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> [..] bitcoin needs to increase the amount of users using it to be more useful. Inevitably, this means the price of bitcoin will rise. I'm not so sure if this

by w0utert 14y ago

> [..] bitcoin needs to increase the amount of users using it to be more useful. Inevitably, this means the price of bitcoin will rise. I'm not so sure if this is 'inevitable' since bitcoins in itself have no value at all. I know the same can be said about fiat money, but at least that's what everyone agrees is legal tender, as opposed to just a bunch of idealists or people who need a way to pay for shady stuff. But bitcoins are not like commodities, or labour, or whatever else has limited supply and non-zero utility. Personally I'm not even touching bitcoins with a 10-foot pole. The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down and all your bitcoins will be worth nothing. One thing I never understood about bitcoins, is what other problem they solve besides scratching some ideological itch some people have with money controlled by central bankers and governments (which I can imagine are valid concerns for some people). Effectively bitcoins are just like fiat money; worthless tokens that have no intrinsic value besides the trust that some people have in them to hold their value. Trust that is not actually based on anything either. At least the dollar has a government with a big military behind it that can assert their influence on areas where real wealth is concentrated. I'm not saying this is a good thing, just making the observation.

ktizo 14y ago
At least the dollar has a government with a big military behind it Then all you are doing is pegging your wealth to the stability of a nation, which statistically speaking is not that good a bet.
mattschoch 14y ago
You are exactly right that bitcoins are exactly like fiat money, and have no intrinsic value. You actually unintentionally explained what you don't understand. Fiat currency is a problem because it can be so easily manipulated by the governments behind it. Just like the dollar, bitcoins have value only because people believe they have value. Your statement that at least the dollar has a government with big military behind it is exactly what the problem is that bitcoin solves. Bitcoin does NOT have a big government or organization controlling it, so unlike the dollar, no single party can inflate the currency. Central banks are able to create money out of nothing, therefore creating something with perceived value without offering anything of value in exchange (i.e. inflation). That leads to all kinds of problems, as we're seeing with the global economic crisis right now. While Bitcoin does not have any intrinsic value, it also does not have a way to be inflated. The system by design creates DEFLATION instead, so the currency becomes more valuable(infinite divisibility handles issues with deflation). Since there is a finite number of bitcoins that can ever be mined, it acts much more like gold than like the dollar. Gold cannot be inflated by any government. If bitcoins gain mass adoption, then they will begin to look very similar to gold. The main difference being that they are purely digital and have no intrinsic value(thus making gold still a better currency).
- davidw 14y ago
  Deflation, by most mainstream accounts, isn't exactly a good thing in your money supply, either, though.
  - LyndsySimon 14y ago
    That depends on your perspective, and what you value in a monetary supply. If deflation outstrips investment returns, then yes - that would cause capital to stay in one place, as people wouldn't want to spend money that would be worth more tomorrow. Investment would stop, businesses couldn't get financing, and everything would grind to a halt. That's not a sustainable situation though; there will never be a time when all units of currency are held, nothing changes hands, and value is infinite. Instead, as value increases there will be profit-taking, which will hold down the value to some point. With the current relative lack of liquidity, you get a boom/bust cycle (the price will shoot up as more people try to get in on the value incrase, then confidence falters and the price crashes back to near baseline). This has already happened once for Bitcoin, and it's important to note that the value over time has been somewhat linear when you account for the impact of the boom/bust. As the liquidity of the market increases due to wider adoption, then you'll start to see the cycles increase in duration, as the market seeks balance. There will always be fluctuations, though, so the ultimate goal is ubiquitous use of Bitcoin in the general economy, and years- or decades- long variance in value. I believe we're entering a new phase of growth, which will be sustained. I predict we'll see a good-sized correction relatively soon, and lots of smaller ones on the way up, but otherwise the value of Bitcoin in USD will steadily rise for the foreseeable future. This doesn't look like another boom to me. This looks like people moving wealth to Bitcoin, and actually using it to buy things other than banknotes.
- oleganza 14y ago
  There is no intrinsic value in gold either. In fact, all value is subjective and individual. If for you the gold may have technological value, it may not have such value for me. But it may have exchange value for me because you or other people demand gold for their own subjective reasons. And yes, technological value is still subjective because there is no objective measure why you should be involved in that particular technology requiring that much of gold. It all depends on your own decision (which may take in account equally subjective valuations of your customers who demand products of your technology). Gold may have started being used as money because it was already demanded for, say, jewellery. Bitcoin may have started for "fun" or belief in future growth and even bigger demand. The truth is in both cases the initial value was purely subjective.
davorb 14y ago
First of all government does some shady stuff to manipulate the value of its own currency, second of all "real" money is more easy to trace (so there are privacy concerns).
shtylman 14y ago
It isn't just an idealogical itch against central banks. Controlling someone's money is a very powerful way to control them. Bitcoin is about empowering digital transactions without a controlling third party in the middle. Having ways to move money to anyone anywhere instantly is not something to shrug away lightly. Sure, maybe you have no use for them, but I can assure you that there are plenty of people, businesses, and entire sectors that benefit from their properties.
hnolable 14y ago
What he probably meant was if Bitcoin catches on in any meaningful way the price must rise. If it never catches on it's likely the price will go close to 0 due to lack of mining security. The dollar isn't necessarily Bitcoin's competitor. So maybe the dollar is good because it has such a power behind it. But what about all the other currencies of the world? Can you say they are all better than Bitcoin also? Try thinking about it in a less US-centric way.
Karunamon 14y ago
>The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down- Which will work just as well as stopping global piracy, i.e. not at all.
- hnolable 14y ago
  Except, it's actually a lot easier than stopping global piracy. All you have to do is invest enough money into mining equipment to overpower 50% of the network and then you have the ability to stop all transactions. The cost of this is well within the ability of probably any government and will be for some time to come.
  - Karunamon 14y ago
    At which point other technological measures will be taken, whether that be improved client software or what have you. You can't fundamentally stop people from exchanging hashes, which is what bitcoin is.
    - hnolable 14y ago
      What you meant to say was you can't stop people from broadcasting transactions. Which is true. But you can stop transactions from getting into the blockchain which is "what bitcoin is". A technologically savy attacker could forsee any counter measures and account for them in their initial attack. I haven't seen any counter measures proposed which would be a foolproof way to subvert a well planned 51% attack to stop legitimate transaction processing.
      - w0utert 14y ago
        This is all besides the point I was trying to make. It doesn't matter if and how government can stop Bitcoin trades or whatever. It's about what happens when governments simply deem Bitcoins illegal, preventing legitimate use. It will undermine trust, and people will start converting their wealth into something else. In terms of wealth preservation, Bitcoins are just like any other forms of currency, except that there really isn't anything protecting it from becoming worthless. I don't think there is any kind of currency that survived for more than a few hundred years, there have probably been hundreds if not thousands. Stamps, sticks with carvings on them, silver coins when fiat coins where still actually made of gold (can you believe it?), seashhells, etc. The ones that survived the longest have been government-controlled fiat currencies. Once again, just to make myself clear, I'm not saying this is a good thing, just making the observation.
anonymoushn 14y ago
If the USD derives its value from the strength of the U.S. military, the BTC derives its value from its ability to purchase shady things. I would not bet against the continued existence of markets for shady things.
- vannevar 14y ago
  I wouldn't bet against the continued existence of speculative bubbles. Bitcoin's actual utility for money-laundering will provide some support at the bottom when it crashes, but the price curve right now looks an awful lot like simple speculation.

by w0utert 14y ago

ktizo 14y ago

At least the dollar has a government with a big military behind it Then all you are doing is pegging your wealth to the stability of a nation, which statistically speaking is not that good a bet.

mattschoch 14y ago

You are exactly right that bitcoins are exactly like fiat money, and have no intrinsic value. You actually unintentionally explained what you don't understand. Fiat currency is a problem because it can be so easily manipulated by the governments behind it. Just like the dollar, bitcoins have value only because people believe they have value. Your statement that at least the dollar has a government with big military behind it is exactly what the problem is that bitcoin solves. Bitcoin does NOT have a big government or organization controlling it, so unlike the dollar, no single party can inflate the currency. Central banks are able to create money out of nothing, therefore creating something with perceived value without offering anything of value in exchange (i.e. inflation). That leads to all kinds of problems, as we're seeing with the global economic crisis right now. While Bitcoin does not have any intrinsic value, it also does not have a way to be inflated. The system by design creates DEFLATION instead, so the currency becomes more valuable(infinite divisibility handles issues with deflation). Since there is a finite number of bitcoins that can ever be mined, it acts much more like gold than like the dollar. Gold cannot be inflated by any government. If bitcoins gain mass adoption, then they will begin to look very similar to gold. The main difference being that they are purely digital and have no intrinsic value(thus making gold still a better currency).

davidw 14y ago
Deflation, by most mainstream accounts, isn't exactly a good thing in your money supply, either, though.
- LyndsySimon 14y ago
  That depends on your perspective, and what you value in a monetary supply. If deflation outstrips investment returns, then yes - that would cause capital to stay in one place, as people wouldn't want to spend money that would be worth more tomorrow. Investment would stop, businesses couldn't get financing, and everything would grind to a halt. That's not a sustainable situation though; there will never be a time when all units of currency are held, nothing changes hands, and value is infinite. Instead, as value increases there will be profit-taking, which will hold down the value to some point. With the current relative lack of liquidity, you get a boom/bust cycle (the price will shoot up as more people try to get in on the value incrase, then confidence falters and the price crashes back to near baseline). This has already happened once for Bitcoin, and it's important to note that the value over time has been somewhat linear when you account for the impact of the boom/bust. As the liquidity of the market increases due to wider adoption, then you'll start to see the cycles increase in duration, as the market seeks balance. There will always be fluctuations, though, so the ultimate goal is ubiquitous use of Bitcoin in the general economy, and years- or decades- long variance in value. I believe we're entering a new phase of growth, which will be sustained. I predict we'll see a good-sized correction relatively soon, and lots of smaller ones on the way up, but otherwise the value of Bitcoin in USD will steadily rise for the foreseeable future. This doesn't look like another boom to me. This looks like people moving wealth to Bitcoin, and actually using it to buy things other than banknotes.
oleganza 14y ago
There is no intrinsic value in gold either. In fact, all value is subjective and individual. If for you the gold may have technological value, it may not have such value for me. But it may have exchange value for me because you or other people demand gold for their own subjective reasons. And yes, technological value is still subjective because there is no objective measure why you should be involved in that particular technology requiring that much of gold. It all depends on your own decision (which may take in account equally subjective valuations of your customers who demand products of your technology). Gold may have started being used as money because it was already demanded for, say, jewellery. Bitcoin may have started for "fun" or belief in future growth and even bigger demand. The truth is in both cases the initial value was purely subjective.

davorb 14y ago

First of all government does some shady stuff to manipulate the value of its own currency, second of all "real" money is more easy to trace (so there are privacy concerns).

shtylman 14y ago

It isn't just an idealogical itch against central banks. Controlling someone's money is a very powerful way to control them. Bitcoin is about empowering digital transactions without a controlling third party in the middle. Having ways to move money to anyone anywhere instantly is not something to shrug away lightly. Sure, maybe you have no use for them, but I can assure you that there are plenty of people, businesses, and entire sectors that benefit from their properties.

hnolable 14y ago

What he probably meant was if Bitcoin catches on in any meaningful way the price must rise. If it never catches on it's likely the price will go close to 0 due to lack of mining security. The dollar isn't necessarily Bitcoin's competitor. So maybe the dollar is good because it has such a power behind it. But what about all the other currencies of the world? Can you say they are all better than Bitcoin also? Try thinking about it in a less US-centric way.

Karunamon 14y ago

>The day some government decides bitcoins are becoming a real alternative or even a threat to government-controlled money, they will shut the whole gig down- Which will work just as well as stopping global piracy, i.e. not at all.

hnolable 14y ago
Except, it's actually a lot easier than stopping global piracy. All you have to do is invest enough money into mining equipment to overpower 50% of the network and then you have the ability to stop all transactions. The cost of this is well within the ability of probably any government and will be for some time to come.
- Karunamon 14y ago
  At which point other technological measures will be taken, whether that be improved client software or what have you. You can't fundamentally stop people from exchanging hashes, which is what bitcoin is.
  - hnolable 14y ago
    What you meant to say was you can't stop people from broadcasting transactions. Which is true. But you can stop transactions from getting into the blockchain which is "what bitcoin is". A technologically savy attacker could forsee any counter measures and account for them in their initial attack. I haven't seen any counter measures proposed which would be a foolproof way to subvert a well planned 51% attack to stop legitimate transaction processing.
    - w0utert 14y ago
      This is all besides the point I was trying to make. It doesn't matter if and how government can stop Bitcoin trades or whatever. It's about what happens when governments simply deem Bitcoins illegal, preventing legitimate use. It will undermine trust, and people will start converting their wealth into something else. In terms of wealth preservation, Bitcoins are just like any other forms of currency, except that there really isn't anything protecting it from becoming worthless. I don't think there is any kind of currency that survived for more than a few hundred years, there have probably been hundreds if not thousands. Stamps, sticks with carvings on them, silver coins when fiat coins where still actually made of gold (can you believe it?), seashhells, etc. The ones that survived the longest have been government-controlled fiat currencies. Once again, just to make myself clear, I'm not saying this is a good thing, just making the observation.

anonymoushn 14y ago

If the USD derives its value from the strength of the U.S. military, the BTC derives its value from its ability to purchase shady things. I would not bet against the continued existence of markets for shady things.

vannevar 14y ago
I wouldn't bet against the continued existence of speculative bubbles. Bitcoin's actual utility for money-laundering will provide some support at the bottom when it crashes, but the price curve right now looks an awful lot like simple speculation.