When Bitcoin was new (and cheap!) I remember it being sold as a way to do payments efficiently, especially for small payments, e.g., across international borders.
I recently learned from a Bitcoin expert, however, that handling payments has become a weak spot for Bitcoin. “It costs at least $15 to get a transaction recorded by the miners,” he said. What if you don’t pay that much? “Your transaction will languish out there for a few days before finally dying. If you want it to settle within a few minutes you have to pay $15.” (the money for this fee is split up)
Does this make Bitcoin useless? “Think of it as a store of value, like gold bars in a vault,” he said. “It is not a replacement for a credit card.” So it is a digital Fort Knox, but it doesn’t hold anything other than numbers (and, of course, there is no way to lose by investing in Bitcoin because they’re not making any more numbers).
This guy has a couple of businesses centered around Bitcoin trading, etc. But he also bought a small quantity of Bitcoin back in 2010. How did that work out over the past seven years? He sought out my advice regarding which turbine-powered helicopter to buy for family weekend trips. (I recommended a used AStar for $1.5 million.)
[Should you dive in and buy? He thinks the price will fall in the short run, but eventually go to $100,000 to $300,000 per coin.]
Related:
Eventually, if they implement the lightning network (https://lightning.network/lightning-network-paper.pdf) it will solve the small transaction problem. I generally agree it’s a better store of value than the S&P 500 currently. Given that the S&P would have to go up many trillions in market cap to double, but BTC only has to go up hundreds of billions to double.
I’m mostly long BTC, I’m not in turbine powered helicopter territory yet, but have done pretty well (I own a 160kt airplane).
> Given that the S&P would have to go up many trillions
> in market cap to double, but BTC only has to go up hundreds
> of billions to double.
The reverse is also true, I suppose? What does it say about the
*store* of value?
People have been valuing gold for thousands of years, and fundamentally, gold has a use in jewelry and electronics.
T-Bills have an underlying store of value, the full faith and credit of the US Government, and so an almost zero risk rate of default.
What is bitcoin’s underlying store of value? A few years ago it was going to be all the billions of transactions like purchasing coffee digitally. And so bitcoin would be a sort of okay store of value like the dollar, but presumedly with anti-inflation built into it.
But what is it today?
I don’t think it has any actual underlying store of value apart from an aspirational, time traveling, predicted claim that in the future everyone will be using it somehow.
It seems highly risk and highly volatile. If you have a need for that in your portfolio, seems like an awesome choice.
bitcoin today seems like the Uber of penny stocks.
> The reverse is also true, I suppose? What does it say about the
*store* of value?
Precisely. How can anything so volatile be said to be a store of value?
Technically, more numbers are being created in the form of more digital currencies, just as more stocks were once created from IPOs before it became cheaper to borrow money. It’s hard to differentiate bitcoin from a stock offering in which the company guarantees to never create more shares. Unlike stocks, bitcoins can be loaned with fractional reserve banking which is the mane cause of inflation, the money is not used to create productivity, & it’s much harder to sell your shares, if the transaction ever finishes.
> What is bitcoin’s underlying store of value?
People willing to trade for it in the market, same as the dollar and other currencies.
> It seems highly risk and highly volatile. If you have a need for that in your portfolio, seems like an awesome choice.
A little volatility can go a long way. 1-2% in your portfolio starting in Jan 1 2017 would be worth 10% today. If it was 1% of your portfolio in 2012 it’d be 600,000% of your portfolio 2012 portfolio assuming you didn’t cash out.
Justin Thomas,
How much will it take to install that lightning network so that i can buy a cup of coffee?
How trustworthy is it? Is there examples of this working?
>> It seems highly risk and highly volatile. If you have a need for that in your portfolio, seems like an awesome choice.
> A little volatility can go a long way. 1-2% in your portfolio starting in Jan 1 2017 would be worth 10% today. If it was 1% of your portfolio in 2012 it’d be 600,000% of your portfolio 2012 portfolio assuming you didn’t cash out.
Absolutely, that’s why I wrote that. If I recall some classes in CAPM the best thing to do involves taking out a loan to buy that highly risky highly volatile asset to bring your portfolio up to the best bang per buck at the risk level you want. Just make sure you can afford to lose that money and still payoff the loan.
I think bitcoin either ends badly or proves time travel will not be possible for years and year and years.
1% requires taking out loans?
> The barbell strategy is a method that attempts to secure the best of both worlds. It’s possible, the thinking goes, to garner substantial payouts without taking on undue risk. The strategy’s prime directive is interesting in that it’s not only counterintuitive to a populace weaned on the benefits of tempering risk and reward, it’s unambiguous: Stay as far from the middle as possible.
> Read more: The Barbell Investment Strategy | Investopedia https://www.investopedia.com/articles/investing/013114/barbell-investment-strategy.asp#ixzz4zxRPAQvq
Bitcoin will flop eventually. Your friend was just lucky to buy in early and is now riding the wave.
It’s the new tulip craze.
Ok, the argument goes that bitcoin crypto-currency is scarce, because the supply of it cannot be easily inflated like fiat currency. It can only mined through difficult & expensive calculations (see: One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week https://motherboard.vice.com/en_us/article/ywbbpm/bitcoin-mining-electricity-consumption-ethereum-energy-climate-change.)
That’s all true.. for that one cryptocurrency. However there’s nothing to stop other cryptocurrencies from being made (currently there are 1324 cryptocurrencies known… and growing). So how rare is it then if anybody create one? And just like any technology, there will constantly better versions coming out (faster transactions, better security, etc). Bitcoin will be like the first iphone… ground breaking but no longer desired in several years. What is to stop holders of bitcoin from jumping to one or another cryptocurrency? There will be wild swings in value…
First they were telling you that bitcoin would be great for fast transactions (not!). And they said that it’s better than gold as a store of value (not! and gold has been around for several millenia). Now the fans are saying, well ok you can’t do fast transactions, so (as your friend has said) treat like gold, you can’t do transfers but store value.
There is something more interesting I think right now, it’s gold storage with blockchain technology. You can even do microtransactions (they even provide you with credit card that you can use to transfer gold to others or convert to fiat currency upon payment to the merchant). But I’m not sure to bite yet…
The linked article appears only to calculate the energy required to mine a new bitcoin today, and then attaches that number to every bitcoin in existence.
Is this not equivalent to saying that a transaction made with a gold bar already in existence requires the energy required to manufacture that bar from scratch today?
Just like paying $10,000 for a tulip…except you don’t get a tulip.
The problem is that just about any medium of exchange should also be a store of value. If it’s not a practical medium of exchange, what’s its value again?
Tulip bulbs. Or Pets.com, for a more contemporary reference.
P.T. Barnum had it right – “There’s a sucker born every minute.”
Don’t worry about the liquidity, would you pay for a $5 starbucks latte with a wire transfer and pay the fee? Of course not. Mt. Gox was an aberration, it will never happen again. With countries restricting ability of citizens to wire money out of their own country (China, Russia, US soon?) we need to understand McAfee link speaks the truth that Bitcoins will be worth $1 Million by 2020 and put our entire wealth, and our children’s wealth, into this safe investment.