Do you think Bitcoin is a safe store of value?

[jb85]

The transaction system is actually one of the potential fatal flaws of Bitcoin as I see it.  Right now, miners are rewarded largely in the form of the block reward (essentially new coins that are created every 10 minutes...thus making bitcoin inflationary until 2040, when 99% of all coins to ever be made will be made...technically 2140 when last coin is made).  However as time goes on the proportion of miners fees that come from the block reward will go down, the proportion of miners fees that come from transaction fees will increase (by 2040 all mining hardward/electricity etc will need to be paid for from the transaction fees)

 

Now the problem becomes a a tradeoff.  In our steady state (post 2040) the bitcoin network security is proportional to the total computing power of the network.  The more computing power the network has, the more expensive it is to gain control of 51% of the network.  But the computer power of the network will be proportional to the cost of the network computing which is paid for by transaction fees.  So the more transaction fees there are the more secure the bitcoin network will be.  Higher fees = higher security...Lower fees = lower security

lets play out an extreme scenario where everyone in the world is using bitcoin (no other currencies exist). To be robust, lets say the cost of a 51% attack must be over $1 Trillion (world GDP is $60 Trillion, global wealth is about $240 Trillion).  This would effictevely rule out any single entity from gaining control (you would need to spend that $1T fairly quickly so that the hardwear is not made obsolete by moores law...the US govt could possible spend $1T in a year or two...but we'll just pick that number for now).  So that $1 Trillion must be paid for in fees.  The fees are not insignificat.  2-3% of global wealth might not be a bad thing, but its definitely not zero in the long run. and again the cost to transact is proportional to the security you demand from the network.  so its a give and take

[constructive]

Transaction cost what is needed for miners to include it into blocks. For non-spammy transaction (small or non-recently moved inputs and/or small transaction size) this is free. Otherwise it will usually cost 0.000 BTC

 

What this author has used in his calculations is the block subsidy. This is the main incentive to mine while Bitcoin becomes mainstream and sufficient transactions are processed to support the mining network. This subsidy was 50BTC for the first 4 years and is halved every 4 years until it reaches zero. In meanwhile the market will discover what transaction fees are required for an efficient mining market (which will become a marginal business).

 

Yes I know all that, and pretty sure Levine knows it too.

 

Using the block subsidy to estimate this during the bootstrap of the Bitcoin economy is just silly.

 

It's common sense. How would you estimate future $ fees earned by miners per transaction, next week or next month or next year? You would look at current $ fees earned by miners per transaction.

 

$100 per transaction is not sustainable. Let's say $10 per transaction is a fair price. Either transaction volume has to increase 10x or BTC has to drop 90%.

[jb85]

 

It's common sense. How would you estimate future $ fees earned by miners per transaction, next week or next month or next year? You would look at current $ fees earned by miners per transaction.

 

$100 per transaction is not sustainable. Let's say $10 per transaction is a fair price. Either transaction volume has to increase 10x or BTC has to drop 90%.

 

Its better to think of the sum of all transaction fees, this way you can have 1)high # of trans and low $/transaction or 2) low # of transaction and high $/transaction. 

 

Again what this does is focus on the real issue which is that the total sum of all transaction fees dictates the total amount of computing power in the network which in turn dictates the security of the network (ie cost to mount a 51% attack).  The long term steady state for fees will be what all bitcoin users think is an appropriate balance between low tranaction fees while at the same time maintaing an accpectable minimum cost to gain 51% of the network

[wachtwoord]

 

Using the block subsidy to estimate this during the bootstrap of the Bitcoin economy is just silly.

 

It's common sense. How would you estimate future $ fees earned by miners per transaction, next week or next month or next year? You would look at current $ fees earned by miners per transaction.

 

$100 per transaction is not sustainable. Let's say $10 per transaction is a fair price. Either transaction volume has to increase 10x or BTC has to drop 90%.

 

It's a silly exercise to try to estimate it. Transaction volume will go up by many orders of magnitude when Bitcoin succeeds. Your estimation will be so unprecise it's completely and utterly useless. Any time spend trying to predict this is wasted time.

[DoddDisciple]

Again, I see these as purely speculative.

 

People keep bringing it up, but I don't get the idea of saving transaction costs. Yeah, if you're transferring a few million, it may be worth it, but for anything else, I can use a credit card. If they charge the merchant 2%-3%, I share 33%-66% of the take in cashback and get to invest the balance for 30 days. I can do chargebacks. Hell, I was able to use extended product warranty on 2 laptops via AMEX with minimal hassle and got a good $1k-$1.5k back.

 

I setup a Coinbase account, which I think is the easiest way domestically to do USD to BTC without meeting people in back alleys on LocalBitcoin. First, I can't get "instant verified," meaning I have to wait 4 days for coins to appear in my account. I have 3 Visas, have checked the addresses with the card issuers, and still can't verified. Customer support does a cut and paste of what's in the FAQ when I ask what's up. The card issuers aren't even seeing where Coinbase is trying to verify the address. Funny thing is, in the ID verification, my address popped up as one of the questions.

 

And on this, they charged me 1% going in and a 15 cent transfer fee. So round trip, that'll be 2% at least. The savings just don't appear to be there.

 

[constructive]

Its better to think of the sum of all transaction fees, this way you can have 1)high # of trans and low $/transaction or 2) low # of transaction and high $/transaction. 

 

Yeah, that's exactly what I said.

 

Transaction volume will go up by many orders of magnitude when Bitcoin succeeds.

 

That's begging the question.  Bitcoin succeeding and transaction volume skyrocketing isn't a reasonable assumption to make when trying to value BTC, since BTC value and transaction demand are interrelated.

[jb85]

 

And on this, they charged me 1% going in and a 15 cent transfer fee. So round trip, that'll be 2% at least. The savings just don't appear to be there.

 

its a borderless technology.  2 or 3% on transactions (with no corruption) would be a great rate for developing countries.  It could start off in those developing countries. 

 

Those 1% fees exist because the banks charge it.  I think thats actually a perfect example of where bitcoin could take over.  Assuming it eventually gets to some sort of steady state (wide adoption) i see no use for storing my money in a checking account in a bank.  Why not just store it in my bitcoin wallet? i would avoid or reduce a lot of these silly % fees (especially on larger transfers where it costs the bank nothing more to send $1K vs $100K. 

 

Good discussion...bitcoin is still a long shot to succeed at this point but i think the main problem will be can it get from $10B market cap now to something in the trillions.  The growth to Trillions will be the hardest part.  If we could all magically go to a world with only bitcoin tomorrow, i think it would suceed.  I'm just not confident it will grow to that level while maintaing 1)network secruity along the way 2) reasonable price levels and reduced price swings

[jb85]

 

 

That's begging the question.  Bitcoin succeeding and transaction volume skyrocketing isn't a reasonable assumption to make when trying to value BTC, since BTC value and transaction demand are interrelated.

 

Transaction price has a floor...the minimum electricity and bandwidth costs in order to process the actual transactions (usually about 300KB per transaction).

 

Using 10,000 transactions per second (Visa's current upper limit) you can calculate a rough estimate for operating costs.  But again this assumes you are the only miner in the world and are using some cheap PC.  In reality you have to add in the cost of mining hardwear (this is significant because the more mining hardwear the network has in total, the more costly it is to mount a malicious attack...so you want it to be decently expensive).  Adding up mining hardwear, and other operating costs you can get what is would cost to run the network (mining hardwear is so much larger than operating costs that in effect the transaction volume doesn't really matter)

 

Why can't growth trends keep going like they are for a while (with the block reward subsidizing the transactions for the next 25 years or so and therefore keeping transaction costs low for a long time)?  Again in the steady state a bitcoin network cost of about $100B to $1T would ensure a decently secure network (Who wuold have $100B lying around to destroy the network and basically throw away that 100B?).  If you had 20-40 Trillion being transacted in that, the costs would quite low. 

 

I'm not saying any of this is going to happen or even likely, but i don't see any reasons being give that show bitcoin will certainly fail or couldn't offer a low transaction cost means of exchange (much lower than 3%)

[DoddDisciple]

The 1% fee was with Coinbase. It looks like you're just swapping banks for another party. The bank transfer was 0.15 (maybe not even that - I think it's just another Coinbase fee since I've never been charged by the bank for a similar transaction).

 

I like the idea with developing countries. It would be interesting as a developing country currency. That way the Euro and other established currencies exist, but then the developing countries can have a common unit of exchange. Course, this requires a lot of things to fall into place.

 

If I had a ton of money though, and it was between going into something like stocks, why would I use BTC? Isn't it better to just have that in Treasury bills or bonds for more security?

 

Think BTC can do x85 to get to $1T? Where are all the altcoins at this point?

[jb85]

The 1% fee was with Coinbase. It looks like you're just swapping banks for another party. The bank transfer was 0.15 (maybe not even that - I think it's just another Coinbase fee since I've never been charged by the bank for a similar transaction).

 

I like the idea with developing countries. It would be interesting as a developing country currency. That way the Euro and other established currencies exist, but then the developing countries can have a common unit of exchange. Course, this requires a lot of things to fall into place.

 

If I had a ton of money though, and it was between going into something like stocks, why would I use BTC? Isn't it better to just have that in Treasury bills or bonds for more security?

 

Think BTC can do x85 to get to $1T? Where are all the altcoins at this point?

 

I view BTC at the current $10B as pure noise.  No real difference between a $100M market cap and $10B.  No one is using bitcoin to transact right now.  It either catches on as a means of exchange (in which case the velocity of money calculations mean a much higher value than $10B) or it doesn't and it goes to zero or stays low (below $1000) and is purely speculative.  The upside is certainly there. 

 

if you assuming btc as means of exchange, then various M1 figures etc are in the trillions

 

if you assume store of value, then world wide wealth is about $240T.  Its impossible to predict where it will end up, but the ceiling is quite high.  Who knows how to handicap those odds.  I wrote earlier that i wildly guessed the there was a 95% chance of failure.  The other 5% incompase bct =$10K - $1 Million.

 

I may be wrong on this but coinbase isn't technically an exchange.  They have to buy the coins and then offer to sell them.  was reading they can either hit right or low when buying coins and then selling to you (theres a delay so they have a btc holding risk if btc goes up after they give you your quote).  They try to buy for 100 and sell for 101.  I think in a pure exchange like MT gox those fees are much lower (though there's still the xfer fee charged by banks) .  You can send via blockchain.info and only pay a base bitcoin transaction fee (that the miners collect for verying your transaction).  This is much lower than 1% right now. 

 

While it grows, the 1% fee(via coinbase) to get into BTC is prob not going away

 

regarding merchants accepting btc, i've been tracking the raw number of btc merchants on coinmap.org  it was 826 merchants on 11/21/2013.  As of 1/3/2014 that number was 2280.  Not sure if those merchants are actually transacting much, but interesting to view the 3x growth over the last 1.5 months.  Bitpay (another merchant to btc interface service) has saw about 6x growht in number of merchants signed up during the calendar year 2013. 

 

At the end of the day, i don't see any of the alt coins adding any real value (and nothing that could overcome the existing network affect of bitcoin).  Bitcoin has some weaknesses, but i don't see any that are 100% fatal.  and the protocal can be updated if the network approves of the change.  At the end of the day all the altcoins have the same weakness.  You need a sufficiently expensive computer network to ensure that all blockchain transactions are valid - no double spend etc - and that a malicous attack can't be mounted

 

 

[jb85]

http://www.overstock.com/bitcoin

 

Overstock goes live with bitcoin payment acceptance 6 months earlier than expected.

 

They partnered with coinbase.

 

You have 10 minutes to lock in the exchange rate...otherwise you must get a new quote

 

no cashback returns...only can be returned for store credit

[tengen]

Maybe Sanjeev should create his own alt coin, the "parsad", and configure the web site to accept donations in this currency. Once that gains traction, he can open up Corner Market Capital to investments in parsads.

 

http://www.forbes.com/sites/reuvencohen/2013/11/29/bitcoin-mania-how-to-create-your-very-own-crypto-currency-for-free/

[DoddDisciple]

At what multiple are long BTC and other cryptoholders looking to sell at?

[Guest valueInv]

Nice piece on bitcoin:

 

http://mobile.nytimes.com/blogs/dealbook/2014/01/21/why-bitcoin-matters

[wachtwoord]

At what multiple are long BTC and other cryptoholders looking to sell at?

 

I'm not looking to sell but might diversify a little at some point.

[rkbabang]

My biggest problem with bitcoin is that it isn't anonymous. The transactions are public and can be traced to each and every wallet simply by looking at the blockchain.  The zerocoin guys recently presented a solution to this at the recent Real World Crypto conference. I'm looking forward to zerocoin going live and might dabble a little bit in it.  I'm hoping zerocoin catches on and becomes the iPhone of crypto currencies making bitcoin the palm-pilot.

 

[DoddDisciple]

I'm not looking to sell but might diversify a little at some point.

 

I can understand this, especially if you've bought BTC recently.

 

I'm just buying a little of every single cryptocurrency out there that I can get my hands on. Most will crash and burn, but just 1 has to follow BTC's return trajectory to make it worth it. If the house of cards comes crashing down sooner, I'm not out that much.

 

I was thinking targeting x10, x100, and x1000 as potential sell points (maybe 1/3 of the value the first 2 times, and then a complete sell off at the last mark). However, doing anything around x10 seems too soon, and I'm not sure how likely x1000 is again for any coin. Of course, I know some of these coins are complete garbage, but hey, maybe my half a billion pennies will be worth something one day :P

 

I'm actually adding coins from Coinedup now since they seem to be adding newer coins quicker than Cryptsy.

[jb85]

My biggest problem with bitcoin is that it isn't anonymous. The transactions are public and can be traced to each and every wallet simply by looking at the blockchain.  The zerocoin guys recently presented a solution to this at the recent Real World Crypto conference. I'm looking forward to zerocoin going live and might dabble a little bit in it.  I'm hoping zerocoin catches on and becomes the iPhone of crypto currencies making bitcoin the palm-pilot.

 

Agreed. I'm hoping bitcoin would adopt anonymity features, but its looking like the bitcoin foundation and the other main bitcoin devs are not for this.  In the US, anonymity may not be that big of an issue, but if i were in say argentina/some other corrupt country, i would definitely want anonymous coins.  Acct linking to actual identities can be done above the basic bitcoin protocol, but the base layer should be as fungible as possible and that means anonymity.

 

On the other end, i hope that no form of "colored coin" or "coin validation" ever makes it into the core protocol.

 

[plato1976]

wachtwoord,

 

why cannot a big player like visa/mastercard or amazon issue their own crypocurrency ?

with their channel it will be much easier for them to pump up such a crypocurrency

Sure they need to make that crypocurrency transparent and distributed just like bitcoin;

the only benefit for them is that they can own a big chunk of such currency as the founder

And if such a currency can be a major currency down the road - that chuck will be worth a lot for them

I see this as a real threat to bitcoin b/c it's much easier for those ones to pump up another currency

- to pump up bitcoin gives them zero benefit

 

 

I just don't see Bitcoin pulling another 100x, but hopefully this is a tide that raises all ships sort of thing.

 

You don't see Bitcoin go up a 100x from here so you prefer the casino?

 

I'd say investing in Bitcoin is a (very) profitable decision EV-wise while investing in a basket of altcoins is negative EV. I'm not saying it's impossible, but neither is 31 black ;)

[rkbabang]

wachtwoord,

 

why cannot a big player like visa/mastercard or amazon issue their own crypocurrency ?

with their channel it will be much easier for them to pump up such a crypocurrency

Sure they need to make that crypocurrency transparent and distributed just like bitcoin;

the only benefit for them is that they can own a big chunk of such currency as the founder

And if such a currency can be a major currency down the road - that chuck will be worth a lot for them

I see this as a real threat to bitcoin b/c it's much easier for those ones to pump up another currency

- to pump up bitcoin gives them zero benefit

 

I don't see this happening.  A corporation would want control over it.  They would never create something they couldn't control then release it.  If there was an AmExCoin, AmEx would be in essence the Federal Reserve of AmExCoin where they could and would inflate it at will.  Take a look at Amazon Coins, that is about all you can expect from these players in this area, IMHO.

 

EDIT: The only large company that I can think of where doing something like this would even be a remote possibility would be Google.

 

 

[wachtwoord]

wachtwoord,

 

why cannot a big player like visa/mastercard or amazon issue their own crypocurrency ?

with their channel it will be much easier for them to pump up such a crypocurrency

Sure they need to make that crypocurrency transparent and distributed just like bitcoin;

the only benefit for them is that they can own a big chunk of such currency as the founder

And if such a currency can be a major currency down the road - that chuck will be worth a lot for them

I see this as a real threat to bitcoin b/c it's much easier for those ones to pump up another currency

- to pump up bitcoin gives them zero benefit

 

I don't see this happening.  A corporation would want control over it.  They would never create something they couldn't control then release it.  If there was an AmExCoin, AmEx would be in essence the Federal Reserve of AmExCoin where they could and would inflate it at will.  Take a look at Amazon Coins, that is about all you can expect from these players in this area, IMHO.

 

EDIT: The only large company that I can think of where doing something like this would even be a remote possibility would be Google.

 

The value lies in the decentralization. With a (large) corporation being the seed this would be lower indeed. Especially if they pre-mine (allocate coins to themselves or don't properly announce that mining will commence). Of course there's also the first-movers advantage that Bitcoin has.

 

Overall I think it is an order of magnitude more likely that another crypto-currency will take over the lead from Bitcoin because of a true evolution than the scenario you describe and I don't think that's very probable.

 

I consider the largest "threat" to my investment still to be the time horizon. Even though things are progressing much much faster than I expected it to go, it's still possible it will take upwards to 100 years (that order of magnitude at least, making predictions this far out is extremely unreliable) for Bitcoin (or another crypto) to be fully accepted, as gold is today. Of course I only have a limited lifespan ;)

[DoddDisciple]

Well, I don't expect to see another x100 or x1000 with BTC, so I've gone absolutely crazy and purchased little bits of between 200-250 altcoins. I just need one to generate a return to break even.

[dpetrescu]

Bitcoin is simply amazing.

 

It's not often we can see a bubble of this magnitude in real time. This could go up 1x or 100x more who knows. All I know is one day it will crash back to zero and will become a legendary tale forever. I wouldn't be surprised if Soros owns some, I expect a book or at least a long article about bitcoins by Soros.

[yadayada]

http://blockchain.info/nl/charts/n-transactions

 

This still worries me. It exploded in the media, and nobody really uses it. Everyone is hoarding.

 

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

 

Even this one doesn't look good. It went from pretty much unknown to mainstream. Your suposed to see a big rise  here, but it did slightly better then double really. If we dont see a large rise here in 2014, then i predict the price will crash. Or maybe it sustains for 1-2 more years, untill people start to figure out that it really is still a niche product.

[plato1976]

valid concern in my opinion;

interesting to watch how this evolves

 

http://blockchain.info/nl/charts/n-transactions

 

This still worries me. It exploded in the media, and nobody really uses it. Everyone is hoarding.

 

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

 

Even this one doesn't look good. It went from pretty much unknown to mainstream. Your suposed to see a big rise  here, but it did slightly better then double really. If we dont see a large rise here in 2014, then i predict the price will crash. Or maybe it sustains for 1-2 more years, untill people start to figure out that it really is still a niche product.