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Do you think Bitcoin is a safe store of value?


Do you think Bitcoin is a safe store of value?  

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  1. 1. Do you think Bitcoin is a safe store of value?

    • Yes
    • No


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When I saw an article about the returns on these things the other day was surprised people were doing this.  Sounds like a present day tulip mania to me.

 

I don't know that I'd go that far considering I haven't studied them in depth, but I agree with CONeal. I have no interest.

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I've looked into Bitcoins.

 

At one point, I was thinking about "mining" them...but that is easier said than done at this point.

 

One of the VERY BIG problems that I saw, was the very limited number of merchants that would accept them.

 

Well over 90% of the merchants I saw, I would have little to no interest in buying things from.

 

If you are looking for an alternate store of value, I would buy USA 90% silver "junk" silver coins.

 

When you have your fill of that, I would look to be buying 1/10, 1/4, 1/2 oz. gold coins with little to no numismatic value.

 

I would feel a lot safer in physical gold & silver than bitcoin!  You can easily put a fortune into a small safety deposit box with gold, or so I'm told!

 

I don't personally have ANY gold or silver coins...

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I look at Bitcoin through a similar lense that I viewed e-gold around 10 years ago (quick primer: e-gold was a DGC - digital gold currency, backed by physical gold). I liked e-gold then and I like bitcoin now but I am loathe to part with actual "cash" to accumulate any, so what I did was start accepting e-gold as payment through my business (online web services, domain names, DNS).

 

The problem with e-gold then was that it was a governance nightmare, while other DGCs had far better governance, e-gold was the easiest to use and thus had a lock on the market of actual payments, while other DGCs (pecunix, goldmoney) were being used as stores of value.

 

I saw the governance issue as an eventual show stopper, so we made it a habit to out-exchange our e-gold into physical gold as fast as it came in. We amassed several pounds in this manner when gold was $400 - $700/oz and still hold it today (our actual out-of-pocket cost base on it was basically zero, since we were providing web services for payment in e-gold).

 

In a similar manner, we are gearing up to accept Bitcoin payments on our website within the next month. We learned some lessons from the e-gold days (about the types of customers you attract from doing this:  ranging from early adapters to nutcases and finally, scammers - we have better tools for identifying the latter now)

 

In my mind, a digital currency is viable so long as there exists fairly liquid out-exchange markets for said currencies. While we saw trouble on the horizon for e-gold well in advance, I knew it was over when my out-exchanger told us "this is the last time we're doing this", so we moved the rest to goldmoney.com and stopped accepting e-gold payments.

 

The price volatility in Bitcoin is unbelievable and could be a bubble, but the more important thing I am watching is the progression of exchange mechanisms into and out of Bitcoin, and other similar currencies like Litecoin, etc. Those seem to be progressing rapidly and I think the verdict will be that they're here to stay, and they're somewhat of a game-changer since they cannot be "shut down" the way e-gold was. The governance model is completely different here, it'll be the merchants and the exchange providers who have to provide it since there is no central authority to structure it.

 

The thing I can't grasp is how both e-gold and bitcoin in my mind run Gershwin's Law in reverse. If I believed gold backed digital currencies or bitcoin were intrinsically better than fiat (which I do, so to speak), then I wouldn't be spending any of it on staples, I'd be using my "trash cash" as much as possible and accumulating the DC (so I guess I prove Gershwin's Law while anybody buying in said currencies when they have the choice to use fiat is violating it).

 

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Mark,

 

Since you seem to be comfortable with the currency I have a couple of questions more for curosity sake.

 

Are you worried about being able to move bitcoins to hard cash?  Was looking at cash payment conversions and it seems like its difficult to actually get $1 bills in your pocket.  paypal will give you a hassle by freezing your account from my understanding and also there is a problem with chargebacks. 

 

What are your thoughts if I said it looks like a Ponzi scheme?  Looking at comments in articles I seems like its real easy to get the bitcoins but once someone starts asking how to cash out people get real defensive. 

 

I think there are 13 million bitcoins outstanding right now.  What is keeping whoever is responsible, from issuing more bitcoins to himself cashing out and crashing the market?

 

At the end of the day people are assigning value to a packet of data.  I am having a hard time seeing how this is a viable alternative.  Wasn't there somekind of e-currency during the internet bubble day that crashed and burned?

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I wouldn't touch these at $90.  I saw the value of bitcoin drop 80% in a few days last year. 

 

How does anyone feel about the very limited supply of bitcoins?

 

See chart below:

 

http://en.wikipedia.org/wiki/File:Total_bitcoins_over_time.png

 

Seems that chart is a perfect reflection of the US money supply graph in the line y=x .  It follows that bitcoin value in US dollars must increase.  Logically that is.  As far as faith in currency, that s another matter.

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Are you worried about being able to move bitcoins to hard cash?  Was looking at cash payment conversions and it seems like its difficult to actually get $1 bills in your pocket.  paypal will give you a hassle by freezing your account from my understanding and also there is a problem with chargebacks. 

 

As I mentioned earlier, a digital currency is viable so long as there exist fairly liquid out-exchange providers. There are a few bitcoin exchanges in existence already and a few are even dabbling in debit cards. I heard something about a bank in the US creating a bitcoin credit card and apparently a bitcoin ATM launched - in Cyprus of all places (this isn't as nuts as it sounds, I remember e-gold doing very well in Argentina during the currency collapse there)

 

Paypal has never been a viable exchange mechanism (paypal to e-gold, etc was pure suicide) as that's not the business they're in and their TOS specifically exclude using paypal to convert currencies, etc.

 

What are your thoughts if I said it looks like a Ponzi scheme?  Looking at comments in articles I seems like its real easy to get the bitcoins but once someone starts asking how to cash out people get real defensive. 

 

A ponzi pays out early investors with proceeds from the later investors. This is something different, there are no "early investors" who are getting paid out by later ones. There are early adapters who started mining when the complexity level was a lot lower, and thus amassed bitcoins with a lot less CPU (and thus at a lower cost), but their ROI on that isn't based on later investors giving them money, it's based on the value of bitcoin as a currency itself gaining steam.

 

Parties tend to be very wary of all sizable transactions as they are typically unable to be repudiated.

 

I think there are 13 million bitcoins outstanding right now.  What is keeping whoever is responsible, from issuing more bitcoins to himself cashing out and crashing the market?

 

You need to understand the math behind bitcoin, you can't simply "issue yourself bitcoins", you need to come up with a hash value that corresponds to a "valid hash" and to do that takes immense computational power (this is called "bitcoin mining") - further, there is an upper limit of 21 million coins, at which point the keyspace is exhausted and no further bitcoins will be produced, this limit will be reached in the year 2140 or so.

 

Your trepidation about operators "simply issuing themselves more bitcoins" can't happen, contrast with our current monetary system, in which that's exactly what happens. Therein lies one of the attractions behind bitcoin, it cannot be manipulated the way our fiat currencies routinely are.

 

At the end of the day people are assigning value to a packet of data.  I am having a hard time seeing how this is a viable alternative.  Wasn't there somekind of e-currency during the internet bubble day that crashed and burned?

 

There are two things here: people assigning value to a packet of data, which as I mentioned, is pretty well what everybody does every day, all the time with the current monetary system. There are no fiat currencies in the world which are backed by anything tangible, thus everybody is assigning value to packets of data all the time.

 

Number two: yes, there certainly were a bunch of e-currencies that collapsed for various reasons. E-gold is still limping along but a shadow of its former self, Liberty dollar (silver backed DGC) got shutdown by the feds I think, there used to be one called e-bullion which seems to be toast. There were also a number of "real world" fiat currencies which have gone up in smoke over the last couple decades as well, probably with a few more to go :)

 

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Since I discovered Bitcoin 2 years ago I have really liked the concept of a cryptocurrency. I believe in time one or more cryptocurrencies will replace fiat currencies. And no, cryptocurrencies aren't even remotely comparable to e-gold, if you believe that you haven't investigated it sufficiently.

 

I would recommend anyone to read http://evoorhees.blogspot.nl/2012/04/bitcoin-libertarian-introduction.html

 

And I'm not buying any at $90 as well, mainly because I find it impossible to value them (therefore they likely don't belong on a value investors forum as it's speculative at any price).

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Since I discovered Bitcoin 2 years ago I have really liked the concept of a cryptocurrency. I believe in time one or more cryptocurrencies will replace fiat currencies. And no, cryptocurrencies aren't even remotely comparable to e-gold, if you believe that you haven't investigated it sufficiently.

 

I agree that they are very different, the failure of e-gold from an FBI shutdown of a few key accounts compared to the impossibility same for bitcoin makes that clear.

 

But there are similarities in adaptation and implementation insofar as digital currencies go, especially as compared to fiat currencies.

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I would not consider it a safe store of value primarily because I think its hard to determine what the future holds for bitcoin. It is gaining traction but I can't really say what the state of it will be in 5-10 years.

 

I have considered buying one of the new ASIC based mining rigs since it seems likely in the near term you could arb the costs of the miner fairly quickly.

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The poll asks if bitcoin is a safe store of value. To which I answered "No". Your first post asked "Would you ever consider holding/trading Bitcoins?"  I have considered it, but haven't done so yet.  I've been watching bitcoin since the exchange value was well below $1, but have done nothing but watch.  If bitcoin catches on it will be worth many many multiples of where is now, because there will never be more than 21Million bitcoins in existence.  People will be trading with small fractions of a bitcoin for most items.  What has stopped me is that I am not convinced of the safety of the whole thing.  There are flaws in the way bitcoin works that I'm not comfortable with.  When Uncle Sam wants it to stop they will stop it.  One such flaw off the top of my head is that everyone needs to keep a copy of the blockchain on their computers for bitcoin to remain decentralized.  This blockchain contains every bitcoin transaction.  I won't even get into the fact that this file is already huge and will grow significantly over time.  But hackers have already done things like structure transactions in such a way as to encode pictures in the blockchain.  What if someone did this to encode childporn into the blockchain?  This would effectively shutdown bitcoin as a legitimate currency, as no one would want to be caught with this file on their computers.  I've read about other flaws, but this is the easiest one to pull off for anyone who wants to shutdown bitcoin and drive it permanently underground.  I hope something like bitcoin will eventually become a replacement for government money, but I don't think bitcoin is quite robust enough to manage it.

 

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  There are flaws in the way bitcoin works that I'm not comfortable with.  When Uncle Sam wants it to stop they will stop it.  One such flaw off the top of my head is that everyone needs to keep a copy of the blockchain on their computers for bitcoin to remain decentralized.  This blockchain contains every bitcoin transaction.  I won't even get into the fact that this file is already huge and will grow significantly over time.  But hackers have already done things like structure transactions in such a way as to encode pictures in the blockchain.  What if someone did this to encode childporn into the blockchain?  This would effectively shutdown bitcoin as a legitimate currency, as no one would want to be caught with this file on their computers. 

 

Only full nodes need to store the full blockchain (I run a full node) and the blockchain is only ~8GB. It won't really be a problem. Also, the illegal content in the blockchain might be a problem although I do not believe a judge is going to convict anyone of child pornography possession if it is included in the blockchain and millions of people have it on their computers for a completely different purpose. Please read https://en.bitcoin.it/wiki/Weaknesses for a summary of all weaknesses, discussion of things that are unlikely to be weaknesses and pure myths.

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Hack attacks hit Bitcoin exchange rates

 

http://www.bbc.co.uk/news/technology-22026961

 

MTGox is the biggest exchange atm and still has 61% of the exchange market (this has been much higher): http://bitcoincharts.com/charts/volumepie/

This will change in time (and is changing). The same is occurring with mining pools: http://blockchain.info/pools?timespan=4days

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I stumbled upon a Bitcoin forum tonight, wow, it's highly active. I didn't realize people are so enamored with it, it's an entire subculture.

 

https://bitcointalk.org/

 

This piece by someone who says they put all their money into Bitcoin last spring gave me some insight into the mindset of Bitcoin supporters. Wow, you could buy 10 thousand Bitcoin for $50 two years ago!

 

http://falkvinge.net/2011/05/29/why-im-putting-all-my-savings-into-bitcoin/

 

"Normal currencies vary by a few percent over the course of a year. Not bitcoin. On March 30 of last year, somebody asked for $50 for 10,000 BTC (bitcoin) in the trading and wasn’t taken up on the offer. He got an offer of $25. Still, somebody claimed in the thread that the going rate was about USD 6.50 per thousand bitcoin. That’s per thousand. So while there are conflicting numbers between $2.50 and $6.50 as the rate for 1,000 BTC, let’s be conservative and go with the higher $6.50 per thousand BTC and compare it to today. As of midnight UTC on May 29, 2011, the rate is USD 8.30 per bit coin."

 

Wow, you could buy 1

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