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Thoughts on Bitcoin

blog.samaltman.com

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Re: Thoughts on Bitcoin

#201

Post by ericb »

XorNot wrote: post #140
ericb wrote: post #123

Earlier quoted context omitted.

Under what definition of won't work . Won't be adopted? Would cause economic calamity? I think this is a crucial distinction.

With nothing anchoring the value of the currency, it'll fluctuate wildly (and then crater to zero, and that'll be the end of it). Regular currency is legally enforced by governments as the way to pay taxes, and settle debts in that currency - ergo you always need some or need to buying some, even if you don't want to deal in that currency day-to-day. BTC does not have these things. The only thing holding it up is irr…

There is generally nothing anchoring the value of any asset trading above the costs of the inputs required to make it.

For example, any real estate with a premium for its "better location," suits by Armani, sunglasses by Gucci carries a similar premium. This applies to gold as well--a huge part of the value is the expectation that others will continue to like shiny things.

Nothing anchors their price, or premium, other than a system of social beliefs and expectations. Specifically, beliefs about how others will perceive them are all crucial in how people value these items.

The same is true for bitcoin. It starts with a belief that others will also prefer to store value in currency with a higher utility--storable with no fees, and instantly transmissible lower fees--lower friction. It isn't so much the greater fool theory as it is the starting of a journey toward a Nash Equilibrium. But first everyone has to come to a belief about how they, and others view the currency. http://en.wikipedia.org/wiki/Nash_equilibrium

Once this has happened and additionally the markets have become more liquid, things can level out. Right now, the world-brain is confused about how it feels about bitcoin.

Re: Thoughts on Bitcoin

#202

Post by tpeng »

foobarqux wrote: post #157
tpeng wrote: post #151

Earlier quoted context omitted.

We could debate what the velocity of bitcoin is/will be, but the relationship between velocity, money supply, and transaction volume is definitional. http://en.wikipedia.org/wiki/Velocity_of_money

The definition of velocity is not at issue, the relationship between "price" and transaction volume is. If tomorrow the US gov decreed that every $1 of USD will immediately be exchanged for $2 of USDX you wouldn't expect, in theory, for the USDX transaction volume, denominated in USD, to change. Put another way, I fail to see how the BTC/USD exchange rate is related to BTC transaction volume except for tangential rea…

BTC value is directly related to its velocity and the value of the goods and services that are transacted in BTC. I held the purchasing power of USD constant, simply to derive a value of BTC in 2013 dollars. If USD experiences a large shift in PP (unlikely), that would affect BTC/USD. But either way that's not an inherent source of value to BTC.

This is my last comment, as I cannot possibly respond to an endless string of unfounded criticisms.

Re: Thoughts on Bitcoin

#203

Post by lingben »

atmosx wrote: post #106
stretchwithme wrote: post #95

Earlier quoted context omitted.

Inflation is not essential. If people hide their money under mattresses, all that means is that they aren't competing to buy the available goods. Inputs for other ventures are cheaper. If the government weren't trying to re-inflate the asset bubble with cheap money, ventures that make more sense would be flourishing instead. Resources are not infinite. When someone accepts a piece of paper and just holds on to it ins…

I also believe that a currency must be inflationary for all the good known reasons but every time I think of BTC being inflationary I realize that Satoshi didn't really had a choice. Why on earth you would buy an unknown inflationary currency? I mean, it would NEVER take off, except for illegal markets where use the privacy offered by a crypto-currency. But look where we are now? Silk Road gone (well almost) but BTC…

You've got it wrong. If Satoshi's purpose was to get people to pile in after him/them, it had to be deflationary. Mission accomplished. Bitcoin isn't a run of the mill ponzi scheme, it is a very new take on it. But it is still essentially front-running and hoping and planning that lemmings follow you to push up the price so you can then unload.

Re: Thoughts on Bitcoin

#204

Post by nayefc »

ericb wrote: post #201
XorNot wrote: post #140

Earlier quoted context omitted.

With nothing anchoring the value of the currency, it'll fluctuate wildly (and then crater to zero, and that'll be the end of it). Regular currency is legally enforced by governments as the way to pay taxes, and settle debts in that currency - ergo you always need some or need to buying some, even if you don't want to deal in that currency day-to-day. BTC does not have these things. The only thing holding it up is irr…

There is generally nothing anchoring the value of any asset trading above the costs of the inputs required to make it. For example, any real estate with a premium for its "better location," suits by Armani, sunglasses by Gucci carries a similar premium. This applies to gold as well--a huge part of the value is the expectation that others will continue to like shiny things. Nothing anchors their price, or premium, oth…

Unfortunately, it won't.

Money supply is a function of many things that an authority needs to control as an adjustment lever for the economy. A currency with a scheduled-deflation is not the solution.

There are no problems with our currencies today. This is a solution to a non-existent problem. We have problems in the finance world that Bitcoin does not solve.

For example, regulating how money supply can adjusted, or lending & risk.

How do you expect to operate a modern economy with Bitcoin when the whole concept of lending and credit will never exist (due to the shortage of the money)? What about in 50 years when the population goes up and we'll need more money in the system?

The government will never collect taxes, or issue bonds, in a currency that is not a function of the current state of the economy (but a function of time), and one that is scheduled to stop issuing any more "bills" (coins) at some point.

Re: Thoughts on Bitcoin

#205

Post by MacsHeadroom »

biot wrote: post #33
doki_pen wrote: post #23

I don't know why it is required that it is used in legitimate purchases. No one questions the value of gold, yet not many people use it to make purchases. I suspect bitcoins value will follow the same pattern as gold, once it is stable. When the world is full of uncertainty, it's value will rise. When things are steady, it's value will fall.

> No one questions the value of gold, yet not many people > use it to make purchases. Gold is purchased and used to make art, jewelry, electronics, medical devices, and so on in addition to being hoarded as an investment / currency reserve. Those products have real tangible value. Very few people are interested in buying bitcoin just to use the bitcoin address as artwork, for example. Tulip bulbs had more actual valu…

A secure blockchain has a plethora of uses beyond money. Currently the Bitcoin blockchain is the only blockchain to offer the kind of security necessary for innovations such as Proof of Existence, http://www.proofofexistence.com/about

In the future the same blockchain could be used for automated arbitration, estate planning, "smart" property ownership/transference.

Less than 1% of the value of gold has anything to do with its industrial/artistic uses.

Re: Thoughts on Bitcoin

#206

Post by foobarqux »

tpeng wrote: post #202
foobarqux wrote: post #157

Earlier quoted context omitted.

The definition of velocity is not at issue, the relationship between "price" and transaction volume is. If tomorrow the US gov decreed that every $1 of USD will immediately be exchanged for $2 of USDX you wouldn't expect, in theory, for the USDX transaction volume, denominated in USD, to change. Put another way, I fail to see how the BTC/USD exchange rate is related to BTC transaction volume except for tangential rea…

BTC value is directly related to its velocity and the value of the goods and services that are transacted in BTC. I held the purchasing power of USD constant, simply to derive a value of BTC in 2013 dollars. If USD experiences a large shift in PP (unlikely), that would affect BTC/USD. But either way that's not an inherent source of value to BTC. This is my last comment, as I cannot possibly respond to an endless stri…

I'm not an expert, frankly I don't even have a passing knowledge of how to value currency. My "string of criticisms" is actually one probative question: How does transaction volume imply a given value of a unit of currency?

Obviously an increase in transaction volume increases the value of currency. What is not obvious, at least to me, is that it is in direct proportion.

Re: Thoughts on Bitcoin

#207

Post by afterstep13 »

XorNot wrote: post #132
3pt14159 wrote: post #99

Earlier quoted context omitted.

Note that you are the one that calls my list bad, yet I specifically said that the uninformed should prefer this currency. Why should the uninformed prefer an inflationary currency? Because the uninformed are bad at accepting a decrease in demand of their market rate (their work performance would disproportionately decrease if given a 2% decrease in nominal wages). With that aside, let me give cover my complex though…

> When someone doesn't get a raise each month to make up for the expansion of the monetary supply he is effectively getting a pay cut, but he's been manipulated into not really noticing this. You do realize that pretty much everyone understands this in some way? What do you think OWS was, in part, about? The middle-class of the US is well aware that their wages have decreased relative to productivity. If deflation be…

It's not entirely true that inflation effectively results in a pay cut.

It's true only if you are buying the exact same things today, that you were buying, say a decade ago. This is true for some things such as food, housing etc.

However for other things such as computers, gadgets, medicines, cars, etc. are much better today than they were before. For these things, you get much more for the same price(taking inflation into account).

For example, phones used to be only communication devices; but now they are also a camera, entertainment device and even a computer. Others, such as medicines, they have become cheaper and much more effective. In short, improvements in science and technology beat the effects of inflation.

In some markets it can actually cause a deflation. For example, computers used to cost thousands of dollars, but now you can buy a much better one for a few hundred bucks.

Inflation is bad, only when stuff that you buy doesn't improve over time.

Perhaps one could even show that inflation is somehow related to the introduction of newer and better products in the market. For example a new car, with a more fuel efficient engine, will likely cost more than the old ones. However I don't have enough evidence to justify this claim.

Re: Thoughts on Bitcoin

#208

Post by gwern »

thaumasiotes wrote: post #161
gwern wrote: post #102

Earlier quoted context omitted.

Read the Wikipedia article on Tulipomania, or _Famous First Bubbles_. OP should too, actually, since his comment that > The price of tulip bulbs has yet to recover from its 1637 peak. betrays several fundamental misunderstandings of the tulip market at the time. Of course the top tulip bulbs depreciated. That is like saying 'a patent has never recovered its peak value' or 'Windows 3.1 never recovered its March 1992 p…

That wikipedia article seems to fully support the idea that tulips did "go that high"; it also notes that a legal change transformed tulip futures contracts into tulip option contracts, which enabled the price of tulips to rise substantially without costing speculators extra. It shows a catalog page of the time offering one tulip bulb for over ten times the contemporary annual earnings of a "skilled craftsman". If I…

> If I assume that a "skilled craftsman" in the US earns $20 / hour (less than I made as a summer intern at amazon before graduating college), that puts the price of the bulb at at least $400,000. For the price listed in that catalog, you could also have bought 25,000 pounds of cheese. It also notes that while flowers in general averaged 40% annual price depreciation at the time, tulips averaged a more impressive 99.999% annual depreciation.

I don't think you understood my point: these were scarce, expiring, novel luxuries. High initial prices often followed by vast depreciation is normal, and we see it all the time in the most comparable market, fashion and art, where artists who once commanded stratospheric prices tumble into obscurity and their works get junked. Pointing out the claimed performance (and remember the extenuating factors here like a lot of the sources being polemical lies) betrays a lack of appreciation for the volatility and time factor involved.

Re: Thoughts on Bitcoin

#209

Post by thaumasiotes »

gwern wrote: post #208
thaumasiotes wrote: post #161

Earlier quoted context omitted.

That wikipedia article seems to fully support the idea that tulips did "go that high"; it also notes that a legal change transformed tulip futures contracts into tulip option contracts, which enabled the price of tulips to rise substantially without costing speculators extra. It shows a catalog page of the time offering one tulip bulb for over ten times the contemporary annual earnings of a "skilled craftsman". If I…

> If I assume that a "skilled craftsman" in the US earns $20 / hour (less than I made as a summer intern at amazon before graduating college), that puts the price of the bulb at at least $400,000. For the price listed in that catalog, you could also have bought 25,000 pounds of cheese. It also notes that while flowers in general averaged 40% annual price depreciation at the time, tulips averaged a more impressive 99.…

I didn't even understand that you had a point of your own; I saw the conversation go "It's stupid that tulips would go that high, and funnily enough it didn't happen." > "citation?" > "look at the wikipedia page for Tulipomania", and then a comment that it's in the nature of tulips to depreciate over time (side note: I get the analogy to patents, but I don't get the analogy to windows 3.1).

The tulipomania page does not support the idea that high tulip prices didn't happen. Those tulip catalogs were not the polemical pamphlets (admittedly, it doesn't appear to be clear who put the prices in). The only thing my comment mentions that came from a propaganda pamphlet is the price of cheese, but I figure there's no real reason to doubt them on that. A law really was passed for the relief of people who had bought tulip futures. It seems to have been effective, but none of that means prices weren't high; it means tulip prices didn't have a major effect on the Dutch economy.

Re: Thoughts on Bitcoin

#210

Post by fat0wl »

ahmadss wrote: post #169
fat0wl wrote: post #34

Earlier quoted context omitted.

Same. I've tried to warn them about this whole mess (even if the value is appreciating I think it's at best a risky investment and at worst partaking in an immoral scheme). This article reiterates 2 of my favorites points -- 1. the lack of real-world transactions, coupled with 2. the fact that these transactions are usually done via 3rd party processor or immediate conversion back to USD. If vendors had faith in it a…

Re: #2 - Vendors need to pay rent, suppliers, and employees - all of whom presumably don't accept BTC. So that's probably why you see Coinbase, BitPay, and others that default to converting BTC to fiat the moment of transaction.

i see what you're saying but if they have profit margins they could opt to keep some BTC. i think the issue at this point is that if one decides to hold onto BTC they are put more in the position of an "investor" rather than a bank-account owner.

business owners can't all be expected to drink the kool-aid, so they don't really seem to be assisting Bitcoin adoption outside of making it a choice in their payment processor

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