Why The Value of Bitcoin is Skyrocketing
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bitcorati.com
What are the chances that as this message echoes out to virtually any urban-dwelling or internet connected human on the planet we may all, as a human race, wind up accidentally embracing a unified digital currency while in pursuit of what amounts to a lottery ticket?
http://unqualified-reservations.blogspot.fr/2013/04/bitcoin-...
Remember there were people who dumped a lot of money into bitcoin at $200 last bubble and then bailed at $100 an extremely short time later.
Something like that will probably happen again with the current rise. The long term probably doesn't really care about the blips along the way though.
Or, in the case of cryptocurrencies, when something goes wrong with the underlying encryption. We are very far away from that eventuality (SHA256 is pretty damn secure and ECC is in the realm of "we don't think this will ever be broken unless the NSA curve weakness is real"). Still, one day.
Still, bubbles really worry me on a psychology level. All it takes on journalist to write an ignorant article on Bitcoin (which they never do) and then a whole bunch of other journalists then cite without research (which they never do) and POP!
I think it is actually exclusively confidence. Something could go horribly wrong with the underlying encryption and the perceived value would not drop until people recognised the implications of the problem and consequently lose confidence.
With a regulated financial sector and overwatch of ISP data retention, you still need to somehow gain knowledge of the encrypted bits to deploy a quantum computing attack against them. Governments have an interest in ecommerce continuuing, and there's a limited time-horizon where you can actually mount an attack - so provided you route your transactions over "known trusted" paths, everything basically continues - especially while the only quantum computers are controlled by governments to start with.
BitCoin on the otherhand almost immediately runs into trouble, because it's entire basis is centered on the difficulty of cryptography problems. It can't function without distributing it's content widely (and indeed, completely), which means its immediately valueless - even if someone doesn't attack it, it's immediately known that at any point in time someone can simply create every coin that will ever exist and credit it to them.
ECC would break[1] (funnily enough I was under the false impression that ECC was quantum-resilient until I did research for this comment), SHA wouldn't[2]. As far as I know the end-of-the-world attack against Merkle hashing algorithms are mathematical proofs.
However, the combination of quantum computers and advances in mathematical attacks against Merkle-Damgard hashing algorithms is almost guaranteed to happen eventually. Honestly, when it comes to security, using SHA256 was a major oversight. SHA512 would have given much more longevity to the currency - considering that you are talking about an algorithm that encapsulates wealth; nothing is overkill.
The only semi-confirmed usage of quantum computers, to date, is finding minima/quantum annealing (DWave). Shor's algorithm (which would be used to attack RSA and ECC) has been demonstrated on a very small scale, although many doubt that it was a true demonstration[3] (read: unentangled particles means that Shor's algorithm wasn't truthfully demonstrated by IBM).
[1]: http://en.wikipedia.org/wiki/Elliptic_curve_cryptography#Qua... [2]: http://bitcoin.stackexchange.com/questions/6062/what-effects... [3]: http://prl.aps.org/abstract/PRL/v83/i5/p1054_1
There is no need for the crypto to be broken to have a crash.
Only if P=NP, in other words.
It is highly unlikely that it will be adopted as a currency for major business transactions (too unstable and unknown), and is completely traceable, so will not be adopted by major elements in the black market. In the end, if bitcoin specifically (as opposed to some alternate cryptocurrency) remains in use for a long period, it is likely to be for relatively small transactions in niche markets. Does that warrant it's current valuation? I have no idea.
Gold is extremely laborious to move, and not divisible enough for most usage. Diamonds are not fungible or very divisible. Both are very susceptible to physical theft.
Network effects for money are very strong, and bitcoin has a huge first mover advantage. Any competing digital currency will require quite the innovation or distinguishing factor to gain any traction. It is becoming more 'known' and trusted with each month that passes. Pre-bitcoin-era financial groups are slowly yet increasingly giving it more legitimacy (Mainly VCs, a few funds, the occasional bank, and research groups -- also Second Market and the Winklevoss ETF are two big things to watch right now).
The main counterpoint currently is that bitcoin use is quite error-prone and hard to digest, but this seems more like a temporary roadblock to me. Y'all remember geocities and AOL right? Bitcoin will become much easier and more secure to use in the coming years. Software is relatively easy to improve, compared to gold, fiat, and the like.
There are some potential solutions to traceability, but it is uncertain how that will play out (I can't even pretend to fully understand the regulatory environments and international politics that will affect this). The one thing I can guarantee -- the way we use and conceptualize money is going to change drastically in the next several decades, and I think bitcoin will have a huge influence on this.
You can't play off a good which is hard to move as "susceptible to theft" when you can log in and copy a data file and have succeeded in stealing a whole bunch of money.
Its websites coded by script kiddies such as inputs.io by an under 18 Australian who ignore security and then get hacked (or more likely do a runner with the coins themselves) once they get enough suckers to send them bitcoin
Bitcoins can be owned, so it's better to own them instead of storing them in someone's wallet on some website. Send you money to a shitty exchange nearby, buy bitcoins, move them into your own wallet immediately. Then you won't care if someone hacks the exchange.
Even nowadays with a few simple steps you can make your bitcoin stash VERY VERY secure. Install a fresh copy of linux on a USB, disconnect all networking capabilities, boot to the USB, create a new wallet/address (brain or paper) using established methodology, turn off computer, remove USB, presto, you have a un-hackable bitcoin address. You could even create a multi-sig stash that requires a digital signature from multiple people (2-of-3, 3-of-5, etc). Obviously, this is cumbersome and non-trival for the average joe. But with a small amount of imagination it is easy to see how everyday solutions could be developed.
You also haven't covered anything about backups, which means if you lose that USB or it dies, then poof all that money becomes unrecoverable permanently.
You can't even access that money now without booting an entire new OS on the computer, which means good luck spending it, not to mention, for a digital currency you might want network connectivity as well.
There are several tools that allow you to create a transaction offline (using similar steps to what I listed above, which only take 10-20 minutes) and then you can broadcast the raw transaction text to the network using something like http://blockchain.info/pushtx. Again, this only necessary for super secure storage of long term savings/investments/etc.
Lastly, one could easily keep small, day-to-day amounts on their smartphone, which can spent and transferred quite conveniently (average joe level convenient). Then top up this spending wallet every so often using your offline wallet (10 minute time commitment every week or two).
The options/methods for doing all of this will only get easier. We are in the pre-alpha stages of digital currency software right now. Think web in the early 90s.
Most probably, 51% will never happen because it's never economically justified. Even craziest anti-heroes must have earned a lot of money to risk pulling this off for very dubious reward. Some scientists don't like possibility of it, but it's their own bet on how reality works.
When I mentioned P=NP, I meant that Bitcoin rests on inability to quickly break hashes and ECDSA signatures. If we find such a method, it would probably be a proof of P=NP.
Really though, the point has more to do with formalizing Bitcoin's security. You claim that it relies on the security properties of cryptographic hashes and of digital signatures, but what property of Bitcoin actually reduces to the security of hashes or signatures? What are Bitcoin's security guarantees? When you can at least state some security property Bitcoin achieves, then maybe you can prove that Bitcoin's security depends on hashes and signatures. Without such proof you cannot go about making statements about P vs NP being relevant to Bitcoin's security; indeed, it is hard to speak about "security" for Bitcoin at all.
Good luck with that if the "source of disturbance" is a major nation state hostile to Bitcoin.
My prediction is the price is going to rise, faster and faster in the coming weeks. The hype is still building, people are seeing these 20% gains overnight, and thinking they're going to get rich. It feels like a pyramid scheme, where the people already owning coins are going out and recruiting others to buy into Bitcoin, to raise the value of their own wallet.
Now, time for a wild guess. I say it peaks at 900-1,000 two to three weeks from now, then starts to level off. People get worried not seeing gains, and decide to start cashing out in time for the holidays. By the new year, under 300.
If I had a coin, I'd hold it until the end. As others have said, I think it's going big, or going to zero in the coming years.
1. The price keeps skyrocketing, so people hoard or buy 2. The price keeps skyrocketing, so people hoard or buy 3. The price keeps skyrocketing, so people hoard or buy 4. The price keeps skyrocketing, so people hoard or buy
etc... it all works out until it doesn't... it's long overdue for a major correction
Perfectly substitutable currencies have an exchange rate of either zero or infinity. If there's no reason to hold one over the other, you've no reason to ever give up your holdings of one or the other...until there's a slight imbalance, at which point 1 is clearly superior and you've a huge incentive to abandon ship as fast as possible.
In practical terms, government money is backed by the necessity of extinguishing tax obligations and debts within it's jurisdiction, so it's not perfectly substitutable. Bitcoin has no such benefit - there's never a reason to hold it because everything provided by it can be provided by other currencies. Of course, the fact exchanging out requires selling to a greater fool provides some stability, but therin lies the nature of a bubble - once people want out, there's absolutely nothing that's going to convince anyone else they should want in.
Of course if you hold Bitcoin, for any reason, you need to aggressively argue against this problem - and indeed all problems with Bitcoins, at least until you no longer hold Bitcoin.
You see the problem with this when artificial agents get into bidding wars - because they react so quickly, they end up creating massive price volatility because when it's worth buying its worth buying and when it should be sold they can't dump it quick enough.
In practice every thing has some type of limits - i.e. even computers operate over limited time intervals, and any individual actor has limited resources so eventually something exhausts itself (i.e. everyone might have dumped Currency 1 for Currency 2, but even if no one holds any any more, they'd still be trying to sell it off if they did - ergo, we never reached a finite "price" for it.
The kind of delusion thinking seen here about Bitcoins is akin to the delusional thinking I heard in 1999 regarding tech stock prices. Does anyone remember when Cisco's market cap was over half a trillion dollars? But Cisco actually did (and does) something that creates and stores real value.
There's all this talk of how Bitcoin is easier than this or that currency. Well it's (possible but) not easy to short Bitcoin. I certainly can short the dollar in a number of ways. I'm sure if Bitcoin was shortable it's price would not be where it is. It certainly means the inevitable fall will be harder though.
It's hard to say when Bitcoin's worth will crash, there's a lot of money sitting out there, waiting to speculate on something. But inevitably it will crash.
So when people say bitcoin is "bubble" they are essentially correct - although the condescension is usually misplaced. All money is a bubble in the sense that its reservation demand is far higher than its use value warrants. This is true for the dollar, and it's also true for gold, which also has a large element of "moneyness".
I would say it showed that Silk Road was a small fraction of all BC transactions, but that still doesn't speak to the total amount of illegal activity going on BC.
That said, it does imply to me that either: (1) The total percentage of BC transactions being used for illegal transactions really is low (as the article implies), or: (2) The remaining entities using BC for illegal purposes are confident that what happened to the Silk Road won't happen to them.
Lots of people mine and trade coins. But only the few thousands (hundreds?) Silkroad users were actively pumping money constantly into the system, giving a much needed reality check of how much people will pay for a made up currency with established made up money.
The only difference is the % of total BTC you can buy given your availabe assets.
For some people that % is now close to nil, whereas before it wasn't, so they've missed their opportunity.
For others, the % is still significant. Those people should probably still get into BTC if they agree with the premise of this comment.
Almost but not quite: it must surely go to zero at some point, because chances are extremely high that we haven't accidentally hit the holy grail of digital cryptocurrencies and no better thing could ever be possibly come along for all eternity. Before that happens, it will most likely become a bigger thing than now. So I think most folks are just wondering two things: before we reach zero, how much bigger will it become (multitudes? exponentially bigger? orders of magnitude? or just another $3.50 higher?) and over what timeframe.
And even the most educated guess at those two questions is as good as any other, truly.
Bitcoin mathematically approximates Byzantine concensus with arbitrary parcitipants. This is the fundamental insight over the fundamental hurdle that made all prior attempts at cryptocurrencies (for decades) non-starters.
What is the space of cryptocurrencies that exploit the Byzantine insight, but are somehow better than Bitcoin? I would suspect that it is very small, or nil.
So unlike you, I don't think there is a high chance of something better coming along. I think there is a low but significant chance.
A slight digression:
I _do_ think that bitcoin may end up being the "gold" used to resolve balances between crypto-banks that have their own currencies. The advantage of such a system is confirmation in almost no time, and not having to pay a transaction fee to get your transaction into a block (which could be large as contention for block space rises).
But other cryptocurrencies backed by bitcoin will have to be redeemable for bitcoin, always. If you sever the link, they become worthless.
Now if they increase the block size limit to keep transaction fees low, there may never be any need for other cryptocurrencies backed by bitcoin.
I look at market trading similarly to competitive games of strategy like Chess now, because they share this nature of having to carefully exchange resources over time to achieve an increasingly advantageous position.
The value of BTC will slowly rise but naively extrapolating from the last year or so only I'd say the realistic value is still below $100. I'm pretty confident that roughly $50 is a rather stable floor for the years coming.
I can't comment on the post because I'm on a train with spotty 3G coverage. Which begs the question. WTF is going on with this trend of JS loaders? If your site takes too much time to load, stop nagging users and just take the time to properly optimize the site.
So, if you're planning on speculating with bitcoins, do it right now, or never do it... The chances are it's already too late btw, since people are already mentionning exponential growth.
In the case of the price volatility for hoarding bitcoin while it rises, it underscores the deflationary nature of the currency - no economic value has been contributed by someone holding the BTC, but they've gotten richer regardless. Sitting around doing nothing with the BTC did not produce any economically valuable activity - it wasn't invested or used to finance starting that pizza place, for instance.
eBay style trading - I once bought a $100 trillion Zimbabwe dollar bill for Bitcoin. Think of the irony - using hyper-deflatory currency to buy hyper-inflatory currency :)
In bigger cities you can buy drinks and food with it in certain pubs/restaurants.
There are many more legitimate uses for Bitcoin, and even if most people hoard most of their stash, when you have to pay for something many tend to spend their Bitcoins if they have the possibility.
Oh, and the value frequently fluctuates double digit percentages in a day.
Seriously, why do people do this? Instant close tab...
My CM7 browser can bypass this. but my cm10 can't.
As for investments.. those usually have (or promise to have) a thing called yield. If i put my money in the bank, they give me an interest. BTC doesn't. If my bank goes bankrupt, my deposit is insured. If my BTC wallet is stolen...
And this is before we even start talking about regulatory risk. Again: BTC is a fantastic technical endeavour, but to call it an "investment" is quite a long shot. Call it a bet.
Also, I'm glad I didn't agree to pay my mortgage in bit coins when the value was $11. The 70X increase in price would BITRUPT me! :)
If they were stolen, who do I call to help me get them back? If I loose the keys to get into my coins, who will help me get access back to my cash. Does the UN have a BitPolice squad hunting down bit theft? If I were to declare bankruptcy would I have to declare my bit coins as a part of my estate? Is there a BITRUPTSY court?
What is the value of a currency? Is it the inscription 'I promise to pay the bearer on demand...', which nowadays will not be fulfilled? Is it the power of the organisation backing it? Perhaps the simplest explanation is best - what can you buy in other goods you might want with this currency? But that leaves you open to manipulation as you are entirely dependent on your perception of what other people think this is worth, which can change in an instant as we have seen with stock markets or indeed government-backed currencies where confidence is lost. So a good confidence trick will be worth as much as or more than a solid currency, until a moment of panic.
If you try to base it on the current value of goods in the world divided by the currency in circulation (say 11m coins), Bitcoin has a large climb in value ahead of it if it were to become a world currency, and if no other currency were in use. What is the USD worth if you price it this way though with only 3b in circulation and ?
If you say the value of a currency is its ability to buy other goods Bitcoin is currently worth a lot compared to other currencies and prices in it are deflating rapidly, but it has crashed before and will again, because the only measure of value seems to be confidence in its possible future uses, and that makes it very hard to pin down the value. It would be interesting (but I suspect impossible) to try to calculate a value for each Bitcoin based on actual use to buy goods of known value at the present time (as opposed to speculative trading).
If you base it on its use value as a medium of exchange, I have hesitations about the utility of Bitcoin, because of its anonymous nature (not tied to verified IDs), lack of regulation, deflationary policy, and lack of backing, and thus hesitations about its value. As a result of the free-floating value and lack of regulation, I suspect Bitcoin prices will behave far more like stock markets (a random walk) than like a normal currency which is pegged to others to some extent, and thus will be difficult to establish as a medium of exchange because of the volatility.
I also find it hard to believe if it is successful that it will not be supplanted by some other digital currency which has fewer of its limitations and is more suited to transactions between people who do not value anonymity above all, and wish to be protected from fraud, and the govs and corps that would like to track them. All you have to do to set up a competitor is establish some rules and get people to use it - something which corporations or governments can easily achieve if their monopoly on the money-supply is threatened in a meaningful way.
When I bought those 1.5 BTC at ~$200, I had planned to buy more when the inevitable crash came. It may still come, but I'm feeling pretty confident the size the BTC market has grown so much as to make it likely the new low that it falls to is gonna be well above that $200, maybe even above the $500 it's trading at now. Timing the market is often a bad idea, so I setup a small monthly buy tonight, as well, so I won't be tempted to try to figure it out.
That's a really striking, and almost frightening, way to look at it. I felt my chest tighten when I read that analogy, actually. It is tempting to go overboard...but, if my gut instinct is right, there's no way to go overboard (aside from going bankrupt buying BTC). Which makes me think I'm probably missing something.
Nonetheless, I'm long BTC, and I intend to go more long as the days go by and I have more disposable funds.
I sold them when it hit $30. :-(
Huh? Why? You can buy fractions of a bitcoin, you know.
Or whatever hip term the youngsters come up with ;)
why? "more buyers than sellers"