Why bitcoin will rise in price again, but it will take years | Hacker News Reader

Why bitcoin will rise in price again, but it will take years

forum.theuklibertarian.com

37 pointsgasull30 comments

I don't think Bitcoin dropping in price to the $3 level or whatever level it's at now, means it's the end of Bitcoin. I was very surprised when it had the value of just $1 back April I believe. A currency needs to be supported by real economy, not just speculation. It seems all the speculators are gone now, and Bitcoin will continue its normal course of growing at the pace of its own economy. I believe one of the catalysts for Bitcoin will be NFC payments, because that would remove a huge obstacle for Bitcoin, and it would allow many merchants of real products to sell them for Bitcoin very easily.

Of course, it would help if merchants wouldn't have to be afraid that FBI will come knocking at their door questioning them about it, or if the Government wouldn't immediately freak out about it if its usage explodes in the marketplace. You'd need a president that supports currency competition, too, and might even allow something like this in the market (Ron Paul could be such a president).

But would the customer who wants to pay wth BitC using NFC technology accept that he must wait for some confirmations before he can take his merchandize home? And would merchants, especially large stores that go to substantive effort to streamline checkout processes, accept a payment protocol that by design adds a one hour delay (IIRC, people seem to regard six confirmations as definitive proof of payment, and the work factor is adjusted to give one confirmation per ten minutes on average) to every checkout? Even requiring just one confirmation would mean that a supermarket cashier could only process about four or five customers per hour if you want to keep the process sequential.

unnecessary. transactions don't have to be bitcoin transactions. two people with accounts with mtgox can have instant transfers for instance.

why would you use bitcoin below that though? requiring a both vendor and customer have an account at some paypal like site just makes it paypal. it will have the same problems. so what does bitcoin add? nothing

Lower transaction fees maybe? Like in the 0.x%.

Right. People tend to forget that bitcoin is just the base layer, the first step. Like the kernel would be to an OS. Its goal is to support sending value from A to B reliably. All kinds of functionality needed to run a full-fledged economy can be built on-top without affecting the core system too much. For example using Open Transactions.

I agree. I also think (possibly somewhat antagonizing your idea of pacifying merchants) that things like the banking embargo against Wikileaks and the probably inevitable expansion of those kinds of actions against whatever the antagonizer of established power of the day is.

Bitcoin is building a start point for what will inevitably be a cat and mouse game future of supporting unpopular (with Power at least) movements.

I looked at mining BTC when it was $7/coin, and I couldn't make it work economically. Now that it's $3/coin, I certainly couldn't. And the fact that it hit $17/coin makes it even worse.

You see, the more miners there are, the harder it is to mine each BTC. So in order for it to be worth my electricity and hardware, a LOT of people would have to stop mining. I don't see how it could possibly make sense for me to start mining while so many people are quitting, either.

I'm seeing a lot of posts on HN supportive of Bitcoin, and honestly, I just don't get it. Someone explain.

1) I don't see that Bitcoin can escape any boom-bust cycle. I don't. Arguably the dollar can't either, but I think that's part of my point: that's with people _trying_ to regulate it. Bitcoin ultimately has a finite economy, which means that it's only stable if it is constantly deflationary (unless the population size stays the same I guess? I'm not going to make _that_ assumption) and _that_ motivates hoarding, which locks down currency.

You can _maybe_ construct some differential equation where the amount of hoarding is balanced out by the amount of 'cashing out' as people give up hoarding to spend freely, but that's a _heck_ of a wild guess to base a currency on. And anything _less than that perfection_ will inevitably result in boom-bust: freeze until you sell your dough, therefore simultaneous motivation to sell, therefore flooding of market, therefore crash. Which tangentially brings up:

2) In the above example, Bitcoin is (like any other currency) a surrogate of value for the things you can _do_ with it, which tells us that value lies outside of currency altogether and that currency is just a measuring stick. And therefore...

3) Bitcoin is essentially _still_ a fiat currency, but without the benefits of, you know, a significant support base. Sorry, you can go into almost any bank in the world and exchange an American dollar for local coin. I'd rather just _abolish money_ than supplant it with even _more_ imaginary money.

Sure, some counterculture activity subsists on Bitcoin. Sure, it's a neat thought experiment. But I can't see it becoming practical (read: successful).

> But I can't see it becoming practical (read: successful).

And to add one more point: if it were to become successful, governments would likely make it illegal. Yes, it's decentralized, but they could still sue random people for using it, just like with people downloading music.

So, yes, neat thought experiment, revolutionary idea, but very unlikely to be used by more than a handful of people.

I feel like this is the real achilies' heel of bitcoin. Once governments start losing tax revenue they're going to pull out all the stops. Beyond that, US law enforcement is already concerned with bitcoin because of its use in drug trafficking, online poker, and other dubious crimes then you add in the omnipotent banking lobby who have an obvious agenda to assert. I can't imagine a world where a successful bitcoin would be allowed to thrive.

This is just the kind of thinking (nonsense) that will continue to relegate bitcoin out of the mainstream. It makes no sense from a legislative standpoint to make the actual 'system' of bitcoin illegal, instead, your income and unreported transactions will violate tax codes. Law enforcement will pursue those violations, not the system of bitcoin itself. This is the same as law enforcement currently pursuing people downloading illegal content from torrents, not people using torrents for legitimate purposes.

Bitcoin starts to make more sense when you realise that it is an open protocol for transferring and manipulating wealth, in the same way that HTTP is an open protocol for transferring and manipulating data.

I would like to use Bitcoin for micro-payment transactions in Mexico.

The toy plan I drafted starts with a "broker" (my service) printing and selling "cards" for certain amount of money (say USD$50). Each card is linked to a specific account maintained by the "broker" which knows how much money has the individual spent.

When a user wants to pay using bitcon, the amount of bitcoins are converted to USD$ and then reduced from the card's account, plus a small commission (the profit point).

The user sees all the transactions in USD$ (or MXN$) while the transaction between the "broker" and the seller is done in Bitcoins.

This will help "popularize" Bitcoins, and will allow people in Mexico to do payments without having a bank card, and use micropayments.

One of the many issues is the distribution of such point cards. But on the other hand, sellers do not get tied to a closed payment system.

Of course such type of plans have to be thought quite deeply as there will be a lot of issues to solve. But I think in Mexico it would be good business because currently the options to accept micropayments (e.g., SMS payment or by phone, etc) do not exist (or are not profitable for sellers) and credit cards are not really used by the majority of the population.

Is it? It's incredibly unstable and has a tiny pool of buyers/sellers, that makes it a terrible characteristic for wealth transfer.

Why? The long term stability of the currency is irrelevant if you're just using bitcoins as a temporary intermediary, as the exchange rate only has to be remain constant for the time taken to verify a transaction.

Because with such a tiny market you cannot actually move a lot of wealth without influencing the value of the currency itself.

But that would only be a problem if you wanted to move large amounts of wealth infrequently. If you only wanted to move small amounts of wealth frequently (like Paypal), then there wouldn't be any problem.

Your argument basically boils down to: it's a toy 'currency,' is that really the best argument you can make?

If so, this really isn't worth discussing because it's a joke.

Huh? That's not my argument at all. Have you replied to the wrong comment by accident?

I did, and I stand by my statement. You are arguing that it's viable if you move small amounts of money. That means it only works with toy amounts, any large amount of money will influence the price because demand is shallow. Thus, you argue if you move small amounts frequently it would work, but then it is subject to the same volatility. This is why it's a toy 'currency' because it only works with tiny amounts of money.

So, in your opinion Paypal, credit cards, and physical cash are all toys because they're designed for moving small amounts of money?

Or are you saying that the potential threat of a sudden market crash precludes using bitcoin as a reliable way of transferring wealth?

Let's take a look at the economics of the latter. Let's assume that over the course of the year, a modest $1 million worth of money passes through my dollar-to-bitcoin and bitcoin-to-dollar gateways, and as I'm charging 1% on each (2% total), I'm making a $20,000 profit.

Then bitcoin market suddenly crashes, and 99% of bitcoin's value is lost. What a disaster! I'll lose all of... well... assuming I wait 1 hour to confirm transactions, I'll lose $100 dollars on average. If I waited 10 minutes, then I'd lose only $16 dollars.

So whilst bitcoin might be volatile, the odd market crash doesn't actually affect people who want to bitcoin as a protocol for transferring wealth, rather than storing it.

Paypal, credit cards and physical handle large amounts infinitely better than bitcoin. Look at mtgoxlive and see how much money it really takes to move the market a good amount. $10,000 would move it 20 cents on the buy side which is a 7% move because the demand is shallow. It's a toy currency. Paypal can handle 5 figure transactions without blinking (maybe even 6, havent heard of anyone try but I've seen 5 figure transactions).

My point is, you can't even move a good chunk of money without influencing the value of the market. It doesn't help that you can't store value in it either because of its volatility.

If you're using bitcoin as a mechanism for transferring wealth, the volatility doesn't matter if your revenue stream is relatively constant, because only a small percentage of your revenue will exist as bitcoins at any instance in time.

Volatility only matters if you're interested in storing wealth, or if your transactions are both infrequent and large relative to the bitcoin market. These are the only conditions where a sizeable proportion of your capital would have to exist as bitcoins at one time, and therefore the only conditions where you'd care about volatility.

So sure, using bitcoins to pay for a house or an expensive car is probably not a good idea, but it seems, well, utterly bizarre to dismiss bitcoins just because it's currently unsuitable for a small segment of the market.

And personally, I'd view physical cash as being wholly unsuitable for purchases over $10,000, due to the risk of manually transporting that much money. If I had a choice solely between paying someone $10,000 in physical cash, or $10,000 in bitcoins, then I'd think seriously about using bitcoins. Does this mean that physical money is just a "toy currency"?

$10,000 in cash or at a bank is the same. If you tried to move $10,000 into bitcoins you would move the market a substantial amount just to try and convert your money/bitcoins.

Volatility matters in a greater sense, because you cannot simply say it's only for wealth transfer since it is trying to act as a pseudo currency as well. The characteristics that make it suitable (in your mind) for wealth transfer are because it's being used as a pseudo currency. By utilizing it to transfer wealth, you are also affecting the currency side - which matters. If it became only a method to transfer wealth (no wealth stored), then there should be no demand for it. At most the interest in it would be the difference of transferring money in regular currency. But it's not used that way currently, but its market is so small that people who try to use it to transfer wealth could/do in fact manipulate its value even in real time.

> $10,000 in cash or at a bank is the same.

Even though its the same currency, there are some very obvious differences between money transferred between banks and money transferred via physical currency.

> If it became only a method to transfer wealth (no wealth stored), then there should be no demand for it.

You don't seem to understand how this works.

Wealth would still be stored, but only temporarily. For example, Alice wants to pay $10 to Bob. To do this, Alice gives $10 (plus fee) to a broker, which immediately buys $10 of bitcoins at the current market rate from an exchange. These bitcoins are then sent to Bob's broker, which sells the bitcoins instantly and deposits $10 into Bob's account.

There would still be demand, because brokers need someone selling bitcoins in order to buy, and if demand for using bitcoins as a wealth transfer mechanism rises, so would demand for bitcoins.

> its market is so small that people who try to use it to transfer wealth could/do in fact manipulate its value even in real time

It wouldn't be worth it, because brokers would only have a relatively small amount of wealth tied up in bitcoins at any one time. Pushing the price several percentage one way or another wouldn't be cover the cost when you're dealing with small amounts.

If you're using bitcoin as a way of transferring relatively small sums on a frequent basis, you're effectively immune to short-term volatility. The only thing you care about is long term trends.

So it only works moving very small amounts of money, toy currency. We're back where we started. I understand very well how it works, I don't even know what your point is anymore. It works for moving tiny amounts of money, I am not disagreeing with this statement, it's just silly in my mind and it's not solving anything new nor is it scalable in its current form, in fact it has some very obvious weaknesses which make it a terrible idea for any real amount of money. Then again, I think bitcoins are a joke to begin with, it's programmers reinventing currency and realizing that hundreds of years of finance actually did solve some of the big problems.

> So it only works moving very small amounts of money, toy currency.

The small size of the bitcoin economy means that it is currently only practical for transferring amounts of a few thousand dollars at most. We both seem to agree on this.

What I can't understand is why you think this makes it a "toy currency". Physical cash is very rarely used for payments of over $1000, yet you haven't explained why greenbacks are somehow real money, and bitcoins are just toys.

For that matter, most consumer purchases are under $1000. The largest companies in the world make their money off of selling sub-$1000 goods. But apparently, a payment mechanism that could be used for 99% of consumer goods is just "a toy". I simply don't understand this argument. Its utterly bizarre.

Just because there are a lot of transactions at a low level doesn't preclude the possibility of larger transactions with cash and the USD. The credit card systems, banks and all other parties can handle transactions up to enormous sizes (I am not sure if/what the limit even is) and all that happens without affecting the USD. There are other currencies I would consider toys as well used by real countries. Many of the smaller ones that don't allow you to convert them freely are basically toy currencies as well. They are models, they work in small scale, but for whatever reasons are very limited (in those cases the limitation is often governments cant handle foreign exchange and speculators). Bitcoin is a toy because it can't handle size to the extreme.

I think at this point we're just disagreeing over what constitutes a toy. I have credit cards with credit limits under $10,000, but I wouldn't consider these to be toys, even though I couldn't use them to, say, buy a house. But even though your definition seems odd, I guess I can't really say it's wrong.

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