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by nabla9 3076 days ago
The 'coin part' already has a name and it's not a new innovation.

Large part of financial innovation in the last century is based on the idea that is now called coin. It's called derivative.

If you have something valuable that can be traded, it can be made into derivative and traded in existing markets. Practically anything, physical things, electricity, indexes, future events or prices, insurances, storage capacity, contracts, mortgages, price differences, ... only the sky is the limit.

New technological solutions can hopefully expand this existing trend but it's already very efficient.

2 comments

> If you have something valuable that can be traded, it can be made into derivative and traded in existing markets

Nitpick, though an interesting one. What you are describing is "securitization" more so than a derivative.

There are essentially five things you can do in finance: move cash flows in time (e.g. lending), move them between holders (e.g. buying and selling shares), chop them up into securities (e.g. an IPO), assemble them into portfolios (e.g. CDOs) and write derivatives against them (e.g. insurance). The newcomer is securitization. It first arose in 900 CE in the Song Dynasty in common memory through the 1602 Dutch East India Company public share offering.

ICOs look like a combination of the first (buy a token now, redeem it for services later) and third (they look like shares, though what exactly we're chopping up continues to evade me). Bitcoin itself looks like number two minus any cash flows. Or, more simply, gambling.

Good point. Securitization is the process of creating new financial instrument for an underlying illiquid asset. As a result you have underlying and derivative.
Derivatives are just instruments to bet against or for market trends of assets. There are futures contract, options, swaps and other derivative vehicles for every market, be it cryptocurrency or forex. What makes you think the coin part represents that derivative?
A derivative is a security with price that depends on the value of the underlying asset.

Bitcoins are derivatives for the blocks in the blockchain. You find a new block and you have a coins. Bitcoin value depends on the value of the underlying, the blockchain network.

Bitcoins are asset, plain and simple. Fiat currencies are derivatives, gold is not. There are derivative instruments on top of gold that let you make money on its market trends, but saying gold is derivative is totally meaningless. The bitcoin protocol gives bitcoin asset value. Now the speculative price market is a derivative, but that's not bitcoin, that's an instrument for people to make money on top of bitcoin.
It's sometimes said that fiat currency is a derivative, since removing bonds/T-Bills will collapse the currency. However, in practical reality, fiat currency is fiat, a decree with no underlying asset.
> The bitcoin protocol gives bitcoin asset value.

* sigh *

You can't math something into having value.

Bitcoin is structurally deflationary fiat, but it's still fiat. It's not scarce if no one wants it.

Why would people want it? Possibly because mathematical limits suggest it's going to be a store of value -- people want gold because of a kind of civilization-scale madness. But Gresham's law might just kick in, everyone hoards bitcoin to the max and then it has no value because it has no liquidity.

Thus the value of bitcoin is either zero or infinity.