Wow -- $1030 per BTC as I write this. This is happening way faster than anyone ever expected.[1]
All else being equal, the more people who decide to use or hold Bitcoin, the higher its price will be, because the maximum number of bitcoins that can ever exist is permanently fixed. It's a scarce commodity by design.
If BTC did become a de facto currency, what's to stop a government printing "I promise to pay the bearer 10BTC" notes, and just carry on "printing money" (I know it's not literally done these days but it's the effect) as they always have done?
The gold standard was broken, can they not have a "bitcoin standard" and then break that in the same way?
Nothing could keep them from doing that, except the unwillingness of users to use the government paper money instead of the real thing.
Gold has to be "converted" to paper to be practical. Bitcoin is already a whole lot more practical than almost any aspect of the modern money infrastructure, so there's no "killer app" for Bitcoin-backed currency.
Banks extend credit money which is backed by reserve currencies. Money may start out as value-based (gold, bitcoins) but eventually a whole credit based economy springs up around it, and we're just where we started.
The "killer app" isn't being able to pay someone quicker. It's going to be the ability to borrow money!
(Although paying someone quicker is already the main reason two people use blockchain.info or something similar to transfer money instantly instead of waiting for a few confirmations. In small amounts you'll see "banking" like this, and then those banks will start lending money on the reserves they have.)
In other words, the same cycle always happens:
1) A value (scarcity) based currency is widely acepted
2) People store it when they aren't using it. They want to earn returns on it.
3) It is lent out by the "banks" to others, keeping a fraction on reserve
4) Governments regulate these reserve requirements and set up central banks which pay interest on the reserves
Now with Bitcoin right now the biggest thing stopping it from being used as a currency and 1-4 to happen is th massive price inflation. Who wants to spend a bitcoin when they can hoard it? Lots of people but apparently more people want to hoard it. Which is understandable because metcalfe's law is going to make ALMOST ALL the cryptocurrencies grow in value.
The good news is that this will make even more merchants accept bitcoin and once its price settles down (it might reach a saturation point only when many many merchants accept it, would be at least $100k a coin by then) then it can be used as a real currency that people really spend.
Bitcoin cannot be fractionally loaned out - if a bank has BTC in reserve and loans it, the transaction goes through and the bank has that much less in reserve. Say they have 100BTC in reserve, and I want a 10BTC loan: they can't just issue a piece of paper saying "here's 10BTC" and only reserve 1BTC (10%) to cover it, they have to transfer the actual amount. So, they can't loan out 10x what they have and profit from the multiplier when collecting interest. They can't pyramid-scheme their way into a major financial bubble. I love this aspect of bitcoin, it neuters the parasites.
> So, they can't loan out 10x what they have and profit from the multiplier when collecting interest.
Sorry, you don't know how a bank works. The bank will borrow from someone else - depositors, other banks. The reserve requirements is how much of their own money they need to have to cover loans, and is a protection against risks, it does not imply that the rest of the money they hand out have been created out of the blue.
Yes, they will collect based on leveraging their capital, borrowing money at lower interest, and profiting from the multiplier.
But as to your scenario where the bank just hands out papers saying "here's 10BTC": In fact, you can already speculate on margin, on Bitcoin by buying Bitcoin CFD's (Contracts for Difference). CFD's means you're never actually owning the underlying security at all (and in fact there's no technical reason why the company you enter a contract with needs to ever own any at all either; whether there are legal reasons may depend on jurisdiction) - you're just, as it says, entering into a contract where you're putting up some cash now to be paid the difference in value over a time period.
I have an account with a company that would me buy Bitcoin CFD's with a 15% margin if I'd like. Meaning for $15, I "get" $100 worth of "here's some bitcoin" "paper" - if those $100 worth of BTC increase to $110, I can sell and get $25 back. Conversely, if they drop to $50, I'd get a nasty margin call to pay the $35 difference.
Gold has survived for thousands of years as a store of wealth. It has intrinsic properties, it is one of nature's unique elements. It cannot be synthetically created.
Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin.
Furthermore, given that there is no intrinsic physical difference between a Litecoin, Freicoin, Bitcoin etc. there is an argument that a P2P currency is the ultimate fiat. The printing presses have just been handed to the public rather than being held by a select few.
Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
Saying that bitcoin isn't scarce because someone could fork the blockchain is like saying that gold isn't scarce because everyone in the world could suddenly agree to start using silver instead.
Limited resource physical commodities vs. a few bytes on your filesystem? This is a ridiculous comparison.
But what people mean when they say you could fork libcoin or something like that is not that Bitcoin isn't scarce. It's more along the lines of "We are in no way beholden to this psychotic black market pyramid scheme currency. We can just start anew with a better dispersement/capping scheme."
> Bitcoin is a great electronic currency, and a real challenge to money transmitters like Western Union, but it is not a store of wealth (in my opinion).
You can store your wealth in any commodity. I can store my value in stocks, gold or BitCoin to hedge against inflation. Just because something doesn't have physical intrinsic properties does not mean it somehow stops being a store of value.
Anything that someone wants to buy and someone wants to sell, that can be stored and transferred, can be a store of value.
>Bitcoin's scarcity is based on a completely fictional and arbitrary hard limit of 21 million which can be changed in a trivial fork such as Litecoin.
Changed in a fork? Yes. Trivial? Not even close. Remember, you have to convince a lot of people to go along with your fork, due to the network effects required to get a new currency off the ground.
The triviality is not bound to the network of people - the valuation is. And yes, the change is also trivial - and that means that once people realize that valuation is just about being first, then by starting another scheme the valuations of all the other will dilute.
Governments money is 'backed up' by the need to pay taxes in it which in the US is a multi trillion a year demand and creates a lot of stability. aka Get paid in bitcoins? The IRS does not care you need to pay taxes in USD which means you need to sell bitcoins and buy USD.
As to being a fixed currency there would be a lot more bitcoins in circulation than actually exist as soon as banks started lending money and no you don't want to try and keep 100+k USD worth of bitcoins secure by your self it's just a fucking bad idea. Which means banks which means loans which inflates the currency. Of course because governments can't print money to bail out banks when they fail you just lose your money anyway and they will fail.
PS: Non private wallet = bank. The reason we don't see loans is because people don't want to borrow money in bitcoins.
Banks lend money they don't have, they cannot do that with Bitcoin because math. Usually their reserves cover a fraction of the loans they give, and they get a massive multiplier benefit. Fortunately, the blockchain won't accept pieces of paper with IOU written on them.
Money in a 3rd party wallet is an IOU as far as the block chain is concerned. Here is how it works you deposit some bitcoins to Bit Bank and the block chain is updated so they now own the and can lend gem out the same day. The borrower would then be able to deposit his coins into Bit Bank II which could then lend them out. Net result is effectively bitcoins from thin air even though there not part of the block chain people act as though they exist which impacts the supply / demand curve.
The bank would have a database somewhere saying "We owe btbuildem 10 BTC". When you make a withdrawal they would take some out of their massive stock and hand them to you. So long as they have enough to cover withdrawals at any given moment they don't need enough to cover if everyone made a withdrawal at once, any more than they do with dollars/pounds/etc.
There is nothing stopping a government from doing that. Anyone with the choice to receive 10 BTC or a 10 BTC fractional reserve-backed note may, however, have a strong preference for the 10 BTC due to a lack of trust of the reserve institution.
Within regulation, you can refuse goods and services to anyone. However, as far as I know, if someone owes you money they can always pay you in an equivalent amount of [local currency]. Isn't that the whole point of a legal tender?
If I lend someone 1 BTC, can I force the borrower to repay me in BTC? How would that even work if the borrower has already spent the BTC?
If you give the borrower a loan priced in BTC, you can attempt to compel them to repay the loan in a BTC-equivalent amount of their local currency. "Legal for all debts, public and private", and all that.
If BTC is to become a reserve currency then it seems to me it would replace/compliment SDR's and precious metals as an international reserve currency and not a national one. In that hypothetical situation BTC solves the Triffin Dilemma for all those who use the USD as a foriegn reserve but the USD would likely still be used in American territory and still backed by confidence (in its ability to be productive and thus pay its debts).
Don't think of it as dollars, think of it as gold (especially when gold was broken down in smaller bits and traded in streets or held in the form of gold bars).
The government will never stop printing money, nor would you want that. Bitcoin's are great for online use, but are traceable (more so than current money). Hence, the government does not mind us using them.
Bitcoin's being used in stores is a complete possibility, but dollars will always be accepted (at least for the next several decades or longer). The current economic system is only sustainable will a currency the government can control. Although I dislike the idea that the government can "print money" unless the economy takes a pretty large pivot (which will take decades) at a gradual rate there will be major issues. If the change into cryptocurrencies is to fast we will see a MAJOR depression.
I would also speculate that the government will come out with it's own form of cryptocurrancy soon enough.
You must be referring to fractional reserve banking and M1 or M2 supply of a currency. There will still be a need for real M0 supply of Bitcoin. There is currently about $3 trillion worth of M0 supply worldwide (any country). That's simply how much is necessary to run the global economy. BTC is of course much more efficient, but we'd still need quite a bit to run any major economic activity.
If at some point chain reaction is triggered (people are not afraid it's another bubble and jump in non-stop until everyone has some coins), then the growth must be not exponential, but even faster.
that's the nature of any pyramid scheme -- the potential cashout of any individual is higher when more money is put into the system without being removed. The funny thing about the Bitcoin scheme is that everyone has the ability for the cashout, it's simply a really complex Game Theory scenario (lol, simply complex).
Still though, the early adopters have a much greater shot at grabbin all the marbles, just people suspect they won't because it's been a while and they still haven't. So either they're
A) Absurdly greedy.
B) Asleep at the wheel.
C) True believers in the idea & want to see it succeed.
D) Cashing out coins periodically enough to give them a decent lifestyle without disrupting the ecosystem.
Here's a thing: in both cases, when Bitcoin is a fraud and joke, and when Bitcoin is a future world-changing technology, price must grow up like crazy. So the price alone does not give us any clue about the nature of Bitcoin. Only analysis of fundamentals and analysis of the econo-political environment we are in can tell us something about value of Bitcoin.
well the thing is.... all economic analyses seem to conclude that it is ridiculous.
The only thing keeping it alive is that people are still willing to buy/trade it. As long as that is the case, it will exist. But I don't agree with this idea that it could be rapidly increasing in price because its "a future world-changing technology". This argument has never made sense to me because it's simply 1 implementation of cryptocurrency and has not even performed its function as such. I'm sure there are better possible versions. In fact, I highly suspect that a better alternative has ALREADY BEEN IMPLEMENTED!
The only reason Bitcoin is the giant that can't be defeated is because of the lure as an investment, and this is all a sham. Early adopters probably are doing "option D" and even though it's somewhat unnoticeable to consumers it is likely sowing the seeds of destruction for the environment. Perhaps because they're abusing users trust by selling for high prices that are bound to crash. I'm not sure... but the point is, eventually people will stop buying when they realize they're paying $1000 for a coin and they don't even know wtf it is.
As you said, only analysis of the fundamentals achieves anything. And these analyses have been done. And can be seen in the market. It's obvious at this point -- Bitcoin is worth what people believe it's worth. Fundamentally, it's nothing. They are sold for cash & then that cash is gone. Spent. The currency doesn't retain anything on it's own. The burden of maintaining the ecosystem stability is passed on to those who now have the money.
Similarly to the way in MLM a salesman's sub-tree is responsible for making the product move, unless they can find another to pass the product along to.
Most of modern economics are bullshit promoting government meddling with money supply. No wonder "economic analysis" says Bitcoin is ridiculous.
When you dismiss Bitcoin by saying it's only there while "people are still willing to buy/trade" you are missing important point. Ask yourself: why people are willing to hold it. Why people are willing to have any money at all: USD, gold, seashells. Are they stupid? Or money gives some utility to them?
The "bullshit" and "government meddling" you decry has almost completely eliminated long-lasting panics and depressions in the industrialized world. Even the most cursory examination of pre- and post-Great Depression economic trends in the West shows that recessions became shallower and less common once governments adopted countercyclical policies.
The aircraft carrier builder could probably give a concrete explanation for why the long boat builder's understanding of buoyancy is flawed, and also demonstrate why his model works better for both his boat and the long boat builder's boat.
Similarly, if you're going to assert that current economic theories don't apply to BTC because it's special, then you better be prepared to follow that up with an enumeration of what those special characteristics are and why they matter. And then you better be prepared to follow that up with a new theory of economics that does a better job of explaining the behavior of both BTC and other currencies as well.
Otherwise it's impossible for others to distinguish a credible objection from wishful thinking. Which is a kind of critical distinction to make, because history tells us that whenever the price of something starts going up rapidly and people start talking about how the economic orthodoxy doesn't apply anymore because this time it's different, nearly 100% of the time what happens next is a tragedy.
> This argument has never made sense to me because it's simply 1 implementation of cryptocurrency and has not even performed its function as such. I'm sure there are better possible versions. In fact, I highly suspect that a better alternative has ALREADY BEEN IMPLEMENTED!
Quality of an implementation doesn't imply success. Success also depends on other factors.
History is full of examples (e.g. Betamax).
Plus, it's very naive to assume that a Bitcoin is nothing because the only things that gives it value is the belief of people. Belief of people has value.
Plus, it's not clear how long the prices will rise, and if something's going to happen in the meanwhile (e.g. more shops accepting it).
If it's a bubble, it can't be said with certainty until the bubble bursted.
> Fundamentally, it's nothing. They are sold for cash & then that cash is gone. Spent. The currency doesn't retain anything on it's own. The burden of maintaining the ecosystem stability is passed on to those who now have the money.
This is why the real world currencies which arent "backed by anything" still make people wake up at 6 every morning, drag around for 9-10 hours of the day and then spend those on food and cover. The us/eur currencies have the value of the social contracts that are based and exchanged due to these currencies. The value comes from making people do things for it, and cash seems to be doing that quite well even if it isnt backed by anything.
What Im trying to get at, its the social contracts that exist in the millions - employer employee government - that make up and back up the value of any currency.
For BTC to succeed as a currency, people need to exchange their goods and services for it, especially their time, their work. It isnt enough to buy or sell ready-made goods, its the producers that need to be payed in bitcoin, only then a real revolution can happen.
Frankly, I have a hard time seeing how such a transformation could or would happen - for people to start getting payed in BTC. A company cant just do that, they have taxes and laws to follow.
yep agreed here. a lot of the responses i've been getting are intelligence-insulting "that's how all money works" "economics is flawed blah blah" but i think the fact is -- these things are taken into account.
Currency can exist purely through the means of social contract, I'm in total agreement with that. But Bitcoin's volatility is not exactly "good PR" unless people are actually delusional enough to believe that the value is massively increasing because it's "clever and people are beginning to understand it". It's soaring because it's clever and people don't get it at all.
Given all of the shady baggage and investment scheming associated with the ecosystem I don't think it will ever reach the level of widespread social contract.
it's not that I love the dollar or anything it's just that the dollar is an agreed upon currency and Bitcoin is still just a trading market. Since it's yet to be proven that it's performing its stated purpose (transactional currency), there's no reason why the market for it won't just disappear one day with a crash so bad that selling at a loss isn't even possible -- the faith is just gone.
Thinking more about this, I find a good measure of a success of a currency is to just look at how much of your monthly transactions are conducted with said currency.
Now I believe a persons wage is the biggest monthly transaction they perform - work and monthly wage pays out, in what currency?
When bitcoin reaches that point, if ever, where employers pay their employees and taxes in BTC. Then its a currency. Now its a speculative bubble - for which it may still be a good idea to get behind and compete with all the other gamblers.
you may be able to make some money it's true but I think if you believe it to be a ponzi scheme it is immoral to get involved. that's my basic stance. I can live life just fine without it
You should take into account that if things go as usual, there will probably be a crash in the next few days, leaving the price around $500 for a while.
Never, never pay attention to what the market is doing. … Stay away from the crowd. “A good time to start in [the investing] business is when markets are terrible…." A classic value investor looks at a price drop of a stock
they like as a chance to buy more, whereas the ordinary investor may panic and sell.
Wow! I remember PG's wrote in one of his essays "What hackers are using today will be used by regular people in 10 or so years." Though BTC is statistically yet to claim the status of being used by "regular" people, it has certainly passed the early adopter status it seems.
Or they immediately bough more bitcoin to replace the bitcoins they used. Or they had so many bitcoins that they're happy with the price rise and the purchases were insignificant.
Unless all of your wealth is already in Bitcoin then buying something with bitcoin isn't really any different than not buy butcoins with your other currency.
Really not sure why I can't reply to dragontamer, but yes, the 10000 BTC was worth it. It's one of the reasons why one BTC is worth $1000 today. Without this transaction we probably wouldn't be talking about it.
FYI: Click on "link" and it is always possible to reply to someone. Usually, you are locked out of responding directly to someone for a few minutes. (The Hacker News way of talking is... bothersome. It is very difficult to hold quality conversations here).
So clearly, YOU value the fact that someone paid BTC for pizza two years ago. And you continue to value the fact that people are spending BTCs as a currency.
But can you not see that this dramatic rise in prices discourages future spending? Will you buy a pizza today for 1 BTC? For 0.01 BTCs? Or are you going to continue to hoard BTCs and hope the bubble goes even higher?
People spending BTCs is the true value of Bitcoin, and the promise of the future. I'm worried what will happen when people stop spending BTCs because they've all turned into speculators.
Yes, I find it fascinating that a large number of people appear to want to live in a deflationary world when all instances of such that I am aware of have been economic basket-cases.
As soon as BTC crashes, they'll all be gone. But the BTC Enthusiasts will carry forward, and hopefully learn that encouraging this kind of speculation is harmful to the "currency" that they wish to create.
I do think cryptocurrency has a future. However, the current price bubble is a _failure_ of BTC, not a success story. The only ones happy are speculators.
I think the apparent alternative cryptocurrency is one that does NOT have a fixed supply and thus has stable inflation built into it, the puzzle of course is solving the problem of creating the math that can act in that way that can not be disrupted by an unexpected advance in computing power.
Or you know, when people simply recognize that BTC miners are the "governing body" of BTC rules and regulations, and realize that to solve this issue is as simple as changing the rules of BTC so that the rate of inflation is more sane.
But as long as BTCs are touted as a anarcho-capalistic wet-dream, no one will wish to see the truth. BTC Miners are the government. They can change the "law of BTC" extremely easily.
Can they? (This is an actual technical question...)
I was under the impression that they couldn't. But yeah, it's shocking that people idolize the core devs even though they set up a failing system. My best idea I think was to set up a cryptocurrency that is 1:1 with the dollar, therefore if you need to print more you do it by well... putting some $$ in the vault and dumping the equivalent amount of units into the ecosystem.
Bitcoiners seem to hate the idea of using the dollar for stabilization though. It's an affront to the power of imagination and the aforementioned "anarcho-capalistic wet-dream".
Incidentally, Ripple seems to be an implementation of what I'm interested in. Yet for SOME GODDAM REASON I DO NOT UNDERSTAND, their internal cryptocurrency (XRP) has some dumbass dispersement scheme too.
It's not exactly easy for miners to change the rules of Bitcoin because those rules are also verified by non-miners. The software would have to be updated.
Nobody has figured out a decentralized way to peg a cryptocurrency against some external price. You can't really measure the price that other people are paying in trades; you basically have to take their word for it, which means they would lie if it was in their interest.
Non-miners follow one rule and one rule only: Follow the longest blockchain.
That is it. Miners build the block chain. The most powerful computers working together build longer-blockchains (on the average). If a blockchain fork were to happen (again, like back in March: http://bitcoin.org/en/alert/2013-03-11-chain-fork), the miners can simply "vote" on which blockchain they want to keep.
Non-miners have no say in the matter. The BTC protocol says to trust the longest blockchain, and that is going to stay for the rest of BTC.
Thats why I consider the miners to be the governing body of BTC. If Miners wish to build blacklists and stop stolen BTC from going through the network, they can do so. If Miners wish to change the rules of BTC, they can do so (once more than 50% of miners agree... their blockchain will ultimately grow faster than the rest of the miners, which forces the network to conform to their rules).
I think non-miners also verify things like the coinbase transaction creating the right number of BTC (25). So if miners all decided to give themselves a raise, non-miners would treat those blocks as invalid. Crucially, the exchanges are non-mining full nodes.
It seems to me that the incentive to hoard is counter-balanced by the seller's incentive to lower prices and invest themselves, causing the two to meet in the middle.
Can you cite a real-world example of a deflationary "economic basket case"?
It's more accurate to say "increasing prices lead to higher adoption." It's a classic bubble. Remember in the early 2000s with people buying houses because "house prices have never gone down nationally?"
A bubble will not lead to adoption. As I said it is negative for people actually wanting to use it. If by "use" you mean participate in a pump and dump scheme, well sure. You don't need a cryptocurrency for that, you just need sufficient stupid people with cash to burn.
But people expect BTC prices to go down at any time. They also expect it to recover, so who knows. It brings to mind Peter Thiel's recent comment about "the idea of money being a bubble which never ends." Of course, never say never, but until then...
Because increasing price will raise its visibility and attract more people to invest in bitcoins - and the more people hold bitcoins the more merchants will want to accept them
Most exchanges will ask you to buy at least $1 worth of bitcoins so that pushes your figure to about 0.001 BTC as a minimum purchase. However, you can certainly use them with up to 8 decimal places.
All else being equal, the more people who decide to use or hold Bitcoin, the higher its price will be, because the maximum number of bitcoins that can ever exist is permanently fixed. It's a scarce commodity by design.
So, greater adoption = higher price.
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[1] In early 2011, I speculated it could take a decade for price to reach the thousands of US dollars per Bitcoin: http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt...