10 ms·

I feel like I must have a misconception about bitcoin. Coins are earned by calculating hashes for transactions. As the amount of coins grow the difficulty of ca

• paulcole 9y ago
  >Why spend something that is guaranteed to become more valuable? Nothing is guaranteed to become more valuable! In the US we’ve had a depression and even a recent recession to help teach us this. Guess it didn’t take.
• chairmanwow 9y ago
  But it does make for a great investment asset and or store of value.
  • Retric 9y ago
    Past performance is not directly related to future performance. Yes, buying BC 5 years ago was a good bet, that says nothing about buying them today and selling them in 5 years or even 5 days.
• pault 9y ago
  This point gets discussed ad nauseam on every thread about bitcoin. I haven't heard a good answer yet.
  • conanbatt 9y ago
    A pragmatic approach. The world holds incredible amounts of us dollars in the mattress. If your expectation of bitcoin were that its value just doesnt decrease you have an incentive to turn your cash positions into bitcoin. We could say people shouldnt have signficant cash reserves but reality shows otherwise.
• asciimo 9y ago
  The difficulty increases or decreases proportional to the effort expended, so that new coins are minted every 10 minutes. The 21 million coin limit is hardcoded. To your question about spending deflationary money, one theory is that people may buy more high quality, necessary goods than cheap crap.
• deleted 9y ago
  [deleted]
• empath75 9y ago
  Yes, which is why it hasn't had any significant usage as a currency. People are just calling it 'digital gold', now. It's also not correct that bitcoins are scarce. They're only scarce as long as there's a social agreement that 'bitcoins' are the one true cryptocurrency. It's trivial to create new cryptocurrencies or even fork the main bitcoin blockchain. That could turn on a dime and wipe out all of bitcoins value, if some new cryptocurrency comes along and everyone switches to it.
  • baddox 9y ago
    You seem to be deliberately conflating the terms “Bitcoin” and “cryptocurrency,” when you clearly understand that the former is a special case of the latter.
  • samsonradu 9y ago
    I also tend to think that bitcoin is scarce only if it’s not forked. Can anyone elaborate?
    • hackinthebochs 9y ago
      "Bitcoin" isn't the software, or the network, or the database. It is the consensus of every player in the ecosystem: users, miners, developers, exchanges, etc. A fork doesn't fork the consensus, its by definition a deviation from consensus. Forks don't duplicate what is valuable about bitcoin.
      • empath75 9y ago
        Except bitcoin cash seems to have maintained value.
        • hackinthebochs 9y ago
          Because there are true believers who think it will overtake bitcoin in the end. It's perceived value is derived in opposition to bitcoin, rather than duplicating bitcoin's value.
• lug0r 9y ago
  > I’d save it as long as I possibly could. You need to eat, sleep and have fun though.
• 88 9y ago
  There are many things which are scarce — and becoming more so every day — but which are largely useless and not very valuable.
• misja111 9y ago
  Yes this is one of the problems that bitcoin has to overcome if it ever wants to be something more than an investment currency. You are not the first who notices this problem, see e.g. https://en.bitcoin.it/wiki/Deflationary_spiral https://en.bitcoin.it/wiki/Deflationary_spiral
  • hndamien 9y ago
    Infinite divisibility is the important point you are overlooking here.
• notyourday 9y ago
  It won't. Bitcoin is a fad. It will run out of fools and when it does there wont be a way out. Let me illustrate it on a very simple scale. There are four participants in a market. Each one starts with 100 coins and $100 USD. Each coin is valued at a dollar. Minimum units are 1 coin and 1 dollar. What is the maximum market value? The correct answer comes from a single pre-final stage: One person has 400 coins another person has 400 USD and the other two people have nothing. At this point the person with 400 USD pays $400 USD for 1 coin giving all 400 coins value of $400 each i.e. $160,000, except there are no $160,000 in this market.
  • lug0r 9y ago
    The horse is here to stay but the automobile is only a novelty – a fad. - Horace Rackham, 1903
  • notyourday 9y ago
    To the person talking about a auto: Bitcoin is a fad - it will be worthless. Shared public ledger is where the money is.
  • howeyc 9y ago
    This is easy to refute for crypto fans. In your scenario, a third-party prints $159,600 USD. (aka inflation, government deficit/debt, quantitative easing...). Time will tell who's right.
    • notyourday 9y ago
      It does not. We have defined a totality of the market. Since it does not fit crypto-nutcases view of the world, they come up with the slogans: QE! Fiat! Inflation! Do you at least accept that in the market described above coin value is fictitious as soon as totality of the market is value for coins is higher than $400? [late edit]: Do note that it is not to mean that there's no money to be made before the collapse - there are tons of fools who are willing to part with it. That's why financial firms are starting to salivate looking at it.
      • 9y ago
• jstanley 9y ago
  > As the amount of coins grow the difficulty of calculating hashes increases. This is wrong. As the amount of coins grow, the amount of coins generated per block decreases (it halves every ~4 years). The difficulty is completely unrelated to the amount of coins in existence and is instead derived from the hashrate: as hashrate increases, difficulty increases, to target a block rate of 1 per 10 minutes. > Doesn’t this completely undercut the idea of bitcoin as currency? I don't think so. Right now people can buy bitcoin which is "guaranteed to become more valuable", and yet they still choose to buy things other than bitcoin with their USD. Why would it be different if their base currency was BTC instead of USD? Even if you don't think bitcoin is "guaranteed to become more valuable", there are plenty of things that are close approximations to that (pick any good investment), and yet people still choose to buy things other than investments. How do you explain that? Whatever reasoning you use to explain that can be applied verbatim to explain why people will buy things with BTC instead of just holding it.
  • wpietri 9y ago
    You're confusing investment use with currency use. Currencies need approximately stable values to be useful as mediums of exchange. Inflation and deflation can both wreck currencies. Investments, in contrast need to have generally increasing values to be useful as investments. Bitcoin started as currency, but its enormously deflationary record has turned it into an investment.
    • jstanley 9y ago
      You didn't address my argument. If bitcoin being deflationary would truly prevent people from buying things, then why doesn't it do so already? You can already buy bitcoin instead of anything else you want to buy, so why do people buy things other than bitcoin? If you can explain why people might want other things more than they want bitcoin, you can explain why the existence of bitcoin won't prevent people from buying those things. And whether they already hold bitcoin or not is totally irrelevant.
      • imtringued 9y ago
• wpietri 9y ago
  Yes. You describe classic deflationary behavior. That's why central banks target a small positive inflation rate (e.g., 2%). Fred Wilson, a prominent VC investor and Bitcoin proponent, said as much in August: http://avc.com/2017/08/store-of-value-vs-payment-system/ http://avc.com/2017/08/store-of-value-vs-payment-system/
• Xophmeister 9y ago
  That's not quite how it works. The difficulty of calculating hashes is dynamic -- a function of the global hashing power -- to ensure that, on average, each block takes 10 minutes to mine. The miners are rewarded for mining a block from the mining fees paid in each transaction (which can be zero, but it's then very unlikely that your transaction will be picked up) and a reward. This reward started at 50 BTC per block and halves approximately every four years (it's currently 12.5 BTC per block): this is where new bitcoins are created. This series of halvings eventually converges to a sum of 21 million BTC available.
  • TheGrassyKnoll 9y ago
    So miners are pulling 12.5 * ~$11,555 = ~$144,437 every 10 minutes ? Sweet.
    • Xophmeister 9y ago
      One miner is (currently) rewarded with 12.5BTC when they mine a block before any of the other miners; minus the expense of the energy used in mining that block plus all the other blocks which they were unsuccessful in mining before everyone else (i.e., wasted effort). Hence the race for more efficient hashing hardware, to be the one who wins that reward before anyone else, without it costing them more than what they invested.
• deleted 9y ago
  [deleted]
• mrb 9y ago
  «If I had something that I knew would become more valuable...» Because neither you nor anyone is certain Bitcoin will become more valuable. If you knew, you would put all your life savings into Bitcoin this very minute. That's the reason I personally have been spending bitcoins for 7 years, and will continue spending them. For all I know BTC might crash tomorrow and never recover.
• 27182818284 9y ago
  >Why spend something that is guaranteed to become more valuable? Yes, and this is a concern for many. Bitcoin might not be the winner for reasons like this, but it is a leader and currently is the winner. There are a lot of people now thinking about these problems and even in some cases, how to add things like inflation to Bitcoin so that people do start spending it more than hoarding it So people are aware of it, it is just too early in a lot of ways to tell what is going to happen. Personally, it wouldn't surprise me if Bitcoin is like Mosasic and eventually we are using Firefox, Chrome, etc equivalents of cryptocurrency years from now.
• baddox 9y ago
  > If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could. I also save my USD “as long as I possibly can,” by which I mean “until I value something more than the USD it costs to acquire.” In practice, that very frequently ends up being relatively small purchases of things I literally need to survive and function in society, like food, rent, and clothing, but beyond that I try to save as much USD as I can despite it being nearly guaranteed to decrease in value over time.
  • tonfa 9y ago
    You really keep your savings in cash beyond your emergency fund? (I'd think most people don't)
    • scurvy 9y ago
      Cash or cash equivalents (savings, CD, etc) if your main goal is to finance a home. One measure of "can I afford this home" is, did you earn your money from regular work and savings or one two years of extraordinary stock market gains. Keeping savings simple at times is prudent. I have a feeling a lot people are going to be mostly in cash in the next 18 months...
  • dclowd9901 9y ago
    That frequency is small because the central bank targets an inflation rate of about 1-2% (and does so by pumping currency into the market, more or less). This does two things: makes it not worth it to save your money, and makes it not worth it to invest it it anything with less than a -1% yield (unless it is a good or service of some kind). So you’ve not answered the questions of “why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there?” And how does bitcoin not consistently stay in a deflationary spiral?
    • baddox 9y ago
      > why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there? Different people value different things differently, thus there is no universal agreement on what the “best investment” is. Remember that the price of Bitcoin cannot change without both a seller and a buyer. Each bitcoin bought is a bitcoin sold. The most obvious and simplistic example of a reason people might sell Bitcoins right now is that they are hungry and want food, but that generalizes to more complex differences between individuals’ time discount functions.
• dominotw 9y ago
  >Why spend something that is guaranteed to become more valuable? Its not guaranteed though. Bitcoin may go out of favor and coins can become worthless, doesn't matter how limited the supply is.
• dnautics 9y ago
  > Why spend something that is guaranteed to become more valuable? If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could. Why buy a computer/phone/car that is guaranteed to become cheaper next year, or obsolete within 2. If I were given the opportunity to purchase something that systematically becomes LESS expensive, I'd hold off on the purchase as long as I possibly could.
  • joosters 9y ago
    Because I get to use these items.
    • jstanley 9y ago
      ??? Exactly
    • dnautics 9y ago
      Presumably if a real money system (like dollars for most of the 19th century) were deflationary, people could still use those dollars, and whoa. They did use those dollars.
• GhostVII 9y ago
  That's one of the problems with deflationary currencies - people are less willing to spend them since they are essentially an investment, making them more volatile. Governments target 1-2% inflation for valid reasons.
  • jstanley 9y ago
    But if they're more volatile wouldn't that motivate people to spend them?
  • Beejeepa 9y ago
    Why buy an iPhone X now, when next year you could buy two? Because even in deflation, some trades are worth it.
  • Beejeepa 9y ago
    This drives consumerism.
• kgwgk 9y ago
  You are overthinking it, just BUY! /s
• gnopgnip 9y ago
  What you are talking about is the speculative value. There is also a utility value for a pseudonymous currency that is difficult to block and nearly impossible to reverse for things like drug sales or laundering money. One big risk with bitcoin is that another cryptocurrency could come along that has lower fees(because of block size or different proof of work system), faster block times for more reliable transactions, more anonymity in practice, or a more useful secondary network.
• hackinthebochs 9y ago
  > Why spend something that is guaranteed to become more valuable At some point the expected increase in value will be on par with the utility value derived from making the transaction with the bitcoin you already have.
• jjxw 9y ago
  A common misconception is that while Bitcoin may be deflationary in that the rate of supply creation is decreasing, it does not in any way guarantee the value of the coin. Inflation and deflation of currencies are also demand based. If demand for bitcoin falls faster than the decreased rate in which coins are issued, the value must go down. As with most financial assets with high liquidity, there is no such thing as "guaranteed to become more valuable". If it were, it would already be at that price.