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This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoi

This is a fantastic article, and it highlights some of my worries as a Bitcoin lover. It would seem the only times one would use Bitcoin over USD is if a Bitcoin-specific benefit (for instance, anonymity when buying illegal goods) outweighs the cost of using BTC over USD. In a deflationary economy I can't fathom why someone would spend BTC over USD buying a legal good, except maybe for the kick of having spent Bitcoin.

mike_esspe 13y ago
2% less fee, than credit card. It's enough to take over the payment world. And it's only one of the advantages.
- dragontamer 13y ago
  The 0.0001 BTC Transaction fee tacked on to every BTC exchange is only going to get worse and worse as BTCs's exchange rate goes up btw. What used to be a rounding-error that happened on every BTC transaction is now a $0.10 tax on every BTC transaction. If BTC continues to deflate, the transaction fees on BTC are going to become quite sizable.
  - marcell 13y ago
    This is a known issue. The current design around smart fees is described here: https://gist.github.com/gavinandresen/6548612 https://gist.github.com/gavinandresen/6548612 The high level idea is to introduce market mechanics to bitcoin fees, with the expectation that competition will drive prices down.
lukifer 13y ago
If the deflation ever becomes stable(ish), the increase of value can be accounted for in the price, as sellers will have a reason to prefer BTC and offer discounts (not to mention eliminating all those 2.9% credit card fees). We already buy all sorts of optional goods, even if those goods will depreciate compared to letting money sit in a bank account and accrue interest.
- dragontamer 13y ago
  Bingo, we have a winner. What is important is NOT deflation vs inflation, but to keep that value _stable_. USD inflates at a rate of 3% year over year, so we can compare investment vehicles against the rate of inflation and see whether or not they are good deals. But since BTC is extremely volatile, its impossible to use it as a unit of value. Until it settles down and becomes predictable, it will become impossible to form a "BTC Economy".
  - lukifer 13y ago
    I think of it as owning shares of stock in a DAC (Distributed Autonomous Corporation). At some point, those shares of stock might become worthwhile as a day-to-day currency. As is, though, I think it's already more stable than local currencies for some parts of the world (though perhaps still not more so than the dollar).
    - dragontamer 13y ago
      It isn't a stock however, and never will be. The reason why people invest in companies is to make more money. Companies may not offer dividends today, but eventually they will. (IE: Even Apple, once allergic to the idea of dividends, offers a regular one to its investors). Any company that churns a profit will eventually share those profits with its investors. "Owning" BTCs is not about churning profits eventually, its 100% about speculating about its future value. Building BTC Mining equipment is where the real "value" of owning BTCs is in, since that puts you in control over a number of BTC transactions. The BTCs themselves can NOT be compared to stocks. Stocks mean you actually own the company, you eventually partake in that company's profits... and even partake in choosing the board of directors. (who then in turn... choose the CEO). A BTC on the other hand, is like speculating on Oil, Gold, or Timber. Its a commodity, not a "share".
      - lukifer 13y ago
        I suppose the proof-of-stake coins act a little like stock, in that one gets to contribute to the 51% that writes the rules of the network, but I take your point. Ultimately, crypto-coins are a new type of financial instrument that don't fit cleanly into either currency or commodity (given that they're not exchangeable for something tangible). Owning BTC is subjectively stock-like, in the sense that its present value is based primarily on network effects, and its future value is highly uncertain.

mike_esspe 13y ago

2% less fee, than credit card. It's enough to take over the payment world. And it's only one of the advantages.

dragontamer 13y ago
The 0.0001 BTC Transaction fee tacked on to every BTC exchange is only going to get worse and worse as BTCs's exchange rate goes up btw. What used to be a rounding-error that happened on every BTC transaction is now a $0.10 tax on every BTC transaction. If BTC continues to deflate, the transaction fees on BTC are going to become quite sizable.
- marcell 13y ago
  This is a known issue. The current design around smart fees is described here: https://gist.github.com/gavinandresen/6548612 https://gist.github.com/gavinandresen/6548612 The high level idea is to introduce market mechanics to bitcoin fees, with the expectation that competition will drive prices down.

lukifer 13y ago

If the deflation ever becomes stable(ish), the increase of value can be accounted for in the price, as sellers will have a reason to prefer BTC and offer discounts (not to mention eliminating all those 2.9% credit card fees). We already buy all sorts of optional goods, even if those goods will depreciate compared to letting money sit in a bank account and accrue interest.

dragontamer 13y ago
Bingo, we have a winner. What is important is NOT deflation vs inflation, but to keep that value _stable_. USD inflates at a rate of 3% year over year, so we can compare investment vehicles against the rate of inflation and see whether or not they are good deals. But since BTC is extremely volatile, its impossible to use it as a unit of value. Until it settles down and becomes predictable, it will become impossible to form a "BTC Economy".
- lukifer 13y ago
  I think of it as owning shares of stock in a DAC (Distributed Autonomous Corporation). At some point, those shares of stock might become worthwhile as a day-to-day currency. As is, though, I think it's already more stable than local currencies for some parts of the world (though perhaps still not more so than the dollar).
  - dragontamer 13y ago
    It isn't a stock however, and never will be. The reason why people invest in companies is to make more money. Companies may not offer dividends today, but eventually they will. (IE: Even Apple, once allergic to the idea of dividends, offers a regular one to its investors). Any company that churns a profit will eventually share those profits with its investors. "Owning" BTCs is not about churning profits eventually, its 100% about speculating about its future value. Building BTC Mining equipment is where the real "value" of owning BTCs is in, since that puts you in control over a number of BTC transactions. The BTCs themselves can NOT be compared to stocks. Stocks mean you actually own the company, you eventually partake in that company's profits... and even partake in choosing the board of directors. (who then in turn... choose the CEO). A BTC on the other hand, is like speculating on Oil, Gold, or Timber. Its a commodity, not a "share".
    - lukifer 13y ago
      I suppose the proof-of-stake coins act a little like stock, in that one gets to contribute to the 51% that writes the rules of the network, but I take your point. Ultimately, crypto-coins are a new type of financial instrument that don't fit cleanly into either currency or commodity (given that they're not exchangeable for something tangible). Owning BTC is subjectively stock-like, in the sense that its present value is based primarily on network effects, and its future value is highly uncertain.