The Value, Significance and Belief of Bitcoin
For a long time, I always want to own a few bitcoins, because the more I finally find out, the king of the coin still has its unique charm, it feels like having a belief.
For investors, a prominent fact of the invention of Bitcoin is that it created a new kind of scarce digital commodity, Bitcoin. Bitcoin is a transferable digital token. The process of creating it on the Bitcoin network is called "mining". Bitcoin mining is roughly similar to gold mining, except that its production follows a well-designed and predictable timetable. Only 21 million bitcoins are designed to be mined, most of them already.
However, Bitcoin has no endorsement of physical commodities and is not guaranteed by any government or company, which raises an obvious question for new Bitcoin investors: Why is Bitcoin valuable? Unlike commodities such as stocks, bonds, real estate, and even oil and wheat, Bitcoin cannot be valued by standard discounted cash flow analysis or by demand for higher-end goods. Bitcoin belongs to a completely different category of goods, known as monetary goods. Its value is set by game theory, that is, each market participant's valuation of goods is based on how they evaluate other participants. So what attributes of Bitcoin fascinate so many people?
When value storage competes with each other, the specific attributes of a good value storage make a value storage stand out on the margin and increase the demand for it over time. Although many commodities are used as value stores or "original currency", there are certain attributes that are particularly needed, and those with these attributes will outperform others.
Bitcoin is the most portable value store in human history. A private key representing hundreds of millions of dollars can be stored on a compact U-disk and easily carried anywhere. In addition, the amount of the same value can be transmitted instantly between people at both ends of the earth. French currency is basically digital and very portable. However, government regulation and capital regulation mean that a large amount of value transfer usually takes days, or even impossible at all. Cash can be used to avoid capital controls, but subsequent storage risks and transportation costs become large. Gold in kind is extremely dense and is by far the least portable. There is no doubt that most gold bars have never been transported. When gold bars are transferred between buyers and sellers, they usually transfer only the ownership of gold, not the physical gold bars themselves. Long-distance transportation of physical gold is expensive, dangerous and time-consuming.
For example, interchangeability: Gold provides the criteria for interchangeability. When it melts, one ounce of gold is basically indistinguishable from another ounce, and gold has been traded on the market in this way. On the other hand, French currency is interchangeable only if it is allowed by the issuer. Although businessmen who accept legal notes usually treat each bill the same, in some cases large bills are treated differently from small ones. For example, when the Indian government tried to destroy India's untaxed grey market, it completely de-monetized its 500 rupees and 1000 rupees. This non-monetization allows 500 rupees and 1000 rupees to be traded at a price below their par value, which makes them no longer truly interchangeable with their lower denominations. Bitcoin is interchangeable at the network level, which means that every bit coin is the same on the Bitcoin network when it is transmitted. However, because bitcoins are traceable in the block chain, specific bitcoins may be contaminated by their use in illegal trade, and businesses or exchanges may be forced not to accept such contaminated bitcoins. If we do not improve the privacy and anonymity of Bitcoin's network protocol, we can not think that Bitcoin is as interchangeable as gold.
Generally speaking, it is relatively easy to verify the authenticity of French currency and gold. However, countries and their citizens still face the possibility of being deceived by counterfeit money, despite the function of preventing counterfeiting on their banknotes. Gold is not immune to forgery. Veteran criminals use gold-plated tungsten to trick gold investors into buying fake gold. On the other hand, Bitcoin can be verified by mathematical certainty. With an encrypted signature, the owner of Bitcoin can publicly prove that he owns what he calls Bitcoin._DJMINER
For investors, a prominent fact of the invention of Bitcoin is that it created a new kind of scarce digital commodity, Bitcoin. Bitcoin is a transferable digital token. The process of creating it on the Bitcoin network is called "mining". Bitcoin mining is roughly similar to gold mining, except that its production follows a well-designed and predictable timetable. Only 21 million bitcoins are designed to be mined, most of them already.
However, Bitcoin has no endorsement of physical commodities and is not guaranteed by any government or company, which raises an obvious question for new Bitcoin investors: Why is Bitcoin valuable? Unlike commodities such as stocks, bonds, real estate, and even oil and wheat, Bitcoin cannot be valued by standard discounted cash flow analysis or by demand for higher-end goods. Bitcoin belongs to a completely different category of goods, known as monetary goods. Its value is set by game theory, that is, each market participant's valuation of goods is based on how they evaluate other participants. So what attributes of Bitcoin fascinate so many people?
The attributes of good value storage.
When value storage competes with each other, the specific attributes of a good value storage make a value storage stand out on the margin and increase the demand for it over time. Although many commodities are used as value stores or "original currency", there are certain attributes that are particularly needed, and those with these attributes will outperform others.
Portability, for example
Bitcoin is the most portable value store in human history. A private key representing hundreds of millions of dollars can be stored on a compact U-disk and easily carried anywhere. In addition, the amount of the same value can be transmitted instantly between people at both ends of the earth. French currency is basically digital and very portable. However, government regulation and capital regulation mean that a large amount of value transfer usually takes days, or even impossible at all. Cash can be used to avoid capital controls, but subsequent storage risks and transportation costs become large. Gold in kind is extremely dense and is by far the least portable. There is no doubt that most gold bars have never been transported. When gold bars are transferred between buyers and sellers, they usually transfer only the ownership of gold, not the physical gold bars themselves. Long-distance transportation of physical gold is expensive, dangerous and time-consuming.
For example, interchangeability: Gold provides the criteria for interchangeability. When it melts, one ounce of gold is basically indistinguishable from another ounce, and gold has been traded on the market in this way. On the other hand, French currency is interchangeable only if it is allowed by the issuer. Although businessmen who accept legal notes usually treat each bill the same, in some cases large bills are treated differently from small ones. For example, when the Indian government tried to destroy India's untaxed grey market, it completely de-monetized its 500 rupees and 1000 rupees. This non-monetization allows 500 rupees and 1000 rupees to be traded at a price below their par value, which makes them no longer truly interchangeable with their lower denominations. Bitcoin is interchangeable at the network level, which means that every bit coin is the same on the Bitcoin network when it is transmitted. However, because bitcoins are traceable in the block chain, specific bitcoins may be contaminated by their use in illegal trade, and businesses or exchanges may be forced not to accept such contaminated bitcoins. If we do not improve the privacy and anonymity of Bitcoin's network protocol, we can not think that Bitcoin is as interchangeable as gold.
Another example is verifiability
Generally speaking, it is relatively easy to verify the authenticity of French currency and gold. However, countries and their citizens still face the possibility of being deceived by counterfeit money, despite the function of preventing counterfeiting on their banknotes. Gold is not immune to forgery. Veteran criminals use gold-plated tungsten to trick gold investors into buying fake gold. On the other hand, Bitcoin can be verified by mathematical certainty. With an encrypted signature, the owner of Bitcoin can publicly prove that he owns what he calls Bitcoin._DJMINER
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