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This really only applies if you completely ignore the nature of the internet and everything that a digital currency implies and treat bitcoin just like any othe

This really only applies if you completely ignore the nature of the internet and everything that a digital currency implies and treat bitcoin just like any other paper currency. It is totally feasible to run bitcoin pricing with dynamically updating btc prices based on an underlying fiat value in any merchant situation. Most of the markets right now where actual trade takes place rather than speculation are simply taking this exact approach, whatever the exchange rate is for the currency at the time of the trade, the value will be decided based upon an underlying stable value. That's totally not possible with a traditional currency where you print price stickers and put them in shopping aisles, but it's par for the course for btc right now and probably will remain so until a stable value for the currency can be worked out, but this is no big deal.

tnt128 15y ago
I will argue that in order for it to achieve a stable value, one that without volatile price actions. The market size needs to be a lot bigger than current bitcoin market size. Given you cant create more bitcoins, it will require each bitcoin to be worth 1000 times more in terms of dollars for it achieve a stable value. Silver has less than 10B market cap, and yet it is still notoriously volatile
- etherael 15y ago
  If you mean bigger in terms of market cap, that would actually imply that more investment is needed, right? If you mean that the current approximately 6.5million units is not enough however, should point out that the currency is divisible to 10 decimal places, so this is mostly a red herring. With regards to market cap, yes, that does need to grow in order that there be a stable value. This actually suggests that the price will pretty much have to go up though, as the expansion of the bitcoin supply is known and low while the expansion of the money cap through fiat currency buys is both unknown and unlimited.
skybrian 15y ago
No. Even with the Internet, stable currencies still have unique advantages. Stable assets are more useful for writing long-term contracts. People who are trying to avoid risk (rather than pursue it) will want to write contract terms that have future payments in a stable currency rather than in some more volatile asset like gold or stock. For example, if you wrote a contract where one person does the work and the other one pays in gold in five years, how do you know whether it's fair or not? Would you be willing to take either side of the bet? It's all going to depend on where you think gold will be, and if opinions differ on that then it makes contracts that much harder to write. Of course there is inflation risk with any currency, but usually it's at least possible to estimate it and make allowances for it when setting a future price. It's a matter of degree and Bitcoin isn't even close to being stable. Both upside and downside risk are a problem, for opposite sides of any deal. There's also little reason to think that broader adoption will make it more stable. Supply is fixed, but demand could go either way, depending on greed and fear. For a stable currency, you need a stable demand that can withstand (at least to some extent) big swings in popular sentiment.
- etherael 15y ago
  If you want to talk historically over long terms; gold is a far, far better store of value over time than fiat currencies, including the USD. None of this however changes the fact that rapid convertibility to and from bitcoins allows you to price any financial instrument in any kind of currency and perform the actual transfer at time of execution, effectively transforming bitcoins into nothing more than a fee free electronic funds transfer with no regulatory oversight.
  - skybrian 15y ago
    Over the long term, lots of assets are better investments than cash. That's not what I'm getting at. If I go to the store and prices are in dollars and not Bitcoins, or if loan payments can't reasonably be priced in Bitcoins, they aren't performing one of the primary functions of money. Put it this way: people are excited because the price of Bitcoins in dollars is going up. If things were priced in Bitcoins then it wouldn't make any difference - the prices would still be the same (in Bitcoins).

tnt128 15y ago

I will argue that in order for it to achieve a stable value, one that without volatile price actions. The market size needs to be a lot bigger than current bitcoin market size. Given you cant create more bitcoins, it will require each bitcoin to be worth 1000 times more in terms of dollars for it achieve a stable value. Silver has less than 10B market cap, and yet it is still notoriously volatile

etherael 15y ago
If you mean bigger in terms of market cap, that would actually imply that more investment is needed, right? If you mean that the current approximately 6.5million units is not enough however, should point out that the currency is divisible to 10 decimal places, so this is mostly a red herring. With regards to market cap, yes, that does need to grow in order that there be a stable value. This actually suggests that the price will pretty much have to go up though, as the expansion of the bitcoin supply is known and low while the expansion of the money cap through fiat currency buys is both unknown and unlimited.

skybrian 15y ago

No. Even with the Internet, stable currencies still have unique advantages. Stable assets are more useful for writing long-term contracts. People who are trying to avoid risk (rather than pursue it) will want to write contract terms that have future payments in a stable currency rather than in some more volatile asset like gold or stock. For example, if you wrote a contract where one person does the work and the other one pays in gold in five years, how do you know whether it's fair or not? Would you be willing to take either side of the bet? It's all going to depend on where you think gold will be, and if opinions differ on that then it makes contracts that much harder to write. Of course there is inflation risk with any currency, but usually it's at least possible to estimate it and make allowances for it when setting a future price. It's a matter of degree and Bitcoin isn't even close to being stable. Both upside and downside risk are a problem, for opposite sides of any deal. There's also little reason to think that broader adoption will make it more stable. Supply is fixed, but demand could go either way, depending on greed and fear. For a stable currency, you need a stable demand that can withstand (at least to some extent) big swings in popular sentiment.

etherael 15y ago
If you want to talk historically over long terms; gold is a far, far better store of value over time than fiat currencies, including the USD. None of this however changes the fact that rapid convertibility to and from bitcoins allows you to price any financial instrument in any kind of currency and perform the actual transfer at time of execution, effectively transforming bitcoins into nothing more than a fee free electronic funds transfer with no regulatory oversight.
- skybrian 15y ago
  Over the long term, lots of assets are better investments than cash. That's not what I'm getting at. If I go to the store and prices are in dollars and not Bitcoins, or if loan payments can't reasonably be priced in Bitcoins, they aren't performing one of the primary functions of money. Put it this way: people are excited because the price of Bitcoins in dollars is going up. If things were priced in Bitcoins then it wouldn't make any difference - the prices would still be the same (in Bitcoins).