RE: Crypto or Fiat Currency: It's All About Trust
I'm happy to find your incredibly well researched and written article. I did a presentation to a high school economics class on a similar idea a couple years ago (minus crypto) and for the first time the kids felt like they understood money. I can only imagine what they think of crypto as a solution to some of the problems of money now. Thanks for this.
My only question is, what happens after the last BTC is mined? If perception of value creates value, then you'd have to have the mining fees be high enough to incentivize people to secure the network transactions while also being low enough that people will pay them when they could use a cheaper crypto instead. If that "value assessment" doesn't match, you have a complete collapse of the coin. BTC literally goes to zero, because miner's won't verify transactions for what traders think the verification is worth. Thoughts?
I had the same thought. I'm not a cryptographer and I'm not an economist. My formal areas of study were history, literature and foreign languages. But I do dabble and try to wrap my head around ideas outside my areas of expertise. Writing this blog taught me a lot.
One thought, though: If there is a finite number of Bitcoin, won't they become incredibly valuable, precisely because they are rare? It seems human beings want to own things nobody else has. Beats me why that is, but just the fact of rarity increases value. That's the best I can do:) Thanks for commenting.
I'm a non-technical person who wandered into semi-technical work across my career, so all this crypto stuff is a bit of a stretch for me as well. It's good to focus an interdisciplinary lens on the subject. We can see what purely technical people may not.
And you're right that scarcity will make it more valuable. But the coin only continues having value as long as it is traded. It is the financial viability of that trading that is at question. Last Dec. there was a point where it cost more to send some volumes of BTC than the amount of BTC being sent. Once people experience that once, they don't want to send BTC at all. Hopefully the market does self-correct in a way that satisfies both transaction verifiers (who are no longer mining new coins) and traders. But it is one vulnerability I see.
I know in his whitepaper Nakamoto (whoever that is) refers to profits from Bitcoin as being derived from 'fees', after the finite mining activity has ceased. If fees are exorbitant, then of course this is not a viable plan. I hope, for those people who have ventured into Bitcoin universe, that Nakamoto anticipated this difficulty and incorporated a solution. In time, Bitcoin may turn out to be the Benz Patent Motor Car of cryptocurrency--a forerunner but not the final model.
Thanks for giving me something more to think about :)