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If I had money in bitcoin I'd find this movement terrifying. It is not correlated with broader economic movements or the inflation rate of USD, and has all the

If I had money in bitcoin I'd find this movement terrifying. It is not correlated with broader economic movements or the inflation rate of USD, and has all the classic hallmarks of a bubble, including true believers telling everyone it is different this time, increasingly wild oscillations, and exponential growth. I find bitcoin really interesting, love the idea of a cryptocurrency, and also find the idea of a deflationary currency interesting. I've no argument with that side of it. Obviously there are issues with things like exchanges which seem to be almost entirely run by amateurs who think that a VPS or leased server is secure enough for financial transactions, but those problems could go away in time, they are not inherent to the currency, though they're another reason to be cautious at present. However there are a few issues with the use of the currency which can't easily be fixed. What I find more troubling is the commitment to anonymity and lack of accountability from the creators - it is designed to allow anonymous transactions, and the users seem to be resistant to regulation. Those two things mean people can engage in bitcoin theft, fraud, laundering, cornering the market, setting up bogus or insecure exchanges/banks, with impunity and anonymity. Without proper regulation, insurance, compensation, which means identification of users and verification of transactions and everything that goes with that, I can't see bitcoin spreading beyond enthusiasts. I wouldn't use it for anything important because of the lack of regulation and controls, but do think it represents something of the future of currencies, after our latest experiment in hyper-inflationary fiat runs its course (see Fiat Money Inflation in France for a previous experiment). It'll be interesting to see if other cryptocurrencies are born which take a different direction and attempt to build in accountability and responsibility to secure transactions and allow them to be policed effectively by tying them to real world identity. Anyone know of any?

crassus 13y ago
According to the bubble theory of money, all money is a bubble. The bubbliness is what defines money - it is that which is irrationally overvalued. See[1] Bitcoin is money, Bitcoin is a bubble [1] http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin...
gnerd 13y ago
When dealing with an entirely new concept, isn't everyone an amateur?
- grey-area 13y ago
  Securing money or valuable info is not an entirely new concept. There are basic precautions, like complete physical control of the server for a start, basic precautions which many of these exchanges neglect (see inputs.io, run on a VPS!). They could learn a lot from banks, who have been doing this for decades.
Mahn 13y ago
If I had money in bitcoin I'd find this movement terrifying. It is not correlated with broader economic movements or the inflation rate of USD, and has all the classic hallmarks of a bubble, including true believers telling everyone it is different this time, increasingly wild oscillations, and exponential growth. I have money in bitcoin, I believe in its future, and I acknowledge we are in a bubble. Nothing to be terrified of; the aftermath of the last April bubble left the prices much higher than when it started. And with every single bubble bitcoin kept going no matter how big the crash was. Those two things mean people can engage in bitcoin theft, fraud, laundering, cornering the market, setting up bogus or insecure exchanges/banks, with impunity and anonymity. Without proper regulation, insurance, compensation, which means identification of users and verification of transactions and everything that goes with that, I can't see bitcoin spreading beyond enthusiasts. You have to consider that this is a new way of thinking of money. No regulation and a decentralized nature does not necesarily mean all sort of bad things will happen at once; this thought is what comes naturally when you think of money in a traditional sense, but people can adapt and start seeing and thinking of money in a different way. Let me give you an example: Email. It's unregulated and decentralized, and anyone, anytime, can write anything to any email address with almost zero effort. In paper this sounds like a terrible idea, because the moment my email address is public anyone can send all sorts of crap to it, not to mention that malicious people could completely trash my inbox by sending thousands of crap emails having no repercussions. But, as a society, we still adapted and embraced it.
- grey-area 13y ago
  I have money in bitcoin, I believe in its future, and I acknowledge we are in a bubble. Nothing to be terrified of; As long as you don't have significant money in it, it's no big problem, but say you had your savings in it or were paid a salary in it - at that point the volatility would be a nightmare and the prospect of a bubble seriously troubling (bubbles always burst badly, and frequently go through successive waves of euphoria before they do). That the price has returned to a new high does not mean it will stay that high. To supplant other currencies bitcoin would have to deal with the volatility and perhaps more importantly the lack of regulation and verification - with the current setup and community that'll be a huge issue, and perhaps impossible. It'll be really interesting to follow the trajectory of bitcoin and similar currencies as they negotiate these problems but I don't trust them just yet. I do think email is broken for precisely the same reason - it thrived in spite of its anonymous insecure nature, not because of it, they simply didn't think about having to verify identity at the start, which has led to all sorts of problems with phishing and spamming. A lack of verified identity is at the heart of both these systems and causes issues for both of them, so I think email is a great example of a system which has problems of abuse (spoofing, spamming, phishing, fraud) because of anonymity being allowed.
TomGullen 13y ago
Look at Bitcoin closing price on a log scale: http://bitcoincharts.com/charts/chart.png?width=940&m=mtgoxUSD&SubmitButton=Draw&r=360&i=&c=0&s=&e=&Prev=&Next=&t=C&b=&a1=&m1=10&a2=&m2=25&x=0&i1=&i2=&i3=&i4=&v=0&cv=0&ps=0&l=1&p=0& http://bitcoincharts.com/charts/chart.png?width=940&m=mtgoxU... Not so scary anymore! From what I understand, people should be looking at this sort of data on a log scale.
- leokun 13y ago
  Why?
  - oleganza 13y ago
    I think, because money as any other standard is always a network effect. Networks grow exponentially, in a self-reinforcing manner. Or they don't grow at all (when at a point of saturation).
  - TomGullen 13y ago
    Take a look at this explanation: http://www.fool.com/foolfaq/foolfaqcharts.htm http://www.fool.com/foolfaq/foolfaqcharts.htm
    - leokun 13y ago
      Ah, that makes perfect sense. With a logarithmic chart, each change is seen in the context of the current value. Each change is not equal to every other change. When bitcoin is worth $1, and it goes up one more $1, that's a much bigger change than when at $300 it goes to $301 but to have the line the same length is kind of misleading.
- WayneS 13y ago
  I agree the log chart is the desired way to view the data because then a straight line is showing steady growth. But look at the chart you posted. I see a sharp uptick on a nice linear trend since July. Now go look at the rest of the chart and ask yourself what happened every time there was a sharp uptick? Hmmm I believe bitcoin will continue to grow, but I wouldn't tell people this is a good time to buy. Wait for the "correction" then buy.
oleganza 13y ago
Instead of "accountability from the creators" you have accountability of every single investor and bitcoin business. Every single one of them is motivated enough to keep system working well and preserving their individual wealth. Compare that with coercive power of government which simply declares something a "legal tender" and then you are forced to accept their paper and their monetary policy as a fact.
ajiang 13y ago
I think of the value of any asset in the form of expected value. For bonds and stocks, it's present value for forecasted future cash flows. For Bitcoins, there is an element of underlying value, but also an element of acceptance as a broader currency. As the probability of Bitcoins becoming a more accepted currency increases, so does it's value. While the underlying currency value may not change (or perhaps it does, hard to tell), its probability of acceptance is going up as Bitcoins enter the mainstream via publicity and mass adoption.
Houshalter 13y ago
Well people were saying it was a bubble over a year ago when it was only $19. How do we know if it's not a bubble though? Is there any way to estimate what the "true value" of a bitcoin is? Like the number of bitcoins in circulation and the total size of the bitcoin economy?

crassus 13y ago

According to the bubble theory of money, all money is a bubble. The bubbliness is what defines money - it is that which is irrationally overvalued. See[1] Bitcoin is money, Bitcoin is a bubble [1] http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html http://unqualified-reservations.blogspot.com/2013/04/bitcoin...

gnerd 13y ago

When dealing with an entirely new concept, isn't everyone an amateur?

grey-area 13y ago
Securing money or valuable info is not an entirely new concept. There are basic precautions, like complete physical control of the server for a start, basic precautions which many of these exchanges neglect (see inputs.io, run on a VPS!). They could learn a lot from banks, who have been doing this for decades.

Mahn 13y ago

If I had money in bitcoin I'd find this movement terrifying. It is not correlated with broader economic movements or the inflation rate of USD, and has all the classic hallmarks of a bubble, including true believers telling everyone it is different this time, increasingly wild oscillations, and exponential growth. I have money in bitcoin, I believe in its future, and I acknowledge we are in a bubble. Nothing to be terrified of; the aftermath of the last April bubble left the prices much higher than when it started. And with every single bubble bitcoin kept going no matter how big the crash was. Those two things mean people can engage in bitcoin theft, fraud, laundering, cornering the market, setting up bogus or insecure exchanges/banks, with impunity and anonymity. Without proper regulation, insurance, compensation, which means identification of users and verification of transactions and everything that goes with that, I can't see bitcoin spreading beyond enthusiasts. You have to consider that this is a new way of thinking of money. No regulation and a decentralized nature does not necesarily mean all sort of bad things will happen at once; this thought is what comes naturally when you think of money in a traditional sense, but people can adapt and start seeing and thinking of money in a different way. Let me give you an example: Email. It's unregulated and decentralized, and anyone, anytime, can write anything to any email address with almost zero effort. In paper this sounds like a terrible idea, because the moment my email address is public anyone can send all sorts of crap to it, not to mention that malicious people could completely trash my inbox by sending thousands of crap emails having no repercussions. But, as a society, we still adapted and embraced it.

grey-area 13y ago
I have money in bitcoin, I believe in its future, and I acknowledge we are in a bubble. Nothing to be terrified of; As long as you don't have significant money in it, it's no big problem, but say you had your savings in it or were paid a salary in it - at that point the volatility would be a nightmare and the prospect of a bubble seriously troubling (bubbles always burst badly, and frequently go through successive waves of euphoria before they do). That the price has returned to a new high does not mean it will stay that high. To supplant other currencies bitcoin would have to deal with the volatility and perhaps more importantly the lack of regulation and verification - with the current setup and community that'll be a huge issue, and perhaps impossible. It'll be really interesting to follow the trajectory of bitcoin and similar currencies as they negotiate these problems but I don't trust them just yet. I do think email is broken for precisely the same reason - it thrived in spite of its anonymous insecure nature, not because of it, they simply didn't think about having to verify identity at the start, which has led to all sorts of problems with phishing and spamming. A lack of verified identity is at the heart of both these systems and causes issues for both of them, so I think email is a great example of a system which has problems of abuse (spoofing, spamming, phishing, fraud) because of anonymity being allowed.

TomGullen 13y ago

Look at Bitcoin closing price on a log scale: http://bitcoincharts.com/charts/chart.png?width=940&m=mtgoxUSD&SubmitButton=Draw&r=360&i=&c=0&s=&e=&Prev=&Next=&t=C&b=&a1=&m1=10&a2=&m2=25&x=0&i1=&i2=&i3=&i4=&v=0&cv=0&ps=0&l=1&p=0& http://bitcoincharts.com/charts/chart.png?width=940&m=mtgoxU... Not so scary anymore! From what I understand, people should be looking at this sort of data on a log scale.

leokun 13y ago
Why?
- oleganza 13y ago
  I think, because money as any other standard is always a network effect. Networks grow exponentially, in a self-reinforcing manner. Or they don't grow at all (when at a point of saturation).
- TomGullen 13y ago
  Take a look at this explanation: http://www.fool.com/foolfaq/foolfaqcharts.htm http://www.fool.com/foolfaq/foolfaqcharts.htm
  - leokun 13y ago
    Ah, that makes perfect sense. With a logarithmic chart, each change is seen in the context of the current value. Each change is not equal to every other change. When bitcoin is worth $1, and it goes up one more $1, that's a much bigger change than when at $300 it goes to $301 but to have the line the same length is kind of misleading.
WayneS 13y ago
I agree the log chart is the desired way to view the data because then a straight line is showing steady growth. But look at the chart you posted. I see a sharp uptick on a nice linear trend since July. Now go look at the rest of the chart and ask yourself what happened every time there was a sharp uptick? Hmmm I believe bitcoin will continue to grow, but I wouldn't tell people this is a good time to buy. Wait for the "correction" then buy.

oleganza 13y ago

Instead of "accountability from the creators" you have accountability of every single investor and bitcoin business. Every single one of them is motivated enough to keep system working well and preserving their individual wealth. Compare that with coercive power of government which simply declares something a "legal tender" and then you are forced to accept their paper and their monetary policy as a fact.

ajiang 13y ago

I think of the value of any asset in the form of expected value. For bonds and stocks, it's present value for forecasted future cash flows. For Bitcoins, there is an element of underlying value, but also an element of acceptance as a broader currency. As the probability of Bitcoins becoming a more accepted currency increases, so does it's value. While the underlying currency value may not change (or perhaps it does, hard to tell), its probability of acceptance is going up as Bitcoins enter the mainstream via publicity and mass adoption.

Houshalter 13y ago

Well people were saying it was a bubble over a year ago when it was only $19. How do we know if it's not a bubble though? Is there any way to estimate what the "true value" of a bitcoin is? Like the number of bitcoins in circulation and the total size of the bitcoin economy?