re: #84 wheat-dogg

The dollars (or yuan) I have in my bank account, which I assume are held as physical currency somewhere, are represented as bits in a computer system. When I pay a bill, those bits are what are moved, not the physical currency. That was my point there.

Yep, I understood that, which is why I pointed out that this view is misleading in the case of Bitcoin.

As for Bitcoin, I would argue that computational power does not determine its worth, but only the quantity you may have stored in your computer system. Bitcoin values have risen from $200 last year to over $3000 in recent days, and those prices have no connection to computational power, which has not seen similar spikes. There are other factors affecting Bitcoin values, including simple speculation and growing interest within traditional financial markets in the technology.

Same is happening with gold, despite the finite supply and (at least to my knowledge) no wild swings in extraction rate.

The key point is this: Bitcoin is intentionally designed to have a finite money supply, to mimic the gold extraction process. Mining bitcoins becomes progressively harder and at some point it will stop.

If the world economy was based on Bitcoin, it would be a throw-back to the time of the gold standard. There would be no way to intervene in crises to manage the money supply. The built-in deflation would cripple any economy, and make sure that those who have money will see their net worth constantly increasing without lifting a finger.

And that’s in addition to the problems we already have.