The Bitcoin bubble – Greater fool theory

But I think it’s wrong to think of Bitcoin as a commodity, or that it needs some killer application. I really think Bitcoin is best thought of as a currency. Fiat currencies work because as a whole, we agree on its value. Usually, it’s backed by a country’s government, which represents the country’s populace. It’s value is inherently determined by the size of their economy.

Right now, Bitcoin isn’t backed by a government at all, but it’s still backed by people. Those people obviously feel that Bitcoin is worth what it is today. Of course, that can change, just like any currency.

But eventually, Bitcoin will reach a value high enough that more and more people will start accepting it alongside fiat. I mean, go to any border town along the Canada-U.S. border, and they all accept USD and CAD. Clearly, they do that because it’s advantageous to attract customers. That could eventually happen with Bitcoin. Then we’ll stop worrying about Bitcoin’s valuation so much, insofar as we stop worrying about the values of fiat currencies. It matters, but not that much.

When that will happen, and at what value, I have no idea. But until then, I’m hodling.

Bitcoin is the killer app. Similarly, the internet is great not because of TCP, but because of the information (which is what gives it value).

> The only exception that I can think off is that if it becomes a necessary component of smart contracts, it could take on the role of a commodity; that may be ethereum's saving grace, since it has been marketed less as a currency and more as a smart contracting lubricant.

This applies to bitcoin too, but he doesn't seem to be aware of it. So when he later claims

> You cannot value Bitcoin, you can only price it: This follows from the acceptance that Bitcoin is a currency, not an asset or a commodity. Any one who claims to value Bitcoin either has a very different definition of value than I do or is just making up stuff as he or she goes along.

It's just not true. There is obviously some actual inherent value to being able to do escrow via multisig rather than via mutual complete trust in some third party. You can argue that the value is very low, but obviously there's some inherent value to the system.