Do you think Bitcoin is a safe store of value?

[constructive]

I disagree with both valuation methods.  You can't value something by how much it costs, otherwise a bridge to nowhere would have value and a diamond you found in the sand at the beach wouldn't.  We know the supply of bitcoin has an absolute limit, so its value will vary entirely with its demand.  If a billion people use it as a medium of trade and depend on it for exchange, then its value will be enormous.  If not, then it doesn't matter how much it costs per transaction, its value will be 0.

 

If you were making a transaction, how would you decide whether to use Bitcoin, Paypal, Western Union, credit card or bank transfer? Wouldn't it be rational to consider the cost, along with the other advantages and disadvantages of each system?

 

Right now most people who hold bitcoin are speculators and hobbyists. Over the long term, bitcoin will only grow if the number of practical users increases. Those people care about costs. The usefulness for real users will constrain the growth and price of bitcoin.

 

Please note that since I first linked to Matt Levine's post on valuing bitcoin, BTC fell 80% exactly as predicted.

[SharperDingaan]

Bitcoin is just 1 of roughly 6000 digital currencies as at Sep 2014. Nothing special to it other than notoriety.

 

Bitcoin is designed with a finite number of coin in mind, but it is not really practical. New coin is created by miners; but their incentive to remain honest depends on getting paid more in new coin - than they could make from re-proofing their recently spent coin, & respending it. Limiting the supply of new coin, destroys the distributed security.

 

Almost all of Bitcoin use is speculative, not transactional; hence it trades on headlines, not functionality. Nothing wrong with that, so long as you realise that you are really trading liquidity. Selling when everyone wants in, & buying when they want out

 

The next Apple will not be until a Google puts it on its applications suite.

 

SD

[wachtwoord]

Bitcoin is just 1 of roughly 6000 digital currencies as at Sep 2014. Nothing special to it other than notoriety.

 

Bitcoin is designed with a finite number of coin in mind, but it is not really practical. New coin is created by miners; but their incentive to remain honest depends on getting paid more in new coin - than they could make from re-proofing their recently spent coin, & respending it. Limiting the supply of new coin, destroys the distributed security.

 

Almost all of Bitcoin use is speculative, not transactional; hence it trades on headlines, not functionality. Nothing wrong with that, so long as you realise that you are really trading liquidity. Selling when everyone wants in, & buying when they want out

 

The next Apple will not be until a Google puts it on its applications suite.

 

SD

 

99.9% of those are the tools of swindlers. Only a handful are not. Bitcoin is currently by far the best and a couple have something else going for them (Monero  for example has anonimity at the core through ring signatures).

[yadayada]

http://bitcalc.beepboopbitcoin.com/

[Libs]

Cato analysis of Bitcoin, very interesting.

 

Summary: The economics of mining leads to concentration, leading to doom.

 

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2015/5/cj-v35n2-12.pdf

 

 

 

[bizaro86]

Cato analysis of Bitcoin, very interesting.

 

Summary: The economics of mining leads to concentration, leading to doom.

 

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2015/5/cj-v35n2-12.pdf

 

Interesting. It doesn't address the incentives that the current bitcoin owners have to maintain the system. Someone like the Winklevoss twins or the new bitcoin funds may find themselve essentially obligated to maintain enough mining equipment to keep a 10-20% mining share. Two or three financial players doing that for stability reasons would likely make it impossible for a black hat to control the chain. If you were earning fees off a bitcoin etf, you have a secondary incentive outside of the coins mined to keep the system stable.

[jb85]

Cato analysis of Bitcoin, very interesting.

 

Summary: The economics of mining leads to concentration, leading to doom.

 

http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2015/5/cj-v35n2-12.pdf

 

so 1) they argue the incentive is to join a mining pool to reduce variance.  Thats true to a degree, but the variance reduction you gain from 1 super pool vs 5-10 (or 10-100 depending on size) isn't that much.    Reducing variance down to even  an hour level isn't needed.  Costs are paid per month in general, so as long as variance is at the month level then that should be fine.  That monthly level of variance can definitely be achieved with 5-25 pools...1 is certainly not needed

 

 

2) 2) Re: Acutal Cost per Hash being lower for Major pools/data centers: I posted to reddit a while back showing that economies of scale aren't all the huge for supercomputers vs homecomputers.  $/computation is about the same for a good home computer when compared to the govt supercomputers. 

 

 

[Libs]

https://blockchain.info/nl/charts/n-transactions-excluding-popular

 

Check out the increase in transaction volume recently. Greece - related?

[ni-co]

There's certainly a Greece element to it. Yet, it could be partly caused by those new ETFs (or preparation for them).

[rkbabang]

https://blockchain.info/nl/charts/n-transactions-excluding-popular

 

Check out the increase in transaction volume recently. Greece - related?

 

That seems to be what most people are assuming and that assumption alone could drive up the price due to speculation.  I think bitcoin will continue to be volatile and subject to large swings until it is more widely used.

[jb85]

There's certainly a Greece element to it. Yet, it could be partly caused by those new ETFs (or preparation for them).

 

I think its more anticipation of Greek adoption than actual Greek adoption.  Tracking wallet counts (good proxy for number of users), I don't see a huge change in the general adoption rate

 

raw count --->  https://i.imgur.com/IDZAxgk.png

 

those same numbers annualized growth rate  ---> https://i.imgur.com/bOKri1q.png

[ni-co]

Very good podcast about bitcoin from an economic perspective:

 

Wences Casares, bitcoin evangelist and founder and CEO of Xapo, talks with EconTalk host Russ Roberts about how bitcoin works, the genius of bitcoin's creator, and how Xapo is structured to create security for bitcoin banking.

 

http://www.econtalk.org/archives/2015/07/wences_casares.html

[SharperDingaan]

Two or three financial players doing that for stability reasons would likely make it impossible for a black hat to control the chain. If you were earning fees off a bitcoin etf, you have a secondary incentive outside of the coins mined to keep the system stable.

 

To get Blackhat control you really need to be a using a CPU processing in the petaflops/second; there are very few of these in the world, & they are for the most part state controlled. You also do not have to dedicate the CPU 24/7. Distributed security really means state security.

 

When the Oracle is trusted, the 3rd party hash verification process is actually more important. Every application where there is a digital wallet, implicitly requires that you trust the Oracle to aggregate the debits and credits correctly; something we already do every time we look over our bank statement. Not the purity a theoretician would want, but more than adequate for business applications.

 

The Blackhat now has to rewrite the chain history, hack the Oracles block chain on record and replace it, then deliver the modified block chain before anyone else. Put the Oracle on a fast CPU & this becomes very hard to do. The Oracle also needs  just 1 failed check to detect a possible hack.

 

SD

 

[Liberty]

https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.hz0jeyl6z

[wachtwoord]

https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.hz0jeyl6z

 

Come on I expected better of you. The biggest retard "on the development team" (hardly lol, he made a few small commits over the years) gets his panties in a bunch because people are not listening to hist stupid suggestions and makes a blog post. Complete non-event.

 

For the record, here is a point by point rebuttal: https://fixingtao.com/2016/01/point-by-point-response-to-mike-hearns-final-bitcoin-post/

[SharperDingaan]

Thanks for posting.

 

SD

[ni-co]

Thanks for posting.

 

SD

+1

[Liberty]

https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.hz0jeyl6z

 

Come on I expected better of you. The biggest retard "on the development team" (hardly lol, he made a few small commits over the years) gets his panties in a bunch because people are not listening to hist stupid suggestions and makes a blog post. Complete non-event.

 

For the record, here is a point by point rebuttal: https://fixingtao.com/2016/01/point-by-point-response-to-mike-hearns-final-bitcoin-post/

 

Don't expect too much of me about Bitcoin. I just vaguely keep track of what's going on, and I thought a negative article by an insider was interesting. Thanks for posting the rebuttal, I'll have a look.

[SharperDingaan]

Bitcoin is just an application of the underlying technology that runs it; robust token identification and block chain. Applied as a virtual currency, there are strong cases both for and against. Just because we possibly could - does not mean that we should.

 

Success has a thousand fathers, spats along the way are part of the process.

 

In recent years block chain ability has greatly expanded. The better applications now routinely combine token identification with block chain and smart contracts. We are limited only by how we apply them.

 

SD

 

[wachtwoord]

https://medium.com/@octskyward/the-resolution-of-the-bitcoin-experiment-dabb30201f7#.hz0jeyl6z

 

Come on I expected better of you. The biggest retard "on the development team" (hardly lol, he made a few small commits over the years) gets his panties in a bunch because people are not listening to hist stupid suggestions and makes a blog post. Complete non-event.

 

For the record, here is a point by point rebuttal: https://fixingtao.com/2016/01/point-by-point-response-to-mike-hearns-final-bitcoin-post/

 

Don't expect too much of me about Bitcoin. I just vaguely keep track of what's going on, and I thought a negative article by an insider was interesting. Thanks for posting the rebuttal, I'll have a look.

 

Mainstream media are clueless about Bitcoin. They only post negative "news", so I was disappointed this was posted on this high quality forum by a frequent contributor.

 

Anyway, what Mike Hearn wants to do (increase the block size) is what most people in Bitcoin want. The core development team and the vast majority of economic ownership (people actually owning the Bitcoins) want the opposite for very good reasons. Therefore there is a big war going on with many many posts trying to convince/force the others to increase the block size. Doing so would greatly damage Bitcoin however.

 

Here is a good post on why a hard fork must be fought: http://bitledger.info/why-a-hard-fork-should-be-fought-and-its-not-evil-to-discuss/

[ni-co]

Bitcoin is just an application of the underlying technology that runs it; robust token identification and block chain. Applied as a virtual currency, there are strong cases both for and against. Just because we possibly could - does not mean that we should.

 

Success has a thousand fathers, spats along the way are part of the process.

 

In recent years block chain ability has greatly expanded. The better applications now routinely combine token identification with block chain and smart contracts. We are limited only by how we apply them.

 

SD

 

This is certainly one way to look at it but you have to keep an eye on the economic incentives.

[roughlyright]

https://finance.yahoo.com/news/bitcoin-just-soared-1-500-162700354.html

[rkbabang]

Just wanted to bump this thread up.  I re-read it from the beginning and found it interesting how I went from highly sceptical of Bitcoin in 2014 to buying my first bitcoins in January 2015.  Wachtwoord's post are really good and worth it to re-read.

[mcliu]

https://www.barrons.com/articles/q-a-why-a-value-investor-decided-to-buy-bitcoin-1511810246

[persistentone3]

Just wanted to bump this thread up.  I re-read it from the beginning and found it interesting how I went from highly sceptical of Bitcoin in 2014 to buying my first bitcoins in January 2015.  Wachtwoord's post are really good and worth it to re-read.

 

Bitcoin cannot be a store of value.  Valuation - by definition - requires some kind of cash flow.  You need earnings, dividends, interest, etc.  Valuation of a commodity can be based on its use in an industrial context.  Even fiat currencies can be valued, based on the underlying tax levying authority of a government.  The governments of countries have value based on the taxes they can generate each year for the foreseeable future.

 

Bitcoin has no cash flows whatsoever.  It is solely valuable for transactions, yet this is a trivial function.  Many virtual currencies exist and can be used for transactions.  There is no sense in which a currency must have a store of value to be useful for transactions. 

 

Therefore any attempt to value Bitcoin is ultimately just tulip mania.  A price of $0, $10, $100, $1000, $10K, $100K, and $1M per Bitcoin are equally valid valuations.  Because ultimately 95% of the use of Bitcoin is speculators who buy Bitcoin on the erroneous belief that it is a store of value and must increase in value.

 

Here is some Bitcoin trivia:  90% of the electrical and amortized capital cost to mine Bitcoin is NOT paid by the Bitcoin transaction fees!!!!  Miners are spending wild amounts of electricity to do these transactions because the system bribes them by paying them more Bitcoin each time they successfully mine.  The hilarious stupidity of Bitcoin is that people claim it cannot be "debased" because it has a fixed number of coins.  That is pure nonsense because 90% of the transaction costs of this system are based on continuous debasement of the currency.  Bitcoin is the definition of a system that can only exist if there is continuous debasement. 

 

Bitcoin advocates claim that once the system reduces rewards to miners that the system's "difficulty" will adjust down and the system will run on transaction fees alone.  First, that is pure speculation and no one has a shred of proof that this will happen.  The system could also just fail to work well in an environment where there are no rewards.  But there is a bigger problem, relative to Bitcoin value.  Today the system is caught in a rising price spiral because as Bitcoin values increase, miners spend more and more money to compete for Bitcoin.  This increases the "difficulty", which increases the amount miners spend, which then helps to justify the rising price of Bitcoin.  In his interview with CNBC, John Mcafee - who owns a Bitcoin mining firm - challenged Jaime Dimon by saying that his firm spends more than $1K per Bitcoin to mine it, *THEREFORE BITCOIN MUST HAVE VALUE*.  We are in a crazy - and intellectually bankrupt - mania where people are using the price of Bitcoin mining to justify the price of Bitcoin itself.

 

Do a simple thought experiment to see how utterly stupid this situation is.  At some point in the future the issuance of new Bitcoins will stop.  At that point miners must pay for each Bitcoin transaction with transaction fees alone.  Since no one will want to spend $100/transaction to buy or sell Bitcoin, the system's difficulty will need to adjust way down, in order for electrical costs to match what transaction fees alone will pay.    Assume at this future date that the transaction fee is $5, which might correspond to a cost per block of something like $1K.    What happens to the price of Bitcoin in a world where Bitcoin blocks cost $1K to mine instead of $50K to mine?  Using John Mcafee's logic, is Bitcoin now worth $80 because he now spends the equivalent of $1000 per block / 12.5 coins per block to mine (using today's 12.5 coin mining reward as an arbitrary reference point)?  It is completely flawed reasoning to tie the "value" of Bitcoin to the price that miners spend mining blocks.  Yet, today, the really scary situation we have is that the cost to mine coins is the ONLY justification for Bitcoin having ANY non-trivial value, and the reason for that is that Bitcoin has no cash flows and therefore cannot be valued.

 

Other things that truly bother me about Bitcoin:

 

1) 88% of all Bitcoin wealth is held by fewer than 1% of all Bitcoin addresses.  Since many of those addresses are held by "Satoshi Nakamoto" and a handful of technologists who mined Bitcoin before 2010, if Bitcoin becomes a store of value for the world it will create the most massive disparity of wealth distribution in the history of mankind.  Socially, that is a poor outcome, especially for a currency that had an aspiration at one point to bank the world's poor.

 

2) Once Bitcoin rewards stop, having any significant amount of world wealth in Bitcoin would create a deflationary catastrophe at the first recession.  The reason is that people would stop spending money - as they do in all economic downturns - and the world's governments would not be able to influence this behavior since they cannot create inflationary compensations within the currency system.  So Bitcoin as a world currency would return us to the feast and famine economic cycle of the 1800s through 1930s.  Essentially the inability to change the number of Bitcoins would neutralize any form of monetarist economics.  This enriches Bitcoin at the cost of throwing the entire world into catastrophic depressions.  That is a horrible trade off.

 

What I like about Bitcoin:

 

1) Electronic currency is a powerful idea.  There are 200+ such currencies.  We don't need a currency to have any store of value function to deliver this advantage.

 

2) Decentralization is powerful.  The idea that I can give a $10 donation to an African church without any middleman has value. 

 

I am totally willing to trade virtual currencies for fun.  But what is happening with Bitcoin is going to soon become outright dangerous to the world's economy.  This is a nearly worthless virtual currency that cannot be assigned any intrinsic value beyond what a transactional currency should receive, and it is going through a tulip mania price spiral that has no basis in economic valuation.  Once again the world is proving that there is no end to our stupidity and greed, and in any period of history we can create tulip frenzies.  There is no world in which Bitcoin ends well for anyone except those who sell at the top.