Bitcoin value falls from above $33 to below $3 | Hacker News Reader

Bitcoin value falls from above $33 to below $3

betabeat.com

193 pointsstickfigure154 comments

> It now appears the $3 to $33 prices for Bitcoin were due to speculation.

Come on. Was it ever attributed to anything but speculation.

If it ever was, I would love to see that article.

http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving...

"the currency has increased in value one-thousandfold against the US dollar in fourteen months. Yes. Read that again: one-thousandfold, fourteen months. There is currently no indication it would stop or has saturated; quite the opposite."

Wow. I'd hate to be him. :)

Somehow Jim Cramer with his infamous Bear Sterns prediction comes to mind:

http://www.youtube.com/watch?v=gUkbdjetlY8

Note that Jim Cramer is still running his show.

yeah, I don't understand all the attention given to bitcoin. It's not like it's a system that's immune to systematic manipulation. Anyone operating under the assumption that bitcoin is a stable system is naive.

I'm open to being wrong about my assumptions.

> Anyone operating under the assumption that bitcoin is a stable system is naive.

"Stable" as in exchange rate, no. But the bitcoin technology in itself is really solid, and will continue to work well.

However the return of mining is hugely favored to the creator and the early adopters in a way that, if joined much later, there is little to no value in it.

So the early adopters could promote them and we can just wait and see. Since the rest of us won't earn much by promoting it, so just mine 1 or 2 BC (still takes some efforts given the massive amount of bot-nets out there) and speculate.

Is this really a bad thing? Now people can stop hoarding them and start really using them as currency. It never really mattered what they were worth unless you were holding onto them. If you use bitcoins to enable transactions only and keep your money in real dollars then it can be pretty useful.

It is if the only reason that they have value in the first place was the hoarding and speculating, which seems a reasonable interpretation of events to date. A currency of no value is not useful for trade.

I mean that "if" as a true logical statement, not an implied assertion that it must be true. (I do believe that, but I'm not asserting it right now, because I'm not defending it.)

Its apparent that people are finding value in them aside from their speculated worth. They are using them to facilitate anonymous transaction and more easily transact internationally. Whether those use cases are valuable enough to keep people using bitcoins, I can't say.

Bitcoins utility is a factor in its value.

True, speculation and hoarding dominates its usage at the moment but there is still potential.

It's a problem because the people who are using bitcoin have seen the value drop to less than 10% of what it was, so why should they trust it to be a currency worth using?

For it to be a currency it doesn't need a huge value per bitcoin, nor does it need to be constantly rising a huge amount - but it does need to be reasonably stable.

That's a great question as to why anyone would use a currency whose valuation had dropped to 10% of what it was. http://www.kitco.com/charts/popup/au3650nyb.html

I'm failing to see the relevance of the price of gold to the bitcoin discussion.

He's probably trying to claim that the 10x increase in the price of gold over the past ten years is a 10x decrease in the value of the USD rather than a speculative bubble in gold. (And even if it were, it wouldn't be remotely comparable to the 10x decrease in the value of Bitcoin over the past three months.)

As a sidenote, that's a terrible graph(as are most graphs of this nature). There's a wonderful technology called a logarithmic plot for that sort of thing.

Every bitcoin opposer repeats, that the money will artificially start going up and that is why it will crash.

Right now, it is going down, for a long time. So that is not why it will fail.

It will fail because noone actually needs it. It has no real value over other means of electronically exchanging money - paypal, for example, is much faster, easier to use and, dwhile it is not free, thanks to the wild exchange rate of bitcoin, one will probably still have more money from paypal than bitcoin money exchange.

There is no place to spend bitcoin, because most of the people don't CARE that it's centralized and someone can watch it, because it is infinitely easier to use paypal to just PAY STUFF, instead of going through the pains to exchange bitcoins through shady sites, wait DAYS to get it on your wallet, then wait hours until the blockchain is downloaded, then wait another hours since the block is 6 times confirmed.

Maybe it will work in the end, it's nicely designed and all. But I don't see anyone using it right now. There is no real reason to do so.

Even though users typically don't care whether a service is centralized or not, decentralized services have the advantage when it comes to building infrastructure around them.

With Paypal, the same company is responsible for sending, receiving and storing your money. A decentralized currency like Bitcoin could act as an intermediary protocol that would allow users to choose different companies to handle each of these tasks.

Bitcoin to me seems interesting because it's essentially an open protocol for transferring and manipulating finances. I kinda feel that talking about deflationary currencies or currency fluctuations is somewhat missing the point.

Value is arbitrary. None of the major world fiat currencies have any inherent value. They are backed by nothing.

Reminds me of an episode of This American Life. Brazil's currency was down the toilet, so they invented a new currency and tricked the populace into thinking it had value.

http://www.thisamericanlife.org/radio-archives/episode/423/t...

On a similar vein, I recommend Terry Pratchett's 'Making Money'.

The price level is more or less arbitrary, but the value of fiat money is not just a shared hallucination. It ultimately comes from taxes. MMTers say that Taxes Drive Money: http://neweconomicperspectives.blogspot.com/2011/07/mmp-blog...

Some anthropologists say that this is how money got started in the first place around the palaces in ancient Egypt. In more modern history, there are stark examples of how "taxes drive money" really does work to monetize an economy; search for "Hut taxes".

Even non-MMTers. If you are from the US, you have to pay your taxes in US dollars, and judgments in court against you are payable in USD.

>Value is arbitrary. None of the major world fiat currencies have any inherent value. They are backed by nothing.

They are backed by a government which knows that once it doesn't honor the value, the economy (and probably the govt too) is finished.

Yes, and if they go down the toilet, you are going down with them. You aren't going to recover your losses once a more competent administration takes over.

PayPal is definitely not faster and easier to use, it is a huge PITA.

From a buyer view? It is super easy. I just fill in my credit card and pay. It's instantly confirmed.

Compare it with transferring money to bitcoin wallet, then paying, then waiting hours until it is confirmed by 6 consecutive blovks

Not my experience. I tend to get hassled by PayPal a lot. Either they pressure me into using my existing account (which I often don't want to do, because it has all sorts of issues, lost passwords or whatever - I don't even want to think about it), or they want to pressure me into registering. Even if I don't register, they will send me email on a regular basis suggesting I do.

I'll probably end up using a new email address for every PayPal purchase I make (otherwise the almost unavoidable 'login with your email' problem), which means even more PayPal spam over time.

Most BitCoin vendors accept the payments before the blocks are confirmed. You only have to wait for the blocks if you want to be extra, super-sure. Likewise with credit cards the vendor can also not be 100% sure that they buyer won't just cancel later on or the credit card was a stolen one.

One of these things will happen: (1) A successful attack on Tor, (2) A successful attack on Bitcoin, (3) The Silk Road's (or similar site's) share of the black market will continue to grow rapidly.

It seems pretty inevitable in the longer term. If current technologies break up, new technologies will be popping up. I guess law enforcement has already lost this battle (in the long term), similarly as RIAA/MPAA has lost to piracy.

It should also be noted that criminal use doesn't raise the price of bitcoins, since criminals don't necessarily hold their bitcoins. For them bitcoin is just an another money laundering system.

It should also be noted that criminal use doesn't raise the price of bitcoins, since criminals don't necessarily hold their bitcoins. For them bitcoin is just an another money laundering system.

Disagree. There's a "float" period between when the order is placed and when it's completed (service/goods verifiably delivered). The dollar-value volume in this float period sets a floor on the market cap of Bitcoin.

I'm clearly fascinated by all this, and a little surprised that more people aren't. The Bitcoin protocol is one of the great recent innovations in distributed systems, and this particular application of it is the culmination of a lot of crypto work into a cypherpunk fantasy.

>a cypherpunk fantasy

yep. All your transactions are recorded for posterity and law enforcement can access them at anytime. The moment i first time heard about bitcoin i immediately read their paper and this was the instant end between me and BT - it is either a honeypot or an NSA's distributed "calculate these hashes@HOME" project. Most probably it started as the latter and once NSA had gotten enough results and withdrew the funding (which supported the currency valuations stable growth before speculation rushed in), the BT now is only the former.

Satoshi's white paper disproves everything you just said. Either your comment is out of ignorance or out of malice. Go read the white paper.

our reading of the same paper seems different (i mean if you did really read it). Well, don't believe me, check this out:

http://gawker.com/5805928/the-underground-website-where-you-...

"Jeff Garzik, a member of the Bitcoin core development team, says in an email that bitcoin is not as anonymous as the denizens of Silk Road would like to believe. He explains that because all Bitcoin transactions are recorded in a public log, though the identities of all the parties are anonymous, law enforcement could use sophisticated network analysis techniques to parse the transaction flow and track down individual Bitcoin users."

Thats a misinterpretation of what jgarzik said.

Basically, if the cops grab your box with your Bitcoin crypto keys on it, they know all of your transactions. This is why you need to encrypt your keys if you're doing something illegal.

tl;dr: Nothing ties you to your address but evidence not inside of the chain.

You don't even need "sophisticated techniques", you can follow the transactions in http://blockexplorer.com/

ALL transactions, including the receiver and sender addresses are public. They have to be, since the global bitcoin network has to verify and add them to the blockchain.

A full copy of a currency's block chain contains every transaction ever executed in the currency. With this information, one can find out how much value belonged to each address at any point in history.

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

See Fergal Reid, Martin Harrigan, An Analysis of Anonymity in the Bitcoin System for an example of network analysis: http://arxiv.org/abs/1107.4524

I beg to differ. If people can buy drugs or launder money easier with bitcoin than with coin coin, people are going to want bitcoin.

Can someone give a concrete example of themselves using Bitcoins for something other than speculative trade ?

http://gawker.com/5805928/the-underground-website-where-you-...

How real is that?

Like, I know the site exists, but how many people here know people who have successfully conducted commerce on it?

How are they keeping themselves from being exposed?

As the article states, the site is only accessible through the TOR network, which is completely anonymized. All transactions are completed through Bitcoins, which is also pretty anonymous. When shipping the drugs, users are urged to get creative, such a vacuum sealing to avoid smell detection.

I don't understand how it would be safe at all for the recipient. If the "smell prevention" failed couldn't the police just arrest whomever it was shipped to? I can understand that the shipper is pretty safe dropping the package off but if it's flagged as black-market goods it seems like the buyer is totally busted.

How would it get flagged as a black-market goods?

The law requires a little more proof than that, otherwise you could just ship drugs to people you don't like to get them arrested.

A system that ships millions of parcels in an almost completely automated way that has only occasional narcotics canines attempting to sniff literal mountains of packages to find one that has an ounce or less of substance that has been vacuum-sealed multiple times.

Then, they have to setup a trap in which the recipient knowingly takes delivery (and there can be no other way than the recipient signing for it, or else it would be entrapment or just mis-shipment, which is just as common) and catch them. All for a person who bought a small packet of drugs.

I think the Feds even consider such a thing a lost cause.

I know people who have "conducted commerce" on that site. It's real.

My understanding is that the real risk is taken by the buyer. The seller can anonymously receive payment, then drop the drug envelope into a random postbox. On the buying end, regardless of Tor and Bitcoin, they still need to have it shipped to a real physical location.

The seller still has to trade the bitcoins for something (either buy something with them, or trade them for $).

Unless they only buy virtual goods, there's a trail to follow.

The seller can easily buy virtual goods, like other e-currencies, and hide his trail that way.

Yes, that's what I said. But on the other hand, the BTC market is still very poor. Besides domains and hosting, what other virtual goods are there to buy?

Real money. Sell bitcoins to people who are buying them in order to purchase drugs.

There's nothing inherently linking the two transactions of "X bitcoins transferred from wallet #1 to wallet #2" and "Y USD transferred from Bob to Joe" - with sufficient care and redirection, you can make it very difficult to track down exactly where the bitcoins are being traded for real money.

But now you have to trust "Joe" to make sure his real identity can't be easily linked from his bitcoin addresses, or else they'll find out about the USD transfer.

Well yes but you are assuming you can find a buyer who is willing to do a straight bank transfer rather than using an exchange. And most people much prefer to use the exchanges. Especially if they are buying drugs with the bitcoins; if they did a bank transfer to a person selling drugs, they could have just used that payment method in the first place.

It's a tor hidden service, and it works really well. I know lots of people who have used it from both sides of the commerce equation.

It's the main driving force behind the price of bitcoins on the public exchanges, which makes for a rather novel opportunity for a market-moving attack I'll leave as an exercise for the reader.

Silk Road has worked well for me. Seems real enough.

You can buy magic cards at abugames.com and electronics at newegg.com (through a proxy) using bitcoin.

i actually make a living buying and selling magic cards, and i can attest that ABU Games is legitimate. I sell cards to them often, and I was unaware they took BitCoin!

Thanks, I just bought some cards using bitcoins to complete my Unglued collection! My first bitcoin transaction for real goods!

Silkroad. It has consistant business and I know people who have used this website.

However, it fails to use bitcoin as a currency in the sense that other stores use dollars as a currency. The prices on Silkroad are adjusted to mirror the USD->BTC exchange rate dialy. And, I would suspect that the majority of the users are buying bitcoins to buy goods on Silkroad, and that venders on Silkroad turn their BTC back into USD often. These two use cases don't support BTC as a viable currency. It is being used exactly as detractors presumed: merely a way to launder money.

Using a currency as a means of payment is its main purpose. Using it to store value is also important, but secondary. Obviously some people where using it as an investment (which is kind of a store of value), but probably not the same people.

Anyway, a currency that people buy to use in particular markets is possibly a way that money got started in the first place. People traded for a currency to use in a (physical) market and then traded that into different stuff that day. Eventually, as things stabilized they might have been happy holding some money.

If bitcoin became commonly used as a way of transacting, but not of storing value or denominating prices it could still be a good enough starting point.

> If bitcoin became commonly used as a way of transacting, but not of storing value or denominating prices it could still be a good enough starting point.

Even if the only markets in which it was "commonly used as a way of transacting" were illegal ones, as a means of money laundering? Is that really a "good enough starting point," a way for drug dealers to clean their money?

I'm not sure that makes any difference. I'm not sure how big this market is, but it could plausibly be big enough. It would probably leak into other markets too. Drug dealers comfortable with bitcoin might also buy shoes with bitcoin etc.

And I'd be able to buy bitcoin from drug dealers trying to convert bitcoin into cash, buy shoes from someone with the bitcoin, and that someone could sell that bitcoin to someone looking to buy drugs from a drug dealer. The demand for bitcoin naturally smears over the entire market for bitcoin.

If a lot of people are buying bitcoins then that should push the value of them up (depending on the available supply of bitcoins) regardless of whether they exchange them back in to traditional currency shortly afterwards. It is a form of utility.

All currencies are valued against each other, it is no surprise to see the dollar value used most frequently to determine value, since dollars are the worlds reserve currency.

My opinion is that bitcoin is probably ahead of its time, the technology is amazing, and could be used in many different ways, and I am not yet ready to count bitcoin out just yet.

I sold my motorcycle for coins.

I was buying a lot of article writing service (0% payment fees is nice!)

I shipped several orders from international customers in my http://store.gifti.us and accepted payments in bitcoins (0% foreign transaction fees is nice too!).

I bough steam codes.

I built somewhat profitable for short period of time site - http://betco.in and used some profit in bitcoins to pay for development work on open source project.

EDIT:

Bought, just like few other visitors, articles in PDF at http://ubitio.us. This is also project of mine and I am going to contribute it to open source soon, so just another bit into bitconomy.

And I am working on two other projects involving products/services and bitcoin :)

This is just what came in to my head right away...

What Open Source project?

betco.in - is mix of three projects: 1) python poker network - open source poker server 2) jpoker - open source jQuery-based poker client 3) the room - front-end for everything of it.

1 & 2 - were existing pieces of software which are actively developed further.

3 - started from scratch.

All of these are open source. Technically anyone can clone github repo and follow instructions to spawn copy of this project.

Project licensed under AGPL which secure all future changes into it will become open sourced as well.

I'm curious, how have you found the currency value volatility for buying and selling goods and services?

I envision a bitcoin meme: 0% fees, 1000% volatility :)

It is stable enough to be able to convert bitcoins to usd at predicted rate (marked is liquid enough - and this is where speculators are good evil).

I am converting to usd only part needed to pay suppliers and rest leave in coins for now. Agree, income is fluctuating. But I am ok with it since so far I did not see technical issues with bitcoins itself.

But you are right - as I said below, huge fluctuation (although, what time period you used for 1000% fluctuation claim?) is a problem. And I will welcome stabilization at any level. Although market is too small to be stabilized soon.

Amongst MANY other examples:

You can buy web hosting at http://cinfu.com, https://bitcoinwebhost.com, or https://kalyhost.com/?Currency=BTC

Purchase domain names at http://privacyshark.com, http://exoware.net, or http://bitdomain.biz

Use them at a variety of travel locations: http://bitcoin.travel/

Buy NewEgg stuff through http://bitcoinredemption.com or http://bitspend.com

Charity: http://bitcharity.org, http://bitcoin-charity.com, http://bitcoinsforcharity.org

Seconding hippich -- gambling, for one thing. All gambling sites require you to ship currency on and offline. Normally the site swallows a 5-7% fee for that each way, which is why it takes so long -- to prevent you from doing it too often. With Bitcoin you can deposit, win, withdraw in an hour and you'll get better odds because the casino's got 10% more money to throw at the games.

Sorry to hear betco.in's going down -- StrikeSapphire.com will stick around no matter what the price goes to, because it's just a good, efficient way to take bets, process payments, and pay people out.

This make me think - there was recently a huge scam in the poker world - some of the major sites (FullTilt for example) were using clients money as their revenue. With bitcoins the clients could check that the bitcoins were not transfered from the company address.

I bought a license for TotalFinder with Bitcoin.

I recharged my account on link2voip. That transaction was easy and fast and there was no fees for either party.

I don't know who, but I know that people have subscribed to porn via btckink.com

I bought iTunes gift card codes for the US store.

While there is an iTunes store in Germany, some of the apps aren't available (e.g. TV Station apps that I could use with a VPN) and with the current euro/usd ration, the US store is cheaper.

This is even more useful for renting US movies, because the German iTunes movie store completely sucks. I hate it that there's no good streaming service in Germany. Or do you know one?

Not that I know of. I usually use "unblock us" (http://blog.marc-seeger.de/2011/04/07/hulu-and-iplayer-outsi...), but I guess that's mainly for TV series rather than movies.

Yes http://betsofbitco.in - it's the only thing I ever used it for.

Eating burgers at room77 in Berlin, Germany

Anyone know what the conversion rate between bitcoins and Dutch tulips is right now?

Today the joke-explainer duty falls upon me:

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

Even if you are familiar with the expression, the full article is well worth reading.

Indeed, those who deal with web 2.0 startups would be well advised to read that article.

These who advise to read this article better read it in full themselves. Especially part where it is explaining jumps from futures contract to options and back. And how this affect price.

Well, tulips.com will sell you 300 tulips for $347, though I'm sure you could get them a lot cheaper if you pick 'em up from the farm yourself. Roughly three to one, though, would appear to be the going rate.

It is essential to remember that there is massive inflation of the money supply going on (by design), and that this is the key driver of the price downwards. ~35% increase in the money supply over the next 12 months; proportionately higher over the last 12 (as the same in absolute terms).

Its rise to $30 was driven by hype and speculation. The falling prices stop any speculators jumping on board, and there is no significant 'economy' yet. The rate of money supply increase will be halved in 2013, so don't expect any recovery before then.

> The rate of money supply increase will be halved in 2013, so don't expect any recovery before then.

The value is mostly driven by mass psychology, the inflation caused by miners is only one factor.

If some goverment-issued currency would start hyperinflating, bitcoin or similar cryptocurrency would be pretty good choice for people to move to.

So they should jump out of a highly liquid, government-backed security that's proving untrustworthy to go into an experimental currency that's relatively illiquid? I'd think they'd go towards gold, which seems like the opposite direction.

If people are jumping out of a printed currency to avoid inflation, they're going to want something where they know it's easy to convert back into something you can buy things with. Jumping into a cryptocurrency for their cash holdings would require they believe that they can easily jump back out.

Of course it would require more infrastructure around bitcoin. There is already an impressive amount of exchanges, and it would be pretty easy to exchange bitcoins with software like android bitcoin wallet. excellent app btw: https://market.android.com/details?id=de.schildbach.wallet

Gold isn't really a good instrument of exchange. Gold-backed currencies are, but the central issuer has proved problematic historically.

Of course cryptocurrency used widespreadly is just a nerd fantasy right now, but I believe in it more than to a new gold standard :)

It's not a matter of infrastructure. It's a matter of belief: people who are looking for safety and refuge from inflation aren't going to move their money into a less-liquid, less-tangible asset with no track record (relative to alternatives.)

Moving cash into bitcoin would make sense if there were some inherent advantages: better returns, more liquidity, better privacy, more stable values, faster transactions. So far, I don't really see any of those being offered; it's essentially an experiment, and folks who are using it are either doing to speculatively or for curiosity value, not economic reasons.

> people who are looking for safety and refuge from inflation aren't going to move their money into a less-liquid, less-tangible asset with no track record (relative to alternatives.)

I will. The point is, at the margin, some people will. All and at once? Never! The more adventurous and tentatively? Yes.

Now it all depends on relative outcome of different strategies.

Second half of 2012 is when the rate will be halved, not 2013.

I'd say yes. All/almost early adopters are already enlisted so to speak, and most are already stocked with bitcoins.

And every hour 300 new bitcoins are mined, I'm still willing to buy some, but I'm a rather late adopter, and, obviously, there a limit for me too, after which I'll stop buying.

Anyway if bitcoin will survive until 2013 then... I'll be ready to accept bets (as in 10 to 1) that it will make it.

As much as bitcoin's gotten some bad press recently, this kind of market volatility will severely hamper bitcoin's efficacy as a stable unit of currency. It needs a consistent and stable rate of growth (even if negative).

Indeed. If it's worth $1 flat it will just be that much easier to do the conversions mentally. Also, vendors won't have to update their site prices as often.

I think more that it needs some utility over other currencies within some context. That utility margin will bring stability.

Bitcoin is essentially a giant pyramid scam. The early adopters have cashed out long ago. As mining gets more and more difficult, less people will cling to the liquid currency. Why trade with a deprecating currency, anonymous or not? The fact that the exchange rate is below the cost of mining should be alarming for many reasons.

I'd assume the creator/first adopters do not care, either way.

It's free market, everyone is free to buy and sell as they wish. It's not a scam since there is the same information to everyone.

I'm pretty sure that the early adopters couldn't guess this year's rise in value, and couldn't guess the price drop either.

While I believe in bitcoin or cryptocurrencies in the longterm, I'm still pretty sure that bitcoin value will stay very volatile in the coming years. The stability will take time, and widespread adoption for this kind of innovation will take years if not tens of years.

Your reply missed his point as bitcoin is 'mined' not just bought and sold. The difficulty of that mining is set based upon the computing power of the miners. Add to this the fact that the number of coins available to be mined each day is designed to be reduced over time, and you end up with early adopters (formost of which being the creators) controlling a massive proportion of the total worth of bitcoins.

Well, I guess that most startups are pyramid scams, since the founders (early adopters) end up controlling massive proportion of the total worth of the company.

If the startup founders create the company specifically to sell a worthless product to investors, then yeah, it's a scam.

Also Bitcoin is not a company, any more than US Dollar is.

Only if they say they aren't worthless. Which in this case they don't.

How is BitCoin worthless? It's a tool that can be used for a variety of things.

Is that much better than printing money and distributing the new money to major banks? That is what the US government is doing now. Most countries do a combination of distributing newly printed money to domestic banks and the government itself.

You know that they don't just give the money away to banks, right? It's loaned. They have an obligation to repay it.

Thanks for that. I needed a good laugh today. :-)

Fine, money is loaned to a bank, and they have an obligation to repay the loan. With what does said bank repay the loan? Money, of course. Where does that money come from? Ultimately: other loans.

"It's loans all the way down..."

"It's not a scam since there is the same information to everyone."

does this really make something not a scam? As far as i've seen, most people do have access to the information needed to prove something a scam. It doesns't mean they will both find it, and believe it.

In any scam, the scammer promises profits which (s)he knows are a lie. No such thing happens here.

A lottery isn't a scam, even though only a few actually get money out of it. It's just gambling, and so it Bitcoin.

The mining difficulty is adjusted periodically to balance the computing power of miners. As people stop mining, difficulty will reduce.

I must agree it is massively stacked in favour of the early adopters, who could have made an absolute killing so far if they played things smart.

As a small-time miner, I don't care. I always thought the value should be stable at roughly $1 at this point in time. I am in it for the long haul, I am waiting to see where it goes in the next 5 years, not trying to cash out to dollars.

I'm in the school of thought that anyone who says Bitcoin is a pyramid scam is trying to scam Bitcoin and/or intentionally depress the value of BTC for personal gain.

I am an early adopter, I was one of the first 100 people to mine, and I've mined thousands of BTC (including 650 with a single CPU), and I wrote the most popular miner, DiabloMiner.

If it was a pyramid scam, why would I currently be ignoring the current price of BTC in USD? It just means the demand is currently low, and since I'm not selling, who cares?

Mining is not about making money, its about preserving the cryptographic integrity of the currency. Also, no, the exchange rate is not yet below the cost of mining for many miners. It will have to drop below $1 before everyone is out.

> I'm in the school of thought that anyone who says Bitcoin is a pyramid scam is trying to scam Bitcoin and/or intentionally depress the value of BTC for personal gain.

That is ridiculous. Anyone who criticizes Bitcoin is automatically a scammer themselves?

http://www.youtube.com/v/cpPABLW6F_A

(Not taking sides here, just pointing out some people conflate economics and war.)

No, the exchange rate ($2.6/BTC) has still not fallen under the cost of mining for the average miner who selects the right GPUs ($1.8/BTC).

The current difficulty is 1468e3. It takes 2^32 * 1468e3 Bitcoin hashes to solve a block of 50 BTC. The majority of people mine with HD 5000 or 6000 series. If you pick efficient ones, you can count on 2 Mhash per Joule. The average worldwide domestic electricity price is $.10/kWh. So the average cost of production is:

2^32 * 1468e3 / 50 (BTC per block) / 2e6 (Mhash/Joule) / 3.6e6 (Joule/kWh) * .10 ($/kWh) = $1.8/BTC

There's a lot more to computing costs than $/kh.

Everything else are sunk costs. So, for existing miners, all that matters is $/kWh.

It is my understanding that Pyramid Scheme was an explicit, stated design feature of Bitcoin. Because the only value of the coins are in the network effects, there would otherwise be very little motivation for early adoption and the idea would have died on the vine. By giving a huge advantage to early movers, the whole system was kick-started.

I expect that the creator already considers the system a success. The goal was not to create an investment vehicle. It was to allow people all over the world to exchange value without corporate or government interference. $30/coin or $3/coin doesn't matter. Either way, it's working.

Of course it matters. If you "exchanged value" with someone in return for bitcoins three months ago, then approximately 90% of the value of your transaction has disappeared (whether lost by you, or someone else you passed the coins onto). Unlike hyperinflation of currencies backed by governments and banks offering interest, the only way for you to have retained value received in bitcoins was to dispose of the bitcoins in favour of something else. So after getting burnt by a lot more than Paypal exchange fees, you probably end up converting to a government/bank backed medium of exchange anyway. That's not dysfunctional?

> Bitcoin is essentially a giant pyramid scam. The early adopters have cashed out long ago.

This may not be relevant, but not all of them have. Something like 800,000 of the early bitcoins have never moved in the blockchain since they were minted (leading to speculation that they have been held onto by Satoshi).

"Pump and dump" scam is, I believe, the correct term.

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

Bitcoin is something completely new and different. It is like open source software. Until people really understand it, it will be toy for geeks with similar market coverage and price. (or someone find design bug and we can forget about it)

Biggest hurdle when using bitcoins is not it's high/low price, but rather fluctuation.

Fluctuation happens because too many speculate it and not trade with it (well.. currency trading is also trading..) And I would say this is totally expect-able and acceptable.

With time if this technology will prove itself, it become major online payment method. And believe me - work on this project is very active right now. All this investing mumbo-jumbo is just a random noise...

No I think it's because bitcoin's reputation had been thoroughly trashed due how much the early adopters made off with. Any mention of bitcoin now just leaves a sour aftertaste.

another one...

who cares? Do you care federal reserve guys can print as many dollars for themselves? Does it prevent you from using dollars to buy stuff in walmart?

Difference from FED is that it happens to bitcoin only once - during initial distribution. After all coins "printed" - no more coins will be thrown into circulation.

Initial distribution have to be made somehow. And I believe people who invested their time and money earlier have to be paid accordingly.

Read paper. This is not money question. This is technology question.

Well what I'm saying is that people will avoid bitcoin out of spite.

I like bitcoin.

It bought me an iPad 2 when I cashed out my 3 weeks worth of mining at the height of the bubble.

Here was Jason Calacanis's take on May 15: "Bitcoin P2P Currency: The Most Dangerous Project We've Ever Seen" -- "We are 100% certain that governments will start banning bitcoins in the next 12 to 18 months. Additionally, we’re certain bitcoins will soar in value and a crush of folks will flood the system and start using them." http://www.launch.is/blog/l019-bitcoin-p2p-currency-the-most...

Who gives a shit what some famous spammer says about crypto-currency?

Plus, how do you ban something like this?

I'm not sure what you mean, you ban it exactly the same as you ban copyright infringement or child porn or any of a dozen other crimes that are committed on a computer that simply involve a transfer of information between a few parties.

So, in other news - governments everywhere ban bitcoin. Bitcoin use soars wildly.

Not sure where you make that assumption from. If bitcoin never gets adopted as legal tender for real world goods its value gets severely limited. If Government's explicitly state that bitcoin is not legal tender, and I can't buy a latte at Starbucks with it then its not very useful.

But if you can buy things privately or online with bitcoins, bitcoins will be used without government permission, and will have value.

SilkRoad works.

http://www.wired.com/threatlevel/2011/06/silkroad/

http://gawker.com/5805928/the-underground-website-where-you-...

I'm not saying that Bitcoin won't have value, my response is to the grandparent that makes the argument that bitcoin usage would explode if it were made illegal. It seems to me bitcoin would be further marginalized in that case, hardly a catalyst for growth.

Bitcoin is already not legal tender. Legal tender means you are _obligated_ to accept it as payment for a debt (eg, in the US, a lender cannot refuse a payment on a debt in dollar bills). It does not _necessarily_ mean that non-legal tenders _cannot_ be used for barter.

It would actually be a lot easier to ban than the other things I mentioned since it would require a financial transfer to purchase them to begin with. A better example would be online poker, the ban of real money online poker actually had a pretty big impact on users.

    it would require a financial transfer to purchase 
    them to begin with

Not it doesn't. Barter. You send me bitcoins, I send you stuff.

P2P file sharing has a problem because you don't know who you're downloading from, and they know you (your IP at least).

That's not the case with bitcoins. You send money to some bitcoin address that is extremely hard to track to a real person.

Forbid businesses from accepting the currency due to stability issues. Also use FUD terms such as "deflationary, the exchange rate changes so much, IRS may take a more active role in investigating sudden influx of cash".

how is calling bitcoin deflationary FUD?

> how is calling bitcoin deflationary FUD?

Businesses trying to deal in Bitcoins will find their value going down much faster relative to cash value by end of day. That's the very definition of FUD.

The exchange rate for Calacanis-certainty to actual-liklihood has also been collapsing, and is now at about 4:1. (100% Calacertainty = 25% actual probability.)

I am shocked Calacanis made a two sentence statement without a plug for one of his companies.

To everyone mentioning the great Dutch tulip debacle: Tulips are a commodity, the coin is a currency. Bubbles can be analogous, but they aren't tautological. Just a thought.

good thing I made a bunch of money by trading BC intra-day when it hit mainstream.

seriously, did anyone expect this to be a "new paradigm"? it was a fun toy for financially-minded engineers and traders, but I can't say I'm surprised to hear that it's in free-fall.

i wonder where the bottom is? Once it drops well below USD1.00, I think I'll buy a bunch on a cheap bet :)

I thought it'd be the new paradigm, but closed my bitcoin blog when I saw how terrible the client was and couldn't see it improving that much. Just waiting on bitcoin 2.0 from lessons learned.

this reminds me about the quora post about bitcoin. In a world of where there is no regulation in currency, you dont have a FED, this money will crash. We dont have liquidity in this currency, as so, nobody can 'inject' money in the market.

> this money will crash

Give it a little more time. There has been more widespread adoption only for 8 months or something. I think the amount of bitcoin related activity is pretty impressive.

Let's see after five years if cryptocurrencies are still used.

It's very simple. As the money creating/coin mining is unregulated. It's not tied to any actual usage. This is a classical deflating bubble which will never recover. Just wait for Cybercurrency 2.0 with decent build-in regulation of coin minting.

Gold also has no fed to 'inject' money. It does have miners though. It has not crashed and appears to be more stable that fiat currencies, not less. (not a bit coin or gold standard fan here, just confused.)

http://upload.wikimedia.org/wikipedia/commons/2/20/US_Histor...

If you look at this, you can see that gold is more volatile and spiky.

We can disprove that pretty quickly and easily: show me a broad basket of goods that costs the same in gold ten years ago as it does today. Or tell me this: did everything suddenly go on sale or shoot up in price when gold recently shot up and then dropped 10-15%? No.

Bittulips?

All I have to say is "wow". The commenters here are atrocious. If you're going to rage against BitCoin, (and I'm no huge fan), at least bother yourself to have half a clue what they are instead of spouting lies here in some vicious attack on them.

Porn is to the Internet as selling drugs is to Bitcoin.

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