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Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

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Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#31

Post by pakitan »

simondlr wrote: post #24
8bitpony wrote: post #16

Earlier quoted context omitted.

Do you know if any of these are likely to reach the heights of BitCoin anytime soon, or are we a while off that?

Litecoin is currently the leading alternative. It's got a shorter confirmation time, uses scrypt as opposed to sha256, and will in the end have a larger total of coins. All these make it seem like a better alternative for micro-transactions in the end.

How can larger number of coins be an advantage (or disadvantage for that matter)? As long as the supply is fixed it doesn't matter if the total is just 1 coin or 100 trillion coins.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#32

Post by davidjohnstone »

brazzy wrote: post #29
epaga wrote: post #25

Earlier quoted context omitted.

This is the best counterargument to the tired old "Bitcoin is deflationary" I have ever read, and you did it in a single sentence. Thanks!

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset?

As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature.

Why would you ever risk money by lending it when you could just "hide it under your mattress" and make money? It's appealing to those who have the option to do that, but I believe it's highly suboptimal from an economics point of view.

The funny thing is that even though it's bad economically, its deflationary nature is good for the uptake of the currency, because, provided more people start using it, those who are already using it become richer (which is why some accuse it of being a pyramid scheme).

On the other hand, its mid-term value depends on why people are buying into it now. At the moment, I see four groups of people: 1) the idealists who believe it's simply a more perfect form of currency that can't be corrupted by governments et al; 2) the technologists who think it's a neat idea; 3) the speculators who think it's going to go up because it's going up; 4) the users who find it more useful than regular currency (like those on Silk Road). I can't help but think that the speculators are the biggest group at the moment. But I might be wrong.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#33

Post by vrotaru »

davidjohnstone wrote: post #32
brazzy wrote: post #29

Earlier quoted context omitted.

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could jus…

You do not "make" money, when you hide them under a mattress.

Assuming a stable money supply, when all is said and done, you own the same fraction of total purchasing power at the end that period as you had when it started.

You do not get richer, if that's what you mean by making money. You just keep what you had.

I know, how unfair!

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#34

Post by skylan_q »

AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power.

http://mises.org/daily/1333

From a theoretical perspective, this is been the clearest elucidation to me. The reason the value of bitcoins is going up is because people who buy bitcoins expect that others will pay a higher price for it in the future.

Like I tell people: people who buy and sell bitcoins don't care that you don't want to participate. They just want anyone else who will participate.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#35

Post by rlpb »

throwawayG9 wrote: post #21
tudorizer wrote: post #6

Earlier quoted context omitted.

Quite a long time to go, but that's ok. How quick did such a mother adopt credit-cards?

Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?

Cash needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in cash, and they get stolen. What's she gonna do then?

Answer: let a bank deal with it. Banks can be insured.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#36

Post by executive »

AndrewDucker wrote: post #7

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars…

or organized crime have started using Bitcoin en masse to move (drug) money out of developed markets back home.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#37

Post by davidjohnstone »

vrotaru wrote: post #33
davidjohnstone wrote: post #32

Earlier quoted context omitted.

I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could jus…

You do not "make" money, when you hide them under a mattress. Assuming a stable money supply, when all is said and done, you own the same fraction of total purchasing power at the end that period as you had when it started. You do not get richer, if that's what you mean by making money. You just keep what you had. I know, how unfair!

But you do make money! When the value of Bitcoin goes up, your wealth increases because the entire Bitcoin economy is worth more, even though your fraction of it remains constant.

Or, to look at it another way, imagine that Bitcoin was the only currency in the world and there were only one million people who each owned 20 Bitcoins (maybe they're communists who have just started using money). Now, give it a few years and the population has doubled so that the average person has 10 Bitcoins. Is the person who still has 20 coins richer than he was at the start? I say yes, because, assuming that people are just as productive, the entire economy has doubled in size in an absolute sense (it can produce twice as much), so those 20 Bitcoins can buy twice as much as when there were only one million people.

(As a less important point, as Bitcoins are irretrievably lost, the fraction of Bitcoins that a person owns of the "real" Bitcoin economy grows larger. And I don't see why this deflationary pressure is different to the deflationary pressure caused by somebody new getting into the Bitcoin economy.)

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#38

Post by yebyen »

brazzy wrote: post #20
ph0rcyas wrote: post #11

Bubble or no, from a personal perspective I will not use bitcoin as a currency to exchange goods - things like purchasing items or paying salaries. Bitcoin's value is just too volatile, why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? But as a medium for investment, like buying stocks, bitcoin does provide a novel and alluring option.

> why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? Thanks for being a living example of the chilling effects of deflation.

There is an easy answer. Because you need it, and you've invested in Bitcoin (to the extent where you can't get what you wanted to buy without selling some bitcoins.)

Otherwise, with the trend as it is, I think you're right! Hoard your bitcoins and don't cash them in until you've spent every US dollar and don't have any more.

How many people have that kind of confidence that the bubble will continue to grow?

Will you bet your mortgage payment on it? I have kept a meager bitcoin savings, but every time I cash out I regret it, and I am getting used to that feeling. And as time goes on, that meager savings begins to look more and more like a full month's expenses in the bank.

Afraid that some day soon I will regret not cashing out when the price of BTC was so high. Oh well, knock on wood that day is not today.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#39

Post by Jtsummers »

davidjohnstone wrote: post #30
icebraining wrote: post #22

Earlier quoted context omitted.

Can you expand on the fragility issue? Are you talking about the lack of chargebacks/reversing transactions?

There are two aspects to it: As epaga points out, if you lose access to your wallet (forget password, hardware failure without backups, somebody dies without leaving the password to their heirs) there is no way to retrieve that money. Secondly, if a transaction is made to a valid-according-to-the-protocol address that nobody owns, that money is lost with no possibility of getting it back. You could argue that these a…

Re 3: I've been reading about contracts and script in bitcoin. Apparently you can setup transactions such that they automatically roll back to the originator after some time. Might it be feasible to use this to avoid the 'valid address/no wallet' problem? Establish on transactions a period of days/weeks in which the destination has to complete the transaction. I haven't had a chance to wrap my mind around it yet. Need to free up some evenings to spend on it.

Re: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

#40

Post by rubyrescue »

brazzy wrote: post #29
epaga wrote: post #25

Earlier quoted context omitted.

This is the best counterargument to the tired old "Bitcoin is deflationary" I have ever read, and you did it in a single sentence. Thanks!

Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.

That's the best one sentence summary of why it's deflationary, actually.
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