Comment: Thoughtful Analysis

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Thoughtful Analysis

That was a thoughtful analysis written by someone who is obviously intelligent. I think, albeit I am not the end all of understanding here, that he is overlooking the fundamental flaw that bitcoin has. Bitcoins has all of the fundamental flaws that fiat currency does in that it relies on someone's desire for it. There is huge counterparty risk with bitcoin. Gold has allayed that fear by being accepted for thousands of years by vast swaths of people for reasons that are intrinsic to the metal itself (it's shiny, used for jewelry, and is a luxury). Because of that fact, there is reason to be skeptical. I'm not saying that Voorhees has a bad, or even flawed argument, or further, that he should be flogged for believing in the value of the network that exists and is being created currently for bitcoin (which is how the other side sometimes portrays believers in something other than gold). I am just saying that he may be overlooking one of the fundamentals. As a money alternative, it must be measured as money. If he is simply valuing the network, well, then, this is all a specious argument and people are arguing across purposes. So, for the purposes of this discussion, people should be talking about the value of bitcoins as a currency (or medium of exchange), not about the value of the network itself.

As much as I hate to quote one of the biggest money printers of all time pertaining to the value of sound money, I believe Alan Greenspan said it best (obviously before he became Fed Chairman and was instead an Ayn Rand follower):

"What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron." The whole text can be found here and is quite a valuable read (if for no other reason than to laugh at how much power can corrupt)

Bitcoin is not a luxury, nor is it necessarily durable (debatable, but I guess I don't understand it fully). Because of that, it may not pass the test of time like other time honored currencies (Gold and Silver, the former being better than the latter as a currency).

Personally, I think everyone should do what is in their best interest and the market will sort it all out (if it is allowed to do so). I don't fault people working for dollars currently even though it has serious faults (even if the counterparty risk is, at least currently, much less of a risk). Consequently, I don't fault people who see the value of bitcoins, even though I personally think it is speculative and lacks some of the fundamental qualities that make money, well, money.

Merry Christmas to all those at the DP.