A worthwhile read for all PP'ers

General Discussion on the Permanent Portfolio Strategy

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Kevin K.
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Re: A worthwhile read for all PP'ers

Post by Kevin K. » Thu Oct 21, 2021 5:50 pm

flyingpylon wrote:
Thu Oct 21, 2021 3:39 pm
Umm... Kevin, was that you? ;D

2021-10-21_16-34-24.png
Yeah it was me, but any resemblance to Samuel L. Jackson is purely coincidental. ;)
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Re: A worthwhile read for all PP'ers

Post by Kriegsspiel » Thu Oct 21, 2021 6:13 pm

flyingpylon wrote:
Thu Oct 21, 2021 3:39 pm
Umm... Kevin, was that you? ;D

2021-10-21_16-34-24.png
LOL
And as for him who lacks the courage to defend even his own soul: Let him not brag of his progressive views, boast of his status as an academician or a recognized artist, a distinguished citizen or general. Let him say to himself plainly: I am cattle, I am a coward, I seek only warmth and to eat my fill.
Solzhenitsyn, Live Not By Lies
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Re: A worthwhile read for all PP'ers

Post by Kevin K. » Thu Oct 21, 2021 6:21 pm

bitcoininthevp wrote:
Thu Oct 21, 2021 12:06 pm
If you take out the long bonds, you are speculating that there will not be continued deflation. Likewise with cash/cash equivalents.

Devil's advocate: If you allocate 25% to long bonds you're buying very expensive insurance against one of the least likely economic conditions. And it's also very weak insurance insurance because unless interest rates not only go negative but stay there you don't have much deflation protection anyway. In short, a full 25% for deflation protection never made sense and with interest rates being where they are now it makes even less. As for cash, it provides moderate inflation protection but not deflation protection - and at this point the only sure thing it guarantees is dry powder that loses ~2-5% annually to inflation


Harry mentioned Gold is the worlds second favorite money. And it actually ISNT a good inflation hedge in the short term/smaller inflations. I could see a holding of BTC/GLD ratio that matches the "market cap" of each as a "reasonable" way to have a fluid approach to recreating "the worlds second favorite money" in this modern time.

Not sure what you mean here. Gold is currency but it's not widely used as money and isn't even included in lists of the world's most popular currencies.

TIPS are a bad idea as they are based on government stats that influence their price, government can buy or sell them to influence the price further, all while you are using those TIPS to supposedly help you combat government misbehavior in the money! Financial repression is coming and things like TIPS will be destroyed, I think.
Yeah I understand that old "don't buy your insurance from the arsonist" argument and kind of agree with it, but if there's one thing we've learned during this pandemic is that the Fed's willingness to use liquidity to suppress interest rates, debase the value of the dollar and inflate the value of risk assets knows no bounds. TIPS are a small part of the Treasury market. I'm a lot more concerned about the way government misbehavior affects the yields of nominal Treasuries of all durations - not to mention our politician's ongoing willingness to undermine "full faith and credit" promises by playing stupid games of chicken with the debt ceiling. Sure seems like there's a good chance stupidity will get the job done before financial repression even gets an at-bat.
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Re: A worthwhile read for all PP'ers

Post by jalanlong » Tue Oct 26, 2021 12:48 pm

I guess my provisional answer to the "what replaces gold?" question would be that there is no perfect replacement but that iBonds provide the guaranteed inflation protection that gold has never offered

I think that one of the original reasons for the inclusion of gold is that gold is the one asset which has no counterparty risk. By replacing it with a government bond then you are adding yet another slice of the portfolio that depends on government keeping its promises.
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Re: A worthwhile read for all PP'ers

Post by Jack Jones » Tue Oct 26, 2021 1:16 pm

I Shrugged wrote:
Wed Oct 20, 2021 3:41 pm
I love everything about it except the speculative nature/ price movement. Of course I say that with only a vague understanding of how it works.
Anyway, when and if the price ever settles into a range that inspires long term confidence, then I'd be willing to get in. And if that price is 200K, that's fine. I don't need to get rich in Bitcoin. If it's not going away, then I can wait for it to be what I want it to be. And if it's going away, then I will be glad I waited. That's not exactly conventional thinking about it, but it's my take.
This is a good approach.
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Wed Oct 27, 2021 1:13 pm

Jack Jones wrote:
Tue Oct 26, 2021 1:16 pm

This is a good approach.
I'm not sure if this is a good approach, but I would like to explore it further.

The question I would ask is, does bitcoin take value away from gold?

If and when bitcoin settles into a range that inspires long term confidence, and if it has taken value away from gold would you agree that it was just as risky if not more risky to have only held gold as your store of value during the time it took for bitcoin to settle into this range?

I have taken the approach that the least risky position is to weight bitcoin and gold according to the probability that they will make up the future basket of assets that is the proxy for a long term store of value.

I struggle with this, because on the one hand I believe that a piece of art can have store of value properties, but on the other hand I believe that there is a fixed amount of value that is divided among all forms of stores of value so that it is a zero sum game between them. In other words if value goes into being stored in bitcoin then it is being taken from something else (whether it is art or gold, etc.).
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Re: A worthwhile read for all PP'ers

Post by Kevin K. » Wed Oct 27, 2021 2:40 pm

vincent_c wrote:
Wed Oct 27, 2021 1:13 pm
Jack Jones wrote:
Tue Oct 26, 2021 1:16 pm

This is a good approach.
I'm not sure if this is a good approach, but I would like to explore it further.

The question I would ask is, does bitcoin take value away from gold?

If and when bitcoin settles into a range that inspires long term confidence, and if it has taken value away from gold would you agree that it was just as risky if not more risky to have only held gold as your store of value during the time it took for bitcoin to settle into this range?

I have taken the approach that the least risky position is to weight bitcoin and gold according to the probability that they will make up the future basket of assets that is the proxy for a long term store of value.

I struggle with this, because on the one hand I believe that a piece of art can have store of value properties, but on the other hand I believe that there is a fixed amount of value that is divided among all forms of stores of value so that it is a zero sum game between them. In other words if value goes into being stored in bitcoin then it is being taken from something else (whether it is art or gold, etc.).
My take away from the blog post with which I started this thread is that crypto is very likely usurping gold's role to a considerable extent. This doesn't mean that will always be the case and certainly gold's thousands of years as a proven store of value and as currency deserves respect. But not necessarily 25%-of-your-total-portfolio respect.

I've posted this link in another context but it may be of interest to some. The author, Steven Evanson, is principal at Evanson Asset Management, a well-known financial advisor in the DFA/Modern Portfolio Theory world. Evanson is no gold bug but also no Boglehead and often has clients include 7-15% gold in their portfolios. He tends to be very defensive and bearish in his outlook and is at least as cynical about Wall Street and politicians as most who frequent these forums.

https://www.evansonasset.com/alternativ ... ses-64.htm

Then there's the well-known early retirement blogger ERN, who is a bona fide gold hater (or at least strong disliker) who nonetheless says that 15% in gold is a good way to hedge against sequence-of-returns risk in an otherwise equity-heavy portfolio:

https://earlyretirementnow.com/2020/01/ ... s-part-34/
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Wed Oct 27, 2021 3:05 pm

Thanks for think links.

I actually don't think that this is a generational issue but just a matter of what the fundamental nature of gold and bitcoin are.

I fully expect bitcoin and gold to exist almost with an even split market cap once everything stabilizes because there's really no significant difference in either one that would cause much of a value difference between them at that point.

What would you say about the risks of not owning bitcoin or owning only once it matures. Do you think it actually makes the HBPP more risky because it has no exposure to bitcoin when it should? Or do you think that gold is and will always be the barometer for store of value and that bitcoin will just catch up and then match gold's performance once it does and so in a sense it was never a store of value until that exact moment where bitcoin and gold trade in tandem.

As of the launch of the bitcoin futures ETF in the US, I believe it represents an endorsement that bitcoin will not later on be made illegal. I'm pretty much convinced that the scenario I mentioned above is going to play out so it seems like we should be trading gold for bitcoin to the extent that we accept the volatility impact to our portfolios.

There are various ways to achieve this.

1) Bite the bullet and just go 50/50 gold/bitcoin right away.
2) Weight it according to current market cap.
3) Dollar cost average selling gold into bitcoin.

Also, for those who do not agree this scenario will play out, other than bitcoin being made illegal, can you share why you might think bitcoin will not reach this level of maturity?
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Re: A worthwhile read for all PP'ers

Post by D1984 » Wed Oct 27, 2021 3:46 pm

vincent_c wrote:
Wed Oct 27, 2021 3:05 pm
Thanks for think links.

I actually don't think that this is a generational issue but just a matter of what the fundamental nature of gold and bitcoin are.

I fully expect bitcoin and gold to exist almost with an even split market cap once everything stabilizes because there's really no significant difference in either one that would cause much of a value difference between them at that point.

What would you say about the risks of not owning bitcoin or owning only once it matures. Do you think it actually makes the HBPP more risky because it has no exposure to bitcoin when it should? Or do you think that gold is and will always be the barometer for store of value and that bitcoin will just catch up and then match gold's performance once it does and so in a sense it was never a store of value until that exact moment where bitcoin and gold trade in tandem.

As of the launch of the bitcoin futures ETF in the US, I believe it represents an endorsement that bitcoin will not later on be made illegal. I'm pretty much convinced that the scenario I mentioned above is going to play out so it seems like we should be trading gold for bitcoin to the extent that we accept the volatility impact to our portfolios.

There are various ways to achieve this.

1) Bite the bullet and just go 50/50 gold/bitcoin right away.
2) Weight it according to current market cap.
3) Dollar cost average selling gold into bitcoin.

Also, for those who do not agree this scenario will play out, other than bitcoin being made illegal, can you share why you might think bitcoin will not reach this level of maturity?
I don't know what level of maturity or market cap Bitcoin will eventually reach.

The only criteria (to me) for including it in the PP (or any other portfolio) are these:

1. Does it have a (at least nominal) positive expected return over the long run?

2. Does it have an uncorrelated return profile with most/all the other assets in the portfolio?

In other words, would anyone be recommending adding BTC to the HBPP if it had a horrible return over the past few years or past decade rather than the sky-high returns it has had?

I would also add that I don't forsee BTC becoming a true "currency" (in the sense of something people hold everyday spending money in and use it to purchase goods/services on a regular basis) any more than gold is today. There's a reason we don't price and pay for things in gold (hint: it's too volatile). Doesn't mean it can't/won't increase in value from here but if someone's case for a (for example) $500K or $1M BTC valuation is that someday everyone will be using it as a currency just like dollars are used today....well, no. Not unless it becomes no more volatile than maybe T-Bills or short-Treasuries are today.

Finally, I still have yet to see a true "killer app" use case for Bitcoin despite Bitcoin being around since late 2009. What app/service/purchasing method/transaction system will one day make Bitcoin the currency of choice? How many transactions are today priced in BTC (not counting the ones that are designed to do illegal/shady stuff from the get-go like collecting ransomware payments, buying black-market goods or services, evading taxation/evading creditors, etc) vs in Dollars/Yen/Euros/Yuan/etc?
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Wed Oct 27, 2021 4:04 pm

D1984 wrote:
Wed Oct 27, 2021 3:46 pm
1. Does it have a (at least nominal) positive expected return over the long run

2. Does it have an uncorrelated return profile with most/all the other assets in the portfolio.
1. Yes, because it has deflationary economics.

2. This is a good point, because currently we have inflationary economics in the dollar system such that the price of stocks are detached from traditional valuations and this has made the speculative component of stock returns historically high. Bitcoin's price volatility is relatively high and the speculative component has historically fluctuated frequently from over and undervaluing bitcoin. It may be reasonable to suspect that it displays the same "risk-on" speculative premium that is more correlated to stocks than to gold in the short term.

It is possible that this is sufficient to reduce the risk adjusted performance of a permanent portfolio with bitcoin integrated. However, it may also be that bitcoin has itself such asymmetrical risk to reward characteristics that it will improve the risk adjusted return of any combination of assets it is added to.

As for your other points, I think it is important to only focus on bitcoin as a long term store of value rather than a currency. The reason is not because it is impossible but just that it is unnecessary to consider that scenario for the purpose of deciding whether to integrate bitcoin into the PP.

The killer use case for bitcoin has always been the innovation of digital property rights which prior to bitcoin's innovation was impossible. There are actually many more use cases of bitcoin that may or may not be described as "killer apps" depending on your viewpoints but again I do not think it is relevant to the current issue.
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Re: A worthwhile read for all PP'ers

Post by D1984 » Wed Oct 27, 2021 4:29 pm

vincent_c wrote:
Wed Oct 27, 2021 4:04 pm
D1984 wrote:
Wed Oct 27, 2021 3:46 pm
1. Does it have a (at least nominal) positive expected return over the long run

2. Does it have an uncorrelated return profile with most/all the other assets in the portfolio.
1. Yes, because it has deflationary economics.

2. This is a good point, because currently we have inflationary economics in the dollar system such that the price of stocks are detached from traditional valuations and this has made the speculative component of stock returns historically high. Bitcoin's price volatility is relatively high and the speculative component has historically fluctuated frequently from over and undervaluing bitcoin. It may be reasonable to suspect that it displays the same "risk-on" speculative premium that is more correlated to stocks than to gold in the short term.

It is possible that this is sufficient to reduce the risk adjusted performance of a permanent portfolio with bitcoin integrated. However, it may also be that bitcoin has itself such asymmetrical risk to reward characteristics that it will improve the risk adjusted return of any combination of assets it is added to.

As for your other points, I think it is important to only focus on bitcoin as a long term store of value rather than a currency. The reason is not because it is impossible but just that it is unnecessary to consider that scenario for the purpose of deciding whether to integrate bitcoin into the PP.

The killer use case for bitcoin has always been the innovation of digital property rights which prior to bitcoin's innovation was impossible. There are actually many more use cases of bitcoin that may or may not be described as "killer apps" depending on your viewpoints but again I do not think it is relevant to the current issue.
1. Is likely quite true; over the long-term it will probably go up (albeit just like gold, stocks or bonds it will do so at times where it violently outperforms--in the short to medium term--its true trend line vs GDP or monetary inflation or CPI inflation and plenty of other times when it underperforms it in the short to medium term)

2A. Regarding focusing on BTC as a long-term store of value vs as a currency - fair enough...but the issue here is many/most of all the die-hard BTC fanboys is that someday, somehow, BTC will become used as another currency just like the USD or Euro and that is what justifies a several hundred thousand (or several million) dollar valuation on it. If OTOH it won't ever become commonly used as a currency then that valuation case just went "<poof>" and vanished into thin air.

2B. "Digital property rights" is not a "killer use case" for BTC or any other crypto. It seems to me like you are falling into the mental trap of describing how BTC (and for that matter most other cryptos) are technologically clever and technically elegant and novel (which they are) but that is not what I am asking. What I am asking is this...what is going to make people one day en-masse decide to start spending/earning in BTC or another crypto instead of, say, US Dollars? Assuming I am not hiding assets, aren't doing anything malicious or illegal, and aren't trying to evade taxes....what use to does BTC have to someone like me that either paper dollars or electronic dollars (or credit cards, debit cards, pay by cell phone, etc) do not? Why would an average American want to stop using dollars for everyday purchases and start using BTC? What can/could incent them to do that? That's what I meant by "killer app".
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Wed Oct 27, 2021 4:31 pm

D1984 wrote:
Wed Oct 27, 2021 4:29 pm
Why would an average American want to stop using dollars for everyday purchases and start using BTC? What can/could incent them to do that? That's what I meant by "killer app".
So in that case, the "killer app" is gold replacement for the modern age?
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Re: A worthwhile read for all PP'ers

Post by D1984 » Wed Oct 27, 2021 4:39 pm

vincent_c wrote:
Wed Oct 27, 2021 4:31 pm
D1984 wrote:
Wed Oct 27, 2021 4:29 pm
Why would an average American want to stop using dollars for everyday purchases and start using BTC? What can/could incent them to do that? That's what I meant by "killer app".
So in that case, the "killer app" is gold replacement for the modern age?
Fair enough, but in that case what major advantages does BTC have over gold? Gold if nothing else has the fact that it exists in physical form and you can make useful and/or beautiful stuff out of it (and also the fact that if it got cheap enough increased demand--say from things like builders who might start wiring homes with gold wire if it ever got as cheap as copper--would eventually tend to raise the price again somewhat). Gold--at least physical gold--also is impervious to catastrophic events like EMPs or massive solar storms...BTC...not so much.

I'm not saying BTC's price can't rise further; it may or may not and if it does rise it may be (or for that matter may not be) more due to speculative froth than to any actual use case for Bitcoin. But unless one is trying to hide wealth, say, or sneak large amounts of it across borders without disclosing it, or ransomware a Fortune 500 company, then what advantage does BTC have over gold that outweigh its considerable disadvantages?
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Wed Oct 27, 2021 7:28 pm

D1984 wrote:
Wed Oct 27, 2021 4:39 pm
Fair enough, but in that case what major advantages does BTC have over gold?
It may be useful to simplify the discussion by considering what one should do if there is no major advantage of BTC over gold or vice versa.

I think it is useful to think of it this way because let's say both BTC and gold have network effects, that network being people who believe it has value and tries to persuade others it has value. At some point, that network effect reaches saturation where in the case of gold, it is universally accepted as having value and you can essentially store a massive amount of value in gold and be confident that you can liquidate it quickly and without moving the markets too much.

Bitcoin has what I think is a smaller but faster growing network compared to gold but the key things are whether you can identify the drivers of this network in order to identify whether it will also become saturated. What we know is that to a large degree there is overlap between the addressable markets of bitcoin and gold, and we know that the network effect is strong, fast growing, and resilient.

This is why I think it is safe to assume in such a scenario (given no major advantage of one over the other) for there to be an equilibrium reached where saturation of both assets in overlapping addressable markets will lead to a 50/50 adoption.

Now in reality you may have a view that gold has distinct advantages over bitcoin such that it will be the dominant asset in the space, or a bitcoiner might have opposing views. My personal view currently is that the differences will be minor in terms of the monetary store of value that they command. However, I am increasingly concerned that bitcoin is being commoditized like any other native coin on a smart contract platform due to bitcoin layer 2's like Stacks, RSK, liquid, lightning, etc. This might make bitcoin behave more like oil than gold in the future and forever unsuitable for being a long term store of value.

What has happened is that as uncertain as bitcoin's future is, it has also cast some risk to gold that it may have to share its space in the future. As long as there is a chance that bitcoin becomes solely or predominantly a store of value, it will in my opinion continue to erode gold's value. What's interesting is that if bitcoin becomes something more, you might see some of that value flowing back into gold.
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 9:51 am

vincent_c wrote:
Wed Oct 27, 2021 3:05 pm
I actually don't think that this is a generational issue but just a matter of what the fundamental nature of gold and bitcoin are.
All the data Ive heard is that younger generations own almost no gold and own almost all the crypto. And that older generations own almost no crypto and almost all the gold.

Assuming this is trend is true and persists, and assuming that old people die at a higher rate than young people, there seems to be a tailwind for crypto and headwind for gold.
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 9:53 am

D1984 wrote:
Wed Oct 27, 2021 3:46 pm
Finally, I still have yet to see a true "killer app" use case for Bitcoin despite Bitcoin being around since late 2009.
Sir, bitcoin is Bitcoin's killer app...
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 10:00 am

D1984 wrote:
Wed Oct 27, 2021 4:29 pm
What I am asking is this...what is going to make people one day en-masse decide to start spending/earning in BTC or another crypto instead of, say, US Dollars?
I cant tell where you are coming from on this. Bitcoin is a trillion dollar network and has been growing exponentially since its inception. How could you possibly be asking this question?
D1984 wrote:
Wed Oct 27, 2021 4:29 pm
Assuming I am not hiding assets, aren't doing anything malicious or illegal, and aren't trying to evade taxes....what use to does BTC have to someone like me that either paper dollars or electronic dollars (or credit cards, debit cards, pay by cell phone, etc) do not? Why would an average American want to stop using dollars for everyday purchases and start using BTC? What can/could incent them to do that? That's what I meant by "killer app".
Here are some use cases I listed previously. The last one, "Programmable money", could probably be spun out to its own list of sub use cases. Maybe Ill take a crack at that some day.
bitcoininthevp wrote:
Mon Jan 07, 2019 9:49 am
I cant know your situation and how Bitcoin might benefit you, but here are some examples of what people are using Bitcoin for. I am not claiming Bitcoin is a perfect solution for each of these uses cases, but that this is what people can and are using it for.

Censorship resistance. This includes individuals whose payments are typically censored, like wikileaks or online drug markets. This also includes groups or individuals who getting "deplatformed" (block by paypal or other fundraising platforms) because they have views that those platforms (or their governments) do not like.

Store of value. This includes people in countries whose currencies are inflating at a rate that makes Bitcoin's current volatility seem appealing. It also includes people in countries with lacking or no banking services available to them.

Speculation. This includes short term traders trying to trade on trends. But this also includes people that hold long term who believe Bitcoin can become money and in order to do so will appreciate drastically in value.

International payments. This includes people remitting money from overseas to their family. Also people paying for goods and services overseas can save money by using Bitcoin to transact. There are also countries where it is hard or impossible to exchange with online which would be serviced by Bitcoin.

Private payments. While Bitcoin is not completely anonymous, it can be transacted in a "more private" way. This includes individuals who value their financial privacy.

Micropayments. It is possible to transact in bitcoin using fractions of pennies. Especially using tools ontop of bitcoin (lightning network). This is applicable for pay-per-use services like an online newspaper paywall, paying realtime per minute used on a cell plan, etc. Even new use cases are opened up here like machine to machine micro transaction payments.

Tax evasion. This is for individuals who do not wish to pay the government the recommended taxes: income tax or otherwise.

Anti confiscation. This includes people that want to have value stored in something that cannot easily be stolen. Individuals crossing borders, feeling countries, etc. Asset forfeiture is applicable here. It also includes anyone fearful that their government might become a bit more invasive.

Anti inflation hedge. This includes individuals wanting to hold money that isnt inflating. As this use case becomes more appealing (bitcoin's volatility decreasing), Bitcoin will be a threat to central banks and the governments that attain part of their non-taxation funding from inflating the money supply. By eliminating the ability for governments to print money to benefit themselves, governments will have to shrink or get their funding from increasing taxes, which is harder than inflating.

Cheaper payments. Fees on Bitcoin transactions can be very low. So there is some advantage for people transacting in Bitcoin, even in the same country, where fees might be high. This might be the case when making medium/large purchase online and avoiding the ~3% credit card fee for example.

Programmable money. I give my son bitcoin that cannot be spent before the year 2050 for example. My 3 business partners and I can fund a bitcoin address such that 2 our of the 3 of us has to approve the transaction in order for it to go through. Google "smart contracts" for other examples of this.
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 10:07 am

D1984 wrote:
Wed Oct 27, 2021 4:39 pm
what major advantages does BTC have over gold?
See a list I made here:
bitcoininthevp wrote:
Fri Jul 03, 2020 2:05 pm
"It performs none of the functions expected of gold."
I assume you mean gold's functions as money. Here are some valuable characteristics of money:

Durability: bitcoin and gold both strong here.
Portability: bitcoin is digital thus much more portable than gold.
Divisibility: A single bitcoin can be subdivided into 100,000 sub units. Gold much hard to pay with shavings.
Uniformity/Fungibility: gold strong here (verifiability of such uniformity later). I think bitcoin is a bit weaker currently due to transactions being public. Improvements hopefully to come there.
Limited supply: bitcoin has a mathematic max of 21m coins. Gold is scarce as well but more susceptible to increases in supply with price rises (stock to flow). I think the mining asteroids argument is far off.
Acceptability: bitcoin is bad here. Gold has history and global awareness. This will be the last domino to fall on bitcoin's monetization.
Censorship Resistance: gold pretty good. Bitcoin better due to digital nature.
Security: Much easier to store bitcoin (paper, brain) than bulky gold.
Verifiability: bitcoin can be verified with free software. Gold you need contraptions for coins which are cheap. But hard for bars (see recent scandals on fake gold)
Seizure resistance: bitcoin wins as there isnt anything in the physical world that you really need to own it. Plausible deniability. Gold can be searched and found
D1984 wrote:
Wed Oct 27, 2021 4:39 pm
Gold if nothing else has the fact that it exists in physical form and you can make useful and/or beautiful stuff out of it (and also the fact that if it got cheap enough increased demand--say from things like builders who might start wiring homes with gold wire if it ever got as cheap as copper--would eventually tend to raise the price again somewhat). Gold--at least physical gold--also is impervious to catastrophic events like EMPs or massive solar storms...BTC...not so much.
Gold's physical properties are a NEGATIVE for it, per above.

Also, saying gold has non-monetary uses is also a negative, not a positive, for gold. When considering monetary goods, you want the good with the HIGHEST monetary premium, and the least non-monetary premium. This is (one reason) why Harry didn’t like silver and other metals as much as gold. Gold had/has the highest monetary premium of other metals and thus made the best monetary good.
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Thu Oct 28, 2021 10:23 am

bitcoininthevp wrote:
Thu Oct 28, 2021 9:51 am
vincent_c wrote:
Wed Oct 27, 2021 3:05 pm
I actually don't think that this is a generational issue but just a matter of what the fundamental nature of gold and bitcoin are.
All the data Ive heard is that younger generations own almost no gold and own almost all the crypto. And that older generations own almost no crypto and almost all the gold.

Assuming this is trend is true and persists, and assuming that old people die at a higher rate than young people, there seems to be a tailwind for crypto and headwind for gold.
Yes if you want to frame it that way, sure. But that's more like saying for the older generation they don't see any major advantage of BTC over gold so there is no need to switch. And for new generations they don't see any major advantage of gold over BTC so when they go to choose they choose BTC.

I would love your opinion on what I mentioned above about bitcoin's non-monetary uses on layer 2s.
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 11:07 am

vincent_c wrote:
Thu Oct 28, 2021 10:23 am
I would love your opinion on what I mentioned above about bitcoin's non-monetary uses on layer 2s.
Im not sure of the non monetary uses that you mention. Lightning is a payment network for BTCs so BTC is still being used as money there. Liquid is similar, you peg in BTC to Liquid network and can do monetary things with the BTCs on that network. Im not too familiar with RSK or Stacks.

Perhaps you can give me a canonical non-monetary use for bitcoin (the currency) that you are thinking about?

Or are you concerned about people using Bitcoin (the network) is some non-monetary way?
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Thu Oct 28, 2021 11:12 am

bitcoininthevp wrote:
Thu Oct 28, 2021 11:07 am
vincent_c wrote:
Thu Oct 28, 2021 10:23 am
I would love your opinion on what I mentioned above about bitcoin's non-monetary uses on layer 2s.
Im not sure of the non monetary uses that you mention. Lightning is a payment network for BTCs so BTC is still being used as money there. Liquid is similar, you peg in BTC to Liquid network and can do monetary things with the BTCs on that network. Im not too familiar with RSK or Stacks.

Perhaps you can give me a canonical non-monetary use for bitcoin (the currency) that you are thinking about?

Or are you concerned about people using Bitcoin (the network) is some non-monetary way?
Well the gas fees on RSK are in RBTC which is pegged in/out to BTC and the network itself is merge mined with over 50% of BTC hash rate. So that means if RSK takes off BTC will be used as gas just like ETH is used in Ethereum.
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Re: A worthwhile read for all PP'ers

Post by bitcoininthevp » Thu Oct 28, 2021 11:25 am

vincent_c wrote:
Thu Oct 28, 2021 11:12 am
Well the gas fees on RSK are in RBTC which is pegged in/out to BTC and the network itself is merge mined with over 50% of BTC hash rate. So that means if RSK takes off BTC will be used as gas just like ETH is used in Ethereum.
I think BTC being used to pay for things is good. That is what money is for right?

The reason I think ETH is a bad investment isnt because you use ETH to pay for things on the Ethereum network. In fact IMHO that is the only reason ETH has any value, as a utility token for doing things on the Ethereum network. Just like chuckecheese tokens have value solely for their value for playing games at chuckecheese. But when Im done playing skeeball, I want anything left to be stored IN MONEY. It just so happens that ETH makes bad money (for reasons Ive outlined before: its not trying to be money, its monetary policy is not credible, it keeps changing things like proof of work/supply/cap, its been known to censor transactions, etc) so I dont want to leave value there for longer than the skeeball game lasts.

NOW, I think there could be a danger if the Bitcoin NETWORK is used to issue tokens/stocks/etc because its possible that the value of say all stocks issued on the Bitcoin network could be 100x larger than the value of BTCs on the bitcoin network. That could cause issues with Bitcoin's incentive structure as there would be incentive from stockholders to reorganize the Bitcoin chain to favor their stock trades for example.
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Re: A worthwhile read for all PP'ers

Post by D1984 » Thu Oct 28, 2021 11:58 am

bitcoininthevp wrote:
Thu Oct 28, 2021 10:00 am
D1984 wrote:
Wed Oct 27, 2021 4:29 pm
What I am asking is this...what is going to make people one day en-masse decide to start spending/earning in BTC or another crypto instead of, say, US Dollars?
I cant tell where you are coming from on this. Bitcoin is a trillion dollar network and has been growing exponentially since its inception. How could you possibly be asking this question?
D1984 wrote:
Wed Oct 27, 2021 4:29 pm
Assuming I am not hiding assets, aren't doing anything malicious or illegal, and aren't trying to evade taxes....what use to does BTC have to someone like me that either paper dollars or electronic dollars (or credit cards, debit cards, pay by cell phone, etc) do not? Why would an average American want to stop using dollars for everyday purchases and start using BTC? What can/could incent them to do that? That's what I meant by "killer app".
Here are some use cases I listed previously. The last one, "Programmable money", could probably be spun out to its own list of sub use cases. Maybe Ill take a crack at that some day.
bitcoininthevp wrote:
Mon Jan 07, 2019 9:49 am
I cant know your situation and how Bitcoin might benefit you, but here are some examples of what people are using Bitcoin for. I am not claiming Bitcoin is a perfect solution for each of these uses cases, but that this is what people can and are using it for.

Censorship resistance. This includes individuals whose payments are typically censored, like wikileaks or online drug markets. This also includes groups or individuals who getting "deplatformed" (block by paypal or other fundraising platforms) because they have views that those platforms (or their governments) do not like.

Store of value. This includes people in countries whose currencies are inflating at a rate that makes Bitcoin's current volatility seem appealing. It also includes people in countries with lacking or no banking services available to them.

Speculation. This includes short term traders trying to trade on trends. But this also includes people that hold long term who believe Bitcoin can become money and in order to do so will appreciate drastically in value.

International payments. This includes people remitting money from overseas to their family. Also people paying for goods and services overseas can save money by using Bitcoin to transact. There are also countries where it is hard or impossible to exchange with online which would be serviced by Bitcoin.

Private payments. While Bitcoin is not completely anonymous, it can be transacted in a "more private" way. This includes individuals who value their financial privacy.

Micropayments. It is possible to transact in bitcoin using fractions of pennies. Especially using tools ontop of bitcoin (lightning network). This is applicable for pay-per-use services like an online newspaper paywall, paying realtime per minute used on a cell plan, etc. Even new use cases are opened up here like machine to machine micro transaction payments.

Tax evasion. This is for individuals who do not wish to pay the government the recommended taxes: income tax or otherwise.

Anti confiscation. This includes people that want to have value stored in something that cannot easily be stolen. Individuals crossing borders, feeling countries, etc. Asset forfeiture is applicable here. It also includes anyone fearful that their government might become a bit more invasive.

Anti inflation hedge. This includes individuals wanting to hold money that isnt inflating. As this use case becomes more appealing (bitcoin's volatility decreasing), Bitcoin will be a threat to central banks and the governments that attain part of their non-taxation funding from inflating the money supply. By eliminating the ability for governments to print money to benefit themselves, governments will have to shrink or get their funding from increasing taxes, which is harder than inflating.

Cheaper payments. Fees on Bitcoin transactions can be very low. So there is some advantage for people transacting in Bitcoin, even in the same country, where fees might be high. This might be the case when making medium/large purchase online and avoiding the ~3% credit card fee for example.

Programmable money. I give my son bitcoin that cannot be spent before the year 2050 for example. My 3 business partners and I can fund a bitcoin address such that 2 our of the 3 of us has to approve the transaction in order for it to go through. Google "smart contracts" for other examples of this.
How could I possibly be asking this question? Easy.

One, how many of the transactions in Bitcoin so far are for actual goods or services and not just speculative buying and selling of Bitcoin for short-term investment/speculation purposes? How, does this compare to the amount of goods and services bought in, say, USD each day?

Two, how is Bitcoin cheaper, easier, or more frictionless to use than dollars? I can pay with a contactless credit card, with my phone, with a regular debit or credit card, via Venmo or via another P2P or P2Seller type app, or with cash itself; cash is accepted pretty much everywhere and Vias/MC/Amex/Discover are accepted maybe 95% to 99% of places.....BTC not so much. If I am not trying to hide anything, am not interested in evading taxes, and I am not one of these paranoid inflation hawks who somehow thinks 4 or 5% inflation is going to lead us to become Weimar Germany, then why should I want to use Bitcoin as a way to make purchases?

If the issue is credit card fees, then the simple solution to that is to have the government legislate to regulate the fees such that they are less than they are now (Visa and Amex--nor the actual banks issuing the cards themselves--do NOT need 2 or 3% on each transaction to make money; maybe they did back when credit cards first started back in the 1960s, but not with today's technology).

If the issue is worries about inflation, I can just buy I-Bonds (and set up either a trust or an Arizona or Wyoming LLC if I want to buy more than $15K a year of them)....besides, I don't know about you but I'd kinda prefer my "stable store of value" not to be something that can either almost lose half its value in a few short months nor nearly double in a few months....both of which BTC has already done in 2021 alone). If OTOH I am actually looking at a truly long-term store of value (for retirement savings, say) then I'd be likely putting the money into equities or property of some kind (i.e. something that over the long term wouldn't be expected to just keep up with inflation but far surpass it) rather than either cash or Bitcoin.

Maybe I'm just being shortsighted but when I think of ANY new technology that succeeded in the marketplace, there were two common factors involved:

1. The use case was pretty obvious, and

2. It did something better (sometimes MUCH better), more effectively, and/or cheaper than a currently existing technology.

It doesn't matter what the technology in question was was; you name it--fire, the wheel, written languages with alphabets, paved roads, the steam engine, the automobile, the electric motor, the machine gun, the incandescent light bulb, surgical anesthesia, the airplane, antibiotics, radar, gas heating and lighting, the telegraph, the telephone, the microwave oven, radio, TV, digital computer, etc; any technology that caught on and came into widespread use met both of the above criteria.

Things may change in the future, but from my point of view BTC as it currently stands fails to at least some degree on both counts. Had we never invented cash (in either paper or electronic form or in the form of cash substitutes like checks and money orders) and were still using barter or gold then yes, Bitcoin would (more or less) meet both conditions above. With that said, since we DO in fact have currency/cash that we can use to buy and sell things with, then Bitcoin is (at least as things stand now) a solution in search of a problem.
Last edited by D1984 on Thu Oct 28, 2021 12:14 pm, edited 1 time in total.
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Thu Oct 28, 2021 12:13 pm

Thanks for that insight, it's very helpful.

I kept thinking that all these L1 native coins were commodities but in reality they are all trying to be money. Except like you say, only bitcoin has a sustainable monetary policy. It may be because of this that ultimately defi has to be built on bitcoin and not the others.

I'm not sure I understand why if bitcoin's network is used for various things how it would affect BTC (the coin). The network already has a bunch of different uses, but I suppose it boils down to the use case of securing various types of transactions.

Maybe I can't think of any other use for BTC is because it's not possible to have a non-monetary use for BTC since it's not even physical so I can't even use it as a doorstop like I could with a bar of gold.

Edit:

I would love your take on whether you think BTC is going to dominate gold as money or if they will share the space and if so what weighting would you think they will settle as?
Last edited by vincent_c on Thu Oct 28, 2021 12:29 pm, edited 2 times in total.
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Re: A worthwhile read for all PP'ers

Post by vincent_c » Thu Oct 28, 2021 12:17 pm

D1984 wrote:
Thu Oct 28, 2021 11:58 am
How could I possibly be asking this question? Easy.

One, how many of the transactions in Bitcoin so far are for actual goods or services and not just speculative buying and selling of Bitcoin for short-term investment/speculation purposes? How, does this compare to the amount of goods and services bought in, say, USD each day?
A lot of transactions are financial in nature. Either for remittances or like I have been mentioning, in defi which is a nascent but fast growing thing in bitcoin.
D1984 wrote:
Thu Oct 28, 2021 11:58 am
Two, how is Bitcoin cheaper, easier, or more frictionless to use than dollars? I can pay with a contactless credit card, with my phone, with a regular debit or credit card, via Venmo or via another P2P or P2Seller type app, or with cash itself; cash is accepted pretty much everywhere and Vias/MC/Amex/Discover are accepted maybe 95% to 99% of places.....BTC not so much. If I am not trying to hide anything, am not interested in evading taxes, and I am not one of these paranoid inflation hawks who somehow thinks 4 or 5% inflation is going to lead us to become Weimar Germany, then why should I want to use Bitcoin as a way to make purchases?
It is faster when it comes to finality and settlement.

D1984 wrote:
Thu Oct 28, 2021 11:58 am

Maybe I'm just being shortsighted but when I think of ANY new technology that succeeded in the marketplace, there were two common factors involved:

1. The use case was pretty obvious, and

2. It did something better (sometimes MUCH better), more effectively, and/or cheaper than a currently existing technology.

Bitcoin meets both these criteria because it is actually a 10x improvement on cash.
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