Bitcoins: The future of money?

[Vallen Chaos Valiant]

Originally Posted by Bri

For understanding the analysis it helps if you ignore the "I suppose.... line" which seems to have drawn your attention. I assume he intended it as a (bit too) simplified version of fractional reserve banking which allows money creation but undermines the essence of bitcoin.

The basic issue: if a currency cannot expand in volume, but the number of goods and services traded will, prices will have to decrease by definition. The currency appreciates as you can buy more and more goods with the same nominal amount over time. People who posses the currency will have an incentive to hoard it rather than spend it, which reduces the money in circulation and strengthens this effect. Aka we have a deflation problem.

Would that not only means people would simply offer less Bitcoin for the same goods? Spending would not stop, it would just be in smaller denominations. And national currencies will still exist, no government will ever accept Bitcoin over their own currency. Bitcoin will only exist as the money of the people, and as a means to transport wealth cross nation lines electronically.

[Irenicus]

Originally Posted by Vallen Chaos Valiant

Would that not only means people would simply offer less Bitcoin for the same goods?

Yes, or in other words, the same bitcoin can buy more goods and services. Ergo, deflation.

And with such a deflationary scenario, why in the world would you trade away your bitcoin for services now, when you can get twice as much value fro your money tomorrow?

Rational people will, therefore, hoard their bitcoins, and only suckers will spend. And when all rational people hoard their bitcoins, the currency isn't moving, and a currency that isn't moving is worthless.

I still haven't heard a good explanation from a bitcoin proponent why I shouldn't care about this glaring flaw. There is a reason the only thing central banks fear more than hyperinflation is deflation. People save; people don't spend or invest. The economy shrinks to follow. Hyperdeflation? Oh, fun.

[Solafighter]

Bitcoin blunder: Man throws $7.2mn of crypto-currency into landfill

A computer programmer from South Wales has accidentally thrown a digital wallet with 7,500 bitcoins into landfill. Now the hard drive worth $7.2million is buried four feet down.

"You know when you put something in the bin, and in your head, say to yourself 'that's a bad idea'? I really did have that," James Howells, who has literary thrown out a fortune in bitcoins, told the Guardian.

This summer he was clearing up his desk and discovered the hard drive from a long-broken Dell laptop. He thought it was rubbish and threw the drive into the Docksway landfill site near Newport, Wales.

Only last Friday he realized that the drive contained nearly 7,500 bitcoins, worth around $6.75 million. Recently, bitcoins saw a slight rise and now the current price of the digital wallet would be $7.2 million.

Howells ‘mined’ the bitcoins back in 2009, when the currency cost almost nothing and was known only in narrow tech circles. At that time, it was rather easy to generate digital currency by computing it. Now the same operation requires high-cost computing power.

He had been running the program on his laptop for a week but then stopped after his girlfriend complained about the laptop being “too noisy” as it was actually performing the programs needed to create new bitcoins.


http://rt.com/news/bitcoin-landfill-hard-drive-437/

[Vallen Chaos Valiant]

Originally Posted by Irenicus

Yes, or in other words, the same bitcoin can buy more goods and services. Ergo, deflation.

And with such a deflationary scenario, why in the world would you trade away your bitcoin for services now, when you can get twice as much value fro your money tomorrow?

Rational people will, therefore, hoard their bitcoins, and only suckers will spend. And when all rational people hoard their bitcoins, the currency isn't moving, and a currency that isn't moving is worthless.

I still haven't heard a good explanation from a bitcoin proponent why I shouldn't care about this glaring flaw. There is a reason the only thing central banks fear more than hyperinflation is deflation. People save; people don't spend or invest. The economy shrinks to follow. Hyperdeflation? Oh, fun.

So you are saying Bitcoin is too valuable to have any value? I still don't understand why you insist on imagining Bitcoin replacing all currencies; it is never going to happen. All the governments will still have their own money, so you don't need to worry about the collapse of civilization just because bitcoin might become expensive.

If Bitcoin is worth hoarding, it has value. You can't insist that something is both worthless and valuable.

[kuroishinigami]

I think what Irenicus meant is, is bitcoin really viable as currency or not instead of whether it has value or not. When you have a currency that end to cause price to deflate(in that currency), people tend to hoard the currency isntead of using it to buy something with it instead. When that happens, said currencies cease to be a currencies and turn solely into a trading commodities instead. Well, that's only assuming that most user are rational though, when in reality, irrationality is always more prevalent in a market

[Fireminer]

Banker and Invester=Rationality?

Nah! Beside, I've this question: As we know it, a country never could go bankrupt. They just delay their debt paying date while trying to recover economy and currentcy balance. But does Bit Coins have any country or even a guarantee for it not to go death?

[SaintessHeart]

@ VCV and Irenicus : I think both of you are speaking about the concept of money flow, a largely ignored topic in economics and finance because people tend to valuate the goods rather than the cirrency used to buy it.

If we take a look at bitcoins from a money supply perspective, the logarithmic curve shape of bitcoin's in circulation will be increasing at slower and slower rates; the reason why bitcoin has a value is due to the demand for the currency as it is believed buy goods and services not available for purchase using standard currencies. This leads to speculation and drives up the value of bitcoins through increased demand.

Until the bitcoin-related goods and services are available for purchase in another currency, the value of bitcoin is going to rise alongside the value of the "exotic goods and services" because the number of such exotics, especially that of services are going to increase as long as we have trade and legal barriers in place prohibiting the offer of them.

Originally Posted by Fireminer

Banker and Invester=Rationality?

Nah! Beside, I've this question: As we know it, a country never could go bankrupt. They just delay their debt paying date while trying to recover economy and currentcy balance. But does Bit Coins have any country or even a guarantee for it not to go death?

You got it all wrong. And what has that even got to do with bankers in the first place?

Real life 101 : Who cares about guarantee in a fast transaction when your objective is to get that stuff of your hands ASAP?

Hence the difference between trading and investing. Those are two different ideas in modern merchantilism.

[Kimidori]

Originally Posted by Fireminer

Banker and Invester=Rationality?

Nah! Beside, I've this question: As we know it, a country never could go bankrupt. They just delay their debt paying date while trying to recover economy and currentcy balance. But does Bit Coins have any country or even a guarantee for it not to go death?

bitcoin is P2P, as long as the internet lives and people use it, it lives.

[Bri]

Originally Posted by SaintessHeart

@ VCV and Irenicus : I think both of you are speaking about the concept of money flow, a largely ignored topic in economics and finance because people tend to valuate the goods rather than the cirrency used to buy it.

It's quantity theory of money, basic macro economics.

[Irenicus]

Originally Posted by Vallen Chaos Valiant

So you are saying Bitcoin is too valuable to have any value? I still don't understand why you insist on imagining Bitcoin replacing all currencies; it is never going to happen. All the governments will still have their own money, so you don't need to worry about the collapse of civilization just because bitcoin might become expensive.

If Bitcoin is worth hoarding, it has value. You can't insist that something is both worthless and valuable.

As kuroishinigami and Bri noted, this is basic macroeconomics.

Bitcoin as a commodity is incredibly valuable right now; I'm tempted to speculate in it myself. However, a currency is a facilitator of transactions of goods and services. In a deflationary scenario, which Bitcoin practically guarantees to happen, the same amount of currency will be able to purchase more goods and services than it could have done the day before.

It's really this simple: why in the bloody hell would you buy something now when you can buy more things tomorrow with your 0.0001 BTC? Ergo, people hoard, and they only purchase like, enough pizza to survive to tomorrow or something because they believe, and with bitcoin's design they will be right as it gains "market share" and as the economy grows, that their 0.0001 BTC is going to be buying a lot more sweet, sweet pizza tomorrow. Unfortunately, enough hoarded bitcoin, enough buried dollars in the backyard and the world stops moving. Fine, fine, you say bitcoin is just an alternative currency and the dollar keeps the world moving when bitcoin can't...so...um...why should we bother with the alternative again?

It's already happening at a ridiculous rate...but for a different reason than the endgame scenario mentioned above, as the market is far from saturated -- it's being speculated as a commodity. The vast majority of the redditor types buying into Bitcoin do not buy because they are anticipating its growth and development as an alternative currency to purchase space travel, futuristic darknet access, and VPN accounts with -- i.e. they are not buying a currency -- they buy because it's getting ridiculously high in value, and they want to make bucks when they get to sell it. They are buying a commodity.

[Which of course is another reason why bitcoin is, currently at least, a bad currency and why gold was always a shitty currency no matter what clueless libertarians tell you: what influences the price of commodities is different from what should be influencing the "price," or real value, of a unit of currency: the size of the economy, that is, the sum total of economic activity being carried out, and maintaining a relatively constant proportion of the currency/currency liquidity to it. And yes, I know central banks-based fiat currency are also commodities of sorts (Forex trading), but that is why central banks are often in so much pain resisting the independent agency of private and institutional traders acting with their own interests in mind.]

I don't care about a commodity. I don't give a damn for gold, yes it has value and stuff sure whatever. What I want to know is how a currency, which bitcoin is, is going to solve that deflationary problem that is baked into the design. I have still been given a decent answer.

[willx]

Originally Posted by Irenicus

What I want to know is how a currency, which bitcoin is, is going to solve that deflationary problem that is baked into the design. I have still been given a decent answer.

http://www.theatlantic.com/business/...rrency/274859/

You said it yourself, it's deflationary by design .. which makes it a currency .. naught.

[Vallen Chaos Valiant]

Originally Posted by Irenicus

I don't care about a commodity. I don't give a damn for gold, yes it has value and stuff sure whatever. What I want to know is how a currency, which bitcoin is, is going to solve that deflationary problem that is baked into the design. I have still been given a decent answer.

As someone who had an Asian upbringing, I see your questions as"how to force people to spend money by making their savings worth less".

Frankly I see no benefit to own an inflationary currency. It might sound nice for governments and economists, but how does that benefit the common man?

You are saying a currency is only useful if it can slowly deteriorate until it becomes worthless. That if possible, you want gold that can rust away just so people can start spending it.

But I see it from ground level, not from an ivory tower. People want money to be able to put away.

So I guess what you are saying, is that you want a currency that becomes worthless over time. And somehow convince us that it is to our own benefit.

But you know full well why people want deflationary currency. Because it helps people who own them. What kind of fool would own inflationary currency? That's why businesses and nations are in debt intentionally, because it is stupid to own money when it is inflationary.

So what's the point of a currency if you are better off if your bank balance is negative? What does that tell you about the worth of your currency if you are better off not owning any?

[Irenicus]

What are you talking about. -_-

The ideal currency -- the sort of currency that gets managed by a 2200 CE supercomputer named Keynes-Engels X-42 or something -- is one which proportionally matches the level of economic activity at all times.

It doesn't exist, of course, and in a sense the simple ideal is complicated by a massive range of factors (deflationary spirals in case of economic contractions, i.e. the Great Depression, showed why Keynesian policies were needed to drag the world out of that deflationary mess in the first place and why a currency that contracts properly when an economy contracts may not be the best idea), but a slightly inflationary currency that the central banks of the world, particularly the US Federal Reserve, are aiming for, is trying to mimic the actual growth of the world economy. You see, generally speaking, economic activity increases year after year, at least for now in the phase of human history, and therefore the money supply should ideally grow to match at a gentle, controlled pace.

It should not grow massively in some hyperinflationary madness (that is why a lot of people are deeply uncomfortable with the US Feds' policy of Quantitative Easing, i.e. flood the money into the economy -- what it is doing and why is another topic, though I'd note that I myself don't trust monetary solutions to larger economic issues), and it should not stay static come hell or high water. Money should be constant, not against arbitrary number, but constant proportionally to economic activity. Daily perceptions of change are limited, because your money is more or less the same today as it was yesterday, but year by year the currency's value shifts to match how things have changed. There are also other reasons central banks like a gently inflationary currency: it encourages the growth it's supposed to be matching. People borrow and invest and build things and sell and buy faster in an inflationary environment. Think of inflation as heat. It moves and shakes and excites the atoms of an economy -- though of course too much of it burns and destroys.

Now, yes, an inflationary currency is to the disadvantage of the saver and lender, but to the advantage of the investor and the debtor. Fortunately, the American population happens to be by and large either debtor or investor, sometimes both. A population like Germany's would constantly be "inflationary taxed" out of their real wealth. Japan's population...eh, Japan experiences deflation, not otherwise (and is suffering for it). A population like the USA's might as well be benefiting as much as the institutions by the gradual devaluation of money because so many people have mortgages, student loans, car loans, credit card debts, etc., etc. Unfortunately not nearly as many people are investors, and capital is heavily concentrated, but that's another topic.

The important thing is that the dollar moves gradually, and it moves in the direction of the economy in the long term. That is a good thing.

Bitcoin, by design, cannot. It cannot grow. It can be denominated further, but people who hold a single bitcoin will be holding more value with it at the end of the day. Bitcoin, if it replaces the dollar as the main currency of choice, would add a very strong deflationary headwind to any economy it serves. A headwind that exists entirely independently of whatever's actually going on in reality, which, generally speaking, is a bad thing.

I don't care if you think I'm being "ivory tower" and against the "common people." I am no Economist devotee (though for amusingly unrelated reasons our family subscribes to it and I think I'm the only one who reads it). What I don't trust, just as much as I don't trust monetary policy being abused to bandage economic woes, is a currency built to break, a mass of undereducated believers who hand-waved legitimate concerns and equate objectors with lapdogs of the order of wealth and finance, and a sort of populist anti-intellectualism that encourages messy, simplistic thinking on the world's most complicated subject.

____

So let me cut to the chase, and ask you this: as you hold on to your 0.001 BTC, knowing that it will be worth twice as much tomorrow, are you seriously going to spend your bitcoin now to get half as much stuff as you could tomorrow? A twice as awesome computer for just one day's wait? Twice as much food, twice the car, twice an Australian dollar's worth of investment? Answer me honestly, and then we can start actually getting somewhere.

[Vallen Chaos Valiant]

So let me cut to the chase, and ask you this: as you hold on to your 0.001 BTC, knowing that it will be worth twice as much tomorrow, are you seriously going to spend your bitcoin now to get half as much stuff as you could tomorrow? A twice as awesome computer for just one day's wait? Twice as much food, twice the car, twice an Australian dollar's worth of investment? Answer me honestly, and then we can start actually getting somewhere.

Of course I won't spend it.
Let me ask you the reverse; as you hold onto your currency of choice, knowing that it would only be worth half as much tomorrow, will you spend ALL of it today?

Your answer is ofcourse, yes. So the second question is, knowing that your currency is going to half in value tomorrow, are you going to accept that crazy currency as payment for your services at your workplace, ever again?

What will you be "spending" that salary of yours on? Why of course, you spend it on something that wouldn't halve in value. So you try to avoid having ANY cash at all, and just have goods like commodities. Maybe... Bitcoin.

You say that it is a bad thing that I hold onto something that will become more valuable over time. I say it is a bad thing you want me to be paid with money that would go bad, and my intent would be to convert it to something that wouldn't inflate and store that instead.

You care about economics as a theory; I care about economics in terms of what people want on a personal level. There is a reason people throw money into real estate; they mistakenly believe that it is a safe investment. If money wasn't inflationary, people would not have the urge to do such a thing. People want to dump inflationary money as fast as they can and it is NOT a good thing! Why are you insisting that unattractive money which needs to be thrown away asap is somehow what the society needs?

This reminds me of China's desire to force its own citizens to stop saving money. Funny that, as there is no government healthcare and saving money was how the citizens protect themselves. Yet the government was determined to convince the citizens to shoot themselves in the foot...

[willx]

Hm, macroeconomics is confusing, yo!

[Vallen Chaos Valiant]

Originally Posted by willx

Hm, macroeconomics is confusing, yo!

Not at all. Macroeconomics benefits by making sure everyone spend every cent and never save anything. This means the perfect macroeconomics is when everyone is dirt poor and have no money.

Except... You benefit by being the only one saving, while everyone spends. So you get more and more money while everyone else gets less. The less money in the market (because you saved your money) means the value goes up, so you get rewarded for saving.

What economists decided is that savers should be screwed, and that the only people who are allowed to be rich are those who are already rich and have their wealth stored in assets. Everyone else needs to work till they drop dead and spend every cent they have, so that the market can keep flowing.

Classic mistake of economics. That the purpose of economics was about serving the population, but in the end it becomes the people serving economics. That the end game was "people should suffer more and be poor in order to make the economy better".

[Bri]

Originally Posted by Vallen Chaos Valiant

Not at all. Macroeconomics benefits by making sure everyone spend every cent and never save anything. This means the perfect macroeconomics is when everyone is dirt poor and have no money.

Not quite. Saving is considered a good thing in economics as long as the currency remains in circulation. When the 'common man' puts his money away in a savings account, a pension fund, investment funds or similar the currency will not remain dormant but used for loans out to households and businesses in need of cash. This stimulates the economy and creates jobs.

Hoarding is taking money out of circulation (for example storing it as cash in a safe) which is not considered saving from an economic perspective. If people start to hold on to cash and equivalents on a large scale it's very damaging to the economy and employment.

[NoemiChan]

Originally Posted by Kimidori

bitcoin is P2P, as long as the internet lives and people use it, it lives.

This..... nothing more nothing less.... I still prefer coins and paper money though.... they have weight (no pun) and it smells good, and the texture... the cracking sound of freshly withdrawn bills. You can't find that in Bitcoins.

[Vallen Chaos Valiant]

Originally Posted by Bri

Not quite. Saving is considered a good thing in economics as long as the currency remains in circulation. When the 'common man' puts his money away in a savings account, a pension fund, investment funds or similar the currency will not remain dormant but used for loans out to households and businesses in need of cash. This stimulates the economy and creates jobs.

Hoarding is taking money out of circulation (for example storing it as cash in a safe) which is not considered saving from an economic perspective. If people start to hold on to cash and equivalents on a large scale it's very damaging to the economy and employment.

Except"saving" these days also means the banks use that money to gamble, and if the system collapses there is a real danger that savings accounts would receive a haircut; i.e. have the money stolen.

Worse, in countries where interest rates are at near zero, putting money in a bank gets you nothing but risk. Taking money out of circulation is the only way to keep your money now, because savings accounts are no longer sacrosanct and banks/countries think they can do what they want with it.

I keep hearing the same things from you guys, that it is "better for the economy" to do this or that. But you never seem to say anything about what is "better for the savers". I wonder why? Could it be that you don't want anyone to save money, and that you want every savings account to be considered bank property used for speculation?

[Irenicus]

Originally Posted by Vallen Chaos Valiant

Classic mistake of economics. That the purpose of economics was about serving the population, but in the end it becomes the people serving economics. That the end game was "people should suffer more and be poor in order to make the economy better".

Another one of those bullshit anti-intellectualism.

Let me say it clearly what macroeconomics is about:

Macroeconomics is about the fact that whatever you do have impact on everyone else. When you put your bitcoin in a virtual safe, you are taking it out of circulation. Yes, you gain value, but do you know what happens to everyone else? They get poorer. The damned bitcoin is not moving around -- what it's supposed to be doing. That means people stop buying goods and services, and do you know what happens when many people stop buying goods and services?

Right, a Depression. Lost jobs, lost fortunes, lost hopes and lost generations. Your selfishness, entirely rational in a personal basis, is the cause of a bleeping depression. Bitcoin bakes that shit into the design.

Yes, your precious viewpoint that economics should serve humanity -- of course you're right! -- involves not using a currency designed to be hyperdeflationary (and I'm not even mentioning the unacceptable volatility of bitcoin). Otherwise, you've resigned millions and billions of people to an unbreakable cycle of depression. Soon everyone will sit at home, eat minimally, buy no luxuries, and reddit all day! Ideal Asian lifestyle. We all sort of get richer on paper. Except, then the power gets cut.

[/the reality would be more like the economy slowly, over the loooong term, adjusting to the new equilibrium, the new...smaller equilibrium, as activity declines to match the locked in money supply. So you contracts an economy because, um, why not.]

If you want to save and keep your money value, invest. Or put it in a bank, which is a sort of investment (you invest in the bank), and the bank invests into the economy (though, yes, they are scumbags and they pay you interest under inflation and therefore keeps "taxing" you out of your money -- but that is why real investment rate is judged net of inflation). That's the kind savings that economists talk about in "savings rate" and they are great things to be doing because not only are you providing yourself with a cushion against downturns and market cycles and even the shenanigans of the Bad Guys, you are placing your capital in the service of the economy, and, in return, you get back your share of the national productivity.

And don't throw "Asian upbringing" at me. I have Asian upbringing. It doesn't make me wiser than the gringos.

Worse, in countries where interest rates are at near zero, putting money in a bank gets you nothing but risk. Taking money out of circulation is the only way to keep your money now, because savings accounts are no longer sacrosanct and banks/countries think they can do what they want with it.

*facepalm*

No. Taking money out of the circulation is killing the economy. And when you kill the economy -- I am going to repeat this as many times as it takes -- you kill people. You kill their livelihoods, their activities, their hopes and dreams and their ability to act on anything. You kill real, human people.

Okay? Got it?

Economy = a bunch of people all at once doing a bunch of activity (the flow of life...?). Not just you and the gold in your ceiling. Activity. Movement.

If we want to discuss inequality, capital concentration, the scums at Goldman Sachs, public savings measures (hint: welfare, or in the US, social security), okay I'm game. But don't you dare sell me a poison that will hurt us all on a handwave, murky thinking, and fear.