

Bitcoins up another 42% since August 1st - SlipperySlope
http://bitcoincharts.com/charts/mtgoxUSD#rg30zigHourlyztgSza1gSMAzm1g300zm2g25zi1gAccDistzv

======
tokenadult
As I have written before, perhaps the greatest contribution the Bitcoin
experiment will make to humankind is to teach you and me and our neighbors
more about the realities of economics. Many of the ideas about how to mine
Bitcoins, store Bitcoins, and trade with Bitcoins as a medium of exchange
illustrate both the strengths and weaknesses of any other medium of exchange
in a world full of human beings seeking personal advantage. Seeing the
discussion of Bitcoins here on Hacker News reminds me of the last time that
the price of gold (in United States dollars) crashed, and the arguments
beforehand that such an occurrence was impossible, for instance. "The market
can remain irrational longer than you can remain solvent" is still an
important principle of investment. Anyone could make a steady increase of
wealth trading in almost any commodity, if only one could time the market. The
trick with Bitcoin trading as with all forms of commodity trading is to
somehow outsmart most other investors and time the market better than everyone
else who trades Bitcoins. Good luck with that.

AFTER EDIT:

See a somewhat related story with interesting comments

<http://news.ycombinator.com/item?id=4391312>

posted on Hacker News today.

~~~
illuminate
"perhaps the greatest contribution the Bitcoin experiment will make to
humankind is to teach you and me and our neighbors more about the realities of
economics"

I most certainly wish this was the case, however the cycle of booms and busts
rarely teach anyone anything. Think about how they were documented in the
1800s, Extraordinary Popular Delusions and the Madness of Crowds specifically,
they STILL teach that book in plenty of schools, and yet the same idiots
believe this time, things'll be different.

------
nateberkopec
Bitcoins are still great, but until their price starts to stabilize, they'll
never become cash replacements. Right now, Bitcoins cannot function as a
'store of value' in the sense of currency because they're so volatile.

~~~
kiba
At the current price level and market cap, stability for bitcoin is still not
possible, because bitcoin needs to increase the amount of users using it to be
more useful. Inevitably, this means the price of bitcoin will rise.

Hopefully, the current growth in price is not a bubble.

~~~
w0utert
> [..] bitcoin needs to increase the amount of users using it to be more
> useful. Inevitably, this means the price of bitcoin will rise.

I'm not so sure if this is 'inevitable' since bitcoins in itself have no value
at all. I know the same can be said about fiat money, but at least that's what
_everyone_ agrees is legal tender, as opposed to just a bunch of idealists or
people who need a way to pay for shady stuff. But bitcoins are not like
commodities, or labour, or whatever else has limited supply and non-zero
utility.

Personally I'm not even touching bitcoins with a 10-foot pole. The day some
government decides bitcoins are becoming a real alternative or even a threat
to government-controlled money, they will shut the whole gig down and all your
bitcoins will be worth nothing.

One thing I never understood about bitcoins, is what other problem they solve
besides scratching some ideological itch some people have with money
controlled by central bankers and governments (which I can imagine are valid
concerns for some people). Effectively bitcoins are just like fiat money;
worthless tokens that have no intrinsic value besides the trust that some
people have in them to hold their value. Trust that is not actually based on
anything either. At least the dollar has a government with a big military
behind it that can assert their influence on areas where real wealth is
concentrated. I'm not saying this is a good thing, just making the
observation.

~~~
mattschoch
You are exactly right that bitcoins are exactly like fiat money, and have no
intrinsic value. You actually unintentionally explained what you don't
understand. Fiat currency is a problem because it can be so easily manipulated
by the governments behind it. Just like the dollar, bitcoins have value only
because people believe they have value. Your statement that at least the
dollar has a government with big military behind it is exactly what the
problem is that bitcoin solves. Bitcoin does NOT have a big government or
organization controlling it, so unlike the dollar, no single party can inflate
the currency. Central banks are able to create money out of nothing, therefore
creating something with perceived value without offering anything of value in
exchange (i.e. inflation). That leads to all kinds of problems, as we're
seeing with the global economic crisis right now. While Bitcoin does not have
any intrinsic value, it also does not have a way to be inflated. The system by
design creates DEFLATION instead, so the currency becomes more
valuable(infinite divisibility handles issues with deflation). Since there is
a finite number of bitcoins that can ever be mined, it acts much more like
gold than like the dollar. Gold cannot be inflated by any government. If
bitcoins gain mass adoption, then they will begin to look very similar to
gold. The main difference being that they are purely digital and have no
intrinsic value(thus making gold still a better currency).

~~~
w0utert
> You actually unintentionally explained what you don't understand. Fiat
> currency is a problem because it can be so easily manipulated by the
> governments behind it. Just like the dollar, bitcoins have value only
> because people believe they have value. Your statement that at least the
> dollar has a government with big military behind it is exactly what the
> problem is that bitcoin solves.

I think you misread my comment. I'm aware of the fact that people like
Bitcoins because there is no government/central bank that can manipulate them.
To me, that's a red herring though, the proverbial 'itch that Bitcoins
scratch' for some people. I don't think Bitcoins solve any issues related to
wealth preservation, and I don't think they offer any advantages as a store of
value compared to other forms of wealth/value or currency that are not
(directly) government controlled (at least not in similar ways as fiat money),
such as commodities, precious metals, art, production capacity, etc. In fact,
I think anyone holding lots of wealth in Bitcoins will someday lose all of it,
in an instant.

The point is, that even though there is a limited amount of bitcoins, and even
though governments have no influence on the supply of bitcoins or who holds
them, they can still affect the value of bitcoins in dramatic ways. For
example by legislation that makes any form of bitcoin trade illegal. Or maybe
it doesn't even require legislation, maybe just the threat of legislation to
curb bitcoin trade will cause people to lose trust in Bitcoins altogether.
Just because the government can't inflate Bitcoins, doesn't mean it cannot
destroy the trust some people have in it.

I mentioned military power not because I think it's a good thing, or an
insurance against the depreciation of wealth expressed in fiat money, but as
an example why fiat money is at least backed by _something_ , unsustainable as
it is. In times of resource scarcity or world-wide economic collapse, military
power will 'buy' you (or at least some) the means to survive, not some virtual
currency that nobody has a use for in times of distress.

> Since there is a finite number of bitcoins that can ever be mined, it acts
> much more like gold than like the dollar.

It acts like gold, but it is not gold. Gold is a tangible asset that has been
a proven store of wealth since as long as we know about the history of human
civilization. Gold is shiny, you can store it somewhere, make handy pieces out
of it and and take it with you, people like holding and looking at gold,
almost anybody, anywhere in the world will take gold in exchange for other
goods or services. Smart governments are stockpiling gold at an accelerating
rate, because they damn well understand that someday in the future dollars,
euro's or yens will be worthless. Bitcoins are nothing like that. They are
purely virtual, strings of bits, just like Linden dollars, or WoW gold. I
think it is extremely unlikely people will ever lose faith in gold as a store
of wealth, but I can imagine many scenario's where people will lose faith in
Bitcoins. It will happen, trust me.

The money supply and inflation/deflation thing is purely theoretical.
Hyperinflation doesn't occur because governements purposefully manipulate the
money supply, but because paper rectangles and metal circles are useless if
nobody has a use for them. I know the same can be said about gold, but I would
bet everything on gold outliving Bitcoins as store of wealth. You don't need a
PhD in economics to recognize this.

My advice: don't put your money in bitcoins. If you don't trust fiat money,
buy tangible assets, invest in yourself, learn how to generate utility and
wealth after the inevitable fiat money crash.

~~~
kiba
_It acts like gold, but it is not gold. Gold is a tangible asset that has been
a proven store of wealth since as long as we know about the history of human
civilization._

Once somebody mine an asteroid full of gold, the whole Gold as money will come
to an end. However, gold will become a more useful commodity in
industrial/medical/electronic/etc applications since they are cheap.

Thousand years of history mean nothing when something change the whole playing
field. There's nothing remotely implausible about asteroid mining except the
necessary development of a space industry. As far as I am concerned, gold is
living on borrowed time.

~~~
w0utert
I don't think that many people are interested in preserving their wealth until
after 3000 AD, so let's forget about science-fiction scenarios.

~~~
Tuna-Fish
Commercial asteroid mining will be reality within this century, and is already
attracting investment. Look up Planetary Resources & friends.

There are individual asteroids that have more easily extractable precious
metals than the entire present earth supply, should we have a good method of
returning them to earth. The mere existence of these ought to start playing a
number on the metals markets once planetary resources starts doing something
newsworthy.

~~~
w0utert
People who I assume know much better what they are talking about (space
agencies, scientists) have already commented on these wild space mining
fantasy you are referring about. It's a ridiculous idea that is nowhere near
technical or economical viability, and there really is no horizon on which it
will be. To mine asteroids you would first have to build a permanent moon
base, and drive down the costs of space missions down to the point that a
single payload brought to earth would be worth more than the required
investments.

Just because some nutters invest their excess money in some sci-fi fantasy
doesn't make it real.

------
pixie_
Bitcoin still has some technical problems to figure out. Currently the
blockchain is over 2gb and will get larger, faster as more people use it.

Also the transaction speed is really low - usually like 10 minutes to really
confirm payment and at least half an hour to really confirm (around 10 mins a
new block is created, and to ensure that block will stay in the chain you want
some more blocks on top of that as well.)

Also.. the transaction rate isn't even 1 per second, if Bitcoin replaced visa
for instance it'd be 2000/s, which means new blocks might contain 2000/s over
10 minutes of transactions, so new blocks are going to get huge.

All in all, bitcoin is going to need some big central bitcoin banks to speed
transactions, and store the blockchain which isn't necessarily bad. Your
bitcoins can still be stored locally under your private key, but banks will
provide processing, while multiple banks provide verification of each other's
stored blockchains.

~~~
dohko
And then these banks get together to form a banking system, and then this
banking system decides it needs a central governing authority to be able to
make important collective decisions efficient and implement them effectively
and seamlessly.

And then they decide to call it the Federal Reserve Bitcoin Bank

~~~
Torgo
Periodically there are proposed protocol changes. A while back I saw a
proposal on creating a set of rules that allowed for crowdsourcing-style
transactions. (You could send bitcoin to an address, but the transaction did
not become valid until the amount at the address reached a certain amount.) I
didn't hang around long enough to see the outcome of this proposal, but what I
did notice was that only the major bitcoin mining pools got to vote on it.

This is a factor of bitcoin being "decentralized" that I don't think many
people fully internalize. Anybody could change the protocol, and all that will
count toward acceptance is the number of nodes acknowledging their
transactions. If a change is unpopular or made without widespread consensus,
the blockchains split and now you've got two mutually incompatible currencies.
In practice this will probably just mean that you're always under threat of a
split unless everybody accedes to the changes that mining pools propose, since
they control so many transactions. Alternately, new mining pools could be
created that let members vote proportionally to the work they've done for the
pool. It's both scary and interesting.

------
rushabh
The more I think about this, I get a feeling that bitcoins are solving the
wrong problem. The real problem is not of currency (though it is a problem,
but just not as big), but of deep flaws in society due to capitalism. Let me
explain.

Today there are distinct classes of society, and social mobility is decreasing
in the US [1] and is frustratingly slow in the developing world.

The problem we are facing is that the producers are have become extremely
productive due to capital and technology and are able crush those who do not
have the access to the capital and technology. The people who are not in this
privileged group are caught in a vicious cycle are forced to remain consumers
and are getting more and more dependent on these super producers.

What money essentially does is facilitates information flow in an economy and
enables complex contracts between a number of producers and consumers. The
problem is not the information flow is not correct, the problem is that there
is terrible inequality.

Bitcoins are seen as a hedge against large scale systemic collapse or slow
corrosion of the nation-state. If the collapse / corrosion happens, we really
do not know what kind of alternative systems will emerge.

The only way, to prevent such a collapse, in my view is to encourage local
products and services in a big way. Bitcoins may not really help.

[1] [http://www.nytimes.com/2012/01/05/us/harder-for-americans-
to...](http://www.nytimes.com/2012/01/05/us/harder-for-americans-to-rise-from-
lower-rungs.html/?pagewanted=all)

~~~
RickHull
> The problem we are facing is that the producers are have become extremely
> productive due to capital and technology and are able crush those who do not
> have the access to the capital and technology.

This is a common mercantilist fallacy -- that the problem is we just have too
much production. I submit that we have the opposite problem: goods and
resources are too scarce, rather than too abundant. More efficient production
is the solution, rather than the problem.

> The people who are not in this privileged group are caught in a vicious
> cycle are forced to remain consumers and are getting more and more dependent
> on these super producers.

I agree that the focus of the economy is consumption, but this is indicative
of the problem as well. We need to encourage entrepreneurship. By this I do
not mean subsidies -- more in terms of cultural encouragement and removal of
legislative and regulatory obstacles.

~~~
nhaehnle
It seems there is some misunderstanding. OP didn't say that there is too much
production. The argument was rather that the barriers to entry are too high
(very high capital costs etc.). This creates self-perpetuating oligopolies.

By the way, the whole point of the economy is to enable consumption. If there
was no consumption, there would be no point to economic activity.

~~~
RickHull
> The argument was rather that the barriers to entry are too high (very high
> capital costs etc.)

Really? You are saying this on Hacker News? Where we gather to assemble and
identify our comparative advantages and engage in entrepreneurship with
capital on the order of thousands of dollars?

You can also be a agricultural entrepreneur or a mining entrepreneur or steel
entrepreneur. Admittedly, the competition in these arenas is indeed very
stiff, and they have invested a lot of money in efficient production. As an
individual, you have little comparative advantage in such industries. But if
you have some insight into how to make these industries even more efficient,
then you will have no problems securing income or even starting a consulting
business.

> This creates self-perpetuating oligopolies.

I disagree. The bigger they are, and especially once the economies of scale
diminish as the market is saturated, the harder they fall. Waste and
communication issues provide a natural limit. We run into problems when the
state intervenes to keep dinosaurs alive. What's good for GM is good for the
country, and all that.

> By the way, the whole point of the economy is to enable consumption.

Yep, consumption is enabled by production. Human needs and wants are
limitless. If we actually lived in a world of abundance and not scarcity,
people would not need jobs and there would be no need for production. We would
lounge around all day in the land of milk and honey.

> If there was no consumption, there would be no point to economic activity.

Consumption will never go away. We consume food, water, shelter, etc. The only
way consumption goes away is if humans go away. And when humans (or
preference-satisfying agents, to be clear) go away, then economic activity
ceases.

------
shtylman
Barring outside factors (hacking, breach of trust, etc) the price of bitcoin
is naturally bullish given the current ways to trade them. Since there is no
large scale operation providing a way to short bitcoins, there is no one
"investing" in their price decline. This simply means that anyone buying in
using USD now needs to cash out at a higher price to make a profit (on most
exchanges) and anyone who has coins would not want to make the market tank
since that just devalues what they have.

I realize the above is a simplification and there are many other factors (and
there could be malicious participants), but overall this will continue to push
the price up.

~~~
tocomment
Would it be hard to start a service to let people short bitcoins? You'd
basically just be "lending out" the bit coins to people and making interest.

Would there be a lot of regulations to deal with, or no?

~~~
ewillbefull
Services have existed with margin/option trading, but some of them have shut
down because they were hacked. New ones that come out every day are too
insecure to be trusted.

In fact, just today a margin trading website was exposed as having tons of SQL
injections and storing user passwords with unsalted MD5 hashes. Until somebody
can step up to the plate stability will be an issue.

Which reminds me, I have a rather nice domain name and experience with
bitcoins and security, if only I had the financial/regulatory know-how...

~~~
shtylman
Stop worrying about the financial and regulatory know how and just try out
your idea. You might find it goes nowhere and you will have wasted your time
thinking about "regulations". No one is going to shut down your website making
10$ a month and if you do start to grow then you will be able to pay the right
people to deal with the right problems.

~~~
biaxident
With all the recent hacking of Bitcoin services, maybe it's this kind of
thinking which is causing more problems.

~~~
shtylman
I don't think regulation helped any of the banks with high profile credit card
hacks recently. Don't confuse regulation with security. Regulation is not
necessarily in place to provide security for the end user, only barriers to
entry. Once you do start to grow obviously the correct precautions should be
taken.

------
maartenscholl
There are relatively low volumes but steady price gains over the past month.

This could be a sign that a lot of people want to get into the market quickly
without reasoning about the price. When we look in the order book of one of
the larger exchanges (mtgox) we see that there is not much market depth on
either side[1].

This coincides with large volume peaks when articles are published, for
example August 3 when bitcoin broke the $10.00 price this was widely published
about (also on HN).

[1]<http://bitcoincharts.com/markets/mtgoxUSD.html>

------
oinksoft
Bitcoin price will continue to rise unless something happens causing
confidence in the currency to collapse. It is designed to never inflate, and
as more blocks are confirmed, we see that it deflates.

~~~
Symmetry
Well, sort of. Its designed so that the number of bitcoins in circulation
approach some constant, but that doesn't tell you anything about the value of
bitcoins, because the long term value of bitcoins is going to be something
like the value of the market served by bitcoins divided by the number of
bitcoins. So if, say, Silkroad gets shut down by the authorities then I expect
the value of bitcoins would crash. Or if banking regulations change to make
using bitcoins more cumbersome, or whatever. And you'd expect to see the value
to bitcoins drop during recessions.

~~~
oinksoft
I'm referring to the real inflation of the currency: There is no mechanism for
new bitcoins to be created when all blocks are confirmed. You need to create
new currency to avoid deflation because populations grow.

~~~
mckoss
Deflation is just another word for long periods of decreasing prices (not
VALUES). What's wrong with that? Because of their infinite divisibility (it's
equally easy to spend 1 millionth of a Bitcoin as it is to spend 1 Bitcoin)
they do not share is the problems deflation poses to traditional money.

Deflation does encourage saving over consumption, yes. But I love the fact
that products in the electronics markets have had long term predictable price
declines over many decades.

------
lorenzfx
I believe/hope that this rise is not really a bubble, but driven by the rising
difficulty, which is due to the availability of cheap(er) fpgas. Also the rise
is _much_ slower than last summer and supported by much larger trading volume.

~~~
wcoenen
The bitcoin price drives the difficulty, not the other way around.
[http://bitcoin.stackexchange.com/questions/419/is-there-
empi...](http://bitcoin.stackexchange.com/questions/419/is-there-empirical-
data-about-a-relationship-between-bitcoin-price-and-difficult)

------
SlipperySlope
Obviously, this bubble-like rate of growth cannot be sustained, yet the
bitcoin economy has more participants than the previous price spike in June
2011.

------
circa
I'm not sure if stripcoin.com is helping or hurting the situation either.

