> So the question is whether someone will develop a "killer app" that will push Bitcoin into the mainstream. If that happens, the value of Bitcoin could go even higher. If it doesn't, then sooner or later the currency's value will plummet.
This right here is the heart of the problem. What we need is a way to incentivise merchants to accept bitcoin, and make the payment process from the consumer end easier, safer, and cheaper than using a credit card.
What would need to happen for your locally owned restaurant to accept bitcoin?
All that would need to happen is for the POS vendors they already use to add support. Around here (Seattle) the bigger restaurants and bars seem dominated by http://www.dinerware.com/, but there's a lot of innovation at the low end, e.g. sandwich shops, burger joints, and food trucks. I've seen a lot of people using Square and other iOS-based POS systems, and also one place using LevelUp.
Separately there are also online ordering systems like Eat24, NetWaiter, and GrubHub, which can act as payment processors for online orders.
But which advantages would this have for me as a user? As far as I know the merchant contracts with the credit card companies require merchants to charge the same fee, independent of the payment method. But then, when I pay via credit card I get some cashback from my credit card company, and it's also easy to cancel transactions in case of fraud. So paying with Bitcoin is not only more expensive, but also shifts the risk of fraud to the user.
The main area where I could see potential adoption of Bitcoin are some business models, where it's currently very hard to get merchant contracts for credit card (due to the high fraud risk). If I'd found a startup in that area, I'd probably just use Bitcoin (via Coinbase or Bitpay) for the early prototype, instead of spending considerable resources trying to get credit card processing to work.
> the merchant contracts with the credit card companies require merchants to charge the same fee, independent of the payment method
That's not true. There used to be clauses in the contracts prohibiting merchants from charging an extra fee for credit card transactions. However, these clauses were recently (this year) removed by the credit card industry as a result of litigation. Also, it has always been possible to give a discount for non credit card transactions. You're right, it doesn't make sense, but it's true.
Since merchants usually eat the credit card fees themselves instead of passing them on to the customer, they have a big incentive to encourage consumers to switch to bitcoin. It will lower the fees they pay, which probably means discounts for bitcoin users. Merchants will also like the lack of chargebacks. On the other hand, consumers like chargebacks. There's no reason why a payment processor couldn't implement a chargeback-like system on top of bitcoin. The next Visa might be something like that, in fact.
> easier, safer, and cheaper than using a credit card.
Well, let's see. Easier - the credit card process is already about as easy as is possible given some authentication requirements, but bitcoin could certainly tie that process. Cheaper - the credit card process costs the consumer nothing, so you can't be cheaper, but you could tie that as well. Safer - the credit card process has substantial fraud protections for the consumer, but bitcoin by design does not have those fraud protections, so I don't see any way bitcoin could ever be safer.
So, the score at best can be: TIE-TIE-LOSE. And IMHO, TIE-TIE-LOSE vs. a heavily entrenched technology used around the world is not going to win, except for those rare items where credit cards cannot be used - purchasing drugs, or child pornography, or donating to Wikileaks.
> Easier - the credit card process is already about as easy as is possible
Credit cards requires giving a physical card to someone when ordering offline, or typing a series of numbers when ordering online. There's a lot of room for improvement with Bitcoin.
In addition to that, Bitcoin can make some less standard payments easier, like splitting a payment between multiple users, using an arbiter for the transaction, micro payments, etc
> Cheaper - the credit card process costs the consumer nothing
Perhaps the consumer doesn't pay for it, but there's significant cost for the merchant that can be saved with Bitcoin.
edit: which could also effect the total price the merchant is asking for, giving some of the cost reduction to the consumer
> Safer - the credit card process has substantial fraud protections for the consumer, but bitcoin by design does not have those fraud protections, so I don't see any way bitcoin could ever be safer.
Bitcoin doesn't have fraud protections because its outside the scope of what Bitcoin is. Its like saying that the US dollar doesn't have fraud protection. Companies can be built around Bitcoin to provide that service for a fee.
In addition to that, its actually much harder to steal (locally stored [1]) Bitcoin private keys than it is to steal credit cards. When an attacker breaks into a service that accepts credit cards, he can easily copy and re-use the credit card numbers because the one accepting the payment has everything needed to make more payments. With Bitcoin, the one accepting the payments can't make more payments. An attacker has to gain access to the consumer computer that stores the private keys.
In other words - gaining access to a website that has 100,000 credit cards gives you a lot of power. Gaining access to a website that received 100,000 Bitcoin payments gives you nothing. You'd have to break into 100,000 individual computers.
[1] I'm assuming here that people either use local Bitcoin clients or m-of-n transaction where one key is stored locally. There are online wallets that stores private keys that creates significant security risks, but at least I have a choice as a Bitcoin user.
I could see merchants who give favorable pricing for cash giving the same type of pricing for bitcoin. And ones who don't accept credit cards because of the cut taking it also...
Actually, I think that the biggest driver would be if my bank account gave me a bitcoin address that could receive money into which would be immediately transferred at the current rate into my account, and allow me to make payments to bitcoin addresses in the same way that it lets me (through online banking) make payments to other bank accounts.
Coinbase could quickly do this as an add-on. They can give you an account and auto-deposit. And sending payments can auto-debit. Apart from latency because they aren't the bank and need to wait for confirmation, it's fairly smooth. (Assuming the purchase supply issue has been fixed.)
I would think it'd be extremely difficult for a bank to offer a bitcoin system. It'll be confusing for many users, and open a security problem (once BTC is sent, that's it, whereas intra-bank payments can be reversed). I'd also bet there's some regulatory stuff regarding buying and converting virtual currency.
maybe. At the moment it looks like its US bank accounts only, and then there's the question of what happens if one of the employees absconds with a bunch of money or the company as a whole goes out of business while they've got large chunks of my money.
At least in my jurisdiction if any of those things happened to my bank, I would be paid out of government mandated and controlled insurance.
Of course bitcoin is a bubble. Bitcoin is irrationally overvalued. Just like the US Dollar. In the English language, that which is irrationally overvalued and stays that way is what we call money.
This is Mencius Moldbug's Bubble Theory of Money[1], one of his many fascinating contributions to the world
Us feeble-brained humans are uncomfortable with path-dependent outcomes. We don't want Bitcoin, or anything, to have an arbitrary price determined merely by marginal bid and ask, let alone a multiple equilibrium - we want it to have an underlying value. Which is a physical property, like weight or orangeness.
It's very sadly ironic that the author who mentions Menger forgets that value is intangible and subjective. Value isn't physical. People value things for different reasons be they physical characteristics or not. (e.g. sentimental value)
The BTM asserts that money and a bubble are the same thing. Both are anomalously overvalued assets. Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.
It's not anomalous. People value it because they can use it as a medium of exchange. That's how they value it. The notion that value is a physical characteristic of something is what causes one to believe that valuing money is irrational. There is no such thing as "underlying" economic or material value. There is only subjective value.
Prices arise by the auction mechanism; people bidding on things, which causes commodities to converge somewhere between the bit-ask spread. This is the price, (objective) which is not to be confused with value. (subjective)
The legal killer application for Bitcoin will not be e-commerce but rather the fluid trading of a yet unknown commodity which is currently not traded or very illiquid, between parties that can't trust each other and want to cut out a middle man.
But once that happens, investment banking with Bitcoins is inevitable and the times of "constant money supply" are practically over, for better or for worse.
It's true that unduly tight monetary policy can be economically ruinous, as the experience of the Great Depression makes clear. But deflation is only harmful when a currency is used as what economists call a "unit of account" -- that is, the unit with which peoples' salaries, mortgages and other long-term financial commitments are denominated. ...As for the idea that the rising value of bitcoins will cause people to hoard Bitcoins rather than spending them, that's based on flawed reasoning. If everyone holding bitcoins expect their value to rise dramatically in the future, then the price will rise now, until some Bitcoin holders are willing to part with their Bitcoins.
But the hoarding rationale is exactly the mechanism quoted for the reason why deflation is ruinous. The great depression in the US was not singularly a deflationary experience, in fact, after the initial deflationary contraction, the entire period was marked by several attempts by the government to goose the economy through inflationary meddling.
The truth of the matter is that Bitcoin isn't at a price even a fraction of what it will ultimately be worth if it becomes a currency in wide use. If it becomes a currency in wide use its market cap will start to resemble those of national currencies, and since there will only ever be a limited number of BitCoins, that means that if this happens a single BitCoin will be worth thousands, and it won't be meaningful any more to talk about a single BitCoin as a denomination of casual expenditures.
Just because something is highly valued doesn't mean it is in a bubble. It just means it is in demand. A single share of Berkshire Hathaway is worth $173,201 at the moment. Is that company in a bubble? Most people would say no - it is worth so much because the market bears that price, because Berkshire Hathaway has generated an enormous amount of value for its shareholders by investing in companies that are themselves inherently valuable.
If BitCoin is capable of being traded for valuable goods and services, that means it is exactly as valuable as the market says it is. The real problem we have to contend with is the fact that it makes more sense to hold on to BitCoins than it does to spend them. And this will be the case until the BitCoin reaches some kind of plateau of value.
Bitcoin will no monger become a means of financial exchange than wire transfer, which has been around for more than a hundred years. That is--Bitcoin may become one of many potential exchange mechanisms for transactions in which irreversibility is desirable (such as cross-border transactions) but will otherwise remain a second-class mechanism for most other transactions.
Also...Berkshire Hathaway is worth $170k+ because it owns actual, valuable, real-world assets, most of which produce income. The BH stock price reflects the value of those assets, plus the expected future value of the income that those assets will produce. Bitcoin does not own assets, nor does it otherwise generate income. Thus, a comparison to BH is entirely misplaced.
Interesting line of thought, I agree, but I don't think many Economists nowadays would seriously argue that we'd be more productive if the internet had never happened (this is mainly an idea from the 80s and 90s, pre-internet)
...but I find the section on how credit card overhead is a big factor in lost technological productivity very ironic in a bitcoin thread.
"since there will only ever be a limited number of BitCoins"
While it's true that there is a limited number of bitcoins, it's a misleading claim since they can continue to add decimal points. According to FAQ on the bitcoin website, they can do this as needed, infinitely.
Which doesn't matter because everytime you add a decimal point, no one gets any richer. No value is produced for people actually transacting bitcoin, whereas those doing nothing and hoarding it are granted more purchasing power for doing absolutely nothing.
BTC simply sits at a greed cross-section: it appealed to a certain group in terms of technology, and greed to convince people to buy in with real money - but the same properties which get those people in fundamentally kill it as a currency, since no one's who's out has any reason to accept a currency where they will be permanently impoverished, and there's no external reason for them to do so (i.e. you don't pay taxes in BTC).
Well, there might be certain value in being able to transact in smaller fractions.
I don't see how accepting bitcoin impoverishes the accepting party (an permanently, wtf?). In fact, I guess most merchants who have accepted btc and hold it to date have probably gained some pretty good value from that to date. Of course that might change.
It's not misleading. Adding decimal points doesn't change the value of current bitcoins. A bitcoin you buy today is still a bitcoin 10 years from now even if more decimal points are added.
Furthermore, I don't think it's as easy as implied there. The protocol could be modified fairly easily, but then every piece of Bitcoin-related software in the world would have to be updated to handle the extra decimal points. By the time we need extra decimal points, Bitcoin would have to be so widespread that the difficulty would be comparable to fixing all software that uses 32-bit Unix timestamps, or switching everybody from IPv4 to IPv6.
What will Bitcoin clones do to the value of Bitcoin? In principle you could have an unlimited number of them, it's not as if Bitcoin is the only possible instantiation of a cryptocurrency.
Exactly, Bitcoin will ultimately fail as money as it has no intrinsic value or real scarcity. As to those who might argue that fiat money has no intrinsic value either I beg to differ. The "intrinsic value" of, e.g., the USD is that there exists an organization (US government) with gargantuan physical force that stands to lose a lot if the value of USD goes to zero too fast and so holders of USDs can rely on that organization to deploy that force against rapid devaluation of their currency. There is no such comparable organization in the case of Bitcoin. In the absence of that, only real intrinsic value (the kind of gold or silver has) may prop up a currency and Bitcoin has none of that either. Tulip mania was very rational compared to Bitcoin.
How does the US govt. deploy force against decentralized crypto? It can go after the exchanges and clamp down on bank-to-Bitcoin services but it can do nothing against the network itself. Should the USG clamp down on Bitcoin too hard, Bitcoin will thrive in those places that are harder for the regulatory agencies to reach.
ATM, 1 bitcoin is worth ~350 times more than one Federal Reserve Note, making Bitcoin the most valuable currency in the world. I expect demand for Bitcoin will only rise elsewhere in the world even if the USG tries to make it difficult for its own citizens to use.
Then the yuan exchanges will pick up the slack. I'd dump my dollars for yuan and btc, as would other people. The USG would be slitting its own throat if it made btc > $ exchanges outright illegal.
Because the wildly libertarian China that has state firewall and can cut off the access to the block chain completely will just fall in love with something that could for any reason diminish its ability to have iron grip control over its economy and currency.
If Bitcoin is going to be not fringe it will need wide state support of at least 51% of the world GDP. There is not a single economic bloc that could endorse the loss of the ability to manipulate its own currency.
It is an awesome real time payment system, but crappy as a currency.
China likes Bitcoin because the USG doesn't. As long as that dynamic holds, Bitcoin is safe in China.
Unlike the US, a hundred million+ internet users in China are already accustomed to digital money through the use of the now defunct Q coin.
It makes no difference to me if Bitcoin stays fringe or goes mainstream. It's value will continue to increase as long as it finds uses all over the globe, with or without the blessing of the USG.
I argued that the US govt. can deploy its force to protect the dollar (as has done in the past even to the point of going to war) and the assurance of such a powerful guardian undergirds the trust in US dollar. Other have already answered as to how it can deploy force against Bitcoin (although not part of my argument). Governments can also act in concert. Invoking images of pedophiles or drug dealers using BTC would be more than enough to secure public support for such measures as blocking BTC port numbers, Deep Packet Inspection for BTC protocol content and ensuring that no legitimate retailer wants to be seen associating its name with the "pedophiles currency".
People always propose ridiculously convoluted solutions to simple problems.
Step 1: make Bitcoin exchanges illegal to operate.
There is no Step 2.
All the supposed uncensorability of BitCoin doesn't matter once you do that, because no one conducting legal business activities is going to bother with it after that. Al Capone was arrested for tax fraud.
> "ATM, 1 bitcoin is worth ~350 times more than one Federal Reserve Note, making Bitcoin the most valuable currency in the world.
The value of the M1 money supply (all the cash) of USD is $2.5 trillion. The value of the BTC money supply in USD is $[handful] billion. Calling BTC more valuable because it happens to be denominated in a large chunk is missing the point.
And as more dollars come into existence, they'll continue to be worth less in comparison to Bitcoin's fixed supply.
Also, the accumulated transactional value of Bitcoin is increasing. All of the fees and other costs associated with moving money are being lost by banks and other agencies.
That's only a sliver of its intrinsic value. It also has value because the rest of the world (rather, their governments) recognize it, accept it, and buy/sell it. The U.S. government is one of the pillars lending strength to the dollars credibility, but you have to keep in mind that it's not the only pillar.
The force of the US military is not what props up the value of the USD, look at all the other currencies around the world with almost no offensive military. How do you explain the value of CHF or JPY? The value of a currency is based on the network effect of everyone who uses it and how much they trust it not to devalue (ie trusting they won't print too much too fast).
We trust the USD because everyone we have ever met in the US has trusted it for their entire life, and their parents, and grandparents, ... . And the network effect is so large that people growing up in countries with weak currencies trusted it more than their home currency, it was stable and everywhere.
All other fiat currencies are similarly backed by a government that enjoys monopoly of legal force over some geographical area. That's why when governments die (lost war, revolution) the value of their fiat goes to zero and only "money" with intrinsic value is accepted (gold, silver, gems, works of art, cigarettes). In 6000 years of recorded history money always either had intrinsic value or was backed by a strong guy.
Why is a single entity needed to back a currency. Isn't bitcoin just crowd-funded vs. the the US is the dollar's vc backer? For it to truly crash, everyone who uses it for different reasons would have to decide it is worth less.
Bitcoin is a protocol for money. Protocols, once they have acceptance have a pretty great shelf life. See http, tcp/ip. So long as they get the job done, there's a disincentive to replace them once established.
"to deploy that force against rapid devaluation of their currency"
This statemetn is rubbish. If the USD were to rapidly devaluate, military force would be USELESS to protect its value. It is the Fed, through its policy, that can help influence deflation. But even then, its influence is limited.
A zeroed blockchain that wipes current accumulated bitcoins is something that the latecomers to the party could desire the moment the currency becomes mainstream.
Whatever they will do, it seems likely they have already done: there have been many dozens of altcoins, but most have come and gone without a trace and wound up being simple pump-and-dump schemes.
the WaPo article links to a forbes blog which argues against the deflationary effect of bitcoin by saying:
"Removing the gimmicky God hypothetical doesn’t change the basic insight: if market participants become convinced that “the price of a bitcoin is on a steady upward trajectory,” they’re not going to hoard their Bitcoins for weeks or months waiting for the price to rise. They’ll bid the price up right away."
This is incomplete thinking. It is true that if people internalized the deflationary aspect of bitcoin they would automatically bid up the price but there are two aspects of this the author ignores.
One, the deflationary effect is small and continuous. Not at all like his "God analogy" of a one-shot increase. And for the most part that is exactly what we have been observing with bitcoin - with the occasional exacerbation of this through old fashioned human irrational exuberance thrown in for good measure (April 2013 and now).
Second, at the same time as the deflationary effect which serves to increase prices, there is another force pushing prices down (slightly). That is the need to use bitcoin for purchases either illegal or legal. This obviously requires both the buying (if one does not have bitcoins) and the selling (after one has acquired them whatever means, either mining or purchasing in an exchange transaction).
The conclusion is that there are several forces or layers of push/pull at work at the same time on bitcoin prices. This does not magically remove or nullify the fact that a deflationary force exists! Nor does it mean that the deflationary force is not the major one.
Has anybody seen good articles that address the topic of a new global reserve currency and how that role could be served by ecash/digital cryptocurrencies? Especially from two points of view:
- China making remarks in that direction, enhancing the role of SDR etc.
- Liberalizing currencies in general, from Airmiles to Whatevercoin with simple decentralized exchange mechanisms? (The Ripple/Bancor idea)
Following Izzy Kaminska at FT Alphaville (http://ftalphaville.ft.com/tag/bitcoinmania/ free signup & highly recommended), but more interested in stuff by nerds within central banks etc.
54 comments
[ 0.15 ms ] story [ 158 ms ] threadThis right here is the heart of the problem. What we need is a way to incentivise merchants to accept bitcoin, and make the payment process from the consumer end easier, safer, and cheaper than using a credit card.
What would need to happen for your locally owned restaurant to accept bitcoin?
Separately there are also online ordering systems like Eat24, NetWaiter, and GrubHub, which can act as payment processors for online orders.
The main area where I could see potential adoption of Bitcoin are some business models, where it's currently very hard to get merchant contracts for credit card (due to the high fraud risk). If I'd found a startup in that area, I'd probably just use Bitcoin (via Coinbase or Bitpay) for the early prototype, instead of spending considerable resources trying to get credit card processing to work.
That's not true. There used to be clauses in the contracts prohibiting merchants from charging an extra fee for credit card transactions. However, these clauses were recently (this year) removed by the credit card industry as a result of litigation. Also, it has always been possible to give a discount for non credit card transactions. You're right, it doesn't make sense, but it's true.
Since merchants usually eat the credit card fees themselves instead of passing them on to the customer, they have a big incentive to encourage consumers to switch to bitcoin. It will lower the fees they pay, which probably means discounts for bitcoin users. Merchants will also like the lack of chargebacks. On the other hand, consumers like chargebacks. There's no reason why a payment processor couldn't implement a chargeback-like system on top of bitcoin. The next Visa might be something like that, in fact.
Well, let's see. Easier - the credit card process is already about as easy as is possible given some authentication requirements, but bitcoin could certainly tie that process. Cheaper - the credit card process costs the consumer nothing, so you can't be cheaper, but you could tie that as well. Safer - the credit card process has substantial fraud protections for the consumer, but bitcoin by design does not have those fraud protections, so I don't see any way bitcoin could ever be safer.
So, the score at best can be: TIE-TIE-LOSE. And IMHO, TIE-TIE-LOSE vs. a heavily entrenched technology used around the world is not going to win, except for those rare items where credit cards cannot be used - purchasing drugs, or child pornography, or donating to Wikileaks.
Credit cards requires giving a physical card to someone when ordering offline, or typing a series of numbers when ordering online. There's a lot of room for improvement with Bitcoin.
In addition to that, Bitcoin can make some less standard payments easier, like splitting a payment between multiple users, using an arbiter for the transaction, micro payments, etc
> Cheaper - the credit card process costs the consumer nothing
Perhaps the consumer doesn't pay for it, but there's significant cost for the merchant that can be saved with Bitcoin.
edit: which could also effect the total price the merchant is asking for, giving some of the cost reduction to the consumer
> Safer - the credit card process has substantial fraud protections for the consumer, but bitcoin by design does not have those fraud protections, so I don't see any way bitcoin could ever be safer.
Bitcoin doesn't have fraud protections because its outside the scope of what Bitcoin is. Its like saying that the US dollar doesn't have fraud protection. Companies can be built around Bitcoin to provide that service for a fee.
In addition to that, its actually much harder to steal (locally stored [1]) Bitcoin private keys than it is to steal credit cards. When an attacker breaks into a service that accepts credit cards, he can easily copy and re-use the credit card numbers because the one accepting the payment has everything needed to make more payments. With Bitcoin, the one accepting the payments can't make more payments. An attacker has to gain access to the consumer computer that stores the private keys.
In other words - gaining access to a website that has 100,000 credit cards gives you a lot of power. Gaining access to a website that received 100,000 Bitcoin payments gives you nothing. You'd have to break into 100,000 individual computers.
[1] I'm assuming here that people either use local Bitcoin clients or m-of-n transaction where one key is stored locally. There are online wallets that stores private keys that creates significant security risks, but at least I have a choice as a Bitcoin user.
I would think it'd be extremely difficult for a bank to offer a bitcoin system. It'll be confusing for many users, and open a security problem (once BTC is sent, that's it, whereas intra-bank payments can be reversed). I'd also bet there's some regulatory stuff regarding buying and converting virtual currency.
At least in my jurisdiction if any of those things happened to my bank, I would be paid out of government mandated and controlled insurance.
This is Mencius Moldbug's Bubble Theory of Money[1], one of his many fascinating contributions to the world
[1] http://unqualified-reservations.blogspot.com/2013/04/bitcoin...
Bubble everything!
It's very sadly ironic that the author who mentions Menger forgets that value is intangible and subjective. Value isn't physical. People value things for different reasons be they physical characteristics or not. (e.g. sentimental value)
The BTM asserts that money and a bubble are the same thing. Both are anomalously overvalued assets. Both obtain their anomalous value from the fact that many people have bought the asset, without any intention to use it, but only to exchange it for some other asset at a later date.
It's not anomalous. People value it because they can use it as a medium of exchange. That's how they value it. The notion that value is a physical characteristic of something is what causes one to believe that valuing money is irrational. There is no such thing as "underlying" economic or material value. There is only subjective value.
Prices arise by the auction mechanism; people bidding on things, which causes commodities to converge somewhere between the bit-ask spread. This is the price, (objective) which is not to be confused with value. (subjective)
But once that happens, investment banking with Bitcoins is inevitable and the times of "constant money supply" are practically over, for better or for worse.
But the hoarding rationale is exactly the mechanism quoted for the reason why deflation is ruinous. The great depression in the US was not singularly a deflationary experience, in fact, after the initial deflationary contraction, the entire period was marked by several attempts by the government to goose the economy through inflationary meddling.
http://www.youtube.com/watch?v=JUvm9UgJBtg
Just because something is highly valued doesn't mean it is in a bubble. It just means it is in demand. A single share of Berkshire Hathaway is worth $173,201 at the moment. Is that company in a bubble? Most people would say no - it is worth so much because the market bears that price, because Berkshire Hathaway has generated an enormous amount of value for its shareholders by investing in companies that are themselves inherently valuable.
If BitCoin is capable of being traded for valuable goods and services, that means it is exactly as valuable as the market says it is. The real problem we have to contend with is the fact that it makes more sense to hold on to BitCoins than it does to spend them. And this will be the case until the BitCoin reaches some kind of plateau of value.
Also...Berkshire Hathaway is worth $170k+ because it owns actual, valuable, real-world assets, most of which produce income. The BH stock price reflects the value of those assets, plus the expected future value of the income that those assets will produce. Bitcoin does not own assets, nor does it otherwise generate income. Thus, a comparison to BH is entirely misplaced.
...but I find the section on how credit card overhead is a big factor in lost technological productivity very ironic in a bitcoin thread.
While it's true that there is a limited number of bitcoins, it's a misleading claim since they can continue to add decimal points. According to FAQ on the bitcoin website, they can do this as needed, infinitely.
BTC simply sits at a greed cross-section: it appealed to a certain group in terms of technology, and greed to convince people to buy in with real money - but the same properties which get those people in fundamentally kill it as a currency, since no one's who's out has any reason to accept a currency where they will be permanently impoverished, and there's no external reason for them to do so (i.e. you don't pay taxes in BTC).
I don't see how accepting bitcoin impoverishes the accepting party (an permanently, wtf?). In fact, I guess most merchants who have accepted btc and hold it to date have probably gained some pretty good value from that to date. Of course that might change.
Furthermore, I don't think it's as easy as implied there. The protocol could be modified fairly easily, but then every piece of Bitcoin-related software in the world would have to be updated to handle the extra decimal points. By the time we need extra decimal points, Bitcoin would have to be so widespread that the difficulty would be comparable to fixing all software that uses 32-bit Unix timestamps, or switching everybody from IPv4 to IPv6.
On the contrary, you could probably write a function that estimates the value of bitcoin that included public-trust-of-Fed indicators.
ATM, 1 bitcoin is worth ~350 times more than one Federal Reserve Note, making Bitcoin the most valuable currency in the world. I expect demand for Bitcoin will only rise elsewhere in the world even if the USG tries to make it difficult for its own citizens to use.
Until we are in the matrix you need the physical world. And there governments are dominant.
If Bitcoin is going to be not fringe it will need wide state support of at least 51% of the world GDP. There is not a single economic bloc that could endorse the loss of the ability to manipulate its own currency.
It is an awesome real time payment system, but crappy as a currency.
Unlike the US, a hundred million+ internet users in China are already accustomed to digital money through the use of the now defunct Q coin.
It makes no difference to me if Bitcoin stays fringe or goes mainstream. It's value will continue to increase as long as it finds uses all over the globe, with or without the blessing of the USG.
Step 1: make Bitcoin exchanges illegal to operate. There is no Step 2.
All the supposed uncensorability of BitCoin doesn't matter once you do that, because no one conducting legal business activities is going to bother with it after that. Al Capone was arrested for tax fraud.
Step 2 is moving my Bitcoin business to a country that's not afraid of Bitcoin.
Again: if you can't buy BitCoin in your native currency legally, no one would bother trying to do it except if they had a compelling reason.
My native currency is now Bitcoin. ;)
The value of the M1 money supply (all the cash) of USD is $2.5 trillion. The value of the BTC money supply in USD is $[handful] billion. Calling BTC more valuable because it happens to be denominated in a large chunk is missing the point.
Also, the accumulated transactional value of Bitcoin is increasing. All of the fees and other costs associated with moving money are being lost by banks and other agencies.
We trust the USD because everyone we have ever met in the US has trusted it for their entire life, and their parents, and grandparents, ... . And the network effect is so large that people growing up in countries with weak currencies trusted it more than their home currency, it was stable and everywhere.
Bitcoin is a protocol for money. Protocols, once they have acceptance have a pretty great shelf life. See http, tcp/ip. So long as they get the job done, there's a disincentive to replace them once established.
This statemetn is rubbish. If the USD were to rapidly devaluate, military force would be USELESS to protect its value. It is the Fed, through its policy, that can help influence deflation. But even then, its influence is limited.
"Removing the gimmicky God hypothetical doesn’t change the basic insight: if market participants become convinced that “the price of a bitcoin is on a steady upward trajectory,” they’re not going to hoard their Bitcoins for weeks or months waiting for the price to rise. They’ll bid the price up right away."
This is incomplete thinking. It is true that if people internalized the deflationary aspect of bitcoin they would automatically bid up the price but there are two aspects of this the author ignores.
One, the deflationary effect is small and continuous. Not at all like his "God analogy" of a one-shot increase. And for the most part that is exactly what we have been observing with bitcoin - with the occasional exacerbation of this through old fashioned human irrational exuberance thrown in for good measure (April 2013 and now).
Second, at the same time as the deflationary effect which serves to increase prices, there is another force pushing prices down (slightly). That is the need to use bitcoin for purchases either illegal or legal. This obviously requires both the buying (if one does not have bitcoins) and the selling (after one has acquired them whatever means, either mining or purchasing in an exchange transaction).
The conclusion is that there are several forces or layers of push/pull at work at the same time on bitcoin prices. This does not magically remove or nullify the fact that a deflationary force exists! Nor does it mean that the deflationary force is not the major one.
- China making remarks in that direction, enhancing the role of SDR etc.
- Liberalizing currencies in general, from Airmiles to Whatevercoin with simple decentralized exchange mechanisms? (The Ripple/Bancor idea)
Following Izzy Kaminska at FT Alphaville (http://ftalphaville.ft.com/tag/bitcoinmania/ free signup & highly recommended), but more interested in stuff by nerds within central banks etc.