Gyroscopic Investing

herbgoat wrote: 4) Intrinsic Value
Intrinsic Value means that the item can be used for some purpose. It's good for something other than just being money, right?
Gold has intrinsic value because it has several industrial uses. People also like to make jewelry out of it.
Bitcoin has intrinisc value because it has the ability to be transferred anywhere in the world instantly and securely. In effect, it combines the usefulness of Paypal with the other benefits mentioned above. So both Gold and Bitcoin are useful in their own right. Gold is useful in industry and jewelry. Bitcoin is useful as a secure method of value transfer across great distance. Since I'm the one dallying out points here (it's my post), I award this one to Bitcoin. We are talking about money, and I'd rather my money have the intrinsic value of easy transfer rather than industrial use.

I don't know anything about bitcoin (yet), but I disagree that it has intrinsic value.  Intrinsic value to me means it has some inherent use other than as a monetary instrument.  Bitcoin's sole use is as a monetary instrument.  Gold has many uses other than as a monetary instrument. 

rocketdog wrote:

herbgoat wrote: 4) Intrinsic Value
Intrinsic Value means that the item can be used for some purpose. It's good for something other than just being money, right?
Gold has intrinsic value because it has several industrial uses. People also like to make jewelry out of it.
Bitcoin has intrinisc value because it has the ability to be transferred anywhere in the world instantly and securely. In effect, it combines the usefulness of Paypal with the other benefits mentioned above. So both Gold and Bitcoin are useful in their own right. Gold is useful in industry and jewelry. Bitcoin is useful as a secure method of value transfer across great distance. Since I'm the one dallying out points here (it's my post), I award this one to Bitcoin. We are talking about money, and I'd rather my money have the intrinsic value of easy transfer rather than industrial use.

I don't know anything about bitcoin (yet), but I disagree that it has intrinsic value.  Intrinsic value to me means it has some inherent use other than as a monetary instrument.  Bitcoin's sole use is as a monetary instrument.  Gold has many uses other than as a monetary instrument.

Exactly. Bitcoins are not a commodity, as they have no use other than to pass to the next person.

What do you call something that has value only because you expect that someone else will take it? Why would they take it, unless they thought they could pass it to yet another person?

Maybe that's not a pyramid scheme, but it's a close relative, as it also depends on the "bigger fool theory".

Libertarian666 wrote: What do you call something that has value only because you expect that someone else will take it? Why would they take it, unless they thought they could pass it to yet another person?

That's easy.  Its called a medium of exchange.  It is just a way to transfer abstract notions of value but not value in and of itself.  Bitcoins just happens to be scarce, one of the many determinants of intrinsic value in money.

KevinW wrote:

AgAuMoney wrote:

KevinW wrote: When bitcoins first came out I was really interested in how they worked and read the original paper, and was underwhelmed. It's really vague on how cryptography is actually used and doesn't really have a clear threat model or rigorous proof of resilience to specific attack modes. The document is only 9 pages long and aside from a passing reference to SHA-256 there is no discussion of specific hashes or ciphers or how they interact.

I suggest you are misremembering.

Additionally, the 9pg PDF is only a fraction of the original documentation.  The code is the rest.

In combination the use of the crypto is clearly specified as is the use of the SHA-256.

Can you point me to a rigorous analysis then?

Code is not a proof...

I know code is not a proof.  Code is documentation which is what you originally were talking about.

Once you start talking about proof you must know there is no such thing as rigorous analysis unless you mean something well short of a mathematical proof.  (So far mathematical proof of non-trivial algorithms are not feasible.  That's one of the reasons why computer science is not science and software engineering is not engineering.)

The relevant portions of the code are short enough for self analysis.  I've read a few other documents from some of the many people who have looked at it, but all such is only good until someone has the insight that blows it out of the water because no analysis is a proof.

Remember that any thorough analysis on something like this must come in two parts:  the algorithm, and the implementation.  Either one can break the other.  So barring perfect documentation of the algorithm and a perfect implementation, the code is the best we've got for both.  There are multiple implementations but the canonical implementation is bitcoind.

For purposes of the algorithm and the implementation of that algorithm you can ignore all the database and network comm stuff and concentrate on the block creation and validation.  For a thorough safety analysis for implementation security vulnerabilities you'll need to verify the network comms and either verify the DB can be trusted or else verify that interaction also.

This has a bit of discussion that may help you get started:  https://en.bitcoin.it/wiki/Bitcoind

AgAuMoney wrote: (So far mathematical proof of non-trivial algorithms are not feasible....

Have you ever read an algorithm textbook or research paper? They're full of rigorous proofs of nontrivial algorithms.

Consider me checked out of this discussion...

KevinW wrote:

AgAuMoney wrote: (So far mathematical proof of non-trivial algorithms are not feasible....

Have you ever read an algorithm textbook or research paper? They're full of rigorous proofs of nontrivial algorithms.

A few per year of each since the mid-1980's.  And either you or I are simply not understanding at least one of how a "mathematical proof" compares to a "rigorous proof" or what exactly constitutes a non-trivial algorithm.  The ability to mathematically prove a real system is the holy grail of computer science.

If you care, do you agree or disagree:  "The verification of these systems is done by providing a formal proof on an abstract mathematical model of the system."

Pick your poison:

• If you agree, please document how you can prove that the mathematical model is a perfect representation of the real system
• If you disagree, please document how you can prove a real system not just a mathematical model.

Note that real systems never have perfect documentation, and never have a perfect implementation.  Your proof has to cope with that unless you independently prove each of those items is perfect.  Simply iterating and making changes until the proof passes is not proof.

If you can do either the agree or disagree cases then you will deserve a Nobel prize for finding the holy grail.

BTW, a "research paper" as a standard is asinine.  The real world is not something filled with simplifying assumptions to make it fit within the scope of the assignment/grant/investigation.

Look at Green Hills and Nicta.  That's as close as you are going to get.  If you ignore their marketing and look at the defects and limitations of their systems you'll start to see the difference between academic theory in "research papers" and the real world.

Don't forget that Integrity runs on x86 which has not been formally proven.  I don't know what Nicta runs on, or even if it runs on anything real or if it is another toy project designed for an ideal virtual machine that doesn't exist but may (or not) be emulated on a real system.  All I remember from Nicta is that they did the "iterate and change until the proof succeeds" model.

Consider me checked out of this discussion...

That's right, leave before showing off your holy grail.

MachineGhost wrote:

Libertarian666 wrote: What do you call something that has value only because you expect that someone else will take it? Why would they take it, unless they thought they could pass it to yet another person?

That's easy.  Its called a medium of exchange.  It is just a way to transfer abstract notions of value but not value in and of itself.  Bitcoins just happens to be scarce, one of the many determinants of intrinsic value in money.

Scarcity, in itself, does not add value. I can easily create something that is scarce, such as a document signed by myself with an acknowledgement from a specific notary. That doesn't make that document valuable, because no one would want to give me anything for it.

On the other hand, gold has a number of uses other than as a medium of exchange. So even if no one wanted to use it as money, it would still have "use value". Bitcoins do not have any use other than monetary, therefore their value is solely due to the "bigger fool" theory.

AgAuMoney wrote: That's right, leave before showing off your holy grail.

You seem to be conflating "computational models" with "programs." The former are mathematical objects with precise definitions. We can, and have, proven many facts about them including their correctness and efficiency. The latter are tangible digital artifacts that exist in the real world and are necessarily imperfect approximations of algorithms. We have *scientific theories* about how their properties correspond to mathematical facts predicted by models. We use mathematical proof in the former case and the scientific method in the latter, that's where the "science" comes in.

Maybe that's a misunderstanding, or maybe it's an opinion you've reached after deep study and contemplation; I can't tell. But this exchange has become so uncivil (rude, even) that I am just not willing to invest any more energy in it. I decline to continue this debate.

***

My concern with bitcoin is still that the "bitcoin algorithm" and its security goals have never been specified clearly enough that an interested party like myself can verify for themselves whether the algorithm works as advertised. I'm comfortable relying on other technologies (e.g. RSA, Blowfish) because the algorithms they implement have been specified and vetted that way.

Libertarian666 wrote: Scarcity, in itself, does not add value. I can easily create something that is scarce, such as a document signed by myself with an acknowledgement from a specific notary. That doesn't make that document valuable, because no one would want to give me anything for it.

On the other hand, gold has a number of uses other than as a medium of exchange. So even if no one wanted to use it as money, it would still have "use value". Bitcoins do not have any use other than monetary, therefore their value is solely due to the "bigger fool" theory.

I meant that scarcity was just one of the many determinants, not the only determinant of the value of Bitcoins, as well as money.  Scarcity plays a role in any kind of money because non-scarcity is over-inflationary.

Gold relies on the "bigger fool" theory for its value because it is clearly valued far above any "use value", so I find your analogy to be flawed.  The "use value" of Bitcoins would be hard to determine, but someone is bound to come up with a "fair value" estimate for the cost of mining all 21 million Bitcoins, just as they do with gold.  Energy and time is always an precursor to any kind of value.

MachineGhost wrote:

Libertarian666 wrote: Scarcity, in itself, does not add value. I can easily create something that is scarce, such as a document signed by myself with an acknowledgement from a specific notary. That doesn't make that document valuable, because no one would want to give me anything for it.

On the other hand, gold has a number of uses other than as a medium of exchange. So even if no one wanted to use it as money, it would still have "use value". Bitcoins do not have any use other than monetary, therefore their value is solely due to the "bigger fool" theory.

I meant that scarcity was just one of the many determinants, not the only determinant of the value of Bitcoins, as well as money.  Scarcity plays a role in any kind of money because non-scarcity is over-inflationary.

Gold relies on the "bigger fool" theory for its value because it is clearly valued far above any "use value", so I find your analogy to be flawed.  The "use value" of Bitcoins would be hard to determine, but someone is bound to come up with a "fair value" estimate for the cost of mining all 21 million Bitcoins, just as they do with gold.  Energy and time is always an precursor to any kind of value.

The use value of bitcoins is actually very easy to calculate, not just estimate. It is zero. That is because they have no use in themselves. Their only value is to pass on to the next person. And again, the difficulty in producing them is irrelevant if no one wants them; thinking it is relevant is an example of the economic fallacy called the "labor theory of value". As someone (maybe even Harry Browne) as pointed out, a mud pie is not valuable, no matter how much effort is put into it.

Gold, on the other hand, does have uses even in the absence of a monetary exchange value for it, namely as jewelry and in electronics, etc. This makes it harder to determine its use value, but it clearly has one.

Libertarian666 wrote: The use value of bitcoins is actually very easy to calculate, not just estimate. It is zero. That is because they have no use in themselves. Their only value is to pass on to the next person. And again, the difficulty in producing them is irrelevant if no one wants them; thinking it is relevant is an example of the economic fallacy called the "labor theory of value". As someone (maybe even Harry Browne) as pointed out, a mud pie is not valuable, no matter how much effort is put into it.

Gold, on the other hand, does have uses even in the absence of a monetary exchange value for it, namely as jewelry and in electronics, etc. This makes it harder to determine its use value, but it clearly has one.

Aren't you contradicting your own postion?  If Bitcoins hypothetically have no "use value" but that being irrelevant if other people demand and want it, then it is no different than any other medium of exchange such as FRN's or Disneyland tokens.  Heck, gold is no longer money and yet it still has a "use value" which didn't prevent it from being dropped as such.  Gold's value sure doesn't come from its "use value" in the PP portfolio.

I agree that Bitcoins do NOT get their value from the energy that was used to produce them. That is only used as a fair way to get them into the economy and is a direct result of the power needed to secure the network and audit transactions.

Bitcoins get their value from their inherent ability to be transferred easily to anyone anywhere instantly. This makes them useful. Now, if someone invents a teleporter that can instantly and securely move your stash of gold to someone else for less than .5% transaction fee, Bitcoins might become worthless. Until then, I'm buying Bitcoins!

herbgoat wrote: I agree that Bitcoins do NOT get their value from the energy that was used to produce them. That is only used as a fair way to get them into the economy and is a direct result of the power needed to secure the network and audit transactions.

Bitcoins get their value from their inherent ability to be transferred easily to anyone anywhere instantly. This makes them useful. Now, if someone invents a teleporter that can instantly and securely move your stash of gold to someone else for less than .5% transaction fee, Bitcoins might become worthless. Until then, I'm buying Bitcoins!

But the price chart is now parabolic!

Crash can arrive quickly.

frugal wrote: But the price chart is now parabolic!

Crash can arrive quickly.

It ain't over until the fat lady sings!

herbgoat wrote: I agree that Bitcoins do NOT get their value from the energy that was used to produce them. That is only used as a fair way to get them into the economy and is a direct result of the power needed to secure the network and audit transactions.

Bitcoins get their value from their inherent ability to be transferred easily to anyone anywhere instantly. This makes them useful. Now, if someone invents a teleporter that can instantly and securely move your stash of gold to someone else for less than .5% transaction fee, Bitcoins might become worthless. Until then, I'm buying Bitcoins!

You're describing exchange value as use value. Easy exchangeability makes them useful for exchange only. By your definition, greenbacks are also inherently useful; I can hand one to someone else without having to power up a device or tell them my address, and they're not traced or tracked anywhere. I get 100% anonymity! Those features make dollars useful for exchange, especially physical person-to-person exchange. But if nobody wants greenbacks, their only use is toiler paper or kindling. If nobody wants Bitcoins, their only use is...?

Ask yourself what the use value is if nobody else wants them. If you can't come up with an answer, it doesn't have a use value--only an exchange value.

it may be a sub-set of exchange value, but the fact that it's not a top down government manipulated form of exchange is probably worth something..

Pointedstick wrote: You're describing exchange value as use value. Easy exchangeability makes them useful for exchange only. By your definition, greenbacks are also inherently useful; I can hand one to someone else without having to power up a device or tell them my address, and they're not traced or tracked anywhere. I get 100% anonymity! Those features make dollars useful for exchange, especially physical person-to-person exchange. But if nobody wants greenbacks, their only use is toiler paper or kindling. If nobody wants Bitcoins, their only use is...?

Ask yourself what the use value is if nobody else wants them. If you can't come up with an answer, it doesn't have a use value--only an exchange value.

Yes, but you can't hand your greenback to someone that's on the other side of the country (or world). For that, you need to involve a third party. Visa, Mastercard, Paypal, and Western Union come to mind. Those companies provide value by facilitating trade over distance. Do you think that the services of these companies provide real value? I say they do. That's what they bring to the market and they have all been successful companies because they provide a valuable service. Bitcoin provides the same service. Think of Bitcoin like Western Union and the USD all rolled into one. It allows value to be transmitted over distance. Yes, in person, you can hand someone greenbacks, or gold, or whatever. In the new internet economy (where you may be transacting with someone on another continent), you must involve a third party, or use Bitcoin. I challenge you to tell me how you would send $100USD (or a gold coin) to someone in China without using a third party to facilitate the transfer (or using Bitcoin). If you can't do it, then I argue that Bitcoin has a "use value".

herbgoat wrote: Yes, but you can't hand your greenback to someone that's on the other side of the country (or world).

That sounds an awful lot like (wait for it)... exchange. 

I agree with you that these currencies have a tremendous value in how easy they are to exchange with other people. But that's still an exchange value. Being good for exchange does not give an a currency a real use value. It simply improves its exchange value.

For example, if I make a chair for sale, but nobody wants to buy it, I can still sit on it. It still has use value. If I acquire a Bitcoin and the bottom falls out of the market and nobody wants to buy it, it's entirely worthless.

You can't do anything with a Bitcoin if nobody else wants it. You can't eat it, melt it down for re-forging, burn it for fuel, use it as a building material, or hand it to your cat as a plaything. It's worthless without a market for its exchange.

Pointedstick wrote:

herbgoat wrote: Yes, but you can't hand your greenback to someone that's on the other side of the country (or world).

That sounds an awful lot like (wait for it)... exchange. 

I agree with you that these currencies have a tremendous value in how easy they are to exchange with other people. But that's still an exchange value. Being good for exchange does not give an a currency a real use value. It simply improves its exchange value.

For example, if I make a chair for sale, but nobody wants to buy it, I can still sit on it. It still has use value. If I acquire a Bitcoin and the bottom falls out of the market and nobody wants to buy it, it's entirely worthless.

You can't do anything with a Bitcoin if nobody else wants it. You can't eat it, melt it down for re-forging, burn it for fuel, use it as a building material, or hand it to your cat as a plaything. It's worthless without a market for its exchange.

This seems very simple and obvious, but apparently is too complicated (or maybe too simple?) for some people.

Or maybe this is just a case of "it is hard for someone to understand something when his [vested interest of some type] requires his not understanding it". In other words, "La la la la la I can't hear you!"

Lalalalalalalalala

Libertarian666 wrote: Or maybe this is just a case of "it is hard for someone to understand something when his [vested interest of some type] requires his not understanding it". In other words, "La la la la la I can't hear you!"

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" 
- Upton Sinclair

herbgoat wrote: http://blog.oleganza.com/post/422627653 ... of-bitcoin

Useful ? use value. None of what that article describes is use value; all of it is only useful in the context of exchange, which, again, points to exchange value. Ask yourself this: if you found yourself alone on a desert island in possession of a laptop computer with no internet connection and 10,000 Bitcoins in an offline wallet, what could you do with them? Anything?

bitcoin- Three words worry me about it - "internet kill switch". Now that the Feds are getting anxious about this bitcoin, i see it as something to take seriously. Think about it, more and more people are starting to participate in the "underground" economy. Bitcoin perfect for this. Love it when smart people try to work around incompetent govt and corrupt central banks and the banksters they prop up.

How do you invest in Bitcoins?