For now its swings are like the Zimbabwe dollar

Bitcoin has an approximate "intrinsic value", which in economic terms is a bit above the cost of mining. Current market price has been very far from that.

Bitcoin market right now is pretty much the definition of a bubble. Beware. In a "bubble" market, your money can disappear overnight.

But again: that's not Bitcoin's fault. It's the fault of idiots vastly and irrationally driving up market prices.

This is really a textbook lesson in why Wall Street does not represent the "real" exonomy.

The current cost of mining is a rough replacement cost of bitcoin (and thus, in a sane market, ought to be a ceiling on its market value, since if the exchange cost is higher than that, you are better of mining then buying), but since mining isn't inherently reversible its not an intrinsic value.

Modulo time preferences...

But yes, bitcoin's intrinsic value is that it is the only method to pay transaction fees to have work done on your behalf by the bitcoin network. I don't know how to price that, though.

It IS "value", because the resources used for mining have measurable value, and can be traded for things other than Bitcoins.

It may be an indirect measure of value, but it's still a measure of value.

It is value, but its not value of bitcoins. It is the value that would need to be sacrificied to replace the bitcoins by mining, but its not value that can be recovered from the bitcoins, so its not intrinsic value that supports the market value of bitcoin.

Intrinsic value, as the term is used for currency, is value that you can recover from a currency without trading it -- e.g., the use-value of gold for ornamentation or industrial uses is intrinsic value.

You can trade Bitcoins directly for more hardware to mine Bitcoins. So it IS a reversible transaction, and Bitcoins are DIRECTLY (not indirectly) valued at approximately the cost of mining and distribution.

Don't confuse "indirect value" with "indirect measurement of value". They are different things.

The value for which you can trade a currency is its extrinsic value. Insofar as "intrinsic value" is meaningful, it refers to the value you can derive from a thing without exchanging it with someone else.

> You can trade Bitcoins directly for more hardware to mine Bitcoins.

Yes, you can buy things with Bitcoins. That's the definition of a currency's extrinsic value.

> So it IS a reversible transaction

No, if mining was reversible, you could recover the resources expending in mining bitcoins without trading the bitcoin to someone else in the market, the way you can make industrial or ornamental use of gold in your possession without trading that gold to someone else for industrial tools or ornamentation.

> and Bitcoins are DIRECTLY (not indirectly) valued at approximately the cost of mining and distribution.

"Direct value" isn't a well-defined phrase, and isn't the one that was under discussion. Intrinsic value of currency is better defined, and is what was being discussed, and bitcoin doesn't have any of that traceable to its mining cost.

The "value" here isn't "indirect". Only the method of measurement.

This is economics, not quantum physics. The method of measurement (as long as it is rational and consistent) does not change the value being measured.

So what? That is about the farthest thing from a valid analogy I've seen in a long time.

The difference between it and Bitcoin here is that no one is claiming that automotive exhaust has intrinsic worth due to the resources expended to produce it.

The VALUE is not indirect (i.e., extrinsic). The METHOD OF MEASUREMENT is indirect. Those are two different things. One does not imply the other.

If I measure the "worth" of your automobile in units of "old Chrysler convertibles", that doesn't mean your automobile has any more or less economic value than if I measure it in helium balloons. The method of measurement (if it's done properly) does not affect the actual value.

In the case of Bitcoin, it CAN be traded directly for goods, not dollars. There is nothing REAL distinguishing it from any other commodity, such as rice. The value is roughly equivalent to the cost of production + distribution.

I take that back. There IS one difference, but (at this time) it is minor: that is the ultimately limited supply, but that isn't even remotely close enough yet to affect a RATIONAL market.

An EXTRINSIC value, on the other hand, and to use Wikipedia's example, is like the "value" of a song played on a guitar. It has its own subjective and economic values, but that is completely separate from the cost of manufacturing the guitar. This is NOT even remotely the same situation as Bitcoin.

Here some cases where coinbase uses the original price even after a price increase:

http://www.reddit.com/r/Bitcoin/comments/1qlvgj/psa_rest_eas...

http://www.reddit.com/r/Bitcoin/comments/1qlvgj/psa_rest_eas...

http://www.reddit.com/r/Bitcoin/comments/1cxmuf/bought_5_btc...

And in this current case, coinbase used the new price even though the price decreased. So whether the price increases or decreases, coinbase is taking a loss and gives the money to the consumers.

Look for an increase in this kind of whinging in the very near future, and it won't be fun for anyone.

Kudos to Brian and team for getting on top of this and solving the problem quickly. They executed the order as originally promised, admitted their mistake, and gave him a credit for the inconvenience.

I've executed many transactions with Coinbase and although one of my transactions was delayed briefly, I've been very pleased overall with the service.

They are go much farther than most other Bitcoin exchanges and services, which barely have any support channels and have frequently stolen user money entirely.

With that much spread and at prices as high and fluctuating as much as they currently are you cannot expect to take 10 DAYS for a transaction of this nature.

Honestly, looking at this from the outside what is the difference between this an actual larceny? A large purchase comes in while the commodity is priced high, the commodity is not purchased but instead funds are held on to while the price drops and then the bitcoins are purchased at the lower price and the company pockets the difference...

Not even saying that foul play truly happened, but instead saying you cant run a business whos actions LOOK indistinguishable from foul play and expect to stay in business...

If you're in a business where you can tell customers i lost 30% of the value of your transaction due to a mistake on our end its eventually going to turn into a scam, even if that wasn't the initial intention... its just too much temptation

This is not good for coinbase, even if it was an accident.

I agree this is not good for Coinbase, but I am also far less surprised or indignant than many posters here seem to be. This is what the early stages of most markets look like, with fuck-ups and manipulation galore. Read a book on the history of the NYSE (and later, Amex, which was called the "Over the curb" market because it consisted literally of people shouting orders at each other on a street corner in NYC) - this is far milder than the stuff that went on then. At least Coinbase seems to be exhibiting incompetence rather than the naked greed and malice that characterizes many other nascent markets.

If an exchange gives users an SLA stating "orders will be fulfilled within X business hours" then that's a contract between two parties. If the exchange says "yeah, we'll get around to it someday and you agree to deal with that" which is the usual intent language in the small print then you don't have much to go on if there is a delay, other than trying to raise a public outcry in the hopes they will back down.

edit:grammer

My theory? Proprietary trading. The CoinBase guys were probably trading on behalf of the company and screwed up royally, taking a big hit, so they decided to try and pass that loss onto customers or until they balanced the books

They should simply wire back the money to end this matter and blame a back-end gremlin.

As a gesture of goodwill, maybe comp the guy $100 credit, cash, starbucks gift cards, whatever.

They've actually made it worse now by executing the trade but only after a public outcry.

The whole point is that 'comparatively small' players shouldn't be allowed to take up insane amounts of volatility; if you accept consumer's money then it would be reasonable to require to put that $25mm as a bond to pay out your debts, and put a ceiling on how much deal volume you're allowed to hold if you've got only tiny amounts such as $25mm.

I'm an avid user and big fan. I've tried a lot of alternative products, and none compares to Coinbase in terms of reliability and overall experience.

Sure, they screwed up. Brian owned up to that and fixed the issue quickly.

I just think some of the anger at the market swing is being wrongly directed at Coinbase.

You keep mentioning market swing. Market swing is relevant if OP had the bitcoins in his control which clearly was not. So while the market swung, he lost money not because he was sitting on his ass but because he could not do anything about it to minimize a loss. See the difference ?

You clearly have some agenda for saying things you say. Noone is that stupid.

Again, not saying that this is not a major screw up.

I just think Brian and crew deserve more support than they are getting.