Musings on bitcoin and other cryptos

If each of those MLCoins were attached to a block chain, could they not then be traded in exactly the same way as bitcoin currently is?

Indeed, although it would be more illuminating to say "in exactly the same way as Bitcoin and the 3,000 other competing cryptocurrencies".

Would there be any reason why MLCoins would not be just as valuable, or more valuable than bitcoin in the future?

None at all.

After all, each MLCoin would actually represent a physical object, and the whole system would be backed by the Mona Lisa.

So would I be able to rip out my 1/20,000,000th of the Mona Lisa and put it on my wall? Obviously not.

There are three components to the value of my MLCoin. One, the value I can realise it for by selling it on the market. Two, the value that would be due to me if someone wanted to buy out the entire Mona Lisa. Three, the yield or the utility I receive purely from owning a MLCoin.

The utility of owning a MLCoin is nil, as discussed above - I can't hang it on my wall. I could go and look at my square but so can everyone else who buys a ticket to the Louvre.

If someone wanted to buy the entire Mona Lisa then the owners of MLCoins know they will receive 1/20,000,000 of whatever they want to pay. The trouble is that if MLCoins are being traded as cryptocurrency, the value of 20m MLCoins will be far above what someone would actually pay to have the Mona Lisa on their wall, in the same way that the price of gold is typically well above its value as an industrial metal. Whoever wanted to buy the Mona Lisa wouldn't be interested in its value as a cryptocurrency because if they want to own the whole thing to hang on their wall, it's no longer a medium of exchange.

So if someone comes along wanting to buy the whole Mona Lisa, either the speculators will decide to cash in and the price will crash to whatever the art lover wants to pay to look at the art, or they will carry on bidding the price up and the art lover will walk away.

(On this note, someone would have to decide whether you needed 100% of MLCoins to be allowed to move the artwork outside the Louvre or only 50.001%. With publicly traded companies you're generally only allowed to purchase a certain percentage before you have to make an offer for the entire company, under the rules of the stock exchange. Similar rules would need to be put in place here, presumably when the Louvre sold off the Mona Lisa under the Initial Art Offering.)

Although it's theoretically possible, there are two questions:

1) Does the Louvre actually want to sell the Mona Lisa?

2) If they do, would they get more money by selling it in 20 million little squares to investors, or by selling the whole thing to another gallery or private individual?

The problem with selling to speculators is that there is no particular reason why they would want to invest in MLCoins any more than the other 3,000 cryptocurrencies - given they can't hang it on their wall. Initially the Louvre only gets the price at which they offer the MLCoins - unless they retain a percentage of the MLCoins for themselves to sell later once the speculators have bid the price up, and this would be a big risk to the gallery because the price might crash.

So I suspect that in the very unlikely event the Louvre wanted to sell off the Mona Lisa, it would get more money by simply selling it to another gallery or a private individual.

As it happens I know that at least one person has launched a business doing exactly what you suggest, only with less well known artworks - dividing them into thousands which can be publicly traded on a blockchain. You too can own a part of an artwork! We're democratising access to fine art!

As with your MLCoin, the problem is that a thousandth of an artwork has nil utility, and the only value is the hope you can sell it to a greater fool later. People lose money all the time with similar investments in fine wine / art / diamonds. You take something that people think has value, sell it for way over the market price, laugh all the way to the bank. The "investment" does have value and in theory could appreciate, the problem is you paid such a large margin for it that there is absolutely no hope of the capital appreciation exceeding the margin you were charged.

Anyway, that was a very long dissection of an interesting idea. Executive summary: there's no reason you couldn't launch a cryptocurrency backed by shares in the Mona Lisa, and there's no reason it wouldn't be just as good an investment as Bitcoin.

When a physical asset backs a cryptocurrency you have to trust the issuer and holder of the physical asset. It introduces an additional layer of risk.

What stops the holder of the painting running with it?

What if it gets damaged or stolen?

shelobslair wrote: »

1. It is not produced by any central bank, and so is protected from fiscal shenanigans

For exactly the same reason, it is completely unprotected from financial shenanigans. At least a bank's shenanigans are (relatively) transparent and subject to compensation.

Biggles wrote: »

For exactly the same reason, it is completely unprotected from financial shenanigans. At least a bank's shenanigans are (relatively) transparent and subject to compensation.

Nope.

Any changes to the network have to be accepted by the majority of participants and are, unlike the banks, totally transparent and played out in public for all to see.

As for the banking sector, scandal after scandal after endless scandal suggests otherwise. You sound like you've bought into the bizarre concept that banks are benign actors in the financial world.
You're conflating transparency with unwelcome exposure of wrong doing.

Retail banking is a sugar coated crust floating on a cesspit of greed and corruption. Fiat currency is a monumental fraud against the people forced to use it.

JohnRo wrote: »

Nope.

Any changes to the network have to be accepted by the majority of participants and are, unlike the banks, totally transparent and played out in public for all to see.

Surely you are beholden to whoever holds your bitcoin or buys them for you and there is the same or more risk of fraud with an unregulated system.