Because the maximum number of coins is fixed it's pretty easy to project where the valuation is headed, and so anyone in their right mind should just hoard their BTC instead of spending it, which in turn should drive the price down, no?
Yet if you look at /r/BitCoin, there are dozens of "OMG!! I spent all my bitcoins on Pizza instead of holding on to them, look at this gif of me being sad"
So to answer your question, it's just insanity.
I miss the days before this month when BitCoin prices were stable for a couple of months. Spending it was actually pretty cool.
I estimate that we'd have about 60-70% unemployment, and no jobs for those people to go to because, well, other people just aren't spending any money.
When spending within the economy is restricted in this way by market forces value will concentrate very highly in essential goods and infrastructure and attracting rent-seekers to those areas of investment. The net result, it seems to me, is casting off the tyranny of fiat currency for a new kind of tyranny. The same kind that lead to the trust-busting era in US politics.
Otherwise, what can you buy with bitcoins that you can't buy with dollars?
It's not easy to predict the valuation. For that, we would need to know how much business is done in bitcoin in the future. That's anyone's guess. Will it do $1 trillion or will it do more ?
The price isn't always going to rise at this rate. That's for certain. However, yes, there will probably be a long term rise until bitcoin finds it true usage, market cap, and as a result of this, it's value with steady deflation going forward.
While, I'm not sure what an economist's opinion on this is, the fact that you are encouraged to spend money because it's worth less in the future (inflationary fiat money) leaves a really bad taste in my mouth. Consumerism is a horrible disease and our planet is suffering from it every. single. day.
That brings me to bitcoin and it's deflationary nature. Well, you're still going to buy the stuff you want to buy. Then, you'll save more because you know it'll be worth more later. Why wouldn't you buy the things you always need ? (food, shelter, a few gadgets, etc.) Should I spend on a new iPad when I might be able to buy 6 months worth of food with that money a year or two later ?
You'll save as much as you can. You'll consume less junk. Isn't that a good thing ? Shouldn't we ask ourselves if we really need all the crap we keep buying ?
These are interesting questions that challenge the entire nature of mindless consumerism that most of us indulge in these days.
Also, if the only reason you spend your money is because it's going to be worth less tomorrow then you have bigger problems than bitcoin ;)
PS - I don't mean you personally, just stating some thoughts.
If I had 1/1000th of the country's wealth in dollars under my mattress or gold buried in my yard or bitcoins in the cloud, and then go into suspended animation for 50 years, there is no reason I should still expect to have 1/1000th of the country's then-increased wealth. My capital wasn't doing anything to grow the economy.
You can argue "but wouldn't it be great if you could take that 50-year nap and have more money?" Yes, it would. You have also described an excellent reason for someone to start a pyramid scheme, but not for everyone else to want to get in on it.
However, there is a lack of choice in this scenario. Due to the way the economy functions, I do have to put my money into a bank, I do have to look into investments because otherwise my hard earned money is worth less in the future. Let's leave the discussion about that being fair or unfair, etc. because this is a subject where people tend to have strong opinions.
Right, so coming to bitcoin. Why can't there be an entity that allows you to lend your bitcoin as a loan and you get a higher return (higher % interest than regular deflation) because you lent your money out (i.e. took some risk) ? Say deflation is 5% per year and you can give out a loan through some entity and get 10% returns ?
Isn't this what the bank does right now for you ? But do you have much of a choice in the current scenario ? Right now, you take on the risk of a bank without having a say in it. It's either that, or have your purchasing power slowly eroded over time.
I personally don't like arguing about inflation vs. deflation because I am not an economist but I can on my own think of trivial solutions that turn the problem around. Maybe these solutions are ultra complex to implement in practice, but so are the economy, currency markets, stock markets, etc.
Can I argue that it would be great if I worked hard to earn money and save it, and have it at the very least, retain it's value and purchasing power in the future? Why should the capital that I have worked hard to earn lose it's value because it somehow doesn't help the economy ? Helping the economy comes with it's own risks. Why do I not have a say in whether I have that choice or not ? What happens if my bank goes bankrupt ?
You may argue "it should not be this way" but people are tired of losing 20%+ (in some countries, 3-4% in the US) of their wealth yearly due to inflation.
Bitcoin elegantly fixes a very real problem of inflation. You cannot wave your hands telling people "this is the way things should be, deal with it".
Presently, you can't really buy things you "need" with Bitcoin. Ask a landlord if you can pay your rent in BTC or a bank if you can pay your mortgage with it. Take your Bitcoin wallet to the grocery store and try to check out with it. You'll get blank stares at best.
On the other hand, you can buy things like iPads with BTC. The Bitcoin economy is not an economy of essential items right now, and this is largely because even if it were possible to pay for essential items in BTC it would still be just as easy if not easier to do so using some sort of fiat money.
The whole philosophical justification for Bitcoin is fine, and I am on board with that. But the present price dynamics of Bitcoin are directly undermining its viability as a currency and the philosophical motivations that support it. Satoshi was frustrated with the destabilizing monetary policy of the Fed, but having rampant price speculation due to an inherently depreciating currency isn't any better.
The rampant volatility of bitcoin is bad for business but it's analogous to several people jumping onto a boat and rocking it a lot. Eventually we get a bigger more stable boat that isn't so easy to rock any more. (a $1.2MM sell off a year ago would have tanked BTC value, now it doesn't even dent it.., this happened yesterday while I was watching the bitstamp order book)
As the market cap of bitcoin increases it will get harder and harder to cause huge swings in it's value (sort of like the 51% attack is now impossible.. or adding a server farm to take over the bitcoin network).
But to get there it will have to go through this process.
If you have 0.02 BTC (~$20), you can spend $20 on a pizza, keeping your 0.02 BTC. Or you can spend 0.02 BTC on the pizza, and have $20 more USD to buy BTC with.
This of course assumes you can easily transact with BTC, and convert USD <-> BTC, which seems to be anything but a sure thing.
I encourage you to read up on the recent history of Iceland's currency.
If I think that my 0.02 BTC could get me two pizzas tomorrow, why would I trade that amount for one pizza today?
If you're sure you're going to buy a pizza with BTC tomorrow, why not buy the BTC today, or five days ago? The prices have been pretty consistently going up. Yeah, there's a chance that pizza will have been 5% cheaper if you bought the coin to pay for it yesterday, or if you wait til tomorrow.
So, why wouldn't you just take all of your USD savings and convert them to BTC? Wait, you mean to tell me you _only have_ that 0.02BTC? (Wait, you mean to tell me you only have that $20 in the bank?)
I have way more USD value of BTC than I ever planned on having. It started as $50 and when that performed well, I put some more in, and bought some mining equipment, and put some more in, and now it has significantly more than eclipsed my USD cash savings at this point. It is for this reason that I would love to spend BTC, in fact it's a karmic imperative for me to try to spend BTC, since I've done so well with it so far.
I can always replace it at the market rate at Coinbase. If you're spending the bitcoins and you're valuing them lower than it costs you to replace them, you're getting screwed. If things keep moving the way they are moving, you're going to have a talk with your vendor that accepts bitcoins. (It's always fun to get to ask, "Tell me why am I paying you extra?")
I make more hoarding a few meager bitcoins in the midst of this bubble than riding a desk at my dayjob. So you can see why I am in your corner.
Still, I don't think there has been a bad day to buy BTC in the last (how long has bitcoin existed so far?). I recognize that I would be a fool to keep less actual fungible cash than I need for groceries, rent, etc, and when I can use a Bitcoin in an actual transaction with a person (rather than trading it for cash at an exchange), I feel that it's probably a good idea to use some of that cash I saved to offset the impact to my BTC portfolio.
All that being said, when I watched the price take a minor tumble the other day, from 850 to 785, I got nervous and went to SatoshiDice to recoup my perceived losses in an even riskier way.
Nobody will take my bitcoins in exchange for anything I need (I can't spend them on rent, I can't pay taxes with them, I can't leave them at the grocery store or at the restaurant or the bar), apart from the exchange site (which will give me cash, that I do need)... but I have all of the cash I need for the moment and it doesn't do any fun tricks like these BTC.
So why am I buying pizza again?
I don't know if all that's a sign of a healthy market, but I don't think so. Still, you weigh the facts, you pick your horses and you take your chances.
My point is that the decision to transact using BTC is independent from the the decision to accumulate BTC. If you want to hoard BTC because you think it will keep going up in value, then convert all your USD to BTC right now. And then if you want to buy a pizza so you don't starve to death, buy it using any currency you like, while continuing to invest all your disposable (ie non-pizza) currency into BTC.
If the price keeps rising, you are right a smaller percentage of all bitcoins will be in active circulation, because people want to save their coins instead of spending them. However, SOME coins will always be spent (people gotta eat.)
Here's the counterintuitive part: The currency "notices" the low rate of spending and will increase its own value to make sure the amount being circulated, though lower in face value, remains constant in its real value.
In short: Hoarding is fine, because the un-hoarded coins increase in value to compensate. As economists say, this is not a "zero sum game", we can have high spending AND high hoarding without difficulty, if the currency has a large enough market cap.
This represents the number of people using Silk Road (well... used to anyway), maybe purchasing domain names through Namecheap, and so forth. People out there are trying to use BTC as a currency, so they will be spending BTCs in exchange for services.
Now, if the amount of BTC starts to shrink, then the "value" of BTC needs to grow to compensate. At this point, governments would typically print money, so that the price of a currency wouldn't deflate significantly. But since BTCs don't have a means of "printing money" to meet demand... we are seeing the massive deflation in the currency right now.
Massive deflation discourages spending, and encourages more speculation. As more people speculate on the currency, the price goes higher and higher, driving more deflation. So the currency is in a deflationary death-loop right now.
People will only use BTC if it stabilizes to a price. But as it stands, its simply better to speculate (which means there is no "value" in using BTCs right now).
It encourages a lower PERCENTAGE of spending, but has no impact on real value of the bitcoins being spent (i.e. how many eggs/houses/etc the coins in circulation could buy)
The higher the price of BTC, the more expensive it is. The average transaction fees for BTCs have reached around $0.10 now, and will only rise as the BTC exchanges go up.
Regardless of how you cut it, this rampant speculation on BTC is hurting the BTC enthusiast (who wants to spend BTC), and instead favors the BTC speculator (who simply wants to cash out before BTC crashes)
As do hoarded coins, neatly transferring wealth from the productive economy to people who just sit on their coins.
Count me out.
The current system puts money in the hands of those who run the printing presses. (and as I explained, the fact that coins are being "sit on" is irrelevant)
Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past.
>> The current system puts money in the hands of those who run the printing presses.
We're not talking about the current system, we're talking about Bitcoin.
>> (and as I explained, the fact that coins are being "sit on" is irrelevant)
Except it's not irrelevant, for the reason I've just mentioned. You can dismiss or ignore it all you like but simply saying "You're wrong" doesn't cut it.
If the amount of currency in circulation goes down because people sit on it, then yes the rest may well increase in value to cover the activity in the economy, but the hoarder gains economic power on the backs of everyone else's work.
No thanks.
OK, now SOMEBODY has to have economic power- So it can't be people who have earned money (as it is with bitcoin) and it can't be the owners of the printing presses (apparently I'm not allowed to say that)...
...so who's left? Should we create a currency that immediately bursts in flames unless it is provably handed to another person within 24 hours? Wouldn't that still be deflationary without printing presses?
EDIT: Maybe you want all the economic power to be with cryptocurrency miners, via an inflating cryptocurrency? So now we're back to giving the power to those who own the presses (the miners, in this case)
At the moment at least if you want to use money to make money you invest it, and by doing so you enable further economic activity.
Ideally a currency would expand at a rough pace with the economy it serves, making it a reasonable store of value but a better fit for its primary function - a medium of exchange. The two purposes (fixed supply asset, medium of exchange) are not really compatible AFAICT.
But then I'm not horrified by the idea* of central government controlling currency anyway, in theory it allows them a mechanism to smooth out some of the lumps and bumps in the economy. And while currency inflation above and beyond economic growth does effectively constitute a tax, I have no issue with reasonable* taxes.
So in summary - I think BTC would be worse choice than what we have now, but neither is perfect.
(*I said the idea, and I said reasonable, I know there's a hell of a lot wrong with how various governments handle their currency and the amount of wasted taxes)
So tell me. If I work for a year and save up $10,000, and when 10 years have passed a car can be made using only 50% of the labor that was required 10 years ago - and, consequently, the car is cheaper than it was 10 years ago - who is more entitled to this increased in wealth than me?
The increased productivity has to benefit someone. I don't think money producers deserve the benefit more than the saver.
Again, if the saver is not the appropriate recipient of the added purchasing power that an increase in productivity leads to, who is?
Not something I'm willing to sign up for.
But you still haven't answered my question: why is the money producer - who makes sure we have inflation - a more deserving recipient of the increase in wealth from increased productivity than the money saver?
That's certain goods getting cheaper, not an appreciating hold over the economy in general that a deflating currency represents.
>> But you still haven't answered my question: why is the money producer - who makes sure we have inflation - a more deserving recipient of the increase in wealth from increased productivity than the money saver?
Deserve? That sounds awfully like a moral judgement...
But I don't think you'll find I said that either one deserves it. I said that I'm not going to, by choice, buy into an economy where my effort enriches currency-squatters. That's not my idea of fun. A currency that inflates roughly in line with economic expansion is more pragmatic.
And frankly, if it goes to the money-printers, well that's the government and in theory they get to use it to build useful stuff we all use. I have no issue with reasonable taxes.
>> Not when they're getting richer just by sitting on cash they are not. That's not producing anything, any/all productive work they did was in the past.
If they are getting richer just by sitting on cash, it means - by definition - that the economy is increasing in size. If it ever comes to a point where too many people just sit on their savings, then the economy will retract, and all these people will start to lose wealth.
There's a balance in the system: when the economy increases too quickly, it will incentivize people to stop producing (because they can live off their savings), and when the economy starts contracting, it incentivizes people to start producing (because their savings are getting worth less).
FAIL.
It might just mean that more people are sitting on currency and less is in circulation.
now for me, as well as probably others.. i got so much upside on my bitcoin i don't mind spending a bit here and there. i still hold it mainly as speculation because i deeply believe in its long term value--but i bought a plane ticket at like $860/btc .. no regrets whatsoever. i got to buy a frickin plane ticket with frickin bitcoin.. that might seem like 'oh yeah whatever' to most people, but if you have been watching bitcoin for years, as I have.. as many people with decent stashes have, that is one of the main things people came back to again and again to say "it will be a real currency when".
i am waaaay over vested in bitcoin so i can't justify 'replacing' my bitcoin anymore; when i am so exposed to the exchange rate; but 'spending it' is like cashing it out
I share a negative feeling when i think that someone with 10k U$S in BTC last year is now a multi-millionaire, i find it hard to believe that much value was created. My surprise is that those insta-millionaire's arent cashing out. Or if they are, the demmand is so big its still working out.
Anyone going on about "intrinsic value" is missing the "intrinsic value" of the protocol.
Up surely, as the hoarding scarcity makes buying harder and creates demand?
Either way, yes, it destroys the utility as a currency. Which is probably a good thing, I don't like BTC as a currency.