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Topic: Am I misunderstanding this or? (Read 7714 times)

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Quote from: Grouver (BtcBalance) on May 16, 2012, 05:38:50 AM

Why would the majority of the people that have bitcoins spend them if they know bitcoins are becoming scarce (wich equals to more value) while time passes?
And to get the value of bitcoin raising you need a running economy right?
Doesn't these two things conflict with each other or am I misunderstanding something here?

Thanks for enlighting.

-Grouver-

The counter-question is, why should the majority of merchants not give better deals priced in bitcoins if they know they are becoming scarce and more valuable? There are two parts in every trade you know, and the right price will make every trade possible.

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Quote from: realnowhereman on May 30, 2012, 02:24:31 AM

Doesn't that provide excellent refutation for all the Gresham's law naysayers?

Gresham's Law is commonly very misunderstood. It does not apply to bitcoin at all. Gresham's Law is only applicable when you have a fixed exchange ratio between two different kinds of money, such as when the government forces people to accept debased gold coins at face value.

Basically, Gresham's law is a special case of price fixing. When you have a fixed mandate of the exchange rate between two goods you get a glut of one of them and a shortage of the other (and usually a black market to go with that). Thus, bad money only drives out good money when you are forced to accept the bad money at a higher price than the market price. Absent of price fixing, good money will outcompete bad money since merchants will be willing to offer better prices for good money. If Gresham's Law was universally applicable to all money at all times, gold would never have been money before the governement destroyed it. The market place would have ended up with the worst good possible for the purpose.

There is no problem the right price can't fix. If people get less inclined to sell their bitcoins (i.e. buy goods and services for them) because the expect the value to rise, then we should, for the same reason, expect that people will be more inclined to buy bitcoins (i.e. sell goods and services for them). This leads to an increase in the price of bitcoins, and thus lowers the expected return of hoarding to the level where people are ready to spend them again.

Etlase2

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Quote from: ?? on ??

I was talking about alt-chains ..

This negates your earlier complaint that Bitcoin is unable to expand its supply in response to increases in demand.

mm hmm

lonelyminer (Peter Šurda)

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Quote from: Etlase2 on May 30, 2012, 11:47:35 AM

This might be a shocking revelation: nobody used to be directly in charge of gold's scarcity, but goldsmiths used the ideas behind modern banking to rise to immense amounts of power and wealth. Bankers financed dozens of wars and have had a hand in writing who knows how many laws. It is because of the power of gold that fiat money and the banking system work the way they do.

The power of bankers comes from credit expansion, which can increase the money supply at lower costs than producing new gold. Without credit expansion, there is no reason why the profitability of facilitating loans be any different than the profitability of other businesses.

Quote from: Etlase2 on May 30, 2012, 11:47:35 AM

This is such a terrible answer though. "Bitcoins are high this week, have to buy/accept bitcoin2s to conduct business". It's basically admitting that bitcoin has a massive flaw: it's not a good medium of exchange. More people want to use it, but can't or are turned off by it enough to use something else. That's a pretty big failure, imo.

First of all, we know that money exists. So this is not an insurmountable problem, because the spread of any money that is nowadays in use already happened in the past. People initially did not use a particular money but later switched. And some of these even occurred without a corresponding act of state. I'm sure there were plenty of skeptics and naysayers who preferred the old way for one reason or the other. But Bitcoin's advantages over the alternatives (decentralisation, predictable supply, low transaction costs) are still here and, in my opinion, remain unchallenged. Either it's sufficient for a switch, or it's not. Other than helping to provide an pleasurable experience for the potential user, there is not much else that can be done.

Etlase2

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Quote from: ?? on ??

Judging by some of the comments in this thread, it seems that Etlase et al might have been somehow 'damaged' by the shocking revelation (/sarc) that nobody is directly in charge of bitcoins' scarcity in any Big Brother government-like way.

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1) Bitcoin's adoption doesn't have to grow. If people don't want to buy any bitcoins, nobody is forcing them. There is no "evil government-like entity" giving early adopters an unfair advantage by forcing everyone else to participate and artificially inflate the price.

And I have acknowledged that if you don't believe bitcoin will be a replacement currency in any real respect, then yeah it can do what it's doing now.

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This feature could also protect against severe price shocks. For example, if Bitcoin ever has a sudden burst of popularity, some of the additional demand is bound to be absorbed by new currencies that suddenly pop up, thus stabilising its price against relatively large benchmarks like the USD.

molecular

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Quote from: Stephen Gornick on May 30, 2012, 02:39:48 AM

But consider that if a lot of the legitimate, low-risk business starts to use wallet/cash methods for purchases (at Dwolla's $0.25 rate), but nearly 100% of fraudulent purchases remain using VISA/Mastercard, that not only wouldn't the merchant rate drop but it could potentially be forced to go up (at least for card not present type of ecommerce transactions).

Yeah, haha. I agree. VISA is for criminals. All the good souls use bitcoin.

Stephen Gornick

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Quote from: realnowhereman on May 30, 2012, 02:24:31 AM

Doesn't that provide excellent refutation for all the Gresham's law naysayers?

Well, one thing that I'm assuming is that payment cards will always be higher than the bitcoin exchange rate. They could drop to 2%, let's say, if bitcoin or other systems (e.g., Dwolla or PayPal's wallet-based point of sale system) were to become a threat. And the difference between 2.0% and 0.6% gets to be less of an incentive.

And let's compare between Dwolla or Bitcoin, for a $50 purchase. Dwolla is 0.5% and bitcoin is 0.6%, for example. So it is cheaper to pay with Dwolla than to buy bitcoins and transact with bitcoins. So it really is only payment card versus Bitcoin where there is a significant cost difference.

But consider that if a lot of the legitimate, low-risk business starts to use wallet/cash methods for purchases (at Dwolla's $0.25 rate), but nearly 100% of fraudulent purchases remain using VISA/Mastercard, that not only wouldn't allow the merchant rate to be lowered and instead it could potentially force it to go up (at least for "card not present" type of ecommerce transactions).

Here's a related post where I made basically the same argument on the payment network charge arbitrage:
- https://bitcointalksearch.org/topic/m.887005

realnowhereman

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Quote from: Stephen Gornick on May 29, 2012, 10:37:45 PM

Quote from: memvola on May 29, 2012, 10:30:18 PM

No, no, you're doing it wrong! You should have waited! Those coins will be worth x times more in n years!

Or you could just replace them in bulk I guess... Hmm... *rubs his chin*

Correct ..., bitcoins can be used for spending to save 4%, and then in response purchase more at an exchange to replenish at a cost of 0.6%. It's a form of arbitrage. And for that reason, no matter what future expectation I have for bitcoin's exchange rate, the fear of spending my "good money" isn't a factor when deciding whether to pay with bitcoin or pay with VISA/Mastercard or other payment method.

That is an unbelievably good point. I'm amshamed of myself for not appreciating that before.

Thanks.

Doesn't that provide excellent refutation for all the Gresham's law naysayers?

Stephen Gornick

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Quote from: memvola on May 29, 2012, 10:30:18 PM

No, no, you're doing it wrong! You should have waited! Those coins will be worth x times more in n years!

Or you could just replace them in bulk I guess... Hmm... *rubs his chin*

Correct ..., bitcoins can be used for spending to save 4%, and then in response more can be purchased at an exchange to replenish at a cost of 0.6%. It's a form of arbitrage. And for that reason, no matter what future expectation I have for bitcoin's exchange rate, the fear of spending my "good money" isn't a factor when deciding whether to pay with bitcoin or pay with VISA/Mastercard or other payment method.

memvola

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Quote from: Stephen Gornick on May 29, 2012, 10:18:15 PM

Quote from: MoonShadow on May 29, 2012, 05:45:33 PM

I spent almost $400 worth of bitcoins to buy exactly $400 worth of prepaid cell phone top-up card numbers

I got a discount from face value of 4% compared to the precise exchange rate at the time. I did it, in part, because I knew that Virgin Mobile USA was just about to alter their resalers' terms in such a way that future discounts were unlikely.

I would have done the same thing. We bitcoiners sure are a bunch of penny pinching-cheap bastards, aren't we?

No, no, you're doing it wrong! You should have waited! Those coins will be worth x times more in n years!

Or you could just replace them in bulk I guess... Hmm... *rubs his chin*

Stephen Gornick

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Quote from: MoonShadow on May 29, 2012, 05:45:33 PM

I would have done the same thing. We bitcoiners sure are a bunch of penny pinching-cheap bastards, aren't we?

MoonShadow

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Quote from: memvola on May 29, 2012, 10:36:34 AM

Quote from: memvola on May 29, 2012, 09:33:44 AM

Bitcoin may imitate gold, but it attempts to do so on an insanely accelerated scale. The rush is already over and a few dozen people won. I don't think you will be able to convince the world at large that this is the best way out of the bankers' and politicians' hands.

How did it come this far then? I don't understand why you think the early (earliest?) adopters' BTC holdings will not dissipate.

As for myself, most of my 'early adopter' wages have already been spent. I did profit well in the several years since I bought my first 1000 BTC, but I can profit little more now. I now have less than 100 BTC left from that original set. My son asked me not so long ago, "If the price has increased so much Dad, do you regret spending what you had for less?" My reponse was, "No, because I did well by speculating early and gained much of what I wanted to buy when I sold them; much more (speaking in the context of value to my son) than the original bitcoins cost me. I literally couldn't lose now if the value of a bitcoin dropped to zero tomorrow."

I've bought video game licenses, handmade jewlry off of Etsy for my daughter, pretty rocks for both of them, server rentals, clothing, cell service on several occasions, food of several sorts (mostly candy) and recently baklava; among other things that shall remain unmentioned. The key to selling stuff for bitcoins, and thus seperating early adopters from their bitcoins, is to offer an advantage with bitcoin versus other (more established) alternatives. You could offer a small discount compared to credit cards/paypal, or a more private or more convient alternative than standard methods. Silk Road depends upon this, and can charge a premium because their method of handling bitcoins are a huge advantage concerning the limitation of legal risk for buyers as well as sellers.

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Quote from: Grouver (BtcBalance) on May 16, 2012, 05:38:50 AM

Last week, I spent almost $400 worth of bitcoins to buy exactly $400 worth of prepaid cell phone top-up card numbers. I got a discount from face value of 4% compared to the precise exchange rate at the time. I did it, in part, because I knew that Virgin Mobile USA was just about to alter their resalers' terms in such a way that future discounts were unlikely. Since my monthly service rate is $25 per month, I'm sitting on 16 months worth of cell service that I know that I will use. Yes, I was just as likely to gain as much or more over the next 16 months by holding the bitcoins and paying as I go, but that's a risk. I still have bitcoins to do that with, and still plan on buying more, but the phone card numbers are a solid win so long as Virgin Mobile USA doesn't go bankrupt in the next 16 months and I don't lose those numbers before I can use them.

Basicly, I'm hedging against a fall in the bitcoin exchange rate. I believe that bitcoins are going to stay pretty much the same for most of that time, and I neither believe a drop nor a rally is likely, but I don't know.

memvola

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Quote from: Etlase2 on May 29, 2012, 03:38:30 PM

Not to be nitpicky, but no theoretical limit does not mean non-scarce

Yes, thanks for the correction.

Quote from: Etlase2 on May 29, 2012, 03:38:30 PM

More like a renewable resource, but extracting resources is not free. And the gist of the system is that when enough people attempt to create money, people saving and transacting on the network will also be given new money until the miners decide it is no longer worthwhile for the time being. The tricky part is making sure another CPU->GPU type scenario will not be disastrous.

Still, it feels like unforeseen developments messing up the system would be the norm. I'll check the documentation again later, either they are too cryptic or I had too much coffee. Maybe a programmer could produce an introductory summary?

Quote from: Etlase2 on May 29, 2012, 03:38:30 PM

How can a group of people with a few million USD do the same? They could certainly increase the price very quickly, but they run the risk of earlier adopters selling out the floor. The early adopters, shockingly enough, don't have any risk except if they decide not to sell as you have already mentioned.

In your scenario, a group of early adopters are holding large chunks of coins, and somehow don't have conflicting interests (this is very implausible, but let's assume they are all the same person), so collectively they are a danger to the economy. If you have a few million dollars today, by following a good strategy (borrow, sell, buy), you can become as BTC-rich as this conspiracy. Unless there is a bigger conspiracy, I don't get how you "acting irresponsibly" would be any different from them.

Quote from: Etlase2 on May 29, 2012, 03:38:30 PM

the status quo of the "wealth transfer" property seemingly required of money is present and accounted for in bitcoin.

Yes, it "seems" that it's required.

Etlase2

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Quote from: memvola on May 29, 2012, 02:38:51 PM

Not to be nitpicky, but no theoretical limit does not mean non-scarce. More like a renewable resource, but extracting resources is not free. And the gist of the system is that when enough people attempt to create money, people saving and transacting on the network will also be given new money until the miners decide it is no longer worthwhile for the time being. The tricky part is making sure another CPU->GPU type scenario will not be disastrous.

Quote from: Etlase2 on May 29, 2012, 01:01:09 PM

any reasonable assumption as to the amount of bitcoins the Satoshi Group mined

FUD much?

Difficulty of 1 for the first 1.6 million coins with an average solution time being over 13 or so minutes meaning there were not even enough CPUs to satisfy 2-3MH/s.
It is logical to conclude that whatever group started bitcoin were the only people mining for coins until a year or so after the launch. Any other explanation would be awfully forced.

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With this kind of reasoning, any group of people with a few million USD lying around as of now can do the same (ALL bitcoins are worth less than $50M), so we have to trust everyone who has that kind of money (tens of thousands of entities?) in the world to be responsible too. Or are we to assume that only the fictional Satoshi Group has a beef with Bitcoin?

I don't follow "this kind of reasoning". How can a group of people with a few million USD do the same? They could certainly increase the price very quickly, but they run the risk of earlier adopters selling out the floor. The early adopters, shockingly enough, don't have any risk except if they decide not to sell as you have already mentioned.

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I think you're focusing on a single point and forgetting how the world itself operates.

No, the debate invariably gets focused in the direction of the specific early adopters despite my trying to avoid it, because many of you just can't help but believe it is a matter of jealousy. I try to consciously argue against bitcoin as if the initial currency distribution made a whit more sense, and specifically avoid "focusing on a single point." I am most definitely not forgetting how the world operates, I am doing the best I can to actually change it--which I wholly admit is probably a lost cause. But bitcoin, in general, in my opinion, is ripe for manipulation. One way or another, the status quo of the "wealth transfer" property seemingly required of money is present and accounted for in bitcoin.

realnowhereman

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Quote from: Etlase2 on May 29, 2012, 10:07:17 AM

But to buy it in the hopes that it is, of itself, a money making venture is not going to promote a well-functioning bitcoin economy.

Shame, it's the only thing that ever has.

Quote from: Adam Smith

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

memvola

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Quote from: Etlase2 on May 29, 2012, 01:01:09 PM

I assume you're referring to the 1 enc costs 1 enc to produce thing

No, I'm referring to the theoretical difficulties in creating a non-scarce AND objectively balanced currency. I'm talking about the possibility of your idea in general, not necessarily Encoin. It seems impossible to me (that's why I referred to Marx's work), so I'd like to know what assumptions are made and what trade-offs are introduced (by Encoin or as a general idea) to attain that goal.

(I read material on Encoin several times, there a multitude of technical points that just aren't convincing, however what interests me is only the abstract idea, not the design itself.)

Quote from: Etlase2 on May 29, 2012, 01:01:09 PM

any reasonable assumption as to the amount of bitcoins the Satoshi Group mined

FUD much?

Quote from: Etlase2 on May 29, 2012, 01:01:09 PM

everyone has to trust satoshi or others with huge sums of money that has never entered the market to be responsible. I thought we were supposed to be getting away from the whole "having to trust someone" thing.

Etlase2

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Quote from: memvola on May 29, 2012, 10:36:34 AM

Come on, I'm talking about impalpability within the realm of ideas. For instance, even if Bitcoin wasn't an actual functioning economy, or even implemented, its "assumed" answer to the transformation problem is pretty much established (not solvable, non-polynomial, etc.). In comparison, you didn't even care to try. I'm not criticizing your action, just pointing out that it's too complicated to be so confident about. I would rather have the answers first.

I assume you're referring to the 1 enc costs 1 enc to produce thing, which is an outdated idea. It went through revisions, originally being 10kWh, and so on like that until it has just basically become a bunch of ideas to reach equilibrium quickly between the existing money supply and the demand for new money. I detail it a bit more here: https://bitcointalksearch.org/topic/m.852204 but even since then I've made a lot of revisions to my ideas. I don't know that it will be insanely stable or anything like that, but I think it can work out to be a much better store of value than fiat while being resistant to bank (or earlier adopter) created liquidity crises.

Quote from: memvola on May 29, 2012, 09:33:44 AM

How did it come this far then? I don't understand why you think the early (earliest?) adopters' BTC holdings will not dissipate. If you are indeed right, the rational choice for early adopters is to sell their bitcoins at this point, no? Didn't the ones who didn't sell at $30 lose money?

How did it come this far? The same could be asked of any successful, long-term scam :rimshot: The bitcoin market is still extremely small, we haven't seen how it is going to react when and if some bigger market finds it agreeable. As far as dissipating holdings, the answer is--it hasn't happened yet, and we can't know when it will. Even if billions are added to the market, any reasonable assumption as to the amount of bitcoins the Satoshi Group mined will be enough to empty it. Due to the nature of bitcoin, the earliest of adopters could trickle in the money over time or they could make you only think that they are doing so and really retain their coins, and you could not be sure (heyyy look the market is absorbing all these early coins without dropping, rally!!). But as it is, the great majority of the initial 2 million coins or so are unspent. fun graph: http://ecdsa.org/stats.html To me, this situation boils down to the fact that everyone has to trust satoshi or others with huge sums of money that has never entered the market to be responsible. I thought we were supposed to be getting away from the whole "having to trust someone" thing.

memvola

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Quote from: Etlase2 on May 29, 2012, 09:52:32 AM

As impalpable as running a currency of bits over the internet? Tongue

I've actually simplified some major ideas since then, but I've also had more ideas to add.

Quote from: memvola on May 29, 2012, 09:33:44 AM

DeathAndTaxes

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Quote from: Etlase2 on May 29, 2012, 05:47:33 AM

Yeah whatever the tired argument that a few dollars of electricity and participating in a hobby is a gigantic risk worth millions. I really don't care about this, which is why I am specific with my words. But it is so easy and tempting to quote part of a paragraph and bite in as if there weren't anything else clarifying it.

A few dollars in electricity in hardware would only be worth millions if the person decided not to cash out. So pretending they only risked a few dollars is intellectually dishonest. You simply say it because it reinforces your point of view.

Say someone mined 100K coins and it only cost them $300 (hardware, time, electricity). When Bitcoin was worth $0.01 ea that investment suddenly was worth $1K. As soon as they had the potential to sell some or all of their coins at the market price that became what they risked by not selling. By not accepting $1K and holding they were no longer risking $300 they were risking $1K. The same thing applied as the price rose from $0.01 to $0.10 to $1.00 and all the way up to $30.00 and then back down to $2.00 and back up to $5.00.

At each point the holder was risking the current value (in fiat) against the potential of future appreciation (which isn't guaranteed). The only way someone ends up a Bitcoin millionaire is not by merely "risking a few dollars" but also being willing to continually risk the current value and not "cash out".

You claim the Bitcoin early adopters are unfairly enriched for their minimal risk. However that enrichment only happens unless they either have already sold out (like getting a Pizza for 10K coins) or Bitcoin continues to expand. If Bitcoin fails which you continue to claim it will then the early adopters won't be enriched millions.

It seems you want to have your cake and eat it to. Bitcoin early adopters will be unfairly rich by holding coins, the very same coins which have no value if Bitcoin fails. So which is it? The early adopters are unfairly enriched to the tune of millions or Bitcoin will fail?