The main trend for Bitcoin in 2015 is that not much happened. The price is within 10% of where it was at the beginning of the year. Transaction volume in dollars is flat, or down a little. Many of the companies which were accepting Bitcoin no longer are; those that are report low transaction volumes. (There are lots of merchants which "accept Bitcoin" because it's an option in some shopping cart programs, but those just send the Bitcoins to Coinbase, which converts them to dollars and sends the funds to the merchant.)
The big trends in Bitcoin seem to be:
- Amateur hour is over. The remaining exchanges are bigger and seemingly more stable, although none of them are up to bank-level yet. New York's Bitcoin regulation seems to have been accepted.
- Mining is more centralized than ever. Most of the big Bitcoin miners are in cold areas of China with cheap power. China has well over 50% of the hash rate now. This may just be a way to convert yuan to dollars. (China has currency controls, but encourages exports. For a few months, it was legal in China to buy Bitcoins with yuan through regular payment channels, then sell the Bitcoins outside China for dollars. That drove the $1000 Bitcoin bubble, and was shut down by the People's Bank of China last year, causing the Bitcoin crash. Mining Bitcoin in China, and selling it outside China, is considered "exporting" and is a legal way to convert yuan to dollars.)
- Since the shutdown of Silk Road I and Silk Road II and the related arrests, Bitcoin is no longer considered a safe way to buy drugs. This doesn't seem to have affected the price much one way or the other.
- Bitcoin ATMs are disappearing. In the SF bay area, Hacker Dojo and Workshop Cafe got rid of theirs, and Nakamoto's doesn't have theirs working. Hero City (a co-working space) may still have one.
"Bitcoin is no longer considered a safe way to buy drugs."
This is not true. While it's not a good idea to waltz in naively and buy drugs without educating yourself, most people I know strongly prefer the dark markets to buying on the street.
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The big trend is that the hype has died and that people have largely stopped using Bitcoin for things that it is not really good at. Growth is up though. People use it for its strengths more, many more people have heard of it, and overall Bitcoin is seeing a lot of traction.
As Greece demonstrated, it's really nice to be in control of your money. At current volatility, Bitcoin is more of a contingency plan than a savings strategy , but its core strengths are just as relevant as ever.
2013: "Decentralized money is amazing- Let me build a business around it!"
2014: "Hmmm... I just built a centralized business around Bitcoin, so now my customers have the same counterparty risks as before... why was I excited about Bitcoin again?"
2015: ???
2016: Profit
(If someone figures out the entry for 2015, please let me know what it is...)
This could be very sigificant. Down to 12.5 BTC per block. Fees are currently not close to making that up that split. It would be really interesting to see if some of the larger mining pools can sustain their current hash rate if the reward drops but the fees don't particularaly increase.
As long as there isn't sigificantly more transactions than are reasonable to be included in a block there simply won't be too much pressure on the senders side to increase the amount of fees paid.
Some people argue that the reduced creation of new coins will take pressure off the price which could lead to a rally. Then again, that would only be true if miners were actually selling off their newly created coins immediately instead of holding them while waiting for higher prices.
The other aspect is the miner's inevitable margin compression. From the numbers we have seen (e.g. KnC in 2014), it seems that these companies are already operating on razor thin margins. Whatever money they have made, they needed to re-invest into upgraded hardware in order to stay competitive. Unless there is a meaningful increase in price before the reward halving, a lot of miners will likely run into trouble.
The reward drop will instantly price out of the market a large proportion of the current hash rate.
This will make the next 2016 blocks take substantially longer to find than normal, which will result in a large drop in the difficulty. This, in turn, will price a large chunk of mining back in - enough to mean that the following 2016 blocks take substantially less time to find than normal.
So I think we'll see see-sawing difficulty in alternate 2016-block periods for a while, until a new equilibrium is reached (at a lower difficulty / lower network hash rate than before the reward drop).
I don't think there'll be a significant effect on either the bitcoin price. Transaction fees should rise a bit in the "high difficulty" periods, and drop in the "low difficulty" periods, but once equilibrium is reached they should be much the same as they were before the reward drop.
Placeybordeaux, you should buy Bitcoin in large quantities in anticipation of this prediction, then panic sell it after the halving, like everyone else who's saying the same thing as you. That way my profit for shorting Bitcoin during the the 2016 halving window will be as large as possible.
2015: Let's start discovering where the big disruption comes. Blockchain. Many companies like for example Stampery.co are using the technology behind bitcoin to change failed ways to do things, like certifying things.
> - Since the shutdown of Silk Road I and Silk Road II and the related arrests, Bitcoin is no longer considered a safe way to buy drugs. This doesn't seem to have affected the price much one way or the other.
You gotta be kidding me. Are you saying that it is safer to go to streets, than to order online?
> Are you saying that it is safer to go to streets, than to order online?
I fail to see how giving out your personal address to random strangers on the internet is somehow preferable to a face to face transaction that insulates the drug dealer from where you sleep and keep all your valuable possessions. I also reject the implication that one must necessarily turn to "the streets" to buy recreational drugs. Most habitual drug users have a relationship with their drug dealer(s) and don't troll "the streets", cash in hand, looking for someone to satiate their fix.
The darknet market failures have nothing to do with bitcoin. If anything, faith in TOR has been compromised, but it's still a very effective tool. DNMs are maturing and adapting, and still strong.
If anything, the DNMs use Bitcoin more in 2015 than in 2014 or 2013. In 2013-2014, there was a fair amount of interest in Litecoin, Dogecoin, and Darkcoin, with some markets using them exclusively. (Off the top of my head, Atlantis and Litebay for the former, and Doge Road for the middle.) Right now, every market I know of takes Bitcoin, with maybe a handful taking Litecoin/Feathercoin/Darkcoin on the side as a supported-but-hardly-used feature. I kept track of currency support in http://www.gwern.net/Black-market%20survival
I've seen it powered off, and then gone. Maybe it broke and went out for repair.
Originally, the Robocoin machines displayed their bid and ask prices on the attract screen. They stopped doing that; the size of the spread (about 15-20%) was embarrassing.
Didn't they ever figure out IN BLOODY CALIFORNIA that "robo" is Spanish for "theft" or "I steal"?
Normally I wouldn't notice this (for example that Nova legend about a car that doesn't go doesn't really sound at all plausible and doesn't really sound like "no go" to me) but with all of the connotations of theft that people have put around bitcoins, "Robocoin" sounds like a terrible name to my hispanophone ears.
Still the context is important. When talking about some machine, it's obvious that it's meant for robot, not to say it's going to rob you - even if it's what it actually does.
One of the nasdaq exchanges has a etf equivalent in Europe. Once we have options on those the market will be more mature.
I think countries giving up fiscal policy for the euro would make other countries consider bitcoin. Makes sense to have a tax regime based on immobile property taxes rather than resorting to inflation or foreign currencies. Since us and Europe already are pretty confident in their ability to collect taxes, they won't be too hostile to bitcoin.
May be stability is what Bitcoin need? Especially when many other currencies are jumping like a mad cows. Bitcoin attracts many people who don't really need or even understand bitcoin, they just want to play a casino game. They are not healthy for bitcoin.
Bitcoin seems instable by design, the major flaw being an anticipation of increase in value due to "limited supply" which encourages people to speculate and horde rather than participate in real economic activity.
Bitcoin doesn't really attract many people, there is just this handful or so million users. Bitcoin is still really far from anything that could be called mass adoption or even mainstream.
I don't understand how they keep the price stable with waning interest. Is it mostly stakeholders trying to artificially keep it up? But presumably at least the miners need to sell occasionally to finance their operation?
The Bitcoin bubbles were driven by external use cases. The first runup was driven by Silk Road I, and the second by the use of Bitcoins to get around China's exchange controls. Bitcoin is now stuck waiting for a third killer use case.
No mention of the 'stress test' that's brought the network to its knees the past few days, or of the soft fork that resulted in suggestions to wait for 30+ confirmations? Puff piece.
C'mon Coinbase, at least spin them into a '<X> is actually good for Bitcoin, because <Y>' format.
For those who don't know, the stress test was where a company tested what would happen if someone filled the network with transactions.
The results were not favorable for bitcoin and highlights key design problems -> some transactions cost $280/transaction to put through, and other transactions that had <$20 fees were not processed and stuck in limbo.
Maybe some people paid fees that high by mistake, but no-one had too. Equally $20/tx fees are still ludicrously high by about three orders of magnitude.
Bitcoin miners prioritize transactions from highest fee to lowest; the attackers never sent transactions with more than 0.2mBTC/KB fees, which works out to about $0.01/tx. In other words, if you paid more than about $0.01 in fees, your transaction was unaffected by the flood.
The problem was a lot of badly written Bitcoin wallets don't let their users set fees at all, nor do they let you resend transactions stuck due to low fees. This is an easily solved problem, and fortunately we're seeing wallet authors fixing it. This should have happened years ago... but a lot of people are heavily invested into the idea that Bitcoin transactions are "free", which just isn't true...
> The results were not favorable for bitcoin and highlights key design problems
Some would disagree, considering the system kept functioning exactly as intended under the circumstances imposed on it.
Personally I agree that the whole thing is troubling, but was anything really discovered here?
Considering that the price has been rising, if you believe in prediction markets, these design problems could likely be overcome. After all, people have been working on it since long before any of these stress tests were performed.
Some would disagree, considering the system kept functioning exactly as intended under the circumstances imposed on it.
Yes, hence the GP stating, very clearly, that the results "[highlighted] key design problems".
The results of the stress test were not surprising to anyone who's been paying close attention, but it was a valuable demonstration that Bitcoin is it currently operates is misarchitected and will require some fundamental redesigns in order to operate at scale. These problems have been under discussion since at least 2011 and have been constantly disregarded, so perhaps this will help. It seems unlikely.
More full nodes would not solve the problem. Raising the maximum block size is the only real solution, although paying $0.02 per transaction instead of $0.01 until the "attackers" stop isn't such a bad thing. Especially compared to potential downsides to raising the maximum block size.
On the contrary, the network worked as expected. A somewhat costly stress test resulting in a backlog of transactions that were prioritized by fee, just as predicted.
The backlog has since been drastically reduced and high priority fees are back in the 50,000 satoshi per kb range [0]... the average Bitcoin transaction is about 250 bytes, so 12,000 satoshi per transaction, or roughly 3 cents. Low priority transactions of < 1 cent are still somewhat easily confirmed [1].
Even during the stress test I saw high priority fees hovering around the 85,000 satoshi/byte range, and never in the 1,000,000+ satoshi/byte range that you're talking about.
What's impressive is that the price [2] of Bitcoin was completely unaffected by a bit of weather [3] on the network and in fact gained in value during the entire ordeal.
Public data storage like the ledger maintained by the Bitcoin blockchain has a definite cost and it makes sense that prices would rise as demand increased. The blockchain is a scarce resource. It might make sense for transactions fees to end up around the price of a postage stamp at some point. It's hard to predict how this economic system will continue to evolve.
What's most important is that the ledger continues to be maintained, eventually consistent, secured by lots of hashing power, 100% verifiable and has an open and equal access to read and write as it ever did.
Not every transaction between two parties needs to be recorded on the blockchain. The blockchain is for clearing and settlement. Between lightning networks [4], private federated offchain networks for batch transactions, and possibly public sidechains (if they every materialize), there's a number of approaches that can help facilitate micropayments and other situations that require very low fees.
>some transactions cost $280/transaction to put through
The stress 'test', (or was it really an attack?), is interesting, though it may be too recent to be included. But where did you get that $280 from? That figure sounds ridiculous.
Trends as I see them: decreased media interest, loss of trust in the Bitcoin Foundation and by extension the core development team, lots more government surveillance of related businesses (helped by a stabilization of centralized exchanges), still virtually no banks globally willing to work with Bitcoin-related companies, failure to achieve any real 'killer app' at scale: beyond tax or forex-restriction evasion or international drug distribution.
On the plus side, scope creep seems to have slowed, more people are aware of the overall concept, and Merkle trees have begun to be applied experimentally to additional problem domains.
PS. Reading between the lines, new user growth has slowed dramatically at Coinbase. IIRC they sent an email this week begging for referrals, offering $25/signup. And like all startups, it probably defines users as people who once gave them their email address, rather than actual regular users of some nontrivial part of the service. "A trillion wallets!" indeed.
PPS. What percentage of increased Bitcoin transactions are due to the use of automated gambling sites for Bitcoin-trail erasure type money laundering through numerous microtransactions?
I'm calling statistical shenanigans. While the data presented is likely correct, the narrative is completely misleading.
> While the price is down 9% YTD (as of July 13), it's up over 213% over a two year time frame.
So they are ignoring the price drop from $1,000?
> This has attracted more institutional investors to the market and volatility has decreased as a result.
Chart indicates a gradual decrease, it's hard to establish causality. Also, it ignores the fact that 50% volatility for a currency is absurd.
> As of June 30, there were 6,109 Github repositories referencing Bitcoin. By comparison, there were 2,352 Github repositories referencing Stripe and 2,318 repositories referencing Paypal.
Comparing a currency with a currency processor is blatantly comparing Apples and Oranges. How many GitHub repositories are there mentioning Coinbase?
> How many GitHub repositories are there mentioning Coinbase?
Conversely, how many GitHup repositories are there mentioning USD or GBP. Oh wait, you can not transact USDs online without a payment processor. So what would be a better way to compare? By comparing all the fiat payment processor mentions against Bitcoin and Bitcoin payment processors. Which is kind of what they are doing here.
If institutional investors were responsible for the decrease in volatility, I'd think we would've seen a corresponding increase in liquidity. (It's the additional liquidity and depth of market that they presumably would provide that dampen the price swings). I haven't run the data recently, but anecdotally I don't think liquidity has improved much.
The most liquid/highest volume period was still the run to $1000.
Wow, the first graph in this article looks exactly like the graph of the bubble phenomenon (http://i.imgur.com/Amon5PR.jpg). I guess stability will increase, which is a good thing.
key differences: The downslope in most bubbles is twice as steep as the upslope. For bitcoin it was half as steep. Bubbles typically drop below the pre-bubble price.
One possible reason for the differences: Bitcoin speculation is less of a leveraged instrument than most other speculative activities. This is about to change as Bitcoin makes it onto ETFs (where leveraged investors can play more easily) and if potentially leveragable contracts (like ripple) gain in popularity.
That is, if you believe Kindleberger's thesis in "manias, panics, and crashes".
To me, it looks like January 15, 2015 could easily have been the final moment of despair in the the 2014 downtrend. Of course, only time will tell.
Sidenote: That bubble graph has been posted hundreds of times (literally) on the bitcointalk.com forums and reddit over the past few years, for different bubbles even: 2011, 2013 part 1, and 2013 part 2. The posters often proudly & spitefully think they are first to see the resemblance, and are usually received pretty poorly... It is an inside joke at this point. So I found it entertaining to see the comments in this thread here (not trying to say anything negative about the posters here :)
When all the greek and chinese people who have jumped in (see the transaction spike in the article) in the last two months discover that no one will buy their coins then we will see the trough. I have to say though, I genuinely did not see the switch out of the recent past coming - good luck to the folks who did, and commiserations to the folk switching in ...
I notice they are still pushing out the number of wallets and accounts they have as a sign of anything. Coinbase you are now a few years old and have raised over $100m. It's time to leave behind local social networks, and underused sites everywhere and start reporting MAU. No one but fanatics care how many people have signed up. How many people regularly use your service.
>As global events that highlight the restrictions of closed banking systems and insecure data security practices (e.g. the Greece debt crisis and recent United States Office of Personnel Management data breach) continue to occur, we believe that bitcoin is likely to be adopted by more people looking for digital money that is global, secure, and inclusive.
How would Bitcoin have prevented or mitigated the OPM hack?
It's possible that one could use the data leaked in the OPM hack to hijack someone's bank account. I imagine a lot, maybe all, of the verification info a bank would ask for in order to do a password reset would be in those files for many people.
Bitcoin couldn't have prevented the OPM attack, but these types of attacks will continue to highlight the flawed way that institutions store data online.
I really doubt that most people see Bitcoin's features as pluses rather than minuses.
I have always thought that the financial institutions we have in mainstream currencies are institutions that societies want. If ever Bitcoin goes mainstream, the Bitcoin economy would end up a lot like the world economy when it was gold-backed, albeit one where the transaction costs were not physical but hidden in the work done in blockchains.
It seems to me like people are mistakenly thinking that Bitcoin's lack of financial institutions are a property inherent to the currency rather than the simple fact that Bitcoin is a currency that is not mature enough to have actors sufficiently invested in it to want to create regulatory institutions on top of the currency.
Correct me if I'm wrong, but it seems to me easier to regulate Bitcoins than say, gold. It is far easier to trace and verify the provenance of Bitcoins than that of gold, and hence far easier to classify Bitcoins into "clean Bitcoins" and "dirty Bitcoins". A cabal of influential institutions can simply refuse to deal with wallets and businesses that deal in "dirty Bitcoins", and that can serve as a basis of institutional regulation of Bitcoin as a currency.
91 year old billionaire Charlie Munger has referred to Bitcoin as "rat poison". His friend, 84 year old Warren Buffett has said Bitcoin is "not a currency" and advised people to "stay away from it".
Now you can ascribe this to them being old fuddy duddies who "just don't get it". You can also ascribe this to the wisdom of people who lived through the Great Depression, World War II etc. and have seen every scam and snake oil pitch under the sun.
Which is exactly what Bitcoins are. They are worthless, they have no value. They're not only a scam, they're a scam that should be obvious on the face of it, like subprime real estate, or a Pets.com IPO. People talk about a Silicon Valley bubble - nothing is more indicative of a bubble than Bitcoins. These guys may not know the specifics of blockchain algorithms, but from decades of hard experience they can distinguish value from non-value, and Bitcoins have no value.
I can't think of a commodity it makes less sense to hold onto than a Bitcoin. Gold has value, as do other precious metals, oil has value - Bitcoins have no value. The only comparison I've seen made to Bitcoins is fiat money, but it would take too long to fully explain why Bitcoins don't have the value of a US dollar in a post here.
For some laughs, read http://bitcoin.org/en/faq#why-do-bitcoins-have-value - "Bitcoins have value because they are useful as a form of money. Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies)."
What? Commodities which already have value(!) become currencies because they have "durability, portability, fungibility, scarcity, divisibility, and recognizability". Gold has all of those properties so it has made a good currency through history - but even if it had none of those properties, it derives its value from it being a commodity with useful physical traits - like the ability to fill a tooth, or conduct electricity, and so forth. Bitcoins have no such traits - they have the traits which would make a commodity with value a good currency, but it has no inherit value as a commodity!
Witness all the angels and VC's who sing the high holy praises of this scam. Are they just complete fools who have no understanding of the economics they claim to have expertise in, or are they just scammers trying to fleece suckers out there? I don't know the answer to this, but at the end of the day, all the VC's and seeders and angels on Twitter etc. who support this Bitcoin scam are either fools or thieves. Keynes said markets can remain irrational longer than he could remain solvent, but it's inevitable that Bitcoins price will go to $0. Since my first statement of this here, Bitcoin has gone from $460 to its present $290. It will inevitably go to $0, no matter how many of the scammers downvote this post so people won't see it. Because no matter what anyone says, the market cap of the $5 trillion worth of gold mined will never change more than an order of magnitude (barring some amazing chemical technological advance). Whereas lack of doubt is all that is keeping Bitcoin's $4 billion market cap from going to $0. From it's scammy beginnings (the anonymous "Satoshi"), to all the legal problems and scams of Mt. Gox, Butterfly Labs etc., it's only a matter of time before this Ponzi scheme comes to an end. More instructive than that is all the existing VC's, seeders, angels etc. who are vocal in their support of this scam - that's what you should really remember.
Sorry you got downvoted. I don't agree with you, but I agree it's a valid point of view to have. But in the end, only the future knows if bitcoins price will rise or fall. Everyone is guessing here.
Let me leave you with this: If I told you 10 years ago, a website where everyone can edit the pages, and were nobody gets paid, will create an encyclopedia that has more content and is more accurate than professional encyclopedia publishers, would be believe me? I definitely wouldn't, that concept is completely absurd to me, but yet, it worked. Bitcoins seems like a way more viable idea to me.
Bitcoin is not competing with gold, it's basically competing with "I owe you" notes, managed by some central entity. You could argue that those "I owe you" notes have value, but maybe so does distributed transactions.
Bitcoin might just keep itself alive: because it has value, you can do transactions with it, and because you can do transactions with it, it has value.
> Bitcoin is not competing with gold, it's basically competing with "I owe you" notes, managed by some central entity. You could argue that those "I owe you" notes have value, but maybe so does distributed transactions.
As I said, it would take too long to fully explain why Bitcoins have less value than dollars and euros (of course last year, EUR/USD was 1.35, today it's 1.09, but the problems of Greece etc. are a little tangential...) Dollars had no inherent value in 1970 - you could trade dollars for gold, but it was still just a promissory note - I'd rather have an ounce of gold in my hand than a note promising me an ounce of gold.
What does the phrase "gold reserve" mean ( https://en.wikipedia.org/wiki/Gold_reserve )? The USA golds 8000 tons of gold in Fort Knox (and in NYC's Federal Reserve building). Why? Why does it do this? It must cost a lot to hold all that gold. The reason it does is because that gold implicitly (but not explicitly) backs the US dollar. If the dollar began crashing tomorrow, Obama could go on TV and say he was opening the vaults of Fort Knox and would exchange dollars for gold. Gold doesn't have any special properties, it's just convenient to use a currency, any commodity trade would do.
Even with economic dips, people don't think about the things underlying economic confidence in the face of potential collapse - but governments do think about these long term things, and major changes in policy always indicate changes in thinking ( http://www.nytimes.com/2013/01/17/business/global/german-cen... ).
Gold price has been falling for the last few years. Even with all this economic uncertainty and recession it has not had the usual uptick you would expect to see if people considered it a safe haven. In addition it seems likely that there is far less gold in Fort knox than there should be. They could not actually open the doors to Fort knox to exchange for dollars because at that stage the game it up. They just keep them closed and tell everyone their gold is safe and secure.
A lot of Greeks probably regret having euro's in their bank account. Just of today they are sure their money won't vaporize into nothing, but their banks still restrict transactions. If there was a grexit, their money would have just been lost, and for the rest of Europe, the impact on the euro would be felt. That's the disadvantage of storing your personal value inside a central governed banking system.
Don't you think Greeks currently see value in a distributed currency system, that lies outside of anyone's influence, especially that of the government? Do you think they will trust their banks for the next decade(s)?
You say you rather have an ounce of gold in your hand, but what gives gold its price? As always supply and demand. The price of gold, the 'price' of dollars and euros, and the price of bitcoins is based on supply and demand. Bitcoin will only go to $0 if there is 0 demand. And in my opinion, the possibility of that happening is a big as the possibility that bitcoin will revolutionize the way we pay and receive 'money'.
>The USA golds 8000 tons of gold in Fort Knox (and in NYC's Federal Reserve building). Why? Why does it do this? It must cost a lot to hold all that gold. The reason it does is because that gold implicitly (but not explicitly) backs the US dollar. If the dollar began crashing tomorrow, Obama could go on TV and say he was opening the vaults of Fort Knox and would exchange dollars for gold.
Seriously? Those 8000 tons of gold, priced at today’s price of 1144.45 as of a few minutes ago, have a value of $296,002,697,361.7893--a little under $300 billion. Sorry, but $300 billion just isn’t a lot of money in the grand scheme of things.
To put that in perspective, the market capitalization of just one company (Apple) is just over $723 billion dollars.
The gross domestic product (GDP) of the United States is over $17 trillion. If we have some kind of financial crisis, $300 billion in gold (obviously the price would increase in the event of a real crisis) isn’t going to go very far in a $17 trillion dollar economy.
The point: the dollar isn’t backed in any way, shape or form by the gold the U.S. holds.
History shows us that all fiat currencies (so far) eventually go to zero.
Final thought: Bitcoin may or may not survive long term, but not because the concept of a cryptocurrency is unsound or that blockchains don’t work. Bitcoin has proven its value is based on its usefulness and flexibility: the ability to transfer value of any amount to anyone else anywhere else in minutes without needing permission and at little or no cost.
Bitcoin is the prototype, not the final product.
Besides bringing blockchain technology to the world, bitcoin is an invention that can’t be uninvented now that it’s here.
The same way a Mac user from 1984 might not recognize a Retina iMac today, we will have some type of cryptocurrency that will be mainstream and accepted at some point in the not too distant future. It may not be bitcoin (though it’ll still be around) but some successor that addresses some of its weaknesses and builds on its strengths.
Final final thought: bitcoin is already a fairly big deal in developing countries where regular people are unbanked. It’s also a big deal in countries with unstable currencies, some of which have already gone to zero once or twice: http://bitcoinfilm.org/documentaries/.
I'm not old! I'm still 24, the internet was invented 10 years ago and Nirvana just released their second album. ;).
Some time ago they announced on the radio that a rock band was celebrating their 20th anniversary. I laughed about the huge mistake they made because it was probably 10th anniversary. But after a few seconds, I said "damn!".
Nobody disagrees that Bitcoins have no value other than being a currency. The thing is: that doesn't matter, nor does it make it a "scam". Value purely as a currency is value nonetheless. Your argument is lacking the justification that only "inherent" value is "true" or "real" value.
Works pretty fine for me when I buy stuff with it, idk. Not like it's replaced money for me, but sometimes I use it. I wouldn't go investing in it as a currency on its own but completely writing off at the very least the technology itself is a bit ignorant, don't you think?
And don't forget that Ponzi schemes were originally invented using that foolproof valuable currency you cite as a foil to bitcoin's scam! I'd say the time and resources that go into making bitcoin have inherent value just like using a little bit of gold to fill a tooth.
Not that I'm saying startups are currently bubble level overvalued - but stuff like the Bitcoin hype is a canary in a coal mine.
> but completely writing off at the very least the technology itself is a bit ignorant, don't you think?
I can conceive of the possibility of people using blockchains and such things in the future for various reasons. I have no desire to right off the technology of the blockchain any more than I would write off the technology of a distributed git repository. The question though is whether Bitcoins should have a $4 billion market cap, and to me the answer is clearly no - it already fell from $11 billion to $4 billion, and I see this falling to $0.
P.S. Re-watching that Whoopi Goldberg ad about "hip, young" Flooz versus "old, out of touch" money gives me deja vu all over again....
This implies that a trustless perfectly transparent currency has no value, which is obviously not true.
Bitcoin might die because the protocol is flawed. It does make a lot of mistakes that altcoins do great work to solve - block size, chain size, volume, and proof of work are all messed up to varying degrees. The rate of monetary base inflation being a piecewise downward spiral to a limited final supply is in no way practical for a day to day currency, ever.
But the technology basically crushes whatever nonsense you want to throw around when discussing fiat currencies, because at the end of the day every fiat dollar has to be "trust us". The financial industry has exploded on the back of phantom wealth with no physical asset backing, and bitcoin and cryptocurrencies in general are the counter to that entirely by being perfectly forwarded backed assets moreso than any other holding or investment you can have.
You can literally have the wallet file controlling a portion of wealth, and that wealth is backed by the computational power of the network, and the combined appraisals of everyone else using the money. If you hold gold shares, you have records that you own an amount of gold held by a third party trading company, maybe (its not like you are ever going to go withdraw it), and you are in good faith assuming the market cap is accurate, because nobody can actually summarize the amount of gold out there, even in just the investment market, accurately. And fiat dollars are even worse, since fractional reserve banking and digitization had led to tremendous amounts of money out there being literally numbers in a database but they have none of the benefits of bitcoin having a collective ledger of transaction history.
The technology is superior. We just need a Snowden of money the way Snowden was of privacy to demonstrate that "trust us" is what has literally zero valuation.
> The rate of monetary base inflation being a piecewise downward spiral to a limited final supply is in no way practical for a day to day currency, ever.
Can you explain this, specifically what the relationship is between having a limited final supply and day to day practicality.
There is no way for bitcoin not to be deflationary in the long run.
First, consider that inflation and deflation of currency is the opposite what most people want to happen to bitcoin right now - which is still counterintuitive, because its adoption as a money is counter to its value as an investment. If the cost of a bitcoin rises against fiat, IE, the price goes up, then the currency is monetarily deflating - it is getting more valuable over time. Likewise, when the price drops - ie, after the 2013 bubble until the start of 2015 - thats inflating, because your money is worth less over time.
For pretty much every fiat currency there is, your money is always worth less over time. It means you don't actually want to have physical money, because that money is all kinds of things you could have instead that either appreciate in value or give you a value add versus the money just losing its purchasing power.
In almost all cases that inflation is due to a growing monetary base. States are printing more fiat money all the time, and sometimes they do major injections of money (quantitative easing, for example) to stimulate economic growth. That devalues the money, and it means you don't want to have any money.
That mechanism is good for society, because it means that nobody is just hoarding a gold pile somewhere. Every billionaire is still spending almost every cent they have because to not spend it is to lose value. The last thirty years since the removal of the gold standard, the USD has seen rise to an insane turnover rate, where monetary velocity is incredibly high because nobody wants to have USD for long. You turn it into shares, you turn it into physical assets, you turn it into salaries, you do something with it that is not letting its value rot in a vault.
With bitcoin, varying design constraints compound the issue that unlike with fiat, and like with a scarce resource like gold, hoarding it makes perfectly good sense. Bitcoins monetary base has constant velocity for years, and its only decelerating. Every four years the payout rate of mining a block is halved. Its already been halved once, and will be halved again next year. It keeps getting halved until mining stops paying out at all in about a hundred years. But because you are halving the payout rates, there are already over 14 million btc out a limit of 21 million, so the monetary base is already over 2/3's as large as it is ever going to get.
That kind of base cannot handle anything catastrophic to its monetary system. A sudden influx of investment into bitcoin will always skyrocket the price. Whenever it has a breakout moment the price goes insane, and there is nothing to price control it because there is no way to expand or contract the monetary base to account. As a result, I and many other people are just sitting on bitcoin hoards waiting for Amazon to start accepting them so that the price goes to Mars again.
That kind of thinking, and that kind of economic interaction, is a huge backslide of a common currency from what we have today. The best money is one you don't hold onto for long, that you want to get rid of as quickly as possible, because it maximizes monetary velocity which means your economy is running at max speed. If you slow down velocity - if people stop spending money, and it stops changing hands, as is often the case during uncertain political environments - your economy slows down. If you put bitcoin in that position, there is a huge incentive to not spend bitcoin because bitcoin is a mathematically limited resource. The more its used the more valuable it gets and the more pervasive it is the more reason there is to never use it for its "intended" function.
Its the perfect gold replacement. You could strike a gold vein today and be a millionaire overnight. Unless you can impersonate a wallet (basically a sha1 hash, good luck brute forcing that) you aren't going to find random gold. And that isn't even digging up new gold so much as its finding gold in someones basement, maybe in a vault you broke into or maybe buried behind a wall long forgotten because the owner lost the wallet or password. Its even better because bitcoin is literally only the value of electricity and computer hardware that make up its network. Its a lot less distortionary to goods markets than treating gold, silver, platinum, etc as scarce commodities is, because it means people buy and hoard gold and other precious metals just for the sake of hoarding them, which drives the price up for anyone who has a practical use for that metal (gold is a great conductor, and gold capacitors are super efficient) making it prohibitive to use because everyone is valuing the metal not for its practical utility but for its rarity. The commodity market for palladium is no where near as ridiculous as golds, even though they are both rare earth metals, because gold has a history that makes people buy and own it for literally no good reason besides other people do. And you could do that exact same mutually respected scarcity == rarity == value proposition with bitcoin, without any ugly side effects like making my computer slower because putting gold in half my circuits would double or triple the cost of the product at least.
Of note most altcoins have no monetary base caps. Litecoin is basically a slightly improved forked bitcoin, so it still does. But currencies like peercoin and dogecoin have no caps, but do it in different ways - peercoin has a static 1% inflation rate, so its constantly minting more peercoin over time, but the same amount of the base is minted annually - which means if you are losing more than 1% of the monetary base each year due to lost wallets, your currency is still deflating. Dogecoin statically mints 5.25 billion coins a year, so eventually your monetary base becomes large enough that you are losing as many coins as you are minting.
What I'm getting at is that no cryptocurrency yet has actually solved this problem, and I've already posted my own ideas on it all over the place, but its really the breakout problem domain to getting a viable money replacement for average joes rather than a gold replacement.
> That mechanism is good for society, because it means that nobody is just hoarding a gold pile somewhere.
Why is that necessarily bad? Inflation requires individuals and companies to grow to maintain value, that is potentially unsustainable. If the money base grows faster than resources utilization can be made more efficient, then you wind up either 1) destroying the environment or 2) screwing over the poor. In order to continue, the exponential growth inherent in inflation presumes a future that is rosier than the present. The people who get screwed over are not the wealthy, they have access to inflation-proofed investments and also have access to the lowest interest rates (most competitive with inflation, sometimes better than) to make leveraged reallocation of resources.
That kind of base cannot handle anything catastrophic. Because everyone is yoked together by leveraging, a catastrophic event, say, a tsunami in seattle, will domino over such that the individuals depending on the fractional reserve of the victim's holdings will then be forced into default, and those dependent on them, and so on and so forth via the multiplier effect.
To say that a non-inflationary system cannot handle an catastrophe is simply ignoring some pretty stark evidence. Between 1820-1900 the US was effectively on the gold standard and somehow, it managed to survive a massive civil war that tore apart the nation and not 40 years later it was basically one of the world powers.
> inflation requires individuals and companies to grow to maintain value, that is potentially unsustainable.
Are you talking about currency inflation or economic inflation? If a companies assets are appreciating against currency due to inflation, then that is in and of itself the growth aspect of competing with inflation. Nothing about an inflating money means anything needs to grow, it just means if you are holding dollars you are losing value. So just don't hold dollars.
It is bad because hoarded money might as well not exist. It exits the monetary system and effectively deflates the monetary base and reduces monetary velocity because its exited transactions for however long the holder wishes to take it out of circulation. Of course, it is really hard to even imagine a situation where you could do this with traditional fiat - unless you stuff it in a suitcase and hide it in your wall, you don't put money in any bank and not have fractional reserve banking done with it.
> Because everyone is yoked together by leveraging, a catastrophic event, say, a tsunami in seattle, will domino over such that the individuals depending on the fractional reserve of the victim's holdings will then be forced into default, and those dependent on them, and so on and so forth via the multiplier effect.
You need to distinguish between that fractional reserve banking model and inflationary high velocity money. With cryptocurrencies you pretty much cannot do fractional reserve banking, because you cannot unspend transactions and the entire transaction history is perfectly transparent. I mean you could, but your users could then track their money through everyone you loan it to, and you cannot loan out more than you have. It would at the least be a very different beast from our current model of "trust us, your money is 'safe'". Unless you are on a deflationary or otherwise static currency like gold backed dollars your assets are just not in that currency.
And that works fine with a reactionary inflationary cryptocurrency. Nothing stops you from using bitcoin as a wealth trap like gold, where you just take its scarcity and the value of its network to provide value to the depreciating resource. Throw your inflationary coins into bitcoin, and then sit on bitcoin, there is your gold hoard. The point is that the inflationary currency then changes hands, and the whole point of a modern money is for it to be spent. If you discretize the store of value from the unit of exchange you avoid all the issues mingling them togther.
> it managed to survive a massive civil war that tore apart the nation and not 40 years later it was basically one of the world powers.
The Civil War increased Union national debt fifty times over, from about 60 million to 2.8 billion. It was an unprecedented amount of bond issuance and international loans that has still never been paid off. You would be surprised how well nations can weather spending a lot of money - they can get some of the best loans out there, after all, either from their citizens or from other nations. You don't borrow 15 trillion dollars, ask for another trillion, and get anyone lining up to take that offer anywhere unless you are the USA.
> non-inflationary system cannot handle an catastrophe
They can handle catastrophe, you can even postulate they handle it better since you don't need to liquidate assets to an inflationary money if you just hoard the cash. Its about everything that is not a catastrophe, the daily operations of the economy, and a deflationary currency turns a normal day into a catastrophe when people stop using their money because they want to hoard it in a safe. That depresses the whole economy and slows down everything when you are not aiming for maximal monetary velocity. Your currency is not the place to store wealth, its meant to be the transactional unit of goods and service exchange, and trying to make it do more than one job makes it do all its jobs poorly.
Something has "value" if people will buy it. People have been buying Bitcoin for US Dollars reliably for years, hence bitcoins have "value".
Could the US government collapse and the USD become worthless tomorrow? Certainly. Could everyone wake up tomorrow and decide "Bitcoins are worthless?" certainly. But both those things are unlikely to happen.
The more interesting question is whether Bitcoins are "overvalued" or "undervalued"... but that is a far more difficult question to answer.
Bitcoins have value, but it's safe to say that nobody is going to jail if they can't get their hands on it in lieu of other currencies. Because of this, BTC will be subordinate to those currencies where this is the case.
This may or may not be a problem for any particular BTC application.
People buy it because they can use it. Gold, oil, sitting chairs etc. have value because they are useful. Bitcoins have no inherit use after purchase.
> People have been buying Bitcoin for US Dollars reliably for years, hence bitcoins have "value".
No they have price, not value. I quoted Keynes before "markets can remain irrational longer than I can remain solvent".
> everyone wake up tomorrow...But both those things are unlikely to happen.
Both of those things are unlikely to happen tomorrow, but the chance of the US government collapsing tomorrow is relatively a much lower chance than Bitcoin's price diving tomorrow, and people selling it like crazy. I mean, this just happened - Bitcoins were worth $315 at the beginning of the week and are worth $290 at the moment.
What's the use value of a dollar bill? To wipe one's ass? To place into a wallet to make it bulkier? No: to store for later exchange for goods and services. And so with Bitcoin. And that doesn't even get into colored coins/smart property and the myriad of other uses that have been thought. It's hard to accept your assertion "Bitcoins have no inherit use after purchase."
You say that gold has value. What is that value? Certainly there's some value in using it for things like electronic contacts, but that doesn't come anywhere close to accounting for the price. If you buy an ounce of gold right now, the $1323 is maybe $13 practical utility and $1310 collective faith in its use as a currency. Do you think that tiny bit of utility is enough, or do you disagree with my assessment that gold mostly has no value?
Yes, but it's not really useful as jewelry, just admired. People can admire large numbers with interesting cryptographic properties too, so I don't think this is something you can use to separate Bitcoin from gold.
History is often clearer than the present, so let's look at the price of silver around 1980. In 1979 silver was $6 an ounce, by 1980 it was worth $48.70 an ounce by 1982 it was back below $5. Was silver really have $48 of value in 1982 dollars? Clearly not. Over the short term the price of gold, silver, subprime real estate, dutch tulip bulbs, pets.com stock etc. can soar over its real value. Over the longer term, price and value always come back together though.
> the $1323 is maybe $13 practical utility and $1310 collective faith in its use as a currency
But non-speculators pay $1323 to fill teeth and conduct electricity. For them, the $1323 is 100% for practical utility. Of course, as the value of gold soars, they look for alternative products to fill these needs (ceramic, copper). Over the long term, I think gold derives 0% of its price from anything other than its value, over the short term, different factors come into play (like silver in 1980).
The vast majority of gold ever mined sits around doing nothing. If it was seriously useful for practical purposes then people would pay a lot more than $1323/ounce for things like plating electrical conductors, in order to get that gold out of vaults and people's dresser drawers and into useful applications.
Compare with oil, which stores pretty well, but where the vast majority of oil that is extracted is used rather than stored.
> But non-speculators pay $1323 to fill teeth and conduct electricity.
Well, It tends not to be used for fillings any more, and for coating conductors, only a tiny amount is used. Even then, half the time the gold plating is social value ("Audio connector with GOLD PLATED TIPS!", rather than practical value.
Mostly, it just sits in stockpiles, though; it's practical value is less than the value of stockpiling it.
> I think gold derives 0% of its price from anything other than its value
This is a tautology. However, a large portion of that value comes from the perception of value. It's valuable because people think it's valuable.
It will never go to 0. I will buy all at 0.001, and I am sure a lot more people are willing to bid more than that. Anyways, will you eat your hat if it ever goes back to 460, or 1000 or 2000?
I'm far from an expert on economics, but I thought a large part of the value of a currency is the country backing it. If you are a business in the US, you are required to accept payment in the form of US legal tender. i.e. Walmart can't decide tomorrow that they will only accept rubles (or, more relevantly, Bitcoin). So as long as there are people in the US doing business, the US dollar retains value.
Walmart actually can decide that they will only accept rubles they just can't enforce it for debts. So if you owe them money they have to take USD but if you want to buy something they can say they will only accept rubles.
If they're worthless and have value, why are people willing to pay so much for them?
I mostly agree with you, overall, but the "value" part of your argument is simply wrong.
And don't ignore the large positive impact Bitcoin had on people trying to purchase essential medicines. Can you explain why I can't easily buy medicines free of regulation without Bitcoin?
It exactly because opinions like this exist that I am bullish on bitcoin. Because nobody fully understands bitcoin, it means it is either undervalued or overvalued. Since old people have trouble adopting new tech and have most of the investment capital, with all other things being equal, it is undervalued.
Rarely have new markets been created by older generations-they have multiple incentives to maintain the status quo. The recession was caused by the passing of "everyone should have home" legislation during the Bush administration. Bitcoin eliminates politics out of finance, increasing stability in the long term. Time will tell which system is best. Either bitcoin crashes and centralized control proves its worth or it wins and the smart ones in the center turn out not to be so smart.
I don't know what the market will do, maybe fall hard, but I can tell you from personal experience it has utility over the alternatives in situations I've come across
The big trends in Bitcoin seem to be:
- Amateur hour is over. The remaining exchanges are bigger and seemingly more stable, although none of them are up to bank-level yet. New York's Bitcoin regulation seems to have been accepted.
- Mining is more centralized than ever. Most of the big Bitcoin miners are in cold areas of China with cheap power. China has well over 50% of the hash rate now. This may just be a way to convert yuan to dollars. (China has currency controls, but encourages exports. For a few months, it was legal in China to buy Bitcoins with yuan through regular payment channels, then sell the Bitcoins outside China for dollars. That drove the $1000 Bitcoin bubble, and was shut down by the People's Bank of China last year, causing the Bitcoin crash. Mining Bitcoin in China, and selling it outside China, is considered "exporting" and is a legal way to convert yuan to dollars.)
- Since the shutdown of Silk Road I and Silk Road II and the related arrests, Bitcoin is no longer considered a safe way to buy drugs. This doesn't seem to have affected the price much one way or the other.
- Bitcoin ATMs are disappearing. In the SF bay area, Hacker Dojo and Workshop Cafe got rid of theirs, and Nakamoto's doesn't have theirs working. Hero City (a co-working space) may still have one.
History of Bitcoin: