Bitcoin's Black Friday
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MtGox has been fundamental to the whole pump-and-dump side of bitcoin so it wouldn't surprise me if they're manipulating the market.
Have you tried contacting them on the Bitcoin forum or IRC? Or perhaps send another email.
You can see his recent posts here and get a feel for the situation: http://forum.bitcoin.org/index.php?action=profile;u=2134;sa=...
What I mean is, investors can be twitchy, and susceptible to manipulation. It's sane to assume that people who invest in Bitcoin would be the same. Right now Bitcoin is new, so I doubt there's any sort of "Round Trip Trading" style activities going on, but should those types of speculators move in, could Bitcoin survive it? Especially since there's no laws protecting it.
No government institution is going to be holding bitcoin's value anywhere. In a large, fully mature market, this wouldn't necessarily be a problem, because bitcoin would just trade at whatever its true value was. In a smaller market, especially an opaque one, it will be pretty easy to temporarily manipulate the price for fun and profit.
I'd be ready to chalk up this drop to a speculator, except I doubt the market is mature enough to support arrangements that would enable reliable short-selling. The run-up is definitely at least partially orchestrated, however, and not by the guys who write public blog posts titled "why I put all my savings in bitcoin."
Especially since there's no laws protecting it.
There are a couple of things to point out:
* How well do traditional laws hold up in this new distributed, de-centralized model. In particular, if bitcoin is to take off are protection laws (like traditional currency) necessary?
* How does Bitcoin's anonymity help or hurt such a legal protection? If people decide to mess with BTC will its anonymity come back to hurt it?
Most of the protection laws were in response to abuse of the system. BTC crashing would destroy the lives of people like this one http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving...
Then it becomes a question of whether any technological "patches" need to be made in order to prevent subversion of bitcoin's agenda, whether the courts and govt. get involved via punishing the manipulators, regulating or banning BTC, etc.
This is shaping up to be a highly risky pyramid scheme type deal. If you get in early and strong, you can expect a high payout, but the longer you hold on, the higher both the rewards AND the risk of a total bust.
Also, I think that "no laws protecting it" is actually a good thing. Look at what happened to GBP when Soros went after it (another comment focuses on that...) - he earned huge amounts of money, and the UK Central Bank suffered huge losses. They also changed the currency regime to "no laws" to prevent such manipulation in the future.
EDIT: I want to strengthen the statement that I'm not accusing the operator of manipulation. He's well-respected by bitcoin forum participants, and he is probably an upstanding guy. But in the world of finance, it is customary to have more than just that to guarantee the soundness of a central exchange.
Add to this the fact that Mt. Gox is taking deposits totaling in the millions of dollars without having any license to operate as a financial institution, and that it apparently hold around 10% of all existing bitcoins (someone traced a 470,000 bitcoin movement to a Mt. Gox account), and I have a strong feeling that this will soon end in tears.
Let's face it, 99% of the excitement about bitcoin lately is not along the lines of "hey, this is a great use of peer-to-peer principles and a fascinating economic experiment with a decentralized currency". No, it is along the lines of "hey, this thing is making tons of money for people! fortunes out of next to nothing!". Take one look at the bitcoin forums.
A failure of a major exchange (and right now, there is exactly one major exchange) would damage the project severely. What's more, the focus on trading at exchanges is making the whole project look a lot less decentralized - yeah, the bitcoins themselves are peer-to-peer, but exchanges are sure not, and if what people really want to do is trade at exchanges, then that's what matters.
But you do agree that Mt. Gox sitting there with several million euros frozen in its accounts (for whatever reason) and with its bitcoin accounts inaccessible (even just for a while) will be pretty damaging to the project? And even more damaging to the people who, unlike, say, me, are NOT just playing or experimenting with this concept anymore? The pure person-to-person volume is tiny; if it could easily be scaled, then exchanges would not have arisen.
p.s. I was told that posting a direct link is frowned upon and I understand that. But since not using a ref id will lead to a 10% penalty on fees, I feel bad not leaving one: TH-R11089
Discussion about tradehill: http://forum.bitcoin.org/index.php?topic=14010.0 (You can find other referal ids on the bitcoin.org forums too)
Bitcoins are a serious investment for some people now. They've put their savings into this. This is not just funny money. It's a lot of fun to play with, and I will keep doing that myself, but the people who are not just playing anymore have an immense potential to get hurt by these exchange swings.
By the way, I am nobody here on HN, but I do know that this is not the forum to post your affiliate links. My friendly advice would be to get rid of that.
As for the 'investment': Honestly, the people that invested their savings into Bitcoins should be fully aware of the risk they're getting themselves into. As with everything that might give return your investments manyfold, there is a proportionally high risk.
I don't think it's a good idea to make large investments into Bitcoin unless somebody doesn't need the money and thinks the personal joy he gets out of gambling is worth it. I know I have a lot of fun with small amounts :)
As for the link, I'll remove the directly clickable one. But since signing up without a referal will lead to 10% higher fees, I'd at least leave the code for people that are interested. I was kind of uncertain but didn't find anything when skimming the FAQ or guidelines. I hope that is ok. (If not, somebody please respond and I'll kick that one too)
Even if there are 2 exchanges, or 5, or 10, that doesn't change the basic fact. After all, there are hundreds of central banks, but we don't refer to regular currency as peer-to-peer. My further point, as an aside, is that the shaky nature of the bitcoin exchanges makes this a dangerous investment for anyone who is treating this as more than an experiment. Failure of even one exchange out of several is still very damaging to an economy.
Currently I like Bitmarket.eu most: This site acts as an escrow just for the Bitcoin side of the trade - the "real" money is directly transfered between buyer and seller (via bank transfer or Paypal). That's somewhat more distributed than other sites that act as "full gateways" between buyers and sellers.
I don't see how the existence of that site, and trading over IRC channels, changes the fact that the bitcoin economy has become centered on Mt. Gox, and in the future, maybe, on several other exchanges. I never said that Mt. Gox is ALL there was.
BTW, I see the reasons that a proper exchange is more popular - there are 3 or 4 transactions an hour on bitmarket.eu, the escrow provisions are weak (as you said, it's for the bitcoin side only), the Paypal fees will be high on the small amounts traded, and trading higher amounts will get negative attention from Paypal - they will not let people trade virtual currency over their systems (and they consider bitcoin to be in that category).
Do they take deposits? You do realize that exchanging bitcoins for dollars is quite different from taking dollar-denominated deposits?
Of course, we can't be /sure/ of what they've got on deposit - it's not like they employ auditors, or publish reports, or submit to regulations regarding deposits. All that old economy stuff is for losers, y'know.
By well crafted, I mean, they were not obvious, they were designed to provoke response and negative discussion.
Some of those posts might have been genuine, some might have been work of pranksters (some pranksters were public in their desire to make fun of bitcoin market), and some might have been speculators hoping to buy in.
Not that it was much different from the BUY!BUY! manipulation in the runup previously.
Finally, most of the drop might have been just from someone cashing in their big position.
Sure - it might be a somewhat bumpy ride at the beginning and some people might be too afraid to buy any substantial amount of Bitcoins. But for the future I hope that Bitcoin will be a viable alternative to today's payment systems used on the Internet.
Am I wrong to be confused? Am I supposed to buy in to bitcoins with confidence, given the wild swings the currency is experiencing?
I'm not trying to take some random dig at bitcoin. My statement about their volatility is based in fact. I want to be educated on the matter. I find the idea fascinating, but it seems that providing stability should be a goal near the top of the list. Am I wrong about that?
My recommendation: set up an order on Mt. Gox for some amount you'd be willing to pay, like $12 or $13, and leave it there. The way things are going, odds are the price will come back down to that range sooner or later. Of course, I could be wrong. On the other hand, it could drop even further than that; the $12 or $13 number is just based on the recent history.
Actually the fundamental value is well known. It's zero.
http://en.wikipedia.org/wiki/Intrinsic_value_%28finance%29
which is zero -- an owned bitcoin can't produce any income, nor keep you warm at night, nor feed you nor be hammered into jewellery.
A bitcoin is list of signed transactions that is encoded within a chain of blocks verified by a proof of work. A list of transactions is only considered a valid bitcoin if it is accepted by the largest existing block chain.
So a bitcoin must follow certain rules if it is to be considered to be valid, and this means it has certain intrinsic properties. For instance: if you have the private key that signed the last transaction for the bitcoin, you can extend the bitcoin with a new transaction, and that bitcoin will still be considered valid.
So I'd argue that being able to cryptographically transfer a bitcoin is an intrinsic property of the bitcoin, and therefore something that gives a bitcoin intrinsic value (assuming you think this property is useful).
Well shit man, I have some random bytes I'd like to sell you. How much are you willing to pay for 'em?
So I'd argue that being able to cryptographically transfer a bitcoin is an intrinsic property of the bitcoin, and therefore something that gives a bitcoin intrinsic value (assuming you think this property is useful).
Like I've said before (and nobody has yet taken me up on this offer), I'm selling Bitcoin Prime. This has the following properties:
1. Every string of bits that is a bitcoin is also a bitcoin prime
2. All bitcoins prime currently in existence are owned by me.
Does my huge stock of bitcoins prime have any intrinsic value? I think not. But if anyone disagrees them I'm more than willing to part with my entire collection for a hundred US dollars. (I reserve the right to invent bitcoin double-prime as soon as our transaction is completed...)
My point: even if a bitcoin is a string with some unique properties you don't actually own that string of bits in any useful sense, you only own it by convention with other bitcoin users. Bitcoin is just one of an infinite number of possible equivalent systems, and just happens to be the only one in which there's any real money floating around at the moment.
But regarding your "Bitcoin Prime": your system isn't backed by proof of work. My point is that bitcoins are not just a set of random bytes, or even a chain of signed transactions. They are also secured by a proof of work chain, and without this they are not bitcoins, by definition.
So even though you can come up with a set of bitcoin primes, one for each bitcoin, there's no proof of work backing your system. You can't reuse the proof of work that backs bitcoins without knowing all of the private keys, so you'd have to start from scratch.
Not impossible, though. I know there's someone who runs a dice-rolling machine to run games-by-email, because random.org "wasn't random enough" ostl.
Think of the contrast between “value for use” and “value for exchange”. A gold coin, even if you have no interest in exchanging it, can be pretty to look at, or melted down for jewelry. A share of stock, even if it is not being traded, gives you voting rights and possibly dividends. Fiat currency has damn close to zero use-value, but at least you can use it to pay taxes to the country that issue it.
By contrast, without a market for bitcoins, a bitcoin is just a record of spent CPU power.
Creating a token of information that cannot be spent more than once is hard to achieve without relying on a central trusted authority, so I'd argue this inherent property of bitcoins is useful and valuable.
(On the flip side, there are things whose use-value exceeds their exchange-value. If, for example, I am hungry and I have one fresh fish, I would derive benefit from cooking the fish and eating it, but if I’m not standing in a fish market, it’s probably not worth the effort for me to sell it.)
The overall bitcoin protocol has some use-value: even if people stopped trading bitcoins, the protocol for running the system would be a worthy object of study for cryptologists. But you can derive that kind of benefit from the protocol without owning a single bitcoin.
Instead, a bitcoin exists only as an agreement between the CPU-majority in the network. They agree that user A solved a block, and therefore is entitled to new coins, and they agree that user A transferred that coin to user B, and so forth. But there's no piece of data that specifically represents a bitcoin. Outside of the bitcoin network, bitcoins don't exist, and therefore it's meaningless to talk about them in isolation.
Especially on the supply side. Let's say I'm running a coffee shop that takes orders in USD and in BTC. Let's say I want to sell a cup of coffee for $3 or 1 BTC. Or is it $3 or .0001 BTC? Or is it $3 or 1000 BTC? How do I, as a simple seller of goods and services in exchange for BTC, know how to price my items when they can be acquired via other currencies for relatively fixed prices, and huge arbitrage opportunities constantly exist?
I suspect that we'll begin to see web services that handle this sort of conversion automatically. Give them a Dwolla account, and they'll provide you with a Bitcoin address that will automatically dump the equivalent market rate of dollars to your Dwolla account.
The market value could change in that time, perhaps by 10% or more when the market is unusually volatile. However, assuming that these rises and falls average out over the long term, a web service could guarantee the quoted rate.
So the user would buy the product using $20 worth of bitcoin, which would manifest itself as $20 (minus a percentage fee) in the merchant's account within 10 minutes. Any hit (or gain) due to fluctuating exchange rates would be taken by the web service sitting in the middle. Over time the fluctuations would average out - at least that would be the hope - or at least covered by the transaction charge.
Anyway, it's all a grand experiment! Isn't it fun?!
It's going to be a long time before Joe Schmoe is paying BTC at the Exxon station. By the time we get there it'll be much more stable, and there will be banks that charge you for stability.
Additionally, if the government ever seizes the wallet of a dealer, which is likely to occur in the event that a search warrant is executed, they will have a list of addresses with whom the dealer has traded. These addresses can then be found and traced in the publicly-available tx chain. In this way even innocent people may be implicated in investigations surrounding illicit trades, and trading with a person that doesn't understand the implications of reusing or publishing a btc address can significantly weaken not only your transactions but other transactions that occur in the network.
The anonymity issues surrounding bitcoin are certainly more thorny than they appear on the surface. If you intend on using btc for illegal purposes, you need to understand what you're doing and be very careful, just as I'd imagine you need to do when trading illegally in other media.
(Another symptom of the bubble: there's a three-month backlog. (Was there a backlog on Aeron chairs in 1999?) Considering the primitive tools and exorbitant markup, I can only assume that people are ordering these for novelty purposes.)
Although I must admit, the Financial Times covering bitcoin is news in itself.
Just what I want in my currency . . .
Whether or not the price later regained what it lost on Friday does not really impact the main point of the article - the existence of such a drop, no matter how temporary it was.
a) Telling people not to upvote something, and
b) Justifying that in terms of something I'd never heard of (what's this about lulzsec's claim?)
Most of the time when an article shows up on HN there's a bunch of comments criticising the article for being, in some way, incomplete or wrong. But generally they don't directly tell people not to upvote the article. If you wanna criticise the article just say "One important factor which this article doesn't mention is that LulzSec said the other day that [blah blah details for the uninitiated]"
If I was right then LulzSec or whoever paid him just minted it ... or at least they did if they can ever get their money out again.