Comment by zanny | Hacker News Reader

Comment by zanny | Hacker News Reader

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This news went up around 2 hours ago and market prices haven't really budged. In bitcoin, these kinds of shocks are almost always instant, and usually happen days or weeks in advance with insider knowledge trading.

Everyone with a brain knew Gox was dying a month ago. In relation to the panic you quote, this isn't a panic over the price falling - it is equivalent to one stock exchange back then stealing your money and going insolvent. Functionally, it is a private company failing, with the collateral that anyone stupid enough to have given them money is pretty much sure to lose it.

But that just means that the business failed, and it doesn't reflect much on the overall bitcoin economy at all. Hell, I was into bitcoin 2 years ago and knew right away MtGox was an incompetent lot that were bound to crash and burn. I also always kept my coins in local wallets and only had USD on an exchange long enough to wire it out or buy BTC that I could then move to my own wallets.

I applaud you on your foresight and you should pat yourself on the back extra good tonight.

But clearly others trusted MtGox. I haven't traded a bitcoin since 2011 so I don't know much about the community past what I'd absorb about anything that's on HN daily. But isn't the claim that MtGox lost like 6% of all BTC in existence? If you think this is going to sail by without impacting the larger community, I think the foresight that led you away from MtGox is failing you now.

People are now $500+ million dollars poorer than they thought they were. That has ripples. That will erode confidence. And my bet is that it will erode confidence.

But isn't the claim that MtGox lost like 6% of all BTC in existence?

If so, then that would further imply that MtGox has lost ~3.5% of all BTC that will ever exist.

Perhaps, however I suspect bit-coin is going to be forced to increase the long term cap at some point in the future as they keep being destroyed. Which might not seem like an issue but it adds a lot of instability as nobody knows how many bit-coins are still in circulation.

PS: Don't forget holding bit-coins does not get you a vote it's the miners that decide how things evolve.

A bitcoin can be divided into many pieces.

There's no reason to issue more bitcoin. The forces of supply and demand will keep the value stable, regardless of the exact number of bitcoins outstanding. Issuing more bitcoin would only serve to invite fears that it would be issued in shady ways, or that such issuances might become routine and inflation would take place. This would only further undermine the currency's perceived staying power.

Why do you think "forces of supply and demand will keep the value stable"? Bitcoin is much more susceptible to huge valuation fluctuations than fiat currency, where central bank can step in to shift demand/supply.

Unfortunately humans are famously loss averse[1] which leads to downwardly sticky nominal prices[2] in practice. In the face of deflation a lot of people just stop buying and selling and hope that prices go back up, or hold out for a nominal offer as big as what they think they "should" get even if the real value is the same.

If your bitcoin economy is full of nerds who really understand the subjective value of money than that's fine. But if you were to start having lots of normal people using Bitcoin and denominating prices and contracts in Bbitcoin than deflation would be a huge problem. As long as most of the surrounding economy isn't using Bitcoin it still wouldn't have the positive feedback loops that caused the Great Depression under the gold standard, though.

[1]https://en.wikipedia.org/wiki/Loss_aversion [2]https://en.wikipedia.org/wiki/Sticky_prices

So can gold. It's not the question of dividing it up.

And weighting, assaying, and using the tiny divisions of gold has a steep upwards cost as the amount of gold gets smaller.

I remember reading that it's only divisible by 10^100.

only

I meant only, because if Bitcoin effectively becomes the leading world currency 10^100 might not be enough. However it shouldn't be hard to change that limit, or to find a way around it.

You have no idea how big 10^100 is.

That is 1.4 * 10^90 (atomic units of bitcoin) for everyone on earth. There are only around 1.2 * 10^12 actual US dollar coins and notes in the world, and only 1.2 * 10^13 dollars if you count all of M2 money supply.

So can a dollar. Admittedly not as many pieces - only 100 of them - but the principle is exactly the same.

My suspicion (I am not an expert on finance) is that (if it remains successful long enough) Bitcoin is going to end up being fractionally reserved by the exchanges—I mean openly so, with the consent of the depositors. That should generate a large increase in the apparent supply of Bitcoins. I mean, gold is already heavily fractionally reserved...

They would absolutely have to.

The impending cap on bitcoin production would dry up the already recession-like liquidity, making it worse than gold as a currency.

And as we saw with the banks, fools who hand over money to unregulated banks don't get their money back. Why would any bank not steal all the money, or get robbed, when it costs nothing to do so?

Nobody knows how many dollars are still in circulation. They have good guesses, but nobody knows about the millions in cash that was lost/burned/buried in the desert. It doesn't matter. Supply and demand doesn't rely on the total number of bitcoins in existence; only the number that are available on exchanges. And with blockchain analysis, we can have a very clear picture of bitcoin circulation - much better than with traditional currencies.

With fiat money, this is not a problem, because that's only one of the available parameters to determine the relative value of a currency. Also, inflation constantly pushes fiat currency value towards zero, so your stashed 1970 dollars are now worth much less. Bitcoin, being deflationary in nature and not linked to anything, is a different ballgame.

The funds were likely stolen, not sent into the void.

Even if they were sent into the void, bitcoins are highly divisible. Just shift the decimal point over a few places and you've got convenient units once again.

Right, but with the blockchain being public, there's a certain parallel between stolen BTC and stolen art.

market prices haven't really budged

Say what? They've fallen 10-15% over the last hour or so (depending on whether you look at Coindesk ot bitCoinTicket) and they're still going down.

In relation to the panic you quote, this isn't a panic over the price falling - it is equivalent to one stock exchange back then stealing your money and going insolvent.

The challenge here is that the Bitcoin system is built on faith. If enough faith disappears, so does the value of Bitcoin. In this manner, it is similar to a bank run.

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