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My problem with BTC (and I say this as a supporter) comes from a pg essay - you make what you measure. The BTC community measures BTC/USD exchange rate so it en

My problem with BTC (and I say this as a supporter) comes from a pg essay - you make what you measure. The BTC community measures BTC/USD exchange rate so it ends up optimizing for that, but I can't understand how focusing on that is a good thing. It already produced one massive crash and we're in the middle of another one. The actual number (BTC/USD) is mostly irrelevant, but volatility is quite bad for people who actually want to perform transactions with BTC. I hope BTC is able to get over this and continue growing.

kiba 14y ago
It already produced one massive crash and we're in the middle of another one. Why do you believe a crash is forthcoming? The actual number (BTC/USD) is mostly irrelevant, Why do you believe it is irrelevant? The market capitalization is only 500 million dollars. Can you imagine operating an entire economy with only 500 million dollars? It's a proxy for adoption, although that is muddled by price speculation and so on. but volatility is quite bad for people who actually want to perform transactions with BTC. I hope BTC is able to get over this and continue growing. The bitcoin economy is very tiny. Google probably makes more money than the entire bitcoin economy in a year several times over. Of course, it's going to be volatile. That's because we are growing. It would be a more legit concern if that the economy is worth 100 billion dollars or a trillion dollars.
- martythemaniak 14y ago
  1. Because it has jumped 3x in 2 months. Either the bitcoin economy has exploded over the last 2 months or speculators are feeding the hype machine. I see no evidence for former, but plenty of the latter. 2. It is irrelevant because you can use any sub unit down to satoshis to transact. If you want to use BTC as a currency and perform transactions, the exchange rate number is irrelevant, because it doesn't matter if a widget costs 1BTC and the rate is 1 BTC/USD or if the widget costs 1 satoshi and the rate is 10,000,000 USD/BTC. If you're a currency speculator OTOH, yes the rate matters immensely. Which goes back to my point - is BTC there to provide an alternate currency and associated economy, or just an easy way to gamble? 3. You're using the terms "market capitalization" and "economy" interchangeably. The economy implies the size of goods and services produced in the BTC universe - this number is important but seems largely ignored by the BTC community (in fact, it seems to not exist). Market Cap here means # of bitcoins multiplied by the USD exchange rate. This number is closely followed by the BTC community, but is large meaningless. It has spiked 3x in two months, but what has happened to the BTC economy itself? It seems to have grown, but can anyone say definitively?
  - mrb 14y ago
    1. Then you are not looking very hard. All the numbers indicate that there is increased spending and increased economic activity: http://news.ycombinator.com/item?id=5296889 http://news.ycombinator.com/item?id=5296889
  - gigitrix 14y ago
    There is of course hype but the past few months do represent real growth: see [here](http://blockchain.info/charts/n-unique-addresses http://blockchain.info/charts/n-unique-addresses). Now obviously that's a very gameable graph but there is little incentive to do so (and I was trying to pick something that would remove services like SatoshiDice from the equation since that heavily skews transaction count etc. There's the fact that the Euro is in trouble. There's the fact that provable odds gambling has been implemented (a powerful factor in the US). There's the fact that ASICs are coming out. There's the fact that it's becoming countercultural and hip to accept them (see Mega and Reddit) There's the fact that every time the price goes up more mainstream articles are exposing people to it's concepts, driving demand by more. Now it could well be bubble mark II and I DEFINITELY expect a correction: it's a volatile market. But there's certainly some massive growth underneath the massive speculation.
    - epscylonb 14y ago
      I could be wrong, but this looks like an ASIC fueled bubble to me. Avalon, the first ASIC producer to market, require payment in bitcoin. I believe BFL require payment in bitcoin for orders outside of the US. This created demand for bitcoin, which raised the price against the dollar. Others saw the rise and were encouraged to buy in or order ASICS, rinse and repeat. As far as I know the only service that is turning over serious numbers is Silk Road. I guess you could also count Satoshi Dice, but I am sceptical about their long term future. Due to the nature of bitcoin, it's entirely possible that the black market and wealth transfer functions of bitcoin have grown to support the current value, but the arrival of ASICS is too big of a coincidence for me.
      - wmf 14y ago
        People buy BTC to buy ASICs, but then the ASIC vendor immediately sells the BTC to cover their costs. It should have no net effect on the exchange rate.
- bingobangobongo 14y ago
  > The market capitalization is only 500 million dollars. Emphasis mine. That seems crazy high. How many million dollars would you pay for all of the existing bit coins?
  - gwern 14y ago
    (You can't pay any million dollars for all bitcoins because unknown scores of thousands have been lost or otherwise become inaccessible.)
  - eru 14y ago
    That's somewhat of a silly question for bitcoins, since the value would change after that transaction. For stock market valuations, though, that question is much more productive.
nym 14y ago
> we're in the middle of another one. Can you back that up somehow? It seems like we're in a rally based on the price.
- btbuildem 14y ago
  That's what bubbles often look like before they pop..
wmf 14y ago
Arguably Bitcoin may have never been adopted at all if not for the enrichment of early adopters. As much as I dislike bubbles there is a real benefit to creating them.
drivebyacct2 14y ago
How does a currency market "optimize" for an exchange rate? What does that even mean?
jerguismi 14y ago
> The BTC community measures BTC/USD exchange rate so it ends up optimizing for that First, I wouldn't call bitcoin user base community. It is like saying the dollar user community. Secondly, it is definitely not true that everyone in the bitcoin userbase focuses on the exchange rate. There are lots of people with different and varying goals.
- kiba 14y ago
  First, I wouldn't call bitcoin user base community. It is like saying the dollar user community. Bitcoin users meetups, non-profit organizations dedicated to supporting bitcoin, bitcoin related community, miner consenus and voting, are not evidence of a "bitcoin userbase community"?
  - mikegioia 14y ago
    Please, that's because the hacker / DIY community took to it first. Would you say investment clubs are dollar user communities?
    - sukuriant 14y ago
      What would you call a group of people that have banded together, all owning stock in a very specific company, trying to increase usage of that company so it can remain in business and their stock values can remain where they are or grow?
- illuminate 14y ago
  "First, I wouldn't call bitcoin user base community. It is like saying the dollar user community." The dollar is not modeled to meet a specific philosphy or technical implementation nor does it have the same degree of novelty. There most certainly is an enthusiast community for Bitcoin.
nawitus 14y ago
If you're "certain" that there will be a bitcoin crash, you can make money by shorting. Why don't you put your money where your mouth is?
- betterunix 14y ago
  Out of curiosity: how does one short Bitcoin?
  - eric_bullington 14y ago
    Bitcoin Derivatives Market: https://icbit.se/ https://icbit.se/
  - caf 14y ago
    You could take a Bitcoin-denominated loan and convert the principal into another currency or commodity that you believe will outperform Bitcoin over the period of the loan.
    - kybernetikos 14y ago
      Out of interest, are there any services offering loans of Bitcoins?
      - kybernetikos 14y ago
        I now know that there is: https://www.bitfinex.com/ https://www.bitfinex.com/
jacoblyles 14y ago
It's unrealistic to expect that a thing could grow from a project on a hobbyist's computer to a major international currency without some volatility along the way.
- wmf 14y ago
  I think Bitcoin could have been designed to be less volatile (by making the mining reward based on some closed loop), but that change would also likely enrich early adopters less which might have caused Bitcoin to never take off.
  - eru 14y ago
    Eventually the mining reward will be almost completely be based on transactions fees. That should make for different dynamics, than mining being paid almost exclusively from new coins.

kiba 14y ago

It already produced one massive crash and we're in the middle of another one. Why do you believe a crash is forthcoming? The actual number (BTC/USD) is mostly irrelevant, Why do you believe it is irrelevant? The market capitalization is only 500 million dollars. Can you imagine operating an entire economy with only 500 million dollars? It's a proxy for adoption, although that is muddled by price speculation and so on. but volatility is quite bad for people who actually want to perform transactions with BTC. I hope BTC is able to get over this and continue growing. The bitcoin economy is very tiny. Google probably makes more money than the entire bitcoin economy in a year several times over. Of course, it's going to be volatile. That's because we are growing. It would be a more legit concern if that the economy is worth 100 billion dollars or a trillion dollars.

martythemaniak 14y ago
1. Because it has jumped 3x in 2 months. Either the bitcoin economy has exploded over the last 2 months or speculators are feeding the hype machine. I see no evidence for former, but plenty of the latter. 2. It is irrelevant because you can use any sub unit down to satoshis to transact. If you want to use BTC as a currency and perform transactions, the exchange rate number is irrelevant, because it doesn't matter if a widget costs 1BTC and the rate is 1 BTC/USD or if the widget costs 1 satoshi and the rate is 10,000,000 USD/BTC. If you're a currency speculator OTOH, yes the rate matters immensely. Which goes back to my point - is BTC there to provide an alternate currency and associated economy, or just an easy way to gamble? 3. You're using the terms "market capitalization" and "economy" interchangeably. The economy implies the size of goods and services produced in the BTC universe - this number is important but seems largely ignored by the BTC community (in fact, it seems to not exist). Market Cap here means # of bitcoins multiplied by the USD exchange rate. This number is closely followed by the BTC community, but is large meaningless. It has spiked 3x in two months, but what has happened to the BTC economy itself? It seems to have grown, but can anyone say definitively?
- mrb 14y ago
  1. Then you are not looking very hard. All the numbers indicate that there is increased spending and increased economic activity: http://news.ycombinator.com/item?id=5296889 http://news.ycombinator.com/item?id=5296889
- gigitrix 14y ago
  There is of course hype but the past few months do represent real growth: see [here](http://blockchain.info/charts/n-unique-addresses http://blockchain.info/charts/n-unique-addresses). Now obviously that's a very gameable graph but there is little incentive to do so (and I was trying to pick something that would remove services like SatoshiDice from the equation since that heavily skews transaction count etc. There's the fact that the Euro is in trouble. There's the fact that provable odds gambling has been implemented (a powerful factor in the US). There's the fact that ASICs are coming out. There's the fact that it's becoming countercultural and hip to accept them (see Mega and Reddit) There's the fact that every time the price goes up more mainstream articles are exposing people to it's concepts, driving demand by more. Now it could well be bubble mark II and I DEFINITELY expect a correction: it's a volatile market. But there's certainly some massive growth underneath the massive speculation.
  - epscylonb 14y ago
    I could be wrong, but this looks like an ASIC fueled bubble to me. Avalon, the first ASIC producer to market, require payment in bitcoin. I believe BFL require payment in bitcoin for orders outside of the US. This created demand for bitcoin, which raised the price against the dollar. Others saw the rise and were encouraged to buy in or order ASICS, rinse and repeat. As far as I know the only service that is turning over serious numbers is Silk Road. I guess you could also count Satoshi Dice, but I am sceptical about their long term future. Due to the nature of bitcoin, it's entirely possible that the black market and wealth transfer functions of bitcoin have grown to support the current value, but the arrival of ASICS is too big of a coincidence for me.
    - wmf 14y ago
      People buy BTC to buy ASICs, but then the ASIC vendor immediately sells the BTC to cover their costs. It should have no net effect on the exchange rate.
bingobangobongo 14y ago
> The market capitalization is only 500 million dollars. Emphasis mine. That seems crazy high. How many million dollars would you pay for all of the existing bit coins?
- gwern 14y ago
  (You can't pay any million dollars for all bitcoins because unknown scores of thousands have been lost or otherwise become inaccessible.)
- eru 14y ago
  That's somewhat of a silly question for bitcoins, since the value would change after that transaction. For stock market valuations, though, that question is much more productive.

nym 14y ago

> we're in the middle of another one. Can you back that up somehow? It seems like we're in a rally based on the price.

btbuildem 14y ago
That's what bubbles often look like before they pop..

wmf 14y ago

Arguably Bitcoin may have never been adopted at all if not for the enrichment of early adopters. As much as I dislike bubbles there is a real benefit to creating them.

drivebyacct2 14y ago

How does a currency market "optimize" for an exchange rate? What does that even mean?

jerguismi 14y ago

> The BTC community measures BTC/USD exchange rate so it ends up optimizing for that First, I wouldn't call bitcoin user base community. It is like saying the dollar user community. Secondly, it is definitely not true that everyone in the bitcoin userbase focuses on the exchange rate. There are lots of people with different and varying goals.

kiba 14y ago
First, I wouldn't call bitcoin user base community. It is like saying the dollar user community. Bitcoin users meetups, non-profit organizations dedicated to supporting bitcoin, bitcoin related community, miner consenus and voting, are not evidence of a "bitcoin userbase community"?
- mikegioia 14y ago
  Please, that's because the hacker / DIY community took to it first. Would you say investment clubs are dollar user communities?
  - sukuriant 14y ago
    What would you call a group of people that have banded together, all owning stock in a very specific company, trying to increase usage of that company so it can remain in business and their stock values can remain where they are or grow?
illuminate 14y ago
"First, I wouldn't call bitcoin user base community. It is like saying the dollar user community." The dollar is not modeled to meet a specific philosphy or technical implementation nor does it have the same degree of novelty. There most certainly is an enthusiast community for Bitcoin.

nawitus 14y ago

If you're "certain" that there will be a bitcoin crash, you can make money by shorting. Why don't you put your money where your mouth is?

betterunix 14y ago
Out of curiosity: how does one short Bitcoin?
- eric_bullington 14y ago
  Bitcoin Derivatives Market: https://icbit.se/ https://icbit.se/
- caf 14y ago
  You could take a Bitcoin-denominated loan and convert the principal into another currency or commodity that you believe will outperform Bitcoin over the period of the loan.
  - kybernetikos 14y ago
    Out of interest, are there any services offering loans of Bitcoins?
    - kybernetikos 14y ago
      I now know that there is: https://www.bitfinex.com/ https://www.bitfinex.com/

jacoblyles 14y ago

It's unrealistic to expect that a thing could grow from a project on a hobbyist's computer to a major international currency without some volatility along the way.

wmf 14y ago
I think Bitcoin could have been designed to be less volatile (by making the mining reward based on some closed loop), but that change would also likely enrich early adopters less which might have caused Bitcoin to never take off.
- eru 14y ago
  Eventually the mining reward will be almost completely be based on transactions fees. That should make for different dynamics, than mining being paid almost exclusively from new coins.