It's pretty simple, value comes from a set of properties: scarcity, durability, frangibility and acceptability.
Scarcity: obviously refers to the limited amount, and the mining process. Nobody can create gold without investing a lot of actual work into mining.
Durability: the power of lasting or continuing in the same state by resistance to causes of decay or dissolution. I.e all Gold will always be just Gold, same as ever, no expiry date, no rust or stuff like that.
Fungibility: individual units of the same weight are interchangeable, same quality, same density, same properties overall, compare to say chicken the quality varies a lot by the bird, you get the idea.
Acceptability: because of the other properties, a lot of people allover the world realized the value of Gold, hence most people accepted it as money.
Now the interesting thing to notice here, is that Bitcoin has the exact same properties, but it also has additional properties, like:
Portability: No matter how many Bitcoins or fractions of a coin you put into a wallet, the wallet will always have the same size, this of course also applies to cold wallets stored in a physical object, say a book for instance. That book can hold 0.005, 2 or why not 100 000 BTC. This is practical when moving or storing large amounts.
Divisibility: While Gold cannot easily be divided into smaller pieces, and Fiat currency promise to solve that problem with constant inflation in addition to two decimals, known as "cent". Bitcoin has 8 decimals, which can easily be extended to more in the future, and metric prefixes, like Milli Bitcoin 0.001, Micro Bitcoin 0.000001 and so on. This allows usage of fractions of a coin, to solve the problem with it being "deflationary", which means going up in value, which bankers consider a problem.
Ironically when thinking about it, take the consumerism for instance, we consume a lot of crap because our fake fiat currency is literally burning in our pockets. If your money had value tho and where increasing in value over time you'd be more prone to saving, and only purchase stuff you need. This helps prevent over consumerism and moves away from the modern centralized industrial society altogether while bringing us all back closer to the nature, with freedom and decentralization. But of course with modern technology. Seems like some kind of utopia to me if successfully implemented.
There may be advantages / disadvantages I'm overlooking though. What are some of the top criticisms of bitcoin that may hold some merit?
The lone fact that it is digital, and not something physical, is alone a barrier to many people accepting it. To them, money was always something they held in their hands. However, these same people would likely accept a government digital currency if it were shoved down their throats. And most of the USD in circulation today only exists digitally.
Some legit criticism would be the 1mb block size limit, with a note on "some", there's a lot of invalid criticism on that topic too. The block size limit was added to prevent spam, by restricting how fast the blockchain can grow.
Since every transaction ever made is logged, and since the blockchain is supposed to run on as many privately owned devices as possible and not on centralized servers, it's vital that it doesn't take up too much disk storage space. Currently around 200GB for a full node.
I think Satoshis mistake here was to expect a continuation of moores law, that is based on 2008's technology, we would all still use desktop PC's today, with spinning magnetic hard drives. Tho those drives would have 128 or 256 TB of storage capacity and doesn't cost more than $50 - $100.
Instead, the smartphone became more popular, then came the SSD drives which are more expensive, hence smaller in storage size but faster which made them more popular. The original idea might have been to allow bigger blocks or some kind of dynamic scaling, but without big storage the blockchain needs to be kept small in size to ensure it remains decentralized.
Today we do have bigger storage mediums at reasonable cost, and a increased block size could be justified. That said, there's been plenty of upgrades which aims to fix the scaling issue, first segwit which reduce transaction size, hence doubling amount of transactions that fits inside a block. Then the beech32 update and now the lightning network which uses parallel chains.
And beside Bitcoin, there are also a few valid alt coins, all with their own brilliant solutions to the scaling problem. From parallel chains, to dynamic block size and more. In the end, if we all reduce consumption anyway, there won't be a need for huge transaction throughput.
It's pretty simple, value comes from a set of properties: scarcity, durability, frangibility and acceptability.
Now the interesting thing to notice here, is that Bitcoin has the exact same properties, but it also has additional properties, like:
Ironically when thinking about it, take the consumerism for instance, we consume a lot of crap because our fake fiat currency is literally burning in our pockets. If your money had value tho and where increasing in value over time you'd be more prone to saving, and only purchase stuff you need. This helps prevent over consumerism and moves away from the modern centralized industrial society altogether while bringing us all back closer to the nature, with freedom and decentralization. But of course with modern technology. Seems like some kind of utopia to me if successfully implemented.
Excellent comment. Well stated.
There may be advantages / disadvantages I'm overlooking though. What are some of the top criticisms of bitcoin that may hold some merit?
The lone fact that it is digital, and not something physical, is alone a barrier to many people accepting it. To them, money was always something they held in their hands. However, these same people would likely accept a government digital currency if it were shoved down their throats. And most of the USD in circulation today only exists digitally.
Some legit criticism would be the 1mb block size limit, with a note on "some", there's a lot of invalid criticism on that topic too. The block size limit was added to prevent spam, by restricting how fast the blockchain can grow.
Since every transaction ever made is logged, and since the blockchain is supposed to run on as many privately owned devices as possible and not on centralized servers, it's vital that it doesn't take up too much disk storage space. Currently around 200GB for a full node.
I think Satoshis mistake here was to expect a continuation of moores law, that is based on 2008's technology, we would all still use desktop PC's today, with spinning magnetic hard drives. Tho those drives would have 128 or 256 TB of storage capacity and doesn't cost more than $50 - $100.
Instead, the smartphone became more popular, then came the SSD drives which are more expensive, hence smaller in storage size but faster which made them more popular. The original idea might have been to allow bigger blocks or some kind of dynamic scaling, but without big storage the blockchain needs to be kept small in size to ensure it remains decentralized.
Today we do have bigger storage mediums at reasonable cost, and a increased block size could be justified. That said, there's been plenty of upgrades which aims to fix the scaling issue, first segwit which reduce transaction size, hence doubling amount of transactions that fits inside a block. Then the beech32 update and now the lightning network which uses parallel chains.
And beside Bitcoin, there are also a few valid alt coins, all with their own brilliant solutions to the scaling problem. From parallel chains, to dynamic block size and more. In the end, if we all reduce consumption anyway, there won't be a need for huge transaction throughput.