9 ms·

Inside the Bitcoin economy

59 points by sethbannon 14y ago

tunesmith 14y ago
This one is more interesting than the link posted earlier today. The comments are interesting too. So, what of the thought that the only value in bitcoin is its lack of serious competitors? It seems that as soon as another decentralized currency comes along that clearly improves on bitcoin in some way, you could see an ever quickening flight away from bitcoin. There's nothing intrinsic about bitcoin that keeps the value sticky. The value is the idea more than the implementation. What if something like Freicoin or Litecoin or something clearly better starts to get serious traction?
- snitko 14y ago
  A lot of people ask this question, but forget to look at a very apparent and distinct characteristic of Bitcoin: it's opensource. If another awesome and very useful feature appears in Litecoin nothing can prevent Bitcoin maintainers from implementing it too. In fact, there's every incentive for them to do so, because their own reputation and assets in bitcoins are at stake. Thus, while a competitive currency is possible, it may not be needed for Bitcoin to remain a great product. It may well be this mystical natural monopoly in a field economists would hardly predict one to appear.
  - dualogy 14y ago
    Except when the competitor introduces something that goes against the very fundamentals of Bitcoin yet appeals to "the masses". Such as, slightly inflationary instead of intrinsically deflationary. Would make the competitor more of a currency --something that circulates and lubricates commerce-- so medium-of-exchange rather than store-of-value. Now if that took off as the way to pay for Pizza or guns online, what would happen to deflationary "high-value" speculative BTCs, having lost most of their "currency" potential?
    - snitko 14y ago
      Tell me more how an inflationary currency would appeal more to the masses. You're being delusional - it appeals to Keynesian economists.
      - kiba 14y ago
        It appeals to those that borrow money because it means their debt is being eroded through inflation.
        snitko 14y ago
        That only means people will borrow less and the denial of capital some may face will be exactly to the extent to which they profit from deflation and hoarding. Borrowing is not the solution to all of the problems, yet it is pictured to be that precisely because of the perverted inflationary economy we currently have.
        tlrobinson 14y ago
        Don't interest rates generally factor in inflation? Also, perhaps it would be a good thing for some of us to borrow less money...
      - InclinedPlane 14y ago
        Because inflation discourages hoarding. It encourages people to actually do something with their currency. Use it, generate economic activity, make it grow through investment, etc.
        snitko 14y ago
        This cannot be further from the truth. Inflation encourages people to spend, that's true. However there's nothing in inflation that encourages the right kind of spending. If I'm not sure what to invest in right now or don't see an opportunity, I may want to hoard for a while. Inflation punishes careful investors, so more stupid and risky projects are funded. Let me give you another example. Let's say I decided to bootstrap my own business using only my savings which I intend to live off for a year or so. Inflation decreases the time I have to bootstrap my business so instead of a year I may only be able to afford 8 months, which in turn decreases my chances for success. Thus, it is precisely the productive entrepreneurs and innovators who are punished.
  - evolve2k 14y ago
    I was vaguely aware that bitcoin was open source but not aware the code base was open for change and potential pull requests? Excuse my naivity but wasn't part if the design that the algorithm and everything was locked in upfront and not open to change? How is a new feature approved and merged into master?
    - kiba 14y ago
      Changing the code, creating pull request, and doing all of that is easy. The hard part is convincing users and miners to upgrade, especially with something that is protocol breaking.
      - anologwintermut 14y ago
        Effectively the major mining pools control bitcoin since they determine what is likely to get accepted. Note that the devs had to ask the minners to down grade. The funny thing is if several large banks decided they wanted to open minning pools, i'd imagine they could do so and then control all kinds of things. I wonder if this will happen (or if it already has. How many miners operate over Tor? )
        snitko 14y ago
        Miners do not control the rules, they merely choose to accept or not accept them. That's a very important distinction that is a part of the checks and balances system in Bitcoin.
        mef 14y ago
        What would happen if all the miners got together and demanded a code change that benefited miners, like perhaps increase the mining reward? Assuming the devs disagreed with the change, would the BTC community have any way to prevent this alliance of miners from updating the code themselves, deploying it everywhere, and using their overwhelming mining power to maintain the longest block chain and thereby making the code change a reality?
- zby 14y ago
  I vote for PPCoin - the eco-friendly coin that promises to get rid with the $4.5 million per month power consumption.
  - lucb1e 14y ago
    Could you explain how that works, or link to a good tldr article? I've read something about that it works based on amount of coins that you have rather than how much gpus/cpus/asics/..s you have, but I still don't really get it. Also what keeps Bill Gates (or his equivalents) from mining 90% of the coins? Or is mining different there? What about double spending attacks? Lots of questions... any good place explaining this? Thanks :)
    - zby 14y ago
      Here is the whitepaper: http://www.ppcoin.org/static/ppcoin-paper.pdf http://www.ppcoin.org/static/ppcoin-paper.pdf And here is a FAQ: https://github.com/ppcoin/ppcoin/wiki/FAQ https://github.com/ppcoin/ppcoin/wiki/FAQ It is all very new - so sure it's not a bitcoin replacement yet and it might still have many holes in the protocol.
      - lucb1e 14y ago
        Whitepapers take forever to read and the FAQ still doesn't clear anything up...
  - BrokenPipe 14y ago
    Could you explain why would I ever want to use a centralized currency like that ? It can't be trusted.
    - zby 14y ago
      It is not centralized - have a look at the whitepaper: http://www.ppcoin.org/static/ppcoin-paper.pdf http://www.ppcoin.org/static/ppcoin-paper.pdf
pixelcort 14y ago
One further clarification, you don't need to wait for 6 confirmations (~1hr) if you don't want to. A typical bitcoin client will receive the transaction within 5-60 seconds, with 0 confirmations. Even 1 confirmation (~10min) is probably safe enough for small or low-risk transactions. If it's someone you trust not to double-spend, then you can get by with just seeing the transaction on your end with 0 confirmations.
- anologwintermut 14y ago
  Except you can't convert it into USD that quickly. If the price tanks well you are waiting for Magic the Gathering exchange (yes, Mt.Gox, the main place people do bitcoin conversion started out as a place to trade magic cards), you get screwed. This wouldn't be a problem if there was large economy denominated in bitcoin since they'd still have value there. But there isn't.
  - tlrobinson 14y ago
    In the meantime, you're free to use one of several merchant services (BitPay, Coinbase, MtGox) that automatically convert BTC to USD immediately (and take on the exchange risk, for a small percentage)
    - anologwintermut 14y ago
      That fixes an individual's volatility problem but it doesn't fix the problem: there is some limit to how much volatility those places can absorb for some small percentage.
      - tlrobinson 14y ago
        They said they were fine last week, and I'm not sure it gets much more volatile than that: http://www.reddit.com/r/Bitcoin/comments/1ccbet/ama_request_the_bitpay_team/c9f6dva http://www.reddit.com/r/Bitcoin/comments/1ccbet/ama_request_...
deleted 14y ago
[deleted]
tomelders 14y ago
What troubles me personally is that all the talk around Bitcoin at the moment is of Bitcoin as an investment opportunity. I'm personally more excited by Bitcoins value as a currency. I think the most salient point in this article is this > Almost every good one can purchase with Bitcoins is actually priced in dollars and sold at a Bitcoin price reflecting the prevailing exchange rate. So there is almost no Bitcoin frame of reference independent of the Bitcoin-dollar exchange rate. For me this is Bitcoins biggest weakness, the notion that it's true value can only be unlocked when converted back into "real" currency. I'm not sure what the solution is to this problem, or if there can ever be one. I am reminded though of Brazil's unconventional solution to their hyper-inflation problems, and it feels like there's a parallel in there somewhere... http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake...

59 points by sethbannon 14y ago

This one is more interesting than the link posted earlier today. The comments are interesting too. So, what of the thought that the only value in bitcoin is its lack of serious competitors? It seems that as soon as another decentralized currency comes along that clearly improves on bitcoin in some way, you could see an ever quickening flight away from bitcoin. There's nothing intrinsic about bitcoin that keeps the value sticky. The value is the idea more than the implementation. What if something like Freicoin or Litecoin or something clearly better starts to get serious traction?

snitko 14y ago
A lot of people ask this question, but forget to look at a very apparent and distinct characteristic of Bitcoin: it's opensource. If another awesome and very useful feature appears in Litecoin nothing can prevent Bitcoin maintainers from implementing it too. In fact, there's every incentive for them to do so, because their own reputation and assets in bitcoins are at stake. Thus, while a competitive currency is possible, it may not be needed for Bitcoin to remain a great product. It may well be this mystical natural monopoly in a field economists would hardly predict one to appear.
- dualogy 14y ago
  Except when the competitor introduces something that goes against the very fundamentals of Bitcoin yet appeals to "the masses". Such as, slightly inflationary instead of intrinsically deflationary. Would make the competitor more of a currency --something that circulates and lubricates commerce-- so medium-of-exchange rather than store-of-value. Now if that took off as the way to pay for Pizza or guns online, what would happen to deflationary "high-value" speculative BTCs, having lost most of their "currency" potential?
  - snitko 14y ago
    Tell me more how an inflationary currency would appeal more to the masses. You're being delusional - it appeals to Keynesian economists.
    - kiba 14y ago
      It appeals to those that borrow money because it means their debt is being eroded through inflation.
      - snitko 14y ago
        That only means people will borrow less and the denial of capital some may face will be exactly to the extent to which they profit from deflation and hoarding. Borrowing is not the solution to all of the problems, yet it is pictured to be that precisely because of the perverted inflationary economy we currently have.
      - tlrobinson 14y ago
        Don't interest rates generally factor in inflation? Also, perhaps it would be a good thing for some of us to borrow less money...
    - InclinedPlane 14y ago
      Because inflation discourages hoarding. It encourages people to actually do something with their currency. Use it, generate economic activity, make it grow through investment, etc.
      - snitko 14y ago
        This cannot be further from the truth. Inflation encourages people to spend, that's true. However there's nothing in inflation that encourages the right kind of spending. If I'm not sure what to invest in right now or don't see an opportunity, I may want to hoard for a while. Inflation punishes careful investors, so more stupid and risky projects are funded. Let me give you another example. Let's say I decided to bootstrap my own business using only my savings which I intend to live off for a year or so. Inflation decreases the time I have to bootstrap my business so instead of a year I may only be able to afford 8 months, which in turn decreases my chances for success. Thus, it is precisely the productive entrepreneurs and innovators who are punished.
- evolve2k 14y ago
  I was vaguely aware that bitcoin was open source but not aware the code base was open for change and potential pull requests? Excuse my naivity but wasn't part if the design that the algorithm and everything was locked in upfront and not open to change? How is a new feature approved and merged into master?
  - kiba 14y ago
    Changing the code, creating pull request, and doing all of that is easy. The hard part is convincing users and miners to upgrade, especially with something that is protocol breaking.
    - anologwintermut 14y ago
      Effectively the major mining pools control bitcoin since they determine what is likely to get accepted. Note that the devs had to ask the minners to down grade. The funny thing is if several large banks decided they wanted to open minning pools, i'd imagine they could do so and then control all kinds of things. I wonder if this will happen (or if it already has. How many miners operate over Tor? )
      - snitko 14y ago
        Miners do not control the rules, they merely choose to accept or not accept them. That's a very important distinction that is a part of the checks and balances system in Bitcoin.
        mef 14y ago
        What would happen if all the miners got together and demanded a code change that benefited miners, like perhaps increase the mining reward? Assuming the devs disagreed with the change, would the BTC community have any way to prevent this alliance of miners from updating the code themselves, deploying it everywhere, and using their overwhelming mining power to maintain the longest block chain and thereby making the code change a reality?
zby 14y ago
I vote for PPCoin - the eco-friendly coin that promises to get rid with the $4.5 million per month power consumption.
- lucb1e 14y ago
  Could you explain how that works, or link to a good tldr article? I've read something about that it works based on amount of coins that you have rather than how much gpus/cpus/asics/..s you have, but I still don't really get it. Also what keeps Bill Gates (or his equivalents) from mining 90% of the coins? Or is mining different there? What about double spending attacks? Lots of questions... any good place explaining this? Thanks :)
  - zby 14y ago
    Here is the whitepaper: http://www.ppcoin.org/static/ppcoin-paper.pdf http://www.ppcoin.org/static/ppcoin-paper.pdf And here is a FAQ: https://github.com/ppcoin/ppcoin/wiki/FAQ https://github.com/ppcoin/ppcoin/wiki/FAQ It is all very new - so sure it's not a bitcoin replacement yet and it might still have many holes in the protocol.
    - lucb1e 14y ago
      Whitepapers take forever to read and the FAQ still doesn't clear anything up...
- BrokenPipe 14y ago
  Could you explain why would I ever want to use a centralized currency like that ? It can't be trusted.
  - zby 14y ago
    It is not centralized - have a look at the whitepaper: http://www.ppcoin.org/static/ppcoin-paper.pdf http://www.ppcoin.org/static/ppcoin-paper.pdf

pixelcort 14y ago

One further clarification, you don't need to wait for 6 confirmations (~1hr) if you don't want to. A typical bitcoin client will receive the transaction within 5-60 seconds, with 0 confirmations. Even 1 confirmation (~10min) is probably safe enough for small or low-risk transactions. If it's someone you trust not to double-spend, then you can get by with just seeing the transaction on your end with 0 confirmations.

anologwintermut 14y ago
Except you can't convert it into USD that quickly. If the price tanks well you are waiting for Magic the Gathering exchange (yes, Mt.Gox, the main place people do bitcoin conversion started out as a place to trade magic cards), you get screwed. This wouldn't be a problem if there was large economy denominated in bitcoin since they'd still have value there. But there isn't.
- tlrobinson 14y ago
  In the meantime, you're free to use one of several merchant services (BitPay, Coinbase, MtGox) that automatically convert BTC to USD immediately (and take on the exchange risk, for a small percentage)
  - anologwintermut 14y ago
    That fixes an individual's volatility problem but it doesn't fix the problem: there is some limit to how much volatility those places can absorb for some small percentage.
    - tlrobinson 14y ago
      They said they were fine last week, and I'm not sure it gets much more volatile than that: http://www.reddit.com/r/Bitcoin/comments/1ccbet/ama_request_the_bitpay_team/c9f6dva http://www.reddit.com/r/Bitcoin/comments/1ccbet/ama_request_...

deleted 14y ago

[deleted]

tomelders 14y ago

What troubles me personally is that all the talk around Bitcoin at the moment is of Bitcoin as an investment opportunity. I'm personally more excited by Bitcoins value as a currency. I think the most salient point in this article is this > Almost every good one can purchase with Bitcoins is actually priced in dollars and sold at a Bitcoin price reflecting the prevailing exchange rate. So there is almost no Bitcoin frame of reference independent of the Bitcoin-dollar exchange rate. For me this is Bitcoins biggest weakness, the notion that it's true value can only be unlocked when converted back into "real" currency. I'm not sure what the solution is to this problem, or if there can ever be one. I am reminded though of Brazil's unconventional solution to their hyper-inflation problems, and it feels like there's a parallel in there somewhere... http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake...