You are viewing a single comment's thread from:

RE: WIN 500 SP - DISCUSSION: "Should Bitcoin Just Be a Currency or Store of Value?"

in #bitcoin7 years ago (edited)

3 functions of money:

  1. Store of value. This is where money gets its start -- it's held for value before it becomes money, and because everyone holds it, its reputation as a store of value becomes universal.

  2. Medium of exchange. Everyone knows it is valuable, so people will accept it as a placeholder for barter, which mitigates the "coincidence of wants" barter problem -- medium of exchange is the second stage for money acceptance.

  3. Unit of account. Once everyone uses it and the market tells us what everyone thinks it is worth, then we start to think of the prices of everything in reference to that money --how much gold something costs rather than how much gold you have. At this stage money shifts from numerator to denominator.

There are many other qualities of money (portability, divisibility, etc) but these are only things that separate good money from bad.

Now to some extent, these three functions of money are like 3 legs of a stool -- until that stool has 3 legs, no one wants to sit on it, and therefore it's difficult to gain universal acceptance. Without store of value no one wants to hold it, without medium of exchange it is unlikely to be accepted, and without unit of account no one knows what it is worth.

So getting these 3 going is like breaking into a ring -- where does the whole thing start? Cryptocurrency is a new beast -- it will never be held because it is valuable intrinsically -- what really is the point of holding proof of a computation that no one needs or asked for, after all. The only reason to hold it is that other people also think it is valuable. Thus establishing that value link to the real, physical world is the primary limitation for cryptocurrency in general.

Fortunately, cryptocurrencies have already fulfilled the first function of money in people's minds. Bitcoin has created enough visibility that people now are willing to accept that it is worth something (thrashing out exactly how much is where the volatility comes from right now.) This is the most difficult hurdle to cross, yet here we are, only 8 years later and there is already money pouring into it because everyone has already accepted that it is worth something.

We are currently fighting our way through the second function of money, but as more governments bend to the inevitable like Australia and accept it as currency, this will slowly get ironed out. And then, eventually, we will all start to think of the physical world in units of cryptocurrency as it shifts from the numerator to the denominator of our world view.

The explosion of competing cryptocurrencies are the flip side to their detachment from the real, physical world. Being unlinked from the real world is why they are so useful, after all -- you can't verify that gold is gold through the internet due to the physics limitations on matter, but you can verify that crypto is crypto. But being unlinked from the physical limitations of matter also means that there is no barrier to entry. The deluge of new cryptocurrencies will not stop any more than new cars, computers, or phones will stop being developed and launched into society.

The next stage for crypto, while it continues to gain larger acceptance, is for the market to start sorting out all of the qualities of good crypto money. For physical money, these are things like portability and divisibility and fungibility. For crypto, there will be a whole new list of qualities in addition to the traditional money qualities that must be met in order to qualify as a "good" cryptocurrency -- speed of transactions, cost of transactions, security, etc. And the market has and will continue to produce many varieties with different qualities that the market will try out and judge.

Which finally brings me to the point (I know, not a minute too soon...) -- bitcoin was a prototype. As a prototype, it was designed just for transactions. There is a whole lot more that the blockchain concept can handle, but bitcoin wasn't designed for that. Trying to add on more and more functions is like bolting on parts to a model T or continuing to upgrade an apple IIe. I don't mean any offense to bitcoin here, but there is only so much that the architecture can handle. How well blockchain handles additional tasks depends on how it is designed. They are not all the same, which is why there are so many varieties currently.

Bitcoin changed the world. But trying to make bitcoin be everything runs the risk of it doing everything poorly, and that would be a big step backwards for cryptocurrency. Let Bitcoin do what it was originally designed to do so that it can continue to do that well.

Sort:  

Brilliantly put.

Well done! You won the prize I will power up your account now.

Screenshot 2017-07-09 14.07.10.png