Consumer mining these days is only profitable for narrow windows — you need to take delivery of one of the first miners in a new ASIC generation to have a chance.
It's much smarter to invest in Bitcoin directly.
If tomorrow the USA gets together with China and Russia and persuades the entire world to outlaw Bitcoin, with the threat of a heavy punishment for anyone trading in Bitcoin, the value of Bitcoin will crash, probably very close to 0. In this scenario (which is not all that far-fetched) absolutely everyone loses, hence not a zero sum market.
If you and I agree that we each own a million fake dollars, we don't actually lose anything when later we decide we aren't.
Those seem pretty unpredictable to me.
Deflation is regressive - it harms those who need to spend the most and leads to concentration of capital at the expense of labour. It punishes those with debt, which will make it difficult for normal people to ever acquire large capital goods e.g. a house (by the way your argument that lenders won't mind negative interest rates because their final value is worth more than what they started with is wrong because it doesn't take into account opportunity cost - lenders compare the returns not against the current value of their holdings, but against their other options e.g. putting the money in a hole). It reduces the velocity of money and therefore economic output. You say that at least it redirects it to the areas that are most important, which may be true, but nevertheless, it shrinks the pie from which we all partake, and reduces the rate of growth, a problem in a world with a growing population. Bitcoin would also suffer from similar problems to gold in that in bad economic times, all the capital needed to recover would flee the regions suffering, making any recovery much more difficult.
> It reduces the velocity of money and therefore economic output
You would have to explain how exactly this happens. Output != value. If you dig holes or build cars no one buys you increase output, but you don't add value to the economy.
Deflation means no new money that doesn't come from someone else's stash. Which means the money can only come from the rich.
Except, the rich's money is increasing in value. So they spend proportionally less and less of their true wealth, while creating no value, to buy the necessities of life from the poor.
And the poor, despite producing real value (food, cars, yachts, factories), no matter how hard they work, can never be wealthier then the established rich.
It's social stratification by absolutes, fortunately it usually doesn't last since the disenfranchised 99% by definition outnumber the 1%.
But let's briefly reexamine it again... What does happen to bitcoin if no one spends it? Well it probably goes to a value of $0. Is this a hard inference? That makes your comment kind of reduce to "you ignored the problem of what happens if bitcoin dies." If it dies, your coins are worthless. Duh? In reality we see people are spending bitcoins so there is presently some sort of incentive to spend, so maybe the problem isn't the lack of incentive to spend itself, but whatever causes that lack of incentive to spend in the first place, and that cause cannot be currently at work because currently there is incentive to spend. So the cause cannot merely be "deflation", as that's already happening. A future cause could be hyper-deflation, but then I'll ask you what happens to the USD in hyper-inflation...
A more general thing to look at is the incentive to use bitcoin and ask whether bitcoin is useful. Bitcoin is more than just a currency, it's also a set of tools for making transactions. If bitcoin isn't useful, there's no incentive to spend or hoard it. Presently I think bitcoin is useful; bitcoin has the pretty cool feature of being able to pseudonymously send an arbitrary amount of money from anywhere in the world to anywhere else in the world, instantly, without reliance on a single third party. And the stuff highlighted on https://en.bitcoin.it/wiki/Contracts and elsewhere for future applications that the core infrastructure is more or less ready to handle is very cool. And there are items or experiences one can acquire with bitcoin that are difficult to acquire with traditional currencies and financial systems. All of these features are subject to competition. The US government could make drugs and online gambling legal and vendors could make such items and experiences easy to acquire with USD, Visa et al. could stop charging their array of fees (at least with bitcoin the only fees are small not-percentage-based transaction fees and currency exchange fees that are typically less than credit card processing percentages), PayPal could get better, etc. The many ways in which bitcoin could die due to better competition make that threat much more interesting and plausible to consider and wonder whether bitcoin could keep up or would die immediately as the case would be for "what if it dies because no one spends it anymore?".
Edit: Admittedly a more interesting question can be "what's likely for the future of bitcoin when considering the ratio between people who find bitcoin useful for its features vs. people who just find it useful as a way to get more USD?" If this was what you really meant to highlight, I'm sorry for misinterpreting.
LOL, seriously? With slot machine you are guaranteed to loose statistically. Bitcoin is very different bet. No one can calculate what the probabilities are for different outcomes when it comes to Bitcoin.
Do either enough times and you'll most likely whittle your money away. But you could win big with a few spins or a few lucky trades.
The value has been going up dramatically during the last few years pretty consistently and demand is steadily rising.
Bitcoin is gaining popularity in China quickly and they trade quite some volume on the exchanges now.
Let's assume that bitcoin is a currency, which is highly debatable, but let's put that aside for now.
One does not 'invest' in a currency. One either uses a currency or one speculates in a currency.
Now, returning to the fact that bitcoin is far from a true currency, as much as its proponents wish to purport to its practical usage, the fact is that 'investing in bitcoin' is very little removed from taking a punt on a race horse or a penny stock or beani-babies or any other highly dubious 'investments' which have come along so far.
What kind of currency has fluctuations +109% in a less than a month's time? (October 1st to October 23rd 2013)
The only difference in the case of bitcoin is that it has the allure of technology, cryptography and all the mysteries connected with it.
All great hustles have that. Madoff did it with the 'mystery' of the stock market. Ponzi did it with the 'mystery' of the then still recent international stamp post delivery system.
Someone in Venezuela putting USD under his mattress isn't investing?
> What kind of currency has fluctuations +109% in a less than a month's time?
A new currency that emerges out of nowhere, in an emergent fashion, such as bitcoin. You don't think gold prices fluctuated wildly in ancient Sumeria when gold was first used as a currency?
> All great hustles have that. Madoff did it with the 'mystery' of the stock market. Ponzi did it with the 'mystery' of the then still recent international stamp post delivery system.
Yes, and Uncle Sam with the USD.
That said, I agree with you it is bad for people to extol the "smartness" of investing in bitcoin- It's impossible to predict future prices of a commodity that is speculated upon. People should instead simply explain the value that bitcoin has to offer to the world.
No they're not. They're trying to lose money against inflation more slowly. 10 years from now that $1000 USD will still be a $1000 USD, but it'll buy a lot less.
I disagree that Bitcoin's value is nebulous, or beanie-baby-esque. I believe Bitcoin can become valuable in 3 distinct ways:
1. Store of value
A universal store of value not controlled by governments. This isn't merely a hedge against USD inflation—it's a global means of protection against currency devaluation. Bitcoin is attractive to anyone living in a country with an unsound monetary base. This is already happening.
2. International money remittance
Existing players in international money remittance charge exploitive fees. Western Union often charges more than 10%. Bitcoin offers a viable low-fee alternative. Bitcoin remittance services like http://buttercoin.com are now starting to come online.
3. Programmable money
The true value of money as a protocol is difficult to predict today. I believe this could be absolutely massive. At minimum, this means native cash for the Web. Merchants have an incentive to adopt it — they bypass Visa/MC/Amex's 3%+ transaction fees. But the ease-of-use isn't there yet. The margin on many consumer goods is very slim — an additional 3% profit could be huge for many online retailers.
At Bitcoin's extreme, we could see self-sustaining profit-seeking algorithms. Corporations that don't employ people — algorithms providing services and collecting profits. We've never been able to wire up software so directly with the flow of money. I think that could lead to exciting things.
Dismiss Bitcoin as get-rich-quick speculation if you want. But I think you'll find most Bitcoin fans aren't just in it for the money. They realize Bitcoin can be massively disruptive to the financial industry — an industry begging for disruption. I think that's worth investing in.