No matter your take on bitcoin's long-term viability (or lack thereof), it can hardly be argued that this isn't damn interesting to watch unfold.
A cryptocurrency with zero backing that exists only in digital form is now worth many billions of dollars. Is it a bubble? Will this foment a currency revolution of sorts? If it doesn't crash, how will governments react? If it does crash, what will replace it? Obviously there is a demand for a decentralized currency, and as more people realize that something like this is possible, I can only see demand for it going one way: up. Most people have never even heard of bitcoin; I've only talked to a few people in my own life who are even familiar with the word, and fewer still who know what it actually is. Yet with even such a small awareness, bitcoin's value has grown from zero to billions in a few years. Unless governments step in and find some way to put the kibosh on decentralized currencies in general, it seems unlikely that demand is going to shrink as awareness continues to increase. We're so used to governments essentially owning currencies that it is very difficult to imagine a world where they don't, but obviously, if cryptocurrencies take off in a big way, the implications for the future are profound.
1. Any money is a bubble in a sense. It's a feedback loop of speculation that the commodity at hand will be widely accepted by other speculators in the future. The only basis for this speculation is that people need some money to trade. The money bubble pops only if there's some other, better commodity on the horizon that speculators may bet on. http://unqualified-reservations.blogspot.fr/2013/04/bitcoin-...
2. Some governments are very supportive (at least, not intrusive): Germany, China, Hong Kong, Canada. In United States Bitcoin is effectively 90% forbidden already. Banks close accounts for Bitcoin businesses with no reason, regulatory approval is very slow and very-very expensive (need to get it from all states), past history of very aggressive raids on financial experiments.
Not really, no. Peter Thiel's explanation of bubbles is great. He says that bubbles arise when there is (1) widespread, intense belief that’s (2) not true. During the dotcom bubble, people were pouring money into companies simply for having a domain name; the intense belief was that the companies were worth a ton of money, and that simply was not true. A similar reasoning led to the housing bubble: the intense belief in that case was that houses are great investment vehicles and they always appreciate in value. Turns out that also was not true.
Currently, the main thing that is driving Bitcoin's price is speculation. There is widespread, intense belief that it will become a major currency. Is that belief true? The simple answer is we don't know.
But that's not true with just any money. The dollar for example is not a bubble: people believe it to be a reliable medium of exchange, and the fact that it is backed by the US government makes that belief true. Therefore it is not a bubble.
USD is a bubble too because everyone speculates that tomorrow trust in USG does not drop. Which is much more fragile speculation taking into account recent events. When other countries start massively dumping their USD savings one of two things will happen:
1. Either USD goes straight home, raises the prices and destroys remnants of the US economy.
2. Or govt erects an iron curtain of capital controls to keep the influx of USD at bay which destroys remnants of the US economy.
The war is not an option because it only works when you fight with one country while the others are maintaining the value of USD that you print to fund that war. When there's no one to give you stuff voluntarily for USD, the state goes bankrupt way too quick. And the first guys to notice the raising prices are heavy industries and military complex. US would have to transform to something like Hitler's Germany to force people to build and fight. But more likely is the scenario of Weimar's Republic which hopefully transitions to Bitcoin before complex economic connections between all producers are completely broken down.
And the same isn't true for the USD ? It's only true to the extent you believe the US government can't fail to increase economic activity YoY. Or, say, for a small currency like the famous Swiss franc ? There are plenty of currencies where the stability of the state behind it is in doubt. I would say dictatorships like Dubai or Kuwait or ..., who have very badly paid "slaves" who far outnumber their own population are at a very significant risk of revolt. Or rather, they would never be able to prevent an even mildly popular revolt from taking over the state. They're not worthless, in fact they can be quite valuable.
And then of course, there's currencies of states that have little qualms of open currency manipulation like the Renminbi.
But even the USD, or at the very least it's value, but I'd argue the US state itself as well, has several critical dependencies. Oil would be the most obvious one, but easy and safe access to the seas, not just around the US, but all over the planet. And I'm sure there's dozens of other things.
In short : The US is not invincible, and I'm pretty sure the status of the USD currently does reflect that belief.
Note that this is a falsehood. Speaking on an indefinite timescale, it's an absolute certainty the US will fail. And economic output will falter with a much greater certainty. So it's a matter of when, not if. And the USD may have lasted longer than average for a currency, but it's nowhere near the top (that would be the Holy Roman Empire and it's Guilder (later replaced, and it's complex, depending on regions, ... I guess when a state celebrates a millenium's existence some issues crop up with the currency and they have to play around with it. Some day the US may be lucky enough to have to do the same. The "real" currency can be said to be silver).
It's also humbling to think that this very, very, very long running state did fail eventually (yes, you can make an argument that it didn't really fail, only parts did, most made smooth transitions to their currently existing forms ... I wouldn't agree with that argument but it's not indefensible).
Moldbug is great. What do you think of Urbit? From what I understand, it's attempting to create property rights in digital identity like bitcoin does for digital money.
As an economic hobbiest I wonder how much of this is part of BitCoin and how much is part of the restriction on the 'float' of available coins. Specifically several recent actions, from the Silk Road take down to the wallet services going away have reduced the quantity of available coin that can be used for transactions. Is that the driver behind the price? After all the drug trade didn't just "stop" when Silk Road was taken down. And if you've got obligations to pay in BitCoin and your wallet provider just went off the air with your stash? Now you are out trying to get coins to finish the transaction before the other side of that transaction declares it invalid right?
I lost hundreds of them due to a disk crash a couple years ago (they were worth I think $0.06 then). I think that's the biggest downfall of the currency. As time progresses, more and more coins will be "lost" and the replacement rate will slow to, well, 0.
It will become as much a currency then, as rare baseball cards or antique physical coins.
A cryptocurrency with zero backing that exists only in digital form is now worth many billions of dollars. Is it a bubble? Will this foment a currency revolution of sorts? If it doesn't crash, how will governments react? If it does crash, what will replace it? Obviously there is a demand for a decentralized currency, and as more people realize that something like this is possible, I can only see demand for it going one way: up. Most people have never even heard of bitcoin; I've only talked to a few people in my own life who are even familiar with the word, and fewer still who know what it actually is. Yet with even such a small awareness, bitcoin's value has grown from zero to billions in a few years. Unless governments step in and find some way to put the kibosh on decentralized currencies in general, it seems unlikely that demand is going to shrink as awareness continues to increase. We're so used to governments essentially owning currencies that it is very difficult to imagine a world where they don't, but obviously, if cryptocurrencies take off in a big way, the implications for the future are profound.