10 ms·

Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm

93 points by mrb 14y ago

MacsHeadroom 14y ago
I have it on good authority that this article will be in the print edition in the morning.
- genericone 14y ago
  Can be verified at the bottom of the article linked with the following text: "A version of this article appeared in print on April 8, 2013, on page B3 of the New York edition with the headline: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm."
  - slmt 14y ago
    Buy! Buy! Buy!
ultimoo 14y ago
However awesome bitcoins are, I wonder how much longer till wallets can be securely stored online, and the technology is simplified to an extent that my barely computer-literate mother can understand bitcoins.
- tudorizer 14y ago
  Quite a long time to go, but that's ok. How quick did such a mother adopt credit-cards?
  - throwawayG9 14y ago
    Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?
    - lftl 14y ago
      Credit card transactions only appear to be reversible to the end user. If someone nicks your credit card and buys some gas, it may appear to you that the money just came back but someone in the chain (usually the gas station) is eating that cost. So the only functional difference between bitcoin and a credit card in this respect is that there's someone big (the bank) sitting in between you and the transaction that has enough clout to force the loss off you and onto someone else. If a bank decided to build a bitcoin payment system, and signed merchants to a contract similar to the one they do on credit cards, there would be no functional difference from the consumer's standpoint.
      - throwawayG9 14y ago
        I replied here: https://news.ycombinator.com/item?id=5511715 https://news.ycombinator.com/item?id=5511715
      - danielweber 14y ago
        The money lost to someone buying some gas is minimal. Transactions are completely reversible until someone involves physical goods, including cash. The system can deal with tiny levels of fraud. With Bitcoin, someone can do a complete transfer of my life savings in an instant, and then what?
        lftl 14y ago
        If a hacker manages to get into your online bank account and transfer everything out, you're still out of luck unless the bank decides to cover it for you. As far as I know, unless the bank catches it before a transfer is made (which they very well might with fraud detection), they don't necessarily have any means to reverse the transaction after it hits the hackers account. I don't really have any deep experience with that side of banking so feel free to correct me if I'm wrong, but in my limited experience I've seen that once money leaves your account it's only reversible in the sense that the bank may decide to cover the loss for you. There might be some tiny window to reverse things, but I don't think it's a terribly large one.
AndrewDucker 14y ago
I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars as a whole one used to). Is the cause largely the latter, or the former? Has there been a high enough rise in the transaction volume to explain the rise in value? Or is it all down to investors?
- brc 14y ago
  You've answered your own question. It is all of the above. The price system in any market factors in all of the information and motivations of the participants, and balances them out with a single value : the price. The killer feature of the freely-trading market is the price. It communicates the state of the market as both an input and an outcome of the actions of the market players. Remember that for any exchange to occur, two things of unequal value have to be exchanged by two willing participants. But the inequality between the items being exchanged is in the eye of the individual holder. The motivations are rarely the same for each participant, so you can never actually make blanket statements about why a market moves where and when it does - very rarely does a single issue dominate a price, because in those circumstances you have a market that stops exchanging if everyone has the same view.
- Tenoke 14y ago
  >I'd love to get an economist studying why the value of bitcoins goes up. Great sarcasm there!
- Tenoke 14y ago
  >I'd love to get an economist studying why the value of bitcoins goes up. Great sarcasm there!
- skylan_q 14y ago
  People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power. http://mises.org/daily/1333 http://mises.org/daily/1333 From a theoretical perspective, this is been the clearest elucidation to me. The reason the value of bitcoins is going up is because people who buy bitcoins expect that others will pay a higher price for it in the future. Like I tell people: people who buy and sell bitcoins don't care that you don't want to participate. They just want anyone else who will participate.
DigitalJack 14y ago
So, what happens with the mining task after all the bitcoins have been introduced?
- AndrewDucker 14y ago
  Mining is also used to register transactions. The miners gain from this by charging a small fee per transaction.
- lmm 14y ago
  It follows an exponential decay curve, so we'll never mine the last bitcoin; rather, each year we mine half the ones that are left. (I'm not sure how the quantization works when we do get to the literal last one, but that's many decades away).
  - martindale 14y ago
    2140. Roughly the year we'll hit this point.
ph0rcyas 14y ago
Bubble or no, from a personal perspective I will not use bitcoin as a currency to exchange goods - things like purchasing items or paying salaries. Bitcoin's value is just too volatile, why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? But as a medium for investment, like buying stocks, bitcoin does provide a novel and alluring option.
- eurleif 14y ago
  >why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? Why would you pay someone a certain amount in USD, when you could buy Bitcoins instead and they would probably rise to 10 times the current value in a few weeks?
  - epaga 14y ago
    This is the best counterargument to the tired old "Bitcoin is deflationary" I have ever read, and you did it in a single sentence. Thanks!
    - brazzy 14y ago
      Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.
      - davidjohnstone 14y ago
        I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could just "hide it under your mattress" and make money? It's appealing to those who have the option to do that, but I believe it's highly suboptimal from an economics point of view. The funny thing is that even though it's bad economically, its deflationary nature is good for the uptake of the currency, because, provided more people start using it, those who are already using it become richer (which is why some accuse it of being a pyramid scheme). On the other hand, its mid-term value depends on why people are buying into it now. At the moment, I see four groups of people: 1) the idealists who believe it's simply a more perfect form of currency that can't be corrupted by governments et al; 2) the technologists who think it's a neat idea; 3) the speculators who think it's going to go up because it's going up; 4) the users who find it more useful than regular currency (like those on Silk Road). I can't help but think that the speculators are the biggest group at the moment. But I might be wrong.
8bitpony 14y ago
Is there any possibility of another virtual currency - a Bitcoin competitor - being created? Surely this would have a big impact on the value of Bitcoin.
- swinglock 14y ago
  There are many. https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrencies https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrenc...
  - 8bitpony 14y ago
    Do you know if any of these are likely to reach the heights of BitCoin anytime soon, or are we a while off that?
    - wladimir 14y ago
      Two promising open source cryptocurrencies that are not bitcoin forks are Ripple and Opentransactions. These can also be used on top of Bitcoin, or the others, to provide some functionality (such as decentralized exchanges) that Bitcoin itself has not. As for a big impact on the value of bitcoin, I don't think so. Bitcoin has the networking effects for now, many people are working on accepting them. It may be that the additional cost of accepting, for example LTC is lower when already accepting BTC, but BTC has a large first mover advantage.
    - simondlr 14y ago
      Litecoin is currently the leading alternative. It's got a shorter confirmation time, uses scrypt as opposed to sha256, and will in the end have a larger total of coins. All these make it seem like a better alternative for micro-transactions in the end.
      - pakitan 14y ago
        How can larger number of coins be an advantage (or disadvantage for that matter)? As long as the supply is fixed it doesn't matter if the total is just 1 coin or 100 trillion coins.
myspace 14y ago
I'm surprised so many people in the tech community have fallen for this Ponzi Scheme. For example, many heard about "some guy bought a $25 pizza with 10,000 bitcoins", but no one has thought about what this means. It means someone now has that 10,000 "coins" (which is close to 2'000,000). This also means someone had this amount (and possibly much more). And, finally, no one questions who posseses the first "coins". That's why the creator is anonymous. Just my 2 cents.
- ramblerman 14y ago
  Click this guys name. 30 minutes old and he has posted this same blurb word for word on every post regarding bitcoins.

93 points by mrb 14y ago

MacsHeadroom 14y ago

I have it on good authority that this article will be in the print edition in the morning.

genericone 14y ago
Can be verified at the bottom of the article linked with the following text: "A version of this article appeared in print on April 8, 2013, on page B3 of the New York edition with the headline: Bubble or No, This Virtual Currency Is a Lot of Coin in Any Realm."
- slmt 14y ago
  Buy! Buy! Buy!

ultimoo 14y ago

However awesome bitcoins are, I wonder how much longer till wallets can be securely stored online, and the technology is simplified to an extent that my barely computer-literate mother can understand bitcoins.

tudorizer 14y ago
Quite a long time to go, but that's ok. How quick did such a mother adopt credit-cards?
- throwawayG9 14y ago
  Bitcoin needs more security than credit cards because transactions are irreversible. Say his mother has a significant part of her savings in BTC, and they get stolen. What's she gonna do then?
  - lftl 14y ago
    Credit card transactions only appear to be reversible to the end user. If someone nicks your credit card and buys some gas, it may appear to you that the money just came back but someone in the chain (usually the gas station) is eating that cost. So the only functional difference between bitcoin and a credit card in this respect is that there's someone big (the bank) sitting in between you and the transaction that has enough clout to force the loss off you and onto someone else. If a bank decided to build a bitcoin payment system, and signed merchants to a contract similar to the one they do on credit cards, there would be no functional difference from the consumer's standpoint.
    - throwawayG9 14y ago
      I replied here: https://news.ycombinator.com/item?id=5511715 https://news.ycombinator.com/item?id=5511715
    - danielweber 14y ago
      The money lost to someone buying some gas is minimal. Transactions are completely reversible until someone involves physical goods, including cash. The system can deal with tiny levels of fraud. With Bitcoin, someone can do a complete transfer of my life savings in an instant, and then what?
      - lftl 14y ago
        If a hacker manages to get into your online bank account and transfer everything out, you're still out of luck unless the bank decides to cover it for you. As far as I know, unless the bank catches it before a transfer is made (which they very well might with fraud detection), they don't necessarily have any means to reverse the transaction after it hits the hackers account. I don't really have any deep experience with that side of banking so feel free to correct me if I'm wrong, but in my limited experience I've seen that once money leaves your account it's only reversible in the sense that the bank may decide to cover the loss for you. There might be some tiny window to reverse things, but I don't think it's a terribly large one.

AndrewDucker 14y ago

I'd love to get an economist studying why the value of bitcoins goes up. After all, they're infinitely reusable, totally fungible, and incredibly low friction. The only reason for their value to rise (rather than them just being passed around at the same price indefinitely) is if people expect them to rise, or if there's a shortage (forcing people to use fractions of a bitcoin to represent the same number of dollars as a whole one used to). Is the cause largely the latter, or the former? Has there been a high enough rise in the transaction volume to explain the rise in value? Or is it all down to investors?

brc 14y ago
You've answered your own question. It is all of the above. The price system in any market factors in all of the information and motivations of the participants, and balances them out with a single value : the price. The killer feature of the freely-trading market is the price. It communicates the state of the market as both an input and an outcome of the actions of the market players. Remember that for any exchange to occur, two things of unequal value have to be exchanged by two willing participants. But the inequality between the items being exchanged is in the eye of the individual holder. The motivations are rarely the same for each participant, so you can never actually make blanket statements about why a market moves where and when it does - very rarely does a single issue dominate a price, because in those circumstances you have a market that stops exchanging if everyone has the same view.
Tenoke 14y ago
>I'd love to get an economist studying why the value of bitcoins goes up. Great sarcasm there!
Tenoke 14y ago
>I'd love to get an economist studying why the value of bitcoins goes up. Great sarcasm there!
skylan_q 14y ago
People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power. http://mises.org/daily/1333 http://mises.org/daily/1333 From a theoretical perspective, this is been the clearest elucidation to me. The reason the value of bitcoins is going up is because people who buy bitcoins expect that others will pay a higher price for it in the future. Like I tell people: people who buy and sell bitcoins don't care that you don't want to participate. They just want anyone else who will participate.

DigitalJack 14y ago

So, what happens with the mining task after all the bitcoins have been introduced?

AndrewDucker 14y ago
Mining is also used to register transactions. The miners gain from this by charging a small fee per transaction.
lmm 14y ago
It follows an exponential decay curve, so we'll never mine the last bitcoin; rather, each year we mine half the ones that are left. (I'm not sure how the quantization works when we do get to the literal last one, but that's many decades away).
- martindale 14y ago
  2140. Roughly the year we'll hit this point.

ph0rcyas 14y ago

Bubble or no, from a personal perspective I will not use bitcoin as a currency to exchange goods - things like purchasing items or paying salaries. Bitcoin's value is just too volatile, why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? But as a medium for investment, like buying stocks, bitcoin does provide a novel and alluring option.

eurleif 14y ago
>why would I pay someone a certain amount in bitcoins, when it'll probably rise up to 10 times the current value in a few weeks? Why would you pay someone a certain amount in USD, when you could buy Bitcoins instead and they would probably rise to 10 times the current value in a few weeks?
- epaga 14y ago
  This is the best counterargument to the tired old "Bitcoin is deflationary" I have ever read, and you did it in a single sentence. Thanks!
  - brazzy 14y ago
    Except it is not a counterargument to that at all. If anything it reinforces that argument by treating Bitcoin as an asset rather than a currency.
    - davidjohnstone 14y ago
      I'm no economist, but isn't this blurring the lines between what an asset is and what a currency is? Isn't a currency fundamentally a perfectly liquid asset? As for previous commenters, the fact that the value of a Bitcoin might be worth ten times more (or less) what it is now in a few weeks has more to do with its volatility than its depreciative nature. Why would you ever risk money by lending it when you could just "hide it under your mattress" and make money? It's appealing to those who have the option to do that, but I believe it's highly suboptimal from an economics point of view. The funny thing is that even though it's bad economically, its deflationary nature is good for the uptake of the currency, because, provided more people start using it, those who are already using it become richer (which is why some accuse it of being a pyramid scheme). On the other hand, its mid-term value depends on why people are buying into it now. At the moment, I see four groups of people: 1) the idealists who believe it's simply a more perfect form of currency that can't be corrupted by governments et al; 2) the technologists who think it's a neat idea; 3) the speculators who think it's going to go up because it's going up; 4) the users who find it more useful than regular currency (like those on Silk Road). I can't help but think that the speculators are the biggest group at the moment. But I might be wrong.

8bitpony 14y ago

Is there any possibility of another virtual currency - a Bitcoin competitor - being created? Surely this would have a big impact on the value of Bitcoin.

swinglock 14y ago
There are many. https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrencies https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrenc...
- 8bitpony 14y ago
  Do you know if any of these are likely to reach the heights of BitCoin anytime soon, or are we a while off that?
  - wladimir 14y ago
    Two promising open source cryptocurrencies that are not bitcoin forks are Ripple and Opentransactions. These can also be used on top of Bitcoin, or the others, to provide some functionality (such as decentralized exchanges) that Bitcoin itself has not. As for a big impact on the value of bitcoin, I don't think so. Bitcoin has the networking effects for now, many people are working on accepting them. It may be that the additional cost of accepting, for example LTC is lower when already accepting BTC, but BTC has a large first mover advantage.
  - simondlr 14y ago
    Litecoin is currently the leading alternative. It's got a shorter confirmation time, uses scrypt as opposed to sha256, and will in the end have a larger total of coins. All these make it seem like a better alternative for micro-transactions in the end.
    - pakitan 14y ago
      How can larger number of coins be an advantage (or disadvantage for that matter)? As long as the supply is fixed it doesn't matter if the total is just 1 coin or 100 trillion coins.

myspace 14y ago

I'm surprised so many people in the tech community have fallen for this Ponzi Scheme. For example, many heard about "some guy bought a $25 pizza with 10,000 bitcoins", but no one has thought about what this means. It means someone now has that 10,000 "coins" (which is close to 2'000,000). This also means someone had this amount (and possibly much more). And, finally, no one questions who posseses the first "coins". That's why the creator is anonymous. Just my 2 cents.

ramblerman 14y ago
Click this guys name. 30 minutes old and he has posted this same blurb word for word on every post regarding bitcoins.