Dan Held, the Director of Growth Marketing at crypto exchange Kraken, expects Bitcoin to reach a market cap of up to $200 trillion. This would price BTC at arou Bitcoin as a 'sexy store of value' will eat real estate for $200 trillion market cap - TheFlipCoin.com. When people say “Bitcoin isn’t a good store of value or unit of account” what they really mean is “Bitcoin isn’t being adopted yet”, which is not a valid complaint. Bitcoin has the right properties for the world’s money, and the more the world comes to terms with this, the more stable it will become. Back to the Memory Pool. Digital money: store of value or illusion? Digital coinage like Bitcoin can't do everything a physical coin can do, but that's not stopping people from giving up real money for them.

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Some recentmumblings onCoinDesk on the idea of a cryptocurrency whose value is stabilized with abuilt-in prescription that manages its supply provoked me to write thisarticle on why this is a vain dream. There is a common fallacy which says thatprice stability is required in order for a currency to function as a form ofmoney. The way people use terms like store of value and unit of accountpresumes stability. However, I will show that in an unstable world, a stablecurrency is counterproductive and furthermore that an unstable currency servesthe traditional purposes of money, to the extent that they can be meaningfullydefined in unstable conditions.

First of all, it is impossible, long-term, to expect an algorithm to maintainthe stability of a currency. There will always be money to be made bypredicting the algorithm’s future effect on supply, and once people havelearned to do so then the algorithm necessarily ceases to achieve its desiredresults. For someone who gains by anticipating such an algorithm is notproducing something valuable that other people want to buy, so he must begaining off of other investors, who are losing. That means other peopleholding the currency, which means that the currency cannot possibly bestable—either it is dropping in price, or the supply is rapidly declining.(The outcome would depend on the details of the prescription.) This cancontinue until the market cap of the currency goes to zero. In order tosucceed at manipulating the price to keep it stable, the prescription mustnever allow traders to adapt to it. It must continually be smarter thaneveryone else. This is not something anyone can reliably guarantee, especiallya Bitcoin startup (if history is any guide). This is the same reason thatattempts to create crypto-equities that track the price of gold or dollars andother things through protocols like ProtoShares andMastercoin won’t work. Itis also why the federal reserve is traditionally so secretive, why thechairman tries to talk without saying anything, and why his or her every moveis so deeply scrutinized.

Stability is about as real as the fountain of youth, love potions, orperpetual motion machines. It is not to be found anywhere in the universe butfor some reason people act as if such a thing could somehow exist. Pricesreflect the availabilities of things that we actually can have, so maybe weshould all stop searching for chimera of stability and accept that if theworld is unstable, than prices ought to be unstable too. Otherwise pricescould not serve the function of enabling people to coordinate the allocationof scarce resources.

Right now the world is deciding whether it wants Bitcoin to be its money.That’s kind of a big change, and it’s pretty reasonable that Bitcoin would bevolatile. Will Bitcoin take over orwill it drop to nothing? Fundamentally we don’t know and the rapid changes inBitcoin’s price reflect the confusion and self-doubt in the minds of realpeople trading it, and this is exactly what they should be doing becausewithout price signals, there could be no Bitcoin adoption. Bitcoin’sexponential growth is a very strongsignal, and if Bitcoin were stable,there would be no such signal. There would be no dedicated community ofenthusiasts because no one would have any particular reason to want it to beadopted other than the company issuing it. And that company could not offerany value with its stable currency because it cannot unilaterally createliquidity, which is the fundamental thing that makes a currency useful.

What actually makes for a good store of value? The problem with this term isthat it is a terrible metaphor. When we store a physical object, typically weshut it away from other people in another object, like a box or something. Butwhat if I had a box that, like Tinkerbell’s magic, only existed if otherpeople believed in it? That’s what a store of value is like. Value is not aphysically real thing, like the box. It is an expectation about how muchpeople want something. The whole idea of storing value is absurd. It’s likesome kind of dream logic. The only way that a good can “store value” is ifeveryone wants it so badly that it will be snapped up even at a tiny discount.

This does not mean that anything can be a good store of value. Everyonecould treat, say, plastic poker chips as a good store of value and they wouldonly behave like one until people realized that they were easy to manufacture.But suppose there were another metal which had similar properties to gold: itwas durable, rare and difficult to extract, and distinctive enough to bedifficult to counterfeit. However, the state of our science was such that itwas only just being identified by chemists. This new metal would certainly nothave a stable value initially upon its discovery because it would take timefor the world to learn about it, but it would be perfectly rational for thechemists who did understand it to buy up as much as they could until the restof the world had got wind of it. Once this metal’s properties were understoodby the whole population, then it really could “store value” because everyoneelse would be using it for the same purpose.

Stability occurs (to the extent that it can happen at all) once everyone hasnot only learned of the favorable properties of the good but has learned thateveryone else also knows of those properties. If I know that Bitcoin is bothscarce and unforgeable, I may still be scared to put my money in it because Imay fear that other people won’t treat it like a store of value. Furthermore,everyone could think this way at the same time, and the market therefore stillbehave fearfully. This is why people must be convinced that everyone elsebelieves in Bitcoin too. People today are both coming to terms with Bitcoin’sproperties and are confused about how much the rest of the market believes inthem. Hence there is fear and volatility. Nonetheless, Bitcoin cannot becounterfeited and its supply is not likely to change, no matter what elsehappens in the future. This is the best that can be done, as far asengineering goes, to design something to be a store of value. The rest is upto everyone else, not the engineer. Thus, if Bitcoin is going to succeed, thenit’s a good store of value.

Now, what about Bitcoin as a unit ofaccount? Unlike store ofvalue, this is actually a really good term, but unfortunately people do nottake it literally. When people say unit of account, they seem to wantsomething that will reliably measure wealth somehow, or that things can bepriced in without having to be constantly updated. But these are just otherways of chasing the siren song of stability. Here too, if the world ischanging then prices should be changing, and one can only imperfectly compareone’s wealth at different times. Really, one can only compare differentalternatives which would have taken place over the same time.

Yet there is a worthwhile definition of ‘unit of account’ under thesecircumstances. It is very simple: a unit of account is something such that togain it is considered to be profit and to lose it is considered to be loss.Anything can serve this function, but the reason we would especially want touse liquid goods as a unit of account is that when we are liquid we don’t haveto think too far into the future. Thus, acquiring a liquid good serves as areasonable end point to any venture. When you’re sitting on a huge pile ofcash, you know that you’ll be fine for some time no matter what happens.Whereas if we were on a barter system with no highly liquid goods around, thenone would have to think much further ahead in order to assess the success of aventure. Thus, thinking of profits and losses in terms gaining or losing aliquid good is essential to being able to divide the entire future intomanageable tasks—as

Bitcoin Real Money Or Store Of Value