For now, bitcoin only suitable as a store of value - page 2.

johnyj

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Quote from: 2_Thumbs_Up on April 14, 2013, 05:43:10 AM

Quote from: johnyj on April 13, 2013, 04:33:33 PM

People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable

But if the mindset of everyone is that bitcoin will only go up, it is the case for retailers and merchants as well. They would rather get paid in bitcoins than in fiat, and could offer better prices that correlates to the expected price rise of bitcoins. The world you are describing is a world where consumers expect Bitcoin to rise, but merchants don't.

Good call, maybe merchants will provide some discount, but that is difficult due to high volatility, a merchant might not have so much freedom in timing

johnyj

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Quote from: Impaler on April 14, 2013, 06:28:16 AM

Merchants do not have the ability to pull currency away from people who wish to hoard it, the buyer determines the currency used in commerce because they make decisions on what money to spend (if any) before being presented with products. In BTC economics their is only one thing a merchant could be selling that is attractive enough to part with the hyper-deflating money for anything that's not a drug, MORE MINING HARDWARE.

It's an economy that resembles a wild-west gold-rush boom-town. Miners hoard their gold and only spend it on Booze and Whores (SilkRoads), or buy more picks and Shovels (Avalon & ButterFly Labs) or try to play the commodity market (Mt.Gox). It's basically a big circle-jerk that's not actually producing any real surplus value and which is completely dependent on it's own continued growth.

The gold rush actually shifted the US economy center towards west coast, many companies growed out of it, even lasted until today, how is that of no real value

ElectricMucus

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Bitcoins are usable for speculating and trading stuff online.

That's it, a store of value implies inherent stability which bitcoin can not be, ever. It's an asset with high elasticity, the highest possible actually.

Impaler

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Merchants do not have the ability to pull currency away from people who wish to hoard it, the buyer determines the currency used in commerce because they make decisions on what money to spend (if any) before being presented with products. In BTC economics their is only one thing a merchant could be selling that is attractive enough to part with the hyper-deflating money for anything that's not a drug, MORE MINING HARDWARE.

It's an economy that resembles a wild-west gold-rush boom-town. Miners hoard their gold and only spend it on Booze and Whores (SilkRoads), or buy more picks and Shovels (Avalon & ButterFly Labs) or try to play the commodity market (Mt.Gox). It's basically a big circle-jerk that's not actually producing any real surplus value and which is completely dependent on it's own continued growth.

2_Thumbs_Up

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Quote from: johnyj on April 13, 2013, 04:33:33 PM

People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable

But if the mindset of everyone is that bitcoin will only go up, it is the case for retailers and merchants as well. They would rather get paid in bitcoins than in fiat, and could offer better prices that correlates to the expected price rise of bitcoins. The world you are describing is a world where consumers expect Bitcoin to rise, but merchants don't.

johnyj

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Quote from: gradient vector on April 13, 2013, 07:21:00 PM

Bitcoin can be both a store of value and a medium of exchange. People will hoard many bitcoins but a bitcoin economy can exist with a small fraction of bitcoins in existence. The key to bitcoin succeeding is to first be used in functions with little exchange risk. A remittance is the first thing that comes to mind. A person can send bitcoin to an exchanger in a foreign country as collateral who thens quickly sells btc in the market and gives the proceeds to the recipient of the remittance.

Yes, crossboarder transfer is another advantage, a store of value that can be send to anywhere on the planet quickly and safely

gradient vector

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Bitcoin can be both a store of value and a medium of exchange. People will hoard many bitcoins but a bitcoin economy can exist with a small fraction of bitcoins in existence. The key to bitcoin succeeding is to first be used in functions with little exchange risk. A remittance is the first thing that comes to mind. A person can send bitcoin to an exchanger in a foreign country as collateral who thens quickly sells btc in the market and gives the proceeds to the recipient of the remittance.

johnyj

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People always raise the example of IT products (even you know you can buy same product with less money in the future, you will still buy it today) and claim there is no problem for a deflative currency to become a medium of exchange

That is the wrong way to look at the problem, since in this example you have no alternative payment method. If you have another inflative currency which lose its value as fast as IT products, you would definitely spend that currency to buy IT products and hold the deflative currency

And this is what will happen, people will spend fiat and hold bitcoin. Even if they ran out of fiat, they could possibly take a loan to spend, since the interest of the loan is much less than the value appreciation of bitcoin, they only need to sell small amount of the coin each year to pay back the loan when exchange price is favorable

pretendo

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It's just a disruptive, growth industry in its early penny stock stages. Penny stocks are volatile just like bitcoin. This doesn't mean they always will be.

johnyj

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Quote from: Impaler on April 13, 2013, 01:42:52 AM

Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.

Normally you can't have both. USD can not work as a store of value since it inflates continously, but it works as a medium of exchange. Gold do not work as a medium of exchange but they hold value

And, low liquidity does not mean no exchange value, if price greatly swing between 30-300, it's just high volatility, you have to either deleverage or buy some derivatives to hedge the risk, if you don't have the time to care about exchange. I have explained before that majority of people will not pay bitcoin for daily consumption, since fiat money already works enough good

A retirement saving medium is where bitcoin will succeed first, if you have started to save in bitcoin each month since last year, now your retirement saving account is worth many times more than a fiat money saving account, even after this crazy rally and crash

Impaler

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Catch-22

BTC is too volatiles to use for commerce so it has no exchange value.
BTC's store-of-value is based on its ability to be exchanged, it only has store-of-exchange-value
If it has not exchange value then it has no store or value.

johnyj

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This kind of large price swing will create huge uncertainty for the merchant and anyone who doing trade using bitcoin as a currency. For a currency, the most important character is stable exchange value

For a limited amount of supply, this kind of fast price swing is expected. So it will not be suitable for use as a transaction medium, if the merchant who receive the coins don't exchange the coin to USD immediately, he might lose 2/3 of it's exchange value overnight, it is clear none of the merchat will accept this kind of risk

So, currently the most possible use for bitcoin is act as a store of value, or the base currency. As a store of value, people tends to hold it for a long time, and in long term the price will always rise due to limited supply, the short term price swing will be irrelevant

Only when bitcoin first successfully established itself as a reputable digital asset, it price will stablize and then it can slowly becomes a widely used medium of exchange. Currently the people's confidence are still very weak and the large price swing is unavoidable

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