EPTBitcoin discussion thread - Page 40
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StarStruck
25339 Posts
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Ace
United States16096 Posts
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Simberto
Germany11495 Posts
On March 08 2014 22:03 Ace wrote: As I stated before, there will be more units in circulation than the world has in total currency now. That is more than enough for everyone. 10^-8 units is a massive amount. The US Government can keep printing money till they feel like it but there are enough physical units of dollar bills in the world already. IF Bitcoin somehow said 10^-8 units isn't enough to represent currency, it's as easy as changing the Bitcoin protocol to move the decimal place more units to the right. This would mostly affect exchanges at first but it's really not a big deal. In your doomsday scenario they just move a few decimal places to create more digital space for storage. I don't know if this was missed by my blockchain.info comment but I'll explain it again: If "1" coin were the standard and the price of goods didn't reflect that change then yes, there would be deflation as that would obviously be the base unit. But two things are happening here - A.) The base unit is not "1", it's .00000001 and B.) the price of goods being traded is in milliBTC. I don't think you quite understand the point i am making. I understand what you are saying. The total amount of currency units is large. However, that point it totally unrelated to what i am saying, which is that the currency is inherently deflationary, and that that is bad. Of course you will not get to the point where it is impossible to have enough coins to use as a currency, due to the way they can be split up. I am not debating that point, which i think you assume i am doing. Can you expound on the point in red please? I think you are confusing actual bitcoins and bitcoin transactions. I already posted on the actual amount of coins in flux earlier, but I'll expand on it a bit to make it simpler. Let's ignore what the maximum amount of bitcoins will actually be once mined. Let's make this extremely simple. If there are 21 million 1 unit Bitcoins in circulation, but we're dealing with micro units in transactions then there are more than 21 million pieces of currency floating around. I'll try and simplify this again: Prices in the US are based on denominations of the $1 dollar. Easy for all of us to understand, right? Just about anything worth buying is $1 or more, with relatively very few micro transactions making up the economy. Well, Bitcoins work the same way except you keep looking at 1 BTC as the unit of currency - but it isn't. It's .000000001. There are more than enough digital units of currency to go around, trading them isn't the issue. Obtaining them is because it isn't widespread yet. Second bolded - this is what I was getting at earlier, who's economy is this bad for? How does deflation for national currencies relate to deflation for a decentralized currency? You know what, here's an even simpler thought experiment: Do you hoard dollar bills? No, i am not confusing those two. Basically, there is a maximum amount of time a given bitcoin can change hands during a day. Easy to understand, since a transaction takes time. There is both a hard limit, assuming that a coin gets traded away instantly the moment a transaction is complete, and a soft average based on the fact that people don't instantly trade the money they have away. Thus, a given amount of value in bitcoins can only be used for a limited amount of transfers a day, and thus for a limited amount of economical transaction. As i stated before, there are currently ~1.26 trillion dollar in circulation, and that is ignoring the fact that a lot of transactions are purely digital. So for bitcoin to replace the dollar, the total amount of bitcoins NEEDS to be worth at least as much as that. This, however, is a lot more then the current amount of bitcoins is worth. Thus, you NEED a lot of deflation for bitcoins to reach as much usage as the dollar. Now, if i had a bitcoin, and would assume that bitcoins are going to be used as a currency, why would i spend it? Tomorrow it would be worth double, a year from now 10 times as much in goods as it is now. And if bitcoins are not getting spend by the people who think they will be used as a more general currency, how are they supposed to be used as a currency? I do not hoard dollar bills because they are an inflationary currency. I said that before. Hoarding an inflationary currency is utterly stupid. I would hoard dollar bills if they were deflationary. An economy usually does not want people hoarding their money, spending is a lot better. Thus, you do not want a deflationary currency. Awesome, now we're getting somewhere. No one hoards real world currency because every nation in the world has a central authority that governs their money supply. They can just willy nilly print more money. Now, this is a very important question, because I assume you know how bitcoin actually works - why would this also not apply to bitcoin? There is nothing that says the bitcoin economy can not increase the supply of money with fractional reserve banking. This is the system used the world over now. ETA: I think stackexchange and the bitcoin wiki do a better job of explaining it than I do. I may be misunderstanding here but the crux of the argument is about the actual supply of coins available. Which you seem to think is fixed at a limit which I'm saying is not only unapproachable, but easily raised by moving some decimals in the bitcoin protocol. http://bitcoin.stackexchange.com/questions/408/does-hoarding-really-hurt-bitcoin I think where your going is "Alternative Argument" section from the wiki here (bottom of page): https://en.bitcoin.it/wiki/Deflationary_spiral correct? Yes, more or less. You got a fixed limited amount of money, and an increasing economy, meaning you have deflation. Deflation leads to hoarding. With traditional currency, it is very easy to make it slightly inflationary if it is indeed deflating, by just printing more money. With bitcoins this is not possible. Do we both agree that a deflationary currency is bad for the economy and generally not something you would want? | ||
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Ace
United States16096 Posts
Some people are speculating and that's fine, but a massive amount of people are using it for every day transactions. As a decentralized asset, not debt, that doesn't behave like real world currency there is no way to be sure we are going to have a Japan like scenario of runaway deflation. I was doing some reading back into past pages and for the people critical of the technology, if you think it will fail then at least do some in depth research on what will happen to the current bit coin miners when the last set of coins is too difficult (and not profitable) enough to mine? Right now, the "solution" is they will just become transaction processors. However, that may not be profitable enough to keep them floating the network  | ||
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oneofthem
Cayman Islands24199 Posts
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Simberto
Germany11495 Posts
At least if you agree that deflation is bad. If you do not agree with that point, you should probably read a book on economics. | ||
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oneofthem
Cayman Islands24199 Posts
i should rephrase, bitcoin's divisibility is no protection against deflation | ||
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DoubleReed
United States4130 Posts
On March 08 2014 23:42 Ace wrote: I don't agree with you saying it will lead to runaway hoarding, or that deflation is necessarily bad at the level I think you're thinking of, or what will happen to the currency. Some people are speculating and that's fine, but a massive amount of people are using it for every day transactions. As a decentralized asset, not debt, that doesn't behave like real world currency there is no way to be sure we are going to have a Japan like scenario of runaway deflation. I was doing some reading back into past pages and for the people critical of the technology, if you think it will fail then at least do some in depth research on what will happen to the current bit coin miners when the last set of coins is too difficult (and not profitable) enough to mine? Right now, the "solution" is they will just become transaction processors. However, that may not be profitable enough to keep them floating the network ??? People were already hoarding bitcoins, because it was gaining in value (causing it to gain in value further, following Greater Fool Theory). Therefore it would be stupid to purchase something with it now when you can purchase something bigger and better later. A centralized authority doesn't change any of that. That's why deflation is bad. It's because if you have money that is gaining in value, you are going to hoard. Because that's intelligent to do. Investing in "cash" is only weird because it generally has a worse payoff than other investments like stocks and bonds. But it's not unheard of to invest in 'cash' especially in recessions and depressions because recessions and depressions create deflation. Deflation is always bad. Even having a low inflation target can be bad. That's why the FED maintains inflation at a constant 2% (which involves adjusting rates constantly depending on the economy). The division of the currency isn't some special thing of bitcoin. It has nothing to do with the conversation about deflation. We used to have half-cent pieces and things like that. We just switched to higher denominations as they were needed. The only difference is that a centralized authority can't control inflation and deflation if it gets out of control. It also means people can simply choose not to use the currency, unlike dollars which taxes are done in (and is backed by lots and lots of guns). Bitcoin is the first serious cryptocurrency try, so maybe there will be advances to correct these issues. I don't know. But it has issues with not being quite anonymous (which is why things like Zerocoin came about). It's not even great for illegal transactions because you have to broadcast your illegal transactions, essentially creating an eternal record of the transaction. Oh yea, it also has problems with people breaking into bitcoin exchanges and stealing everyone's money wild west style. | ||
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Ender985
Spain910 Posts
I don't think a deflationary currency is a problem. In fact it is possible that many of the global economic problems we are facing today would not exist in the first place if the main currency was one that encouraged saving instead of spending, and in which fractional banking and loans are were a much more difficult thing to pull off. We will see. | ||
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ETisME
12385 Posts
On March 09 2014 22:16 Ender985 wrote: Gold is also in limitted supply, and was the main currency for many more years than fiat has ever been. I don't think a deflationary currency is a problem. In fact it is possible that many of the global economic problems we are facing today would not exist in the first place if the main currency was one that encouraged saving instead of spending, and in which fractional banking and loans are were a much more difficult thing to pull off. We will see. the currency that we have now encourages investment. You invest in something that devalues slower or even gain additional value. other than that you are right, deflationary currency is not a problem. There is nothing wrong with encouraging more money to flow back into money system and generate more value and allows bank to lend loans out to companies that can use it to make billions instead of money you save in banks that does nothing but earn interest. The bigger problem would be the value fluctuate so much that people can't rely on it, and we aren't close to getting there, problems only really show up when we have hyper inflation. Honestly the bigger issue is that we almost have no opportunity to learn how to invest and once you do, you are using your money without any practise whatsoever. I am lucky to live in Hong Kong where investment is largely encouraged and very common, my dad experienced some of the biggest asia financial crisis and so I am learning a thing or two off from him. | ||
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DoubleReed
United States4130 Posts
On March 09 2014 22:16 Ender985 wrote: Gold is also in limitted supply, and was the main currency for many more years than fiat has ever been. I don't think a deflationary currency is a problem. In fact it is possible that many of the global economic problems we are facing today would not exist in the first place if the main currency was one that encouraged saving instead of spending, and in which fractional banking and loans are were a much more difficult thing to pull off. We will see. Serious question: do you know why we switched out of gold standard? Because there are reasons why only crazy extremists suggest that gold standard makes any sense in the modern world. Like you seem really dismissive of all the serious problems that gold had in the years that we used it. That's an argument from tradition in a very silly way. And again, it's more like you're investing in cash rather than investing in stocks and bonds. Inflation/deflation isn't as much to do with literal savings like savings in the bank. That's more like sales tax. | ||
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aksfjh
United States4853 Posts
On March 09 2014 22:16 Ender985 wrote: Gold is also in limitted supply, and was the main currency for many more years than fiat has ever been. I don't think a deflationary currency is a problem. In fact it is possible that many of the global economic problems we are facing today would not exist in the first place if the main currency was one that encouraged saving instead of spending, and in which fractional banking and loans are were a much more difficult thing to pull off. We will see. It's not a question about saving, since high savings rates are actually causing quite a few problems right now. It's a question about what to do with those savings. In a deflationary system, it is a perfectly valid strategy to stuff your currency into your mattress and let it appreciate through external market forces alone. The more this happens, the better it becomes as a strategy. People begin scrounging and the economy grinds to a halt as saving becomes the best way to make money, since people try to buy as little as possible to save the most. In an inflationary system, if you want to see gains with your currency, you have to spend it in some way. However, some forms of spending actually count as "saving," like giving out loans and investing in people and firms. | ||
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Butterednuts
United States859 Posts
The firm said it found the bitcoins - worth around $116m (£70m) - in an old digital wallet from 2011. That brings the total number of bitcoins the firm lost down to 650,000 from 850,000. Being a spectator and a newbie at bitcoins, will this finding do anything to the overall price of the currency? I'm not sure how many are in active circulation or if this is just a drop in the bucket. | ||
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17Sphynx17
580 Posts
Here is my problem with bitcoins.... The only reason they have value now is because someone created a demand for them, either by being a speculator or believing it to be an actual new currency to foster trade with. So basically, people threw money (which we give value now) at something that didn't have value before to give it a sense of "worth". Granting the premise being preached seems to be noble and mostly anti-establishment. The problem for me though is, the bulk of existing bitcoins are hoarded by those that mined them when they were worthless or those that bought in while they were worth very little (pizza for 10k bitcoins if I am not mistaken is a situation that did happen before). What happens when it reaches a point that it has a significant value and the bulk holders of bitcoin sell their wallets off? When they pull out as it were since the gains aren't outpacing more lucrative investments like stocks/bonds or other newer cryptocurrencies developed? Since the prices are somewhat significant, buying it isn't as easy as it is, so you would expect the buyers to only be able to buy the divisible portions of the bitcoin just to have it given its "current value" expecting it not to lose value later on or even gain. But there lies the problem, with no backing from government or an actual bank to give it value via inflation or deflation, what prevents it from going back to being worthless? The only guarantee I have if I had one that the value mentioned in the exchange is the value I am actually getting as a user outside is if another establishment is willing to trade using the bitcoins further after a sell off by the major shares of bitcoins. If say it used to be 1000usd for 1 bitcoin when you bought in, and a day later it is now 100usd.. The ones holding the bitcoin who need to establish trade with other forms of commerce, they are stuck with a dilemma. Since there was a fall to 10% of its previous value, do the current bitcoin prices raise by 10x to compensate since it is the current value so they do not suffer a loss? That being the case, the buyer would be at a loss if he did that because he can't logically trade for today's bitcoin inflated prices as it would run him aground. With no demand, prices will steadily fall. A sell off would lower the prices, and those stuck with the bitcoins would be left to wonder in the end who will honor it. And since there is no government backing, they can't force establishments to accept these bitcoins. Or they could but you are forced to trade at whatever is dictated and you can't argue since you either have something that is now of little value or of no further use. That is the inherent problem I see with cryptocurrencies, especially since it seems other cryptocurrencies are propping up. What is to stop a speculator from say trading bitcoins to a new cryptocurrency that is just starting to shoot up in value and suddenly get government backing (as a theory). Who will then buy bitcoins or honor it if another manages to get what bitcoin lacks? My two cents. | ||
zatic
Zurich15325 Posts
You are absolutely right, currencies have value because people believe they have value - but "real" currencies are exactly the same. | ||
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17Sphynx17
580 Posts
Yes I understand that but the currencies we have all have government backing a some form of regulation at least. And you can really use them within that nation unlike cryptocurrencies in general where it is selective. Since cryptocurrencies have no backing, once no one wants to use them or has a demand for them, they are practically useless. Government can't do that to you for their own countries currency. Even if a currency has very little value per unit, they still honor it which does not apply to cryptocurrencies. This happened if I am not mistaken in Germany and Zimbabwe where you needed almost truckloads to pay for food. And trade within the community becomes end user to retailer. Retailer to a distributor who accepts bitcoins or retailer to an exchange first to get the current worth in his countries honored currency is before dealing with the distributor. You are always forced to rely on an external exchange rate for a "Value trade" to happen. It can't foster proper trade like that in my belief. Also, how would it work? Shop A and B sell coffee for the same 1 usd. Shop A however sells coffee at 1 bitcoin while Shop B relied on today's higher prices of bitcoin so he adjusted at 0.5 bitcoin. Shop B ends up trading for all his stocks at 0.5 bitcoins since he beat shop A at bitcoin pricing. He then needs to restock but his dealer doesn't accept bitcoins. The following day bitcoins lose value and are now a third of what they were worth when he sold at 0.5 bitcoin. How then does he operate? The assumption would be the price will "normalize" back to previous levels, but what is that normal previous level for it to even become viable to use for trade so that merchants aren't forced to do a double and triple take before deciding to accept/release bitcoins. You also can't expect governments or banks to do anything about the bitcoins losing value when you are stuck with them. What are you really supposed to do in that regard? You only find value in the cryptocurrency because you rely on it's conversion to USD to gauge it's buying power. It's more straight forward when you do that, but say you were in a country using Yen. Do you scream at government to affect the yen against the dollar to give your bitcoin more buying power within your country relative to the USD? It just doesn't make any sense to me. The people who buy into the bitcoin either only buy it treating it as an investment they can sell off later on, not as a means to trade or really do business. Once it loses steam as an investment, selling will need to start and it will lose more value over time (as with stock prices). The risk is left to those who buy in at the end who are left holding the ball with no one else to pass it off to. What if it reverts back to 10,000 bitcoins for a pizza? Or what if it costs more? Are you willing to trade it then when it was definitely worth more a week ago? It doesn't really affect those who just buy bitcoins as a gamble. It affects those who end up honoring that value you have given it after the value is lost. Who then do they run to? | ||
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Yourmomsbasement
Canada87 Posts
Any currency can be globally traded now, and many make money off the changes in value (not easy, not that worth it, issues with large scale crime) Bitcoin, if a new currency, is exposed to the same issues, plus more due to it's digital nature and lack of big backing. -tin foil hat time- If bitcoin makes it to the big time and I can pay for everything from the tap of my phone without a bank fee, then I'll feel secure in using it. Until then it's just fiat and can be blown away by a stiff wind (regulations against it or crime) I'll stick with $ until it shows weakness, then I'll devote myself to skill learning to raise my personal value in the $-less world to come. -tin foil hat end- | ||
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Ace
United States16096 Posts
On March 21 2014 22:41 Butterednuts wrote: MtGox finds 200,000 missing bitcoins in old wallet Being a spectator and a newbie at bitcoins, will this finding do anything to the overall price of the currency? I'm not sure how many are in active circulation or if this is just a drop in the bucket. Drop in the bucket. When the first Mt.Gox disaster happened the value of bitcoins actually went up. Thing is there are a lot of Bitcoin based businesses popping up every week. People are also getting smarter about dealing with exchanges. At the end of the day Mt. Gox was widely known to be an insecure place with a very shoddy beginning but people still put large amounts of money there. | ||
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DoubleReed
United States4130 Posts
Paul Ryan, conservative conman, famously said to Ben Bernanke of the FED: "Look, there is nothing more insidious, more undermining that a government can do to its citizens than to debase its currency." This was during talks of Quantitative Easing trying to spur employment back to normal levels. Inflation has, if anything, been below par, and yet this is what he said. There is much conspiracy-theorizing and Austrian-Economics-Style doomsaying about inflation. One of the more famous people you can find of this variety is Peter Schiff. But you can find lots of people who have joined the Austrian Economics doom cult. When you put it in this context of libertarian crackpots who get rich swindling other libertarian/conservative crackpots, it's easy to see how the idea of a government-free currency becomes about ideology, rather than sensible economics. It's about freedom against the evil, liberal, tyrannical government. | ||
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rezoacken
Canada2719 Posts
On March 22 2014 00:48 17Sphynx17 wrote: + Show Spoiler + @zatic Yes I understand that but the currencies we have all have government backing a some form of regulation at least. And you can really use them within that nation unlike cryptocurrencies in general where it is selective. Since cryptocurrencies have no backing, once no one wants to use them or has a demand for them, they are practically useless. Government can't do that to you for their own countries currency. Even if a currency has very little value per unit, they still honor it which does not apply to cryptocurrencies. This happened if I am not mistaken in Germany and Zimbabwe where you needed almost truckloads to pay for food. And trade within the community becomes end user to retailer. Retailer to a distributor who accepts bitcoins or retailer to an exchange first to get the current worth in his countries honored currency is before dealing with the distributor. You are always forced to rely on an external exchange rate for a "Value trade" to happen. It can't foster proper trade like that in my belief. Also, how would it work? Shop A and B sell coffee for the same 1 usd. Shop A however sells coffee at 1 bitcoin while Shop B relied on today's higher prices of bitcoin so he adjusted at 0.5 bitcoin. Shop B ends up trading for all his stocks at 0.5 bitcoins since he beat shop A at bitcoin pricing. He then needs to restock but his dealer doesn't accept bitcoins. The following day bitcoins lose value and are now a third of what they were worth when he sold at 0.5 bitcoin. How then does he operate? The assumption would be the price will "normalize" back to previous levels, but what is that normal previous level for it to even become viable to use for trade so that merchants aren't forced to do a double and triple take before deciding to accept/release bitcoins. You also can't expect governments or banks to do anything about the bitcoins losing value when you are stuck with them. What are you really supposed to do in that regard? You only find value in the cryptocurrency because you rely on it's conversion to USD to gauge it's buying power. It's more straight forward when you do that, but say you were in a country using Yen. Do you scream at government to affect the yen against the dollar to give your bitcoin more buying power within your country relative to the USD? It just doesn't make any sense to me. The people who buy into the bitcoin either only buy it treating it as an investment they can sell off later on, not as a means to trade or really do business. Once it loses steam as an investment, selling will need to start and it will lose more value over time (as with stock prices). The risk is left to those who buy in at the end who are left holding the ball with no one else to pass it off to. What if it reverts back to 10,000 bitcoins for a pizza? Or what if it costs more? Are you willing to trade it then when it was definitely worth more a week ago? It doesn't really affect those who just buy bitcoins as a gamble. It affects those who end up honoring that value you have given it after the value is lost. Who then do they run to? Like suggested a currency has value only based on faith. The faith that if I gain 1$ now, in 2 months it's worth approximately the same. So that if I can buy a pizza today, I can also in 2 months. However, Bitcoin right now hasn't reached that point both in practice and mentality. People right now just think of bitcoin's value as its $ value for speculative purposes (and its exactly what you're doing in your example). But that's now how a real currency work. If you live with euros, unless you're an investor, you don't really care whether or not an Euro is worth 0.6$ or 0.7$. As a merchant you simply want 1euro today to give you the same goods tomorow, that's the faith. For bitcoin to truly work as a currency, it has to reach that point where enough traders have faith in it, basicaly creating it's own market where everything is traded in bitcoin with no transition to the $. The volatility will stabilize at the same time, making it more likely for a trader to trade in bitcoins, etc. Right now it isn't there, so people don't really trade in bitcoins from what I've read, or like I said they only use it as a quick transition for diverse reason (no fee, no control). Most of the bitcoin owners only use it as a speculative, selling and buying believing price to the $ will go up or down. But it's value is only based on expecting that at some point it will be a currency some people have faith in. The real question is if it's gonna reach that point. And once all of this is done there is still the question as to what the deflationary nature of bitcoin will affect it. More knowledgeable people be free to correct me | ||
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