Value in an economy is created by specialization and trade.  (Velocity, by the way, is just a metric used to measure specialization and trade.)  Specifically, by relying on the market to provide for things that you need, but otherwise could not economically produce.  In this way, capital is invested efficiently.  Yet there is risk involved.  What if the market doesn't produce what you need?  What if a monopoly arises and the price is too high?  So there is a tradeoff.

The best currencies reduce or eliminate this risk.  They do so in different ways.  Some (commodity currencies) are valuable in and of themselves.  This creates a buffer of resources that can be used whenever markets fail.  Fiat currencies, on the other hand, rely on government force in order to simply steal and redistribute whatever the market lacks.  Fungibility and liquidity are related, and just refer to the ease with which a currency can be exchanged.  Highly fungible and highly liquid currencies reduce the risk that you will not be able to trade away your currency if necessary.

While not technically currency, there is a lot of activity lately in gold and silver exchange-traded funds, which are more liquid than physical metals while (ostensibly) still backed by the commodities themselves.  Some fiat currencies (Canadian and Australian dollars) achieve stable value by virtue of their country's vast commodity wealth, restrained monetary policies and the notion that these resources back the currency.

Litecoin, for what it's worth, will never have much value, because there are people out there who have the computing resources to crush it overnight.  That is too much risk for a currency.

Bitcoin doesn't have that problem.  As a currency, Bitcoin is now extremely resistant to failure, is infinitely fungible, is not reliant upon fiat or government force, and is slowly reaching a stable value.  Yet it still has difficulties with liquidity.  And the value of Bitcoin is not readily apparent.  It is almost identical to precious metals in this regard.

If there were a nuclear war, you could use a bar of gold to re-build modern civilization.  Eventually.  But you can't use it to buy a hamburger.

Same with Bitcoin.  If you lose your job, you could use Bitcoins to trade for almost anything you need, as long as you can wait a week or so.  But you can't use them to pay your water bill.

The difference, of course, is that while you will never be able to buy a hamburger using gold barring a complete collapse in world population, Bitcoin has a decent chance of eventually achieving this level of liquidity and, thus, value.

Thanks for all the replies. I'm not trying brainstorm, because I understand that there are far more qualified people than me developing Bitcoin. I just want to more clearly see the direction that this development is leading. Let's all make sure we have real goals in mind to achieve optimum adoption.

Let's look instead at platinum vs palladium vs gold. Palladium is more rare that platinum, and both are rarer than gold. They all have about equal utility. Platinum and gold are similar in value, but palladium is much cheaper. If it's about supply vs demand, and if supply of palladium is much smaller, then if all other things being equal, why is demand so much smaller as well?

Is this your opinion or do you have some facts to back that statement? Because if it is true it will be news to me. Besides you left out their properties that are equally important.


I don't know precisely, no one does as Etlase2 pointed it out, but there are theories that you can speculate on based off of their utility and properties.

You are but you are wrong. You have to think about all the uses; actual and fictional that both metals have not just industrial use. Gold for instance is seen as money and the best store of value by a lot of people around the world where as arguably platinum isn't and now you need to figure out how that weighs in on the demand for either.


It's not. You just lack the complete information about their utilities and properties as most everyone does and then your conclusions based on an incomplete picture don't match up with reality as they shouldn't.