I've talked to a number of people who have taken a punt on cryptocurrencies, some of them as miners. When I put it to them that crytptos have no intrinsic value, they pointed out all the stuff that's been pointed out on this thread -- inflation proofing, untraceable anonymous transactions etc. It seems to me that some of those things are of most value to drug dealers and other criminals but, willing to concede the point for the sake of argument, I asked then what is the value of any particular cryptocurrency. Here the conversation inevitably turns to how the value is 100 times more than it was a couple of years back, and if only one had invested back then ...
This is what convinces me that cryptos are in a completely crazy bubble. These people don't care what the value is. They are gamblers, plain and simple, lured by the stories of massive gains. They don't have any idea what the present or future value of the currency is. You could argue the same about some stock market investments, such as the FANGs which have inflated valuations based on nebulous ideas about future earnings. It should come as cold comfort to know that those are probably in a bubble too.
Bitcoin seems like a particularly silly and wasteful idea. Its production is highly entropic -- you can't get back all the electricity that it cost to mine it, which did have some intrinsic value. And you can't easily expand the money supply, which is held up as a virtue but is in fact a curse. In the real economy, the fiat creation of money is only a bad thing when no corresponding value is created. But when it is based on valuable resource extraction, or is used to bring forward the value of future productivity, it greases the wheels of the economy in a way that a more inflexible currency can't. A valuable currency is backed by the economy (usually in the form of a promise from a government, but that's just a formality). What economy is Bitcoin backed by?
The other problem with Bitcoin is that it can be easily replicated, as we seen with the splurge of other cryptos. That on its own is evidence that Bitcoin can't even keep up with the appetite for gambling. Anybody can create their own cryptos, there are freely available platforms and mechanisms for doing it. Anybody can issue their own paper currency too, of course. You could start handing out Monopoly money tomorrow to anybody crazy enough to accept it. It all comes back to what value is being represented by the currency. Greenshield stamps and air miles are all viable currencies under the right conditions. What are the conditions that make Bitcoin valuable?
Blockchain technology in general has fantastic prospects. One idea that has been floated is using it to track the electricity contributions and withdrawals from EV batteries when they are used in future as buffers and backup storage for the electric grid. In that case, the value will be in the electric power*, with the blockchain currency providing the medium of accounting and exchange. Again, the currency would be backed by a real economy.
And finally, there is that thing about governments being suspicious of cryptos. Most people (other than drug dealers and criminals) will have noticed that governments are entitled to spy on your monetary transactions for the purpose of taxing you. And if they can't spy on your individual transactions but feel you've accumulated an unreasonable amount, they can just take it off you. The Limerick guy who was found recently drying out €1.5m in banknotes in a tumble dryer forfeited the lot, in spite of no transaction history being established. What's more, government can just make it illegal to hold certain things as currency. They've done it before for gold bullion. They recently demonetised €500 notes, and 500 and 1000 Indian rupee notes, precisely to curb black market trading. Bitcoin may not be a fiat currency, but it could disappear by fiat.
* which is not to say that a unit of power will have a fixed value, for all sorts of reasons that would be tangential to the current discussion.
