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A Great Bitcoin Value Analogy

1/19/2014

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Many people encountering bitcoin have a hard time understanding the difference and benefits versus existing currencies.  If you don't understand deflation, capital controls, banks, central banks, money printing and currencies in general then you are more likely to understand bitcoin at a paypal-like level and it will be hard to see what all the fuss is about.

Similarly most people don't typically understand bitcoin and the blockchain's technical merits because they don't understand what we have right now.  If you don't know about DNS and SSL certificates then you won't see why .bit domain names are potentially game changing.

Recently though on the Max Keiser show Reggie Middleton of Boom Bust Blog came up with a great analogy.

The Bitcoin Car

Here's how Reggie explains it (paraphrased):

Imagine you have the dollar which is a Chevrolet and it costs $30,000.

Now imagine you have a Bitcoin car which maybe cost 2 cents last year and now its $100,000.  People will look at it and say "it's a bubble", "it's a ponzi scheme" etc etc purely because of the rise in price.

But that Bitcoin car comes with its own roads, and those roads have no tolls.  The roads can go anywhere in the world, overseas, to other countries, through rivers, and that can go faster than any of the other cars in the world. And there's no way your travelling on those roads can be impeded by anyone or any corporation or government.


So taking that into consideration, which is more valuable?  The chevrolet at $30,000?  Or the Bitcoin car that went from 2 cents to $100,000?

The Car That Never Loses Value

It's a great analogy as it stands but actually it works even further to demonstrate another of bitcoin's benefits: fixed supply and deflation versus money printing and inflation.  Here's my proposed addition:

Imagine also that there are a fixed number of Bitcoin cars.  There will only ever be 10,000 made, but imagine that the Bitcoin car never breaks down, rusts or wears out.  So in 50 years time the Bitcoin car that you bought will work exactly as it does now, and could be sold as new.  The chevrolet on the other hand will have lost a huge percentage of its value.  

The number of Bitcoin cars does change, but it only goes down since, although people can make copies of their car keys, some people occasionally lose all copies meaning that car can no longer be driven.  So maybe in 50 years time there will be just 5,000.

So again, which car looks preferable?  Does the Bitcoin car still seem expensive?

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