I get that anything is worth whatever someone is willing to pay for it. That’s besides the point. My point is, beyond speculation, what do crypto coins represent?
I also understand that the value of the US dollar is being questioned almost as much without the backing of gold.
But what I really want to know is what is at the foundation level of Bitcoin that people are buying into?
I have a basic understanding of the blockchain, etc. I sold 1BTC in 2017 for $1200 when I thought that was as high as it would go. At this point, at over $100kUSD and rising steadily, what is the $ limit and what is that limit based upon? I thought it was based on the value of mining to check transactions but this seems… not worth $100k to me.
I’ve been thinking, the only tangible value I personally see in Bitcoin, because it’s not really being used as legitimate currency, is for criminals. By now, there must be trillions of dollars in BTC acquired by criminals holding corporations hostage. When you’ve got people like Trump involved (either explicitly or by way of manipulation) with an executive order to establish a crypto czar, this suggests to me that he’s creating pathways for bad actors to more effectively gain more wealth. These are the people who are most excited in Bitcoin, beyond speculation.
I mean, there’s little to nothing on the up and up with crypto, right? It’s a scam. Right?
Please, factual answers only. I’m looking for someone to dispel my speculation with genuine economics of the matter.
TL;DR: It’s worth whatever a greater fool is willing to pay for it.
Bitcoin is a cult, therefore it’s invaluable to the cult members. In reality they’re all multi-level marketing pyramid schemes which is what the stock market has degenerated into as well. The former just has more overtly obnoxious shady unethical proponents. It’s easier to succumb to greed, selfishness, and seclude oneself from the rest of society by simply buying something that confirms one’s fallacy riddled beliefs than it is to question oneself and actively improving society with all of Earths inhabitants, ecosystems, and posterity in mind. Technologically humankind has made great strides, but mentally the majority still thinks like cavemen.
Crypto Cult Science
“Money corrupts; bitcoin corrupts absolutely. Disregarding all of bitcoin’s shortcomings, a financial instrument that brings out the worst in people—greed—won’t change the world for the better.” —https://www.arscyni.cc/file/crypto_cult_science.html
At its core, it represents an irreversible proof of digital existance. Blockchain is the only technology that can do this, and it makes it more valuable than you’d think.
Bitcoin itself has first mover advantage, and that keeps it on top. It’s hard to point to any particular feature of bitcoin that warrants this first place position, aside from pure decentralization of holdings.
The irreversibility of blockchain transactions is very underrated to most of us, but think about it… no bank or government, even with military involvement, can reverse a transaction or seize assets. For most of us in nations with sophisticated financial infrastructure and govt, this doesn’t sound like a big deal, but for the majority of the world, this is a huge deal.
It also represents freedom from fiat. Since the beginning of currency govts have used it as a means to extract wealth from the populace. Printing, confiscating, and controlling as it pleases them. We’ve historically used gold to hedge against this, and there’s even instances in history where govts have devalued and confiscated gold as a means of supporting itself. Bitcoin brings all the freedom of gold, with all the benefits of the digital world.
Awesome. I appreciate this perspective.
Can you dig a bit deeper into the benefits for normal people that an irreversible transaction offers? To me, this seems like a detriment. Like, if I sell something on eBay and it turns out to be broken or fraudulent, PayPal can reverse the charges for me. Actually, I have a real world example of buying sneakers online that never arrived and had my credit card reverse the charges for me.
It’s not a benefit in the example that you provide. It’s a benefit to the seller for sure. For that type of transaction it benefits you with lower prices due to retailers not having fraudulent sales result in chargebacks. This is the reason you’ll see it adopted by merchants (not Bitcoin, but stablecoins on Solana or Eth L2s).
The benefits on the consumer side are around freedom of money - no seizures, no bank runs, no fraudulent cc charges (but added key management risk), no inflation (eh, but added volatility rn), instantaneous worldwide transfers (that’s where you see the remittance market buying in). Also new decentralized financial markets which bring better yield rates than banks.
It’s a little more gray on the consumer side and I would expect services built on top to add insurance, escrow, and custody (exchanges and banks) type features.
The other place it’s making waves is with larger amounts of money. Hedge funds, venture capital, and higher net worth individuals. It makes moving capital around much easier.
So in that realm we see growth with it making its way into traditional markets - like stocks and commodities. Instantaneous settlement in this world is huge. Stock transactions can take anywhere from a day to 3 days in the tradfi system. On-chain we make atomic, irreversible, censorship resistant transactions instantly.
You can already see companies launching stock backed tokens on chains now. Just a couple weeks ago StockX went live on Solana. Anyone can buy US stocks, anonymously, with no onboarding requirements. This disrupts global capital markets.
So in summary, the benefits down at the consumer level focus more around access to new, secure products for earning yield and availability of alternative inflation-free assets with instant availability.
Also, privacy. This world really re-enables us as consumers to have some financial privacy. That’s another whole rabbit hole tho and my thumbs are tired.
Beanie babies 2.0.
The US dollar actually is tied to something of value: it’s the format the us government will take their taxes in or else they will increasingly use their powers as a monopoly on fhe legitimate use of force until you give them what you owe
Crypto is only worth what others will pay for it. Which is why I don’t own it
Removed by mod
This is actually quite good. OC? / Source?
Removed by mod
i’m glad you said that, i was confused if this was either an apocryphal from ayn rand… or the great nagus, who knows.
Removed by mod
My point is, beyond speculation, what do crypto coins represent?
Nothing.
One could argue envriomental damage or power consumption, which is of almost no relevance to a currency, but thats the imprint they leave on the world because of their existence.
Yeah, this is what I came here to mention. Environmental damage and power consumption are what bitcoins cost, but those costs don’t give bitcoins any inherent value.
It’s actually a pretty appalling example of human ingenuity. We’ve managed to invent something that has a disproportionately terrible impact on every person on earth through its environmental effects, while simultaneously producing no practical value to anyone other than those wealthy enough to be in control of it.
This is not the same for all crypto currency, but a bitcoin represents a “proof of work”. When people “mine” bitcoins, they are consuming computational resources, and when they find a bitcoin, it is a certification of the work that was done to find it that becomes the value of the coin. And then, as others as mentioned, people just agree that that work has a certain amount of monetary value. But the proof of work is what limits the supply and allows that value to exist. 3Blue1Brown has a really good video that goes into the technical details if you’re interested.
Thank you for being one of the few to take me seriously and offer a thoughtful response.
I can understand now the value of a token that represent some amount of effort that is limited in its supply. As “promised”, no other bitcoins will ever be made. So this alone makes it worth something. The fact that it represents some amount of effort achieved does seem to give it some validity. Although, IMO, certainly not $100k worth.
I’ll need to think this over some more and maybe update this post with some more thoughts on the future of the coin.
The key feature is that there’s a mechanism that limits supply. Other than that, value only exists because enough people agree that it has value. Fiat currency is exactly the same in this regard.
I think your questions indicate that you don’t have sufficient understanding of how “ordinary” money works. It’s just a promise of being able to exchange it for goods & services in the future, and its value hinges on people trusting that promise.
So you know how fiat currency is backed by nothing more than the fact the government says it’s valuable and we all agree to that? Crypto is sort of like that except without the government bit
But I can buy anything with fiat curency and with bitcoin I can basically buy nothing. And I never will be able probably, bitcoin is too slow to be used as an actual curency to buy common things like groceries
Fiat currency is backed by taxation, which can only be paid in the very same currency that the taxer prints.
📺 Your Taxes Pay for Nothing
Money is an IOU. Bitcoin is an IOU but the ledger is decentralized rather than in control of banks.
Once you start seeing the value of any currency as one of itself rather than trying to express it in a different value system, a Bitcoin needs nothing but its inherent worth as payment.
That said, because we all still use traditional forms of currency, a Bitcoin is now worth, say, 112000 breads. It’s worth two new mid-sized cars.
Value is based on scarcity and demand. If something is hard to come by, like bitcoin currently is, the price is hardly affected. But if demand is higher than the supply, prices skyrocket. Demand dies down the moment people feel like crypto is a scam. Supply will stop since Bitcoin has a physical limit (of the top of my head 21 billion). It is no longer realistic to start mining the stuff and receiving it for payment is just silly at this point.
But to flip it around, what is the value of a US dollar, without expressing it in terms of another currency? It used to be tied to gold. You can’t really state one dollar is equal to, say, one bread. The price of bread has fluctuated. Or, has the value of a dollar fluctuated and has a bread always been worth one pair of socks?
Baseline: everything is worth one of itself and trying to express it in another value system is just a snapshot, a moment in time which will have changed soon after.
Thank you for a real answer like I specifically asked for.
The fact that Bitcoin does represent some amount of effort and that there’s a limited supply does seem to give it some value. While there is a theoretical finite resource of gold, it’s still being discovered. Which, theoretically, makes it less valuable than a predetermined finite resource. And, the US dollar continues to decline - almost by design during this administration.
How BTC is used today and in the future can continue to be debated but I’m satisfied in understanding it’s a limited supply of something that represents some amount of effort.
If you haven’t yet, I can really recommend reading Satoshi’s whitepaper on what Bitcoin is really for. The fact that crypto is now used as an asset to trade in order to gain ‘old’ money really spits in the face of the ideology of a decentralized ledger. And the fact that a dollar value is assigned to it means it becomes the target of a lot of scams. The fact that a decentralized ledger also means greater anonymity has made it a popular target for illicit activity as well.
But by design, it really only wants to take power away from banks in order to stop devaluation, make it impossible to charge people for transactions and to put control of assets into the hands of individuals. The amount of money currently in circulation is way more than the actual physical amount available, because banks can lend you money they don’t even have. Bitcoin would make this impossible.
Paper money isn’t worth anything innately. Gold isn’t either. Not diamonds. Nothing has innate worth except food, air, drinking water, and possibly shelter.
Gold and diamonds have intrinsic value
Gold is needed for computer parts, and diamonds are used for cutting
They are more than just shiny
Their value will “never” hit 0 (Bitcoin would be worthless without gold for computers)
Yes, we could find substitutes in the future, but for the substances to not be useful somehow is so low and would have to be an apocalyptic scenario. And in an apocalypse, gold could even be worth more.
…Except that gold, like the dollar, and like bitcoin, has the value it does because people believe it does. Sure, gold’s a great semiconductor. But if that was all we used it for, the price of gold would be a tine fraction of what it is. Diamonds are great as abrasives and in certain cutting applications, but that’s all synthetic now. Natural diamonds only have high value because of artificial scarcity and advertising.
There is a limited amount of Bitcoin, and some of it is lost in forgotten wallets, so the total volume is constantly falling. This may partially increase the price.
But in reality, as in any speculative market, the price of bitcoin depends mainly on faith in it and speculation about world events (some kind of cataclysms, regular statements of this or that person about cryptocurrency, etc.)
The main real value can only be found in countries that are disconnected from SWIFT. However, almost no one appreciates this because there are only 5 officially disconnected countries. However, if this list continues to grow, cryptocurrencies (including Bitcoin) will become more prevalent in international transactions.
The cost to produce new bitcoin doubles every 4 years ( a bit more because new hardware is added). This drags up the price of all the dormant bitcoin.
There have been no new Bitcoins for a long time. Everything that miners mine is just a transaction tax. In fact, to describe the reason for bitcoin’s growth, you need to understand what money is all about. Not just crypto money, but in general. In short, the price is rising because many (including miners) believe that it will rise and do not spend bitcoins. In a normal economy (except Japan), you could just print more money and the price would drop because the currency unit would depreciate. But bitcoin is a mathematical model, and it has a limit. You will not be able to create more Bitcoins than you have already created in any way. Therefore, the belief in the growth and retention of the currency reduces turnover and the price increases. If any of the whales withdraw their entire stock in one day, the market will fall for many years.
UPD: Excuse me, I really made a mistake. You can still mine 3 bitcoins per block… but to be honest, 3 bitcoins for a whole pool is only an eighth of the original 25 bitcoins per person. In general, mining has not compensated for mining for a long time.
UPD: I checked just in case. The average commission payment is now 1.5 bitcoins. almost half of the reward
UPD: I will reveal my thought even more. An ASIC at 1160 Th/s costs 33k dollars and consumes 11 kW. Even in my region with a low-cost light (only 5 cents per kW), such an asic will be able to bring only 58 dollars per day. And it will pay off only in 1.7 years. This is the moment when the miner will FINALLY stop working at a loss. And this is in ideal conditions without increasing the complexity of the network and other things. So all the miners who don’t buy huge amounts in bulk barely pay for their business.
mining has not compensated for mining for a long time.
The average commission payment is now 1.5 bitcoins. almost half of the reward
I think you have the wrong units. The average fee is 1.5 USD.
And it will pay off only in 1.7 years
This is quite quick. Last time I looked the it was around 3 years. Most of the cost comes from buying the hardware.
I think you have the wrong units. The average fee is 1.5 USD.
https://bitinfocharts.com/ru/comparison/bitcoin-fee_to_reward.html#3m
Percents you can calculate self. That’s not for all blocks, but in a day.
UPD: This is not for every block, of course, but for the whole day. I was wrong about that. Maybe really 2%
