Any system of checks and balances will have its price. Look at what we do with gold: we dig it from a hole in Africa, we transport it in other countries, we dug holes or build vaults and throw it there. Like Warren Buffett said, it has no utility, if Martians were to look at the process they would scratch their heads.
Except for the guarantee of uniqueness. Which is one of the most powerful invariants against corruption and government-sponsored inflation, goals which are worth these effort.
There are a few more actually: gold is one of the least putrescible materials out there (it's one of the least reactive elements available and as one of the royal metals very few acids can attack it), it has a distinctive look, and it has a very high density (most denser metals were only discovered in or after the 19th century, and are generally more valuable) which makes it easy to differentiate pure and impure golds (such as fake coinage). It also used to strike a good balance between rarity (which ensures the market won't be flooded) and availability (which actually made it usable as money).
Of course, most of this broke down as new, very productive, mines were found (e.g. in South America) and mining techniques improved. And nowadays we have the opposite issue: gold mining output declines, and is unable to follow the value growth of the world itself. This is one of the reasons why most countries moved first to fractional gold standards and then to convertible currency.
"And nowadays we have the opposite issue: gold mining output declines, and is unable to follow the value growth of the world itself. This is one of the reasons why most countries moved first to fractional gold standards and then to convertible currency."
This is just a ruse used by governments as a pretext for inflation. It isn't necessary for money supply to 'keep up' with growth. As demand increases, the value of money goes up, and people simply use smaller units for exchange.
Saying it is just a ruse for inflation is not being honest. Many, though not all, economists believe that deflation causes money to be more valuable tomorrow than today, which leads to over saving which leads to unnaturally low demand. It's not helpful to act as though there is no debate on the subject. I'm sure there are other problems as well.
> This is just a ruse used by governments as a pretext for inflation. It isn't necessary for money supply to 'keep up' with growth. As demand increases, the value of money goes up, and people simply use smaller units for exchange.
The result is exactly the same, you're just making the whole process more painful by rebadging money.
In economic terms what you're describing is called deflation.
During deflation prices keep falling, which causes consumers to post-pone their purchases (tomorrow they'll be able to get that TV at a lower price so there's no point in buying it today) and investors sit on the money since they'll be more valuable tomorrow.
This is the exact opposite of inflation, which causes people to convert 'today' money into goods since tomorrow they'll buy less with it; it also causes investors to put money to good use or in interest-bearing accounts since otherwise they lose the value).
If deflation is so dangerous I wonder why anyone buys consumer electronics which, despite currency inflation, continue to decline in price due to advances in technology. If we experienced the full effect of deflation, today's iPad would cost a much tinier percentage of yesterday's Apple II. Would that have stopped people from buying either? I doubt it.
If we experienced the full effect of deflation, then average wages would be falling, as well as the average prices for everything (not just for consumer electronics, which make up a very small percentage of the average person’s expenditures). This would be particularly bad news for any person or business that carried, or expected to carry, debt. You wouldn’t want to take out a mortgage on a house (or have your company borrow money to build a factory) if you expected that the nominal resale value of the house would go down and your nominal income would go down while your nominal monthly payments would stay fixed.
Consumer electronics are unique right now in becoming orders of magnitude more capable before the old versions even begin failing. New products sell because nothing comparable was even available before and it's inconceivable that next year's version could be better somehow (even though it will). No other category has this going for it.
Gold does not have much intrinsic value (not actually correct anymore, in our modern world gold is used quite a bit in industrial contexts): apart from being shiny, before the 19th century there wasn't much it could be used for. The vast majority of its value was extrinsic and pretty much arbitrary, in its use as part of monetary exchange systems.
Before the 19th century, gold was used for a very important purpose: money. Money is a commodity just like any other, and some things make better monies than others.
What are some characteristics of a good money?
It's divisible. 1 oz. of gold is equal to two 1/2 oz. of gold. Two halves of a diamond are not equal to the intact whole.
It's fungible. Gold coins of the same weight are, for all intents and purposes, the same. The same cannot be said of diamonds or oil.
It resists deterioration/decomposition. (Self-explanatory).
Its rarity/weight/volume characteristics are manageable. You can buy an iPad with a reasonably sized gold coin. The same could not be said of bushels of wheat, lead, stone, oil, etc.
It is relatively easy to identify. This provides anti-counterfeit measures out of the box.
I'm not a gold bug (I own zero gold... not even jewelry), but I do appreciate that it makes complete and total sense that it was used for money for thousands of years. Should 1 oz. of gold be worth $1500? I don't know; I don't follow the market. I do know that gold is extremely valuable due to how well it serves as a medium of exchange, and due to that fact alone.
tl;dr Gold has intrinsic value: it makes a good medium of exchange.
The major difference, of course, is that diamonds are not rare, can be industrially counterfeited, and are easily damaged.
Diamonds, in some way, are the "anti-gold." There is a great game-theoretic reason for why something as completely worthless as diamonds make great engagement rings though: They are something expensive to the male (so he can't repeat the process of proposing very often) - but worthless to the female (so she can't be accused of being a gold digger) - and at the same time sparkly and easy to show off.
> The major difference, of course, is that diamonds are not rare, can be industrially counterfeited, and are easily damaged.
Gold is not rare either. Please re-read my comment, it's about intrinsic and extrinsic value, especially across history. Before modern industrial usages, diamond was all but useless (even worse than gold, if anything) and all of its valuation was extrinsic.
And much like gold's, diamond's intrinsic value has risen in modern times with industrial uses.
> Diamonds, in some way, are the "anti-gold."
Most definitely not. If you want anti-gold, you should look at water instead.
The value of something is how much you can get in return for the thing from a purchaser that you can find. Even "value is what we agree it is" isn't really right, it's what you can concretely get for the thing. (For instance, the fact that a certain Magic the Gathering card is listed in some book for $20 is meaningless if you can't find anyone who will give you more than $5.) There is no other definition of value that's actually useful, but there are plenty of others out there that will lead you astray.
But at least money exists for the purpose of arbitrarily representing "real value". Gold has some real value, it's just quite a bit less than the value we've given it.
Bitcoin is not quantum-hard. When quantum computing reaches a certain threshold, bitcoin will lose its uniqueness and collapse.
There are post-quantum algorithms that are computable on ordinary computers, but they're still under research and they'd make Bitcoin's data set considerably larger.
Bitcoin is not quantum-hard. When quantum computing reaches a certain threshold, bitcoin will lose its uniqueness and collapse.
Could you elaborate which aspect of bitcoin has efficient quantum algorithms? The proof-of-work system requires you to invert hashes and quantum algorithms only give you a quadratic speed up (brute force takes time O(\sqrt{size of range}) rather than O(size of range)). Right now there is no quantum attack on SHA-256 (which is what Bitcoin uses).
There are post-quantum algorithms that are computable on ordinary computers, ...
This sounds interesting, but could you elaborate? What does it mean for a post-quantum algorithm to be computable on ordinary computers?
Could you elaborate which aspect of bitcoin has efficient quantum algorithms?
BitCoin uses public key cryptography for its digital signatures. That in turn relies on the difficulty of factoring large numbers, for which there are efficient quantum algorithms.
Bitcoin actually uses ECDSA for its digital signatures, which relies on the difficulty of calculating discrete logarithms rather than factoring. However I believe that there are efficient quantum algorithms for that, too.
Bruce Schneier has written that quantum computers only halve the effective number of bits for symmetric encryption algorithms, which seem more closely analogous to hashing than factoring. That would be a giant leap in mining capability, but perhaps not so much as to cause collapse. Switching to 512-bit hashes would bring us back to where we are now.
Correct, however the Bitcoin website has an answer for that: upgrade. The cryptographic methods are not fixed for all time, we can switch to other methods (which are quantum-resistant) when it becomes necessary.
Assuming they are available and deployable at that time. It's like arguing against climate change mitigation because a technological solution will present itself: you might be right, but why gamble?
Scarcity of money is not the most desirable end, because the supply and demand for money threatens to change the value of money. Even if all the money in the world were fixed, you would see inflation and deflation, more inflation than you've ever seen on a properly managed fiat money system. This is not mere economic theory, it's a matter of history.
> more inflation than you've ever seen on a properly managed fiat money system
While this may be true, a scarce money system does produce better result than poorly managed fiat money systems. You won't see the kind of hyperinflation that we saw in Zimbabwe with the gold standard.
A poorly managed money system is one symptom of a government that is poorly managed, period, and living under a poorly managed government is always going to suck. If armed thugs loyal to the ruling party come to kick you off your land, steal your valuables, and discourage you from voting for the opposition, you’re not going to be able to pay them off with Bitcoin. (ETA: ...or if you can, the ability to do so is not going to make that country a pleasant place to live.)
Except for the guarantee of uniqueness. Which is one of the most powerful invariants against corruption and government-sponsored inflation, goals which are worth these effort.