

Why bitcoin failed as a currency and is on its way to become an asset - tnt128
http://www.reddit.com/r/Bitcoin/comments/hv2cm/why_bitcoin_failed_as_a_currency_and_is_on_its/

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jerf
While I've been skeptical about BitCoin here, this is a terrible argument
against them. Broadly speaking, there is one market, the global market.
Dollars aren't _that_ special, really, they're just one more asset in a pool
of millions of different asset types with every imaginable attribute and every
imaginable kind of customer. (Yes, they are a bit special, but in the grand
scale of things there are _all kinds_ of special assets, like food, water,
gold, housing, medical care, professional skills, "when everything is special,
nothing much is". Dollars aren't _that_ special.) The only way to carve out a
piece of that global economy is to very aggressively build yourself a walled
garden. Certain entities do that, like those running MMORPGs with internal
currencies, who aggressively prevent people from using MMORPG currency in the
real economy (mostly because of the sudden and horrific tax implications if
they permitted it to act like true currency). They deliberately make their
currencies as useless as possible outside their walled gardens to avoid
scrutiny by the IRS. (And they don't do a perfect job. But the walls are
usually high enough.)

This is not what BitCoin should or can do. It wants to join the pool of
millions of different asset types and bring some new and unique
characteristics to the party. It can not become a separate economy, because
very, very powerful (and completely impersonal) forces drag everything into
the global economy. If you try to separate the economies, all you actually do
is create arbitrage opportunities, and the act of exploiting those returns the
currency to the general market.

For BitCoin to remain fully separate basically _requires_ them to be utterly
useless as anything but tokens in a video game. The posted argument is
complete gibberish.

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diego
The distinction between currency and asset can be fuzzy. Would you rather be
paid in USD, gold, bitcoin, Google stock? How much extra would you charge to
accept any of the above? I'd personally take bitcoin rather than gold today,
because bitcoin can be exchanged for USD around the clock from the comfort of
my chair.

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wmf
As the author says, building a real Bitcoin economy would take time. But I
don't think an isolationist attitude would help; it seems like it would take
_longer_.

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etherael
This really only applies if you completely ignore the nature of the internet
and everything that a digital currency implies and treat bitcoin just like any
other paper currency. It is totally feasible to run bitcoin pricing with
dynamically updating btc prices based on an underlying fiat value in any
merchant situation.

Most of the markets right now where actual trade takes place rather than
speculation are simply taking this exact approach, whatever the exchange rate
is for the currency at the time of the trade, the value will be decided based
upon an underlying stable value. That's totally not possible with a
traditional currency where you print price stickers and put them in shopping
aisles, but it's par for the course for btc right now and probably will remain
so until a stable value for the currency can be worked out, but this is no big
deal.

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skybrian
No. Even with the Internet, stable currencies still have unique advantages.

Stable assets are more useful for writing long-term contracts. People who are
trying to avoid risk (rather than pursue it) will want to write contract terms
that have future payments in a stable currency rather than in some more
volatile asset like gold or stock. For example, if you wrote a contract where
one person does the work and the other one pays in gold in five years, how do
you know whether it's fair or not? Would you be willing to take either side of
the bet? It's all going to depend on where you think gold will be, and if
opinions differ on that then it makes contracts that much harder to write.

Of course there is inflation risk with any currency, but usually it's at least
possible to estimate it and make allowances for it when setting a future
price. It's a matter of degree and Bitcoin isn't even close to being stable.
_Both_ upside and downside risk are a problem, for opposite sides of any deal.

There's also little reason to think that broader adoption will make it more
stable. Supply is fixed, but demand could go either way, depending on greed
and fear. For a stable currency, you need a stable demand that can withstand
(at least to some extent) big swings in popular sentiment.

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etherael
If you want to talk historically over long terms; gold is a far, far better
store of value over time than fiat currencies, including the USD. None of this
however changes the fact that rapid convertibility to and from bitcoins allows
you to price any financial instrument in any kind of currency and perform the
actual transfer at time of execution, effectively transforming bitcoins into
nothing more than a fee free electronic funds transfer with no regulatory
oversight.

~~~
skybrian
Over the long term, lots of assets are better investments than cash. That's
not what I'm getting at. If I go to the store and prices are in dollars and
not Bitcoins, or if loan payments can't reasonably be priced in Bitcoins, they
aren't performing one of the primary functions of money.

Put it this way: people are excited because the price of Bitcoins _in dollars_
is going up. If things were priced in Bitcoins then it wouldn't make any
difference - the prices would still be the same (in Bitcoins).

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GeoffreyHull
On its way to becoming an asset indeed. Over the last year bitcoin has seen a
~20,000% return rate. If bitcoin gets uberpopular (i.e. each coin is worth ~
US$2m) within 20 years, then BitCoin would have a return rate of ~ 85% per
year consistently for the next 20 years. There is practically nothing else
with that close a return rate, so the only financially sound course is to
hoard your BitCoin, not spend them.

~~~
hugh3
"Did you know that disco record sales were up 400 per cent for the year ending
1976? If these trends continue, A-y-y-y!"

\- Disco Stu

~~~
GeoffreyHull
Hmmm. I don't think I was suggesting that we'll continue to see a rate of
return of 20,000%. What I was suggesting is that many will perceive BitCoin's
historical performance as an asset as proof it would be better treated as an
asset, not a currency.

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richcollins
I don't see how it can already be considered a failure as a currency after
only 2 years.

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dreamdu5t
The BitCoin community created this speculation bubble by rewarding early
adopters and miners. That could have been entirely avoided if they didn't
choose such a strategy for initial distribution.

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rudiger
What's a better strategy for distribution?

~~~
wmf
Here's a suggestion where more mining would create inflation that would offset
increased demand for Bitcoin: <http://forum.bitcoin.org/index.php?topic=57.0>

