Bank of America's Research Report on Bitcoin [pdf]
s3.amazonaws.com
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In my (limited) experience, when banks forecast prices (for stocks, indices, FX rates etc) they always quote a number within a reasonable-sounding percentage of the current price, because not to do so risks being wrong and looking stupid.
This means that most of the time they are not far out, and when it really matters (eg 2008) they are miles out (and so is everyone else).
So even if BofAML actually thought that the "maximum fair market value" was significantly higher than $1300, I doubt they'd have said so, simply to avoid the reputational risk.
Anyone can predict a change of a few percent in the short term and be correct to within 10%. But where does that get you? Which one of these financial analysis publications told their readers something useful, like in 2007 there's a financial crash coming or 2009 invest heavily in bitcoin? None.
Sorry, that was a bit ranty.
The main difference between BofA's analysis and mine is that I see Bitcoin as a far superior alternative for many financial and other types of applications. For one, Bitcoin as a platform provides a global, decentralized, irreversible log of programmable transactions. For another, bitcoins as "money" are easier to secure, transport, hide, and backup than all prior forms of money ever used by civilization. (Actually, no prior form of money ever used – whether made of bank credits, paper, metal, or other substances[1] – could be backed up like a Bitcoin wallet.)
Therefore, if Bitcoin continues to work as intended (i.e., proves immune to attacks) and gets easier and safer to use (for non-technical people), it will slowly gain credibility in the public’s mind, not just as medium of exchange and store of value, but also as application platform. Over a period of many years or even decades, as the world gradually learns via trial-and-error how to use it, becomes familiar with its properties, and ultimately comes to trust it, nothing can prevent Bitcoin from gaining as much credibility as other alternatives, including gold.
--
[1] I highly recommend Nick Szabo's essay on the origins of money: http://szabo.best.vwh.net/shell.html
I still think you are off. The fractional reserve system warps incentives too much.
1. The world needs more than $600 of float. And most people think they have that. The difference is that its wrapped up in the fractional reserve banking system.
2. Due to inflation uninformed people are bullied into investing in mutual funds, stocks, housing, etc. with their savings. Just the existence of bitcoin as a major worldwide currency could transform the traditional saving model. If a 30 year old puts a days wages into an account and can expect a days wages out when he's 80 years old then he can drastically simplify his retirement. He can avoid speculative bubbles and bad mutual fund managers.
3. National currency reserves are currently done with sovereign debt - with the idea being that if a nation goes bankrupt they'll just inflate their currency anyway and the currency reserve may as well be in bonds. If Bitcoin were to become a major world currency, the reserves could be in actual Bitcoins.
All of this to say I still think that there is a 90+% chance that bitcoin will fail, but on that remaining percent, the limit higher than 100 times today. I've done the math a couple ways and I end up with $100k to $10m as my outliers given that bitcoin becomes a world currency.
I was surprised to see BOA list "It's finite" as an advantage. It seems like this mentality is all anti-inflation (which seems justifiable) yet the alternative is taking a wildly experimental approach to savings. BTC hasn't proven stability within a month really yet, why trust it for 50 years? And then if you put in that 1 day's wage of Bitcoins, what happens when the market cap for BTC fluctuates? It won't always be in a steady demand, it will depend a bit on how many people are using it, no?
I am a doomsdayer also I think that it can only succeed if it always remains the same price or keeps going up, but the belief that this is possible is obviously intellectually malformed.
No, it's deflationary. And while deflation isn't "evil" in and of itself, it causes the same problems as inflation (in reverse, obviously).
For example, if Bitcoin are restricted to 21MM units, as the population of the planet increases, an individual's wages must decrease in Bitcoin terms to maintain their real value.
That means that prices for goods will have to drop as well, which leads to terrible menu costs, and hoarding (why buy my car now when it will be cheaper in bitcoin terms next year?) In a predictably deflationary environment, it's always better to spend your money "later".
So if I'm saving up in a deflationary currency, it's better for me to wait upgrading my computer until the day before I die, instead of doing it now?
The thing with saying something is "always better later" is that it logically means that it never gets done, because there's always a "later" (until there isn't (ie. you die)).
If you're maximizing your economy, yes.
> In a predictably deflationary environment, you maximize your economy by spending your money "later".
Which, in fact, is better said as:
> In a predictably deflationary environment, you maximize your economy by not spending money.
And that leads us to the obvious fact that saving up money in order to not spend them is absolutely pointless.
Imagine I need a car and I hear there is a 30% off sale in January. Yes, I'll wait. Im considering the lost marginal value to me (keeping my shitty car in December) vs marginal gain (saving 30%). That's what deflation feels like.
1) Savings erodes investment. Savings is the non-productive hoarding of cash. Investment is when one takes cash and deploys it in a way that creates value. In a slightly inflationary economy, a wealthy person can only remain wealthy if they deploy their capital in a way that creates more value for the entire economy. In a deflationary economy, they can get wealthier by doing literally nothing.
The net effect of this is a reduced pace of innovation for the whole economy.
2) My consumption is your income. Thus, if I spend less money, you make less money.
The net effect of this is a huge pile of pernicious effects (reduced economic mobility, reduced productivity gains, reduced innovation, reduced opportunity, reduced incomes for all, etc...).
Because you want to go on vacation this year?
Your idea here seems to be that bitcoin could help you not only hedge against "inflation", but also against rising economic productivity. I.e., what a saver really wants is some kind of guarantee that at age 80 they will be able to consume the same fraction of economic output that they were able to at age 30. Could you spell out how bitcoin helps solve this problem?
(I take it for granted that hedging purely against inflation is actually a solved problem, because you can just invest in short term bonds, which provide excellent hedges against inflation. But of course they don't help at all with rising productivity).
Edit: Another - massive! - issue with retirement savings is longevity risk. How can you ensure that you won't run out of savings before you die? Bitcoin won't help you here.
Investing in short term bonds is not only not riskless (lots of governments and corporations have either defaulted or written down their debt), but often times do not even match inflation.
Saving as a logevity risk: Yes. You don't know how long you will live, we could very well develop medicine that would keep me as a functioning senior until I'm 100 years old. But against all other alternative forms of saving, if bitcoin was a world-currency it would be the safest way to assure purchasing power.
I can set up a chain of assumptions about the dollar based on actual historical precedence & Bitcoiners will whine & whine but because Bitcoin is "so pure" or something you think it's safe to chain a set of dependent assumptions together & say "This is how its goin down"?
I get that you're saying all other things being equal but that doesn't really float in a real-world simulator.
It's not bullying, it's the foundation of capitalism; that is putting capital to work, not putting it under your mattress.
I'm satisfied that Bitcoin (or whatever succeeds it) exists, merely as a check against corrupt government. It's good that the money printers know there's an alternative. But I'm not ready to ditch the current economic paradigm, which has created more wealth for more people in the past 200 years than any point in human history.
People are disillusioned if they believe there were significantly more economically stable periods in history. Believe it or not, smart people are actually concerned about, working on, and resolving current issues. It doesn't happen overnight.
(Technically, the price of lending/borrowing, i.e. interest rates, would skyrocket until lenders were willing to lend, but then almost nobody would be able to afford to borrow anything unless they had something with the potential for monumental returns)
If nobody can borrow, then how does anybody start or expand a company? If starting and expanding companies gets massively more difficult, then who will employ that 30 year old in the first place? How would any new product or technology ever get created and distributed?
"Store of value" acceptable to laypeople will never happen, so long as Btc is volatile.
"Medium of exchange" will be hampered by volatility because the use of Bitcoin by laypeople will require them to exchange Btc for a stable currency such as government money. This exchange is unnecessary when using a mechanism such as PayPal, thus Btc inherently suffers a higher load of transaction fees.
It's a vicious circle. Liquidity of the exchange between currency and Btc would help to address both of these problems, but is beyond the scope of the Btc concept itself. It will require further innovation. A possible scenario for success is that competition drives Btc transaction costs below credit card swipe fees, thus breaking the oligopoly of the credit card processing business.
Disclaimer: I use a PayPal merchant account for my side business.
I think we're missing the data, but I feel fairly certain that bitcoin has, on average, become less and less volatile since it started being traded.
What would be helpful is a chart that plots a price average across exchanges, where the price on each exchange is weighted by the daily volume of the exchange in question. This would show a more accurate picture of volatility, and I bet that this is slowly decreasing, ever since bitcoins became tradable for USD.
We've already seen the market depth increase dramatically over the past few years. One can purchase or sell $1M worth of bitcoins with a slippage of 4.35% and 1.47%, respectively - if you spread it out over exchanges. That's unprecedented, I believe, although I don't have a consolidated historical BTCUSD order book to back it up.
You've missed the part about $100->$1,000? = Not stabile. Unfortunately.
By calculating volatility using nominal values, we can conclude that the Google stock is 200 times more volatile than the AMD stock (because the Google stock has risen by $10 today ($1057 to $1067) and AMD only $0.05 ($3.64 to $3.69). And that a share of Berkshire Hathaway is 130 times more volatile than Google (and 26,000 times as volatile as AMD). We can also conclude that a company can reduce the volatility of its stock by performing a stock split.
Clearly this doesn't make sense, and it doesn't serve its purpose: to assess the how much money you gain/lose when buying $x worth of something and the price changes. Whether you buy $1000 worth of bitcoins at $1 and they drop to 50 cents, or you buy $1000 worth of bitcoins at $1000 and they drop to $500, you've lost the same: $500. That's the relevant metric.
Ask the general public whether they would rather hold $1000 worth of bitcoins going from $1 to $15 or $1000 worth of bitcoins going from $500 to $1000 and I'm fairly sure you'll get the right answer.
While I'm on the topic, you realize that because the money supply can't be increased in any meaningful way once mining is no longer viable, prices will experience constant deflation? This alone makes BTC worthless as money.
The USD currency experiences inflation by adding dollars to circulation which causes the value of individual dollars to drop.
Bitcoin is deflationary. Bitcoin, as a currency, experiences deflation (bitcoins can only be lost, never added, over time after all bitcoins are 'found'), therefore the value of bitcoin value can only be increased as supply diminishes.
Yes. I consider an annual deflation rate of 2-3% just as stable as an annual inflation rate of 2-3%.
Please provide a single example of a viable currency that has deflated over a long period of time. Because bitcoin, by design, will force deflationary pricing forever.
Deflation is horrible. It is much much worse than inflation and any sustained deflation destroys the economy.
Please provide a single example of a decentralized digital peer-to-peer payment network based on virtually fraud-immune proof of work. My point is that Bitcoin is fundamentally different than anything before it.
On the contrary, I think its deflationary nature makes it worth a lot as money, and as long as a few other people agree, then we can use Bitcoin as a means of exchange.
One day, of course, the currency will crash when hoarders finally try to cash out.
BTC is a virtual commodity, and as such it's exceptionally unlikely that it will ever be more stable than other highly volatile commodities.
There's no point in comparing pork bellies to gold: removing an entire year's supply of pork bellies from the market would send the price sky rocketing (in fact, it's probably not even possible since an entire year's supply of pork bellies isn't in stock), while the price of gold would hardly be affected.
The stock-to-flow ratio of gold is several orders of magnitude higher than that of non-monetary commodities (indeed that's one of the defining characteristics of money), so changes in supply don't affect them as much. This will also be the case of Bitcoin, in a couple of decades.
BTC isn't money. You make a great comparison of BTC to gold, a commodity. Gold isn't used anymore as money because there isn't enough of it for that role. BTC is in even worse situation. BTC is a great collectible commodity that will be growing in value, like Campbell soup paintings or Ferrari California. Great storage of value, yet not usable as money.
The next cryptocurrency which would contain infinite mining, balanced by infinitely increasing complexity, will very possibly make it as a money. It is understandable that BTC in order to crack the glass ceiling and gain trust and acceptance had deflation built-in. Now that POC succeeded the full-featured release is to come (though lets see about alpha/beta/etc... :)
Bitcoin can last 40 years of use without hitting the ceiling.
-Bitcoin is not legal tender. Governments force banks to accept USD to pay debts, no matter what they perceive the dollar's value to be. Meanwhile banks have no obligation to accept bitcoin. This means that bitcoin volatility is more closely tied to perception than currency. This is a trait shared by other commodities.
-Bitcoin's finite supply. Once the supply of bitcoins is growing substantially slower than the size of the economy, there will be deflation until demand for bitcoins adjusts. With a fiat currency, money supply can be increased or decreased as the size of the economy changes. In a growing economy, a small level of inflation discourages hoarding and helps ensure that the currency accurately reflects the value of goods and services.
People say this means "bitcoins are deflationary" but that's not precisely true. It's true only if the size of the economy using bitcoins for currency is growing. In an economy that is stable and not growing, there should not be much deflation even if there is a finite amount of currency. If the economy grows, then a fiat currency can print money to cover the growth. Bitcoin cannot.
Thus, I would predict that unless bitcoin experiences a hoarding/deflationary spiral and crash into irrelevancy, it will wind up stabilizing in a particular niche of the economy, one that will likely become proportionally smaller over time as the world economy grows. This particular niche is likely to grow and contract more frequently than the larger economy meaning that demand for bitcoin will continue to fluctuate more than major fiat currencies. Given bitcoins fixed supply, this means price volatility.
Is this identical to other commodities? In some ways, I suppose, but I'm not sure that's a particularly interesting question one way or the other.
Well, yes: as trading volume and price grow, market depth will be bigger, hence reducing volatility.
What does that mean exactly? Interest rates haven't been stable for the past 100 years, and the USD isn't pegged to anything (nor is the Euro for that matter).
In fact, the interest rate volatility increased after going off the gold standard: http://static.safehaven.com/authors/weiner/30046_b.png
What is it about Bitcoin that you think leads to inherent volatility? The only explanations for its current volatility that I can think of are the fact that many new people are constantly learning about it, the financial services for it are still very young (like exchanges), and governments have yet to address it. But Bitcoin has only existed for 4 years, and has only been known in mainstream publications for 1 year.
I see Bitcoin's role in all this as a way to exploit arbitrage in currency exchange rates for restricted currencies. This is exactly why it's popular in China. It is a currency whose supply is algorithmically limited and theoretically should track global inflation. The world has always had nominal exchange rates and de-facto exchange rates for restricted currencies; but until something like Bitcoin emerged there was no legal way to perform exchanges at the de-facto rates at scale.
My big worry with Bitcoin is that the supply is too limited. Currency is subject to manipulation by many forces; much of the job of a central bank in control of money supply is to counteract any intentional manipulation. With unstable prices and a limited circulation value (the total value of all BTC in circulation is only ~$12 billion) it is very open to manipulation by investment banks and hedge funds. Until BTC reaches economic scale, it's going to be subject to all sorts of shenanigans; and with no central authority to counteract the manipulative influences, I don't know that there will ever be enough trust in it for it to reach that scale.
It's akin to the gunpowder: the Chinese were the first to toy with the volatile stuff in the 8th century B.C. But the killer app (!!) took a long time to emerge.
The current state of affair with bitcoin looks a lot like a bubble, there's no question in my mind. As long as it's a speculative device, it's actually dangerous/endangered. It needs to find a use and stability, which might take a while.
One of the strong cases you laid out is hyperinflation: I can see local bourgeois looking for a safer place to park reserve purchasing power before escaping abroad. That's a limit case, however. The rest of the people are by definition struggling if there is such a crisis.
Cheers!
We cannot call this a currency because having few exchanges does not make it as such. There are option exchanges and futures exchanges and other specialized institutions.
It the first place, a currency cannot be this volatile, or, if so, it is a worthless currency.
The current observable behavior is alike of futures and options - the price (not a value) is determined by expectations that people are holding about further movements of the price, so, basically it is a commodity futures speculation.
The particular properties of the underlying technologies, such as decentralization and publicly available log of all transactions are just nice (and unique) properties, but they does not magically create any value for a bitcoin, which is just a set of unique numbers.
Therefore, it is not a currency, it is a internet powered and hence globally available digital (virtual) commodity, (as worthless and dangerous as means of legal tender as derivatives) which now is in a stage of a truly global ponzi scheme, where prices are based on the pure speculation about it further movements.
The usage of familiar words in a new context is what makes the ponzi scheme rolling - people make their snap-judgments based on old "rules" about "currencies" which are not appropriate for bitcoins along with peer and bandwagon effects. Very clever.
https://s3.amazonaws.com/s3.documentcloud.org/documents/8858...
[0] http://www.cbc.ca/news/canada/nova-scotia/emc-wins-contract-...
And there may be some huge PDFs (think 100Mbs) that you might not want to download, just check some pages.
At some point "convenience" becomes annoyance. Because instead of encouraging people to do the sensible thing like breaking documents into smaller, digestible pieces (e.g. small PDFs, page images, etc.), they are encouraged to be lazy (e.g. throw a 500 page document in a scanner that outputs PDF, and upload the oversized result to one of these annoying sites). Then the average user tries to access it and she has to wait patiently while the browser tries to load this ridiculously large file, or her browser just chokes. So, "time saved" on the front end - easy scanning of docs to PDF - can often lead to "time spent" dealing with the mess on the receiving end. The uploader gets convenience, the user gets annoyance.
That being said (1) the link you posted is not posted within an embedded context, so there's no benefit as you described, as far as I can tell; and (2) I can't zoom in properly since it's using GIFs, which is really annoying because now I have to click a link, visit it and wait for it to load just so that I can click the .PDF link -- I'd rather click a PDF link to begin with.
There is a certain very valid and extremely useful use case to sites like this, of course, linking random internet users to pdfs through them shouldn't be one of them ;)
I am in no way affiliated with any of these services, just came across this use case while building something for someone in the past.
I see little value in taking a PDF and making it available as images online. Is there really a web browser that cannot display a PDF?
I'm no economist, but wouldn't it be a long-term problem for bitcoin to not have enough units to represent the world's wealth? Or does the inherent deflationary nature of BC remedy this somehow?
In other words, as the world's wealth grows, won't we need a currency with greater range than "on a scale from 0-2,100 trillion, how valuable is X"?
I suspect that Bitcoin's lack of divisibility past the satoshi won't ever be an issue, since there will probably be other digital currencies in use for small, everyday purchases (perhaps one of the altcoins, but more likely one that hasn't yet been created).
I believe this is a major limiting factor for long term dominance, this is my list of things that need attention in the next few years:
- Make the units super divisible, Transaction fees will help to stop people sending silly stupid small amounts of coin.
- Allow unspendable dust to evaporate and return to the miners.
- Keep working on CoinJoin and ZeroCoin.
- Transaction costs are too high. These fees need to be much lower.
- Amount of transactions, we need Bitcoin to be able to handle 10,000 tx per second without this causes centralization problems.
But surely by the time we get to the point where adoption means each satoshi is worth say $1 or 1 cent then this dust will no longer be dust so why shoud it be unspendable?
Of course the bigger issue will be the 1000's of coins that were mined and have subsequently been lost, e.g. 7500 coins in a landfill site in Wales (perhaps that will become the equivalent of a gold mine with only one tiny bit of resource at the bottom).
You can send money to accounts which are provably unspendable. It's a public key that provably has no private key. Some people send satoshis to these addresses to store data in the block chain
[1] http://www.tradingeconomics.com/united-states/money-supply-m... [2] http://en.wikipedia.org/wiki/Money_supply
As others pointed out, this can supposedly be relieved by updating the protocol to allow greater divisibility.
And since that's a common objection: a reserve banking system on top of BTC would at best last two generations due to a lack of a central bank.
$11t is 1100 trillion cents. Bitcoin currently has exactly the same amount of indivisible currency units: 1100 trillion (11,000,000 BTC which are divisible into 100,000,000 units).
> I'm no economist, but wouldn't it be a long-term problem for bitcoin to not have enough units to represent the world's wealth? Or does the inherent deflationary nature of BC remedy this somehow?
But if no more coins are generated, what happens when Bitcoins are lost? Won't that be a problem?
…The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin ("a Satoshi"), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions. [1]
Won't loss of wallets and the finite amount of Bitcoins create excessive deflation, destroying Bitcoin?
…Bitcoin, however, offers a simple and stylish solution: infinite divisibility. Bitcoins can be divided up and trade into as small of pieces as one wants, so no matter how valuable Bitcoins become, one can trade them in practical quantities.
In fact, infinite divisibility should allow Bitcoins to function in cases of extreme wallet loss. Even if, in the far future, so many people have lost their wallets that only a single Bitcoin, or a fraction of one, remains, Bitcoin should continue to function just fine. No one can claim to be sure what is going to happen, but deflation may prove to present a smaller threat than many expect. [2]
[1] https://en.bitcoin.it/wiki/FAQ#But_if_no_more_coins_are_gene...
[2] https://en.bitcoin.it/wiki/FAQ#Won.27t_loss_of_wallets_and_t...
They think it's a “Winner Takes All” system. I completely disagree. If one cryptocurrency gets accepted, others will be right behind it. It's all automated, it's all decentralised. There's zero reason bitcoin should be the only one.
The point I'm trying to make is that Bitcoin was first! And all that excitement and experimentation over time translated into monetary investments and architecture, something the alt coins will have to work really hard to obtain! Not saying it's impossible, just highly unlikely.
Basically a system that is "more professional" will come out, think of it as Bitcoin 2.0. All the vendors will adopt since they can co-opt a lot of the same POS systems they're already using (how hard would it be, really, to accept 2 forms of cryptocurrency instead of 1?)
In the Bitcoin network today, two mining pools ( GHash and BTC Guild ) between them have over 60% of the mining capacity. There is no way for end-users to meaningfully nudge the behaviour of those pools, which in turn grants them great power over the future of the protocol and network.
Each of those pools alone has twice the capacity of the next largest ( Elgius at 700 Thash/sec ) which in turn is twice as large as Slush, and so on...
An end-user in the Bitcoin network, not owning sufficient ASIC hardware to grant 'access' to such pools, is dependent upon them.
I'm not a LTC or alt coin fan, but I don't think BTC infrastructure is really an issue.
I think that will be the exact issue: lack of liquidity for alt currencies.
Except for the problem of alt currency liquidity.
Money that is not liquid is not money at all (liquidity is the defining characteristic of money).
And the same rule applies to bitcoin itself. It only has succeeded, and will continue to succeed, if it is useful in a way that fiat currency isn't.
Fundamentally, Bitcoin is a transaction ledger. I suspect a ledger supporting the same volume of monetary transactions could be implemented using a single moderately sized server. Even if you calculate with decent margins and fail-overs, the true cost of providing most of the functionality of Bitcoin is more like $1000 per year. (I'm not calculating software development, since the Bitcoin software development also doesn't figure into those $10 million / day).
How valuable is the fact that Bitcoin is decentralized and therefore very difficult to control for governments? Is that worth $3000 million per year or more? And is there truly no alternative way to get there that is cheaper in terms of computing power?
If you're long BTC, it seems to me that that's what you're betting on.
If the answer were No to either of these questions, there would eventually be a correction.
If you discover one then please let us know. Right there there is no known alternative to proof-of-work when trying to reach consensus in a distributed system.
There is at least some chance that a big awful corporation is more trustworthy than a plurality of miners.
Definitely. But it's about central points of failure, not trustworthiness. The trustworthiness of a company is irrelevant if the government decides to confiscate all its assets.
> In PoW when you attempt to mine you must expend energy and so you should only mine on a consensus which is likely to be the surviving one if you want your work to not be wasted. In PoS the same is not true, and an optimally rational PoS miner will attempt to concurrently mine all forks which he does not hate.
> Originally the signed blocks in PPC were supposed to be a bootstrap mechanism until most of the mining was PoS based, but then some clever miner started mining many possible histories and finding ones where he magically got lucky and his coins were the selected stake for all the blocks.
One thing I like to point out is that right now mining is over-subsidized by the basic protocol: why is the block reward 25btc (or whatever it is now)? It's completely arbitrary and is paying the miners more than their services are worth (hence the arms race to earn as much of the reward as possible).
The point of mining is to secure the blockchain and render it infeasible to perform double-spends, right? But double-spends are not that disastrous: a few double-spends are an inconvenience and not a disaster for Bitcoin. There is no need to allocate 25btc a block to achieve the current record of close to zero successful double-spends. It is wasteful.
So as the block reward declines, we'll see more reasonable amounts of revenue flowing to miners and hence also a decline in how much computing power (electricity) is spent, eventually converging on what is optimal for securing the blockchain.
Somebody is going to lose big time. The question is whether Bitcoin as a currency will survive in the fallout.
As for the bloated global financial industry, there are two points. First, it does more than just a simple ledger (think the overhead of dealing with fraud in a way that people are willing to accept). Second, it's plausible that Bitcoin will help de-bloat the financial industry, at least the payment services part, and that would certainly be welcome. That doesn't mean that Bitcoin will survive in the long run, though.
1. Write paper saying Bitcoin will peak at 1300.00 when the price is nearly 1300.00
2. Publish
3. Profit
...
It is more than common for banks to invest and hype markets (ie. chase artificially pumping the Facebook IPO). They can because of their sheer size, so why not?
The fine is usually low enough that they treat it as a cost of doing business.
US is exporting "green paper" and importing physical goods. Do you really believe that the US government and banksters will opt out of all fiat currency benefits?
It is interesting that China government is honest enough to tell the people what Bitcoin really is.
Still 3 times what they were 10 years ago. It seems unlikely at this point Bitcoin will collapse back to the $10 it was a year ago, even if there's a massive crash. For whatever reason, this year was a turning point.
There's a few reasons for that.
The banking crisis in Cypress
The opening of BTCChina
The US Senate hearing on Bitcoin
Which is it?
Maybe the media exposure would be great if Amazon accepted it directly but it wouldn't really change the utility of Bitcoin.
I think it's more accurate to say that Amazon accepting BTC would place a minimum value on BTC, assuming Amazon didn't peg the price of items in BTC to the price some other currency, for example if they offered to sell the Nexus 7 for 0.5 BTC, then 1 BTC would be worth at least USD600.
As for the value of BTC, nothing would prevent Amazon to have a fixed price in USD and a floating/real-time adjusted price in BTC (that's what merchants using BTC do anyway currently).
a) negligible (you have to scan a QR code and then copy/paste the gift card code instead of typing in your CC)
b) they pay you for it!
The moment a physical address / name are associated with a wallet, any spending from that wallet can be tracked back to you forever. If a substantial number of people are using bitcoin on Amazon, then effectively Amazon will be able to track what and where all of those people are spending their money.
Multiply this across all retailers, paycheck services, government institutions (e.g. the IRS), etc... and bitcoin effectively allows many corporations and governments to track any of your spending and (perhaps more importantly) wealth associated with bitcoin. This, I suspect, will ultimately limit bitcoin's adoption.
As for the tracking of your spending, it's already happening when you have a credit card. I don't know if Amazon know about your spending outside of their marketplace, but Mastercard, Visa and others certainly do, and I'm not sure whether they keep that data entirely private or not - Nothing would stop the government to ask them directly for your data, for example.
Admittedly, governments can already request credit card data, under court supervision (ideally... unfortunately, it seems with an exception for the NSA), but with bitcoin you are voluntarily placing this information on public record.
If you ever want to buy something with bitcoin, the retailer can immediately look up how much money you're worth (or at least that particular wallet) when you give them your wallet address. They can also immediately check if you've spent any money (and how much) with their competitors' known public wallets.
There will likely be aggregation services that will associate multiple wallets that are connected with a common address (just like modern day data collection agencies) and sell this data to retailers. Advertisers will know exactly (or at least a lower bound) of how much you're worth and where you like to spend your money.
If bitcoin gets traction, it will effectively ruin any financial privacy we have remaining. It's one thing for a government to have access to this, it's a whole other world of problems when everyone from my neighbor to my cable company has access to it.
A wallet usually had multiple addresses, and there's no reliable way to tell if two addresses are from the same person or not. So if you have funds on your public address A, and you transfer some to new address B, and later you pay with B, there's no reliable for Amazon to tell if A belongs to you or not.
They can also immediately check if you've spent any money (and how much) with their competitors' known public wallets.
That's not how it works. Companies can't just tell people to send money to their public addresses, because it'd be very hard to tell payments apart. They generate random addresses for each client, which they then transfer back to their main addresses.
But since most sites use payment processors like Coinbase, what really happens is that the processor generates their address, which the user send money to, and then they use internal accounting to send a single transfer to the retailer.
So all Amazon would know is that you spent your money with someone who uses Coinbase, but only Coinbase would know who.
- One is that Amazon can identify your wallet when you pay them for something.
My objection is that if you have multiple addresses, it's not easy at all for Amazon to know if they all belong to you or not. Of course, it doesn't work if you just create an address, transfer the payment amount to it, and then immediately transfer it to Amazon.
But if you keep a savings address and few payments wallets and maybe a web wallet (which is not really a "wallet", since it mixes your bitcoins with everyone else's), it becomes increasingly hard to tell apart.
- The second problem is that Amazon, having identified your wallet, can then see what other retailers have you bought from.
But this doesn't work, because other retailers will use payment processors, and that kind of tracking (correlating in → out) doesn't work, because payment processors don't do that. Instead, they pool all the payments and send you (the retailer) a single transfer at the end of the day/week/etc.
You mean 'bitcoin address', not wallet. A wallet can, and usually does, have many public addresses.
For this reason I don't see Bitcoin exploding based on its utility as a payment platform, at least on-line. Fiat NFC mobile payments can be made just as convenient on the high street as well.
IMHO Bitcoins success with the everyman really hinges on being a super convenient but secure alternative for casual payments.
Imagine a web agency that decided earlier this year it will pay its designers 5k USD + 10 Bitcoins a month (as a nice perk). That agency would be bankrupt by now :)
But more importantly, what matters is whether the manufacturers and distributors accept and use bitcoin amongst themselves all the way along the resource chain. If Amazon immediately turns around and converts the btc revenue to usd in order to pay for inventory, then what point is there in using btc in the first place? Right now it's a niche group of people using bitcoin to actually buy things(at their own expense at that), and without a doubt the retailer is immediately converting that revenue to usd.
I don't think you fully grasp that there is a limit in the supply of Bitcoin in the long term, and that is exactly the key differentiator vs fiat currencies printed when governments need to pay their debts, ad vitam eternam. Some people say it's because of this structure that Bitcoin will fail, but in the end that's the only reason that Bitcoin will actually thrive if it is successful.
The world GDP is somewhere around 50 Trillion Dollars ($50 x 10^12). Bitcoin is designed so that there will never be more than 21 Million in existence. Let’s say that there is a possibility that Bitcoin could one day constitute 1% of world transactions. (I could envision the percentage being much higher, or 0%, but 1% is a good place to start). If this were the case, then
($50T x 1%) / 21M BTC = $23,809.52 / BTC
(Again, this isn’t a scientific treatment of the valuation of a currency, but a back-of-the-envelope approach.)
So we could see how the price of a single Bitcoin could increase from its current value of ~ $550.00 to $23,809.52. What is the likelihood of Bitcoin succeeding in being the currency used in 1% of world transactions? Let’s say it’s 10%. (Again, exact value not important.) You get a risk-adjusted value of $2,3809.52.
Does this mean I have to create a new wallet for every transaction I'm doing?
Wouldn't lead to end up with a hundret wallets after a few years?
The understanding I got after reading those guides online is like this:
the addresses are public keys
the blockchain knows how much money every address owns
the wallet holds the public and privat keys
is this right?
Although a public keys can be re-created from the private key, so the wallet doesn't have to store that.
And the address is actually a hash of the public key, to make it shorter and more readable.
So nothing new anyway.
The ecosystem and brand awareness is novel for BTC, so in that respect I don't disagree with the analysis having focused solely on it - however, I do find their number (remarkably close to current price) a bit leading.
That is not going to happen.
Pretend it is 1 year go. Assume at that time that BTC was trading for 50 USD. (I pulled this out of thin air, somebody can look up the real historical rates at that time, if curious. But I know it was much much lower than present.) Pretend that BoA came out back then with a fancy serious official "expert judgment" report saying that the maximum fair market value of BTC would be 70 USD/BTC. Now let this digest in your mind.
And that this type of thing is happening all the time in the "serious" financial/business/entrepreneurial world. Nobody's an expert about the future. (Nor on the present.) It's an unknown country. It doesn't exist yet. I won't say that literally anything could happen in the future. But there are so many things that can, and so many variables and moving parts, and so many unknowns, that it's often effectively equivalent to that.
If a man steps out of a Time Machine from the Future, and tells me the maximum value is 1300 USD, then, maybe I'll believe him. But I'd still want some independent verification that his box can truly travel in time. And these BoA folks aren't even claiming they have that.
In fairness to you it is very difficult to distinguish an Internet-style network effect, where there is exponential growth, and a bubble. But it's not impossible. This is exponential growth due to a network effect because BitCoin represents real value and is not a bubble.