
Bitcoin's Wild Ride Shows It's Not Real Money - T-A
http://www.bloomberg.com/news/2013-04-11/bitcoin-s-wild-ride-shows-its-not-real-money.html
======
devindotcom
As opposed to "real" money like the dozens that have totally crashed over the
last few decades?

I'm not planning on buying my groceries with bitcoins any time soon, but
saying a four-year-old currency in the first throes of popularity and stress-
testing, and using inadequate means for it at that, is "not real money" seems
awfully shortsighted.

~~~
InclinedPlane
If you're not planning to buy groceries with bitcoins any time soon then
bitcoin isn't going to be a currency any time soon.

~~~
derefr
What _do_ you call a volatile commodity used as an ephemeral financial
instrument for the (anonymous) transfer of value, which is immediately
converted into a more stable commodity (e.g. a currency) after it's received?

"Non-fiat cheques", perhaps?

~~~
tptacek
The same thing you'd call a tulip bulb, or a share of Pets.com stock. The only
basis you seem to be using to qualify Bitcoin is that it (often) has a spot
price.

~~~
morsch
Pets.com stock isn't being put forward as an immediate medium of exchange for
services and goods, though. And if it was, we might want to have a word
describing that commonality with BTC. As long as BTC is nothing more than an
investment, I agree.

~~~
tptacek
The dollar is more than just a commodity with a liquid market. It is also a
store of value that is stable enough that it can be used as a unit of account.
Bitcoin can't currently be: its value could double tomorrow, or go to zero.

If the dollar doubled or went to zero tomorrow, Bitcoin would be irrelevant,
because there wouldn't be an Internet to transact in it over.

The reality is that every item for Bitcoin-denominated sale has an underlying
intended value denominated in dollars; the correspondance between BTC and USD
is (a) virtually always unbreakable and (b) wishful and fraught for (depending
on phase of moon) buyer and seller alike. The notion of Bitcoin as "money" is
counterfeit for the overwhelming majority of its users; for one group, BTC is
a P2P alternative to Paypal; for the other, they're virtual tulip bulbs.

------
acabal
I don't own any Bitcoins, but the concept interests me. (I'm no economist
either so these musings are probably entirely wrong or unfounded.) I can't
help but feel like all this hooplah about Bitcoin's "price" on the dollar is
missing the point of Bitcoin. People are measuring Bitcoin's worth by how many
_dollars_ it costs; is that _really_ the measure of worth of a currency, or
simply the measure of worth of a _dollar_?

It would be much fairer for people to measure Bitcoin's worth by (for example)
how many gallons of milk or how many pounds of rice you could buy with it. But
since we need to _somehow_ know how much this medium of exchange is worth, and
since Bitcoin still has very low adoption, we're using the dollar as a way of
assigning worth to these imaginary collections of bits, and that makes it a
target of speculation and bubble mentalities. In other words, we should tie
its worth to something useful you could actually spend it on, instead of just
using as it as a Monopoly-money "investment vehicle".

IMHO Bitcoin will never be able to be taken seriously until the price is
pegged to some physical product of real-world value. Until then, it'll just be
a USD proxy and thus functionally worthless to anyone but academics,
speculators, crypto-nerds, and black marketeers who don't understand that
Bitcoins aren't truly anonymous. The system has a chicken-and-egg problem of
adoption, and right now given the poor PR it's receiving it looks like it's
heading in the wrong direction.

~~~
tptacek
Isn't this circular? Call the value of 1 BTC "x number of dollars", or call it
"the amount of corn x number of dollars will buy you".

The problem is the same whether you do your accounting in dollars or in
sorghum: BTC's value is _unstable_ , wildly so, and it's unstable for
predictable reasons.

~~~
acabal
I guess what I'm trying to say is that if merchants selling products for
Bitcoin simply peg its worth to USD (like most merchants today to) then nobody
can ever be sure how much you can _actually_ buy with 1BTC.

Bitcoin is unstable in part because this habit of using it as a USD proxy
creates uncertainty as to the medium's _real_ worth. This in turn encourages
speculation which perpetuates the vicious cycle of volatility.

~~~
tptacek
Merchants today _don't_ peg BTC to USD. The value of BTC in USD floats.

~~~
acabal
Sure they do, look at Coinbase. You can (for example) buy Reddit Gold for
$3.99 USD, or the equivalent in Bitcoin, which changes based on some USD-based
exchange rate they figure out. Or look at Namecheap, which can refill your
account in Bitcoin--but you enter a USD amount before they tell you how much
the Bitcoin cost will be. Maybe they don't look at MtGox every day but most
merchants without a doubt peg their Bitcoin amounts to some USD exchange rate.

~~~
tptacek
The exchange rate on services like Bitpay are a smoothed-out version of the
current spot price. Nobody will fix a USD/BTC rate for even a day. In dollar-
denominated terms, the price of items for sale in BTC floats throughout the
day.

I think we're just using the word in two different ways.

------
dasil003
I'm far from bullish on Bitcoin, but this article strikes me as irrational
nonsense. Why is the fact that Bitcoin is volatile today proof that it will
always be volatile? There's no secondary analysis, just reiteration of this
one axiom as if it were an irrefutable fact. The whole article sounds like
someone in finance making their bet against Bitcoin and being really loud
about it in hopes that everyone else will agree and it becomes a self-
fulfilling prophecy.

~~~
InclinedPlane
Isn't the onus on bitcoin to prove its stability?

All anyone needs to do is say "hey, bitcoin is not a suitable currency _right
now_ , don't use it". There is no contractual requirement for them to review
the long-term potential of bitcoin, they aren't bitcoin salesmen. If bitcoin
boosters can't make a strong enough case for the currency to override the
objections of the moment then that's on them.

~~~
NewAccnt
Bitcoins stability is enforced by the market, not a single controlling party
(large holders manipulating the market excepted, but their ability to do so
has a hard limit). This is a mathematical fact that can be proven with a
scientific proof. Contemporary currencies on the other hand are veiled in
secrecy in process, and the market simply accepts them as stable for the
benefit of society, which is taken advantage of regularly by those who control
those currencies.

~~~
dragontamer
The market is doing such a good job at stabilizing BTC prices. </sarcasm>

There's a reason why modern currencies are not controlled purely by the
market. The past few months of BTC have proven that.

~~~
NewAccnt
I guess you're not planning on sharing that reason and you expect me to let my
imagination run wild for the benefit of your argument?

------
johnnyg
This is nuts.

Bitcoin is doing what free markets do, fluctuate relative to demand.

The QE-to-infinity is the fake stuff.

~~~
tptacek
You could have said literally the same thing about Pets.com stock.

------
eah13
'Real' or not, there's just not enough stuff priced in BTC (regardless of the
exchange rate) and not enough volume of trade by market making sized traders
yet. The more of that stuff that happens the more 'real' it gets.

------
PaperclipTaken
It depends on how you define 'real money.' Bitcoin is a real medium of
exchange. It offers advantages that you cannot get from any centralized
currency. It is cryptographically protected, it runs on a distributed network,
it's (relative to other currencies) easy to use anonymously on a global scale,
and it has a large userbase.

Bitcoin's volatility is a weakness, but it's not an achilles heel. Bitcoin has
many strengths that are completely unmatched by any other currency. People use
it for these strengths, and people will continue to use it for these strengths
regardless of how much it is worth. That's why bitcoin will not die until
there is something to replace it.

Bitcoin can't be used to store value (due to volatility), but that doesn't
mean that it can't be used as a medium of exchange. (USD -> Bitcoin -> Silk
Road, and vice-versa)

~~~
anologwintermut
Bitcoin is harder to use anonymously than cash. Transactions are between
pseudonyms and there is a huge amount of information one can get from that.
From some view points, it is worse than credit cards since all of the data is
public. Now, that might be fixable, but as of right now it is a problem. see :

<https://news.ycombinator.com/item?id=5535321>

------
malandrew
Actually, gaining acceptance in the financial markets is probably the best
thing that can happen to BitCoin long term. If BitCoin slowly but surely keeps
providing utility and gains financial market volume, it will eventually
stabilize in price. It's volatile now because the outstanding value of
BitCoins is about$ $1 Billion, but the amount of investors trading it are
capable of causing it take big swings. This makes it an attractive market to
play in since the amount that can be made in a single day is high. This should
eventually increase the number of investors in the market, increasing the
total value of the market. If this goes on for long enough, the outstanding
market value will grow and BitCoin will stabilize further and further, making
it more suitable as a currency.

BitCoin right now is like the market for a low volume commodity like Caviar.
But it could eventually become like the market for a high volume commodity
like corn, but with all the benefits of being able to spend it electronically
anywhere.

Basically, investor interest in the volatility now will eventually drive it to
becoming a better currency faster.

------
sks
Given the volatility you may doubt the longevity of bitcoin as a currency, but
since you can exchange it for some goods and services it looks like Real Money
to me (at least right now).

~~~
tptacek
There are places you can exchange packs of cigarettes or boxes of Tide
detergent for goods and services, too.

~~~
sks
If we get down to the basics I think anything that is a medium of exchange is
a currency. So in some circles cigarettes and Tide work as currency. Though
these "currencies" are not legal tender.

~~~
tptacek
Money is a store of value, a medium of exchange, and a unit of account.

A store of value is something you could accept in payment for work and hold on
to.

A medium of exchange is something a shoemaker can use to obtain bread from a
baker who doesn't want shoes.

A unit of account is something with a value stable enough that you can measure
the value of arbitrary goods with it; like the Bloomberg article says, it's
what enables a cheesemaker to put a price tag on cheese without forcing her to
become a currency speculator.

Which of these functions does Bitcoin have?

~~~
sks
Bitcoins slipped into speculative realm a couple of weeks ago and probably
after the crash the speculators will exit the market. A stable bitcoin can
easily serve the three functions you listed above. As I said in my first
comment this volatility raises questions about longvity of bitcoins but they
have not ceased to be real money, at least for now.

It is just a 3-4 year old technology lets wait and watch how this plays out
before writing it off completely.

~~~
tptacek
What makes you think the price of Bitcoin will ever stabilize? (You know,
somewhere besides zero).

~~~
sks
I dont know if bitcoins will ever stabilize or go down to zero but I also
believe that no one can be so sure about how a free market is going to behave
to just write it off at this moment.

~~~
tptacek
The words "free market" are not a talisman that dispels common sense.
Currencies are fundamentally backed by trust. Trust in the US Dollar is based
on the status quo (the Nash equilibria of our adoption of the currency, &c),
the degree to which our interests are aligned with those of the government
(not 100%, not 0%) and the basic economics of taxation that is dollar
denominated, a gigantic federal payroll that is dollar denominated, and the
fact that the federal government --- the world's largest buyer of everything
--- conducts all its business in dollars.

Bitcoin has none of this; it appears to substitute the moral equivalent of a
Yahoo stock message board.

------
Frozenlock
Bloomberg is giving another view here:
<https://www.youtube.com/watch?v=6SLPy89gPE0>

------
kaoD
What!? Bloomberg took advantage of Bitcoin's unregulation to criticise it? I
wouldn't have expected it!

------
andrewcooke
what an awful title. i wonder if the title was changed by someone who didn't
write the article? "real money" doesn't appear in the text (which is concerned
with whether it is _stable_ , not _real_ ) and is obviously going to trigger,
well, see posts here...

~~~
tptacek
Most headlines are not written by the article author.

------
ryguytilidie
Why test a hypothesis when you can just make it?

~~~
tptacek
Explain a bit more?

------
ultim8k
While euro is?

------
ttrreeww
Really? The Japanese Yen is acting a lot like BitCoin the last few months,
only it's going down, not up...

~~~
InclinedPlane
The Yen has fluctuated between 125 per USD and 75 per USD over the past 10
years. BTC has fluctuated between $260 USD per and $120 per over the last 10
_days_. These are horses of a different color.

~~~
ttrreeww
The Yen has lost close to 25% of it's value in the last few month. We are
talking trillion+.

Bitcoin is like thousands of times smaller, so volatility adjusted for
size/time, the two are similar.

~~~
InclinedPlane
Yes and no.

Because international exchange values are not always completely relevant to
real currencies. Exchange rates impact the cost of exports and imports, and a
weak exchange rate can actually be a good thing sometimes because it makes
export goods more competitively priced. Meanwhile, back home the cost of
bread, or housing, or smartphones may not fluctuate at all so the currency is
still plenty stable.

With a pseudo-currency like bitcoin that is dominated by speculation the
exchange rate is pretty much everything.

