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The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

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Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#51

Post by nl »

mseebach wrote: post #27
faski99 wrote: post #15

Earlier quoted context omitted.

"God knows how the computer industry makes money when if i hold my $$$ just a little longer, i can buy an even better machine" Not really. Because if you expect the value of your cash to rise, you would probably hold onto your cash. The liquidity of the system would drop as people hoard their cash (what happened during the Great Depression), depressing an economy. "bank run" He's talking about the need to inject cash…

> Because if you expect the value of your cash to rise, you would probably hold onto your cash. So why don't you? By that logic, you don't own a computer. There has not been a single minute for the past thirty years when it was not an invariant that if you wait a little longer, you can get a better computer, or more lately, mobile phone or *pad-device for the same (or, not rarely, less). Yet, these items sell like ho…

The computer argument is completely misguided.

People buy a computer when the utility they will derive from it outweighs the monetary cost. They know they may get a better deal in the future, but immediate needs may outweigh potential future savings.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#52

Post by junklight »

dogas wrote: post #22

I think the other article ( http://apenwarr.ca/log/?m=201105 ) written about bitcoin failing is more detailed and contains potentially more plausible ways of how bitcoin can fail. The openwarr article refers to potential failures with the SHA256 backbone of bitcoins. "With bitcoin, a single failure of the cryptosystem could result in an utter collapse of the entire financial network. Unlimited inflation. Fake transac…

It doesn't even need to be a real problem - just one that the investor perceive as a problem. And given that the tech is pretty complex and beyond the understanding of a lot of people using bitcoin then that risk is even greater.

And as with any investment scheme the potential for manipulation by rumour is also very real. There is a lot of regulation around more mainstream investment and money mechanisms to stop this (and it still happens) - bitcoin, which has no centralised "defender", will be just as prone to it.

I would imagine that now a wider audience is becoming aware of bitcoin we will start seeing this kind of thing in the next few months (and possibly are already doing)

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#53

Post by vladd »

anonymoushn wrote: post #33
ap22213 wrote: post #14

I would love to see a currency like this work, and I would be interested in using one, but the major issue for bitcoin, for me, is that deflation is built into its core. Inflation is a good thing. Inflation encourages holders of capital to use it to invest in other things. That is, inflation encourages productivity. The inflation has to be relatively low, of course. Probably low enough to allow someone to retire with…

I don't understand. If a man can earn an expected 3% interest (in real terms) by buying a certain investment, is he less likely to buy it in a deflationary environment than in an inflationary environment?

Yes, because in a deflationary environment, just sitting on the money is an investment in itself.

Let's say you have an amount of money which buys you today 1 house. If within 1 month, with the same amount of money, you'll be able to buy 1.04 houses, nobody will invest in any business which increases real (non-money denominated) assets at anything lower than 4% per month.

Or, to look at it from another angle: the central bank cannot set a negative interest rate, that is, take interest just for keeping the money in the account (people will keep it under the mattress instead). So the deflation rate is the minimum interest rate that the businesses must achieve in order to be economically viable and attract funds (otherwise investors sit on the money). The greater the deflation rate, the more bankruptcies it causes.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#54

Post by krschultz »

spot wrote: post #18

When he showed the graph of the number of tweets vs the number of bitcoins he lost me. This is an apples and oranges comparison. http://bitcoinreport.blogspot.com/2011/01/bitcoin-transactio... It's just FUD.

It's FUD because you misinterpretted one statement out of a multi-hundred word essay?

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#55

Post by njharman »

Not a fan of bit coin. Convertibility is the only issue in author's diatribe. Author has not understood several concepts re bit coin.

Bc is not a normal currency, it's not reserve currency. It's much more like a stock that's tradable without exchange. Limited quantity, market set price,

Mining is not free. When something succeeds early adopters always mKe out big. It's their payoff for risk.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#56

Post by anonymoushn »

nl wrote: post #46
anonymoushn wrote: post #33

Earlier quoted context omitted.

I don't understand. If a man can earn an expected 3% interest (in real terms) by buying a certain investment, is he less likely to buy it in a deflationary environment than in an inflationary environment?

In that case ("in real terms") there is no difference. That's not the problem. The real problem is if someone is more or less likely to buy something in currency denominated terms if it is a deflationary or inflationary environment. If people don't spend then you tend to end up in a low (or negative) growth environment, which can lead to high unemployment and a falling standard of living.

Why do we expect real ROI to vary significantly based on whether the currency is inflating by 2% or deflating by 2% y/o/y? I would expect if I were a lender, and inflation increased, I would price that in to my new transactions, and I would think if I were a business, I would be impacted much more by my ability to convert real time and real resources into real value than by the number of loaves of bread I could buy if I spent all my cash reserves on them.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#57

Post by bad_user »

sbierwagen wrote: post #40
dogas wrote: post #22

I think the other article ( http://apenwarr.ca/log/?m=201105 ) written about bitcoin failing is more detailed and contains potentially more plausible ways of how bitcoin can fail. The openwarr article refers to potential failures with the SHA256 backbone of bitcoins. "With bitcoin, a single failure of the cryptosystem could result in an utter collapse of the entire financial network. Unlimited inflation. Fake transac…

This is more along the lines of "SHA256 has not been proven to be secure, therefore, it may be cracked." It would require novel discoveries in mathematics to do so.

Actually many cryptographic algorithms that got defeated, haven't been defeated with "new discoveries in mathematics". Also, you can't really prove that such an algorithm is secure. You can only prove that it exhibits certain properties that make it more secure versus other algorithms.

Judging by how cryptographic methods got defeated in the past, I think it's safe to assume that it's only a matter of time.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#58

Post by foxhill »

having just read the article, it's apparent that the author has misunderstood, or entirely does not understand the principles behind what's going on.

the number of new bitcoins, for instance, that are allocated for a time period, is fixed, and from what i understand, is allocated to users by the proportion of time spent "mining". ie, 10x more mining on everyone's part does not mean 10x more coins mined.

secondly, the idea that a currency with a finite supply is a bad thing, is just rubbish. gold backed and silver backed currencies have all existed at one time or an other. some would argue that they have more benefits than fiat currency.

his final point is almost entirely non-sensical, and is related to the part before. during the bank bailouts in the financial crisis (which again, some would argue we are still in the midsts of), the bailouts created money out of air - devaluing the currency for everyone, increasing inflation, and THEN passed the debt to tax payers. how this is construed as a benefit for citizens of respective governments is beyond me. during recessions, the poor get poorer and the richer get richer. money doesn't disappear, it gravitates to those that already have it.

his 3rd point is the only one that comes close to making sense, alas, it's not really an issue. people are their own converters. how much someone will pay for something is entirely up to them, and whilst i don't see there ever being an extra column in XE.com, that's really neither here nor there.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#59

Post by limmeau »

dogas wrote: post #22

I think the other article ( http://apenwarr.ca/log/?m=201105 ) written about bitcoin failing is more detailed and contains potentially more plausible ways of how bitcoin can fail. The openwarr article refers to potential failures with the SHA256 backbone of bitcoins. "With bitcoin, a single failure of the cryptosystem could result in an utter collapse of the entire financial network. Unlimited inflation. Fake transac…

While attacks against the basic building blocks of cryptosystems (like the SHA256 hash or AES block cipher) are rare, the protocols built upon those blocks can be independently vulnerable.

Take the Needham-Schroeder public key protocol from 1979, for example. http://en.wikipedia.org/wiki/Needham-Schroeder_protocol#The_... . It's simple and "obviously" foolproof, but a vulnerability was published in 1995, 16 years later.

Right now, we don't know if the bitcoin protocol has such a flaw. However, if it turns out to have an exploitable flaw, the entire bitcoin network will have to switch to a new protocol, which I haven't heard described as something they have a concrete plan for.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#60

Post by junklight »

cturner wrote: post #49

Trollish headline. One fair non-structural criticism, a weak, temporary criticism and two things billed as criticisms that aren't. 1) Early adopters. I couldn't find a point here. I think he's saying that it's unfair that some people get in early. But in the current system, it's unfair that government (through tax law and control of force) mandates that you use a form of money that doesn't function well as a store of…

I have no idea if it is solid or not but statements like:

"Bitcoin will be tested but from what we know about it at the moment, it looks solid."

worry me. Its easy to make things for ideal conditions. If bitcoin becaomes mainstream the stresses will be incredible. Where there is money to be made there are smart people looking for an angle and leverage. Even governments suffer:

http://en.wikipedia.org/wiki/Black_Wednesday

This is an experimental mechanism. It is not based on main stream economics and it has no government or bank protecting it with regulation or defending it. The originators may have hit upon something new that is solid and can stand on its own two feet or they may have initiated the construction of a tower of cards.

Even if you are a full on supporter of bitcoin you would be mad to assume that it doesn't have a fatal flaw at this stage.

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