[MarcusBrutus]

Bitcoin fails to satisfactorily answer von Mises' regression theorem. It also has no scarcity since it can face competition by an infinite number of similar conceivable algorithms / block-chains / virtual currencies that offer much the same features, regardless of how hard its own mining gets. Not to mention that once it is perceived as more than just a nuisance by some major government it will be shut down in a heartbeat. Future generations will laugh at our incredulity just like we make fun of the Tulip mania (which had more substance to boot). There is real, almost insatiable global demand for a currency with intrinsic value and scarcity that cannot be inflated by fiat. But given that such a currency will antagonize major governments it will likely not be a crypto-currency but rather a currency backed by some sufficiently powerful country. I am actually expecting the Russians or Chinese to launch a 100% gold-backed currency within the next 5 years. Failing that, when the EU breaks up the new Deutsche mark will be a good alternative. Any of these developments will pop Bitcoin's bubble.

[baddox]

> It also has no scarcity since it can face competition by an infinite number of similar conceivable algorithms / block-chains / virtual currencies that offer much the same features, regardless of how hard its own mining gets.

I don't get this argument. Competing cryptocurrencies won't be spendable on the Bitcoin block chain and vice versa, so Bitcoin's scarcity isn't compromised. It's true that Bitcoin could face competition from other cryptocurrencies, but that's not exactly an inherent deal breaker. People need to use a cryptocurrency for it to be of much use.

[bduerst]

They're referring to any unique characteristics that give Bitcoin value in competing with other cryptocurrencies, which is mostly true.

There are already a number of newer cryptocurrencies that are better than bitcoin (e.g. no block size issue, computational waste, etc.) but with bitcoin it will take more than that to dethrone Bitcoin's brand as "Internet Drug Money".

[petertodd]

All existing cryptocurrencies have a block size issue because blockchains have terrible scalability; removing a safety limit doesn't make the underlying problem go away.

[bduerst]

I'm referring to the famed blocksize debate [1] that's happened with Bitcoin, in which several miners have gained control of the blockchain through economies of scale and are preventing forks for block size increase [2]. This size increase would allow for more than 7 tx/s but it would also increase costs for miners, so the miners are ignoring it, effectively making it tragedy of the commons.

Note: This isn't a blockchain issue, it's a Bitcoin issue. Other blockchains have implemented different measures to deal with transaction saturation and block size caps.

[1] https://en.bitcoin.it/wiki/Block_size_limit_controversy

[1] https://blog.plan99.net/the-resolution-of-the-bitcoin-experi...

[stale2002]

Look, I am a pro big blocker myself (I think that the network would be perfectly fine with a 4-8x capacity increase). But Peter Todd has a point. (I would hope so. He is literally one of the experts)

Imagine if blocks were x Gigabytes. Thats X GigaBytes that have to be sent to every single miner in the world every 10 minutes!

There is a fundamental N squared problem in blockchains that you can't get around without using some very clever tricks that haven't been implemented yet.

[pmorici]

The creator of Bitcoin very much disagreed with Peter Todd's view. In 1999 people thought sending video let alone HD video over the Internet was totally nuts and impossible. Then YouTube happened and now we have HD video streaming to the extent that cable companies are worried it is going to put them out of business.

[bduerst]

Litecoin has the same blocksize as Bitcoin, but resolves blocks every 2.5 minutes instead of 10, giving it more 4x capacity. ZCash just forces block size increases as hard forks.

Like I said, different blockchains solves the blocksize differently, and Bitcoin has demonstrated that it's not capable of addressing it's blocksize issue and can't scale.

You can scoff and say, "That's a non-issue.", but even at the start of an NPR Planet Money podcast episode about Bitcoins, where they do a Bitcoin transfer, it hits the cap and gets lost.

[runeks]

> They're referring to any unique characteristics that give Bitcoin value in competing with other cryptocurrencies, which is mostly true.

The unique characteristic that makes Bitcoin more valuable than all other cryptocurrencies is liquidity. The order book depth for the USD/EUR Bitcoin market is more than an order of magnitude greater than all other cryptocurrencies combined.

The more liquid a monetary unit is, the less friction is involved in using it for exchange, since you pay the spread (which increases with order size) every time you enter and leave the Bitcoin market.

This is the only reason gold is still so valuable: it has immense liquidity/market depth, meaning you can quickly offload it on the market when needed. This is very useful, and the defining property of money.

[baddox]

There are undoubtedly improvements that can be made to Bitcoin or adopted by its competitors. But you still have to have people using a currency. Anyway, my point is that this doesn't compromise the scarcity of Bitcoin. Scarcity of a currency does not refer to a lack of competing currencies.

[gre]

Which cryptocurrencies in particular are worth watching and why?

[bduerst]

I don't keep tabs on them all, but in terms of technical aspects I think Monero stands the most likely to be a good substitute for the Bitcoin users.

ZCash seems popular, but it's privately-run with a U.S. based company and can pull some strings to assist in de-anonymizing users. They basically claim no liability for it's users which means it may be too comfortable with authorities for Bitcoin users.

Other than that I think Ethereum has the best chance in terms of market traction to take off as a true international currency.

[abecedarius]

How can the Zcash company deanonymize users? I haven't studied their system, but that sounds completely against the design goals. (Not to mention to mention the personality of those Zcash core developers I've worked with in the past at leastauthority.com. But security engineering is about not having to rely on their probity.) I don't understand what you're saying about liability and authorities either.

In online discussions of cryptocurrencies it's clear that many people's financial positions bias their conversational positions. I'm long on all four of these currencies.

[bduerst]

From the whitepaper:

>A powerful attacker could potentially fabricate an additional block solely for a targeted user. Spending any coins with respect to the updated Merkle tree in this “poison-pill” block will uniquely identify the targeted user.

If ZCash works with that person or organization, then they're able to deanonymize the inputs on the transaction. As a privately owned U.S. company they can be compelled to do this with authorities.

For most people this doesn't matter, but for the type of user that bitcoin attracts, I think they would care, which is why I think Monero is probably better for them.

[pmorici]

This site is good for getting an idea about what coins are actually being used. Bitcoin is extremely dominate.

https://coinmarketcap.com/

[edblarney]

"Competing cryptocurrencies won't be spendable on the Bitcoin block chain and vice versa, so Bitcoin's scarcity isn't compromised."

Because bitcoin is not backed by any assets, anyone could come along an invent something like bitcoin, claim it has value, and disrupt it.

So it's maybe the wrong wording for the argument, but the underlying premise - the actual underlying weakness of bitcoin as an asset, is the argument.

USD's are backed by TBills, Euros are backed by pretty good quality assets. I understand it's not like you can go and exchange your Euros for landholdings or gold, but there is integrity in that system.

Bitcoin is just an idea, worth whatever a group of random people decide it's worth, which makes it highly volatile and risky.

The USD will not go do 0 tommorow - its's needed for many things. Bitcoin could go to 0 tommorow.

[baddox]

Bitcoin isn't backed by any assets. Bitcoins ARE assets. They don't have value because someone just came along and claimed they do (try to start your own Bitcoin clone and see how much people will buy them for). They have value because people are willing to trade for them, and there are many potential reasons for that (some less reassuring than others).

[edblarney]

Bitcoin is really not an asset by any stretch.

"They don't have value because someone just came along and claimed they do" - that's exactly why they have value - because a bunch of people arbitrarily believe they have value.

There are zero currencies which survive on this basis.

All major currencies exist because they are the medium of exchange in some economy - and/or they are backed by something tangible: in the US it's government debt, in Europe by other assets.

In China it's a little more fantastic, but the currency has about as much trust as one can have in their government - meaning, it's sketchy, but it's not going to 0 overnight.

Bitcoin could be worth 0 tommorow if people lose interest, vendors stop caring - which could happen - after all, what is the underlying impetus to keep pricing momentum? Is there demand on Bitcoin for people to pay taxes? Nope. To buy other products and services? Nope. As a 'store of value'. Nope.

Really - the only value might be to 'hide from paying taxes' or to 'hide from authorities' - which admittedly has value to some people, but I'm not sure if it's enough to keep it afloat.

[ericb]

Most of the "value" of gold is by arbitrary societal agreement--there is very low natural use-driven demand compared to the froth from people using it as a store of value. That agreement, in a game theory sense, comes from the original time when participants coalesced around gold because it had the properties that seemed most appealing (limited supply, difficult to fake, measurable, transportable) as a store of value or currency.

Whatever alternatives may arise, the one that will be "most valuable" is the one that everyone thinks everyone else will want.

[MarcusBrutus]

Scarcity, fungibility, divisibility, durability are not societal constructs. Plus all metals have some inherent value. On top of that you have desirability which you could perhaps explain as a societal construct although I think there is something ingrained in the human psyche about valuing very smooth and shiny things (perhaps there is even an evolutionary explanation). At any rate a societal construct that has persisted for milenia across vast swathes of the globe is not your typical societal construct.

[ericb]

> a societal construct that has persisted for milenia across vast swathes of the globe is not your typical societal construct.

For sure, but until now, gold has not faced an alternative that beat it on a number of objective measures (portability, divisibility, scarcity, durability) so now we get to see the experimental result of what happens over time when there's an alternative that better meets the core use-cases that made it a good choice to a store of value.

Bitcoins have a base level of desirability even without currency use. They offer the ability to write (transact) on a public globally distributed time stamped, unforgeable verified data store.

The blockchain's a perfect place to store the hash of a document, for example, to prove it's existence as of a certain date.

[edblarney]

However much that is true - gold is still a physical product, impossible to reproduce, has some utility, it's a luxury item, and it has been established as a 'currency' for the last 5000 years. Which is a long time.

So aside from some nice properties, it's like the 'original bitcoin'. We really don't need another.

[dmichulke]

> So aside from some nice properties, it's like the 'original bitcoin'.

Plus you can buy it in China and sell it in Brazil all within 30 minutes.

> We really don't need another

You are saying that you don't need another. But, among others, a million Chinese do and beg to differ here.

[hugozap]

Gold divisibility is bad. Same for any other metal. This is one of the advantages of crypto currencies.

[kbody]

You dismiss the effect it has on real world and the markets it enables, among many other attributes/advantages.

Obviously it's not perfect, nothing is, but it's upgrade-able and you overlook the value of global decentralized trust, for some it's really valuable and its value will keep increasing the more we get connected (e.g: see R3 and all the banks that try to use the blockchain tech, even if they miss the point).

[FellowTraveler]

> once it is perceived as more than just a nuisance by some major government it will be shut down in a heartbeat

Actually, the unique feature that makes Bitcoin special is specifically its censorship-resistance. That's why people value it -- because it cannot be shut down.

[learc83]

It can be pretty effectively shut down by devaluing it to the point of uselessness.

Governments could make it illegal to conduct trade using bit coins, and they could make it very difficult to convert by going after people doing the conversion. I think that would pretty effectively tank the value.

They could also buy or confiscate a large percentage of all existing bitcoin pretty easily, and then use that to manipulate the market.

[orblivion]

If it becomes enough of a hassle it probably could be shut down. It would have to cost the government so much that it's worth the political hit to them to alter the Internet. So, best that it remain not too high a nuisance for now.

[elif]

It is resistant to confiscation, but the IRS can still make you a fugitive in most of the developed world.

[stale2002]

Not if they don't know that you own an account.

[zaphar]

If you buy a bitcoin without using cash or cash out your bitcoin then they can trace your bitcoin wallet to you. It's not really anonymous unless you keep all the transactions inside of bitcoin and never leave it. Which isn't really at all practical right now and has a high likelihood of not being practical in the near to medium term either.

[ubernostrum]

The IRS got Switzerland to open up previously-confidential banking records.

You think they're not going to find a way to identify Bitcoin users? "It's on the internet, that makes it untraceable" is magical thinking that does not survive contact with sufficiently dedicated real-world agencies.

[stale2002]

The IRS got people to give up the identities of other people.

With bitcoin, if you take the right precautions, it is impossible for anyone to know which account is yours.

It is a TECHNICAL solution. It doesn't matter how many people the IRS threaten.

Can the US government tell everyone in the world to think of a random number, then these citizens don't tell anybody what number they chose, and then can the government arrest everyone who chooses the number 10? No, it cannot do this.

And if it can't do that, then it can't arrest all the bitcoin owners.

[ubernostrum]

OK. So buy something with Bitcoin without:

* Ever appearing at a retail establishment with security cameras

* Ever scheduling a product for delivery to any address, period

* Ever scheduling a service to be provided at any location, period

* Ever communicating with the other party via any means whatsoever, including placing an order online, not even via Tor behind seven proxies

And tell me how it goes. Because all of those things above are vectors for identifying you that big random numbers won't solve.

[dragonwriter]

The thing is, unless you use bitcoin to buy goods similarly obscured digital goods (essentially things that exist themselves only as records on a blockhain), the other side of the transaction is traceable.

[onewaystreet]

I've seen comments like this posted on HN for the past 3 years. Bitcoin's "bubble" has already popped many times but it has rebounded each time. Maybe the next time will be the last, but a lot of people have been wrong about that so far.

[bduerst]

We're entering a new bubble, this one being driven as the Yuan crashes: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&...

Just because it's being repeated doesn't mean it's wrong.

[pg314]

What constitutes a crash for the Yuan (3% over 3 months), is way less than the volatility of bitcoin in one day...

[bduerst]

I can't tell if you're trying to say if the Yuan didn't crash or something else. Bitcoin's 3 month volatility is 85%.

[kristianp]

Bitcoin has to end some day, but what Black Swan will bring about its end? The end should be factored in to investors calculations, but how? It has proven to be quite reliable so far, but the block size issue and I think fee increases are a negative.

[edblarney]

Just because there are a few buyers and sellers trading bitcoins at a specific price, does not mean there is any real validity or pricing support for the rest of the market.

Facebook could sell most of their shares for today's bidding price.

If all bitcoins went on the market today, it would probably crash and never recover.

Even in a housing crash, there are creditors, deal-seekers and people who need a place to live who will stop the bidding from getting too low. And then people will come back eventually.

If/when bitcoin crashes, it's gone for good.

[stale2002]

"Not to mention that once it is perceived as more than just a nuisance by some major government it will be shut down in a heartbeat."

People keep saying that, and they keep being wrong. Think of all the illegal things that happen over bitcoin. There are lots of people who would want to shut it down if they could.

[matt4077]

You're both under- and overestimating the worlds' government:

- You're underestimating their capability to shut down trade in bitcoin. Sure, they won't be able to stop you from running the software. But they have the ability to stop any transfer into/out of the digital world. That part is quite easy to proof: real-world usage of bitcoin requires exchange for regular currency. And bitcoin was founded on the belief that governments have too much control over the flow of currencies. (This argument hints at a common mistake in the tech community: overestimating the power of technology and underestimating the power of law).

- You're overestimating the governments' wickedness. Functioning democracies work on a default-legal basis, and it appears to me as if a to of governments have found a good balance b/w ensuring existing mechanisms are applied to bitcoin, without creating unnecessary burdens blocking its adoption.

[catuscoti]

> You're underestimating their capability to shut down trade in bitcoin.

You overestimate the willingness of the police force to prove that they are willing to risk their lives and die for what they believe in. In fact, they won't. Ultimately, they count on the army to do that, who won't either.

[matt4077]

what?

[edblarney]

"Think of all the illegal things that happen over bitcoin. T"

Sure, but if the US gov makes bitcoin illegal that means most of the buyers and sellers - regular people - have to withdraw from the market.

Many of bitcoins biggest owners are big name dudes - like the twin brothers from Facebook, the Winklevoss own something like 10% of all bitcoins.

If they perceive a change in law, they'll have to sell their bitcoin before that happens, as will all legit owners ... it will flood the market and might very well crash it.

[CN7R]

Yes, Bitcoin has many competitors but it is the only cryptocurrency to have achieved 'mass' adoption. When you think of the pinnacle digital currency, it's Bitcoin -- that has value to consumers and merchants, more than other currencies regardless of their features.

[mdpopescu]

I recommend you read some Jeff Tucker; he also started from the same position but changed his mind later on. I'm not saying he's right, to be honest I have yet to care about Bitcoin, but he is an example of an Austrian economist who favors it.

[kristianp]

"Bitcoin fails to satisfactorily answer von Mises' regression theorem."

Can you explain this for the non-economists here please?

[alexmingoia]

Economists (notably Ludwig von Mises and Carl Menger) attempted to answer the question, "Why does money have value?" with the explanation that people have a desire for goods (including money) because of what they use them for. With money, they expect to trade it for other goods in the future. But the problem is that argument is circular when using it to explain the market origination of money: Why did people originally want to trade other goods for money before it was money? Mises' regression theorem is to answer this by using Menger's explanation for the origin of money. That is if we take time into account, people expect money to buy stuff in the future because they have memory of what it was traded for in the past, and if you keep going into the past with this logic money must have originated from having some other value. For example, people start trading things for butter because they like to eat it, and when everyone ends up with butter they start trading other things for butter solely because of what they can trade for butter in the future (Money), because many people both have and want butter.

Bitcoin doesn't seem to have originated this way. It doesn't appear to have been originally valued for its own sake (like Gold or butter). So Mises' regression theorem seems to fall apart when applied to Bitcoin.

[RealityVoid]

I've seen this point refuted as bitcoin having value because it is value able as a transfer of value medium. The same way an armored truck would have value because you can transport valuable stuff with it so does bitcoin.

[abecedarius]

That's interesting. A quick search didn't turn up any math in the first few hits, but https://mises.org/library/cryptocurrencies-and-wider-regress... discusses this application to bitcoin somewhat skeptically.

Without more detail, https://wiki.mises.org/wiki/Regression_theorem seems to be saying that non-money uses of a currency set a floor on its value. If there are no such uses, the floor is zero. If there used to be such use-value, the past floor can bootstrap an equilibrium with a nonzero value in the present. Is there more to this theorem?

[Shorel]

Good explanation.

Twenty years from now we will know which one has passed the test of time, Mises theorem or Bitcoin intrinsic value defying it, which I postulate is a consequence of their money-like characteristics instead of the correspondence to any physical goods.

This of course also applies to other crypto-currencies. May be any cryptocurrency that's not premined and is owned by a big enough network of people has some intrinsic value > 0, and it may be more related to the network size than to the underlying crypto-algorithm.

[kristianp]

Can't we say that originally someone bought a pizza with Bitcoin, and that the induction started from that point?

[murbard2]

And yet it managed to get monetary value. Ergo, the regression theorem is wrong.

[vulturalcptlst]

Bitcoin fails to satisfactorily answer von Mises' regression theorem. Nope It also has no scarcity since it can face competition by an infinite number of similar This is syntactically identical to the following argument; Gold has no scarcity because it can face competition from an infinite number of other physical materials. once it is perceived as more than just a nuisance by some major government it will be shut down in a heartbeat. This is syntactically identical to the following argument; Once asteroids are perceived as more than just a nuisance by dinosaurs, they will erect an asteroid defense system in a heartbeat. Future generations will laugh at our incredulity just like we make fun of the Tulip mania (which had more substance to boot). Because you don't understand the above, it's perfectly reasonable that you would think this. But given that such a currency will antagonize major governments This needs to be re-stated because you seem convinced with quite some certainty about the relevance of this. Bitcoin specifically, and modern peer to peer distributed cryptocurrencies in general, were constructed with the understanding that the infrastructure that they consist of would be an existential threat to the state, and the state may well respond accordingly. Armies employing firearms are similarly unphased by the idea that they may attract the opprobrium of armoured heavy cavalry due to their unsportsmanlike conduct and the fact that the latter precipitates the obsolescence of the former, but they were designed with that understanding in mind. The very fact that you acknowledge there is insatiable global demand for a currency should be a good indicator to you that this is just a decisive blow in an extremely long war, not as you assume, a relic of the political naivety of the designers of, and the community stewarding, Bitcoin and other peer to peer distributed cryptocurrencies. Dinosaurs were killed by asteroids because they had no model for understanding the threat with which they were faced, and no mechanism for defense against such a threat even if they did so understand it. Heavy cavalry was obsoleted by modern firearms regardless of their understanding, because when you charge a fortified cheap and low maintenance machine gun emplacement with your expensive and high maintenance heavy cavalry, it will be annihilated. The state will be obsoleted by distributed peer to peer cryptocurrencies, because regardless of their understanding, they are unable to enforce a mechanism to prohibit the performance of the mathematical equations constituting the necessary cryptography backing these peer to peer cryptocurrencies, and this exsanguinates their economic parasitism, subjecting them to the full force of free market competition as a consequence, and thus their annihilation, because everyone well knows that they cannot compete in such circumstances, and have only endured until this point by violent coercion masquerading as benevolent social stewardship. it will likely not be a crypto-currency but rather a currency backed by some sufficiently powerful country. There is simply no need for such a beast when a purely free market invulnerable infrastructure for the transmission of value between anonymous actors in a trustworthy fashion already exists. am actually expecting the Russians or Chinese to launch a 100% gold-backed currency within the next 5 years Which would actually be a final surrender, as a gold backed currency is once again something that they are unable to infinitely parasite from through central bank manipulation. I agree with your analysis on this front and see it as a positive thing. It has no bearing on the success of cryptocurrencies, nor the nature of them dealing a killer blow to any fiat currency which a state would otherwise be able to infinitely parasite from by manipulation. A world in which gold backed currencies exist alongside cryptocurrencies is perfectly reasonable. Failing that, when the EU breaks up the new Deutsche mark will be a good alternative Unless it's backed by a suitable commodity, it's not going to win, for all of the aforementioned reasons, and if it is backed by a suitable commodity, it's not a problem for cryptocurrencies.

[dmichulke]

Your fantastic comment would benefit from a few newlines.