Bitcoin DO NOT WANT!?

Economics Economics Questions
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Here’s some info on the gold market

http://www.kitco.com/charts/CPM_charts.html

What has given bitcoin its current level of success has a lot to do with people believing that the current systems are fine and the only thing wrong with it is government and central bank intervention. Obviously central authority intervention and money monopolies are what a lot of us want reduced or eliminated. So bitcoin has basically mimmicked today’s system and exchanged the central authority with an algorithm. So now we’re all free.

But what’s missing is the understanding that the reason there’s intervention today is that the system would not last without it. Why? Mostly because the paper or digits that are traded are worthless. It’s just paper and digits. If these central authorities stopped enforcing their use, people would finally begin to see the true value of what paper bills and digits really are.

Also, their is the desired success of the early adopters or those on top of the pyramid. They get them cheaper and they want them to go up. What happens when/if the value does begin to rise? People are going to hoard them. Why spend them if their value is rising faster than the prices? After this rise slows down, hoarders will begin to cash in. Some hoarders will try to hold longer, but eventually, these people that bought in cheaply are going to want their investment to pay off, so they’re going to liquidate.

After this liquidation occurs, the price will begin to fall precipitously. Will the bitcoins pull out of this last crash? Who knows. It depends upon how much people want to risk in order to be on top of the next climb. However, after the crash, will there come another bitcoin that claims better algorithms? And if more businesses are involved in this crash it should be much harder to entice them again, because I would guess that businesses are going to be much more conservative, since their business is their source of income.

And all of these negatives that are associated with physical money or receipts that represent it, these negatives can’t be eliminated simply by just endowing the paper withj value. And as far as a limited supply of bitcoins, nearly anything made by man can be limited. So why would bitcoins particularly limited thing be superior to anyother limited piece of paper or electronic signature?

Bitcoin can’t suddenly be above it all because it decides to forgo the real-world physicality of value. Beyond dealing with the phonyness of deeming a randomly limited blip as having value, you also have another party to your transaction. You’re not eliminating that liability.

If the free-market were allowed to work and we didn’t have central authorities purporting to protect consumers, I’m sure the free-market’s oversight on fraudulent activity would reduce this risk quite a lot.

This whole saga reminds me of the Bernie Madeoff scheme. He pointed out the great returns and how it could go on and on. And it did go on for a good while because of the government’s ineptitude. But once it was revealed that it was just paper and smoke and mirrors, billions were lost.

But at least bitcoin lays it out there. And like I said, the main reason I think bitcoin will have any success is because people today basically don’t understand money and they’ve lived in a era of the state-enforced ponzi scheme and so they don’t see anything particularly wrong with bitcoin except the goodness of ridding themselves of their central authority.

I could see my grandfather, if he was still alive, buying into bitcoins. Ha. Nope, too much commonsense.

I’m big into silver because of the currency turmoil and its increasing demand in technology and medicine. Gold is a lot higher because of it’s rarity, its history and because it is owned by central authorities.

SILVER

http://www.kitco.com/charts/CPM_silver.html

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Another issue being addressed by bitcoiners is the ability for people to decide they no longer want X. People could stop wanting gold, silver, copper, ice cream, bitcoins. Therefore, all are equally good. Bitcoin has known limits and can be traded easily, therefore it is superior.

I think this basically boils it down, does it not?

What I’m saying is that gold and silver’s monetary status has been qualified by the market over a period of thousands of years. Bitcoin was instantly promoted to monetary status. Why is it that bitoins haven’t enjoyed prevalent trading BEFORE it was endowed with monetary status? Why the riush and shortcut to get it here?

Personally, I couldn’t care less about gold or silver except when it’s in things that I may need or want. And even though it may cost $20 to mine an oz of silver and $1400 to mine an oz of gold, it’s not worth that to me, except as a portion of whatever product it is a part of that I want.

For example, if there is 1/2 gram of silver in a phone and that adds $5 to the cost (after it’s inflated by intermediaries/businesses) of that phone, I am willing to pay an extra $5 for that phone because it might not work as well as it does without that extra $5. Therefore I’m willing to pay that rate of about $27/oz (todays approx price).

Part of the reason gold is so inflated today is because it’s basically keeping step with paper money. Before this rampant ponzi scheme we’ve been locked into, gold was very steady in its price when denominated in less-inflated dollars. There’s a saying that with an ounce of gold in 1900 or 1950 or 2000 you could buy a very nice suit. And any additional inflation in gold’s value as money has to do with the instability of today’s currencies. Sensing a collapse or massive displacement from fiat, people are insuring themselves with gold.

The increased cost in its monetary side is in my opinion the potential cost of future market redistribution of gold. If demand for gold as a more active monetary ingredient increases post-currency upheavels, there is a cost associated with shifting the gold from less hands to more hands. A certain price has to be paid by those not holding gold in order to return it to more hands and have it carry out its monetary powers. Once things settle down and the holders believe that calm has returned or when they really need to sell, then as gold fulfills its role, the monetary part of its price will deflate. IMO..

163

Bitcoins can be devalued lower than gold, but they are more valuable as a medium of exchange for their many other attributes.

Pardon? You mean, “Why spend them if their purchasing power went up?”
Because snorting cocaine off of a strippers tits while surfboarding in Jamaica isn’t free. Follow?

People aren’t going to give up on their desires just because they could do more in the future, and if people choose to reduce their consumption of the worlds scarce resources, there’s nothing wrong with that.

I’m big into Bitcoins because they’re utility as currency is unmatched in the world. ( I own silver too, high five! )

You’re missing the big picture here. The world needs a good medium of exchange. Bitcoins fulfill that need. It really doesn’t much matter that you can’t use the Bitcoin software to make you a sandwich.

Other than the bajillion ways that have been already mentioned in this thread?

Please go back to the first page and scroll down to… Hold on let me count… The first post in this thread. You’ll find a comparison between gold and Bitcoin.

Because it was designed specifically to be a medium of exchange. That’s like looking at the invention of the cotton gin and being like, “Do we really want to use this to make yarn? Can’t we use this to make something else first? I mean, slow down buddy, who do you think you are? Jesus? Seriously dude, you’re ego is like at a 10 right now, and we want you at around a 5, so simmer down, I’m not even joking.”

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And again, what precisely could precipitate a loss of confidence in bitcoin.

I understand how any currency backed by gold could lose confidence–in the case where more gold-certificates were issued than there was gold to back it.

I don’t understand how bitcoin, the first currency literally immune to inflation, could face a crisis of confidence.

Again, loss of confidence doesn’t just happen. It is precipitated by some event. The certificate issuers can inflate, as can the fiat runners. Commodity backing simply gives you a way to get some of your money back when the people controlling the currency screw up so badly that the floor drops out.

Why not go around the problem entirely and choose a currency that can’t be inflated at all.

It was unthinkable in the recent past. Literally unimaginable.

Don’t import theories about money from past thinkers whom lived in an era where a non-material currency wasn’t even imaginable as if these theories included the domain of existence from which bitcoin hails.

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Well, ironically, there isn’t one person in a million who has an actual industrial use for gold. So, as far as their concerned, gold and bitcoin have equal industrial use–practically zero. All anyone cares about is will the next guy accept my medium of exchange.

Gold has thousands of years of confidence behind it. Bitcoin has four. Years.

Just a matter of time.

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I do not recall this. In fact I consider the supply of Bitcoin less elastic than that of gold.

I do not see how the state can use Bitcoin to defraud people who use it, quite the opposite, it demonstrates how to prevent it.

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I see that Smiling Dave still does not understand the regression theorem (which has the purpose of explaining the emergence of prices of media of exchange as a catallactic process) and the threefold Misesian classification of goods into consumer goods, producer goods and media of exchange it is based on. He still presents a theory of intrinsic value he himself invented as if it had something to do with the Austrian school, and still confuses deductive reasoning with empirical data.

But what is refreshing is that less and less people fall for his nonsense.

168

@Parunoyd (or however you spell it)

There’s always, always going to be one fatal flaw to any commodity money, and it’s wrapped up in the fact that they cannot be traded directly.

Show me a digital transaction done in gold.

You have a problem with fiat currencies backed by nothing, and well you should, but a commodity money is simply a version of a fiat currency that’s a touch more secure and little more.

The second you go to actually trade a gold-backed currency in the real world, no one wants to start carrying around gold coins again and doing all transactions in person. And that’s never going to change. That 18th century ship has sailed.

The problem then is wrapped up in representations.

No matter what commodity you want to use, you’re going to have to represent it. This means paper certificates and digital transactions.

Now, paper certificates serve just fine as money, even though their commodity value is nil compared to their exchange value.

But the guy who controls the printing presses can still inflate a commodity currency because real-world transactions can only realistically be done in representations. That’s never going to change either. You’re never going to be able to transmute gold into an electronic form and beam gold to another person. All the advantage of being a commodity currency is lost when you accept representations.

It’s just as easy to hyperinflate a commodity currency as to hyperinflate a fiat currency. Neither are immune.

Only bitcoin is immune to hyperinflation.

Therefore, it might be said that bitcoin is the first true money that mankind has ever produced. Everything else was a pretender to the throne–here finally is something that so nearly approaches perfection that Plato himself would’ve swooned in ecstacy as finally having found the form of money existing for once in the real world :stuck_out_tongue:

169

What can impair the monetary component of value except government mismanagement with the supply of it:

1: Political reasons (e.g.: Government outlaws it, throws people into jail for using it, which is highly likely in case BTC becomes politically/economically significant)
2a: Hacking (Not so much the BTC system itself, as the wallets of people. If people start saving big amounts in BTCs this will increase. And thanks to electronics and the internet such attacks could be done by a few people quite effectively. The biggest security issue are the users itself not how well designed the system itself is)
2b: Fraud (Don’t know of course how likely this is, but who really knows if the programmer hasn’t left some kind of back door in the code. At least the normal user like me never could be sure, and this is something that makes BTC for me that less attractive)
2c: If there really goes something wrong, whatever/whoever the cause there is nothing you could sue, no private and no public entity. The strength that no one is responsible for its issuence is also a disadvantage because there is no one liable.
3: Simple competition. (Competition in the money/currency market is heavily controlled by government at the moment so it depends mostly at what they will do. In any way there is always the risk that a competitor whether fiat, commodity or other more hip or technically better crypto is coming up and taking market share…)
4: Add all of them together, incorporate the fact that BTCs have no industrial component of value in them and don’t forget about market psychology (how fast markets can move at times) and in my view it is really quite risky to have lots of value in BTCs. Since the time I became aware of the fact that monetary value is not guaranteed but only industrial value is, I always thought about in what to save while keeping the spread between monetary value and industrial value as small as possible especially in times of permanent financial crisis mode like now. It really amazes me that proponents of BTC try to paint it as an advantage that with BTC this spread is infinite.

No I don’t deny BTC’s usefulness in times like this. And please don’t think I am saying you shouldn’t make use of it. But don’t believe any currency/money including BTC only can be destroyed by hyperinflation. If that was true silver never could have been demonetized, which means nothing more as a reduction of value to its industrial component.

So please use BTC in transactions, but please do me the favor and do not store thousands of Dollars in BTCs because you think that is the most prudent thing to do, and nothing (big) can happen to this value.

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Most of the knowledge I have of bitcoin is from your comments and discussions on the issue. I think it’s from your explanation of how bitcoin transactions are ‘decided’ by the P2P system.

171

So Skylien,

Which of the (imo opinion valid) problems of bitcoin do not apply to other currencies?

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If I can suggest one, I think outlawing would be more effective against digital currencies than physical ones. Even when it’s a distributed P2P type of network, you will end up hitting a sweet spot between low proliferation/use of the currency vs. shutdown of transaction servers.

I don’t think living in sweden or some other outside country where the currency could remain technically legal would be as effective a barrier as it is in the case of copyright protection, as I expect the government to crack down hard on what will undoubtedly be labeled as a fraudulent operation, or even counterfeiting.

I expect you could end up with with newsgroup or irc like communities (and to a degree torrents as well). Viable, but with no real penetration into a large mainstream user-base.

173

Don’t strawman me. Did I say that others don’t have problems? I only tried to refute that BTC is invincible as Anenome seems to believe…

I would chose Gold and Silver, because I don’t trust governments to manage Fiat, and they have an infinitely better spread between industrial and monetary value than BTC which in itself can cause volatile market movements triggered by small outside events, especially down. You can chose whatever you think is right according to your preferences.

Cheers!

174

Off the top of my head:

  • Rumors (founded or not) that the system has been “hacked” or is somehow controlled by .

  • Large-scale power outages. Almost the entire East Coast of the US lost power for a day or two in the last decade, so this is not that far-fetched.

  • Government interference. This could include attempts to regulate or ban to simply a strong propaganda campaign. Most people are going to do what their government says, and that includes not accepting Bitcoins.

  • If Bitcoins ever catch on to the point that they are widely used, there would certainly emerge Bitcoin-backed money-substitutes, as I really can’t imagine the desire to perform transactions exchanging physical cash will go away. That is, there will always be “offline” transactins. These money-substitutes would be subject to the risk of inflation, though admitedly, not to the extent that gold certificates are.

  • Something “better” comes along. That I can’t tell you what this could be is irrelevant. It seems as unlikely to you as the idea gold being replaced by the market did to Rothbard.

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But this can be countered by simply verifying that Bitcoin still works. Indeed, even if you panicked and sold your Bitcoins, that very act would disprove your fears, as it would demonstrate that it still works. So a panic sale and a rumour that it doesn’t work contradict each other.

Bitcoin can be used offline (e.g. Casascius coins, Bitbills), and there are also ways being developed to use it “off the grid”. Bitcoincard had demoed prototypes which do not require wall charging (solar) and operate via a mesh network. If anything, an outage penalises digital fiat, not Bitcoin.

This only works to a certain level. In order for this to work effectively, it would need to be worldwide, and also the impeding fiat money collapse must be prevented. It would also need to provide an alternative payment system that has sufficiently low transaction costs (while it is actually doing the opposite by increasing regulation, war on cash, war on money laundering etc). Neither of those seem to be likely.

The emergence of money substitutes is driven by transaction costs. The transaction costs of Bitcoin as a medium of exchange are difficult to beat with a derivative instrument.

Bitcoin is form-invariant, and indeed can exist in coin and note form without the use of a derivative instrument. This makes a demand for a derivative medium of exchange practically nil.

Oh, sure, this is a real possibility. I would not worry too much about it though. Not due to the likelihood, but due to the way market forces work. To worry about this is similar as it would have been to worry about floppies in the 90s or cassettes in the 70s/80s. They became obsolete, but there is no “crisis” anywhere.

176

Ya, this advantage is way overblown. The biggest benefit of using silver and gold as mediums of exchange is that they can’t be inflated. Bitcoins are even less inflatable.

But still! You can’t deny that if gold is suddenly repudiated, you could make a toilet out of it. It’s been scientifically proven. You can’t say the same for Bitcoins.

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With industrial use I of course meant every use of Gold apart from monetary use. Everything else wouldn’t have made sense. And this includes Jewelry, which is the biggest driver of the Gold price! Last year’s figures show (2011 was a year with a huge demand for investment purposes) percentages for industrial versus investment demand of 43/57. And on the average in the years before it was about 60/40. (I am not saying the price would move in exactly those lines, but there is nothing that would suggest a price drop that would in the long run be only 10% or lower from the actual price. And even if it was only 10% you could not afford to make a toilet out of it!)

So what exactly is overblown here, what is scientifically proven? How about presenting some facts instead of baseless assertions?

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Just for the fun of it: If Gold was priced only at 10% of today’s price this would make it approx. 160 USD an ounce. An average toilet has a weight I guess of about at least 15kg made of ceramic. Ceramic has a density that is around half of steel which makes it about 5 to 6 times less dense than Gold.

This amounts to a Gold toilet of about 82.5kg (180 pounds) with a value of about 424,380.00 USD!

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I was just saying it was scientifically proven that you can make a toilet out of gold if the value falls to practically zero. (Since it’s been done.)

This is an advantage on gold’s side, but in a free market Bitcoin would be used in the vast majority of transactions. Bitcoin has way more advantages in other areas.

But keep in mind that they aren’t exclusionary as some people say, there’s no reason one couldn’t store gold and silver as well as use bitcoins. They would all still be acting as a medium of exchange.

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if only we could find a way to eliminate gold’s mass and volume, it might be able to compete against bitcoins. I wish we could just imagine we did this and even though others would have to trust that we did this since they couldnt see or feel it, I’m sure that with the help of a computer monitor we could show that it does indeed exist. Only problem is finding a way to cut imaginary gold into 22 million pieces. I mean, convincing them that gold isn’t in it’s normal state is one thing, but making them believe we we’re able to cut it into 22 million pieces is quite another! Ah, algorithm!

And besides, gold wasn’t a priori money. I mean, being made money before it even exists is a very hard characteristic to top!

Can any of you guys monetize an imaginary thing and then limit it to 22 million pieces? If you can, we’re sitting on a freakin gold mine! Pardon the pun.

I just hope that a priori monetization of a limited imaginary thing isn’t proprietary. If it is, I guess bitcoin will have cornered the market. Hopefully the US government won’t protect their rights since such a technology could compete against the US’s a priori monetization of a monopolistically created imaginary thing. This is going to get interesting…