the world's GDP be at that time?    Maybe 1 micro-bitcoin will be about equal to what $1 is today, or maybe it will be some number of nano-bitcoins.  I'm talking about a world where government issued money has failed and no longer exists, because people lost trust in governments to issue currency and have migrated to bitcoin exclusively.  Even if bitcoin shares the entire world's economy with 2 or 3 other competing crypto-currencies it will still be worth many times what it is today.

 

*edit to add this link: Bitcoin Will Fix Remittances With Or Without The Western Unions Of The World

[innerscorecard]

Based on what has happened so far, as well as the way that policymakers and society think, I think that midway scenario is the most likely.

[jb85]

good discussion, forcing me to think over a few scenarios. 

 

wachtwood - i didn't mean my phrasing of "ONLY" to sound negative, though re-reading my comment it kinda did sound that way.  Its the main benefit, and trustless exchange of value is the blockchain biggest and best invention imo

 

 

something to think about with the midway scenario is that bitcoin specifically (though not necessarily blockchain tech in general) probably needs to hit a critical mass someday in terms of transaction volume.  if its only used a a remittance service, then the size of that market may not be enough to fully secure the network to an acceptable level.  Cost of 51% attack is eventually directly related to the number and cost of all transactions.  remittance market world wide is about $500B.  transaction fees of say 1% would be only $5B/year.  Decently secure but definitely corruptible as well

 

Then again if you're only holding the bitcoin for a few minutes or hours, the might mean you would accept a slightly less secure network?  some other coin via proof of stake or something else may be better suited for that?

 

just thinking outloud

 

somewhat related, nubits is a new coin that attempts to address the volatility with two classes of coins that are tied together.  one coin votes on the value of the other...which is set at $1. I have my doubts on its ability to "maintain the peg" in a crisis, etc, but its an interesting idea...still reading more on it. 

 

https://nubits.com/nushares/introduction

[wachtwoord]

Be careful. 99.9% of all altcoins are outright scams. 100% of the ones that claim to be pegged.

[jb85]

agreed, though in this case, the peg isn't maintained with a cash reserve (which inevitably runs out during a crisis).  its maintained by a voting mechanism and interest rates charged by holders of nushares (as i understand it). it at least is somewhat new method.  \

 

nubits are either created, or removed from the system in order to maintain a steady 1 nubit = $1 "peg".  holders of nushares vote to release more nubits into the system as demand rises.

 

Problem comes when demand falls.  they address this in teh following way:

 

"To demonstrate the robustness of the peg, let's imagine a future where NuBit demand is only 10% of its peak. It is obsolete and demand has been in decline for three years. Nearly everyone has given up on it. However, there are a handful of individuals who believe there is a 30% chance that NuBits will still have value in a year because they are NuShareholders and plan to implement a bold and daring plan to change the protocol to meet different needs than NuBits have in the past. These individuals would buy NuBits if there was 400% interest rate offered for one year. So it will be offered by NuShareholders and taken by the speculators, and the peg will stand at $1.00 US. When this large sum of NuBits is created and unparked after one year, then the situation is much worse if demand has not picked up due to the success of their bold plan to redefine NuBits. Perhaps then even these shareholders and speculators will give up on it. In that case NuBits would not be worth less, they would be worth nothing. And not many people would care or be affected.

 

However, the system can handle even multi-year dips in demand gracefully and recover. All that is required is for some people to believe there is some chance that total demand will reach a new peak. This is a nominal peak, not inflation adjusted peak. So in a case where NuBit demand declined for three years and there was 13% inflation over those three years and an average of 4% annual interest was required to create sufficient demand for NuBits during those three years, then the amount of real value stored would not even have to quite reach its previous peak in order to push interest rates down to zero, signaling a healthy system."

 

still seems complicated and subject to failing during a major crisis.  In this way bitcoin is a lot more volatile but less fragile imo

[rkbabang]

What happens to nubits in the situation where the U.S. dollar goes into decline? Think about a hyper-inflation scenario?  Would nubits remain tied to the dollar? If not would would happen?  Why would you create a currency that is tied to one of the old currencies that you are trying to replace?

If you are going to do that wouldn't it be easier to just design an online payment system that uses dollars directly? There is already PayPal.

 

[jb85]

I think the advantage over say paypal is that you could get around regulations and slow processing time that paypal would require.  especially with cross border transactions.

 

as far as why its pegged to the dollar, their idea is that you kinda gotta peg it to something, and the dollar has been one of the more stable assets in the world.  If say we start to get hyperinflation and the nubit community realizes they should no longer peg to the now volatile US dollar, they can also peg to something else or release the peg via voting and let it float completely free

 

in some imaginary far off world, if entire world was using nubits, then eventually, yes the nubit to us dollar peg would be broken and the holders of nushares would just vote on the supply of nubits in circulation.  at least thats how i understand it.  but the peg allows it to remain relatively stable during the rapid growth/adoption period...unlike bitcoin

 

main concern i have is if demand drops by 90% over a period of say 3 years,which is entirely possible in early stages and is kinda happening now with bitcoin, then will there be enough "believers" that are willing to remove nubits from circulation in exchange for a high interest rate?  i have to think about it more.  In the example i posted above, they said "30% probability" that nubits will make a comeback, which would require 400% annual interest.  what if its only a 5% chance?  that implies over 2000% annual interest to maintain peg?  seems fragile.  but i'm not sure..have to think more on it

 

[rkbabang]

Coinbase Raises $75M from DFJ Growth, USAA, NYSE, and More

[ScottHall]

I bought one of these things a few days ago based on a pitch by a coworker, mostly to keep me interested. No real detailed thoughts, other than it appears to be pretty binary and it probably beats the scratchers.

 

Wouldn't be shocked if I lose all $200-whatever.

[rkbabang]

Bitcoin is being stolen at gunpoint in New York

 

"The most recent Bitcoin robbery reported to police is typical for this new breed of crime. New York City firefighter Dwayne Richards headed to Brooklyn to meet up with someone who apparently wanted to exchange Bitcoins for cash. Instead he was mugged and stabbed, but survived and is recovering well. The thief made off with the Bitcoins and it’s unlikely they will be seen again..."

[cloud]

I see there are 3 major risks with Cryptocurrencies:

#1. Political risk

#2. Technological risk

#3. Speculation risk.

[yadayada]

Meanwhile still nobody uses it:

https://blockchain.info/nl/charts/n-transactions?timespan=2year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address=

 

Allthough the size of illegal drug website has ballooned. There are now various new silk roads, and each one of them is larger then the original. So most of the growth probably comes from illegal transactions.

 

Transactions went from 60k to 90k in 2 years. And when it was at 60k, bitcoin was virtually unknown.  ::)

 

Id say fair value of this currency is still somewhere below 50$. When most people realize that this is not a practical way to transact legal transactions, it will be dumped by the speculators, and probably go below 50$. It is brilliant for buying drugs though. From what iv heard, quality of drugs is many times better then on the street, and you even get customer service!

 

It is also very handy for taking something or someone hostage. As the problem used to be a paper trail, or having to pick up the cash in person. Now you can shuffle the coins, and dissapear without a trace. I think there is a growing industry of taking someone's computer and data hostage, and demanding a ransom.

[jb85]

Meanwhile still nobody uses it:

 

 

I track some various user metrics monthly. Here's some of that info

 

http://i.imgur.com/Brw0e9x.png

[ni-co]

I purchased some bitcoin for the first time last week.  I bought 2 BTC at about $185 each.  Speculation, of course.  I'm just going to sit on them and see what happens.  Maybe buy a few more if the price drops significantly from here. I used coinbase.com.

 

My theory is that in 25 years 1 bitcoin is going to either be worth the equivalent of $1M 2015 USD with people using nanobitcoins for most transactions (people will get paid in bitcoin, buy everything in bitcoin, oil and stocks will be traded in BTC, etc)... Or it is going to be worth $0 and be long forgotten.  It is either going to catch on in a huge way or die out completely.  I don't see any other mid-way scenario being possible.

 

I think this is exactly the right way to think about it. I heard an interview with Raoul Pal where he explained it as an option without expiry date: downside is your invested capital, the upside are millions of today's $ per BTC. This is a very nice risk/reward ratio to speculate just a little bit.

 

There is also a "nice" catalyst in the making: alternatives to the current fiat monetary system (be it gold, Bitcoin or another one) will become a much broader discussed topic in the upcoming months or years. The more QE is done worldwide and the more baby-boomers are retiring, the more this topic will grow in importance. Momentarily, there are still far too much conspiracy theorists leading that discussion (same with gold) – but that's only because Joe Average is either shortsighted or doesn't want to hear about it.

 

Add to this that Bitcoin also has the potential to become a public ledger for owning practically every asset – this is a huge deal which hasn't been discussed much in this thread.

[Libs]

I bought ten of them at $238 each recently. I just couldn't resist the gamble.

 

it's all about the blockchain:

 

http://www.wsj.com/articles/the-revolutionary-power-of-digital-currency-1422035061

[Libs]

By MICHAEL J. CASEY and  PAUL VIGNA

Jan. 23, 2015 12:44 p.m. ET

179 COMMENTS

About a half-billion dollars worth of it vanished from an online exchange in Tokyo. A prosecutor in Manhattan arrested the 24-year-old vice chairman of its most prominent trading body on drug-related charges of money laundering. Its founder’s identity remains a mystery, and last year, it shed two-thirds of its value, losing an additional 44% in just the first two weeks of January. In his year-end letter to investors, Warren Buffett’s advice about it was emphatic: “Stay away.”

 

The digital currency known as bitcoin is only six years old, and many of its critics are already declaring it dead. But such dire predictions miss a far more important point: Whether bitcoin survives or not, the technology underlying it is here to stay. In fact, that technology will become ever more influential as developers create newer, better versions and clones.

 

No digital currency will soon dislodge the dollar, but bitcoin is much more than a currency. It is a radically new, decentralized system for managing the way societies exchange value. It is, quite simply, one of the most powerful innovations in finance in 500 years.

 

If applied widely to the inner workings of our global economy, this model could slash trillions in financial fees; computerize much of the work done by payment processors, government property-title offices, lawyers and accountants; and create opportunities for billions of people who don't currently have bank accounts. Great value will be created, but many jobs also will be rendered obsolete.

 

Bitcoin has some indisputable flaws, at least in its current iteration. Its price fluctuates too wildly. (Who wants the cost of their groceries to vary by 10% from week to week?) Its anonymity has made it a haven for drug dealers. “Wallets” (as the individual software applications that manage bitcoin holdings are known) have proven vulnerable to cyberattack and pillaging, including the wallets of big exchanges such as Tokyo’s Mt. Gox and Slovenia’s Bitstamp.

 

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Even though the core program that runs bitcoin has resisted six years of hacking attempts, the successful attacks on associated businesses have created the impression that bitcoin isn’t a safe way to store money. Until these perceptions are overcome or bitcoin is replaced by a superior digital currency, the public will remain suspicious of the concept, and regulators will be tempted to quash it.

 

Like any young technology, bitcoin is a work in progress, but its groundbreaking core software program is constantly being improved. It is open-source and copyright-free, and thus accessible to anyone who wants to peer inside it, copy it, suggest improvements or create applications for it.

 

Inspired by this potential, “probably 10,000 of the best developers in the world are working on bitcoin,” estimates Chris Dixon, a partner at the venture-capital firm Andreessen Horowitz. This volunteer army has developed military-grade encryption to make bitcoin wallets more secure and insurable and also new trading tools to help stabilize the price. The faults of digital currency are being resolved.

 

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The workings of bitcoin and other digital currencies can be confusing. When we think of a currency in the abstract, we tend to think of a physical currency in the offline world—a dollar bill or a gold coin—so we imagine bitcoin as some sort of digitally rendered equivalent, much as a Word document is a digital stand-in for a physical page of text.

 

But there is no such thing as the digital equivalent of a dollar bill. Bitcoins exist purely as entries in an accounting system—a transparent public ledger known as the “blockchain” that records balances and transfers among special bitcoin “addresses.” Owning bitcoin doesn’t mean having a digital banknote in a digital pocket; it means having a claim to a bitcoin address, with a secret password, and the right to transfer its balances to someone else.

 

Whether bitcoin survives or not, the technology underlying it is here to stay. ENLARGE

Whether bitcoin survives or not, the technology underlying it is here to stay. PHOTO: BLOOMBERG NEWS

This ledger is what gives bitcoin its potential to disrupt global finance. In the current dollar-based monetary system, we entrust banks and other fee-charging intermediaries to act as gatekeepers to nearly every transaction. Those centralized institutions maintain closely guarded in-house ledgers and, with that information, determine whether their customers have enough credit to write checks, buy goods with credit cards or wire money.

 

With bitcoin, the balances held by every user of the monetary system are instead recorded on a widely distributed, publicly displayed ledger that is kept up-to-date by thousands of independently owned, competing computers known as “miners.”

 

To understand how it works and why it is more efficient and less expensive than the existing system, let’s take a single example: buying a cup of coffee at your local coffee shop. If you pay with a credit card, the transaction seems simple enough: You swipe your card, you grab your cup, you leave.

 

In fact, the financial system is just getting started with you and the coffee shop. Before the store actually gets paid and your bank balance falls, more than a half-dozen institutions—such as a billing processor, the card association ( Visa , MasterCard , etc.), your bank, the coffee shop’s bank, a payment processor, the clearinghouse network managed by the regional Federal Reserve Banks—will have shared part of your account information or otherwise intervened in the flow of money.

 

If all goes well, your bank will confirm your identity and good credit and send payment to the coffee shop’s bank two or three days later. For this privilege, the coffee shop pays a fee of between 2% and 3%.

 

Now let’s pay in bitcoin, assuming that your favorite coffee shop accepts it (more than 82,000 merchants world-wide already do). If you don’t already have bitcoins, you will need to buy some from one of a host of online exchanges and brokerages, using a simple transfer from your regular bank account. You will then assign the bitcoins to a wallet, which functions like an online account.

 

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PHOTO: GETTY IMAGES

Once inside the coffee shop, you will open your wallet’s smartphone app and hold its QR code reader up to the coffee shop’s device. This allows your embedded secret password to unlock a bitcoin address and publicly informs the bitcoin computer network that you are transferring $1.75 worth of bitcoin (currently about 0.0076 bitcoin) to the coffee shop’s address. This takes just seconds, and then you walk off with your coffee.

 

What happens next is crucial. In contrast to the existing system, your transaction is immediately broadcast to the world (in alphanumeric data that can’t be traced to you personally). Your information is then gathered up by bitcoin “miners,” the computers that maintain the system and are compensated, roughly every 10 minutes, for their work confirming transactions.

 

The computer that competes successfully to package the data from your coffee purchase adds that information to the blockchain ledger, which prompts all the other miners to investigate the underlying transaction. Once your bona fides are verified, the updated blockchain is considered legitimate, and the miners update their records accordingly.

 

It takes from 10 minutes to an hour for this software-driven network of computers to formally confirm a transfer from your blockchain address to that of the coffee shop—compared with a two- to three-day wait for the settlement of a credit-card transaction. Some new digital currencies are able to finalize transactions within seconds.

 

There are almost zero fees, and the personal information of users isn’t divulged. This bitcoin feature especially appeals to privacy advocates: Nobody learns where you buy coffee, the name of your doctor or—if you’re into that sort of thing—where you buy your illegal drugs.

 

Because the fees in the current credit-card system are paid by merchants and because banks indemnify cardholders against theft of their personal data, such savings and privacy benefits often don't impress American consumers. But even if we don’t bear those costs directly, we pay them through hidden fees and pricier cups of coffee.

 

The advantages of digital currency are far more visible in emerging markets. It allows migrant workers, for example, to bypass fees that often run to 10% or more for the international payment services that they use to send money home to their families.

 

Bitcoin’s unidentified creator—a person or persons operating under the pseudonym of Satoshi Nakamoto —has provided a novel solution to a problem that has dogged societies for centuries: the distrust among strangers in commercial transactions with one another. In any exchange, how could someone feel secure unless there is a face-to-face handover of physical currency or some other valuable good?

 

When banks were invented in Florence in the late 1400s, a centralized solution emerged: People didn’t have to worry about trusting strangers anymore; they could just trust their banks to absorb the credit risk. Using internal ledgers to keep track of everyone’s balances, banks became the middlemen through which exchanges could now occur.

 

Banking unleashed the Renaissance, the Industrial Revolution and the modern age. But a new problem arose: As the world’s monetary intermediaries, banks became powerful—perhaps overly powerful—repositories of information and influence. The financial system was and remains vulnerable to bank failures, as we were painfully reminded during the financial crisis of September 2008.

 

One month after that meltdown, Satoshi Nakamoto released the initial document describing bitcoin. For the first time, people had a decentralized solution to the financial-trust problem. Here was a new form of currency that could be transferred online without involving fee-imposing, third-party institutions.

 

But many still ask: How can a bitcoin have value if it isn’t “backed” by gold or a government? If you can’t hold a currency in your hands, if it doesn’t bear some central authority’s insignia, how can it be worth anything?

 

Here we have to remind ourselves of some economic fundamentals: Money’s essence doesn’t reside in tangible currencies, which have no intrinsic value—beyond, say, a dollar bill’s modest usefulness as a bookmark. Much the same can be said of bitcoins, which are made up of bits and bytes.

 

In the broadest sense, money is, instead, an all-encompassing, society-wide system for keeping up with who owns or owes what. Physical currencies are simply symbols or tokens in that system, representing a shared standard of value for tracking wealth holdings. What Nakamoto’s blockchain invention offers is an online, decentralized and fully public mechanism for recording those shifting balances. It deals directly with the essence of money.

 

As promising as that idea may seem, there hasn’t been much public buy-in, largely because of the concerns about volatility, insecurity and criminality that have continued to dog bitcoin. Although many companies now accept bitcoin (the latest and biggest being Microsoft Corp. ), global usage of the digital currency averaged just $50 million a day in 2014. Over that same period, Visa and MasterCard processed some $32 billion a day.

 

Still, a “Who’s Who” of Internet pioneers is betting on a bright future for bitcoin. Ignoring its careening exchange rate, such investors as Netscape founder Marc Andreessen and LinkedIn founder Reid Hoffman put $315 million into bitcoin-related projects last year—triple the venture-capital investment of 2013, according to the digital-currency news site Coindesk. And 2015 has kicked off with an announcement by the digital wallet provider Coinbase of a $75 million injection of new funds by investors including the New York Stock Exchange and the venture arm of the Spanish banking giant Banco Bilbao Vizcaya Argentaria SA .

 

What most excites these investors is bitcoin’s promise as a platform whose future applications are almost unimaginably broad. They see a precedent in the core Internet protocols adopted in the 1980s, when no one foresaw such things as Facebook , Twitter or Netflix . Already, hundreds of specialized apps are being built on top of the digital-currency blockchain software, which is seen in this context as a kind of base operating system.

 

Some developers are building digital-currency tools for the world’s 2.5 billion “unbanked” people, in a bid to bring them into the global financial system. Others are packing additional information into the core programs to create applications well beyond currency transfers: software-managed “smart contracts” that need no lawyers, automated databases of digital assets and copyright claims, peer-to-peer property transfers and electronic voting systems that can’t be rigged.

 

A key idea here is that data in a blockchain ledger is made irrefutable by the computing consensus that goes into it. A blockchain is distributed across many independent computers rather than residing on a central server. So, unlike bank- or merchant-based data, such information is, in theory, invulnerable to attack or corruption. It is considered impossible for an outsider to hack thousands of computers simultaneously and there are no insiders to manipulate the central server’s software. This, in theory, makes blockchain data reliable and incontrovertible.

 

As innovation in digital currency accelerates, it will matter less whether Mom and Pop own bitcoin or even know what it is. Big multinationals and financial institutions could incorporate its decentralized technology into their payment and database systems while we obliviously keep using our dollars or euros.

 

If bitcoin thus becomes an ubiquitous if largely invisible part of the world economy, many believe that its price will rise. A small but growing number of hedge funds and family investment offices are betting on just that, taking stakes in bitcoin-investment vehicles.

 

But the growth of digital-currency technology has even more profound implications. It could reduce financial costs overall and leave more money in people’s pockets. At the same time, it could spell job losses—potentially rendering obsolete millions of positions in traditional intermediary services.

 

These aren’t idle concerns. Wall Street bankers and Federal Reserve staffers are discussing ways that this technology could make the financial system more efficient. Regulators in New York’s Department of Financial Services and elsewhere are designing rules to reduce the risks from digital currencies even as they encourage innovation. The governments of the U.K. and Mexico are exploring the use of blockchain technology to enhance financial networks and strengthen economic governance.

 

Despite the scandals and price swings in bitcoin’s brief history, the financial establishment is taking notice. One key reason, as former U.S. Treasury Secretary Lawrence Summers told us, is that the “substantial inefficiencies” of an outdated financial system make it “ripe for disruption.” That alone means it would be “a serious mistake to write off [digital currencies] as either ill-conceived or illegitimate,” Dr. Summers said.

 

In the end, the rise of digital currency may be a matter of evolutionary destiny. The Internet has disrupted and decentralized much of the world economy, but the centralized world of finance remains stuck in the 15th century. Digital currency can help it adapt and survive.

 

Adapted from “The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order,” to be published Tuesday by St. Martin’s Press.

[Libs]

Sorry for the multiple posts. I wanted to add one more thing.

 

Buffett and Andreeson have contrasting views over the actual value of Bitcoins. Buffett equated Bitcoin to a check; and as such, valueless in and of itself.

 

Andreeson had a different opinion:

 

http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/

 

A friend of mine had the following take: Bitcoin is worth a multiple of the profit it generates ( just like anything else). So if Bitcoin takes hold, and is used to process transactions for a small charge per transaction, you just need to estimate those numbers and put a multiple to it.

 

I have no idea how to do that, though.

 

 

 

[rkbabang]

I bought ten of them at $238 each recently. I just couldn't resist the gamble.

 

it's all about the blockchain:

 

http://www.wsj.com/articles/the-revolutionary-power-of-digital-currency-1422035061

 

Thanks for the link.  I'm up to 3 now.  I may keep buying them on the dips.  By the way I just figured out that you can track your bitcoins in your Yahoo finance portfolio with the symbol BTCUSD=X.

 

 

[bookie71]

I think I'll buy a lottery ticket, and beat all of you.  :-)

[rkbabang]

Why Bitcoin is and isn't like the Internet

 

"... I remember twenty years ago, giving a talk to advertising agencies, media companies and banks explaining how important and disruptive the Internet would be. Back then, there were satellite photos of the earth and a webcam pointing at a coffee pot on the Internet. Most people didn’t have the imagination to see how the Internet would fundamentally disrupt commerce and media, because Amazon, eBay and Google hadn’t been invented -- just email and Usenet-news. No one in these big companies believed that they had to learn anything about the Internet or that the Internet would affect their business -- I mostly got blank stares or snores.

 

Similarly, I believe that Bitcoin is the first “killer app” of The Blockchain as email was the killer app for the beginning of the Internet. We are in the process of inventing eBay, Amazon and Google. My hunch is that The Blockchain will be to banking, law and accountancy as The Internet was to media, commerce and advertising. It will lower costs, disintermediate many layers of business and reduce friction. As we know, one person’s friction is another person’s revenue..."

 

[rkbabang]

I've heard the story before, but I didn't realize it had become a holiday.

 

Happy Bitcoin Pizza Day

 

[constructive]

A friend of mine had the following take: Bitcoin is worth a multiple of the profit it generates ( just like anything else). So if Bitcoin takes hold, and is used to process transactions for a small charge per transaction, you just need to estimate those numbers and put a multiple to it.

 

I have no idea how to do that, though.

 

Disagree with this idea. The profit bitcoin generates is earned by miners. Bitcoin holders don't have any share of that profit.

 

I continue to think Bitcoin should be valued based on comparing overall system costs per transaction with alternatives including Western Union, MoneyGram, Paypal, credit cards, bank transfers, etc. That will give you a floor price, anything on top of that is speculative.

[rkbabang]

A friend of mine had the following take: Bitcoin is worth a multiple of the profit it generates ( just like anything else). So if Bitcoin takes hold, and is used to process transactions for a small charge per transaction, you just need to estimate those numbers and put a multiple to it.

 

I have no idea how to do that, though.

 

Disagree with this idea. The profit bitcoin generates is earned by miners. Bitcoin holders don't have any share of that profit.

 

I continue to think Bitcoin should be valued based on comparing overall system costs per transaction with alternatives including Western Union, MoneyGram, Paypal, credit cards, bank transfers, etc. That will give you a floor price, anything on top of that is speculative.

 

I disagree with both valuation methods.  You can't value something by how much it costs, otherwise a bridge to nowhere would have value and a diamond you found in the sand at the beach wouldn't.  We know the supply of bitcoin has an absolute limit, so its value will vary entirely with its demand.  If a billion people use it as a medium of trade and depend on it for exchange, then its value will be enormous.  If not, then it doesn't matter how much it costs per transaction, its value will be 0.