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What is the reasoning behind the notion that because bitcoin has no intrinsic value therefore it's not suitable as currency? Or, to put another way, if no one "held" US dollars, but simply used them to spend or invest, would that invalidate it as a currency for buying chickens? The author addresses the difference between bitcoin and fiat currency (...


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The price is unstable because there's a fairly small free float (the quantity available for buying and selling with true currencies) compared to the level of transactions. It's a Ponzi scheme, so demand is driven by Bitcoin marketing: it is in immediate financial interest of the holders of Bitcoin to drive up the price by "ramping" it: talking up the market ...


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The independence of the central bank means that the bank is independent of the government. A mandate of the central bank is to ensure price stability. However any excess cash the bank prints is the property of the government. The government enjoys having extra income and were it allowed to exercise direct control it may push the bank to print more money. ...


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Your coins do not have 0 inflation in the long run First, we need to set straight that you have a critical error in your supposition: The rate of creation of money is not the only determinant of the inflation rate, see here. Even if we ignore these equilibrium effects, is any of these coins superior in its rate of money creation? Suppose hereinafter that ...


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As there is no practical limit on the number of cryptocurrencies that can be created, and as no one crpytocurrency has a unique advantage over any other, and as no cryptocurrencies are legal tender anywhere, the theoretical market cap of any one cryptocurrency has zero underlying value. What its actual market cap is, will depend on how many suckers can be ...


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I'll draw from John Cochrane's article and working paper, which provide some great points. Bitcoin doesn't provide dividends or an interest rate, there isn't any payment or reward for saving in Bitcoins by itself. Therefore, it has 0 expected value of dividends and should have a price of 0. But it has a positive price in real life. There are two reasons for ...


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There are two ways to look at the value of a financial instrument. One is the underlying asset base, the other is the yield. Bitcoin has no underlying asset base and no yield. Therefore, its only value is whatever people imagine it to be. In other words, it's completely overvalued. But that does not mean it is on the verge of massive corrections. There is ...


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Bitcoin has two different audiences right now. One group wants to use it to transfer money in a hard to trace manner and is willing to take some risk and some frictional costs to do it. Some of these are criminals and some are just people who don't want to have to do the currency exchange themselves. The other group is speculating on a change in the value ...


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Bitcoin doesn't have a value. It doesn't create wealth - it destroys it. It therefore has no yield. It does, however, have a price. It's designed to have tightly-constrained supply, so that those people who got bitcoins early, can get rich by luring more people into buying bitcoin. And demand is just as large as the number of gullible people who can be ...


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There isn't any good way to rehabilitate the quantity theory when there are other currencies that are perfect substitutes for dollars - so in that sense, there isn't any answer to Landsburg's question. Indeed, the irrelevance of the quantity theory under perfect substitutability - which has always been theoretically clear - has become a practical reality ...


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People think that inflation is bad when it gets out of control, say when its more than 3 or 4% a year. The idea is that we all make economic decisions based on prices and its harder to make those decisions when the prices are constantly changing! Moreover, we try to avoid holding on to money and committing to a price for a long time, because we know those ...


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In general, it is possible to find assets that earn a positive yield. There are still positive-yield low-risk bonds and savings accounts out there, for most currencies. Therefore, rational people should in general prefer these to a higher-risk asset which has zero yield. So, your quote is saying that the only way that rational people will choose to hold a ...


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I'll try to fit this in an answer. I think you are confusing nominal and relative value. Inflation means that the 'value' of your money depreciates relative to other things. For example, in the year 2000 I could buy a bread for 1 USD. In the year 2015 I can buy a bread for 2 USD. This means that the dollar lost half of it's value relative to bread. But ...


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It is conceivable that one of the functions of a Central Bank, of being a regulator of money supply, could ultimately be automated, if artificial intelligence were to advance enough. However, that role is much more complicated than merely feedbacks on flow of money, inflation and fractional reserve. So for the foreseeable future, that's a role filled by a ...


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Unfortunately, those who are riding the current trend do not have a clue about what they are doing. I guess, they don't even think of hypothetical situations you've given above to legitimise cryptocurrencies, instead, they appear to be enjoying the joyride. If anything, cryptocurrency trading is more like a fantasy share trading with real consequences. As ...


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I did some napkin math based on your data. At 4 tx/s and 8GW, that is 2GWs per transaction. 0.5kg/kWh is around 139kg/GWs. Thus each transaction is around 278kg. Looks like we reached the same answer. But is this the carbon footprint of one Bitcoin transaction? To put it differently, if there was a global carbon tax, would it makes sense to charge for ...


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I thought someone would have answered this by now. Folks will argue but bitcoin is still a relatively new currency. A couple of regulations here, some stolen money there, and a lot of people may stop using it. NVidia and AMD's target market (gamers and graphics designers) have a fairly predictable demand. This bitcoin thing is a new category and no one ...


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There is an existing body of economic thought that looks at this issue - the analysis of rules-based policy. One earlier suggestion was the monetary growth rules of the Monetarists. Currently, “Taylor Rules” are a popular research topic. (There are a number of other questions about Taylor rules on this website. One that touches on similar issues is here: ...


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I confirmed my understanding by directly comparing to btccny and btcusd. I think gaps between the green and purple lines represent arbitrage opportunities. When the purple line is above the green line, there's a corresponding increase in the value of bitcoin to buyers with yuan relative to buyers with usd. In this situation, theoretically you could buy ...


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Regarding your question before the update: 1) Yes, they have the same units ("how many units of CNY you need to buy one USD", either directly or through a bitcoin intermediary). That is the whole point of arbitrage. 2) It seems that "the global forex market" and "the bitcoin market" seem separate to you. If by the former you mean big investment banks, ...


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Bitcoin can not have a real inflation rate because its value is purely speculative. Bitcoins themselves have no inherit value (intrinsic nor extrinsic). You only acquire a bitcoin because you think another person will want it for the same or higher value that you did. Thus any deviation in its value reflects pure speculation. At least with dollars, they ...


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