Bitcoins up another 42% since August 1st(bitcoincharts.com)
bitcoincharts.com
Bitcoins up another 42% since August 1st
http://bitcoincharts.com/charts/mtgoxUSD#rg30zigHourlyztgSza1gSMAzm1g300zm2g25zi1gAccDistzv
11 comments
"perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics"
I most certainly wish this was the case, however the cycle of booms and busts rarely teach anyone anything. Think about how they were documented in the 1800s, Extraordinary Popular Delusions and the Madness of Crowds specifically, they STILL teach that book in plenty of schools, and yet the same idiots believe this time, things'll be different.
I most certainly wish this was the case, however the cycle of booms and busts rarely teach anyone anything. Think about how they were documented in the 1800s, Extraordinary Popular Delusions and the Madness of Crowds specifically, they STILL teach that book in plenty of schools, and yet the same idiots believe this time, things'll be different.
Bitcoins are still great, but until their price starts to stabilize, they'll never become cash replacements. Right now, Bitcoins cannot function as a 'store of value' in the sense of currency because they're so volatile.
At the current price level and market cap, stability for bitcoin is still not possible, because bitcoin needs to increase the amount of users using it to be more useful. Inevitably, this means the price of bitcoin will rise.
Hopefully, the current growth in price is not a bubble.
Hopefully, the current growth in price is not a bubble.
> [..] bitcoin needs to increase the amount of users using it to be more useful. Inevitably, this means the price of bitcoin will rise.
I'm not so sure if this is 'inevitable' since bitcoins in itself have no value at all. I know the same can be said about fiat money, but at least that's what everyone agrees is legal tender, as opposed to just a bunch of idealists or people who need a way to pay for shady stuff. But bitcoins are not like commodities, or labour, or whatever else has limited supply and non-zero utility.
Personally I'm not even touching bitcoins with a 10-foot pole. The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down and all your bitcoins will be worth nothing.
One thing I never understood about bitcoins, is what other problem they solve besides scratching some ideological itch some people have with money controlled by central bankers and governments (which I can imagine are valid concerns for some people). Effectively bitcoins are just like fiat money; worthless tokens that have no intrinsic value besides the trust that some people have in them to hold their value. Trust that is not actually based on anything either. At least the dollar has a government with a big military behind it that can assert their influence on areas where real wealth is concentrated. I'm not saying this is a good thing, just making the observation.
I'm not so sure if this is 'inevitable' since bitcoins in itself have no value at all. I know the same can be said about fiat money, but at least that's what everyone agrees is legal tender, as opposed to just a bunch of idealists or people who need a way to pay for shady stuff. But bitcoins are not like commodities, or labour, or whatever else has limited supply and non-zero utility.
Personally I'm not even touching bitcoins with a 10-foot pole. The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down and all your bitcoins will be worth nothing.
One thing I never understood about bitcoins, is what other problem they solve besides scratching some ideological itch some people have with money controlled by central bankers and governments (which I can imagine are valid concerns for some people). Effectively bitcoins are just like fiat money; worthless tokens that have no intrinsic value besides the trust that some people have in them to hold their value. Trust that is not actually based on anything either. At least the dollar has a government with a big military behind it that can assert their influence on areas where real wealth is concentrated. I'm not saying this is a good thing, just making the observation.
You are exactly right that bitcoins are exactly like fiat money, and have no intrinsic value.
You actually unintentionally explained what you don't understand.
Fiat currency is a problem because it can be so easily manipulated by the governments behind it. Just like the dollar, bitcoins have value only because people believe they have value. Your statement that at least the dollar has a government with big military behind it is exactly what the problem is that bitcoin solves. Bitcoin does NOT have a big government or organization controlling it, so unlike the dollar, no single party can inflate the currency. Central banks are able to create money out of nothing, therefore creating something with perceived value without offering anything of value in exchange (i.e. inflation). That leads to all kinds of problems, as we're seeing with the global economic crisis right now.
While Bitcoin does not have any intrinsic value, it also does not have a way to be inflated. The system by design creates DEFLATION instead, so the currency becomes more valuable(infinite divisibility handles issues with deflation).
Since there is a finite number of bitcoins that can ever be mined, it acts much more like gold than like the dollar. Gold cannot be inflated by any government. If bitcoins gain mass adoption, then they will begin to look very similar to gold. The main difference being that they are purely digital and have no intrinsic value(thus making gold still a better currency).
Deflation, by most mainstream accounts, isn't exactly a good thing in your money supply, either, though.
That depends on your perspective, and what you value in a monetary supply.
If deflation outstrips investment returns, then yes - that would cause capital to stay in one place, as people wouldn't want to spend money that would be worth more tomorrow. Investment would stop, businesses couldn't get financing, and everything would grind to a halt.
That's not a sustainable situation though; there will never be a time when all units of currency are held, nothing changes hands, and value is infinite. Instead, as value increases there will be profit-taking, which will hold down the value to some point. With the current relative lack of liquidity, you get a boom/bust cycle (the price will shoot up as more people try to get in on the value incrase, then confidence falters and the price crashes back to near baseline).
This has already happened once for Bitcoin, and it's important to note that the value over time has been somewhat linear when you account for the impact of the boom/bust.
As the liquidity of the market increases due to wider adoption, then you'll start to see the cycles increase in duration, as the market seeks balance. There will always be fluctuations, though, so the ultimate goal is ubiquitous use of Bitcoin in the general economy, and years- or decades- long variance in value.
I believe we're entering a new phase of growth, which will be sustained. I predict we'll see a good-sized correction relatively soon, and lots of smaller ones on the way up, but otherwise the value of Bitcoin in USD will steadily rise for the foreseeable future.
This doesn't look like another boom to me. This looks like people moving wealth to Bitcoin, and actually using it to buy things other than banknotes.
If deflation outstrips investment returns, then yes - that would cause capital to stay in one place, as people wouldn't want to spend money that would be worth more tomorrow. Investment would stop, businesses couldn't get financing, and everything would grind to a halt.
That's not a sustainable situation though; there will never be a time when all units of currency are held, nothing changes hands, and value is infinite. Instead, as value increases there will be profit-taking, which will hold down the value to some point. With the current relative lack of liquidity, you get a boom/bust cycle (the price will shoot up as more people try to get in on the value incrase, then confidence falters and the price crashes back to near baseline).
This has already happened once for Bitcoin, and it's important to note that the value over time has been somewhat linear when you account for the impact of the boom/bust.
As the liquidity of the market increases due to wider adoption, then you'll start to see the cycles increase in duration, as the market seeks balance. There will always be fluctuations, though, so the ultimate goal is ubiquitous use of Bitcoin in the general economy, and years- or decades- long variance in value.
I believe we're entering a new phase of growth, which will be sustained. I predict we'll see a good-sized correction relatively soon, and lots of smaller ones on the way up, but otherwise the value of Bitcoin in USD will steadily rise for the foreseeable future.
This doesn't look like another boom to me. This looks like people moving wealth to Bitcoin, and actually using it to buy things other than banknotes.
There is no intrinsic value in gold either. In fact, all value is subjective and individual. If for you the gold may have technological value, it may not have such value for me. But it may have exchange value for me because you or other people demand gold for their own subjective reasons. And yes, technological value is still subjective because there is no objective measure why you should be involved in that particular technology requiring that much of gold. It all depends on your own decision (which may take in account equally subjective valuations of your customers who demand products of your technology).
Gold may have started being used as money because it was already demanded for, say, jewellery. Bitcoin may have started for "fun" or belief in future growth and even bigger demand. The truth is in both cases the initial value was purely subjective.
Gold may have started being used as money because it was already demanded for, say, jewellery. Bitcoin may have started for "fun" or belief in future growth and even bigger demand. The truth is in both cases the initial value was purely subjective.
Bitcoins are like gold, but better in a many ways. It's much faster to send bitcoins around the world than gold. It's also easier to verify payment in bitcoins as opposed to weighing and verifying the gold you received is actually gold and not fake.
> You actually unintentionally explained what you don't understand. Fiat currency is a problem because it can be so easily manipulated by the governments behind it. Just like the dollar, bitcoins have value only because people believe they have value. Your statement that at least the dollar has a government with big military behind it is exactly what the problem is that bitcoin solves.
I think you misread my comment. I'm aware of the fact that people like Bitcoins because there is no government/central bank that can manipulate them. To me, that's a red herring though, the proverbial 'itch that Bitcoins scratch' for some people. I don't think Bitcoins solve any issues related to wealth preservation, and I don't think they offer any advantages as a store of value compared to other forms of wealth/value or currency that are not (directly) government controlled (at least not in similar ways as fiat money), such as commodities, precious metals, art, production capacity, etc. In fact, I think anyone holding lots of wealth in Bitcoins will someday lose all of it, in an instant.
The point is, that even though there is a limited amount of bitcoins, and even though governments have no influence on the supply of bitcoins or who holds them, they can still affect the value of bitcoins in dramatic ways. For example by legislation that makes any form of bitcoin trade illegal. Or maybe it doesn't even require legislation, maybe just the threat of legislation to curb bitcoin trade will cause people to lose trust in Bitcoins altogether. Just because the government can't inflate Bitcoins, doesn't mean it cannot destroy the trust some people have in it.
I mentioned military power not because I think it's a good thing, or an insurance against the depreciation of wealth expressed in fiat money, but as an example why fiat money is at least backed by something, unsustainable as it is. In times of resource scarcity or world-wide economic collapse, military power will 'buy' you (or at least some) the means to survive, not some virtual currency that nobody has a use for in times of distress.
> Since there is a finite number of bitcoins that can ever be mined, it acts much more like gold than like the dollar.
It acts like gold, but it is not gold. Gold is a tangible asset that has been a proven store of wealth since as long as we know about the history of human civilization. Gold is shiny, you can store it somewhere, make handy pieces out of it and and take it with you, people like holding and looking at gold, almost anybody, anywhere in the world will take gold in exchange for other goods or services. Smart governments are stockpiling gold at an accelerating rate, because they damn well understand that someday in the future dollars, euro's or yens will be worthless. Bitcoins are nothing like that. They are purely virtual, strings of bits, just like Linden dollars, or WoW gold. I think it is extremely unlikely people will ever lose faith in gold as a store of wealth, but I can imagine many scenario's where people will lose faith in Bitcoins. It will happen, trust me.
The money supply and inflation/deflation thing is purely theoretical. Hyperinflation doesn't occur because governements purposefully manipulate the money supply, but because paper rectangles and metal circles are useless if nobody has a use for them. I know the same can be said about gold, but I would bet everything on gold outliving Bitcoins as store of wealth. You don't need a PhD in economics to recognize this.
My advice: don't put your money in bitcoins. If you don't trust fiat money, buy tangible assets, invest in yourself, learn how to generate utility and wealth after the inevitable fiat money crash.
I think you misread my comment. I'm aware of the fact that people like Bitcoins because there is no government/central bank that can manipulate them. To me, that's a red herring though, the proverbial 'itch that Bitcoins scratch' for some people. I don't think Bitcoins solve any issues related to wealth preservation, and I don't think they offer any advantages as a store of value compared to other forms of wealth/value or currency that are not (directly) government controlled (at least not in similar ways as fiat money), such as commodities, precious metals, art, production capacity, etc. In fact, I think anyone holding lots of wealth in Bitcoins will someday lose all of it, in an instant.
The point is, that even though there is a limited amount of bitcoins, and even though governments have no influence on the supply of bitcoins or who holds them, they can still affect the value of bitcoins in dramatic ways. For example by legislation that makes any form of bitcoin trade illegal. Or maybe it doesn't even require legislation, maybe just the threat of legislation to curb bitcoin trade will cause people to lose trust in Bitcoins altogether. Just because the government can't inflate Bitcoins, doesn't mean it cannot destroy the trust some people have in it.
I mentioned military power not because I think it's a good thing, or an insurance against the depreciation of wealth expressed in fiat money, but as an example why fiat money is at least backed by something, unsustainable as it is. In times of resource scarcity or world-wide economic collapse, military power will 'buy' you (or at least some) the means to survive, not some virtual currency that nobody has a use for in times of distress.
> Since there is a finite number of bitcoins that can ever be mined, it acts much more like gold than like the dollar.
It acts like gold, but it is not gold. Gold is a tangible asset that has been a proven store of wealth since as long as we know about the history of human civilization. Gold is shiny, you can store it somewhere, make handy pieces out of it and and take it with you, people like holding and looking at gold, almost anybody, anywhere in the world will take gold in exchange for other goods or services. Smart governments are stockpiling gold at an accelerating rate, because they damn well understand that someday in the future dollars, euro's or yens will be worthless. Bitcoins are nothing like that. They are purely virtual, strings of bits, just like Linden dollars, or WoW gold. I think it is extremely unlikely people will ever lose faith in gold as a store of wealth, but I can imagine many scenario's where people will lose faith in Bitcoins. It will happen, trust me.
The money supply and inflation/deflation thing is purely theoretical. Hyperinflation doesn't occur because governements purposefully manipulate the money supply, but because paper rectangles and metal circles are useless if nobody has a use for them. I know the same can be said about gold, but I would bet everything on gold outliving Bitcoins as store of wealth. You don't need a PhD in economics to recognize this.
My advice: don't put your money in bitcoins. If you don't trust fiat money, buy tangible assets, invest in yourself, learn how to generate utility and wealth after the inevitable fiat money crash.
It acts like gold, but it is not gold. Gold is a tangible asset that has been a proven store of wealth since as long as we know about the history of human civilization.
Once somebody mine an asteroid full of gold, the whole Gold as money will come to an end. However, gold will become a more useful commodity in industrial/medical/electronic/etc applications since they are cheap.
Thousand years of history mean nothing when something change the whole playing field. There's nothing remotely implausible about asteroid mining except the necessary development of a space industry. As far as I am concerned, gold is living on borrowed time.
Once somebody mine an asteroid full of gold, the whole Gold as money will come to an end. However, gold will become a more useful commodity in industrial/medical/electronic/etc applications since they are cheap.
Thousand years of history mean nothing when something change the whole playing field. There's nothing remotely implausible about asteroid mining except the necessary development of a space industry. As far as I am concerned, gold is living on borrowed time.
I don't think that many people are interested in preserving their wealth until after 3000 AD, so let's forget about science-fiction scenarios.
Commercial asteroid mining will be reality within this century, and is already attracting investment. Look up Planetary Resources & friends.
There are individual asteroids that have more easily extractable precious metals than the entire present earth supply, should we have a good method of returning them to earth. The mere existence of these ought to start playing a number on the metals markets once planetary resources starts doing something newsworthy.
There are individual asteroids that have more easily extractable precious metals than the entire present earth supply, should we have a good method of returning them to earth. The mere existence of these ought to start playing a number on the metals markets once planetary resources starts doing something newsworthy.
People who I assume know much better what they are talking about (space agencies, scientists) have already commented on these wild space mining fantasy you are referring about. It's a ridiculous idea that is nowhere near technical or economical viability, and there really is no horizon on which it will be. To mine asteroids you would first have to build a permanent moon base, and drive down the costs of space missions down to the point that a single payload brought to earth would be worth more than the required investments.
Just because some nutters invest their excess money in some sci-fi fantasy doesn't make it real.
Just because some nutters invest their excess money in some sci-fi fantasy doesn't make it real.
Gold is a tangible asset that has been a proven store of wealth since as long as we know about the history of human civilization. Gold is shiny, you can store it somewhere, make handy pieces out of it and and take it with you, people like holding and looking at gold, almost anybody, anywhere in the world will take gold in exchange for other goods or services.
Outright bullshit. Gold became money because you could make statues of the Sumerian gods out of it. Silver for almost exactly the same reason.
There is nothing actually valuable about some rotten piece of metal, or at least, their industrial uses can't back up their price.
Good luck when the gold bubble pops.
Outright bullshit. Gold became money because you could make statues of the Sumerian gods out of it. Silver for almost exactly the same reason.
There is nothing actually valuable about some rotten piece of metal, or at least, their industrial uses can't back up their price.
Good luck when the gold bubble pops.
What does it matter why gold and silver became 2 of the most reliable stores of value. Fact is they are both in limited supply, they both are labour intensive to 'produce', they both have a tradition desirabilty, and they both have been used as a medium of wealth for as long as people have had access to them.
> There is nothing actually valuable about some rotten piece of metal, or at least, their industrial uses can't back up their price.
Not valuable compared to what? A string of bits identifying some kind of cryptographic hash? Give me a break. If you really think it will be Bitcoins that will provide for your well-being after a complete monetary collapse, sooner than tangible, hard assets such as gold, you should get your head checked.
Forgetting about gold for a moment, go check how many proven, explorable reserves of silver there are right now, and at what rate they are being dug up for industrial use.
> Good luck when the gold bubble pops.
People have been saying this since as long as I can remember. Wait until the bubble pops... It just shows a complete lack of understanding of what actually constitutes a bubble, in economic terms. But feel free to disagree, who am I to tell you how to manage whatever fortune you have managed to gather.
That said, anyone with a brain will make sure they diversify into different asset classes. Apparently you seem to think I'm a goldbug or something, but this couldn't be farther from the truth.
> There is nothing actually valuable about some rotten piece of metal, or at least, their industrial uses can't back up their price.
Not valuable compared to what? A string of bits identifying some kind of cryptographic hash? Give me a break. If you really think it will be Bitcoins that will provide for your well-being after a complete monetary collapse, sooner than tangible, hard assets such as gold, you should get your head checked.
Forgetting about gold for a moment, go check how many proven, explorable reserves of silver there are right now, and at what rate they are being dug up for industrial use.
> Good luck when the gold bubble pops.
People have been saying this since as long as I can remember. Wait until the bubble pops... It just shows a complete lack of understanding of what actually constitutes a bubble, in economic terms. But feel free to disagree, who am I to tell you how to manage whatever fortune you have managed to gather.
That said, anyone with a brain will make sure they diversify into different asset classes. Apparently you seem to think I'm a goldbug or something, but this couldn't be farther from the truth.
Not valuable compared to what?
Compared to tally sticks, say, or bushels of wheat, or time-banked labor hours.
Compared to tally sticks, say, or bushels of wheat, or time-banked labor hours.
You realize that 'money', in whatever form, shares that property with gold, right? Money only exists because it isn't really convenient to barter bushels of wheat for sheep, just so you can barter said sheep for the apples you need, but the sheep farm doesn't have. The only value money has, is what people will assign to it.
With that said, I'd recommend you to lookup some history of monetary systems, and see what systems survived for how long, and how they came to collapse. Just because bitcoins are digital, a product of technology, doesn't make them any different from tally sticks. It's just a way to exchange stuff without having to barter. Maybe bitcoins are much harder to counterfeit then tally sticks, but then again, it is probably also much easier to sabotage the systems required to trade them. In the end, the currency that sticks around the longest when all the other systems fail, will be the most reliable one to preserve wealth. It's a self-reinforcing process even.
Now go try and see how many bushels of wheat you can get your hands on with just exchanging tally sticks. Then try to buy some using gold.
With that said, I'd recommend you to lookup some history of monetary systems, and see what systems survived for how long, and how they came to collapse. Just because bitcoins are digital, a product of technology, doesn't make them any different from tally sticks. It's just a way to exchange stuff without having to barter. Maybe bitcoins are much harder to counterfeit then tally sticks, but then again, it is probably also much easier to sabotage the systems required to trade them. In the end, the currency that sticks around the longest when all the other systems fail, will be the most reliable one to preserve wealth. It's a self-reinforcing process even.
Now go try and see how many bushels of wheat you can get your hands on with just exchanging tally sticks. Then try to buy some using gold.
Now go try and see how many bushels of wheat you can get your hands on with just exchanging tally sticks. Then try to buy some using gold.
No farmers near me take payment in anything except United States Dollars.
No farmers near me take payment in anything except United States Dollars.
Well I think they would if you actually tried, but anyway, this is going nowhere. I was just making the point that gold has always had value, and has outlived every form of currency that has ever existed, and will continue to do so, just because there are no real alternatives for it.
If the USD derives its value from the strength of the U.S. military, the BTC derives its value from its ability to purchase shady things. I would not bet against the continued existence of markets for shady things.
I wouldn't bet against the continued existence of speculative bubbles. Bitcoin's actual utility for money-laundering will provide some support at the bottom when it crashes, but the price curve right now looks an awful lot like simple speculation.
What he probably meant was if Bitcoin catches on in any meaningful way the price must rise. If it never catches on it's likely the price will go close to 0 due to lack of mining security.
The dollar isn't necessarily Bitcoin's competitor. So maybe the dollar is good because it has such a power behind it. But what about all the other currencies of the world? Can you say they are all better than Bitcoin also? Try thinking about it in a less US-centric way.
The dollar isn't necessarily Bitcoin's competitor. So maybe the dollar is good because it has such a power behind it. But what about all the other currencies of the world? Can you say they are all better than Bitcoin also? Try thinking about it in a less US-centric way.
It isn't just an idealogical itch against central banks. Controlling someone's money is a very powerful way to control them. Bitcoin is about empowering digital transactions without a controlling third party in the middle. Having ways to move money to anyone anywhere instantly is not something to shrug away lightly. Sure, maybe you have no use for them, but I can assure you that there are plenty of people, businesses, and entire sectors that benefit from their properties.
First of all government does some shady stuff to manipulate the value of its own currency, second of all "real" money is more easy to trace (so there are privacy concerns).
>The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down-
Which will work just as well as stopping global piracy, i.e. not at all.
Which will work just as well as stopping global piracy, i.e. not at all.
Except, it's actually a lot easier than stopping global piracy. All you have to do is invest enough money into mining equipment to overpower 50% of the network and then you have the ability to stop all transactions. The cost of this is well within the ability of probably any government and will be for some time to come.
At which point other technological measures will be taken, whether that be improved client software or what have you. You can't fundamentally stop people from exchanging hashes, which is what bitcoin is.
What you meant to say was you can't stop people from broadcasting transactions. Which is true. But you can stop transactions from getting into the blockchain which is "what bitcoin is". A technologically savy attacker could forsee any counter measures and account for them in their initial attack. I haven't seen any counter measures proposed which would be a foolproof way to subvert a well planned 51% attack to stop legitimate transaction processing.
This is all besides the point I was trying to make. It doesn't matter if and how government can stop Bitcoin trades or whatever. It's about what happens when governments simply deem Bitcoins illegal, preventing legitimate use. It will undermine trust, and people will start converting their wealth into something else. In terms of wealth preservation, Bitcoins are just like any other forms of currency, except that there really isn't anything protecting it from becoming worthless.
I don't think there is any kind of currency that survived for more than a few hundred years, there have probably been hundreds if not thousands. Stamps, sticks with carvings on them, silver coins when fiat coins where still actually made of gold (can you believe it?), seashhells, etc. The ones that survived the longest have been government-controlled fiat currencies.
Once again, just to make myself clear, I'm not saying this is a good thing, just making the observation.
I don't think there is any kind of currency that survived for more than a few hundred years, there have probably been hundreds if not thousands. Stamps, sticks with carvings on them, silver coins when fiat coins where still actually made of gold (can you believe it?), seashhells, etc. The ones that survived the longest have been government-controlled fiat currencies.
Once again, just to make myself clear, I'm not saying this is a good thing, just making the observation.
You're still thinking very US-centric. So what if US makes it illegal, maybe that kills the US market for it, but there is still the rest of the world. And maybe the rest of the world using it while the US cannot even provides them some advantage over the US (of course this isn't necessary).
On the other hand a 51% attack on the blockchain by _anyone_ would have a near 100% chance of destroying Bitcoin.
On the other hand a 51% attack on the blockchain by _anyone_ would have a near 100% chance of destroying Bitcoin.
Not true, necessarily. There have been proposals to form a "web of trust" for miners, which would prevent this sort of thing from happening.
Miners who have been on the network for longer would have greater authority than new miners, regardless of computational ability. If a 51% attack occurs, it would in effect fork the blockchain, because the WoT-enabled miners would not accept their signed blocks.
You can fork the blockchain now if you want - it's just a matter of getting enough people to agree with you for those coins to have value.
I'm not saying it would be _good_ for Bitcoin - but this is not an insurmountable problem from a tech standpoint.
Miners who have been on the network for longer would have greater authority than new miners, regardless of computational ability. If a 51% attack occurs, it would in effect fork the blockchain, because the WoT-enabled miners would not accept their signed blocks.
You can fork the blockchain now if you want - it's just a matter of getting enough people to agree with you for those coins to have value.
I'm not saying it would be _good_ for Bitcoin - but this is not an insurmountable problem from a tech standpoint.
with that equipment, wouldn't it just be more lucrative to mine? or in that case is the mere acceptance of bitcoin a cost that is too high to bear?
I'm talking about a scenario when a government(s) see Bitcoin as a national security threat. So yes, shutting it down would be more lucrative for them in the long run than mining it.
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I wonder how government is going to pay for all that equipment if at that point Bitcoin will start proving more and more useful than government-issued paper.
Obviously at some point it would be cost prohibitive for any one government. But we are far far from that point. The price would probably have to go up by many orders of magnitude.
Doesn't the bitcoin network self-regulate to increase the difficulty of mining coins as the speed of coin generation increases?
At least the dollar has a government with a big military behind it
Then all you are doing is pegging your wealth to the stability of a nation, which statistically speaking is not that good a bet.
Then all you are doing is pegging your wealth to the stability of a nation, which statistically speaking is not that good a bet.
Interesting catch-22/chicken-and-egg there. How can Bitcoin increase the number of people using it if it's still a speculative/risky investment?
But of course, it's already proven it can do this on at least one scale. Whether or not it can do it on a larger scale is still to be seen.
This is not a chicken-and-egg problem. Initially there is some value of doing bitcoin: some find it fun, some believe in future growth and do early investment. Sceptical people join later when they see some people already joined. As number of people slowly grows, more people join after them seeing increasing value in the system. So there is no catch-22: system is unrolling completely by itself until everybody is in. If people discover some problems with it, growth or even total demand will go down.
See also my comment above about subjective value of gold.
See also my comment above about subjective value of gold.
One should not forget to mention what one measures the price in. That is, the price of Bitcoin in some products will become more stable over time, but USD and EUR prices may still grow just because USD and EUR will be valued less by producers and consumers. However, today Bitcoin price grows in relation to almost everything because demand for it outgrows the supply.
There's one very good thing about a rising bitcoin price that in and of itself makes the rise sustainable: more hackers and bitcoin businesses with more funds to invest into the various aspects of the economy.
Bitcoin still has some technical problems to figure out. Currently the blockchain is over 2gb and will get larger, faster as more people use it.
Also the transaction speed is really low - usually like 10 minutes to really confirm payment and at least half an hour to really confirm (around 10 mins a new block is created, and to ensure that block will stay in the chain you want some more blocks on top of that as well.)
Also.. the transaction rate isn't even 1 per second, if Bitcoin replaced visa for instance it'd be 2000/s, which means new blocks might contain 2000/s over 10 minutes of transactions, so new blocks are going to get huge.
All in all, bitcoin is going to need some big central bitcoin banks to speed transactions, and store the blockchain which isn't necessarily bad. Your bitcoins can still be stored locally under your private key, but banks will provide processing, while multiple banks provide verification of each other's stored blockchains.
Also the transaction speed is really low - usually like 10 minutes to really confirm payment and at least half an hour to really confirm (around 10 mins a new block is created, and to ensure that block will stay in the chain you want some more blocks on top of that as well.)
Also.. the transaction rate isn't even 1 per second, if Bitcoin replaced visa for instance it'd be 2000/s, which means new blocks might contain 2000/s over 10 minutes of transactions, so new blocks are going to get huge.
All in all, bitcoin is going to need some big central bitcoin banks to speed transactions, and store the blockchain which isn't necessarily bad. Your bitcoins can still be stored locally under your private key, but banks will provide processing, while multiple banks provide verification of each other's stored blockchains.
And then these banks get together to form a banking system, and then this banking system decides it needs a central governing authority to be able to make important collective decisions efficient and implement them effectively and seamlessly.
And then they decide to call it the Federal Reserve Bitcoin Bank
And then they decide to call it the Federal Reserve Bitcoin Bank
Periodically there are proposed protocol changes. A while back I saw a proposal on creating a set of rules that allowed for crowdsourcing-style transactions. (You could send bitcoin to an address, but the transaction did not become valid until the amount at the address reached a certain amount.) I didn't hang around long enough to see the outcome of this proposal, but what I did notice was that only the major bitcoin mining pools got to vote on it.
This is a factor of bitcoin being "decentralized" that I don't think many people fully internalize. Anybody could change the protocol, and all that will count toward acceptance is the number of nodes acknowledging their transactions. If a change is unpopular or made without widespread consensus, the blockchains split and now you've got two mutually incompatible currencies. In practice this will probably just mean that you're always under threat of a split unless everybody accedes to the changes that mining pools propose, since they control so many transactions. Alternately, new mining pools could be created that let members vote proportionally to the work they've done for the pool. It's both scary and interesting.
This is a factor of bitcoin being "decentralized" that I don't think many people fully internalize. Anybody could change the protocol, and all that will count toward acceptance is the number of nodes acknowledging their transactions. If a change is unpopular or made without widespread consensus, the blockchains split and now you've got two mutually incompatible currencies. In practice this will probably just mean that you're always under threat of a split unless everybody accedes to the changes that mining pools propose, since they control so many transactions. Alternately, new mining pools could be created that let members vote proportionally to the work they've done for the pool. It's both scary and interesting.
Bitcoin shows you why we need the banking system (and lessons learned many many years ago).
It's why we don't store all of our money in a mattress underneath our bed.
It's why we don't store all of our money in a mattress underneath our bed.
For most small/medium value transactions, you can simply listen for a double-spend transaction for a few seconds. If you see none then you can assume all miners saw the same transaction as you did first and that is what you can assume will be included in the blockchain.
There are already thin client wallets. These connect to "blockchain servers" and grab the relevant transactions for your accounts from those. You still maintain control of your address(es) and thus your funds. No need to download the whole blockchain. That is really only needed for those that _want_ to or those that run services. The point is that you _can_ be a full participant in the network if you want.
The blockchain servers are what I'd call future banks. Hopefully in the future they would create 'unused output trees' periodically that clients would download and verify the validity by asking multiple independent banks.
I don't really think of them as banks since they don't have access to your private keys (and thus your coins).
A bank to me is a trusted institution that facilitates financial transactions. Having your private key would not be a requirement for a bitcoin bank.
I was going by the actual definition of a bank. Things like swipe facilitate transactions but are not banks. Facilitating a transaction does not make it a bank.
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My understanding was that the blockchain itself contains a Merkle tree. Thus while users currently store the entire blockchain, they only need to store log(n) blocks locally to validate the entire chain.
Of course, analysis of transaction history will require the full chain, but this isn't necessary for the average bitcoin user.
Of course, analysis of transaction history will require the full chain, but this isn't necessary for the average bitcoin user.
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The more I think about this, I get a feeling that bitcoins are solving the wrong problem. The real problem is not of currency (though it is a problem, but just not as big), but of deep flaws in society due to capitalism. Let me explain.
Today there are distinct classes of society, and social mobility is decreasing in the US [1] and is frustratingly slow in the developing world.
The problem we are facing is that the producers are have become extremely productive due to capital and technology and are able crush those who do not have the access to the capital and technology. The people who are not in this privileged group are caught in a vicious cycle are forced to remain consumers and are getting more and more dependent on these super producers.
What money essentially does is facilitates information flow in an economy and enables complex contracts between a number of producers and consumers. The problem is not the information flow is not correct, the problem is that there is terrible inequality.
Bitcoins are seen as a hedge against large scale systemic collapse or slow corrosion of the nation-state. If the collapse / corrosion happens, we really do not know what kind of alternative systems will emerge.
The only way, to prevent such a collapse, in my view is to encourage local products and services in a big way. Bitcoins may not really help.
[1] http://www.nytimes.com/2012/01/05/us/harder-for-americans-to...
Today there are distinct classes of society, and social mobility is decreasing in the US [1] and is frustratingly slow in the developing world.
The problem we are facing is that the producers are have become extremely productive due to capital and technology and are able crush those who do not have the access to the capital and technology. The people who are not in this privileged group are caught in a vicious cycle are forced to remain consumers and are getting more and more dependent on these super producers.
What money essentially does is facilitates information flow in an economy and enables complex contracts between a number of producers and consumers. The problem is not the information flow is not correct, the problem is that there is terrible inequality.
Bitcoins are seen as a hedge against large scale systemic collapse or slow corrosion of the nation-state. If the collapse / corrosion happens, we really do not know what kind of alternative systems will emerge.
The only way, to prevent such a collapse, in my view is to encourage local products and services in a big way. Bitcoins may not really help.
[1] http://www.nytimes.com/2012/01/05/us/harder-for-americans-to...
> The problem we are facing is that the producers are have become extremely productive due to capital and technology and are able crush those who do not have the access to the capital and technology.
This is a common mercantilist fallacy -- that the problem is we just have too much production. I submit that we have the opposite problem: goods and resources are too scarce, rather than too abundant. More efficient production is the solution, rather than the problem.
> The people who are not in this privileged group are caught in a vicious cycle are forced to remain consumers and are getting more and more dependent on these super producers.
I agree that the focus of the economy is consumption, but this is indicative of the problem as well. We need to encourage entrepreneurship. By this I do not mean subsidies -- more in terms of cultural encouragement and removal of legislative and regulatory obstacles.
This is a common mercantilist fallacy -- that the problem is we just have too much production. I submit that we have the opposite problem: goods and resources are too scarce, rather than too abundant. More efficient production is the solution, rather than the problem.
> The people who are not in this privileged group are caught in a vicious cycle are forced to remain consumers and are getting more and more dependent on these super producers.
I agree that the focus of the economy is consumption, but this is indicative of the problem as well. We need to encourage entrepreneurship. By this I do not mean subsidies -- more in terms of cultural encouragement and removal of legislative and regulatory obstacles.
It seems there is some misunderstanding. OP didn't say that there is too much production. The argument was rather that the barriers to entry are too high (very high capital costs etc.). This creates self-perpetuating oligopolies.
By the way, the whole point of the economy is to enable consumption. If there was no consumption, there would be no point to economic activity.
By the way, the whole point of the economy is to enable consumption. If there was no consumption, there would be no point to economic activity.
> The argument was rather that the barriers to entry are too high (very high capital costs etc.)
Really? You are saying this on Hacker News? Where we gather to assemble and identify our comparative advantages and engage in entrepreneurship with capital on the order of thousands of dollars?
You can also be a agricultural entrepreneur or a mining entrepreneur or steel entrepreneur. Admittedly, the competition in these arenas is indeed very stiff, and they have invested a lot of money in efficient production. As an individual, you have little comparative advantage in such industries. But if you have some insight into how to make these industries even more efficient, then you will have no problems securing income or even starting a consulting business.
> This creates self-perpetuating oligopolies.
I disagree. The bigger they are, and especially once the economies of scale diminish as the market is saturated, the harder they fall. Waste and communication issues provide a natural limit. We run into problems when the state intervenes to keep dinosaurs alive. What's good for GM is good for the country, and all that.
> By the way, the whole point of the economy is to enable consumption.
Yep, consumption is enabled by production. Human needs and wants are limitless. If we actually lived in a world of abundance and not scarcity, people would not need jobs and there would be no need for production. We would lounge around all day in the land of milk and honey.
> If there was no consumption, there would be no point to economic activity.
Consumption will never go away. We consume food, water, shelter, etc. The only way consumption goes away is if humans go away. And when humans (or preference-satisfying agents, to be clear) go away, then economic activity ceases.
Really? You are saying this on Hacker News? Where we gather to assemble and identify our comparative advantages and engage in entrepreneurship with capital on the order of thousands of dollars?
You can also be a agricultural entrepreneur or a mining entrepreneur or steel entrepreneur. Admittedly, the competition in these arenas is indeed very stiff, and they have invested a lot of money in efficient production. As an individual, you have little comparative advantage in such industries. But if you have some insight into how to make these industries even more efficient, then you will have no problems securing income or even starting a consulting business.
> This creates self-perpetuating oligopolies.
I disagree. The bigger they are, and especially once the economies of scale diminish as the market is saturated, the harder they fall. Waste and communication issues provide a natural limit. We run into problems when the state intervenes to keep dinosaurs alive. What's good for GM is good for the country, and all that.
> By the way, the whole point of the economy is to enable consumption.
Yep, consumption is enabled by production. Human needs and wants are limitless. If we actually lived in a world of abundance and not scarcity, people would not need jobs and there would be no need for production. We would lounge around all day in the land of milk and honey.
> If there was no consumption, there would be no point to economic activity.
Consumption will never go away. We consume food, water, shelter, etc. The only way consumption goes away is if humans go away. And when humans (or preference-satisfying agents, to be clear) go away, then economic activity ceases.
These "super-producers" don't actually produce anything, they just own the means of production just as, in most (but not all) cases, their grandparents did. The actual producers of the goods are the working class, managed by a portion of the middle class not involved in professional services.
As Western countries have overvalued their currencies, lowered taxes on the wealthy, and weakened their labor standards, they thus ballooned their median costs of living - forcing labor to live on credit. As they then purchased lowered trade barriers for manufacturing from the elites of mostly ex-colonies (while carefully protecting intellectual capital and professional services), they have offloaded what their working class once did to poverty stricken countries, lowering median income, which is slightly offset by cheaper imported goods. This exacerbates income equality even more, creating a glut of the ex-working and management classes attempting to enter the professional middle class.
This, combined with lowered barriers to trade in professional services (and the radical progression in communications technology), will serve to lower the wages of the professional middle class, causing many of them to drop to the largely welfare supported lower class and to become entirely credit bound.
Bitcoins are seen as a way to avoid taxes, launder money, and perform illegal transactions:)
As Western countries have overvalued their currencies, lowered taxes on the wealthy, and weakened their labor standards, they thus ballooned their median costs of living - forcing labor to live on credit. As they then purchased lowered trade barriers for manufacturing from the elites of mostly ex-colonies (while carefully protecting intellectual capital and professional services), they have offloaded what their working class once did to poverty stricken countries, lowering median income, which is slightly offset by cheaper imported goods. This exacerbates income equality even more, creating a glut of the ex-working and management classes attempting to enter the professional middle class.
This, combined with lowered barriers to trade in professional services (and the radical progression in communications technology), will serve to lower the wages of the professional middle class, causing many of them to drop to the largely welfare supported lower class and to become entirely credit bound.
Bitcoins are seen as a way to avoid taxes, launder money, and perform illegal transactions:)
> As Western countries have overvalued their currencies
Please explain this chart to me
https://upload.wikimedia.org/wikipedia/commons/c/c9/Dollar_v...
It's a chart that means absolutely nothing to people who understand that it's the relative value of the dollar to the currencies of other countries that is meaningful. It would be fairly helpful in following the narratives to some classic movies, though.
Inequality and lack of social mobility within developed countries has gotten worse over the last decade, but over the whole world its decreased radically over the same time period. You should only "encourage local products and services in a big way" iff you don't believe the lives of people in developing countries have value.
I am trying to grasp what you are saying. I live in a developing country and I exactly know what you mean. Protectionism sends shivers down the spines of policymakers in developing countries. My country (India) has seen great progress in the last ten years thanks to relaxed trade and red-tape.
I am writing this on an Apple laptop. I love this machine and it is reasonably affordable for me. There is no incentive for an Indian company to ever produce a good laptop. Even worse is that there is never going to be an ecosystem in India that will work on complex engineering problems that go into making such a machine.
So while I enjoy as a consumer, I am only adding to the imbalance. It is not only for engineering products. China has become the producer for many simpler products that could have been made in India. I chose to become an entrepreneur and maybe will try and fix a miniscule part that imbalance some day, but I am not sure how many will. Are Indian producers better off because of China? I don't know.
For many decades, my country has been running a trade deficit at the cost of inflation. It all seems fine so far, but there is something surely wrong here. China has been doing the opposite, they have decided to become super producers, which is never possible in India because of the complex decision making.
In the ideal scenario, there must be a balance between global and local. It cannot be all global and no local (or the other way round), which is often a matter of perception. Globalization + technology has led to concentration of capital and the the playing field is not level. I still feel people everywhere must try and level the field.
I am writing this on an Apple laptop. I love this machine and it is reasonably affordable for me. There is no incentive for an Indian company to ever produce a good laptop. Even worse is that there is never going to be an ecosystem in India that will work on complex engineering problems that go into making such a machine.
So while I enjoy as a consumer, I am only adding to the imbalance. It is not only for engineering products. China has become the producer for many simpler products that could have been made in India. I chose to become an entrepreneur and maybe will try and fix a miniscule part that imbalance some day, but I am not sure how many will. Are Indian producers better off because of China? I don't know.
For many decades, my country has been running a trade deficit at the cost of inflation. It all seems fine so far, but there is something surely wrong here. China has been doing the opposite, they have decided to become super producers, which is never possible in India because of the complex decision making.
In the ideal scenario, there must be a balance between global and local. It cannot be all global and no local (or the other way round), which is often a matter of perception. Globalization + technology has led to concentration of capital and the the playing field is not level. I still feel people everywhere must try and level the field.
I agree with you that Bitcoins can open markets because they can eliminate the friction of making payments when two parties live in different political regions that do not currently trade easily.
This is a good thing for individual liberty and self determination.
But I would disagree when you propose that the only solution is to prevent the most efficient producers of a good or service from selling as much as they can into their market.
I rather put my hopes on open access and competition; both of which are enhanced by a means of exchange that does not require the friction of a trusted intermediary.
This is a good thing for individual liberty and self determination.
But I would disagree when you propose that the only solution is to prevent the most efficient producers of a good or service from selling as much as they can into their market.
I rather put my hopes on open access and competition; both of which are enhanced by a means of exchange that does not require the friction of a trusted intermediary.
I agree it's a hard problem. How do you rebalance without encroaching on individual liberty? The producers will need to eventually agree that this system is not sustainable in the long run and adapt. The initiative lies with them.
Barring outside factors (hacking, breach of trust, etc) the price of bitcoin is naturally bullish given the current ways to trade them. Since there is no large scale operation providing a way to short bitcoins, there is no one "investing" in their price decline. This simply means that anyone buying in using USD now needs to cash out at a higher price to make a profit (on most exchanges) and anyone who has coins would not want to make the market tank since that just devalues what they have.
I realize the above is a simplification and there are many other factors (and there could be malicious participants), but overall this will continue to push the price up.
I realize the above is a simplification and there are many other factors (and there could be malicious participants), but overall this will continue to push the price up.
Would it be hard to start a service to let people short bitcoins? You'd basically just be "lending out" the bit coins to people and making interest.
Would there be a lot of regulations to deal with, or no?
Would there be a lot of regulations to deal with, or no?
Services have existed with margin/option trading, but some of them have shut down because they were hacked. New ones that come out every day are too insecure to be trusted.
In fact, just today a margin trading website was exposed as having tons of SQL injections and storing user passwords with unsalted MD5 hashes. Until somebody can step up to the plate stability will be an issue.
Which reminds me, I have a rather nice domain name and experience with bitcoins and security, if only I had the financial/regulatory know-how...
In fact, just today a margin trading website was exposed as having tons of SQL injections and storing user passwords with unsalted MD5 hashes. Until somebody can step up to the plate stability will be an issue.
Which reminds me, I have a rather nice domain name and experience with bitcoins and security, if only I had the financial/regulatory know-how...
Stop worrying about the financial and regulatory know how and just try out your idea. You might find it goes nowhere and you will have wasted your time thinking about "regulations". No one is going to shut down your website making 10$ a month and if you do start to grow then you will be able to pay the right people to deal with the right problems.
With all the recent hacking of Bitcoin services, maybe it's this kind of thinking which is causing more problems.
I don't think regulation helped any of the banks with high profile credit card hacks recently. Don't confuse regulation with security. Regulation is not necessarily in place to provide security for the end user, only barriers to entry. Once you do start to grow obviously the correct precautions should be taken.
"Stop worrying about the financial and regulatory know how and just try out your idea."
Internet Libertopia!
Internet Libertopia!
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I have started to think about it. You just have to consider things like what happens when the lenders want their coins back and users have valid short orders out. Think about the incentive here. The lender is giving his coins to people who he knows are betting the price will drop. This means that when the price does start to drop the lender could want to sell the coins to prevent further loss. However, the other user (the one who got the lent coins) may not be ready to return then.
There was a service that allowed shorting (Bitcoinica). But all that seemed to come to a very abrupt and painful end. While it was running it did serve a valuable purpose.
There was a service that allowed shorting (Bitcoinica). But all that seemed to come to a very abrupt and painful end. While it was running it did serve a valuable purpose.
There are relatively low volumes but steady price gains over the past month.
This could be a sign that a lot of people want to get into the market quickly without reasoning about the price. When we look in the order book of one of the larger exchanges (mtgox) we see that there is not much market depth on either side[1].
This coincides with large volume peaks when articles are published, for example August 3 when bitcoin broke the $10.00 price this was widely published about (also on HN).
[1]http://bitcoincharts.com/markets/mtgoxUSD.html
This could be a sign that a lot of people want to get into the market quickly without reasoning about the price. When we look in the order book of one of the larger exchanges (mtgox) we see that there is not much market depth on either side[1].
This coincides with large volume peaks when articles are published, for example August 3 when bitcoin broke the $10.00 price this was widely published about (also on HN).
[1]http://bitcoincharts.com/markets/mtgoxUSD.html
Bitcoin price will continue to rise unless something happens causing confidence in the currency to collapse. It is designed to never inflate, and as more blocks are confirmed, we see that it deflates.
Well, sort of. Its designed so that the number of bitcoins in circulation approach some constant, but that doesn't tell you anything about the value of bitcoins, because the long term value of bitcoins is going to be something like the value of the market served by bitcoins divided by the number of bitcoins. So if, say, Silkroad gets shut down by the authorities then I expect the value of bitcoins would crash. Or if banking regulations change to make using bitcoins more cumbersome, or whatever. And you'd expect to see the value to bitcoins drop during recessions.
I'm referring to the real inflation of the currency: There is no mechanism for new bitcoins to be created when all blocks are confirmed. You need to create new currency to avoid deflation because populations grow.
Deflation is just another word for long periods of decreasing prices (not VALUES). What's wrong with that? Because of their infinite divisibility (it's equally easy to spend 1 millionth of a Bitcoin as it is to spend 1 Bitcoin) they do not share is the problems deflation poses to traditional money.
Deflation does encourage saving over consumption, yes. But I love the fact that products in the electronics markets have had long term predictable price declines over many decades.
Deflation does encourage saving over consumption, yes. But I love the fact that products in the electronics markets have had long term predictable price declines over many decades.
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I believe/hope that this rise is not really a bubble, but driven by the rising difficulty, which is due to the availability of cheap(er) fpgas. Also the rise is much slower than last summer and supported by much larger trading volume.
The bitcoin price drives the difficulty, not the other way around. http://bitcoin.stackexchange.com/questions/419/is-there-empi...
Obviously, this bubble-like rate of growth cannot be sustained, yet the bitcoin economy has more participants than the previous price spike in June 2011.
I'm not sure if stripcoin.com is helping or hurting the situation either.
AFTER EDIT:
See a somewhat related story with interesting comments
http://news.ycombinator.com/item?id=4391312
posted on Hacker News today.