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Well it might not be possible for a decentralized crypto currency to have a non-fluctuating value; at least at the beginning. Since it is decentralized it cann

by eof 14y ago

Well it might not be possible for a decentralized crypto currency to have a non-fluctuating value; at least at the beginning. Since it is decentralized it cannot be declared "worth something" by fiat; and therefore needs to garner its value organically. It makes sense you want to stay away, but bitcoin is still super early stages and growing.. if ti plataeus or at least becomes more or less predictable over time due to "finding its price" then those with your concerns will be more apt to adopt. This isn't really a flaw of bitcoin but rather of markets/people. Once bitcoin gets near some sort of saturation point in terms of adoption, you are likely to see a much more stable valuation. Now though, it's the wild west and its neigh impossible to separate the speculation from the fundamentals. I will say though that I don't see wild fluctuations in bitcoins price as a flaw in bitcoin. I see it as inevitable for any currency bootstrapping itself from nothing to something. The path from zero to any valuation is bound to riddled with crazy swings as people get hopeful and then scared. Consider: if bitcoin had instead had demurrage or increasing rates of inflation, how much less likely would the early adopters have stayed around? It's all well and good to consider ideals, but creating a tradeable, limited commodity out of thin air that people actually want is no small task and it has not been proven that there is another way to do it. If there is no incentive to be an early adopter, there is no reason to take the risk; you might as well just wait until it is widely accepted to start accepting inflato-coin; but with the possibility of dizzying-gains there is a strong incentive for people to use bitcoin before it is proven (which is only slightly less true today than 2 years ago); and this incentive is -- while not part of the technical appeal of bitcoin --inseparable from its success.

overgard 14y ago
I agree that it's important that early adopters have an incentive to adopt early, no doubt, but given the current market, what's their incentive towards: saving or spending? I imagine for a currency to work, the incentive has to be at least tilted a little towards spending. Economically, that's essentially why we have inflation -- the system can't reward people for just hoarding dollars, because that's essentially an economic no-op. If just holding currency was more profitable than investing it, than why would people bother to invest in the first place? I'm not an economic keynesian, but all the same, I don't think it's an accident that hiding a pile of money under your bed isn't going to net you new money in a functional system. Right now owning a bitcoin is a lot more analogous to owning a stock than it is to owning a dollar. Which is to say it lacks liquidity. A currency without liquidity isn't really a currency, it's just an asset. The whole point of having currency is the liquidity of it, and that liquidity generally comes from a somewhat stable valuation.
- BrokenPipe 14y ago
  You have the incentive to spend. You need to live so you will use your fiat and bitcoin to buy for food, gas, electricity and things that you want. I know the bitcoin is going to be worth more, but I still spend it today just like I know that if I wait just a little bit the laptop will be cheaper and faster but I still buy it today when I need it.
  - XorNot 14y ago
    If the value of BitCoin increases quickly enough (i.e. you hold a sufficient initial amount) then the amount you spend on food, gas, electricity can be less then the rate of increase. This is literally getting something for nothing.
davidvaughan 14y ago
"you are likely to see a much more stable valuation" Does this not assume that Bitcoin remains the only currency of its kind? I've been assuming that there's an incentive for anybody capable to design a new currency and make sure they're in on the ground floor as it appreciates. So in x years time there may be dozens (hundreds?) of competing currencies, giving arbitraging and carry opportunities that will contribute to volatility. And a possible end result (though I can't see it happening outside science fiction) is that somebody designs a way for you to make your own currency, backed by your own labour, potential value, or assets. So everybody has their own currency, and it's priced according to how clever you are, or how many horses you own, or some other fundamental.
- IanCal 14y ago
  There are already quite a few. NameCoin, PPCoin, DevCoin, IxCoin, the list goes on. The biggest (second only to bitcoin) is LiteCoin. Very similar to bitcoin but with faster transactions, and it uses a different algorithm. Using Scrypt instead of SHA-256 makes it much harder to get a fast FPGA or ASIC to mine quickly. Even top graphics cards are no more than 10-20x faster than CPUs. It's risen in price ridiculously recently, going from 7 cents to 6 dollars, now hovering around 4. People who were mining or bought in around the 7 cent mark have made quite a lot. There was no premining thought which is interesting, and I think has helped raise confidence (pre-mining is where the designers of the currency mine on their own before anyone else gets on the network, so it's a concern that they will dump vast amounts at some point and crash the price). I think having more currencies might actually improve confidence, as there are a few ways of looking at it: 1) Lots popping up, hmm, bitcoin isn't special so SELL! 2) Lots popping up and falling, hmm, bitcoin looks quite stable comparatively, BUY! 3) Another few stable ones appearing, hmm, crypto-currencies looks like quite a normal idea, BUY! Could go any way, could all collapse or spike. Maybe $125 is low for bitcoin, and we'll be here thinking "Why didn't I buy in?" or it'll collapse, nobody will think it's worth mining and the network will fall apart. Or it'll remain the same. All I know is I'm currently making some money to keep my flat warm, and that it's not worth putting in anything I can't afford to lose. Edit - Formatting.
  - baby 14y ago

by eof 14y ago

overgard 14y ago

I agree that it's important that early adopters have an incentive to adopt early, no doubt, but given the current market, what's their incentive towards: saving or spending? I imagine for a currency to work, the incentive has to be at least tilted a little towards spending. Economically, that's essentially why we have inflation -- the system can't reward people for just hoarding dollars, because that's essentially an economic no-op. If just holding currency was more profitable than investing it, than why would people bother to invest in the first place? I'm not an economic keynesian, but all the same, I don't think it's an accident that hiding a pile of money under your bed isn't going to net you new money in a functional system. Right now owning a bitcoin is a lot more analogous to owning a stock than it is to owning a dollar. Which is to say it lacks liquidity. A currency without liquidity isn't really a currency, it's just an asset. The whole point of having currency is the liquidity of it, and that liquidity generally comes from a somewhat stable valuation.

BrokenPipe 14y ago
You have the incentive to spend. You need to live so you will use your fiat and bitcoin to buy for food, gas, electricity and things that you want. I know the bitcoin is going to be worth more, but I still spend it today just like I know that if I wait just a little bit the laptop will be cheaper and faster but I still buy it today when I need it.
- XorNot 14y ago
  If the value of BitCoin increases quickly enough (i.e. you hold a sufficient initial amount) then the amount you spend on food, gas, electricity can be less then the rate of increase. This is literally getting something for nothing.

davidvaughan 14y ago

"you are likely to see a much more stable valuation" Does this not assume that Bitcoin remains the only currency of its kind? I've been assuming that there's an incentive for anybody capable to design a new currency and make sure they're in on the ground floor as it appreciates. So in x years time there may be dozens (hundreds?) of competing currencies, giving arbitraging and carry opportunities that will contribute to volatility. And a possible end result (though I can't see it happening outside science fiction) is that somebody designs a way for you to make your own currency, backed by your own labour, potential value, or assets. So everybody has their own currency, and it's priced according to how clever you are, or how many horses you own, or some other fundamental.

IanCal 14y ago
There are already quite a few. NameCoin, PPCoin, DevCoin, IxCoin, the list goes on. The biggest (second only to bitcoin) is LiteCoin. Very similar to bitcoin but with faster transactions, and it uses a different algorithm. Using Scrypt instead of SHA-256 makes it much harder to get a fast FPGA or ASIC to mine quickly. Even top graphics cards are no more than 10-20x faster than CPUs. It's risen in price ridiculously recently, going from 7 cents to 6 dollars, now hovering around 4. People who were mining or bought in around the 7 cent mark have made quite a lot. There was no premining thought which is interesting, and I think has helped raise confidence (pre-mining is where the designers of the currency mine on their own before anyone else gets on the network, so it's a concern that they will dump vast amounts at some point and crash the price). I think having more currencies might actually improve confidence, as there are a few ways of looking at it: 1) Lots popping up, hmm, bitcoin isn't special so SELL! 2) Lots popping up and falling, hmm, bitcoin looks quite stable comparatively, BUY! 3) Another few stable ones appearing, hmm, crypto-currencies looks like quite a normal idea, BUY! Could go any way, could all collapse or spike. Maybe $125 is low for bitcoin, and we'll be here thinking "Why didn't I buy in?" or it'll collapse, nobody will think it's worth mining and the network will fall apart. Or it'll remain the same. All I know is I'm currently making some money to keep my flat warm, and that it's not worth putting in anything I can't afford to lose. Edit - Formatting.
- baby 14y ago