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The short-term market price doesn't have a lot to do with it's long-term viability. Liquidity is relatively tiny hence shocking volatility. Anyone's bitcoins o

The short-term market price doesn't have a lot to do with it's long-term viability. Liquidity is relatively tiny hence shocking volatility. Anyone's bitcoins only represent a loss on a particular day if they actually choose to sell them or spend them. Same goes for people gloating when the price is up. There's 3,600 bitcoins per day being generated creating a significant downward pressure on the price. But reward halving is ETA July 2016, marking a significant change in supply and probably the day-to-day price. I can understand the schadenfreude for anyone who has watched people become very wealthy and watched other presumably greedy people subsequently 'lose' tons of money. The majority of my holding will be likely to sit for 10 years or so and I will admit I was wrong if I've made a significant loss and I probably will sell them off. People can have their schadenfreude then. In return, I'll agree not to gloat if the price sky rockets.

crm416 12y ago
What I worry about is the effect that market price can have on the security of the network (via global hash rate). The system will reach equilibrium when the revenue generated by mining is equal to the amount spent on mining. When the value of BTC goes down, mining generates proportionally less revenue (if miners are valuing BTC at market price, which they may not be), and the global hash rate will drop. Imagine if the price plummeted, the hash rate dropped, and someone launched an attack on the network. At that point, consumer confidence in Bitcoin would possibly never recover, and its long-term viability would be severely damaged.
- markburns 12y ago
  There is an incentive for miners to not have confidence in bitcoin damaged. It's a bit of an interesting Nash equilibrium kind of game. In general, I think these things will balance out assuming rational actors. Yes there could be a crisis of confidence but I can't see it spinning out to completely cancel out its utility e.g. usefulness in international remittances. At the very least it will replace or significantly threaten the Western Union business model. Where I think there may be cause for concern might be the irrational actors. People or organizations prepared to invest and lose money with the aim of bringing bitcoin down. It gets a bit tinfoil hat to suggest that e.g. the Federal Reserve or world governments would want to spend billions on killing bitcoin, but it's at least an interesting thought experiment. I'd love to hear a defence from a strong bitcoin proponent against the 'irrational' actors. Irrational meaning not obviously acting in the interests of their own holdings. I've raise it before but not heard convincing arguments of how bitcoin would be safe against 51% attacks like that.
matco11 12y ago
Volatility is the result of several factors and liquidity is only one of them. For example, the oil market is very large and liquid, yet still fairly volatile. Volatility is obviously undesirable for anything that is intended to function as a reserve of value. This is why, for example, there is no discussion of oil being a reserve of value, or a currency. As for the example above, greater liquidity in the Bitcoin market will not automatically make it less volatile, or lower volatility enough. Bitcoin's volatility is structural (it goes well beyond the issues with the exchanges). Effective currencies have several mechanisms designed to protect their value and minimize volatility: Bitcoin lacks them and hence it's structurally fragile and volatile. So, Bitcoin cannot represent a reserve of value. Stable preservation of value is a key characteristic of a currency (this is one of the reasons inflation is monitored by central banks, for example), hence, if Bitcoin cannot work as a reserve of value, it cannot work as a currency. Perhaps, other crypto currencies, in the future, may be structured with more robust mechanisms and work better.
- dpweb 12y ago
  >> Effective currencies have several mechanisms designed to protect their value and minimize volatility Yes, government manipulation. I think many of the btc enthusiasts miss the point. You can't have a huge important currency without guarantees. Goverments have armies and taxes and so provide these guarantees. No world government/control of btc = no btc becoming the "global currency".
  - ingler 12y ago
    To be fair, Bitcoin is the first form of international money to come into existence without government decree. These are still uncharted waters.
- markburns 12y ago
  I agree that because of the lack of controls it will be more volatile than other currencies, but I think volatility will at least reduce to something like gold once the majority is mined. It's volatility is partly due to the difficulty increase and reward halving part of the protocol. I.e. the part designed to reward early adopters. Which was necessary to bootstrap it. It's a speculative game for the first maybe decade or two. As the bitcoins gradually leave the early adopters as they cave in to whatever price is worth it for them there are bubble cycles. Once there is more general adoption, it will settle down though. As people gradually start to think less in e.g. Euros and consider not changing directly into local currency, but just to hold some for their day-to-day transactions because they are particularly useful in certain circumstances. Once it's passed a tipping point they will be more useful in more and more situations, to the point that it's easier to just have your smart phone and cursing cash or credit card only places. I'm sure there will be retro hipster bars that take cash only in the future. Anyway, as for the remaining volatility, it may just be that bitcoins serve as gold and another somehow regulated cryptocurrency serves as ordinary money.

crm416 12y ago

What I worry about is the effect that market price can have on the security of the network (via global hash rate). The system will reach equilibrium when the revenue generated by mining is equal to the amount spent on mining. When the value of BTC goes down, mining generates proportionally less revenue (if miners are valuing BTC at market price, which they may not be), and the global hash rate will drop. Imagine if the price plummeted, the hash rate dropped, and someone launched an attack on the network. At that point, consumer confidence in Bitcoin would possibly never recover, and its long-term viability would be severely damaged.

markburns 12y ago
There is an incentive for miners to not have confidence in bitcoin damaged. It's a bit of an interesting Nash equilibrium kind of game. In general, I think these things will balance out assuming rational actors. Yes there could be a crisis of confidence but I can't see it spinning out to completely cancel out its utility e.g. usefulness in international remittances. At the very least it will replace or significantly threaten the Western Union business model. Where I think there may be cause for concern might be the irrational actors. People or organizations prepared to invest and lose money with the aim of bringing bitcoin down. It gets a bit tinfoil hat to suggest that e.g. the Federal Reserve or world governments would want to spend billions on killing bitcoin, but it's at least an interesting thought experiment. I'd love to hear a defence from a strong bitcoin proponent against the 'irrational' actors. Irrational meaning not obviously acting in the interests of their own holdings. I've raise it before but not heard convincing arguments of how bitcoin would be safe against 51% attacks like that.

matco11 12y ago

Volatility is the result of several factors and liquidity is only one of them. For example, the oil market is very large and liquid, yet still fairly volatile. Volatility is obviously undesirable for anything that is intended to function as a reserve of value. This is why, for example, there is no discussion of oil being a reserve of value, or a currency. As for the example above, greater liquidity in the Bitcoin market will not automatically make it less volatile, or lower volatility enough. Bitcoin's volatility is structural (it goes well beyond the issues with the exchanges). Effective currencies have several mechanisms designed to protect their value and minimize volatility: Bitcoin lacks them and hence it's structurally fragile and volatile. So, Bitcoin cannot represent a reserve of value. Stable preservation of value is a key characteristic of a currency (this is one of the reasons inflation is monitored by central banks, for example), hence, if Bitcoin cannot work as a reserve of value, it cannot work as a currency. Perhaps, other crypto currencies, in the future, may be structured with more robust mechanisms and work better.

dpweb 12y ago
>> Effective currencies have several mechanisms designed to protect their value and minimize volatility Yes, government manipulation. I think many of the btc enthusiasts miss the point. You can't have a huge important currency without guarantees. Goverments have armies and taxes and so provide these guarantees. No world government/control of btc = no btc becoming the "global currency".
- ingler 12y ago
  To be fair, Bitcoin is the first form of international money to come into existence without government decree. These are still uncharted waters.
markburns 12y ago
I agree that because of the lack of controls it will be more volatile than other currencies, but I think volatility will at least reduce to something like gold once the majority is mined. It's volatility is partly due to the difficulty increase and reward halving part of the protocol. I.e. the part designed to reward early adopters. Which was necessary to bootstrap it. It's a speculative game for the first maybe decade or two. As the bitcoins gradually leave the early adopters as they cave in to whatever price is worth it for them there are bubble cycles. Once there is more general adoption, it will settle down though. As people gradually start to think less in e.g. Euros and consider not changing directly into local currency, but just to hold some for their day-to-day transactions because they are particularly useful in certain circumstances. Once it's passed a tipping point they will be more useful in more and more situations, to the point that it's easier to just have your smart phone and cursing cash or credit card only places. I'm sure there will be retro hipster bars that take cash only in the future. Anyway, as for the remaining volatility, it may just be that bitcoins serve as gold and another somehow regulated cryptocurrency serves as ordinary money.