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Why Bitcoin Will Fail As A Currency

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Re: Why Bitcoin Will Fail As A Currency

#41

Post by rmc »

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.

You mean when 19 out of every 20 people had to work to grow food, and there wasn't enough money for social welfare?

How much of the last 200 years (industrial revolution, mass transport (trains/roads/cars/planes), etc.) have been due to having a fiat currency and modern banking system?

Re: Why Bitcoin Will Fail As A Currency

#42

Post by pnathan »

knieveltech wrote: post #27

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 ser…

I support bitcoin and think it is a Good Way Forward, but I agree categorically with your critique. It is sufficiently disruptive that I expect the major players in governments will legislate it out of existence.

Re: Why Bitcoin Will Fail As A Currency

#43

Post by rmc »

tibbe wrote: post #11
michael_dorfman wrote: post #6

Earlier quoted context omitted.

The divisibility has no bearing on the hoarding. The hoarding comes from the expectation of increased value over time, not the number of decimal places. If you have something that you think is going to steadily appreciate in value over time, why sell it now?

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…

your likely to spend most of them before then.

This does not happen that much in human behaviour. Just look at all the people who inherit wealth. If what you said was the most common approach, they would be rare.

even if your savings increase in value over time, investing them in something could increase them even more.

Depends. Over the last year bitcoin has seen a ~20,000% return rate. If bitcoin gets uberpopular (i.e. each coin is worth ~ US$2m) within 20 years, then BitCoin would have a return rate of ~ 85% per year consistantly for the next 20 years. There is practically nothing else with that close an return rate, so the only financially sound course is to hoard your BitCoins, not invest them

Re: Why Bitcoin Will Fail As A Currency

#44

Post by rmc »

seles wrote: post #28

This whole hoarding argument is bogus: it assumes bitcoin will fail because bitcoin will be so successful that people will hoard.

Prisoners Dilemma. BitCoin as a whole would get more popular if people spent it. However if lots of people spend/use it (and the price goes up), then it's better for you to hoard it. However everyone/lots of people will think this way and hoard it. This means it can't take off and get popular.

Re: Why Bitcoin Will Fail As A Currency

#45

Post by batterseapower »

jbellis wrote: post #8
splat wrote: post #5

I'm curious, does anyone know what fraction of dollars are "hoarded"?

Approximately none, because dollars are inflationary by design (of the Fed), not deflationary like bitcoin (again, by design of its creators).

For another perspective: USD are "hoarded" by investing them in US treasuries. This preserves their value against inflation, because (to a first approximation) when the Fed prints money it does so by buying those treasuries, thus raising their price in USD.

So in the dollar economy, hoarding takes the form of purchasing USD so you can participate in seigniorage. In the bitcoin economy, hoarding takes the form of holding on to your balance. But they are both forms of hoarding, designed to protect value without actually making "useful" investments that affect the real world.

Re: Why Bitcoin Will Fail As A Currency

#46

Post by jcborro »

rmc wrote: post #41
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.

You mean when 19 out of every 20 people had to work to grow food, and there wasn't enough money for social welfare? How much of the last 200 years (industrial revolution, mass transport (trains/roads/cars/planes), etc.) have been due to having a fiat currency and modern banking system?

Um, the U.S. dollar was fully convertible to gold until 1971. Since gold has risen from $35 to $1500 per ounce.

Re: Why Bitcoin Will Fail As A Currency

#47

Post by p1980 »

The ideas here are important criticisms, but there is one thing to keep in mind with hoarding, and the author can't have it both ways.

The author makes an important point that Bitcoin has value precisely because people are willing to accept it--the characteristic of any good currency.

The appreciation of the currency encourages hoarding, which will negate the circulation of money. But there is a feedback loop to this of course. If hoarding does occur, then circulation will go down, which will cause people to lose interest, which will cause the value to stagnate. In that case, hoarding is no longer appealing, and people who have been will become impatient with the low return of investment and start selling them to liquidate.

This in turn creates more circulation. So there is certainly an equilibrium that the system attempts to reach.

If hoarders do the logical conclusion as to what happens if everyone hoards--it means the currency is worthless. So NOBODY would hoard anymore. In reality, there is some equilibrium point that is reached...it is in the best interests of the system participants that they circulate their currency, because it makes their own holdings valuable.

The author can't have it both ways--you can't both say hoarding will cause the currency to be worthless, and assume that hoarders will just hold onto it forever expecting massive appreciation vs the USD. Nobody hoards it if the value stops going up (or becomes worthless, which is what is being claimed)

Re: Why Bitcoin Will Fail As A Currency

#48

Post by rubashov »

btilly wrote: post #32
teodesian wrote: post #21

Earlier quoted context omitted.

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 spit…

Here is a basic economic fact for you. In periods of mild inflation, people have an incentive to invest money, which leads to growth. In periods of deflation (like the Great Depression) people have an incentive to put money under the bed and wait for it to appreciate. Therefore deflation is horrible for economic growth. Thus money supply does not represent wealth generation, but controlling it does affect wealth gene…

> In periods of mild inflation, people have an incentive to invest money ... In periods of deflation ... people have an incentive to put money under the bed

This sounds very plausible but simply does not line up with historical reality. Most of the 19th century saw persistent mild deflation alongside massive investment and growth. Inflationary periods have usually seen unproductive speculation and weak capital investment.

The deflation of the great depression was simply the inevitable consequence of a fiat money credit bubble and preceding massive malinvestment. The great depression deflation cannot be characterized as a deflationary tendency of the monetary policy at the time. It inevitably followed the inflationary boom of the 20s.

Re: Why Bitcoin Will Fail As A Currency

#49

Post by pdx »

Since it's legal for me to pay legal tender for software, for jpegs, for mp3's, and other digital constructs, how could a legitimate argument be made to make it illegal for me to pay legal tender for a bitcoin?

Since it's legal for me to take legal tender for software, for jpegs, for mp3's, etc., how could a law be passed to make it illegal for me to take legal tender in return for a bitcoin?

If I advertise that I want to buy bitcoins, how can they stop me from spending my dollars/euros on them? If I advertise that I have bitcoins to sell, how can they stop me from doing so?

Now, if I advertise that I both buy AND sell them, at some bid/ask spread, than perhaps I have blundered in to an area where they can, indeed, regulate me.

Re: Why Bitcoin Will Fail As A Currency

#50

Post by jonnathanson »

matthewcford wrote: post #40
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…

I personally think that BitCoin as a concept is too big to succeed. It will scare governments and they'll ban trading in it.

More likely, they could run a bunch of PR campaigns and plant news stories about how risky and unstable Bitcoins are -- either in an attempt to scare consumers away from the currency, or to actively destabilize the speculative market for the currency.

"Banning" the currency seems beyond the reach of a government unless it's prepared to place restrictions on internet usage in general (a la the PRC). This is because, even if the U.S. government (for example) were to declare that dollars are no longer convertible with Bitcoins, people could still trade dollars for BCs, and vice versa, under the table.

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