1 Bitcoin Worth 10 USD
bitcoincharts.com
bitcoincharts.com
In my view, Bitcoin is likely to gain wide adoption worldwide over the long haul -- that is, over a period of many years or even decades. Its price is therefore bound to rise far above current levels over time.
I've laid out my reasoning here: http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt...
The fact that it's trading at $10 again is also very significant to the Bitcoin community, it hasn't done that in more than a year. And it'll probably reach 12 by the end of the year before it stabilizes again.
Again - as a currency this is insignificant. I agree that bitcoin is a great technical accomplishment but talking about it's price as it has any meaning outside of a few hackers playing traders is not realistic.
One of the world's large credit card networks processes on the order half a trillion dollars in a typical 30 day period. So bitcoin has a way to go yet before it's volume is significant compared to other ubiquitous electronic payment methods.
Consider that they need to grow by a great many orders of magnitude to become globally economically significant, yet consider that the supply of bitcoins is relatively fixed.
How smoothly do you think that is going to work?
If you believe in the future bitcoins, you also have to believe that their value will have to eventually sky rocket by several orders of magnitude. If you believe this you should hoard every bitcoin.
So if you actually believe in bitcoins, why would you ever spend one?
If you don't believe in bitcoins, why would you ever accept one?
do you see the problem yet?
(This on a website for hackers and startups. Pfft.)
Because you have to, and there is no other realistic or better choice.
As such, it's interesting to see when and how such situations arise.
"Bitcoin Seeks New Life in Africa: A digital currency without a central bank could be ideal for economies where the mobile phone is king but the banking systems are weak."
http://www.technologyreview.com/news/427287/bitcoin-seeks-ne...
According to the latest stats at http://www.bitcoinwatch.com, the market value of all bitcoins currently in existence is just under $100 million; so, trading volume of $1 million per day means that around 1% of Bitcoin's entire float turns over every day, around 30% of the float turns over every month, and the entire float turns over about once every three to four months. That's more liquid than a lot of publicly traded stocks with similar float.
PS. moonchrome, I'm not sure how your comment relates to my post, which is about trends over the long run ("many years or even decades"). Why are you responding with a comment about current trading volumes?
If it was just organic growth in the currency I wouldn't say there was an issue but if you look at the transaction volume it's clear that the surge in trading that occurred both a week ago and just recently is what is responsible for the latest increases in value. I don't have enough evidence to say that the price has been deliberately manipulated upwards, and indeed the increase could just be a reflection of the higher demand, but it does call into question how stable BitCoin can be.
I'm not an advocate against BitCoin, far from it, but I honestly believe that a highly valued BitCoin is the worst thing it can have as a fluctuating value doesn't benefit users of the currency. The only people who benefit from a high price are the speculators and investors, those who are at odds with BitCoin being a proper currency.
Wouldn't surprise me if it crashes again after Burning Man.
On top of that: if you're bringing drugs to Black Rock City, you probably do drugs in default world anyway, and have a dealer back there for them.
There are metrics showing Bitcoin becoming more widely used, but there's not 100% more use in two months.
Maybe it finally registered that the upcoming block reward (to 25 BTC per block) was coming and people bought some up ahead of time.
It might make for an interesting study though, on how much stability the U.S. Treasury provides vs. an unregulated currency.
It happens with gold, which could be viewed as a traditional currency.
Value is relative, so if you only value gold then the value of gold is constant. But if what you value is goods and services, then the price of gold is extremely unstable. You can see it graphed here (CPI being a metric of the price of goods and services):
http://www.usagold.com/amk/gold20080315.gif
Gold used to have a stable price in terms of dollars because the central bank pegged the currency to the price of gold, which I think is the reason people like Ron Paul believe that gold has a "constant" price. now the central bank pegs the currency to CPI so CPI is stable and gold floats freely (in dollar terms). This is preferable if you value CPI price stability more than gold price stability.
Also note that gold and silver often diverge in value relative to one another, so no matter what your perspective, it cannot be the case that gold and silver have stable value. If Somebody hits a rich silver vein then silver drops relative to gold.
What is the unit in which value is measured? There is no SI unit for value, and it seems unlikely that it would ever be possible to define one - it would basically require very surprising breakthroughs in psychology.
Hence people do the pragmatic thing and measure value in the currency that is predominantly used in their life. They use USD or EUR or whatever as their unit of value.
And in that sense, the value of gold and silver is clearly not constant, as a sibling comment explains.
You do not see deflation with fiat currencies because the issuers of the currency print more to counteract deflation. Gold however is prone to extended periods of deflation, and that does not prevent gold being useful as a medium of exchange and as a vehicle for investment or savings. (The reason gold stopped being used as a medium of exchange is that paper money is more convenient, not because of its vulnerability to deflation.)
If your reply to this comment is that Bitcoin cannot be compared to gold because gold has "intrinsic" value whereas Bitcoins are just an artificial construction, you do not understand monetary assets.
True, gold has probably not deflated as rapidly as Bitcoin has over the last 2 weeks. That would be because the fraction of the world's savings invested in gold is much higher than the amount invested in Bitcoins. If a greater percentage of the world's savings come to be held as Bitcoin, Bitcoin's price would probably act more like gold does now.
And don't worry I'm quite familiar with fiat currencies ;)
Yet again I agree with you, the BitCoin economy needs more investment in it in order to counteract the issues that I highlighted. Thankfully that seems to be happening (I believe YC just accepted its first BitCoin based start up) and as time goes on the market should stabilize. I think that's when we'll start to see BitCoin spread outside the high tech sector and I'll gladly count BitCoin among all the other "proper" currencies.
In the last 6 months, I've never held onto a bitcoin for more than about 30 minutes. Strictly use them for their utility as a currency.
As far as the cost of using them, while it is non-zero, some of us just want to do our part in establishing a currency and surrounding ecosystem that is free from gov't, corporate, and other meddling. Thus we accept the small hit in price.
But because retailers will only hold onto them for probably seconds, using BTC as a transfer medium won't significantly affect the price: average selling and buying will be the same.
The only way BTC can go up is if more people hold on to more of them (reducing the available money supply), which when they are rising happens more, causing a bubble.
The thing is, the first users didn't get all the first ones.
Bitcoin was in Slashdot more than two years ago. It is open source, anyone could download the software and mine on their CPU.
Mt. Gox has been open for even longer. Anyone, anywhere in the world could and still can buy on the exchanges. There's no members-only trading.
If you bought after Slashdot you would have paid around a dime or less. But Slashdot readers called it a ponzi scam and didn't take it seriously.
You could have bought thousands of bitcoins at a dollar when Steve Gibson talked about it in February 2011. But Leo poo-pooh'd it "Not government issued" he balked.
Then again, you could have bought bitcoins at $30 after the July 2011 bubble, and today be down by 66% yet and still be bitter.
That's the nature of speculation. Nobody knows if bitcoin will increase or decrease in value. But it definitely isn't a ponzi. Ponzi means paying dividends to early investors, using funds from later investors. Everyone who held bitcoins yesterday when they were $9.20 could have sold today at $11. Everyone, not just the early miners.
Today, just like a year ago, mining will generate bitcoins at a little more than the cost of electricity to generate them. If you want bitcoins, then mine, buy, or stand on the sidelines.
Just don't bitch when it hits $100.
If I were designing a Ponzi scheme intending to defraud people, I wouldn't base it on a 100% transparent network of open source software using public domain crypto functions, where the wealth creation is by design not only randomly allocated, but mathematically capped to a static trickle rate.
It's like the most badly designed Ponzi scheme ever.
A Ponzi scheme is when you offer an interest bearing or dividend paying investment, and you have to use the money obtained from new people buying into your investment to pay out the interest or dividends.
That's a very clear definition, and Bitcoin obviously does not fit - and it wouldn't fit the definition even if Bitcoin weren't based on a transparent protocol and open source implementations.
I mean, the point is that it's a currency. It's designed to be a currency which isn't governed by any one person or group of people (except those that created it, but at that point it becomes governed by math and logic, not the whims of the creators).
Of course traditional currencies can be forged as well, but printing huge amounts of forged bills and bringing them into circulation involves all sorts of logistical challenges that don't apply in a digital world. Moreover, forged bills are typically not absolutely perfect and can be distinguished from genuine money, this is not possible with a purely digital currency. The fact that paper currencies can be forged is incorporated into the design of the system, whereas the Bitcoin system is based on Bitcoin's crypto being unbreakable.
Without shorting, the only way to make money on Bitcoin is to go long. That is, the price will keep going up until investors thinks it's too much overvalued and BitCoin will crash again to 4 or 5 USD; the value that shorting stabilized it at.
Hindsight is a wonderful thing.
Both of these assumptions are likely. So I would say, yes, this exchange rate should last (of course there will be some bumps on the road, bubbles, crashes, etc).
Not necessarily true!
There is slow growth in coins. But if it takes off then we know all of the primitives to make a second bitcoin. Establish one with a price peg to existing bitcoin. If you maintain it long and well enough, it will become accepted as equivalent. Once that happens you've done a big one-time increase in the supply.
In fact I would recommend doing this at some point. Because otherwise bitcoin has built-in deflation. That is bad economically because it discourages investment in anything else, like building businesses.
So what you would need to do is have an account in both currencies with large amounts of currency in it, and publicly advertise that you will trade across currencies in some predetermined ratio. If your account has enough currency to succeed in handling people who might deliberately try to trade against you, then you will successfully peg currencies.
Admittedly an attempt to provide a peg like this might fail. But what is in it for the entity trying to do it? Quite simply, that entity presumably starts with a much larger amount of the new currency than they used for establishing the peg. If you can successfully create the peg, your net worth decreased by the amount of bitcoin you had to accumulate to create the peg, and increased by the amount of other currency that you had. So you make a handsome profit. (Conversely you have the risk that people will set about mining your new currency and converting it all to bitcoin through your peg, then when you have to abandon the peg you've lost the bitcoin you had to purchase to try to establish said peg.)
There are a number of tricks that can improve your odds of establishing a successful peg. But that's the principle.
I've got some bitcoin, a token amount I bought to have some, but I'm skeptical that it's anywhere near being an actual economy yet.
What is the point in a currency that ranges from $2 USD to $12 USD in a year ?
Because clearly I wouldn't want to hold anything in Bitcoin for a long period of time due to its instability.
Bitcoin enthusiasts just have too high expectations for it.
http://en.wikipedia.org/wiki/Bitcoin
"The network never creates more than 50 BTC per block and this amount will decrease over time towards zero, such that no more than 21 million will ever exist.[15] As this payout decreases, the incentive for users to run block-generating nodes is intended to change to earning transaction fees."
What's problematic is when you buy something worth $50 USD with 5 Bitcoins, and the Bitcoin to USD drops before the seller can get their USD from MtGOX (or whoever their Currency Exchange house is).
The upwards volatility isn't a problem in that buyer/seller scenario. If I want to buy something worth $50 USD, and I go purchase 5 bitcoins for $50USD, and then, those bitcoins are worth $55USD by the time the purchase clears, then I only paid $50USD and the Vendor received $55 USD. Everyone comes out a winner.
If all you know is a week from now it'll cost somewhere between 50 and 500 bitcoins, that's a lot harder to plan around.
If BTC is rapidly rising against the dollar, then I'd rather spend dollars because I'll want to keep the BTC in my account in anticipation of further appreciation.
And, for that matter, the fact that the entire conversation is framed this way doesn't bode well for BTC as a currency. People who use a currency as a currency measure its rises and drops in value by comparing what you can buy with a given amount of the currency in the present versus what you could buy with the same amount of that currency in the past. When people measure something's value in terms of some other currency, as is the universal practice for BTC, that indicates they're thinking of it as a commodity for investment or speculation rather than a currency.
While bitcoins can be used for illegal transactions, it does not mean (and never will) that 99% of transactions will be illegal, just like Feds won't shut down knife factory because some knifes were used to kill. At the end, paying for something illegal is not illegal on its own; its the act or good you paying for illegal. So this or another way, in order to sentence someone, Feds will need more proof of a comited crime, than just blunt bitcoins transactions (how about crime itself).
That doesn't mean it isn't 99% illegal activity, just like e.g. Freenet.
I cargo-culted that explanation, but it sounds good to me.
Did you declare all your bitcoin transactions to the IRS? You may already be in trouble...
Kudos to first adopters!
Money wasn't meant to be saved. Earn and pay your bills in the monetary plane. Save your surplus production in the physical plane.