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Which is exactly what would be the case if you started a brand new currency, in the time it took for it to become an actual currency. If Canada said "fuck it"

by Aqueous 13y ago

Which is exactly what would be the case if you started a brand new currency, in the time it took for it to become an actual currency. If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0. Any increase in value after that up until the money supply and the price stabilized enough for it to be used as actual currency would be in the thousands of percent, which would make it seem quite volatile indeed. However, the huge increase in the beginning would attract a ton of investment because of the profit incentive and soon the Ford would be worth something. It would grow until it reached a saturation point where all the people who wanted a Ford had one. At that point the price would level off to the point where investors would stop seeing it as a profit opportunity. At this point it finally starts to look attractive as a currency. In short, today's investors are tomorrow's spenders. BitCoin had to start somewhere, and it was never going to be useful as a currency until it is widespread enough for its value to stabilize. Until then all mediums of exchange are speculative instruments.

steven2012 13y ago
You can convince yourself that price discovery is what's causing the rise of the value of BTC. But it's not. It's rampant speculation. Why? Because there is no substantial use of BTC to buy and sell goods. And even if there were (which there isn't), the fact that the currency has doubled in the last 2 weeks suggests that there is massive hoarding going on now, and people would rather own the currency rather than exchange them for goods or services. Why would you spend 1 BTC when the price of the good or service could halve in BTC in a week? It's better to just dig out your old fiat currency and pay for it with that, since the price is much more stable.
- saosebastiao 13y ago
  There is an incredibly suitable use for bitcoin: as an exchange currency. Its decentralized nature makes it extremely attractive to smaller nations as a way of maintaining liquidity, enabling trade, all while not propping up another nation with competing interests by making their currency arbitrarily valuable. Its digital nature makes it attractive to currency trading markets for purely logistical reasons. You are probably right about the median case, but I say there is a small chance of a >$10M value for this reason alone.
- Aqueous 13y ago
  All speculation is based on the likely future value of something. If millions of people start believing BitCoin will eventually be a world currency, then it will be. I agree that it is price speculation. Is speculation always based on a delusion?
  - steven2012 13y ago
    Rampant price speculation where the price encounters the incredible volatility that BTC has experienced is ALWAYS based on delusion. If you know of any counter examples, I would be interested in learning about them. And remember, I have no problems with speculation and people making money off of this. And this speculation can go on for years. But in the end BTC will be worthless, because there is no inherent value to a BTC. Even the fundamental promise of Bitcoin being anonymous is inherently flawed! Sure, you can money launder it, but the US government will make quick work of that in due time. At least with tulip bulbs, you can grown them into flowers, and gold can be turned into jewelery and has industrial uses. BTC has literally zero inherent or fundamental uses for it. My guess is that it will keep rising until the US government starts cracking down hard on it, like they did with poker sites, etc. They've already put it on their radar screen, and a lot of these companies that deal with BTC don't understand the ramifications of money transmission. Once the US government starts shutting down in earnest, people will dump their BTC and it will be over.
    - Aqueous 13y ago
      BTC does have inherent value. It is valuable to vendors because it is frictionless money transfer without regard to borders or regulation and very small transaction fees, making it very inexpensive to accept payments from anywhere in the world. It is valuable to authorities because of the public ledger and because it neutralizes the threat of foreign control over money supply. It is valuable to consumers because of its easy divisibility (it is far more divisible than gold) and the ability to spend it quickly and anonymously. Think of the BitCoin network as a financial superconductor - the resistance to movement is so small that its negligible. Is that not inherently valuable to our economy as a whole?
jdietrich 13y ago
>If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0. That's not true at all. The Euro was launched as a completely new currency in 1995, across a huge and diverse group of economies and backed only by trust in the ECB. The value of the Euro has remained remarkably stable, launching at 1EUR=1.12USD, peaking in 2008 at 1.59USD and currently trading at 1.35USD. The biggest increase in the value of the Euro happened as a result of the declining value of other currencies during the US financial crisis. BTC is in the midst of a vast speculative bubble. It isn't a currency in any real sense, as the vast majority of the trading volume is purely speculative. A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. BTC might eventually become justifiably very valuable, but it might just as easily become worthless due to a run on MtGox.
- sentenza 13y ago
  Also, as far as I know, there is no reason to assume that Bitcoin will ever stop being extremely volatile. Due to the in-built deflation of the currency, the main incentive is to hold the coins until some value is reached and then sell them. But because the distribution of coin ownership is quite asymmetrical, there are people out there that could cause massive drops in coin value by accidentally flodding the market when their 'Sell!' price is reached. So the price will go up, sometimes faster, sometimes slower, with massive drops every now and then and a continuous value increase over the very long run.
- Aqueous 13y ago
  I'm giving you a hypothetical situation where Canada started up an exchange for Fords and offered the currency on the exchange for $0. What would happen? It would float toward the price that the market would bear, which would look like a thousands of percent increase. The reason the Euro started off there is because, like an IPO, they thought that because an entire federation of countries was backing it, they could offer it initially for a price higher than $0, just like Facebook thought that because millions of people knew what Facebook was they could offer their shares for a higher price than $0. In all likelihood Canada would offer it for a price higher than $0, and the market would probably bear that price. BitCoin couldn't do that because it wasn't introduced by a federation or a nation. Satoshi couldn't just go to an exchange and offer BitCoins for $600 because nobody had heard of BitCoin and people were skeptical. So it had to make the journey from $0 to $600 on its own. But now that it has earned the faith of the people who use it, what makes it different from a national currency being offered that price? Not much. " A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. " There are more and more things you can exchange a BitCoin for every single day. And if you're a vendor, don't you want to accept BitCoins? If someone wanted to give me a BitCoin in exchange for something worth say, $550, I would accept it because a BitCoin is worth about that much on the exchange and there's a high chance that it will be worth more tomorrow. It might not make a whole lot of sense to spend BitCoins right now but for the very same reason it makes all the sense in the world to accept them. Vendors have every incentive to accept BitCoins at the moment, which means there will be more and more of them, which means BitCoin's utility as a currency will only go up. Network effects.

by Aqueous 13y ago

steven2012 13y ago

You can convince yourself that price discovery is what's causing the rise of the value of BTC. But it's not. It's rampant speculation. Why? Because there is no substantial use of BTC to buy and sell goods. And even if there were (which there isn't), the fact that the currency has doubled in the last 2 weeks suggests that there is massive hoarding going on now, and people would rather own the currency rather than exchange them for goods or services. Why would you spend 1 BTC when the price of the good or service could halve in BTC in a week? It's better to just dig out your old fiat currency and pay for it with that, since the price is much more stable.

saosebastiao 13y ago
There is an incredibly suitable use for bitcoin: as an exchange currency. Its decentralized nature makes it extremely attractive to smaller nations as a way of maintaining liquidity, enabling trade, all while not propping up another nation with competing interests by making their currency arbitrarily valuable. Its digital nature makes it attractive to currency trading markets for purely logistical reasons. You are probably right about the median case, but I say there is a small chance of a >$10M value for this reason alone.
Aqueous 13y ago
All speculation is based on the likely future value of something. If millions of people start believing BitCoin will eventually be a world currency, then it will be. I agree that it is price speculation. Is speculation always based on a delusion?
- steven2012 13y ago
  Rampant price speculation where the price encounters the incredible volatility that BTC has experienced is ALWAYS based on delusion. If you know of any counter examples, I would be interested in learning about them. And remember, I have no problems with speculation and people making money off of this. And this speculation can go on for years. But in the end BTC will be worthless, because there is no inherent value to a BTC. Even the fundamental promise of Bitcoin being anonymous is inherently flawed! Sure, you can money launder it, but the US government will make quick work of that in due time. At least with tulip bulbs, you can grown them into flowers, and gold can be turned into jewelery and has industrial uses. BTC has literally zero inherent or fundamental uses for it. My guess is that it will keep rising until the US government starts cracking down hard on it, like they did with poker sites, etc. They've already put it on their radar screen, and a lot of these companies that deal with BTC don't understand the ramifications of money transmission. Once the US government starts shutting down in earnest, people will dump their BTC and it will be over.
  - Aqueous 13y ago
    BTC does have inherent value. It is valuable to vendors because it is frictionless money transfer without regard to borders or regulation and very small transaction fees, making it very inexpensive to accept payments from anywhere in the world. It is valuable to authorities because of the public ledger and because it neutralizes the threat of foreign control over money supply. It is valuable to consumers because of its easy divisibility (it is far more divisible than gold) and the ability to spend it quickly and anonymously. Think of the BitCoin network as a financial superconductor - the resistance to movement is so small that its negligible. Is that not inherently valuable to our economy as a whole?

jdietrich 13y ago

>If Canada said "fuck it" on dollars today and decided they were going to start a brand new currency (let's call it the Ford, after Toronto Mayor Rob Ford), what would it be worth initially? It would be worth $0. That's not true at all. The Euro was launched as a completely new currency in 1995, across a huge and diverse group of economies and backed only by trust in the ECB. The value of the Euro has remained remarkably stable, launching at 1EUR=1.12USD, peaking in 2008 at 1.59USD and currently trading at 1.35USD. The biggest increase in the value of the Euro happened as a result of the declining value of other currencies during the US financial crisis. BTC is in the midst of a vast speculative bubble. It isn't a currency in any real sense, as the vast majority of the trading volume is purely speculative. A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. BTC might eventually become justifiably very valuable, but it might just as easily become worthless due to a run on MtGox.

sentenza 13y ago
Also, as far as I know, there is no reason to assume that Bitcoin will ever stop being extremely volatile. Due to the in-built deflation of the currency, the main incentive is to hold the coins until some value is reached and then sell them. But because the distribution of coin ownership is quite asymmetrical, there are people out there that could cause massive drops in coin value by accidentally flodding the market when their 'Sell!' price is reached. So the price will go up, sometimes faster, sometimes slower, with massive drops every now and then and a continuous value increase over the very long run.
Aqueous 13y ago
I'm giving you a hypothetical situation where Canada started up an exchange for Fords and offered the currency on the exchange for $0. What would happen? It would float toward the price that the market would bear, which would look like a thousands of percent increase. The reason the Euro started off there is because, like an IPO, they thought that because an entire federation of countries was backing it, they could offer it initially for a price higher than $0, just like Facebook thought that because millions of people knew what Facebook was they could offer their shares for a higher price than $0. In all likelihood Canada would offer it for a price higher than $0, and the market would probably bear that price. BitCoin couldn't do that because it wasn't introduced by a federation or a nation. Satoshi couldn't just go to an exchange and offer BitCoins for $600 because nobody had heard of BitCoin and people were skeptical. So it had to make the journey from $0 to $600 on its own. But now that it has earned the faith of the people who use it, what makes it different from a national currency being offered that price? Not much. " A currency is defined by liquidity and there just aren't many things you can currently exchange for a bitcoin. " There are more and more things you can exchange a BitCoin for every single day. And if you're a vendor, don't you want to accept BitCoins? If someone wanted to give me a BitCoin in exchange for something worth say, $550, I would accept it because a BitCoin is worth about that much on the exchange and there's a high chance that it will be worth more tomorrow. It might not make a whole lot of sense to spend BitCoins right now but for the very same reason it makes all the sense in the world to accept them. Vendors have every incentive to accept BitCoins at the moment, which means there will be more and more of them, which means BitCoin's utility as a currency will only go up. Network effects.