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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.

#61

Post by mseebach »

nl wrote: post #51
mseebach wrote: post #27

Earlier quoted context omitted.

> 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.

And why wouldn't that argument work for all other goods, too, rendering the deflation argument misguided?

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

#62

Post by powertower »

vladd wrote: post #39

Bitcoin is a marketing-based currency in the sense that it has no real value besides the fact that it was the first currency with cryptographic properties that gained widespread adoption: if someone would take the code and fork it into an alternative ("Webcoins"), the intrinsec value of a Webcoin would be zero (unless it also found a way to gain market share or early adopters). That's very similar with a Ponzi scheme…

> that gained widespread adoption

No. What it has gained is: speculation.

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

#63

Post by three14 »

sbierwagen wrote: post #43
anonymoushn wrote: post #36

Earlier quoted context omitted.

It is worrying to me that the public exchanges have so few bids and offers most of the time, and that it is extremely common for people to deal in these things privately to avoid moving the price.

Your first point is real and valid. Mtgox is neat, but has quite low volume compared to pretty much any other forex in the world. The second point is specious. How, precisely, do you propose to outlaw private deals, without using universal surveillance, or trained psychics?

The GP doesn't want it outlawed, just doesn't want people to specifically choose to have transactions privately for fear of moving the price, because that's a sign that the market isn't healthy. A healthy market should be resilient against normal trading.

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

#64

Post by jasonkolb »

mycroftiv wrote: post #13

The current design of Bitcoin is obviously not correct for the long term, and I am sure it will be supplanted by more evolved crypto-currency systems. There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Given the rewards that have already accrued to Bitcoin early ado…

Agree 100% with your last paragraph. The bank lobby, effectively an arm of the Federal Reserve system, is not going to stand by and watch any alternative currency gain traction. My guess is that they'll try to paint any legitimate alternative--Bitcoin or some successor--as a tool for terrorism and try to get it banished from the face of the earth that way.

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

#65

Post by ap22213 »

njs12345 wrote: post #50
ap22213 wrote: post #31

Earlier quoted context omitted.

I don't know. Maybe. It seems like it would just create aristocracy. If I inherit a large sum of money, I have incentive to ensure that my large sum of money increases (or at least doesn't decrease) in value in the easiest, least risky way possible. If my wealth was in bitcoin, I wouldn't have to do much, except ensure that more people join bitcoin and that the bitcoin didn't disappear. Otherwise, I would just play w…

Of course, most forms of wealth people have aren't inflationary anyway - the very wealthy tend to have little in terms of actual liquid currency and more stock and property. It has been argued ( http://en.wikipedia.org/wiki/Inflation_tax ) that inflation can be thought of as a regressive tax for this reason.

Exactly. As nl stated [1], bitcoin would turn the currency into an investment. The very wealthy who would otherwise hold stock and property would instead have incentive to just hold the bitcoin currency.

[1] http://news.ycombinator.com/item?id=2611613

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

#66

Post by owenmarshall »

vladd wrote: post #39

Bitcoin is a marketing-based currency in the sense that it has no real value besides the fact that it was the first currency with cryptographic properties that gained widespread adoption: if someone would take the code and fork it into an alternative ("Webcoins"), the intrinsec value of a Webcoin would be zero (unless it also found a way to gain market share or early adopters). That's very similar with a Ponzi scheme…

>But otherwise you don't have an underlying asset to sustain the value.

That's the biggest problem with Bitcoin, I think.

Now, if I could purchase more goods and services with Bitcoins, this might mitigate the risk of using it. But as of now, not many retailers accept it.

As a result, the Bitcoin market is being driven solely by speculation.

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

#67

Post by paxswill »

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's not can it be broken, but when. It took 13 years for MD5 to be thoroughly broken. There are already theoretical attacks on SHA-256, which is one of the reasons there is currently a competition for SHA-3. If Bitcoin is to be a currency, it needs to have long-term stability, which is not helped by basing itself on crypto-systems that will be broken eventually.

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

#68

Post by thomasz »

njs12345 wrote: post #50
ap22213 wrote: post #31

Earlier quoted context omitted.

I don't know. Maybe. It seems like it would just create aristocracy. If I inherit a large sum of money, I have incentive to ensure that my large sum of money increases (or at least doesn't decrease) in value in the easiest, least risky way possible. If my wealth was in bitcoin, I wouldn't have to do much, except ensure that more people join bitcoin and that the bitcoin didn't disappear. Otherwise, I would just play w…

Of course, most forms of wealth people have aren't inflationary anyway - the very wealthy tend to have little in terms of actual liquid currency and more stock and property. It has been argued ( http://en.wikipedia.org/wiki/Inflation_tax ) that inflation can be thought of as a regressive tax for this reason.

That proves the point. They have to invest their wealth in stock, real estate etc. instead of putting it in a chest/thumb drive and burying it on a lonely island in order to keep it.

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

#69

Post by [deleted] »

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…

[deleted]

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

#70

Post by anonymoushn »

vladd wrote: post #53
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?

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 cen…

> If within 1 month, with the same amount of money, you'll be able to buy 1.04 houses

I think 60% annualized deflation is significantly more than the deflation we would expect in the eventual steady state of Bitcoin. And if I was experiencing 37.5% annualized inflation (the opposite of 60% deflation), I don't think that would be particularly good either.

If you meant, by bringing up a central bank, to refer primarily to monetary systems based on a central bank, I don't believe that a government (a small subset of the population which is allowed to murder and kidnap and rob everyone else, and which is necessary for a central bank to exist) is a prerequisite for trade denominated in a common currency, so I'm not sure that the way our current monetary policy works is entirely relevant. The Dallas fed wrote an interesting piece on changing policy to allow for negative nominal interest rates (http://dallasfed.org/research/indepth/2003/id0304.pdf), but I think we will have to settle for negative real interest rates for the near future.

Discounting the central bank bit, I'm first unsure that the bulk of business has to be financed through debt, and second unsure that a deflationary environment can continue to exist given a huge loss of productivity. I would expect, if thousands upon thousands of businesses suddenly closed their doors to sit on cash, that the resulting shortage of necessary goods and services would put a quick end to the deflation. This would be extremely painful and inefficient in the case of a large deflation, but any global currency of bounded quantity should eventually only deflate as rapidly as human productivity increases.

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