There are many legitimate arguments for the existence of flaws in Bitcoin that could prevent it from becoming a legitimate currency. Unfortunately, this was poorly written, poorly formatted, and has a set of premises that do not lead to the conclusion in the sensationalist title.
Bitcoin Is Fundamentally Flawed
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Re: Bitcoin Is Fundamentally Flawed
#12By 2140 we'll probably have a new currency that we can replace Bitcoin with.
Re: Bitcoin Is Fundamentally Flawed
#13"However, they are wrong because converting $100 into 10 x $10 bills or even 100 x $1 bills does not make you feel richer." This was also quoted in a Forbes article but I don't get it. Can someone explain what this means? What does lack liquidity or limited supply have to do with feeling richer by funging your bills? I'm not joking I seriously have no idea what this has to do with anything...
I agree that this argument is purely stupid. How does the 'feeling richer' psychological factor somehow play into the success or downfall of a currency as a 'flaw' in the mechanics of it?
Some people feel 'richer' with 1 OZ of gold then $1700 in bills, some feel 'richer' with 100x $1 then a check for $100. But why does that matter as a success factor of a currency?
I don't get it.
Re: Bitcoin Is Fundamentally Flawed
#14I was worried that they would expose a fundamental flaw in the encryption algorithm, however the post goes on with irrelevant FUD. It s a lot less flawed than even paper currency, and the fact that there haven't been any forgeries is a testament to its success. The argument about identifying transactions is a bit disconcerting, but how much of a real concern is it? After all, even paper money has a trail of DNAs from…
> and the fact that there haven't been any forgeries is a testament to its success. There has been a successful double spend.
Is that something that can be fixed/improved?
Re: Bitcoin Is Fundamentally Flawed
#15Watch this:
From now on, for the purposes of transactions, I am going to refer to bitdollars. In any software using bitdollars, one bitdollar is equal to 0.001 bitcoins.
Nobody needs to feel less or more rich.
Re: Bitcoin Is Fundamentally Flawed
#16This is the classic argument you hear a lot, particuarly from Keynsian economists is: bitcoin is bad because it's deflationary like gold. In the past when we were using gold, like during the Civil War, we couldn't pay soldiers so we went to greenbacks (paper money like today). That allowed the soldiers to get paid so we could continue to fight the war. Gold obviously has a physical practical limit that can be traded…
> Loans clearly have issues in a deflationary system. If you loan someone $10 today and that's worth $100 tomorrow how do they ever have a chance to pay it back? Payback would have to be on some growth rate where you owe "less" the longer the life of the loan with some interest built in.
From the borrower side, the "you owe less over the life of the loan" option mitigates the effect of deflation on the viable of borrowing, but it exacerbates the problem it creates for lending. Specifically, if the the BTC I have in my pocket today is going to be worth 10 times as much tomorrow, what's my incentive to lend it at all? I've got a strong return without default risk if I just hold on to it. If you propose something that reduces the lenders BTC-denominated payments over the life of the loan to account to mitigate the effect deflation has on the value they are paying back, it makes it even less attractive for me to lend the money.
> Inflation is built into the current model to encourage investment and prevent concentration of capital.
Inflation doesn't prevent concentration of capital (it prevents hoarding cash, but by doing so encourages concentration of capital.) Things like progressive taxation of income are intended to prevent concentration of wealth (but this is undercut by things like favorable tax treatment of income derived from capital compared to income derived from labor.)
> Not to say bitcoin is the solution, but it's something different.
That's a bit like pointing to imperfections in representative democracy caused things like gerrymandering, and then saying "I'm not saying that hereditary monarchy is the solution, but it's something different."
Re: Bitcoin Is Fundamentally Flawed
#17I still don't understand how people treating bitcoin as an investment rather than a currency is a fundamental flaw in the algorithm.
He thinks people will suddenly decide they'd rather live under a bridge and keep their bitcoins than buy a house with them.
Re: Bitcoin Is Fundamentally Flawed
#18This is the classic argument you hear a lot, particuarly from Keynsian economists is: bitcoin is bad because it's deflationary like gold. In the past when we were using gold, like during the Civil War, we couldn't pay soldiers so we went to greenbacks (paper money like today). That allowed the soldiers to get paid so we could continue to fight the war. Gold obviously has a physical practical limit that can be traded…
Actually, given the wealth divide, it's working extremely well. We sometimes underestimate the progress the world has made in the last 100 years.
We tend to overlook that we live in the most peaceful times in the history of mankind, and that poverty and hunger in the world is declining steeply.
We don't know what a bitcoin economy will look like. Stimulus packages over the decades have been known to work and not to work. We don't know how a bitcoin economy reacts to depressions and risk. We do know that the current bitcoin economy and any financial engineering (or even just opening a bitcoin-accepting webshop) is extremely more complicated and risky than the traditional money systems.
Re: Bitcoin Is Fundamentally Flawed
#19"Eventually the Bitcoin economy is going to run into the problem of its algorithm and the Bitcoin-hoarding because; there will not be enough currency."
There is an oscillation process at work here - as people hoard bitcoins, the value of each individual bitcoin increases. People will then sell off their bitcoins in exchange for a higher price than they initially payed for them, thus increasing the money supply and allowing others to buy into the system. Am I missing something here?
Re: Bitcoin Is Fundamentally Flawed
#20Yes, there will be (at some point) a downward force on the value of Bitcoin due to hoarding. But that will not be the only force. At some point, it will seem that its probably not going to rocket upward any more, and it might fall a little and then people start actually using it. Also- its important to remember that there are relatively few places to 'use' it now compared to most other currencies. I cannot pay my rent, groceries, etc....
I think to trying to sort it into neat categories of 'investment' or 'currency' is a bit flawed. Its a bit of both. Gold (at least to some degree) was used as a currency at various points in history, but now paying with gold doubloons is difficult for most transactions. The hoarding of gold makes it deflationary as well, but doesn't prevent it from being traded frequently as well (well, at least futures of it on the exchanges).
Gold backed dollars at one point were theoretically limited in number as well.
Another claim against Bitcoin is the fact that it isn't "backed by anything", but neither is gold. Its value is what we assign to it as a market. Aside from industrial processes, the inherent value of gold or diamonds is very low.
I don't think Bitcoin is perfect. I'm glad I bought a handful a few months ago. But some of the 'flaws' that people find aren't as much as flaws as features. One of the things that I do love about Bitcoin is that it isn't a theory- its happening. We could talk all day about the things that are supposed to happen with it from a variety of perspectives, but the experiment is being actively run in a real market which is challenging the perspectives of 'what might happen if...' with what's actually happening.
If we were talking about USD as a new concept, we could write tomes on the 'flaws' of it as a currency. It has nothing backing it. It can be infinitely created at will. A private entity (federal reserve) controls a huge amount of policy. It can be lost, destroyed, stolen. Political forces of a single government can have massive impact on it. It is hugely regulated, and can be relatively easily tracked in its system. Yet, it largely works.