> And yet Bitcoin value continue to raise. If history repeats itself, we should see 1 Bitcoin levels at around $2,000.
It's 2007 I have a house I bought for $300,000 which is now worth $600,000, would you like to buy my house and in two years you will make another $600,000? If there's one thing about real estate in the last 10 years it's that it's proven all those naysayers like Shiller wrong.
Isn't money a valuable good? Buying goods and providing liquidity to them helps everyone. If you dig well it's the same thing as every other (things you would call) investment.
It's not surprising that it's rising in value. People are holding on to ~12M coins (worth approx. $2.4B) and are hyping it up so that more people buy them.
The more people that buy them, the more the price will go up, the more that they'll be worth, the more that people will buy them....
2 million coins have changed hands in the last 30 days: http://bitcoinity.org/markets/list?currency=ALL&span=30d And that is just on these exchanges, not even counting other places of exchanges (coinbase which is probably the 2nd largest coins seller in the US), or purchases (Bitpay signed up 10 thousand vendors!), etc.
If this rate is kept, the entire existent volume of bitcoins, a bit less than 12 million, would change hands in the next 6 months.
It doesn't matter if it is 1 coin changing hands 12 million times, or 12 million coins changing hands one time each. Volume is volume. And it proves that not that many coins are being hoarded.
What you haven't shown is that the market is liquid when it comes to cashing out. Not too long ago someone dumped a bunch of coins at once and the market cratered in a matter of hours.
That's the only statistic that matters: how much USD-equivalent is being injected into/out of system. That tells you whether they're being hoarded.
"What you haven't shown is that the market is liquid when it comes to cashing out".
I showed it. When 2 million coins are changing hands per month, it means 2 millions coins are sold/"cashed out" (and 2 millions bought).
"That's the only statistic that matters: how much USD-equivalent is being injected into/out of system. That tells you whether they're being hoarded."
No. If the rate of transactions per user remains constant, and if the user base grows, you would see exactly that: more USD being injected in the system, than being taken out of it. This would not mean there is hoarding, but simply that the economy is growing (which is exactly what is happening). Again when you see a single Bitcoin payment processor like Bitpay reaching the "10 thousand vendors signed up" milestone, it is hard to reject the claim that the Bitcoin economy is growing...
This isn't quite right. The rate of production has increased, because the computing power is increasing at a very high rate between difficulty adjustments. Blocks are being solved faster than they are "supposed" to be, statistically.
It won't last, eventually the increase in computing power will taper off, but that's the state of things at the moment.
>the rate of production is fixed, so no one would have predicted that.
IIRC, the arguments actually went that GPU miners had their equipment already paid for, and so could afford to hoard their mined coins, but that ASIC miners, who were paying thousands of dollars for their equipment, would be forced to sell their coins immediately to pay for their equipment & electricity.
I'd dare say the majority of GPU miners did invest in new equipment. I'd venture that there were plenty of nerds who were interested in mining that didn't already have rigs with decent GPUs already.
Who wants to talk about china?
Over the last few days the volume of transactions on btcchina has doubled. Gov run chinese media outlets have been surprisingly positive about btc. What is going on? One of the potential uses of btc is capital flight, and that is something that china has been incredibly strict about with their capital controls. Why aren't they clamping down?
I'd like to see Chinese wholesalers and manufacturers accepting Bitcoin for orders as I think this would be a huge positive indicator for Bitcoin. I think the incentive is there, cut out the middle men (banks) who charge exorbitant exchange rate and transfer fees and the customer/business can both save. This would possibly be the most meaningful utility for Bitcoin to date if it happens.
It's a pretty cutthroat and competitive industry from what I gather as well so Bitcoin could be interpreted as a creative way to be even more competitive.
If this does happen, hopefully the incentive to accept Bitcoin for orders would trickle down the supply chain as well.
The volatility is probably a problem though, if you're operating on narrow margins volatility might be an unacceptable risk unless you're able to come up with a process to sell them fast.
Individual resellers on Taobao don't play on small margins but on specialization and service. They sure compete on price but also on reputation, maybe even more.
So if clients would like to pay in btc, I see them allowing it easily and accepting the risk. However I don't see the lambda Chinese girl paying her purple furr stocks in btc.
Various banks have programs to collateralize chinese assets and offer a loan based on those assets.
eg. You collateralize $10 million in Chinese assets, you get a $8 million dollar loan from a bank branch in another jurisdiction.
Capital controls have already essentially be thwarted by the market, the second item is that BTC actually provides a great public ledger for amounts that would be unfeasible for the usual controls like FINTRAC.
It shouldn't really be called bitcoin so much as bitledger. You also have to consider that factions within the party may think bitcoin will generate more capital inflows rather than capital outflows.
Do loans like that really defeat capital controls? The "owner" of the money has changed, but the location hasn't. The bank giving you the loan is playing a very long game, because they still can't move the collateral out. Right, wrong?
Not really, as soon as the loan is repaid the bank is whole. The loan originates in a non-Chinese country so when the loan is extinguished the bank has the value of the loan plus interest.
Only if the loan defaults does the bank run any risk of having capital trapped in China. Worst comes to worst they use the capital in China to originate more loans in China. Any bank offering this service has a presence in China so it's not a big deal anyway.
It doesn't have to be a long game as long as they can unwind their position over a longer time frame and with less frictional costs than the individual, which wouldn't be surprising for a large institution.
This seems contrary to all of their previous behavior. They remain committed to a strong dollar because that keeps their stuff cheap and generates employment for them, though at significant economic cost.
Agreed. China is flush with dollar-denominated assets. Besides, if the dollar weakens it will make Chinese goods more expensive in the US and cause labor unrest in China.
I tried to buy bitcoins when they were $60. I look for sites that would sell me bitcoins for USD. It was so hard and the ways to buy them were so damn complicated. I had to sign up for a 3rd party site to import bitcoin to mtgox. The 3rd party site needed me to upload my personal identity information to verify my bank account. I was ready to do that as well, except they said it'd take 10+ days to verify. Also someone explain to me how that is anonymous when they have all my information if I had uploaded my driver's license and my bank account information.
I got frustrated and just stopped looking to buy bitcoins. I was aware of irc channels too but I just don't trust them.
And then there was money gram, what the actual fuck, the fees were so high.
I could buy them, if I send my money to an account in a foreign bank in japan. Such bullshit.
And this fluctuating price isn't very impressive either.
I experienced similar frustration when trying to buy bitcoins. I ended up using localbitcoins.com, and had an excellent experience.
The site matches up private users (by geographic location by default) wishing to buy bitcoins with those wishing to sell. It offers "feedback" ratings for traders, and an escrow system where the site confirms your coins have been sent to it and placed in reserve, and these get released to you once the seller confirms receipt of your funds, either by texting a code from their phone or by using the website. There were no onerous fees, and my entire trade was completed within hours. Typical trading methods would include internet bank transfer (which is what I did), or even meeting in person with cash (riskier but more anonymous I guess).
>Also someone explain to me how that is anonymous when they have all my information if I had uploaded my driver's license and my bank account information.
Nobody claimed it was anonymous. And companies acting as "money transmitters" (or who the feds decide to consider as such) have a bunch of AML/KYC regulations they are required to follow, hence the whole ID thing. You can enhance the anonymity of your coins in various ways, typically by services which chop them up and shuffle them between many addresses to obfuscate their trail in the blockchain (so-called "mixers").
>And this fluctuating price isn't very impressive either
What concerns you about it? For many people I guess the short-term fluctuations aren't such an issue (e.g. those playing the long game with their bitcoin investment; or those only holding coins for a short time to make a specific purchase, particularly where the sales platform offers a hedging feature like Silk Road apparently did).
Why was I voted down? My suggestion is an often overlooked, very simple way to acquire bitcoins. No signing up. No proving your identity. No linking bank accounts. Just sell stuff for bitcoins.
I tried buying bitcoins by going through Liberty Reserve. They got shut down the week after I transferred the money there, with the couple thousand I deposited still in the account since I wanted to wait for a good opportunity. It was some awful timing, I lost a hefty amount in transaction fees and now need to wait years for the LR court case to finish before having any chance of recovering my money.
Coinbase is very easy to use. It'll take a while to get to the level that you can do instant purchases. They have a max number to sell per day so if the market is volatile you can't participate that well through Coinbase. As an entry point it's very professional. It does both me that there is no password verification on initial signup. What if you made a typo?
Same here, I've been watching bitcoin for a while, and thought about tossing a few hundred dollars at it to play around with the technology, and to leave a couple of coins in case it catches on over time. However, the process looks like a nightmare.
I expect things to be instant. Why can't I buy a few bitcoins with my credit card and have them in my account within the next few minutes? Why do I need to go through this lengthy verification process? Why are there countless complaints about people having difficulties converting bitcoins back into dollars? I understand a lot of this is outside of bitcoin's control, but with these kind of hoops to jump through, I can't see it ever catching on. I expected more, and the entire thing feels unpolished and amateur. When people recommend using craigslist or ebay, dealing with random strangers and paying a 25% premium just to get a simple coin, it's a failure.
I had the same experience as you and was very excited about it. means that we are at the beginning of the adoption where the friction is high and not everybody can get in.
If you have some used video games you can sell them for Bitcoin on my site halfpricedigital.com It's an easy way to get BTC fast. You just need a free Coinbase account.
Silly hyped up bitcoiners. Let's totally short this virtual imaginary currency thing. I mean, just look at the graph! What goes up always comes down!
until it doesn't
Value is entirely subjective, all money is imaginary and built on a trust. For bitcoin, this means trust that the network is healthy, the protocol works, the transaction system is effective and has advantages to competing systems, and that others understand and share these thoughts. However, bitcoin also reduces the trust required in several areas (this is one of its advantages): chargebacks, control of your account (it is immensely difficult for third parties to seize bitcoins), and stability of the monetary policy (systemic incentives were designed to strongly resist manipulation of the algorithm, and seem to be working well so far).
Edit: This isn't to say bitcoin will go to the moon. It could very well fail for a number of reasons. However, it is also something that deserves careful consideration. It has shown surprising resilience. People are working hard at building augmenting systems. It is programmable money. The potential applications are hard to fully fathom.
The fact that the Gox gap is closing makes me suspect that a lot of this rise is coming from new money. I'm guessing few new Bitcoin purchasers are buying through Mt. Gox, which is driving the price up on other exchanges, and closing the gap due to Gox's illiquidity.
In other words, Bitcoin's popularity is massively increasing in China, as we speak, and this is what is causing a surge of the exchange rate. Other observers have noted this as well:
My pet theory is that a good amount of the early coins are effectively "dead" with either the keys lost, brain wallets forgotten or the back-up USB keys long since formatted (or you know, you got arrested and the encrypted wallet is seized as evidence and revealing the key or otherwise moving the coins would basically be an admission of guilt)
It's easy to set up triple redundant cold storage and promptly place multiple paper backups in different safety deposit boxes now when the price is rounding $200; but how many people went through this amount of effort when bitcoin was still considered a joke or nifty social/economic experiment and traded below $4 or even $.04
Even better; how many people stored them in an insecure manner and have since lost them to a scam/virus/offline attack.
Those are all risks that come with using Bitcoin. I'm sure with time we'll see lots of improvements. For now a good way to store coins is by using paper wallets: http://www.bitaddress.org/ -you can print them yourself using any printer. Some say your keys shouldn't even be on any computer until you're ready to use them.
But for the rest Bitcoin is like cash. You lose the key you lose the cash.
Most times when one person "loses" cash another person "finds" it, leaving the money supply unchanged. When a private key is lost all the coins in that wallet are lost effectively forever. If this happens with large accounts the potential for it to effect the overall economy cannot be ignored.
Well with my paper wallet analogy, if you lose your private key, someone else will find it as well. But anyway, there are enough divisible Bitcoin units that this doesn't pose itself as being a huge issue.
When the network will be hit hard by large amounts of bitcoins trapped behind lost private keys, I'm sure there will be some implementation changes to the Bitcoin software in order to free up the coins and make them go into circulation (to be mined).
For example if an address hasn't been touched for 20 years (death? lost key?).
A while ago when 1 btc was < $0.1 usd, there was a site called the bitcoin tap (or something like that) which gave away free bitcoins for experimentation. I was too lazy to save my free bitcoin :<
On a related note, ever heard of the bubble theory of money? The theory goes, that good money is essentially a bubble that can't be popped easily. People compare Bitcoin to the tulip mania, but that is a wrong analogy, given that tulips can be cultivated by anyone to any degree -- whereas Bitcoins are capped by design.
Tulip mania involved surprisingly few tulips! The primary instrument being traded was what we would now call a tulip futures contract. It seems like a silly thing, but we currently favor units of sovereign debt (or, if you prefer, units of the future ability of the government to tax its citizens).
People say that too, but the amount of crap alt-coins demonstrate just how far ahead of the curve Bitcoin is, and by the network effect it is the one that really matters.
Litecoin is good for getting in and out of Bitcoin w/o staying in cash, when you suspect sudden movements in Bitcoin.
Remember Ripple? Mindshare keeps falling on that one.
Nothing stops anyone from making their own personal variant of Bitcoin, however. Or 10 of those variants. Or a million. In other words, the limit applies only within a single system, and there is no limit on the number of such systems.
"convincing enough people that the variant coins are worth something is hard. Very hard."
Somehow, people managed to be convinced that Bitcoin was worth something back in 2009. What makes the current situation different? Whatever convinced people that Bitcoin had any value in the first place might convince people that some new alternative you started this morning has some value.
Obviously an altcoin would have to be as much better than Bitcoin (in the ways people care about) as Bitcoin was better than the preceding stuff. A system that is decentralized and doesn't require mining could have this property.
"does this process not bootstrap the bitcoins into having some initial value?"
No, because nowhere in that explanation is there any mention of demand for the mined bitcoins. If nobody were willing to accept a Bitcoin payment, the cost of Bitcoin mining would be irrelevant because the value of Bitcoin would be zero.
1. Bitcoin has good utility value as a currency. You can transfer it to anywhere on the planet, it's decentralized and has a monetary base cap. Tulips are de-cetnralized at best, but are otherwise quite a bad currency.
2. The tulip mania lasted only one season. It went up, peaked and then crashed. Bitcoin is closing it's fifth season and it had several major dips of which it came out stronger than it was before. Absolutely no similarity here.
3. This is getting old. Come up with something new please, will ya?
Rock solid? A system that requires vast and increasing amounts of the world's energy to be devoted to it just to achieve a vague notion of security? A system that can be attacked in polynomial time (but let's just say that is not a problem; after all, we never defined security in a way to preclude such things!)? That is your definition of "rock solid?"
>requires vast and increasing amounts of the world's energy
"Vast" is hyperbole, IMHO. It might in fact on net conserve energy, by, e.g., reducing the need to haul cash around in armored vehicles and the need for things like bank buildings. It takes a lot of energy to build and operate buildings.
For Bitcoin to be secure, you always need more energy to be devoted to honest mining than is devoted to an attack -- and that ignores the energy spent securing Bitcoin wallets (which is fine to ignore, as it is tiny by comparison). In the limit, half the energy output of the entire planet would have to be devoted to Bitcoin for it to remain secure, though I doubt that any economy could sustain such a situation.
By comparison maintaining security for paper money requires substantially less energy than attacking paper money, even if you include the energy devoted to fighting theft (the analog of the energy devoted to securing individual Bitcoin wallets). The energy spent on counterfeiting detection is far lower than the energy needed to counterfeit modern paper money, and Chaum showed the world how to create digital cash that is even more secure against counterfeiting, with security against double spending, and that allows for anonymous transactions, while still requiring far less energy to be spent on security than would be needed to attack the system.
So no, there is no hyperbole here. Bitcoin is a very inefficient system. It might work in practice, but that does not make it efficient, nor does it even make it an improvement over what we have now. The only think Bitcoin has going for it is that there is no obvious central authority (I say no obvious central authority because in practice, the Bitcoin developers have as much power over the currency as a central bank -- they can e.g. cause a block chain fork at any time, as they accidentally did a few months ago).
In the classical economy spirit one could expect that the mining power supply and demand will be optimized by the invisible hand of the market. It seems to me too that there might be less costs and negative externalities implicitly bound to bitcoin operation as compared to paper money.
You keep dismissing the incentives that Bitcoin gives, which should also be considering part of its security. The only rational attacker that could have an interest and resources to stop Bitcoin is a nation-state. But even then, another nation-state could jump in and protect it. We can't know what will happen until it happens. The field that you want to use to model everything is too narrow for Bitcoin.
"You keep dismissing the incentives that Bitcoin gives, which should also be considering part of its security"
We do not speak of "incentives" in other contexts. When we talk about encryption, we do not spend our time pondering the "incentives" for not attacking our cryptosystems -- we create encryption systems that cannot be feasibly attacked regardless of what motivates the attacker. When we talk about secure multiparty computation, we do not talk about what might motivate the attacker, we only talk about how to prevent attacks.
There are historical counterexamples to the idea that we can analyze a cryptosystem's security in terms of the attacker's "incentives." A famous and well-known example is the German Enigma cipher from WWII. After the war, German cryptographers were captured and interrogated (the TICOM operation), and one of the things they revealed was that they knew that Enigma could be attacked, but did not believe that it would be worth the effort. Even the assumption that the attacker will act rationally is bad -- we should be secure against irrational attackers too.
"We can't know what will happen until it happens"
We can, however, design systems that maintain their security properties regardless of what happens (at least under standard cryptographic hardness assumptions, though sometimes we can even get information theoretic security). ElGamal encryption is secure against any polynomial-time chosen-plaintext attack -- provably so. The GMR signature system is secure against any polynomial-time adaptive chosen-message attack. For a very strange construction that illustrates how we can defend against attack strategies we cannot even imagine, consider this work on non-malleable commitments (the construction is on page 13; it is very strange, but the strangeness is key to the security proof, or in other words there are possible attack methods that nobody is aware of that the construction prevents):
"The field that you want to use to model everything is too narrow for Bitcoin."
Yes, things are very easy when you have no clearly-specified goals, requirements, or constraints. How can there be any technical criticism of Bitcoin if this sort of response is considered valid? Anything anyone says is wrong with Bitcoin could always be dismissed as being "too narrow."
> we should be secure against irrational attackers too
Right, of course it would be better to have something indestructible. But so far it's "good enough" (passes the reviews of its individual components, has resisted for years as a system, but wouldn't resist an irrational attacker). And I much rather have this than the previous system, which is insecure by design (ie: your funds can and are systematically stolen through inflation and other means). Maybe you live in a very good country, where you don't have to worry about such issues (or you live in a regular country but are just not conscious about it?). But most of the world (including myself) doesn't, so Bitcoin is welcome as is.
Perhaps so, but what I was originally replying to was a claim that Bitcoin was rock solid. There is an enormous difference between "good enough" and "rock solid."
"I much rather have this than the previous system, which is insecure by design (ie: your funds can and are systematically stolen through inflation and other means)."
Perhaps so, but as I have noted elsewhere, Bitcoin is not a fiat currency killer. Most businesses that claim to accept Bitcoin payments are actually accepting fiat currency payments. Most adults still need to pay their taxes. There are strong incentives to issue loans in the currency that the courts deal in i.e. fiat currency.
Basically, think of it this way: if Bitcoin exchanges were to disappear right now, what would happen to Bitcoin? What reason is there to think that Bitcoin will ever reach a point where it is not utterly dependent on the existence of exchanges? When even people who want to adopt Bitcoin are only doing so with the help of services that automatically exchange Bitcoin payments for fiat currency, why should we believe that we can ever live in a world where Bitcoin stands on its own two feet?
Finally, let's assume that there is an economic theory that supports a system like Bitcoin i.e. a currency that has no central authority and no intrinsic value. That theory should motivate a security definition. As a point of reference, consider Chartalism (a key part of modern monetary theory), which basically explains why fiat currency works (in a nutshell: the government issues the money and requires you to return some amount later on via taxes), and a key security definition used in the academic work on digital cash (in a nutshell: you have security if it is infeasible to deposit more money with the bank than was withdrawn [this can be stated more formally]). Note the very clear connection: the central authority issues the currency and decides its validity when it is "deposited."
So, to bring things full circle, I give you this challenge: present an economic theory to explain systems like Bitcoin, and use that theory to motivate a security definition that Bitcoin can be tested against (or better yet, proved to meet).
> Basically, think of it this way: if Bitcoin exchanges were to disappear right now, what would happen to Bitcoin?
If Bitcoin doesn't replace all currencies (I don't expect it to do that anyway), it can be used as digital gold (in fact I think you can expect higher price increases from this use case, than from every day transactions). Currently I would love to be able to save in gold, but I can't for many reasons. My government banned it, so I can no longer buy it in a trusted bank (if such thing exists). I can't buy it from other individuals like me, because it's difficult to divide, so you can never get the amount you wanted. You can't import it from other countries because you can't hide it from customs. You can't buy it in the black market either, because they will sell you golden bars filled with tungsten. And all this is for buying. When you want to sell it you will have similar problems. Bitcoin fixes all this, and you don't really need exchanges for this. In fact I never used one (international wires are banned).
Let me think about the security definition. I don't promise you anything, but I'll give it a try when my mind is clear.
> A system that requires vast and increasing amounts of the world's energy to be devoted to it just to achieve a vague notion of security?
Consider the current system of government fiat and credit: the US dollar requires vast armies and navies, the vast and expanding Federal Reserve apparatus with its system of member/franchised banks, employees of the IRS, the US Treasury, the Secret Service (I'm redundant, I know). Millions of people are dedicated to propping up the "full faith and credit".
I'd be surprised if the energy required to keep billions of ASICs humming is more than the energy required to keep millions of people humming.
Further, the fractional reserve system is far from rock solid. It appears to be solid, until a tipping point of confidence is reached, at which point it falls like a house of cards. It's the definition of a con game.
"Consider the current system of government fiat and credit: the US dollar requires vast armies and navies, the vast and expanding Federal Reserve apparatus with its system of member/franchised banks, employees of the IRS, the US Treasury, the Secret Service (I'm redundant, I know). Millions of people are dedicated to propping up the "full faith and credit"."
Let's set aside the issue of whether or not the military is needed for the dollar to remain valuable and speak strictly about security here. You have mentioned no less than three security goals:
1. Preventing counterfeiting
2. Enforcing tax payments
3. Preventing theft
Now, let's see what happens with Bitcoin:
1. Counterfeiting is replaced with double spending, and you need at least as much energy to be devoted to fighting this as would be needed for an attack.
2. Bitcoin does nothing to reduce the energy needed to enforce tax payments, it just shifts the goalposts slightly.
3. Wallet theft is a real problem, and Bitcoin itself does nothing to combat it; you still need to devote energy to securing your wallet, no different than depositing money in a bank.
In other words, two of the three security goals that you mentioned are not addressed in any meaningful way by Bitcoin, and the one that is addressed still winds up requiring far more energy than is needed for fiat currency. Even if paper money turns out to be too inefficient, Chaum's research in the 80s and 90s showed the world how to create digital cash that simultaneously allows for anonymous payments, prevents double spending, and requires substantially less work to secure than it does to attack (exponentially so, in fact). The difference, of course, is that Chaum's designs all called for a central bank in the system, which you already need with fiat currency.
"I'd be surprised if the energy required to keep billions of ASICs humming is more than the energy required to keep millions of people humming."
The problem is that the number of ASICs that need to be powered on will increase as the attempts to attack Bitcoin increase, until eventually half the energy output of the planet is being devoted to ASICs. That is not the situation with fiat currency, as noted above.
"Further, the fractional reserve system is far from rock solid. It appears to be solid, until a tipping point of confidence is reached, at which point it falls like a house of cards. It's the definition of a con game."
Except that the "confidence" is not in the banking system, but in the legal system that supports it. Fiat currency's value stems from tax laws, debt laws, torts, and so forth, and when people talk about "confidence in the government" what they really mean is "confidence in the government's ability to enforce the law." If you truly lack such confidence, try this: stop paying your taxes. As long as people believe that failure to pay their taxes will result in losing their property and freedom, people will continue to demand payment with fiat currency -- the only currency they can use to pay their taxes. Likewise with people who have to repay loans (you would be insane to issue a loan in a currency that courts do not deal in), people who have been ordered by courts to make certain payments (again, this will be in whatever currency the courts deal in), people who must pay parking tickets, etc., etc., etc.
The vast majority of businesses that "accept Bitcoin" are actually accepting fiat currency payments, via a service that exchanges Bitcoin for fiat currency, and only because that allows them to accept electronic payments with lower transaction fees compared to the alternatives. That is how pervasive the "house of cards" is.
In other words, there is no particular technical or legal feature of Bitcoin to differentiate it from another system. Bitcoin just happens to be the most popular and receive the most press.
If you cannot identify a particular, distinguishing feature of Bitcoin that accounts for its popularity, why should we believe that this is not a bubble?
I could make teddit.com, a reddit clone by copy & pasting their entire git repository at https://github.com/reddit/reddit. But I doubt anyone would use it, because of network effects. The same thing applies to bitcoin.
Your point is undermined by the fact that reddit hasn't lived up to its hype (and I believe its estimated valuation has gone down lately). Myspace was supposed to be worth hundreds of millions of dollars a few years ago. A large current userbase does not a stable value make.
That's like saying "what differentiates Facebook from other social networks? It just happens to be the most popular. What is stopping someone from creating a better social network, resulting in a migration away from Facebook?"
Can you identify a particular, distinguishing feature of Facebook that accounts for its popularity? You can, but many modern day competitors have most of the same features, plus additional ones. Everything that they do is pretty easy to replicate.
Both Bitcoin and Facebook may be outcompeted some day in the future, but that doesn't make them bubbles.
1) People with investment in hashing power tend to hash on bitcoin
2) If another coin were to come along (as they do, ask me about Terracoin) the speculators would find it.
3) The coin would be vulnerable to attack from those speculators who control even a tiny fraction of the hashes of Bitcoin.
I'm not just talking about double-spend, I mean someone (or several someones) with a large amount of hash power (say, each individually much smaller than 51% of total) coming along to service the network for a short while, driving up the difficulty, and getting away with a lot of coins while actually processing transactions for a comparatively short amount of time.
TRC, as a network with usually several terrahashes[2] hashing constantly, had to implement some controls[4] to prevent this kind of attack.
When the coin is more profitable to hash, the speculators find out, they bring their hashes, and it drives the difficulty up.
When the difficulty goes up, a slog ensues (the per-hash temporary advantage of mining Terracoin dries up) as the speculators take their hashes elsewhere and the remaining sloggers have only to hope that they can provide enough TRC at low cost[3] such that there is never an advantage to speculators, and thus the network can experience organic growth bringing in more permanent hashes from those who support its development.
The controls only limit the mobility of the difficulty (it can't shift up by 4x or down to 0.25x of the last retarget)
So when the slog is particularly bad (high difficulty), or when the hashing hordes are particularly voracious (low difficulty compared to coin price)... instead, it can increase to 1.25x or decrease to 0.75x -- you have to watch the network pretty close to see when people are getting over on profitability, but when they do you can still feel it for days.
The effect of not being the largest network seems to be that your difficulty goes up and down, not always just up up up. It's hard to find long-term difficulty reporting.[1]
Of course when bitcoin spenders are willing to wait up to 10 minutes for blocks, and Terracoin targets 2 minute blocks, even "network's running slow" seems pretty fast in relative terms, as long as it's not uncontrolled adjustment.
They must be doing something right, they're still/currently the most profitable Alt-SHA256 coin, even if the share prices have taken a serious dump.[5]
PPC has better features than BTC, but people haven't heard of it yet[1]. That said, BTC may win by being "good enough" and having a strong network effect.
How does this prove it is a bubble? If anything, isn't this evidence for the opposite? I expected the price to drop dramatically after the Silk Road shutdown.
Not really. The market was well-aware that SR was an illegal enterprise which could end at any time. The risk should have already been priced in. To a reasonably efficient market, good news is not good news if it was already predicted, and bad news is not bad news if that had been predicted instead. What matters is the extent to which the news is better or worse than predicted.
In SR's case, the news was better than one would have predicted. Despite it being the worst-case scenario - the server seized intact, Ross's laptop seized unlocked, all outstanding balances confiscated - it wasn't that bad because Ross's personal savings do not yet seem to have been taken, the current seizures will not be sold until the trial is over, and the bust was not due to breaks in either Bitcoin (they didn't even bother with blockchain analysis in the indictments!) or Tor (as far as we can currently tell) but to errors and overwhelming hubris on Ross's part, so SR could be and was quickly replaced by a flood of clones/competitors (at last count: BlackMarket Reloaded, Sheep Marketplace, BuyItNow, DeepBay, Budster, & Black Flag are all actively buying & selling; in addition, The Market and Silk Road Reloaded are expected to come online in the next few weeks/months).
Looking forward to it. Bitcoin almost certainly will crash sooner or later, and the pricks who have been insisting that bitcoin is JUST a bubble will all be patting themselves on the back for being "right all along", even if t never falls to what they were saying were vastly inflated values, and even if it recovers again soon after. Which it likely will.
There are two things that can kill bitcoin: a dteermined attack by a major world government, and something clearly better (from the point of view of its users). I'm betting on the second.
i agree that there is likely something better down the pipe, but at this point almost 5 years on, BTC is finally gaining traction and awareness from even non tech savvy people. The entire ecosystem is not going to be easy to duplicate.
Bitcoin is fiat, it's not backed by anything of real value and doesn't have a government or a strong (and I mean national-government-kind strong) player behind it that is willing to devote actual resources to prop it up (which is what all other fiat monies have and which is why they usually stay around for a century or so, after that they either become obsolete or their value greatly diminishes due to inflation). It has all of the Aristotelian properties of money (durable, portable, fungible), and some extra ones too, except intrinsic value. So it's not money according to Aristotle. When a better system comes along (and it would be trivially easy for that to eventuate, imagine, e.g. China or a major corporation or - even better - an industry association offering an altcoin backed by gold, agricultural land, shares, face time with celebrities, mentoring time - hey these are good ones! etc.), the value of bitcoins will go to zero as everybody will want the new, better altcoin that has at least some intrinsic value. The same death spiral cannot happen in the case of government-backed fiats when a new fiat is introduced, for a number of reasons. Bitcoin is inertia-backed fiat. I'll take the government-backed variety any time.
There is no such thing as intrinsic value, all value is subjective, and Bitcoin most definitely has subjective value; otherwise it would not be exchanged! If you define "intrinsic value" as something like "has subjective value for a great majority of individuals," then Bitcoin does have intrinsic value as a way to easily and quietly send wealth without requiring a central middle man. There are also numerous theoretical ways in which it could be made useful (colored coins, for instance.) I don't understand how people can look at Bitcoin and not see that it has some use, even if they believe that use is overblown.
That's not what the word "fiat" means. A fiat is a decree. An order given by an authority. In currency terms, this usually means a decree given by a government that a certain currency will be used.
It makes no sense to say "Bitcoin is fiat" and then to say it doesn't have any government or strong player behind it. It's one or the other.
I personally think critical mass has been reached, and unless someone actually cracks the protocol (which I seriously doubt) and brings down the txn network, BTC is here to stay.
Quibbling about the current valuation misses the point. The secure transfer mechanism is the real value, and is not getting shoved back in the bag. Bet long on BTC and I doubt very highly you'll regret it, even if you get in at 200US and lose over the next few months.
Again if you're looking at BTC as e-gold you're missing the point.
The value is the txn network and that isn't going away.
Price volatility is irrelevant to the long term value of it as a transaction vector of last resort for a huge number of applications.
The significant rise of the value of Bitcoin despite its volatility, for the last 4 years, has proven that the market doesn't care that much about volatility. Bitcoin is being adopted and growing regardless.
Bitcoins bought with US dollars last year buy over 40x more than if the dollars had been saved. Bitcoin is here to stay for as long as the internet is.
Not really. Basically everything that was Broadcast.com was shutdown within 8 years. So they basically paid $5b+ to run a service that lost money every year for a few years until they finally just quietly dissolved it.
I mean, the broadcast.com guys made out like bandits, the buyers, not so much.
The difference though is that Enron insiders were engaging in immoral and illegal activities. Bitcoin on the other hand is provably not a scam; it is an existing and backed commodity.
Market manipulation as an insider is impossible, as there are no insiders; manipulation is only possible by attacking infrastructure or accumulating enough BTC.
Future bubbles and crashes are likely, but I predict it's going to continue to bounce back pretty much forever. Only if many major governments began to criminalize it, or if some new somehow "better" cryptocurrency came out, would it be in risk of complete deflation.
It's not backed[1], and it's not a commodity. It's a collection of bytes that has value because a small minority of them are being accepted in exchange for real products, and at present a much larger number of speculators are willing to bet on more people wanting them in future. And as you've pointed out yourself, there are two very obvious and likely future scenarios in which it would become very difficult to buy anything with BTC.
[1]The "mining" is a clever hack against crashes in that it makes speculators reluctant to divest their BTC holdings for less than they've spent acquiring the BTC. But if you can't reliably convert the BTC back to GPU time (assuming you actually wanted it) it's still intrinsically worthless.
Go look at the top 250 addresses, a _majority_ of them have never been spent from. There isn't any conclusive proof that the #1 address (111,111 BTC) belongs to DPR, but it is clearly linked to SR in one way or another. I'd be willing to bet a solid amount of my own holdings that those coins are effectively "dead" (private key lost) along with a good portion of the rest of the addresses that haven't been touched since 2011, or have flat out never been spent from.
Everyone is touting the 12 million number for total coins in circulation right now and 21 million as the maximum amount. In practice both of those numbers are going to be significantly lower.
> There isn't any conclusive proof that the #1 address (111,111 BTC) belongs to DPR, but it is clearly linked to SR in one way or another.
It's been linked to Ross/altoid's Bitcointalk posts, and has a sum consistent with the first year of SR commissions. That's all as conclusive evidence as anyone needs for it.
It hasn't been removed yet. The DPR story has just started - the password-crackers could turn in success any day, or Ross could decide that he'd like to cut a decade off his near life sentence. All we can say is that it's currently not on the market, which is exactly what we could say before the SR bust.
Because the people who were prescient enough to figure out that there was immense unrealised demand for such a system are surely anxious to offload their now increasingly valuable stake in that system, right?
I sure am, back when I was mining and buying at around the 1$ mark I thought to myself; self, you know this is all just games and popcorn, but there'll always be a bigger sucker out there and some day they'll come along and buy all this stuff you're now building, so suck it up and tolerate the jet engine whine of the fans, you'll be rich in the long run.
2 million coins were sold in the last 30 days: http://bitcoinity.org/markets/list?currency=ALL&span=30d and yet the price rose from $130 to $200... So a few extra "hundreds of thousands" of coins being sold would not have been able to significantly decrease the exchange rate.
Why? It's now harder and harder for the average person to get hold of a bitcoin. That fewer, richer people are now spending money to get more bitcoins isn't going to reduce the price if those players aren't liquidating their bitcoins.
For "average" users, mining has been prohibitively difficult for a while now. CPU mining has been worthless for years. GPU mining has also been mostly worthless, unless you picked (or happened to already have) one of the few cards that perform well.
So anyway, I think we're at a point where the mining difficulty has little impact on the price. Newcomers are going to buy coins, not mine them.
What I always find very interesting is that we had a difficulty jump of ~40% in the last few days, closely followed by a (so far) ~40% increase in price.
Is it crazy to think that BTC are largely supply-bound, and BTC miners have just upped the price to the new barely-profitable level?
You can most certainly up your price. The only question is how the market responds.
Miners have zero incentive to sell their bitcoins for less than the cost of producing them. Left to themselves, the price should approach the minimum cost of producing bitcoins (since they do have incentive to undercut each other as much as possible).
Speculators could respond to a price increase by miners by dumping their inventory on the market somewhere between the old break-even mining price and the new break-even mining price, undercutting the miners and lowering the price. This would go on until either the speculators exhausted their supply of cheap bitcoins, or the miners were all driven out of business.
The real question is how the supply of the miners compares to the supply of the (active) speculators. If the miners are the principal supply of new bitcoins, and speculators are by and large just holding their bitcoins until some future time when the price is even higher, then the miners could totally up the global price by upping their own prices.
I think the parent meant that miners have zero incentive to produce bitcoins if they can't sell them for at least the production costs. Even if they sunk a big pile of money into their mining rigs, if they can't sell the coins for the marginal cost of producing them, continuing to mine is just throwing good money after bad.
Yeah, the word for businessmen who sell goods at less than the cost to produce them is "bankrupt". I don't doubt more than a few miners have lost quite a bit of money selling below cost -- probably most without realizing it -- but I have to assume they have all been weeded out by now, given the notorious fierceness of the mining world. Selling BTC below cost might help stave off bankruptcy for one billing cycle, but on the next you'll be deeper in the hole than you were before.
If selling under cost makes the difference between being $10000 in debt and $1000 in debt then it matters. The latter is much easier to deal with on a personal level, because individuals tend to have support networks / savings.
I'm guessing here, but I think mining is currently on the level of individuals and not corporations.
I was talking more about depreciation of capex than marginal cost. Almost all ASIC owners are facing losses and some of them are inventing rationalizations like the idea that they can force the price up by not selling (even though the price cannot affect the mine vs. buy tradeoff).
the price is up because the miners cannot sell at prices lower than this as the mining difficulty has gone up immensely...same as gold...if you have to do sophisticated digging then you will do it only when the price of digging is less than the price of gold...it will only go up more if the mining difficulty continues at the same pace
Bitcoin can be seen as a sort of digital gold. Credit cards / Paypal / etc. could work exactly the same but be backed by Bitcoins instead of USD. See http://undergroundeconomist.com/post/36076277512
Funny you should mention gold... remember all those "digital gold currencies" in the early 2000s? And how they were used in all kinds of frauds and scams?
Don't get why the rate has risen? What factors have triggered the demand? Also[1], stated that there is a while before corporations will start adopting it.
"I originally went all in at $7, went out at the same price on the way down, and went back all in at about $3. I've done extensive (bad) trading, and don't have my entire initial position, and far from enough to make me financially independent, but still a substantial amount (more than a year's average net pay, to give a ballpark number).
I'm currently all in."
There might be more than one such guys - but maybe you think about Rick Falkvinge (http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving...)? I thik he bought around $8 or something and sold at $16 when his money doubled, just got scary about the speed - but probably bought back later.
This is a chart on coinbase.com. Interesting, for a while, coinbase prices seem to be following with bitstamp price. but at this moment, it seems to be closer to mt. gox price.
At the very moment, I see mt. gox and coinbase price at $202. And bitstamp price at $194.
I've been wondering whether people benefiting from bitcoin stability (silk road?) mightn't have been manipulating exchange rates. This seems to be weak evidence in support of that (though I still wouldn't say it seems likely).
For what it's worth, Silk Road provided it's own system for guaranteeing stability of price (that is to say, there were guaranteed exchange rates if desired). I don't think there was any need for SR users (well, sellers at least) to manipulate the price for that reason.
I wonder why the coinbase prices are inflated to almost the GOX price. Are there market makers and scalp traders driving up the coinbase prices now? From my experience coinbase doesn't have the withdrawal issues like gox
It's not an exchange (more of an escrow), and I've not used it but https://bitbargain.co.uk looks OK. They make the right noises regarding security and the prices seem reasonable.
Um, no. According to blockchain.info and this $200 price, there are less than $2.5 billion worth of bitcoins in circulation, total. The idea that this would somehow serve as a hedge against an economy a thousand times larger is laughable.
Nobody is suggesting that Bitcoin will replace the USD (yet). For now, some people are going into Bitcoin because it cannot be confiscated. And govt default is correlated with crazy taxation measures. Take a look at what France is doing now.
That completely depends on how they were stored. If the FBI has his encrypted wallet file and DPR has the password to access those keys then the coins are effectively dead don't you think?
That's presuming that only DPR had the wallet in the first place. Even without the wallet he may have some trusted cohorts that can move the funds via a brain wallet or something similar.
Now having said that, that hasn't yet happened and I presume over time it's less likely to happen. But still, there's nothing intrinsic to Bitcoin that says "Party A has the wallet and therefore only they can spend what's in it".
>"Party A has the wallet and therefore only they can spend what's in it"
When the private key is gone, the coins are gone.
Might be forgetting a brain-wallet, might be forgetting the password or losing the keys to the encrypted drive the keys are in, or it could be as simple as losing or destroying the physical media the keys are on.
We can quibble about the precise technical details of how DPR specifically might have those coins secured, but it's mostly moot at this point; that address likely won't be changed any time soon.
Surely removing 1% of the current circulation must have a few effects.
Bitcoin is more useful than gold in a society that has the internet.
If you want to prepare for a situation where we no longer have the internet, then gold might be a viable option. But I don't care to consider that possibility, for the same reason I don't care to prepare for a nuclear holocaust. I believe my expected utility/happiness is greater this way.
It's not a question of one or the other. If you're a billionaire, it might make lots of sense to have a whole bunch of accounts in different countries with "just" a couple million, since that will still allow you to live reasonably comfortably for the rest of your life and yet is an insignificant fraction of your total wealth.
* SilkRoad shutting down? Bitcoin is doomed.
* Mt.gox is not paying in time or at all? Bitcoin doesn't work.
* Asics? There will be a flood of new coins.
And yet Bitcoin value continue to raise. If history repeats itself, we should see 1 Bitcoin levels at around $2,000.
I think Bitcoin is an interesting phenomena to watch. Being too solid for the quakes that it got, means it's going to stay for a longer period.
I'll be just watching, meanwhile.