[Cryptography] On Security Architecture, The Panopticon, And "The Law"

[Jerry Leichter]

On Dec 30, 2013, at 4:45 PM, John Kelsey wrote:
> But bitcoins are online, and their volatility makes them an awful store of value.  (They can be a speculative investment, but they aren't where you'd want to park your retirement fund on your 60th birthday.) They're too volatile to be a good unit to price things in, too....
Compare BitCoins and gold.

In theory (and in practice over quite long periods - on the order of decades), gold is a remarkably steady unit of value.  Similar items purchased at times far away from each other have about the same price in units of gold.  So gold isn't an investment - it's a store of value.

At least that's what classical economics says.  In practice ... over the last three years, the price of gold in dollars has dropped over 30%.  The purchasing power of the dollar in real world terms - i.e., the dollar inflation rate - comes to about 6 percent over that interval, and it's been pretty steady.  So gold - the "hardest" currency - in practice ends up being more volatile than the dollar - the "fiat" currency!  (The price of gold fell 1.6% just today - compared to a dollar inflation rate over the *entire last year* of just 1.2%.  As far as I know, nothing particularly special occurred in the gold markets today.)

People like to compare BitCoin to gold.  Well ... BitCoin may have extremely high volatility, but that actually makes it more like gold and less like dollars!  (And it makes it clear that the price of both is strongly affected by things that have nothing to do with what they can buy.  For gold, those things tend to wash out over long periods of time.  We don't know what will happen to BitCoin over comparable periods of time as it hasn't been around long enough to observe how the market actually treats it over long periods.)

                                                        -- Jerry