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> But, most transaction costs (credit card fees) that I pay are already rolled into the price of things, so I don't benefit by purchasing them with Bitcoin. It

by sirsar 12y ago

> But, most transaction costs (credit card fees) that I pay are already rolled into the price of things, so I don't benefit by purchasing them with Bitcoin. It's not common yet, but I have in fact saved money by buying with bitcoins, because the merchant passed on some of the savings. >Isn't it just easier to buy things with Dollars? Sure, if you're allowed to, and you have that preference, why not? Bitcoin can facilitate the circumvention of censorship (a la Wikileaks). And once you have bitcoins, sending them is faster than paying with a credit card online. >Doesn't it require increasingly more capital to mine coins and to maintain the ledger? Yes, if you ignore hardware advances. It might even be true if you don't ignore that. >What happens when the value of a coin is less than the mining costs or ledger maintenance? There are transaction fees that go to the block miner. >Or, does the coin just keep continuing to increase in value? Hopefully not too quickly! >what's to stop people from just using another crypto-currency? Network effects. People do use other crypto-currencies. Just not as much. For now. >And, what is the 'value' of a coin? The article implies that the value is created by the users' trust in the value. But, is that how currencies generally work? I had assumed that currencies either have tangible value, like precious metals, or that they are abstract derivatives of another's debt (government or people). Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion. There are historical examples of currency which was neither a debt derivative nor an intrinsically useful object being used as currency. Ultimately, anything sellable is "worth" what other people will pay for it. Bitcoin provides a means of transferring information in a cryptographically signed manner. We happen to use that fact to transfer information about value. Other people are willing to buy bitcoins. The price is capped by the fact that there is a finite number of bitcoins and a finite number of people. Beyond that, it's pretty much new ground we're breaking here. Bitcoin is not perfect. I don't know the future. But if you have other questions, I'm happy to answer them from the perspective of a bitcoin holder.

jdreaver 12y ago
> Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion. I still don't understand how economists can say that BTC has no "intrinsic value," so should be worthless, but the fiat currencies around the world are just dandy. The whole concept of "intrinsic value" is nonsense. If you can make a Bitcoin transaction faster, cheaper, and with fewer people knowing about it (if you value anonymity), then BTC has value. You can send Bitcoin to someone overseas without anyone else knowing. How powerful is that? > Ultimately, anything sellable is "worth" what other people will pay for it. Precisely. I wish we could teach people this before they dismiss Bitcoin for unfounded reasons.
- richardwhiuk 12y ago
  Fiat currencies have intrinsic value due to taxation.
  - warfangle 12y ago
    The issuer of a fiat currency collects taxes in that same currency. The issuer^H^H^H^H^H^H ledger algorithm of bitcoin collects taxes^H^H^H^H^H transaction fees in that same currency.
  - nickpinkston 12y ago
    Intrinsic or not isn't really the question - it's not really a binary. I'd rather have bitcoin than Zimbabwe's fiat currency. Taxation definitely gives legitimacy, but so does the ability to pay for things anonymously. If enough people are willing to take a currency, than it gain value - period. The gov't wanting it in taxes is just a really big provider of liquidity providing those network effects.
    - berns 12y ago
      It's not a question of legitimacy, isn't about demand. Currency is a token. You need tokens to play the game. The difference with taxes is that you don't choose to participate. You must play, so there is always demand for tokens.
      - nickpinkston 12y ago
        Yea, but demand isn't all created equal right? I'm trying to capture more than raw demand - unless we're just defining terms differently (which I suspect)
  - mbreese 12y ago
    It's not just the taxation (which is true), it's the fact that they are backed by a particular entity. In the case of USD, it's the United States government. Dollars may not be "backed" by anything tangible, but they are accepted because the US is (largely) a trusted entity. That's what makes USD useful to people internationally. Bitcoin doesn't have the advantages of having a government backing it, but some would probably argue that that is an advantage.
justinreeves 12y ago
>> What happens when the value of a coin is less than the mining costs or ledger maintenance? > There are transaction fees that go to the block miner. The issue here is that they go to the person who mined the block originally, but they aren't passed on to those who are simply running the client to maintain the ledger. With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees. It provides no incentive to run the full client to help the network confirm transactions.
- rcxdude 12y ago
  The miners are the ones who are maintaining the ledger. People just running the client and downloading the full blockchain are basically just duplicating the data (or using it to verify the full history for themselves), and maybe providing some bandwidth to others who want to do the same thing, they don't contribute to the transactions in any way.
- sirsar 12y ago
  You are mostly correct, but I'd like to make some clarifications. >they aren't passed on to those who are simply running the client to maintain the ledger. The word "maintain" is ambiguous here. When I run bitcoin-qt on my computer, I have the whole blockchain locally, and I relay blocks created by others, but I do not "maintain" the blockchain in the sense of adding or subtracting from it beyond the transactions I create myself to spend my own money. >With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees. Correct, so I don't mine. >It provides no incentive to run the full client to help the network confirm transactions. Again, "help" is a bit ambiguous. When I run bitcoin-qt, I relay transactions, but I do not contribute any processing power to confirmations. "Confirming" a transaction means including it in a block, an d only miners create blocks. Now, it is a bit of a problem that there is little to no incentive to run a validating client, i.e. one that accepts transactions, verifies that they are cryptographically and monetarily valid, and passes them on to other people. We shall see if another cryptocoin solves this issue.
  - 12y ago

by sirsar 12y ago

jdreaver 12y ago

> Ah, yes. This is classic. The orthodox economists might tell you that Bitcoin shouldn't have any value at all. Yet, I can sell 1 BTC and pay for months of gas. I'd rather have a running car than an economist's opinion. I still don't understand how economists can say that BTC has no "intrinsic value," so should be worthless, but the fiat currencies around the world are just dandy. The whole concept of "intrinsic value" is nonsense. If you can make a Bitcoin transaction faster, cheaper, and with fewer people knowing about it (if you value anonymity), then BTC has value. You can send Bitcoin to someone overseas without anyone else knowing. How powerful is that? > Ultimately, anything sellable is "worth" what other people will pay for it. Precisely. I wish we could teach people this before they dismiss Bitcoin for unfounded reasons.

richardwhiuk 12y ago
Fiat currencies have intrinsic value due to taxation.
- warfangle 12y ago
  The issuer of a fiat currency collects taxes in that same currency. The issuer^H^H^H^H^H^H ledger algorithm of bitcoin collects taxes^H^H^H^H^H transaction fees in that same currency.
- nickpinkston 12y ago
  Intrinsic or not isn't really the question - it's not really a binary. I'd rather have bitcoin than Zimbabwe's fiat currency. Taxation definitely gives legitimacy, but so does the ability to pay for things anonymously. If enough people are willing to take a currency, than it gain value - period. The gov't wanting it in taxes is just a really big provider of liquidity providing those network effects.
  - berns 12y ago
    It's not a question of legitimacy, isn't about demand. Currency is a token. You need tokens to play the game. The difference with taxes is that you don't choose to participate. You must play, so there is always demand for tokens.
    - nickpinkston 12y ago
      Yea, but demand isn't all created equal right? I'm trying to capture more than raw demand - unless we're just defining terms differently (which I suspect)
- mbreese 12y ago
  It's not just the taxation (which is true), it's the fact that they are backed by a particular entity. In the case of USD, it's the United States government. Dollars may not be "backed" by anything tangible, but they are accepted because the US is (largely) a trusted entity. That's what makes USD useful to people internationally. Bitcoin doesn't have the advantages of having a government backing it, but some would probably argue that that is an advantage.

justinreeves 12y ago

>> What happens when the value of a coin is less than the mining costs or ledger maintenance? > There are transaction fees that go to the block miner. The issue here is that they go to the person who mined the block originally, but they aren't passed on to those who are simply running the client to maintain the ledger. With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees. It provides no incentive to run the full client to help the network confirm transactions.

rcxdude 12y ago
The miners are the ones who are maintaining the ledger. People just running the client and downloading the full blockchain are basically just duplicating the data (or using it to verify the full history for themselves), and maybe providing some bandwidth to others who want to do the same thing, they don't contribute to the transactions in any way.
sirsar 12y ago
You are mostly correct, but I'd like to make some clarifications. >they aren't passed on to those who are simply running the client to maintain the ledger. The word "maintain" is ambiguous here. When I run bitcoin-qt on my computer, I have the whole blockchain locally, and I relay blocks created by others, but I do not "maintain" the blockchain in the sense of adding or subtracting from it beyond the transactions I create myself to spend my own money. >With the increased difficulty in mining, it's very unlikely for anyone without a large investment in hardware, that you're ever going to make money on the fees. Correct, so I don't mine. >It provides no incentive to run the full client to help the network confirm transactions. Again, "help" is a bit ambiguous. When I run bitcoin-qt, I relay transactions, but I do not contribute any processing power to confirmations. "Confirming" a transaction means including it in a block, an d only miners create blocks. Now, it is a bit of a problem that there is little to no incentive to run a validating client, i.e. one that accepts transactions, verifies that they are cryptographically and monetarily valid, and passes them on to other people. We shall see if another cryptocoin solves this issue.
- 12y ago