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Why Bitcoin Will Fail As A Currency

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Re: Why Bitcoin Will Fail As A Currency

#61

Post by rfugger »

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…

I guess the real question then is whether the bitcoin equilibrium value is stable enough to be a price unit for real economic transactions, or whether it will fluctuate wildly as people jump on and off the bandwagon.

Re: Why Bitcoin Will Fail As A Currency

#62

Post by paisible »

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…

Isn't that what the distributed system aims to solve in the first place ? If they can't shut bittorrent down, how can they shut bitcoins ? They can crack down on the e-currency exchangers, but only those that operate within their jurisdiction. Would like to know if anyone has concrete examples of how they would go about doing this.

Re: Why Bitcoin Will Fail As A Currency

#63

Post by rubashov »

william42 wrote: post #54
rubashov wrote: post #48

Earlier quoted context omitted.

> 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...

I'm linking it to the federal reserve act and massive credit growth.

Your chart shows persistent deflation in the 19th century with inflationary spikes for wars, notably the civil war.

Re: Why Bitcoin Will Fail As A Currency

#64

Post by getsat »

jonnathanson wrote: post #50
matthewcford wrote: post #40

Earlier quoted context omitted.

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, e…

You just described part of the plot of "A Lodging of Wayfaring Men". Highly recommended book!

Re: Why Bitcoin Will Fail As A Currency

#65

Post by p1980 »

jff wrote: post #53
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!"

you miss a point--there will be certain players whose opportunity cost will be higher than waiting for others to liquidate theirs. Those people will liquidate theirs for USD to do productive investment that will earn returns far beyond just playing chicken with the rest of the people to see who will circulate theirs first.

So it's not a tragedy of the commons situation--it will make perfect economic sense for certain people, if the hoarding gets too extreme, to change their currency for USD or other assets.

Re: Why Bitcoin Will Fail As A Currency

#66

Post by p1980 »

rfugger wrote: post #61
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…

I guess the real question then is whether the bitcoin equilibrium value is stable enough to be a price unit for real economic transactions, or whether it will fluctuate wildly as people jump on and off the bandwagon.

yep this a good open question. The bitcoin guys will say, in parts of the world economies where bitcoins are taken for both input costs and for selling prices, then exchange rates are irrelevant because bitcoins are used in all transactions, so there are is no forex volatility. Of course we are far away from that sort of adoption.

The more persuasive argument is that people are worried that sovereign currencies will themselves become too volatile for real economic transactions if debt problems grow too much, debasement by central banks cause inflation, etc.

In this sense, bitcoin is a great hedge against world uncertainty, and will do very well if problems with the euro mount, USD debt skyrockets, etc. For the same reasons people care about gold when people lose faith in fait currencies, there is a good chance people will care about bitcoin if things go crazy.

Re: Why Bitcoin Will Fail As A Currency

#67

Post by sorbus »

hcho wrote: post #57
pnathan wrote: post #42

Earlier quoted context omitted.

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?

Throw a non-negotiable 1-year imprisonment into whatever penalty they enact for using bitcoin. Then imprison the thousand most prolific users (business that accept it, people who publicly exchange it, etc.), and continue doing sweeps of anyone who admits to using bitcoin for the next few years. Suddenly, the only people who are willing to use bitcoin are those who are already using it for illegal things.

Keep in mind that they don't need to kill the entire system, they just need to make it too risky for the average person to even consider using. That is sufficient to make it fail.

Re: Why Bitcoin Will Fail As A Currency

#68

Post by knieveltech »

paisible wrote: post #62
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…

Isn't that what the distributed system aims to solve in the first place ? If they can't shut bittorrent down, how can they shut bitcoins ? They can crack down on the e-currency exchangers, but only those that operate within their jurisdiction. Would like to know if anyone has concrete examples of how they would go about doing this.

Sure, and distributed file sharing aimed to protect file sharers from the kind of crap the RIAA has been dishing out since it's inception.

I would expect governments first to limit the viability of the currency, possibly through legislation (fines, jail time) aimed at businesses operating within their borders. Get caught dealing in bitcoins, go to jail.

If that doesn't dampen enthusiam I would expect the next phase to target ISP's. Mandated traffic monitoring and/or blocking, etc. Distributed networks don't mean shit when the connectivity medium isn't available.

Re: Why Bitcoin Will Fail As A Currency

#69

Post by matthewcford »

jonnathanson wrote: post #50
matthewcford wrote: post #40

Earlier quoted context omitted.

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, e…

> declare that dollars are no longer convertible with Bitcoins

Yes, what I was trying to get at (not banning the transfer of BTC). While trading could move underground, making it illegal would probably deter enough people.

Should most governments adopt a similar stance, then it would be nothing more than a collectors item.

Re: Why Bitcoin Will Fail As A Currency

#70

Post by vrotaru »

jerf wrote: post #30
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.

"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 curren…

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.

Yes, the armchair deflationary spiral theory. With the exception of labor theory of value, I do not know of any other economic theory whose premises are a) so thoroughly laughable b) lacking any kind empirical evidence.

In an attempt to reduce the noise/signal ratio (usually high) in such debates... Yes, I know the usual arguments in favor of Deflation Scare and I devoted a fair amount of time thinking and debating these matters. Done my homework, so to speak.

But feel free to surprise me, with an argument I missed.

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