I've been thankful to have experienced the highs and lows of bitcoin -- it's been a tumultuous introduction to the internal psychology of investing. The key to my bitcoin-related happiness was to never play with more than I could afford to lose. If the price goes to zero today, I'll still be thankful for the many lessons I've learned.
As things are now (and as GP points out) speculation is probably the right word, not investment. From Wikipedia [1]:
Speculation is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest, or dividends.
Bitcoin is speculation. Not only is it speculation, but it's the kind of speculation where you can fail for reasons beyond your control and which no one knew existed. (See transaction malleability, which hit the reincarnation of Silk Road pretty hard.)
Losing your coins to theft or third party loss is simply spirit shattering, and unless people are truly okay with their coins literally vanishing, I would hold off on converting a sizable portion of your wealth into coin. It's easy to say that you'd be okay with losing it all, but the reality of it is much harder to deal with.
So I just want to clarify that my comments aren't designed to steer people away from Bitcoin. They're to remind people to be smart about getting into Bitcoin. It's still in the early prototype stage. You have to respect its dangers, or else there's this huge chance you'll lose whatever you decided to risk by getting into Bitcoin in the first place.
Which is why you don't risk more than you can afford to lose. People in the Bitcoin community says these words over and over again.
Nonetheless, if you're ideologically sympathetic to Bitcoin, just because you don't risk more than you can afford to lose doesn't mean you don't risk anything. Most of us can afford to put in a few hundred, or (depending on net work) even a few thousand.
Whether you agree with those restrictions or not, Bitcoin does not have them.
Bitcoin hasn't magically changed the laws of the world, it's not freeing anyone from restrictions. If you're using it in a manner to avoid taxes, launder money, fund terrorists or whatever, that's still just as illegal as if you were doing it with a briefcase of cash or gold.
Anyone opposing those things was breaking the law. The law is not as important as you imagine. Cryptocurrencies enormously erode the ability of the state to enforce tax law, this is a simple fact. The world may not like it, the world may not even realise it, but this is the state of reality now. Throwing up objections in the form of laws is beside the point entirely.
I truly do not understand people who in light of the history of the abuse of political power can honestly expect "it's against the law" alone to be taken as a serious objection to anything.
> Under "Operation Choke Point," the DOJ and its allies are going after legal but subjectively undesirable business ventures by pressuring banks to terminate their bank accounts or refuse their business. The very premise is clearly chilling—the DOJ is coercing private businesses in an attempt to centrally engineer the American marketplace based on it's own politically biased moral judgements. Targeted business categories so far have included payday lenders, ammunition sales, dating services, purveyors of drug paraphernalia, and online gambling sites.
Bitcoin on the other hand doesn't care about these things.
>Bitcoin on the other hand doesn't care about these things.
Bitcoin certainly has made itself quite a reputation for being the currency of choice for scammers, hackers, drug dealers, online gamblers, and child pornographers. Merchants who consider accepting BTC might care about those things.
Who cares if that particular case was tied to Operation Chokepoint? The fact that Operation Chokepoint is real and really targeting perfectly legal businesses should be enough!
> Bitcoin certainly has made itself quite a reputation for being the currency of choice for scammers, hackers, drug dealers, online gamblers, and child pornographers. Merchants who consider accepting BTC might care about those things.
The US dollar is still more popular for those sorts of things, AFAIK. Maybe some merchants will be dissuaded from accepting it for a while by those things. The question is whether enough merchants won't be dissuaded for Bitcoin to reach a critical mass of acceptance and use.
The nearly non-existent transaction fees are worth mentioning as well.
It's inconsistent to claim both.
Look at Zimbabwe Dollars or the Weimar Republic. There's no reason that can't happen in any other country and Bitcoin provides an alternative to government issued currencies or any other currency.
Edit: downvote for ...?
Ironically enough, the old Deutschmark is still traded in parallel in Germany, and since it's no longer issued or subject to exchange-rate fluctuations it's inadvertently acquired some of the characteristics people like about Bitcoin. To put things in perspective, there are more DM in Germany than there is global market cap of Bitcoin: http://online.wsj.com/news/articles/SB1000142405270230437380...
http://jpkoning.blogspot.com/2013/05/disowned-currency-odd-c...
Citation please?
Because I'm not even 30 and it's happened in some country at five times in my lifetime - that I'm aware of. Yugoslavia, Brazil, Argentina, Zimbabwe, Venezuela. I guess if you stay away from the ends of the alphabet you'll be fine. The US and Canada better watch out.
I think it is unusual relative to the number of countries in the world and the time involved. There's a list here: http://en.wikipedia.org/wiki/Hyperinflatio I count 21 examples in the last 50 years, of which half were directly corrleated with the collapse of the Soviet Union and most of the rest were in Latin America, a region with a long history of poor governance.
Of course Bitcoin can function as a hedge or a store of value, like gold historically has. But the majority of people who extol it for this purpose as in the developed world and the US in particular, where the probability of hyperinflation is very low. The closest we've come to a crisis of that kind in recent years is Cyprus, and (again) that's a place with an unusual political problem.
There is no such thing as "buy pressure" or "sell pressure" in liquid markets (BTCUSD is liquid enough to qualify). Buying and selling are two sides of the same coin. There are scenarios that push people to sell (as mentioned in the article, miners selling to pay for electricity), but the volume of such trade orders is just a fraction of the volume built up by speculation, and speculation goes both ways.
I would argue that bitcoin's default "price pressure" is up because there is no easy way to short it (for the average trader) and early adopters (who own a large amount of bitcoin) are extremely evangelistic holders and buyers.
The argument that bitcoin may not survive is a valid one. Not because it's not being adopted by merchants (merchants couldn't care less about bitcoin, they receive fiat currency), but because consumers are not using it to make purchases or transfer money. Consumer adoption is the real measure of how much the ecosystem is evolving. Merchant adoption is just pure marketing at this point, and I believe that companies such as Coinbase and BitPay that are pursuing merchant adoption aggressively are in the wrong business.
I feel nobody here likes to hear it and I feel like a lot of people in SV are tuning this out, but bitcoin is really, really struggling to find a relevant use case, especially with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either.
Bitcoin is great, for MERCHANTS.
But payments is a two-sided market. A winning product must appeal to both sides, the buyer and the seller. Bitcoin appeals to the seller at the expense of the buyer. Even if the blockchain technology overcomes all of its flaws, we would have bootstrapped a value exchange system that does not offer greater benefit to the one that exists today.
Many are making the flawed and simplistic analogy of comparing bitcoin/blockchain technology to the early days of the Internet... That analogy is not valid. When it comes to money, consumers actually want a central authority. They want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had in forever to adopt a system that does not provide them with significant advantages.
I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin or blockchain technology gaining traction with consumers, because it simply doesn't solve a problem for them.
It could be destined to eternally remain a store of value (like gold) or find targeted applications (like machine-to-machine payments). The underlying blockchain technology could be of more use if adopted by the banking system, for example, but that is still far in the future.
Any time you see a financial graph that isn't logarithmic you can immediately ignore it as garbage.
I wasn't saying the price was going to continue to linearly trend to zero. That would be impossible. I was saying I was an idiot for gambling that it wouldn't trend from $1100 to $400.
Compare: http://bitcoincharts.com/charts/bitstampUSD#rg360zczsg2013-0...
What looks like a huge fall to you in the old graph is actually revealed as a rather small fall compared to its history. Your point in the text on the graph is still correct, but it's not quite as bad as it looks there.
(I want to preface this by saying that I'm talking about people storing their savings in Bitcoin. If you don't care about what happens to your money, then it doesn't matter whether you trust Coinbase.)
The most convincing argument, I think, is that you're putting your faith in an entity that's not FDIC insured to hold onto your entire future and keep it safe. Your savings is your future. If you lose it, you lose your future. You'll have to exchange months or years of your life to get it back, as I now have to. There are many reasons that businesses fail, and it's important to never forget that Coinbase is a startup, and the fate of startups always hang in the balance.
There's no reason not to trust an entity that's ensured by the government (banks) with your savings. They won't vanish.
The only reason right now to trust Coinbase with a lot of money is if you're hoping the price will rise, as far as I can tell, because there's no other realistic application of Bitcoin right now unless you want to send some money to a friend, in which case you can just buy it as-needed. So it's essentially long-term gambling. Now, there's nothing wrong with that. I knew when I did it that there was a chance things could turn out horribly awry (though I don't think I fully appreciated how "down" the downside could be for me). But if you're going to do it, at least be smart about it: The coolest thing about Bitcoin is that you don't have to trust anybody but yourself to keep your coins safe. There are secure cold storage wallet solutions. Find one, use it. I've heard good things about Armory, for example.
You could counter that by saying "Oh, those are just drug addicts. Normal people aren't that dumb." To that, I can point at the example of the Mt. Gox collapse. There you have a case of people going from millionaire status to "looks like I'll have to find a job and keep it for a long time" status in the blink of an eye. One of the bigger losses was 4,700 BTC: http://www.reddit.com/r/Bitcoin/comments/1yv26o/gox_horror_s...
And lastly, you can't have it both ways. Either Coinbase is trustworthy enough to keep your personal savings safe, or it's insane to trust them with any amount of money that you care about not-vanishing.
You are asking the wrong question -- why should you trust Coinbase or anyone else?
The problem with Bitcoin right now is that it isn't convenient, even if you use these third party services. It's not convenient having to trust the services to provide you with convenience because if they fail, you fail.
But, ultimately, if you don't mind losing your money, it doesn't matter whether you trust Coinbase.
As far as I know (IANAL) there is no law or precedent which takes the value of stolen bitcoins into consideration while sentencing. There is also no history (AFAIK) of prosecution, of serious prosecution which takes the effort to follow up on stolen coins may have been "mixed" etc., in cases of BTC theft.
Given this, does not an online service (like Coinbase) which holds a large amount of bitcoin in "stealable" form present, to potential criminals, a lot of incentive to break in and take it all away? I, for one, wouldn't keep up to 5000 USD in such a place, at least till the time there has been some serious prosecution and proportionate sentencing of BTC thieves. But of course to each their own.
In April 2013, Mt Gox handled 70% of bitcoin trading [1] - they were a widely trusted, well known brand, operating in a stable legislative environment.
Coinbase today has what Mt Gox had a year ago.
Admittedly, coinbase also has some VC investors. If you believe, should they be hacked or robbed by an insider, that the VCs are going to throw good money after bad to compensate customers, you are much more optimistic than I am.
It's important to understand that Bitcoin is dangerous to you, and you need to respect its danger if you decide to buy some. You need to be using a secure cold storage wallet. You need to not trust services like Coinbase to hold onto your coins for you.
Growing up, I'd always heard stories about people who kept cash under their mattress because they didn't trust banks to not lose their money, which made me laugh. Now I get to laugh at myself for trusting anyone but myself to not lose my money.
Usually, when you lose money, you get something in return. Even if it's just an opportunity. A risky investment isn't necessarily a bad thing if it fails, because you may have stood to earn a lot if it turned out well.
The key thing to understand about Bitcoin is that you can lose all your money in the blink of an eye for a multitude of reasons. I've written in detail about why Bitcoin is dangerous to its users: https://news.ycombinator.com/item?id=7521906
Until there are good and convenient solutions to these problems, it's hard to imagine Bitcoin as anything but a vehicle for speculation. And it's a fine one, too. If you feel like gambling, there's nothing like the rush of seeing whether you're about to gain $50 or lose $250 in the next two minutes. And waking up at 3AM to check the price. (Most of the heavy moving seems to happen in the US off-hours, unless a big news story impacts the price.)
The reason I say it's a vehicle for speculation right now is because right now the most sensible course of action for people who are risk-averse yet still want to accept Bitcoin is to immediately convert Bitcoins into dollars. Indeed, that's exactly what Tarsnap does, and probably many other merchants as well.
And about the price: it seems mostly determined by a small group of people (probably fewer than 100) who have a lot of coin and who actively try to move the market in their favor. They've been following a rather simple scheme: dump a lot of money into bitcoin to jump the price up $50 or so, then sit back while everyone else reacts by jumping it up another $50, then sell off your newly-acquired bitcoin. Presto, you've earned some money. Possibly quite a lot of money. I don't know whether that strategy has paid off for the movers, but nonetheless it seems to be what they're doing.
The long-term price is anyone's guess. I'd say the most valuable insight I learned throughout this whole ordeal is that the market isn't logical, or if it is, you aren't going to be privy to the information it's acting on. The most obvious example of this was when people sold off thousands of bitcoins an hour or two before Mt. Gox published their update with bad news. At face value, it seemed to be a clear example of insider trading. When it happened, no one knew why the market suddenly dropped so much; it was as if the market suddenly went insane and lost faith in bitcoin. In reality, it was probably someone with a ton of coins who caught wind that hard times were about to happen.
Bitcoin is an interesting experiment. I like it a lot. I think it has a lot of potential, and that we need to figure out solutions to the fundamental problems like making it easy for people to manage their own wallets without risk of loss or robbery.