Category: macro

How a Bitcoin is not a Dollar

There is no intrinsic value to a BitCoin because it is an anonymous IOU written by no one.

I want you to give me half of your doughnut.

I can offer to give you a signed IOU that says “Josh will give the holder of this IOU 1/2 doughnut”. The more you trust that I will actually honor the IOU, the more it is worth to you. You might even be able to trade that IOU to someone else for something that they have and you want… assuming they also think there is some chance that I will honor it.

Instead of writing the IOU, now imagine that I write a program that generates random sequences of letters on my computer. I let that program run for a very, very long time until it happens to generate something like “IOU 1/2 doughnut”. I print this out and I offer to trade it to you for 1/2 your doughnut.

YOU: So if I take this note, someday I can give it back to you and you'll give me something yummy?
ME : Nope. This is not an IOU from me. It was randomly generated by a computer.
YOU: So who owes me the 1/2 a doughnut?
ME : No one! But it took the computer a really long time to generate this note at random!
YOU: If there is no one who will pay me back, then why would I ever accept this note?
ME : You can try to trade it to someone else for something they have and you want!

A dollar is an IOU from the government, a BitCoin is an IOU from no one…

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