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  • FIRST POST
    • shelobslair
    • By shelobslair 29th Nov 17, 11:07 PM
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    shelobslair
    Musings on bitcoin and other cryptos
    • #1
    • 29th Nov 17, 11:07 PM
    Musings on bitcoin and other cryptos 29th Nov 17 at 11:07 PM
    I am trying to understand why people value bitcoin, (and other crypto currencies). Iíve read many articles, some sensible, some not, and there seem to be three key aspects of bitcoin that believers promote;

    1. It is not produced by any central bank, and so is protected from fiscal shenanigans
    2. It uses block chain technology, the main advantages of which seem to be security and lack of physical properties of the currency
    3. There will only ever be 21 million produced.

    Iím not an IT expert, but my understanding is that any electronic data can be attached to a block chain, leading to a full audit trail of that data at any point in time.

    So, what is it that makes a block chain that is attached to one twenty-one-millionth of the total amount of bitcoins so special?

    What if something else unique came along that could be attached to a block chain? Could this new thing replace bitcoin?

    Letís say we took something unique, such as the Mona Lisa. It is currently hanging in the Louvre in Paris, where anyone who wants to can go and see it.

    If the Louvre decided to, could they not place a hypothetical grid of say, 4000 by 5000 small squares over the Mona Lisa, each with itís own unique identifier? We could call each unique square/identifier an MLCoin.

    There would then be 20 million MLCoins in existence. So, slightly rarer than bitcoin.

    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?

    Would there be any reason why MLCoins would not be just as valuable, or more valuable than bitcoin in the future? After all, each MLCoin would actually represent a physical object, and the whole system would be backed by the Mona Lisa.

    The key benefits would then be;
    1. As there will never be another Mona Lisa, there is little room for financial shenanigans.
    2. MLCoins will be transacted using block chain technology
    3. There would only ever be 20 million MLCoins in existence
    4. Any owner could let everyone know that they owned a bit of the Mona Lisa. Thatís got to be more attractive than owning a bitcoin.

    Would this work?

    (Obviously, it doesnít have to be the Mona Lisa. Any unique artwork could do.)
Page 1
    • Malthusian
    • By Malthusian 30th Nov 17, 11:08 AM
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    Malthusian
    • #2
    • 30th Nov 17, 11:08 AM
    • #2
    • 30th Nov 17, 11:08 AM
    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.
    • msallen
    • By msallen 30th Nov 17, 11:36 AM
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    msallen
    • #3
    • 30th Nov 17, 11:36 AM
    • #3
    • 30th Nov 17, 11:36 AM
    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.
    Originally posted by Malthusian
    I agree with everything you say, but surely it would be a better investment than a Bitcoin because at least with a MLcoin there is an absolute floor below which its price shouldn't collapse (1/20,000,000th of the value of the ML).
    • markj113
    • By markj113 30th Nov 17, 12:42 PM
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    markj113
    • #4
    • 30th Nov 17, 12:42 PM
    • #4
    • 30th Nov 17, 12:42 PM
    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?
    • JohnRo
    • By JohnRo 30th Nov 17, 1:02 PM
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    JohnRo
    • #5
    • 30th Nov 17, 1:02 PM
    • #5
    • 30th Nov 17, 1:02 PM
    It's all part of the misunderstanding, deliberate or otherwise, that the real value of the bitcoin network isn't externally measured but is the bitcoin network, infallible, decentralised, democratic and accessible.

    The 'value' of a few blobs of paint on canvas is just as abstract as the value of the 'coins' in the crypto-network. I know which one has the greater utility though.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • Biggles
    • By Biggles 30th Nov 17, 1:16 PM
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    Biggles
    • #6
    • 30th Nov 17, 1:16 PM
    • #6
    • 30th Nov 17, 1:16 PM
    1. It is not produced by any central bank, and so is protected from fiscal shenanigans
    Originally posted by shelobslair
    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.
    • eskbanker
    • By eskbanker 30th Nov 17, 1:26 PM
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    eskbanker
    • #7
    • 30th Nov 17, 1:26 PM
    • #7
    • 30th Nov 17, 1:26 PM
    And there was me thinking that the Mona Lisa was a new incentivised tax-free account aimed at those who complain about how difficult it is to get onto the bottom rung of the housing ladder....

    * smiles enigmatically *
    • JohnRo
    • By JohnRo 30th Nov 17, 1:30 PM
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    JohnRo
    • #8
    • 30th Nov 17, 1:30 PM
    • #8
    • 30th Nov 17, 1:30 PM
    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.
    Originally posted by Biggles
    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.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • jimjames
    • By jimjames 30th Nov 17, 1:45 PM
    • 12,234 Posts
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    jimjames
    • #9
    • 30th Nov 17, 1:45 PM
    • #9
    • 30th Nov 17, 1:45 PM
    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.
    Originally posted by markj113
    Really? Surely it reduces the risk not increases it. If a currency has absolutely nothing to back it then doesn't that mean it's worthless with no physical value?
    Remember the saying: if it looks too good to be true it almost certainly is.
    • jimjames
    • By jimjames 30th Nov 17, 1:46 PM
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    jimjames
    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.
    Originally posted by JohnRo
    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.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • JohnRo
    • By JohnRo 30th Nov 17, 1:49 PM
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    JohnRo
    In the same vein, do fiat tickets having anything backing them, other than the threat of government violence?
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • JohnRo
    • By JohnRo 30th Nov 17, 1:51 PM
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    JohnRo
    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.
    Originally posted by jimjames
    Absolutely right, there are all sorts of problems bitcoin has yet to overcome, that being one of them.

    What you can't do, though clearly it's an olympic sport to some, is claim that those problems have anything to do with the network itself or how it operates.

    ** You can quite easily hold your own bitcoins and interact with the crypto-network btw. there is no requirement for a third party or gatekeeper to allow access, regulated or otherwise.
    Last edited by JohnRo; 30-11-2017 at 1:53 PM.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • Malthusian
    • By Malthusian 30th Nov 17, 2:53 PM
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    Malthusian
    I agree with everything you say, but surely it would be a better investment than a Bitcoin because at least with a MLcoin there is an absolute floor below which its price shouldn't collapse (1/20,000,000th of the value of the ML).
    Originally posted by msallen
    There is an absolute floor with Bitcoin as well - $0.

    Let's say the Mona Lisa can be sold on the art market for $500m so the "net asset value" of an MLCoin is $25. But MLCoins, to the same extent as BitCoins, are also bought in large numbers by speculators who think it will rise in value, and traded by criminals due to their untraceability, which means the price at which MLCoins are actually being traded is $10,025. How is that any safer than a BitCoin traded at $10,000?

    In the same vein, do fiat tickets having anything backing them, other than the threat of government violence?
    by JohnRo
    Isn't Bitcoin backed by government violence as well? If fiat currency wasn't controlled by the J... umped-up bureaucrats in Washington, and we could be confident that we could hold fiat currency without the risk of sudden hyperinflation, then there would be no reason for anyone to buy Bitcoins.

    So the value of BitCoins relies on the continuance of the problem that it claims to solve.
    • JohnRo
    • By JohnRo 30th Nov 17, 3:15 PM
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    JohnRo
    Apparently there is a lucrative market in criminal theft of 'old masters' many of which disappear forever. They're a criminal currency, just like fiat is.

    As for government violence, that sounds like a crypto rage induced word salad to me.

    Bitcoin is controlled by the algorithm the network of users maintain.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • Cactus_Jack
    • By Cactus_Jack 30th Nov 17, 3:38 PM
    • 556 Posts
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    Cactus_Jack
    If someone could find a way to utilise mining power to research cancer cures, alien life, etc whilst obtaining coins with value from it, it'd change the world
    • Malthusian
    • By Malthusian 30th Nov 17, 3:58 PM
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    Malthusian
    If someone could find a way to utilise mining power to research cancer cures, alien life, etc whilst obtaining coins with value from it, it'd change the world
    Originally posted by Cactus_Jack
    Like SETI@Home and Folding@home?

    I assume that they get enough processing power from volunteers or they would have found a way to pay them already. If they did want to pay people money for their spare processor cycles, it would be better to just pay them directly rather than get them working on a cryptocurrency algorithm, which would take up some of the processor cycles that the project wants to use to fold proteins / scan for alien life.

    If it would really change the world to get the Bitcoin mining rigs on these projects you would hope they would have already done it long ago. But there is a rapidly diminishing return on scanning the sky for extraterrestrial radio signals that don't exist. I have no idea how protein folding works but again, if it was profitable to put mining rigs to work on protein folding then surely Big Pharma would just buy some.
    • atilla
    • By atilla 30th Nov 17, 5:07 PM
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    atilla
    20% blip today. Oh dear.
    • markj113
    • By markj113 30th Nov 17, 8:06 PM
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    markj113
    20% blip today. Oh dear.
    Originally posted by atilla
    And back to nearly $10k already.

    Nov 2016 - $750
    Nov 2017 - $9883 right now
    • jimjames
    • By jimjames 30th Nov 17, 8:06 PM
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    jimjames
    And back to nearly $10k already.

    Nov 2016 - $750
    Nov 2017 - $9883 right now
    Originally posted by markj113
    So absolutely useless as a currency then
    Remember the saying: if it looks too good to be true it almost certainly is.
    • markj113
    • By markj113 30th Nov 17, 8:48 PM
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    markj113
    I view bitcoin as a commodity personally with the added benefit that it can be spent like a currency if you choose to do so.

    People love to point out the pull backs but the overall picture is onward and upwards.
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