[espadrine]

It was set to die by design.

Bitcoin has a predetermined graph of coin production with time that converges soon. In 2022, 90% of all bitcoins will be produced, and the ideal inflation will be lower than most fiat currencies.

But inevitably, people die, and the knowledge of their private key with them, removing bitcoins from circulation. The amount of bitcoin will therefore decrease impredictably

All in all, it will be as volatile as currently traded gold (which is not as good a long-term store of value as fiat money as a result), and slower to use in transactions (in November, the European Central Bank will launch SCT Inst, a SEPA mechanism that provides transactions in less than 15 seconds, which is better than Bitcoin's recommended 2 hours).

Beating the improvements of traditional systems will require new cryptocurrency designs.

[xTrader]

> But inevitably, people die, and the knowledge of their private key with them, removing bitcoins from circulation. The amount of bitcoin will therefore decrease impredictably

Maybe a bit late, but you finally understood why Bitcoins get more valuable over time: their number grows slowly or maybe decreases, while the number of people wanting them increases.

That's why Bitcoin is the best Store Of Value ever devised.

[alexasmyths]

"their number grows slowly or maybe decreases, while the number of people wanting them increases."

Yes - you are right to point out that as BTC's disappear, it's not such a bad thing.

But why do you assume people would continue wanting them?

"That's why Bitcoin is the best Store Of Value ever devised."

It's currently one of the worst 'stores of value' possible.

It's massively volatile, and inherently risky: governments could decide to regulate it tomorrow - or even ban it. It's highly susceptible to popular whims. It has massive chunks owned by individual investors who could 'change their minds' on something.

If you have $X USD and want to 'diversify' and have 'strong store of value' - there are many other better options. Real estate being on the top of the list. Over the long-haul, there are innumerable places in the world where real estate will hold it's value for hundreds of years. Baskets of commodities, currencies, decent bonds.

Bitcoin is a very speculative asset, which makes it the 'opposite' of a 'store of value'. And if it's not a currency, then why are we using it again?

Let me put it differently:

In 200 years - do you think there will be demand for real estate in London? There has been for 1000 years. What about Tokyo? Shanghai? Of course there will. Maybe less, but certainly some, and probably more.

Will there be demand for BTC in 100 years? It's hard to say. Possibly, but there's a decent chance nobody will know what it is then.

[wpietri]

I'm not sure why this is being downvoted. It seems spot on to me. People argue that Bitcoin is a great investment because it's going to go up, up, up! And people argue that it's a good store of value. But they can't both be true.

Reward and risk are strongly related. Nobody should know that better than startup people.

[alexasmyths]

"I'm not sure why this is being downvoted. It seems spot on to me. "

Bitcoin is a religious subject among the tech crowd.

The most fascinating thing about BTC has nothing to do with 'block-chain' - it's the manner in which it has created hype among tech circles.

Techies look at it from a tech perspective, financial types from a financial perspective.

From a financial perspective, BTC is downright bizarre. Even the 'threat of disruption' aside, it doesn't make a whole lot of sense.

But from a tech perspective, is uber-cool.

So it's hard to have a discussion about BTC because almost nobody talks about it as a financial instrument - it's always about tech.

The amount of systematic hype is surreal - constant streams of articles etc. etc..

It's going to get bigger before it gets smaller as the hype is just starting to reach mainstream.

[wpietri]

Excellent point.

I am really impressed with it as a technology. It's absolutely brilliant.

But when I put on my business hat, I'm still not seeing it. For quite a number of years I've been asking for proof of daily use among significant market segments. For just as many years, I've been getting, "OMG THINK OF THE FUTURE!!!" as an answer.

I have some hope that we're at peak BTC hype, though. A lot of the enthusiasm (and the bigger scams) seem to have moved on to smart contracts, ICOs, etc. It's much harder now to ignore Bitcoin's years of not being very useful.

[alexasmyths]

BTC valuation is pretty strongly correlated to it's Google Search popularity.

There are an amazing number of people who own a little BTC and are in on the hype.

And this is like Facebook 2007, where I already thought 'everyone was on it'. No. The 'rest of America' is just learning about it - then the 'rest of the world' - and then the other 3 billion or so people who are barely on the Internet. FB grew for quite a very long time after 'we thought we all were on it'.

BTC though is tricky to access, my Mother is on FB, she will never buy a Bitcoin.

But I do believe BTC has a lot of popular hype to ride yet.

I suggest it will start to wane quite a long while after the press stops talking about it daily. A lot of people will just 'hold' so I don't think we'll see a crash though.

There are caveats:

The press is notorious for flipping on things. They could turn on BTC and make enough noise. Since it's highly speulative, it's easy to see a flood of people rushing out to 'cash in'.

And of course governments: A Scandinavian country could opt to regulate it, or treat it like 'real currency' and require transparency etc. - which for any other currency would be 'great' because it's validation, but really, the whole point of BTC is anonymity etc. - esp. for black market transactions, so really, it's not a good thing.

It's a brilliant and fun excercise we're going through, but since it's doubtful BTC can ever be an actual currency or medium of exchange, I really wish we would 'move on' because it's not really a useful thing in the end.

Somebody may come along with an actually useful crypto - but i don't think that BTC or the ICO's we're seeing are it.

[haywirez]

People also don't appreciate that Bitcoin is infinitely divisible, so the total numbers are meaningless. At the same time, inflation is super low and decreases over time, giving it more and more edge over nation-state currencies.

[wpietri]

Isn't inflation strongly negative? In the link I posted above, Fred Wilson exhibits behavior typical of deflationary times: people hoard the currency.

That's a strong disadvantage vs nation-state currencies, which have clear inflation targets (generally in the 0-2% range) and the ability to hit them. It may be great for speculation, but it's terrible for a medium of exchange. For that, you want the value to be constant or very slightly decreasing.

And I don't think that's fixable. If the Bitcoin supply is limited but those tokens are used in a world of continuous economic growth, then Bitcoin will always be deflationary.

[sidko]

Bitcoin is NOT infinitely divisible. Each Bitcoin is divisible into 10^8. There were reasons to choose this number and isn't arbitrary [1].

[1] https://bitcoin.stackexchange.com/questions/31933/why-is-bit...

[wwwtyro]

It is arbitrarily divisible. Fitting inside 64 bits is convenient, but hardly an insurmountable engineering challenge. There's libraries that handle this sort of thing with ease.

[brianwawok]

Ok put your entire life savings in BC, i will put mine in the SP500. Lets see how things look in 40 years?

[charlesdm]

Honestly, and this is coming from a Bitcoin bear, it will probably generate outsized returns in comparison to the S&P500 over the next 2 to 4 years. If it truly is a bubble then it will have a long way to run. The market cap at the moment is tiny, but probably too high to disregard now, and if institutional money starts buying in, it can probably easily go 10-20-30x again.

Don't forget it's still relatively hard for average folk to purchase crypto. But once you have acceptable ETFs and funds that you can purchase at a click of a button through your brokerage account -- a lot of people (and pension funds!) will probably allocate 1-2% of their portfolio to crypto. That is 1-2% of $300tn or so, or 30 to 60 times the amount of money in the space today (in terms of market cap).

If you think this bubble will run for a while, then I also think it's not unreasonable to assume you can multiple your initial investment by 10x by investing in either Bitcoin or Ethereum. But that's my opinion (and this is obviously not investment advice).

Whether it'll be around in 40+ years, I don't dare make that bet. But no one is saying you can't move money around to the better investment opportunity at a specific time.

[Fjolsvith]

How has the SP500 compared to BC since its inception in 2009?

[brianwawok]

That is the wrong measure. The counter argument to that is something like "How did going 100% all in to pets.com in 2000-2001 go?"

You cannot judge future performance by past results. That is the fundamental thing you need to understand before investing. Zoom in on the right part of 2000, and pets.com and a really nice upswing. There have been other stocks that had a nice and steady growth for years and years.. before exploding.

[alexasmyths]

The SP500 has been growing consistently, has for quite a long time, and it's a bet on the future growth of the American economy. There will be ups and downs, but by enlarge, steady growth.

BTC has been on a wild ride, and could evaporate at any moment. I don't think it will, but it could, since there's no reason for anyone anywhere to own it.

There's no question the safer bet is S&P 500.

Now - in the range of outcomes, admittedly, the BTC owns the higher end of the spectrum - no doubt, there are possibilities where BTC completely outraces the S&P, however, it also owns the lower end of the spectrum of outcomes, where a lot of those outcomes are 0.

[wpietri]

It surprises me to see this downvoted.

One fundamental of investing is that stocks represent an economically productive asset. In contrast, commodities just sit there. If I buy a chunk of a company, that company is working to become a bigger, more effective, more value-generating company. If I buy an ounce of gold, it stays an ounce of gold.

Index funds represent a broader bet still. Because they're composed of many things, volatility is lower and you're betting on whatever the common factors of the index are. So buying an SP500 index fund could easily be said to be a bet on the American economy.

And in many ways, Bitcoin is worse than gold. The historical value of gold is known. Bitcoin is new. Gold's floor price is set by the practical use value of it, both industrial and decorative. Bitcoin's floor price is that of bits. That is, zero. The gold market is broad, with producers and consumers all over the world, and open markets in many countries. Bitcoin is effectively controlled by a relatively small number of people and requires careful long-term cooperation of those people.

So it seems pretty obvious to me that Bitcoin is much higher risk. Which can mean higher reward. But as anybody who has shares in a failed startup knows, higher risk doesn't guarantee higher reward.

[Fjolsvith]

I beg to differ with regards to your valuation of Bitcoin. It, like gold, has a practical use value. It, also like gold, has a value attributed to it due to it's rarity. However, Bitcoin has an advantage over gold, in that it can be traded without having to be transported _at cost_. This is why so many people are bullish on it.

Oh, and so many people "who are in control of it" have too much of their own money invested into it to allow it to fail.

[alexasmyths]

Ya. As per my comment below, it's a) the dissonance between a 'tech view of BTC' and an 'economic/financial' view of BTC and b) the religious nature of BTC hype. And by 'religious' I don't actually mean 'religious' rather, the old 'religious arguments over programming languages and frameworks' kind of trope.

Commenting against BTC is sure to get you down-voted.

It's ok though, it's just one of many HN quirks we're all used to :)

[brianwawok]

It doesn't surprise me. HN is very pro tech, even when they don't understand the foundation of what they are betting on.

I own 1 share of a SP500 ETF. That gives me an actual fractional ownership of Apple. That gives me an actual cut of the dividends of real american companies. It has an actual meaning of what you own.

What does 1 BTC give you? What is the fundamental purpose of a BTC?

Tulips went up in price too, but they were not a very smart investments. Tulip chases do not win in the long term.

[koonsolo]

Having your life savings in BC is just as stupid as having no cryptocurrency at all.

[brianwawok]

Having your life savings in cold fusion juice presses is just as stupid as having no stock in the above at all.

You need to think of the reason for an investment. If you are set for life, and want to gamble on it... cool, buy BC. You could also go to vegas, or bet on horses, or start a HFT trading shop. All are reasonable ways to gamble for fun and possibly profit.

If you are looking to build a nest egg to retire when you are old, it is very unlikely that BTC is a good route for that ;)

[koonsolo]

Investing in BTC is like investing in startups. And a lot of people are making money with that. And so are a lot of people in BTC.

Please don't compare this to Vegas, where the odds are known to be against you.

Have a small/tiny % of your investment in cryptocurrency is a smart move.

[brianwawok]

> Investing in BTC is like investing in startups.

So something that only people with significant incomes and the ability to lose 98% of their investments should touch it? I am fine with that definition. Not sure most BTC investors would qualify to invest in a startup though (see qualified investors law)

> Please don't compare this to Vegas, where the odds are known to be against you.

The odds are against you in many markets. I would argue the odds are against you in BTC. It is a zero sum game, and there are many people looking to steal or scam. In a zero sum game with scammers, your EV is negative unless you yourself also want to steal or scam (which is a different conversation to head down.

> Have a small/tiny % of your investment in cryptocurrency is a smart move.

Why? Should you put a tiny % of your investment in horse races? For most people, a small bet with an unknown payoff is not something they should touch.

[cirgue]

Deflationary assets can be good investments but are terrible mediums of exchange. The Fed has an inflation target and not a deflation target for a reason. Or did I miss the sarcasm here?

[pointsphere]

Yes, the number of coins in circulation decreases over time.

But the precision can be increased from the current 8 decimals. Even if all but 1 Satoshi/0.00000001 BTC is lost, it could still be split into smaller units, or used to bootstrap a chain with higher precision. It can be fixed as required.

Volatility decreases as the number of users and therefore liquidity increases. It should decline further with rising use of the network for payments instead of a pure store of value.

I agree that "viability as a payment system" is where Bitcoin is stuck right now, but scaling the system is the stated goal of all current Bitcoin developer groups. One of them will get it right eventually.