Why bitcoin will fail as money

[rukawa]

The post below explains the situation well. Basically bitcoin will fail if it succeeds. Lets say Bitcoin succeeds. Everybody starts using it. Problem is that bitcoins tend toward a fixed total number which cannot be increased by design. So if it succeeds then people will start hoarding it because as the economy grows and demand for bitcoin as money increases so too will the value of bitcoins. As a result people will hoard them and as they hoard them bitcoins will increase in value still further since there will be less of them. Eventually people will stop using them as money because they won't be able to find them in sufficient quantities for everyday use. At this point the hoarders will have something that has no intrinsic value (unlike gold or silver hoards) and in addition no longer has value as a form of money since no one is will to accept it (try paying with Gold at Amazon). Eventually it will be realized that its worthless. So the correct value for a bitcoin is zero.

 

https://smilingdavesblog.wordpress.com/2013/10/18/why-greshams-law-means-the-death-of-bitcoin/

[rkbabang]

So everyone will value it so much that no one will want to part with it, making it worthless and nobody will want it?    I think you are skipping a few steps.  Value isn't like a light switch, today we turn it on and everyone values it and hoards it, tomorrow we turn it off and it is valueless and nobody wants it.    If this incredibly valuable thing starts losing value because it is being hoarded by everyone, people  on the margins will stop hoarding it and liquidity will increase.  An equilibrium will be found (within a trading range anyway).

 

[rkbabang]

There is also the possibility that bitcoin will be only used as a long term store of value where other less deflationary currencies will be used as money.    There are already a ton of different cryptocurrencies, Ether for instance has no cap on coin issuance, a certain amount will be mined every year.  This is deflationary long term as well, because the same amount will be mined every year so it will be a smaller and smaller percent increase every year and eventually maybe not even enough to replace lost coins. But it is not nearly as deflationary as bitcoin.  It wouldn't be hard to design a coin that would have an X% inflation rate built in and unchangeable, or  X% for the first Y years then Z% thereafter, or whatever you wanted. I think it is still early in the cryptocurrency game and the one that eventually catches on might not even exist yet.  Bitcoin, Ether, and all the rest might just end up footnotes in the history of decentralised money.

 

[jb85]

The post below explains the situation well. Basically bitcoin will fail if it succeeds. Lets say Bitcoin succeeds. Everybody starts using it. Problem is that bitcoins tend toward a fixed total number which cannot be increased by design. So if it succeeds then people will start hoarding it because as the economy grows and demand for bitcoin as money increases so too will the value of bitcoins. As a result people will hoard them and as they hoard them bitcoins will increase in value still further since there will be less of them. Eventually people will stop using them as money because they won't be able to find them in sufficient quantities for everyday use. At this point the hoarders will have something that has no intrinsic value (unlike gold or silver hoards) and in addition no longer has value as a form of money since no one is will to accept it (try paying with Gold at Amazon). Eventually it will be realized that its worthless. So the correct value for a bitcoin is zero.

 

https://smilingdavesblog.wordpress.com/2013/10/18/why-greshams-law-means-the-death-of-bitcoin/

 

by this logic, i would never buy a computer because I know that in 18 months a better and cheaper PC will be available.

 

Theres an equilibrium point where the value to me of goods i purchase NOW with btc exceeds the value of btc's future price gains. 

 

Take an extreme example to show the flaw in your logic:  Your saying someone wouldn't spend .000001 btc on a house now, simply because he expects the price of bitcoin to rise in the future? 

[jb85]

There is also the possibility that bitcoin will be only used as a long term store of value where other less deflationary currencies will be used as money.    There are already a ton of different cryptocurrencies, Ether for instance has no cap on coin issuance, a certain amount will be mined every year.  This is deflationary long term as well, because the same amount will be mined every year so it will be a smaller and smaller percent increase every year and eventually maybe not even enough to replace lost coins. But it is not nearly as deflationary as bitcoin.  It wouldn't be hard to design a coin that would have an X% inflation rate built in and unchangeable, or  X% for the first Y years then Z% thereafter, or whatever you wanted. I think it is still early in the cryptocurrency game and the one that eventually catches on might not even exist yet.  Bitcoin, Ether, and all the rest might just end up footnotes in the history of decentralised money.

 

relevant article  --> http://www.konradsgraf.com/blog1/2013/9/14/bitcoin-as-medium-of-exchange-now-and-unit-of-account-later.html

[wachtwoord]

The first post by rkbabang is /thread.

 

However, Bitcoin's best use case isn't even money. At least not for low value transfer of wealth.

[Aberhound]

To extend your argument, which is a good example of Gresham's law, as Bitcoin rises the lira, peso, pound, euro and finally the dollar will sink in value as the bad is spent and the good is hoarded.

 

To me this is success. Finally a currency that lives up to its definition. It is not a resistor, preventing us from buying what we need, it is an enabler, living up to its name "currency" creating a flow of opportunity. It allows us to be thrifty and become wealthy instead of degenerating into peasants like the poor Mexicans who gave up their silver pesos for paper only to have numerous zeros knocked off. If you have debt but don't hold Bitcoin you will likely receive worthless bank shares for your deposits at the banks which are made irrelevant by the blockchain. Only a few will adapt. Bank with them. Those rendered unable to pay their debts are unlikely to receive gentle treatment. I hope the science fiction novels I read about organ harvesting were inaccurate. Pay off your debt while you can and if you can't hedge with Bitcoin. It may save you a kidney. So if you have debt hoard Bitcoin and spend dollars so you can later pay off the debt as it devalues. But get out as soon as the blockchain shekel or dollar or whatever is introduced by any central bank. Central banks do not allow competition and will only allow Bitcoin to thrive temporarily. Bitcoin will be allowed to rise in value so that the "blockchain" brand is favourably locked in the minds of all so they accept another fiat currency after the debt crash but this time with a fiat currency with full tracking capability with the blockchain allowing all competition to be demolished.

[SharperDingaan]

Bitcoin is literally just one of thousands of virtual currencies; we know it - because it was one of the first to be popularized. The same way we generally recognize the Motorola 'brick' as being the first 'cell' 'phone.

 

Central banks already have their own digital currencies, & most are far along their development cycles. For many there is a strong argument to using the digital currency to settle all electronic transactions, & using coinage/cash 'bills' only for everyday purchases. We aren't going to be settling in Bitcoin.

 

Its more reasonable to think of Bitcoin as collector pieces (not much different to the value of a historic sports car), particularly as there is a finite number of them. However unlike most collector pieces (cars, art, jewels, etc.) you don't have to pay to maintain them, & there is minimal frictional cost to purchase/sale. If you like the idea, but not the concept of 'Bitcoin as the actual store of value' - there are many alternatives.

 

BitGold is one choice ... but it could just as easily be BitPlatininum, BitSilver, BitIridium, etc...

 

SD

[wachtwoord]

Aberhound and SharperDingaan, you both could not be more wrong. Bitcoin is miles ahead of any other digital currency in the only metrics that matter: decentralization and security. The only other currency which offers any sort of competitive advantage is Monero (anonimity) but its probably way to far behind to catch up.

 

If you believe a government issued cryptocurrency will be anything but a good joke its clear you have no idea what you're talking about. Either educate yourself and profit, or don't.

 

"If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry." - Satoshi Nakamoto, July 29, 2010

[SharperDingaan]

Great quote.

 

Agreed Bitcoin is much closer to the original concept, but I also live in the real world - & the real world is full of competing product.

Sure a central bank crypto/digital currency forces everyone to rely more on the central bank & less on distributed security, but its no different to what we already do every day. Every time we buy a US Treasury, UK Gilt, German Bundt, or a Canada - we are relying on the central bank to make good on the bond at maturity. 

 

Most of the central bank interest is also in the block chain, & not purist cryptocurrency.

The central bank crypto/digital currencies are basically 'tokens' guaranteed by the central bank, & every hash validation is essentially a central bank confirmation that the payer has the tokens claimed. In this system the distributed ledger is a centralized ledger held & updated by the central bank guaranteeing the token; much faster, & way more transparent. There is an domestic token-cash FX rate, & multiple domestic-foreign central bank token FX rates. It is essentially Bitcoin 'light'.

 

The first mass produced car (in the US) was one colour & one model - & it changed the world; today we can have whatever we want. Current central bank crypto/digital currencies are at pretty much the same stage as that first Model T.

 

SD

 

 

 

[wachtwoord]

Without decentralization the blockchain is just an extremely expensive and inefficient database. Definitely not an improvement. It's fiat currency (completely worthless since Nixon) which is under attack here.

[PatientCheetah]

I would love to have more worthless fiat currency. In order for society to prosper, controlled inflation/debasement is a desirable feature - it gradually reduces the debt burden coming from investment already made and frees up cashflow to invest for future growth.

[wachtwoord]

I would love to have more worthless fiat currency. In order for society to prosper, controlled inflation/debasement is a desirable feature - it gradually reduces the debt burden coming from investment already made and frees up cashflow to invest for future growth.

 

I see you paid attention in economics class and can recite the Keynsian mantra. Challenge what they try to indoctrinate you with! Look at the Keynsian teachings and you'll see it's all bullshit. There is no basis. Even Keynes recognized that.

 

Inflation is not needed for a well functioning economy. In fact, it's detrimental.

[scorpioncapital]

Where does all this debt go to if it is inflated away? This sounds like magic! No consequences?

 

[rkbabang]

Where does all this debt go to if it is inflated away? This sounds like magic! No consequences?

 

"That's the way you do it. Get your money for nothin' get your chicks for free" --John Maynard Keynes

 

The beauty of it is that the consequences can be kicked down the road for a while.  Remember to always think short term, because in the end we are all dead.  Who gives a rat's ass about future generations?

 

[Aberhound]

Aberhound and SharperDingaan, you both could not be more wrong. Bitcoin is miles ahead of any other digital currency in the only metrics that matter: decentralization and security. The only other currency which offers any sort of competitive advantage is Monero (anonimity) but its probably way to far behind to catch up.

 

If you believe a government issued cryptocurrency will be anything but a good joke its clear you have no idea what you're talking about. Either educate yourself and profit, or don't.

 

"If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry." - Satoshi Nakamoto, July 29, 2010

 

I wanted to publicly thank Wachtwoord for helping to clarify my thinking on Bitcoin. I decided to put skin in the game to learn more. I concluded in August that Bitcoin was just moving from the early adopter to early majority phase so the chart would start moving exponential. It did. Fortunately I invested 75% of the allocation at the start and the rest in the fall.

 

What is interesting is how doing so changes your thinking. I finally start to fully understand Buffet's comments about how buying almost anything made no sense as his foregone return was enormous. It also motivated me to sell any surplus stuff as it is all worth a fortune if you convert it to Bitcoin and wait! In 1932 to top Dow companies had not dropped 90% in intrinsic value. What occurred was bank failures made it possible to buy bank IOUs at 25 cents on the dollar and use that to pay off debt. The consequence was that people sold everything to eliminate as much debt as possible. This process will eventually occur with Bitcoin. The biggest mistake people make is that made in the first post of this chain. Bitcoin will get too expensive they say. It will act like any other commodity, stock or bond they say ie rise and fall. The reality is that there will always be transactional users who quickly move in and out who do not care about price. To get Bitcoin it is like a narrow staircase. as more people join the price has to bid more to get them. This process will not end soon. This will likely go on for another 5 years moving up an exponential curve. Watchwoord's point about decentralization being the key to the Bitcoin security is important as that creates moat. As people adopt Bitcoin it will wipe out competition for the same reasons as Microsoft Word etc..

 

It turns out there are massive opportunities in Bitcoin. I have hired a computer programmer and I am creating Bitcoin trust products. This spring Bitcoin smart contracts will start becoming available. The economy is going to expand rapidly as the smart contracts allow the billions of unbanked people to start to participate in the economy. For instance in Mexico 2/3rds do not have bank accounts and it turns out many young men who want to play video games yet cannot get credit cards can do so if they open a Bitcoin account. How many of these millions will become Buffetts when they hoard their Bitcoin instead of wasting them as the price escalates following the S curve chart?

 

I do not think the globalists will stop this because it will achieve their purpose of weakening the nation states. Poorly run nation states will weaken more quickly than in the past and those who get into Bitcoin will save their wealth. Why hold anything else if Bitcoin prices will rise faster? The key is to learn how to keep them safely. Inventive people will come up with countless ways to move Bitcoin around internationally and any government that tries to stop this will only hasten their collapse. Consequently people who love Liberty should also support Bitcoin as it will weaken tyrannical governments. This "private wave" trend is forecast by Martin Armstrong to continue until 2032. Enjoy the ride.

[SharperDingaan]

Just be mindful that there are two types of blockchain network; non-permissioned (Bitcoin), and permissioned (most bank syndicates). The non-permissioned networks are too slow (10 minute mining) for high volume purposes, the miners are consolidating into cartels (independence issue), & it is not really scalable. Permissioned networks have none of these limitations, but are wholly private - and operate under a very different understanding of what 'trust' means (counterparties, software code, etc.); the major downside is a much less robust fault tolerance (excluding mixer and check node workarounds). 

 

Most Bitcoin wallet holders are not spending their coin, they are hoarding it. The argument is that there are a fixed total number of bitcoin, & over time less & less new coin is created; convince a small number of people that bitcoin is a safe store of value (ie: raise demand) and the price of that very limited quantity of it must increase - convince a lot of people, & you get another tulip mania. The kicker is that the existing design total of bitcoin could be changed at any time, simply by mutual consent; collapsing the bubble.

 

You may also want to look up the 3rd party oracle providers, before you go too far down the programing route.

Much of the basics needed to operate and run a blockchain application are already available via cloud providers. It's very basic, but enough for 'proof of concept' - and everyone has to start somewhere.

 

SD 

 

   

[flesh]

Bitcoin/blockchain noob here. Doesn't bitcoin encourage black markets and reduce govt tax revenue? If yes, how big must it get before the govt clamps down and rightly so?

 

In the usa, couldn't the govt shut down all the businesses facilitating the trade of bitcoin. Also, couldn't laws be passed that made it a severe criminal offense? Does the govt have/could it use it's billions/agencies too find all sorts of ways to stop it?

 

 

[Guest cherzeca]

Bitcoin/blockchain noob here. Doesn't bitcoin encourage black markets and reduce govt tax revenue? If yes, how big must it get before the govt clamps down and rightly so?

 

In the usa, couldn't the govt shut down all the businesses facilitating the trade of bitcoin. Also, couldn't laws be passed that made it a severe criminal offense? Does the govt have/could it use it's billions/agencies too find all sorts of ways to stop it?

 

agree with this, and was somewhat surprised that when govt prosecuted silk road it didnt go after cryptocurrencies generally. 

[Liberty]

[flesh]

 

I see, so presumably china would have to put the hammer down, which I have no way to quantify.

 

For those of us in the USA or any other country with the desire, doesn't what I said still stand? If it promotes black markets and reduces taxes the govt could go after those that facilitate the transactions/any business directly or indirectly related to it and make it a criminal offense?

[brendanb22]

Just be mindful that there are two types of blockchain network; non-permissioned (Bitcoin), and permissioned (most bank syndicates). The non-permissioned networks are too slow (10 minute mining) for high volume purposes, the miners are consolidating into cartels (independence issue), & it is not really scalable. Permissioned networks have none of these limitations, but are wholly private - and operate under a very different understanding of what 'trust' means (counterparties, software code, etc.); the major downside is a much less robust fault tolerance (excluding mixer and check node workarounds). 

 

Most Bitcoin wallet holders are not spending their coin, they are hoarding it. The argument is that there are a fixed total number of bitcoin, & over time less & less new coin is created; convince a small number of people that bitcoin is a safe store of value (ie: raise demand) and the price of that very limited quantity of it must increase - convince a lot of people, & you get another tulip mania. The kicker is that the existing design total of bitcoin could be changed at any time, simply by mutual consent; collapsing the bubble.

 

You may also want to look up the 3rd party oracle providers, before you go too far down the programing route.

Much of the basics needed to operate and run a blockchain application are already available via cloud providers. It's very basic, but enough for 'proof of concept' - and everyone has to start somewhere.

 

SD 

 

 

 

Great points by many here. A few comments. Over 2016, BTC unfortunately did not live up to the promise of forming a scalable payment network, with lower fees and faster transfer / confirmation times. Going into 2017, I doubt this will ever occur. However, with that being said BTC showed its immense value as an asset class that people can and have fleed to in times of trouble, almost like a digital gold. Just like gold, my bet is that people will flee to BTC in times of trouble, and leave (partially) in times that indicate otherwise. Ultimately another digital currency will emerge that is better suited for nimble, quick transactions and forms the decentralized payment network that so many are predicting (my bet is that it's through the Ethereum blockchain).

 

I'm skeptical of the argument that just because BTC is viewed as a store of value and effectively limited in supply, people will hoard it, drive a bubble and ultimately it's demise. That hasn't happened with gold and unlike tulips, BTC will have much greater and frictionless distribution.

 

BTC may not succeed as money, per se, but I wouldn't bet against it being here to stay and am confident in its appreciation in value.

[wachtwoord]

 

Great points by many here.

 

No I think this is the most terrible most far off topic on this forum. This topic lies exactly in the blind spot of most here.

 

At least  Aberhound got it and managed to identify what was most important here. Congrats man.

[Hielko]

I think the main problem of bitcoin is that it's inherently inefficient. It's only secure when the computing power of the network is so big that at all times it's too expensive to launch an attack compared to what the potential reward is. Because of that I don't think the bitcoin network will ever be able to facilitate cheap transactions. That's the real problem IMO.

[wachtwoord]

I think the main problem of bitcoin is that it's inherently inefficient. It's only secure when the computing power of the network is so big that at all times it's too expensive to launch an attack compared to what the potential reward is. Because of that I don't think the bitcoin network will ever be able to facilitate cheap transactions. That's the real problem IMO.

 

Completely true. Except that that's a problem. Bitcoin is (will be) for high value transactions only that require this sort of security. For lower value transactions other methods will be used (currect systems or alternative cryptos with a lower level of security).

 

This is why the whole block size debate is so stupid. Don't increase the blocksize as it will undermine the security of the network. An essential selling point beyond which it's not worth much. Luckily the people with actual financial skill int he game and most technical people in higher places in the informal organization seem to understand this (based on their actions, they are not screaming it off the rooftops).