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Bitcoin Is Fundamentally Flawed

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Re: Bitcoin Is Fundamentally Flawed

#191

Post by thornkin »

mayneack wrote: post #163
SODaniel wrote: post #131

Earlier quoted context omitted.

I think the 'point' here is that as opposed to chests with 100.000.000KG of gold there are actually 'lost' wallet files with enough BTC that it would 'rock' an economy with a currency cap in the future. I am pretty sure if someone found a stash of gold worth $400.000.000.000 that WOULD actually effect gold prices. Also: Gold has 'real life' uses (production of components etc) and real world costs etc. attached to han…

So I don't know how much gold it would take to rock the price, but I'm guessing it's enough as to be non-trivially "lost" however, any random flashdrive could contain any number of btc.

The analogy to gold isn't gold that was once possessed that has been lost, it is gold that is newly discovered. A new find of a big gold vein, gold on an asteroid, etc. would be a similar shock to the system.

Re: Bitcoin Is Fundamentally Flawed

#192

Post by thornkin »

scotty79 wrote: post #152
SteveArmstrong wrote: post #148

Earlier quoted context omitted.

I think that's only true if it was known how many wallets were actually lost. As is, the fraction of worth captured in that wallet can never be re-distributed to other people who own bitcoins, because the wallet is never decommissioned, just dormant.

Not quite. Losing your wallet doesn't destroy anything beside the proof that the rest of society owes you anything. No actual worth is lost. You just lost the proof that you have a right to something useful or pleasant. It will be claimed by other people. Market will discover how much bitcoins were lost and bitcoin price will raise accordingly so other people holding bitcoin will be entitled to tiny bit more of the v…

That is only true if the loss is actually permanent. If the system comes to assume that there are only 10,000,000 coins in circulation, what happens if a substantial portion of the "lost" 11,000,000 shows back up? Now you just had a 50% inflation overnight...

Of course, the chance that huge amounts are lost together is quite low.

Re: Bitcoin Is Fundamentally Flawed

#193

Post by waps »

itsprofitbaron wrote: post #146
crazygringo wrote: post #144

Earlier quoted context omitted.

Thanks for writing all that up. What I still don't understand is, > Once people are reluctant to spend then, the economy will stay depressed because, people expect deflation AND deflation will continue because the economy remains depressed. Well, if people are expecting deflation, then that expectation becomes built into the value of the currency, such that there exists an equilibrium between people expecting it to d…

So by the "economy" think of Bitcoin like they are a country (a really small one) and that’s the only currency for them and in some cases deflation can be beneficial to some people in an economy. For instance as I was saying in the previous comment it's beneficial for those with the cash and income streams as they become more valuable as time goes on and its good for the debtor. However, you are correct in that there…

Maybe I'm misunderstanding the argument, so can anyone please point out the flaw in my dismissal of this argument ?

1) assuming bitcoin will deflate 2) this means that existing bitcoin holders will be able to exchange their bitcoins for more $ than ever on mtgox/... 3) the conclusion is that this will make people leave bitcoin

Needless to say, if this is the argument, that people will leave bitcoin because they earn too much without doing anything, good luck with that one. So where is the flaw in my thinking here ?

I would also like to point out that a deflationary system won out over a debt based one many times in history. Saying it can't happen doesn't seem like it's based on anything. The obvious big example would be the end of the (west) Roman Empire, but there's dozens of examples in the last 2 centuries alone. This is yet one more case of people in the west thinking that because it hasn't happened in the west in the last 60 years, that it cannot happen (and they simply don't know just how often it happened before that).

Debt based currencies are fundamentally pyramid schemes, slightly obscured by the fact that the growth phase can last a very long time, but that doesn't change anything, not really (except opening up the possibility of a person being born into a pyramid scheme and aging and dying normally while the pyramid scheme is still growing). This will not work for bitcoin because bitcoin itself depends on infrastructure that depends on those existing pyramid schemes (ie. USD/EUR/...). It will work for house ownership and maybe for gold ownership.

Re: Bitcoin Is Fundamentally Flawed

#194

Post by thornkin »

mpyne wrote: post #43
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 think the idea is that it's a classic supply/demand equation: With a fixed supply of Bitcoin available to transact with, each individual Bitcoin will become more expensive as demand goes up. If you sub-divide Bitcoins further to purchase the same items then it's still a deflation: What you used to be able to sell for 1 BTC now you can only get 0.1 BTC for. If all prices drop proportionally at the same time that's n…

Why couldn't loans be made which devalue at a rate pegged to a basket of goods? We track the rate of inflation today, we could just as easily track deflation and loans could be pegged to that. Doesn't that solve the loan problem?

Re: Bitcoin Is Fundamentally Flawed

#195

Post by kaonashi »

kruhft wrote: post #96
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…

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…

>With the FED and Monetary Easing the total amount of dollars in the economy is increasing

Not true. QE is a swap. Take away a bond, replace with reserves. No net change. If anything it's deflationary, as the bond yields more interest than reserves.

Even if the amount of net financial assets in the private sector does increase, it doesn't necessarily follow that the purchasing power of the dollar decreases. It all depends on the capacity of the economy to absorb the extra spending. If there is excess capacity that is mobilized by the extra spending, you get more dollars chasing after more goods. If there is no excess capacity, you get more dollars chasing after the same amount of goods.

Re: Bitcoin Is Fundamentally Flawed

#196

Post by kaonashi »

dnaquin wrote: post #123
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 US went off the gold standard before the great depression. http://en.wikipedia.org/wiki/Federal_Reserve_Act

The Federal Reserve Act did not take the U.S. off the gold standard, Roosevelt did it in 1933. http://en.wikipedia.org/wiki/Executive_Order_6102

Re: Bitcoin Is Fundamentally Flawed

#197

Post by ramblerman »

DanBC wrote: post #8
return0 wrote: post #6

I 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.

errr. no there hasn't

Re: Bitcoin Is Fundamentally Flawed

#198

Post by ramblerman »

paulhodge wrote: post #74
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 t…

not quite. The 21m upper limit is one variable that can't change.

Re: Bitcoin Is Fundamentally Flawed

#199

Post by ghgr »

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…

It is interesting how the deflation argument is always raised when talking about Bitcoin. Sure, deflation is an "economic carcinogen" in the current financial system (which is inevitably tied to the currency specs), but it won't be a problem in a Bitcoin world. Let me show an example:

Imagine I need to buy a house. Today, I would go to the bank, ask them for money and they will give it to me under the condition of giving it back, plus inflation, plus a fee. I need to give back more money than I received in order to pay the government (inflation) and the 'professional' lender (fee), for their 'services'.

In a Bitcoin world, if I needed to buy a house, I have two choices: Pay it now, if I have enough money (exactly as today) or pay it later (in several installments). As simple as that. Then, the housing market will decide if this is acceptable or not, or how much time the seller is willing to wait. The only difference is that in the Bitcoin world the "professional" lender will cease to exist (the seller will be at the same time the lender). And since there is no inflation, I will not need to pay the government either.

Actually it would be much easier to buy a house.

Re: Bitcoin Is Fundamentally Flawed

#200

Post by Sambdala »

dragonwriter wrote: post #149
Sambdala wrote: post #94

Earlier quoted context omitted.

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?

> 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? The conclusion that Bitcoin will only get more valuable as time goes on depends on the assumption that it will acheive and then durably retain a certain degree of importance as a currency. The people that are pointing to the problems associated with that are not arg…

Except that the point of the parent post was that people would always hoard bitcoins and never spend them because the value would always rise.

If you don't expect it to always rise, then you don't have the issue (not that it would necessarily be one) in the first place.

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