Bitcoin.org's Gavin Andresen on Open Source and Escrow(bitcoinbulletin.com)
bitcoinbulletin.com
Bitcoin.org's Gavin Andresen on Open Source and Escrow
http://www.bitcoinbulletin.com/2011/04/09/bowling-for-bitcoins-meet-the-trader-05/
21 comments
Where does BitCoin's value come from?
Value source is pretty much the same as all other currencies too: people use it to exchange goods.
It's actually a big game of trust, that you can use the bitcoin you get today to buy something tomorrow.
As the number of people engaging in trading bitcoins, the market regulates it's self by supply and demand basis ( here is a chart on the current exchange values http://bitcoincharts.com/markets/ ).
The difference to most other current FIAT currencies is, that there is a maximum number of bitcoins that can be generated (20,999,999.9769 BTC), and it gets harder with time (exponential computation time needed to get them). This prevents runaway inflation.
To break it down to simple terms: it has value because people believe that it has value and use it to exchange goods and convert it to other currencies.
It's actually a big game of trust, that you can use the bitcoin you get today to buy something tomorrow.
As the number of people engaging in trading bitcoins, the market regulates it's self by supply and demand basis ( here is a chart on the current exchange values http://bitcoincharts.com/markets/ ).
The difference to most other current FIAT currencies is, that there is a maximum number of bitcoins that can be generated (20,999,999.9769 BTC), and it gets harder with time (exponential computation time needed to get them). This prevents runaway inflation.
To break it down to simple terms: it has value because people believe that it has value and use it to exchange goods and convert it to other currencies.
I still don't see why people would pay money for this virtual thing. It doesn't have any real value yet, everything is promised to come. It looks like some kind of scheme that promises future value in exchange for your cash today. Isn't this called a Ponzi scheme? http://en.wikipedia.org/wiki/Ponzi_scheme
If, on the other hand, governments backed this currency by guaranteeing some kind of flat conversion rate, I would be all for this system. As it is, I'm staying out.
If, on the other hand, governments backed this currency by guaranteeing some kind of flat conversion rate, I would be all for this system. As it is, I'm staying out.
BitCoin is not a money-making scheme, it's just an attempt at creating a new digital international currency. It is not marketed as a scheme and it doesn't promise any returns in the future.
However, the ironical thing about starting a new currency is that the value of it is determined by the trust people have in it. Since Bitcoin is new and unproven, the trust is quite low. Until it is trusted it won't have real value, but a lot of people won't trust it until it has real value. It's a chicken and egg problem.
By investing in Bitcoins you are investing in the belief that the currency will gain in popularity. It actually is no different from investing in a company at an early stage. By investing early before something is proven the risks are higher - but so are the potential rewards.
The people who invested 50K in Facebook early are rich now. Those who invest 50K in Facebook today won't see anything close to the return the early investors did, even with the same investment. A lot of people lost their investment by investing in some other social network instead of Facebook. This is just like any other high risk/high reward investment - you invest on your belief that something will succeed.
However, the ironical thing about starting a new currency is that the value of it is determined by the trust people have in it. Since Bitcoin is new and unproven, the trust is quite low. Until it is trusted it won't have real value, but a lot of people won't trust it until it has real value. It's a chicken and egg problem.
By investing in Bitcoins you are investing in the belief that the currency will gain in popularity. It actually is no different from investing in a company at an early stage. By investing early before something is proven the risks are higher - but so are the potential rewards.
The people who invested 50K in Facebook early are rich now. Those who invest 50K in Facebook today won't see anything close to the return the early investors did, even with the same investment. A lot of people lost their investment by investing in some other social network instead of Facebook. This is just like any other high risk/high reward investment - you invest on your belief that something will succeed.
It comes from the same place as all other currencies, the people's willingness to take it.
I think we've had enough Bitcoin for a while.
Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years. Let's forget all about those calls for entrepreneurs to focus on something more world changing than iphone widgets.
If Bitcoin isn't just a definition of a word "hack", and the most ingenious hack i have ever seen in financial sector which is in serious need of disruption.
Lets better read and talk about Steve Jobs'es new book and the how new ipad is better than older and Ipad.
Why tumblr is the new wordpress...
If Bitcoin isn't just a definition of a word "hack", and the most ingenious hack i have ever seen in financial sector which is in serious need of disruption.
Lets better read and talk about Steve Jobs'es new book and the how new ipad is better than older and Ipad.
Why tumblr is the new wordpress...
> Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years.
Off the top of my head, I would state that the following are unquestionably larger financial innovations in the past 20 years: SPDRs, HOLDRs, ETFs, ETNs, dark pools, target-date funds, target risk funds, auction-rate securities, online b2b markets, online b2c markets, online banking, automated market-making, new insurance products, improvements in risk analysis (credit scoring), removal of information asymmetries, just... so much innovation
The bitcoin market is less than a blip on the radar screen. It's so small that if somebody were to sell 100,000BCN right now, they'd crash the price down to pennies. And if somebody were to buy 100,000USD of BCN right now, the exchange rate would skyrocket. It's a small, illiquid market of people who have, mostly for political reasons, decided that they will convert electricity into a private virtual currency.
I know that right now there are a lot of bitcoin miners, dreaming of how wealthy they'll be once their deflationary-by-design virtual currency takes over the world, but I can't envision any realistic scenario whereby that could happen. Heck, the political risk alone makes it untenable as a serious store of value as it would be trivial for a nation to outlaw it's use, thus destroying the utility.
If you don't want to store your wealth in government-issued currency, that's great. But I'd suggest converting wealth to productive assets (e.g. shares of companies, loans to companies, land and other hard assets) rather than a virtual currency that lacks both the inherent value of productive assets and the transactional ease of government-issued currency.
Off the top of my head, I would state that the following are unquestionably larger financial innovations in the past 20 years: SPDRs, HOLDRs, ETFs, ETNs, dark pools, target-date funds, target risk funds, auction-rate securities, online b2b markets, online b2c markets, online banking, automated market-making, new insurance products, improvements in risk analysis (credit scoring), removal of information asymmetries, just... so much innovation
The bitcoin market is less than a blip on the radar screen. It's so small that if somebody were to sell 100,000BCN right now, they'd crash the price down to pennies. And if somebody were to buy 100,000USD of BCN right now, the exchange rate would skyrocket. It's a small, illiquid market of people who have, mostly for political reasons, decided that they will convert electricity into a private virtual currency.
I know that right now there are a lot of bitcoin miners, dreaming of how wealthy they'll be once their deflationary-by-design virtual currency takes over the world, but I can't envision any realistic scenario whereby that could happen. Heck, the political risk alone makes it untenable as a serious store of value as it would be trivial for a nation to outlaw it's use, thus destroying the utility.
If you don't want to store your wealth in government-issued currency, that's great. But I'd suggest converting wealth to productive assets (e.g. shares of companies, loans to companies, land and other hard assets) rather than a virtual currency that lacks both the inherent value of productive assets and the transactional ease of government-issued currency.
Excellent points. I'll confirm your assumption about BTC's volatility: a single sell-off of ~10k last week took 25% of BTC's value with it. The limited purchasing power of the BTC economy has hindered economic development, but that is to be expected with any new currency.
However, Bitcoin as a medium of exchange is quite extraordinary and has recently caught the attention of Anonymous because of its "untraceable" (term used loosely) characteristics. There is the potential for Bitcoin to cater to a community outside of sovereign banks. In other words, there are interesting possibilities that exist beyond what goldbugs have in mind.
However, Bitcoin as a medium of exchange is quite extraordinary and has recently caught the attention of Anonymous because of its "untraceable" (term used loosely) characteristics. There is the potential for Bitcoin to cater to a community outside of sovereign banks. In other words, there are interesting possibilities that exist beyond what goldbugs have in mind.
> but that is to be expected with any new currency.
I think the problem is somewhat unique to unbacked currencies. BTC has value solely because some people agree that BTC has value. It can go to zero (and stay there) for any reason.
The value has no minimum that can be defined by looking at the industrial value of a commodity (as with commodity monies). Nor is there a minimum that can be determined by comparing the money supply to the underlying productivity of a nation whose residents are required, by law, to use the money (as with fiat monies).
As an aside, if I wanted to setup competing currencies, I'd create a brokerage that allows the cheap, easy, instant transfer of ownership of fractional securities from one member to another. Then we'd have tens of thousands of competing currencies, all of which are backed by a combination of assets and productive capacity. Entrepreneurs could even setup companies designed solely to work as currencies.
I know that wouldn't appeal to those who care primarily about traceability, but frankly, I don't foresee any government allowing the widespread adoption of any mechanism that allows for untraceable transfers of large sums of money.
I think the problem is somewhat unique to unbacked currencies. BTC has value solely because some people agree that BTC has value. It can go to zero (and stay there) for any reason.
The value has no minimum that can be defined by looking at the industrial value of a commodity (as with commodity monies). Nor is there a minimum that can be determined by comparing the money supply to the underlying productivity of a nation whose residents are required, by law, to use the money (as with fiat monies).
As an aside, if I wanted to setup competing currencies, I'd create a brokerage that allows the cheap, easy, instant transfer of ownership of fractional securities from one member to another. Then we'd have tens of thousands of competing currencies, all of which are backed by a combination of assets and productive capacity. Entrepreneurs could even setup companies designed solely to work as currencies.
I know that wouldn't appeal to those who care primarily about traceability, but frankly, I don't foresee any government allowing the widespread adoption of any mechanism that allows for untraceable transfers of large sums of money.
By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?
What you failed to mention is that Bitcoin actually allows virtual currency without a central authority, and the main value is not storage, but in value transfers and lowering barriers of entry. It's actually cheaper and faster(3 days vs 15 mins) already for me to use bitcoin to transfer value inside EU, even with high currency/bitcoin exchange rates.
Did political risk stop torrents from being usefull and disrupting?
What you failed to mention is that Bitcoin actually allows virtual currency without a central authority, and the main value is not storage, but in value transfers and lowering barriers of entry. It's actually cheaper and faster(3 days vs 15 mins) already for me to use bitcoin to transfer value inside EU, even with high currency/bitcoin exchange rates.
Did political risk stop torrents from being usefull and disrupting?
> By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?
I made a list of a dozen or so recent, top-level financial innovations (each of which has created many billions of dollars of value), and instead of recognizing that they had massive impact, you ignore all but one of them, redefine the remaining one from 'insurance product' to a credit derivative, and then attack it because of recent, well-known issues with mispriced credit and failures to account for counterparty risk when dealing with mortgage-backed products.
That's beyond disingenuous.
Have a nice day.
I made a list of a dozen or so recent, top-level financial innovations (each of which has created many billions of dollars of value), and instead of recognizing that they had massive impact, you ignore all but one of them, redefine the remaining one from 'insurance product' to a credit derivative, and then attack it because of recent, well-known issues with mispriced credit and failures to account for counterparty risk when dealing with mortgage-backed products.
That's beyond disingenuous.
Have a nice day.
You didn't recognize how you did just the same with bitcoin - taking out one of the value points and creating strawman out of it?
1. CDS is basically an insurance product: http://en.wikipedia.org/wiki/Credit_default_swap
2. I mentioned CDO just as an example of "risk analysis" failure by credit rating agencies.
I did this to point what kind of innovation you are talking about in your impressive list of acronyms that you mentioned in your first post.
1. CDS is basically an insurance product: http://en.wikipedia.org/wiki/Credit_default_swap
2. I mentioned CDO just as an example of "risk analysis" failure by credit rating agencies.
I did this to point what kind of innovation you are talking about in your impressive list of acronyms that you mentioned in your first post.
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I'm sorry for the rant above, those type of comments get me quite emotional.
I would like to point out some things why Bitcoin and especially Gavin Andresen is so interesting:
1. Gavin is a real forward thinking entrepreneur/hacker who is actually not just trying to make headlines to get venture funded, but is actually quietly building infrastructure for his own startup.
2. If his startup fails, we still get the infrastructure (Bitcoin), public gets enormous value even when/if his startup is dead. Thats quite alot of differrence from startups like cuil or colour, where they burn money (value) and almost nothing is left after the failure, except for cautionary tale how not to do things.
3. Bitcoin (if successfull) brings alot competition to financial sector, and if it gains any significant traction it could change the monopolistic practices of currencies issued by nation states.
I would like to point out some things why Bitcoin and especially Gavin Andresen is so interesting:
1. Gavin is a real forward thinking entrepreneur/hacker who is actually not just trying to make headlines to get venture funded, but is actually quietly building infrastructure for his own startup.
2. If his startup fails, we still get the infrastructure (Bitcoin), public gets enormous value even when/if his startup is dead. Thats quite alot of differrence from startups like cuil or colour, where they burn money (value) and almost nothing is left after the failure, except for cautionary tale how not to do things.
3. Bitcoin (if successfull) brings alot competition to financial sector, and if it gains any significant traction it could change the monopolistic practices of currencies issued by nation states.
I'm well aware of why Bitcoin's fans think it's cool. I still don't want to see a Bitcoin article on HN every three days.
Seriously, look at http://searchyc.com/submissions/bitcoin?sort=by_date. There's a couple of people who will upvote everything with Bitcoin in the title, so every last one of these submissions has made it to the front page.
Seriously, look at http://searchyc.com/submissions/bitcoin?sort=by_date. There's a couple of people who will upvote everything with Bitcoin in the title, so every last one of these submissions has made it to the front page.
Sorry that a single Bitcoin link each three days exhausts you. It's been two weeks since my last blog post or submission here. You know why? Because it takes two weeks to put together anything worth reading.
The fact that Gavin was asked (and answered) many of the questions HN-ers have had about escrow and wallet security shows your bias. If having the word "Bitcoin" in the title offends you somehow, please take the time to read what you're bashing so that you can critique it here.
The fact that Gavin was asked (and answered) many of the questions HN-ers have had about escrow and wallet security shows your bias. If having the word "Bitcoin" in the title offends you somehow, please take the time to read what you're bashing so that you can critique it here.
The article is more about the entrepreneur and less about bitcoin.
Also you could make the same argument about Twitter/Apple/Facebook/Google/Android/Node.js before that there was RoR. Are those news(or even PR releases) more valuable than news about Bitcoin?
Also you could make the same argument about Twitter/Apple/Facebook/Google/Android/Node.js before that there was RoR. Are those news(or even PR releases) more valuable than news about Bitcoin?
No kidding. These people are worse than goldbugs, who at least have the largely unalterable and easy-to-understand physical properties of an element on their side.
Well, bitcoin seems to gain fans pretty fast. Some people are extremely fanatic about it. Especially libertarian-type people. I highly doubt that the phenonemon will slow down any time soon.
I hope it takes off. I think it will though, since the early adopters have a vested interest in growing the currency (there never will be more than 21 million BTC in circulation, so acquiring 1000BTC now will never be less than 1/21000 of the currency no matter how popular it becomes).
New exciting things are happening daily on the BitCoin front: http://www.bitcoinnews.com/