The Fair Price of a Bitcoin is Zero

Seems all currency is a ponzi scheme. Even gold is valuable only due to scarcity and peoples desire to have it. It's been currency for thousands of years and only recently has it been used in industry. That said, I keep expecting this bitcoin bubble to burst and it keeps going up. Could it stabilize as a true global currency, I doubt it, but maybe.

Doesn't measuring BitCoin in dollars kinda beat the purpose of BitCoin?

> They should be easy to create (bitcoins are) BUT ALSO easy to destroy if demand declines;

You can provably destroy bitcoins by sending them to an address with no private key (this is provable). Believe it or not, this is actually useful for stuff like http://www.proofofexistence.com/

Hence the premise of this article, even if you take the underlying economic theory at face-value, is flawed.

...does "new economic perspectives" mean wrong ones? This article is lunacy. I started to skim it, but after the fifth or sixth ridiculously wrong assertion in as many sentences, I stopped. This article is so, so wrong.

It's littered with idiosyncratic phrases and simply incorrect definitions. For example:

> Second, all financial instruments have a fair value that is defined as the discount value of future streams of monetary payments.

There's a grain of truth in there. Let's give the correct definition from Wikipedia:

> In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs)—the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question.

In other words, it's nothing to do with "financial instruments"; it's how you value any asset. And it's not the "fair value" it's just one of many ways of valuing things. And it's not "the discount value" (as if there were only one), nor is it just "monetary payments"; rather it's all cash flows, in every direction, each one discounted appropriately.

And so on, and so forth. The author makes a big point of arguing that they aren't financial instruments so much as they are real assets. There's some truth to this; if I own a bitcoin nobody is obligated to give me anything in exchange; it doesn't exist as a liability on anyone's balance sheet. And? The same is true of a gold ingot. Or, largely, or a share of Apple stock; nobody is obligated to give you anything for that share. By the same logic, the "fair" value of gold (or Apple stock) is zero. Hell, the same logic would indicate the fair value of a Euro is zero. After all, nobody is actually obligated to give me anything for a Euro. I don't live in the EU, I have no EU debts, and no stores around here accept Euros. It's worthless! Except, you know, for the part where there's a large, liquid market where I can trade Euros for my local currency.

> Now what is the fair value of a bitcoin? It does not provide any income (Y = 0), it has no maturity given that it is not a financial instrument. For the sake of argument, we might assume that their maturity is infinite because we are stuck with them forever once they are created.

Taken literally, this means that you cannot sell a bitcoin. I would suggest that this is not true. You can actually sell bitcoins. People do this every day! In which case we plug in the expected value of the future sale in his fancy equation, discount it appropriately to account for the time value of money and the uncertainty of how much I'll get when I sell it, and find that...

...bitcoins aren't worthless. Huh, who knew?

One definition of money is "the most marketable commodity" and bitcoin does tend to pass that test. It's rapidly becoming a marketable commodity as so many people will accept it for goods or services.

My point wasn't so much that money has to be a commodity with an underlying value. It was to point out that the notion that "money is an asset to the holder and a liability to the issuer" might be the author's definition of money, but it's not THE ONLY RIGHT definition of money.

If gold can effectively be money, sans minting into coins that means that the earth is the issuer. Do we "owe" the earth an ounce of gold by virtue of having mined it? If so, do we then "owe" the earth a ton of steel for every ton we extract? And what happens if/when that gold or steel leaves the earth on one of the Voyager probes?

I'm making absurd arguments to point out that the author's definition of money is absurd. I'm not trying to troll but to illustrate a point. I think his definition of money works fine when you're issuing bills or notes, but it breaks down when people are using commodity money with none of the "debt" part that gets brought to play with notes.

When people start issuing paper notes redeemable for bitcoins then I'll accept the author's definition of money. But right now people are trading the actual commodity itself so his definition of money falls flat in this circumstance.