EPTis that a concern in the overall scheme of things in how a currency works, not that some holder of 1 million bitcoins would do that but that eventually overtime lots of people removing small amounts adds up
Bitcoin discussion thread - Page 31
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Denzil
United Kingdom4193 Posts
is that a concern in the overall scheme of things in how a currency works, not that some holder of 1 million bitcoins would do that but that eventually overtime lots of people removing small amounts adds up | ||
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Rannasha
Netherlands2398 Posts
On December 19 2013 22:25 Denzil wrote: is it possible to destroy bitcoins? I'm not sure how they're stored possibly in an online account or whatever but could you say have 2 bitcoins then delete the account and essentially remove them from the however limited bitcoin pool? Yes, it's possible. What you hold in your wallet (account) are keys that grant you access to your bitcoin-balance. Destroy those keys and access is lost. Permanently. There have been stories about people throwing out a harddisk with their wallet only to find years later that the thousand coins they mined in 2009 are now worth a decent house. is that a concern in the overall scheme of things in how a currency works, not that some holder of 1 million bitcoins would do that but that eventually overtime lots of people removing small amounts adds up It's not a major concern. A single Bitcoin can be divided into 100 million smaller units, so the total amount of units available is extremely large. If a non-trivial amount of coins are lost, the value of the remaining coins goes up, but since the amount of atomic units is so large, you won't run into a situation where the smallest unit has too much value to be practical. And in the event that this does happen, a software update can be issued that allows Bitcoins to be divided into even smaller pieces. | ||
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TokO
Norway577 Posts
Prices Price Assumption: Prices of Goods in Bitcoin is pegged to the USD valuation. (Or respective currrency) This means that if the value of Bitcoin fluctuates, but USD valuation remains fixed, the Bitcoin-amount price will fluctuate to keep the value-ratio fixed. Price Assumption: The Price of Bitcoin (value of Bitcoin) is solely driven by the demand of Bitcoin. Generally, the demand of a currency changes based on demand of what that currency can buy. E.g, if Investors want to Invest in a certain country, they need to have currency to operate in that country. So basically it's buying access to a separate market. However, with Bitcoin, there is no separate price market, and prices are pegged. So what you are buying is the security, anonymity and transaction system. But you are risking volatility. There is no mechanism that protects your value. Investment This is going to be solely about buying Bitcoin vs. using real currency, and not about investment in mining. Examples: If someone buys USD500 worth of Bitcoin, and the value of Bitcoin increases to USD1000, then you've doubled your investment. In the same way, if the value of Bitcoin decreases to USD250, you've lost half the investment at that point. If I assume that USD's are relatively stable, a choice situation arises. Choice of keeping USD = Transaction Fees. Choice of buying Bitcoin = Total Risk of Fluctuation in Demand. Risk There is no possibility of a real currency to collapse as long as you have a stable economy backing it. In most countries this is not a concern. There is a possibility of Bitcoin to collapse. Let's say that an exodus of users is how a currency can collapse in value. I'm saying that Bitcoin can collapse, because the costs of leaving Bitcoin is close to zero, while for a real currency you basically would have to abandon a whole country or adopt another currency, both are unlikely. I know there are other possibilities, but I'm assuming stable economies. If people are risk averse, and my current analysis is an acceptable conjunction. I see no reason in buying Bitcoin, other than speculating/gambling on rising demand. Evaluating the Risk Let's say that currently, the risk of Bitcoin losing significant value is very low. (looking away from the China incident) What are the avenues that could seriously compromise the currency? What I'm curious about: How easy can alternatives/competitors be developed and implemented? Will people realise the possible volatility? Is it possible that marginal profit extraction mechanisms are implemented for Bitcoin when the currency is developed enough? Thoughts people? | ||
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Warri
Germany3208 Posts
The differences are amount of coins, algorithms used and time to mine a block. Some are considered better than bitcoin, but bitcoin, similar to facebook, was the first to get big and gained enough momentum that it takes a seriously devastating blow to the security before its worth switching. Google+ is empty because noone is switching beause google+ is empty, the same goes for altcoins. | ||
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Chrono000
Korea (South)358 Posts
For anyone still a little curious Doge Coin has made a massive rise pretty much 5x http://doge.yottabyte.nu/ if u havent played around with crypto currency before Doge Coin is a good introduction to Bitcoin. anyone that wants some coin ask me and ill send u some. (u have to download the doge QT which takes forever to load the whole block chain) its still new. | ||
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Ender985
Spain910 Posts
What I'm curious about: How easy can alternatives/competitors be developed and implemented? Will people realise the possible volatility? Is it possible that marginal profit extraction mechanisms are implemented for Bitcoin when the currency is developed enough? Thoughts people? There are many altcoins, but for one to overtake bitcoin it would need to be really vastly superior. And the reason for this is simply that btc was the first one, so it is the one that has more miners dedicated to it, therefore making it the one where most money has already been invested into mining it and the most secure of them all (cost of a 51% attack). Changing horses would be a really expensive adventure, so it won't happen unless the upside is greater than those already sunken costs. And I don't fully understand what you mean by "marginal profit extraction mechanisms", but if you mean if there are any plans for a derivatives market, the answer I believe is yes. | ||
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endy
Switzerland8970 Posts
On December 19 2013 22:24 Rannasha wrote: Right now, the Bitcoin economy (that is: people using Bitcoin to pay for goods) is rather small. There is no need for $10 B worth of Bitcoin (the current market capitalization, roughly) to do all the transacting with. I have no exact numbers, primarily since they're impossible to find because of the nature of the Bitcoin network, but if the price of a single Bitcoin was still at $100, there would be no shortage of Bitcoins for payment purposes. The price is considerably higher, because many people buy Bitcoins in the hope that they will be worth more in the future, effectively reducing the number of currency units in circulation. Thank you very much for the reply, I'm starting to understand better. Please bear with me a bit longer, and allow me to think out loud to try to figure this out once and for all. You said "if the price of a single Bitcoin was still at $100, there would be no shortage of Bitcoins for payment purposes". That's saying that the necessary amount of Bitcoins is related to the total value of transactions paid in bitcoins. That makes perfect sense in the isolated village of your analogy, but in reality, due to Bitcoin's convertibility, the total value of transactions occurring is always valued in real currencies, based on the current Bitcoin's price. I can't help but feel that there is a paradox here: Assuming more Bitcoins are needed (ie:moving towards a shortage) => Bitcoin price goes up => any given transaction requires less Bitcoins + Show Spoiler + (since stores display their prices in USD and the amount of Bitcoin one pays is calculated using the current exchange rate) =>Hence a shortage cannot happen. I know there is something wrong with the above reasoning but I can't put the finger on it. I guess my real question is: The "demand and supply" that drives the prices are: (1) demand/supply of bitcoin/real currency conversion: how many people want to buy Bitcoins with real currencies OR (2) demand/supply of units of a payment system: the amount of Bitcoins people use/need for transactions in a certain period of time as opposed to people saving up Bitcoins as an investment. Not sure how to quantify that since even people using Bitcoins for transactions are not constantly doing transactions, but I feel like it's a different type of demand. OR (3) a combination of both. OR (4) both are actually the same thing ? Example with both types of demand (arbitrary figures): At a specific point in time: Total amount of BTC : BTC 10M Bitcoin price: $1000 Market cap: $10B Total saved by people as investment: BTC 6M Total that needed for transactions: $5B = BTC 5M at current xrate => shortage of BTC 1M [1] Demand from people who want to buy Bitcoins: BTC 2M Supply from people who want to sell Bitcoins: BTC 1M => shortage of BTC 1M [2] Does this make a total shortage of BTC 2M or the second 1M shortage [2] is precisely corresponding to the 1M shortage [1] because the missing amount of Bitcoins for transactions are causing an increase in people who want to buy Bitcoins with real currencies for transaction / attract speculators due to visible scarcity? | ||
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Chrono000
Korea (South)358 Posts
basically if there is hardly any bitcoins left the price goes up soo much that it doesnt matter anymore because u can split a bitcoin for example 0.00000001 bitcoin can be worth $10000 if there is a shortage. and u can split it again and again. this does not mean bitcoin is not rare because u can keep spiting it. bitcoin are def rare and thats why people are speculating on it. its just that the number of bitcoin doesnt really matter because if there was only one bitcoin left and the rest of them lost that one bitcoin is enough to run the whole planet because u can split it as much as u want. (its code remember) | ||
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AlternativeEgo
Sweden17309 Posts
On December 20 2013 03:17 Ender985 wrote: There are many altcoins, but for one to overtake bitcoin it would need to be really vastly superior. And the reason for this is simply that btc was the first one, so it is the one that has more miners dedicated to it, therefore making it the one where most money has already been invested into mining it and the most secure of them all (cost of a 51% attack). Changing horses would be a really expensive adventure, so it won't happen unless the upside is greater than those already sunken costs. And I don't fully understand what you mean by "marginal profit extraction mechanisms", but if you mean if there are any plans for a derivatives market, the answer I believe is yes. Wouldn't an "altcoin" be more attractive to the majority of speculators because of the state of bitcoin mining which prevents new players to join and others to increase their wallets to their satisfaction? I just see people jumping from one coin to the other if so, preventing mainstream business to fully commit to the idea because of it. And thus it will stay as a playground for gold diggers and die out eventually. But I'm pretty dumb so it will probably be fine.  | ||
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Chrono000
Korea (South)358 Posts
On December 20 2013 04:03 AlternativeEgo wrote: Wouldn't an "altcoin" be more attractive to the majority of speculators because of the state of bitcoin mining which prevents new players to join and others to increase their wallets to their satisfaction? I just see people jumping from one coin to the other if so, preventing mainstream business to fully commit to the idea because of it. And thus it will stay as a playground for gold diggers and die out eventually. But I'm pretty dumb so it will probably be fine. correct in a way just look at doge coin. but first movers advantage and the beginnings of much infrastructure for bitcoin has been. u can see the marketcaps here http://coinmarketcap.com/ | ||
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Warent
Sweden205 Posts
I guess my real question is: The "demand and supply" that drives the prices are: (1) demand/supply of bitcoin/real currency conversion: how many people want to buy Bitcoins with real currencies OR (2) demand/supply of units of a payment system: the amount of Bitcoins people use/need for transactions in a certain period of time as opposed to people saving up Bitcoins as an investment. Not sure how to quantify that since even people using Bitcoins for transactions are not constantly doing transactions, but I feel like it's a different type of demand. OR (3) a combination of both. OR (4) both are actually the same thing ? The demand for BTC is artificial, a currency is what we use to measure relative value of goods and services that are in real demand. The real demand that has been mention in this thread is the ability to pay online without transaction costs in an easy way.That is however a very small portion of the current value of the BTC since most is just being bought as a speculative investment - "I want bitcoints because I believe even more people will want it in the future" - this is the market mentality that can be attributed to cause bubbles. These are the two demands that drives the value of BTC, none of them are, however, "real". | ||
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InVerno
258 Posts
What for me, and maybe for all, it's hard to understand and predict, is what can happen if one or two of these minor altcoins reach a value not anchored to BTC and become a sort of safe house at different degrees. If they offer something different and usefull (like faster transactions and easiest mining) it can happen for sure, there'snt no fractional unit of the BTC that can replace that qualities. And what BTC can be at that point? I can't see how a currency that started from zero alone in a market going through a hypergrowth phase can be stable, this crash not only was fully predictable by someone with a decent economic knowledge, but moreover, was perfectly on the rails of a bubble of the "realworld" market..nothing special if you don't consider the scale and the average age of the investors. | ||
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andyrau
13015 Posts
On December 20 2013 00:01 TokO wrote: + Show Spoiler + Hello, I had some thoughts about Bitcoin and I currently think it is sort of dangerous to get involved in. I'll lay out my economics-influenced analysis and would love feedback whether I'm totally mistaken or not. Prices Price Assumption: Prices of Goods in Bitcoin is pegged to the USD valuation. (Or respective currrency) This means that if the value of Bitcoin fluctuates, but USD valuation remains fixed, the Bitcoin-amount price will fluctuate to keep the value-ratio fixed. Price Assumption: The Price of Bitcoin (value of Bitcoin) is solely driven by the demand of Bitcoin. Generally, the demand of a currency changes based on demand of what that currency can buy. E.g, if Investors want to Invest in a certain country, they need to have currency to operate in that country. So basically it's buying access to a separate market. However, with Bitcoin, there is no separate price market, and prices are pegged. So what you are buying is the security, anonymity and transaction system. But you are risking volatility. There is no mechanism that protects your value. Investment This is going to be solely about buying Bitcoin vs. using real currency, and not about investment in mining. Examples: If someone buys USD500 worth of Bitcoin, and the value of Bitcoin increases to USD1000, then you've doubled your investment. In the same way, if the value of Bitcoin decreases to USD250, you've lost half the investment at that point. If I assume that USD's are relatively stable, a choice situation arises. Choice of keeping USD = Transaction Fees. Choice of buying Bitcoin = Total Risk of Fluctuation in Demand. Risk There is no possibility of a real currency to collapse as long as you have a stable economy backing it. In most countries this is not a concern. There is a possibility of Bitcoin to collapse. Let's say that an exodus of users is how a currency can collapse in value. I'm saying that Bitcoin can collapse, because the costs of leaving Bitcoin is close to zero, while for a real currency you basically would have to abandon a whole country or adopt another currency, both are unlikely. I know there are other possibilities, but I'm assuming stable economies. If people are risk averse, and my current analysis is an acceptable conjunction. I see no reason in buying Bitcoin, other than speculating/gambling on rising demand. Evaluating the Risk Let's say that currently, the risk of Bitcoin losing significant value is very low. (looking away from the China incident) What are the avenues that could seriously compromise the currency? What I'm curious about: How easy can alternatives/competitors be developed and implemented? Will people realise the possible volatility? Is it possible that marginal profit extraction mechanisms are implemented for Bitcoin when the currency is developed enough? Thoughts people? Pretty sure these are all reasons why regulation and monetary management is necessary. Detractors call it manipulation, but if the Fed or PBOC or the ECB didn't exist, a short trip through history shows how disastrous it can be. IMO, Bitcoin isn't even a currency by strict definition atm, it bears more resemblance to a commodity. The fact that it must use standard currency as a means of valuation inherently disqualifies it as an actual monetary system. Obviously, one can still buy random shit using Bitcoin, but only if it's a bilateral agreement by both parties in the transaction. In this case, literally anything can be utilized as a transaction medium as long as the buyer and seller are in accord. I think Bitcoin is similar to gold, and it can still be manipulated like any other currency as long as a large amount is withheld from the money supply in a single person's or organization's control. And like gold, its innate tendency as a deflationary valuation only limits growth. fun to see when this bubble pops though | ||
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Sbrubbles
Brazil5775 Posts
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TokO
Norway577 Posts
On December 20 2013 03:17 Ender985 wrote: + Show Spoiler + What I'm curious about: How easy can alternatives/competitors be developed and implemented? Will people realise the possible volatility? Is it possible that marginal profit extraction mechanisms are implemented for Bitcoin when the currency is developed enough? Thoughts people? There are many altcoins, but for one to overtake bitcoin it would need to be really vastly superior. And the reason for this is simply that btc was the first one, so it is the one that has more miners dedicated to it, therefore making it the one where most money has already been invested into mining it and the most secure of them all (cost of a 51% attack). Changing horses would be a really expensive adventure, so it won't happen unless the upside is greater than those already sunken costs. And I don't fully understand what you mean by "marginal profit extraction mechanisms", but if you mean if there are any plans for a derivatives market, the answer I believe is yes. Good discussion guys. The question about Altcoins weren't about an imminent threat, but that maybe down 2-3 years down the line, or even quicker given the speed of these things. So, first-mover-advantage. I think it is a valid reason for why it is the biggest now, but at the same time the analogy to Facebook\G+ isn't completely fair. With Facebook, the reason to stay with the product is the network of people, so it becomes sort of a prisoner's dilemma with infinite people, you need to all move over for it to be worth it, if just a few people move over, it's not going to be worth it for those people. If services offering to take bitcoin would decide to also accept altcoins. Then you would have a situation of competition, where changing currency would not be at a cost. Now, I don't know the qualitative details regarding mining and what not, so I'm not going to discuss it. But I assume that if there is potential value to be had, miner's would have reason to move over. Marginal profit extraction mechanism was a derp way to spell out transaction costs. Eventually there is going to be a 'compensation price' I assume to contribute to make up for miner's losses. And then all the jazz with increasing it to be competitive with Real Currency, and then maybe taking a cut as well, etc. On December 20 2013 04:50 andyrau wrote: Pretty sure these are all reasons why regulation and monetary management is necessary. Detractors call it manipulation, but if the Fed or PBOC or the ECB didn't exist, a short trip through history shows how disastrous it can be. IMO, Bitcoin isn't even a currency by strict definition atm, it bears more resemblance to a commodity. The fact that it must use standard currency as a means of valuation inherently disqualifies it as an actual monetary system. Obviously, one can still buy random shit using Bitcoin, but only if it's a bilateral agreement by both parties in the transaction. In this case, literally anything can be utilized as a transaction medium as long as the buyer and seller are in accord. I think Bitcoin is similar to gold, and it can still be manipulated like any other currency as long as a large amount is withheld from the money supply in a single person's or organization's control. And like gold, its innate tendency as a deflationary valuation only limits growth. fun to see when this bubble pops though Haha, I guess I only used the term 'currency' as a convenience. Appealed more to the metaphor and common understanding than definitional accuracy. I heard from a Economist Steve Keen, that the definition of currency had to do with the relationship with the bank. However, it's not that satisfactory for me as a term. The bank is just a social institution, and in some approximations it all depends on the 'consensus' in the society. So the 'deeper' definition becomes what you stated, at a basic level the 'bilateral agreement' or 'consensus of validity' in society. Which is what all social relations and institutions consists of. I guess I interpreted currency as a agreed-upon transaction medium. Which in my opinion seems alright in the scope of the discussion. | ||
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Disregard
China10252 Posts
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zatic
Zurich15312 Posts
On December 20 2013 04:59 Sbrubbles wrote: I get that the main "advantage" of bitcoin over regular currency is that it acts as cheaper means to make payments and transfer money over the internet. Can someone help me understand why, exactly, that is? Is Bitcoin's system simple more efficient than, say, Paypal? Does Bitcoin (and related companies) evade government regulations in some way? Maybe some other explanation, or maybe I've missunderstood what exactly Bitcoin is? The entire point is that there is no company Bitcoin. The main problem Bitcoin solved is that you do not need a trusted authority (like with Paypal). Anyone participating in the Bitcoin economy can verify if transactions are legit. There are explanations how exactly that works everywhere, but the main advantage of Bitcoin is that it does not need a central authority to work. | ||
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Acrofales
Spain17831 Posts
On December 20 2013 15:14 zatic wrote: The entire point is that there is no company Bitcoin. The main problem Bitcoin solved is that you do not need a trusted authority (like with Paypal). Anyone participating in the Bitcoin economy can verify if transactions are legit. There are explanations how exactly that works everywhere, but the main advantage of Bitcoin is that it does not need a central authority to work. And why is a trusted central authority like paypal (inherently) bad? I am talking in general: if you think paypal is the pit of doom, that's fine, but decentralizing stuff just for the hell of it is creating a lot of work for no reason: a lot of things are easier, cheaper and more efficient if centralized, so unless there's a reason to run something distributed, centralize it. | ||
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zatic
Zurich15312 Posts
On December 20 2013 15:53 Acrofales wrote: And why is a trusted central authority like paypal (inherently) bad? I am talking in general: if you think paypal is the pit of doom, that's fine, but decentralizing stuff just for the hell of it is creating a lot of work for no reason: a lot of things are easier, cheaper and more efficient if centralized, so unless there's a reason to run something distributed, centralize it. A central authority: - can't be trusted - can arbitrarily choose to not serve you - subject to local legislation - can choose to or be forced to not allow cross border exchange or do business in certain countries - can choose to or be forced to not allow certain businesses (porn, drugs, prostitution, etc.. ) - costs money - can seize your money or have it seized - can go bankrupt - can be outlawed altogether - can change their policies over night there is probably 100 more reasons to decentralize virtual currency. | ||
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Sbrubbles
Brazil5775 Posts
On December 20 2013 15:14 zatic wrote: The entire point is that there is no company Bitcoin. The main problem Bitcoin solved is that you do not need a trusted authority (like with Paypal). Anyone participating in the Bitcoin economy can verify if transactions are legit. There are explanations how exactly that works everywhere, but the main advantage of Bitcoin is that it does not need a central authority to work. Good explanations aren't exactly easy to find, which is why I came to this thread. I'm trying to understand how Buy bitcoin with USD => Transfer bitcoin => Sell bitcoin for USD is (presumably) cheaper than Transfer USD. Anyway, what do you mean by "central authority" and why would you apply it to Paypal but wouldn't (I assume) apply it to bitcoin exchanges? | ||
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