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My response to Peter Schiff

My response to Peter Schiff

Bitcoin Reddit

Reddit / Bitcoin Reddit 46 Views

1. Bitcoin has no intrinsic value.

Currency is basically an accounting system. Good currency should have little to no intrinsic value, otherwise its value can be influenced by demand for unrelated things like industrial processes, or technological or industrial progress could be hampered by the high price of an otherwise useful material.

One reason gold is a good store of value, is that unlike things like oil or even palladium, it has very little intrinsic value; its scarce and durable, but not particularly useful. Demand for jewelry is based largely on the value of gold as a store of wealth; if gold was as cheap as other metals, we wouldnt be using it for jewelry, other materials like Titanium are actually superior. Its just like diamonds; synthetic diamonds are objectively superior to natural diamonds, yet less desirable for jewelry. Why ? Its not the inherent properties of the diamond, its simply because synthetics are cheaper. People want gold jewelry because gold is expensive, not the other way around.

Inherent value of gold is limited to some industrial and electronic applications, which would probably make it about as valuable as silver and I fail to see how that is reassuring if you put your wealth in it at current prices.

That said, even though Im fine saying bitcoin has no intrinsic value today, Im not convinced bitcoin will not get intrinsic value. Time will tell whether or not there are good non-monetary usecases for permanent, tamper proof storage of (small amounts) of data in the blockchain. Using the blockchain to register and transfer ownership titles for anything from land or shares or IP or identities and many other things are being explored. To be able to register anything on the bitcoin blockchain, you need bitcoin to pay transaction fees. If this becomes an intrinsic value of bitcoin, it wont make it a better store of value though, just one that may be more valuable.

2. Bitcoin isnt scarce, because there are 1000s of crypto currencies.

Bitcoin is opensource code, anyone can fork it. But forking the code doesnt replicate its properties. Aside from other network effects, you can not replicate its security (ie PoW mining) which is directly tied to its value. Its a feedback loop. If a new fork has no value, it will not be mined sufficiently, therefore wont be secure, which further reduces its value. To overcome this chicken and egg problem, you would need to demonstrate substantial advantages over bitcoin. More over, most forks build on the existing blockchain. Meaning anyone owning bitcoin today will also own tokens on any future forks.

Secondly, for a variety of reasons, its very unlikely someone will build a significantly better bitcoin, rather than improve bitcoin and building layers on top of bitcoin. Bitcoin solved a heavily researched, decades old computer science problem (digital scarcity or the double spend problem), solving it was a major accomplishment, the likes of which dont happen very often. None of the altcoins launched since have really improved upon this breakthrough; all they have done is made compromises in key areas like immutability, decentralization or security to obtain advantages elsewhere like turing completeness, lower latency or better scaling. They may be able to do things bitcoin isnt designed for, but they are not "better". They are at best different, at worst, utterly pointless.

But if someone some day does come up with a break through idea that is demonstrably better than bitcoin today, without making big compromises elsewhere, then there is no good reason we wouldnt implement this new idea in bitcoin. Its software, we can upgrade it.

Lastly; unlike bitcoin, gold really isnt very scarce. Its only scarce on the surface of our planet, because almost all of it sank to the core when our planet was still a hot liquid ball of molten rock. What little we have access to, mostly came from asteroids hitting our planet after it had cooled. Asteroids are plentiful -to put it mildly. Mining them may take decades, but not centuries and is inevitable. We may not even mine them for gold, things like water and construction metals are probably more valuable in space, but if we start mining asteroids for those things, gold would just be a waste product. If people on earth are still dumb enough to use that waste product as a store of value, sending it back to earth isnt going to cost a lot. Its only sending stuff TO space that is difficult and expensive because it requires enormous amounts of energy. Sending stuff FROM space is pretty trivial by comparison. Besides, we will want to reuse our spacecraft, so every time we send mining equipment up, that space craft will return to earth eventually. We are not going to bring water or iron or aluminium down; why not fill it with stuff thats useless and abundant in space, but expensive and rare down on earth? Like gold. The question is not if, but when this will happen, and the timescale is probably just decades.

3. Bitcoin is speculative and too volatile to be a reliable store of wealth.

This is true. Bitcoin is so new, that we have no way of objectively evaluating its price. We dont have a 4000 year history, we have no reliable projections for the future.

Imagine we where to discover a new metal on the moon, one that is as rare as gold, has all the same properties of gold, but is blue in color. What would it be worth? No one would really know until we started trading it, I would expect its price to fluctuate enormously, and only time will tell if people would eventually hoard it as an alternative to gold.

Likewise, bitcoin is worth as much as people are willing to trust it, and I can plausibly argue for anything between $10 and over $1 million. Therefore, I would not recommend anyone invest more in bitcoin than they are willing to lose. But the same applies to anything else, including gold. Its just that with bitcoin, both the downside and upside are orders of magnitude higher than with gold. The sensible way to minimize your risk is limiting your exposure.

4. Bitcoin is too volatile to be used as a unit of account, no one accepts bitcoin.

This is even more a problem for gold. No one draws a salary denominated in gold. Pretty much no one accepts physical gold for payment anywhere. Even when using intermediaries, because compared to bitcoin, gold is so impractical, hard to measure, easy to forge, cant be sent over the internet ..

The unit of account problem is trivial to overcome with technology, for as long as fiat currencies are more stable, you just denominate prices or salaries in that more stable form of currency. Companies or individuals who want to avoid price fluctuation risks can use payment processors that shield them from it.

But just like you can issue fiat money backed by gold, you can issue stable coins that are backed by crypto currencies. Look up DAI to see a working example in use today.

BTW; you keep saying you dont really accept bitcoin on your own website, because you use a payment processor that gives you dollars. Do tell us though: why dont you accept paypal or credit cards through a payment processor? Could it be that bitcoin has some properties that even when using a payment processors, credit cards can not provide? Properties you actually depend on when selling gold, like no risk of fraud by being a hard currency, irreversible with true immutability?

5. Bitcoin is risky, because governments can ban it

They can, and for years I have predicted they eventually will try to ban it. However, they can only truly control fiat on/off ramps. So banning bitcoin would detach it from the fiat system, but governments can not block anyone from owning or transacting in bitcoin. Thats the whole point of bitcoin. Governments banning it, may have serious short term consequences on bitcoins price, but in the long run, it will do something else. It will:

- Prove why we need unstoppable, censorship resistent money. Particularly if/when fiat money fails.

- Prove that bitcoin can indeed resist even government censorship, which to me, makes it a lot more valuable.

- Ironically, spur adoption. If fiat on ramps are closed, the only practical way to obtain bitcoins would be by selling goods or services for bitcoin, and using bitcoin to pay for those goods and services would be the only viable off ramp. This may happen more in countries in financial distress and failing fiat currencies, but it will happen.

Again though, the same points can be made for gold. Governments already control fiat on/off ramps for gold. They control custodial gold and they could again outlaw owning physical gold or transacting in it. The main difference with bitcoin is that physical gold is difficult to store, incredibly hard to use, transport or verify. When outlawed, you might be able to hide your gold somewhere, but transporting it would be difficult and dangerous, there is no plausible deniability and no way to use gold in any way other than face to face - not exactly a good idea if its illegal.

submitted by /u/Vertigo722
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