Hopefully someone can clear this up for me: With the price rising so quickly what incentive is there to actually use BTC as intended, as a currency?
Because the maximum number of coins is fixed it's pretty easy to project where the valuation is headed, and so anyone in their right mind should just hoard their BTC instead of spending it, which in turn should drive the price down, no?
Bitcoin worshippers will tell you, "no it does not matter, why would you not spend bitcoins, it's better than fiat", blah blah blah...
Yet if you look at /r/BitCoin, there are dozens of "OMG!! I spent all my bitcoins on Pizza instead of holding on to them, look at this gif of me being sad"
So to answer your question, it's just insanity.
I miss the days before this month when BitCoin prices were stable for a couple of months. Spending it was actually pretty cool.
I spent bitcoins on many things and intend to do so in the future. The thing is, if you need something, you'll buy it, either with USD or Bitcoin. If you buy it with USD, then that is the amount of Bitcoins you haven't bought instead. So it doesn't matter. Bitcoin in no way stops you from spending it when you really want.
This is true, but the definition of "really want" changes if everything you can buy is subject to deflation in your currency of choice. If you believe Bitcoin will keep rising you will defer every expense until the last possible second and many transactions you will defer and later find that you do not need to engage in them, thus there is less commerce ongoing.
How does a rational consumer justify going out for dinner on Friday if on Sunday they expect the date to be 15% cheaper, and Tuesday to be 20% cheaper, and so on? It is like the pain of finally biting the bullet and buying a new computer in the 90's knowing it will be cheaper in 3 weeks, but on every transaction you make.
No, it explains succinctly why almost anything that does not offer the amazing value proposition of a 1990's computer (in the 1990's) would see its sales volumes plummet. That threshold is not met by the vast majority of durable goods. This is why it is a problem.
Yet people still bought computers knowing full well they are going to be cheaper in a couple of months. Why? Because they needed them. Same thing with Bitcoin. Of course, you won't be buying stupid stuff you really don't need. And you know what, that's a very good thing for the economy, because it will make people very responsible when it comes to buying things and investing their money. Bitcoin is an ultimate cure for consumerism and excessive spending. Economy as a whole and people in it don't really profit from investing into useless hole digging, even though it may look good on the paper.
I do not necessarily accept the premise that consumerism is necessarily good or bad but I do not find the argument that a currency that discourages economic interaction is a good thing very compelling. I do not think that having someone else prepare a meal for you in the evening, lets say, once a week is "useless hole digging" but and honest exchange of services for money. Drastically changing the dynamic of such interactions seems like a pretty wild economic experiment, not one to be taken lightly.
When spending within the economy is restricted in this way by market forces value will concentrate very highly in essential goods and infrastructure and attracting rent-seekers to those areas of investment. The net result, it seems to me, is casting off the tyranny of fiat currency for a new kind of tyranny. The same kind that lead to the trust-busting era in US politics.
Honest question, what do people "need" Bitcoin for that cash or other payment systems can't do? The only unique advantages I see are those that are illegal in many jurisdictions and those that are related to speculation. The number of people who need currency for illegal activities plus those who speculate in currencies is finite and not a significant portion of the population, so I'm just not seeing how regular people are going to derive any use from Bitcoin that couldn't be achieved by other means.
That is actually /not/ very good for the economy at all. If you abruptly reduce spending to the absolute minimum, sure it sounds very idealistic, but you're grinding most economic activity to a halt, causing hundreds of millions of layoffs, and minimizing the job market.
I estimate that we'd have about 60-70% unemployment, and no jobs for those people to go to because, well, other people just aren't spending any money.
But even electronics do not change value on a daily/weekly basis. And when it does, like pending the release of a new iphone, people do stop buying them.
It does matter. If you have already decided on the purchase (so you're ignoring the opportunity costs of investing in BTC) then spending USD will not affect your position in BTC and thus you'll be better off spending USD if you believe t1 value of BTC is higher and t1 value of USD is lower.
Yep, there are two fundamental and incompatible forces behind Bitcoin. First is the currency group. Second is the speculator group. The more success the second has, the more problems the first has.
This is a valid question. One that I think about often.
It's not easy to predict the valuation. For that, we would need to know how much business is done in bitcoin in the future. That's anyone's guess. Will it do $1 trillion or will it do more ?
The price isn't always going to rise at this rate. That's for certain. However, yes, there will probably be a long term rise until bitcoin finds it true usage, market cap, and as a result of this, it's value with steady deflation going forward.
While, I'm not sure what an economist's opinion on this is, the fact that you are encouraged to spend money because it's worth less in the future (inflationary fiat money) leaves a really bad taste in my mouth. Consumerism is a horrible disease and our planet is suffering from it every. single. day.
That brings me to bitcoin and it's deflationary nature. Well, you're still going to buy the stuff you want to buy. Then, you'll save more because you know it'll be worth more later. Why wouldn't you buy the things you always need ? (food, shelter, a few gadgets, etc.) Should I spend on a new iPad when I might be able to buy 6 months worth of food with that money a year or two later ?
You'll save as much as you can. You'll consume less junk. Isn't that a good thing ? Shouldn't we ask ourselves if we really need all the crap we keep buying ?
These are interesting questions that challenge the entire nature of mindless consumerism that most of us indulge in these days.
Also, if the only reason you spend your money is because it's going to be worth less tomorrow then you have bigger problems than bitcoin ;)
PS - I don't mean you personally, just stating some thoughts.
You aren't intended to hold dollars themselves as a very-long-term store of value. But most people don't do that anyway. They put them in (for small values) a bank or (for larger values) investments where the capital is used to create more wealth.
If I had 1/1000th of the country's wealth in dollars under my mattress or gold buried in my yard or bitcoins in the cloud, and then go into suspended animation for 50 years, there is no reason I should still expect to have 1/1000th of the country's then-increased wealth. My capital wasn't doing anything to grow the economy.
You can argue "but wouldn't it be great if you could take that 50-year nap and have more money?" Yes, it would. You have also described an excellent reason for someone to start a pyramid scheme, but not for everyone else to want to get in on it.
The problem with your premise is that you are taking up bitcoin and trying to fit it into today's world view where banks lend out YOUR money for relatively high interest and give you some interest if you're lucky. Now, you have to keep your money in a bank because it appears to be safe, etc. and of course all your arguments about creating liquidity in the economy are correct.
However, there is a lack of choice in this scenario. Due to the way the economy functions, I do have to put my money into a bank, I do have to look into investments because otherwise my hard earned money is worth less in the future. Let's leave the discussion about that being fair or unfair, etc. because this is a subject where people tend to have strong opinions.
Right, so coming to bitcoin. Why can't there be an entity that allows you to lend your bitcoin as a loan and you get a higher return (higher % interest than regular deflation) because you lent your money out (i.e. took some risk) ? Say deflation is 5% per year and you can give out a loan through some entity and get 10% returns ?
Isn't this what the bank does right now for you ? But do you have much of a choice in the current scenario ? Right now, you take on the risk of a bank without having a say in it. It's either that, or have your purchasing power slowly eroded over time.
I personally don't like arguing about inflation vs. deflation because I am not an economist but I can on my own think of trivial solutions that turn the problem around. Maybe these solutions are ultra complex to implement in practice, but so are the economy, currency markets, stock markets, etc.
Can I argue that it would be great if I worked hard to earn money and save it, and have it at the very least, retain it's value and purchasing power in the future? Why should the capital that I have worked hard to earn lose it's value because it somehow doesn't help the economy ? Helping the economy comes with it's own risks. Why do I not have a say in whether I have that choice or not ? What happens if my bank goes bankrupt ?
The fact it would be great (if you could preserve 1/1000th of a country's wealth this way) is precisely one of the reasons why Bitcoin succeeds.
You may argue "it should not be this way" but people are tired of losing 20%+ (in some countries, 3-4% in the US) of their wealth yearly due to inflation.
Bitcoin elegantly fixes a very real problem of inflation. You cannot wave your hands telling people "this is the way things should be, deal with it".
> "That brings me to bitcoin and it's deflationary nature. Well, you're still going to buy the stuff you want to buy. Then, you'll save more because you know it'll be worth more later. Why wouldn't you buy the things you always need ? (food, shelter, a few gadgets, etc.) Should I spend on a new iPad when I might be able to buy 6 months worth of food with that money a year or two later ?
You'll save as much as you can. You'll consume less junk. Isn't that a good thing ? Shouldn't we ask ourselves if we really need all the crap we keep buying ?"
Presently, you can't really buy things you "need" with Bitcoin. Ask a landlord if you can pay your rent in BTC or a bank if you can pay your mortgage with it. Take your Bitcoin wallet to the grocery store and try to check out with it. You'll get blank stares at best.
On the other hand, you can buy things like iPads with BTC. The Bitcoin economy is not an economy of essential items right now, and this is largely because even if it were possible to pay for essential items in BTC it would still be just as easy if not easier to do so using some sort of fiat money.
The whole philosophical justification for Bitcoin is fine, and I am on board with that. But the present price dynamics of Bitcoin are directly undermining its viability as a currency and the philosophical motivations that support it. Satoshi was frustrated with the destabilizing monetary policy of the Fed, but having rampant price speculation due to an inherently depreciating currency isn't any better.
There are very few direct ways in which you can currently use bitcoin, I completely agree with that. People are using indirect ways now though, for example, a lot of people are using target gift cards bought off gyft to make their grocery purchases. Of course, this is a highly impractical solution but there will be middlemen helping out until actual retailers start accepting bitcoins. Now you can buy a subway sandwich, soon newegg will start accepting bitcoins (yes, not everyday purchases but a big retailer endorsement is still a big win!). When something happens in a fragmented way around the world it gets harder to gauge it's momentum. Say 10,000 retailers in SF started accepting bitcoin, it'd be huge news vs 10,000 retailers all over the world - no one would notice.
The rampant volatility of bitcoin is bad for business but it's analogous to several people jumping onto a boat and rocking it a lot. Eventually we get a bigger more stable boat that isn't so easy to rock any more. (a $1.2MM sell off a year ago would have tanked BTC value, now it doesn't even dent it.., this happened yesterday while I was watching the bitstamp order book)
As the market cap of bitcoin increases it will get harder and harder to cause huge swings in it's value (sort of like the 51% attack is now impossible.. or adding a server farm to take over the bitcoin network).
But to get there it will have to go through this process.
Using BTC as money is an independent decision from holding BTC as an "investment."
If you have 0.02 BTC (~$20), you can spend $20 on a pizza, keeping your 0.02 BTC. Or you can spend 0.02 BTC on the pizza, and have $20 more USD to buy BTC with.
This of course assumes you can easily transact with BTC, and convert USD <-> BTC, which seems to be anything but a sure thing.
If you think that your 0.02 BTC could get you two pizzas tomorrow, you can still buy the pizza today with BTC, and then use the $20 you saved to buy more BTC.
My point is that the decision to transact using BTC is independent from the the decision to accumulate BTC. If you want to hoard BTC because you think it will keep going up in value, then convert all your USD to BTC right now. And then if you want to buy a pizza so you don't starve to death, buy it using any currency you like, while continuing to invest all your disposable (ie non-pizza) currency into BTC.
Can you make it til tomorrow? Are those 0.02BTC all you have?
If you're sure you're going to buy a pizza with BTC tomorrow, why not buy the BTC today, or five days ago? The prices have been pretty consistently going up. Yeah, there's a chance that pizza will have been 5% cheaper if you bought the coin to pay for it yesterday, or if you wait til tomorrow.
So, why wouldn't you just take all of your USD savings and convert them to BTC? Wait, you mean to tell me you _only have_ that 0.02BTC? (Wait, you mean to tell me you only have that $20 in the bank?)
I have way more USD value of BTC than I ever planned on having. It started as $50 and when that performed well, I put some more in, and bought some mining equipment, and put some more in, and now it has significantly more than eclipsed my USD cash savings at this point. It is for this reason that I would love to spend BTC, in fact it's a karmic imperative for me to try to spend BTC, since I've done so well with it so far.
I can always replace it at the market rate at Coinbase. If you're spending the bitcoins and you're valuing them lower than it costs you to replace them, you're getting screwed. If things keep moving the way they are moving, you're going to have a talk with your vendor that accepts bitcoins. (It's always fun to get to ask, "Tell me why am I paying you extra?")
I make more hoarding a few meager bitcoins in the midst of this bubble than riding a desk at my dayjob. So you can see why I am in your corner.
Still, I don't think there has been a bad day to buy BTC in the last (how long has bitcoin existed so far?). I recognize that I would be a fool to keep less actual fungible cash than I need for groceries, rent, etc, and when I can use a Bitcoin in an actual transaction with a person (rather than trading it for cash at an exchange), I feel that it's probably a good idea to use some of that cash I saved to offset the impact to my BTC portfolio.
All that being said, when I watched the price take a minor tumble the other day, from 850 to 785, I got nervous and went to SatoshiDice to recoup my perceived losses in an even riskier way.
Nobody will take my bitcoins in exchange for anything I need (I can't spend them on rent, I can't pay taxes with them, I can't leave them at the grocery store or at the restaurant or the bar), apart from the exchange site (which will give me cash, that I do need)... but I have all of the cash I need for the moment and it doesn't do any fun tricks like these BTC.
So why am I buying pizza again?
I don't know if all that's a sign of a healthy market, but I don't think so. Still, you weigh the facts, you pick your horses and you take your chances.
They're deeply dependent on each other. Both kinds of user are strongly influenced by BTC exchange rates, and BTC has the same exchange rate regardless of how you intend to use it.
I encourage you to read up on the recent history of Iceland's currency.
If the price keeps rising, you are right a smaller percentage of all bitcoins will be in active circulation, because people want to save their coins instead of spending them. However, SOME coins will always be spent (people gotta eat.)
Here's the counterintuitive part: The currency "notices" the low rate of spending and will increase its own value to make sure the amount being circulated, though lower in face value, remains constant in its real value.
In short: Hoarding is fine, because the un-hoarded coins increase in value to compensate. As economists say, this is not a "zero sum game", we can have high spending AND high hoarding without difficulty, if the currency has a large enough market cap.
Exactly wrong: People who have earned money ARE the productive economy.
The current system puts money in the hands of those who run the printing presses. (and as I explained, the fact that coins are being "sit on" is irrelevant)
>> Exactly wrong: People who have earned money ARE the productive economy.
Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past.
>> The current system puts money in the hands of those who run the printing presses.
We're not talking about the current system, we're talking about Bitcoin.
>> (and as I explained, the fact that coins are being "sit on" is irrelevant)
Except it's not irrelevant, for the reason I've just mentioned. You can dismiss or ignore it all you like but simply saying "You're wrong" doesn't cut it.
If the amount of currency in circulation goes down because people sit on it, then yes the rest may well increase in value to cover the activity in the economy, but the hoarder gains economic power on the backs of everyone else's work.
>> >> Exactly wrong: People who have earned money ARE the productive economy.
>> Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past.
If they are getting richer just by sitting on cash, it means - by definition - that the economy is increasing in size. If it ever comes to a point where too many people just sit on their savings, then the economy will retract, and all these people will start to lose wealth.
There's a balance in the system: when the economy increases too quickly, it will incentivize people to stop producing (because they can live off their savings), and when the economy starts contracting, it incentivizes people to start producing (because their savings are getting worth less).
Nursie, you are to be commended for understanding my argument, it gets tiring arguing against people who don't understand.
OK, now SOMEBODY has to have economic power- So it can't be people who have earned money (as it is with bitcoin) and it can't be the owners of the printing presses (apparently I'm not allowed to say that)...
...so who's left? Should we create a currency that immediately bursts in flames unless it is provably handed to another person within 24 hours? Wouldn't that still be deflationary without printing presses?
EDIT: Maybe you want all the economic power to be with cryptocurrency miners, via an inflating cryptocurrency? So now we're back to giving the power to those who own the presses (the miners, in this case)
People who have earned money are perfectly entitled to have their earned economic power, they just aren't entitled to keep getting more powerful off everyone else's back simply by sitting on cash. Sitting on cash is not an economically useful activity, it's a null operation, and setting a system up to reward it is foolish.
At the moment at least if you want to use money to make money you invest it, and by doing so you enable further economic activity.
Ideally a currency would expand at a rough pace with the economy it serves, making it a reasonable store of value but a better fit for its primary function - a medium of exchange. The two purposes (fixed supply asset, medium of exchange) are not really compatible AFAICT.
But then I'm not horrified by the idea* of central government controlling currency anyway, in theory it allows them a mechanism to smooth out some of the lumps and bumps in the economy. And while currency inflation above and beyond economic growth does effectively constitute a tax, I have no issue with reasonable* taxes.
So in summary - I think BTC would be worse choice than what we have now, but neither is perfect.
(*I said the idea, and I said reasonable, I know there's a hell of a lot wrong with how various governments handle their currency and the amount of wasted taxes)
> People who have earned money are perfectly entitled to have their earned economic power, they just aren't entitled to keep getting more powerful off everyone else's back simply by sitting on cash. Sitting on cash is not an economically useful activity, it's a null operation, and setting a system up to reward it is foolish.
So tell me. If I work for a year and save up $10,000, and when 10 years have passed a car can be made using only 50% of the labor that was required 10 years ago - and, consequently, the car is cheaper than it was 10 years ago - who is more entitled to this increased in wealth than me?
The increased productivity has to benefit someone. I don't think money producers deserve the benefit more than the saver.
No, it's not. Not all goods become cheaper over time, productivity gains do not magically make everything cheaper, only some items. Economic growth is not purely based on making stuff cheaper or more efficiently, it is also based on increased economic activity. With a fixed supply currency a hoarder gets richer in the absolute, not just where efficiency gains are made on particular products, they become richer directly because other people are working harder. This is not the case in the situation you seek to describe.
Right. There are plenty of situations where a saver becomes richer, one of them is if an employer can make his employees work the same for less.
But you still haven't answered my question: why is the money producer - who makes sure we have inflation - a more deserving recipient of the increase in wealth from increased productivity than the money saver?
>> Right. There are plenty of situations where a saver becomes richer, one of them is if an employer can make his employees work the same for less.
That's certain goods getting cheaper, not an appreciating hold over the economy in general that a deflating currency represents.
>> But you still haven't answered my question: why is the money producer - who makes sure we have inflation - a more deserving recipient of the increase in wealth from increased productivity than the money saver?
Deserve? That sounds awfully like a moral judgement...
But I don't think you'll find I said that either one deserves it. I said that I'm not going to, by choice, buy into an economy where my effort enriches currency-squatters. That's not my idea of fun. A currency that inflates roughly in line with economic expansion is more pragmatic.
And frankly, if it goes to the money-printers, well that's the government and in theory they get to use it to build useful stuff we all use. I have no issue with reasonable taxes.
Except the default transaction fee of 0.0001 BTC is exponentially getting larger and larger.
The higher the price of BTC, the more expensive it is. The average transaction fees for BTCs have reached around $0.10 now, and will only rise as the BTC exchanges go up.
Regardless of how you cut it, this rampant speculation on BTC is hurting the BTC enthusiast (who wants to spend BTC), and instead favors the BTC speculator (who simply wants to cash out before BTC crashes)
Yes and no: The high transaction fee is just a side effect of the fact that bitcoin is so popular now that this high fee is needed to keep the size of the blockchain manageable.
Pretend that $1 million / day (in BTC) flows through the BTC network. I'm making this number up, but you can see that this number would be roughly consistent.
This represents the number of people using Silk Road (well... used to anyway), maybe purchasing domain names through Namecheap, and so forth. People out there are trying to use BTC as a currency, so they will be spending BTCs in exchange for services.
Now, if the amount of BTC starts to shrink, then the "value" of BTC needs to grow to compensate. At this point, governments would typically print money, so that the price of a currency wouldn't deflate significantly. But since BTCs don't have a means of "printing money" to meet demand... we are seeing the massive deflation in the currency right now.
Massive deflation discourages spending, and encourages more speculation. As more people speculate on the currency, the price goes higher and higher, driving more deflation. So the currency is in a deflationary death-loop right now.
People will only use BTC if it stabilizes to a price. But as it stands, its simply better to speculate (which means there is no "value" in using BTCs right now).
> Massive deflation discourages spending, and encourages more speculation
It encourages a lower PERCENTAGE of spending, but has no impact on real value of the bitcoins being spent (i.e. how many eggs/houses/etc the coins in circulation could buy)
well; for me its fun. before bitcoin went through the roof i would invest in bitcoin and periodically buy stuff that i could only buy with bitcoin; or replace my bitcoin as i spent it (using coinbase).
now for me, as well as probably others.. i got so much upside on my bitcoin i don't mind spending a bit here and there. i still hold it mainly as speculation because i deeply believe in its long term value--but i bought a plane ticket at like $860/btc .. no regrets whatsoever. i got to buy a frickin plane ticket with frickin bitcoin.. that might seem like 'oh yeah whatever' to most people, but if you have been watching bitcoin for years, as I have.. as many people with decent stashes have, that is one of the main things people came back to again and again to say "it will be a real currency when".
i am waaaay over vested in bitcoin so i can't justify 'replacing' my bitcoin anymore; when i am so exposed to the exchange rate; but 'spending it' is like cashing it out
Its vital to understand that even if bitcoin is never used for any commercial transaction, application , services or goods, it can be very valuable just as a fiat to transfer dollars/yuan/currency from one place to another. This is a very international, expensive problem. I wouldnt be surprised to see that china is leading BTC trading because of chinese people sending money to their homeland, this time, with a much smaller fee than Wester Union or wire transfers. For giving money to someone else, its better than banks (which you might not have an account to, or the wires are expensive), WU (very high fees), mailing money (gets stolen).
I share a negative feeling when i think that someone with 10k U$S in BTC last year is now a multi-millionaire, i find it hard to believe that much value was created.
My surprise is that those insta-millionaire's arent cashing out. Or if they are, the demmand is so big its still working out.
Bitcoin will have an S curve of growth. Spending once you're at the flat top of the S curve is a different proposition than doing so while you're on the vertical. Store of value stage must come first before the currency stage.
Anyone going on about "intrinsic value" is missing the "intrinsic value" of the protocol.
Because the maximum number of coins is fixed it's pretty easy to project where the valuation is headed, and so anyone in their right mind should just hoard their BTC instead of spending it, which in turn should drive the price down, no?