Doesn't this theory also apply to a stock traded on a stock market?
edit: reading the wiki article, I see that it indeed can. The assumption being that there is no rational justification for the price paid.
However, this assumption is wrong. Simple calculations give a price much higher than the current value if Bitcoin comes into widespread use as a currency. In more detail, given the limited supply and any arbitrary transaction volume, you can come up with a price for Bitcoin. The current valuation is not supported by the transaction volume. However, low estimates of transaction volume if Bitcoin comes into widespread use imply a much higher price.
No it's always been a bad investment because it's either a currency (not an investment) or a commodity (but one absolutely nobody consumes and does nothing).
Because the concept of an instantly transferable easily stored and hidden immune from state control pseudonymous electronic currency having any amount of success is clearly just as random and unpredictable as the result of a roulette wheel spin.
No analysis no matter how biased is going to seriously come to the conclusion that bitcoin having any success is purely as random as a roulette wheel. I challenge you to come up with something even vaguely plausible along these lines, no matter how pessimistic you want to get.
Yes if you had good enough information that it was likely. Anyone following Bitcoin for the past few years knew there was a very high chance of this happening.
What have the trading volumes been like on Second Market since Facebook went public? My perception is that pre-IPO Facebook shares was the bulk of their business.
I wonder if you can predict HN comments about Bitcoin depending on time of day. Sometimes it seems like they're entirely "can't you see it's all tulips", other times, "all fiat is obsolete."
Can we tranche all the cryptocurrencies, including bitcoins, repackage the tranches into pools, then sell them to insurance companies as AAA-rated bonds?
I've been on the fence about bitcoin. On one hand, the design is genius, with a few exceptions (mainly, the fixed supply). And it has garnered an incredible amount of publicity and usage for a digital nextgen currency.
On the other hand, and I think where I will end up, it's completely stupid. While the speculative benefits are terrific for marketing, they are totally incompatible for use as a currency. As is the apparent concentration of ownership.
What's really bizarre to me is how a "digital currency" can have such slow transactions. I want my transactions carried out and verified instantly. Right now its minutes to hours. But once the network grows, it could be days.
Transactions are effectively carried out and verified instantly right now. Try it yourself on gyft.com or namecheap or anywhere else that takes bitcoin through BitPay. Accepting 0-confirmation small value transactions is the norm.
Also, the confirmation time does not scale with the size of the network. The mining difficulty automatically adjusts to one block every ten minutes on average.
It's important to note as a business that most "instant" verification provided by traditional payment networks are far from being "fully" verified. Instead, it's more like a preliminary verification. Most merchants who sell for credit cards, Paypal, or even ACH know that their payments can be reversed weeks to even months afterwards.
Bitcoin compresses this drawn-out risk of reversal into a ~1 hour window (0 to 6+ confirmations). So if you're OK with a very small risk of reversal, you can accept payments instantly (i.e., after 0 confirmations). This is perfectly fine if you're selling meals, or domain names, or alpaca socks. If you're selling a car, and you want near absolute certainty that your payment will never be reversed, wait an hour or so for 6 confirmations. After 6 confirmations, payment has been reversed only one known instance in Bitcoin's history, and that payment was eventually returned to the merchant in question (so no merchant has ever lost money after accepting a 6 confirmation transaction).
Now, for consumers, it's a different matter -- there are advantages and disadvantages to Bitcoin. But for merchants, Bitcoin is a very clear winner. And many of us consumers are very happy to buy with Bitcoin.
Not to mention all the non-commercial uses for money transfers Bitcoin fulfills, most notably remittances.
By the way, if you have an idea for a decentralized digital currency with the protection against the Byzantine Generals problem [0] needed to protect against transaction reversals that also provides "full" verification instantly, I encourage you to develop your project. It has the potential to be a Bitcoin killer (then again, the network effect may be too strong...).
And finally, to correct a misconception, the time needed for 6 confirmations on the Bitcoin network will always take an average of an hour, regardless of network size. That's what the self-adjusting Bitcoin difficulty is all about.
I'm not informed as much as I could be about bitcoins, but it's comments like these that make it even more daunting. Slow learning curve I guess.
What happens when the number of bitcoin transactions becomes too great for the network to handle? There is a finite number of computers, they can only process so many transactions at a time. If bitcoin became as popular as the US dollar, would there be enough nodes out there to handle a load of that magnitude? Or, for a more specific example: tomorrow every monetary transaction in the US is done using bitcoin, what happens?
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[ 3.2 ms ] story [ 90.3 ms ] threadI still don't know if this is tulips [1] or turtles all the way down [2]. Perhaps both?
[1] http://en.wikipedia.org/wiki/Tulipmania
[2] http://en.wikipedia.org/wiki/Turtles_all_the_way_down
edit: reading the wiki article, I see that it indeed can. The assumption being that there is no rational justification for the price paid.
However, this assumption is wrong. Simple calculations give a price much higher than the current value if Bitcoin comes into widespread use as a currency. In more detail, given the limited supply and any arbitrary transaction volume, you can come up with a price for Bitcoin. The current valuation is not supported by the transaction volume. However, low estimates of transaction volume if Bitcoin comes into widespread use imply a much higher price.
If your number happens to come up was it a good investment?
I was just refuting a3voices's assertion that a rise in value alone made it a good investment. That's outcome based thinking and it's wrong.
Weird choice there.
On the other hand, and I think where I will end up, it's completely stupid. While the speculative benefits are terrific for marketing, they are totally incompatible for use as a currency. As is the apparent concentration of ownership.
Also, the confirmation time does not scale with the size of the network. The mining difficulty automatically adjusts to one block every ten minutes on average.
Bitcoin compresses this drawn-out risk of reversal into a ~1 hour window (0 to 6+ confirmations). So if you're OK with a very small risk of reversal, you can accept payments instantly (i.e., after 0 confirmations). This is perfectly fine if you're selling meals, or domain names, or alpaca socks. If you're selling a car, and you want near absolute certainty that your payment will never be reversed, wait an hour or so for 6 confirmations. After 6 confirmations, payment has been reversed only one known instance in Bitcoin's history, and that payment was eventually returned to the merchant in question (so no merchant has ever lost money after accepting a 6 confirmation transaction).
Now, for consumers, it's a different matter -- there are advantages and disadvantages to Bitcoin. But for merchants, Bitcoin is a very clear winner. And many of us consumers are very happy to buy with Bitcoin.
Not to mention all the non-commercial uses for money transfers Bitcoin fulfills, most notably remittances.
By the way, if you have an idea for a decentralized digital currency with the protection against the Byzantine Generals problem [0] needed to protect against transaction reversals that also provides "full" verification instantly, I encourage you to develop your project. It has the potential to be a Bitcoin killer (then again, the network effect may be too strong...).
And finally, to correct a misconception, the time needed for 6 confirmations on the Bitcoin network will always take an average of an hour, regardless of network size. That's what the self-adjusting Bitcoin difficulty is all about.
0. http://en.wikipedia.org/wiki/Byzantine_fault_tolerance
What happens when the number of bitcoin transactions becomes too great for the network to handle? There is a finite number of computers, they can only process so many transactions at a time. If bitcoin became as popular as the US dollar, would there be enough nodes out there to handle a load of that magnitude? Or, for a more specific example: tomorrow every monetary transaction in the US is done using bitcoin, what happens?
I did appreciate your subtle sarcasm though. A++