As the author says, building a real Bitcoin economy would take time. But I don't think an isolationist attitude would help; it seems like it would take longer.
This really only applies if you completely ignore the nature of the internet and everything that a digital currency implies and treat bitcoin just like any other paper currency. It is totally feasible to run bitcoin pricing with dynamically updating btc prices based on an underlying fiat value in any merchant situation.
Most of the markets right now where actual trade takes place rather than speculation are simply taking this exact approach, whatever the exchange rate is for the currency at the time of the trade, the value will be decided based upon an underlying stable value. That's totally not possible with a traditional currency where you print price stickers and put them in shopping aisles, but it's par for the course for btc right now and probably will remain so until a stable value for the currency can be worked out, but this is no big deal.
I will argue that in order for it to achieve a stable value, one that without volatile price actions. The market size needs to be a lot bigger than current bitcoin market size. Given you cant create more bitcoins, it will require each bitcoin to be worth 1000 times more in terms of dollars for it achieve a stable value. Silver has less than 10B market cap, and yet it is still notoriously volatile
If you mean bigger in terms of market cap, that would actually imply that more investment is needed, right? If you mean that the current approximately 6.5million units is not enough however, should point out that the currency is divisible to 10 decimal places, so this is mostly a red herring.
With regards to market cap, yes, that does need to grow in order that there be a stable value. This actually suggests that the price will pretty much have to go up though, as the expansion of the bitcoin supply is known and low while the expansion of the money cap through fiat currency buys is both unknown and unlimited.
No. Even with the Internet, stable currencies still have unique advantages.
Stable assets are more useful for writing long-term contracts. People who are trying to avoid risk (rather than pursue it) will want to write contract terms that have future payments in a stable currency rather than in some more volatile asset like gold or stock. For example, if you wrote a contract where one person does the work and the other one pays in gold in five years, how do you know whether it's fair or not? Would you be willing to take either side of the bet? It's all going to depend on where you think gold will be, and if opinions differ on that then it makes contracts that much harder to write.
Of course there is inflation risk with any currency, but usually it's at least possible to estimate it and make allowances for it when setting a future price. It's a matter of degree and Bitcoin isn't even close to being stable. Both upside and downside risk are a problem, for opposite sides of any deal.
There's also little reason to think that broader adoption will make it more stable. Supply is fixed, but demand could go either way, depending on greed and fear. For a stable currency, you need a stable demand that can withstand (at least to some extent) big swings in popular sentiment.
If you want to talk historically over long terms; gold is a far, far better store of value over time than fiat currencies, including the USD. None of this however changes the fact that rapid convertibility to and from bitcoins allows you to price any financial instrument in any kind of currency and perform the actual transfer at time of execution, effectively transforming bitcoins into nothing more than a fee free electronic funds transfer with no regulatory oversight.
Over the long term, lots of assets are better investments than cash. That's not what I'm getting at. If I go to the store and prices are in dollars and not Bitcoins, or if loan payments can't reasonably be priced in Bitcoins, they aren't performing one of the primary functions of money.
Put it this way: people are excited because the price of Bitcoins in dollars is going up. If things were priced in Bitcoins then it wouldn't make any difference - the prices would still be the same (in Bitcoins).
On its way to becoming an asset indeed. Over the last year bitcoin has seen a ~20,000% return rate. If bitcoin gets uberpopular (i.e. each coin is worth ~ US$2m) within 20 years, then BitCoin would have a return rate of ~ 85% per year consistently for the next 20 years. There is practically nothing else with that close a return rate, so the only financially sound course is to hoard your BitCoin, not spend them.
Hmmm. I don't think I was suggesting that we'll continue to see a rate of return of 20,000%. What I was suggesting is that many will perceive BitCoin's historical performance as an asset as proof it would be better treated as an asset, not a currency.
The distinction between currency and asset can be fuzzy. Would you rather be paid in USD, gold, bitcoin, Google stock? How much extra would you charge to accept any of the above? I'd personally take bitcoin rather than gold today, because bitcoin can be exchanged for USD around the clock from the comfort of my chair.
The BitCoin community created this speculation bubble by rewarding early adopters and miners. That could have been entirely avoided if they didn't choose such a strategy for initial distribution.
While I've been skeptical about BitCoin here, this is a terrible argument against them. Broadly speaking, there is one market, the global market. Dollars aren't that special, really, they're just one more asset in a pool of millions of different asset types with every imaginable attribute and every imaginable kind of customer. (Yes, they are a bit special, but in the grand scale of things there are all kinds of special assets, like food, water, gold, housing, medical care, professional skills, "when everything is special, nothing much is". Dollars aren't that special.) The only way to carve out a piece of that global economy is to very aggressively build yourself a walled garden. Certain entities do that, like those running MMORPGs with internal currencies, who aggressively prevent people from using MMORPG currency in the real economy (mostly because of the sudden and horrific tax implications if they permitted it to act like true currency). They deliberately make their currencies as useless as possible outside their walled gardens to avoid scrutiny by the IRS. (And they don't do a perfect job. But the walls are usually high enough.)
This is not what BitCoin should or can do. It wants to join the pool of millions of different asset types and bring some new and unique characteristics to the party. It can not become a separate economy, because very, very powerful (and completely impersonal) forces drag everything into the global economy. If you try to separate the economies, all you actually do is create arbitrage opportunities, and the act of exploiting those returns the currency to the general market.
For BitCoin to remain fully separate basically requires them to be utterly useless as anything but tokens in a video game. The posted argument is complete gibberish.
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[ 2.6 ms ] story [ 50.3 ms ] threadMost of the markets right now where actual trade takes place rather than speculation are simply taking this exact approach, whatever the exchange rate is for the currency at the time of the trade, the value will be decided based upon an underlying stable value. That's totally not possible with a traditional currency where you print price stickers and put them in shopping aisles, but it's par for the course for btc right now and probably will remain so until a stable value for the currency can be worked out, but this is no big deal.
With regards to market cap, yes, that does need to grow in order that there be a stable value. This actually suggests that the price will pretty much have to go up though, as the expansion of the bitcoin supply is known and low while the expansion of the money cap through fiat currency buys is both unknown and unlimited.
Stable assets are more useful for writing long-term contracts. People who are trying to avoid risk (rather than pursue it) will want to write contract terms that have future payments in a stable currency rather than in some more volatile asset like gold or stock. For example, if you wrote a contract where one person does the work and the other one pays in gold in five years, how do you know whether it's fair or not? Would you be willing to take either side of the bet? It's all going to depend on where you think gold will be, and if opinions differ on that then it makes contracts that much harder to write.
Of course there is inflation risk with any currency, but usually it's at least possible to estimate it and make allowances for it when setting a future price. It's a matter of degree and Bitcoin isn't even close to being stable. Both upside and downside risk are a problem, for opposite sides of any deal.
There's also little reason to think that broader adoption will make it more stable. Supply is fixed, but demand could go either way, depending on greed and fear. For a stable currency, you need a stable demand that can withstand (at least to some extent) big swings in popular sentiment.
Put it this way: people are excited because the price of Bitcoins in dollars is going up. If things were priced in Bitcoins then it wouldn't make any difference - the prices would still be the same (in Bitcoins).
- Disco Stu
This is not what BitCoin should or can do. It wants to join the pool of millions of different asset types and bring some new and unique characteristics to the party. It can not become a separate economy, because very, very powerful (and completely impersonal) forces drag everything into the global economy. If you try to separate the economies, all you actually do is create arbitrage opportunities, and the act of exploiting those returns the currency to the general market.
For BitCoin to remain fully separate basically requires them to be utterly useless as anything but tokens in a video game. The posted argument is complete gibberish.