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Bitcoin Is Fundamentally Flawed

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Re: Bitcoin Is Fundamentally Flawed

#61

Post by dragonwriter »

SODaniel wrote: post #13
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 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.

> 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?

Because the success or failure of a medium of exchange lies in how it affects human behavior, which it does through its impact on human psychology.

Re: Bitcoin Is Fundamentally Flawed

#62

Post by brazzy »

tibbon wrote: post #20

Yes, 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 ren…

> 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.

No; then people start selling their BTC in a panic, MtGox is overwhelmed and stops working, and a lot of temporary millionaires start looking for work...

Re: Bitcoin Is Fundamentally Flawed

#63

Post by TimSchumann »

I'm going to try and be useful to this discussion, and I haven't seen anyone mention this by name yet so, here goes...

The Law Of Diminishing Marginal Utility. It essentially states that the more of something you have, the less additional value each subsequent unit brings to your life relative to the last one you added. (Even billionaires stop with a handful of houses)

The problem is the author implicitly tries to objectify the value of bitcoin, when in fact the value is completely subjective, just as the value of anything truly is.

One cannot take the subjectivity out of value as the author has tried to do here by saying 'More = Good' Value, being subjective, comes in the form of utility. I do not care what you call it, what it's priced in, or if you value it but, if I were to acquire a voucher for unlimited free flights, lifetime duration, transferable from myself to anyone of my choosing, on any airline, I would value that voucher very highly. That being said, while I may keep the next one for family, and several for friends, at some point I'm going to start selling them to others for a metric boatload of money.

Please note none of this implies any kind of 'rational actor' theory or any such thing. I see the law of diminishing marginal utility as just that, a law of nature. Despite what people may say, their actions prove it to be so.

*Also I think the author is implying that people who act like the people he's talking about in his post will take a pretty big haircut at some point in this whole bitcoin experiment. I think that says more about the people than the system at large.

Re: Bitcoin Is Fundamentally Flawed

#64

Post by jerf »

Actually, nothing stops a government from using fiscal stimulus if BitCoin is pervasively used. The US Government will, I'm sure, never accept taxes in anything other than US Dollars (that being the fundamental base of value the US Dollar is based on, and the subsequent avoidance of jail time due to not paying taxes or otherwise satisfying Uncle Sam), and they will remain free to helicopter-drop as many Dollars on the world as they like. If the BitCoin economy subsequently devalues Dollars, well, that's just the expected reaction. It's not as if there aren't commodities already out there doing just that.

(Also, not all of us consider Keynesian stimulus to be some wildly successful proved theory; I for one think you merely need to look out the window to see the failures of the theory to match reality. But fortunately, Keynesian is immune to criticism, because no matter how bad things get, Keynesian saved us from it being even worse, thus, no amount of failure can ever disprove the system. Phew! That said, BitCoin isn't the ideal either.)

Re: Bitcoin Is Fundamentally Flawed

#65

Post by brazzy »

jnevelson wrote: post #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 al…

Why would anyone sell when they see the price keep rising? Unless they fear it will go down - and then everyone wants to sell and the bubble pops...

Re: Bitcoin Is Fundamentally Flawed

#67

Post by itsprofitbaron »

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…

Unlike other currencies, Bitcoin is limited in supply and produces a set amount every 10 minutes - as a result there is the potential for a liquidity trap because these new injections into the market may fail to stimulate economic growth. Whereas, fiat currencies are backed by Governments etc (something which Bitcoin isn't) and these currencies can theoretically have an unlimited amount supplied into the economy - and as I highlighted with the American Recovery and Reinvestment Act of 2009[1] government spending and lending can have a positive impact on the economy in particular through kick-starting the multiplier effect.

[1] http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestm...

Re: Bitcoin Is Fundamentally Flawed

#68

Post by SODaniel »

mtgx wrote: post #35
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…

I agree that it's not a 'currency killer' in the short run BUT if we speculate that BTC reaches mainstream popularity and a total market value in the 100-1000s of BILLION USD the fact that an 'unknown' amount is in circulation makes for a very strange variable.

All of a sudden my old 1BTC wallet on my crashed laptop hard drive may be worth 100s of days of mining network wide, and even the speculation that a 'previously unknown' wallet containing 100BTC (there are a LOT of those sitting on old phones and hard drives already I promise) would have possibly disastrous effect on currency value etc.

All I am saying is that there are a LOT of factors to consider and BTC loss over time is a major one.

My argument being: A finite supply of a currency is one of the factors people REALLY need to think about when it comes to BTC. And I guess I am saying that it's a real problem vs. a currency with increasing difficulty and a non-finite supply.

Re: Bitcoin Is Fundamentally Flawed

#69

Post by vader1 »

The deflationary-spiral argument is pretty much as old as Bitcoin itself, and in my opinion quite overrated.

Sure, the Euro and the Dollar themselves are inflationary currencies, but because of interest your buying power increases when you keep your money locked in a savings account rather than spend it today. Yet consumers spend their money on trivial products every day rather than saving it to let their wealth grow.

Sure, the current volatility is so extreme that it might induce hoarding, but as the Bitcoin economy grows and matures this should eventually decline to acceptable levels.

Re: Bitcoin Is Fundamentally Flawed

#70

Post by matthew-wegner »

vshastry wrote: post #55
matthew-wegner wrote: post #53

Earlier quoted context omitted.

On the flipside, doesn't this also incentivize vendors to accept BTC?

no, because if persons with BTC hoard them as a value store rather than spending them as a currency, the merchant won't see (significant) spending from BTC holders.

Not all sellers pin their BTC values to USD. What if I were offering you a $400 video card for $300 of BTC? (This is especially true of Silk Road prices, by the way).

I have a suspicion that many people are spending their "hoarded" bitcoins, and also immediately moving to buy/mine more...

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