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Bitcoin Is Fundamentally Flawed

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Re: Bitcoin Is Fundamentally Flawed

#111

Post by base698 »

Sambdala wrote: post #94
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…

1. There's an equilibrium rate that will be reached. 2. Time preference exists. 3. If this is the one thing in the world that can only get more valuable as time goes on, why aren't you spending your entire net worth on it as we speak?

Re: 3: If this is the one thing in the world that can only get more valuable as time goes on, why aren't you spending your entire net worth on it as we speak?

http://www.comedycentral.com/video-clips/tw2ltp/chappelle-s-...

Re: Bitcoin Is Fundamentally Flawed

#112

Post by scotty79 »

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…

The amount of bitcoins you have just describes what fraction of its wealth humanity owes you.

If you lost some BTC it doesn't destroy any value. It just means that you allowed humanity to forget that it owes you some of it's wealth. If you lost some BTC the fraction that humanity owes all other people who own bitcoins just increased.

Re: Bitcoin Is Fundamentally Flawed

#113

Post by kruhft »

Sambdala wrote: post #101
kruhft wrote: post #96

Earlier quoted context omitted.

Bitcoin is a commodity backed by Mathematics with the convenience of transfer of ownership through electronic rather than physical means. When the last coin is mined in 2140 the point of deflation might hold if it was a currency, but it's not. It is a faith based value store based on supply and demand, just like gold, which has next to no useful properties other than being shiny, non-tarnishing, conductive AND PEOPLE…

Bitcoin isn't backed by anything. "Backing" is also grossly misunderstood in general. Any "Backing" a currency has can generally be thought of as an put option on something fungible. For example, gold will never drop below $10-$20 per Oz because of the industrial/jewelry/etc uses people find for it. However, that "backing" only makes up a small percent of the price of gold.

Backed in the structural sense not the monetary sense. I should have written 'Bitcoin is a commodity with a solid foundation of Mathematics.'

Re: Bitcoin Is Fundamentally Flawed

#114

Post by kruhft »

betterunix wrote: post #98
chipsy wrote: post #90

Earlier quoted context omitted.

IMHO, this isn't a failure. We know that it's not going to be a business-as-usual currency. Easy credit is an incentive for business; inflation is an incentive for consumers. Governments have much better control over that. BC is better understood as a commodity market with a simpler financial instrumentation. Instead of trading contracts for goods, you are able to trade the good itself, at internet speed and scale. T…

Except that Bitcoin is not a commodity (as the term is commonly understood) because it has no use other than as a currency.

It creates discussion. That has to have some value on the internet, especially for ad based sites.

Re: Bitcoin Is Fundamentally Flawed

#115

Post by pixelcort »

return0 wrote: post #14
DanBC wrote: post #8

Earlier quoted context omitted.

> 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?

There is a fix that will go live in the future at a predetermined date. All users are being encouraged to update their clients or patch their clients' config files before the impending deadline.

I'm not sure what will happen to clients that don't patch or update.

Re: Bitcoin Is Fundamentally Flawed

#116

Post by oscilloscope »

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…

Just yesterday I would have rather used Bitcoin instead of a credit card to buy a game on my nephew's PS3 over the Playstation Network. The process of entering my contact details took several minutes. Afterwards, we had no idea how to remove my credit card from the system.

Simply checking out with a QR code and sending the Bitcoin from my phone would have been easier and not required any of my personal information. Instead I had to enter everything required for identity theft and to make fraudulent charges. It was the only way to pay and it was a hassle.

Re: Bitcoin Is Fundamentally Flawed

#117

Post by itsprofitbaron »

scotty79 wrote: post #102

Money is inflationary not because it is printed, but mostly because government allows banks to lend for long years the money that the bank could need tomorrow if the people whose money it is showed up at the said bank and demanded it back. There's nothing that could stop it for bitcoin. I can easily imagine that inflationary pressure from growing body of bitcoin credit could overcome bitcoin appreciation due to incre…

Inflation is considered a bad thing however, it doesn't necessarily mean that it’s a bad thing - if it's anticipated or unanticipated and it’s the sign that an economy is growing (although too little/much inflation can cause issues).

What I'm arguing about Bitcoin is a potential liquidity trap because these new injections into the market may fail to stimulate economic growth (especially as Bitcoins can only add 25 new Bitcoins to the market every 10 minutes which is being halved every 4 years from 2017). I believe that, there is potential for the Bitcoin economy to run into the problem of a limited money supply & the Bitcoin-hoarding because; there will not be enough currency. Since a long-run inelastic and fixed supply currency is not useful for a real world economy, the result will be a recession and due to the limited money supply it will evolve into a depression. This is the opposite of what happens with fiat currencies 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

#118

Post by neilk »

GhotiFish wrote: post #93

Has anyone worked out the math on the divisibility of bitcoin? Here are some questions: Bitcoin gets world wide adoption. It's used in transactions by ~3 billion people (right now). * What's the expected value of a bitcoin? (how much BTC for a stick of gum?) * What is the average permanent loss rate of bitcoins now? (when a bitcoin wallet is accidentally deleted, the coins are lost forever) What about in the future?…

I don't think your test is meaningful. There are already lots of items which cost much less than a penny. Individual squares of toilet paper, use of a cafe wi-fi for a few minutes, that sort of thing.

You just buy these items in bulk or make them free with other transactions. Right now I just "paid" for these items by buying some expensive bottled water in a café. It seems sort of crazy when you think about it - I paid for the thing that falls from the sky in large quantities in the Pacific Northwest, in order to obtain a manufactured good and access to advanced technology.

Also, the expected value of a bitcoin isn't dependent only on the number in circulation. Basically, it's related to "demand" and that depends on how many people are hoarding, how convenient it is relative to other currencies, and who knows, there may even be competing cryptocurrencies in the near future.

Re: Bitcoin Is Fundamentally Flawed

#119

Post by Kapura »

The fundamental flaw is not with bitcoin, but with people. At the beginning of march, I told all of my friends that Bitcoin was worth more than it was selling for, for many of the reasons listed in the post. It's essentially inflation proof; supply of bitcoin is not going to outstrip demand. I reasoned, then, that long term, the value is likely to go up. This is great if you're planning on spending any bitcoins as currency on silkroad or any of the numerous other websites that now accept some sort of payment in bitcoin: if you know you're going to want to buy in the future, it makes sense (generally) to buy into them now. This creates a broader base of unique users, giving more validity to the currency.

However, people see that the value of something is going up, they think "IT WILL ONLY GO UP" and then buy them with no intent to use them for a 'real' transaction. That's the problem identified in the post. But hey, guess what: Bubbles pop. At some point, the value of bitcoin will drop, and many of these speculators will sell off. This will devalue the currency for the people who wanted to use it for legitimate transactions, but sometimes you bite the bear, and sometimes the bear bites you.

The important thing to remember is that this currency is not inherently worthless. The housing bubble was catalysed by complex financial packages that disguised the fact that they were garbage assets. The Dutch tulip craze[1] was about fucking flowers. They were being purchased by people who had no desire to plant and grow the flowers. But Bitcoin is different. As long as people will still accept and trade in bitcoin, Bitcoin will never be as susceptible to collapse as other historical bubbles.

Further, with bitcoin, all news is good news. Any press that gets more people interested in bitcoin is good for the bitcoin economy in general. There will, of course, be some speculators who jump on hoping for a big payout. But there will be some people who look and see the inherent value of a decentralised currency and begin to accept bitcoin.

A lot of people can peg their bitcoin prices to more stable currencies: 4chan pass sells for $20 usd, but you can pay in bitcoin. I'm under the impression that Silkroad vendors do something similar. This means that, regardless of the current price of bitcoin, it's still useful for its intended goal.

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

Re: Bitcoin Is Fundamentally Flawed

#120

Post by crazygringo »

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…

According to Wikipedia [1]:

Whether deflationary spirals can actually occur is controversial.

Now I'm not an economist, but I have yet to see a solid, intuitive argument as to why deflation is necessarily a bad thing for Bitcoin.

Suppose the value keeps going up, and a few years from now it's at $1,000 / bitcoin -- lots of poeple have been buying bitcoins wherever they can, and not spending them. Well, at some point people will decide that the price is ridiculous, because it's all based on speculation -- suppose it's $10,000 / bitcoin. And it will either stop increasing in value, or crash a bit.

Well, I don't see how this has prevented it from acting as a currency at any point in this, since it always has a value. There are always going to be some people willing to trade some bitcoins for some price -- and that's just the price, and whether you're dealing with whole bitcoins, or millionths of bitcoins, I don't see what further consequences this has.

And when you're talking about the macro-economic level, running a whole economy on bitcoins would be a separate issue, but there could be tools to deal with that too. For example, not denominating debt or salaries or goods in Bitcoins, but in a multiple of a consumer-price-index or something, that can change relative to current Bitcoin values.

[1] http://en.wikipedia.org/wiki/Deflation#Deflationary_spiral

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