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vbuterin comments on Bitcoin value and small probability / high impact arguments - Less Wrong
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Roughly speaking, assets which have received a major amount of public attention and whose store-of-value functionality is the dominant factor in their price. Gold, silver, land and internet domain names are the only others I can think of that vaguely fit there.
So your argument is that gold has a very very large network effect? Reasonable I suppose, but technology has disrupted similarly entrenched things over the past two decades, so you have to add a lot of fundamental uncertainty.
It's quite possible to be anonymous with BTC; the $400m MtGox theft at least is pretty good evidence of that. It just takes a lot of skill. Also, with the growth of meatspace surveillance, I would not be surprised if gold became easier to track than BTC over the next few years.
So for every world where the mugger is Omega, there is a world where the mugger is someone incentivizeable. And I have no idea how to weigh the relative probability of those worlds.
He clearly very likely wants something from me: the subjective experience of seeing my submissive reaction. Bully psychology 101.
I fully agree. However, the full distribution is at least the size of the rectangle defined by my point estimate, so that's actually a point in my favor.
Don't think land (which is productive and "consumable" -- in the sense that you can live on it) fits in here. I am also not sure that silver has much store-of-value role nowadays.
In different times in different societies the store-of-value function was fulfilled by different things. For example, right now empty housing is a major store-of-value in China. US dollar banknotes are a notable store-of-value around the world, e.g. in Russia. Government bonds, especially of reputable governments, are often used as store-of-value.
All in all it's fairly complicated and context-dependant :-) In the West the predominant store-of-value right now is financial securities (stocks and bonds).
But I wonder why are you focusing solely on the store-of-value function, you don't think Bitcoin will be valuable as a medium of exchange?
Depends on the resources brought against you, threat model still matters.
Huh? I don't understand that. And, by the way, what is your point estimate? A mean? A median? Mode, maybe? :-)
Mostly, yes. But gold still has a $7t market cap. But this does open up an interesting argument: that gold is on the whole dying as a store of value and it's being propped up almost entirely by tradition; in this case central bank gold holdings will probably decline 90%+ over the next century. In this scenario, BTC has no chance to replace gold because there's no new interest in gold anyway.
However, I would still argue that there is diversification value in BTC if it simultaneously manages to (i) have value increase proportionately to economic growth in the long term (that basically requires maintaining constant salience in a growing society), and (ii) be countercyclical to stocks; if that pattern repeats over two or three business cycles then I could see investment specialists advocating it in place of gold as part of an "all seasons" portfolio (essentially replacing gold here: http://mebfaber.com/2014/10/24/the-all-seasons-portfolio-aka-the-tony-robbins-portfolio/ ).
A couple of reasons:
Agree. Anonymity depends pretty much completely on threat model in our high-info-inequality society.
$34000 is my "5% chance it will be above this" target (though my discussions here and in that debate have revised me a bit down to 2.5-4%). My mean is around $5000 I suppose, though I include only the 34000 * 0.05 rectangle in my final answer of $1700 as a sort of way of giving myself a safety margin. Median is under $200, mode is $0 :-)
I think this is a reasonable assumption to work under.
Maybe -- that entirely depends on whether BTC actually has value and that hinges on, as you put it, "maintaining constant salience" which is the real issue.
Ah, so $34K is your 5% (or 3%) quantile for the distribution, right?
Okay, this helps. So "will BTC be able to (i) maintain constant salience, and (ii) be countercyclical in the long term, and if it does what value will it have?" seems like the object level issue; definitely makes things clearer than some abstract notion of replacing gold.
Ah I think I've been misunderstanding you. I was thinking in terms of the probability distribution over BTC's long-term value, but I think you're referring to about my probability distribution over the probability that BTC will get to the $34k (or more precisely, my probability distribution over what probability estimate I would have on the topic if I knew more and was wiser). Is that closer to correct?
Well, most any kind of asset has some diversification value. I see no particular reason for BTC to be countercyclical (not to mention that the traditional business cycle of the late XX century seems to be dead at the moment, or at least much transformed) and in any case there's too little data to tell.
And if you think BTC has some extra special value because it will be {un|low|negatively} correlated to the S&P then you need to compare it to a different reference class.
With respect to the probability distribution, no, you were right the first time -- we're both talking about the probability distribution of the value of 1BTC at some long-term point (and you really should define what does "long-term" mean here, in years, for obvious reasons). I'm not talking about hyper- or meta- distribution of your credence.