Today I had an interesting encounter with one of the economists I know. We discussed what Cryptocurrency and Blockchain were and the value behind them.
Here are some key points he brought up:
The dollar is backed by gold, the gold is the bareback of it. What is behind Bitcoin?
What inherent value does Bitcoin have?
We don't know how created it, maybe it's a government funded project
It's just speculation, the technology hasn't been tested yet.
My answers:
At one point, I think I lost because we value Bitcoin in Dollars. So, it's "backed" by dollar technically, even when we use Bitcoin to pay for something, it's calculated in $.
Bitcoin's core values are the following: Open source, censorship resistant, decentralized, peer-to-peer and verification of rules (everyone can be part and run a full node).
We don't know it, and it also can be some guy in his basement for all we know. It's core values prove that this is not government funded project, it can't be. How could they benefit? One of the interesting theories is that they released this untested technology to the masses and let them develop it further to then adopt it if it works.
Yes it is speculation, but internet was a speculation as well back in the days. I heard that when they sent out the first bits of information, the whole internet crashed. The technology needs time to adopt, and since there are so many programmers and IT experts around the world, we will see adoption of this technology even faster than ever before.
But here's the kicker that I have been thinking about since we talked: He believes the private/public sectors will adopt the Blockchain, the governments, businesses to further improve their systems. But it will NOT be an open Blockchain, rather a Centralized Private Blockchain. It will just be Database replaced with the word Blockchain, same principles. Non-censorship resistant and not open source.
I want to know what you guys' thoughts are on this. How would you counter these arguments? Let me know because this last thing has been bugging me the whole day!
The dollar is not backed by gold. Backed by gold means you can exchange the dollar for gold at the bank. This hasn't been the case for a very long time. Similarly, because something is "priced" in dollars does not mean it's backed it. Dollars are what everything is valued in in our economy. Bitcoin, as an asset, is just another one of those things priced in dollars because it's what people are familiar with. Bitcoin's value is arbitrary. There's just a significant enough group of people insisting it has value so it does. I find bitcoin's utility to be very low and not anywhere near the value it currently has. As more people disagree with the price and refuse to buy, the price falls, as it has been steadily now for 8 months.