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How Bitcoin Could Become a Viable Currency

48 points by scottcanoni 13y ago

jdmitch 13y ago
Is the volatility graph of Bitcoin in this article really representative? Some people have mentioned that in the huge price spike in April, there were not actually that many people buying, and then there is this article on Bitcoin spreads that calls into question whether Mt. Gox is the best measure: http://www.forbes.com/sites/beltway/2013/09/03/how-bitcoin-spreads-violate-a-fundamental-economic-law/ http://www.forbes.com/sites/beltway/2013/09/03/how-bitcoin-s...
- aqme28 13y ago
  The spreads are so weird because of the difficulties with fiat currencies. Mt. Gox allows you to deposit/withdraw BTC no problem, but it charges a notorious premium if you want to withdraw USD. As a result, the BTC-USD prices are elevated by the premium. Sites like Coinbase or Bitstamp that don't charge as much to deposit or withdraw will probably be a more accurate way to judge BTC-USD.
chris_mahan 13y ago
Actual coins? That I can use at the store and in vending machines? That I can use at the restaurant to buy food?
- dublinben 13y ago
  I think a BTC-denominated debit/credit card would actually be the real sign of its mainstream viability. The transaction speed is an issue for physical purchases too. Only checks take longer to clear, and they're pretty marginal.
  - ufmace 13y ago
    That would kind of defeat the purpose of Bitcoin. The main advantage is the transaction system, rather than the store of value. The transaction speed isn't really much of an issue as long as the block reward is much higher than the value of your transaction. For most modest transactions, like food and consumer goods, just seeing the transaction come across the network is good enough. It's possible to beat this, but doing so requires a large enough effort that nobody would bother doing it to get lunch when they could be getting dozens of block rewards worth thousands of times more instead. Waiting for one confirmation takes around 10 minutes and is likely to be good enough for anything of less value than buying houses and cars and other things that are 5+ figures in USD.
    - Groxx 13y ago
      It would defeat the purpose of Bitcoin if it replaced Bitcoin. Since it would be built on top, it's just a service on a cryptocurrency foundation instead of whatever your government prints. In that case a credit/debit card could basically be an immediate guarantee of payment (3rd party guarantees, collects small % to cover abuse/running costs. basically credit cards now, minus chargebacks), as opposed to what Bitcoin provides.
lolcraft 13y ago
Here's my proposal: let's forget exchange rates. Let's not confuse them with inflation[0]. That's a red herring. Exchange rates are important for BTC's legal users now because there's not (yet) production in BitCoin's economy. Apart from drugs[1], BTC is pure store of value, and it should be analyzed as such. This is important for this discussion, because exchange rates ultimately won't matter that much. By "ultimately", I mean that phase of development when (if) BitCoin becomes a full currency, that is, when there's somebody, some corporation, operating and trading significantly in the currency. I won't lend the status of currency to any commodity which is not used this way. And what's clear is that both BitCoin and gold are shit currencies. Even conceding the exchange rate could stabilize enough for a modern day Rockefeller[2] to pull it to a success, you still would have to contend with the deflation inherent in this "currency". There's a reason why gold is traded in commodities markets -- and not as a currency. There's a reason why banks and states trade and store USD, instead of gold. You simply can't grow an economy like it's the 20th century with gold, or BitCoin. In fact, BitCoin is even more ruthless than gold. 19th century economies could at least pray for the discovery of a gold vein, to alleviate their deflationary comedowns. BitCoin denies even this possibility with the cold, germanic efficiency of a mathematical proof. [0] The exchange rate we run against our future selves, if you will. [1] Which doesn't count anyhow, since you would agree there's a risk markup on them for their illegal status, which makes dubious extrapolating any analysis from them. [2] An improbably apt group of entrepreneurs, who even more improbably would decide to bet their future fortunes on a currency designed by computer geeks with a penchant for goldbuggering.
- ufmace 13y ago
  I agree that the critical problem with Bitcoin is the inability to inflate at a controlled rate. It inevitably follows from the idea of having a decentralized currency - something has to control currency creation rates, and if you aren't going to trust an organization of people, then math is the only alternative, which is kinda both empowering and limiting. Because of that alone, if nothing else, I don't think we'll ever have a major economy in Bitcoin only. That doesn't mean there's no use for it though. There may well be purposes and segments of the economy that find it very useful, and it may even be possible at some point for people in some niche markets/occupations to exist entirely in a Bitcoin economy. It'll just never be very big compared to any first-world national currency.
mrb 13y ago
The article is right on one point: Bitcoin is volatile. No one denies that. However the article is wrong that "volatility must decrease for it to survive". If anything, the fact it has not only survived for 4 years, but succeeded by gaining market share and gaining value (1000x since 2010!) despite its volatility shows that the market does not care that much about volatility.
- agorinto 13y ago
  I would say volatility must decrease for it to thrive. Bitcoin needs to transition from a currency for speculators to a currency for consumers.
  - mrb 13y ago
    Correct: thriving, not surviving. (I would not have made my remark, had the author used "thriving" in place of "surviving"). And we are not yet at the point where Bitcoin needs to reduce its volatility to further grow. My prediction is that there is still room for Bitcoin to grow (and it will), over the next 1-2 years, and yet volatility is going to remain just as pronounced as today. I say this because so far, its adoption curve shows no sign of slowing down.
    - XorNot 13y ago
      Yet it looks exactly like the peak -> crash curve of its own history. People we claiming the same thing of real estate in the US in 2008 as well. Yet the correct analysis is still that there's no real reason for Bitcoin too grow - it can't extinguish tax obligations, and any move by governments to tax BTC profits will tank it because payment will have to be made in their currency, not BTC. No one has any reason to hold onto BTC if they're not speculating.
- jonnathanson 13y ago
  When the article talks about Bitcon's need to "survive," I interpreted it to mean "survive [as a currency]." Bitcoin makes a fine speculative trading vehicle for those with the cojones to expose themselves to big positions. But as a currency, it does need to "settle down." Think about it from the perspective of a business intending to transact in Bitcoin and prepare for the years ahead. Inventory management, logistics, financial planning, and all the other necessities of running a business as a going concern are extraordinarily difficult when the currency one accepts is fluctuating this wildly. Exchanges, such as the late Silk Road, do not hold their own inventory, and so those types of businesses make some degree of sense. (Even still, they'd have a very hard time attracting investment, if they ever sought it, because the company's fundamental financial position would change on a daily basis.) But businesses other than open exchanges face some very serious difficulties when conducting business in BTC. This is one major source of the liquidity issue. The other is that speculative holders and traders far outweigh transactors in terms of the currency's total trading volume. BTC changes hands quite often, but not typically in the form of business transactions, which one would expect of a currency. Far more often it's in the form of buy and sell orders, like a commodity.
saejox 13y ago
Volatility doesn't bother as long as i can convert it to USD as fast and painless as i do with USD/EUR or Gold/USD. But, i can't. So it's kinda worthless.
- letney 13y ago
  Ah, but that's improving rapidly. Coinbase does BTC->USD in less than 24 hours and USD->BTC instantly (with level 3 verified accounts).
j2d3 13y ago
I think BitCoin could be a great answer to the global dissatisfaction with the dollar as the world reserve currency. Why not use bitcoin as a non-political global reserve currency, and as an intermediary between national currencies, rather than as an everyday currency that intends to replace anything.
DennisP 13y ago
Bitcoin has a market cap around $2 billion. To be a major currency, it needs a much larger cap, maybe a hundred billion. A major price increase would count as volatility but it's the only path from here to there.
- robotcookies 13y ago
  It doesn't have to be a major currency. No one (I think) is suggesting it replace the dollar. Maybe it can be a minor currency that works along with the dollar. There are certain things you can do with bitcoins that you can't with fiat.
  - DennisP 13y ago
    $100 billion would only be about the size of the Australian dollar. That seems like a feasible level to me.
RoboTeddy 13y ago
> Let's say, for example, a vendor is considering whether to begin accepting bitcoin. She will need to be able feel relatively certain that, when she leaves the storefront in the evening, she will have nearly the same amount of value on balance when she returns the next morning. Fortunately, vendors don't have to take on any such risk. There are services (e.g. CoinBase, BitPay) that let sellers accept bitcoin without ever holding a bitcoin balance. These services effectively instantly convert bitcoin revenue into something less volatile (e.g. USD).
- lingben 13y ago
  that does not address the volatility issue at all - even if bitcoin are converted immediately to dollars or euros, because they fluctuate so wildly, no business would be able to know if the amount they receive will even cover their cost or if suddenly they are charging way way 'too much'.
  - RoboTeddy 13y ago
    Potentially they could internally set their prices in dollars, and multiply by the exchange rate to get their current bitcoin price.
zalzane 13y ago
One tidbit that continues to bother me regarding the long-term viability of bitcoin is how long the encryption processes it relies on will stay secure. IIRC bitcoin relies on ECDSA for signing and SHA-256 for hashing. Pretty much all forms of encryption have a shelf-life until they are broken, especially when you consider quantum computing on the horizon. What happens when ECDSA becomes viable to break, or when they start finding SHA-256 collisions? Would the currency just collapse, or is there some way provided to change the system's cryptography methods?
- gwern 13y ago
  Bitcoin was designed to be quantum-resistant and upgradeable: https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_break_Bitcoin.27s_security https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_bre...
  - maaku 13y ago
    Bitcoin was most certainly not designed to be quantum-resistant or upgradable (don't trust the wiki for these sorts of things). Thankfully we have discovered ways in it could be upgraded to be quantum-resistant without horribly breaking legacy nodes, but that's a very different statement.
    - gwern 13y ago
      'Discovered'? If I may quote Satoshi https://bitcointalk.org/index.php?topic=202.msg2133#msg2133 https://bitcointalk.org/index.php?topic=202.msg2133#msg2133 : > True, if it happened suddenly. If it happens gradually, we can still transition to something stronger. When you run the upgraded software for the first time, it would re-sign all your money with the new stronger signature algorithm. (by creating a transaction sending the money to yourself with the stronger sig) Hardly sounds like he's going 'guys! this is a serious problem but I just realized that we happen to have a work-around available!'...
      - maaku 13y ago
dragontamer 13y ago
http://blockchain.info/charts/tx-trade-ratio http://blockchain.info/charts/tx-trade-ratio Transaction to Trade ratio is going up. For whatever reason, a significant portion of BTCs (in some data-points... as much as 60% of BTC transactions) have been in exchanges. IE: BTC is probably going through a bubble right now, as any commodity. In the first few weeks of October, there were periods where MOST transactions were purely for speculation / trading. http://blockchain.info/charts/trade-volume http://blockchain.info/charts/trade-volume Trade volume is on the rise. I don't know why or how, but a group of investors has decided to start speculating on BTCs. ------------------ Instead, for BTC to be a "useful currency", people need to transfer BTCs between each other and stop speculating on BTC / USD exchanges. Whenever there is a rise of speculators, I'm going to bet on a bubble.
erikpukinskis 13y ago
Bitcoin volatility won't decrease for a long time. Right now we're in the first major phase of Bitcoin's evolution, wherein the global financial system slowly wraps it's collective brain around what Bitcoin is, how it behaves, and what it's good for. Even experts in cryptocurrency don't agree about any of those things, so global consensus about those three things is a long way off. A few basics are starting to emerge: * Bitcoin is good for transactions that governments don't want you to make. * Bitcoin is good for transactions between vastly different financial and legal systems. * Bitcoin is good for storing money in your brain. * Some subset of people feel Bitcoin is a good investment. But even now, there are many people with money, not to mention many financial experts, who are not so sure about these things. With every WSJ article we creep closer and closer to consensus, but it is still quite far off. That said, eventually the global financial markets will start to agree about these uses, and a generally accepted model will emerge. I suspect this will take at least 20 years, which is the length of time it will take for us to start having University Faculty who went through their entire undergraduate education with Bitcoin existing and at least partially understood by their professors. That model will be something like: Bitcoin market cap = I + f(V) where V = volume of global transactions for which Bitcoin is the best choice f(V) = the float required to make those transactions I = the amount of capital for which Bitcoin is the best investment vehicle And of course we need models for each of these... V is going to be some portion of illegal transactions, some portion of inter-border transactions, etc. We really have no idea what this is right now. Until then the price of Bitcoin will be very chaotic, which will influence the I term, but not the V term. The V term is just a pure result of how many people have need for a Bitcoin-like currency, and what percentage of those people are aware of Bitcoin and have the technical means to use it. BUT, when the global financial markets do start to reach consensus on the model, then Bitcoin will stabilize. And I don't mean it will stabilize as a deflationary currency, I mean it will literally be flat. Because the financial markets have NO problem pricing deflation into their models and they absolutely will. The price will go up to where you can't make money investing in Bitcoin during a reasonable slice of a human lifetime, and then level off. And I suspect Bitcoin will stabilize MUCH more than traditional currencies. Because there will be no capriciousness of international politics or policy, the Bitcoin price model will be based on much more stable factors: global crime, global population, etc. And those things are much easier to model than things like U.S. foreign policy. So anyone who is thinking either A) Bitcoin has a chance at stabilizing in the next 10 years, B) Bitcoin will deflate forever, or C) Bitcoin will never stabilize, I just don't agree. It's just going to take a while.

48 points by scottcanoni 13y ago

Is the volatility graph of Bitcoin in this article really representative? Some people have mentioned that in the huge price spike in April, there were not actually that many people buying, and then there is this article on Bitcoin spreads that calls into question whether Mt. Gox is the best measure: http://www.forbes.com/sites/beltway/2013/09/03/how-bitcoin-spreads-violate-a-fundamental-economic-law/ http://www.forbes.com/sites/beltway/2013/09/03/how-bitcoin-s...

aqme28 13y ago
The spreads are so weird because of the difficulties with fiat currencies. Mt. Gox allows you to deposit/withdraw BTC no problem, but it charges a notorious premium if you want to withdraw USD. As a result, the BTC-USD prices are elevated by the premium. Sites like Coinbase or Bitstamp that don't charge as much to deposit or withdraw will probably be a more accurate way to judge BTC-USD.

chris_mahan 13y ago

Actual coins? That I can use at the store and in vending machines? That I can use at the restaurant to buy food?

dublinben 13y ago
I think a BTC-denominated debit/credit card would actually be the real sign of its mainstream viability. The transaction speed is an issue for physical purchases too. Only checks take longer to clear, and they're pretty marginal.
- ufmace 13y ago
  That would kind of defeat the purpose of Bitcoin. The main advantage is the transaction system, rather than the store of value. The transaction speed isn't really much of an issue as long as the block reward is much higher than the value of your transaction. For most modest transactions, like food and consumer goods, just seeing the transaction come across the network is good enough. It's possible to beat this, but doing so requires a large enough effort that nobody would bother doing it to get lunch when they could be getting dozens of block rewards worth thousands of times more instead. Waiting for one confirmation takes around 10 minutes and is likely to be good enough for anything of less value than buying houses and cars and other things that are 5+ figures in USD.
  - Groxx 13y ago
    It would defeat the purpose of Bitcoin if it replaced Bitcoin. Since it would be built on top, it's just a service on a cryptocurrency foundation instead of whatever your government prints. In that case a credit/debit card could basically be an immediate guarantee of payment (3rd party guarantees, collects small % to cover abuse/running costs. basically credit cards now, minus chargebacks), as opposed to what Bitcoin provides.

lolcraft 13y ago

Here's my proposal: let's forget exchange rates. Let's not confuse them with inflation[0]. That's a red herring. Exchange rates are important for BTC's legal users now because there's not (yet) production in BitCoin's economy. Apart from drugs[1], BTC is pure store of value, and it should be analyzed as such. This is important for this discussion, because exchange rates ultimately won't matter that much. By "ultimately", I mean that phase of development when (if) BitCoin becomes a full currency, that is, when there's somebody, some corporation, operating and trading significantly in the currency. I won't lend the status of currency to any commodity which is not used this way. And what's clear is that both BitCoin and gold are shit currencies. Even conceding the exchange rate could stabilize enough for a modern day Rockefeller[2] to pull it to a success, you still would have to contend with the deflation inherent in this "currency". There's a reason why gold is traded in commodities markets -- and not as a currency. There's a reason why banks and states trade and store USD, instead of gold. You simply can't grow an economy like it's the 20th century with gold, or BitCoin. In fact, BitCoin is even more ruthless than gold. 19th century economies could at least pray for the discovery of a gold vein, to alleviate their deflationary comedowns. BitCoin denies even this possibility with the cold, germanic efficiency of a mathematical proof. [0] The exchange rate we run against our future selves, if you will. [1] Which doesn't count anyhow, since you would agree there's a risk markup on them for their illegal status, which makes dubious extrapolating any analysis from them. [2] An improbably apt group of entrepreneurs, who even more improbably would decide to bet their future fortunes on a currency designed by computer geeks with a penchant for goldbuggering.

ufmace 13y ago
I agree that the critical problem with Bitcoin is the inability to inflate at a controlled rate. It inevitably follows from the idea of having a decentralized currency - something has to control currency creation rates, and if you aren't going to trust an organization of people, then math is the only alternative, which is kinda both empowering and limiting. Because of that alone, if nothing else, I don't think we'll ever have a major economy in Bitcoin only. That doesn't mean there's no use for it though. There may well be purposes and segments of the economy that find it very useful, and it may even be possible at some point for people in some niche markets/occupations to exist entirely in a Bitcoin economy. It'll just never be very big compared to any first-world national currency.

mrb 13y ago

The article is right on one point: Bitcoin is volatile. No one denies that. However the article is wrong that "volatility must decrease for it to survive". If anything, the fact it has not only survived for 4 years, but succeeded by gaining market share and gaining value (1000x since 2010!) despite its volatility shows that the market does not care that much about volatility.

agorinto 13y ago
I would say volatility must decrease for it to thrive. Bitcoin needs to transition from a currency for speculators to a currency for consumers.
- mrb 13y ago
  Correct: thriving, not surviving. (I would not have made my remark, had the author used "thriving" in place of "surviving"). And we are not yet at the point where Bitcoin needs to reduce its volatility to further grow. My prediction is that there is still room for Bitcoin to grow (and it will), over the next 1-2 years, and yet volatility is going to remain just as pronounced as today. I say this because so far, its adoption curve shows no sign of slowing down.
  - XorNot 13y ago
    Yet it looks exactly like the peak -> crash curve of its own history. People we claiming the same thing of real estate in the US in 2008 as well. Yet the correct analysis is still that there's no real reason for Bitcoin too grow - it can't extinguish tax obligations, and any move by governments to tax BTC profits will tank it because payment will have to be made in their currency, not BTC. No one has any reason to hold onto BTC if they're not speculating.
jonnathanson 13y ago
When the article talks about Bitcon's need to "survive," I interpreted it to mean "survive [as a currency]." Bitcoin makes a fine speculative trading vehicle for those with the cojones to expose themselves to big positions. But as a currency, it does need to "settle down." Think about it from the perspective of a business intending to transact in Bitcoin and prepare for the years ahead. Inventory management, logistics, financial planning, and all the other necessities of running a business as a going concern are extraordinarily difficult when the currency one accepts is fluctuating this wildly. Exchanges, such as the late Silk Road, do not hold their own inventory, and so those types of businesses make some degree of sense. (Even still, they'd have a very hard time attracting investment, if they ever sought it, because the company's fundamental financial position would change on a daily basis.) But businesses other than open exchanges face some very serious difficulties when conducting business in BTC. This is one major source of the liquidity issue. The other is that speculative holders and traders far outweigh transactors in terms of the currency's total trading volume. BTC changes hands quite often, but not typically in the form of business transactions, which one would expect of a currency. Far more often it's in the form of buy and sell orders, like a commodity.

saejox 13y ago

Volatility doesn't bother as long as i can convert it to USD as fast and painless as i do with USD/EUR or Gold/USD. But, i can't. So it's kinda worthless.

letney 13y ago
Ah, but that's improving rapidly. Coinbase does BTC->USD in less than 24 hours and USD->BTC instantly (with level 3 verified accounts).

j2d3 13y ago

I think BitCoin could be a great answer to the global dissatisfaction with the dollar as the world reserve currency. Why not use bitcoin as a non-political global reserve currency, and as an intermediary between national currencies, rather than as an everyday currency that intends to replace anything.

DennisP 13y ago

Bitcoin has a market cap around $2 billion. To be a major currency, it needs a much larger cap, maybe a hundred billion. A major price increase would count as volatility but it's the only path from here to there.

robotcookies 13y ago
It doesn't have to be a major currency. No one (I think) is suggesting it replace the dollar. Maybe it can be a minor currency that works along with the dollar. There are certain things you can do with bitcoins that you can't with fiat.
- DennisP 13y ago
  $100 billion would only be about the size of the Australian dollar. That seems like a feasible level to me.

RoboTeddy 13y ago

> Let's say, for example, a vendor is considering whether to begin accepting bitcoin. She will need to be able feel relatively certain that, when she leaves the storefront in the evening, she will have nearly the same amount of value on balance when she returns the next morning. Fortunately, vendors don't have to take on any such risk. There are services (e.g. CoinBase, BitPay) that let sellers accept bitcoin without ever holding a bitcoin balance. These services effectively instantly convert bitcoin revenue into something less volatile (e.g. USD).

lingben 13y ago
that does not address the volatility issue at all - even if bitcoin are converted immediately to dollars or euros, because they fluctuate so wildly, no business would be able to know if the amount they receive will even cover their cost or if suddenly they are charging way way 'too much'.
- RoboTeddy 13y ago
  Potentially they could internally set their prices in dollars, and multiply by the exchange rate to get their current bitcoin price.

zalzane 13y ago

One tidbit that continues to bother me regarding the long-term viability of bitcoin is how long the encryption processes it relies on will stay secure. IIRC bitcoin relies on ECDSA for signing and SHA-256 for hashing. Pretty much all forms of encryption have a shelf-life until they are broken, especially when you consider quantum computing on the horizon. What happens when ECDSA becomes viable to break, or when they start finding SHA-256 collisions? Would the currency just collapse, or is there some way provided to change the system's cryptography methods?

gwern 13y ago
Bitcoin was designed to be quantum-resistant and upgradeable: https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_break_Bitcoin.27s_security https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_bre...
- maaku 13y ago
  Bitcoin was most certainly not designed to be quantum-resistant or upgradable (don't trust the wiki for these sorts of things). Thankfully we have discovered ways in it could be upgraded to be quantum-resistant without horribly breaking legacy nodes, but that's a very different statement.
  - gwern 13y ago
    'Discovered'? If I may quote Satoshi https://bitcointalk.org/index.php?topic=202.msg2133#msg2133 https://bitcointalk.org/index.php?topic=202.msg2133#msg2133 : > True, if it happened suddenly. If it happens gradually, we can still transition to something stronger. When you run the upgraded software for the first time, it would re-sign all your money with the new stronger signature algorithm. (by creating a transaction sending the money to yourself with the stronger sig) Hardly sounds like he's going 'guys! this is a serious problem but I just realized that we happen to have a work-around available!'...
    - maaku 13y ago

dragontamer 13y ago

http://blockchain.info/charts/tx-trade-ratio http://blockchain.info/charts/tx-trade-ratio Transaction to Trade ratio is going up. For whatever reason, a significant portion of BTCs (in some data-points... as much as 60% of BTC transactions) have been in exchanges. IE: BTC is probably going through a bubble right now, as any commodity. In the first few weeks of October, there were periods where MOST transactions were purely for speculation / trading. http://blockchain.info/charts/trade-volume http://blockchain.info/charts/trade-volume Trade volume is on the rise. I don't know why or how, but a group of investors has decided to start speculating on BTCs. ------------------ Instead, for BTC to be a "useful currency", people need to transfer BTCs between each other and stop speculating on BTC / USD exchanges. Whenever there is a rise of speculators, I'm going to bet on a bubble.

erikpukinskis 13y ago

Bitcoin volatility won't decrease for a long time. Right now we're in the first major phase of Bitcoin's evolution, wherein the global financial system slowly wraps it's collective brain around what Bitcoin is, how it behaves, and what it's good for. Even experts in cryptocurrency don't agree about any of those things, so global consensus about those three things is a long way off. A few basics are starting to emerge: * Bitcoin is good for transactions that governments don't want you to make. * Bitcoin is good for transactions between vastly different financial and legal systems. * Bitcoin is good for storing money in your brain. * Some subset of people feel Bitcoin is a good investment. But even now, there are many people with money, not to mention many financial experts, who are not so sure about these things. With every WSJ article we creep closer and closer to consensus, but it is still quite far off. That said, eventually the global financial markets will start to agree about these uses, and a generally accepted model will emerge. I suspect this will take at least 20 years, which is the length of time it will take for us to start having University Faculty who went through their entire undergraduate education with Bitcoin existing and at least partially understood by their professors. That model will be something like: Bitcoin market cap = I + f(V) where V = volume of global transactions for which Bitcoin is the best choice f(V) = the float required to make those transactions I = the amount of capital for which Bitcoin is the best investment vehicle And of course we need models for each of these... V is going to be some portion of illegal transactions, some portion of inter-border transactions, etc. We really have no idea what this is right now. Until then the price of Bitcoin will be very chaotic, which will influence the I term, but not the V term. The V term is just a pure result of how many people have need for a Bitcoin-like currency, and what percentage of those people are aware of Bitcoin and have the technical means to use it. BUT, when the global financial markets do start to reach consensus on the model, then Bitcoin will stabilize. And I don't mean it will stabilize as a deflationary currency, I mean it will literally be flat. Because the financial markets have NO problem pricing deflation into their models and they absolutely will. The price will go up to where you can't make money investing in Bitcoin during a reasonable slice of a human lifetime, and then level off. And I suspect Bitcoin will stabilize MUCH more than traditional currencies. Because there will be no capriciousness of international politics or policy, the Bitcoin price model will be based on much more stable factors: global crime, global population, etc. And those things are much easier to model than things like U.S. foreign policy. So anyone who is thinking either A) Bitcoin has a chance at stabilizing in the next 10 years, B) Bitcoin will deflate forever, or C) Bitcoin will never stabilize, I just don't agree. It's just going to take a while.