Doubters and Bitcoin

Bitcoin is becoming sufficiently well known that people on reddit post topics like I believe that BitCoin will be a spectacular failure (granted, this was in the Change My View subreddit).

Here's my response:

Bitcoin is the same kind of "bubble" as gold. A comparison between the two:
  • Gold has ornamental use, and niche technology uses, neither of which contribute much to its perceived value. Gold is valuable because everyone thinks it is - because other people use it as a store of value.
  • Despite its relative lack of inherent value, gold served as an economically stable medium of exchange for thousands of years.
  • Gold is inappropriate as a medium of exchange in an online economy. It's impractical to trade at a distance without relying on third parties.
  • Bitcoin lacks ornamental value and niche industry use, but is even better suited as a store of value.
  • Bitcoin is extremely easy to send to anyone, at any distance, anywhere.
  • The value of Bitcoin will stabilize once it approaches wide acceptance.
  • Bitcoin may overshoot its ultimate value at some point, but right now it is far from the value it will need to have, if a significant fraction of people are ever going to use it.
  • The main obstacle for Bitcoin is the inherent insecurity of most today's computer systems. It's currently hard even for an expert to hold Bitcoin securely.
  • Once secure hardware wallets are available, and assuming governments don't band together to intervene, there's no reason for Bitcoin not to supersede gold as a preferred store of value.
  • The current value of all gold in the world is about $6.4 trillion.
  • The current value of all Bitcoin is approaching $12 billion. It can easily grow by another factor of 100 before it begins to compete with gold in market cap.
Pyramid schemes crash when they run out of investors, i.e. when most potential buyers already have a position, and there's no one left to sell to. But when Bitcoin reaches this point - when most potential buyers already have it - at that point, it becomes the global currency. Acceptance is the very measure of its value.

It would take a very significant concerted effort, a sabotage, or a discovery of some completely unexpected technological flaw, to sweep the floor from under Bitcoin, at this point.

Disclosure: I did purchase some Bitcoin. Stupid me didn't bother to buy in 2011, when I first heard of it; nor in 2012, when it was still at $5, even as I was seriously looking into it. But I finally got some this year. I'm planning to hold onto it indefinitely; there's just never any reason to dump it. Even when it reaches $100k, it's likely still going to grow. Besides, what would you exchange it for? USD? Is that going to grow?


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