Topic: Interesting topic in Economics (Read 1841 times)

^this

I believe the distribution of USD is more enevenly distributed. I highly recommend following youtube-hit which show how wealth is distributed in US:
http://www.youtube.com/watch?v=QPKKQnijnsM

I agree with this fully. They can only sell their bitcoins once! So just buy them and they no longer have a massive amount of bitcoins

That article is from october 2012. Price skyrocketed by then and still, bitcoin is still alive...

I see it as a good thing if the biggest hoarders start cashing out. That can only help to even out the distribution of coins... as the early adopters cash out and crash the price, people looking to buy in will happily buy from them at the lower price point. I am interested in seeing this happening 

Thanks, I think?

http://www.youtube.com/watch?v=1L45SxxxNnI

Not like this, I hope.

I like your mind.

I have seen many claims in this range, but the problem with such predictions is that they are based upon direct comparisons to the fiat currencies, and estimates about how much a bitcoin would be worth by taking over such-n-such percentage of those fiat currencies economic activity.  The issue that I see is that bitcoin is different on more than a superficial level.  For example, all fiat currencies can be compared quite well because they all suffer from the same types of 'friction'.  By friction, I mean the combined effects of transaction costs external to the currency unit and the combined delays of dealing in a fiat currency across distances & borders.  (the latter can be considered a type of the former, but is harder to quantify the costs of delays).  For example; the average fiat currency user labors for a weekly or bi-monthly paycheck, and then uses that paycheck to pay his bills in turn.  So a cashier at Wal-Mart gets paid (indirectly) from the payments that shoppers use to buy stuff, but there is a minimum delay of one week.  This practically means that, under ideal conditions, the max velocity for those fiat dollars is limited by the time it takes for the paycheck to be deposited.  Bitcoin is different, as the funds used to buy a knick-knack or two at a Wal-mart in New Mexico can be used to pay accumulated wages earned by a cashier in Calcutta an hour later.  Thus, the practical max velocity of Bitcoin is at least 168 times higher than fiat currencies, and that is just considering one common use case.  The use case regarding international trade in Bitcoin, as compared to letters of credit, is at least as significant.  The higher velocity has a similar effect on the trade value of a currency as does debasement, so long as the velocity of the currency remains high.  Therefore, I consider those kinds of massive value estimations to be unlikely.

Yes, it's true that many early adopters will sell their coins. But think about the balance of supply and demand. Most people have never heard of bitcoin, even as today. Of the last 10 people I told about it, only 1 had heard of it.

The rate at which people are finding out about Bitcoin is growing faster than the rate at which people are selling, and the rate at which Bitcoins are being mined. That is why the price has risen over the last months.

I think this trend will continue for the near future. Most people don't know about bitcoin, and only a few people (relative to the hundres of millions who could use them) have purchased. Checking Google trends shows this as well.

That is what looks like will happen in the next few months. What about in 10 years? That is much more uncertain. However, the demand could be much greater. It is possible that a single bitcoin will be worth $1,000 to $1,000,000. And likely that a single dollar will only be worth a fraction of what it is worth today.

Another consideration is the ways in which we have all been brainwashed by what is called "Bretton Woods II".  This was an agreement which, as I understand it, attempted to transfer the control of the world's money supply from mother nature (in concert with human nature) to International Bankers.  We think of value in terms of dollars or euros or some other fiat currency that we grew up with, and that is the great tragedy that bitcoin is helping to alleviate.  Value is in things - food, metal, people - and money is whatever people choose to represent that value, usually something that has intrinsic value to just about everyone (fish, salt, gold, silver - many commodities have been used by different cultures).

Check out The American Dream for a pretty good explanation of how the brainwashing got started (hint: banks cheated and governments defined their cheating as legal).

Bitcoin has two features that make it intrinsically more valuable than any fiat currency, and destroying that value requires preventing bitcoiners from communicating with digital electronics.  One feature is the competitive and balanced nature of proving the blockchain (mining requires so much work that it proves the accounting ledger is correct).  The other feature is the public nature of the ledger: Everyone can see every transaction (whether they know who's behind the transaction is a different story, but immaterial).

Thank you for your time and effort writing this thorough explanation. I will certainly spread this around as i've seen the question pop up but never saw the answer you provided here.

In combination with your earlier remark (many practical reasons why we can expect that the distribution of bitcoins will improve over time as the value increases and early adopters choose to divest) a very plausible explanation.

Thanks again!

You're not remotely the first to mention it.  The reason that there doesn't seem to be much data upon it is because it's not an issue.  Pretty much everyone figures this out on their own, but the initial ability to see the distribution of wealth so readily is often a shock.  Again, the distribution of wealth for the US $ is far worse than bitcoin, but even the claims about how uneven the distribution is for bitcoin wealth presented in these articles are just wrong.  If it's not outright FUD, it's akin to panic.  A pool of addresses that can be shown to have a close association does not mean that all of those addresses are controlled by the same entity, and even if it's a pool of some kind, it doesn't mean that all of the wealth contained belongs to a single controlling entity.  The 'bitcoin laundry' example is just one such example.  Of the list of largest groupable addresses that the article presents; I've already noted that A is a Silk Road internal mixer pool (and wallet service), but even the authors acknowledged that B was the user pool at MtGox, G is the user pool at Instawallet and L is the miners' pool at Deepbit.  They know those because those groups are open about it.  They didn't know about A being Silk Road because they are not open about it.  The point here is that, while even if they are correct the distribution isn't really that bad wehn compared to fiat currencies, it's not that bad anyway because their methodology of assuming that large pools of addresses are single entities is flawed.

EDIT: P, however, is definately a single person in control of 400K+ bitcoins who made no effort whatsoever to obscure that fact; considering that it's all one single address that does not spend them.  And H, J, M, O & Q are almost certainly single users with standard pools of addresses using a single wallet.dat. While C,D,E,I, R & S are almost certainly groups of people using shared pool addresses.  With a little more research, I'd wager that half of them would turn out to be the user pools for the traders on the other major exchanges, such as Bitfloor or BTCE.  There are at least a dozen other exchanges shown on bitcoinwatch.com that could have user pools in the ranges of I, R & S.  Many of these lesser exchanges serve non-English speaking markets, and thuse their visablility to the English reading Internet is limited.

I understand you're busy. Thanks for reading along.

What i don't understand is that this major (possible) risk is not thoroughly explained anywhere else (as i can find). It should be on the Bitcoin.org website. And i'm surprised that it seems that i'm the first to mention this here (as i'm very new to Bitcoin).

I sure hope someone else who understands this better than i do has the time to explain this sword of Damocles possibly hovering above the Bitcoin ecosystem. Or maybe throw me a link somwhere.

As i said before, i want to be able to explain this to people around me in order to inform them on using Bitcoin. And that is my main purpose of starting this thread: having a credible explanation on this matter.

You're wrong, but I don't have the time to explain why.  Still, the wealth distribution of the US $ is actually worse, and for many practical reasons we can expect that the distribution of bitcoins will improve over time as the value increases an those early adopters choose to divest.

Sure. It probably was a bitcoin mixer as you call it and those cryptoscientists stumbled upon it.

But that doesn't change the point of the amount of control over Bitcoin by a very small group (60% of all BTC now? 25% in 2140?). As mentioned above the way money is spread around the US now, is not in any way balanced. But that's _only_ the US. If the US messed up, the Chinese wouldn't have a problem with that. Bitcoin has potential to grow to a world wide scale (and it looks like it might will). Just imagine Bitcoin going mainstream worldwide in a long time. In that case we have a currency where, say, 0.00000001% of the entire population has control over (or maybe a few hundreds of people, i don't know exactly).

In my view, but please correct me if i'm wrong as i'm still new to Bitcoin, this is way too risky to build a serious global economy around.

It doesn't have to.  Before Silk Road, there was an early coin mixer on Tor, that I suspect was either morphed into or annexed by Silk Road.  I believe that it may have been the first to call itself The Bitcoin Laundry, iirc, but there have been other mixers that have taken that name since the one on Tor faded away.  I wouldn't be surprised if there are more on Tor that use that name, either.  I don't know this to be true, but when Silk Road first came out, I opened an account to poke around, and was struck by the similarity of the onboard bitcoin mixer to that of the previous mixer I had seen on Tor.  Those similarities may have just been a product of a common intent, or copied sourcecode, but maybe not.

Beyond that, a lot of these businesses were founded by those same early adopters, so it's entirely logical that they would have invested large numbers of their coins into their creations back when those coins were still only worth a nickel apiece.  Many of those early creations have foundation stories that are a bit murky on details. 

I'm not familiar with the ways Bitcoins are thrown around, what is R&S?.

The article (http://eprint.iacr.org/2012/584.pdf) does not go into SilkRoad because it describes the transactions of addresses of the real early adopters (not SilkRoad or SatoshiDice). It describes a transaction (+50,000 BTC) of the first coins ever mined. This graph shows it very clear when you use your mouse: http://statistics.ecdsa.org/

PS: I do not think Bitcoin is a Ponzi scheme. I've read the old messages of Satoshi and i do not think it is a scheme. It is what it is. an experiment. What i do (think i) know is that a few people have control over it with 60% of all coins available today and maybe 25% in 125 years. That's all that raises my questions.

Mt gox has order book that normally has hunderds and even the low thousands on there orderbook, a few hundred Btc might move the market slightly in one go but not in a few seperate bids / asks.

I'm sad that people that claim that Bitcoin is a Ponzi scheme apparently don't know what a Ponzi scheme is. Bitcoin is not operated by any person or organization; therefore, it can't be a Ponzi scheme.

I'm also sad that people refuting the claim also don't seem to know what a Ponzi scheme is. If they did, they would simply point out that Bitcoin is not operated by any person or organization, so it can't be a Ponzi scheme. But they don't.

Anyway, to answer the OP. If people were cashing out in a big way, then you would see a decline in the value of BTC. But, the price continues to rise and that means that not enough bitcoins are being cashed out to meet the demand. Also consider that someone with a large stash of bitcoins would be reluctant to dump them because they would lose a lot of money as a result.

Also, a big ask wall does not lower the price directly. It does put subtle pressure on the price, but the major effect is simply a temporary limit on how high the price will go.

I absolutely agree. Even after a huge price drop i'll be using and promoting Bitcoin, after cutting my (small) losses.

At the moment i'm testing this whole Bitcoin concept with just some pennies to get a grasp of it and learn the technology and use. But meanwhile i'm assessing the possibility it crashes (hits single digits for a looong time). I've succesfully convinced some people around me to look into it and they just might put way too much money in it. Then i have to explain some of my closest friends their money is lost for a while and that is what i'm trying to prevent.

So for the short term: what are the consequences of hundreds of BTC (around 37.3 Euro) are awaiting buyers?