What are your thoughts on BitCoin?

[TheLastOne36]

Just read this thing on bitcoins: https://medium.com/money-banking/2b5ef79482cb

That is a really really good article. Thank you Mise for sharing.

 

[Zelig]

Just read this thing on bitcoins: https://medium.com/money-banking/2b5ef79482cb

I don't think it's correct about how hyperdeflation is necessary, and dooming to bitcoins.

If the currency is arbitrarily divisible, it doesn't really matter what the value is, or how many of the total bitcoins are being held by people.

Regardless of the current value of whatever bitcoins I have, when I want to buy something worth $100 USD, I spend $105 CAD to buy a bunch of bitcoins, then buy the $100 USD items with the bitcoins.

Hyperdeflation is only dooming to the idiots who buy high, lose the game of chicken, and sell low.

So what? "It all averages out" reduces the rather erm complicated question of financial everything to a matter of total value over time, which one doesn't need a math degree to see is somewhat misleading.

Eh, no, lots of things change in value over the long run.

The value of human capital constantly goes up with technology advances.

The value of a pile of bananas goes to zero pretty quickly.

 

[Leoreth]

I don't think it's correct about how hyperdeflation is necessary, and dooming to bitcoins.

If the currency is arbitrarily divisible, it doesn't really matter what the value is, or how many of the total bitcoins are being held by people.

Regardless of the current value of whatever bitcoins I have, when I want to buy something worth $100 USD, I spend $105 CAD to buy a bunch of bitcoins, then buy the $100 USD items with the bitcoins.

Hyperdeflation is only dooming to the idiots who buy high, lose the game of chicken, and sell low.

The article is talking about the feasibility of BitCoin as a general currency that will replace the Dollar at that point. And an inherently deflationary currency would indeed be disastrous for every economy that uses it as a medium of exchange.

 

[Zelig]

The article is talking about the feasibility of BitCoin as a general currency that will replace the Dollar at that point. And an inherently deflationary currency would indeed be disastrous for every economy that uses it as a medium of exchange.

I didn't get the feeling that's what the article was talking about, that idea is laughably absurd in any case.

And I still don't see why it would be disastrous as a medium of exchange. Even if someone hoards every single bitcoin except for one of them, that single bitcoin can be arbitrarily split up between anybody who wants a given value of bitcoins in the short term.

 

[Farm Boy]

I didn't get the feeling that's what the article was talking about, that idea is laughably absurd in any case.

And I still don't see why it would be disastrous as a medium of exchange. Even if someone hoards every single bitcoin except for one of them, that single bitcoin can be arbitrarily split up between anybody who wants a given value of bitcoins in the short term.

It only gets horribad once the medium is widely accepted enough for more complicated financial transactions, such as loans/debt. Any currency that is deflationary really screws the pooch out of people who want to start up businesses, just as one example. I'll use an example from the Gilded Age. Say I want to plant a 120 acre farm. I'll need loans to either buy or rent the land, buy or rent the equipment, and buy the seeds/manpower/chemicals/everything that I am going to use to get everything set for fall harvest, my expected payday. If I have to take out those loans in currency that is going to deflate over 6 months my loans are going to keep getting larger and larger with respect to my expected payouts. Future income gets innately hosed in relative worth when compared to present expenses. It innately crushes the economy because the best thing to do with deflating currency is, well, to do nothing with it.

 

[Mise]

Well you wouldn't use it for loans etc. The value of them is that (a) they are untraceable, and (b) they don't depend on any government/economy. So you'd only use them for transactions where you don't want it to be traced, or a transaction where you don't trust the government/currency. For some people, of course, this means using them for basically everything. But for most people, it clearly limits the scope of use to the point where worries about "deflation" seem... weird.

I can think of a lot of transactions that I don't want to be traceable, especially as Big Data gets bigger and bigger. Do I really want my insurance company knowing I bought full fat milk, for example, and raising my health insurance premiums on that basis? I already use cash for a lot of stuff like that, because I don't want people building a profile of me based on my buying habits.

I can think of a lot of cases where I wouldn't trust the government, e.g. in a banking crisis. In this case, bitcoins and gold serve basically the same purpose -- except bitcoins are much more useful as a means of exchange. Sure, there are loads of things you can't buy with bitcoins, but you can't buy anything with gold.

I can see uses for it, certainly, even if it can't be used for everything under the sun...

 

[dutchfire]

Basically, money has a lot of different uses, BitCoin could replace some of them.

 

[Leoreth]

I didn't get the feeling that's what the article was talking about, that idea is laughably absurd in any case.

That's the relevant part:

The biggest problem with bitcoins, however, is conceptual: if they succeed, they fail.

If millions of people started using bitcoins on a regular basis, the soaring value of bitcoins would actually be disastrous. You’ve heard of hyperinflation: this would be hyperdeflation. Take a gold bar valued at $600,000. At $60 per bitcoin, the value of that bar is 10,000 BTC. But then assume that bitcoins rise in value to $600 apiece, and then to $6,000, and then to $60,000 — as would have to happen if the fixed number of bitcoins was being used to store hundreds of billions of dollars in value. Then the value of the gold bar would plunge, in bitcoin terms — to 1,000 BTC and then 100 BTC and finally just 10 BTC. The same thing would happen to all other goods and services in the world, including your own salary. Everything would be constantly going down in price, if you thought in bitcoin terms.

Inflation is bad, but deflation is worse. The reason is that in a deflationary environment, no one spends money — because whatever you want to buy is sure to become cheaper in a few days or weeks. People hoard their cash, and spend it only begrudgingly, on absolute necessities. And they certainly don’t spend it on hiring people — no matter how productive their employees might be, they’d still be better off just holding on to that money and not paying anybody anything.

The result is an economy which would simply grind to a halt, with massive unemployment and almost no economic activity. In a word, it would be a Depression. In order to have economic growth, you need monetary growth as well — and that’s something which is impossible to achieve in a bitcoin-based system. Currencies such as the dollar, with a central bank which can print money at will, have succeeded for a reason. As economies grow, the money supply has to be able to grow with them. And that’s why bitcoin can never really succeed over the long term.

It clearly talks about a hypothetical situation where BitCoin has replaced the Dollar (or any other traditional fiat currency) as prevalent medium of exchange. You may say that that's ludicrous, and I agree, but for parts of the BitCoin community that's their actual goal - so the article had to address that.

And in general terms it explains very well what the disadvantage of deflationary currency is.

 

[Silurian]

Well you wouldn't use it for loans etc. The value of them is that (a) they are untraceable, and (b) they don't depend on any government/economy.

What is different in getting a loan in bit coins or pound notes, if you take the loan physically rather than paid into a bank account.
When you pay back the pound note loan you do not have to give back the same notes.

 

[Samson]

I have a question for the well informed here. If "Individual Bitcoins exist as a digitally signed solution to a complex mathematical algorithm", how do you hold fractional bitcoins? Do you need a trusted third party?

 

[Leoreth]

What is different in getting a loan in bit coins or pound notes, if you take the loan physically rather than paid into a bank account.
When you pay back the pound note loan you do not have to give back the same notes.

Mise didn't mean that you wouldn't take loans in BitCoins because they're untraceable, if that's what you're addressing. That's just an unrelated benefit of them.

Long term loans in BitCoin make no sense, again, because of the deflationary risks.

 

[Silurian]

Mise didn't mean that you wouldn't take loans in BitCoins because they're untraceable, if that's what you're addressing. That's just an unrelated benefit of them.

Long term loans in BitCoin make no sense, again, because of the deflationary risks.

Well that is what he said.

Well you wouldn't use it for loans etc. The value of them is that (a) they are untraceable

The he goes on to talk about the benefits of cash.

So are you saying short term loans make sense.

I agree with you about the long term deflationary risks or more likely certainty.

 

[Crezth]

Eh, no, lots of things change in value over the long run.

The value of human capital constantly goes up with technology advances.

The value of a pile of bananas goes to zero pretty quickly.

That's true, but those items are commodities - not currencies. You wouldn't trade in bananas or human capitals for instance.

 

[Mise]

Well that is what he said.



The he goes on to talk about the benefits of cash.

So are you saying short term loans make sense.

I agree with you about the long term deflationary risks or more likely certainty.

I don't know how you went from "you wouldn't use them for loans" to "short term loans makes sense"...

 

[Silurian]

I don't know how you went from "you wouldn't use them for loans" to "short term loans makes sense"...

I didn't

Originally Posted by Leoreth
Long term loans in BitCoin make no sense

Originally Posted by Silurian
So are you saying short term loans make sense.

 

[Leoreth]

It was a little confusing because you were quoting us both. And I didn't say that short term loans make sense, just that long term loans don't.

Short term loans are probably also a bad idea because of the volatility of the currency, just who's getting screwed over in that case is a bit less clear, which is why I focused on long term loans.

 

[Silurian]

It was a little confusing because you were quoting us both. And I didn't say that short term loans make sense, just that long term loans don't.

I quoted you both because I was replying to your comment about what Mise meant rather than what he posted. The first sentence in a paragraph normally has some relationship to the second sentence.

Where did I say that you said "short term loans make sense".
I asked a question because you specified long term loans.

Short term loans are probably also a bad idea because of the volatility of the currency, just who's getting screwed over in that case is a bit less clear, which is why I focused on long term loans.

This is true.

 

[JohannaK]

This is a very interesting thread... I do recall seeing RON PAUL FUN BUX everywhere a few months ago, but I had no idea what it was about...

 

[bhsup]

Just read this thing on bitcoins: https://medium.com/money-banking/2b5ef79482cb

Confused by what seems to me to be a contradiction...

A man — we know him only as “All In Vain” — went to bed that night with his Windows computer turned on and connected to the internet. On that computer was a wallet containing 25,000 electronic coins. When he woke up on Monday morning, the wallet was still there. But the money was gone.

Those 25,000 coins were, at the time, worth some $500,000; today, they are worth about $3.5 million. If All in Vain had noticed the theft within a couple of minutes of it happening, it’s conceivable that he could have got his money back. But he was asleep — and ten minutes after the theft occurred, it was utterly permanent and irrevocable.

Bitcoins were designed to be – and, in many ways, are – the perfect digital currency: they’re frictionless, anonymous, and cryptographically astonishingly secure.

So which is it? Are they secure, or are you going to get ripped off the moment you leave your computer unattended?

 

[Leoreth]

They are cryptographically secure. That means without the wallet file to prove it, you can't trick someone else into believing that you own a certain bitcoin (or pay with it etc.). But you still have to protect your wallet from conventional attacks on your computer.

(In an analogy, the safest lock in the world doesn't become less safe only because you leave your keys lying around.)