Bitcoin Trends in the First Half of 2015
blog.coinbase.com
blog.coinbase.com
The big trends in Bitcoin seem to be:
- Amateur hour is over. The remaining exchanges are bigger and seemingly more stable, although none of them are up to bank-level yet. New York's Bitcoin regulation seems to have been accepted.
- Mining is more centralized than ever. Most of the big Bitcoin miners are in cold areas of China with cheap power. China has well over 50% of the hash rate now. This may just be a way to convert yuan to dollars. (China has currency controls, but encourages exports. For a few months, it was legal in China to buy Bitcoins with yuan through regular payment channels, then sell the Bitcoins outside China for dollars. That drove the $1000 Bitcoin bubble, and was shut down by the People's Bank of China last year, causing the Bitcoin crash. Mining Bitcoin in China, and selling it outside China, is considered "exporting" and is a legal way to convert yuan to dollars.)
- Since the shutdown of Silk Road I and Silk Road II and the related arrests, Bitcoin is no longer considered a safe way to buy drugs. This doesn't seem to have affected the price much one way or the other.
- Bitcoin ATMs are disappearing. In the SF bay area, Hacker Dojo and Workshop Cafe got rid of theirs, and Nakamoto's doesn't have theirs working. Hero City (a co-working space) may still have one.
History of Bitcoin:
2013: Wow!
2014: Aargh!
2015: Meh.2014: "Hmmm... I just built a centralized business around Bitcoin, so now my customers have the same counterparty risks as before... why was I excited about Bitcoin again?"
2015: ???
2016: Profit
(If someone figures out the entry for 2015, please let me know what it is...)
As long as there isn't sigificantly more transactions than are reasonable to be included in a block there simply won't be too much pressure on the senders side to increase the amount of fees paid.
The other aspect is the miner's inevitable margin compression. From the numbers we have seen (e.g. KnC in 2014), it seems that these companies are already operating on razor thin margins. Whatever money they have made, they needed to re-invest into upgraded hardware in order to stay competitive. Unless there is a meaningful increase in price before the reward halving, a lot of miners will likely run into trouble.
The reward drop will instantly price out of the market a large proportion of the current hash rate.
This will make the next 2016 blocks take substantially longer to find than normal, which will result in a large drop in the difficulty. This, in turn, will price a large chunk of mining back in - enough to mean that the following 2016 blocks take substantially less time to find than normal.
So I think we'll see see-sawing difficulty in alternate 2016-block periods for a while, until a new equilibrium is reached (at a lower difficulty / lower network hash rate than before the reward drop).
I don't think there'll be a significant effect on either the bitcoin price. Transaction fees should rise a bit in the "high difficulty" periods, and drop in the "low difficulty" periods, but once equilibrium is reached they should be much the same as they were before the reward drop.
> 2014: Aargh!
> 2015: Meh.
so, bitcoin got into productivity plateau?
I think countries giving up fiscal policy for the euro would make other countries consider bitcoin. Makes sense to have a tax regime based on immobile property taxes rather than resorting to inflation or foreign currencies. Since us and Europe already are pretty confident in their ability to collect taxes, they won't be too hostile to bitcoin.
Nit: as of a few days ago when I was there, the one at Hacker Dojo is still there.
Originally, the Robocoin machines displayed their bid and ask prices on the attract screen. They stopped doing that; the size of the spread (about 15-20%) was embarrassing.
Normally I wouldn't notice this (for example that Nova legend about a car that doesn't go doesn't really sound at all plausible and doesn't really sound like "no go" to me) but with all of the connotations of theft that people have put around bitcoins, "Robocoin" sounds like a terrible name to my hispanophone ears.
Still the context is important. When talking about some machine, it's obvious that it's meant for robot, not to say it's going to rob you - even if it's what it actually does.
Is this really the consensus of the dark-net market denizens? Are they using another currency now?
And who told you this?
And they all still use bitcoin.
I think they're up to three now.
This is not true. While it's not a good idea to waltz in naively and buy drugs without educating yourself, most people I know strongly prefer the dark markets to buying on the street.
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The big trend is that the hype has died and that people have largely stopped using Bitcoin for things that it is not really good at. Growth is up though. People use it for its strengths more, many more people have heard of it, and overall Bitcoin is seeing a lot of traction.
As Greece demonstrated, it's really nice to be in control of your money. At current volatility, Bitcoin is more of a contingency plan than a savings strategy , but its core strengths are just as relevant as ever.
You gotta be kidding me. Are you saying that it is safer to go to streets, than to order online?
I fail to see how giving out your personal address to random strangers on the internet is somehow preferable to a face to face transaction that insulates the drug dealer from where you sleep and keep all your valuable possessions. I also reject the implication that one must necessarily turn to "the streets" to buy recreational drugs. Most habitual drug users have a relationship with their drug dealer(s) and don't troll "the streets", cash in hand, looking for someone to satiate their fix.
I thought that was pretty much entirely Willybot, then other exchanges following Mt Gox's blatantly fraudulent prices about $100 lower.
C'mon Coinbase, at least spin them into a '<X> is actually good for Bitcoin, because <Y>' format.
The results were not favorable for bitcoin and highlights key design problems -> some transactions cost $280/transaction to put through, and other transactions that had <$20 fees were not processed and stuck in limbo.
Other than increased block-size, is there something that could improve these results? More full nodes?
Some would disagree, considering the system kept functioning exactly as intended under the circumstances imposed on it.
Personally I agree that the whole thing is troubling, but was anything really discovered here?
Considering that the price has been rising, if you believe in prediction markets, these design problems could likely be overcome. After all, people have been working on it since long before any of these stress tests were performed.
Yes, hence the GP stating, very clearly, that the results "[highlighted] key design problems".
The results of the stress test were not surprising to anyone who's been paying close attention, but it was a valuable demonstration that Bitcoin is it currently operates is misarchitected and will require some fundamental redesigns in order to operate at scale. These problems have been under discussion since at least 2011 and have been constantly disregarded, so perhaps this will help. It seems unlikely.
Maybe some people paid fees that high by mistake, but no-one had too. Equally $20/tx fees are still ludicrously high by about three orders of magnitude.
Bitcoin miners prioritize transactions from highest fee to lowest; the attackers never sent transactions with more than 0.2mBTC/KB fees, which works out to about $0.01/tx. In other words, if you paid more than about $0.01 in fees, your transaction was unaffected by the flood.
The problem was a lot of badly written Bitcoin wallets don't let their users set fees at all, nor do they let you resend transactions stuck due to low fees. This is an easily solved problem, and fortunately we're seeing wallet authors fixing it. This should have happened years ago... but a lot of people are heavily invested into the idea that Bitcoin transactions are "free", which just isn't true...
You may find my writeup on the flood useful reading: https://gist.github.com/petertodd/8e87c782bdf342ef18fb
The backlog has since been drastically reduced and high priority fees are back in the 50,000 satoshi per kb range [0]... the average Bitcoin transaction is about 250 bytes, so 12,000 satoshi per transaction, or roughly 3 cents. Low priority transactions of < 1 cent are still somewhat easily confirmed [1].
Even during the stress test I saw high priority fees hovering around the 85,000 satoshi/byte range, and never in the 1,000,000+ satoshi/byte range that you're talking about.
What's impressive is that the price [2] of Bitcoin was completely unaffected by a bit of weather [3] on the network and in fact gained in value during the entire ordeal.
Public data storage like the ledger maintained by the Bitcoin blockchain has a definite cost and it makes sense that prices would rise as demand increased. The blockchain is a scarce resource. It might make sense for transactions fees to end up around the price of a postage stamp at some point. It's hard to predict how this economic system will continue to evolve.
What's most important is that the ledger continues to be maintained, eventually consistent, secured by lots of hashing power, 100% verifiable and has an open and equal access to read and write as it ever did.
Not every transaction between two parties needs to be recorded on the blockchain. The blockchain is for clearing and settlement. Between lightning networks [4], private federated offchain networks for batch transactions, and possibly public sidechains (if they every materialize), there's a number of approaches that can help facilitate micropayments and other situations that require very low fees.
[0] https://api.blockcypher.com/v1/btc/main
[1] https://blockchain.info/tx/417d1c3ada3744910503d58b464070531...
[2] https://blockchain.info/charts/market-price?timespan=30days&...
[3] https://blockchain.info/charts/n-transactions?timespan=30day...
The stress 'test', (or was it really an attack?), is interesting, though it may be too recent to be included. But where did you get that $280 from? That figure sounds ridiculous.
Can you give the source?
On the plus side, scope creep seems to have slowed, more people are aware of the overall concept, and Merkle trees have begun to be applied experimentally to additional problem domains.
PS. Reading between the lines, new user growth has slowed dramatically at Coinbase. IIRC they sent an email this week begging for referrals, offering $25/signup. And like all startups, it probably defines users as people who once gave them their email address, rather than actual regular users of some nontrivial part of the service. "A trillion wallets!" indeed.
PPS. What percentage of increased Bitcoin transactions are due to the use of automated gambling sites for Bitcoin-trail erasure type money laundering through numerous microtransactions?
http://www.businessinsider.com/bnp-paribas-bitcoin-blockchai...
These are the kind of "news" and media attention that matter. The big guys are starting to bet heavily on the technology.
Note that the supermajority of members of the core development team have never received funding from the Bitcoin Foundation.
> While the price is down 9% YTD (as of July 13), it's up over 213% over a two year time frame.
So they are ignoring the price drop from $1,000?
> This has attracted more institutional investors to the market and volatility has decreased as a result.
Chart indicates a gradual decrease, it's hard to establish causality. Also, it ignores the fact that 50% volatility for a currency is absurd.
> As of June 30, there were 6,109 Github repositories referencing Bitcoin. By comparison, there were 2,352 Github repositories referencing Stripe and 2,318 repositories referencing Paypal.
Comparing a currency with a currency processor is blatantly comparing Apples and Oranges. How many GitHub repositories are there mentioning Coinbase?
The most liquid/highest volume period was still the run to $1000.
Conversely, how many GitHup repositories are there mentioning USD or GBP. Oh wait, you can not transact USDs online without a payment processor. So what would be a better way to compare? By comparing all the fiat payment processor mentions against Bitcoin and Bitcoin payment processors. Which is kind of what they are doing here.
I saw a lot of wishful thinking about Greek buyers, but what was the evidence of actual Greek buyers?
To me, it looks like January 15, 2015 could easily have been the final moment of despair in the the 2014 downtrend. Of course, only time will tell.
Sidenote: That bubble graph has been posted hundreds of times (literally) on the bitcointalk.com forums and reddit over the past few years, for different bubbles even: 2011, 2013 part 1, and 2013 part 2. The posters often proudly & spitefully think they are first to see the resemblance, and are usually received pretty poorly... It is an inside joke at this point. So I found it entertaining to see the comments in this thread here (not trying to say anything negative about the posters here :)
One possible reason for the differences: Bitcoin speculation is less of a leveraged instrument than most other speculative activities. This is about to change as Bitcoin makes it onto ETFs (where leveraged investors can play more easily) and if potentially leveragable contracts (like ripple) gain in popularity.
That is, if you believe Kindleberger's thesis in "manias, panics, and crashes".
How would Bitcoin have prevented or mitigated the OPM hack?
The link is a bit of a stretch, though.
I suggest reading this post: http://blog.onename.com/americans-hacked-opm/
TLDR; The blockchain offers a more secure database that allows institutions to stop storing massive amounts of user data on centralized servers.
I wonder what the country breakdown estimation is for all Bitcoin transactions. I would guess more international use than Coinbase numbers
I have always thought that the financial institutions we have in mainstream currencies are institutions that societies want. If ever Bitcoin goes mainstream, the Bitcoin economy would end up a lot like the world economy when it was gold-backed, albeit one where the transaction costs were not physical but hidden in the work done in blockchains.
It seems to me like people are mistakenly thinking that Bitcoin's lack of financial institutions are a property inherent to the currency rather than the simple fact that Bitcoin is a currency that is not mature enough to have actors sufficiently invested in it to want to create regulatory institutions on top of the currency.
Correct me if I'm wrong, but it seems to me easier to regulate Bitcoins than say, gold. It is far easier to trace and verify the provenance of Bitcoins than that of gold, and hence far easier to classify Bitcoins into "clean Bitcoins" and "dirty Bitcoins". A cabal of influential institutions can simply refuse to deal with wallets and businesses that deal in "dirty Bitcoins", and that can serve as a basis of institutional regulation of Bitcoin as a currency.
Now you can ascribe this to them being old fuddy duddies who "just don't get it". You can also ascribe this to the wisdom of people who lived through the Great Depression, World War II etc. and have seen every scam and snake oil pitch under the sun.
Which is exactly what Bitcoins are. They are worthless, they have no value. They're not only a scam, they're a scam that should be obvious on the face of it, like subprime real estate, or a Pets.com IPO. People talk about a Silicon Valley bubble - nothing is more indicative of a bubble than Bitcoins. These guys may not know the specifics of blockchain algorithms, but from decades of hard experience they can distinguish value from non-value, and Bitcoins have no value.
I can't think of a commodity it makes less sense to hold onto than a Bitcoin. Gold has value, as do other precious metals, oil has value - Bitcoins have no value. The only comparison I've seen made to Bitcoins is fiat money, but it would take too long to fully explain why Bitcoins don't have the value of a US dollar in a post here.
I was warning people of this scam here when Bitcoin was over $460 ( https://news.ycombinator.com/item?id=6753545 ). It has since fallen to $290. It will be falling to $0.
For some laughs, read http://bitcoin.org/en/faq#why-do-bitcoins-have-value - "Bitcoins have value because they are useful as a form of money. Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies)."
What? Commodities which already have value(!) become currencies because they have "durability, portability, fungibility, scarcity, divisibility, and recognizability". Gold has all of those properties so it has made a good currency through history - but even if it had none of those properties, it derives its value from it being a commodity with useful physical traits - like the ability to fill a tooth, or conduct electricity, and so forth. Bitcoins have no such traits - they have the traits which would make a commodity with value a good currency, but it has no inherit value as a commodity!
Witness all the angels and VC's who sing the high holy praises of this scam. Are they just complete fools who have no understanding of the economics they claim to have expertise in, or are they just scammers trying to fleece suckers out there? I don't know the answer to this, but at the end of the day, all the VC's and seeders and angels on Twitter etc. who support this Bitcoin scam are either fools or thieves. Keynes said markets can remain irrational longer than he could remain solvent, but it's inevitable that Bitcoins price will go to $0. Since my first statement of this here, Bitcoin has gone from $460 to its present $290. It will inevitably go to $0, no matter how many of the scammers downvote this post so people won't see it. Because no matter what anyone says, the market cap of the $5 trillion worth of gold mined will never change more than an order of magnitude (barring some amazing chemical technological advance). Whereas lack of doubt is all that is keeping Bitcoin's $4 billion market cap from going to $0. From it's scammy beginnings (the anonymous "Satoshi"), to all the legal problems and scams of Mt. Gox, Butterfly Labs etc., it's only a matter of time before this Ponzi scheme comes to an end. More instructive than that is all the existing VC's, seeders, angels etc. who are vocal in their support of this scam - that's what you should really remember.
And don't forget that Ponzi schemes were originally invented using that foolproof valuable currency you cite as a foil to bitcoin's scam! I'd say the time and resources that go into making bitcoin have inherent value just like using a little bit of gold to fill a tooth.
Were you around for the last .com bubble? You could have ( https://en.wikipedia.org/wiki/Flooz.com ) said the same thing ( https://en.wikipedia.org/wiki/Beenz.com ) back then ( https://www.youtube.com/watch?v=4s7V9I7LVp4 ).
Not that I'm saying startups are currently bubble level overvalued - but stuff like the Bitcoin hype is a canary in a coal mine.
> but completely writing off at the very least the technology itself is a bit ignorant, don't you think?
I can conceive of the possibility of people using blockchains and such things in the future for various reasons. I have no desire to right off the technology of the blockchain any more than I would write off the technology of a distributed git repository. The question though is whether Bitcoins should have a $4 billion market cap, and to me the answer is clearly no - it already fell from $11 billion to $4 billion, and I see this falling to $0.
P.S. Re-watching that Whoopi Goldberg ad about "hip, young" Flooz versus "old, out of touch" money gives me deja vu all over again....
This implies that a trustless perfectly transparent currency has no value, which is obviously not true.
Bitcoin might die because the protocol is flawed. It does make a lot of mistakes that altcoins do great work to solve - block size, chain size, volume, and proof of work are all messed up to varying degrees. The rate of monetary base inflation being a piecewise downward spiral to a limited final supply is in no way practical for a day to day currency, ever.
But the technology basically crushes whatever nonsense you want to throw around when discussing fiat currencies, because at the end of the day every fiat dollar has to be "trust us". The financial industry has exploded on the back of phantom wealth with no physical asset backing, and bitcoin and cryptocurrencies in general are the counter to that entirely by being perfectly forwarded backed assets moreso than any other holding or investment you can have.
You can literally have the wallet file controlling a portion of wealth, and that wealth is backed by the computational power of the network, and the combined appraisals of everyone else using the money. If you hold gold shares, you have records that you own an amount of gold held by a third party trading company, maybe (its not like you are ever going to go withdraw it), and you are in good faith assuming the market cap is accurate, because nobody can actually summarize the amount of gold out there, even in just the investment market, accurately. And fiat dollars are even worse, since fractional reserve banking and digitization had led to tremendous amounts of money out there being literally numbers in a database but they have none of the benefits of bitcoin having a collective ledger of transaction history.
The technology is superior. We just need a Snowden of money the way Snowden was of privacy to demonstrate that "trust us" is what has literally zero valuation.
Can you explain this, specifically what the relationship is between having a limited final supply and day to day practicality.
First, consider that inflation and deflation of currency is the opposite what most people want to happen to bitcoin right now - which is still counterintuitive, because its adoption as a money is counter to its value as an investment. If the cost of a bitcoin rises against fiat, IE, the price goes up, then the currency is monetarily deflating - it is getting more valuable over time. Likewise, when the price drops - ie, after the 2013 bubble until the start of 2015 - thats inflating, because your money is worth less over time.
For pretty much every fiat currency there is, your money is always worth less over time. It means you don't actually want to have physical money, because that money is all kinds of things you could have instead that either appreciate in value or give you a value add versus the money just losing its purchasing power.
In almost all cases that inflation is due to a growing monetary base. States are printing more fiat money all the time, and sometimes they do major injections of money (quantitative easing, for example) to stimulate economic growth. That devalues the money, and it means you don't want to have any money.
That mechanism is good for society, because it means that nobody is just hoarding a gold pile somewhere. Every billionaire is still spending almost every cent they have because to not spend it is to lose value. The last thirty years since the removal of the gold standard, the USD has seen rise to an insane turnover rate, where monetary velocity is incredibly high because nobody wants to have USD for long. You turn it into shares, you turn it into physical assets, you turn it into salaries, you do something with it that is not letting its value rot in a vault.
With bitcoin, varying design constraints compound the issue that unlike with fiat, and like with a scarce resource like gold, hoarding it makes perfectly good sense. Bitcoins monetary base has constant velocity for years, and its only decelerating. Every four years the payout rate of mining a block is halved. Its already been halved once, and will be halved again next year. It keeps getting halved until mining stops paying out at all in about a hundred years. But because you are halving the payout rates, there are already over 14 million btc out a limit of 21 million, so the monetary base is already over 2/3's as large as it is ever going to get.
That kind of base cannot handle anything catastrophic to its monetary system. A sudden influx of investment into bitcoin will always skyrocket the price. Whenever it has a breakout moment the price goes insane, and there is nothing to price control it because there is no way to expand or contract the monetary base to account. As a result, I and many other people are just sitting on bitcoin hoards waiting for Amazon to start accepting them so that the price goes to Mars again.
That kind of thinking, and that kind of economic interaction, is a huge backslide of a common currency from what we have today. The best money is one you don't hold onto for long, that you want to get rid of as quickly as possible, because it maximizes monetary velocity which means your economy is running at max speed. If you slow down velocity - if people stop spending money, and it stops changing hands, as is often the case during uncertain political environments - your economy slows down. If you put bitcoin in that position, there is a huge incentive to not spend bitcoin because bitcoin is a mathematically limited resource. The more its used the more valuable it gets and the more pervasive it is the more reason there is to never use it for its "intended" function.
Its the perfect gold replacement. You could strike a gold vein today and be a millionaire overnight. Unless you can impersonate a wallet (basically a sha1 hash, good luck brute forcing that) you aren't going to find random gold. And that isn't even digging up new gold so much as its finding gold in someones basement, maybe in a vault you broke into or maybe buried behind a wall long forgotten because the owner lost the wallet or password. Its even better because bitcoin is literally only the value of electricity and computer hardware that make up its network. Its a lot less distortionary to goods markets than treating gold, silver, platinum, etc as scarce commodities is, because it means people buy and hoard gold and other precious metals just for the sake of hoarding them, which drives the price up for anyone who has a practical use for that metal (gold is a great conductor, and gold capacitors are super efficient) making it prohibitive to use because everyone is valuing the metal not for its practical utility but for its rarity. The commodity market for palladium is no where near as ridiculous as golds, even though they are both rare earth metals, because gold has a history that makes people buy and own it for literally no good reason besides other people do. And you could do that exact same mutually respected scarcity == rarity == value proposition with bitcoin, without any ugly side effects like making my computer slower because putting gold in half my circuits would double or triple the cost of the product at least.
Of note most altcoins have no monetary base caps. Litecoin is basically a slightly improved forked bitcoin, so it still does. But currencies like peercoin and dogecoin have no caps, but do it in different ways - peercoin has a static 1% inflation rate, so its constantly minting more peercoin over time, but the same amount of the base is minted annually - which means if you are losing more than 1% of the monetary base each year due to lost wallets, your currency is still deflating. Dogecoin statically mints 5.25 billion coins a year, so eventually your monetary base becomes large enough that you are losing as many coins as you are minting.
What I'm getting at is that no cryptocurrency yet has actually solved this problem, and I've already posted my own ideas on it all over the place, but its really the breakout problem domain to getting a viable money replacement for average joes rather than a gold replacement.
Why is that necessarily bad? Inflation requires individuals and companies to grow to maintain value, that is potentially unsustainable. If the money base grows faster than resources utilization can be made more efficient, then you wind up either 1) destroying the environment or 2) screwing over the poor. In order to continue, the exponential growth inherent in inflation presumes a future that is rosier than the present. The people who get screwed over are not the wealthy, they have access to inflation-proofed investments and also have access to the lowest interest rates (most competitive with inflation, sometimes better than) to make leveraged reallocation of resources.
That kind of base cannot handle anything catastrophic. Because everyone is yoked together by leveraging, a catastrophic event, say, a tsunami in seattle, will domino over such that the individuals depending on the fractional reserve of the victim's holdings will then be forced into default, and those dependent on them, and so on and so forth via the multiplier effect.
To say that a non-inflationary system cannot handle an catastrophe is simply ignoring some pretty stark evidence. Between 1820-1900 the US was effectively on the gold standard and somehow, it managed to survive a massive civil war that tore apart the nation and not 40 years later it was basically one of the world powers.
Are you talking about currency inflation or economic inflation? If a companies assets are appreciating against currency due to inflation, then that is in and of itself the growth aspect of competing with inflation. Nothing about an inflating money means anything needs to grow, it just means if you are holding dollars you are losing value. So just don't hold dollars.
It is bad because hoarded money might as well not exist. It exits the monetary system and effectively deflates the monetary base and reduces monetary velocity because its exited transactions for however long the holder wishes to take it out of circulation. Of course, it is really hard to even imagine a situation where you could do this with traditional fiat - unless you stuff it in a suitcase and hide it in your wall, you don't put money in any bank and not have fractional reserve banking done with it.
> Because everyone is yoked together by leveraging, a catastrophic event, say, a tsunami in seattle, will domino over such that the individuals depending on the fractional reserve of the victim's holdings will then be forced into default, and those dependent on them, and so on and so forth via the multiplier effect.
You need to distinguish between that fractional reserve banking model and inflationary high velocity money. With cryptocurrencies you pretty much cannot do fractional reserve banking, because you cannot unspend transactions and the entire transaction history is perfectly transparent. I mean you could, but your users could then track their money through everyone you loan it to, and you cannot loan out more than you have. It would at the least be a very different beast from our current model of "trust us, your money is 'safe'". Unless you are on a deflationary or otherwise static currency like gold backed dollars your assets are just not in that currency.
And that works fine with a reactionary inflationary cryptocurrency. Nothing stops you from using bitcoin as a wealth trap like gold, where you just take its scarcity and the value of its network to provide value to the depreciating resource. Throw your inflationary coins into bitcoin, and then sit on bitcoin, there is your gold hoard. The point is that the inflationary currency then changes hands, and the whole point of a modern money is for it to be spent. If you discretize the store of value from the unit of exchange you avoid all the issues mingling them togther.
> it managed to survive a massive civil war that tore apart the nation and not 40 years later it was basically one of the world powers.
The Civil War increased Union national debt fifty times over, from about 60 million to 2.8 billion. It was an unprecedented amount of bond issuance and international loans that has still never been paid off. You would be surprised how well nations can weather spending a lot of money - they can get some of the best loans out there, after all, either from their citizens or from other nations. You don't borrow 15 trillion dollars, ask for another trillion, and get anyone lining up to take that offer anywhere unless you are the USA.
> non-inflationary system cannot handle an catastrophe
They can handle catastrophe, you can even postulate they handle it better since you don't need to liquidate assets to an inflationary money if you just hoard the cash. Its about everything that is not a catastrophe, the daily operations of the economy, and a deflationary currency turns a normal day into a catastrophe when people stop using their money because they want to hoard it in a safe. That depresses the whole economy and slows down everything when you are not aiming for maximal monetary velocity. Your currency is not the place to store wealth, its meant to be the transactional unit of goods and service exchange, and trying to make it do more than one job makes it do all its jobs poorly.
Could the US government collapse and the USD become worthless tomorrow? Certainly. Could everyone wake up tomorrow and decide "Bitcoins are worthless?" certainly. But both those things are unlikely to happen.
The more interesting question is whether Bitcoins are "overvalued" or "undervalued"... but that is a far more difficult question to answer.
People buy it because they can use it. Gold, oil, sitting chairs etc. have value because they are useful. Bitcoins have no inherit use after purchase.
> People have been buying Bitcoin for US Dollars reliably for years, hence bitcoins have "value".
No they have price, not value. I quoted Keynes before "markets can remain irrational longer than I can remain solvent".
> everyone wake up tomorrow...But both those things are unlikely to happen.
Both of those things are unlikely to happen tomorrow, but the chance of the US government collapsing tomorrow is relatively a much lower chance than Bitcoin's price diving tomorrow, and people selling it like crazy. I mean, this just happened - Bitcoins were worth $315 at the beginning of the week and are worth $290 at the moment.
This may or may not be a problem for any particular BTC application.
Let me leave you with this: If I told you 10 years ago, a website where everyone can edit the pages, and were nobody gets paid, will create an encyclopedia that has more content and is more accurate than professional encyclopedia publishers, would be believe me? I definitely wouldn't, that concept is completely absurd to me, but yet, it worked. Bitcoins seems like a way more viable idea to me.
Bitcoin is not competing with gold, it's basically competing with "I owe you" notes, managed by some central entity. You could argue that those "I owe you" notes have value, but maybe so does distributed transactions.
Bitcoin might just keep itself alive: because it has value, you can do transactions with it, and because you can do transactions with it, it has value.
As I said, it would take too long to fully explain why Bitcoins have less value than dollars and euros (of course last year, EUR/USD was 1.35, today it's 1.09, but the problems of Greece etc. are a little tangential...) Dollars had no inherent value in 1970 - you could trade dollars for gold, but it was still just a promissory note - I'd rather have an ounce of gold in my hand than a note promising me an ounce of gold.
What does the phrase "gold reserve" mean ( https://en.wikipedia.org/wiki/Gold_reserve )? The USA golds 8000 tons of gold in Fort Knox (and in NYC's Federal Reserve building). Why? Why does it do this? It must cost a lot to hold all that gold. The reason it does is because that gold implicitly (but not explicitly) backs the US dollar. If the dollar began crashing tomorrow, Obama could go on TV and say he was opening the vaults of Fort Knox and would exchange dollars for gold. Gold doesn't have any special properties, it's just convenient to use a currency, any commodity trade would do.
Even with economic dips, people don't think about the things underlying economic confidence in the face of potential collapse - but governments do think about these long term things, and major changes in policy always indicate changes in thinking ( http://www.nytimes.com/2013/01/17/business/global/german-cen... ).
Don't you think Greeks currently see value in a distributed currency system, that lies outside of anyone's influence, especially that of the government? Do you think they will trust their banks for the next decade(s)?
You say you rather have an ounce of gold in your hand, but what gives gold its price? As always supply and demand. The price of gold, the 'price' of dollars and euros, and the price of bitcoins is based on supply and demand. Bitcoin will only go to $0 if there is 0 demand. And in my opinion, the possibility of that happening is a big as the possibility that bitcoin will revolutionize the way we pay and receive 'money'.
Seriously? Those 8000 tons of gold, priced at today’s price of 1144.45 as of a few minutes ago, have a value of $296,002,697,361.7893--a little under $300 billion. Sorry, but $300 billion just isn’t a lot of money in the grand scheme of things.
To put that in perspective, the market capitalization of just one company (Apple) is just over $723 billion dollars.
The gross domestic product (GDP) of the United States is over $17 trillion. If we have some kind of financial crisis, $300 billion in gold (obviously the price would increase in the event of a real crisis) isn’t going to go very far in a $17 trillion dollar economy.
The point: the dollar isn’t backed in any way, shape or form by the gold the U.S. holds.
We should be more concerned about the dollar than bitcoin—$100 in 1900 was worth only $3.48(!) in 2012: http://observationsandnotes.blogspot.com/2011/04/100-year-de...
History shows us that all fiat currencies (so far) eventually go to zero.
Final thought: Bitcoin may or may not survive long term, but not because the concept of a cryptocurrency is unsound or that blockchains don’t work. Bitcoin has proven its value is based on its usefulness and flexibility: the ability to transfer value of any amount to anyone else anywhere else in minutes without needing permission and at little or no cost.
Bitcoin is the prototype, not the final product.
Besides bringing blockchain technology to the world, bitcoin is an invention that can’t be uninvented now that it’s here.
The same way a Mac user from 1984 might not recognize a Retina iMac today, we will have some type of cryptocurrency that will be mainstream and accepted at some point in the not too distant future. It may not be bitcoin (though it’ll still be around) but some successor that addresses some of its weaknesses and builds on its strengths.
Final final thought: bitcoin is already a fairly big deal in developing countries where regular people are unbanked. It’s also a big deal in countries with unstable currencies, some of which have already gone to zero once or twice: http://bitcoinfilm.org/documentaries/.
Some time ago they announced on the radio that a rock band was celebrating their 20th anniversary. I laughed about the huge mistake they made because it was probably 10th anniversary. But after a few seconds, I said "damn!".
It's actually very scary how many people have already forgotten the lessons of the causes of the Great Recession.
> the $1323 is maybe $13 practical utility and $1310 collective faith in its use as a currency
But non-speculators pay $1323 to fill teeth and conduct electricity. For them, the $1323 is 100% for practical utility. Of course, as the value of gold soars, they look for alternative products to fill these needs (ceramic, copper). Over the long term, I think gold derives 0% of its price from anything other than its value, over the short term, different factors come into play (like silver in 1980).
Well, It tends not to be used for fillings any more, and for coating conductors, only a tiny amount is used. Even then, half the time the gold plating is social value ("Audio connector with GOLD PLATED TIPS!", rather than practical value.
Mostly, it just sits in stockpiles, though; it's practical value is less than the value of stockpiling it.
> I think gold derives 0% of its price from anything other than its value
This is a tautology. However, a large portion of that value comes from the perception of value. It's valuable because people think it's valuable.
Compare with oil, which stores pretty well, but where the vast majority of oil that is extracted is used rather than stored.
I mostly agree with you, overall, but the "value" part of your argument is simply wrong.
And don't ignore the large positive impact Bitcoin had on people trying to purchase essential medicines. Can you explain why I can't easily buy medicines free of regulation without Bitcoin?