You don't have that - the owner first looked up the exchange rate to US dollars.
What you have is a medium of exchange, but you don't have a currency.
A medium of exchange is useful, and can eventually become a currency. But bitcoins are not yet a currency.
Perhaps someone can make a bank, where you store US dollars. Using that bank you can send and receive bitcoins. Only the bank can create bitcoins, but once created anyone can trade them without input from the bank.
If you are familiar with history this is how paper currency actually got started - goldsmiths would store gold and give chits of paper. Those chits started getting exchanged, and a currency was born.
What? Any London store that accepts euros will check the rates daily to make sure they can convert back into the GBP price. Currency rates fluctuate all the time, every second of every day.
They are willing to use euros as a medium of exchange, but only because they know they can exchange them for (to them) real currency. (Currency is relative, obviously. And just as obviously it helps that somewhere in the world there are people who use that type of money, which gives you comfort that even if you don't exchange it now, you can later.)
If this was the fate of bitcoins then it would be a failure. People may use it to send value over the internet, but no one will keep their savings in bitcoins.
To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet. It may eventually become money (historically intermediates often do that - especially if the conversion is difficult), but it's not money yet.
The reason it's so important for people to store the currency in savings is very simple: If no one want to keep your money long term, practically speaking there will be very little of it in circulation, which makes it hard to use.
Nowhere did he suggest that the restaurant owner exchanged his BitCoins for USD. Maybe he saves them and uses them to buy something else. Who knows, maybe he buys the ingredients for his Meze using Bitcoins?
If he does that, then why does he look up the exchange rate first?
You might more accurately have put 'a few people hold bitcoins for reasons of speculation'. This is not the same as saving.
[Disclosure - I hold no bitcoins]
PS - it's probably about time that people disclose whether or not they hold bitcoins when commenting.
Any person or business is only willing to use a currency as a medium of exchange because they know they can exchange them for other goods. "Currency" and "medium of exchange" aren't mutually exclusive, the former is a special form of the latter that is recognized widely (and in modern times, usually has no intrinsic value).
> * To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet.*
That's an insane definition for "money." You would claim that the fast food wages of a teenager who always spends it immediately is not money.
Just because he doesn't save it doesn't mean he's wouldn't be willing to if he had a lot of it. He isn't spending it because he thinks it doesn't keep value, he's spending it because he wants to buy things.
It's definitely being used as a currency already, as the article proves.
It's a highly fluctuating currency, but that doesn't remove it's properties as a currency.
People tends to vote on divisive issues in whichever post they agree.
Although not perfect and not entering in details, maybe because of generalization, I found his explanation resonating with what I know about monetary history, but I'm not a monetary economist.
Don't mistake what is offered as a convenience by some merchants as normal and accepted.
From the sound of it, you defined currency as "a stable medium of exchange" which by definition prevents any unstable currency from being a currency.
Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one? Especially with today's technology when increasingly many things are being done in "real time".
I'm not an expert on currency and I'd appreciate further education. To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange is, in the long run, more valuable to its users than artificial relative stability provided by a governing body.
A currency is stored, a medium of exchange is used right away (or traded for a currency).
> Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one?
Yes. Since it is unstable no one can rely on it. Since no one can rely on it people are unwilling to collect (and store) large quantities of it.
> To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange
If you can predict it, so can others. If I predict it will go up, everyone else will too. So everyone will hoard it - easy way to make money right? That means everyone wants to buy it, no one wants to sell - the price will skyrocket. Till it collapses, since it eventually will.
Then it collapses, people see the collapse, and everyone sells, the price goes to zero, and the process reverses.
To be a currency it must be stable.
A currency is simply a medium of exchange that is widely recognized, where "widely" is subjective. Most modern currency also is notable because it has no intrinsic value (gold coins, for example, have intrinsic value). I think bitcoin certainly qualifies as a currency, albeit an unstable one.
When I said that gold coins have intrinsic value (the same is true for copper coins, etc.), I mean that regardless of what nation minted the coin and what value appears on its face, it will always be worth at least its weight in gold.
No one willingly stores unstable currencies. The only time people use unstable currencies is if they are forced to by law, or if they are speculating.
When you hear people talk about "the stability of a currency" they are talking about fluctuations of a few percent, not 10s of percents.
Maybe he looked up the exchange rate rate because he wants to be fair: he wants to charge the same price for a lunch regardless of whether people pay with Bitcoins or dollars.
Yes, the above is as ridiculous as it sounds.
So my point was, there is value in being the first restaurant in the world to accept bitcoins. And to be the first coffee shop. or the first plumber to do so, etc.
But, of course, I got schooled by lwat who poked a hole in my argument ... Buzz Aldrin is very well known.
Incidentally, the second restaurant to announce that they accept bitcoins also is in NYC ... http://twitter.com/ocrepes
Think of that country as a legal bridge to using/trading bitcoin. They can charge a small fee for doing it (say 3%). If the economy of bitcoins grows at a multi-national scale making around 1 billion USD in daily transactions, this will bring a $10.5bn income for that country, assuming the number of its inhabitants to 1 million, that's $10K per capita. It could save it from poverty and may be in the future makes it one of the richest.
Just few thoughts...
As far as I can tell, those taxes can't be dodged by a virtual currency since they are levied on physical items.
There is no law hindering any company's ability to accept Bitcoin as payment besides the requirement to pay taxes on the fair market value of the Bitcoins.
When you engage in a trade transaction (as opposed to cash), the "income" from the transaction is the fair market value of the items/assets/property exchanged, at the time of the exchange.
The problem is that taxes aren't due until the end of the quarter (for businesses) or year (for individuals). Even if the value of the bitcoins has dropped, you owe taxes on the value when received. On the other hand, if the value has gone up, you don't owe any additional taxes until you use the appreciated bitcoins in another transaction.
> Apart from whether there is a central bank somewhere to bid against George Soros, doesn’t the difference between a real currency and an imaginary currency lie in some sense in the composure with which a customer can ask if the currency is accepted here and in the composure with which a merchant can say yes?
Every currency is valuable only because other people consider it to have value.
- the idea of `legal tender' . Usually the physical manifestation (coins and banknotes) of official currency in a given country/region/whatever is also codified by law as legal tender. Which means, when used for settling a debt, the creditor is obliged to accept it. Contrast that with gold, for example: it's considered valuable, but creditors are not required to accept it. Value of legal tender stems from both recognition and the legal framework of it being legal tender.
- taxes. Country's/region's law dictates the currency persons and organizations have to use for settling taxes and other dealings with administration. A currency that people don't trust or use for any other reasons could still have well-understood value in relation to settling taxes.
That having been said, I firmly believe Bitcoin has great potential. Even if this particular implementation fails at some point, other ones will follow.
This idea doesn't work in the country with hyperinflation :) As long as people don't consider that the currency is valuable, no legal force can convince them.
Whatever currency it is that they are comparing to is the currency they really want to use, and probably do on the black market. I'm also confident that that is the currency they keep (or try to keep) their savings in.
This should change in the future.
You give it a name and your bit coin receiving address.
Then you can query it for the address associated with that name.
It has some sort of API, would be much more useful if this was integrated with the official bit coin client though.
Or the grill owner periodically generates a new address with which to receive coins.
With only one code, the restaurant can't know for sure who the payment was from. Though at these low volumes, the amount and/or the time would probably be adequate.
Even with a little more volume this method should still work fine, even if you get a second or third QR code to use.
1. Technical issues (make it more secure)
2. Economic issues (deflation)
3. "Competitor" issues (governments, banks, the powerful status quo)
This is actually a pretty serious problem.
The value of bitcoins always settles such that the cost of the electricity to make them is approximately their value.
But because the difficulty is adjusted such that a fixed number of bitcoins are generated per time (meaning faster or more efficient computers don't help), and that the number generated per unit time is constantly shrinking, it will cost more and more electricity over time to make bitcoins.
Deflation is built into it. And I bet the creator of bitcoins never realized that the scarce resource bitcoins track is electricity.
If you want to make a ton of money, buy bitcoins just before they switch from 50 per block to 25. I'm betting the value will double.
So, for example, when generation switches from 50 per block to 25 per block, the value will remain the same and it will simply become uneconomic to mine. As miners leave the network, the difficulty will automatically reduce until equilibrium is reached again. (In theory. In practice, the time lag until the difficulty changes could make this an unstable feedback loop rather than stable).
.. with the modern understanding of deflation. Price is not a problem if the money supply is constant. Just think about it, it is *more goods chasing the same amount money". There will be no way we can have this conversation without that kind of deflation in computer industry.
Now, money supply contraction IS painful, but so is hangover. If you have an institution with the ability to inflate the money supply almost at will, don't act surprised if from to time a correction can be in order.
So the price settles at the cost of electricity.
Then they reduce the number of coins per block. So suddenly it comes even less worth it to mine. Until the value of each bitcoin rises to match, causing people to want to mine again.
If the value of each bitcoin did not rise, no one at all would mine and the network would grind to a halt (no confirmed transactions).
Unless they have a mechanism to reduce the difficulty factor at that point. I'm not sure on that point.
This isn't true. The system has several modes of adjustment and it will always be worth it for someone to generate blocks. If the value of a coin didn't rise to match generation costs, people /should/ stop mining -- but those that remain will collect more coins or transaction fees as the difficulty drops to compensate. Overall the economy as a whole shrinks, but never grinds to a halt.
That is still enough computing power to make the network moderately secure.
Entities with a vested interest in Bitcoin being unhackable by those with too much CPU power might then run non-profitable mining setups.
More likely the inefficient miners will be forced to quit mining as they will not be able to compete with those who either don't pay for power, or are not a commercial endeavor that is doing so at a larger scale.
Whether that is two months or four years away, who knows.
I'll add that the crypto will one day be broken (even brute force will eventually work once CPU/GPU have progressed far enough). And when it is, there is no reason you couldn't just sit back cracking those wallets in secret before funneling the coins your way. A significant weakness of the anonymity of the network means no one really "owns" a wallet in the traditional sense. They are essentially communal.
Not sure what's meant by that dig, but worth pointing out that a lot of former (and some current) Magic pros do quite well in financial work. In fact, an eerie number of them seem to graduate from Magic, to poker, to finance.
This site was hacked a few days ago causing much chaos in the Bitcoin community.
Both of them moved out of country when the Poker stars crackdown happened so they could keep playing.
When I mentioned I liked Blackjack they laughed and said "...odds are terrible...you might as well play the stock market..".
Why is this?
To achieve actual anonymity, receivers need to use a one-time-address for each sender, and senders need to not leak information about which addresses they own.
I wonder how that will hard limit the system...? I have no clue about Bitcoin but a quick google search seems to imply that the global history of all transactions is locally saved in the client as "blk0001.dat". Already this database seems to be a few hundred Megabytes big?
For anonymity, you can generate as many addresses as you want in your wallet, and there are services that you can use to conduct transactions anonymously (by proxies and spread out over a period of time).
With the Bitcoin currently valued at about $0.02 (down from $17.00), I suspect the restaurant won't be accepting to many more Bitcoin orders.
He might as well have paid with (numbered) paperclips if there was an MtGox for paperclips, does that mean that paperclips are the future?
Trading oil or gold directly is obviously impractical. But Bitcoins are not. You can store an unlimited amount of Bitcoins on your smartphone or USB stick and you can securely and anonymously transfer them to someone else within a few seconds.
Btw, practicality was not the reason the world abandoned the gold standard, political and economical needs obviated it.
P.s. obviously, paperclips are not a good figurative example. The central banks might just give you a list of banknote numbers to exchange (and an API to verify their uniqueness)
I once saw an exhibit in the Israel Museum showing a sequence of ancient coins, all stamped from the same die over a period of some decades, where the gold content gradually declined from about 99% to about 1%.
You can send them instantly across the globe without fees and keep as many as you want in your pockets to name a few.
Since Bitcoin has no inherent value, those initially creating and trading it for something of value would seem to have gotten something for nothing, or nearly so.
I was thinking about issuing pellets as a currency. It takes work units (gathering/mining and processing food) to create them. Much of the work is carried out by an organic machine called a rabbit. The currency has more inherent value than bitcoin since it has inherent value as a fertilizer. The maximum amount of currency is finite since it biodegrades and the Earth can only support a finite number of rabbits.
As with all physical currency, it is wise to wash your hands after handling it.
Various units are possible for convenience. The smallest are individual pellets. They can be compressed rolled and cut into "sheet" currency, and made into bricks.
For still higher value currency the rabbit may be replaced with a bull. Some bull-sheet currency should be available soon.
Obviously, Bitcoin is not worhtless to thousands of people. They are being traded at $14 at Mt Gox right now.
Why is gold valued at $50/gram today and was valued at $30 in 2007? Is it because we are creating more jewellery and need more for industrial applications and the supply cannot match the demand? It´s not - the value is increasing because people see gold as safe way to store money. To quote Wikipedia: "the price of gold is mainly affected by changes in sentiment"
You might also want to read:
Bottom-line - nothing is absolutely safe as a savings medium, and gold is not as axiomatically special as many people hold it to be.
There are a lot of good ideas in Bitcoin, but the truth is that its raison d'etre is to enrich early adopters-- the definition of a pyramid scheme. (It's not a Ponzi scheme; that has a technical definition and Bitcoin doesn't qualify.)
Maybe it's unfair, I don't know. But, I don't see any perverse incentives.
It is difficult to tell if they think the fundamental concept of bitcoin is bad or if they just have sour grapes because they aren't an early adopter.
But while we are at it, why shouldn't early adopters profit?, they took a risk early on.
And actually if you ask me I think the minting system is pretty good, mining costs electricity, while many miners are surely hoarding and speculating they all have to pay their electricity bill on a fairly regular basis.
This ensures there is always someone somewhere selling bitcoins and increases the liquidity of the market.
Ideally early adopters should not need to be rewarded for taking a risk because there would be negligible risk.
The ideal system/algorithm would exactly match the amount of Bitcoin in circulation to the growth of the economy, which would keep prices stable. Bitcoin pioneered most of what you'd need to create such an algorithm in a new system, but what does "growth of an economy" look like in terms of transactions between anonymous addresses? You'd need some concept of identity to determine the number of unique players, and the value flowing between them.
A system that solves this problem at scale is the economic holy grail.
Machine rights and slavery are being ignored as people blindly treat the work done by machine slaves as if it was done by "owners". Some publicly act as if slavery of machines or other humans should not be the basis for a currency, yet we still have slaves. The slavery still around isn't just about mining the materials for the capacitors in your tech toys. And it wasn't just a part of past colonies.
How many hours of CPU work, or how many bitcoins does a slave cost? If some do decide or admit that slavery is acceptable, or just a fact of life, would the value of a slave be a more stable value for the basis of a currency? (measured in prime adult slave-years perhaps). Perhaps one should have to be a slave for a time to obtain bitcoins. However if one is born into debt, it might take some time to have a positive balance.
Does being born into a society where there is public debt associated with a national currency amount to defacto slavery?
The computation power secures the network from double-spending. Do security guards also produce nothing of lasting value?
If FooCorp started trying to convince people to do all their buying and selling using FooCorp shares - of which the FooCorp owners naturally have a great many - then yes, obviously, it would be a scam intended primarily to enrich the FooCorp owners.
As a stock, FooCorp might be a perfectly fine investment.
Remind me again what the fundamentals for bitcoins are? What are their same store sales for last quarter?
And I don't think anyone is really trying to convince people to do all their buying and selling using Bitcoin. However it may be useful to do some of your buying and selling with Bitcoin.
If FooCorp's stock was stable and easily transferrable enough to use as a currency, why would it be a scam to advocate its use as currency? If your answer is only 'because holders profit' then I guess I'll agree to disagree.
Kind of like how all monetary systems work? The closer you are to the source of the money the more it is worth because you can control the velocity.
The question is not IF bitcoin will fail, but how this takedown will be accomplished.
Anyone who sets up a "Bitcoin bank" is entering the dragons lair. You may disappear in the night, as people who oppose the IRS in legal battles, you get your assets seized and you disappear without a blip on the media narrative.
No people will be disappearing, only the threat to the Federal Reserve's ability to inflate the currency. Bitcoin represents a solution to the problem of governments stealing wealth from the workers right out from under their noses without taxation or representation.