market effect of a catastrophic design flaw

FreeMoney

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Quote from: matonis on November 10, 2010, 04:13:10 AM

Aside from Satoshi sinisterly building in a back door for his future King Croesus-like wealth, the primary existing design flaw is what to do after 21 million is reached. Even at a generous 1:1 BTC:USD exchange rate, a small-time chump-change millionaire could buy up the world's supply of bitcoin and dictate prices/transactions.

Now, the only thing that would make this scenario unrealistic is for bitcoin value to go to 1000:1 thereby reflecting a $210 billion supply. If bitcoin is on that track then maybe the speculators have the right idea. You don't get there right away, but the current design flaw is that successful growth of the bitcoin economy has unavoidable built-in deflation. A solution to the post-21 million bitcoin world would address those concerns now. Weeee...........this speculating stuff is easy.

$1000/BTC is the best "design flaw" I can even imagine.

Timo Y

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bitcoin - the aerogel of money

Quote from: chaord on August 23, 2010, 04:03:21 PM

What happens to the market for bitcoins when/if a vastly superior design is found? What is the probability of an unquestionably superior design being found?

If Bitcoin becomes mainstream to the extent that it takes advantage of the network effect, it would take more than an unquestionably superior design to break it.

There is a point at which people will prefer to use Bitcoin simply because most people are already using Bitcoin.

matonis

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Aside from Satoshi sinisterly building in a back door for his future King Croesus-like wealth, the primary existing design flaw is what to do after 21 million is reached. Even at a generous 1:1 BTC:USD exchange rate, a small-time chump-change millionaire could buy up the world's supply of bitcoin and dictate prices/transactions.

Now, the only thing that would make this scenario unrealistic is for bitcoin value to go to 1000:1 thereby reflecting a $210 billion supply. If bitcoin is on that track then maybe the speculators have the right idea. You don't get there right away, but the current design flaw is that successful growth of the bitcoin economy has unavoidable built-in deflation. A solution to the post-21 million bitcoin world would address those concerns now. Weeee...........this speculating stuff is easy.

jgarzik

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Quote from: chaord on August 24, 2010, 07:02:43 PM

I'm definitely interested in a bitcoin futures market. Perhaps we should open another thread to discuss how this could be done?

+1

It will hinge on being able to execute contracts. If people make promises they don't keep...

chaord

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Quote from: GoldRush on August 24, 2010, 12:29:30 PM

Quote from: Red on August 24, 2010, 11:18:15 AM

You've hit on the need for a bitcoin futures market. Been thinking of coding one of those up myself. It is a much more profitable way to speculate in the currency. We can talk about why it has exceptional potential for the bitcoin community.

That's exactly correct. People are far more likely to buy and use bitcions if there are markets that make it clear what a bitcoin is worth to others.

I'm definitely interested in a bitcoin futures market. Perhaps we should open another thread to discuss how this could be done?

GoldRush

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Quote from: Red on August 24, 2010, 11:18:15 AM

You've hit on the need for a bitcoin futures market. Been thinking of coding one of those up myself. It is a much more profitable way to speculate in the currency. We can talk about why it has exceptional potential for the bitcoin community.

That's exactly correct. People are far more likely to buy and use bitcions if there are markets that make it clear what a bitcoin is worth to others.

Red

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Quote from: chaord on August 23, 2010, 11:53:24 PM

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Unless you buy into the idea that there is a build in demand for bitcoins just because they exist as a limited commodity. In that case, I've got some things I think you'll be interested in...

I definitely would be interested, as long as there is a use value for which bitcoin data is superior to any other string of seemingly random 1's and 0's Wink

. Edit: Actually, I'm interested either way. Let's hear it.

Actually that was part joke and part poke at people who think that because bitcoin is designed to be deflationary in nature that makes it the perfect commodity for saving in.

I think bitcoin has already sowed the seeds of it's own destruction by using a fixed commodity/currency model. Blame John Wanamaker. Americans simply don't haggle anymore so we find rapidly varying prices distasteful. Also naive proponents of fixed currency tend to sound like they are promoting a Ponzi scheme. They have trouble explaining how bitcoin is better than PayPal without analogies that make user sound like neer-do-wells. None of that helps bitcoin build creditability.

That being said, bitcoin is the best attempt yet in my mind. None of these complaints are in anyway technical limitations so there is still huge near term potential even "as is".

So, I do have some ideas for you.

You've hit on the need for a bitcoin futures market. Been thinking of coding one of those up myself. It is a much more profitable way to speculate in the currency. We can talk about why it has exceptional potential for the bitcoin community.

I have another idea as well but I'll start a new thread.

FreeMoney

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Quote from: caveden on August 24, 2010, 02:36:52 AM

I didn't read all answers, so sorry if I'm being repetitive, but...

Quote from: chaord on August 23, 2010, 04:03:21 PM

So the question is this: if BitBox existed, would the market value of BitCoins literally drop to zero? I tend to argue yes.

I tend to argue no. I find bitcoins better than gold, even if gold could be made "digital". That's because one day bitcoin inflation rate will be lower than gold.
I read somewhere that gold inflation rate is around 2% a year. I don't know when bitcoin inflation will decrease to such rate, but one day it will.

Something better than bitcoins, however, could come out, yes. Then people would slowly migrate, I suppose.

I think bitcoin once widely adopted would be the absolute best currency ever. And if someone invents a way to transmit physical gold through the internet I will sell all bitcoins immediately. Gold would then be such an insanely good currency, it just blows my mind.

Insti

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chaord, have you read the Bitcoin does NOT violate Mises' Regression Theorem thread?

Quote from: chaord on August 23, 2010, 04:03:21 PM

So the question is this: if BitBox existed, would the market value of BitCoins literally drop to zero?

It depends on how many people are using Bitcoins. If millions of people are still using Bitcoins, I doubt it.

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Being an entrepreneur, I want to provide solutions. Perhaps there will be a market for "design insurance." This would be very similar to a Put Option. What should the premium be for, say, a 10 year Put Option at the current exchange rate?

Whatever the market will pay?
What is the premium on whether you'll be around in 10 years for us to exercise the option?

caveden

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I didn't read all answers, so sorry if I'm being repetitive, but...

Quote from: chaord on August 23, 2010, 04:03:21 PM

So the question is this: if BitBox existed, would the market value of BitCoins literally drop to zero? I tend to argue yes.

I tend to argue no. I find bitcoins better than gold, even if gold could be made "digital". That's because one day bitcoin inflation rate will be lower than gold.
I read somewhere that gold inflation rate is around 2% a year. I don't know when bitcoin inflation will decrease to such rate, but one day it will.

Something better than bitcoins, however, could come out, yes. Then people would slowly migrate, I suppose.

chaord

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Quote from: Red on August 23, 2010, 11:42:40 PM

The premise of this thread is spot on, even if the examples are slightly weak.

Haha, good examples are not my forte. Perhaps ridiculous examples are.

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All could be implemented with minor changes to the bitcoin code base. (I am a coder by trade.) So as an investor you would be betting on which group is more likely to build the most valuable consensus.

You are spot on with investor sentiment here. Well said.

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Unless you buy into the idea that there is a build in demand for bitcoins just because they exist as a limited commodity. In that case, I've got some things I think you'll be interested in...

I definitely would be interested, as long as there is a use value for which bitcoin data is superior to any other string of seemingly random 1's and 0's Wink

. Edit: Actually, I'm interested either way. Let's hear it.

chaord

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Quote from: GoldRush on August 23, 2010, 11:07:29 PM

Quote from: chaord on August 23, 2010, 10:35:42 PM

On the contrary, I can't seem to find any intrinsic value for bitcoins whatsoever. Is this correct? Historically all monies have started first as some commodity/good with at least some intrinsic value. Are bitcoins, however, the very first money with purely extrinsic initial value?

Using your example of "intrinsic value", what sort of intrinsic value do you feel gold bullion has? I've never seen a gold coin do anything other than sit in a safe.

By intrinsic value, I mean that gold can be used for something other than coins or currency (decoration, electronics, etc). Even currency printed on paper, the paper itself could be burned for heat or to make a giant papier mache house (lol). In both of these situations, obviously, the use value of the currency is nearly negligible compared to the exchange value. But the point is that there is a use value, however small. So before a "medium" can be elevated to a "medium of exchange" history has required that medium to have at least one use. What I'm wondering is whether this requirement is law or merely a historical suggestion?

Of course, if we can find a non-exchange use for the Bitcoin data, my question would be quite irrelevant. For example, (i'm speculating) in the industry of data destruction (analogous to the paper-shredding industry), maybe bitcoin hashes are superior to seed data for permanently deleting valuable information? I'm reaching here...but I hope my point is clear.

Red

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The premise of this thread is spot on, even if the examples are slightly weak.

You propose that some one comes up with a "better" bitcoin. However, that is not required. They need only come up with a "more accepted/useful" bitcoin. That is not so far fetched as the forum consensus would point out.

For example, the current bitcoin implementation is very popular among Crypto-Anarchists and libertarian revolutionaries. As an investor you are betting that this community can sway the masses to support "their idea" of better money.

A few days ago there was someone of a more liberal bent that proposed some monetary policy changes that were "fairer" from a liberal perspective.

Others have proposed changes that seem better if you prefer the idea of a zero inflation/deflation money.

All could be implemented with minor changes to the bitcoin code base. (I am a coder by trade.) So as an investor you would be betting on which group is more likely to build the most valuable consensus.

Unless you buy into the idea that there is a build in demand for bitcoins just because they exist as a limited commodity. In that case, I've got some things I think you'll be interested in...

Red

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Quote from: GoldRush on August 23, 2010, 07:42:50 PM

There are many things vastly superior to gold, but it continues to go up in value. When people are looking for a safe place to store their wealth they are not analyzing technical merits. They instead look at the historical value, which is exactly why we are having this conversation right now. Bitcoin is new and people are concerned about its future value since it has no history.

This seems like a point today, but 2.5 years ago I heard people making the same argument in favor of investing in California real estate.

GoldRush

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Quote from: chaord on August 23, 2010, 10:35:42 PM

On the contrary, I can't seem to find any intrinsic value for bitcoins whatsoever. Is this correct? Historically all monies have started first as some commodity/good with at least some intrinsic value. Are bitcoins, however, the very first money with purely extrinsic initial value?

Using your example of "intrinsic value", what sort of intrinsic value do you feel gold bullion has? I've never seen a gold coin do anything other than sit in a safe.

chaord

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Quote from: GoldRush on August 23, 2010, 07:42:50 PM

There are many things vastly superior to gold, but it continues to go up in value. When people are looking for a safe place to store their wealth they are not analyzing technical merits. They instead look at the historical value, which is exactly why we are having this conversation right now. Bitcoin is new and people are concerned about its future value since it has no history.

Well said! That is precisely one of the reasons why we are having this conversation. However, I'm still having trouble getting over the fact that even if paper USD completely loses all exchange value, it still has at least the intrinsic value of the paper it is printed on. Granted, this would be a near zero value. It could, for example, be burned to provide heat/warmth. Now that's what I call going up in smoke! Wink

On the contrary, I can't seem to find any intrinsic value for bitcoins whatsoever. Is this correct? Historically all monies have started first as some commodity/good with at least some intrinsic value. Are bitcoins, however, the very first money with purely extrinsic initial value?

GoldRush

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Quote from: chaord on August 23, 2010, 05:05:33 PM

Quote from: jgarzik on August 23, 2010, 04:42:17 PM

The risk of a vastly superior design would be unlikely to collapse bitcoin, because stakeholders still likely consider their bitcoins to have value -- and that's the fundamental underpinnings of any currency including bitcoin, shared idea of value.

I'm not sure I agree with this, unless you mean that the stakeholders will likely still consider their bitcoins to have value temporarily. However, if it is well known, even amongst stakeholders, that a superior currency exists they will gradually migrate towards it (even if they tell each other otherwise).

There are many things vastly superior to gold, but it continues to go up in value. When people are looking for a safe place to store their wealth they are not analyzing technical merits. They instead look at the historical value, which is exactly why we are having this conversation right now. Bitcoin is new and people are concerned about its future value since it has no history.

GoldRush

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Quote from: chaord on August 23, 2010, 04:03:21 PM

I apologize if this has been brought up before. If it has, please feel free to merely direct me to the applicable thread. As an investor, one of the hurdles I am having a hard time getting over is the following: What happens to the market for bitcoins when/if a vastly superior design is found? What is the probability of an unquestionably superior design being found?

There are things vastly superior to gold bullion or even ebay, but the two are still going stronger than ever. The thing that will make bitcoin valuable is not a superior design but how widely it is accepted as a currency or commodity.

FreeMoney

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Quote from: MoonShadow on August 23, 2010, 05:42:39 PM

No. As evidenced in the recent transaction overflow attack that required the upgrade to .3.10, the system is designed to be as secure and autonomous as is reasonably possible, but there is always someone watching the flow of funds. There is always the human element. If that human element is ever completely removed, *then* we will be betting on a collective ability to write exploit free software.

Yeah. During the overflow crisis I was thinking how there are two separate parts to Bitcoin. There is the "community agreement" on the rules and such and there is the software that we expect to enforce them for us. As long as the agreement part is strong we can handle temporary coding problems. And I have every reason to think that it will stay strong since a change without near consensus wrecks the thing for nearly everyone which makes getting any kind of support for a fundamental change that isn't super obviously best nearly impossible (I'm talking about like changing the coin value of a generate or something).

MoonShadow

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Quote from: chaord on August 23, 2010, 05:05:33 PM

I'm not sure I agree with this, unless you mean that the stakeholders will likely still consider their bitcoins to have value temporarily.

All valuations are temporal.

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And I'm just pointing out that this is not the case with a physical currency/commodity like gold. Even if the entire world abandoned gold as a marketable commodity, the person left holding all the gold could still use the gold for something. Gold still has a, albeit limited, use value even in the absence of an exchange value. I can't come up with a use value for bitcoins if there is no exchange value.

This is one of the best descriptions of intrinsic value that I have ever seen outside of academia, and by far the most susinct even within academia.

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So does this mean that by investing in bitcoins, we are basically betting on our collective ability to write bug and exploit free software? Wink

No. As evidenced in the recent transaction overflow attack that required the upgrade to .3.10, the system is designed to be as secure and autonomous as is reasonably possible, but there is always someone watching the flow of funds. There is always the human element. If that human element is ever completely removed, *then* we will be betting on a collective ability to write exploit free software.

Topic: market effect of a catastrophic design flaw (Read 12568 times)