Ask HN: How do we know Bitcoin is not in a bubble? • Hacker News Board

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#51

Post by djellybeans » Thu, Dec 07, 2017, 12:40 AM UTC

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

One of the biggest questions people have is how loans and debt can be handled in bitcoin. Since it's deflationary by nature, how will loans be easily recovered from the borrowers when it becomes harder to pay back the amount of BTC as the cost of BTC goes up?

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#52

Post by akhatri_aus » Thu, Dec 07, 2017, 11:49 AM UTC

captainmuon wrote: post #46

akhatri_aus wrote: post #36

Earlier quoted context omitted.

Why aren't scarce resources like gold and oil going up the same way? I think gold made a low this week. Your theory doesn't align with what happened in Germany.

Gold is not growing in demand, and is not in the process of being "established". Almost everybody who wants gold already has enough, and people entering the gold market are approximately balanced by people selling gold. People who use gold (e.g. in industry) are supplying themselves at the same rate as they are using it. There is no reason it should continuously go up. Of course my argument doesn't align with what ha…

For the theory to hold though, everything needs to go down in dollars. That's the point. If Bitcoin is the only thing going up there are no deflationary or inflationary forces at work.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#53

Post by ericb » Thu, Dec 07, 2017, 8:33 PM UTC

take4 wrote: post #50

ericb wrote: post #41

Earlier quoted context omitted.

It was once impossible to stream movies over the internet because modem technology was limited to 1200 bits per second. Even band-aids like doubling capacity wouldn't help enough. Technically. Impossible.

Streaming movies was impossible over dial-up, and still is. But you can if you have different internet connections like DSL, Cable, Fiber, etc. For the original bitcoin that is currently being priced at $13,000 it is indeed technically impossible to exceed 6 transactions per second. Sure you could make a new crypto protocol, but it's not "bitcoin".

The protocol (proof of work based system using wallets and addresses) doesn't define the implementation and the implementation defines limits. The protocol especially does not define the implementation of other layers built alongside it, so this is a straw man.

If your argument is "any improvement to the current system" "isn't bitcoin" then that's a no true scotsman sort of argument and I don't think it holds much water.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#54

Post by captainmuon » Fri, Dec 08, 2017, 7:47 AM UTC

akhatri_aus wrote: post #52

captainmuon wrote: post #46

Earlier quoted context omitted.

Gold is not growing in demand, and is not in the process of being "established". Almost everybody who wants gold already has enough, and people entering the gold market are approximately balanced by people selling gold. People who use gold (e.g. in industry) are supplying themselves at the same rate as they are using it. There is no reason it should continuously go up. Of course my argument doesn't align with what ha…

For the theory to hold though, everything needs to go down in dollars. That's the point. If Bitcoin is the only thing going up there are no deflationary or inflationary forces at work.

You're right, there are not deflationary or inflationary forces at work. What is happening is simply supply and demand.

I'm thinking in a simple two-goods model here. "Currency" vs. "Products" - or "USD" vs "BTC". "Too much" supply of currency or "too little" supply of physical products drives the price up. In this model, that's the same as inflation, but you are right, as soon as there is a third good you can compare prices to that good and tell if it is inflation (all prices rise) or not (only the price of one good rises).

My point is not "it is inflation". Rather "it is inflation-deflation-supply-demand" (market reacting to changing supply and demand), as oppossed to "it is irrationality". If bitcoin is staying with us, and not banned etc., then demand for it will continue to grow faster than the supply will grow. I think the stable exchange rate of a fully established bitcoin will actually be at least a factor of ten higher than today.

Re: Ask HN: How do we know Bitcoin is not in a bubble?

#55

Post by captainmuon » Fri, Dec 08, 2017, 7:51 AM UTC

rmah wrote: post #37

captainmuon wrote: post #31

You can't know. For those who are saying it is obviously a bubble: If bitcoin "succeeds" and becomes widely used as money, then its value will grow a lot more, since there can only ever be 21 million bitcoins. It is inherently deflationary. One bitcoin is worth, roughly (and circularly) speaking, the total valuation of bitcoin divided by the number of coins. Another way of looking at it: imagine bitcoins become as wi…

Bitcoin cannot become "widely used money". It is technically impossible. It is transaction rate limited to 6 txn/sec. Worldwide. Even band-aids such as increasing the block size won't help enough. I'm not saying bitcoin prices will crash anytime soon. Simply that the dream of bitcoin replacing fiat currencies in daily commerce is just that: a dream.

What will likely happen is that bitcoin will only be used to transfer large sums between exchanges. Day-to-day payments will be handled off-chain.

Another option is to use lighter alt-coins in parallel to bitcoin, again using bitcoin for long-term storage or larger transactions.

You are right that the current bitcoin as-is is not suited for many small everyday transactions, as envisioned by many. The transaction rate and fees are just too high. This is actually - besides governmental bans - the one thing I think could take bitcoin or cryptocurrency in general down.