Bitcoin Is Fundamentally Flawed

#1

Post by itsprofitbaron » Mon, Apr 08, 2013, 5:18 PM UTC

Bitcoin Is Fundamentally Flawed
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Re: Bitcoin Is Fundamentally Flawed

#2

Post by zacharyvoase » Mon, Apr 08, 2013, 5:28 PM UTC

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 therefore it will experience depressions and recessions, unlike regular currencies? OH WAIT.

Re: Bitcoin Is Fundamentally Flawed

#3

Post by base698 » Mon, Apr 08, 2013, 5:28 PM UTC

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 and transfered. When a gram becomes worth so much it buys a house that makes other purchases of food and bills become impractical and people stop buying, and when building a billion dollar construction project moving it and protecting it has another set of problems and overhead. Bitcoin does not have the division problem--a single coin can be divided into pieces 10^8 pieces as the code currently works. That can also be changed in future versions to be divided even smaller. Ie, when one bitcoin can buy a house, you can just pay 0.0000001 for your stick of gum. So, we are then left with the argument, "Oh My God people won't buy because of the psychology that 0.01 coin today that currently buys a pack of gum being able to buy a car in the future." But, that's almost true now with savings and stocks and people still spend their money today and go into debt. Everyone knows if you save starting in your early 20s compounding interest it will be worth a ton more in 10 years, 20 years, etc.

Loans clearly have issues in a deflationary system. If you loan someone $10 today and that's worth $100 tomorrow how do they ever have a chance to pay it back? Payback would have to be on some growth rate where you owe "less" the longer the life of the loan with some interest built in. Venture Capital also would have issues, 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.

Inflation is built into the current model to encourage investment and prevent concentration of capital. Clearly, given the wealth divide that isn't working (blame exploitation of 3rd world or robots).

Re: Bitcoin Is Fundamentally Flawed

#4

Post by lojack » Mon, Apr 08, 2013, 5:30 PM UTC

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

Re: Bitcoin Is Fundamentally Flawed

#5

Post by tudorizer » Mon, Apr 08, 2013, 5:30 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…

ha ha. Yes. It's good that the USD was backend by the government. Who can bail out the bad credits? You can just print more Bitcoins?

Re: Bitcoin Is Fundamentally Flawed

#6

Post by return0 » Mon, Apr 08, 2013, 5:32 PM UTC

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 the hands that touched it.

As for the comparisons with other currencies and commodities, it has been exhausted as a subject; money is a matter of trust after all.

The question is what are the actual security threats to bitcoin's p2p infrastructure/integrity?

Re: Bitcoin Is Fundamentally Flawed

#7

Post by jondtaylor » Mon, Apr 08, 2013, 5:33 PM UTC

"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...

Re: Bitcoin Is Fundamentally Flawed

#8

Post by DanBC » Mon, Apr 08, 2013, 5:33 PM UTC

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.

Re: Bitcoin Is Fundamentally Flawed

#9

Post by gwern » Mon, Apr 08, 2013, 5:33 PM UTC

Summary: deflationary spiral.

Good job repeating what's been said by like everyone since the start, and not adding the slightest bit of new insight or information.

Re: Bitcoin Is Fundamentally Flawed

#10

Post by SODaniel » Mon, Apr 08, 2013, 5:33 PM UTC

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 the total supply of bitcoins will be diminishing over time at (maybe already?) higher rate then they can be mined.

I haven't taken the time to do ANY form of math on this but I can guarantee that already 10.000s if not 100.000s BTC are lost forever due to people simply not having access to them anymore and the data being destroyed.

Over years of loss this is probably more likely to kill the currency than anything else in my opinion.