I still have no idea what the basis of Bitcoin value is.
What material value does a bitcoin have?
I mean, if you have a pound it's backed by the treasury. If you have a lump of gold then you have a physical lump of gold. If you have stock then you own a legal percentage of a company.
Bitcoin 'mining' is a combination of processing power and the energy used to process/mine, if I have my facts straight.
Creating 'wealth' that has no inherent value, physical presence, or government backing, makes no sense to me.. it's virtual wealth that can buy real things?
I understand the abstraction, I do it all the time with a credit card... I'm handing over a square of plastic that has no inherent value, and receiving goods in exchange. But my credit card is backed by the credit company, which is in turn funded by my bank, which in turn has cash I earned, cash which is backed and guaranteed by the Treasury, ergo government. So at the end of the Credit Card chain is a governmental guarantee, backed by national wealth.
I hand over a Bitcoin, I recieve goods, where is the chain that leads to bitcoin's inherent value?
Someone explain this to me as though to a 5 year old.
From my understanding of Bitcoins, you're on the right path Kelt, there is no inherent physical value associated with a Bitcoin.
It's only value is derived from a system of wants only... I have Bitcoin... other people want Bitcoin... hence it has value. The 'mining' part is important as it ensures there is only a finite number of coins in issue.
It was originally set up to allow for anonymous transactions on places like Silk Road and was essentially only trade-able on these 'other internet' markets.
Since almost the whole world got rid of the gold standard, all monies value comes solely from it's 'wanting' power. As you say though, stability is lent by having the backing of sovereign government's Treasury. No such stability with Bitcoin, and this is why we see the wild fluctuations in prices when they are given validity by the federal judge in the US hearing declaring them a valid currency.
Similarly, I'd imagine it's value would decline if sites that currently accept payment via Bitcoin were to stop for whatever reason. And it's a volatile currency because there is nothing stopping vendors putting their hands up and going 'fuck this... too much of a headache, I'm not dealing with this currency anymore', which is something retailers can't do with GBP/USD etc. In fact, I'm sure their value did plummet to next to nothing when Silk Road was shut down.
What confuses the life out of me in the whole process, is why would seemingly legitimate online businesses accept it as payment for goods. If I was in charge of any of these below businesses, there is no way in hell I'd accept payment for goods in a currency so volatile, that comes with a fairly high likelihood of being sourced from shady activity. But the fact that they do accept Bitcoin is what gives it its value.
But yeah, it's a mindfuck and the woohoo could be completely wrong on all of the above
Edited by woohoo, 30 November 2013 - 11:44 PM.