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I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. In principle, t

I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. In principle, there's nothing wrong with this; currency trading is common and well-explored. The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency. It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively.

oleganza 14y ago
"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services." Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).
- dragontamer 14y ago
  But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services. IE: Deflationary Spiral. It becomes hard to be a merchant who accepts bitcoins, because everyone expects BTC to keep rising in prices. People who bought a domain name for 1 BTC a few weeks ago from Namecheap lost a lot of money. They should have instead "saved" that BTC. Therefore, people are discouraged from using BTC as a transaction vehicle. Currently, hoarders are the ones benefiting from BTC, but no one else is. No merchant knows how to value their services in BTC, not when there is this much volatility around.
  - kiba 14y ago
    But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services. Sure they are. BitPay reports 2 million dollars in sale this month. The rate of transaction is accelerating too. What you meant is "they will horde more and spend less on goods / services", but sales and transactions are clearly accelerating. How do you account for this?
    - philwelch 14y ago
      The size of the Bitcoin economy in general is growing, so both hoarding and spending will increase. By the time spending actually starts going down it's too late.
    - deleted 14y ago
      [deleted]
    - dragontamer 14y ago
      https://news.ycombinator.com/item?id=5473508 https://news.ycombinator.com/item?id=5473508 I don't have to. The fact is, no one prices their goods in BTC. Its absolutely ludicrous to price goods in BTC in the current market. I think BTC has utility as a currency for exchange however. But on that side, you don't want to be in the position of hoarding BTC. You hoard dollars, and then use BTC to transfer dollars between people. Services like Bitpay allow you to keep most of your money in hard cash.
    - saalweachter 14y ago
      Is $2 million really significant? BTC famously passed $1 billion in the money supply recently. That means that about 0.2% of the money supply is turning over each month, and 99.8% being hoarded from month to month. The US GDP is about $15 trillion, so about $1.25 trillion in transactions happen in a month. If you take M2 of about $10 trillion as the US money supply, about 12.5% of the US money supply turns over each month and 87.5% is being hoarded. If you take M1 of about $2 trillion as the money supply, about 62.5% of the US money supply is used in a transaction each month, with only 37.5% being hoarded. Compared to 62.5% or even 12.5%, 0.2% seems pretty unhealthy.
      - kiba 14y ago
        It's one company's business. I didn't cite any other businesses such as silk road, transactions on bitmit, and businesses that's outside bitpay's sphere of influence.
      - mapt 14y ago
        $2M and growing is significant, although it's only one of many companies. Every other day another business sets up with Bitcoin as a medium of exchange that is a low-fee, no-chargeback transactional currency. The fundamental value of such a currency, with a quasi-fixed money supply, scales as some multiple of real circulation. The momentary value is proportional to that fundamental value multiplied by short-term expectations of the BTC as an asset, which is driven by growth in usage and hype. It's entirely possible that 99% of the value of a bitcoin is a self-reinforcing set of asset-bubble expectations, but this is something that really didn't exist before, that we don't have great paradigms to explain, that is undergoing massive daily shifts in its usage. It is explicitly not a stable national floating fiat currency with people who circulate the money their banking system provides & pay their taxes in those notes & denominate their salaries and grocery bills in sticky quantities of those notes, and so it's not directly comparable.
  - nawitus 14y ago
    "Currently, hoarders are the ones benefiting from BTC, but no one else is." That's not true, BTC has many benefits to bitcoin users. There's plenty of bitcoin-only services, but more importantly, it provides freedom for many people who are facing government regulation. In the long run, bitcoin enables all kinds of innovation (good example is reddit's bitcointip service, which wouldn't really exist without bitcoins).
    - dragontamer 14y ago
      And tell me, what is a good BTC tip today? 1BTC used to be a decent tip at $5. Today that is a $100 tip I'm giving someone. Anyone who gave money to Bitcointip is suffering from the volatility in the marketplace. A true BTC enthusiast will be happy when BTC stops moving. It doesn't matter what value BTC has, as long as it is constant. Only hoarders want BTC to keep going up and up in value.
      - drivebyacct2 14y ago
        Huh? Just... don't tip 1 BTC? For example, the bitcointip bot on reddit will take USD values, use the current mtgox price and then tip the equivalent amount in BTC. Of course the person receiving the tip is affected by volatility compared to USD. For now, it's certainly in their favor, and again, it's no different than other currency except BTC's high current volatility.
        dragontamer 14y ago
        The volatility of a currency is one of the most important metrics. It really doesn't matter if a currency is inflating or deflating. It just shouldn't change that much over time. The less it changes, the better. (or, if it is changing, then it should at least change consistently. IE: People expect USD to inflate at 3% so it should). Since no one can predict the value of BTC next week, or hell... even tomorrow's price of BTC... it becomes a very hard to use currency.
      - gnaritas 14y ago
        > . It doesn't matter what value BTC has, as long as it is constant. That'll never happen, bitcoin is doomed by math and economics to be forever a deflationary currency, worth ever more and more over time as the economy grows while the supply of bitcoins doesn't.
  - indrax 14y ago
    By that logic anyone who didn't buy bitcoin a few weeks ago lost a lot of money. No one should buy anything but bitcoin. Anyone who buys with bitcoin can replace their bitcoin with dollars, if they want to stay invested in bitcoin.
mef 14y ago
I think part of the reason for the optimism of those speculating bullishly on BTC is that the inherent properties of a decentralized finite online currency will result in their utility will only increase with time.
knowaveragejoe 14y ago
That is my sentiment exactly. There is much talk of growing bitcoin adoption, but I've yet to see anything beyond a few web-based services(which, beyond their time, are almost free for the operators to begin with).
- virgil_disgr4ce 14y ago
  It's always been my suspicion/assumption that the majority of BTC usage is for black/gray-market drugs...?
  - niggler 14y ago
    The anonymity feature (and subsequent fees involved in the the transaction) is useful primarily for illicit activities. Maybe 1% of people are legitimately worried about privacy (the true libertarians). But most just want transactions that can't be traced back to them.
- mrb 14y ago
  "A few web-based services" ?? Here is a list of more than a thousand merchants accepting Bitcoin: https://en.bitcoin.it/wiki/Trade https://en.bitcoin.it/wiki/Trade And there are a lot more not on this list. Bitpay alone (a Bitcoin payment processor) claims to have multiple thousands of merchants.
  - knowaveragejoe 14y ago
    Yes, I've seen it. Have you given it a serious look? It looks great in quantity, but would you ever consider purchasing anything for a decent sum from any of them? The only remotely reputable merchant I'm aware of on there is BitcoinStore. Furthermore, there is noone offering general groceries, household supplies or clothing, just niche approximations of those categories. Also critically lacking are complex B2B services(their professional services section is...well, not much to look at - I certainly would not be investing my business's money in any of them at this time).
    - 14y ago
kiba 14y ago
It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively. The GDP stats for bitcoin is not systematically collected. The blockchain data only gives us a approximate picture. So most people just rely on their guts and vague feeling about the size of the bitcoin economy. Bitcoin detractors tend to underestimate the size of bitcoin economy because they can't recall selling or buying goods or services. Bitcoin users tend to be more optimistic because they keep up with news of merchants opening up. I think it would be very useful if somebody built a stats site dedicated to systematically report on economic activities occuring in bitcoinland.
- adrianwaj 14y ago
  Good idea. I find it interesting to track # followers of http://twitter.com/bitrific http://twitter.com/bitrific and http://twitter.com/btcprice http://twitter.com/btcprice. Probably lots of other accounts too worth following. But good correlation vehicles nevertheless.
grovulent 14y ago
I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. And if this isn't the case - then people will go off it. When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.
- kaonashi 14y ago
  Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.
  - nawitus 14y ago
    I think it's better to think that bitcoin is a currency for some, and a commodity for others.
  - numbsafari 14y ago
    As a commodity, gold always had an intrinsic value separate from its value as a currency. So if the authority stamping the coin disappeared, I could always melt down the gold and sell it as a simple commodity. In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.
    - tlrobinson 14y ago
      Is gold's intrinsic value anywhere near what it's currently trading at? edit: I think I mean it's "use value". The value of gold if it were not used a store of value.
phormula 14y ago
$450k of electronics were purchased at bitcoinstore.com in march alone
- knowaveragejoe 14y ago
  Got a source for that?
  - phormula 14y ago
    There was ticker on their site that must of reset this morning. They say need to get $850k per quarter in order to keep re-seller account and the low prices. They are selling 0% margin in order to promote bitcoin and get the competition, newegg and amazon to accept it as well. They didn't make the goal but were not open the whole quarter so they may still be able to continue. I'll see if they post news or press release about it
    - knowaveragejoe 14y ago
      There is a ticker to get 850k by June 30th, maybe that's what you're talking about?
  - BitcoinStore 14y ago
    I can confirm :)
bcoates 14y ago
I can't help but think these prices represent people confusing a currency being useful with a unit of the currency being worth more. Obviously this is true at the extreme case that a useless currency is worthless in any quantity. But it doesn't really follow that more trading of goods and services in Bitcoin would cause the price to increase. This wouldn't need to happen until some substantial fraction of them are in the hands of people spending them instead of holding them speculatively. Currently the amount of Bitcoins that need to exist to satisfy all the commerce is tiny.
return0 14y ago
I believe the biggest worry are security issues. It doesn't really matter if it can be used directly, as long as it can be traded back for other currencies. Same situation as gold, actually
incision 14y ago
>I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. I'd say it has been that way for a long time. When I dabbled in the community 2 years ago it was already brimming with speculators. Early adopting evangelists looking to legitimize their hoards and speculators who'd have been gambling on leveraged ETFs or FX if not BTC.
tibbon 14y ago
Demurrage (cost to hold currency) could help hoarding. However, at some point, people will start spending them too. There's a fork of Bitcoin which actually has this built in. I imagine we could see an interesting future with cryptocurrencies, where people are essentially betting/investing on the stability of the framework/algorithm and demand on it. Multiple ones could exist, and you're hoping for the best return, or greatest stability. What would be REALLY interesting is if essentially one of these ends up seeming a better 'idea' than US currency (the de-facto currency now)
- pi18n 14y ago
  Oh, I was going to write about Freicoin. It seems like an incredibly fascinating concept and I'd really like to see an online economy emerge around it. Do you use it?
  - tibbon 14y ago
    I don't, and I'm not sure of where I could generate/buy some. I'd definitely like to play with it a bit.
  - wmf 14y ago
    Why would anyone opt in to demurrage?
    - tibbon 14y ago
      I think that's a very good question. People would have to think that its a more stable currency with greater long term value to opt into it.
    - krichman 14y ago
      How is that demurrage any different from inflation, though? I have to invest my cash in things just to get it to maintain the value it has now.
  - gst 14y ago
    Freicoin is a scam. If you mine Freicoins 80% of the mined coins are automatically transferred to the "Freicoin Foundation" (see e.g. https://bitcointalk.org/index.php?topic=134629.0 https://bitcointalk.org/index.php?topic=134629.0). A real demurrage might be an interesting concept, but I wouldn't suggest to buy into Freicoin.
jwallaceparker 14y ago
"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency." Gold and silver stand in opposition to this statement. You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment. Furthermore, according to Gresham's Law, people keep "good money" (i.e. money that holds its value) out of the marketplace and spend their "bad money" (i.e. fiat) acquiring goods and services.
- betterunix 14y ago
  Gold and silver are not currencies anymore, except in a few highly niche places.
  - morroccomole 14y ago
    Money != Currency. Gold and Silver are Money. Bitcoin and USD are currencies. Huge difference.
    - betterunix 14y ago
      Gold and silver are not money either, except in a tiny minority of countries. Wages are not being paid in gold or silver, debts cannot be settled with gold or silver, and neither gold nor silver is commonly traded for other goods. Nobody uses gold or silver as units of account. The only resemblance either metal has to money in this day and age is as a store of value, but if that is your only requirement to consider something to be money then you would need to include land, buildings, and various collectible items too. Gold and silver are commodities, traded like any other metal, and the historically-motivated obsession people have with using gold as a store of value makes it more difficult to acquire gold for industrial uses (which would be a real, productive use of the metal).
- jvm 14y ago
  > You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment. Real value of gold: http://static.cdn-seekingalpha.com/uploads/2013/2/18/1019887-136124096807602-Derek-Tomczyk.jpg http://static.cdn-seekingalpha.com/uploads/2013/2/18/1019887... That is very much not my idea of a "fantastic store of value." Not unlike bitcoin, its value appears to vacillate wildly. The S&P 500 looks tame by comparison, and also has the added benefit of a much higher long-run rate of return.
GhotiFish 14y ago
That may be true, but I'd wager most of the people who are buying into bitcoin for its property as a store of value will be shocked to find out bitcoins other very interesting property. The ease and low cost of transferring those bitcoins to anyone, anywhere in the world. "I can BUY things with these? Wait... I can sell things? I just need to paste a hash?!"
- betterunix 14y ago
  Then one day, some highly motivated attacker will come along and discover the other very interesting property: that the work needed to attack Bitcoin scales linearly with the work needed to use Bitcoin. As soon as a successful attack is announced publicly, faith in Bitcoin will be shaken to badly that nobody will ever want to use anything called "digital cash" for a long time. So the real question you should be asking is, "Who would benefit from a Bitcoin failure, and could they amass that much computing power?"
  - dm2 14y ago
    Supposedly they can easily change algorithms if SHA-256 is broken in the future. Here is a list of client security issues: https://en.bitcoin.it/wiki/Common_Vulnerabilities_and_Exposures https://en.bitcoin.it/wiki/Common_Vulnerabilities_and_Exposu... It seems like the biggest risk would be with the wallet websites, which is an issue that is present in other payment methods. The biggest problem IMO is that there is no way to refund or right the wrongs done by an attack. If someone in russia or china steals half of the bitcoins, there is nothing anyone can do to get them back. I suppose they would all be logged and everyone could band together to block those BitCoins as payments, but that's probably not going to happen. That would be interest to watch play out.
    - wmf 14y ago
      I think betterunix is not talking about a crypto flaw but a 51% attack; for ~$20M you can buy enough ASICs to basically take control of Bitcoin. (I'm not convinced that mathematical concepts like "polynomial time" should be applied without consideration for economics, but that's a whole different topic.)
jacoblyles 14y ago
The deflation is healthy at first. It encourages adoption. But in the long run, I would rather BTC be less deflationary.
mrb 14y ago
I have said this multiple times in previous discussion threads, but everywhere you look, all indicators show that Bitcoin spending is increasing: https://news.ycombinator.com/item?id=5296889 https://news.ycombinator.com/item?id=5296889
rayiner 14y ago
Something about Dutch tulips.
mtgx 14y ago
I worry about that, too, but I think it's unlikely to happen, because Bitcoin will stabilize eventually. But it first needs to become so big (think $100 billion - $1 trillion here) that every single transaction affects the value in a very small way, and any top HN or Reddit article about it has an almost insignificant effect on its value. I do believe that will happen eventually, but it's too early right now. Bitcoin works by the law of numbers - after all it's all numbers and math. When its tiny in value, its growth can be very high. When it's already huge, the growth will slow down a lot.
- oscilloscope 14y ago
  I would expect steady growth of Bitcoin's price to look like the logistic function. Exponential at first, then flattening out. At some point, it would just grow opposite the inflation of other currencies once it's stable. http://en.wikipedia.org/wiki/Logistic_function http://en.wikipedia.org/wiki/Logistic_function Of course growth will probably come in fits and starts, not so smoothly.
sturmeh 14y ago
Why not both? I invested in a payment system of the future. If it ends up being used, I'll have (however many I invested in) BTC to spend, which could be worth significantly more or less than I paid for them. If it ends up being useless, I'll lose my principal.
Nursie 14y ago
"I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle." LOL. In the two years I've been watching it I've seen no evidence that it's anything but an investment (and speculation) vehicle.
- DanBC 14y ago
  There's a few people using it for illegal purchases on things like Silk Road.

oleganza 14y ago

"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services." Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).

dragontamer 14y ago
But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services. IE: Deflationary Spiral. It becomes hard to be a merchant who accepts bitcoins, because everyone expects BTC to keep rising in prices. People who bought a domain name for 1 BTC a few weeks ago from Namecheap lost a lot of money. They should have instead "saved" that BTC. Therefore, people are discouraged from using BTC as a transaction vehicle. Currently, hoarders are the ones benefiting from BTC, but no one else is. No merchant knows how to value their services in BTC, not when there is this much volatility around.
- kiba 14y ago
  But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services. Sure they are. BitPay reports 2 million dollars in sale this month. The rate of transaction is accelerating too. What you meant is "they will horde more and spend less on goods / services", but sales and transactions are clearly accelerating. How do you account for this?
  - philwelch 14y ago
    The size of the Bitcoin economy in general is growing, so both hoarding and spending will increase. By the time spending actually starts going down it's too late.
  - deleted 14y ago
    [deleted]
  - dragontamer 14y ago
    https://news.ycombinator.com/item?id=5473508 https://news.ycombinator.com/item?id=5473508 I don't have to. The fact is, no one prices their goods in BTC. Its absolutely ludicrous to price goods in BTC in the current market. I think BTC has utility as a currency for exchange however. But on that side, you don't want to be in the position of hoarding BTC. You hoard dollars, and then use BTC to transfer dollars between people. Services like Bitpay allow you to keep most of your money in hard cash.
  - saalweachter 14y ago
    Is $2 million really significant? BTC famously passed $1 billion in the money supply recently. That means that about 0.2% of the money supply is turning over each month, and 99.8% being hoarded from month to month. The US GDP is about $15 trillion, so about $1.25 trillion in transactions happen in a month. If you take M2 of about $10 trillion as the US money supply, about 12.5% of the US money supply turns over each month and 87.5% is being hoarded. If you take M1 of about $2 trillion as the money supply, about 62.5% of the US money supply is used in a transaction each month, with only 37.5% being hoarded. Compared to 62.5% or even 12.5%, 0.2% seems pretty unhealthy.
    - kiba 14y ago
      It's one company's business. I didn't cite any other businesses such as silk road, transactions on bitmit, and businesses that's outside bitpay's sphere of influence.
    - mapt 14y ago
      $2M and growing is significant, although it's only one of many companies. Every other day another business sets up with Bitcoin as a medium of exchange that is a low-fee, no-chargeback transactional currency. The fundamental value of such a currency, with a quasi-fixed money supply, scales as some multiple of real circulation. The momentary value is proportional to that fundamental value multiplied by short-term expectations of the BTC as an asset, which is driven by growth in usage and hype. It's entirely possible that 99% of the value of a bitcoin is a self-reinforcing set of asset-bubble expectations, but this is something that really didn't exist before, that we don't have great paradigms to explain, that is undergoing massive daily shifts in its usage. It is explicitly not a stable national floating fiat currency with people who circulate the money their banking system provides & pay their taxes in those notes & denominate their salaries and grocery bills in sticky quantities of those notes, and so it's not directly comparable.
- nawitus 14y ago
  "Currently, hoarders are the ones benefiting from BTC, but no one else is." That's not true, BTC has many benefits to bitcoin users. There's plenty of bitcoin-only services, but more importantly, it provides freedom for many people who are facing government regulation. In the long run, bitcoin enables all kinds of innovation (good example is reddit's bitcointip service, which wouldn't really exist without bitcoins).
  - dragontamer 14y ago
    And tell me, what is a good BTC tip today? 1BTC used to be a decent tip at $5. Today that is a $100 tip I'm giving someone. Anyone who gave money to Bitcointip is suffering from the volatility in the marketplace. A true BTC enthusiast will be happy when BTC stops moving. It doesn't matter what value BTC has, as long as it is constant. Only hoarders want BTC to keep going up and up in value.
    - drivebyacct2 14y ago
      Huh? Just... don't tip 1 BTC? For example, the bitcointip bot on reddit will take USD values, use the current mtgox price and then tip the equivalent amount in BTC. Of course the person receiving the tip is affected by volatility compared to USD. For now, it's certainly in their favor, and again, it's no different than other currency except BTC's high current volatility.
      - dragontamer 14y ago
        The volatility of a currency is one of the most important metrics. It really doesn't matter if a currency is inflating or deflating. It just shouldn't change that much over time. The less it changes, the better. (or, if it is changing, then it should at least change consistently. IE: People expect USD to inflate at 3% so it should). Since no one can predict the value of BTC next week, or hell... even tomorrow's price of BTC... it becomes a very hard to use currency.
    - gnaritas 14y ago
      > . It doesn't matter what value BTC has, as long as it is constant. That'll never happen, bitcoin is doomed by math and economics to be forever a deflationary currency, worth ever more and more over time as the economy grows while the supply of bitcoins doesn't.
- indrax 14y ago
  By that logic anyone who didn't buy bitcoin a few weeks ago lost a lot of money. No one should buy anything but bitcoin. Anyone who buys with bitcoin can replace their bitcoin with dollars, if they want to stay invested in bitcoin.

mef 14y ago

I think part of the reason for the optimism of those speculating bullishly on BTC is that the inherent properties of a decentralized finite online currency will result in their utility will only increase with time.

knowaveragejoe 14y ago

That is my sentiment exactly. There is much talk of growing bitcoin adoption, but I've yet to see anything beyond a few web-based services(which, beyond their time, are almost free for the operators to begin with).

virgil_disgr4ce 14y ago
It's always been my suspicion/assumption that the majority of BTC usage is for black/gray-market drugs...?
- niggler 14y ago
  The anonymity feature (and subsequent fees involved in the the transaction) is useful primarily for illicit activities. Maybe 1% of people are legitimately worried about privacy (the true libertarians). But most just want transactions that can't be traced back to them.
mrb 14y ago
"A few web-based services" ?? Here is a list of more than a thousand merchants accepting Bitcoin: https://en.bitcoin.it/wiki/Trade https://en.bitcoin.it/wiki/Trade And there are a lot more not on this list. Bitpay alone (a Bitcoin payment processor) claims to have multiple thousands of merchants.
- knowaveragejoe 14y ago
  Yes, I've seen it. Have you given it a serious look? It looks great in quantity, but would you ever consider purchasing anything for a decent sum from any of them? The only remotely reputable merchant I'm aware of on there is BitcoinStore. Furthermore, there is noone offering general groceries, household supplies or clothing, just niche approximations of those categories. Also critically lacking are complex B2B services(their professional services section is...well, not much to look at - I certainly would not be investing my business's money in any of them at this time).
  - 14y ago

kiba 14y ago

It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively. The GDP stats for bitcoin is not systematically collected. The blockchain data only gives us a approximate picture. So most people just rely on their guts and vague feeling about the size of the bitcoin economy. Bitcoin detractors tend to underestimate the size of bitcoin economy because they can't recall selling or buying goods or services. Bitcoin users tend to be more optimistic because they keep up with news of merchants opening up. I think it would be very useful if somebody built a stats site dedicated to systematically report on economic activities occuring in bitcoinland.

adrianwaj 14y ago
Good idea. I find it interesting to track # followers of http://twitter.com/bitrific http://twitter.com/bitrific and http://twitter.com/btcprice http://twitter.com/btcprice. Probably lots of other accounts too worth following. But good correlation vehicles nevertheless.

grovulent 14y ago

I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. And if this isn't the case - then people will go off it. When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.

kaonashi 14y ago
Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.
- nawitus 14y ago
  I think it's better to think that bitcoin is a currency for some, and a commodity for others.
- numbsafari 14y ago
  As a commodity, gold always had an intrinsic value separate from its value as a currency. So if the authority stamping the coin disappeared, I could always melt down the gold and sell it as a simple commodity. In the case of bitcoins, they do not have a utility outside of their use as a medium of value exchange. You can't really melt them down and use them to make jewelry, build cables or any of the myriad other uses that gold has.
  - tlrobinson 14y ago
    Is gold's intrinsic value anywhere near what it's currently trading at? edit: I think I mean it's "use value". The value of gold if it were not used a store of value.

phormula 14y ago

$450k of electronics were purchased at bitcoinstore.com in march alone

knowaveragejoe 14y ago
Got a source for that?
- phormula 14y ago
  There was ticker on their site that must of reset this morning. They say need to get $850k per quarter in order to keep re-seller account and the low prices. They are selling 0% margin in order to promote bitcoin and get the competition, newegg and amazon to accept it as well. They didn't make the goal but were not open the whole quarter so they may still be able to continue. I'll see if they post news or press release about it
  - knowaveragejoe 14y ago
    There is a ticker to get 850k by June 30th, maybe that's what you're talking about?
- BitcoinStore 14y ago
  I can confirm :)

bcoates 14y ago

I can't help but think these prices represent people confusing a currency being useful with a unit of the currency being worth more. Obviously this is true at the extreme case that a useless currency is worthless in any quantity. But it doesn't really follow that more trading of goods and services in Bitcoin would cause the price to increase. This wouldn't need to happen until some substantial fraction of them are in the hands of people spending them instead of holding them speculatively. Currently the amount of Bitcoins that need to exist to satisfy all the commerce is tiny.

return0 14y ago

I believe the biggest worry are security issues. It doesn't really matter if it can be used directly, as long as it can be traded back for other currencies. Same situation as gold, actually

incision 14y ago

>I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. I'd say it has been that way for a long time. When I dabbled in the community 2 years ago it was already brimming with speculators. Early adopting evangelists looking to legitimize their hoards and speculators who'd have been gambling on leveraged ETFs or FX if not BTC.

tibbon 14y ago

Demurrage (cost to hold currency) could help hoarding. However, at some point, people will start spending them too. There's a fork of Bitcoin which actually has this built in. I imagine we could see an interesting future with cryptocurrencies, where people are essentially betting/investing on the stability of the framework/algorithm and demand on it. Multiple ones could exist, and you're hoping for the best return, or greatest stability. What would be REALLY interesting is if essentially one of these ends up seeming a better 'idea' than US currency (the de-facto currency now)

pi18n 14y ago
Oh, I was going to write about Freicoin. It seems like an incredibly fascinating concept and I'd really like to see an online economy emerge around it. Do you use it?
- tibbon 14y ago
  I don't, and I'm not sure of where I could generate/buy some. I'd definitely like to play with it a bit.
- wmf 14y ago
  Why would anyone opt in to demurrage?
  - tibbon 14y ago
    I think that's a very good question. People would have to think that its a more stable currency with greater long term value to opt into it.
  - krichman 14y ago
    How is that demurrage any different from inflation, though? I have to invest my cash in things just to get it to maintain the value it has now.
- gst 14y ago
  Freicoin is a scam. If you mine Freicoins 80% of the mined coins are automatically transferred to the "Freicoin Foundation" (see e.g. https://bitcointalk.org/index.php?topic=134629.0 https://bitcointalk.org/index.php?topic=134629.0). A real demurrage might be an interesting concept, but I wouldn't suggest to buy into Freicoin.

jwallaceparker 14y ago

"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency." Gold and silver stand in opposition to this statement. You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment. Furthermore, according to Gresham's Law, people keep "good money" (i.e. money that holds its value) out of the marketplace and spend their "bad money" (i.e. fiat) acquiring goods and services.

betterunix 14y ago
Gold and silver are not currencies anymore, except in a few highly niche places.
- morroccomole 14y ago
  Money != Currency. Gold and Silver are Money. Bitcoin and USD are currencies. Huge difference.
  - betterunix 14y ago
    Gold and silver are not money either, except in a tiny minority of countries. Wages are not being paid in gold or silver, debts cannot be settled with gold or silver, and neither gold nor silver is commonly traded for other goods. Nobody uses gold or silver as units of account. The only resemblance either metal has to money in this day and age is as a store of value, but if that is your only requirement to consider something to be money then you would need to include land, buildings, and various collectible items too. Gold and silver are commodities, traded like any other metal, and the historically-motivated obsession people have with using gold as a store of value makes it more difficult to acquire gold for industrial uses (which would be a real, productive use of the metal).
jvm 14y ago
> You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment. Real value of gold: http://static.cdn-seekingalpha.com/uploads/2013/2/18/1019887-136124096807602-Derek-Tomczyk.jpg http://static.cdn-seekingalpha.com/uploads/2013/2/18/1019887... That is very much not my idea of a "fantastic store of value." Not unlike bitcoin, its value appears to vacillate wildly. The S&P 500 looks tame by comparison, and also has the added benefit of a much higher long-run rate of return.

GhotiFish 14y ago

That may be true, but I'd wager most of the people who are buying into bitcoin for its property as a store of value will be shocked to find out bitcoins other very interesting property. The ease and low cost of transferring those bitcoins to anyone, anywhere in the world. "I can BUY things with these? Wait... I can sell things? I just need to paste a hash?!"

betterunix 14y ago
Then one day, some highly motivated attacker will come along and discover the other very interesting property: that the work needed to attack Bitcoin scales linearly with the work needed to use Bitcoin. As soon as a successful attack is announced publicly, faith in Bitcoin will be shaken to badly that nobody will ever want to use anything called "digital cash" for a long time. So the real question you should be asking is, "Who would benefit from a Bitcoin failure, and could they amass that much computing power?"
- dm2 14y ago
  Supposedly they can easily change algorithms if SHA-256 is broken in the future. Here is a list of client security issues: https://en.bitcoin.it/wiki/Common_Vulnerabilities_and_Exposures https://en.bitcoin.it/wiki/Common_Vulnerabilities_and_Exposu... It seems like the biggest risk would be with the wallet websites, which is an issue that is present in other payment methods. The biggest problem IMO is that there is no way to refund or right the wrongs done by an attack. If someone in russia or china steals half of the bitcoins, there is nothing anyone can do to get them back. I suppose they would all be logged and everyone could band together to block those BitCoins as payments, but that's probably not going to happen. That would be interest to watch play out.
  - wmf 14y ago
    I think betterunix is not talking about a crypto flaw but a 51% attack; for ~$20M you can buy enough ASICs to basically take control of Bitcoin. (I'm not convinced that mathematical concepts like "polynomial time" should be applied without consideration for economics, but that's a whole different topic.)

jacoblyles 14y ago

The deflation is healthy at first. It encourages adoption. But in the long run, I would rather BTC be less deflationary.

mrb 14y ago

I have said this multiple times in previous discussion threads, but everywhere you look, all indicators show that Bitcoin spending is increasing: https://news.ycombinator.com/item?id=5296889 https://news.ycombinator.com/item?id=5296889

rayiner 14y ago

Something about Dutch tulips.

mtgx 14y ago

I worry about that, too, but I think it's unlikely to happen, because Bitcoin will stabilize eventually. But it first needs to become so big (think $100 billion - $1 trillion here) that every single transaction affects the value in a very small way, and any top HN or Reddit article about it has an almost insignificant effect on its value. I do believe that will happen eventually, but it's too early right now. Bitcoin works by the law of numbers - after all it's all numbers and math. When its tiny in value, its growth can be very high. When it's already huge, the growth will slow down a lot.

oscilloscope 14y ago
I would expect steady growth of Bitcoin's price to look like the logistic function. Exponential at first, then flattening out. At some point, it would just grow opposite the inflation of other currencies once it's stable. http://en.wikipedia.org/wiki/Logistic_function http://en.wikipedia.org/wiki/Logistic_function Of course growth will probably come in fits and starts, not so smoothly.

sturmeh 14y ago

Why not both? I invested in a payment system of the future. If it ends up being used, I'll have (however many I invested in) BTC to spend, which could be worth significantly more or less than I paid for them. If it ends up being useless, I'll lose my principal.

Nursie 14y ago

"I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle." LOL. In the two years I've been watching it I've seen no evidence that it's anything but an investment (and speculation) vehicle.

DanBC 14y ago
There's a few people using it for illegal purchases on things like Silk Road.