Bitcoin is not like gold

Brendan Burgess

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cremeegg said:
It is much closer to speculating in gold than betting on horses.
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Buying bitcoin has really very little in common with investing in gold.

  • Gold has an intrinsic value - bitcoin has none
  • Gold is difficult to value - it's hard to justify $1,300 per oz. But Bitcoin is easy to value - it's worthless
  • Gold is a naturally occurring metal - bitcoin is artificially created
  • Gold has been in demand for thousands of years - bitcoin has been around for a few years - 4 or 5?
I am not a fan of gold, but in the event of WW III, I would prefer to have gold than Bitcoin.

Brendan
 
Brendan Burgess said:
Buying bitcoin has really very little in common with investing in gold.

  • Gold has an intrinsic value - bitcoin has none
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Go on I will rise to the bait. What intrinsic value does gold have.
Bit coin probably is worthless, as there is no limit to the number of competing currencies that may be created. However if it becomes widely accepted then it will continue to have a resale value. Just like gold really.

True, and this favours gold how?
True again, but so what, if people come to trust bitcoin.


Brendan Burgess said:
I am not a fan of gold, but in the event of WW III, I would prefer to have gold than Bitcoin.
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If things get really bad a bag of spuds will be worth more than either.
 
cremeegg said:
Go on I will rise to the bait. What intrinsic value does gold have.
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Gold has been valued by people as an ornamental object for thousands of years. They have been prepared to pay more for it than for iron and than for bronze. They like wearing it.

It's a little like art in this respect - it has a real value.

Hard to value and it may well be overvalued but it has a base value of something.

Brendan
 

Gold is used extensively in electronic goods - it is a highly efficient conductor and does not corrode.
 
Mrs Vimes said:
Gold is used extensively in electronic goods - it is a highly efficient conductor and does not corrode.
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That is a very good point.

However, Bitcoin is a payment method use for some regular transactions and has the potential to continue to develop in that manner and become a globally accepted payment method ?
 
MrEarl said:
Bitcoin is a payment method use for some regular transactions and has the potential to continue to develop in that manner and become a globally accepted payment method ?
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Hi Mr Earl

But so are cheques. And the cheques themselves have no intrinsic value. That is the point that people are missing. Bitcoin might be a useful payment method, but that doesn't confer any value on it.

Brendan
 
From a thread on gold

landlord said:
I also have a significant crypto holding (digital gold) as I do not know which will prevail in the event of geopolitical/financial meltdown.
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This is good example of the complete abandonment of reason during a bubble. Describing bitcoin as "digital gold".

Brendan
 
My tuppence worth...

Bitcoin is a ludicrous investment and analagous to tulips in a historical context.

That’s not to say that there’s not money to be made on the way up, but it will all end in tears without a shadow of a doubt.

Its true value lies in the fact that it faciliates crime and terrorism and (for now) circumvents regulatory stuff like FATCA and CRS. But that will come.

Caveat emptor x 1,000...this won’t end well. And now the proverbial shoe shine boys are talking about it! It’s textbook stuff!!!

Having said that, I am also a sceptic with regard to certain characteristics that gold is said to have; the idea of it being a hedge against some doomsday scenario? Gold bars are unlikely to be much use against the rape gangs and marauding barbarians with baseball bats!
 
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But you'll be able to bribe the gangs with your gold bars (if you know where they are held and can access them), while my Disney stock will be nothing but a memory.


People ploughing their money into a "currency" that is completely unregulated is a crazy investment strategy. Who oversees bitcoin? Some people off the internet? Good luck with that.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Bitcoin isn't really a currency, as it's not a widely used medium of exchange.

You could call it an asset, maybe, but typically an asset produces some form of income.
 
SBarrett said:
Who oversees bitcoin? Some people off the internet? Good luck with that.
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Bitcoin doesn't need overseers because it's public. Anyone can analyse the blockchain to confirm that all transactions trace back to fairly mined bitcoins, and anyone can check the work the miners did to ensure any bitcoins were fairly mined. You can browse the blockchain yourself here https://blockchain.info/
Also anyone who wants to can mine.
The fact that it's an open system that doesn't need gatekeepers or require trust in regulators is one of the main benefits.
 
fpalb you might have watched the video in #16.

This is a technical question arising from that video. It concerns mining which I find the most intriguing aspect of the whole scheme. The video says that BTC mining now consumes more electricity than Nigeria and is on course to consume more than Japan. This still creates the impression that these massive mining costs are necessary for finding new BTC and for ensuring the integrity of the Blockchain.

ant dee answered a previous similar question of mine by saying the main purpose for proof-of-work was to make the Blockchain secure. But it all seems so artificial to me. Apparently one of the main reasons for the proliferation of alt coins is simply changing the artificial rules. For example there are some alt cons which target 2.5 minutes settlement time and have no artificial scarcity limit at all.

The proof of work algorithm has got exponentially harder for Bitcoin not to make the Blockchain more secure but simply to target that 10 mins settlement time. (i understand the need for a settlement time at all is to minimise the possibility of forks but also to control the BTC supply). When eventually the 21M is reached and the only requirement is to reinforce integrity can the proof of work game not be reset to the baby levels of the early days and thus make great savings in electricity usage?

Still very confused
 
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Well, the need for security will not decrease after the mining rewards run out. You still need as much hashpower as people find it profitable to add.
If it is not profitable, miners turn off, after 14 days difficulty reduces, then it is profitable again and miners turn on. It a competition really, the more that mine the harder it gets, the less that mine the easier it gets.

One thing on the video, JR said miners will not be allowed to use that much electricity. Allowed by whom? No-one will ask for permission. People already hide miners in countries where it is illegal, like Ukraine, Venezuela.
I doubt China can control what happens in their remote provinces around their vast lands. Miners set up mining farms on remote coal plants, water dams etc. A lot of the electricity being used is renewable that would otherwise go to waste. That makes it cheap because we know transportation of electricity is hard.
Maybe big mining farms will be targeted but that will open up the space for more small time miners to operate around the globe.
Plus all this crypto-mining makes renewable energy solutions more profitable, because wherever you set up the wind turbine, solar plant, water dam or whatever you can hook some miners and make money.
 
Also, JR uses a lot of words like terrorist, criminal, felon, tax evader, manipulation, makes you think is it fear-mongering he is relying on this interview?
 
Summary of the video

He says:
Bitcoin is the biggest bubble of all time and will fall towards zero.

All markets are open to manipulation, and an unregulated market like Bitcoin, more so.

The amounts of electricity required to mine Bitcoin are huge and unsustainable.

Intrinsic value is meaningless - what matters is subjective value, which is true of Bitcoin and Gold

Subjective Value is based on confidence, it's a liquidity preference - confidence is fragile and once it's lost, it's very hard to regain.

The differences between gold and Bitcoin
  • Gold has been around a long time. Bitcoin since 2009
  • Bitcoin has never weathered a financial crisis or recession - so we don't know how it will perform.
What will bring Bitcoin down is when people make tax returns on the profits they made from Bitcoin. [ not at all convinced by that.]

Brendan
 
Brendan Burgess said:
The amounts of electricity required to mine Bitcoin are huge and unsustainable.
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Bloomberg does not agree

No, Bitcoin Won't Boil the Oceans

Still, it’s important to put things in perspective. A recent report suggests that at current prices, Bitcoin miners will consume an estimated 8.27 terawatt-hours per year. That might sound like a lot, but it’s actually less than an eighth of what U.S. data centers use, and only about 0.21 percent of total U.S. consumption. It also compares favorably to the currencies and commodities that bitcoin could help replace: Global production of cash and coins consumes an estimated 11 terawatt-hours per year, while gold mining burns the equivalent of 132 terawatt-hours. And that doesn’t include armored trucks, bank vaults, security systems and such. So in the right context, bitcoin is positively green.

There seems to be divided opinion

Bitcoin Mining Operations Now Use More Energy Than Ireland
 
I like Rickards in general, he's clearly a smart guy and he knows his financial stuff and history. I agree with some of the things he said, which you have mentioned:
  • Bitcoin has never weathered a financial crisis or recession - so we don't know how it will perform.
  • Intrinsic value is meaningless - what matters is subjective value, which is true of Bitcoin and Gold
  • All markets are open to manipulation, and an unregulated market like Bitcoin, more so
I want to make some comments about the last point though. Firstly, the level of regulation on exchanges varies. Gdax exchange (run by coinbase.com) and Gemini (run by the Winklevoss twins of facebook fame) are both fully above board US based exchanges complying with regulation and with FDIC deposit insurance for dollar deposits, and some crypto insurance too. Concerns that they will run off with your money, or are faking trades etc are pretty far fetched. Of course there are plenty of dodgy exchanges all over the world that you can choose instead, but that's on you if decide to take that risk.

Regardless of trusting the exchanges themselves, he mentions market manipulation and painting the tape. I don't expect the regulated exchanges are doing this as it would be stupid and unnecessary but of course the market has its whales, and they may try to dump the market to get the price down or buy it up to pump it. Ultimately if they trying to push the market against where it's naturally moving they better have deep pockets, as there's only so long you can buy coins for more than they are worth, or sell them for less than they are worth before you lose money. For sure it's a lot of the cause of the short term volatility we see though, so be it.

I just paid my capital gains for the year to-date to November so count me in as an exception then I guess.

My main gripe though is the mining comments, I fear he doesn't fully understand it. Bitcoin doesn't require the current amount of power that is being used for mining, that's just the amount that miners are choosing to use. If the figures are correct (they may not be if they are using old power efficiency numbers that are not applicable to the latest hardware, but I haven't looked into it further) then I expect is is unsustainable, which means the least efficient miners will go broke and stop mining. It is also a commonly made claim that bitcoin requires increasing amounts of power, it doesn't, mining power can go down as well as up, the mining difficulty adjusts in both directions so the production rate of coins, and the confirmation of transactions is unaffected by it.

Having said that, obviously the environmental aspect of any significant bitcoin mining is something we would rather avoid. I hope in future we'll figure out an algorithm that avoids the intense work, maybe proof of stake instead will work. In any case it's more likely bitcoin mining figures out a way to run in an environmentally friendly way than gold mining does.
 
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