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I think the incentives of the bitcoin system to hoard money and the massive bias towards early adopters will be the downfall of bitcoin. All the advantages of a

by Jabbles 14y ago

I think the incentives of the bitcoin system to hoard money and the massive bias towards early adopters will be the downfall of bitcoin. All the advantages of anonymity and irreversibility are voided if there is every reason to keep hold of your money and let it increase in value. Several people on HN claim to have hundreds of thousands of bitcoins, making them worth more than 0.1% of the entire economy. Whilst the real world has its (possibly unfair) share of billionaires, the majority of these have come through substantial business innovation. Bitcoin "billionaires" come through luck and early adoption, and in my view it makes it more unfair than our current system. I think that bitcoin will continue to have some success in areas that wish for privacy, but will not reach the heights that some people predict.

alexchamberlain 14y ago
I don't disagree with you, but there are a significant number of hereditary billionaires (in the real world), which inherit money through luck and early adoption (of business or banking)
joelthelion 14y ago
That was my opinion in the beginning, but I'm not convinced anymore. First of all, the bitcoin billionaires have a strong incentive to spend, because if they don't, the currency will crash and they will lose their money. Second, if you were to create "inflatacoin", with a small but real inflation rate, who would adopt it? It would probably be better economically speaking, but people prefer putting their money in things that stay stable or grow over time.
- Jabbles 14y ago
  If people are spending their money in fear of a crash then hoarding is not bitcoin's main problem. I don't know the solution to bitcoin's deflation, but IMO it's still a problem.
jerguismi 14y ago
> Bitcoin "billionaires" come through luck and early adoption, and in my view it makes it more unfair than our current system. I don't see how the hoarding/early adopter thing would destroy bitcoin. Bitcoin isn't fair, but lack of fairness doesn't necessarily make the project unsuccessful.
- codexon 14y ago
  If people don't think bitcoin is fair they won't adopt it, and may even fight against it.
  - jerguismi 14y ago
    I don't know. Money isn't fair. Some people have it, some not. And usually people don't purchase things because they are "fair". People purchase luxury cars, big houses, drugs etc. for purely selfish reasons, to enjoy life. If we think that currency is just another selection in the market, people will use the currency that will benefit them most. Fairness has nothing to do with it.
    - codexon 14y ago
      The point is that they have no choice but to use fiat currency. That is not the case with bitcoin so far.
  - GoodIntentions 14y ago
    >> fair I was going to post exactly that. People are funny. If they perceive something is biased against them, they are much less likely to adopt its' use or even encourage its' existence. In fact, I bet there is a fair bit of quiet satisfaction around here every time another "$xxxx bitcoin stolen" story gets posted simply because most of us feel as tho the ship has sailed and we missed it. FWIW, I don't really care one way or another - if this currency exists in ten years, it'll just be another opportunity I missed early on. I'm at peace with that, but I am also not going to buy a bitcoin mining rig. :P
DanBC 14y ago
Early adopters used powerful computers; then GPUs; then GPU farms; now people are using FPGA clusters. They've seen considerable investment in hardware depreciate, and now they're stuck with a massively powerful setup that isn't much use to them. (Perhaps well-funded scientific groups should start buying all these hobbyist GPU farms while they're being sold cheap and put them to use folding proteins or modelling whatever?) Will anyone go to the expense of an ASIC? Would a well funded group with access to FPGA technology early on in the chain, when others were using GPUs, have been enough to crash the currency? And does anyone believe that a government would not be able to destroy bitcoin, trivially, by spending a few days mining?
- fleitz 14y ago
  The most the government could do is generate all the new coins, this would drive up the price of coins until it became economical compete. Given the almost limitless divisibility of bitcoins I don't think it's much of a threat. I'd be far more worried about laws being passed that made bitcoins punishable by jailtime.
  - Estragon 14y ago
    Actually, at least as of a couple of months ago, if you are generating all new coins, you can prevent all transactions from being validated (by refusing to include them in your blocks) or undermine community faith in bitcoin integrity by double spending. Both capabilities would be pretty devastating.
    - jerguismi 14y ago
      You need more than 50% of the total bitcoin network computing power to do that kind of attack. While goverments have the money to do it, do they have the capabilities and incentives?
      - Estragon 14y ago
        Of course many governments have the capability. The main reason a government would want to do this is that control over the coin of the realm is a major source of state power. If a government ever concluded that bitcoin posed a credible threat to that power, that would be a strong incentive to undermine it.
mrb 14y ago
No. The "hoarding" argument has been beaten to death. Evidence shows people are not hoarding the coins: every day, 40 thousand coins change hands on the single largest exchange: http://bitcoincharts.com/markets/mtgoxUSD.html http://bitcoincharts.com/markets/mtgoxUSD.html This is six times the number of coins created daily (7 thousands). In other words, people are not hoarding them, but are trading them very, very frequently. And this is just measuring MtGox's volume. Other trades (merchant sales, other exchanges, etc) are likely surpassing MtGox's volume in aggregate...
- aw3c2 14y ago
  Are there any statistics what those might be used for? Is there a list of sites/services that use Bitcoin with published numbers?
- Duff 14y ago
  How many coins were created daily 3 years ago?
  - jerguismi 14y ago
    The same 7200, it halves every 4 years. Add: so 7200 coins/day in 2009, 3600 coins/day starting 2013, 1800 coins/day starting 2017 etc.
- Jabbles 14y ago
  I apologise for re-hashing old arguments, I haven't been following them, and I'd be interested to read rebuttals if you know where they are. I'm not sure that evidence of trading is evidence of non-hoarding. It's only 0.5% of the total number of bitcoins out there that are traded daily. Is that a lot? I'm not sure, but I don't think we can compare it to the number of coins created daily and draw conclusions from that. Some people are hoarding them. A lot of them. Or at least they claim to be.
- codexon 14y ago
  How much of this volume are traders trying to flip bitcoins? I am willing to bet it could be as high as 95%. As someone who has mined, bought bitcoins, and tried using them at bitcoin stores, there is really nothing special I can buy with them, and can and have dropped 20-50% in a matter of hours.
PabloOsinaga 14y ago
There is a huge psychological bias for this argument. I believe it is 'sunk cost bias' or something like that. It goes like this. Say you are a miner. You mine. At the moment you get your bitcoins, you've realized value in the sum of ( $Bgenerated - $Bcost (your hardware, etc)). From that point on 'hoarding' is no different than going to an exchange and buying $Bgenerated in bitcoins with dollars. So your argument for 'hoarders' having a tremendous unfair advantage is seriously flawed. They have no greater advantage than any speculator going and making a bet in bitcoin long term value. The real value generated is the one they capture at mine time, and there is a super efficient market for that with very slim profits. http://tpbitcalc.appspot.com/ http://tpbitcalc.appspot.com/
ZenPsycho 14y ago
" the majority of these have come through substantial business innovation." [citation needed]

by Jabbles 14y ago

alexchamberlain 14y ago

I don't disagree with you, but there are a significant number of hereditary billionaires (in the real world), which inherit money through luck and early adoption (of business or banking)

joelthelion 14y ago

That was my opinion in the beginning, but I'm not convinced anymore. First of all, the bitcoin billionaires have a strong incentive to spend, because if they don't, the currency will crash and they will lose their money. Second, if you were to create "inflatacoin", with a small but real inflation rate, who would adopt it? It would probably be better economically speaking, but people prefer putting their money in things that stay stable or grow over time.

Jabbles 14y ago
If people are spending their money in fear of a crash then hoarding is not bitcoin's main problem. I don't know the solution to bitcoin's deflation, but IMO it's still a problem.

jerguismi 14y ago

> Bitcoin "billionaires" come through luck and early adoption, and in my view it makes it more unfair than our current system. I don't see how the hoarding/early adopter thing would destroy bitcoin. Bitcoin isn't fair, but lack of fairness doesn't necessarily make the project unsuccessful.

codexon 14y ago
If people don't think bitcoin is fair they won't adopt it, and may even fight against it.
- jerguismi 14y ago
  I don't know. Money isn't fair. Some people have it, some not. And usually people don't purchase things because they are "fair". People purchase luxury cars, big houses, drugs etc. for purely selfish reasons, to enjoy life. If we think that currency is just another selection in the market, people will use the currency that will benefit them most. Fairness has nothing to do with it.
  - codexon 14y ago
    The point is that they have no choice but to use fiat currency. That is not the case with bitcoin so far.
- GoodIntentions 14y ago
  >> fair I was going to post exactly that. People are funny. If they perceive something is biased against them, they are much less likely to adopt its' use or even encourage its' existence. In fact, I bet there is a fair bit of quiet satisfaction around here every time another "$xxxx bitcoin stolen" story gets posted simply because most of us feel as tho the ship has sailed and we missed it. FWIW, I don't really care one way or another - if this currency exists in ten years, it'll just be another opportunity I missed early on. I'm at peace with that, but I am also not going to buy a bitcoin mining rig. :P

DanBC 14y ago

Early adopters used powerful computers; then GPUs; then GPU farms; now people are using FPGA clusters. They've seen considerable investment in hardware depreciate, and now they're stuck with a massively powerful setup that isn't much use to them. (Perhaps well-funded scientific groups should start buying all these hobbyist GPU farms while they're being sold cheap and put them to use folding proteins or modelling whatever?) Will anyone go to the expense of an ASIC? Would a well funded group with access to FPGA technology early on in the chain, when others were using GPUs, have been enough to crash the currency? And does anyone believe that a government would not be able to destroy bitcoin, trivially, by spending a few days mining?

fleitz 14y ago
The most the government could do is generate all the new coins, this would drive up the price of coins until it became economical compete. Given the almost limitless divisibility of bitcoins I don't think it's much of a threat. I'd be far more worried about laws being passed that made bitcoins punishable by jailtime.
- Estragon 14y ago
  Actually, at least as of a couple of months ago, if you are generating all new coins, you can prevent all transactions from being validated (by refusing to include them in your blocks) or undermine community faith in bitcoin integrity by double spending. Both capabilities would be pretty devastating.
  - jerguismi 14y ago
    You need more than 50% of the total bitcoin network computing power to do that kind of attack. While goverments have the money to do it, do they have the capabilities and incentives?
    - Estragon 14y ago
      Of course many governments have the capability. The main reason a government would want to do this is that control over the coin of the realm is a major source of state power. If a government ever concluded that bitcoin posed a credible threat to that power, that would be a strong incentive to undermine it.

mrb 14y ago

No. The "hoarding" argument has been beaten to death. Evidence shows people are not hoarding the coins: every day, 40 thousand coins change hands on the single largest exchange: http://bitcoincharts.com/markets/mtgoxUSD.html http://bitcoincharts.com/markets/mtgoxUSD.html This is six times the number of coins created daily (7 thousands). In other words, people are not hoarding them, but are trading them very, very frequently. And this is just measuring MtGox's volume. Other trades (merchant sales, other exchanges, etc) are likely surpassing MtGox's volume in aggregate...

aw3c2 14y ago
Are there any statistics what those might be used for? Is there a list of sites/services that use Bitcoin with published numbers?
Duff 14y ago
How many coins were created daily 3 years ago?
- jerguismi 14y ago
  The same 7200, it halves every 4 years. Add: so 7200 coins/day in 2009, 3600 coins/day starting 2013, 1800 coins/day starting 2017 etc.
Jabbles 14y ago
I apologise for re-hashing old arguments, I haven't been following them, and I'd be interested to read rebuttals if you know where they are. I'm not sure that evidence of trading is evidence of non-hoarding. It's only 0.5% of the total number of bitcoins out there that are traded daily. Is that a lot? I'm not sure, but I don't think we can compare it to the number of coins created daily and draw conclusions from that. Some people are hoarding them. A lot of them. Or at least they claim to be.
codexon 14y ago
How much of this volume are traders trying to flip bitcoins? I am willing to bet it could be as high as 95%. As someone who has mined, bought bitcoins, and tried using them at bitcoin stores, there is really nothing special I can buy with them, and can and have dropped 20-50% in a matter of hours.

PabloOsinaga 14y ago

There is a huge psychological bias for this argument. I believe it is 'sunk cost bias' or something like that. It goes like this. Say you are a miner. You mine. At the moment you get your bitcoins, you've realized value in the sum of ( $Bgenerated - $Bcost (your hardware, etc)). From that point on 'hoarding' is no different than going to an exchange and buying $Bgenerated in bitcoins with dollars. So your argument for 'hoarders' having a tremendous unfair advantage is seriously flawed. They have no greater advantage than any speculator going and making a bet in bitcoin long term value. The real value generated is the one they capture at mine time, and there is a super efficient market for that with very slim profits. http://tpbitcalc.appspot.com/ http://tpbitcalc.appspot.com/

ZenPsycho 14y ago

" the majority of these have come through substantial business innovation." [citation needed]