Bitcoin exchange rate reached $100 USD per BTC | Hacker News Reader

Bitcoin exchange rate reached $100 USD per BTC

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317 pointsvitalique578 comments

Some people here seem to think that this is temporary, that sometime in the future Bitcoin will stabilize into a glorious future global currency -- never mind the new class of cryptobarons it will have created from its inner circle, through shameless hoarding.

My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't.

The party line usually argues for the evils of inflation. What they don't understand, I think, is that capitalism, in its revolutionary (in the sense of production) facet, needs inflation, feeds from it. Inflation might screw lenders, and favor debtors, sure. But deflation is just the inverse: a gift for the leecherous rentier class, and a massive "fuck you" to entrepreneurs.

There are a few replies here that seem to be reacting negatively to the OP due to the tone of the submission instead of the content. To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible. The reason it's bad is that deflation makes it more profitable to do nothing than to invest. When this happens, people react by not spending money. The market dies. While inflation can be bad, it's at least manageable. In fact, some inflation is actually heathly as it encourages investing.

If that doesn't make sense, think of it like this. Inflation is similar to nuclear fusion and deflation is like nuclear fission. When the former goes critical, you can just shut off the spigots and things more or less fix themselves(albeit with some collateral damage) without the whole system crashing. However, with the latter, there may be no fixing without dismantling everything and starting over.

Deflation is just one form of asset appreciation. If this line of reasoning were true then we would never see anyone selling anything that appreciates in value. But this is a very one-sided way to consider this scenario--it only takes into account the supply side. When the asset is appreciating, the demand side takes this into account as well and is willing to discount their asking price to take this into account. You saw this play out with real estate several years ago, and with gold more recently. It may blow out the bid/ask spread a bit, but eventually there will be people who need to sell their asset to buy something else, or there will be people who want the asset badly enough to pay what people are asking.

I think this argument can be discounted simply by looking at the current state of things--people are still spending bitcoins even though the recent appreciation dwarfs any built-in deflation. Sellers may need to discount their price to get people to pay in bitcoins, but even that doesn't seem to be happening yet.

One problem here is that you're considering the currency as an asset that should appreciate. The argument of most economists today is that currency should not appreciate because it encourages hoarding what is essentially a useless non-good, it's just a token for convenience of value transfer. If real goods appreciate, it's because the value offered by that good to the marketplace has increased, so the market pays a commensurately larger price. If currency appreciates on its own, people will want to hoard it, and will only spend it on things they deem highly valuable. Perhaps you can argue that this is better in the long run and would stop rampant consumerism, but it's pretty obvious that without rampant consumerism, many people would be making less money.

People aren't really spending bitcoins in a meaningful way. They're using it as a passthrough for the dollar, basically. I have a Bioshock Infinite key that I want to sell. Will let it go for 1.5 btc. Why won't this offer be taken up now, when just a couple of weeks ago it would've been considered a fair deal, and just a couple of months ago it would have been considered a GREAT deal?

Why is deflation bad?

Let's look at a single-currency country first. Prices fall. Including wages. Credit is tight - money appreciates without being invested and borrowers have to repay debts in more expensive currency tomorrow, making them more likely to default [Fisher]. People with money benefit - the rich get richer and the banks hoard capital, refusing to make loans. Inflation fuels asset bubbles as the economy over-invests; deflation fuels the opposite as the economy starves itself.

Yes, we have seen deflation. The U.S. and U.K. both experienced crippling deflation in the 1930s [1]. Before that, remember the American populist movement's "Cross of Gold" speech [2]? That wasn't a reaction to an inflationary gold standard. The euro zone offers a more contemporary view of the effects of deflation, as does my Switzerland [3].

Uncertainty in the future path of deflation that is more toxic than deflation per se. The U.S. grew through the Great Deflation in the 1870s and Japan has had mixed real effects from its almost two decade deflation [Morana]. Theoretically, if deflation proceeded at a steady clip, markets could accommodate (Milton Friedman advocated for an economy deflating at the real interest rate [Friedman]).

But what if we have two currencies, e.g. U.S. dollars and Bitcoin? Argentinians have a choice between black market (or "blue") dollars and an available but inflating peso. Tellingly, Argentinians buy dollars primarily for overseas vacations [4]. This is an example of a bad currency (the peso) and a good (the greenback). The Argentinians still execute the bulk of their transactions in pesos, not dollars.

Deflation is not likely to be Bitcoin's death knell, but rather a ceiling on its usage. A deflating Bitcoin will crimp transaction demand for the currency as spenders shift preference to more easily borrowed and spent dollars. Sellers would respond in kind (or, alternatively, sellers who respond in kind would gain market share).

Caveat: if Bitcoins are treated as a financial asset, for speculating versus spending. If so, deflation would proceed un-checked, with speculators driving out the transaction value of the currency. That said, gold has survived both deflation and speculation, so this isn't a fatal blow either.

[Fisher] http://www.jstor.org/stable/10.2307/i332559 The Debt Deflation Theory of Great Depressions (1933)

[1] http://www.amazon.com/gp/aw/d/0143116800/ref=redir_mdp_mobil... See Norman Montagu; British depression

[2] http://en.m.wikipedia.org/wiki/Cross_of_Gold_speech

[3] http://www.ft.com/intl/cms/s/0/1c23c088-60c3-11de-aa12-00144... Swiss central bank moves to weaken franc (June 2009)

[Morana] http://www.icer.it/docs/wp2004/Morana29-04.pdf (2004)

[Friedman] http://www.amazon.com/gp/aw/d/1412804779/ref=redir_mdp_mobil... The Optimum Quantity of Money (1969)

[4] http://blogs.ft.com/beyond-brics/2013/01/17/argentinas-blue-... Argentina’s “blue” dollar blues (January 2013)

With an inflationary currency, you can pay your workers nominally slightly more each year while paying them the same amount or even slightly less in real terms.

With a deflationary currency, you can pay your workers nominally slightly less each year while paying them the same or even slightly more in real terms.

How would the average person on the street react to being told "You've performed really well this year, so we're only going to decrease your salary by 1%. Congratulations on your raise!"?

That is one theory, and is the prevailing one. It is not necessarily correct.

Regardless, it is certainly a consumer's right to store their assets in something that is not inflationary, as most do. Is the population holding empty real estate or gold instead of currency really that much better for the economy? No.

Smart money will simply shift out of cash in an inflationary environment, and the value will not necessarily be productively invested.

An opposing viewpoint more thoroughly articulated:

http://mises.org/daily/4618

Gold is a piss poor investment.

Owning Real Estate (and making money off of it) entails taking care of it. People taking care of their land (so that it can appreciate in value) is a good thing. The typical Real Estate "investor" adds a ton of value to their home, not just through maintenance, but also additions (ie: a new deck).

This maintenance is true value added to the economy. True value that wouldn't have been added if the investor just left his cash in something else.

No one wants to buy a 30-year old home that had no maintenance on it. Unless you're a fan of buying homes with leaky roofs and a flooded basement...

"Is the population holding empty real estate or gold instead of currency really that much better for the economy? No."

A population holding productive factories, tools, and land is a whole lot better for the economy than people hoarding gold.

> To be clear, deflation is categorically bad for a currency. It's terrible, like great depression terrible.

I hear this argument a lot, but no nation that we know of has ever collapsed because of deflation, right? We've never (recently) been in a period of significant deflation, so how can we be so certain of its effects?

> deflation makes it more profitable to do nothing than to invest.

Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it.

People will still work, and spend what they need to. And there's a limit to how much a currency can deflate before it cycles back. And hell, how do we even know that inflationary/deflationary cycles are unhealthy? Even if it causes some businesses to die, maybe this improves an economy in the long term by churning things up a bit.

>Investment won't ever stop, it just behaves more like a there is a minimum interest rate. No matter what the deflation is, I can still loan out $100 and expect $110 back within a year and make a bigger profit than holding on to it.

But is that $10 profit going to be worth the risk of default when an investor could get a satisfactory return by just sitting on the money in the first place? What incentive does an investor have to take bets and possibly lose thousands or millions of dollars when his money appreciates considerably without doing anything?

To use a case from the bitcoin economy, we all know the story of the pizza that someone bought when the x-rate was something like 3 cents per coin. Today, the 10k btc spent on that pizza would have been worth $100k! This story is often told to try to incent people to get into btc, with the implication that "if you forgo the cost of one pizza, in a little while that will be worth thousands of dollars", without realizing that this exactly is the problem with a btc-based economy; if everyone is forgoing their metaphorical pizza in the hope of exponential growth in currency value, the market will be unusable.

Good luck. You're swimming against a tide of people minted from education with the mindset of deflation bad, inflation good.

Of course, everyone likes deflation when it means they can buy more for less. Of course, if prices of things get so low that people start to purchase, then deflation will eventually reverse, unless you assume that deflation will continue forever until prices reach zero and everything is free. Of course, everyone force-fed a diet of Keynes assumes that hoarding relates to stuffing mattresses full of money instead of holding cash in banks, where the bank can lend the money out and still invest. They uncritically swallow the line that a central bank inflating at will is the best thing for an economy.

Inflation/deflation are just two phenomena with different winners and losers, the same as high/low currency values. Deflation favors lenders and savers, and inflation favors borrowers and spenders.

The inflationists always assume that the borrow/spend nexus is far more important than the lend/save. But of course saving drives all investment, so a period of deflation isn't necessarily a bad thing. In fact we see deflation in specific markets like housing which helps to clear out the bad decisions and mistakes and set the base for future expansion.

Once you clear your head of the foolish 'borrow and spend' mantra of the last 80 or so years, and realise that investment and production are more important than spending and consuming, it becomes obvious that a bit of mild deflation isn't necessarily the hobgoblin it is made out to be.

The simple fact is that no economy and social order has ever imploded due to deflation, but inflation has some pretty terrible economic and social effects when it gets out of control. Deflation, like any long position, can only ever go down to zero. Inflation, however, is like any short position and can go to infinity.

>"I hear this argument a lot, but no nation that we know of has ever collapsed because of deflation, right?"

And which have collapsed from inflation? None, directly. Hyperinflation (and deflation) is an effect of an economy collapsing. Not a cause.

From Wiki: "Hyperinflation is often associated with wars, their aftermath, sociopolitical upheavals, or other crises that make it difficult for the government to tax the population, as a sudden and sharp decrease in tax revenue coupled with a strong effort to maintain the status quo can be a direct trigger of hyperinflation."

Note "decrease in tax revenue". Economic crisis > deflation > country can't pay the bills > hyper-inflates currency.

> I hear this argument a lot, but no nation that we know of has ever collapsed because of deflation, right?

The Weimar Republic, arguably.

> The reason it's bad is that deflation makes it more profitable to do nothing than to invest.

This makes no sense to me. If keeping 100 units makes one richer because they are worth more in a year, then any investment which has a positive return (that is, you end up with more than 100 units in a year) must be that much better... What am I missing?

Let's pretend the deflation is at 3% (i.e. there's a inflation rate of -3%). Then your 100 units will be worth 103 units (in today's money) in 1 years time. This is a guaranteed rate of deflation (bitcoin has a guaranteed rate of deflation, I don't know if it's 3%)

So someone comes along and wants a loan, but they can't pay back 3% interest rate, only 2%. Why would you give that person your 100 units if you'll only get 102 units (in today's money) back in a year? Much better to hold on to it.

So someone comes along and can pay you 5% interest rate. Sounds better, right? However it's for a business. So you don't know if their business will survive, it might go backrupt. Let's pretend it's an early start up, so there's a 50/50 chance they go bust and your 100 units are a write off and gone. So that's only a 2.5% interest rate. Again, why loan it out if you can get a guaranteed 3% by doing nothing?

etc.

Because the money supply of BTC is fixed, BTC are effectively proxies for the value of the entire economy that they're a part of. When the economy grows by 5%, so does the value of your BTC. It's at the absolute optimimum point of the risk/reward curve: you could hypothetically invest in a way that performs better than the average, but when factoring in the risk, your expected value is slightly worse than if you'd simply held on to your money.

With USD, you know the value of your currency will drop due to inflation. In order to keep up with inflation, you have to put your money in an investment vehicle that stands in as a proxy for the overall economy. Hypothetically, you could buy a perfectly proportional amount of every single listed stock, every bond, piece of real estate, and so on (this is what index funds attempt to approximate).

In the latter example, you also have managed to convert your currency into an ideal proxy for the entire economy. Any attempt to pick winners or losers will, statistically, give you slightly worse results on average than had you simply tracked the market as a whole.

Both examples are similar, except in the latter example, you've actually put your money back into the economy: a company issued the stock in order to raise the capital to expand and grow. In the former, your money is essentially removed from the overall money supply. It is available to no-one, and causes further deflation. The more money you hoard, the less money available for financial transactions. The less money available for transactions, the more valuable each unit of currency becomes.

Deflation increases the value of holding cash. By definition deflation occurs when the price of a basket of goods decreases. Why invest your money in a basket of goods today when it is going to be cheaper to buy that same basket tomorrow?

I don't see why any investment would necessarily need to be much better. For one thing, investment is risky, while hoarding money is not.

It increases the return on investment needed for a project to succeed. Simple example: I grab the 100btc and buy machinery to support my new factory. Right after buying, I'm losing money, because machinery won't appreciate like BTC does. So, I'm only interested I machinery investments that return over the BTC deflation rate.

This is a simple example. Some of this already occurs in the real world, since machinery depreciates over time. it's just that currency deflation is another force opposing investment and braking money flow.

Those investments may not exist. Investments can yield a positive return only if somebody else spends money. But what if every potential customer also sits on their money to exploit the deflation instead of spending any?

Risk.

> The reason it's bad is that deflation makes it more profitable to do nothing than to invest. When this happens, people react by not spending money. The market dies.

If this is holds true, why do people buy from markets where prices regularly decrease? Wouldn't it follow that they will wait in perpetuity and never buy that new phone/laptop/etc?

> Wouldn't it follow that they will wait in perpetuity and never buy that new phone/laptop/etc?

People derive utility from those things. They make calls with their phone and do work on their laptop.

Bitcoin is entirely different. It's only purpose is to allow you to buy other stuff.

> deflation makes it more profitable to do nothing than to invest

Saving is investing. You're investing in your ability to manage your risk at a future date. If you have no savings, then you are at risk of any minor problem (e.g. an injury, decreased revenue, or a natural disaster) causing you a major setback.

The "common wisdom" you've heard about inflation being necessary for an economy is a lie. It's a lie that justifies the wealthiest class of individuals in this society to be "bailed out" again and again.

No, it's not a lie. Why in heaven's name would the investor class want higher inflation? They don't. The really don't. Our understanding of the benefits of a small amount of inflation comes in spite of the interests of those who already possess of a lot of wealth.

The investor class doesn't want bail-outs, though I'm sure they appreciate bail-outs when they happen. The wealthiest lost the most (in money, though not in utility/standard of living) in the 2008 crash. They'd have much rather avoided the 2008 crash's happening in the first place.

The lie, in actuality, is the idea deliberately promulgated by certain members of the investor class that inflation is evil. They do this for obvious reasons. It is precisely this lie to which you evidently subscribe.

This is part of the issue. The other part is that no one has any incentive to spend money, which can cause a recession. You can either 100 units of something today, or buy 110 units of it tomorrow. This gives you a very strong incentive to wait and not spend money. This means that no one buys anything, so no one needs to make or manufacture anything. People lose their jobs, so they don't have money, so they can't buy things... and so on.

Of course, inflation can be very bad, too.

I can buy a 2014 Cadillac or iPhone 5 next year for 30% less than I can this year. People seem to be buying these things.

In a deflationary environment, people buy less stuff they don't need today, which leads to a higher quality of economic growth.

>You can either 100 units of something today, or buy 110 units of it tomorrow.

People make this kind of tradeoff all the time. I can either purchase a product for $100 from Best Buy, or, I can wait for two days and get the same product for $80 from amazon (or $83.99 and get it the next day).

There are times when I choose to be prudent and save the extra cash and wait 48 hours until the amazon package shows up. Other times, I would prefer the product sooner, rather than later and spend more money for the item.

Which is why everyone in Washington was freaking out and throwing cash out the window in 2009. Crony capitalism aside, they were terrified of deflation(and rightly so).

> no one has any incentive to spend money

> This means that no one buys anything

Think about technology. Every day, the cost of a new computer drops by $0.27 on average, let us say, or about $100 per year. Last year's models have a $100 discount, three-year-old machines have a $300 discount, five-year-old or older machines are bargain basement or even negative value (you have to pay someone to haul them away for recycling).

Every day, your money increases relative to the value of computers. Every day, when you wake up, you face an economic choice: You could buy that new machine today, and have it today, or you could buy it tomorrow, and have the new machine and $0.27 left in your pocket.

By your logic, everyone would always choose to postpone buying a computer.

Yet people buy new computers all the time, and have for several decades. How can you explain that? It's a real deflationary market that doesn't have this problem.

Isn't the value(not necessarily the price) of a currency the size of the market in which it trades divided by the number of units of currency in circulation.

If the market reduces because of a lack of investment, wouldn't the currency reduce because you hold the same proportion of a smaller thing, creating an incentive to stop negative growth.

There is also the factor of the OP's so-called CryptoBarons. Money is just an idea until you actually spend it. If there are a number of people living it up because they got a bunch of bitcoin really early the result would be essentially another form of bitcoin creation. Those CryptoBarons would be adding currency into circulation as they spend, currency that was effectively frozen before that point.

I'm not sure what will happen in the end, but it will certainly be an interesting ride.

Yeah, there is nothing stopping "bytecoins" if early bitcoin holders hoard too much. Same as with dollars and bankers. As long as the system produces more value than the barons seize, people will get value from the system.

> deflation makes it more profitable to do nothing

Isn't deflation for the buyer seen as inflation for the seller and vice versa?

Why would you then not (applying your deflationary spiral model) expect a "market death" from sellers not selling under currency inflation?

Think of it this way:

Person A: one who gives Bitcoins in exchange for Widgets. Person B: one who gives Widgets in exchange for Bitcoins.

Notice the symmetry. The name buyer and seller are arbitrary designations depending on what you consider the currency and what you consider the good being sold.

The inflation/deflation symmetry exists but it is not in the same terms. Deflation for bitcoins is the same as inflation for widgets. The widget holders are desperate to trade their widgets for bitcoins since their widgets's purchasing power is decreasing, but bitcoin holders are reluctant to buy widgets since their value is decreasing.

> If that doesn't make sense, think of it like this. Inflation is similar to nuclear fusion and deflation is like nuclear fission.

Ohhh, now I get it.

> shameless hoarding

Hoarding is a derogatory term, intended to evoke an emotional response from the reader. I prefer the term "saving".

> Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises.

Most bitcoin proponents to indeed reject Keyensian, demand-side economics.

I, for one, think entrepreneurs would typically benefit from not relying on debt.

>capitalism[...] needs inflation, feeds from it

Increasing the money supply helps one class of people: the bankers. It doesn't help the middle class, it doesn't help entrepreneurs, and it definitely doesn't help the common person. It's an insidious hidden tax.

All this talk about inflation reminded me of a funny (in a dark way) propaganda video made in 1933 regarding inflation: https://www.youtube.com/watch?v=JUvm9UgJBtg.

I don't understand how something completely unsupported by the data is repeated as truth.

Historically, deflation is disastrous for everyone, and high inflation also disastrous for everyone. Moderate inflation has the effect of redistributing wealth from capital to work, and tight money the effect of redistributing wealth from work to capital. Compare Australia (loose money) to the Eurozone or America or Japan (tight money) for example.

I don't understand how something completely unsupported by the data is repeated as truth.

Simple; it has never been conclusively and irrefutably disproven. Ergo, it must be true, or else it would have been disproven.

Religion isn't the only one with nutjobs ;)

"Saving" fails to distinguish between different uses of assets.

"Investing" one's resources means putting them to work to create value. "Hoarding" them means the assets are as good as if they were buried in the ground. Investing is riskier and takes more work and more smarts, but any idiot can hoard.

What creates (or is more likely to create) more value? 1 million dollars distributed among promising startups, or 1 million dollars spent on mining gold? 1 billion dollars spent creating an airline, or 1 billion dollars spent on vast swaths of real estate?

That depends entirely on whether the investments are producing genuine value or, say, new ways to hide the risk in mortgages.

Yes, sometimes saying "no" in the aggregate is the right call.

> Most bitcoin proponents to indeed reject Keyensian, demand-side economics.

That's why we're laughing at you.

inflation is an absolutely necessary force in an economy; without inflation there is little incentive to spend money and as a result there is no real liquidity.

tl;dr; money is useless if no one spends it, that's the whole point.

another way to think about it is a stock. if a stock is priced, and no one is buying or selling at that price, is that price really valid? whats to keep another actor in the economy from pricing a stock totally different if there is a 'dumb' actor wiling to buy at that price.

> inflation is an absolutely necessary force in an economy

I don't think there is good evidence of this "fact". Economics is not a hard science.

A few points, one, you can't argue that bitcoin deflates and therefore is worthless. The is an obvious inconsistency there. Second, imagine if bitcoin had built-in inflation. What would happen if someone would release bitcoin+ with inflation equal to zero (i.e. current bitcoin)? Obviously the "good money" would drive out the bad and everyone would save bitcoin+.

It's not related to your comment, but I'd also like to comment on the Ponzi scheme arguments. My question is, how would you design a cypto-currency to avoid to problem of early adopters getting wealthy (the new ripple has a different scheme, a terrible one, IMHO)? You have to introduce the currency somehow. If you are an early adopter of bitcoin, should you sell now at $100? Maybe you should have sold out when it got to $1.

> cryptobarons it will have created from its inner circle, through shameless hoarding.

This isn't 1941 England and bitcoins aren't sugar. Early adopters in the right thing often make money. Usually on HN they are called investors and congratulated. Sour grapes on missing out? (I did too)

I bought 30,000 bitcoins when they were worth less than a penny and sold them all when the value went up to $0.80. Lol, oops.

If you don't want to miss out again, buy Litecoins and Namecoins. Litecoin will never be worth as much as BTC (because there will be 80million of them as opposed to 20something million BTC) but it will slowly gain in value as it has some impressive features especially suited for online gaming payments with fast confirmation, secure online voting apps, or of course online gambling.

Litecoin is presently $1.30/each I see that going up to $4 at least by end of year now that more people are using it.

You are assuming that the demand for any cryptocurrency responds linearly to the completely arbitrary total "quantity" assigned: Litecoin can't be worth more than Bitcoin because there are more units of them. That's simply not true.

I am a fan of cryptocurrency in principle, but not of this particular oversimplification that was borrowed from some very sloppy thinking on the part of gold enthusiasts.

Limited supply does not reliably ensure certain price behavior independent of demand.

What you should be worrying about is the money supply, not the individual coin value.

Is there any acceptance in commerce of these competitors? Unless there is an underlying demand created by available products, these coins will be worth nothing.

In my opinion, features won't matter. Bitcoin has critical mass, and it's unlikely to face real competition.

"Lol, oops."

I'm sure there are a lot of other "oops" and "fuck" moments in many bitcoin watchers' moments. If you can laugh about it, then more power to you. From what I've read, when they first came out, they were very hard to obtain and people were actually excluded from it (is this true?), so someone must have seen the value. I first came across it on github in late 2009 when searching for project ideas but skipped over it as some type of scam. Others only saw value in building bitcoin apps, rather than simply holding the coins.

What are you looking at now?

I am not sure about namecoins. Nobody is developing namecoin for a year, there are bugs and security holes and tons of weird decisions in the design.

I don't know enough about litecoins to say.

1. Unjustified moral reference to "shameless hoarding". Where is the magical date when your property belongs to you for "too long" and you should give it to someone? And to whom exactly?

2. Why take credit for business if you can save your own earned money which appreciates over time and have 100% stake at your own project?

3. How deflationary spiral is supposed to happen? Will people be paralyzed and dead of hunger and thirst holding their precious coins? Or they will trade with each other to get stuff done?

Property rights are a fiction invented and enforced by society. Therefore, it's not inappropriate for society to occasionally have opinions on how property should work.

Some of the ways people handle their property is detrimental to society. If enough people do it, hoarding capital is one of them.

You did not answer my questions regarding hoarding. If you don't have an answer, how are you so sure about moral character of "hoarding"?

Re: 3. The deflationary spiral doesn't end in a whole bunch of people dying of hunger, exactly, it ends with them all starting their own subsistence farms rather than spending on food, and making their own clothing rather than buying pre-made. Basically it retards progress, sends people back into the dark ages where they have to fend for themselves. I can't imagine a country ever allowing that to happen, so you had better believe that they wouldn't allow something as deflationary as bitcoin to become the de-facto currency. When you need a loan, the banks will be giving you something other than bitcoins. So I don't worry too much about this particular dystopia, it will never come about.

You are espousing one form of economics which many consider unsustainable.

Regardless, many assets are deflationary. Rich people buy real estate and commodities because they are deflationary, or at least not inflationary. There is nothing wrong with assets that grow or maintain value.

Bitcoin is a liquid and easily transferrable deflationary value store, just like gold. Telling people they should submit to inflation for the greater good is ridiculous. Inflation works because it keeps those too poor to have real assets on the gerbil wheel. The wealthy (or smart) just store their money in non-inflationary assets and sit pretty.

Besides, if you can't get better than a 4% return, you probably shouldn't be investing in whatever it is you're considering anyhow.

Sustainability is really the achilles heel of inflationary economics. The Earth is finite. Exponential growth cannot continue forever. When a steady state is reached, that's apocalyptic to inflationary money systems since debts all the sudden can never be repaid.

Edit: I don't think space colonization matters here. Sure, it may be possible. But Mars is sufficiently far from Earth and the energy cost of transport sufficiently high that a populated Mars would effectively be an entirely separate economy for everything but intangibles. I don't think a Mars colony would permit Earthly exponential growth to continue, even though Martian exponential growth could occur for quite some time. (Until Mars' own unique limits were reached.)

> everything but intangibles

So, everything but 90% of the economy in forty years' time?

Why would you want to repay the debts in the first place?

People will find plenty of ways to kill each other before the Earth's resources are exhausted. We have a billion year energy supply and raw materials are never lost, only converted from one form to more annoying forms.

Inflation works because it keeps those too poor to have real assets on the gerbil wheel.

Quite to the contrary, it gets the proletarians out of debt!

> Quite to the contrary, it gets the proletarians out of debt!

Yes. All the proletarians whose debt is at an interest rate under the rate of inflation. Which is exactly zero of them.

That is backwards. Inflation helps debtors, punished capital holders, and is irrelevant to hand-to-mouth wage earners.

Price inflation only hurts wage earners when it is coupled with flat nominal wages-- but that is merely a (too powerful) psychological trick that people don't notice.

All wrong:

- Inflation does not help debtors, unless they don't pay interest. Inflation is added to interest rates, so it has no effect. Inflation only helps debtors if they have a fixed interest rate and inflation goes up, which clearly not desirable or sustainable over a long period. In fact, inflation encourages debt, which creates a further enslaves debtor class and enriches capital holders.

- Inflation does not hurt capital holders. Anyone with sufficient capital holds assets that are not inflationary, such as gold or real estate.

- Price inflation hurts wage earners because real wages drop rapidly and requires nominal "raises" which creates a false reward, thus the hamster wheel. Got that 10% raise after 3 years? Congratulation, you make the same amount of real wage. Further, low wage earners can not afford or don't have the savvy to purchase inflation resistant assets, so what little they do have either depreciates or is inflated, thus the hamster wheel.

I may sound like a Marxist, but I am not. I believe in the free market and real currency, not the modern mess we have.

You are saying that there won't be any growth because people will hoard all money because they want to participate in the (non-existing) growth? Isn't that self-contradictory?

I think you are wrong. Imagine living in such an economy and facing the choice between hoarding (4% deflationary gain) and a good investment (10% gain). What would you do? All I see happening is that less money is being spent on bad investments due to artificially low interest rates as it happens to today.

Clearly, since new land isn't being created anymore, everyone is going to shamelessly hoard real estate. Why would anyone ever buy or sell a house anymore? REAL ESTATE IS ALL A BIG DEFLATIONARY SCAM- You heard it here first.

Actually in the UK this is exactly what has happened since nobody pays property taxes over there. My fiancee owns her house but still pays rent to a land lord.

When there are no liabilities for holding an asset, there's not a big incentive to sell it.

>My fiancee owns her house but still pays rent to a land lord.

How... what...? Please explain.

Not sure what you mean, since someone who owns a house doesn't have a land lord.

The realtors were lying to you when they said real estate always goes up in value. ;-)

Jokes aside, any sort of investing in illiquid assets is fraught with risks. We are talking about a currency here which by definition requires liquidity to be useful, these are two very different things.

You totally wrong, and the reason you are wrong, is because you do not understand growth. Like... totally.

Yes, I'm arrogant and I'll deal with an idealized model where the same set of resources is transformed into final goods, but bear with me.

In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before.

Which is the same as saying the the only way to grow is to find ways to produce final goods cheaper.

And because production is cheaper, more goods could be sold but.. entrepreneurs will still make a profit. Pretty much the same.

And the fact that final goods get cheaper means just that.. That goods get cheaper.

And you will not get rich by just holding bitcoins, or any other fixed supply money. Yes, you will be able to get more stuff for but only because the stuff get cheaper..

You'll still hold the same fraction of total purchasing power that as the day you decided to "hoard" your money for a while.

That's not what I call getting rich, and that's why loans and interest make sense and are safe with bitcoin.

P.S. Take you time. It's late in my TZ.

> In order to get a real growth of 4% be it per year or per century in such a scenario, you need to find a better use of resources so that with the same resources you may produce an output which is 4% greater than before

Let's work through an example. I buy 100 seeds for $1 each. I plant them, let them grow, and harvest the result. I now have 104 seeds. My real growth is 4%!

Now I want to sell the seeds back to recoup my investment. But I discover that prices have dropped by 4%: seeds now go for 96 cents apiece. My 104 seeds now are worth $99.84! I would have been better off not buying seeds at all, and instead just holding on to my money. Real output is reduced.

This illustrates how deflation inhibits growth.

Do you suppose that there is some sort of seed-factory producing the seeds at no cost and selling them into the market, or do the other seeds in the market come from plants which produce only 4% y/o/y growth in the number of seeds? In the latter case, has the entire seed-planting industry taken a loss over the last year? And if so, would less people plant the seeds this year, so that planting the seeds would again be profitable (assuming demand is static relative to decreased production)?

Do the seeds or plants have any purpose other than the production of more seeds to eventually be sold?

You are joking right?

But if you are serious, error is here: But I discover that prices have dropped by 4%

You do not simply drop prices, like that. Why did prices drop? (Price) deflation is just a descriptive name not a moving cause. (Price) deflation is not a knob which someone simple turns up and down.

Now depending on why exactly the prices did drop, and by how much you may be either in or out of luck.

Let me paraphrase that the way I understood you.

In a case where monetary supply is fixed (ie gold), if you hold on to it for a period of time, you will get more goods for it than now. That 'more' will correspond to economic growth over the period. You will have the same fraction of the purchasing power pie as before, but now the pie is larger. Does not look like a win to me, but this is the judgement call for the reader.

PS. Yes, I am simplifying and ignoring some thing like velocity of money and fluctuations in economic output, and growth of capital, human resources, and technology.

Yes, that is it. Contrary to the popular belief, just holding money under fixed supply monetary regime doesn't make you rich.

A Rip van Winkle with a year savings (say clerks' job) falling asleep for a 100 years will not wake up a Rockefeller.

If you want to take the red pill: Please read F.A Hayek's critique of "The Paradox of Savings" (http://mises.org/daily/2804) for a refutation of inflationist monetary policy. This was an essay he wrote during the debate with Keynes and others, explaining the flaws in the Keynesian theories. It was written in the 1930s , but explains better than any other theory the dynamics of a fixed money supply currency like bitcoin vs a constantly inflating money supply.

Too many nested critiques of refutations of theories for a novice to make sense of that article.

It's hard to do a TL;DR on this. Here's a link to a meta reddit post I made of all my debates with traditionally trained economists :(http://www.reddit.com/r/austrian_economics/comments/kufu2/ca...). It should be somewhat easier to understand.

Prices change to reflect new knowledge, not "very old knowledge". Everyone buying bitcoins knows the supply growth path, and this expectation is priced in when non-stupid traders buy or sell them.

It's not like ~2035 (or whatever) rolls around and everyone's like "Holy crap! There aren't going to be any more of these! Better quadruple my bids!" No -- there's no profit to be made simply from the fact of supply increase stopping at some point, not when the entire market knows it as well.

So you can't really compare it to a situation in which a government (or affiliated central agency) controls the money supply, changing its mind at future dates, to arbitrarily hold the supply steady when it had been growing before -- which is what is required to get the results you've described.

I have never understood the inflation is good argument.

Looking at PCs, DVD players, etc. it seems price deflation has been great for the consumer and overall "market". Perhaps it has been bad for the manufacturers, but the overall society has benefited from the deflation of those goods.

Electronics become cheaper due to technological improvements, that is, positive supply shocks. That means our real wealth is increasing. That's a good thing!

Electronics might also became cheaper due to, say, someone setting money on fire, so there's less to go around. Clearly in this case our real wealth would not be increasing, so it's not good. But it's not obvious why it should be bad, either.

The reason it's bad is due to our psychology. If the money supply shrinks (and nothing else changes), prices and wages must both go down. But people hate the idea of negotiating a lower wage, so instead wage drops are accomplished through layoffs and unemployment. That's bad because it means that people aren't working: the economy's real output is reduced.

So inflation provides a buffer that allows the economy to adjust wages downwards in a way that we find more palatable than negotiated nominal wage decreases.

The price of Bitcoin won't stabilise. The best you could hope for would be a similar volatility to a commodity like gold or silver. So products and services will never be priced in Bitcoin while there is a better alternative like the dollar which is relatively stable.

A mistake 'economists' make with bitcoin is to draw macroecomic conclusions based on theories suited to single currency economies. Actually we need theories that allow for multiple currencies circulating that have different strengths to understand the effects.

Tl;dr Bitcoin won't change the way we price things, it just provides another option to transfer wealth.

Agreed, but isn't international trade economics the study of economics over multiple currencies?

What we're seeing there is competitive devaluations through printing and recently confiscations. Fixed supply commodities like gold fare well, but their existence doesn't drag the world into a deflationary spiral. Bitcoin's existence won't have macroeconomic implications either.

I believe we'll see some form of inflation through the introduction of new currencies. when the price (ie. deflation) of one cryptocurrency becomes too high other currencies will jump in. the outcome however is unclear, because we are now at an unprecedented point in history. because of the openness of the bitcoin protocol everybody has now the possibility to create his own currency - and the price of adopting a new currency will become marginal for businesses, thanks to new APIs. I have no idea what the long term equilibrium will be.

Since Bitcoin can be subdivided and is used (rather than held) primarily as a medium of exchange, there's no reason for increased price in dollars to decrease its use as a medium of exchange... let alone a store of value. Unfortunately.

In testament to this, Litecoin, a bitcoin-alike that creates 4x as many coins and has been designed to be harder to do ASIC mining, has just recently gone above $1

So you claim hoarding will kill Bitcoin. You are wrong for a very simple reason: the ultimate goal of hoarders is to eventually profit from their fortunes by spending it. They may spend slowly, but they will spend it, and this spending is what will ("should", to sound less pretentious) keep the Bitcoin economy alive.

Basically Bitcoin hoarders are not going to sit on their fortunes and passively watch Bitcoin dies.

"My question is, what then will happen when Bitcoin stabilizes, that is, when the time to new coin mined approaches practically infinity? Let's assume the global economy grows at 4% per year. Do Bitcoin's proponents believe a constant 4% deflation rate will be somehow compatible with capitalism? Why lend, why build new companies, when simply storing it is more than enough? Take shocks such as bubbles and demand-side crises. Could a economy based on Bitcoin survive them, and not crash inevitably into a deflationary spiral? I claim it won't."

This makes the assumption that people won't make their own forks of bitcoin. If there's a shortage of bitcoins, and not enough is being mined to meet demand, I think that will give more incentive to people to make their own forks of the currency. Maybe will see various communities forming their own currencies for their own trading purposes.

Surely the problem solves itself - if nobody invests, then there is no growth. If there is somehow growth without investment (because everyone is hoarding currency)... then that's a problem I'd like to have.

Bitcoin will never be a government backed cryptocurrency they will make their own like Canada is doing. Governments want to track all money, and be able to print trillions to fight illegal wars bitcoin/gold standard prevent that behaviour.

To me bitcoin is excellent for e-commerce because of it's secure signatures you can use for escrow, proof of payment, decentralization so nobody can interfere with your commerce and safety for me as a merchant to prevent fraud.

Most businesses are started with savings and money borrowed from family. Most entrepreneurs would do just fine in a deflationary environment.

You seem to misunderstand certain aspects. If economy will grow at 4% it means that people get on avarage 4% on their investment be that work, assets, capital. Its still beneficial for them. Even with deflation at this assumed 4% they will simply invest in things that have better ratio of roi/risk.

Deflation is not obviously bad. We had deflation during the whole industrial revolution and things were running smooth. If people hold on to savings rather than invest suppliers will quote higher prices in order to put the money back into system or hoard the money for themselves.

One thing for sure. You wont be robbed out of thin air and that whats inflation is for. Central bank has no money for retirment... fiiiine, let print more -> market will stabilize itself.

Plus if the value of bitcoin goes sky high. It will be lucrative to mine again. It has the mechanisms of selfhealing.

The deflationary nature of bitcoin is by design, yes, but the thing with cryptocurrencies is - if it's somehow unsucessful, people can either ditch the currency and make a new one, or if most of the miners agree by consensu, even change the bitcoin protocol with its deflationary nature itself.

For example, if the economy will be in such a terrible state thanks to the deflation, somebody can do a fork of bitcoin that will not have halved mining reward (and thus not having finite number of bitcoins in existence), and if the miners will jump to this new version (and probably clients, too, not sure about that), this new currency will be used as easily as the old bitcoin.

If I am wrong technically, please correct me.

The nice thing about bitcoin is - nobody enforces anything.

the need for inflation is a widespread belief, not a fact. Of course people would still spend their coins. How would they buy services otherwise? what monetarists do not understand is that if you could save money, that would free many resources now used to hedge against inflation, and they would be available to better use and cheaply. Furthermore we all would be inflation-protected, and not just the rich who can afford to do investment. Furthermore deflation revalue your salary, and you should not be fighting with your boss for a payment increase, but he would have to give that fight you to decrease it. We wouldn't have an economy based on the ever growing, ever spending

It's thoughtful yet mistaken posts like this one that make it clear how early we still are in the Bitcoin game.

Capitalism doesn't need inflation. Capitalism works best with a hard currency. Money gaining 4% per year in purchasing power isn't "deflation". The notion of "4% growth" is ill-posed.

I could back these statements up with logic and evidence, but experience shows that virtually no amount of rational argument ever convinces anyone of these points. Luckily, rather than arguing till we are hoarse, those of us who have swallowed the hard-money red pill can now put our money where our mouth is and buy some bitcoins.

while Bitcoin is deflationary due to monopoly, crypto-currency is inflationary.

Bitcoin's value is not held by how hard it is to mine them. It's held by how bad people want to use crypto-currency for trading behaviours.

When bitcoin's value become too high to be used for normal trading, it's value will decrease, simply because people will invent new types of crypto-currency(i.e litecoin, namecoin) to replace its function. When less people using bitcoins, no matter how 'hard' its mining algorithm gets, its price will drop.

Therefore crypto-currency is inflationary, and that's why Bitcoin will become inflationary eventually.

That is a good point and that is a big weakness of bitcoin. Fact of the matter is this crazy appreciation is not very good for the currency. It encourages hoarding and discourages commerce. For all the stories about appreciation I do not hear many stories about bitcoin actually being used as a currency. And why would it be. Most people holding it believe it will go up in the future. Why would they spend their bitcoins on commerce if they think those bitcoins will be worth ten times their value in the future.

Currently bitcoin is not a currency but a very speculative investment.

Deflation generally benefits almost everyone. Things get cheaper and cheaper over time, while the amount of money you make stays the same. Technology is a beautiful example of this. Almost every year technology gets cheaper and cheaper, and better and better for the same amount of money spent. And of course this is great for everyone and I don't think many would dispute that.

Imagine a world where that wasn't true. Imagine you had to spend more and more every year just to get the same quality of phone or computer or TV. Now ideally, and depending on what's causing the inflation, your income would increase at exactly the same amount and so it wouldn't make a difference. The same quality TV would cost the same percent of your wage in 1960 as it would in 2013.

But with deflation it's the opposite. Your income will (on average) remain the same, since the amount of money in the economy hasn't changed and it's being divided over the same number of people. But prices will go down due to the economy growing, increasing efficiency, technological improvements, and all that good stuff.

You may see a slight flaw in my argument. Presumably the same amount of stuff is being produced in both economies, regardless how the currency is changing in value over time, and presumably there are the same amount of people to receive all the stuff being produced. So how can people in the deflationary economy be richer, on average, than people in the inflationary one?

Well on average, they aren't. Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them.

Only on average does everything stay the same, but it's a zero sum game where for one person to benefit, someone else has to lose. The amount of goods in the economy hasn't changed. But the person with more money (obtained through printing money) gets a bigger piece of the pie and therefore everyone else gets less.

Inflation is just a really confusing, inefficient, and indirect form of wealth redistribution. Whoever gets the printed money obviously gets to benefit from it, and everyone else is therefore poorer, including your entrepreneurs and investors and consumers and everyone else.

The only way this isn't true is if the money is distributed perfectly equally so the percentage everyone has is exactly the same as before. However this is not the case in the real world at all.

> Things get cheaper and cheaper over time, while the amount of money you make stays the same.

This can't be universally true. If food gets continually cheaper, unless the cost of owning land and farming it goes down by the same amount, farmers must eventually make less money than before (or be driven out of business entirely).

And I don't quite buy the comparison between technological progress (where things get cheaper due to massive amounts of competition and research) and switching to a fiat currency which is arbitrarily limited (bitcoin). Using bitcoin doesn't guarantee technological progress.

> Inflation as you are talking about it is caused by the money supply increasing. Usually due to the government printing more. Whoever gets the money first is suddenly richer, because prices haven't increased in response to inflation yet. The amount of money they have relative to everyone else has increased. Therefore everyone else has become poorer relative to them.

Yes, printing money is in effect a government tax for usage of that currency.

inflation vs. deflation: I have three points for your consideration

1) High tech sector has been experiencing massive deflation for decades and is thriving. Why? Is deflation really that bad when it comes from productivity? We know deflation due to massive decrease in money supply or velocity is bad, but what is wrong with slow, steady deflation from productivity?

2) With 2-3% steady deflation, won't interest rates adjust? People will lend their money out to earn a better risk adjusted rate than deflation. There isn't some magical number or percentage where people will start or stop lending. It's more like behavioral economics where people have several choices at different risk profiles.

3) The biggest proponent for an inflationary system is the banking system and economists who are funded/trained/selected by the banking system. This casts a lot of doubt on 'inflation is bad for lenders' statement. In a deflationary system, productivity gains go to the consumers (via lower prices). In an inflationary system, productivity gains go to capital owners (via debt and higher prices).

The US experienced very strong but volatile economic growth under a capitalistic fixed currency system (gold standard) that had periods of deflation and inflation in the 19th century. There is no historical basis that shows that capitalism needs inflation.

One thing to consider: In 30-50 years the world population starts shrinking, however, amount of bitcoins will stay the same. Which in turn is likely to inflate it's value and possibly offset the deflation.

I added a Bitcoin purchase option to Scribophile to test the waters. But I'm interested in a Bitcoin economy, not a USD cash alternative--the situation where a Bitcoin has its own value, not a value dependent on a different currency. For that reason, I decided to fix the price of an upgrade to 2 BTC, not peg it to the dollar like most other sites do.

Unfortunately it seems like that's just not going to work at this point. I set the price at 2 BTC when the exchange rate was $35--like two weeks ago or so. That meant the BTC membership price was about in line with the USD price. But in a few weeks, the value of a Bitcoin has tripled. Since most people using BTC ultimately want to convert it to dollars, this insane instability makes BTC impossible to use for anyone interested in a pure BTC economy. Too bad.

One reason debt-backed currencies are relatively stable (vs stocks, commodities, and bitcoin) is that they are pegged to an interest rate, in the case of the dollar the (at least what used to be) the risk-free rate of return. You can even think of them as derivatives of the interest rate, for a loose definition of derivative.

This bounds their volatility in a way that bitcoin can't, and makes me wonder if the lack of a similar stabilizing mechanism isn't a long-term flaw in bitcoin's design.

The only way I can see bitcoin ever reaching a similar level of stability is for its market cap to reach a level such that it stabilizes under sheer weight and momentum rather than any built-in mechanic, which could require exceeding that of all other currencies combined (making speculation and market manipulation difficult or impossible), no small feat.

The lack of a stabilizing mechanism is a feature, not a bug. The risk-free rate of return on dollars only exists because the central authority possesses compulsive force of taxation and/or inflationary power, to pay out the return that it guarantees. Bitcoin is of course designed without any central authorities, inflationary power, or compulsive force.

Flipping around the question, how could a risk-free rate of return exist in Bitcoin at all? Nobody has the power to create more currency or forcibly acquire some in order to satisfy a promised payout.

As ever: Bitcoin is a lovely medium of exchange, a horrible medium of account and hence a purely bubbled store of value.

I believe the proper course of action is to make a calculation, involving: 1. a given velocity of money and thus a derived desirable monetary volume for a given economic condition 2. a projected percentage of that economic activity that makes sense in bitcoin 3. a projected economic condition

Even if there is no value in BTC as a medium of account, the quantity of economic transfer it could plausibly come to represent alone has a certain value.

How low do you think it will crash when the bubble bursts? Do you think it will recover again, like it did last time, or do you this time it will stay low?

I believe if/when it does crash there will be an immediate resurgence in the price per BTC, driven by the people who wanted to invest but thought the price was too high. This is why i'm not all that scared investing rather large sums of money into the Bitcoin economy.

It has the potential to be just as good a medium of account as any conventional currency. The common measure of value of bitcoin will stabilize when it is a more generally accepted medium of exchange.

I'm reminded of this: http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...

You need to adjust the price just like you need to ajust prices for any currency. It's just that the value of 1 bitcoin changes faster than other currencies, as it's now being adopted at a quick rate.

A new domain name has been 10 USD from Namecheap for the last decade. A new domain name in BTC however, has varied between 1 BTC and 0.1 BTC in just the past two months.

BTC as a proxy for USD is still useful IMO, it gives us a way to avoid Paypal and other online processors. But for it to be a USD replacement, it needs to first settle down and stabilize.

> it gives us a way to avoid Paypal and other online processors

How do you buy and cash out your BTC? You still have to make all those real money transactions, just with the exchange rather than directly with the merchant. Seems a bit pointless to me.

"A new domain name has been 10 USD from Namecheap for the last decade. A new domain name in BTC however, has varied between 1 BTC and 0.1 BTC in just the past two months."

I agree that the value of bitcoins changes faster than other currencies. However, the fact remains that the prices for all currencies change. Domain names are the exception, but inflation adjusts prices upwards of almost all commodities.

"BTC as a proxy for USD is still useful IMO, it gives us a way to avoid Paypal and other online processors. But for it to be a USD replacement, it needs to first settle down and stabilize."

I disagree with your definition of "proxy". Bitcoin fits the definition of currency, not "proxy-currency" in my opinion. It's true that the currency will benefit when it's value will stabilize, as the currency is currently being adopted.

"settle down and stabilize."

Depends how you look at it. From BTC point of view it is the USD that's highly unstable and dropping in value... It's all relative.

Give it time. I happen to think that bitcoin is still stabilizing. Whether it will stabilize at an even higher price than it is now, or "crash" and stabilize at a much lower price, I think it will eventually stabilize.

"I happen to think that bitcoin is still stabilizing."

Considering that this is the largest spike in the history of Bitcoin, I would like to know what makes you think that.

"I think it will eventually stabilize."

So do I, but that is because I think it will eventually fail (and stabilize at $0/BTC).

"Still stabilizing" means "has not yet stabilized". As in, it's trying to find a stability point.

Since Bitcoin's monetary supply is totally disconnected from economic activity, I wonder how it can ever stabilize (except perhaps by accident).

Isn't the point of bitcoin that its monetary supply is disconnected from economic activity? I thought the "mining" is supposed to be analogous to actual gold mining, so that increases in supply happen very slowly, get more difficult over time, and eventually cease completely. Obviously, many (perhaps most) people think that centralized government currencies (where the government can essentially increase the money supply at a whim) is the best system, but the point of bitcoin is to challenge that system.

Right now a landgrab is going on. People want to hold some btc. At some point in the future, when everyone knows about btc and purchased as much as they want/can, the price will be more stable and grows only as much as new wealth is created by the global economy and new people are born.

What do you expect? It will not stabilize any time soon but the fact that this is happening means there's a new player joining the game and one that needs to be taken pretty damn seriously.

Out of curiosity, did you see any uptake on that option? A lot of places seem to be adding the BTC option lately, but I haven't managed to find any good sources on how much use there is once the option is provided.

For general (ie not Scribophile info)...

http://www.reddit.com/r/Bitcoin/comments/19t3uq/hey_rbitcoin... is the best that I could find (admin from Reddit talking about Reddit Gold revenue).

It's interesting that the accounting costs more than they bring in (though this is something that could obviously change with increased stability in the BTC/USD rate / increased volume / better processes). Somewhat concerning, considering that they host what seems to be one of the most active/vocal bitcoin communities out there.

Also, http://www.reddit.com/r/Bitcoin/comments/1auzjg/factorio_dev..., though this one may just be a case of not properly targeting for users.

Nobody has bit, and for a few reasons I think:

1. The site audience tends to be a little older and not very tech-savvy, so Bitcoin isn't something that many are interested in comprehending.

2. Since the price was fixed at 2BTC a few weeks ago when 1BTC~=35USD, and now 1BTC~=100USD, people will see this is a raw deal. (The USD price for a membership is $65.)

It's #2 that's the hard part. I'm not interested in accepting BTC just so I can convert it to USD, but since everyone's so focused on the BTC->USD exchange rate as the measure of value for BTC, and since the rate is so insanely volatile, it's impossible for a merchant to fix a "fair" price without auto-adjusting the BTC price to the USD exchange rate.

Auto-adjusting to the rate doesn't require you to cash out to USD, though. You can easily both adjust and hold on to the resulting bitcoin.

wouldn't it be possible to link the BTC price to the going rate at MtGox, so that it always translates to around $35?

Yeah but that's what I don't want to do--because that makes Bitcoin just a USD proxy, not a currency and economy of its own. I'm interested in BTC as its own economy, but unfortunately the price instability and tendency of most users to exchange for USD in the end makes it impossible to explore that.

Every form of currency suffers this problem in the beginning.

There are really only two ways around it: easy convertibility into another currency that people already understand, or direct use-value of the currency commodity itself.

It's a question of social inertia. It's too early to expect people to think in BTC.

Logically speaking it doesn't make bitcoin a USD proxy, a non-currency or "not-a-economy" as you claimed. Fixing the bitcoin price to another currency is a good solution when the value of 1 bitcoin is changing rapidly, as it would take a lot of work to adjust it daily. Besides, you can fix the price to the average of multiple major currencies (like average of euro, American dollar and the British pound).

A currency can have an economy fully its own and still have prices pegged to another currency. There is a lot of historic precedent for that. You act like its an abhorant practice. Prices will stabalize as the BTC price approaches something more workable on a global scale, like $21,000,000/BTC

Sorry man, IMO it will be years before BTC can function in the way that you want it to. First you need widespread adoption.

Correct, and there are merchant services set up to do exactly this.

I'm curious if you have any experience working with them, and which you'd recommend?

How about an automatically-adjusted price scheme where the price varies according to the demand? You might even automatically optimize profits this way.

That is an extremely cool idea. Why worry about setting the exchange rate yourself when you can let the market do it for you!

Not only that is a cool idea, but that is what some Bitcoin shopping carts (eg. see bitcoinstore.com) and payment processors (eg. Bitpay) already do!

The USD used to be on the Gold Standard -- that is, it used to be a proxy for Gold.

Using BTC as a "proxy" currency isn't unhealthy per se -- it's merely a transitionary step until people have adopted BTC more widely.

This feels kinda like a pump and dump to me. I don't mind articles/projects/sites that make use of bitcoins. But the frequency of posts on how much each bitcoin is worth feels like pennystocks/etc on an investing forum. People trying to get more people to buy in. To drive it up. So they can get out while it's high.

The whole "Cyprus people are getting into Bitcoin" narrative is a total lie as well. But I guess Bitcoin is a great learning opportunity for spotting Scams etc., as long as people don't lose too much money, it might even be beneficial.

Actually for me bitcoin proves just how few people can ACTUALLY spot a pyramid scheme or a pump and dump - instead resorting to calling everything that seems too good to be true a scam. It may work 99.9% of the time, but BTC is the false positive IMO. I totally agree that the Cyprus thing is totally bogus though, journalists are uninformed and lazy as usual. The real reason is that it seems more and more likely that bitcoin will be the currency of the Internet in the future. And nothing else.

While I'd like to believe you, a link to the "Cyprus lie" would be nice. :-)

I don't think "core bitcoin" users are scamming anyone. But at this point, the speed at which BTC has grown has triggered my "manipulation trigger". A decentralized currency is prone to manipulation... its not like there is an FCC out there to stop people from manipulating BTC.

So you can objectively tell that "bitcoin is a scam"? Sure, there might be bubbles, but that doesn't mean bitcoin is a scam.

I'm growing really bored of people who don't know what they're talking about calling Bitcoin a scam.

So who and when is going to get out? And out where? To fiat currency that is controlled, inspected, can be frozen, taxed and stolen? Bitcoin grows like crazy because it is a money proved to work. It survived exchange hacks, stolen wallets, viruses, user mistakes, network-affecting software bugs and government seizures of bank deposits. It allows you to hold something in your pocket that nobody knows about and you can split it in 100 pieces and send to 100 people in different countries in a matter of seconds.

Bitcoin is not a promise of future delivery. Like William Gibson said, "The future is already here — it's just not very evenly distributed."

"Bitcoin grows like crazy because it is a money proved to work."

Bitcoin grows like crazy thanks to various entities of increasing credibility building an ecosystem around BTC. Like Coinbase, which I'm sure is why a lot of people here got into bitcoin.

Listen for about 30 seconds of https://www.youtube.com/watch?v=0UKC7iaBKvs#t=830s

you can split it in 100 pieces and send to 100 people in different countries in a matter of seconds.

No, a transaction can take from 10 minutes to an hour to complete. You may have to pay a percentage to do that aswell.

It'll be proven to work when you can pay taxes and buy groceries with it.

I agree, even though the amount of bitcoins in circulation will be limited this looks too strange to be a regular trend.

I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle. In principle, there's nothing wrong with this; currency trading is common and well-explored. The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency.

It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively.

I'm not a bitcoin fanboy - but I see this sentiment around a lot and I'm not sure I agree with it. The claim is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. And if this isn't the case - then people will go off it.

When was the last time someone acquired a good or service with an ounce of gold? Perhaps we shouldn't consider gold a currency? Well I'm fine with that. Bitcoin probably isn't a proper currency yet either (in the sense that people aren't exchanging much with it yet). But not being directly relatable to utility in exchange certainly hasn't hurt gold in recent history. So I don't see why necessarily it will be a problem for bitcoins.

Gold is a commodity; same with bitcoins. Not that there's anything wrong with that, but it isn't the same thing as a currency. Gold was only ever a currency when it was stamped by the issuing authority.

The notion of "money" is quite well defined. You need 3 properties:

1) Store of value. Much easier to store gold/USD/Bitcoins than the food you will need in the future.

2) Medium of Exchange. Can be used to exchange for real goods, thus avoiding the headache of barter.

3) Unit of Account. e.g. is easily divisible.

Bitcoins aren't great at #2, but gold is terrible at #3. If bitcoins prove to be a lasting store of value, then it will almost certainly be more "money" like than gold.

If I see a currency rising in value faster than Gold itself, I'm going to want to get in on the value.

Fact is, if I had "invested" in 100 BTC only 5 months ago when it was hovering around USD$10, that would have cost me about $1000. And now it would be worth $10000. There are not that many investments that have that kind of return in such a short time. You'd have to be dumb to believe that people aren't doing exactly this. You don't see 1000% returns and just ignore it and wonder about its utility. Right now, it's a volatile and risky currency exchange being intentionally used to ride the rising popularity into a cash la-la land.

At some point people are going to convert this toy back to a real-world currency and take their winnings home with them. I don't know what's going to happen then, but I don't believe it will be good. Perhaps 'stabilizing' would be a good optimistic name for it.

If gold rose as fast as Bitcoins are rising, people would be shorting it hand over foot. They don't have that opportunity with Bitcoin, so the ship of fools sails on unimpeded until the supply of fools is exhausted, as in any bubble. Which could nonetheless take awhile and make some people very rich, provided they are smart enough to get out in time. Not everyone lost in the real estate bubble.

>I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle.

I'd say it has been that way for a long time. When I dabbled in the community 2 years ago it was already brimming with speculators. Early adopting evangelists looking to legitimize their hoards and speculators who'd have been gambling on leveraged ETFs or FX if not BTC.

Demurrage (cost to hold currency) could help hoarding. However, at some point, people will start spending them too.

There's a fork of Bitcoin which actually has this built in.

I imagine we could see an interesting future with cryptocurrencies, where people are essentially betting/investing on the stability of the framework/algorithm and demand on it. Multiple ones could exist, and you're hoping for the best return, or greatest stability.

What would be REALLY interesting is if essentially one of these ends up seeming a better 'idea' than US currency (the de-facto currency now)

Oh, I was going to write about Freicoin. It seems like an incredibly fascinating concept and I'd really like to see an online economy emerge around it. Do you use it?

I worry about that, too, but I think it's unlikely to happen, because Bitcoin will stabilize eventually. But it first needs to become so big (think $100 billion - $1 trillion here) that every single transaction affects the value in a very small way, and any top HN or Reddit article about it has an almost insignificant effect on its value.

I do believe that will happen eventually, but it's too early right now. Bitcoin works by the law of numbers - after all it's all numbers and math. When its tiny in value, its growth can be very high. When it's already huge, the growth will slow down a lot.

I would expect steady growth of Bitcoin's price to look like the logistic function. Exponential at first, then flattening out. At some point, it would just grow opposite the inflation of other currencies once it's stable.

http://en.wikipedia.org/wiki/Logistic_function

Of course growth will probably come in fits and starts, not so smoothly.

I have said this multiple times in previous discussion threads, but everywhere you look, all indicators show that Bitcoin spending is increasing: https://news.ycombinator.com/item?id=5296889

"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services."

Well, it is. As more people hold some BTC "for the future", they are more than willing to accept them as payment for their services. Imagine you are surrounded by people who have "hoarded" some BTC. Suddenly they can just trade in BTC without going to a bank (unless they have some spare cash which they haven't allocated to other purchases yet).

But that is only one side of the coin. If people are hoarding BTC, then they aren't spending them on goods / services.

IE: Deflationary Spiral. It becomes hard to be a merchant who accepts bitcoins, because everyone expects BTC to keep rising in prices.

People who bought a domain name for 1 BTC a few weeks ago from Namecheap lost a lot of money. They should have instead "saved" that BTC. Therefore, people are discouraged from using BTC as a transaction vehicle.

Currently, hoarders are the ones benefiting from BTC, but no one else is. No merchant knows how to value their services in BTC, not when there is this much volatility around.

I can't help but think these prices represent people confusing a currency being useful with a unit of the currency being worth more. Obviously this is true at the extreme case that a useless currency is worthless in any quantity. But it doesn't really follow that more trading of goods and services in Bitcoin would cause the price to increase. This wouldn't need to happen until some substantial fraction of them are in the hands of people spending them instead of holding them speculatively. Currently the amount of Bitcoins that need to exist to satisfy all the commerce is tiny.

I think part of the reason for the optimism of those speculating bullishly on BTC is that the inherent properties of a decentralized finite online currency will result in their utility will only increase with time.

That may be true, but I'd wager most of the people who are buying into bitcoin for its property as a store of value will be shocked to find out bitcoins other very interesting property. The ease and low cost of transferring those bitcoins to anyone, anywhere in the world.

"I can BUY things with these? Wait... I can sell things? I just need to paste a hash?!"

Then one day, some highly motivated attacker will come along and discover the other very interesting property: that the work needed to attack Bitcoin scales linearly with the work needed to use Bitcoin. As soon as a successful attack is announced publicly, faith in Bitcoin will be shaken to badly that nobody will ever want to use anything called "digital cash" for a long time.

So the real question you should be asking is, "Who would benefit from a Bitcoin failure, and could they amass that much computing power?"

$450k of electronics were purchased at bitcoinstore.com in march alone

Got a source for that?

It'd also be interesting to look at the effects of deflation in the fledgling bitcoin economy, although the actual exchange of currency for goods and services is a bit small to judge this effectively.

The GDP stats for bitcoin is not systematically collected. The blockchain data only gives us a approximate picture.

So most people just rely on their guts and vague feeling about the size of the bitcoin economy. Bitcoin detractors tend to underestimate the size of bitcoin economy because they can't recall selling or buying goods or services. Bitcoin users tend to be more optimistic because they keep up with news of merchants opening up.

I think it would be very useful if somebody built a stats site dedicated to systematically report on economic activities occuring in bitcoinland.

Something about Dutch tulips.

"The problem is that the value of a currency is supposed to also be somehow related to its utility in acquiring goods and services. When it is rarely used to that effect, people may reconsider their investment in the currency."

Gold and silver stand in opposition to this statement.

You can't buy groceries with gold or silver coins, but they're a fantastic store of value and time-tested investment.

Furthermore, according to Gresham's Law, people keep "good money" (i.e. money that holds its value) out of the marketplace and spend their "bad money" (i.e. fiat) acquiring goods and services.

"I worry that as Bitcoin's value rises, people are buying in not to use it as payment for services or goods, but simply as an investment vehicle."

LOL.

In the two years I've been watching it I've seen no evidence that it's anything but an investment (and speculation) vehicle.

That is my sentiment exactly. There is much talk of growing bitcoin adoption, but I've yet to see anything beyond a few web-based services(which, beyond their time, are almost free for the operators to begin with).

Why not both?

I invested in a payment system of the future.

If it ends up being used, I'll have (however many I invested in) BTC to spend, which could be worth significantly more or less than I paid for them.

If it ends up being useless, I'll lose my principal.

I believe the biggest worry are security issues. It doesn't really matter if it can be used directly, as long as it can be traded back for other currencies. Same situation as gold, actually

The deflation is healthy at first. It encourages adoption. But in the long run, I would rather BTC be less deflationary.

Currencies have existed in a huge variety of forms over time. Basically anything can work as a medium of exchange as long as everyone has a high degree of confidence that if they are paid in the currency, that they too can pay someone else in that currency. But that's not to say all currency regimes are created equally -- we've learned a number of lessons, painfully, about how to manage currencies.

For a small-scale, but very instructive example that shows there are cases where simply increasing the money supply can sometimes create more value in the economy (or how deflation can destroy value), see the story of the Capitol Hill Babysitter Co-Op [0].

At a more serious scale, many prominent economists believe that an artificial restriction of the monetary supply led to, or exacerbated the Great Depression [1].

So, like Krugman [2], I think that BTC proponents really have to explain how the artificial restriction of the size of the BTC money supply is not a serious design flaw in the currency. Are BTC just crypotographic gold? If so, then is a successful BTC economy just a different gold standard (and all its associated problems)?

[0] http://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op

[1] http://en.wikipedia.org/wiki/Gold_standard#Prolongation_of_t...

[2] http://krugman.blogs.nytimes.com/2011/09/07/golden-cyberfett...

The actual problem that arose in the CH Babysitter Co-Op, supposedly solved by inflation, was that they didn't let scrip trade at actual relative value; you had to pay/accept one scrip unit per time unit whether the babysitting was for Wednesday or Saturday night.

This was compounded by a case of retardism on the part of its managers, who refused to accept that different nights have different value, and that prices have to change to achieve equilibrium. So the supposed solution of inflation was actually replacing one artificial problem (a price floor) with another (temporary misvaluation of the new currency due to "money illusion").

Go find out how Krugman answers the question of "Why didn't they just let the exchange rate of scrip per hour float freely in response to differential weeknight demand and risk aversion?" (Hint: he doesn't, anywhere.)

> If so, then is a successful BTC economy just a different gold standard (and all its associated problems)?

The main problem with gold standards, is that governments don't like them, because it makes it really hard to fund wars and other expenditures. Eventually, this leads to gold confiscations [1], and the effective end of a gold standard. Bitcoin solves this by being resilient to confiscation, and also by having a value transfer mechanism built-in, so that you don't need to replace gold with paper receipts for the sake of convenience.

In essence, bitcoin has all the upsides of a gold standard, with none of the downsides.

[1] https://en.wikipedia.org/wiki/Executive_Order_6102

It's close to a new gold standard.

The one problem associated with gold that it does solve is being as good a medium of exchange as visa/paypal (or better).

The one thing BTC cannot yet replicate is the trust that gold standard has.

Anyone in the world would immediately accept gold standard, but this BTC, despite being a digital gold, will be difficult to overcome the initial fear/mist-trust. It doesn't matter what mathematical proof you provide - the laymen doesn't really understand it. May be one day, it becomes accepted, and BTC will then really be a new gold standard. But i don't see that day coming, because there are people who don't like the gold standard (as it prevents them from leeching money from society - i.e., various parties/entities who hold controlling interests in major central banks etc).

As Moldbug wrote: "In any economy, there exists no less than one commodity or security of inelastic volume which is overvalued due to reservation demand. Ie: one scarce good which is money." Bitcoin's increasing price is a sign that it's further along in its passage to monetization. Gold, too, experiences the same phenomena of being "overvalued". I.e., being far above the price warranted by its use value. In the same way gold is also partially monetized (in particular it has large reservation demand from central banks)

Buying bitcoin is essentially a bet on the probability it will be monetized. This probability will wax and wane in the minds of the population participating in the bitcoin market, who in turn will be influenced by media perceptions, the actions of the state etc. So the price will no doubt be quite volatile. But the increase in price, based on an increase in reservation demand, is self-reinforcing. It increases the desire of merchants to accept bitcoin in payment (since there are now a greater pool of holders who have greater savings looking for an outlet to spend those savings). And as new merchants begin accepting bitcoin in payment, the reservation demand increases. These two causalities are linked together and reinforce each other. At some point they become entrenched enough that the whole thing "lifts off", so to speak, and the commodity becomes money. Interestingly, the same thing happens with gold, except that one of the two causalities is short-circuited by the state: the reservation demand for gold does not spur merchants to accept gold in payment, because that is made illegal by the state. Thankfully bitcoin is so well engineered that the problem of the state banning use in transactions is essentially moot (no offense "Chuck" Schumer).

Monetary economists have a measure called velocity, which is "the average frequency with which a unit of money is spent on new goods and services produced domestically in a specific period of time. Velocity has to do with the amount of economic activity associated with a given money supply." [1] It can be thought of as the "rate of turnover in the money supply" [2]. It is a good indicator of the "health" of a currency.

The annualised velocity of the M2 Money Stock for Q4 2012 2 was 6.152 [2]. That is, the average dollar in the form of notes and coins in circulation (M0), traveller's cheques, checking account/demand deposits, savings deposits, time deposits/CDs under $100 000, and individuals' money market deposits was spent 1.538 times on economically useful activities in the fourth quarter of last year.

The annualised velocity of the Bitcoin Money Stock for Q4 2012 was 1.27. That is, the average Bitcoin in existence was transacted 0.32 times in the last 90 days of 2012. This includes economically useless transfer payments, i.e. transactions not involving the exchange of real goods or services, as well as economically useless hoarded or lost coins, i.e. Bitcoins not in circulation and so less a unit of "money" than a speculative asset (in the case of hoarding). Since this is a ratio, the two balance out, though it is still biased to the downside. For the 30 days ending on 29 March 2013, it was 1.86. Here is what it has been doing since February 2009 [3].

More encouragingly, Bitcoin Velocity has quadrupled YoY. M2 Velocity declined 4% over the same time. I would thus offer, very tentatively, that there is a substantial portion of the Bitcoin economy involved in real transactions (versus financial ones, e.g. trading on an exchange).

Curiously, yet to emerge (to my knowledge [EDIT: which was wrong]) is a majour vendor of Bitcoin mining equipment that accepts Bitcoin as a mode of payment. If that were to happen, the Bitcoin economy would have an endogenous "risk-free rate" in the form of mining yields, with power companies serving as the most salient factor. If it were not for the ceiling on the number of Bitcoins which can come into existence, it could very well have been the first currency pseudo-denominated in energy.

[1] https://en.wikipedia.org/wiki/Velocity_of_money

[2] http://research.stlouisfed.org/fred2/series/M2V?cid=32242

[3] http://imgur.com/f7oFZKb Annualised Bitcoin Velocity, Feb 2009 - March 2013

Actually, all of the vendors of the state-of-the-art ASIC mining equipment are accepting Bitcoins as payment.

But interesting analysis. What do you think about the Bitcoin Days Destroyed metric [0] as a way to measure the health of the Bitcoin economy?

[0] https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed

Thanks for bringing the concept of velocity to attention. I'd been looking for a metric just like this to compare Bitcoin to other currencies. It would be interesting now to compare the market cap of Bitcoin to currencies with similar velocity values. However, I think it would be really important to get a velocity value for Bitcoin only including transactions for goods and services, not including trading transactions with other currencies. Bitcoin's high velocity value could (and I suspect it does) just mean there is a lot of speculative trading going on and still very few real transactions in Bitcoin.

Batch #3 of Avalon ASICs were 75 BTC each. They sold out in 15 minutes.

http://launch.avalon-asics.com/

It looks like a classic bubble now - while slow gains programmed in could be justifiable, this seems to be driven purely by expectations of future price rises - which is a classic bubble sign. So far, all bubbles popped sooner or later. Maybe this would be the only one in history that doesn't - I wouldn't bet on that, but maybe someone would and become a millionaire. Or lose all his money.

From 2003 to 2013, the price of AAPL rose from $11/share to over $400/share.

Rapid price increase doesn't always mean "bubble". Sometimes innovative things are created.

Glossing over the little trip AAPL took to $700. You can have a bubble and a real price increase, on top of each other.

Apple is a company that created a lot of real value during that period. Bitcoin is a currency that claims to offer some marginal advantages over other currency, but certainly not enough to justify the rocket ride. The biggest advantage that Bitcoin is offering these days is that it will be worth 50% more next month than it is today. That's a hard advantage for speculators to ignore, but it is ultimately an unsustainable pyramid scheme.

There's nothing that happened with BTC between when it cost $14 and now. Comparing it to the shares of Apple that created a whole new consumer industry and substantially changed the information interactions of the whole humankind betrays deep misunderstanding of the question at hand. Bitcoins did not suddenly turned into new way of living, did not produce hundreds of amazingly useful things and did not change how many people do things. They just cost more, because people expect them to cost even more in the future.

And AAPL peaked just shy of $750-00 so that bubble may have a leak.

I hope that people who got in last year or earlier this year are starting to sell some of their bitcoins, at least enough to cover the cost basis. I wouldn't be surprised to see a very sharp fall soon.

Unless these people have invested extra money they can afford to lose for the reasons to save them from inflation and confiscation. Then they still have enough cash to pay the bills, so why should they get back to fiat?

E.g. I myself and many of people I know are not going to sell a single Bitcoin unless any sort of personal or global disaster. And many of them are going to spend their BTC over time to avoid interaction with banking system as much as possible.

Fiat you can spend is more useful than fiat you can't.

> I myself and many of people I know are not going to sell a single Bitcoin unless any sort of personal or global disaster.

In the case of global disaster, who's going to be buying a fringe currency?

"And many of them are going to spend their BTC over time to avoid interaction with banking system as much as possible."

What is the purpose of avoiding the banking system?

You could end in gold or silver or some other precious metal as well. The ultimate endpoint need not be USD.

If by sell you mean buy more things on silk road from bitcoins purchased in 2011, then you are correct.

That may not be a good idea. The SR pegs are based on a moving average, so even if the vendor you're buying from priced his goods to the dollar, you may well still be overpaying. (And given how fast the exchange rate has increased, if the vendor did not peg to the dollar, you'll probably be overpaying a ton.)

Everyone keeps saying that a crash is around the corner and the current price is unsustainable, been hearing it since $40/BTC, maybe earlier. I don't completely disagree, the question I keep pondering though is, if there is a big sustained crash coming, is it from $100 to $30, or $900 to $300?

MtGox verification cue for people who want to buy more than $50k USD in a month is almost 10,000 long right now. You do the math.

I'm going to go with something closer to $300 to $150 at least. If there's a pop coming, it is a long ways off.

Hard to say, but my guess is that the price won't go under 15 USD no matter from which level it will fall. Also it's interesting that according to google trends, the current popularity of bitcoin still doesn't reach peak level from 2011[1], I would expect that current popularity is much higher compared to 2011. BTW using forecast feature, "google predicts" the crash any time now :)

[1] https://www.google.com/trends/explore#q=bitcoin

Your lower bound is not low enough; it will be more like $150 to $5, or perhaps even lower.

If the crash will happen it will lead to a drop in trading volume, making prices unreliable. You will not be able to sell substantial quantities of Bitcoin without crashing the market further.

Been hearing it when it was trading at prices less than $ 1. Not sure what to think. What if it gets hacked ? What if the creator has a backdoor ?

Brilliant and subtle comment. I would recommend people to look at the idea of noumerosity. Just as an alternative perspective to the debate maybe.

http://en.wikipedia.org/wiki/Numerical_cognition

Is it possible to sell short, or buy put options? I think bitcoin has potential long-term but this seems like a ridiculous speculation-fueled bubble.

If you have to ask HN this question, the following adage probably applies to you: "The market can remain irrational longer than you can remain solvent."

Yeah, it's apparently possible to short bitcoins. If the recent rise in price is a bubble, and it crashes back to about $30, it will still come back to about $100 in a year, if bitcoin adoption continues.

Has there been adoption for essential goods & services? All I've seen so far are Internet services.

It is incredibly easy to buy and sell Bitcoin options: icbit.se is just one of several reputable derivatives markets that focus on Bitcoin. So yes, if you are completely sure this is a bubble, it's easy money...right?

Yeah it is incredibly easy to short Bitcoin by trusting an unregulated, anonymous website without exposing yourself to any counterparty risk... There just isn't any real way to short Bitcoin, because if your investment thesis is true and collapses, it will be very difficult to collect your winnings.

http://icbit.se/

That pizza laszlo bought [1] nearly 3 years ago would now be worth over a million dollars.

[1] https://en.bitcoin.it/wiki/History

I am going out on a limb and calling this price peanuts. The rise is due to Cyprus, and if bankers keep stealing people's money (and printing it) ... which they sure will because they compete amongst themselves about who has the most multi-millions (regardless of how they got it)... a portion will move their wealth into bitcoin. Also, as fiat currencies lose value, bitcoin will rise. Bitcoin is a hedge against fiat.

add: in fact the ideology of bitcoin is steeped in disempowering central banks. So you are buying into an ideology, and so long as the tech can keep up with the ideology, and there's nothing with better tech, and central banks keep ripping people off, then bitcoin will rise. It's far from perfect, but I think the web itself was about unlocking information to empower people (as created by hippies), something like the advent of literacy to empower people to read the bible when it was limited to priestly classes. Bitcoin is like grade 1 spelling and grammar, or the first web browsers: sure is better than not having either.

Yes, I would think the CB's to be obtuse not to be wary of digital currencies. You can be sure the CB's are watching bitcoin and could easily manipulate it's price. I.e. create a bubble and burst it.

What would it take for somebody like Amazon or eBay to (even partially) support bitcoins? How much of a risk could it be?

If you hold the bitcoin for a very short amount of time, it's not especially risky. There's a company that facilitates payments in bitcoin: http://www.marketwatch.com/story/bitpay-integrates-bitcoin-w...

Considering eBay owns PayPal[1], it's unlikely they'd want to promote any competing currency.

[1]http://news.cnet.com/2100-1017-941964.html

I see no real incentive for a retailer to trade in a currency that is fluctuating wildly. If they wanted to be currency traders, they would be currency traders.

I imagine this will happen via Payment Service Providers first. Merchants that don't want to manage their own payment code outsource it to some third party company.

Those PSPs compete and one dimension they compete on is breadth of payment methods. Who wants to be the only one who doesn't offer BTC?

Once PSPs have integrated bitcoins, many merchants will accept them.

Lots of online retailers have implemented accepting Bitcoin. For everywhere else, Amazon and eBay included, there's BitSpend- which allows anyone to buy anything with Bitcoin from anywhere for as little as 0.5%

For starters, there will need to be a lot of court cases that will decide how the legal repercussions will look like before any major players will take the risk it involves.

That's insane. Only a few months ago 1BTC was going for about $30 USD. There were threads discussing $30/BTC where people were saying that it was too late to get on the wagon...

3 months ago (january) 1 BTC was worth 14 USD.

What's insane is that people here were trying to find out ways to short Bitcoin when it was at here at price.

Oh, there are a number of users that have been nay-saying for months, or longer. I hope they did manage to get a short in. That sounds vindictive, but even in this thread are people that clearly don't understand BTC firing off calling it a "scam". Poor people, should've bought two weeks ago.

When I mined my first block of bitcoins a couple years ago (back when I could use the GPU on my aging laptop and still have a chance to mine a block) they were worth about 5¢; I sold a bunch when they were around $5 because I thought that was ridiculously high, and the price was sure to collapse. Silly me; had I not sold them, I could have a few thousand dollars from a couple of days worth of GPU time.

If bitcoin ever gets widely adopted, one bitcoin will be worth atleast thousands of dollars.

did you do the math or are you just pulling numbers out of your hat?

People like Max Keiser are calling 100k to 1mill per bitcoin. Hard to imagine. I left my gpu running for a few weeks a year or so ago and mined myself 1 bitcoin. I figure that should Keiser's prediction comes true - it will be a nice easy pay day - if not, I didn't waste much time, energy on it.

I've been looking at it lately though and thinking that it surely must drop back soon. I'm thinking a drop back down to 15 us is reasonable.

Bitcoin is like a startup. If it works, it's worth a tremendous amount. If it doesn't, it's worth nearly nothing.

Right now its proponents are valuing it like a tech startup stock- what's its potential future value?

Its opponents have already decided it will fail.

Either side may be right at this point, though bitcoin has more going for it than it did six months ago.

To me, the trend is currently towards "it's going to work", so I think it's worth a gamble. But it's definitely a gamble.

I think cryptocurrency is without question a force for the future. It makes exchanging money too easy and too fast for it not to eventually dominate economic systems. Economies/companies that don't use it will be at a disadvantage.

What's in doubt for me is whether bitcoin will be the winner of the cryptocurrency market.

People like Max Keiser are calling 100k to 1mill per bitcoin. Hard to imagine.

It's the hope of some in the bitcoin community/industry that bitcoin becomes one of the top 3 currencies in the world.

Given that there is a hard limit of ~ 21 million bitcoins (half of which have already been given out), the only way to get in the top 3, is for each bitcoin to be massively valued.

$1M per bitcoin is $10T in money supply with 10M bitcoins. The current USD money supply is $2.7T. I suspect $10T is around the entire world money supply.

Earlier today this had 135 comments. Checked later, 200. Now 350! OMG BUY! BUY! BUY!

This crash is becoming really worrisome. Will it ever stop? http://i.imgur.com/c2ZpwrS.png.

No.

Bitcoins are in a speculative bubble. This bubble is attracting fringe merchants, which provides a veneer of legitimacy to the dramatic speculative rise. Note that there is no way to effectively short bitcoins at this point, so there's no counterbalance to the speculation. When the bitcoin market turns south, it will fall hard as the shallow liquidity evaporates quickly.

Proof that Bitcoin is worthless:

I set up camp over the Golden Gate Bridge. I ask people if they'd be willing to throw their lunch into the water (use their computer's time/energy/money to mine Bitcoin), with no possibility of retrieving it, and in return I offer to give them a certificate stating that they've thrown their lunch away (a Bitcoin).

Now, I see no reason why anyone would expect why these certificates would have any value. But let's suppose they do have value, and people can trade their certificates, say, for a lunch (or perhaps half a lunch). NOW, suppose I have been secretly stashing away those lunches (really it doesn't need to be in secret - you don't care what happens to your lunch after you throw it away). Then there is now objectively more value in the world than there was before I set up shop - there are the same amount of lunches in the world, but there are also now certificates that have some positive value. We've made a free lunch!

This is a contradiction. If we could create value by this silly game, we could easily make as much value as we want, and we would have solved all the world's problem.

But this should be obvious in the first place! Why on earth would you expect to be rewarded with something of value (a Bitcoin) for doing something fundamentally useless to society (mining Bitcoin). Even though mining Bitcoin comes at a cost to you, this doesn't matter - it just means you're throwing your lunch away.

Now why does the US Dollar have value? Instead of throwing away our lunches for a certificate, we basically asked the government to store our lunches in Fort Knox. Today, lots of gold and other items of value are held there. Why are they held there? There is an implicit assumption that these items of value support the US Dollar. The government knows it could not start "eating those lunches" that it's got in its reserve! It would not yield society a free lunch - it would crash the US Dollar.

"doing something fundamentally useless to society (mining Bitcoin)"

Does Visa provide value to society? "mining bitcoin" translates to "certifying the current outstanding global transaction registry". FYI.

I think a lot of people here would benefit from reading some William Gibson novels.

I don't think the BTC will ever be a 'currency' as the USD or the GBP. It is also not necessary for the BTC to be at a 'fixed value' at any time. As a virtual currency it's ok for the BTC to fluctuate heavily as the only thing needed for it to still succeed is that payment systems are 'always on' and can determine a spot price for goods and services.

I would rather see the BTC tied to 'Pizza index' than USD. This would make it easy for people to use an in-app value determinator when making purchases.

Say you just tap your phone with a BTC wallet against a cash register. The register answers, well your burger will be 0.00065 BTC at spot price as of 12.24.44.32 PM. Accept/decline.

That's it. I see the BTC/LTC (Litecoin) as alternative currencies but still worthy of a HUGE market share for micro/everyday transactions.

Why would I want to maintain a bitcoin wallet if its value fluctuates heavily every day? Would you want your checking account to do the same?

This is why I wonder whether a company will come along and offer point-of-sale BTC to USD (or other). They could perhaps issue plastic cards to their users for making payments, and charge businesses 2.5% of the transaction for their services.

How could the bitcoin exchange rate reverse its trend and start falling? Do you have any scenarios in mind?

I imagine it will look roughly like the last time it crashed:

http://static.guim.co.uk/sys-images/Technology/Pix/pictures/...

90% of the value were lost in a few months. The market seem even frothier this time so I'd expect the eventual pop the be harsher as well.

US government declares it an illegal currency, and if you accept bitcoins at your business you will be investigated. Game over.

If speculators decide they've had enough and start selling, then the bitcoin will return to a value based on its usefulness for transactions, instead of its attractiveness as an investment. How far it can go down depends on the size of consumer bitcoin demand vs investor bitcoin demand.

http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zv

This is the value over a larger time. Sustainable?

A massive chain-split that erodes confidence in the perceived value of the currency.

Gold is a tangible substance. BTCs are just data and we all know how volatile that can be.

The 'cryptobarons' or some currency speculators who hold large quantities of BTC could dump them on the open market and crash the price.

Some people lack the knowledge and skills needed to be able to buy something from Amazon. Compare buying something from Amazon with buying anything using Bitcoins - Amazon is ridiculously easy.

Bitcoin will never reach that level of ease of use. But when it has something like a 5 step LiveCD[1] it might start to get wider use.

[1] Something like insert CD, prepare anonymising stuff; load encrypted file from USB stick; load key from hardware token and enter short password; and have the distro wallpaper give idiot proof flowchart diagram instructions.

I'm not really sure why you say it's so hard.

You install the bitcoin wallet.

You sell something for bitcoins, and you give them your private key address in your wallet.

You receive bitcoins.

You buy something with bitcoins else where, and you just hit send and specify an address.

Simple as an account # + routing number.

Now funding your wallet with fiat currency is a little harder, but Coinbase has mostly taken care of that. It's as hard as paying a credit card off - link your current bank account, press buy or sell.

Er, wouldn't you give out your public key to receive bitcoins?

That's not anonymous. Anonymity is one of the benefits of bitcoin, but it's tricky to do.

Banks is still necessary to migrate analog currencies to digital currencies in todays financial economy. People trust banks and they would also be offering support on how to use the new currency, and with their investments on the highest security to guard their assets, it's much secure for them to generate the wallets and safeguard the information and incorporate them into the main currency. Banks are absolute necessity for propagating the new system, and merging the old currencies into bitcoin.

If any big companies today would be the first to utilize Bitcoin and use them, they would really glad that they did, with the prices of bitcoin soaring, the more people invest in it the more the price gets higher and people trusts the currency, it would be really wise to invest in them. Imagine if any of Facebook, Google, Amazon, Paypal would use them first, it would be faster to propagate bitcoins into the main financial system, and I think they will make a really good and wise decision.

I.e. the USD has fallen below 10 mBTC.

That's like saying the USD has fallen 80% in the last 30 days.

Currencies rise or fall relative to other currencies or commodities or goods.

So when you say "USD has fallen 80%" it always has to be qualified with something like "against BTC."

But yeah, it sounds ridiculous.

Max Keiser likes to say the Dow is at an all time low against Bitcoin, haha.

Which it did. Well maybe more like last 60 years.

I guess, after $1000/BTC we'll need an inverse chart showing a collapsing dollar. I guess prices in USD will be visibly growing since then.

https://news.ycombinator.com/item?id=5473387

Indeed goods and services have gotten extremely cheap in the past few months!

Bitcoins were designed to do that. If the price for 1 BTC rises to the level it becomes profitable to offer them computing power for the network people will generate new money. Until then its value gonna rise. This will loop until infinity.

Its hard to compare against dollar. As bitcoin is newborn with freedom written all over it. If it gets adapted more chances are its gonna be rising in value and will become first a currency for savings later on a day to day activity currency.

Excuse my lack of knowledge, but seeing as how one BTC is now worth $100. Is it possible to send someone half a bitcoin or 1/10th?

Or is it a single unit or nothing?

https://en.bitcoin.it/wiki/Units

BTC can be sent in any amount, all the way down to Satoshis at 0.00000001 BTC.

Each Bitcoin can be split into 100 million parts, in addition there is a possibility of the division being pushed further if ever needed (the smallest unit could be split down more if the people accepted this change)

Also there is talk of making the default traded unit a mBTC, (I think) Its a unit that represents a thousandth of a unit. once this becomes the standard unit the psychology is there to allow BTC to rise even further.

Currently bitcoin can be divided down to eight decimal places.

Imagine, if banks are using a bitcoin wallet, issues a bitcoin card (in a form of debit, savings card or credit card) with private keys on back and public keys on front, the bank then deposits money into the wallet then the end user withdraw money with the same bank or supporting banks.

This is one of the scenarios I think that would incorporate bitoin into the current financial system.

Gold and silver for day-to-day local transactions.

Bitcoin for larger sums, international or less timely.

It's difficult to say how much can this rise indefinitely. The higher the rise, if the bitcoin bubble does collapse, expect a even bigger fall when speculators start dumping their bitcoins on the market.

So.. how do I mine bitcoins again?

ASICs

At $100/BTC, GPU mining might be profitable again. Slow, but profitable.

...and what happens when a competing cryptocurrency is released?

There are a bunch of forks of Bitcoin that have received approximately zero attention (relatively speaking). Standards tend to be natural monopolies.

LTC has seen 200% growth over the last week, people are adopting it hoping it will be an equal competitor.

Other people are adopting it just in-case they're right.

It gapped up on no volume whatsoever.. April Fools prank?

I believe there was some illiquidity early this morning, but I might be hallucinating.

reminds me of the icelandic krona

A currency rapidly increasing in value reminds you of one that was rapidly decreasing in value?

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