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Bitcoin Is Fundamentally Flawed

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Re: Bitcoin Is Fundamentally Flawed

#71

Post by tibbon »

brazzy wrote: post #62
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...

That's the state of things now- but in a year? More exchanges could appear. I don't see why they won't. Panic selling will only happen so many times before people stop freaking out over little things.

Re: Bitcoin Is Fundamentally Flawed

#72

Post by zacharyvoase »

itsprofitbaron wrote: post #67
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 - an…

But my point is that the possibility of fiscal stimulus is not critical for a functioning economy, and in many cases simply does not work. I disagree with the monetarist principle that economic growth is stimulated by money injections—it's just people getting up and going to work in the morning, and inventing new things and discovering new processes. All this money mechanics stuff is distracting fluff.

Re: Bitcoin Is Fundamentally Flawed

#73

Post by mp99e99 »

bcantrill wrote: post #46

This fundamental flaw is absolutely glaring to anyone who has any understanding of economic history -- and it's amazing to me how many technologists willfully disregard several centuries of accumulated experience. Because of their built-in deflationary spiral, Bitcoins can never meaningfully be used as a medium of exchange: it will always be tempting to keep your Bitcoins in your pocket and let them appreciate instea…

Or, people might be more careful what they spend on, ie things that could provide more utility than the rate at which bitcoins would appreciate.

Re: Bitcoin Is Fundamentally Flawed

#74

Post by paulhodge »

tomrod wrote: post #25

Sure, this is a flaw if one only uses bitcoins. As far as I know, there is nothing stopping alternate, new competitors using the same algorithm. So bitcoins run out and everyone hoards? Start a new currency. A smart implementation can overcome the network effect/firstmover advantage of bitcoin. Then people trade between the currencies, and hoarding ceases to be as much of a problem.

Or more likely.. the Bitcoin developers release a new version that allows for more than 21m coins. I think a lot of people don't realize that Bitcoin is still an actively developed beta-version software project. There are several parts of the code that the devs are already thinking about changing (such as the way that transaction fees are calculated, or increasing the number of times you can subdivide one coin). If the 21m limit becomes crippling, I'm sure they will change that too. Really, they can change anything they want as long as they can convince 51% of pool owners to upgrade.

Re: Bitcoin Is Fundamentally Flawed

#75

Post by zacharyvoase »

bcantrill wrote: post #46

This fundamental flaw is absolutely glaring to anyone who has any understanding of economic history -- and it's amazing to me how many technologists willfully disregard several centuries of accumulated experience. Because of their built-in deflationary spiral, Bitcoins can never meaningfully be used as a medium of exchange: it will always be tempting to keep your Bitcoins in your pocket and let them appreciate instea…

The principle of dual circulation and 'bad money driving out good' is formulated as Gresham's Law. While this is typically applied to two currencies pegged by fiat, it would also apply to a pair of circulating currencies in which one is appreciating and the other depreciating.

The only problem is that Bitcoin does have an end use—as an anonymous digital currency (c.f. Silk Road). And furthermore, whether you believe it to be 'macroeconomic cancer' or not, it exists and cannot be shut down as a matter of policy.

Re: Bitcoin Is Fundamentally Flawed

#77

Post by defen »

dragonwriter wrote: post #48
defen wrote: post #22

Earlier quoted context omitted.

It's stupid. If a physical currency like physical gold or paper experienced the kind of deflation bitcoin currently is, it would be problematic because those things are difficult to subdivide into (effectively) arbitrarily small pieces. Bitcoins can be divided up, but then uninformed people forget why this is important and then make nonsensical arguments about splitting a $100 bill into 10 $10 bills.

> If a physical currency like physical gold or paper experienced the kind of deflation bitcoin currently is, it would be problematic because those things are difficult to subdivide into (effectively) arbitrarily small pieces. Its actually pretty trivial to issue new paper currency in smaller denominations and exchange existing currency for it; the problem with deflation is that it creates a disincentive to spend or i…

Has there been a currency (assuming bitcoin is a currency) that's deflated by 2000x in a few years? Not saying it can't be done with paper money, but it's less convenient than it is with bitcoin.

Re: Bitcoin Is Fundamentally Flawed

#78

Post by gbaygon »

pkulak wrote: post #49
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…

You're confusing two points just like the author. First you're saying that controlling your currency doesn't help (hurts?). Look at how many recessions the US had when it was pegged to gold vs now, then get back to me on that one. But, that doesn't really matter because Bitcoin is _not_ a national currency. It really is more like gold in that it's not really a currency in itself, but a way to store/transfer other cur…

I don't see the problem of buying thins with bitcoins directly, as long as the merchants are willing to accept it. And it will happen when/if the market stabilizes. Gold has a lot of disadvantages (fractionating, checking for purity) that bitcoins doesn't.

Re: Bitcoin Is Fundamentally Flawed

#79

Post by NullXorVoid »

tomrod wrote: post #25

Sure, this is a flaw if one only uses bitcoins. As far as I know, there is nothing stopping alternate, new competitors using the same algorithm. So bitcoins run out and everyone hoards? Start a new currency. A smart implementation can overcome the network effect/firstmover advantage of bitcoin. Then people trade between the currencies, and hoarding ceases to be as much of a problem.

This is already happening. Litecoin is now trading at about $4 per LTC. It is slightly different in that average block generation occurs every 2.5 minutes instead of 10 and the limit is 84M coins, but otherwise it's basically the same idea as Bitcoin.

There are numerous others -- TRC, PPC, NMC, DVC, etc -- that all are slightly different from bitcoin and are actively trading, although their exchange rates are much lower and extremely volatile. Namecoin is actually pretty interesting (embedding a domain service in the protocol), but the others are mostly copycats.

http://dustcoin.com/mining has the most extensive list I know.

Re: Bitcoin Is Fundamentally Flawed

#80

Post by hilko »

gojomo wrote: post #28

This is essentially the "it will become so valuable, no one will want it anymore" argument. There are uses of Bitcoin that are complementary to traditional currencies, and can survive both volatility and a large level of hoarding. One example: an enabler of quick, distant, irreversible transfer under software mediation. That is, you get the transactional Bitcoin you need from a trusted source, then engage in a transa…

Very well put. I think past experiences are definitely reason to be cautious, but too often it seems that analysis neglects to even consider the fact that there is no direct equivalent to Bitcoin.

It remains to be seen if Bitcoin is 'worth' its current valuation, but I think it's obvious that it has and will continue to have uses in the future.

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