Ecce Roberto

by Roberto Quaglia

When asked what is giving Bitcoin (or any other cryptocurrency) its value, most of the bright people would answer just something like: “Shared consensus.”. Some would add a particular techno-mantra involving terms like “distributed ledger”, “limited supply”, “permissionless”, etc. But the core of the answer would anyway be “shared consensus” – ultimately money has a value only if there is a shared consensus over the fact that it has a value.
However, at a closer look this is telling us nothing about the reasons which are giving value to Bitcoin. “Shared consensus” is not a cause. “Shared consensus” is a consequence. And also all that fancy techno jargon mantra with concepts like “ distributed ledger”, “limited supply”, “permissionless” – is in fact telling us very little about the reasons which are causing the value. After all, there are by now literally thousands of new cryptocurrencies, all boasting about their “distributed ledger”, “limited supply”, “permissionless” nature – and yet none of them manages to achieve more than a minimal fraction of Bitcoin’s value.
In April 2014, Bitcointalk user “Peter R” has written a post in which he observes how Bitcoin’s value seems to be rising according to Metcalfe’s law about networks. “The effect (value) of a network is proportional to the square of the number of connected users (nodes) of the system.” Since Bitcoin is clearly a network, it seems totally legit that its value would rise the more users it would have. And it would do so in accordance to Metcalfe’s law ( https://bitcointalk.org/index.php?topic=572106.0 )
This insight has sparkled a new fashion throughout the whole crypto-space: everyone and their dog would suddenly create a new cryptocurrency to be “airdropped” for free to as many people as possible – this way each time a huge network would rise and according to Metcalfe’s law it would magically acquire tons of value. Herds of people rushed to grab some of this new free money, but… guess what? In most cases the trick didn’t really work out so well. Not much value was created. Did Metcalfe’s law suddenly stop to work? Or instead there was an even more important law – or principle – which had been overriding it?
There is in fact an overriding principle which is the requirement of people who take part in a monetary network to have “skin in the game” – in other words to share the risk of the network. The bigger their investment, the more they’d have to lose should it ever fail, the more they would have a motivation to stay proactive in securing the network against failure. Continue reading →

by Roberto Quaglia – – roberto.info

Today I’d like to spend a few words on a specialistic theme most of the people still know little or nothing about, and which nevertheless in the future will have an important impact on the lives of all of us. You’ve certainly have already heard of Bitcoin. But perhaps, you likely are missing all details.

More than that, you are probably missing the sequels – I’m talking about the other coins which seek to become an alternative to Bitcoin. Of course here we won’t be able to clear all mysteries on this subject, but we can offer you a little panoramic. Bitcoin is an electronic currency which has been created in 2009, and it basically consists in a distributed peer-to-peer database which ideally is shared by everyone who holds any unit of this coin. This ensures that the circulating coins cannot be counterfeit. Also the emission of bitcoin is ruled in a certain way, in a way which is established in advance and is unchangeable, by the way of a process called Proof of Work which consists in the solving of a specific algorithm with variable difficulty. This is a minting process everybody can theoretically take part to, but in the real world it’s now reserved to those who can afford the increasingly expensive dedicated computers and even more than that all the electricity that these machines consume.

When Bitcoin was created, in 2009, it was nothing worth. The first enthusiasts who adopted it where producing thousands of coins every few days and then they had no idea what to do with them. In May 2010 a man called Lazlo offered to pay 10,000 bitcoins to whoever was willing to send him 2 pizzas. It took some time before someone cared to accept his 10,000 bitcoins offer and finally Lazlo succeeded in buying his two nice pizzas. Not too bad, he must have thought, two real, concrete, tasty and eatable pizzas in exchange with a handful of electrons and some weird string of ASCII characters on the screen of his computer. Did Lazlo do a good deal? It depends on how good were those two pizzas in the end. At the exchange rate of a few days ago, May 25, 2017, seven years later those 10,000 bitcoins are today worth more or less 26 million dollars.

Lazlo today can boast about having eaten the most expensive pizzas in the world, which by the way are getting more and more expensive as time goes by. Just in the past few months Bitcoin has doubled once again its value, reaching a max capitalization of 44 billion USD. Continue reading →

Tag Archives: Cryptocurrencies

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