Comment by patio11 | Hacker News Reader

Comment by patio11 | Hacker News Reader

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That's the sunk cost fallacy talking. If you spend $10 on a domain name, you have $10 less with which to buy exposure to Google shares, bitcoins, yen, tulip bulbs, or Magic the Gathering cards. This is true regardless of how you decide to settle the transaction.

There are variants of your complaint which are much more dangerous to bitcoin. For example, suppose I hold no bitcoins and wish to either purchase or sell a domain name. Should I effect the transaction in dollars, or should I use something a little less boring, like Google shares, tulip bulbs, Magic the Gathering cards, or bitcoin? Well, most people wishing to buy domain names or sell domain names have access to dollars very quickly, but getting into or out of fractional alpha Black Lotuses depository certificates (FABLDC) takes a roundtrip of a few days and requires you to go either long or short FABLDC depending on whether you're buying or selling the domain name. You might, sensibly, not want to be either long or short FABLDC just to sell domain names, because a) price volatility, b) transaction costs (not just the vig you're charged when going to/from FABLDC by the various FABLDC exchanges but also the overhead of installing FABLDC payment code, explain FABLDC to your accountant, and self-insure for the risk that your FABLDC are stolen from the technology company you trust to manage them for you), and c) why worry about FABLDC in a world where money exists. (In a world where money didn't exist, FABLDC would be, quite literally, one of the most impressive achievements ever.)

n.b. I apologize to techies of my acquaintance who might assume, by construction, that I am comparing bitcoin to fractional Black Lotus depository certificates. Sorry for the implication -- it's mostly an extended rhetorical device. Like you, I also believe that alpha Black Lotuses are worth more than nothing.

[edit: Ah fudge, someone beat me to this metaphor on HN: http://news.ycombinator.com/item?id=5487050 ]

Given that MtGox was the dominant USD bitcoin exchange for quite some time, it's a beautiful metaphor.

Except for miners, people who want to support the bitcoin ecosystem per se, and privacy buffs who prefer to buy their bitcoin in ways that minimize traceability, it's hard for me to get excited about using bitcoin to make online purchases right now. If you don't hold any bitcoin and just want to use it as a transfer mechanism, you have to have extra motivation to buy bitcoin and then send it (waiting for a few confirmations). This process takes longer than using a credit card, so generally it seems that one must have additional motivation to use bitcoin (at least in the US).

As a mechanism of money transfer, though, I do find it interesting.

It would be a more beautiful metaphor only of it had been called "Gt Mox" exchange instead.

I'll go and sit in the corner for my bad Magic puns then...

> That's the sunk cost fallacy talking.

There is no sunk cost for a cost that hasn't been made yet (buying the domain). If you're referring to the "cost" of buying bitcoin then that isn't a sunk cost either (actually no cost at all since it's an expense for a semi-liquid asset that you still possess). So the parent is right to take opportunity costs into account, especially in case of deflationary currency.

I believe patio11's point is that the opportunity cost of a domain name is the same regardless of which currency you use to buy it. If you use Bitcoins, you have less Bitcoins. If you use dollars, you have less dollars to convert into Bitcoins if you think they will appreciate. Your net position in Bitcoins need not be affected by your choice of currency for this particular transaction.

I think that's right. But then, if you don't want your bitcoin position to change, and you have no need for its other features in this transaction, then why use bitcoin? The OP's point stands.

>So the parent is right to take opportunity costs into account, especially in case of deflationary currency.

If that were a valid concern, why would anyone ever spend bitcoins when they could spend cash? If the price is guaranteed to rise as you imply, why isn't it already reflected in the market price? In other words, why are there people even selling it?

In this case, bitcoin IS cash.

The question might also be if the transaction cost to do the deal in BTC is higher, lower, or the same as using a credit card. When you use a CC the seller eats the fees.

It is not a fallacy, but it is a speculative risk.

And, it is treating BTC as "an investment" or "a store of value" rather than "a medium of exchange".

So it is a subtle but important change in a person's view of why they would buy and hold BTC. Whether it is the right view, no one knows at this point.

There's a reason why a currency that is rapidly appreciating in value encourages hoarding. It's not a fallacy - if you have reason to believe your currency will be worth more tomorrow, you shouldn't spend it unless you absolutely have to.

On the other hand it makes a lot of sense for vendors to accept BitCoin for the very same reason. If you are a vendor, why wouldn't you want to accept something that could appreciate in value 10-fold, 20-fold tomorrow? Unless, of course, you instantly convert it into dollars.

This is why BitCoin will eventually be useful as a currency. This produces a network effect. More vendors will accept currency because it is so valuable so the currency will become more and more useful to consumers as time goes on. The value of being in the network is enough of a reason to join the network, until some plateau is reached.

I don't think BitCoin will be particularly useful as a currency until it stabilizes in value. Until then from a consumer's perspective it is probably most used as an investment.

>That's the sunk cost fallacy talking.

nope. Unstable currency is just not very conductive to business. Speaking from experience with inflation. As any transaction has 2 ends, i suspect that high deflation has the same effect as high inflation. This is why Bitcoin as a currency has major built-in defect, while it seems to be wonderful value storage like Picasso or Ferrari California.

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