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The Bitcoin Report 2 [pdf]
- hisabness 14y agolooks like a high school homework assignment to me.
- jfasi 14y agoCheckmate, bitcoin doubters!
- calciphus 14y agoSo post a response where you address the issues raised and refute them with sound theory and provable hypotheses. Until then you're just waving your arms.
- el_senor_duerpo 14y agoWould you prefer I write in in LaTex and using fancy graphs from Matlab, R, or Matplotlib? Or are you just being mean?
- bitcoinmind 14y agoPlease, at least attempt to prove some of the wild predictions you are making. Science is about proofs, facts, etc. ... not just assertions.
- calciphus 14y agoBackground - despite the absurd name, a friend of my posted this (relatively anonymously) to Reddit last night. Unfortunately, it got downvoted into oblivion for not possessing enough cute memes. The data shows what happens to a currency like this is very predictable, and the behaviors we're seeing (deflation, currency hoarding, stagnation of real bitcoin output) are great predictors of crashes like this.
- tdicola 14y agoNice article--I like that it's concise and sticks to the data to make its point. This article last week from Forbes makes the same point with Paul Krugman's babysitter's co-op column: http://www.forbes.com/sites/pascalemmanuelgobry/2013/04/05/krugman-baby-sitting-co-op-bitcoin/ http://www.forbes.com/sites/pascalemmanuelgobry/2013/04/05/k...
- klochner 14y agoThe deflationary aspect is only important for currencies backing an economy - if you just use bitcoin for quick anonymous transactions, say dollar-->bitcoin-->purchase, then you don't care what the value is doing over time. It is interesting to consider alternatives though - bitcoin could be the Friendster of crypto-currencies.
- pfraze 14y agoAs an anonymizer and common middle currency for different economies, with that process, I can see the value. It could be particularly useful for making online purchases without giving buyer credentials.
- dragonwriter 14y ago> The deflationary aspect is only important for currencies backing an economy - if you just use bitcoin for quick anonymous transactions, say dollar-->bitcoin-->purchase, then you don't care what the value is doing over time. What the value is doing over short periods of time (particularly, volatility and liquidity in BTC markets) will affect the transaction fees that will need to be associated with that kind of transaction in order for anyone not to go broke fulfilling them.
- surrealize 14y agoif you just use bitcoin for quick anonymous transactions, say dollar-->bitcoin-->purchase, then you don't care what the value is doing over time If you expect the value of bitcoins to keep going up, why would you only hold them for short periods of time? You're suggesting that people would wait until the last possible moment to change their dollars into bitcoins. But by doing that, they're losing money if the value of bitcoins is going up relative to dollars. In that case, the best strategy is to switch into bitcoins as early as possible, and hold them as long as possible.
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- vyrotek 14y ago"There is no capital nor wealth creation to speak of; only as much money as was put in. While somebody may buy a bitcoin for $1 and then sell it for $200, no value was added in this process, so it is simply a transfer of wealth. The people who profit will do so by taking from those who lose. As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid. Eventually, buyers will give up while waiting in absurdly long queues, and demand will loosen. Soon after, things will turn pear-shaped as the world's fastest liquidation occurs. The exchange rate will fall faster than orders can be fulfilled, so that less than $2.5 billion is recovered. After all, it was never really there anyway." Nailed it.
- ctbeiser 14y ago"As the deflationary feedback amplifies the desire to hoard, the exchanges will become illiquid." The rest of it makes perfect sense, but why would we think this, rather than that market forces will drive prices up, and people will sell as a result, fulfilling demand?
- rhizome 14y agomarket forces will drive prices up, and people will sell as a result, fulfilling demand? I'm no economist, but I'm pretty sure this state of affairs is not guaranteed.
- el_senor_duerpo 14y agoI am an economist, and I have no idea what that means. Sounds to me like confusion over two things: (i) the difference between "supply and demand" and the "quantity supplied" or "quantity demanded" and (ii) equilibrium. The circular logic is a tell tale sign. Price goes up, so people demand less, so price goes down, so people demand more... That's the whole point of equilibrium. Where does all of that net out.
- rhizome 14y agoI think they are trying to say that demand forces supply.
- ricardobeat 14y agoDoes it even make sense to consider Bitcoin as a separate economy containing "no real value"? I see it more as an alternative banking system, the money it contains comes from real-world value and gets converted back into real-word products; it's not a virtual currency.
- samegreatsleeve 14y agoIt's only a separate economy to the extent that it isn't instantly being converted back into some other currency. There is a genuine bitcoin economy, and it is centered around the trade of goods that are illegal: child porn, weapons, viruses, credit card numbers, and most important of all: illegal drugs. The question is not whether there is potential for a non-government backed digital currency. The question is whether bitcoin will be effective in that role given the design of the currency. If a better currency is invented that includes some kind of inflationary mechanism, perhaps the drug trade/etc will take up that currency. In that case bitcoin truly will die.
- matthew-wegner 14y agoI think this is a hugely important distinction. The linked-to analysis seems to assume that BTC are bought with USD, sit around in a wallet, and then come back out as USD. When in fact, BTC's usefulness is its frictionless-but-secure, anonymous transactional nature. Its anonymity is even stronger if you mine coins yourself (or acquire coins directly from a miner for favors or whatever). You can probably make the case that BTC must be deflationary, in order to draw in traders/investors, who actually provide necessary market liquidity to proxy BTC as USD, backing the worth of BTC-for-goods transactions...
- carmaa 14y agoA "report" not covering the greatest current use case for the currency - namely anonymously buying weed through the Internet tubes? Not saying it is a good thing, just that there's actual value creating going on. Right now.
- el_senor_duerpo 14y agoHi there. Actually, I did cover value of Bitcoin in use as a medium of exchange in footnote 2. Because there is no production in the bitcoin economy, or very little to be entirely accurate, the real exchange rate should basically be one. Why? Because most users of bitcoin live within very large production economies. Why would buyers pay more or sellers accept less, if they would be better of transacting in the domestic economy? You might imagine a slight premium for bitcoins because they facilitate transactions that would be difficult in the domestic economies, such as money laundering or black market trade, but you could just as easily argue that the real exchange rate is less than one due to the relatively lower number of people to trade with, concerns regarding being hacked, and uncertainty regarding future government regulation of bitcoin. That's why I decided the most neutral approach would be to assume purchasing power parity across bitcoins. Admittedly, this assumption may not be great as speculation runs rampant and everyone runs for the exits, which would imply a heavy discount in the real exchange rate.
- johndevor 14y agomoney laundering or black market trade Moving money across borders is an use for Bitcoin as well. If you're living in Iran (or North Korea or Syria or Palestine) Bitcoin could very well solve your liquidity problem, in the same way the TOR network helps to solve a government-imposed-firewall issue.
- maxerickson 14y agoHow many ways are there for the people accepting the currency in country to get their hands on bitcoins? I guess they could also act as an intermediary for people that want to send money in. Might need some deep currency reserves to play at that though.
- polshaw 14y agoThe value of BTC just doubled from 60 to 120 in 40 minutes.. wtf is going on there? (looking at btce/USD) (disclaimer: i'm not trying to hype, I expect it will come back down again shortly, it just seems weird to change that much that quickly) Edit: yup.. back down to 80 20mins later.. can anyone tell what kind of volumes were traded in this period? ..I wonder if anyone was able to double a serious amount of money in 40 mins(!). Or how much money would have been needed to shift the price that much?? I suspect trading volumes are lower than normal due to mtGox being closed.. I really am having doubts that closing to let things 'cool down' is really going to work out (side: why should that even be a role for MtGox anyway?!). Anyone have any thoughts on what will happen when it comes back online? Presumably a lot of people are only registered to trade with mtGox so have been prevented from buying/selling while the price has continued to fall.. it would seem to me we're either going to see a significant worsening of the crash or a recovery. ??
- ghshephard 14y agospits out coffee I just went to https://btc-e.com https://btc-e.com to copy/paste the value and show you how you were wrong, and that the price has been stable at $65USD (I've been watching it for an hour) - But, when I got there - had jumped up to $115USD. I can only imagine this must be what it was like during the Tulip Bulb Craze.
- maxerickson 14y agoMt Gox went back online about 80 minutes ago. So about 40 minutes before your timestamp.
- mrb 14y agoThe volatility is there because people are panicking, don't know what to do: buy or sell. Some think the bubble is imploding. Some believe in the long term and are buying coins on the cheap. And in between you have traders like me: I sold at $190 2 days ago. Re-bought at $70. Re-sold at $120. We are making money hand over fist... I love the volatility.
- rms 14y agoIt's really low volume. Check out the crazy spreads on https://tradehill.com/ https://tradehill.com/ I think we'll stabilize around 100 over the next 48 hours but with crazy degrees of volatility.
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- tquai 14y agoThe market is capitalized at $2.5 billion, but what does that mean in an economy with no production? Does the author define "production" as manufacturing where the exclusive currency used (for raw materials, wages, utility bills, etc.) is bitcoin? If so then I'm not sure of the relevance. One could make all sorts of clever but offtopic points about a fiat paper currency when viewed through the lens of a P2P currency like bitcoin. "The Canadian dollar is supposedly worth more than the USD today, but what does that mean when the Canadian network has zero nodes?" The wrongness of such a statement leaps out since fiat currencies are familiar to us. In contrast, bitcoin doesn't need a manufacturing base, but this is less obvious since P2P currency is a new idea that people (myself included) don't well understand.
- el_senor_duerpo 14y agoNo, production is not exclusive to manufacturing. It means valued-added. For example, if you bought a dvd from amazon using bitcoin (I have no idea if this is possible), then very little of what you paid would count in bitcoin GDP. All of the costs of production (warehouses, delivery, labor, servers, etc.) are done in the US economy using dollars, so that basically doesn't register as bitcoin GDP. On the other hand, let's suppose someone is buying a bag of... something. Well, everything that got that bag to the dealer was done in some other production economy. So the only value added, that would count as a service in bitcoin GDP, would be the dealer's profits, measured in bitcoins. To my knowledge, there are no investment projects being financed in bitcoins. If there were, then they probably just defaulted on their loans, which increased tremendously under deflation. Therefore, it's best to think of the bitcoin economy almost entirely as pure exchange, with very little value added and very little wealth created. As for fiat currencies, why is everyone so interested in the nominal exchange rate anyway? This was a peculiarity that I noticed a while ago. In college, I went on a study abroad program to Mexico. When we arrived, we all exchanged our dollars for pesos. Everyone was carrying on about how strong the dollar was, because one dollar could buy ten pesos. But then I noticed something. I went to McDonalds, and instead of a "dollar menu", they had a "10 peso menu". Who cares how many pesos you get for a dollar? It's about how much you can buy with that dollar worth of pesos, and that's measured by the real exchange rate. I realized at that moment that purchasing power was much closer to parity than most people think, because they put so much weight on nominal rates.
- bitcoinmind 14y agoWhat a bunch of nonsense. The report makes extreme predictions without any backup or weighting of arguments. There is no reason to believe that the network should crash. The author has no clue about economics, so please.... (not that Ben Bernanke or Mario Draghi have, but anyway). There will always be a use for Bitcoins. Think about other countries than you yourself are living in. Think about people who have to pay 20% for cross-border transactions.
- mortehu 14y ago> [...], sudden and large increases in the user base cause dramatic increases in the nominal exchange rate. This is because the money supply is exogenously fixed by the mining algorithm. I think the reasoning here is too specific. Most currencies are only inflationary long term. If during a 10 day window a trillion euros flood into the US dollar market, I doubt the Fed will be able to respond fast enough to keep the prices fixed.
- el_senor_duerpo 14y agoFirst of all, if our actual markets started to experience this kind of volatility, circuit breakers would kick in. Second, even if they didn't the Fed could easily respond in real time. It's not as if the Fed actually, literally "prints money". They would just go onto those forex markets and sell people dollars, transferred digitally and made up out of thin air. And their servers wouldn't crash while doing it. Edit: I should add to this that, at least to a first approximation, the Fed is not terribly concerned with the nominal exchange rate. They are charged with maintaining full employment and price stability within our own economy, while the nominal exchange rate is allowed to float against other currencies. Because have have our own production economy, there are good fundamental reasons for fluctuations in the real exchange rate that should be permitted to occur.
- stevewilhelm 14y agoIt appears Bitcoin's primary function, namely to perform anonymous transfers of US dollars for goods and services, is being eclipsed by speculation. Welcome to the world of foreign currency exchange.