I've been in it since the first bubble in April and it's surprising how resilient Bitcoin has become to negative news such as the seizure of 5% of all Bitcoins recently. There was a drop of 20%, but it had recovered from that after a few days already. Since then it has been on the up and up.
I think it's pretty likely that 1 Bitcoin will be worth $1,000 within the next year and $10,000 within the next 3 years.
That's what people said before the crash in April. Not that I disagree--I don't really care one way or another--but I think it's impossible to predict its price in a year, let alone 3. Anything can happen at this rate.
The only way for Bitcoin to not go up is for a different cryptocurrency to come to fruition that has significant improvements over Bitcoin, like zerocoin, and subsequently can not be integrated into Bitcoin's blockchain.
Can bitcoins security algorithms become outdated due to Moore's law in any reasonable period of time? Is there a possible threat of algorithm compromise by cryptanalysis?
Bitcoin uses ECDSA signatures to verify transactions. According to Wikipedia [1], the current record for solving the discrete logarithm problem (which is how you recover a private key from the corresponding public key) was done on a 112-bit key in 6 months. Bitcoin uses 256-bit keys, and the algorithm in question has a complexity of O(2^(N/2)), so breaking its keys is 2^72 times harder.
So even under the ridiculously unlikely assumption that computational power halves in cost every 18 months for the indefinite future: 50 years from now, the entire current global GDP still won't be enough to buy a processor that can crack a Bitcoin key in less than a decade.
(Of course, this is assuming there are no other unknown flaws in the protocol, and that no better algorithms are found to find discrete logarithms over elliptic curves. But if a vulnerability is found, it won't be thanks to Moore's law.)
As for mining, there are enough bits in SHA256 to allow billion-fold increase in difficulty. And if there is a danger of breaking it much quicker, all people holding bitcoins have huge incentive to change the protocol to fix the problem.
As for ECDSA, it can only be broken by quantum computers, but still most balances are protected by sha256*ripemd160 hash, so they are safe in the face of sudden QC attack or a weakness in ECC. People will want to protect their wealth and thus will change the protocol for other algorithms.
When everyone's money is at stake, it'll be very quick. This March, when the network forked, miners with newer version 0.8 agreed to forego mining rewards and abandon their own branch (incompatible with v0.7) just to resolve the issue quickly to not shake the confidence in Bitcoin.
Yes, but this was not planned ahead. Miners did abandon their rewards even being on a longer chain just to maintain trust in the system. They did not know if they will ever get their money recovered.
Or stricter regulations are put in place, or a big company like PayPal creates a competitor product, or... Lots of things can happen. There is absolutely nothing backing the price of Bitcoin, so to say that its price won't go down is foolish--pure speculation. If that were irrefutably true, the price would already be $1,000 or $10,000, but it's not, which means there are valid concerns for the future of Bitcoin.
There isn't much to back the price of fiat currencies either: Bitcoin is valued by demand which is effectively the case with other currencies too. If there's demand for bitcoins and trust in the platform, that's all the back up Bitcoin needs.
After all, with any currency the only value it has is the ability to later exchange the currency back to services or material goods.
Even if a currency is backed by gold like in old times there can only be faith in that gold will actually buy you goods in the future, too.
Currencies aren't backed by anything physical; they're backed by the confidence that you will actually be able to buy something with them. Bitcoin doesn't yet have that confidence, so it basically has no inherent value. (Technically, fiat currencies don't have truly inherent value either, but I don't want to argue about semantics.) The value of Bitcoin today is purely speculative, because it doesn't actually have much of a practical use. Those investing in Bitcoin are betting that it's going to become a currency you can use as confidently as US dollars, but no one can accurately predict whether that will ever happen; it's all a gamble at this point.
Fiat currencies (at least those that are the official currency of one or more sovereign states) actually do have intrinsic value beyond people's beliefs.
USD is valuable not only because people trust you'll always be able to buy things with USD, but also because the US. government collects USD-denominated tax. As long as the government continues to have the firepower to enforce the tax code, there will always be a demand for USD, irrespective of how confident people are in its viability.
No. You don't understand what "intrinsic value" and "fiat money" mean. These two terms have literally opposite meanings! (Seriously, look them up.)
The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.
The USD has value solely because it is demanded (and the biggest demander is the US government, via taxes) and because people believe it will remain demanded.
The USD, or any fiat currency, has no value beyond this "belief". And this is not inherently wrong. Most of the world economies run on fiat currencies. Even Bitcoin is, technically, fiat.
> The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.
The definition of "fiat money" depends on who defines it, but in my eyes the most correct definition is "any money declared by a government to be legal tender". Fiat literally means "let it be done", as in a declaration. The U.S. dollar is fiat because the U.S. government says it is money, and it was fiat under the gold standard as well.
Even under the gold standard, U.S. dollars did not have "intrinsic value" the way I understand it, which is to say value that comes from the physical properties of the object in question. There is a very tiny intrinsic value because you can burn U.S. bank notes for heat and things like that, but nothing else - gold standard or not. Gold may have some intrinsic value because it can aid industrial processes and fill teeth and make jewelry, but that is probably far away from explaining gold's market price today.
Bitcoin, on the other hand, is not fiat, because no legal authority has declared that it shall be money.
Your definition of fiat is overly strict and unusual.
By law, the USD used to be convertible to gold at a legally defined USD-per-ounces rate. This legal rate is what gave it intrinsic value. All economist will agree with this statement. Any literature about the USD explains clearly that "the USD transitioned from the gold standard to a fiat currency".
No. Precious metals have intrinsic value. Fiat money does not. The fact USD is legal tender makes it legal tender but that's it. It does not give it intrinsic value. (Or, pedantically, the paper the USD is printed on has some intrinsic value, about $100/ton.)
I don't mean to be rude, but I am always surprised by discussions about money. They reveal that people have no idea what money is and what gives it value.
Yes, but the creator of Zerocoin has stated that it seems unlikely to integrate into Bitcoin's blockchain and may only be usable if it is put into a new blockchain.
I certainly hope so. It appears as if the one big difference between today and the first crash is Chinese investment. I'm worried we will see a Chinese based crash similar to the one we saw earlier this year.
We will see a crash, of course. The question is how high this new low will be? From $500 to $300? Or from $2663 to $1300?
Bitcoin will only grow slow and steady when it becomes world money. Before that happens, we'll see quick land grab hysteria, huge corrections, consolidation period and then again the same cycle.
Nitpicking a bit, but first bubble was not in April, but in 2011 summer when it reached $30+ before falling to $2-3 level. There were smaller bubbles before that too.
That said, Bitcoin could conceivably go for $10,000 (200B market cap while there is 1.2T USD in circulation) if/when it gains widespread acceptance. There are still some issues though. From what I understand there is a limit on maximum transactions that can be included in a block.
What's the best Bitcoin exchange to buy with? In the early days I stayed away because a lot of the exchanges seemed to have really poor security, but it looks like it may be time to invest somewhere.
I recommend LocalBitcoins.com. Due to fraud prevention I found the big exchanges overly complicated to join. LB allows simple same day transactions that only require a quick trip to the bank to transfer cash.
Coinbase is great, it has been very secure and reliable. The only thing that i don't like about it is the fact that you have to wait a little while for your Bitcoins to come in, although I haven't used any other exchanges so I don't know if this is standard.
You don't need to keep bitcoins on an exchange. It's not like buying stocks or gold certificates. You can own bitcoin like having gold coins shipped to you. Even if the exchange is hacked, your usb stick isn't. Simply buy and withdraw immediately to your encrypted personal wallet.
using bitcoin-otc as an exchange is pretty cool too: you do it through IRC (no web interface), there is a very well done WoT, and the wiki is excellent.
My employer Payward runs Kraken.com which is a fairly new exchange that also supports other cryptocurrencies. It's easy for customers in some US states, possible for those in others, and super simple for all of Europe. More jurisdictions on the way...
I'm happy about the rise, but I'm not fully counting this as a record yet. The Bitcoin exchange ecosystem has changed since April. MtGox started massively delaying dollar withdrawals, so the price there diverged from other exchanges. I'll be watching Bitstamp (now at $254) for the real thing.
Everyone's quoting Mt. Gox eclipsing its previous high. However, it's pretty much impossible to cash out of Mt. Gox, and so it's trading at a premium to other exchanges. To this end, Mt. Gox beating its previous isn't an apples-to-apples comparison.
I think there's something to this, and I say as much in my story. But with exchanges trading at different values, it's hard to know which price is the "real" one.
They are all real. And yet they are all fake. One might guess the lowest markets price is the closest to the actual value, but you most look at the volume of trades. And, this is what I think is partly due to the major gaps between Gox and Bitstamp and other markets, is the ease/fees of the different markets and actually going from say USD to BTC and back again.
Dollars that you can actually access are real, and ones that you can't access (e.g. in a MtGox account) are fake. A price denominated in fake dollars is a fake price.
It's true that Gox$ aren't US$. But that doesn't mean they're entirely fake.
The matter of the fact is that, some people are doing arbitrage between Gox and other exchanges. And this arbitrage keeps prices somewhat in line. If the arbitrage would not exist, then the prices would be all over the place and not correlate at all.
The question then is, if the Gox$ are all fake and nobody can get any, how come the arbitrageurs can keep in business? And the answer is: they couldn't. Some people get to convert their Gox$ to US$ and then use them to buy bitcoin on other exchanges to sell them on Gox.
But, not all people, for whatever reason, get to do that. And the process might be lengthy, and there's a risk that it might fail for you.
So the spread between Gox and other exchanges is the arbitrageurs estimate of the risk of selling BTC to Gox$ and be able to convert them in a suitable timeframe to US$.
The last thing I heard is that you can get money out quickly by paying a 5% fee, so I think you're right that arbitrage is keeping the price difference around 5%.
Given that is where Mt.Gox is located, I would not be surprised to hear <5 days.
I have heard this before, "Mt.Gox is not a bad company to do business with if you're in Japan." They are not a sham company by any means, they are just hamstrung by US government intervention.
Doesn't this apply to anything you can buy from multiple places? Milk may be $1.50 from a corner shop but $2 from a supermarket. What price is the "real" one? Taking a mean average based on trade volume seems to be the most logical way to value it.
I guess as good becomes more liquid (like USD and gold) then the gap gets reduced.
They're all "real". Somebody, somewhere, traded that tick, fiat (or gox$) and bitcoin changed hands.
If you consider the 4 largest exchanges (together about 90% of the volume), then you can look at the price as this fuzzy zone somewhere between the highest and lowest tick.
If you want to know when a specific price has been surprassed comprehensively, it's when all of the top exchanges have gone over it (not just one).
But if you want to know if it's somewhat likely a specific price will be surpassed by all exchanges, then just one going over carries a lot of meaning.
Not impossible, but you're not getting your money in less than 4-6 weeks. Although, looking at various complaints on forums, some people have been waiting since June/July or longer for withdrawals. Gox really needs to get its act together on this. They're not the only exchange in town anymore; they're not even the biggest exchange anymore.
Is it possible MtGox is a ponzi-scam style operation, that can't pay out users in a timely manner because they no longer actually have the money they claim to have?
This is interesting because bitcoin is presented as a reliable store of value, but I bet a lot of people who trade on exchanges leave their coins with the exchange for convenience.
So - what if some operators hold less coins than they claim to have, and are shuffling around from a fractional reserve, as you describe?
There would be more coins in the system than actually exist. I get lost in the M1/M3 representation of volumes of money, but that starts to reintroduce some of the confidence problems with paper money.
But - if this problem exists - it will be temporary, and is not inherent to bitcoins. Either the ecosystem will evolve so people stop holding coins at the exchange, or there'll be a couple of run events causing a loss of confidence in exchanges for storage.
Doesn't matter :-) Coinbase's exchange rate is currently matching and even slightly surpassing MtGox's: An hour ago I saw Coinbase's bid at $265.xx and MtGox's bid at $264.xx https://coinbase.com/charts
I usually check rates daily and today is the first day I saw MtGox not offering the highest bid(!)
My understanding is that Coinbase isn't 100% an exchange, though it does allow both selling and buying. I believe Coinbase bakes a profit into pricing; it's not a pure book.
A better point of comparison would be exchanges that were around at the previous peak, such as Bitstamp or BTC-E.
Coinbase is one of the top 3 highest-volume exchange in the US! This is where many people buy and sell. If their customers exchange bitcoins there, it is fair to say that Bitcoin "reached" the specified value it was exchanged at. Ignoring it is ludicrous.
At least you didn't lose money :)
At this stage it wouldn't hurt too much to hold onto it for a little longer. It's not increasing at exponential speed at this stage, so I'd say it is likely to go up a bit more before we see another crash. Difficult to predict, though.
Today, anyone who ever bought bitcoins can sell their coins at a profit. When an airplane or car crashes, the losses are irretrievable. But when an asset is at an all time high, I don't really think the word "crash" for earlier fluctuations makes much sense.
If this time it crashes from $2000 to $1000, it'd be pretty spectacular and profitable. Those traders who will have bought too high will have to patiently wait another year or two for their profits.
73 comments
[ 2.8 ms ] story [ 141 ms ] threadI think it's pretty likely that 1 Bitcoin will be worth $1,000 within the next year and $10,000 within the next 3 years.
So even under the ridiculously unlikely assumption that computational power halves in cost every 18 months for the indefinite future: 50 years from now, the entire current global GDP still won't be enough to buy a processor that can crack a Bitcoin key in less than a decade.
(Of course, this is assuming there are no other unknown flaws in the protocol, and that no better algorithms are found to find discrete logarithms over elliptic curves. But if a vulnerability is found, it won't be thanks to Moore's law.)
[1] http://en.wikipedia.org/wiki/Discrete_logarithm_records#Elli...
As for ECDSA, it can only be broken by quantum computers, but still most balances are protected by sha256*ripemd160 hash, so they are safe in the face of sudden QC attack or a weakness in ECC. People will want to protect their wealth and thus will change the protocol for other algorithms.
But do you think it would actually be viable to make a protocol algorithm transition?
After all, with any currency the only value it has is the ability to later exchange the currency back to services or material goods.
Even if a currency is backed by gold like in old times there can only be faith in that gold will actually buy you goods in the future, too.
USD is valuable not only because people trust you'll always be able to buy things with USD, but also because the US. government collects USD-denominated tax. As long as the government continues to have the firepower to enforce the tax code, there will always be a demand for USD, irrespective of how confident people are in its viability.
The USD has had zero intrinsic value since the end of the gold standard. That's why, by definition, it is called a fiat currency.
The USD has value solely because it is demanded (and the biggest demander is the US government, via taxes) and because people believe it will remain demanded.
The USD, or any fiat currency, has no value beyond this "belief". And this is not inherently wrong. Most of the world economies run on fiat currencies. Even Bitcoin is, technically, fiat.
The definition of "fiat money" depends on who defines it, but in my eyes the most correct definition is "any money declared by a government to be legal tender". Fiat literally means "let it be done", as in a declaration. The U.S. dollar is fiat because the U.S. government says it is money, and it was fiat under the gold standard as well.
Even under the gold standard, U.S. dollars did not have "intrinsic value" the way I understand it, which is to say value that comes from the physical properties of the object in question. There is a very tiny intrinsic value because you can burn U.S. bank notes for heat and things like that, but nothing else - gold standard or not. Gold may have some intrinsic value because it can aid industrial processes and fill teeth and make jewelry, but that is probably far away from explaining gold's market price today.
Bitcoin, on the other hand, is not fiat, because no legal authority has declared that it shall be money.
By law, the USD used to be convertible to gold at a legally defined USD-per-ounces rate. This legal rate is what gave it intrinsic value. All economist will agree with this statement. Any literature about the USD explains clearly that "the USD transitioned from the gold standard to a fiat currency".
That's not entirely true. As long as it is the only legal tender in the US and taxes are paid in USD, it has intrinsic value.
"Fiat money, such as paper dollars, is money without intrinsic value: It would be worthless if it were not used as money." -- from Principles of Economics, Volume 1, http://books.google.com/books?id=oRgQ2goeFzwC&pg=PA659&q=fia...
I don't mean to be rude, but I am always surprised by discussions about money. They reveal that people have no idea what money is and what gives it value.
Bitcoin will only grow slow and steady when it becomes world money. Before that happens, we'll see quick land grab hysteria, huge corrections, consolidation period and then again the same cycle.
The FBI total seizure from Silk Road is 173,991 Bitcoins [1] -- which is about 1.45% of the Total BTC (11,954,825 [2])
[1] http://www.fbi.gov/newyork/press-releases/2013/manhattan-u.s...
[2] http://bitcoinwatch.com
That said, Bitcoin could conceivably go for $10,000 (200B market cap while there is 1.2T USD in circulation) if/when it gains widespread acceptance. There are still some issues though. From what I understand there is a limit on maximum transactions that can be included in a block.
http://www.coindesk.com/price/
Among other factors, for inclusion in the index, money must be liquid within 7 days.
The matter of the fact is that, some people are doing arbitrage between Gox and other exchanges. And this arbitrage keeps prices somewhat in line. If the arbitrage would not exist, then the prices would be all over the place and not correlate at all.
The question then is, if the Gox$ are all fake and nobody can get any, how come the arbitrageurs can keep in business? And the answer is: they couldn't. Some people get to convert their Gox$ to US$ and then use them to buy bitcoin on other exchanges to sell them on Gox.
But, not all people, for whatever reason, get to do that. And the process might be lengthy, and there's a risk that it might fail for you.
So the spread between Gox and other exchanges is the arbitrageurs estimate of the risk of selling BTC to Gox$ and be able to convert them in a suitable timeframe to US$.
I have heard this before, "Mt.Gox is not a bad company to do business with if you're in Japan." They are not a sham company by any means, they are just hamstrung by US government intervention.
I guess as good becomes more liquid (like USD and gold) then the gap gets reduced.
If you consider the 4 largest exchanges (together about 90% of the volume), then you can look at the price as this fuzzy zone somewhere between the highest and lowest tick.
If you want to know when a specific price has been surprassed comprehensively, it's when all of the top exchanges have gone over it (not just one).
But if you want to know if it's somewhat likely a specific price will be surpassed by all exchanges, then just one going over carries a lot of meaning.
https://support.mtgox.com/entries/21649594-Withdrawals-and-D...
This is interesting because bitcoin is presented as a reliable store of value, but I bet a lot of people who trade on exchanges leave their coins with the exchange for convenience.
So - what if some operators hold less coins than they claim to have, and are shuffling around from a fractional reserve, as you describe?
There would be more coins in the system than actually exist. I get lost in the M1/M3 representation of volumes of money, but that starts to reintroduce some of the confidence problems with paper money.
But - if this problem exists - it will be temporary, and is not inherent to bitcoins. Either the ecosystem will evolve so people stop holding coins at the exchange, or there'll be a couple of run events causing a loss of confidence in exchanges for storage.
It is because US government poached their money.
I usually check rates daily and today is the first day I saw MtGox not offering the highest bid(!)
A better point of comparison would be exchanges that were around at the previous peak, such as Bitstamp or BTC-E.
Yesterday, I got out @ $220 / BTC.
I suck at this.
2011: From $1 to $30 and then down to $5. 500% total gain. http://bitcoincharts.com/charts/mtgoxUSD#rg5zigDailyzczsg201... (Slow decrease in price was probably due to huge mining inflation rate at that time: https://bitcointalk.org/index.php?topic=130619.0)
Summer 2012: From $5 to $15 to $11. http://bitcoincharts.com/charts/mtgoxUSD#rg5zigDailyzczsg201...
Spring 2013: From $14 to $266 to around $100-120. http://bitcoincharts.com/charts/mtgoxUSD#rg5zigDailyzczsg201...
If this time it crashes from $2000 to $1000, it'd be pretty spectacular and profitable. Those traders who will have bought too high will have to patiently wait another year or two for their profits.