The Bitcoin

[Kahn Zordlon]

I bought a book from Mises.org. I made a donation to a website, and I use it to play poker.

[thejeff]

Kahn Zordlon wrote:

Hi Orfamay,

I think we have a fundamental difference of opinion. You seem to think that government regulations are superior to the functioning of currency exchange than the market. (Correct me if I'm wrong) I enjoy and support BTC because it is free from regulations that I see as inferior to market forces.

Yes the FDIC saves assets of bank customers, and apparently the government can bail out the banks when they fail. I don't see that being "nonsense". That is a conflict of interest. Mt. Gox and it's successors know if they fail they fail. So do the customers. With banks I know my assets are backed up and the bank itself may get a handout if it makes any bad decisions.

While you're assets are protected up to a point, banks fail all the time without government bailouts.

It's only when they reach a big enough scale to affect the economy as a whole that they get rescued. If a Bitcoin company(market?/place?/thing?) was as big as a major national bank and stood the same chance of taking the economy down with it, they'd get rescued to.

So if you want a bank that won't get a bailout, pick a small local bank or credit union.

[Orfamay Quest]

Kahn Zordlon wrote:

Yes the FDIC saves assets of bank customers, and apparently the government can bail out the banks when they fail. I don't see that being "nonsense".

What makes that "nonsense" is that you're conflating two separate programs as though they're linked at the hip.

Yes, the FDIC saves assets of bank customers. That's what insurance companies do; in that regard, the FDIC is no different than any other insurance company, except that the FDIC is publically managed instead of privately managed. It would be possible (in theory) for a private third party to step in and insure the financial sector against catastrophic failure, but in practice, since the group that would be handling that level of insurance is the financial sector itself, the task falls to the public sector instead.

And, frankly, I don't think there's a single thing you can actually point to about the FDIC that suggests they've been in anyway remiss in their handling of their responsibilities, which puts them one up on the private sector -- and they've managed to be completely self-funding while doing so, which again puts them one up on the private sector.

The government (broadly speaking) also has, independently, the authority to do literally anything it wants in the interests of national security -- this could be a bailout of the banks, of a major auto company, or of a major hamburger chain. Or they could not bail these people out.... which is what they tried to do (which is why the government let Lehman Brothers fail) and the bottom promptly fell out of the economy, and it's not clear that we've fully recovered even today.

So there's no conflict of interest involved; the bailout of the banks had nothing to do with the FDIC insurance. And if you have issues with the bailout of the banks, then you clearly don't understand what the alternatives to the bailout would have entailed.

So, yeah, I stand by my characterization of of "errant nonsense." I'd also like to add to that "ill-informed" and "dangerous."

[Orfamay Quest]

thejeff wrote:

So if you want a bank that won't get a bailout, pick a small local bank or credit union.

Although why I would want a bank that won't get a bailout is beyond me. Risk in the financial market is something I generally want to avoid, or at least be compensated for. If you offer me an AAA rated bond at the same interest rate as a BBB rated bond, I'm generally not going to pick the bond with the higher default risk unless there's something strange going on that I don't think the rating agency knows about.

Given a choice between a bank with FDIC insurance for my deposits and a bank-like entity without FDIC insurance, all else being equal, I'd take the insured bank. I don't want my money disappearing without trace.

Similarly, I don't like the idea that my bank can make bad decisions and leave me in the lurch with no recompense. If I can't regulate my bank into not making bad decisions, I can at least rely on the government to regulate the bank into making allowance for risk.

The idea that "risky is better" is absolutely counterfactual.

The best you can hope for is that "risky" carries with it some countervailing advantage -- yes, there's a higher downside, but there's (independently) a better upside that more than makes up for the risk. (In the financial services industry, people talk about a "risk premium," and that's exactly what they mean by it -- the additional money they need to pay people like me in order to assume a bigger risk.) And it's not clear to me what MtGox offered me -- no, let me rephrase that. MtGox offered literally nothing to offset the risk that the Bitcoins entrusted to them would evaporate like fairy gold. And to any sensible person, that's bad.

[thejeff]

Orfamay Quest wrote:

thejeff wrote:

So if you want a bank that won't get a bailout, pick a small local bank or credit union.

Although why I would want a bank that won't get a bailout is beyond me. Risk in the financial market is something I generally want to avoid, or at least be compensated for. If you offer me an AAA rated bond at the same interest rate as a BBB rated bond, I'm generally not going to pick the bond with the higher default risk unless there's something strange going on that I don't think the rating agency knows about.

Given a choice between a bank with FDIC insurance for my deposits and a bank-like entity without FDIC insurance, all else being equal, I'd take the insured bank. I don't want my money disappearing without trace.

You just dropped the distinction between FDIC insurance and bailout that you were just making.

I can see the position that you want the FDIC insurance, but that you also want the bank to know they won't get bailed, either because you're philosophically opposed to government rescuing business or because you think a company will conduct itself better if it knows there's no safety net.
Luckily, you can have both. Many banks aren't "Too big to fail", but are still FDIC insured.
Hypothetically, you could have the worst of both worlds. A hypothetical huge version of MT. Gox could lack investor insurance AND be big enough to threaten the economy.

[Scott Betts]

Kahn Zordlon wrote:

Bitcoin is simple to exchange*.

* in an incredibly limited set of use cases.

[Scott Betts]

I think that about sums up half of this thread.

[Orfamay Quest]

thejeff wrote:

Orfamay Quest wrote:

thejeff wrote:

So if you want a bank that won't get a bailout, pick a small local bank or credit union.

Although why I would want a bank that won't get a bailout is beyond me. Risk in the financial market is something I generally want to avoid, or at least be compensated for. If you offer me an AAA rated bond at the same interest rate as a BBB rated bond, I'm generally not going to pick the bond with the higher default risk unless there's something strange going on that I don't think the rating agency knows about.

Given a choice between a bank with FDIC insurance for my deposits and a bank-like entity without FDIC insurance, all else being equal, I'd take the insured bank. I don't want my money disappearing without trace.

You just dropped the distinction between FDIC insurance and bailout that you were just making.

Fair enough. They are indeed two separate issues. I want my bank to have FDIC insurance. I also want the economy to have bailouts if necessary, because if Lehman Brothers Mark II crashes and takes out the world economy, that's bad even if I'm not a shareholder there.

Quote:

I can see the position that you want the FDIC insurance, but that you also want the bank to know they won't get bailed, either because you're philosophically opposed to government rescuing business or because you think a company will conduct itself better if it knows there's no safety net.

Quote:

Hypothetically, you could have the worst of both worlds. A hypothetical huge version of MT. Gox could lack investor insurance AND be big enough to threaten the economy.

In which case, the government could still bail it out -- after all, the government bailed out both Chrysler in 1979 and GM more recently, and neither of them are banks. Of course, the price of the bailout would probably a complete loss of autonomy for MtGox, which would infuriate privacy activists.

[thejeff]

Orfamay Quest wrote:

thejeff wrote:

Orfamay Quest wrote:

thejeff wrote:

So if you want a bank that won't get a bailout, pick a small local bank or credit union.

Although why I would want a bank that won't get a bailout is beyond me. Risk in the financial market is something I generally want to avoid, or at least be compensated for. If you offer me an AAA rated bond at the same interest rate as a BBB rated bond, I'm generally not going to pick the bond with the higher default risk unless there's something strange going on that I don't think the rating agency knows about.

Given a choice between a bank with FDIC insurance for my deposits and a bank-like entity without FDIC insurance, all else being equal, I'd take the insured bank. I don't want my money disappearing without trace.

You just dropped the distinction between FDIC insurance and bailout that you were just making.

Fair enough. They are indeed two separate issues. I want my bank to have FDIC insurance. I also want the economy to have bailouts if necessary, because if Lehman Brothers Mark II crashes and takes out the world economy, that's bad even if I'm not a shareholder there.

Quote:

I can see the position that you want the FDIC insurance, but that you also want the bank to know they won't get bailed, either because you're philosophically opposed to government rescuing business or because you think a company will conduct itself better if it knows there's no safety net.

Quote:

Hypothetically, you could have the worst of both worlds. A hypothetical huge version of MT. Gox could lack investor insurance AND be big enough to threaten the economy.

In which case, the government could still bail it out -- after all, the government bailed out both Chrysler in 1979 and GM more recently, and neither of them are banks. Of course, the price of the bailout would probably a complete loss of autonomy for MtGox, which would infuriate privacy activists.

Of course. And they would, if the likely consequences were high enough. There's nothing magic about Bitcoin that makes companies immune to government intervention.

[Vod Canockers]

thejeff wrote:

Of course. And they would, if the likely consequences were high enough. There's nothing magic about Bitcoin that makes companies immune to government intervention.

Except which government bails it out? Right now no government has enough interest in Bitcoin to care if it succeeds or fails, and most likely they want it to fail. Governments want control over money, and Bitcoin is the opposite of that.

[thejeff]

Vod Canockers wrote:

thejeff wrote:

Of course. And they would, if the likely consequences were high enough. There's nothing magic about Bitcoin that makes companies immune to government intervention.

Except which government bails it out? Right now no government has enough interest in Bitcoin to care if it succeeds or fails, and most likely they want it to fail. Governments want control over money, and Bitcoin is the opposite of that.

Right now? No one. Just like no one will bail out your neighborhood bank.

But that's because they're both too small to threaten a major economy. If Bitcoin really catches on and some Mt Gox like operation held trillions of dollars in value and that value vanishing like Mt Gox did would bring down other major firms and trash the rest of the economy, then they couldn't let it happen. They'd be Too Big To Fail, just like the big banks. At that point, it's not about controlling the money, it's about protecting the economy.

Most likely it'll never get that far because Bitcoin will never get big enough and none of the Bitcoin exchanges will ever pose a real economic threat if they collapse. I'm just pointing out that's not a distinguishing feature between them and banks. If you don't want to do business with a company that'll rely on government bailouts, you might as well just stick with small local banks or better yet credit unions.

[Orfamay Quest]

Vod Canockers wrote:

thejeff wrote:

Of course. And they would, if the likely consequences were high enough. There's nothing magic about Bitcoin that makes companies immune to government intervention.

Except which government bails it out?

Any government that felt threatened enough by an impending collapse of one of the major BitCoin exchanges, and most probably the one that had jurisdiction over it. This isn't unprecedented -- Credit Suisse got a substantial slice of TARP funds in 2008-9, IIRC.

Which means right now, no one. And probably no one ever because Bitcoin is probably going to collapse. But if it did become a major financial player, it would be in the same position as any other financial player.

Quote:

Governments want control over money, and Bitcoin is the opposite of that.

Which is a very good reason why the government would "bail out" a major Bitcoin exchange. As part of the legislation, they'd (secretly) demand the keys of the exchange and all the clients.

[Klaus van der Kroft]

Now we have Dogecoin, which is being accepted at -some- bitcoin-handling sites already.

Maybe MiB's buttcoins aren't that far off.

[Kahn Zordlon]

Dogecoin seems to be in the early stages of getting the coins distributed over the internet. From a brief reading it seems as if they have an interesting method of doing so. In addition to mining, the site is encouraging exchange based on something like a facebook like, or this webpage's like, but in doing so you "tip" with some of these coins.

[Caineach]

Is dogecoin the one made up by 4chan, or is that something else?

[Krensky]

Meet the new tulip, same as the old tulip.

[Orfamay Quest]

Krensky wrote:

Meet the new tulip, same as the old tulip.

I doubt it.

It takes a certain special kind of mind to say "well, Bitcoin itself turned out to be a total failure, but this Bitcoin-clone -- Buttcoin -- is obviously going to make it." Especially since there are something like 100 different and therefore competing cryptocurrencies out there, none of which have anything like Bitcoin's name recognition or market domination.

Should I pour my resources into Litecoin, Namecoin, Peercoin, Primecoin, or Feathercoin? Or maybe Mastercoin? Ripple? Cryptocoin? Dogecoin? DragonCoin? Boskoin?

If you answered "None of the above," you're probably displaying the appropriate amount of skepticism.

[Andrew R]

caineach, yes it is

[Klaus van der Kroft]

Orfamay Quest wrote:

Krensky wrote:

Meet the new tulip, same as the old tulip.

I doubt it.

It takes a certain special kind of mind to say "well, Bitcoin itself turned out to be a total failure, but this Bitcoin-clone -- Buttcoin -- is obviously going to make it." Especially since there are something like 100 different and therefore competing cryptocurrencies out there, none of which have anything like Bitcoin's name recognition or market domination.

Should I pour my resources into Litecoin, Namecoin, Peercoin, Primecoin, or Feathercoin? Or maybe Mastercoin? Ripple? Cryptocoin? Dogecoin? DragonCoin? Boskoin?

If you answered "None of the above," you're probably displaying the appropriate amount of skepticism.

But that doesn't mean some people won't find a use for it. Bitcoin, even if it's now showing its weaknesses and risks, still made a lot of money for some of those who dabbled in it, and there seems to be no specific condition forbidding a Buttcoin from doing the same. New strategies will be developed, old strategies will be reused, and a cycle will start again (probably a lot of parallel cycles are already starting/going on).

Whether that will ultimately lead to a crisis of the system or push it toward a more structurally stable form, remains to be seen.

[thejeff]

And by strategies, you mean get in early and cash out before the crash right? Like any speculative bubble.

You can't run that game too many times in close succession in the same market.

[Orfamay Quest]

Klaus van der Kroft wrote:

But that doesn't mean some people won't find a use for it. Bitcoin, even if it's now showing its weaknesses and risks, still made a lot of money for some of those who dabbled in it, and there seems to be no specific condition forbidding a Buttcoin from doing the same.

I'd say a relative lack of "greater fools" to sell Buttcoins to would be pretty specific. I would also say competition between Buttcoins and the other coins would also be pretty specific.

Bitcoin had the advantages of a huge public profile and being first-to-market by something like two years; this in turn gave it a roughly 70-80% market share in the digital currency market. And it happened before the risks had been so clearly demonstrated, or in other words, when it was still possible to be ignorant of the reality of the risks. It was also operating in a much more lax regulatory environment before the Fed raided Silk Road.

I don't think anything else will be able to establish that kind of commanding position -- and I don't think the post-Bitcoin market will be anything as large.

[Vod Canockers]

If Bitcoin or any of these other "moneys" want to truly succeed, they need to appeal to the average consumer, not just speculators and anarchists and libertarians.

[thejeff]

But there is fundamentally no appeal for the average consumer. The average consumer wants stuff. He doesn't care what medium of exchange he uses to get that stuff.

[Orfamay Quest]

Vod Canockers wrote:

If Bitcoin or any of these other "moneys" want to truly succeed, they need to appeal to the average consumer, not just speculators and anarchists and libertarians.

The same could be said of a fast food chain called Wine and Anthrax. It's basically a truism that if you want to succeed, you need to appeal to a wide range of consumers.

And one of the hardest things for a startup businessman to do is to realize that the public doesn't want what they're offering and to abandon the flagship product line. A small California company started out offering tents, and didn't do well -- the clients didn't want tents, they wanted trousers. You may have heard of Levi Strauss & Co., but I don't think I've ever slept in one of their tents.

I already posted an analysis earlier that suggests that Bitcoin fills fewer consumer needs than the Ghanan cedi. I don't think anything has changed since then, except that it was confirmed that Bitcoin is run by a decentralized kleptocracy.

So what appeal can there be?

[Vod Canockers]

Orfamay Quest wrote:

Vod Canockers wrote:

If Bitcoin or any of these other "moneys" want to truly succeed, they need to appeal to the average consumer, not just speculators and anarchists and libertarians.

The same could be said of a fast food chain called Wine and Anthrax. It's basically a truism that if you want to succeed, you need to appeal to a wide range of consumers.

And one of the hardest things for a startup businessman to do is to realize that the public doesn't want what they're offering and to abandon the flagship product line. A small California company started out offering tents, and didn't do well -- the clients didn't want tents, they wanted trousers. You may have heard of Levi Strauss & Co., but I don't think I've ever slept in one of their tents.

I already posted an analysis earlier that suggests that Bitcoin fills fewer consumer needs than the Ghanan cedi. I don't think anything has changed since then, except that it was confirmed that Bitcoin is run by a decentralized kleptocracy.

So what appeal can there be?

Ease of use, "universal" acceptance, portability, stability, and to some extent untraceableness (almost everyone buys something that they don't really want others to know they are buying whether it is illegal or just embarrassing).

[Scott Betts]

Vod Canockers wrote:

Ease of use, "universal" acceptance, portability, stability, and to some extent untraceableness (almost everyone buys something that they don't really want others to know they are buying whether it is illegal or just embarrassing).

So far, it really only manages to capitalize on untraceableness and portability. And the latter is questionable.

[Krensky]

So's untraceablity.

[Orfamay Quest]

Vod Canockers wrote:

Orfamay Quest wrote:

I already posted an analysis earlier that suggests that Bitcoin fills fewer consumer needs than the Ghanan cedi. I don't think anything has changed since then, except that it was confirmed that Bitcoin is run by a decentralized kleptocracy.

So what appeal can there be?

Ease of use, "universal" acceptance, portability, stability, and to some extent untraceableness (almost everyone buys something that they don't really want others to know they are buying whether it is illegal or just embarrassing).

The problem, of course, is that Bitcoin provides NONE of those things, with the possible exception of portability. They're NOT easy to use (walk into Wal*Mart and buy something with Bitcoins), while my Visa card is usable nearly world-wide. They're not especially portable; I need to either carry around an expensive computer with me, or an expensive Internet. If the power goes down, so does my money. Stability is laughable,... and the untraceableness has been shown to be relatively easy to breach.

On the other hand, any physical currency has all of those characteristics --- all of them to a much greater extent than Bitcoin.

Long live the Ghana cedi!

[Klaus van der Kroft]

thejeff wrote:

And by strategies, you mean get in early and cash out before the crash right? Like any speculative bubble.

You can't run that game too many times in close succession in the same market.

Orfamay Quest wrote:

Klaus van der Kroft wrote:

But that doesn't mean some people won't find a use for it. Bitcoin, even if it's now showing its weaknesses and risks, still made a lot of money for some of those who dabbled in it, and there seems to be no specific condition forbidding a Buttcoin from doing the same.

I'd say a relative lack of "greater fools" to sell Buttcoins to would be pretty specific. I would also say competition between Buttcoins and the other coins would also be pretty specific.

Bitcoin had the advantages of a huge public profile and being first-to-market by something like two years; this in turn gave it a roughly 70-80% market share in the digital currency market. And it happened before the risks had been so clearly demonstrated, or in other words, when it was still possible to be ignorant of the reality of the risks. It was also operating in a much more lax regulatory environment before the Fed raided Silk Road.

I don't think anything else will be able to establish that kind of commanding position -- and I don't think the post-Bitcoin market will be anything as large.

Oh, by all means; I' don't think it's a reasonable nor structurally sustainable strategy. But just as news of the Bitcoin crash are seeping into the general audience (my parents just asked me about them two weeks ago for the first time. And keep in mind my mom is the kind of user that, during the computer lessons she took, still wrote the notes on paper), so are news of how spectacularly rich some people -allegedly- got with them.

If there is one thing I've learned throughout my career in finances (although nowadays I use it mostly to grow crops and sell gourmet food to the Japanese and Brasilians), is that most people have very short memories when it comes the moment of evaluating negative risks, while very active imaginations when it's the time to evaluate possitive risks.

I'm sure a lot of the people who suffered with the Bitcoins will be wary of the Buttcoin, but the same media coverage the system is getting from it's bubble is, I think, going to attract more people into the next thing that comes out saying "Buttcoins: Like Bitcoins, but this time they work!". I'm not saying they will be actually any more stable than Bitcoins (though I don't know enough about their intricacies to fully assert that they won't), but "Guy pays 30 bucks for bitcoins, two years later buys a condo" is probably going to stick longer than "Shady Bitcoin bank corners the market and creates a catastrophic bubble".

Part of this is because of the nature of cryptocurrencies, in my rather amateurish opinion when it comes to such things: They are comparatively easy to establish and create; people can buy into them from the comfort of their seats/toilets; governments still can't decide how to regulate them or even if to regulate them at all (I think it was the Japanese Central Bank the one who basically said "We have no idea how to handle these things, because there is no precedent in the law"). That means the entry barrier is low enough for people who have no idea what they are doing (or, worse, people who have a mistaken idea of what they are doing) to jump into the next Buttcoin, which in turn creates a tempting enough fishing bowl for those who do know how to handle the market to cash from it.

While I agree that you can't fool the same market too many times in rapid succession, I don't think we know what the actual market for future Bitcoin-likes is going to be. Additionally, if the market doesn't really know how they got fooled the first time, it's hard to expect it will know how to defend the next time. And people will still want to make money, so you are bound to get someone investing and thinking they got it sorted out. Until they don't.

[Kahn Zordlon]

*casts raise dead*

Some really interesting posts in this thread, I think it has a few more levels to go before retiring.

Bitcoin: $587

[Alex Smith 908]

Klaus van der Kroft wrote:

Part of this is because of the nature of cryptocurrencies, in my rather amateurish opinion when it comes to such things: They are comparatively easy to establish and create; people can buy into them from the comfort of their seats/toilets; governments still can't decide how to regulate them or even if to regulate them at all (I think it was the Japanese Central Bank the one who basically said "We have no idea how to handle these things, because there is no precedent in the law"). That means the entry barrier is low enough for people who have no idea what they are doing (or, worse, people who have a mistaken idea of what they are doing) to jump into the next Buttcoin, which in turn creates a tempting enough fishing bowl for those who do know how to handle the market to cash from it.

This isn't really true though. The government can regulate things simply by how cumbersome it is to exit the bitcoin market or to securely exchange coins. New York for example just passed laws that require exchanges to comply with all the same regulations as normal banks. This effectively shut down a lot of activity in New York because it eliminates the illusion of anonymous transactions that bitcoin has and makes running exchanges less profitable. If you aren't using an exchange you're trading coins person to person which is about as secure as Craigslist, due to bitcoin having 0 fraud protection or ability to cancel accidental/wrong transactions. The government can't really regulate these person to person exchanges but really they offer no benefit over cash and are more traceable than cash if the government ends up learning your wallet information.

In the end bitcoin is just a worse version of disposable credit cards.

[thejeff]

Alex Smith 908 wrote:

Klaus van der Kroft wrote:

Part of this is because of the nature of cryptocurrencies, in my rather amateurish opinion when it comes to such things: They are comparatively easy to establish and create; people can buy into them from the comfort of their seats/toilets; governments still can't decide how to regulate them or even if to regulate them at all (I think it was the Japanese Central Bank the one who basically said "We have no idea how to handle these things, because there is no precedent in the law"). That means the entry barrier is low enough for people who have no idea what they are doing (or, worse, people who have a mistaken idea of what they are doing) to jump into the next Buttcoin, which in turn creates a tempting enough fishing bowl for those who do know how to handle the market to cash from it.

This isn't really true though. The government can regulate things simply by how cumbersome it is to exit the bitcoin market or to securely exchange coins. New York for example just passed laws that require exchanges to comply with all the same regulations as normal banks. This effectively shut down a lot of activity in New York because it eliminates the illusion of anonymous transactions that bitcoin has and makes running exchanges less profitable. If you aren't using an exchange you're trading coins person to person which is about as secure as Craigslist, due to bitcoin having 0 fraud protection or ability to cancel accidental/wrong transactions. The government can't really regulate these person to person exchanges but really they offer no benefit over cash and are more traceable than cash if the government ends up learning your wallet information.

In the end bitcoin is just a worse version of disposable credit cards.

Well, he didn't say governments could regulate them, just that they couldn't decide how to regulate them. It's a bureaucratic problem, not a technical one.

In the end Bitcoin is really just a pyramid scheme. A speculator's game where the early entries make a bundle and the late adopters get screwed.

[Andrew R]

I still say any bank "too big to let it fail" is just too big to exist.

[Quark Blast]

Regarding an earlier comment on the value of the dollar.

The US Dollar ($) has value because the global oil trade is conducted in US Dollars. When that stops the US Dollar will be worth considerably less than it is now.

Bitcoins are worth something because:
1) They are a transparently delimited "resource", and
2) The users of the Bitcoin contractually agree that it has value.

There are other factors in play but they mostly affect the two just listed. For example, (illegally) mining Bitcoin via cloud computing or, a general distrust of governments the world over or, certain shady enterprises that benefit inordinately from a relatively poorly understood/regulated means of barter, etc.

[Quark Blast]

Andrew R wrote:

I still say any bank "too big to let it fail" is just too big to exist.

Anything that can happen will.

[thejeff]

Quark Blast wrote:

Regarding an earlier comment on the value of the dollar.

The US Dollar ($) has value because the global oil trade is conducted in US Dollars. When that stops the US Dollar will be worth considerably less than it is now.

Bitcoins are worth something because:
1) They are a transparently delimited "resource", and
2) The users of the Bitcoin contractually agree that it has value.

There are other factors in play but they mostly affect the two just listed. For example, (illegally) mining Bitcoin via cloud computing or, a general distrust of governments the world over or, certain shady enterprises that benefit inordinately from a relatively poorly understood/regulated means of barter, etc.

Not to mention hype and speculation.

[Andrew R]

Quark Blast wrote:

Regarding an earlier comment on the value of the dollar.

The US Dollar ($) has value because the global oil trade is conducted in US Dollars. When that stops the US Dollar will be worth considerably less than it is now.

Bitcoins are worth something because:
1) They are a transparently delimited "resource", and
2) The users of the Bitcoin contractually agree that it has value.

There are other factors in play but they mostly affect the two just listed. For example, (illegally) mining Bitcoin via cloud computing or, a general distrust of governments the world over or, certain shady enterprises that benefit inordinately from a relatively poorly understood/regulated means of barter, etc.

The bitcoin has value ONLY because someone says it does and someone willing to take them agrees.

Really not so different than fiat currency of governments except the government backs it's and millions agree to the value.

[Kahn Zordlon]

I reread thead, I've resurrected this thread more than my strength dumped thief on the shadow plane.
I recently had a discussion with a precious metals dealer and asked him about bitcoin. He said it was a derivative. Earlier in the thread there was discussion about exchange values from tulips to Zimbabwe and back. Anyone that posts a bitcoin address in this thread may get a small btc gift.

[Quark Blast]

Andrew R wrote:

Quark Blast wrote:

Regarding an earlier comment on the value of the dollar.

The US Dollar ($) has value because the global oil trade is conducted in US Dollars. When that stops the US Dollar will be worth considerably less than it is now.

Bitcoins are worth something because:
1) They are a transparently delimited "resource", and
2) The users of the Bitcoin contractually agree that it has value.

There are other factors in play but they mostly affect the two just listed. For example, (illegally) mining Bitcoin via cloud computing or, a general distrust of governments the world over or, certain shady enterprises that benefit inordinately from a relatively poorly understood/regulated means of barter, etc.

The bitcoin has value ONLY because someone says it does and someone willing to take them agrees.

Really not so different than fiat currency of governments except the government backs it's and millions agree to the value.

Right, and the only reason the US Dollar held up through the most recent global financial crisis was the fact that the world's energy supply is traded in US Dollars.

Currencies fail not infrequently and when they do they get inflated back into use. That won't happen with the US Dollar unless and until it gets decoupled from the global oil trade.

Bitcoin seems a bit pyramidy to me too (@thejeff) but at least it's a transparently delimited resource. It's value can still fluctuate but it is inherently more stable than any global currency except the US Dollar.

[thejeff]

Quark Blast wrote:

Andrew R wrote:

Quark Blast wrote:

Regarding an earlier comment on the value of the dollar.

The US Dollar ($) has value because the global oil trade is conducted in US Dollars. When that stops the US Dollar will be worth considerably less than it is now.

Bitcoins are worth something because:
1) They are a transparently delimited "resource", and
2) The users of the Bitcoin contractually agree that it has value.

There are other factors in play but they mostly affect the two just listed. For example, (illegally) mining Bitcoin via cloud computing or, a general distrust of governments the world over or, certain shady enterprises that benefit inordinately from a relatively poorly understood/regulated means of barter, etc.

The bitcoin has value ONLY because someone says it does and someone willing to take them agrees.

Really not so different than fiat currency of governments except the government backs it's and millions agree to the value.

Right, and the only reason the US Dollar held up through the most recent global financial crisis was the fact that the world's energy supply is traded in US Dollars.

Currencies fail not infrequently and when they do they get inflated back into use. That won't happen with the US Dollar unless and until it gets decoupled from the global oil trade.

Bitcoin seems a bit pyramidy to me too (@thejeff) but at least it's a transparently delimited resource. It's value can still fluctuate but it is inherently more stable than any global currency except the US Dollar.

It's value may be "inherently" more stable, whatever that means, but it's actually fluctuated far more wildly than any major currency over it's short lifetime.

Limited supply is actually a horrible thing for a currency. As an economy grows, the currency needs to expand with it, which Bitcoin can't. Otherwise, you get deflation. Deflation rewards hoarding and rewards those who already hold a lot of cash. Moderate inflation punishes held cash, which encourages investment in things that actually produce more real wealth. Hyperinflation is horrible of course, but don't let the fear of hyperinflation blind you to other problems.

[Quark Blast]

thejeff wrote:

It's value may be "inherently" more stable, whatever that means, but it's actually fluctuated far more wildly than any major currency over it's short lifetime.

Limited supply is actually a horrible thing for a currency. As an economy grows, the currency needs to expand with it, which Bitcoin can't. Otherwise, you get deflation. Deflation rewards hoarding and rewards those who already hold a lot of cash. Moderate inflation punishes held cash, which encourages investment in things that actually produce more real wealth. Hyperinflation is horrible of course, but don't let the fear of hyperinflation blind you to other problems.

Well, I'm not advocating for Bitcoin to become the global currency. But it is a reasonable investment early on. It's value fluctuates under speculation but it's less likely to fail than a great many other investments commonly made (housing in Detroit e.g.).

And if it wasn't for oil being traded in US Dollars it (the US $) would be hyper-inflated at this point. The housing + investment banking bubble burst would've devastated any normal currency (cf Iceland).

[thejeff]

Quark Blast wrote:

thejeff wrote:

It's value may be "inherently" more stable, whatever that means, but it's actually fluctuated far more wildly than any major currency over it's short lifetime.

Limited supply is actually a horrible thing for a currency. As an economy grows, the currency needs to expand with it, which Bitcoin can't. Otherwise, you get deflation. Deflation rewards hoarding and rewards those who already hold a lot of cash. Moderate inflation punishes held cash, which encourages investment in things that actually produce more real wealth. Hyperinflation is horrible of course, but don't let the fear of hyperinflation blind you to other problems.

Well, I'm not advocating for Bitcoin to become the global currency. But it is a reasonable investment early on. It's value fluctuates under speculation but it's less likely to fail than a great many other investments commonly made (housing in Detroit e.g.).

And if it wasn't for oil being traded in US Dollars it (the US $) would be hyper-inflated at this point. The housing + investment banking bubble burst would've devastated any normal currency (cf Iceland).

Depends when you bought into Bitcoin. It's around half its peak. Being better than buying into a housing bubble isn't really much of a recommendation.

But that reinforces the point. It's an investment and a risky speculative one at that, far more than it's actually a currency.

There are other reasons for the US currency not being as volatile as something like Iceland. Volume, if nothing else. And the fact that those holding large amounts of it can't afford to let it collapse.:)

[Quark Blast]

thejeff wrote:

But that reinforces the point. It's an investment and a risky speculative one at that, far more than it's actually a currency.

There are other reasons for the US currency not being as volatile as something like Iceland. Volume, if nothing else. And the fact that those holding large amounts of it can't afford to let it collapse.:)

Two things:

1) Part of the volatility of Bitcoin is the fact that it gets "valued" by referencing it to some other monetary system. That is, it's value in US Dollars certainly has changed - down about half now from its peak.

But does that reflect change in the value of the Bitcoin or the relative value of the US Dollar?

2) Woot! to China for keeping us afloat... for now.

[Alex Smith 908]

Quark you're really wrong about world economics in a lot of ways.

1) Bitcoin is functionally inflationary currently. It is constantly regularly increasing following a model completely identical to the US dollar when there is no quantitative easing. It isn't a delimited currency until the cap is actually reached.

2) Having a limited or deflationary currency is a VERY VERY bad thing. It leads to economic stagnation and encourages people to horde rather than spend. Any horded currency is essentially destroyed currency.

3) The US currency has been stable for reasons completely unrelated to the trade of oil. Oil is far too small of a part of world economy to stabilize a currency as large as the US dollar. It has value based on the coverage and spread of US based industries and government all over the global. This in turn led to people seeing it as stabilizing and using it as a medium of exchange between nationalities and as is the self sustaining nature of currencies this precieved stability resulted in actual stability.

4) The reason for the Icelandic currency hyper inflating was how much of its economy was tied up in a single city that suffered a natural disaster. It has nothing to do with it being an inflationary currency.

[Quark Blast]

Alex Smith 908 wrote:

Quark you're really wrong about world economics in a lot of ways.

1) Bitcoin is functionally inflationary currently. It is constantly regularly increasing following a model completely identical to the US dollar when there is no quantitative easing. It isn't a delimited currency until the cap is actually reached.

2) Having a limited or deflationary currency is a VERY VERY bad thing. It leads to economic stagnation and encourages people to horde rather than spend. Any horded currency is essentially destroyed currency.

3) The US currency has been stable for reasons completely unrelated to the trade of oil. Oil is far too small of a part of world economy to stabilize a currency as large as the US dollar. It has value based on the coverage and spread of US based industries and government all over the global. This in turn led to people seeing it as stabilizing and using it as a medium of exchange between nationalities and as is the self sustaining nature of currencies this precieved stability resulted in actual stability.

4) The reason for the Icelandic currency hyper inflating was how much of its economy was tied up in a single city that suffered a natural disaster. It has nothing to do with it being an inflationary currency.

1) Umm... no. It has a stable value that will be approximately reached sometime around 2040. Assuming the G8 don't outlaw its use before then. Right now it has a variable price that is partly due to it being a new way to make transactions and partly due to speculation and partly due to illegal activities involving the bitcoin.

2) Inflationary currency is not long-term stable. At some point there is a correction and most people will lose in that correction.

3) Oil does not stabilize the US Dollar. The US Dollar is defined as the standard because oil is formally traded in dollars. Conventions in oil and other commodity trading can be changed. When the time comes where the USA owes more than it produces this will not end well for most people. And oil will no longer be traded globally in US Dollars. Oil/Natural gas drive the global economy and will for another 100 years at least. At the current rate of debt accumulation oil may be traded in something other than US Dollars as soon as 2020.

4) The Icelandic currency failure was due to out-sized actions that are no different than the ones that brought down Bear Stearns, Merrill Lynch, etc. The country of Iceland is solvent today because their debts were written off. The US debt is too large to be written off. So is that of about half the countries in the Eurozone.

[thejeff]

Quark Blast wrote:

thejeff wrote:

But that reinforces the point. It's an investment and a risky speculative one at that, far more than it's actually a currency.

There are other reasons for the US currency not being as volatile as something like Iceland. Volume, if nothing else. And the fact that those holding large amounts of it can't afford to let it collapse.:)

Two things:

1) Part of the volatility of Bitcoin is the fact that it gets "valued" by referencing it to some other monetary system. That is, it's value in US Dollars certainly has changed - down about half now from its peak.

But does that reflect change in the value of the Bitcoin or the relative value of the US Dollar?

2) Woot! to China for keeping us afloat... for now.

Or valued by what you can buy with it.

But that reflects almost entirely change in the value of the Bitcoin. It jumped close to 100 times over 2013 and then lost half it's value since November. The US dollar hasn't changed anything like that much. That you can even ask the question means you just don't have a clue about currency and the world economy. If the value of the US dollar had nearly doubled in 6 months the economy would be in shock.

[thejeff]

Quark Blast wrote:

Alex Smith 908 wrote:

Quark you're really wrong about world economics in a lot of ways.

1) Bitcoin is functionally inflationary currently. It is constantly regularly increasing following a model completely identical to the US dollar when there is no quantitative easing. It isn't a delimited currency until the cap is actually reached.

2) Having a limited or deflationary currency is a VERY VERY bad thing. It leads to economic stagnation and encourages people to horde rather than spend. Any horded currency is essentially destroyed currency.

3) The US currency has been stable for reasons completely unrelated to the trade of oil. Oil is far too small of a part of world economy to stabilize a currency as large as the US dollar. It has value based on the coverage and spread of US based industries and government all over the global. This in turn led to people seeing it as stabilizing and using it as a medium of exchange between nationalities and as is the self sustaining nature of currencies this precieved stability resulted in actual stability.

4) The reason for the Icelandic currency hyper inflating was how much of its economy was tied up in a single city that suffered a natural disaster. It has nothing to do with it being an inflationary currency.

1) Umm... no. It has a stable value that will be approximately reached sometime around 2040. Assuming the G8 don't outlaw its use before then. Right now it has a variable price that is partly due to it being a new way to make transactions and partly due to speculation and partly due to illegal activities involving the bitcoin.

2) Inflationary currency is not long-term stable. At some point there is a correction and most people will lose in that correction.

3) Oil does not stabilize the US Dollar. The US Dollar is defined as the standard because oil is formally traded in dollars. Conventions in oil and other commodity trading can be changed. When the time comes where the USA owes more than it produces this will not end well for most...

1) Thus it is functionally inflationary now. Eventually, assuming policy does not change it will be fixed. This is fine for a toy currency that isn't tightly tied to a particular economy. It would be devastating for a real currency used in an actual economy. Money supply actually effects the economy. Too little is as bad as too much.

2) Hyper inflation is bad. Inflation that keeps pace with economic growth, or preferably slightly outpaces it, is good. Corrections are aren't necessary or inevitable.

[Alex Smith 908]

Wait Quark you're acknowledging that lack of government regulations led to economic collapse of countries, and yet you're a bitcoiner? Also you do realize that "China keeping us afloat" is a bald faced lie right? The US makes more offer its foreign investments than it owes in debts. The place where the debt is stagnating is in publicly held debt which the government can't actively make money off due to the one and done nature of most bonds and similar public debt options.