Discussion of Bitcoin's value as digital gold

The debate about bitcoin's value as "digital gold" focuses on whether its limited supply will actually sustain its value. Critics point out that bitcoin's value depends on supply and demand, and that its value could decline if miners' profits are halved. In contrast, the counterargument is that bitcoin's design is geared toward long-term stability and that transaction fees could become a new source of revenue for miners. The unique properties of bitcoin include decentralization, immutability, and global access, but there are concerns about short-term fluctuations in value due to inflows of speculative funds.

Traditional economic perspectives emphasize the need for value stability and widespread acceptance for bitcoin to function as a means of value storage, a medium of exchange, and a unit of computation. The future of bitcoin is uncertain, and its value and economic role will continue to evolve. This discussion illustrates the potential value of bitcoin and its challenges, and its future will depend on market trends and technological and economic developments.

Discussion

nishio.icon

Isn't the idea that "bitcoin is as valuable as gold because the total number of bitcoins issued is limited" (digital gold) foolish in a situation where miners' profits are regularly cut in half due to the halving of bitcoin? Even if the quantity is limited, if there is no demand, it has no value. If the fee income of miners falls below the cost associated with power consumption, miners will leave, and the value exchange platform will lose its function as a value exchange platform. If the value begins to decline, speculative funds will also flee, leading to a rapid price decline, right?

gpt.icon

The debate about the value of bitcoin is very complex and involves many factors. One reason bitcoin's value is perceived as "digital gold" is that its supply is limited. Certainly, the problem exists that bitcoin's half-life regularly halves miners' profits, thereby reducing their incentive to miner. However, the bitcoin system is designed to absorb such fluctuations and maintain long-term stability.

The half-life of bitcoin acts as an inflation suppressor by reducing the rate of supply of new bitcoin. This is considered one of the factors that support the value of bitcoin in the long run. On the other hand, miners' revenues depend not only on mining new bitcoins, but also on transaction fees. As bitcoin use and adoption increases, income from transaction fees could increase. This is an important factor in maintaining incentives for miners and supporting the security and functionality of the network.

Indeed, the value of bitcoin and other virtual currencies depends largely on demand. If demand decreases, the value will also decrease. However, bitcoin's value is not simply due to its limited supply, but also to its unique characteristics (decentralized, secure, transparent, etc.). These give bitcoin a unique value compared to gold and other means of value storage.

In addition, the community of miners is highly competitive and strives to maintain profitability by developing efficient mining techniques and reducing power costs. In the long run, the bitcoin network has continued to evolve while experiencing these fluctuations.

Ultimately, the market will determine the value of bitcoin, and as long as there are people who find value in it, bitcoin will continue to have value. While it remains to be seen how bitcoin will develop and what challenges it will face in the future, its unique nature and potential make it an attractive investment for many.

nishio.icon

True that "will continue to have value as long as there are people who find value in it" is a misleading assertion that makes it hard to see that it is not "will continue to have the current level of value." Aside from that, what is value if it has unique value compared to gold or other means of storing value?

gpt.icon

The unique value that bitcoin has compared to traditional means of value storage, such as gold, can be broken down into several aspects.

DECENTRALIZATION: Bitcoin is based on a decentralized network, meaning that there is no central authority or government control. This provides a means of value storage independent of government policies and the instability of the financial system.

Immutability and Transparency: Bitcoin transaction history is recorded in the blockchain and is extremely difficult to tamper with. This ensures transparency and increases trust in the system.

Global access: Bitcoins can be sent and received from anywhere with an Internet connection. This is especially valuable for people in areas where traditional banking systems and financial services are out of reach.

Limited Supply: Bitcoin has a limited supply of up to 21 million coins. This serves as a protection against inflation and helps to preserve value in the long run.

Portability and divisibility: Bitcoin is digital, does not require physical movement, and is divisible into very small units. This facilitates large asset transfers and micro-payments.

SECURITY: Strong cryptography keeps your Bitcoin ownership very secure. No bitcoins can be sent without the correct private key.

These characteristics are why bitcoin offers a unique value that sets it apart from gold and other means of value storage. However, these characteristics are not valuable to everyone, and an individual's valuation of bitcoin is highly dependent on their objectives, risk tolerance, and beliefs. The value of bitcoin is determined by what market participants place on these characteristics, and that valuation can change over time.

nishio.icon

Their value as "long-term value preservation instruments" should be undermined once they are in a stage where speculative money is expected to enter the market and raise prices and increase volatility in the future. Those who have traditionally owned them as a means of value preservation would sell and rebalance at this time to lower their risk.

gpt.icon

Indeed, the influx of speculative money into an asset such as bitcoin can increase short-term volatility, which can temporarily impair its function as a value storage instrument. The price of bitcoin has fluctuated significantly many times in the past, which represents a risk for some investors and an opportunity for others.

It makes sense for those who own bitcoin as a long-term value preservation vehicle to rebalance (adjust their investment portfolio) by selling during periods of price appreciation as part of their investment strategy. This approach is taken by many investors to manage risk and secure investment results. In particular, periods of rapid appreciation in the price of bitcoin may provide good opportunities for profit-taking selling and reassessing risk.

However, investors with a long-term view of bitcoin view price volatility as a short-term phenomenon and focus on its fundamental characteristics and potential future value. These investors believe that the unique characteristics that bitcoin offers (limited supply, decentralization, security, etc.) will support its value in the long run.

Investment strategies are highly dependent on an individual's risk tolerance, investment time horizon, and view of the market. While all investments, including bitcoin, involve risk, proper risk management and a long-term perspective are critical to investment success. Because new asset classes such as Bitcoin exhibit particularly high volatility, investors should understand the risks and adopt a strategy that is consistent with their investment goals.

nishio.icon

I think you have been strongly influenced by the positive propaganda articles against Bitcoin on the web. Re-examine the above argument based on traditional economics findings prior to bitcoin.

gpt.icon

Considering bitcoin and other virtual currencies from a traditional economics perspective, it is important to analyze their function as a means of value storage, a means of exchange, and a unit of computation. Traditional means of value storage (e.g., gold) generally hold their value due to their physical properties, scarcity, and historically cultivated reliability.

means of storing value

While traditional means of value storage have the ability to retain their value over time, bitcoin's value is highly dependent on market supply and demand. The value of a digital asset like bitcoin is supported by its technological underpinnings, limited supply (up to 21 million bitcoins), and the trust and expectations of market participants. However, high volatility can undermine its function as a means of value storage, and traditional economics emphasizes the importance of value stability.

method of exchange

As a medium of exchange, bitcoin offers new possibilities for cross-border remittances and payments, but its use is still limited. In traditional economics, a currency needs to be widely accepted. At present, bitcoin has limited acceptance and its highly volatile price makes its use in daily transactions unstable.

Calculation Unit

Its function as a unit of calculation indicates the degree to which a currency is accepted as a measure of value. Bitcoin is not yet widely used as a unit of calculation. The volatility of its value makes it difficult to express the value of goods and services in bitcoins.

Conclusion.

From a traditional economics perspective, several challenges must be overcome for bitcoin to fully function as a means of value storage, a medium of exchange, and a unit of computation. In particular, value stability and broad acceptance are critical. While these challenges may be resolved in the future through technological advances, regulatory frameworks, and market maturity, bitcoin's economic role and value will continue to evolve.

Virtual currencies, including Bitcoin, are a new phenomenon that is not fully understood within the framework of traditional economics, and their characteristics and market behavior will continue to be the subject of study and debate.

I felt that GPT4's claim was unbalanced, so I went into it and got an answer that was close to my feeling.

This does not mean, however, that the former is wrong and the latter is right.

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