Bitcoin is over $200 per coin

[Platinum Shell]

Csonicgo said:

stuff

*puts on stereotypical english henchman voice*

Cmon's now, we just wants ta see your name...

[geo]

I know people that have been burned by bitcoin transactions that never followed through with the merchandise and bitcoin refused to reverse / stop the transaction.

[kristus]

Never heard of Bitcoin before this thread.

[geo]

I never heard of it until a friend of mine got scammed off eBay when the seller required bitcoin.

[Udderdude]

Pump and dump! D:

[fraggle]

geo said:

I know people that have been burned by bitcoin transactions that never followed through with the merchandise and bitcoin refused to reverse / stop the transaction.

Well, there isn't really anyone "to" reverse a transaction. It's not like PayPal where there's a company you can complain to. As an analogy it's like paying someone in cash - once they've driven off and left you empty-handed there's not really anything you can do about it.

Sites like eBay have careful restrictions on the payment methods you're allowed to use for exactly this kind of reason.

[Creaphis]

I don't fully understand the Bitcoin "mining" process, but shouldn't that also limit the value of a Bitcoin? The CPU cycles necessary to generate a Bitcoin would be cheaper than $200, one would think.

[fraggle]

Creaphis said:

I don't fully understand the Bitcoin "mining" process, but shouldn't that also limit the value of a Bitcoin? The CPU cycles necessary to generate a Bitcoin would be cheaper than $200, one would think.

You'd think so, but it's less clear that that is still the case. The way the mining system works is that the nodes in the peer to peer network are all attempting to solve a cryptographic puzzle to generate the next "block" in the chain of Bitcoin transactions. The first node to solve the problem gets some bitcoins as a reward.

If you decided to take up Bitcoin mining, you'd be competing against hundreds of others who are doing the same thing (the computational power of the whole network is in gigahashes per second). The technology for mining has advanced: initially it was just done on CPUs, but people later found they could run it on their GPUs and do it much faster. The latest development is that you can actually buy dedicated hardware boxes using custom ASICs for mining. Each technology is an order of magnitude faster than the previous.

If you see here there's a useful chart that shows the estimated profit by miners over time, taking into account the estimated electricity and equipment cost. It looks like until the past few days it was still a profitable endeavour, but no doubt that is no longer the case.

[GreyGhost]

Creaphis said:

The CPU cycles necessary to generate a Bitcoin would be cheaper than $200, one would think.

That might depend on the computer. If you view it from the standpoint of each CPU cycle taking the PC a step closer to its ultimate demise, the cost of generating Bitcoins on Doom Marine's beast of a PC is bound to be substantially higher than on my budget system. ;-)

[flubbernugget]

What I don't understand about the mining process is why they want to make the number of available bitcoins finite. If bitcoins really take off, people are going to want bitcoin loans, which will charge interest. This could cause a situation where there becomes more bitcoin debt than available bitcoins with no means of inflation to remedy the solution.

[fraggle]

flubbernugget said:

What I don't understand about the mining process is why they want to make the number of available bitcoins finite. If bitcoins really take off, people are going to want bitcoin loans, which will charge interest. This could cause a situation where there becomes more bitcoin debt than available bitcoins with no means of inflation to remedy the solution.

It seems pretty clear that it's been deliberately done that way. Among libertarians (who, let's face it, are the kind of people most likely to create an anonymous system of currency in the first place), there's what is best described as a romantic view of the days of the Gold standard. By having a limited, ultimately scarce supply, it emulates some of the properties of the Gold standard, albeit in a digital form. Here is a rather hilarious picture of a "Bitcoin note" with Libertarian and Internet superstar Ron Paul as the face.

On a more fundamental level though, you say, "with no means of inflation to remedy the solution". Supposing there was some means of increasing inflation, who should have the power to wield it? The whole point of Bitcoin is to be a decentralised currency controlled by nobody. In real world currencies, central banks use the money supply to control the rate of inflation, but the existence of such institutions is something that Bitcoin is specifically created to avoid.

[flubbernugget]

fraggle said:

Supposing there was some means of increasing inflation, who should have the power to wield it?.

The mass of miners, which we can see is bound do grow with the advent of mining pools. If bitcoins were constantly produced, they would become less valuable over time which would cause inflation. The inflation would allow people to pay debts, because the value of their debt decreases over time. Isn't that why the US still mints money, which is constantly bringing the US dollar down in value? It helps to prevent overall debt from eclipsing the amount of money that actually exists.

[Maes]

"If it sounds too good to be true, it probably is".

[Quast]

Is the entire bitcoin phenomenon not a calculated ponzi scam/money laundering operation?

I mean, given the publicly stated reasons why bitcoins exist in the first place and why its proponents would gravitate towards it then does not having a actual value based on it's exchange rate with the us dollar kinda of, you know, defeat the purpose?

This is literally baseball cards, except baseball cards could potentially have intangible personal value outside of monetary concerns.

[fraggle]

Quast said:

Is the entire bitcoin phenomenon not a calculated ponzi scam/money laundering operation?

This is a pretty good question. In terms of ponzi scheme: I honestly don't know enough about economics to give a good answer. At the very least it doesn't appear to match the standard model of a ponzi scheme, but it does reward early adopters of the currency, who were able to buy / mine more easily when it was in its infancy.

Certain things are really suspicious - like the original author being an anonymous pseudonym. Part of me wonders if the whole thing will collapse as part of some pre-scheduled time bomb at some point in the future, though the source code is open so it couldn't be a code backdoor. I wonder if the built-in economics is somehow deliberately designed to be unstable. I don't know.

The question about money laundering is also a good one. Certainly by its anonymous nature it certainly seems perfect for that, though some aspects of its design actually make such things more difficult - all transactions are public, so you could theoretically trace the money as it passes through the system.

I mean, given the publicly stated reasons why bitcoins exist in the first place and why its proponents would gravitate towards it then does not having a actual value based on it's exchange rate with the us dollar kinda of, you know, defeat the purpose?

Its proponents (ie. Libertarians) gravitate towards it because it is a currency with no centralised control. All real world currencies are under the control of central banks - the Fed, ECB, Bank of England, etc. Pegging it to the dollar would make sense from a practical perspective of what Bitcoin is used for today (for the most part, things that are not exactly legal), but would destroy that aspect of its design. It's also not obvious how you'd have a decentralised currency that was pegged to a real world currency.

I think a good analogy for Bitcoin is Bittorrent: both are "agnostic" technologies that can be used for legal purposes, but the overwhelming use of them is not legal.

This is literally baseball cards, except baseball cards could potentially have intangible personal value outside of monetary concerns.

No currency has any real tangible value to it other than the value we ascribe to it via supply and demand. Bitcoin is no different in that respect.

[Quast]

fraggle said:

Its proponents (ie. Libertarians) gravitate towards it because it is a currency with no centralised control. All real world currencies are under the control of central banks - the Fed, ECB, Bank of England, etc. Pegging it to the dollar would make sense from a practical perspective of what Bitcoin is used for today (for the most part, things that are not exactly legal), but would destroy that aspect of its design. It's also not obvious how you'd have a decentralised currency that was pegged to a real world currency

I understand that, but it still doesn't answer my question. I don't think anyway...

What I meant was, libertarians adopt the bitcoin concept because of all these reasons, they hate the fed, lack of a gold standard and fiat money but if bitcoin is irrevocably tied to the USD it then it is in essence the exact same thing. That doesn't make any sense unless the entire operation is a deliberate scam. There doesn't seem to be anything libertarian about it.

Maybe I just don't understand the libertarian mindset

[fraggle]

Quast said:

I understand that, but it still doesn't answer my question. I don't think anyway...

What I meant was, libertarians adopt the bitcoin concept because of all these reasons, they hate the fed, lack of a gold standard and fiat money but if bitcoin is irrevocably tied to the USD it then it is in essence the exact same thing. That doesn't make any sense unless the entire operation is a deliberate scam. There doesn't seem to be anything libertarian about it.

Maybe I just don't understand the libertarian mindset

Well, first thing to remember is that the libertarian proponents of Bitcoin are not necessarily the same people who are using Bitcoin in a practical sense today.

But from a more practical perspective, a currency is only as valuable as it is useful. If you want to go down the road to your corner shop and buy some milk, they probably don't accept Bitcoin, but they almost certainly accept USD (or whatever your local currency is). So in a practical real world sense, it's the USD value that matters. Because of that, people will set their prices in USD.

If Bitcoin had a more stable value (rather than the current ridiculous boom-and-bust cycle we've seen over the past few months) then perhaps more people selling things in Bitcoins might be tempted to start setting their prices in BTC instead. But it would have to mature and stabilize a hell of a lot before anyone with half an ounce of sanity would be tempted to do something like that.

The flip side is that I think that's the reason why real world currencies don't experience that kind of instability: there are literally millions of people buying and selling things in USD every day. That gives it a momentum that stops any wild fluctuations: people have already agreed roughly how much the currency is worth. The value can only change very slowly over time.

It remains to be seen whether Bitcoin will stabilize enough. I suspect it might become more stable as more people use it. Time will tell.

[GreyGhost]

fraggle said:

Certain things are really suspicious - like the original author being an anonymous pseudonym.

If I'd invented something that turned out to be a great enabler of illegal trade, I'd want to remain anonymous.

Quast said:

if bitcoin is irrevocably tied to the USD it then it is in essence the exact same thing.

Bitcoin needs to be tied to a real world currency in order to establish an exchange rate, without that link you might as well express its value in Monopoly money.

[fraggle]

GreyGhost said:

Bitcoin needs to be tied to a real world currency in order to establish an exchange rate, without that link you might as well express its value in Monopoly money.

I don't really see why. The exchange rate comes from the various markets, where it's traded for other currencies. In that sense it's not really fundamentally different to any real world currency. What it needs in order to be more stable is a larger economy of people using it. In that sense it needs to be tied to the "real world" though not necessarily a "real world currency".

[AndrewB]

People's complete lack of ability to think several steps ahead always amazes me.

Stop thinking of Bitcoin as a currency, especially if you're deciding whether or not to buy some. Bitcoin is a currency prospect. You don't buy it today for its usefulness, you buy it for the huge potential gains should it become a widely accepted currency.

This formula is what allows it to be buyable at all stages from infancy through to realization. Early adopters buy it hoping to get rich. Late adopters will buy it as a flight to safety, away from overtaxed and overinflated currencies.

[GreyGhost]

fraggle said:

I don't really see why. The exchange rate comes from the various markets, where it's traded for other currencies. In that sense it's not really fundamentally different to any real world currency. What it needs in order to be more stable is a larger economy of people using it. In that sense it needs to be tied to the "real world" though not necessarily a "real world currency".

I don't mean pegging the Bitcoin to a real world currency, just nominating one to express its value in. In theory there's probably nothing stopping the gold standard from being used (or anything else with some tangible value - such as tins of baked beans), but apart from canny individuals like AndrewB few of us would have the means to redeem Bitcoins on demand, so for now we're stuck with fiat currency - preferably a fairly stable one.

[Csonicgo]

If anything, this should be a klaxon to libertarians claming that "fiat currency is as volatile".

[AndrewB]

GreyGhost said:

I don't mean pegging the Bitcoin to a real world currency, just nominating one to express its value in.

How is this relevant to anything? By this logic, are we going to improve vehicle fuel efficiency by measuring it in liters/kilometers instead of miles/gallons?

[Technician]

This Bitcoin sounds like a good way to buy contraband over the net. I've heard many of the social justice-tards raging about Bitcoin over on Reddit and Something Awful, rallying to have it banned.

Of course, banning a new type of transaction just becasue people are using it to traffic materials would be akin to banning real tender becasue it doesn't leave a paper trail.

[GreyGhost]

AndrewB said:

How is this relevant to anything? By this logic, are we going to improve vehicle fuel efficiency by measuring it in liters/kilometers instead of miles/gallons?

If you prefer to use the Vietnamese dong as your benchmark currency (or navel lint for that matter), that's your privilege. If Bitcoins are to be used as currency, buyers and sellers have to agree on their worth in cash or kind, otherwise you might as well express their value in grams of rocking-horse shit.

As for speculating on the potential future value of Bitcoins, I doubt they'll fare any better than tulips

[fraggle]

GreyGhost said:

I don't mean pegging the Bitcoin to a real world currency, just nominating one to express its value in.

Then if you don't mean pegging it to a real world currency, I really don't get what you do mean.

[Maes]

Fiat money is a prime example of consensus reality: it has value only because enough parties believe it to have, and mutually agree on what this value is. Not only that, but they all agree to use it as a method of payment, accept it as legal tender, and even recognize its -partial- interchangeability with different types of fiat money (foreign currencies). This acceptance is due to no small part to the fact that a numerous group of others (with whom trade is deemed worthwhile/profitable) already accept them, in a kind of perverse chicken-or-egg paradox.

The premise is of course that you can actually buy some goods or services with a given amount of fiat money somewhere in the world, at some point in time, othewise it would just be monopoly money/banana leaves.

Of course, there are some currencies that are "out of the loop" (e.g. no western nation recognized Soviet money, and even the Soviet government frowned upon it getting out of their territory), or so devalued that you can't really rely on being able to buy anything with them (e.g. it's pointless to stockpile Zimbabwean dollars, as you might not even be able to hire a hooker in Zimbabwe a week from now, devalued as it is).

[fraggle]

Same is true of non-fiat money really. Gold only has value because humans ascribe value to it (it's shiny, and makes a good electrical conductor).

[AndrewB]

You guys realize that Bitcoin is not fiat, right?

[Maes]

AndrewB said:

You guys realize that Bitcoin is not fiat, right?

So it's something of inherent value, such as gold, or at least of practical/inherent value, like e.g. food or a car?