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As a stable store of value... Not for a while. (Then again, gold has been around for awhile, and is IT a stable store of value?) As a value exchange mechanism.

As a stable store of value... Not for a while. (Then again, gold has been around for awhile, and is IT a stable store of value?) As a value exchange mechanism... Certainly. Already useful (and troublesome, to certain establishments) for that. As a secondary ("world"/"international") or even primary currency... Only if your already-legitimized currency is performing worse (hmmm, Argentina, Greece, Iceland, Russia...). As a third-world currency exchanged via cell phones... Well, now we're talking. Although anything that stores value can be used in the same way, which is exactly how M-Pesa started out as phone credits (the "base" or "backing" value) and is now used for much more than that. I will say that anyone who travels (still a very underrated undertaking that abysmally few Americans engage in) has been frustrated by currency exchange. If I could default to something like Bitcoin when I travel, it would ease that pain quite a bit. Governments are concerned about "capital flight". Thing is, it's difficult to destroy (as well as to create) "value," it usually just gets transformed. It therefore stands to reason that if you don't want your country's value to flee, stop debasing your own currency (so that people stop exchanging it for other currencies), and make things of value (so that more representations of value, i.e. cash, flow into your country).

pjc50 12y ago
Bitcoin gives you two currency exchange transactions to do where previously there was only one. I can't really see it taking off except for transactions that are banned from one of the other payment systems, and given that transactions are entirely public with persistent pseudonyms, that's not great either. Bitcoin's transaction cost and risk is necessarily greater than any centralised solution, so as soon as it establishes a useful market it can be undercut. (Don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction, the exchange bid/offer spread, and the escrow fees if relevant). It's entirely trivial for value to be destroyed: this is what happened in the leveraged property downturn as recently as 2008. "Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very.
- tokenizerrr 12y ago
  > Bitcoin gives you two currency exchange transactions to do where previously there was only one What? Only if you don't treat bitcoin as a currency. If bitcoin is used as its own currency, and both you and the seller hold bitcoin, there is no exchange, or at most one: When you buy in from your existing currency.
  - michaelt 12y ago
    This is why to be a value exchange mechanism, you also need to be a store-of-value mechanism. If the buyer and seller aren't holding bitcoin, a simple fiat transaction turns into three transactions.
- IkmoIkmo 12y ago
  > Bitcoin gives you two currency exchange transactions to do where previously there was only one. Not true. Bitcoin in and of itself doesn't work like this. Yes if you have dollars and you need bitcoin then it's an extra conversion. But it's like saying it takes two conversions to use the dollar when you happen to have euros or yen or whatever else. This is a startup phase issue, not a long-term issue. And even if you just begin, you can buy e.g. $1k of bitcoin and buy hundreds of cups of coffee, and only that first transaction was 'double', not the hundreds after. Moot point as far as I'm concerned. > Bitcoin's transaction cost and risk is necessarily greater than any centralised solution No it's not. Would you say for example that, putting all the power to vote in elections on 1 person is less risky than democratically letting the country vote? Centralized solutions are more prone to corruption, 'too big to fail', and lack any redundancy. A decentralized solution however is very hard to corrupt, if any of its elements fail it can continue to exist, and thus it's less at risk of individual failure. Transaction costs of centralized solutions aren't necessarily cheaper. They certainly can be, I agree. But that doesn't mean it will be. The reason for that is that payment networks like Visa operate with billions of plastic cards with passwords written on them and chips that can be scanned by thieves just sitting nearby with a computer, millions of vendors with archaic hardware, with an insurance product built on top of this unsafe 1950s invention known as credit cards. There are huge costs involved here. A network so expensive that there are only a few major credit card players involved. Same with something horrible like SWIFT. If anything, this is a payment system that will be disrupted and undercut, not the other way around. Perhaps after that we'll see a centralized solution that's actually better and cheaper than both, sure, but it's like saying let's not invent the car even when it's better than the horse, cause we may invent flying cars that'd be even better so why bother. It'll just be 'undercut' anyway. > don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction On the first point: electricity costs of miners is not a marginal cost, thus you can't quote it as a transaction fee. It's a systemic cost. i.e. 25 bitcoins are rewarded every 10 minutes with every block regardless of whether there were 0 or 1 trillion transactions. Just think about that for a moment. It's a systemic cost to run the network even if NO transactions happen at all. It's not tied to the transaction number. Fees are. Block rewards are not. And in the long term, which we're talking about, block rewards are zero. And given that blocks are on a course to go from 1 mb to 1 gigabyte in the next few decades (under the plan of Chief Scientist at TBF Gavin Andresen, we're looking at 1000x more transactions. As such, transactions can replace current block rewards and then some, without increasing the fee per individual transaction (a few pennies). To compare this with roughly 30c + 3% fees on a purchase of a $1k laptop that credit cards or Stripe or Square or Paypal offer you is ridiculous. On the smaller end, microtransactions aren't even possible with most payment systems today, and on the larger end of the spectrum, million dollar transactions still cost pennies with bitcoin. > the exchange bid/offer spread Again, treat it as a currency. To use a currency there is no conversion involved. We covered that already. You can already get paid in bitcoin and pay bills in bitcoin, and remember we're talking longer term where paying with bitcoin is like the choice to pay with cash or card: ubiquitous. But hell, even if you want to include the conversion like any other currency: check the bid/offer spread at your bank for dollar/euro, or at Paypal, it isn't pretty. Meanwhile at Circle the bid/offer spread is 0 and you can instantly buy and sell bitcoin. And at large exchanges the spread is generally much less than what I see at my bank or paypal (when I say generally read always, but I'm saying generally as I'm sure there are exceptions to be found.) > this is what happened in the leveraged property downturn as recently as 2008. You're misconstruing his point about capital flight. i.e. that is that if you build a house and create construction jobs, have value in the house, sell said house for money and then leave the country with said money by exchanging it for a foreign currency, the house is still there and the money didn't leave, it was bought by someone with foreign currency who obviously wants to spend that money in your economy. Nothing really left and no value was destroyed. There are certainly some effects but his point is that value isn't destroyed, it's just moved around or transformed. "Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very. Agreed that's a bit too simplistic. But I think the larger point he made holds true, that most governments over the long run shouldn't have to worry about capital flight. It's just one of many forms of protectionism that will fade away with time, and with it, one of the big reasons countries like China don't want bitcoin to become too big.
vidarh 12y ago
> As a value exchange mechanism... Certainly. I'm working on a side project at the moment, and one of the fantastic parts of dealing with crypto coins is that going from nothing to being able to take payments is down to installing bitcoind (or the equivalent for other coins) and issuing jsonrpc commands to it. Especially in countries where signing up to take payments by cards is cumbersome/slow, that's fantastic.
- pakled_engineer 12y ago
  Even easier if you just generate addresses into a db, or use electrum type seed wallets to safely generate on a remote server without worrying about keys getting stolen.
rtpg 12y ago
would just like to point out that bitcoin is fairing much worse than the currencies of Russia, Iceland, Greece, or Argentina, so not necessarily a great primary currency
- chisleu 12y ago
  would just like to point out that this isn't true. It had a huge spike of worth that was total bubble and it has deflated from it. It is still up dramatically from when I started buying them at $5 each.
  - grey-area 12y ago
    That huge spike also makes it terrible as a medium of exchange. A currency which suffers speculative bubbles is not a good one.
    - shillster 12y ago
      We live in a world filled with speculative bubbles. You have speculators to thank for their price discovery efforts. This enables you to pay the "true value" of a given commodity at a given moment in time.
      - grey-area 12y ago
        That's a rather circular definition of 'true value', which assumes that we live in the best of all possible worlds where the market is infinitely efficient. I disagree that speculators have any role in discovery of true value - on the contrary, they mask true value and ensure our markets are inefficient, panicky, and volatile.
        shillster 12y ago
        I was making a sarcastic remark, echoing the sentiment of all of the "free market" zealots and politicians. Not only are they talking out of both sides of their mouth, their statements are misleading as we see in hindsight. The only benefit I can see is there is an overall increase in liquidity but the cost of that liquidity is quite high.

pjc50 12y ago

Bitcoin gives you two currency exchange transactions to do where previously there was only one. I can't really see it taking off except for transactions that are banned from one of the other payment systems, and given that transactions are entirely public with persistent pseudonyms, that's not great either. Bitcoin's transaction cost and risk is necessarily greater than any centralised solution, so as soon as it establishes a useful market it can be undercut. (Don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction, the exchange bid/offer spread, and the escrow fees if relevant). It's entirely trivial for value to be destroyed: this is what happened in the leveraged property downturn as recently as 2008. "Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very.

tokenizerrr 12y ago
> Bitcoin gives you two currency exchange transactions to do where previously there was only one What? Only if you don't treat bitcoin as a currency. If bitcoin is used as its own currency, and both you and the seller hold bitcoin, there is no exchange, or at most one: When you buy in from your existing currency.
- michaelt 12y ago
  This is why to be a value exchange mechanism, you also need to be a store-of-value mechanism. If the buyer and seller aren't holding bitcoin, a simple fiat transaction turns into three transactions.
IkmoIkmo 12y ago
> Bitcoin gives you two currency exchange transactions to do where previously there was only one. Not true. Bitcoin in and of itself doesn't work like this. Yes if you have dollars and you need bitcoin then it's an extra conversion. But it's like saying it takes two conversions to use the dollar when you happen to have euros or yen or whatever else. This is a startup phase issue, not a long-term issue. And even if you just begin, you can buy e.g. $1k of bitcoin and buy hundreds of cups of coffee, and only that first transaction was 'double', not the hundreds after. Moot point as far as I'm concerned. > Bitcoin's transaction cost and risk is necessarily greater than any centralised solution No it's not. Would you say for example that, putting all the power to vote in elections on 1 person is less risky than democratically letting the country vote? Centralized solutions are more prone to corruption, 'too big to fail', and lack any redundancy. A decentralized solution however is very hard to corrupt, if any of its elements fail it can continue to exist, and thus it's less at risk of individual failure. Transaction costs of centralized solutions aren't necessarily cheaper. They certainly can be, I agree. But that doesn't mean it will be. The reason for that is that payment networks like Visa operate with billions of plastic cards with passwords written on them and chips that can be scanned by thieves just sitting nearby with a computer, millions of vendors with archaic hardware, with an insurance product built on top of this unsafe 1950s invention known as credit cards. There are huge costs involved here. A network so expensive that there are only a few major credit card players involved. Same with something horrible like SWIFT. If anything, this is a payment system that will be disrupted and undercut, not the other way around. Perhaps after that we'll see a centralized solution that's actually better and cheaper than both, sure, but it's like saying let's not invent the car even when it's better than the horse, cause we may invent flying cars that'd be even better so why bother. It'll just be 'undercut' anyway. > don't quote the minimum transaction fee in response to this, quote the miner electricity cost per transaction On the first point: electricity costs of miners is not a marginal cost, thus you can't quote it as a transaction fee. It's a systemic cost. i.e. 25 bitcoins are rewarded every 10 minutes with every block regardless of whether there were 0 or 1 trillion transactions. Just think about that for a moment. It's a systemic cost to run the network even if NO transactions happen at all. It's not tied to the transaction number. Fees are. Block rewards are not. And in the long term, which we're talking about, block rewards are zero. And given that blocks are on a course to go from 1 mb to 1 gigabyte in the next few decades (under the plan of Chief Scientist at TBF Gavin Andresen, we're looking at 1000x more transactions. As such, transactions can replace current block rewards and then some, without increasing the fee per individual transaction (a few pennies). To compare this with roughly 30c + 3% fees on a purchase of a $1k laptop that credit cards or Stripe or Square or Paypal offer you is ridiculous. On the smaller end, microtransactions aren't even possible with most payment systems today, and on the larger end of the spectrum, million dollar transactions still cost pennies with bitcoin. > the exchange bid/offer spread Again, treat it as a currency. To use a currency there is no conversion involved. We covered that already. You can already get paid in bitcoin and pay bills in bitcoin, and remember we're talking longer term where paying with bitcoin is like the choice to pay with cash or card: ubiquitous. But hell, even if you want to include the conversion like any other currency: check the bid/offer spread at your bank for dollar/euro, or at Paypal, it isn't pretty. Meanwhile at Circle the bid/offer spread is 0 and you can instantly buy and sell bitcoin. And at large exchanges the spread is generally much less than what I see at my bank or paypal (when I say generally read always, but I'm saying generally as I'm sure there are exceptions to be found.) > this is what happened in the leveraged property downturn as recently as 2008. You're misconstruing his point about capital flight. i.e. that is that if you build a house and create construction jobs, have value in the house, sell said house for money and then leave the country with said money by exchanging it for a foreign currency, the house is still there and the money didn't leave, it was bought by someone with foreign currency who obviously wants to spend that money in your economy. Nothing really left and no value was destroyed. There are certainly some effects but his point is that value isn't destroyed, it's just moved around or transformed. "Just fix your current account deficit" is about as useful a piece of advice for countries as "just create jobs", ie not very. Agreed that's a bit too simplistic. But I think the larger point he made holds true, that most governments over the long run shouldn't have to worry about capital flight. It's just one of many forms of protectionism that will fade away with time, and with it, one of the big reasons countries like China don't want bitcoin to become too big.

vidarh 12y ago

> As a value exchange mechanism... Certainly. I'm working on a side project at the moment, and one of the fantastic parts of dealing with crypto coins is that going from nothing to being able to take payments is down to installing bitcoind (or the equivalent for other coins) and issuing jsonrpc commands to it. Especially in countries where signing up to take payments by cards is cumbersome/slow, that's fantastic.

pakled_engineer 12y ago
Even easier if you just generate addresses into a db, or use electrum type seed wallets to safely generate on a remote server without worrying about keys getting stolen.

rtpg 12y ago

would just like to point out that bitcoin is fairing much worse than the currencies of Russia, Iceland, Greece, or Argentina, so not necessarily a great primary currency

chisleu 12y ago
would just like to point out that this isn't true. It had a huge spike of worth that was total bubble and it has deflated from it. It is still up dramatically from when I started buying them at $5 each.
- grey-area 12y ago
  That huge spike also makes it terrible as a medium of exchange. A currency which suffers speculative bubbles is not a good one.
  - shillster 12y ago
    We live in a world filled with speculative bubbles. You have speculators to thank for their price discovery efforts. This enables you to pay the "true value" of a given commodity at a given moment in time.
    - grey-area 12y ago
      That's a rather circular definition of 'true value', which assumes that we live in the best of all possible worlds where the market is infinitely efficient. I disagree that speculators have any role in discovery of true value - on the contrary, they mask true value and ensure our markets are inefficient, panicky, and volatile.
      - shillster 12y ago
        I was making a sarcastic remark, echoing the sentiment of all of the "free market" zealots and politicians. Not only are they talking out of both sides of their mouth, their statements are misleading as we see in hindsight. The only benefit I can see is there is an overall increase in liquidity but the cost of that liquidity is quite high.