The article makes a series of well known criticisms, but there are a few issues with it.<p>1. If a BTC were to be worth $2M, you'd simply trade microcoins which would be worth $2. Or even nanocoins for micropayments.<p>2. Bitcoin's quasi-anonymous nature will be highly desirable to many people, including very large criminal organizations who'll definitely be moving those coins.<p>3. A large number of early adopters joined the movement because they believe in the ideal behind a p2p cryptocurrency. These people are not in it for the investment alone and will be willing to use it as a currency.<p>4. On paper, even the free software movement sounds idiotic. What kind of idiot would spend their time and resources to produce something for free? In practice, it works extremely well because not everyone is solely motivated by their best economical interest.<p>5. Few people will put all of their eggs in one basket. When the value of BTC stabilizes, investors who are happy with the valuation are likely to sell and cash in on the investment or diversify their investment through other currencies/speculations.
The number 1 reason why bitcoin will fail: Silk Road (et al) have handed legislators all the ammunition they need to go after it with a vengeance. All of what's coming next has happened before. Think e-gold, act II.<p>Simply put there are no incentives (and massive disincentives, both perceived and real) for any government to tolerate financial transactions in anything other than fiat currency. The more popular the service becomes the more frenetic legislative and enforcement activity will become to stamp it out.<p><a href="http://en.wikipedia.org/wiki/E-gold" rel="nofollow">http://en.wikipedia.org/wiki/E-gold</a>
The ideas here are important criticisms, but there is one thing to keep in mind with hoarding, and the author can't have it both ways.<p>The author makes an important point that Bitcoin has value precisely because people are willing to accept it--the characteristic of any good currency.<p>The appreciation of the currency encourages hoarding, which will negate the circulation of money. But there is a feedback loop to this of course. If hoarding does occur, then circulation will go down, which will cause people to lose interest, which will cause the value to stagnate. In that case, hoarding is no longer appealing, and people who have been will become impatient with the low return of investment and start selling them to liquidate.<p>This in turn creates more circulation. So there is certainly an equilibrium that the system attempts to reach.<p>If hoarders do the logical conclusion as to what happens if everyone hoards--it means the currency is worthless. So NOBODY would hoard anymore. In reality, there is some equilibrium point that is reached...it is in the best interests of the system participants that they circulate their currency, because it makes their own holdings valuable.<p>The author can't have it both ways--you can't both say hoarding will cause the currency to be worthless, and assume that hoarders will just hold onto it forever expecting massive appreciation vs the USD. Nobody hoards it if the value stops going up (or becomes worthless, which is what is being claimed)
Not defending BitCoin (I won't be buying any soon), but I think the author doesn't realized that BitCoins are divisible down to eight decimal places.<p>It's difficult for me to imagine a currency which is so divisible being "hoarded to death".
Let's separate "bitcoin-as-a pure speculatory play" and "bitcoin-as-a cryptocurrency".
At any time T, a bitcoin is worth W on the bitcoin exchange. Volatility means that at T+1 the bitcoin's worth might increase or decrease, but supply and demand still provide a pretty decent arbiratry price at this time T.<p>When seller A and buyer B (who are involved in a dubious transaction) are looking for a safe way to transfer money, they can simply agree (at time T) that their 1000$ transaction can be translated to 1000/W bitcoins. It doesn't matter if 1 bitcoin = 1000$ or 1 bitcoin = 10$, what matters is that both parties agree on what bitcoin price they are doing their transaction in, and therefore how many bitcoins A is expecting from B.<p>The transaction is then 1) Buyer buys agreed number of bitcoins so that at market price it represents the dollar amount of the transaction 2) sends over the bitcoins 3) Seller cashes out the bitcoins IMMEDIATELY, thus getting the real-market value for his "good or service"<p>The argument as to "why would seller A want to cash out his bitcoins if deflation means they will increase in value" is besides the point here.
Seller A is a drug dealer, not a bitcoin speculator. All he cares about is that receiving that money was as simple and anonymous as downloading a software client and logging in from some internet cafe somewhere.<p>In this scenario, bitcoins are extremely valuable, and not going anywhere. I suspect that market will adjust, and at some point supply and demand (from people who actually use it for these kinds of activities) will lead to less volatile price variations - and therefore increased use on the black-market. Whether you want to profit from these activities is another question.
How many time are people going to scream...bubble? <a href="http://bitcoinweekly.com/articles/comic-reaction-after-dramatic-rise-of-bitcoin-s-value" rel="nofollow">http://bitcoinweekly.com/articles/comic-reaction-after-drama...</a><p>Anyway, hoarding is not a problem. <a href="http://bitcoinweekly.com/articles/one-apple-today-two-apples-tomorrow-or-how-i-stopped-being-afraid-and-learned-to-love-deflation" rel="nofollow">http://bitcoinweekly.com/articles/one-apple-today-two-apples...</a><p>Even if we need to use the satoshi(the lowest unit of bitcoin), we can extend decimal space.<p>Does anybody actually have anything new or novel criticism for bitcoin? Or are we going to repeat trending the same ground everytime a new bitcoin story come up?
The key mistake the author makes is to assert no-one will ever spend or sell bitcoin trying to secure greater future wealth. As a bubble grows, large holders find that that a larger and larger proportion of their wealth is tied up in a single asset and start to diversify that wealth into other assets. I assume this is already the cause for most of the bitcoins being sold on the market.
I still don't see a problem. Surely as long as someone (hoarders) really wants it, it has perceived value making it a viable currency. Everything else is just details & implementation. Most of which will sort itself out via supply & demand equilibrium or if its a technical detail via a clever programmer or two.
Since it's legal for me to pay legal tender for software, for jpegs, for mp3's, and other digital constructs, how could a legitimate argument be made to make it illegal for me to pay legal tender for a bitcoin?<p>Since it's legal for me to take legal tender for software, for jpegs, for mp3's, etc., how could a law be passed to make it illegal for me to take legal tender in return for a bitcoin?<p>If I advertise that I want to buy bitcoins, how can they stop me from spending my dollars/euros on them?
If I advertise that I have bitcoins to sell, how can they stop me from doing so?<p>Now, if I advertise that I both buy AND sell them, at some bid/ask spread, than perhaps I have blundered in to an area where they can, indeed, regulate me.
All these bitcoin articles are getting more than old. Here are some major issues I've been seeing with all of them:<p>1) Assigning some fixed dollar amount to coins for the purpose of demonstrations in the article. This will never happen, it's in flux, and it's a scarce resource. Does gold or any other precious metal stay at a fixed resource, does anyone hoarding gold make it any less valuable?<p>2) As mentioned above, bitcoins can be traded in almost any fraction thereof, simply having each coin be worth 2 million dollars, is irrelevant.<p>3) If too many people start hoarding and there is no exchange of coin, it is possible that the value of coins will decrease instead of increasing. Please remember that the only value assigned to the coins will be the value that individuals are willing to assign to it, or pay to acquire it, or amount of coins willing to exchange for goods or services.<p>4) We've had commodity backed currencies for much, much more of recorded history than we've had fiat currencies and yet we've brought civilization to where it is today. Can we please stop assuming that any commodity backed currency is destined to be a failure because we currently favor a currencies that are by definition even more worthless than Bitcoin?
The assumption of the article is a paradox. The author first assumes that the total bitcoin market will be worth 1 trillion. Then he claims people will hoard coins due to their promising future value.<p>In reality, there is a chance the bitcoin market will reach 1 trillion. There is also a chance it will crash. Most likely it will fluctuate. If I were told there was a 100% chance my 1.5 coins I have mined today would be worth hundreds of thousands of dollars, then of course I would hoard. But since I have no such guarantee, I am more likely to cash out when I think the market has peaked and/or the fad has faded.<p>There are die hards who will hoard and have hoarded from day one. It's the same with all investments. I have a friend who bought his new car with 11 ounces of gold - He walked in, set it down on the table, sign some paperwork and walked away with a new car. But I think the average bitcoin user won't be able to pass up the idea of "I didn't really have to do anything for this, so why not buy a pizza with a few (micro)bitcoins."
This is all just one argument, the same argument others have been making: Bitcoin will inevitably deflate. That is true. Whether the conclusions are true remain to be seen. It's the old Keynsian vs. Austrian argument.<p>What makes this an especially interesting experiment, is that Bitcoin is far more divisible than any other currency in history. This alleviates many of the typical objections to a fixed currency, and introduces a dynamic that, frankly, I don't think anyone understands yet.<p>There still remain the question of whether the process of deflation itself makes a currency unviable. Herein lies the actual debate. I for one am going to enjoy watching it, and see how it all works out. There is a lot that we can learn. Let's hope governments don't get in the way and stop the experiment in-vitro.
bitcoin will probably never represent a significant proportion of human wealth. However, it will probably remain useful for the next five to ten years as a cryptographically strong way to pay for things outside of government influences. Silk Road is a pretty cool case in point.<p>It will probably be replaced organically by a more useful form of cryptographic currency -- perhaps something that uses bcrypt or a similar Moore's Law-resistant hashing algorithm -- before serious deflation or broken hashes really start to come into play.
At the current price miners are producing $140,000 worth of bitcoins per day, I expect most of these miners will be looking to cash out and the ones that don't need to at least cover electricity costs etc. $100,000+ new investment per day probably won't be sustainable for long and hence the price will have to correct itself.
I'm not sure if Bitcoin will "fail", but they'll certainly be forced to adjust, as all currencies have, to the fact that a finite money supply (that doesn't grow with demand) has inherent problems.
I think people will be even more anxious to buy and hold when they find out a way loan out bitcoins. For example, convert them temporarily to tokens representing another currency.