Bitcoin Is Fundamentally Flawed • Hacker News Board

Re: Bitcoin Is Fundamentally Flawed

#31

Post by dragonwriter » Mon, Apr 08, 2013, 5:45 PM UTC

zacharyvoase wrote: post #2

Wow. Currencies are supposed to be used as a medium of exchange where, they facilitate transactions thus the multiplier effect kicks in and increases the economies wealth. An example of this, is fiscal stimulus used by the Obama Administration with the American Recovery and Reinvestment Act of 2009[15] however, this is not happening with Bitcoin. So Bitcoin doesn't have fiscal stimuli like regular currencies, and the…

> So Bitcoin doesn't have fiscal stimuli like regular currencies, and therefore it will experience depressions and recessions, unlike regular currencies?

You missed the big problem; while one could make an argument that the lack of the capacity for monetary stimulus with Bitcoin is an issue, fiscal stimulus is quite possible with Bitcoin (there isn't any now, because no government uses Bitcoin as the currency in which its budget works), and the multiplier effect resulting from the velocity of money would conceptually work the same way as with any other currency (the inherently deflationary construction of Bitcoin makes the likely velocity lower, which might reduce the effectiveness of fiscal stimulus, but its still possible; and different forms of fiscal stimulus could address the velocity of money.)

Re: Bitcoin Is Fundamentally Flawed

#32

Post by jwr » Mon, Apr 08, 2013, 5:45 PM UTC

I hope by the time we hit major problems with Bitcoin we will have several new digital currencies to chose from. Nobody ever said there needs to be only one, after all.

Re: Bitcoin Is Fundamentally Flawed

#33

Post by bbbhn » Mon, Apr 08, 2013, 5:45 PM UTC

Recessions and depressions happen to economies. To critique Bitcoin for its potential to induce a recession or depression is ridiculous, because the USD -- and its influence on the economy -- isn't going anywhere anytime soon.

Re: Bitcoin Is Fundamentally Flawed

#34

Post by jff » Mon, Apr 08, 2013, 5:46 PM UTC

Bitcoin is certainly flawed for a number of reasons, but this article is quite poorly-written; we'd have been better off with just the list of references. Summary: Bitcoin is deflationary.

Re: Bitcoin Is Fundamentally Flawed

#35

Post by mtgx » Mon, Apr 08, 2013, 5:46 PM UTC

SODaniel wrote: post #10

While I don't disagree with the author I would say that the finite supply shines a light on an even more direct problem. What happens to 'lost' coins? The BTC supply is not only finite but in fact dwindling over time, as inevitably the amount of currency is going to diminish due to digital loss. I have personally lost a few BTC due to computer crashes, wallet file lost etc. (In the early days) and considering this th…

Then Bitcoin increases in value, and you keep dividing a Bitcoin more. Nothing really changes.

Does it really matter if you have 20 million Bitcoins that are worth $1 trillion or if you have 10 million Bitcoins that are worth as much? No, it doesn't. The 21 million number was pretty arbitrarily chosen to begin with.

This would be a problem if say half of available Bitcoins would be wiped out overnight - somehow. But the chances of that happening as getting lower and lower as more people start using Bitcoins, and the value gets spread out across many more people.

Re: Bitcoin Is Fundamentally Flawed

#36

Post by leishulang » Mon, Apr 08, 2013, 5:48 PM UTC

base698 wrote: post #3

This 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…

"but if the rate of return on investments is greater than growth of the currency price that wouldn't be an issue either and one would expect it to stabilize over time."

Well, for last couple weeks, bitcoin is the best investment, just saying ....

Re: Bitcoin Is Fundamentally Flawed

#37

Post by ceejayoz » Mon, Apr 08, 2013, 5:48 PM UTC

rocky1138 wrote: post #12

By 2140 we'll probably have a new currency that we can replace Bitcoin with.

2140? I'd expect the "new hotness" in cryptocurrencies to hit in 2014, not 2140.

Re: Bitcoin Is Fundamentally Flawed

#38

Post by jerdfelt » Mon, Apr 08, 2013, 5:48 PM UTC

SODaniel wrote: post #10

While I don't disagree with the author I would say that the finite supply shines a light on an even more direct problem. What happens to 'lost' coins? The BTC supply is not only finite but in fact dwindling over time, as inevitably the amount of currency is going to diminish due to digital loss. I have personally lost a few BTC due to computer crashes, wallet file lost etc. (In the early days) and considering this th…

"Lost" bitcoins would just cause all of the other bitcoins to effectively increase in value. It's really only a problem for the person losing the bitcoins and a (small) positive for the rest of the bitcoin community.

It's conceivable that most lost coins will only be lost until the keys can be cracked. Bitcoin keys are extraordinarily difficult to crack right now, but at some distant point in the future, it's conceivable they could be cracked.

IIRC, there are some bitcoins that have been irretrievably lost because it was sent to an invalid key. It's a very small number however.

Re: Bitcoin Is Fundamentally Flawed

#39

Post by drinchev » Mon, Apr 08, 2013, 5:48 PM UTC

jondtaylor wrote: post #7

"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 also don't agree with this argument.

Dividing $100 into 100 x $1 bills makes sense if yesterday an orange cost $100, but one week later it costs $1 ( because of changing the value of money ).

Re: Bitcoin Is Fundamentally Flawed

#40

Post by itsprofitbaron » Mon, Apr 08, 2013, 5:48 PM UTC

lojack wrote: post #4

I still don't understand how people treating bitcoin as an investment rather than a currency is a fundamental flaw in the algorithm.

The reason I said that is because, there are two reasons to own Bitcoin - either to derive indirect utility through purchasing goods with Bitcoin in the future (therefore Bitcoins are being treated as if it’s a currency) OR the expectation that Bitcoin will rise in monetary value which means that, Bitcoin is a speculative digital asset – however, it’s not tied to anything in the way a stock or bond is for example. Currently, Bitcoin can be considered elastic (to some extent) although it’s subject to future diminishing elasticity meaning that, in the long run there will be a finite supply of Bitcoins and an inelastic supply.

However, a long-run inelastic and fixed supply currency is not useful for a real world economy which is why, Bitcoin is useful as a speculative digital asset rather than a currency.