8 ms·

Thoughts on Bitcoin

239 points by patrickod 13y ago

jey 13y ago
Why distinguish between legal and illegal transactions? I guess the assumption is that value grounded in illegal transactions is inherently volatile due to the risk of it getting shut down?
- alecbenzer 13y ago
  > people that make their money in the underworld still need money that can buy regular things, and so whatever is used to track exchange still needs to be pegged to dollars or whatever I guess the implication is that "illegal stuff" isn't a large enough market to cover people's general needs.
- jforman 13y ago
  Because the value illegal actors find in Bitcoin isn't in its role as a currency, but rather in its role as an anonymous method to globally transfer wealth. Even if millions of people use Bitcoin for that use case, it doesn't mean Bitcoin will ever have staying power for the "reserve currency" use case.
  - thaumasiotes 13y ago
    The term for "a method to transfer wealth" is "currency". (And in fact, "currency" is used metaphorically to indicate methods of transferring anything at all.)
    - jforman 13y ago
      There's a large difference between a currency being used for anonymity and a currency being used for stability and trust (hence the use of "reserve" vs. "anonymous" in my post — I omitted "reserve" in the first sentence).
      - jey 13y ago
        Hm? Currencies are primarily used as a means to store and exchange value. The other things are secondary features that you may use to do things like pick between two currencies.
        jforman 13y ago
        Y'all are getting hung up on insisting that Bitcoin is a currency, which nobody is arguing. There are important differences in the use cases that make a currency valuable to society, though. And Bitcoin is a far cry from demonstrating its value beyond the anonymous use case (or speculator use case). It is not stable or trustworthy yet, and will not be used as a reserve currency until making huge gains in both areas.
modeless 13y ago
If a receiver of bitcoins sells them for dollars right away, that isn't necessarily money laundering or tax avoidance. I don't know if you've tried to transfer money overseas lately, but banks tend to make it difficult and expensive. An international wire transfer is not a trivial thing to set up; in many cases it still involves faxes. If bitcoin succeeds only as a payment network, where users convert from and to dollars at both ends, it can still provide a very valuable and legal service.
- sjtgraham 13y ago
  International transfers are not intrinsically difficult or expensive, the real cost is in pennies. The reason why cross border payments are priced like they are is due to the lack of incentive, either economic or regulatory. BTC is a massive economic incentive for banks to charge more in line with the their true costs. Even if BTC fails as a currency itself, its greatest success might be catalysing innovation on prices and products at the incumbents.
  - rsingel 13y ago
    Well, there's a lot of paperwork and time involved. Most U.S. banks raised their international wire fees to ~$60 at the end of October to comply with more regulations.
    - CamperBob2 13y ago
      Or discontinued support for outgoing international wires altogether, as my Chase account did. That freaked me out, but unfortunately it didn't freak me out enough to make me buy a bunch of Bitcoins.
  - crystaln 13y ago
    Have you ever had to deal with a large number of international transactions? They are - in fact - difficult and expensive.
- deleted 13y ago
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emin-gun-sirer 13y ago
The post assumes that Bitcoins will fail if they are not suitable as a store of value. It overlooks the fact that a currency can succeed as a medium of exchange, even if it is not suitable as a store of value.
- madcat123 13y ago
  Exactly true. But even government-issued currencies are not suitable stores of value over longer time-periods due to their inflationary nature; that's why we have retirement funds etc, the game being trying to out-do inflation. Bitcoins are inherently deflationary in nature, making them theoretically a superior store of value over longer term (e.g. retirement) than any fiat currency.
- gnaritas 13y ago
  Being a good store of value is in fact a detriment to being a good medium of exchange. A currency should not be a good store of value, it should be a predictable store of value that inflates very slowly so as to discourage hoarding and encourage spending. PPC looks like a better currency than BTC for this very reason.
  - termain 13y ago
    Is PPC PrimeCoin, PeerCoin or something else?
    - gnaritas 13y ago
      PeerCoin.
leokun 13y ago
I'm going to buy a bitcoin after the bubble has passed. What do we think the real price is. Like $10 or $100? What's the projected bottom? I'm hoping for less than $10, because cheaper is better. The thought that I would never be able to afford an entire bitcoin has a negative psychological effect, which may be silly. What I like about alt-coins is how one can use that for games. Imagine making a game where a custom alt-coin, a bitcoin-fork coin that has no value outside of the game, used for transactions. Seems like a cool idea to me anyway.
- skizm 13y ago
  To be honest I think the bottom is going to be around $500. Pretty much everyone I know who is even the slightest bit interested in bitcoin is waiting for this crash to happen so they can jump in. Just a guess though.
  - terhechte 13y ago
    Yes, I've been thinking this for a long time. How should it crash if everybody is just waiting to join. As soon as it goes below a certain margin (say $600) people will flock to it, and it will go up again. At some point it will probably stay level for a couple of months, just like it did at $70. This time maybe at $400 - $600 somewhere. Actually, we may just be seeing that just this moment.
    - XorNot 13y ago
      You've just described a classic ponzi scheme - it's just decentralized. The flock of people looking to buy in allow the last group to get out of Bitcoin. Eventually you dry up the well of people who'll be able to bankroll each successive generation of "investors". There's no commerce going on with Bitcoin on any significant scale, which means it's hugely overvalued. It's just a question of how when the next group looking to buy in on a crash is significantly smaller then the people exiting due to it.
  - thinkalone 13y ago
    Looks like the last time it traded below $500 was November 17th[1] - so everyone you know who is interested has only become interested in the past two weeks? [1] http://bitcoincharts.com/charts/bitstampUSD#rg30ztgSzm1g10zm2g25zi1gMomentumzv http://bitcoincharts.com/charts/bitstampUSD#rg30ztgSzm1g10zm...
jonny_eh 13y ago
Even if it just becomes the primary mechanism for moving money around, that's a multi-billion dollar industry. Think Western Union, ACH, Paypal, etc. To me, that seems like a safe(ish) bet. Being able to buy bubble gum, well, we'll see :)
- analog31 13y ago
  Will it be cheaper than PayPal? A believer in Murphy's Law might speculate that the package of services needed to make Bitcoin reliable enough for regular consumer use, will also involve a level of fees comparable to PayPal.
sjtgraham 13y ago
I think this is spot on. All sorts of people I rarely speak with have been coming out of the woodwork to ask about Bitcoin. These people are invariably regular folks that have heard about this thing that has been appreciating at an unbelievable clip. This is extremely alarming for me.
- fat0wl 13y ago
  Same. I've tried to warn them about this whole mess (even if the value is appreciating I think it's at best a risky investment and at worst partaking in an immoral scheme). This article reiterates 2 of my favorites points -- 1. the lack of real-world transactions, coupled with 2. the fact that these transactions are usually done via 3rd party processor or immediate conversion back to USD. If vendors had faith in it as an actually currency, they wouldn't feel the need to do so. This is not true adoption, this is simply an attempt at expanding one's market by accepting a tradable item. Glad to see some more sobering articles emerging as I've been wondering why no one has coherently written these things. Most of the negative BTC articles on HN are poorly written and used as a straw man.
  - ahmadss 13y ago
    Re: #2 - Vendors need to pay rent, suppliers, and employees - all of whom presumably don't accept BTC. So that's probably why you see Coinbase, BitPay, and others that default to converting BTC to fiat the moment of transaction.
    - fat0wl 13y ago
      i see what you're saying but if they have profit margins they could opt to keep some BTC. i think the issue at this point is that if one decides to hold onto BTC they are put more in the position of an "investor" rather than a bank-account owner. business owners can't all be expected to drink the kool-aid, so they don't really seem to be assisting Bitcoin adoption outside of making it a choice in their payment processor
- muyuu 13y ago
  It is. However it has nothing to do with the protocol, it's just a fact that a lot of people are extremely money driven. This can happen to housing, precious metals, bitcoin or anything else. Doesn't mean that the concepts of housing, precious metals or bitcoin are flawed. It's just people that are flawed, but we carry on with that reality.
notdrunkatall 13y ago
I've been watching bitcoin since $30, bought at $80, and sold last night. I think that Stefan Molyneux (or however you spell it) is right on when he says that bitcoin is "a revolutionary protocol for information synchronization." However, it is by no means unique, and as we've seen, anyone can start their own bitcoin-type cryptocurrency. Apparently, the Canadian government is working on their own, and I don't think it will be long before other central banks begin to follow suit by adapting the bitcoin protocol for their own purposes and presumably solving some of its myriad problems in the process. And of course, when given the choice between a new-and-improved cryptocurrency that's guaranteed by a central bank and the old one that's guaranteed by nothing, Joe Blow is going to pick the former. Bitcoin is an amazing idea and I do believe that the idea behind it it will revolutionize transactions, but it won't be alone for long, and once the improved versions begin showing up, those who've held on to bitcoin because it's an amazing idea (it is) without realizing that bitcoin itself has only a very thin economic moat are probably going to have a bad day. I've been trading and investing stocks for about 7 years now, and I think I've learned a thing or two in that time, but one of the most important things I've learned is that if holding onto something is making me uncomfortable, it's time to sell. Holding my bitcoin was making me uncomfortable as of a couple of days ago, so I sold. On the other hand, I've also learned that if everyone is expecting something to do one thing, it usually does the opposite, and it seems that pretty much everyone agrees that bitcoin is in a bubble. If it does crash, I'll get back in, but if it doesn't, I won't regret selling. I've been on the emotional rollercoaster of watching relatively large sums of money invested in a volatile asset fluctuate wildly, and I'd rather not go through that again. Just my two cents.
- 3pt14159 13y ago
  I just put a sell order in for a percentage of my bitcoins because I think that there will be a pull back, but with that in mind I have the following response: Some of us don't want the help of a government. The revolutionary thing about Bitcoin is that it is a (nearly) zero trust method of transacting. The value is in the fact that there is no central bank to be afraid of. Most of the wealth my parents have lost in their savings was due to inflation and debt backed asset bubbles. Both of which are symptoms of a debt-prone central banking system. There might be arguments that these central banks stabilize the economy for the betterment of everyone, but that is irrelevant when it comes time to choose a currency. Do you want inflation, meddling, and regulation? Serious question. The uninformed should say "yes" and the informed might want to say "no". As for whether or not people are right about Bitcoin being a bubble, I think that bitcoin has a highger likelihood of 20 year success than Twitter and a lower market capitalization. It's a bubble when the baby boomers get involved with their dumb money. When there are ETFs that get traded on the exchanges that are backed on Bitcoin. Then it can be a bubble. Right now, its just an inelastic supply curve and a couple million dollars.
asciimo 13y ago
The metric of "legitimate transactions" is interesting, but I don't see an easy way of tracking it. http://coinmap.org/ http://coinmap.org/ tracks brick-and-mortar retailers that accept bitcoin. Maybe there should be an opt-in registry, like a global Bitcoin YellowPages?
michael_nielsen 13y ago
The following graph shows the estimated volume of transactions: https://blockchain.info/charts/estimated-transaction-volume?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=1&address= https://blockchain.info/charts/estimated-transaction-volume?... You see immediately from the graph that the growth in number of transactions is relatively slow, considering all the media attention, and certainly far, far slower than the increase in the exchange rate. Note that this graph is not the same as the number of "legitimate transactions" mentioned in the OP. But it's at least consistent with the point of view suggested in the post.
- dustyleary 13y ago
  The graph is log10-scale, so it's difficult to see a 50% or 100% increase in volume. It's definitely not a 5x or 10x increase though.
  - michael_nielsen 13y ago
    You can remove the log scale: https://blockchain.info/charts/estimated-transaction-volume?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=0&address= https://blockchain.info/charts/estimated-transaction-volume?... I used the log scale to make the point that transaction volume is relatively slow-moving on a log scale. That is certainly not the case for the exchange rate!: https://blockchain.info/charts/market-price?showDataPoints=false&timespan=all&show_header=true&daysAverageString=7&scale=1&address= https://blockchain.info/charts/market-price?showDataPoints=f... Incidentally, the volume graph has a notable spike in December 2011. I've Googled and asked around a bit, but don't have a good understanding of what caused the spike.
    - smilliken 13y ago
      Since this is just volume measured by number of bitcoins exchanged, wouldn't it be more accurate to scale it by the exchange rate of your primary currency (ie. the product of the two graphs)? That seems like it would more closely represent the value being exchanged. Edit: Looks like they have this graph as well: https://blockchain.info/charts/estimated-transaction-volume-usd?showDataPoints=false&show_header=true&daysAverageString=1&timespan=&scale=1&address= https://blockchain.info/charts/estimated-transaction-volume-... (log scale). This seems to support the conclusion that transaction volume (in USD) is growing significantly, although the trend is confounded by large price movements.
andrewhillman 13y ago
"The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggest an underlying lack of faith in bitcoin—or at least a problem with the volatility." Its not a lack of faith l, it's lack off trade acceptance. If merchants accept bitcoin they need to convert back to dollars because that's what their business calls for. In other words, if they could pay their bills with bitcoin, then bitcoins would flow back and forth without an issue, removing your suggestion that this is about lack of faith.
- pinarsezer 13y ago
  > The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggest an underlying lack of faith in bitcoin—or at least a problem with the volatility. Few merchants accept gold either. Yet gold reserves in the world amount to US $8.2 trillion in value. Edit: removed part on volatility
  - crististm 13y ago
    Given the choice I think they will not have a problem in picking gold instead of bitcoins. Gold has some history behind it, and compared to bitcoins is more liquid and less volatile. (volatile for about 3000 years - do you mean available?)
    - fragsworth 13y ago
      > Gold has some history behind it "It has history behind it" really seems like a fallacy to me. Many things had histories and were replaced, or changed dramatically, due to new technologies. Horses, swords, aluminum, newspapers... I see Bitcoin being a very realistic threat to the high price of gold.
doki_pen 13y ago
I don't know why it is required that it is used in legitimate purchases. No one questions the value of gold, yet not many people use it to make purchases. I suspect bitcoins value will follow the same pattern as gold, once it is stable. When the world is full of uncertainty, it's value will rise. When things are steady, it's value will fall.
- biot 13y ago
  > No one questions the value of gold, yet not many people > use it to make purchases. Gold is purchased and used to make art, jewelry, electronics, medical devices, and so on in addition to being hoarded as an investment / currency reserve. Those products have real tangible value. Very few people are interested in buying bitcoin just to use the bitcoin address as artwork, for example. Tulip bulbs had more actual value. At its peak, one tulip bulb cost around €25,000 and WAS being used for legitimate purchases: milk, cheese, cows, wine, etc. Even after the price of tulip bulbs crashed, you could still at least plant them and grow flowers. If bitcoin reaches that price and crashes to next to nothing, what could you use your bitcoin for?
  - DennisP 13y ago
    Although this is true, gold's total value is much higher than could be supported by those uses alone.
  - MacsHeadroom 13y ago
    A secure blockchain has a plethora of uses beyond money. Currently the Bitcoin blockchain is the only blockchain to offer the kind of security necessary for innovations such as Proof of Existence, http://www.proofofexistence.com/about http://www.proofofexistence.com/about In the future the same blockchain could be used for automated arbitration, estate planning, "smart" property ownership/transference. Less than 1% of the value of gold has anything to do with its industrial/artistic uses.
- betterunix 13y ago
  "No one questions the value of gold" http://www.marketwatch.com/story/why-buffet-thinks-investing-in-gold-is-stupid-2013-04-18 http://www.marketwatch.com/story/why-buffet-thinks-investing...
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matthiasb 13y ago
Have you check Bitcoin sales on Craiglist? http://austin.craigslist.org/search/?sort=rel&areaID=15&subAreaID=&query=bitcoin&catAbb=sss http://austin.craigslist.org/search/?sort=rel&areaID=15&subA...
- rrich 13y ago
  Funny thing about that are the people selling the shovels. I had no idea BFL was selling firmware upgrades to increase hash rates on existing ASIC miners. Simply brilliant.
richiverse 13y ago
My biggest issue with bitcoin is that it should be redeemable for something tangible other than $USD. The first virtual currency that addresses this and is directly convertible to watts or calories will be the currency to beat.
- nkuttler 13y ago
  Huh, tangible like what? I can exchange bitcoin for EUR just fine. Or for dinner. Or bullion.
- DennisP 13y ago
  That could easily be accomplished by bitcoin using the "colored coins" proposal. All it needs is for an electric utility to issue colored coins that it's willing to redeem for watts.
- logicallee 13y ago
  you just defined 'currency'. basically, your issue with bitcoin is that it can't be exchanged for goods and services. this is quite the chicken and egg problem. but basically when people 'believe' it's a currency, they will accept it as one - thereby justifying that belief since it will be true due to all the other people accepting it. dollars are only a worldwide currency because people and institutions think it's one - and if it were to stop being treated as currency it would stop being accepted as one. totally tautological - but there's currency for you.
johnrob 13y ago
Why should anyone feel compelled to follow or invest in bitcoin? The time to buy bitcoins is when you need them to get something you want (as it should be for any currency).
- gnaritas 13y ago
  > Why should anyone feel compelled to follow or invest in bitcoin? To make money speculating of course. :)
aristidb 13y ago
After all the insane articles that claim things like "Bitcoin is a ponzi scheme" or "Bitcoin is anonymous", it is quite nice to read a well-informed and sane article.
allochthon 13y ago
From the article: low transaction costs for worldwide commerce would still be great. I'm late to the whole bitcoin phenomenon, but here is what I really like about crypto-currencies. My US credit union (not even a commercial bank) charges me 40 dollars for an international wire transfer to Canada, and the bank on the other end will charge me 15 dollars. If this were done in bitcoin or a similar currency? Nothing, as far as I can tell, if you do it through the right exchange. And that's how it should be. I suspect that banks don't even know to be worried at this point.
- pbhjpbhj 13y ago
  I just looked at transaction costs on 2 exchanges and they were both at 0.2% for < $1000. One offered reductions for higher value transactions, the other was fixed. Kraken and BTC-E resp.
  - allochthon 13y ago
    I might have been a little quick to jump to a conclusion, there. ;) But is there anything currently stopping someone from opening up an exchange whose only fees are an initial membership fee?
    - pbhjpbhj 13y ago
      Greed? Or possibly just that an initial-membership-fee model risks not covering costs long term and so looks like a potentially unstable proposition?
    - pbhjpbhj 13y ago
      Greed? Or possibly just that an initial-membership-fee model risks not covering costs long term and so looks like a potentially unstable proposition?
ezl 13y ago
I normally love SA's writing, but this opinion piece is really narrow minded and I think misses the point. cs702 had a fantastic comment a few days ago in another thread [1]: Bitcoin befuddles experts who analyze it from a narrow perspective, because it is not just a new medium of exchange or a new store of value: it is also a new kind of point-of-sale payment system (one that doesn't require payment processors), a new kind of global financial transfer system (one that doesn't require financial institutions), a new kind of time-stamping certification system (one that doesn't require notaries or county clerks), a new kind of contract-enforcing mechanism (one that doesn't require lawyers), etc. With rising global adoption, many new kinds of applications are likely to be created to take advantage of the Bitcoin network, the design of which even specifies a built-in script for defining and executing new types of transactions involving any arbitrary number of parties. In short, Bitcoin is a technology platform -- one that is benefiting from network effects. It may fail as "money" (in a narrow sense) and still succeed as a global platform. Even from SA's narrow perspective, it's not clear why "legitimate transactions" is a requirement for success. As long as there is a large enough community of people who want to use it to transfer value for any reason, it'll continue to sustain itself. The one takeaway he offers in closing is spot on though: "Just as it’d be stupid to convert all your dollars to bitcoin, it’d be stupid to not pay attention." [1] https://news.ycombinator.com/item?id=6810839 https://news.ycombinator.com/item?id=6810839
- 3pt14159 13y ago
  Is buying contraceptives in a Muslim country a legitimate transaction? What does it matter what your government says is legal or no. The currency will take off even if it is just used for illegal transactions its entire life.
- nkuttler 13y ago
  This is one of the biggest problems with so many publications, they focus on a single aspect of bitcoin. I've started to think of many discussions about bitcoin as equivalent to "But email is worse than a letter, it will fail", "Email can never replace parcels", "But is email a letter or a postcard?", etc. It's just absurd, bitcoin is something completely new, and nobody knows yet how we will use it, and what it can replace.
CamperBob2 13y ago
A currency without the major use case being legitimate transactions is going to fail. Couldn't he have said the same thing about a protocol like BitTorrent?
- jmilloy 13y ago
  He means legitimate as in "I gave you bitcoins for a concrete purpose" rather than "recognized as legal by a government." People are using BitTorrent for an actual purpose, so it's different.
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teawithcarl 13y ago
Sam - 你忘记了中国的影响。 The price is bitcoin is proportional to the "hot money" flowing out of China. Doesn't matter if that's an illicit market, it's still the most significant factor. Whether or not one believes that hot money is going to stop/slow should strongly influence your estimate of the price of bitcoin. That said, it's top heavy at $900-$1100, and reasonable people should be selling a portion of their holdings.
- TomGullen 13y ago
  Why is it reasonable to sell a portion of their holdings? What does that actually achieve for the holder?
collabacode 13y ago
Relevant Futuram clip: http://www.youtube.com/watch?v=KbCk1XNfTs4 http://www.youtube.com/watch?v=KbCk1XNfTs4
VintageCool 13y ago
Question: why isn't gold the international reserve currency?
- parasubvert 13y ago
  Chapters 1 and 2 of Karl Polanyi's The Great Transformation provide one popular theory as to why it collapsed around World War 1, from a cultural anthropology perspective. http://uncharted.org/frownland/books/Polanyi/POLANYI%20KARL%20-%20The%20Great%20Transformation%20-%20v.1.0.html http://uncharted.org/frownland/books/Polanyi/POLANYI%20KARL%... Liaquat Ahamed's _Lords of Finance: The Bankers Who Broke The World_ provides another congruent account, from a more detailed historical/economic perspective, as to why gold was abandoned. http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0143116800 http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0...
tpeng 13y ago
The way I value bitcoin is to take the fully diluted market cap (21 million * $850 ~= $18 billion) and apply a money velocity which I assumed to be similar to US M2 velocity of 1.6 ($18 billion * 1.6 ~= $28.5 billion). Since global ecommerce transactions are about $1 trillion / yr this implies that bitcoin should penetrate 2.85% of ecommerce. Big assumption here is that bitcoin does not work for real-world transactions as the confirmation time is > 15 min. This may be oversimplified because a lot of real-world transactions don't need to be real time. I'm also excluding time value effects which you can insert back in if you like. From the data I have seen, the bitcoin real economy could be orders of magnitude smaller than that implied by the current price, although there is no way to know precisely how large it is. This is including "illegal" transactions (I'm not sure why sam is discounting drug transactions, unless he means to imply that these will be shutdown. It does make sense to exclude gambling transactions as they are extremely high velocity). Note that sam's point about merchants immediately converting BTC back to USD serves to increase the money velocity (perhaps by >10x). This would mean that BTC is pricing in a real economy even larger than $28.5 billion. Based on current BTC-denominated real transactions, fair value of BTC is at most only a few dollars.
- im3w1l 13y ago
  I think much of BTC's valuation come from expectations that money velocity and market penetration will increase. EDIT: Sorry I meant to say the velocity will decrease.
  - tpeng 13y ago
    A higher money velocity => lower BTC/USD, but yes, the current price implies a huge future growth of the bitcoin economy. This is what sam is saying and I agree. I happen to think that we will not see that growth/adoption, but that is a different question.
    - im3w1l 13y ago
      Oops, yeah, I meant the other way around.
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tsaoutourpants 13y ago
His article is premised on this: "The estimates I’ve heard from smart people that really follow bitcoin are that legitimate transactions are up only about 2-3x from a year ago" That's hardly scientific. I've used Bitcoin for several purchases of "legitimate" things, and look to continue to do so whenever possible.
- ajiang 13y ago
  Well, not to belabor the point, are you saying that your anecdotal evidence is better than his anecdotal evidence? Or that we shouldn't take the perspectives of Sam Altman's experts' opinions too heavily?
aaron695 13y ago
The tulip craze is a myth, I'm surprised people still buy into it. It's stupid that tulips would go that high, and funnily enough it didn't happen.
- TreyS 13y ago
  Citation?
  - gwern 13y ago
    Read the Wikipedia article on Tulipomania, or _Famous First Bubbles_. OP should too, actually, since his comment that > The price of tulip bulbs has yet to recover from its 1637 peak. betrays several fundamental misunderstandings of the tulip market at the time. Of course the top tulip bulbs depreciated. That is like saying 'a patent has never recovered its peak value' or 'Windows 3.1 never recovered its March 1992 peak'.
    - thaumasiotes 13y ago
      That wikipedia article seems to fully support the idea that tulips did "go that high"; it also notes that a legal change transformed tulip futures contracts into tulip option contracts, which enabled the price of tulips to rise substantially without costing speculators extra. It shows a catalog page of the time offering one tulip bulb for over ten times the contemporary annual earnings of a "skilled craftsman". If I assume that a "skilled craftsman" in the US earns $20 / hour (less than I made as a summer intern at amazon before graduating college), that puts the price of the bulb at at least $400,000. For the price listed in that catalog, you could also have bought 25,000 pounds of cheese. It also notes that while flowers in general averaged 40% annual price depreciation at the time, tulips averaged a more impressive 99.999% annual depreciation.
      - aaron695 13y ago
        > Many of the sources telling of the woes of tulip mania, such as the anti-speculative pamphlets that were later reported by Beckmann and Mackay, have been cited as evidence of the extent of the economic damage. These pamphlets, however, were not written by victims of a bubble, but were primarily religiously motivated. The upheaval was viewed as a perversion of the moral order—proof that "concentration on the earthly, rather than the heavenly flower could have dire consequences".[53] Thus, it is possible that a relatively minor economic event took on a life of its own as a morality tale. ^ From the same wiki page ^ No idea with the picture you reference where it's from. The point about economic theory is the market needs to be fluid. It says nothing about crazy people in a small private market(obvious I guess) The "Tulip" craze seems to me to just be the normal fundamental dogma that you get when people don't fully understand systems. People distorting instances that are not linked to push their views. To me the interesting thing is people 400 years ago also feared financial systems.
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scotty79 13y ago
We've already seen few bubbles on bitcoin. Investing overshadows usage of bitcoin as a currency. Everybody knows that. One title I haven't seen: "X no longer accepts bitcoin."
RuCrazy 13y ago
Will it hold?
codex 13y ago
Heaven help us if Bitcoin becomes the world reserve currency without some central authority like the Fed controlling the money supply. Bad things would happen without counter cyclical fiscal policy.
spydum 13y ago
Can't help but wonder how many tech savy career drug dealers have just decided to become day traders after watching their btc soar in value.
vijayboyapati 13y ago
Sam sees the flaw in his own argument - when he mentions gold and the possibility of its use a store of value. But he doesn't understand the full significance of his own comment. Moldbug has by far the most compelling (imo) theory on the origin of money and why bitcoin (and gold) float far above their use value. These two posts cover it very well: http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html http://unqualified-reservations.blogspot.com/2011/04/on-mone... http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin... I highly recommend them to anyone trying to understand the economics of bitcoin
- calinet6 13y ago
  Really fascinating articles, thank you.
brisance 13y ago
>Tax is a big deal, of course, but even nations can't always compete with the popular sentiment tidal forces enabled by the internet. How has the Internet outrage about NSA spying affected the US government?
headgasket 13y ago
Great read! I just posted an essay from way back (2008) on bubbles to hacker news: https://news.ycombinator.com/item?id=6831300 https://news.ycombinator.com/item?id=6831300 re-reading it gave me some perspective. Good luck and Cheers!
rebelidealist 13y ago
A major legitimate use is wiring money internationally at a low cost.
kolev 13y ago
Just like investments in Bitcoin startups are binary, so are investments in Bitcoin itself. Put some USD into it and don't worry too much about it. People waste millions on lottery tickets with much smaller chances of success, so, I'm tired of all these negative articles, just because Bitcoin dropped 20-30% and then almost fully recovered in a day. Sell off if you wish - there are enough people to buy your Bitcoins cheap. And by the way, the tulip craze is an obvious myth.

239 points by patrickod 13y ago

jey 13y ago

Why distinguish between legal and illegal transactions? I guess the assumption is that value grounded in illegal transactions is inherently volatile due to the risk of it getting shut down?

alecbenzer 13y ago
> people that make their money in the underworld still need money that can buy regular things, and so whatever is used to track exchange still needs to be pegged to dollars or whatever I guess the implication is that "illegal stuff" isn't a large enough market to cover people's general needs.
jforman 13y ago
Because the value illegal actors find in Bitcoin isn't in its role as a currency, but rather in its role as an anonymous method to globally transfer wealth. Even if millions of people use Bitcoin for that use case, it doesn't mean Bitcoin will ever have staying power for the "reserve currency" use case.
- thaumasiotes 13y ago
  The term for "a method to transfer wealth" is "currency". (And in fact, "currency" is used metaphorically to indicate methods of transferring anything at all.)
  - jforman 13y ago
    There's a large difference between a currency being used for anonymity and a currency being used for stability and trust (hence the use of "reserve" vs. "anonymous" in my post — I omitted "reserve" in the first sentence).
    - jey 13y ago
      Hm? Currencies are primarily used as a means to store and exchange value. The other things are secondary features that you may use to do things like pick between two currencies.
      - jforman 13y ago
        Y'all are getting hung up on insisting that Bitcoin is a currency, which nobody is arguing. There are important differences in the use cases that make a currency valuable to society, though. And Bitcoin is a far cry from demonstrating its value beyond the anonymous use case (or speculator use case). It is not stable or trustworthy yet, and will not be used as a reserve currency until making huge gains in both areas.

modeless 13y ago

If a receiver of bitcoins sells them for dollars right away, that isn't necessarily money laundering or tax avoidance. I don't know if you've tried to transfer money overseas lately, but banks tend to make it difficult and expensive. An international wire transfer is not a trivial thing to set up; in many cases it still involves faxes. If bitcoin succeeds only as a payment network, where users convert from and to dollars at both ends, it can still provide a very valuable and legal service.

sjtgraham 13y ago
International transfers are not intrinsically difficult or expensive, the real cost is in pennies. The reason why cross border payments are priced like they are is due to the lack of incentive, either economic or regulatory. BTC is a massive economic incentive for banks to charge more in line with the their true costs. Even if BTC fails as a currency itself, its greatest success might be catalysing innovation on prices and products at the incumbents.
- rsingel 13y ago
  Well, there's a lot of paperwork and time involved. Most U.S. banks raised their international wire fees to ~$60 at the end of October to comply with more regulations.
  - CamperBob2 13y ago
    Or discontinued support for outgoing international wires altogether, as my Chase account did. That freaked me out, but unfortunately it didn't freak me out enough to make me buy a bunch of Bitcoins.
- crystaln 13y ago
  Have you ever had to deal with a large number of international transactions? They are - in fact - difficult and expensive.
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emin-gun-sirer 13y ago

The post assumes that Bitcoins will fail if they are not suitable as a store of value. It overlooks the fact that a currency can succeed as a medium of exchange, even if it is not suitable as a store of value.

madcat123 13y ago
Exactly true. But even government-issued currencies are not suitable stores of value over longer time-periods due to their inflationary nature; that's why we have retirement funds etc, the game being trying to out-do inflation. Bitcoins are inherently deflationary in nature, making them theoretically a superior store of value over longer term (e.g. retirement) than any fiat currency.
gnaritas 13y ago
Being a good store of value is in fact a detriment to being a good medium of exchange. A currency should not be a good store of value, it should be a predictable store of value that inflates very slowly so as to discourage hoarding and encourage spending. PPC looks like a better currency than BTC for this very reason.
- termain 13y ago
  Is PPC PrimeCoin, PeerCoin or something else?
  - gnaritas 13y ago
    PeerCoin.

leokun 13y ago

I'm going to buy a bitcoin after the bubble has passed. What do we think the real price is. Like $10 or $100? What's the projected bottom? I'm hoping for less than $10, because cheaper is better. The thought that I would never be able to afford an entire bitcoin has a negative psychological effect, which may be silly. What I like about alt-coins is how one can use that for games. Imagine making a game where a custom alt-coin, a bitcoin-fork coin that has no value outside of the game, used for transactions. Seems like a cool idea to me anyway.

skizm 13y ago
To be honest I think the bottom is going to be around $500. Pretty much everyone I know who is even the slightest bit interested in bitcoin is waiting for this crash to happen so they can jump in. Just a guess though.
- terhechte 13y ago
  Yes, I've been thinking this for a long time. How should it crash if everybody is just waiting to join. As soon as it goes below a certain margin (say $600) people will flock to it, and it will go up again. At some point it will probably stay level for a couple of months, just like it did at $70. This time maybe at $400 - $600 somewhere. Actually, we may just be seeing that just this moment.
  - XorNot 13y ago
    You've just described a classic ponzi scheme - it's just decentralized. The flock of people looking to buy in allow the last group to get out of Bitcoin. Eventually you dry up the well of people who'll be able to bankroll each successive generation of "investors". There's no commerce going on with Bitcoin on any significant scale, which means it's hugely overvalued. It's just a question of how when the next group looking to buy in on a crash is significantly smaller then the people exiting due to it.
- thinkalone 13y ago
  Looks like the last time it traded below $500 was November 17th[1] - so everyone you know who is interested has only become interested in the past two weeks? [1] http://bitcoincharts.com/charts/bitstampUSD#rg30ztgSzm1g10zm2g25zi1gMomentumzv http://bitcoincharts.com/charts/bitstampUSD#rg30ztgSzm1g10zm...

jonny_eh 13y ago

Even if it just becomes the primary mechanism for moving money around, that's a multi-billion dollar industry. Think Western Union, ACH, Paypal, etc. To me, that seems like a safe(ish) bet. Being able to buy bubble gum, well, we'll see :)

analog31 13y ago
Will it be cheaper than PayPal? A believer in Murphy's Law might speculate that the package of services needed to make Bitcoin reliable enough for regular consumer use, will also involve a level of fees comparable to PayPal.

sjtgraham 13y ago

I think this is spot on. All sorts of people I rarely speak with have been coming out of the woodwork to ask about Bitcoin. These people are invariably regular folks that have heard about this thing that has been appreciating at an unbelievable clip. This is extremely alarming for me.

fat0wl 13y ago
Same. I've tried to warn them about this whole mess (even if the value is appreciating I think it's at best a risky investment and at worst partaking in an immoral scheme). This article reiterates 2 of my favorites points -- 1. the lack of real-world transactions, coupled with 2. the fact that these transactions are usually done via 3rd party processor or immediate conversion back to USD. If vendors had faith in it as an actually currency, they wouldn't feel the need to do so. This is not true adoption, this is simply an attempt at expanding one's market by accepting a tradable item. Glad to see some more sobering articles emerging as I've been wondering why no one has coherently written these things. Most of the negative BTC articles on HN are poorly written and used as a straw man.
- ahmadss 13y ago
  Re: #2 - Vendors need to pay rent, suppliers, and employees - all of whom presumably don't accept BTC. So that's probably why you see Coinbase, BitPay, and others that default to converting BTC to fiat the moment of transaction.
  - fat0wl 13y ago
    i see what you're saying but if they have profit margins they could opt to keep some BTC. i think the issue at this point is that if one decides to hold onto BTC they are put more in the position of an "investor" rather than a bank-account owner. business owners can't all be expected to drink the kool-aid, so they don't really seem to be assisting Bitcoin adoption outside of making it a choice in their payment processor
muyuu 13y ago
It is. However it has nothing to do with the protocol, it's just a fact that a lot of people are extremely money driven. This can happen to housing, precious metals, bitcoin or anything else. Doesn't mean that the concepts of housing, precious metals or bitcoin are flawed. It's just people that are flawed, but we carry on with that reality.

notdrunkatall 13y ago

I've been watching bitcoin since $30, bought at $80, and sold last night. I think that Stefan Molyneux (or however you spell it) is right on when he says that bitcoin is "a revolutionary protocol for information synchronization." However, it is by no means unique, and as we've seen, anyone can start their own bitcoin-type cryptocurrency. Apparently, the Canadian government is working on their own, and I don't think it will be long before other central banks begin to follow suit by adapting the bitcoin protocol for their own purposes and presumably solving some of its myriad problems in the process. And of course, when given the choice between a new-and-improved cryptocurrency that's guaranteed by a central bank and the old one that's guaranteed by nothing, Joe Blow is going to pick the former. Bitcoin is an amazing idea and I do believe that the idea behind it it will revolutionize transactions, but it won't be alone for long, and once the improved versions begin showing up, those who've held on to bitcoin because it's an amazing idea (it is) without realizing that bitcoin itself has only a very thin economic moat are probably going to have a bad day. I've been trading and investing stocks for about 7 years now, and I think I've learned a thing or two in that time, but one of the most important things I've learned is that if holding onto something is making me uncomfortable, it's time to sell. Holding my bitcoin was making me uncomfortable as of a couple of days ago, so I sold. On the other hand, I've also learned that if everyone is expecting something to do one thing, it usually does the opposite, and it seems that pretty much everyone agrees that bitcoin is in a bubble. If it does crash, I'll get back in, but if it doesn't, I won't regret selling. I've been on the emotional rollercoaster of watching relatively large sums of money invested in a volatile asset fluctuate wildly, and I'd rather not go through that again. Just my two cents.

3pt14159 13y ago
I just put a sell order in for a percentage of my bitcoins because I think that there will be a pull back, but with that in mind I have the following response: Some of us don't want the help of a government. The revolutionary thing about Bitcoin is that it is a (nearly) zero trust method of transacting. The value is in the fact that there is no central bank to be afraid of. Most of the wealth my parents have lost in their savings was due to inflation and debt backed asset bubbles. Both of which are symptoms of a debt-prone central banking system. There might be arguments that these central banks stabilize the economy for the betterment of everyone, but that is irrelevant when it comes time to choose a currency. Do you want inflation, meddling, and regulation? Serious question. The uninformed should say "yes" and the informed might want to say "no". As for whether or not people are right about Bitcoin being a bubble, I think that bitcoin has a highger likelihood of 20 year success than Twitter and a lower market capitalization. It's a bubble when the baby boomers get involved with their dumb money. When there are ETFs that get traded on the exchanges that are backed on Bitcoin. Then it can be a bubble. Right now, its just an inelastic supply curve and a couple million dollars.

asciimo 13y ago

The metric of "legitimate transactions" is interesting, but I don't see an easy way of tracking it. http://coinmap.org/ http://coinmap.org/ tracks brick-and-mortar retailers that accept bitcoin. Maybe there should be an opt-in registry, like a global Bitcoin YellowPages?

michael_nielsen 13y ago

The following graph shows the estimated volume of transactions: https://blockchain.info/charts/estimated-transaction-volume?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=1&address= https://blockchain.info/charts/estimated-transaction-volume?... You see immediately from the graph that the growth in number of transactions is relatively slow, considering all the media attention, and certainly far, far slower than the increase in the exchange rate. Note that this graph is not the same as the number of "legitimate transactions" mentioned in the OP. But it's at least consistent with the point of view suggested in the post.

dustyleary 13y ago
The graph is log10-scale, so it's difficult to see a 50% or 100% increase in volume. It's definitely not a 5x or 10x increase though.
- michael_nielsen 13y ago
  You can remove the log scale: https://blockchain.info/charts/estimated-transaction-volume?showDataPoints=false&show_header=true&daysAverageString=7&timespan=all&scale=0&address= https://blockchain.info/charts/estimated-transaction-volume?... I used the log scale to make the point that transaction volume is relatively slow-moving on a log scale. That is certainly not the case for the exchange rate!: https://blockchain.info/charts/market-price?showDataPoints=false&timespan=all&show_header=true&daysAverageString=7&scale=1&address= https://blockchain.info/charts/market-price?showDataPoints=f... Incidentally, the volume graph has a notable spike in December 2011. I've Googled and asked around a bit, but don't have a good understanding of what caused the spike.
  - smilliken 13y ago
    Since this is just volume measured by number of bitcoins exchanged, wouldn't it be more accurate to scale it by the exchange rate of your primary currency (ie. the product of the two graphs)? That seems like it would more closely represent the value being exchanged. Edit: Looks like they have this graph as well: https://blockchain.info/charts/estimated-transaction-volume-usd?showDataPoints=false&show_header=true&daysAverageString=1&timespan=&scale=1&address= https://blockchain.info/charts/estimated-transaction-volume-... (log scale). This seems to support the conclusion that transaction volume (in USD) is growing significantly, although the trend is confounded by large price movements.

andrewhillman 13y ago

"The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggest an underlying lack of faith in bitcoin—or at least a problem with the volatility." Its not a lack of faith l, it's lack off trade acceptance. If merchants accept bitcoin they need to convert back to dollars because that's what their business calls for. In other words, if they could pay their bills with bitcoin, then bitcoins would flow back and forth without an issue, removing your suggestion that this is about lack of faith.

pinarsezer 13y ago
> The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggest an underlying lack of faith in bitcoin—or at least a problem with the volatility. Few merchants accept gold either. Yet gold reserves in the world amount to US $8.2 trillion in value. Edit: removed part on volatility
- crististm 13y ago
  Given the choice I think they will not have a problem in picking gold instead of bitcoins. Gold has some history behind it, and compared to bitcoins is more liquid and less volatile. (volatile for about 3000 years - do you mean available?)
  - fragsworth 13y ago
    > Gold has some history behind it "It has history behind it" really seems like a fallacy to me. Many things had histories and were replaced, or changed dramatically, due to new technologies. Horses, swords, aluminum, newspapers... I see Bitcoin being a very realistic threat to the high price of gold.

doki_pen 13y ago

I don't know why it is required that it is used in legitimate purchases. No one questions the value of gold, yet not many people use it to make purchases. I suspect bitcoins value will follow the same pattern as gold, once it is stable. When the world is full of uncertainty, it's value will rise. When things are steady, it's value will fall.

biot 13y ago
> No one questions the value of gold, yet not many people > use it to make purchases. Gold is purchased and used to make art, jewelry, electronics, medical devices, and so on in addition to being hoarded as an investment / currency reserve. Those products have real tangible value. Very few people are interested in buying bitcoin just to use the bitcoin address as artwork, for example. Tulip bulbs had more actual value. At its peak, one tulip bulb cost around €25,000 and WAS being used for legitimate purchases: milk, cheese, cows, wine, etc. Even after the price of tulip bulbs crashed, you could still at least plant them and grow flowers. If bitcoin reaches that price and crashes to next to nothing, what could you use your bitcoin for?
- DennisP 13y ago
  Although this is true, gold's total value is much higher than could be supported by those uses alone.
- MacsHeadroom 13y ago
  A secure blockchain has a plethora of uses beyond money. Currently the Bitcoin blockchain is the only blockchain to offer the kind of security necessary for innovations such as Proof of Existence, http://www.proofofexistence.com/about http://www.proofofexistence.com/about In the future the same blockchain could be used for automated arbitration, estate planning, "smart" property ownership/transference. Less than 1% of the value of gold has anything to do with its industrial/artistic uses.
betterunix 13y ago
"No one questions the value of gold" http://www.marketwatch.com/story/why-buffet-thinks-investing-in-gold-is-stupid-2013-04-18 http://www.marketwatch.com/story/why-buffet-thinks-investing...

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matthiasb 13y ago

Have you check Bitcoin sales on Craiglist? http://austin.craigslist.org/search/?sort=rel&areaID=15&subAreaID=&query=bitcoin&catAbb=sss http://austin.craigslist.org/search/?sort=rel&areaID=15&subA...

rrich 13y ago
Funny thing about that are the people selling the shovels. I had no idea BFL was selling firmware upgrades to increase hash rates on existing ASIC miners. Simply brilliant.

richiverse 13y ago

My biggest issue with bitcoin is that it should be redeemable for something tangible other than $USD. The first virtual currency that addresses this and is directly convertible to watts or calories will be the currency to beat.

nkuttler 13y ago
Huh, tangible like what? I can exchange bitcoin for EUR just fine. Or for dinner. Or bullion.
DennisP 13y ago
That could easily be accomplished by bitcoin using the "colored coins" proposal. All it needs is for an electric utility to issue colored coins that it's willing to redeem for watts.
logicallee 13y ago
you just defined 'currency'. basically, your issue with bitcoin is that it can't be exchanged for goods and services. this is quite the chicken and egg problem. but basically when people 'believe' it's a currency, they will accept it as one - thereby justifying that belief since it will be true due to all the other people accepting it. dollars are only a worldwide currency because people and institutions think it's one - and if it were to stop being treated as currency it would stop being accepted as one. totally tautological - but there's currency for you.

johnrob 13y ago

Why should anyone feel compelled to follow or invest in bitcoin? The time to buy bitcoins is when you need them to get something you want (as it should be for any currency).

gnaritas 13y ago
> Why should anyone feel compelled to follow or invest in bitcoin? To make money speculating of course. :)

aristidb 13y ago

After all the insane articles that claim things like "Bitcoin is a ponzi scheme" or "Bitcoin is anonymous", it is quite nice to read a well-informed and sane article.

allochthon 13y ago

From the article: low transaction costs for worldwide commerce would still be great. I'm late to the whole bitcoin phenomenon, but here is what I really like about crypto-currencies. My US credit union (not even a commercial bank) charges me 40 dollars for an international wire transfer to Canada, and the bank on the other end will charge me 15 dollars. If this were done in bitcoin or a similar currency? Nothing, as far as I can tell, if you do it through the right exchange. And that's how it should be. I suspect that banks don't even know to be worried at this point.

pbhjpbhj 13y ago
I just looked at transaction costs on 2 exchanges and they were both at 0.2% for < $1000. One offered reductions for higher value transactions, the other was fixed. Kraken and BTC-E resp.
- allochthon 13y ago
  I might have been a little quick to jump to a conclusion, there. ;) But is there anything currently stopping someone from opening up an exchange whose only fees are an initial membership fee?
  - pbhjpbhj 13y ago
    Greed? Or possibly just that an initial-membership-fee model risks not covering costs long term and so looks like a potentially unstable proposition?
  - pbhjpbhj 13y ago
    Greed? Or possibly just that an initial-membership-fee model risks not covering costs long term and so looks like a potentially unstable proposition?

ezl 13y ago

I normally love SA's writing, but this opinion piece is really narrow minded and I think misses the point. cs702 had a fantastic comment a few days ago in another thread [1]: Bitcoin befuddles experts who analyze it from a narrow perspective, because it is not just a new medium of exchange or a new store of value: it is also a new kind of point-of-sale payment system (one that doesn't require payment processors), a new kind of global financial transfer system (one that doesn't require financial institutions), a new kind of time-stamping certification system (one that doesn't require notaries or county clerks), a new kind of contract-enforcing mechanism (one that doesn't require lawyers), etc. With rising global adoption, many new kinds of applications are likely to be created to take advantage of the Bitcoin network, the design of which even specifies a built-in script for defining and executing new types of transactions involving any arbitrary number of parties. In short, Bitcoin is a technology platform -- one that is benefiting from network effects. It may fail as "money" (in a narrow sense) and still succeed as a global platform. Even from SA's narrow perspective, it's not clear why "legitimate transactions" is a requirement for success. As long as there is a large enough community of people who want to use it to transfer value for any reason, it'll continue to sustain itself. The one takeaway he offers in closing is spot on though: "Just as it’d be stupid to convert all your dollars to bitcoin, it’d be stupid to not pay attention." [1] https://news.ycombinator.com/item?id=6810839 https://news.ycombinator.com/item?id=6810839

3pt14159 13y ago
Is buying contraceptives in a Muslim country a legitimate transaction? What does it matter what your government says is legal or no. The currency will take off even if it is just used for illegal transactions its entire life.
nkuttler 13y ago
This is one of the biggest problems with so many publications, they focus on a single aspect of bitcoin. I've started to think of many discussions about bitcoin as equivalent to "But email is worse than a letter, it will fail", "Email can never replace parcels", "But is email a letter or a postcard?", etc. It's just absurd, bitcoin is something completely new, and nobody knows yet how we will use it, and what it can replace.

CamperBob2 13y ago

A currency without the major use case being legitimate transactions is going to fail. Couldn't he have said the same thing about a protocol like BitTorrent?

jmilloy 13y ago
He means legitimate as in "I gave you bitcoins for a concrete purpose" rather than "recognized as legal by a government." People are using BitTorrent for an actual purpose, so it's different.

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teawithcarl 13y ago

Sam - 你忘记了中国的影响。 The price is bitcoin is proportional to the "hot money" flowing out of China. Doesn't matter if that's an illicit market, it's still the most significant factor. Whether or not one believes that hot money is going to stop/slow should strongly influence your estimate of the price of bitcoin. That said, it's top heavy at $900-$1100, and reasonable people should be selling a portion of their holdings.

TomGullen 13y ago
Why is it reasonable to sell a portion of their holdings? What does that actually achieve for the holder?

collabacode 13y ago

Relevant Futuram clip: http://www.youtube.com/watch?v=KbCk1XNfTs4 http://www.youtube.com/watch?v=KbCk1XNfTs4

VintageCool 13y ago

Question: why isn't gold the international reserve currency?

parasubvert 13y ago
Chapters 1 and 2 of Karl Polanyi's The Great Transformation provide one popular theory as to why it collapsed around World War 1, from a cultural anthropology perspective. http://uncharted.org/frownland/books/Polanyi/POLANYI%20KARL%20-%20The%20Great%20Transformation%20-%20v.1.0.html http://uncharted.org/frownland/books/Polanyi/POLANYI%20KARL%... Liaquat Ahamed's _Lords of Finance: The Bankers Who Broke The World_ provides another congruent account, from a more detailed historical/economic perspective, as to why gold was abandoned. http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0143116800 http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0...

tpeng 13y ago

The way I value bitcoin is to take the fully diluted market cap (21 million * $850 ~= $18 billion) and apply a money velocity which I assumed to be similar to US M2 velocity of 1.6 ($18 billion * 1.6 ~= $28.5 billion). Since global ecommerce transactions are about $1 trillion / yr this implies that bitcoin should penetrate 2.85% of ecommerce. Big assumption here is that bitcoin does not work for real-world transactions as the confirmation time is > 15 min. This may be oversimplified because a lot of real-world transactions don't need to be real time. I'm also excluding time value effects which you can insert back in if you like. From the data I have seen, the bitcoin real economy could be orders of magnitude smaller than that implied by the current price, although there is no way to know precisely how large it is. This is including "illegal" transactions (I'm not sure why sam is discounting drug transactions, unless he means to imply that these will be shutdown. It does make sense to exclude gambling transactions as they are extremely high velocity). Note that sam's point about merchants immediately converting BTC back to USD serves to increase the money velocity (perhaps by >10x). This would mean that BTC is pricing in a real economy even larger than $28.5 billion. Based on current BTC-denominated real transactions, fair value of BTC is at most only a few dollars.

im3w1l 13y ago
I think much of BTC's valuation come from expectations that money velocity and market penetration will increase. EDIT: Sorry I meant to say the velocity will decrease.
- tpeng 13y ago
  A higher money velocity => lower BTC/USD, but yes, the current price implies a huge future growth of the bitcoin economy. This is what sam is saying and I agree. I happen to think that we will not see that growth/adoption, but that is a different question.
  - im3w1l 13y ago
    Oops, yeah, I meant the other way around.

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tsaoutourpants 13y ago

His article is premised on this: "The estimates I’ve heard from smart people that really follow bitcoin are that legitimate transactions are up only about 2-3x from a year ago" That's hardly scientific. I've used Bitcoin for several purchases of "legitimate" things, and look to continue to do so whenever possible.

ajiang 13y ago
Well, not to belabor the point, are you saying that your anecdotal evidence is better than his anecdotal evidence? Or that we shouldn't take the perspectives of Sam Altman's experts' opinions too heavily?

aaron695 13y ago

The tulip craze is a myth, I'm surprised people still buy into it. It's stupid that tulips would go that high, and funnily enough it didn't happen.

TreyS 13y ago
Citation?
- gwern 13y ago
  Read the Wikipedia article on Tulipomania, or _Famous First Bubbles_. OP should too, actually, since his comment that > The price of tulip bulbs has yet to recover from its 1637 peak. betrays several fundamental misunderstandings of the tulip market at the time. Of course the top tulip bulbs depreciated. That is like saying 'a patent has never recovered its peak value' or 'Windows 3.1 never recovered its March 1992 peak'.
  - thaumasiotes 13y ago
    That wikipedia article seems to fully support the idea that tulips did "go that high"; it also notes that a legal change transformed tulip futures contracts into tulip option contracts, which enabled the price of tulips to rise substantially without costing speculators extra. It shows a catalog page of the time offering one tulip bulb for over ten times the contemporary annual earnings of a "skilled craftsman". If I assume that a "skilled craftsman" in the US earns $20 / hour (less than I made as a summer intern at amazon before graduating college), that puts the price of the bulb at at least $400,000. For the price listed in that catalog, you could also have bought 25,000 pounds of cheese. It also notes that while flowers in general averaged 40% annual price depreciation at the time, tulips averaged a more impressive 99.999% annual depreciation.
    - aaron695 13y ago
      > Many of the sources telling of the woes of tulip mania, such as the anti-speculative pamphlets that were later reported by Beckmann and Mackay, have been cited as evidence of the extent of the economic damage. These pamphlets, however, were not written by victims of a bubble, but were primarily religiously motivated. The upheaval was viewed as a perversion of the moral order—proof that "concentration on the earthly, rather than the heavenly flower could have dire consequences".[53] Thus, it is possible that a relatively minor economic event took on a life of its own as a morality tale. ^ From the same wiki page ^ No idea with the picture you reference where it's from. The point about economic theory is the market needs to be fluid. It says nothing about crazy people in a small private market(obvious I guess) The "Tulip" craze seems to me to just be the normal fundamental dogma that you get when people don't fully understand systems. People distorting instances that are not linked to push their views. To me the interesting thing is people 400 years ago also feared financial systems.

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scotty79 13y ago

We've already seen few bubbles on bitcoin. Investing overshadows usage of bitcoin as a currency. Everybody knows that. One title I haven't seen: "X no longer accepts bitcoin."

RuCrazy 13y ago

Will it hold?

codex 13y ago

Heaven help us if Bitcoin becomes the world reserve currency without some central authority like the Fed controlling the money supply. Bad things would happen without counter cyclical fiscal policy.

spydum 13y ago

Can't help but wonder how many tech savy career drug dealers have just decided to become day traders after watching their btc soar in value.

vijayboyapati 13y ago

Sam sees the flaw in his own argument - when he mentions gold and the possibility of its use a store of value. But he doesn't understand the full significance of his own comment. Moldbug has by far the most compelling (imo) theory on the origin of money and why bitcoin (and gold) float far above their use value. These two posts cover it very well: http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html http://unqualified-reservations.blogspot.com/2011/04/on-mone... http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin... I highly recommend them to anyone trying to understand the economics of bitcoin

calinet6 13y ago
Really fascinating articles, thank you.

brisance 13y ago

>Tax is a big deal, of course, but even nations can't always compete with the popular sentiment tidal forces enabled by the internet. How has the Internet outrage about NSA spying affected the US government?

headgasket 13y ago

Great read! I just posted an essay from way back (2008) on bubbles to hacker news: https://news.ycombinator.com/item?id=6831300 https://news.ycombinator.com/item?id=6831300 re-reading it gave me some perspective. Good luck and Cheers!

rebelidealist 13y ago

A major legitimate use is wiring money internationally at a low cost.

kolev 13y ago

Just like investments in Bitcoin startups are binary, so are investments in Bitcoin itself. Put some USD into it and don't worry too much about it. People waste millions on lottery tickets with much smaller chances of success, so, I'm tired of all these negative articles, just because Bitcoin dropped 20-30% and then almost fully recovered in a day. Sell off if you wish - there are enough people to buy your Bitcoins cheap. And by the way, the tulip craze is an obvious myth.