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Why Bitcoin Will Fail As A Currency

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Re: Why Bitcoin Will Fail As A Currency

#21

Post by teodesian »

tatsuke95 wrote: post #19
benihana wrote: post #15

Earlier quoted context omitted.

Every single criticism of Bitcoin I've seen is based on the assumption that it will fail because it's not a fiat-based currency. They list Bitcoin's features as the reasons it will fail. They talk about the past 200 years of central banking and seem to forget the thousands of years of human economy before governmental central banking, when money was actually backed by a scarce resource.

The average human was far, far poorer 200+ years ago, in relative terms. The fact is, modern banking and capitalism have created massive amounts of wealth for a vast proportion of the population. Evolution of our economic system has led to where we are now for a reason. It's not perfect, but we aren't going back to the days of measuring your net worth on a stick. Every time we have a crash or downturn, people begin t…

You must remember, however that money != wealth.

The money supply of a nation in no way represents the wealth generation going on in an economy. Printing an extra dollar does not mean the users of dollars became wealthier, it simply redistributes the existing wealth. Barter is also another factor that creates wealth, yet does not have anything to do with the monetary system.

Our growing wealth in many ways is in spite of our money and governments. It is worth noting that ever since the USD lost it's scarcity (with the closing of the gold window in the 70's) real wages and quality of life has gone down, not up.

Re: Why Bitcoin Will Fail As A Currency

#22

Post by reedlaw »

po wrote: post #18
tibbe wrote: post #11

Earlier quoted context omitted.

There are natural limitations to how much people will save: * When you're dead all your savings are worthless (to you), so your likely to spend most of them before then. * Some consumption cannot be postponed: you need food, a roof over your head, transportation, etc. * Time has value. For example, if you wait another 6 months the same amount of money (bitcoin or not) will buy you a better computer. This is likely to…

When you're dead all your savings are worthless (to you), so your likely to spend most of them before then. If that were true, why would there be so much debate around the estate tax? Warren Buffet is a rarity. Most people want to pass money down through generations rather than spend it as they near the end of their lives. Taxes on inheritance encourages spending and charitable giving. Some consumption cannot be post…

You seem to suggest in all these cases that spending is inherently good. Estate tax = incentive to give away. Inflation = incentive to buy now. I understand this is one of the core concepts of Keynesian economics. But there exists an alternative school of thought that posits that inflation causes volatile business cycles and central banks are inefficient at allocating resources. Success of a bitcoin-based economy would seem to support the correctness of this Austrian school of economics. We shall have to wait and see.

Re: Why Bitcoin Will Fail As A Currency

#23

Post by jswinghammer »

tatsuke95 wrote: post #19
benihana wrote: post #15

Earlier quoted context omitted.

Every single criticism of Bitcoin I've seen is based on the assumption that it will fail because it's not a fiat-based currency. They list Bitcoin's features as the reasons it will fail. They talk about the past 200 years of central banking and seem to forget the thousands of years of human economy before governmental central banking, when money was actually backed by a scarce resource.

The average human was far, far poorer 200+ years ago, in relative terms. The fact is, modern banking and capitalism have created massive amounts of wealth for a vast proportion of the population. Evolution of our economic system has led to where we are now for a reason. It's not perfect, but we aren't going back to the days of measuring your net worth on a stick. Every time we have a crash or downturn, people begin t…

The question is are they good reasons. It's probably a mistake to assume that our current knowledge and understanding of economics represents progress from where we were before.

Having just finished a detailed account of the history of economic thought I can assure you that there were times when economists far better understood the nature of prices that came well before Adam Smith and Ricardo-both of whom didn't really understand prices at all.

Schools of thought tend to continue until they reach a dead-end that's impossible to ignore. A new school picks up the pieces and continues on again. We have seen that with the fall and rise of Keynesian economics.

Re: Why Bitcoin Will Fail As A Currency

#24

Post by scythe »

bitcoin will probably never represent a significant proportion of human wealth. However, it will probably remain useful for the next five to ten years as a cryptographically strong way to pay for things outside of government influences. Silk Road is a pretty cool case in point.

It will probably be replaced organically by a more useful form of cryptographic currency -- perhaps something that uses bcrypt or a similar Moore's Law-resistant hashing algorithm -- before serious deflation or broken hashes really start to come into play.

Re: Why Bitcoin Will Fail As A Currency

#25

Post by danssig »

acangiano wrote: post #14

The article makes a series of well known criticisms, but there are a few issues with it. 1. If a BTC were to be worth $2M, you'd simply trade microcoins which would be worth $2. Or even nanocoins for micropayments. 2. Bitcoin's quasi-anonymous nature will be highly desirable to many people, including very large criminal organizations who'll definitely be moving those coins. 3. A large number of early adopters joined…

>In practice, it works extremely well because not everyone is solely motivated by their best economical interest.

Actually free software can be in your best economical interest. I wonder if Linus would have gotten the kinds of jobs he has without Linux. I seriously doubt it, at least not the first ones.

Re: Why Bitcoin Will Fail As A Currency

#26

Post by hippich »

caf wrote: post #9
kiba wrote: post #2

How many time are people going to scream...bubble? http://bitcoinweekly.com/articles/comic-reaction-after-drama... Anyway, hoarding is not a problem. http://bitcoinweekly.com/articles/one-apple-today-two-apples... Even if we need to use the satoshi(the lowest unit of bitcoin), we can extend decimal space. Does anybody actually have anything new or novel criticism for bitcoin? Or are we going to repeat trending the sa…

That article on why deflation is allegedly not a problem does not address the concerns raised. In particular: Deflation, on the other hand, can damage the economy by placing an incentive to save, rather than spend. Over-saving can be just as damaging as over-spending. But unlike saving, you have to spend some eventually, so there's a built-in incentive to spend: continued survival. A deflationary economy can also sti…

Regarding entrepreneurship part..

For me bitcoins is just another sale channel for my http://store.gifti.us . Once I receive coins I immediately exchange them to fiat dollars to pay suppliers. It works perfectly so far. And this is how I suppose it should work, at least until bitcoins will not become world currency =)

Re: Why Bitcoin Will Fail As A Currency

#27

Post by knieveltech »

The number 1 reason why bitcoin will fail: Silk Road (et al) have handed legislators all the ammunition they need to go after it with a vengeance. All of what's coming next has happened before. Think e-gold, act II.

Simply put there are no incentives (and massive disincentives, both perceived and real) for any government to tolerate financial transactions in anything other than fiat currency. The more popular the service becomes the more frenetic legislative and enforcement activity will become to stamp it out.

http://en.wikipedia.org/wiki/E-gold

Re: Why Bitcoin Will Fail As A Currency

#29

Post by piuk »

At the current price miners are producing $140,000 worth of bitcoins per day, I expect most of these miners will be looking to cash out and the ones that don't need to at least cover electricity costs etc. $100,000+ new investment per day probably won't be sustainable for long and hence the price will have to correct itself.

Re: Why Bitcoin Will Fail As A Currency

#30

Post by jerf »

benihana wrote: post #15
acangiano wrote: post #14

The article makes a series of well known criticisms, but there are a few issues with it. 1. If a BTC were to be worth $2M, you'd simply trade microcoins which would be worth $2. Or even nanocoins for micropayments. 2. Bitcoin's quasi-anonymous nature will be highly desirable to many people, including very large criminal organizations who'll definitely be moving those coins. 3. A large number of early adopters joined…

Every single criticism of Bitcoin I've seen is based on the assumption that it will fail because it's not a fiat-based currency. They list Bitcoin's features as the reasons it will fail. They talk about the past 200 years of central banking and seem to forget the thousands of years of human economy before governmental central banking, when money was actually backed by a scarce resource.

"Every single criticism of Bitcoin I've seen is based on the assumption that it will fail because it's not a fiat-based currency."

Then you're being willfully blind. Even in the very article at hand, it points out that there is a standard economic criticism applicable to deflating currencies that BitCoin may be vulnerable to. That has nothing to do with its fiat-ness, it is simply a characteristic of deflating currencies of any kind.

You may not agree, or you may think BitCoin has some clever solution to the problem, but there are numerous criticisms that are much more sophisticated than "it's not a fiat currency".

(Another one being the "it has no backing", which is not a claim that only a government can back a currency, it is observing that it has no backing at all. I'd be perfectly fine with a credible non-governmental third party that provided a credible backing (and both "credibles" are important there, I did not just repeat myself), but there isn't one, and again, that has nothing to do with it "not being fiat".)

In fact I think most criticisms of BitCoin are not that it simply isn't a fiat currency.

(On a general note, if you are planning on being a BitCoin activist, it is important to learn and understand the arguments your opponents are making. You can not counter an argument you do not deeply understand. Sticking fingers in ears and chanting "la la la!" is psychologically appealing, but you're sacrificing all ability to persuade when you do it. There are good arguments against BitCoin. For that matter you can't engineer solutions to problems you don't deeply understand.)

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