Why Bitcoin Will Fail As A Currency • Hacker News Board

Re: Why Bitcoin Will Fail As A Currency

#51

Post by rubashov » Tue, Jun 07, 2011, 4:34 PM UTC

furyg3 wrote: post #3

Not defending BitCoin (I won't be buying any soon), but I think the author doesn't realized that BitCoins are divisible down to eight decimal places. It's difficult for me to imagine a currency which is so divisible being "hoarded to death".

The article overlooks that fractional reserve banking is totally feasible with bitcoin. Bitcoins will not inevitably sit on people's hard drives doing nothing, hoarded. Saved bitcoins will likely wind up as reserves in some bank, just as with dollars, from whence they are loaned out.

Re: Why Bitcoin Will Fail As A Currency

#52

Post by p1980 » Tue, Jun 07, 2011, 4:35 PM UTC

rwmj wrote: post #35

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.

Read the article again. It assumes everyone will hoard because they think there's a chance bitcoin might become successful (and in the meantime there's not a lot to spend bitcoins on anyhow). But this hoarding is exactly what creates a bubble, and the lack of anyone spending means that there will never be mainstream shops using it, so it will never have worth.

so..when hoarders realize by not allowing bitcoins to circulate, they will have no worth, some will start to sell their holdings since it becomes obvious they are not going to continue appreciating. This causes circulation to increase again, which will make the currency more valuable again. The point is, people are just assuming that both extremes happen--hoarders hoard forever, despite the currency going to zero. In reality, there is a feedback loop and an equilibrium will be reached.

Re: Why Bitcoin Will Fail As A Currency

#53

Post by jff » Tue, Jun 07, 2011, 4:39 PM UTC

p1980 wrote: post #47

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…

Are you familiar with the Tragedy of the Commons? "Oh, well of course it's important to keep bitcoins circulating... but it won't hurt anything if I hoard my coins, I'm just one person! Besides, I know there are other people hoarding theirs, so I might as well do the same!"

Re: Why Bitcoin Will Fail As A Currency

#54

Post by william42 » Tue, Jun 07, 2011, 4:40 PM UTC

rubashov wrote: post #48

btilly wrote: post #32

Earlier quoted context omitted.

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 invest…

Are you really linking the Great Depression to fiat money when the Great Depression occured while the dollar was still on the gold standard?

And there was no «persistent mild deflation» in the 19th century; there were massive swings in value: http://upload.wikimedia.org/wikipedia/commons/2/20/US_Histor...

Re: Why Bitcoin Will Fail As A Currency

#55

Post by knieveltech » Tue, Jun 07, 2011, 4:42 PM UTC

puredemo wrote: post #36

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…

It'll still thrive in all the countries that don't legislate against it, and in the black markets of those which do.

That's one possible outcome. Another being bitcoin traffic provokes government-mandated deep packet inspection/filtering or other further intrusions into online privacy.

Re: Why Bitcoin Will Fail As A Currency

#56

Post by anateus » Tue, Jun 07, 2011, 4:45 PM UTC

pdx wrote: post #49

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 wa…

Software, jpegs, and mp3s are digital versions of things the law has seen before (well, software not quite, which is why there are still some controversies regarding it).

What you wrote reminds me of the anti-spam service that attaches an X-Header to emails with a little copyrighted Haiku, and thus considers spammers to be in violation of copyright.

If each bitcoin contained a little tiny piece of poetry you could make it robust against a legal challenge. It would just be a micro-poetry market.

Re: Why Bitcoin Will Fail As A Currency

#57

Post by hcho » Tue, Jun 07, 2011, 4:48 PM UTC

pnathan wrote: post #42

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.

They might legislate against it, but will they be able to enforce the legislation?

Re: Why Bitcoin Will Fail As A Currency

#58

Post by paisible » Tue, Jun 07, 2011, 4:56 PM UTC

Let's separate "bitcoin-as-a pure speculatory play" and "bitcoin-as-a cryptocurrency". At any time T, a bitcoin is worth W on the bitcoin exchange. Volatility means that at T+1 the bitcoin's worth might increase or decrease, but supply and demand still provide a pretty decent arbiratry price at this time T.

When seller A and buyer B (who are involved in a dubious transaction) are looking for a safe way to transfer money, they can simply agree (at time T) that their 1000$ transaction can be translated to 1000/W bitcoins. It doesn't matter if 1 bitcoin = 1000$ or 1 bitcoin = 10$, what matters is that both parties agree on what bitcoin price they are doing their transaction in, and therefore how many bitcoins A is expecting from B.

The transaction is then 1) Buyer buys agreed number of bitcoins so that at market price it represents the dollar amount of the transaction 2) sends over the bitcoins 3) Seller cashes out the bitcoins IMMEDIATELY, thus getting the real-market value for his "good or service"

The argument as to "why would seller A want to cash out his bitcoins if deflation means they will increase in value" is besides the point here. Seller A is a drug dealer, not a bitcoin speculator. All he cares about is that receiving that money was as simple and anonymous as downloading a software client and logging in from some internet cafe somewhere.

In this scenario, bitcoins are extremely valuable, and not going anywhere. I suspect that market will adjust, and at some point supply and demand (from people who actually use it for these kinds of activities) will lead to less volatile price variations - and therefore increased use on the black-market. Whether you want to profit from these activities is another question.

Re: Why Bitcoin Will Fail As A Currency

#59

Post by jarek » Tue, Jun 07, 2011, 4:57 PM UTC

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…

"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."

Acceptance of a currency is a tricky thing. For less-than-legal uses, you need someone willing to launder the money at some point. Your arms dealer isn't going to take bitcoin unless they can exchange it for a widely accepted currency or pay their supplier in bitcoin, and the supplier won't take bitcoin unless they can buy raw materials with bitcoin, and the mine isn't going to take bitcoin unless they can exchange it for something useful to them.

Breaking out of the cycle is much easier with a currency that is accepted by everyone for everything. With dollars, just set up a restaurant, people pay in dollars in those, and there are more legitimate restaurants than money-laundering restaurants (in most places). You'd need enough legitimate use of bitcoins to hide laundering, and it's not clear to me that will ever happen.

Re: Why Bitcoin Will Fail As A Currency

#60

Post by tokenadult » Tue, Jun 07, 2011, 4:58 PM UTC

pdx wrote: post #49

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 wa…

In principle, a government can make any kind of property contraband.