Bitcoin's Wild Ride Shows It's Not Real Money
bloomberg.com
bloomberg.com
I'm not planning on buying my groceries with bitcoins any time soon, but saying a four-year-old currency in the first throes of popularity and stress-testing, and using inadequate means for it at that, is "not real money" seems awfully shortsighted.
"Non-fiat cheques", perhaps?
Which is to say, it's not a very good currency--and anyone who is taking a long position that Bitcoin will somehow replace or surpass any real currency is a fool who this bubble is going to bankrupt. But, if you just need some bits that hold a (however-ephemeral) value--not a high value, just any defined value--without any central authority needing to back that value, then BTC seems like a good option.
A good example of a use for "bits that have a spot price regardless of any central authority" might be, say, a market for CPU cycles for agents within a distributed computation mesh (somewhat ironically, a dual to Bitcoin's own mining process.) Picture a version of, say, the Erlang VM, where processes could voluntarily surrender some part of each allocated timeslice to other processes who they "owed." Agent processes would need to create highly divisible units of currency to pay other agents on other (untrusted!) systems in exchange for their time.
"Real money" would be very hard to use in this system--if every single agent had a real bank account, transaction fees would quickly overwhelm the system's usefulness. And "fiat play-money" (machine-hour-tokens or something) would only work if everyone could agree, across the whole distributed mesh, that they were worth something, and either there was a "central bank" with which all transactions had to coordinate (turning the distributed system into a hub-and-spoke design), or all systems could be trusted to allocate agents units of of currency only in proportion to productivity.
Bitcoin is something a machine can make, and which will have a price for long enough for it to use to pay another machine for useful work. Also, it cannot be made without doing work proportional to the cost of making it. This combination of factors makes Bitcoin unusual enough to be useful in some limited cases. Just not any of the ones people are hoping for. :)
If the dollar doubled or went to zero tomorrow, Bitcoin would be irrelevant, because there wouldn't be an Internet to transact in it over.
The reality is that every item for Bitcoin-denominated sale has an underlying intended value denominated in dollars; the correspondance between BTC and USD is (a) virtually always unbreakable and (b) wishful and fraught for (depending on phase of moon) buyer and seller alike. The notion of Bitcoin as "money" is counterfeit for the overwhelming majority of its users; for one group, BTC is a P2P alternative to Paypal; for the other, they're virtual tulip bulbs.
It would be much fairer for people to measure Bitcoin's worth by (for example) how many gallons of milk or how many pounds of rice you could buy with it. But since we need to somehow know how much this medium of exchange is worth, and since Bitcoin still has very low adoption, we're using the dollar as a way of assigning worth to these imaginary collections of bits, and that makes it a target of speculation and bubble mentalities. In other words, we should tie its worth to something useful you could actually spend it on, instead of just using as it as a Monopoly-money "investment vehicle".
IMHO Bitcoin will never be able to be taken seriously until the price is pegged to some physical product of real-world value. Until then, it'll just be a USD proxy and thus functionally worthless to anyone but academics, speculators, crypto-nerds, and black marketeers who don't understand that Bitcoins aren't truly anonymous. The system has a chicken-and-egg problem of adoption, and right now given the poor PR it's receiving it looks like it's heading in the wrong direction.
The problem is the same whether you do your accounting in dollars or in sorghum: BTC's value is unstable, wildly so, and it's unstable for predictable reasons.
Bitcoin is unstable in part because this habit of using it as a USD proxy creates uncertainty as to the medium's real worth. This in turn encourages speculation which perpetuates the vicious cycle of volatility.
I think we're just using the word in two different ways.
http://blockchain.info/charts/n-transactions
Anyway, this is the graph I watch actually. Every bitcoin transaction is public, so it is possible to count every single one, as well as it's value. The more transactions there are, the better it's adoption rate.
BTC price is missing the point. The real story is how many people are _using_ the damn thing.
At t his stage, dollar inflation and depreciation against other currencies is just measurement error when compared to BTCs fluctuations.
The second bit, I didn't entirely got. We can't PEG BTCs price to anything, as its price is market-determined.
All anyone needs to do is say "hey, bitcoin is not a suitable currency right now, don't use it". There is no contractual requirement for them to review the long-term potential of bitcoin, they aren't bitcoin salesmen. If bitcoin boosters can't make a strong enough case for the currency to override the objections of the moment then that's on them.
> This level of volatility, along with the difficulty of buying Bitcoins in the first place, and the substantial security risks, is what will stop Bitcoin from being a true alternative to state currencies
He is clearly predicting the future of Bitcoin here, all the while willfully missing the point that of course something that is truly a new form of money and can't be understood strictly by existing economic models is going to first see uptake driven by speculators and can only hope to become something akin to traditional currency much further down the line.
To your question, yes the onus is on bitcoin to prove its stability, but not through rhetoric. It will either happen or not in due time.
You mean its future stability. It's empirically unstable right now, and I don't think many people will deny that. But you seem to be talking about burden of proof for future events, which seems pointless.
And if there's no good argument that bitcoins will inevitably become a stable currency, then why bother with bitcoins ever?
There's a reason why modern currencies are not controlled purely by the market. The past few months of BTC have proven that.
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(and I've read Bloomberg News practically every day for the last two years...)
Bitcoin is doing what free markets do, fluctuate relative to demand.
The QE-to-infinity is the fake stuff.
Bitcoin's volatility is a weakness, but it's not an achilles heel. Bitcoin has many strengths that are completely unmatched by any other currency. People use it for these strengths, and people will continue to use it for these strengths regardless of how much it is worth. That's why bitcoin will not die until there is something to replace it.
Bitcoin can't be used to store value (due to volatility), but that doesn't mean that it can't be used as a medium of exchange. (USD -> Bitcoin -> Silk Road, and vice-versa)
PS: Want real ananimity online, buy visa gift card with cash.
BitCoin right now is like the market for a low volume commodity like Caviar. But it could eventually become like the market for a high volume commodity like corn, but with all the benefits of being able to spend it electronically anywhere.
Basically, investor interest in the volatility now will eventually drive it to becoming a better currency faster.
A store of value is something you could accept in payment for work and hold on to.
A medium of exchange is something a shoemaker can use to obtain bread from a baker who doesn't want shoes.
A unit of account is something with a value stable enough that you can measure the value of arbitrary goods with it; like the Bloomberg article says, it's what enables a cheesemaker to put a price tag on cheese without forcing her to become a currency speculator.
Which of these functions does Bitcoin have?
It is just a 3-4 year old technology lets wait and watch how this plays out before writing it off completely.
Bitcoin has none of this; it appears to substitute the moral equivalent of a Yahoo stock message board.
Why? Now's the time to get in at the ground floor!
Bitcoin is like thousands of times smaller, so volatility adjusted for size/time, the two are similar.
Because international exchange values are not always completely relevant to real currencies. Exchange rates impact the cost of exports and imports, and a weak exchange rate can actually be a good thing sometimes because it makes export goods more competitively priced. Meanwhile, back home the cost of bread, or housing, or smartphones may not fluctuate at all so the currency is still plenty stable.
With a pseudo-currency like bitcoin that is dominated by speculation the exchange rate is pretty much everything.
The USD is worth about 7.3% more JPY today than on January 25, and 300% more BTC today than yesterday.