Building a Better Bitcoin

Articles like this demonstrate why most people don't get Bitcoin in the 1st place. Let's ignore the factual inaccuracies like bitcoin production bottoming out in 2040 (it's 2140, Justin, and that's a big difference) and focus on how Justin doesn't get it.<p>Bitcoin is in use right now transferring money around the globe. If I buy 100$ worth of bitcoin (0.478 bitcoin at current prices) and immediately use it to purchase anything, it has served its purpose as a value transfer medium. This is regardless of tomorrow or yesterday's price. It is this efficacy that people pay for when they buy bitcoins.<p>Bitcoin was not designed as a storage or investment medium it was designed to facilitate the transfer of value. As long as it performs that function it will continue to defy the misplaced expectations of those who refuse to go to the effort of understanding it.

&#62; According to the Bureau of Labor Statistics, a 2013 dollar has one-tenth the purchasing power of the 1950 version. By contrast, bitcoins have been skyrocketing in value. This sounds like a good thing, but for a currency it's really not. An economy where bitcoins were the means of exchange would have experienced 98% deflation over the past year. No one would be able to repay any loans, or really do business at all. What we want out of a currency is not price appreciation but stability. Monetary economists differ on whether the optimal stability is inflation of 0% or in the low single digits. Nobody thinks 98% deflation is healthy, and all but a small minority seem to think any deflation at all is a bad thing.<p>This needs to be repeated until exhaustion.

I really wish these articles would just stay off HN. All they do is bring out the armchair economists and the gold bugs.

A much better and less biased article than the 'Bitcon' one. It shows once more that no one really knows what Bitcoin is and what's going to happen to it.<p>If you must compare Bitcoin to gold, consider the current price of gold, imagine that we didn't know it existed until yesterday and then suddenly it appeared. Bitcoin currently fulfills a niche in the same way that gold did in the past (and still does).

Speaking of a better bitcoin, why can't the proof of work aspect be something that's useful instead of a huge waste of electricity?<p>Perhaps solving hard problems like protien folding, or a big virtual CPU that people can send processes to?

Quoting from the article: <i>"So ... bitcoins are without intrinsic value as assets, yet they have risen too fast in value to be much use as a currency. Kind of makes your head hurt, doesn't it? But it also sounds a bit like a familiar commodity, gold, that's also been on a roll, with its dollar price quintupling over the past decade. Gold has, over time, not been the greatest of assets to invest in. It's not the greatest of currencies, either: Back when the gold standard was widely adhered to, nations struggled regularly with deflation. There's persuasive evidence that the primary cause of the Great Depression was a refusal to unlink currencies from gold until too late. Still, gold has held onto its purchasing power over time."</i><p>I agree with the author: bitcoins are very similar to gold ("the people's currency"), except they're digital and their supply is mathematically fixed. So ... how much would a Bitcoin sell for if the world ever comes to value it like gold?<p>Granted, that's a big <i>if</i>, but let's entertain the thought for speculative fun. All gold mined since the start of civilization is currently valued at around $8.8 trillion.[1] Divide this figure by the maximum of 21 million bitcoins that can ever be created, and the figure is over $400,000 per Bitcoin. So the answer is, in the order of a few hundred dollars per milli-Bitcoin.<p>For reference, all bitcoins in existence are currently valued at $0.002 trillion.[2]<p>--<p>[1] <a href="http://en.wikipedia.org/wiki/Gold#Production" rel="nofollow">http://en.wikipedia.org/wiki/Gold#Production</a><p>[2] <a href="http://www.bitcoinwatch.com" rel="nofollow">http://www.bitcoinwatch.com</a>

One thing that I haven't really seen addressed in these discussions is how we're actually measuring the value of bitcoins. The focus is entirely on the USD/BTC exchange rate, but is that really the proper measure of value to use when discussing inflation or deflation? I'm not an economist by any means, so I honestly don't know, but that seems a little wrong somehow.<p>In particular, when we say the USD is worth 10% of what it was 60 years ago, we're not comparing that to any other currency. We're just saying that things that were $1 USD back in the day tend to be $10 USD now. Then when we talk about BTC being deflationary, we talk about 1 BTC a year ago being traded for $200 USD now (or whatever it is). It seems a bit apples to oranges to me.<p>So here's a question: when BTC value in terms of USD spikes, does the price of goods in BTC spike proportionally? If so, maybe that's a reasonable metric of value for now. I haven't bought in to BTC yet, so I don't actually know the answer. But in all these discussions about inflation or deflation and instability in a hypothetical BTC economy, does it really make sense to still talk about the USD/BTC rate?

Something with quickly fluctuating value may be useful for trading goods, but very poor for paying wages IN OUR CURRENT ECONOMIC MODEL.<p>Borrowing in a deflating currency is very difficult, as your future earnings are likely to decrease in number, not value. The lender has no reason to lend if they can't get more from interest than what they expect from just holding the bitcoins.<p>Some would welcome this model, where there is little or no investment lending, and everything is bought only with readily available funds.<p>YC funding would probably be radically different. Buying a car, a house, or anything else using credit would be extremely difficult, if not impossible for most people.<p>While putting things you don't need on credit cards is only really good for the credit card companies, borrowing to expand your business, reliable transportation to work, or even reasonable housing is the grease in the current world economy.<p>Our economic model is mostly a recent phenomenon, historically, deflation was the norm. I don't think that going backwards is actually going to help anyone except the enormously wealthy, who can easily hold onto the majority of their wealth while it accrues value.

But what stops other people from making their own versions of bitcoin? Why can't somebody else create the AsiaCoin or the Bitcoin II or the OceanCoin? What makes bitcoin special other than it's the first one that was created?<p>All other currencies have some sort of backing. Either a government or something physical like Gold that can't be easily duplicated. That seems to me the big difference between bitcoin and other assets.

It's like building the better "Internet Explorer". Once it becomes de-facto standard - the world will have no choice but to embrace it's global penetration and live and work around it's limitations.

Best article on Bitcoin so far.

I stopped reading when the article cited Gold as one of the roots of the Great Depression. Ha! Yeah, sure.