> But, most transaction costs (credit card fees) that I pay are already rolled into the price of things, so I don't benefit by purchasing them with Bitcoin.
It's not common yet, but I have in fact saved money by buying with bitcoins, because the merchant passed on some of the savings.
>Isn't it just easier to buy things with Dollars?
Sure, if you're allowed to, and you have that preference, why not? Bitcoin can facilitate the circumvention of censorship (a la Wikileaks). And once you have bitcoins, sending them is faster than paying with a credit card online.
>Doesn't it require increasingly more capital to mine coins and to maintain the ledger?
Yes, if you ignore hardware advances. It might even be true if you don't ignore that.
>What happens when the value of a coin is less than the mining costs or ledger maintenance?
There are transaction fees that go to the block miner.
>Or, does the coin just keep continuing to increase in value?
Hopefully not too quickly!
>what's to stop people from just using another crypto-currency?
Network effects. People do use other crypto-currencies. Just not as much. For now.
>And, what is the 'value' of a coin? The article implies that the value is created by the users' trust in the value. But, is that how currencies generally work? I had assumed that currencies either have tangible value, like precious metals, or that they are abstract derivatives of another's debt (government or people).
Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion.
There are historical examples of currency which was neither a debt derivative nor an intrinsically useful object being used as currency.
Ultimately, anything sellable is "worth" what other people will pay for it. Bitcoin provides a means of transferring information in a cryptographically signed manner. We happen to use that fact to transfer information about value. Other people are willing to buy bitcoins. The price is capped by the fact that there is a finite number of bitcoins and a finite number of people. Beyond that, it's pretty much new ground we're breaking here.
Bitcoin is not perfect. I don't know the future. But if you have other questions, I'm happy to answer them from the perspective of a bitcoin holder.
> Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion.
I still don't understand how economists can say that BTC has no "intrinsic value," so should be worthless, but the fiat currencies around the world are just dandy.
The whole concept of "intrinsic value" is nonsense. If you can make a Bitcoin transaction faster, cheaper, and with fewer people knowing about it (if you value anonymity), then BTC has value. You can send Bitcoin to someone overseas without anyone else knowing. How powerful is that?
> Ultimately, anything sellable is "worth" what other people will pay for it.
Precisely. I wish we could teach people this before they dismiss Bitcoin for unfounded reasons.
> I still don't understand how economists can say that BTC has no "intrinsic value,"
It really annoying to me that people keep putting up this straw man. What economist is saying that BTC has no intrinsic value and is thus worthless? Really? You learn in ECO101 that currency only has value because of what you can exchange it for. Money demand is not a fringe concept in economics--its a core concept that anyone in any branch of economics that deals with currency and money thinks about several times a day.
The fact that you can only do business with the vast majority of american society in USD is what gives the USD value. We got to that point because the US government said that US currency should be acceptable to pay off any debts in the US, including taxes. The fact that dollar exists and is the common currency in the US is tied to the law, but its exchange rate and purchasing power is (aka its 'value') is tied to other factors completely.
You can make the argument that the long term value of BTC is zero because there's nothing that guarantees it continued existence, like US law guarantees the existence of the dollar. But thats totally separate from the value and exchangability of BTC to US.
> You can make the argument that the long term value of BTC is zero because there's nothing that guarantees it continued existence, like US law guarantees the existence of the dollar.
The Internet guarantees the continued existence of BTC.
It's not just the taxation (which is true), it's the fact that they are backed by a particular entity. In the case of USD, it's the United States government. Dollars may not be "backed" by anything tangible, but they are accepted because the US is (largely) a trusted entity. That's what makes USD useful to people internationally.
Bitcoin doesn't have the advantages of having a government backing it, but some would probably argue that that is an advantage.
Considering how many trillion definitions people may mean when they say a currency is "backed by" something, I don't think your explanation is an improvement.
For that reason, I recommend listing the specific things that make the USD valued: in this case, the need to pay USD in taxes, and a very wealthy entity (US government) prefers to trade in that currency, or whatever specific thing you mean with "backed by" in that statement.
Intrinsic or not isn't really the question - it's not really a binary.
I'd rather have bitcoin than Zimbabwe's fiat currency.
Taxation definitely gives legitimacy, but so does the ability to pay for things anonymously. If enough people are willing to take a currency, than it gain value - period. The gov't wanting it in taxes is just a really big provider of liquidity providing those network effects.
It's not a question of legitimacy, isn't about demand. Currency is a token. You need tokens to play the game. The difference with taxes is that you don't choose to participate. You must play, so there is always demand for tokens.
Yea, but demand isn't all created equal right? I'm trying to capture more than raw demand - unless we're just defining terms differently (which I suspect)
>> What happens when the value of a coin is less than the mining costs or ledger maintenance?
> There are transaction fees that go to the block miner.
The issue here is that they go to the person who mined the block originally, but they aren't passed on to those who are simply running the client to maintain the ledger. With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees. It provides no incentive to run the full client to help the network confirm transactions.
You are mostly correct, but I'd like to make some clarifications.
>they aren't passed on to those who are simply running the client to maintain the ledger.
The word "maintain" is ambiguous here. When I run bitcoin-qt on my computer, I have the whole blockchain locally, and I relay blocks created by others, but I do not "maintain" the blockchain in the sense of adding or subtracting from it beyond the transactions I create myself to spend my own money.
>With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees.
Correct, so I don't mine.
>It provides no incentive to run the full client to help the network confirm transactions.
Again, "help" is a bit ambiguous. When I run bitcoin-qt, I relay transactions, but I do not contribute any processing power to confirmations. "Confirming" a transaction means including it in a block, an d only miners create blocks.
Now, it is a bit of a problem that there is little to no incentive to run a validating client, i.e. one that accepts transactions, verifies that they are cryptographically and monetarily valid, and passes them on to other people. We shall see if another cryptocoin solves this issue.
Thanks for that, I was struggling for the right words when I was writing the post.
I would really like to see another crypto currency come out that addressed the validating client issue. I think that could also get more people interested in it too, since they would be earning money just by running the client.
The miners are the ones who are maintaining the ledger. People just running the client and downloading the full blockchain are basically just duplicating the data (or using it to verify the full history for themselves), and maybe providing some bandwidth to others who want to do the same thing, they don't contribute to the transactions in any way.
It's not common yet, but I have in fact saved money by buying with bitcoins, because the merchant passed on some of the savings.
>Isn't it just easier to buy things with Dollars?
Sure, if you're allowed to, and you have that preference, why not? Bitcoin can facilitate the circumvention of censorship (a la Wikileaks). And once you have bitcoins, sending them is faster than paying with a credit card online.
>Doesn't it require increasingly more capital to mine coins and to maintain the ledger?
Yes, if you ignore hardware advances. It might even be true if you don't ignore that.
>What happens when the value of a coin is less than the mining costs or ledger maintenance?
There are transaction fees that go to the block miner.
>Or, does the coin just keep continuing to increase in value?
Hopefully not too quickly!
>what's to stop people from just using another crypto-currency?
Network effects. People do use other crypto-currencies. Just not as much. For now.
>And, what is the 'value' of a coin? The article implies that the value is created by the users' trust in the value. But, is that how currencies generally work? I had assumed that currencies either have tangible value, like precious metals, or that they are abstract derivatives of another's debt (government or people).
Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion.
There are historical examples of currency which was neither a debt derivative nor an intrinsically useful object being used as currency.
Ultimately, anything sellable is "worth" what other people will pay for it. Bitcoin provides a means of transferring information in a cryptographically signed manner. We happen to use that fact to transfer information about value. Other people are willing to buy bitcoins. The price is capped by the fact that there is a finite number of bitcoins and a finite number of people. Beyond that, it's pretty much new ground we're breaking here.
Bitcoin is not perfect. I don't know the future. But if you have other questions, I'm happy to answer them from the perspective of a bitcoin holder.