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Thoughts on Bitcoin

239 pointsby patrickodover 11 years ago

33 comments

ezlover 11 years ago
I normally love SA&#x27;s writing, but this opinion piece is really narrow minded and I think misses the point.<p>cs702 had a fantastic comment a few days ago in another thread [1]:<p><pre><code> Bitcoin befuddles experts who analyze it from a narrow perspective, because it is not just a new medium of exchange or a new store of value: it is also a new kind of point-of-sale payment system (one that doesn&#x27;t require payment processors), a new kind of global financial transfer system (one that doesn&#x27;t require financial institutions), a new kind of time-stamping certification system (one that doesn&#x27;t require notaries or county clerks), a new kind of contract-enforcing mechanism (one that doesn&#x27;t require lawyers), etc. With rising global adoption, many new kinds of applications are likely to be created to take advantage of the Bitcoin network, the design of which even specifies a built-in script for defining and executing new types of transactions involving any arbitrary number of parties. In short, Bitcoin is a technology platform -- one that is benefiting from network effects. It may fail as &quot;money&quot; (in a narrow sense) and still succeed as a global platform. </code></pre> Even from SA&#x27;s narrow perspective, it&#x27;s not clear why &quot;legitimate transactions&quot; is a requirement for success. As long as there is a large enough community of people who want to use it to transfer value for any reason, it&#x27;ll continue to sustain itself.<p>The one takeaway he offers in closing is spot on though: &quot;<i>Just as it’d be stupid to convert all your dollars to bitcoin, it’d be stupid to not pay attention.</i>&quot;<p>[1] <a href="https://news.ycombinator.com/item?id=6810839" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=6810839</a>
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michael_nielsenover 11 years ago
The following graph shows the estimated volume of transactions:<p><a href="https://blockchain.info/charts/estimated-transaction-volume?showDataPoints=false&amp;show_header=true&amp;daysAverageString=7&amp;timespan=all&amp;scale=1&amp;address=" rel="nofollow">https:&#x2F;&#x2F;blockchain.info&#x2F;charts&#x2F;estimated-transaction-volume?...</a><p>You see immediately from the graph that the growth in number of transactions is relatively slow, considering all the media attention, and certainly far, far slower than the increase in the exchange rate.<p>Note that this graph is not the same as the number of &quot;legitimate transactions&quot; mentioned in the OP. But it&#x27;s at least consistent with the point of view suggested in the post.
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modelessover 11 years ago
If a receiver of bitcoins sells them for dollars right away, that isn&#x27;t necessarily money laundering or tax avoidance. I don&#x27;t know if you&#x27;ve tried to transfer money overseas lately, but banks tend to make it difficult and expensive. An international wire transfer is not a trivial thing to set up; in many cases it still involves <i>faxes</i>.<p>If bitcoin succeeds only as a payment network, where users convert from and to dollars at both ends, it can still provide a very valuable and legal service.
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tpengover 11 years ago
The way I value bitcoin is to take the fully diluted market cap (21 million * $850 ~= $18 billion) and apply a money velocity which I assumed to be similar to US M2 velocity of 1.6 ($18 billion * 1.6 ~= $28.5 billion). Since global ecommerce transactions are about $1 trillion &#x2F; yr this implies that bitcoin should penetrate 2.85% of ecommerce. Big assumption here is that bitcoin does not work for real-world transactions as the confirmation time is &gt; 15 min. This may be oversimplified because a lot of real-world transactions don&#x27;t need to be real time. I&#x27;m also excluding time value effects which you can insert back in if you like.<p>From the data I have seen, the bitcoin real economy could be orders of magnitude smaller than that implied by the current price, although there is no way to know precisely how large it is. This is including &quot;illegal&quot; transactions (I&#x27;m not sure why sam is discounting drug transactions, unless he means to imply that these will be shutdown. It does make sense to exclude gambling transactions as they are extremely high velocity).<p>Note that sam&#x27;s point about merchants immediately converting BTC back to USD serves to increase the money velocity (perhaps by &gt;10x). This would mean that BTC is pricing in a real economy even larger than $28.5 billion. Based on current BTC-denominated real transactions, fair value of BTC is at most only a few dollars.
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vijayboyapatiover 11 years ago
Sam sees the flaw in his own argument - when he mentions gold and the possibility of its use a store of value. But he doesn&#x27;t understand the full significance of his own comment. Moldbug has by far the most compelling (imo) theory on the origin of money and why bitcoin (and gold) float far above their use value. These two posts cover it very well:<p><a href="http://unqualified-reservations.blogspot.com/2011/04/on-monetary-restandardization.html" rel="nofollow">http:&#x2F;&#x2F;unqualified-reservations.blogspot.com&#x2F;2011&#x2F;04&#x2F;on-mone...</a><p><a href="http://unqualified-reservations.blogspot.com/2013/04/bitcoin-is-money-bitcoin-is-bubble.html" rel="nofollow">http:&#x2F;&#x2F;unqualified-reservations.blogspot.com&#x2F;2013&#x2F;04&#x2F;bitcoin...</a><p>I highly recommend them to anyone trying to understand the economics of bitcoin
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sjtgrahamover 11 years ago
I think this is spot on.<p>All sorts of people I rarely speak with have been coming out of the woodwork to ask about Bitcoin. These people are invariably regular folks that have heard about this thing that has been appreciating at an unbelievable clip. This is extremely alarming for me.
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aristidbover 11 years ago
After all the insane articles that claim things like &quot;Bitcoin is a ponzi scheme&quot; or &quot;Bitcoin is anonymous&quot;, it is quite nice to read a well-informed and sane article.
asciimoover 11 years ago
The metric of &quot;legitimate transactions&quot; is interesting, but I don&#x27;t see an easy way of tracking it. <a href="http://coinmap.org/" rel="nofollow">http:&#x2F;&#x2F;coinmap.org&#x2F;</a> tracks brick-and-mortar retailers that accept bitcoin. Maybe there should be an opt-in registry, like a global Bitcoin YellowPages?
CamperBob2over 11 years ago
<i>A currency without the major use case being legitimate transactions is going to fail.</i><p>Couldn&#x27;t he have said the same thing about a protocol like BitTorrent?
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doki_penover 11 years ago
I don&#x27;t know why it is required that it is used in legitimate purchases. No one questions the value of gold, yet not many people use it to make purchases. I suspect bitcoins value will follow the same pattern as gold, once it is stable. When the world is full of uncertainty, it&#x27;s value will rise. When things are steady, it&#x27;s value will fall.
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scotty79over 11 years ago
We&#x27;ve already seen few bubbles on bitcoin. Investing overshadows usage of bitcoin as a currency. Everybody knows that.<p>One title I haven&#x27;t seen: &quot;X no longer accepts bitcoin.&quot;
andrewhillmanover 11 years ago
&quot;The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggest an underlying lack of faith in bitcoin—or at least a problem with the volatility.&quot;<p>Its not a lack of faith l, it&#x27;s lack off trade acceptance. If merchants accept bitcoin they need to convert back to dollars because that&#x27;s what their business calls for. In other words, if they could pay their bills with bitcoin, then bitcoins would flow back and forth without an issue, removing your suggestion that this is about lack of faith.
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jeyover 11 years ago
Why distinguish between legal and illegal transactions? I guess the assumption is that value grounded in illegal transactions is inherently volatile due to the risk of it getting shut down?
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jonny_ehover 11 years ago
Even if it just becomes the primary mechanism for moving money around, that&#x27;s a multi-billion dollar industry. Think Western Union, ACH, Paypal, etc. To me, that seems like a safe(ish) bet.<p>Being able to buy bubble gum, well, we&#x27;ll see :)
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emin-gun-sirerover 11 years ago
The post assumes that Bitcoins will fail if they are not suitable as a store of value. It overlooks the fact that a currency can succeed as a medium of exchange, even if it is not suitable as a store of value.
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allochthonover 11 years ago
From the article:<p><i>low transaction costs for worldwide commerce would still be great.</i><p>I&#x27;m late to the whole bitcoin phenomenon, but here is what I really like about crypto-currencies. My US credit union (not even a commercial bank) charges me 40 dollars for an international wire transfer to Canada, and the bank on the other end will charge me 15 dollars. If this were done in bitcoin or a similar currency? Nothing, as far as I can tell, if you do it through the right exchange. And that&#x27;s how it should be.<p>I suspect that banks don&#x27;t even know to be worried at this point.
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leokunover 11 years ago
I&#x27;m going to buy a bitcoin after the bubble has passed. What do we think the real price is. Like $10 or $100? What&#x27;s the projected bottom? I&#x27;m hoping for less than $10, because cheaper is better. The thought that I would never be able to afford an entire bitcoin has a negative psychological effect, which may be silly.<p>What I like about alt-coins is how one can use that for games. Imagine making a game where a custom alt-coin, a bitcoin-fork coin that has no value outside of the game, used for transactions. Seems like a cool idea to me anyway.
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codexover 11 years ago
Heaven help us if Bitcoin becomes the world reserve currency without some central authority like the Fed controlling the money supply. Bad things would happen without counter cyclical fiscal policy.
kolevover 11 years ago
Just like investments in Bitcoin startups are binary, so are investments in Bitcoin itself. Put some USD into it and don&#x27;t worry too much about it. People waste millions on lottery tickets with much smaller chances of success, so, I&#x27;m tired of all these negative articles, just because Bitcoin dropped 20-30% and then almost fully recovered in a day. Sell off if you wish - there are enough people to buy your Bitcoins cheap. And by the way, the tulip craze is an obvious myth.
VintageCoolover 11 years ago
Question: why isn&#x27;t gold the international reserve currency?
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johnrobover 11 years ago
Why should anyone feel compelled to follow or invest in bitcoin? The time to buy bitcoins is when you need them to get something you want (as it should be for any currency).
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teawithcarlover 11 years ago
Sam - 你忘记了中国的影响。<p>The price is bitcoin is proportional to the &quot;hot money&quot; flowing out of China. Doesn&#x27;t matter if that&#x27;s an illicit market, it&#x27;s still the most significant factor.<p>Whether or not one believes that hot money is going to stop&#x2F;slow should strongly influence your estimate of the price of bitcoin.<p>That said, it&#x27;s top heavy at $900-$1100, and reasonable people should be selling a portion of their holdings.
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spydumover 11 years ago
Can&#x27;t help but wonder how many tech savy career drug dealers have just decided to become day traders after watching their btc soar in value.
aaron695over 11 years ago
The tulip craze is a myth, I&#x27;m surprised people still buy into it.<p>It&#x27;s stupid that tulips would go that high, and funnily enough it didn&#x27;t happen.
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tsaoutourpantsover 11 years ago
His article is premised on this:<p>&quot;The estimates I’ve heard from smart people that really follow bitcoin are that legitimate transactions are up only about 2-3x from a year ago&quot;<p>That&#x27;s hardly scientific. I&#x27;ve used Bitcoin for several purchases of &quot;legitimate&quot; things, and look to continue to do so whenever possible.
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matthiasbover 11 years ago
Have you check Bitcoin sales on Craiglist?<p><a href="http://austin.craigslist.org/search/?sort=rel&amp;areaID=15&amp;subAreaID=&amp;query=bitcoin&amp;catAbb=sss" rel="nofollow">http:&#x2F;&#x2F;austin.craigslist.org&#x2F;search&#x2F;?sort=rel&amp;areaID=15&amp;subA...</a>
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headgasketover 11 years ago
Great read! I just posted an essay from way back (2008) on bubbles to hacker news: <a href="https://news.ycombinator.com/item?id=6831300" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=6831300</a><p>re-reading it gave me some perspective.<p>Good luck and Cheers!
brisanceover 11 years ago
&gt;Tax is a big deal, of course, but even nations can&#x27;t always compete with the popular sentiment tidal forces enabled by the internet.<p>How has the Internet outrage about NSA spying affected the US government?
rebelidealistover 11 years ago
A major legitimate use is wiring money internationally at a low cost.
collabacodeover 11 years ago
Relevant Futuram clip:<p><a href="http://www.youtube.com/watch?v=KbCk1XNfTs4" rel="nofollow">http:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=KbCk1XNfTs4</a>
richiverseover 11 years ago
My biggest issue with bitcoin is that it should be redeemable for something tangible other than $USD. The first virtual currency that addresses this and is directly convertible to watts or calories will be the currency to beat.
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RuCrazyover 11 years ago
Will it hold?
notdrunkatallover 11 years ago
I&#x27;ve been watching bitcoin since $30, bought at $80, and sold last night. I think that Stefan Molyneux (or however you spell it) is right on when he says that bitcoin is &quot;a revolutionary protocol for information synchronization.&quot; However, it is by no means unique, and as we&#x27;ve seen, anyone can start their own bitcoin-type cryptocurrency. Apparently, the Canadian government is working on their own, and I don&#x27;t think it will be long before other central banks begin to follow suit by adapting the bitcoin protocol for their own purposes and presumably solving some of its myriad problems in the process. And of course, when given the choice between a new-and-improved cryptocurrency that&#x27;s guaranteed by a central bank and the old one that&#x27;s guaranteed by nothing, Joe Blow is going to pick the former. Bitcoin is an amazing idea and I do believe that the idea behind it it will revolutionize transactions, but it won&#x27;t be alone for long, and once the improved versions begin showing up, those who&#x27;ve held on to bitcoin because it&#x27;s an amazing idea (it is) without realizing that bitcoin itself has only a very thin economic moat are probably going to have a bad day.<p>I&#x27;ve been trading and investing stocks for about 7 years now, and I think I&#x27;ve learned a thing or two in that time, but one of the most important things I&#x27;ve learned is that if holding onto something is making me uncomfortable, it&#x27;s time to sell. Holding my bitcoin was making me uncomfortable as of a couple of days ago, so I sold. On the other hand, I&#x27;ve also learned that if everyone is expecting something to do one thing, it usually does the opposite, and it seems that pretty much everyone agrees that bitcoin is in a bubble. If it does crash, I&#x27;ll get back in, but if it doesn&#x27;t, I won&#x27;t regret selling. I&#x27;ve been on the emotional rollercoaster of watching relatively large sums of money invested in a volatile asset fluctuate wildly, and I&#x27;d rather not go through that again. Just my two cents.
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