Bitcoins Are Digital Collectibles, Not Real Money(forbes.com)
forbes.com
Bitcoins Are Digital Collectibles, Not Real Money
http://www.forbes.com/sites/louiswoodhill/2013/04/11/bitcoins-are-digital-collectibles-not-real-money/
57 comments
Sorry to submit yet another Bitcoin article, but this one turned out to be somewhat of a revelation for me. Thinking of bitcoins as digital collectibles seems a much better metaphor than thinking of them as money. Collectibles have a fixed supply, and their value depends on some concept that people are interested in. Consider e.g. Nazi memorabilia from WW2: fewer and fewer are discovered each year, the total supply is fixed, their value depends a lot on hobbyists' varying interest in WW2. Bitcoin is also unusual for a digital good in that it has a fixed supply, and its value depends a lot on enthusiasts who are interested in cryptocurrencies, fixed money supply etc.
Memorabilia market prices vary by the quality and history of the piece; pieces with "richer" history fetch higher prices. BitCoin behaves more like a commodity. I expect derivative instruments based on BitCoin mining rates any day now.
The comparison is obviously to a single type of item. Say "Mauser HSc, excellent condition, provenience unknown". But there's no reason why individual bitcoins can't acquire additional value once history accrues to them. Let's say celebrity X publicly buys a bitcoin and spends it in a well-publicized event. People will probably bid extra to acquire this "famous" bitcoin afterwards.
I may be mistaken but I don't think Bitcoins (the units themselves) have an identity like that only wallets are entities. It's similar to how a celebrity would drink water and water would be worth more than the rest. Once the debit and credit occurs who is to say which coins are from what source...
Bitcoin doesn't work like that. There isn't some sort of serial number assigned, or anything.
There is actually quite a bit of discussion into 'coloured' bitcoins, which would basically work exactly like that.
Each bitcoin has an attached chain of transactions. If it's a matter of public record that a certain address belonged to say, Stephen Colbert, then you can definitely brag that you own Colbert's bitcoin. (That he donated to the Libertarian Party or something.)
While it may be possible to value BitCoins that way, that's not the driving force behind current price tracking, any more than a 1933 double eagle or 1804 silver dollar affects the price of gold or silver.
I'm not saying BitCoins are currently used this way. It was just a thought experiment to prove they can acquire extra value from association with particular people or events. Just like other collectibles.
I don't think this is the case. My understanding is that wallets have transactions attached.
Bitcoin was not money but a digital resource analogous to gold or oil by design.
I'm a little surprised that in 2013 somebody do not know this.
I'm a little surprised that in 2013 somebody do not know this.
Gold and oil both have uses that are not based on them being scarce goods. Gold is arguably more similar to bitcoin than oil is, but neither is really analogous.
How many articles have been posted to HN now saying this exact same thing? We get it. Bitcoin is being treated as a commodity instead of a currency. However, the problem is not with the currency system but rather the people buying and selling BTC. Bitcoin itself has everything it needs to become a legitimate currency. The author also may not have realized that the coins are divisible (to 10^-8) and that all Bitcoins will be mined by 2140 (not 2040 as he claims).
>We get it. Bitcoin is being treated as a commodity instead of a currency.
Collectibles are a very specific kind of commodity. The price of potatoes doesn't vary because there are potato enthusiasts out there extolling their virtues.
Collectibles are a very specific kind of commodity. The price of potatoes doesn't vary because there are potato enthusiasts out there extolling their virtues.
> The price of potatoes doesn't vary because there are potato enthusiasts out there extolling their virtues.
Sure it does. Which is why industry associations (whether for potato farmers or any other goods) send lots of money promoting the virtues of their products.
The only difference between potatoes and collectibles (and investment assets more generally) in this regard is that with potatoes (etc.) the promotion mostly centers around the use-value of the product, and with collectibles (and other investment assets) it centers around the future resale value.
Though lots of things in the real-world are hybrids, really, as commodity markets in potato (etc.) futures demonstrate them being both promoted and traded as investment assets, and real estate is often promoted directly for hybrid use-value/investment-value.
Sure it does. Which is why industry associations (whether for potato farmers or any other goods) send lots of money promoting the virtues of their products.
The only difference between potatoes and collectibles (and investment assets more generally) in this regard is that with potatoes (etc.) the promotion mostly centers around the use-value of the product, and with collectibles (and other investment assets) it centers around the future resale value.
Though lots of things in the real-world are hybrids, really, as commodity markets in potato (etc.) futures demonstrate them being both promoted and traded as investment assets, and real estate is often promoted directly for hybrid use-value/investment-value.
I think that collect-ability doesn't really have anything to do with this situation. This is a classic asset bubble, and people could really care less what the actual asset is.
I think that closest analogy are the goldbugs.
or so you think... ;)
I hope it's not considered ad hominem to point out that the man who wrote this piece considers fiat currency in general a mistake:
http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-fia...
Dude is just really into gold, which apparently has intrinsic value?
http://www.forbes.com/sites/louiswoodhill/2013/03/06/the-fia...
Dude is just really into gold, which apparently has intrinsic value?
"Without integrity, nothing works." That's not a law of the universe, and what does it even mean besides? Like, formally, what does it mean to economics? Sounds like nonsense to me.
Many comparisons have been made between fiat currency and Bitcoins, but to my mind that's wholly missing the point.
The Bitcoin protocol represents a way of digitally transferring a scarce resource without the need for a central authority. I suspect this is going to be a big deal eventually, because when we created a protocol for digitally transferring information without the need for a central authority, we wound up with the Internet.
Comparing Bitcoin to a fiat currency like the dollar is a little like comparing TCP/IP to the English language.
The Bitcoin protocol represents a way of digitally transferring a scarce resource without the need for a central authority. I suspect this is going to be a big deal eventually, because when we created a protocol for digitally transferring information without the need for a central authority, we wound up with the Internet.
Comparing Bitcoin to a fiat currency like the dollar is a little like comparing TCP/IP to the English language.
I'm not a network engineer but I believe Tier 1 and Tier 2 networks are needed for the Internet to exist. They do not act as a central authority, but the Internet itself needs them to work like it do now.
I simply do not understood what you wanted to say by your last paragraph.
EDIT: To clarify my point is that I believe the internet is poorly decentralized, it simply means some guys has too much power to shutdown traffic from entire networks to even reach the Internet if they wish or when it's convenient to them, if we ever have another large scale global war I believe this will happen.
I simply do not understood what you wanted to say by your last paragraph.
EDIT: To clarify my point is that I believe the internet is poorly decentralized, it simply means some guys has too much power to shutdown traffic from entire networks to even reach the Internet if they wish or when it's convenient to them, if we ever have another large scale global war I believe this will happen.
My understanding is that's more an artefact of how the Internet is physically laid out, rather than as something inherent to the TCP protocol itself. If we took all the machines on the net and put them in one huge building, we could construct a far more decentralised network architecture.
Regarding my last paragraph, both the English language and TCP/IP could be broadly said to be protocols for distributing information, but are also obviously so completely different it makes little sense to draw any parallels between them.
Regarding my last paragraph, both the English language and TCP/IP could be broadly said to be protocols for distributing information, but are also obviously so completely different it makes little sense to draw any parallels between them.
>The Bitcoin protocol represents a way of digitally transferring a scarce resource without the need for a central authority.
Sure, but what you need is a way to exchange things without recourse to central authority. You can transfer bitcoins to the local bar, there's no way to ensure they transfer you back a drink. This is precisely why exchanges like Mt. Gox have become prominent - how else can you make sure the buyer transfers dollars to your bank account? So all you have are donations without recourse to central authority - which sounds a lot less revolutionary.
Sure, but what you need is a way to exchange things without recourse to central authority. You can transfer bitcoins to the local bar, there's no way to ensure they transfer you back a drink. This is precisely why exchanges like Mt. Gox have become prominent - how else can you make sure the buyer transfers dollars to your bank account? So all you have are donations without recourse to central authority - which sounds a lot less revolutionary.
When dealing with physical objects, sure, you have the same problem as regular currency. You need to rely on the weight of the law and the reputation of the seller to give you the material item you requested.
However, (a) that's not a deal-breaker, otherwise fiat currency wouldn't work, and (b) you can programmatically enforce rules on the transfer of intangible assets.
For instance, Namecoin adapts the Bitcoin protocol for the purchase of domain names, which are a limited but intangible commodity. If I buy a domain name with namecoins, the network itself enforces the sale.
Even when dealing with something that requires a central authority, like regular currency, Bitcoins have worth. For instance, if I want to transfer money between service A and service B, Bitcoins can act as a common intermediate protocol. Although the two endpoints are still required, we can replace a lot of the inbetween mechanism, and reduce the dependencies between the two services.
However, (a) that's not a deal-breaker, otherwise fiat currency wouldn't work, and (b) you can programmatically enforce rules on the transfer of intangible assets.
For instance, Namecoin adapts the Bitcoin protocol for the purchase of domain names, which are a limited but intangible commodity. If I buy a domain name with namecoins, the network itself enforces the sale.
Even when dealing with something that requires a central authority, like regular currency, Bitcoins have worth. For instance, if I want to transfer money between service A and service B, Bitcoins can act as a common intermediate protocol. Although the two endpoints are still required, we can replace a lot of the inbetween mechanism, and reduce the dependencies between the two services.
Of course it's not a deal breaker. All I'm saying is that Bitcoin doesn't enforce exchange. There's nothing in the Bitcoin protocol that forces Namecoin to give you a domain name.
Actually there is. You can entwine a pair of transactions such that if the bitcoins are claimed by the seller, the corresponding namecoins can be claimed by the buyer.
>>Comparing Bitcoin to a fiat currency like the dollar is a little like comparing the English language to TCP/IP.
Bitcoin could not be compared to currency.
It's comparable to gold, oil, diamonds, etc.
Bitcoin could not be compared to currency.
It's comparable to gold, oil, diamonds, etc.
Well, again, not exactly, because a bitcoin-like network can potentially enforce rules in a way that a physical commodity cannot do.
I think this is actually a great way of looking at it.
Of course bitcoins value is volatile, it's relatively new and being adopted and accepted. I blame the people speculating on it like crazy without any idea what the fundamental value actually is (and to be fair it's impossible to know until it stabilizes and the bitcoin economy becomes established.)
But this is only temporary, a necessary evil when a currency is starting out.
However it is arguably a good thing though, because all the attention and people buying it hoping it will increase in value, is exposing a lot of people to it that otherwise wouldn't have been. It's helping it grow much faster.
>To replace our entire dollar base money with Bitcoins would require that each Bitcoin be valued at more than $370,000.
I'm confused by what he means by this. Bitcoin is infinitely divisible. Even if there was only one bitcoin in the economy it could still be used perfectly fine as a currency.
>In contrast, a good monetary control system would fix the value of the currency unit (in terms of gold or something else real) and then adjust the size of the monetary base on a moment-by-moment basis in order to maintain this value in the markets.
This doesn't really make too much sense either. It takes a long time for arbitrary changes in the currency supply to have any effect. And all they can do is print more money, which makes everyone else's money worth less and therefore makes them worse off.
One interesting thing I've been thinking about is that since it's digital currency inflation and deflation can be corrected for a little. People could have their sites change prices based on the current inflation or deflation rate (if they really care about it so much.) This was harder to do with real world price tags. It's not a solution of course but it might help a lot. Usually the criticism of changes in a currencies value is that prices don't adjust fast enough to deal with it. But with the internet information is transmitted and changes can be made instantly.
>No modern economy could survive the constant, grinding deflation that having a fixed monetary base would eventually produce.
So this is more controversial, but I don't see why not. A currency that actually increases in value rather than decreases would have a huge advantage over everything else. Because if you had a choice what would you store your money in? It also insures that bitcoins can never artificially be devalued by any central organization. Sure new bitcoins can be mined, but that's heavily limited and a necessary evil to distribute the first bitcoins fairly.
As for them being collectibles that may be true for some people, but they have a few very good advantages to them that can't be beat by other currencies and that insures they will always have a use as a currency with some people. Mainly that they are anonymous and don't have transaction fees. I have seen a lot of interesting uses for them that would be unfeasible in real world currencies. Like people giving each other small tips over the internet.
But this is only temporary, a necessary evil when a currency is starting out.
However it is arguably a good thing though, because all the attention and people buying it hoping it will increase in value, is exposing a lot of people to it that otherwise wouldn't have been. It's helping it grow much faster.
>To replace our entire dollar base money with Bitcoins would require that each Bitcoin be valued at more than $370,000.
I'm confused by what he means by this. Bitcoin is infinitely divisible. Even if there was only one bitcoin in the economy it could still be used perfectly fine as a currency.
>In contrast, a good monetary control system would fix the value of the currency unit (in terms of gold or something else real) and then adjust the size of the monetary base on a moment-by-moment basis in order to maintain this value in the markets.
This doesn't really make too much sense either. It takes a long time for arbitrary changes in the currency supply to have any effect. And all they can do is print more money, which makes everyone else's money worth less and therefore makes them worse off.
One interesting thing I've been thinking about is that since it's digital currency inflation and deflation can be corrected for a little. People could have their sites change prices based on the current inflation or deflation rate (if they really care about it so much.) This was harder to do with real world price tags. It's not a solution of course but it might help a lot. Usually the criticism of changes in a currencies value is that prices don't adjust fast enough to deal with it. But with the internet information is transmitted and changes can be made instantly.
>No modern economy could survive the constant, grinding deflation that having a fixed monetary base would eventually produce.
So this is more controversial, but I don't see why not. A currency that actually increases in value rather than decreases would have a huge advantage over everything else. Because if you had a choice what would you store your money in? It also insures that bitcoins can never artificially be devalued by any central organization. Sure new bitcoins can be mined, but that's heavily limited and a necessary evil to distribute the first bitcoins fairly.
As for them being collectibles that may be true for some people, but they have a few very good advantages to them that can't be beat by other currencies and that insures they will always have a use as a currency with some people. Mainly that they are anonymous and don't have transaction fees. I have seen a lot of interesting uses for them that would be unfeasible in real world currencies. Like people giving each other small tips over the internet.
> A currency that actually increases in value rather than decreases would have a huge advantage over everything else. Because if you had a choice what would you store your money in?
The large part of point of fiat currency is divorcing the "store of value" function from the "medium of exchange" and "unit of account" functions of money, retaining the latter two but largely abandoning the former, in favor of the investment role being taken by productive assets.
The purpose of this is to encourage people with wealth to invest that wealth in productive assets rather than holding on to money.
Its true that, if you are looking for something to use as a store of value, something that increases in value over time is better for that purpose. Its less than obvious why this should be a feature of "currency". As a medium of exchange, it is generally good to have protection against short-term volatility, and as a unit of account the same is true, though against somewhat longer-term volatility (though not really "long-term", necessarily.)
For a long-term investment, short- to medium-term volatility is less important, but long-term expected growth is more important. The features that make a good investment aren't the features that make a good currency (medium of exchange) or a good unit of account.
The large part of point of fiat currency is divorcing the "store of value" function from the "medium of exchange" and "unit of account" functions of money, retaining the latter two but largely abandoning the former, in favor of the investment role being taken by productive assets.
The purpose of this is to encourage people with wealth to invest that wealth in productive assets rather than holding on to money.
Its true that, if you are looking for something to use as a store of value, something that increases in value over time is better for that purpose. Its less than obvious why this should be a feature of "currency". As a medium of exchange, it is generally good to have protection against short-term volatility, and as a unit of account the same is true, though against somewhat longer-term volatility (though not really "long-term", necessarily.)
For a long-term investment, short- to medium-term volatility is less important, but long-term expected growth is more important. The features that make a good investment aren't the features that make a good currency (medium of exchange) or a good unit of account.
> Because if you had a choice what would you store your money in?
That's actually noted as one of the problems with a deflationary economy. People tend to store their capital instead of spending it or investing it, which puts a hamper on economic growth (or even maintaining the economic status quo). If your job depends on receiving income then you can appreciate why it also depends on other people spending money.
> It also insures that bitcoins can never artificially be devalued by any central organization.
Countries have actually sometimes arranged to devalue their own currency to help with the local economy by boosting exports, so in that sense it is beneficial to have a central organization in your country's control to do that. Given the ongoing economic crises in Europe I'm just not sure how good an idea it is to have economic policy so completely decoupled from currency policy.
But on the other hand that feature of Bitcoin does make it very useful as a collectible or commodity. You can "invest" in it without worrying that the Central Bank of Satoshi will make your dilute your investment tenfold or worse.
That's actually noted as one of the problems with a deflationary economy. People tend to store their capital instead of spending it or investing it, which puts a hamper on economic growth (or even maintaining the economic status quo). If your job depends on receiving income then you can appreciate why it also depends on other people spending money.
> It also insures that bitcoins can never artificially be devalued by any central organization.
Countries have actually sometimes arranged to devalue their own currency to help with the local economy by boosting exports, so in that sense it is beneficial to have a central organization in your country's control to do that. Given the ongoing economic crises in Europe I'm just not sure how good an idea it is to have economic policy so completely decoupled from currency policy.
But on the other hand that feature of Bitcoin does make it very useful as a collectible or commodity. You can "invest" in it without worrying that the Central Bank of Satoshi will make your dilute your investment tenfold or worse.
>If your job depends on receiving income then you can appreciate why it also depends on other people spending money.
Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it. Sure you make less income, but everything is cheaper too so it's not a loss. Actually it's a gain. The same amount of goods are in the economy, but since some people aren't buying things, everyone else can afford more things. The pie is the same size but the people saving money haven't taken any slices of it, leaving more for us.
Besides when people save money, they generally invest it or put it in a bank which loans 90% of it back out.
>Countries have actually sometimes arranged to devalue their own currency to help with the local economy by boosting exports, so in that sense it is beneficial to have a central organization in your country's control to do that.
Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it. Sure you make less income, but everything is cheaper too so it's not a loss. Actually it's a gain. The same amount of goods are in the economy, but since some people aren't buying things, everyone else can afford more things. The pie is the same size but the people saving money haven't taken any slices of it, leaving more for us.
Besides when people save money, they generally invest it or put it in a bank which loans 90% of it back out.
>Countries have actually sometimes arranged to devalue their own currency to help with the local economy by boosting exports, so in that sense it is beneficial to have a central organization in your country's control to do that.
Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
> > If your job depends on receiving income then you can appreciate why it also depends on other people spending money.
> Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it.
But remember that the reason the prices are dropping is because no one is spending money. This is a positive feedback loop: the only reason that sellers are dropping prices is because they are under extreme pressure to make some income somehow. So they drop prices and receive a bit of income. So these businesses are then unable to pay their suppliers, who are forced to either drop their prices or suffer default, and so on straight up the chain.
So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect. If you reach the "flashover" point the whole economy goes to crap, much as what happened when the mortgage failure rate finally got high enough with the sub-prime mortgage derivatives.
> Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
> Well the point is prices adjust. If people aren't spending money, then prices just fall until the people that are spending money can afford it.
But remember that the reason the prices are dropping is because no one is spending money. This is a positive feedback loop: the only reason that sellers are dropping prices is because they are under extreme pressure to make some income somehow. So they drop prices and receive a bit of income. So these businesses are then unable to pay their suppliers, who are forced to either drop their prices or suffer default, and so on straight up the chain.
So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect. If you reach the "flashover" point the whole economy goes to crap, much as what happened when the mortgage failure rate finally got high enough with the sub-prime mortgage derivatives.
> Exporting more things isn't necessarily a good thing. Ideally we could import everything we need and not have to actually work to produce things to export.
That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
>So it's not that deflation itself is hazardous per se, but that it tends to amplify its own effect.
It will stabilize eventually though as no new people start saving instead of spending, or as the people who were saving eventually need to buy things or decide to finally cash out and spend their money.
>That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
The point was that we shouldn't strive to export more things as if that was a good thing in and of itself. The benefit of exports is the foreign money you get in return, and the benefit of that is the imports you can get in exchange for it.
It will stabilize eventually though as no new people start saving instead of spending, or as the people who were saving eventually need to buy things or decide to finally cash out and spend their money.
>That would perhaps be ideal, but it can't possibly occur that every country only imports and doesn't export. Someone has to lose in that transaction. Is that ethos really what we want to base a global financial system on?
The point was that we shouldn't strive to export more things as if that was a good thing in and of itself. The benefit of exports is the foreign money you get in return, and the benefit of that is the imports you can get in exchange for it.
> The pie is the same size but the people saving money haven't taken any slices of it, leaving more for us.
Until they do, and then the prices increase dramatically (at least in the short term) in response making it near impossible for the poor bitcoin users to afford anything. If you're only entering the economy after 10 years of deflation your salary will be a pittance compared to the savings of those who've been active in the BTC economy during that time.
> Ideally we could import everything we need and not have to actually work to produce things to export.
But who would trade with you and what would they trade for? If you aren't producing something (physical or intellectual) you'll eventually run out of funds to support your import only state.
Until they do, and then the prices increase dramatically (at least in the short term) in response making it near impossible for the poor bitcoin users to afford anything. If you're only entering the economy after 10 years of deflation your salary will be a pittance compared to the savings of those who've been active in the BTC economy during that time.
> Ideally we could import everything we need and not have to actually work to produce things to export.
But who would trade with you and what would they trade for? If you aren't producing something (physical or intellectual) you'll eventually run out of funds to support your import only state.
...all the attention and people buying it hoping it will increase in value is exposing a lot of people to it that otherwise wouldn't have been. It's helping it grow much faster.
I feel like the same thing happened with Beanie Babies. Look where they are now. Is that a good thing?
I feel like the same thing happened with Beanie Babies. Look where they are now. Is that a good thing?
Bitcoins actually have a use though, as a currency. Beanie babies are only valuable because a few people want them for... well however they find value in just owning beanie babies.
Bitcoin has a networking effect. When more people use it, it becomes more valuable simply because there are more places to use it or get it. And that creates more users of it still.
Bitcoin has a networking effect. When more people use it, it becomes more valuable simply because there are more places to use it or get it. And that creates more users of it still.
If Bitcoins are valued at around $100 dollars a piece is it possible for me to make a $10 dollar purchase using bitcoins?
Yes, they can be subdivided by up to eight decimal places.
And I believe that they could be changed to divide even further if necessary in the future.
That bitcoins are infinitely divisible is one of the ways in which problems associated with deflation are mitigated once the 21M bitcoin cap is reached.
https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_t...
https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_t...
Divisibility doesn't really help with the overall money supply however. There's also the loss of currency that occurs from loss of Bitcoin wallets.
Even without deflation I think there would still be problems with high variance of BTC just from the psychological aspects of the currency. With central banks you can at least say that there are persons whose job it is to watch currency exchange rates and take one or more of many available actions to curb both inflation and deflation. As far as I can see you just don't have that with BTC (and by design). You can't increase the money supply, any action to decrease the money supply is permanent, and how can you change interest rates for loans when all of the money is already issued?
I just can't imagine BTC being useful for transactions in general (especially important stuff like payroll) when the inherent variance in value seems to require systems akin to what a high-frequency trader would use. It might be useful as a commodity for similar reasons that gold is (but with the improvements that come from its high divisibility).
Even without deflation I think there would still be problems with high variance of BTC just from the psychological aspects of the currency. With central banks you can at least say that there are persons whose job it is to watch currency exchange rates and take one or more of many available actions to curb both inflation and deflation. As far as I can see you just don't have that with BTC (and by design). You can't increase the money supply, any action to decrease the money supply is permanent, and how can you change interest rates for loans when all of the money is already issued?
I just can't imagine BTC being useful for transactions in general (especially important stuff like payroll) when the inherent variance in value seems to require systems akin to what a high-frequency trader would use. It might be useful as a commodity for similar reasons that gold is (but with the improvements that come from its high divisibility).
$0.01 / 0.00000001 BTC = $1,000,000/BTC
i.e. If BTC gets to be more than $1,000,000 apiece, this will be necessary to perform USD transactions down to the cent. Otherwise, it's not a problem
i.e. If BTC gets to be more than $1,000,000 apiece, this will be necessary to perform USD transactions down to the cent. Otherwise, it's not a problem
Transactions on the blockchain actually occur in "satoshi," (currently) the smallest divisible unit of a Bitcoin.
https://en.bitcoin.it/wiki/FAQ#What_do_I_call_the_various_de...
https://en.bitcoin.it/wiki/FAQ#What_do_I_call_the_various_de...
Maybe this is a stupid question, but why is the mining needed at all? If we can keep subdividing them, shouldn't 1 bitcoin theoretically be sufficient?
"Mining" is really accounting. Miners add new blocks to the blockchain which provides for verification of transactions and the value of individual addresses. So providing a reward to mining (initially) was a means of providing a reward for performing an essential function for the bitcoin economy. Now that more bitcoins are in the wild it's possible to collect transaction fees, the second method by which miners can profit from their activity. Eventually the transaction fees will be more than the mining reward and the theory is that miners will remain in business in order to collect those fees.
Ah interesting, that makes sense. Can miners set their own transaction fees? And related if I want to make a bitcoin transaction can I (or my software) choose which miners to use to verify those transactions? Or are those fees determined by the protocol itself?
My understanding is that when conducting bitcoin transactions you can establish the fee you're willing to pay, the miners can optionally prioritize based on those fees. Theoretically it's possible that you'd have a transaction never verified or verified after a great period of time in the blockchain because your fee was set too low.
Yes, you use fractions. In that respect it is different from pennies etc.
> Yes, you use fractions. In that respect it is different from pennies etc.
Well, its different in that pennies are the smallest physical subdivisions of the dollar, but then, bitcoin has no real equivalent (pennies aren't the smallest usable subdivision, there's plenty of places where smaller units are used when dollars are a unit of account but not physically changing hands.)
Well, its different in that pennies are the smallest physical subdivisions of the dollar, but then, bitcoin has no real equivalent (pennies aren't the smallest usable subdivision, there's plenty of places where smaller units are used when dollars are a unit of account but not physically changing hands.)
Bitcoin isn't a great form of money right now, but that doesn't mean it can't be in the future.
I predict a lot more of these bubbles, but over the long term, unless it's displaced by a better system (which is certainly possible) or regulated out of existence, the trend will be upwards and greater stability.
I predict a lot more of these bubbles, but over the long term, unless it's displaced by a better system (which is certainly possible) or regulated out of existence, the trend will be upwards and greater stability.
21st century Beanie Babies
And another article on the farcial financial train choo choo! Btw, we need more perpetual motion, cold fusion, and red mercury investor stories posted too.