When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.

In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.

edit: I think I mean it's "use value". The value of gold if it were not used a store of value.

Even if gold loses favor as a value store, there will be some minimum boundary on its price based on its usefulness in practical applications. That is not true of bitcoin.

The GP was implying that bitcoin has a commodity value, which it does not. It merely has value as a means of exchange. What that means is that bitcoin does not benefit from same lower price boundary that gold does. Therefore, it is much riskier.

What good would bitcoins do for you after a Hurricane Katrina-like event when there is no communications network or electrical service to speak of? What about gold?

If that's true, 30/1600 is about 2%, yet gold is still perceived as a fairly safe store of value.

Also, the claim that "gold only became a currency when it was stamped" is wrong. The value of gold on the commodity markets today does include a value store component and none of it is stamped.

When the czar's family fled russia they didn't grab rubles, the grabbed jewels. Why? Because their currency was worth nothing but their jewels could be traded for value in a very transparent manner wherever they might end up.

1) Store of value. Much easier to store gold/USD/Bitcoins than the food you will need in the future.

2) Medium of Exchange. Can be used to exchange for real goods, thus avoiding the headache of barter.

3) Unit of Account. e.g. is easily divisible.

Bitcoins aren't great at #2, but gold is terrible at #3. If bitcoins prove to be a lasting store of value, then it will almost certainly be more "money" like than gold.

But I wasn't trying to measure currency dick size. I was just making the point that not being good at 2 doesn't necessarily hurt its ability at 1.

Fact is, if I had "invested" in 100 BTC only 5 months ago when it was hovering around USD$10, that would have cost me about $1000. And now it would be worth $10000. There are not that many investments that have that kind of return in such a short time. You'd have to be dumb to believe that people aren't doing exactly this. You don't see 1000% returns and just ignore it and wonder about its utility. Right now, it's a volatile and risky currency exchange being intentionally used to ride the rising popularity into a cash la-la land.

At some point people are going to convert this toy back to a real-world currency and take their winnings home with them. I don't know what's going to happen then, but I don't believe it will be good. Perhaps 'stabilizing' would be a good optimistic name for it.

Equating a currency to a game of chance based on independent events—now that's irrational thinking.

My conclusions might not be valid, this isn't something I'm an expert at, but I really don't think that's a good example.

Why, my dear fellow, that is exactly how every government-backed currency works today!

And, thanks to its inflationary nature, it becomes virtually worthless over time:

Although inflation has remained low in recent years, it ravages the value of paper money over time. A dollar in 1900 is only worth about $0.04 in today's currency.

Quoted from: http://finance.yahoo.com/blogs/daily-ticker/bitcoin-prices-b...

Of course Bitcoin is deflating - it was designed that way. And of course fiat currencies are inflating - there is no limit to how much can be printed except reason, which is apparently in short supply.

Complete collapse is entirely possible. If governments crack down on exchange sites that allow for convertibility - that'll pretty much be it. I'd be very surprised this hasn't happened. I think they are waiting for all the major players to be massively invested in bitcoin so that when they pull the plug it'll take a very long time for an alternative to rise from the ashes.

I hope this doesn't happen. But what world do we think we're living in really?

Now the speculators are in........

I'd say it has been that way for a long time. When I dabbled in the community 2 years ago it was already brimming with speculators. Early adopting evangelists looking to legitimize their hoards and speculators who'd have been gambling on leveraged ETFs or FX if not BTC.

There's a fork of Bitcoin which actually has this built in.

I imagine we could see an interesting future with cryptocurrencies, where people are essentially betting/investing on the stability of the framework/algorithm and demand on it. Multiple ones could exist, and you're hoping for the best return, or greatest stability.

What would be REALLY interesting is if essentially one of these ends up seeming a better 'idea' than US currency (the de-facto currency now)

I do believe that will happen eventually, but it's too early right now. Bitcoin works by the law of numbers - after all it's all numbers and math. When its tiny in value, its growth can be very high. When it's already huge, the growth will slow down a lot.

http://en.wikipedia.org/wiki/Logistic_function

Of course growth will probably come in fits and starts, not so smoothly.

Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).

IE: Deflationary Spiral. It becomes hard to be a merchant who accepts bitcoins, because everyone expects BTC to keep rising in prices.

People who bought a domain name for 1 BTC a few weeks ago from Namecheap lost a lot of money. They should have instead "saved" that BTC. Therefore, people are discouraged from using BTC as a transaction vehicle.

Currently, hoarders are the ones benefiting from BTC, but no one else is. No merchant knows how to value their services in BTC, not when there is this much volatility around.

Sure they are. BitPay reports 2 million dollars in sale this month. The rate of transaction is accelerating too.

What you meant is "they will horde more and spend less on goods / services", but sales and transactions are clearly accelerating. How do you account for this?

The US GDP is about $15 trillion, so about $1.25 trillion in transactions happen in a month. If you take M2 of about $10 trillion as the US money supply, about 12.5% of the US money supply turns over each month and 87.5% is being hoarded. If you take M1 of about $2 trillion as the money supply, about 62.5% of the US money supply is used in a transaction each month, with only 37.5% being hoarded.

Compared to 62.5% or even 12.5%, 0.2% seems pretty unhealthy.

It's entirely possible that 99% of the value of a bitcoin is a self-reinforcing set of asset-bubble expectations, but this is something that really didn't exist before, that we don't have great paradigms to explain, that is undergoing massive daily shifts in its usage. It is explicitly not a stable national floating fiat currency with people who circulate the money their banking system provides & pay their taxes in those notes & denominate their salaries and grocery bills in sticky quantities of those notes, and so it's not directly comparable.

I don't have to. The fact is, no one prices their goods in BTC. Its absolutely ludicrous to price goods in BTC in the current market.

I think BTC has utility as a currency for exchange however. But on that side, you don't want to be in the position of hoarding BTC. You hoard dollars, and then use BTC to transfer dollars between people. Services like Bitpay allow you to keep most of your money in hard cash.

That's not true, BTC has many benefits to bitcoin users. There's plenty of bitcoin-only services, but more importantly, it provides freedom for many people who are facing government regulation. In the long run, bitcoin enables all kinds of innovation (good example is reddit's bitcointip service, which wouldn't really exist without bitcoins).

1BTC used to be a decent tip at $5. Today that is a $100 tip I'm giving someone. Anyone who gave money to Bitcointip is suffering from the volatility in the marketplace.

A true BTC enthusiast will be happy when BTC stops moving. It doesn't matter what value BTC has, as long as it is constant. Only hoarders want BTC to keep going up and up in value.

That'll never happen, bitcoin is doomed by math and economics to be forever a deflationary currency, worth ever more and more over time as the economy grows while the supply of bitcoins doesn't.

It really doesn't matter if a currency is inflating or deflating. It just shouldn't change that much over time. The less it changes, the better. (or, if it is changing, then it should at least change consistently. IE: People expect USD to inflate at 3% so it should).

Since no one can predict the value of BTC next week, or hell... even tomorrow's price of BTC... it becomes a very hard to use currency.

Anyone who buys with bitcoin can replace their bitcoin with dollars, if they want to stay invested in bitcoin.

"I can BUY things with these? Wait... I can sell things? I just need to paste a hash?!"

So the real question you should be asking is, "Who would benefit from a Bitcoin failure, and could they amass that much computing power?"

Here is a list of client security issues: https://en.bitcoin.it/wiki/Common_Vulnerabilities_and_Exposu...

It seems like the biggest risk would be with the wallet websites, which is an issue that is present in other payment methods.

The biggest problem IMO is that there is no way to refund or right the wrongs done by an attack. If someone in russia or china steals half of the bitcoins, there is nothing anyone can do to get them back. I suppose they would all be logged and everyone could band together to block those BitCoins as payments, but that's probably not going to happen. That would be interest to watch play out.

You are not understanding the problem. Bitcoin is not a hash function, nor is Bitcoin a digital signature system. Bitcoin is a digital cash system, and so any discussion of Bitcoin's security must be based on the notion of security in a digital cash system.

There are two minimum security properties a digital cash system should have (informally): first, that the units of value cannot be counterfeited; second, that each unit of value can be spend by exactly one party at any given time. In both cases, it is commonly assumed that the attacker's work is bounded by some polynomial in the parameters of the system itself, so the system is secure if no polynomial time algorithm can break either property (but an exponential time algorithm might e.g. a brute-force approach). It is possible (and usually desirable) to prove that a system is secure using mathematical arguments, for example these systems:

http://link.springer.com/chapter/10.1007%2F11889663_20

https://ieeexplore.ieee.org/xpls/abs_all.jsp?arnumber=568944...

http://ieeexplore.ieee.org/iel5/5326/5550332/05443458.pdf

(Sorry that these are paywalled, you can probably find them elsewhere)

Unfortunately for Bitcoin, while it seems to satisfy the first property (but no security proof is out there as far as I know), it fails the second property. Double spending in Bitcoin requires work that scales linearly with the parameters of the system (the "51% attack"), which is basically worthless as far as cryptography is concerned. The fact that Bitcoin uses a secure hash function and a secure signature system is irrelevant because the problem is with the protocol itself.

An easy way to illustrate the difference between using a secure cryptosystem and being a secure cryptosystem is the "surreptitious forwarding" problem. Suppose you receive a message from your boss that was signed with his secret key then encrypted with your public key which said, "You're fired!" Now what you might do is to re-encrypt the signed message with another person's key and send that to them; they would now believe that they were being fired. It is not the encryption system or the signature system that you attacked, it was the fact that composing signing with encryption in that manner does not prevent such forwarding (but there are ways to do that). Bitcoin has a similar problem.

It's worth noting that a 51% attack would only allow double-spending, and it's not something that could be realistically hidden; it would be very obvious what was happening. In addition, the amount of computing power available to the bitcoin network is becoming significant enough that it would be hard to exceed, even with a botnet.

It's also worth pointing out that people still use Paypal, despite all the stories of frozen accounts and people never getting their money back. People also still use credit cards, despite not every instance of fraud resulting in the victims getting their money back.

https://en.wikipedia.org/wiki/TICOM

I agree that people may very well use Bitcoin despite a successful attack (plenty of people still use Hushmail), although I think a lot of confidence would be lost. Bitcoin has a lot of hurdles to overcome as it is, and the detection or announcement of a successful attack would add yet another.

A 51% attack is a possibility, and might be currently possible with the largest botnets known to exist today, but it would be pushing it. In future it becomes even more difficult.

It is not just about botnets (CPU "mining" is pretty slow); what do you think stops someone from spending their money on enough ASICs to pull off the attack? It is not all that expensive, maybe tens of millions of dollars in chips. Even if it were hundreds of millions of dollars, if Bitcoin were as threatening to the financial system as some people seem to think it is, that would not be a lot to spend on attacking it.

It is also important to recognize that the existence of an obvious polynomial time attack does not in any way rule out the existence of faster attacks, it only establishes an upper bound on the attack effort. The reason proofs of security in modern cryptography involve a reduction to an (assumed) infeasible problem is that it rules out all practical attacks (in fact, all theoretically feasible attacks).

Not all the tools we have for maintaining security are as good as public key encryption or symmetric encryption. In the world of bricks and mortar, $10 million buys you a lot of criminal clout. Is a safe deposit box safe against a determined attacker with that budget? Are all employees immune to million dollar bribes?

The law attempts to redress imbalances by making it difficult to get away with circumventing security to perpetrate financial crimes. The problem is not so much stealing from a bank, but getting away with it after the fact. The same problem applies to bitcoin if you want to execute a 51% attack; double-spending is financial fraud, after all.

Buying up $10 million worth of ASICs is relatively straightforward, but doing so in a way that can't be traced back to you is substantially more difficult. As well as the problem of trying to run that amount of hardware in secret, without a paper-trail, you'll also have problems in trying to convert any profits you make from the scheme back into fiat currency.

If one merely wanted to demonstrate the attack without profitting from it, then one could double-spend a small amount between accounts you own, in the same way that one could demonstrate an attack on a safe by buying one and then drilling into it. But that doesn't change the fact that there's a big difference between circumventing security, and illegally profitting from it without consequences.

They didn't make the goal but were not open the whole quarter so they may still be able to continue. I'll see if they post news or press release about it

The GDP stats for bitcoin is not systematically collected. The blockchain data only gives us a approximate picture.

So most people just rely on their guts and vague feeling about the size of the bitcoin economy. Bitcoin detractors tend to underestimate the size of bitcoin economy because they can't recall selling or buying goods or services. Bitcoin users tend to be more optimistic because they keep up with news of merchants opening up.

I think it would be very useful if somebody built a stats site dedicated to systematically report on economic activities occuring in bitcoinland.

Gold and silver stand in opposition to this statement.

You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment.

Furthermore, according to Gresham's Law, people keep "good money" (i.e. money that holds its value) out of the marketplace and spend their "bad money" (i.e. fiat) acquiring goods and services.

Real value of gold:

http://static.cdn-seekingalpha.com/uploads/2013/2/18/1019887...

That is very much not my idea of a "fantastic store of value." Not unlike bitcoin, its value appears to vacillate wildly. The S&P 500 looks tame by comparison, and also has the added benefit of a much higher long-run rate of return.

Also, I don't know what "real gold price" means. Some details of the measurement would help.

> also has the added benefit of a much higher long-run rate of return

When measured in dollars, which have lost 98% of their value since 1913.

The real value of gold was (relatively) flat until gold convertibility ended in 1971 because the price was being fixed by the western powers under Bretton-Woods. Ever after it's been on a non-stop roller-coaster ride. If you bought gold in 1980, far from its value being "stored" it would have lost half its value in 10 years even if you bought after the spike.

It sounds like you don't value low CPI volatility very much (perhaps CPI goods and services are of little interest to you), which is fine, but many would use CPI volatility as the definition of a "store of value" as opposed to a speculative investment.

> When measured in dollars

No, when measured in real terms.

> which have lost 98% of their value since 1913.

Nobody would suggest that dollars are a useful store of value. They are a useful medium of exchange and in the short term, a useful unit of account.

But still, gold has never dipped below its 1918 low on that chart. Twice it shot up as a hedge against paper inflation, but it never went below where it started.

Isn't that a terrific store of value? I'm talking about a time frame of centuries here. Not just a few years during a bubble.

And before you counter that we're currently in a low inflation period - we're not. If the CPI was measured using the same metrics that the government used itself in the early 80's, inflation would be running at 9% annually.

Gold and silver are commodities, traded like any other metal, and the historically-motivated obsession people have with using gold as a store of value makes it more difficult to acquire gold for industrial uses (which would be a real, productive use of the metal).

LOL.

In the two years I've been watching it I've seen no evidence that it's anything but an investment (and speculation) vehicle.

And there are a lot more not on this list. Bitpay alone (a Bitcoin payment processor) claims to have multiple thousands of merchants.

Furthermore, there is noone offering general groceries, household supplies or clothing, just niche approximations of those categories. Also critically lacking are complex B2B services(their professional services section is...well, not much to look at - I certainly would not be investing my business's money in any of them at this time).

You have to realize that the web is a long-tail ecosystem. There are tons of small merchants you have never heard of, while the biggest ones (Amazon, Newegg, etc) are just a few and represent <1%. What you call a "reputable" merchant exclude 99% of all merchants. Plus, the most reputable/biggest merchants will probably be the last ones to adopt Bitcoin (the bigger you are, the less likely you are to adopt a disruptive technology).

I invested in a payment system of the future.

If it ends up being used, I'll have (however many I invested in) BTC to spend, which could be worth significantly more or less than I paid for them.

If it ends up being useless, I'll lose my principal.