At scale, things gain stability. If a newborn loses a pound, that's 10% of their weight. If I do, it is .5% of mine.
You'd be crazy to use it right now for legal goods and services. The view of many Bitcoin critics (including myself) that it's horrible as a currency but a massive success as an investment vehicle seems stronger than ever.
you'd be crazy to buy weapons anonymously - especially if your government protects its people from harm by keeping them unarmed
you'd be crazy to trust mathematics more than governments because governments never lie, whereas numbers are made up all the time
The last of your lines is just conspiracy theory catnip for monatery cranks. The mathematics of a given e-currency can be favorable or unfavorable for a global economy. As it turns out, the mathematics of Bitcoin are absolutely terrible for the way the world's economy is run.
First of all these kinds of transactions need a vehicle like bitcoin, because using cash introduces a lot of middle men that dramatically decrease the efficiency of illegal transactions.
Second of all there is no way to send money right now for legal transactions without also introducing a bunch of similar middle men. I think square cash is maybe free right now in a promotional sort of way but it will not continue to be free.
Third there is no good way to do micro transactions right now...also because of middle men.
This seems like a disruptive technology that will displace a lot of middle men....
As long as it doesn't get hacked it at least seems like a pretty great idea.
The current BTC trade goes as: You --> some money handler --> exchange --> bitcoin --> a bunch of nodes which take a cut for processing a transaction (and 20 minutes to hit the network) --> exchange --> another money handler --> recipient.
What part of that seems like it has less middlemen? And oh yeah, very few of those parties are beholden to any kind of regulation or ability to seek remission if something is not as advertised.
However microtransactions cost even more than this and escalate as you have more small transactions.
Once you have bitcoins the transaction costs are now 0.
Getting USD to bitcoins is obviously hard right now because it is not really a currency yet, but somewhere between 0.2-0.5% is probably what it will end up being to convert USD to BTC, however once that has been done all subsequent transactions are now free forever.
I expect that bitcoins will be a lot like withdrawing cash from atms in the future except you will be able to do it from your computer or phone on your banking website.
Also if reputable dealers like amazon and steam were charging less for items bought via btc transactions I think a lot of people would switch over really fast.(This is of course after btc stabilizes once a bunch more money enters the market)
Those are US numbers. In fact, credit card costs are plummeting across the world [1] and every year more and more shops force a debit swipe where available (spoilers: more and more people) so they pay a dime instead of 1-2%. In addition E-checks are basically free.
[1] http://www.csmonitor.com/var/archive/storage/images/media/im...
Further as sibling notes the argument that bitcoin is free from middlemen is not very convincing. Middlemen would have to exist in a bitcoin world both because of bitcoin's very nature of requiring them and because of the same reasons middlemen exist in the world today.
Most people can't mine, and would have to eat fees.
Further to that, BTC is a terrible step backwards for consumers as chargeback is not there. The cost for amazon to introduce consumer protections like this (that may be required by law in some places) is likely to dwarf credit card fees.
The transaction fees you are talking about are so much smaller than credit card companies they are basically negligible. Also they keep dropping lower.
The difference with BitCoin is not that you can't have escrow or middlemen, but that the middlemen services can compete, and are optional.
Think of the difference in waves occurring in a big pool vs a little pool, when a person of the same weight dive in it. In a little pool, a person dives, the waves are proportionally very big. In a big pool, the person diving hardly affects the water in its totality.
The same applies to Bitcoin. The more each coin is worth, the less big buyers and sellers will impact the overall market.
So, if Bitcoin had a total market capitalisation of, say, 10 trilliion, then even big players would only affect a few Satoshi as they buy in and out of the market, therefore the fluctuations would decrease.
Of course, there's still be people who had held on to their coins from the very beginning, so their leverage on the total market would be big, still. But such people would be very few and far between, because everyone has a selling point. Also, it wouldn't be in their interest to rock the boat very much, just as it isn't in any central bank to buy too much gold in one go, because their movements affect the market price much more than people buying and selling at the margin.
Actually I was thinking about this yesterday, and I think if/when goods start to be priced in BTC (not just "fixed USD value converted to current BTC equivalent") that could help anchor the value of BTC.
When prices in some system have to be updated constantly to reflect another metric (say, USD), it may be more efficient to just use that other metric in the price. This is what happened in Zimbabwe.
Governments routinely force their citizens to use a currency under state control. One of the ways they do this is by insisting that taxes are paid in the national currency.
Once things begin to be priced in bitcoin, proponents hope its value will stabilize. This might happen. It did with fiat, but fiat had the advantage of a stable start and slow detachment from gold.
The real funny thing to me is, I believe the currency could do its job just as well no matter what the value per bitcoin. And I don't think volatility matters at all, because companies like BitPay assume the volatility risk for you (both the merchant and the consumer)
I don't know that bitcoin can be used as a store of value, especially for future adopters. But it is definitely a great method for real transactions of wealth.
All else being equal, it seems to be designed to be a perfect store of value because it is deflationary by design. Obviously it is far more volatile and risky than something backed by major world governments at this stage, however it does come with certain guarantees that no central bank could credibly make (if the crypto holds). For people who have had their wealth stolen by governments this could prove a very attractive pull.
There is also a second problem in that BTC is deflationary by design. Deflation leads to hoarding of currency units while reducing the velocity of money and suffocating the economy. Most people will agree that deflation is the worst thing that can happen to an economy which is why central banks will do everything in their power to avert it. It is hard to imagine how a stable Bitcoin economy could develop under these inherently flawed circumstances.
Well, no, its not; the purest form of fiat currency is a currency backed purely by government fiat (hence the name).
Bitcoin is one of the purest forms of speculative "currency".
It's backed by the tremendous amount of electricity required to run the transaction processing network (ie. "mining"). Remember this is the world's largest distributed supercomputer.
BTC is a proxy for electricity, that's why mining equipment ended up at ASICs so quickly- in mining, less W = more $$. By a lot.
The USD is currently backed by absolutely nothing. There is no way we could print the $2000 trillion dollars[1] of derivatives now in existence. You couldn't cash out all of it or even too much of it.
The USD is "fake". And high finance is not ignorant to this fact, at all.
[1] Or more, no one actually knows. Goldman Sachs would have the best idea of this.
The USD (and usually most other currencies) aims to be indirectly backed by the corresponding amount of goods they represent within the currency zone and their legal status.
BTC isn't even indirectly backed. It just exists. And that's okay for its purpose.
"Store of exchange-value" != currency, and BTC is currently behaving best in that role. Admirably, really- see how it's spreading like hotcakes in China. That's as a store of exchange value, not a currency.
You can't turn your gold "back into" ore or your diamonds "back into" carbon. The cost of an airline ticket is mostly determined by the current price of fuel.
When BTC starts to be used as a currency in earnest we can revisit the issue. Although at that point, you will be able to exchange your BTC back into electricity or other commodities through speculation or arbitrage. Which you can actually do directly right now if you know the right people, anyway. Profitably.
How?
Please explain?
It makes mining more expensive, and some people may be switched off mining as a result, but the same number of BTC will be made.
Nope, the rate of bitcoin generation is fixed, it's nothing to do with how many people mine or what the hash rate is.
Huh? Why not? Surely you could just buy some solar panels with bitcoins, or convert them to another currency and then buy electricity from the grid.
With BTC you can't go to some miner (=issuer) and exchange it back into the electricity that was used to produce it.
I can buy gold with the US dollar, but it doesn't mean the US dollar is backed by gold.
Obviously our debts exceed this, but that's a different issue. Say everyone cashed in at once - they'd get a percentage of our debts, not zero, since there's still material value.
You can't "undo" Bitcoin's power -> money exchange, though. There's no gold sitting in vaults providing some real, physical insurance. If I lift this brick, I've done work (but nobody cares) but even that has intrinsic value as it can be "redeemed" by lowering it, powering something. Bitcoin is different.
They barely exceed 1 year's economic productivity from the US (~15.58 trillion USD).
And since the US is not going to stop being a country any time soon (and such a thing would be a calamity which makes national debt completely irrelevant anyway) it has a very long-term ability to make repayments.
And this is ignoring the fact that each year the US basically reinvests heavily, since GDP grows while the debt does not (necessarily). For example, current GDP growth of 2.2% means the US GDP increases by ~$344 billion per year. Conversely the value of all US debt per year decreases due to inflation - currently about 1.2% meaning the US debt effectively decreases by about $188 billion USD per year.
This is all somewhat beside the point, but it pains me to see people proposing the US has debts exceeding its capital and productive value as an entire country.
And anyway, I'm talking absolute worst value, not any sane measure.
It is backed by the stability of the U.S. government though.
That's not a backing, that's gone.
>> Remember this is the world's largest distributed supercomputer.
Doing make-work to protect itself against other supercomputers.
BTC is no different from anything else.
This is a red herring. You also couldn't print the money to pay for all the patents now in existence. Or all the copyrights in existence. Or even all the software now in existence. These things still get bought and sold in USD on a regular basis.
>> The USD is currently backed by absolutely nothing.
At the base, USD are backed by the fact that one can only pay taxes to the US in USD and US bonds are denominated in USD.
HDTV's have had strong deflation for years, but I still have one.
If however you hold your currency and everyday its worth more, besides the bare essentials there is barely an incentive to spend it. Also there is no guarantee that the HDTV will become cheaper, however it is guaranteed that a deflationary currency will gain value the more you hold on to it.
Inflation and deflation pertain only to currency not products.
Growth deflation: an enduring decrease in the real cost of
goods and services as the result of technological progress,
accompanied by competitive price cuts, resulting in an
increase in aggregate demand. A structural deflation existed
from 1870s until the cycle upswing that started in 1895. The
deflation was caused by the decrease in the production and
distribution costs of goods. It resulted in competitive price
cuts when markets were oversupplied. The mild inflation after
1895 was attributed to the increase in gold supply that had
been occurring for decades.The point is that the more-for-your-money effect does not stop even discretionary purchases like TV's from happening.
Also, why bother to invest money if you can just sit on the cash and benefit from everyone else's economic activity?
Deflation bad.
The lack-of-guaranteed-taxability risk is a larger one, imo. But I know it's possible to build a kind of wrapping/middleman service on top of Bitcoin, to give one example, if a government wanted to, and legally require citizens to use it in order to ensure their income/sales are tracked and automatically taxed (with fees taken out automatically to act as tax inflows to that gov). It's physically possible, anyway, without requiring any physical change to the protocol or blockchain. Just the Ages Old solution governments everywhere have used: the threat of violent force for non-compliance.
Also Bitcoin can already be split into 10e8 subunits (Satoshis)
2. they can be split further, if ever needed. which is what I just said. if enough people agree to it and enough people migrate forward, via cooperation and "this-will-only-hurt-briefly" actions
It's not simply the quantity of available currency that is the problem with deflation, it's the appreciating value of currency compared to goods and labour.
It is a difficult situation because it appears that when people take the time to learn about it, they become big fans of bitcoin but also start worrying about the total collapse of the fed and the USD. I am trying to understand the argument, but I remain skeptical.
It is very interesting to watch and play with though.
Nothing lasts forever - and if anyone argues otherwise, I've got some Roman Denarius to sell them (At twice the price of their gold content).
Whether or not this happens in my lifetime, and whether BTC is worth speculating on is another question altogether.
(Denarii was a silver currency.)
I'm no historian, but I'd wager the denarius never collapsed the way - say - the Confederate dollar did. It probably just became rarer and rarer in circulation as old coins were melted down to mint new ones, and then one day it was worth more as a store of historicity than value
In all seriousness, if you really believe this, I suggest you pick up a copy of that book. History doesn't repeat itself, but it does rhyme, and you'd be surprised just how similar this time is.
[1] http://www.amazon.com/This-Time-Different-Centuries-Financia...
If somebody sues me, and I offer to pay my debt in bitcoins, the court may refuse to recognise this payment. But if I pay in the national currency, the court is required to recognise this payment.
This is part of the legal system in every country. It's one of the mechanisms governments use to force citizens to use the national currency.
While it is quite clear that Bitcoin has "value" as long as people are willing to trade it (i.e., indefinitely), there is still no reason to assume that it will ever stop having these extreme fluctuations.
To the contrary, I'd say that, as time progresses, we observe Bitcoin having the same problems that the gold standard had, mixed with an additional proneness to speculation.