re: Bitcoin is a Ponzi scheme—the Internet’s favorite currency will collapse.

FWIW, just to do some back-of-the-envelope calculations with respect to price, according to Wikipedia, about 171,300 metric tons (~5.5 billion troy ounces, at 32150 oz/ton) of gold have been mined in human history, with about 2500 metric tons (~80.4 million troy oz., or ~1.5% of the historical total) being extracted per year in recent years.

Only about 40% of gold is used for investment purposes, but assuming easy convertibility of other gold for investment purposes, the total amount of gold wealth in the world is at about $1600 x 5.5 billion = $9 trillion.

So if bitcoins were to achieve the same level of currency demand as gold bullion, given a supply of 21 million, that would work out to about $400,000 per bitcoin.

I don't think bitcoins will ever achieve the same level of demand that gold does (and I also think that gold price is currently somewhere between 2-3 times more expensive than where it usually is in historical terms), but it's an interesting comparison to make just to show how arbitrary the demand for a non-legal-tender currency can be.

One of the problems with bitcoin value is that it will necessarily fluctuate up and down relative to the amount of government financial repression out there, and is not tied down to any intrinsic worth with redemption value or legal tender status. Thus, it's use for storing wealth will probably never be very good. It's value for clandestinely transporting wealth, however, is what makes it interesting.

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An economy might run into inefficiencies if its supply of currency gets too small, particularly its legal tender currency. For an individual currency itself that is just one of many within the wider economy, however, a stable supply is actually beneficial to its value. This is why American colonists loved the thaler and the Spanish pieces of eight so much.

By Gresham's Law, the stable currency will tend to be more for storage and transport, while currencies with higher supply growth rates will tend to be stored only sparingly and used more frequently for common transactions, but this does not make one currency more "successful" than the other. It simply means that the currencies tend to be utilized in different ways.

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Solid post.

Solid, thanks for asking.

I wonder when Paul Krugman is going to weigh in on bitcoins? He can hypothesize about a single bitcoin being worth $1 trillion and the Satoshis worth $10,000 and further fractional units worth lesser amounts. All the U.S. government needs to do is buy a few hundred bitcoins and hold them until they are worth $1 trillion each, and we can pay off our national debt. Meanwhile Congress can deficit spend to its heart's content.

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from today: Adam Smith Hates Bitcoin

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by the way, Krugman shows his ignorance by calling out the process of "mining" without even understanding it.

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And now here we are in a world of high information technology — and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources

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Ummm, hello Krugman, go do some research...."mining" is the process that secures the network. It serves a vital purpose. But hey, he's no different that you morons on this site: making all kinds of claims, arguments and prognostications without actually understanding what you are talking about

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Adam Smith Hates Bitcoin

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He also hated stupidity, I see a pattern.

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he's no different that you morons

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Now, now wiki. Take a deep breath and exhale slowly.....

PS- BTW, it's "than" you morons, not "that."



Moron.

They are on their way.....

On second thought, GFY. I'm not yo' momma.....

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next time. send him my azcoins. They are just as safe as bitcoins. Just send the cash to me, and I will send him a long stream of numbers...

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it's so funny to watch you old people squirm as you don't understand new technologies. i hope i never get like that

Wiki Mad Brah? Yeah Wiki Mad