[ExI] Bitcoin

[Eugen Leitl]

On Thu, Apr 04, 2013 at 03:29:09AM -0700, Gordon wrote:

> Foolish or wise? One thing seems certain: Bitcoin is catching on like fire, at least for now. I might consider the purchase of an ASIC machine if I thought is was worthwhile. Is it?

Difficulty is adaptive. It will adapt to the point where
it is just barely wortwhile to keep mining. If you're
speculating the future value will increase, just buy
bitcoins with your surplus fiat.
 
> As I wrote to another fellow here on ExI, my concern for the long term is that even while Bitcoin is structured such that there is a maximum number of coins which can be mined, ensuring scarcity and thus in this respect making it similar to a precious metal, there is no limit to the number of digital currencies which might compete with it. I know of at least six, including Litecoin which is said to be silver to Bitcoin's gold. But are digital currencies really analogous to precious metals? I rather doubt it. I can make a new digital currency but I cannot make a new precious metal.

There's a network effect working against nonestablished
currencies.

The value of Bitcoin is dependent on the ecosystem of
a network of existing nodes maintaining the transaction
logs, minting new coins, and an according economics where
you can spend them (quite lagging there, obviously).

Precious metals like gold and platinum have industrial
uses, and -- barring quantitative transmutation -- are
going to remain scarce.
 
> I am studied in economics and investments, (in fact I spent much of my life as an investment adviser), but this is mostly uncharted territory for me.