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Comment by snorkel | Hacker News Reader

I too was considering some Bitcoining but have these nagging concerns:

1. Seems Mt. Gox is the primary exchange of choice of Bitcoins. What mechanism or oversight in Mt Gox prevents Bitcoin exchange rate manipulation by way of wash trading? http://en.wikipedia.org/wiki/Wash_trade

2. The exchange rate data on Mt Gox shows the value of a Bitcoin shot up 10x in about 3 weeks. Hyper deflation to that extreme is not a desirable attribute for any currency.

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Bitcoin is very different from any other currency, because its supply is limited. It's designed to deflate.

True, but this behavior prompts people to hoard rather than spend. It won't really be used as a currency at any scale until it stabilizes.

One economist's 'hoarding' is another's 'capital accumulation'. Note that in order to accrue any form of money, some valuable things must be provided in return (assuming voluntary exchange). So while the hoarder may have pleasure from owning digital or physical bills of exchange, everyone else gets to benefit from real goods and services that have been rendered. Of course, those hoarders that really remove money from circulation are a very small exception.

If there is belief a currency is going to deflate it puts the brakes on spending. Why buy widget x today when you can buy two widget x's next month? Most people will just wait. The hoarding effect is a natural phenomenon, not necessarily a black/white thing.

I understand people use bitcoins for services rendered and a fairly limited number of products - but that is clearly to the benefit of the seller. It would be nice to see some statistics on bitcoin users actually using them as a currency. I'd wager it's less than 10%, esp. now they've become a media darling and a vast number of folks are looking at these like guaranteed lottery tokens.

There are some expenses you can't live without like food, rent, clothes etc. Holding cash in a deflationary (and non fractional-reserve) currency may be the equivalent of a savings account in a bank.

But hey, if people really did decide to lead frugal lives in order to save money, capital would expand faster in areas more essential to human existence. Consider it as a shift toward long-term goals rather than short-term gratification. Of course, the longer the timeframe, the harder it is to predict future demand, so there is a limit to how future-oriented people can get.

Your comment made me realize that computers have long exhibited this property. It was always nerve racking buying a computer because you could get one twice as fast in 18 months so people were hesitant to buy. This always appears to be true of almost all new developing technologies. In fact, all of the fastest growing industries I can think of exhibit this property.

Currency only has value when exchange happens. It will never get to everyone hoarding. If there are no buyers at high prices, the price will go down.

Sure deflation is part of the Bitcoin design but the actual real-world value of a Bitcoin is determined by traders on Mt Gox, and as an exchange Mt Gox doesn't give the impression of being able to prevent common price manipulation schemes.

This differs from fiat currency how?

http://www.appapillai.com/blog/2010/06/13/the-pound-sterling...

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

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