Topic: one idea to how to stabilize bitcoin pricing... (Read 1482 times)
if everyone who invested in BTC only invested what they could afford to lose, it would stabilize the market significantly. (stronger hands)
lo and behold, the powers that be have just "crushed" the "value" of gold. hmm down 9%, buy buy buy?
20 million $ figure just popped into my head, me trying to figure out a way to give bitcoins (or any "cryptocurrency") some tangible intrinsic value in a traditional sense [ie in terms of $ or preferably gold]. Such a continuity might be crucial for the wider adoption of bitcoins (or any "cryptocurrency"). History has shown us even paper money had its origin in bank notes in exchange for real money (gold) [Whether a bank had enough gold to pay out its outstanding notes is another matter...]. And paper $$ was even backed by gold (although "appropriate downward revaluations" was done from time to time) until the nixon shock that made paper $ fiat.
20 million $ figure just popped into my head, me trying to figure out a way to give bitcoins (or any "cryptocurrency") some tangible intrinsic value in a traditional sense [ie in terms of $ or preferably gold]. Such a continuity might be crucial for the wider adoption of bitcoins (or any "cryptocurrency"). History has shown us even paper money had its origin in bank notes in exchange for real money (gold) [Whether a bank had enough gold to pay out its outstanding notes is another matter...]. And paper $$ was even backed by gold (although "appropriate downward revaluations" was done from time to time) until the nixon shock that made paper $ fiat.
USD = Destined to fail.. Unfortunatly until mtgox can stop people from flooding their system and causing huge bubbles to burst and then slowly rebuild to make profit it will always be an unstable form of currency. People are greedy and rightfully so. People have been held back by the american "False" Economy that they have no choice but to do what they can to earn more USD. Bitcoin makes it easy for them 
One cannot argue that mtgox is quite naive in terms of "market making"... mtgox with 80$ share in THE market for bitcoins. The delays caused by huge lags and other technical issues have only exacerbate volatility. If bitcoin becomes too "hot" or volatile a currency for any serious entity to conduct meaningful commerce with it then that could spell its doom. Current backers argue that the anonymous and worldwide instantaneous nature of bitcoin transactions and an upper limit on the total bitcoins in existence command a high price for a bitcoin. After all, there can only be 21million possible to come into existence, there are 7 ? or 6 billion people on earth. On the other hand, detractors say that there is no intrinsic value for a bitcoin, such that if one were to amass as much bitcoins in existence it would not be worthwhile because its intrinsic value is 0$ if everyone in the world suddenly stops accepting it as a medium of value. That wide gulf in opinion along with a poor trading infrastructure either by design or accident is what is causing the current wild swings in current prices.
Now what if an altcoin upon its inception was backed by a prize. let's say 20million $ in gold for 20 million said altcoins and only 20 million with similarly a 21 million coin upper limit. Theoretically, it would have a book value of 1$ per coin (not taking into account discount/premium calculations that would affect its present value). So assuming its "mining" infrastructure would reach a point at par with bitcoins, speculation on what should the value of this gold backed altcoin would be tempered as it would affect..
1.speculators argument that its value should shoot to the moon because another viable altcoin with all the features of bitcoin has been created.
2.detractors argument that it is worthless, it is has a prize $20 million worth of gold for 20 million said altcoins.
Now my argument could definitely be too simple to create intrisic value for this altcoin, because...
#1... one unit of said altcoin is worthless, you must get 20 million out of 21 million to get the prize. How should one value 1 unit? What if everyone see that the condition of getting 20million coins for the prize is intractable then the value of one coin might as well be worthless.
#2... what if the database is corrupted or forked??? what will happen to the prize, that being said, the same thing can happen to bitcoins...
#3.. other nuances or details just hast come to my mind yet..
Another possible solution is to pre-create the altcoins and "sell" them at book value, but then who would "mine" for the next block?
Now what if an altcoin upon its inception was backed by a prize. let's say 20million $ in gold for 20 million said altcoins and only 20 million with similarly a 21 million coin upper limit. Theoretically, it would have a book value of 1$ per coin (not taking into account discount/premium calculations that would affect its present value). So assuming its "mining" infrastructure would reach a point at par with bitcoins, speculation on what should the value of this gold backed altcoin would be tempered as it would affect..
1.speculators argument that its value should shoot to the moon because another viable altcoin with all the features of bitcoin has been created.
2.detractors argument that it is worthless, it is has a prize $20 million worth of gold for 20 million said altcoins.
Now my argument could definitely be too simple to create intrisic value for this altcoin, because...
#1... one unit of said altcoin is worthless, you must get 20 million out of 21 million to get the prize. How should one value 1 unit? What if everyone see that the condition of getting 20million coins for the prize is intractable then the value of one coin might as well be worthless.
#2... what if the database is corrupted or forked??? what will happen to the prize, that being said, the same thing can happen to bitcoins...
#3.. other nuances or details just hast come to my mind yet..
Another possible solution is to pre-create the altcoins and "sell" them at book value, but then who would "mine" for the next block?
The first question that comes to my mind is how much is $20 million (USD) worth of gold worth?
Because America is booming an extra 8%-10% the last few days, by virtue of it's huge recent humanitarian ammunition exports to alCIA-duh terrorists in Syria, the powerful Federal Reserve Gold Pharaoh's We-Owe-Them Note(USD) deflated new price of gold just dropped it by $150, or nearly 10%.
will this $20 million (USD) worth of gold be valued in pre or post "Syrian Jihad" USD?
All I can say is from my experience from cashing out at mtgox, I saw a bid and ask spread of 14$, I made an offer to sell my bitcoins at the midpoint between the ask and bid. I waited 20 minutes and saw buy orders executed above my ask. Now in a "fair" exchange, this should not happen. Now I am wondering if this is really a "technical glitch"?? Or is mtgox purposefully designed to create the necessary volatility to magnify the feedback loop mechanisms of a bubble market to inflate the value of bitcoins?? I mean, from my above experience, a bid/ask spread of such magnitude should attract market makers looking to profit from the spread who would in turn compete with each other thus closing the spread into a more "sensible" equilibrium.
Now this might all be an accident due to mtgox's poor implementation of an electronic exchange couple with the ddos attacks from entities with dark intentions for bitcoins. But with such episodes of crazy volatility, it only undermines the adoption of bitcoins as a serious medium of commerce. Who in their right mind would conduct business in such a "currency" whose relative value to fiat $$ fluctuate so widely??? Some vehemant backers of bitcoins say that we should abandon $$ and create a bitcoin-only economy, but the fact is businesses still use fiat and have costs in fiat.. now if btc/usd fluctuates so widely what legitimate productive entity would venture to earn btc while having costs in $??? The feasablity of a "transitional state" of earning btc and have costs in fiat needs stability in btc/usd exchange rate. While it is true the total market value of bitcoins is insignificant compared to the total value of the world economy expressed in fiat, without this stable "transistional state" it might well serve as a barrier to btc adoption and thus undermine its future value.
We simply need a better and more robust exchange or system of exchanges that can handle the neccesary volume of btc/usd exchange in a more orderly and sensible fashion to solidify this new currency's status.
In other words, mtgox sucks (for now, i'll give it a chance let's see what happens).
Now this might all be an accident due to mtgox's poor implementation of an electronic exchange couple with the ddos attacks from entities with dark intentions for bitcoins. But with such episodes of crazy volatility, it only undermines the adoption of bitcoins as a serious medium of commerce. Who in their right mind would conduct business in such a "currency" whose relative value to fiat $$ fluctuate so widely??? Some vehemant backers of bitcoins say that we should abandon $$ and create a bitcoin-only economy, but the fact is businesses still use fiat and have costs in fiat.. now if btc/usd fluctuates so widely what legitimate productive entity would venture to earn btc while having costs in $??? The feasablity of a "transitional state" of earning btc and have costs in fiat needs stability in btc/usd exchange rate. While it is true the total market value of bitcoins is insignificant compared to the total value of the world economy expressed in fiat, without this stable "transistional state" it might well serve as a barrier to btc adoption and thus undermine its future value.
We simply need a better and more robust exchange or system of exchanges that can handle the neccesary volume of btc/usd exchange in a more orderly and sensible fashion to solidify this new currency's status.
In other words, mtgox sucks (for now, i'll give it a chance let's see what happens).
any takers?
Another problem this simple "Counter-Speculative Fee Structure" market-wide policy would cure is the sparse-node Trigger-Limit Order "slide by" issue many exchanges have suffered.
when there are few and distantly priced orders on the order book a normal Trigger price and min/max price order likely will never (fully) execute in a steep rise or decline, since the next price after the insufficient supply to fill Trigger (order-volume) suddenly jumps below or above the guessed minimum or maximum "Limit" of the order
If one allows only, say, 30 (or some optimal number per conditions) specific predetermined price points, closely arrayed around the current price in both upper and lower directions (those "outer" higher and lower ones get progressively very fee expensive) there is a far better (almost assured) likelyhood that most Trigger-Limits will execute since all bids/asks must always likely populate it's price or range, and if not, trading slows/halts automatically, or until the "current" median price is reset up or down the next gradient in the appropriate direction..
when there are few and distantly priced orders on the order book a normal Trigger price and min/max price order likely will never (fully) execute in a steep rise or decline, since the next price after the insufficient supply to fill Trigger (order-volume) suddenly jumps below or above the guessed minimum or maximum "Limit" of the order
If one allows only, say, 30 (or some optimal number per conditions) specific predetermined price points, closely arrayed around the current price in both upper and lower directions (those "outer" higher and lower ones get progressively very fee expensive) there is a far better (almost assured) likelyhood that most Trigger-Limits will execute since all bids/asks must always likely populate it's price or range, and if not, trading slows/halts automatically, or until the "current" median price is reset up or down the next gradient in the appropriate direction..
Hopefully with the historical market pressure and trading data that has already been accumulated through the "Bitcoin Experience" thus far it should not be too difficult for some math wiz(s) to come up with appropriate fee and order-price range regulating algorithms to derive the well-stabilizing exponential trade-exchanging fee structures that would have most likely mitigated all the wild price departures and runaways, and have thus produced a more stable growth curve or vector reflective of the true expansion of the currency base-value relationships.
This (speculation) is one venomous beast that absolutely must be tamed, and NOT by having any more "Exchange Holidays" or putzing around with any sorts of disruptive Exchange/Trading "Halts" to sloppily attempt to do so.
When and if trading is down due to speculation we all have no money nor fair exchange access to it's intended use.
This (speculation) is one venomous beast that absolutely must be tamed, and NOT by having any more "Exchange Holidays" or putzing around with any sorts of disruptive Exchange/Trading "Halts" to sloppily attempt to do so.
When and if trading is down due to speculation we all have no money nor fair exchange access to it's intended use.
As an engineer, technologist, ace troubleshooter, economics theorist and crypto-philosopher please allow me to answer this question for you all and offer you the only possible solution to the all too frequent and destabilizing recent "Bubbles with Bitcoins" Nightmares.
Preamble and disclaimer:
I am an avid supporter of and user of Bitcoins who has nonetheless become extremely disturbed at the serious and near fatally suicidal shortcomings of it's very, very poorly designed exchange-trading systems.
Bitcoins are the new virtual, encrypted, invisible, untraceable and anonymous "gold" for mankind. Most importantly, they are OURS and we all independently "back" and profit from owning them as a derivative of their greater use and wider acceptance. They, unlike even national-socialist tokens (Revolutionary Greenbacks) are the first TRULY HUMAN "globally freed market" currency!
Why the last statement above is so involves a rather long National Economics 101 and Theory of Money discussion/explanation I'll post for you here later. My crucial point here is that we all have a stake in the success of this new, digitally secure and decentralized human "Medium of Labor Exchange" utility, so we better get this right! We all know what is "right" about Bitcoins but now it's time to admit and to urgently fix what's terribly WRONG about them. The first aspect of them that we must address is the small matter of their "derivative resource" nature.
Einstein's definition of insanity is doing the same thing over and over again and expecting a different result.
The Pyramid-Derivative Trading Monster, explained:
A “derivative-stock” exchange is generally understood only as latter-day a scam designed to “churn value into” valueless assets that can neither be written off nor liquidated (sold for book-losses).
Say you have an Olympic pool full of sour, junk-mortgage-bond “watered down lemonade” but still want to keep yourself (or get back) all the nice properties the worthless stuff still holds titles to. So you stir them all up and “dilute them” with a half a shot of some good “Stella Artois” AAAA-rated mortgage bond joy-juice and then make a trillion worthless-nothing “shandy nano-shooter packs” out of them who's contents couldn’t make a newborn baby burp. The stuff in them once had some value which you now proclaim loudly as the "value of all of them". Now you name these trillion new worthless-derivative shooter-packs “Mortgage Backed Securities” and set up a “stock market” for them. The word “security” is always good in a name, even if it names a stupid, annoying battery eating thing that beeps like a UPS whenever your luggage moves.
All of a sudden your worthless non performing and illiquid liability-nothings are generating you an income and a cash flow! Buyers are buying them, trading things with each other for them, and outbidding each other and all sorts of real money is changing hands over them with your (small-fee) help, and suddenly they are “performing” (with “values” totally unrelated to their own) on paper again.
You have successfully made yourself (and a circle of your closest pals) a mountain of "something" out of an Olympic sized valley of near-nothings! No sane number of “shandy nano-shooter packs” has anything to do with nor actual claim to any bond or mortgage. Everybody who has or will ever have one merely holds a derivative-token of what (the somethings) the guy who sold it to him made off with.
In fact, the first, “top” floor of the derivative-pyramid-market “shandy nano-shooter packs” derivative traders have already paid you all the money you thought you’d lost before, and saved you your properties, which you've now recovered for yourself from mortgage auction fire-sales. Still the derivative market continues to churn more money into the now totally-nothing half-shot of good beer “shandy nano-shooter packs” derivatives you called “securities”, each happily passing on to the next their “shandy nano-shooter pack” derivatives for real loot unless or until everybody finally realizes (or it becomes all too obvious) they've all ended up with nothings for their somethings…
A worthless-derivative market allows you to put in a lot of money and make a lot of money on paper, or put in a bit of money and make, lose and/or take out a bit of money, but you can never ever (all) take a lot of money out of it. The one exception is that, if/once it flies, the originator (the apex) usually always gets all or most of of his money, first… Then there is the hugely troublesome matter of the upper-level "bought cheap and held" Nano-shandy-pack Derivative Pharaohs who, like the Rothschild-Bilderberg Gold Pharaohs of 1913-1971 begin to feel like Nano-shandy-pack Derivative Billionaires who should still own and rule the world market with all their unclaimed Gold-Reserve-Note Derivative "valuation", who get really edgy when things seem to be about to tumble, and hit their Office Depot "Easy" big dump buttons. (before the last Bretton Woods conference)
Anyways, you still have all the rest of your very fine AAAA-rated beer to enjoy, as long as not too many Pharaohs attempt to take a lot of money out of the rolling asset-exchange bubble of your derivative market.
If that happens you're either a Bernie Madoff, a John Corzine or (at very worst) a Ben Bernanke. The wise developers of Bitcoins kindly ruled out the last option, by making Quantitative counterfeiting impossible. Oddly enough this isn't a tabloid attack aimed at Bitcoins, all "token derived" currency systems (and other miscellaneous misdemeanors) are designed this way. But usually only big, "central" (Tory Trotskyite) "governments" can get away with it.
The above discussion of unsavory realities aside, they are important to understand when addressing the topic of monetary stabilty.
Exchange vs Speculation.
Bitcoin thus far has been a rather profitable and resilient trading-exchange commodity, but during the rather riotous taxi-cab type birth of our new Bitcoin "crypto-currency" (their name for it, not one of my first choices) we have come face to face with a few ugly realities. The first is that both speculation and mischief in the Market mechanisms cause wild fluctuations in the stability of the thing we are trying to promote as a stable "currency".
The merchantability of any Medium of Labour Exchange rests upon it's absolutely assured stability of value. Merchants simply cannot afford to reprice products innumerable times a day, let alone bear the nuisance of doing so continually. Entrepreneurs of every single type including the largest group of professionals/labourers cannot contract their services at a price denominated in a token of wildly variable and unpredictable values! (unless the tokens are guaranteed to always rise-deflate or, at very worst, only fall-inflate in value over nominal holding time by a very small amount.)
The Economic Nation of Bitcoin's Labour-Exchange Currency has already suffered at least three major devaluations!
Labour is the PRIME COMMODITY in all economies. Without it nothing happens, and there is none! Even if it is writing something, down, passing a note, picking up a phone or tapping a key some entrepreneur must get paid for it. The fundamental purpose and utility of a National Economic Labour-Exchange Currency Token ("money") is it's inter-exchangeability for BOTH labours and for all other commodities. For a contractor to offer an assured contract to a property developer priced in a "money" the assured value of that "money" must be stable. He cannot offer to pay his tradesmen different wages for different minutes, hours, weekdays or months in tokens who's future values are always uncertain!
As it is, Bitcoin can never ever become a “currency” or be used in business and commerce as a stable Medium of Labor-Exchange of Reasonably-Assured (more or less constant) Value, because it's derivative market trading mechanism is mis-configured to do the exact opposite, or adversely over-do the desirable, rather than to assure incremental and gradually deflationary added-value to the stability, dependability and benefit of itself and equal benefit to all who use it.
To be a successful candidate in the global marketplace as a stable Medium of Labor-Exchange of some reasonably-assured “currency-value” range, that economic token’s “assured value” must, in the eyes of the Global Marketplace, vary only by a few minor 100ths of a percentile of daily, weekly or monthly “drift”. It cannot be subject to wild, daily, hourly, weekly or monthly swings, let alone 15 minute ones.
The entire notion of the speculative market-trading of the value of the Bitcoin derivative itself is almost nonsense, if you ever honestly intended it to be a “currency”.
If the BitCoin asset pool were merely valued by simple Debit-Balance and Credit-Balance Bookkeeping all varied-currency-converted values coming into it would always exceed all varied-currency-converted values flowing out of it. It’s mere “funding” would generate a constant surplus that would assure each token’s constant value. But that would require an accountable “Central Exchange Authority” to take in the value and dispense the tokens.
But, the BitCoin “asset pool” is a Derivative Market where the coins themselves are ALSO THE DERIVATIVE, and are only worth their FUTURE (not current), highly volatile gambling-derivative market value, an hour from now. This derivative market also suffers from the underlying "pyramid pressures" where a few Bitcoin-flush “somebodies” got (or feel they deserve) a lot of something for little and are unafraid to go in hard after that something whenever the grass starts looking a bit greener.
Meanwhile the Bitcoin buyers are merely holding a derivative of it’s former owner’s withdrawal from the asset-exchange system. The only thing that keeps it's value-growth expanding are the "buy and holders" who don’t (and can’t really) spend their derivatives anywhere save by cashing them in, or by patiently selling them (at some break even or gain) to newbies or other speculators, so as not to tip the applecart.
The corollary is that despite there being no central boardroom-socialist banksters, the more aggressive BitCoin Pharaohs can (must and do) still take every opportunity to devalue “our” currency, and they are not alone as other enemies can come in with worthless cash that costs them nothing to feed speculative bubbles and then dump too, to devalue the currency and discredit us..
Bitcoin will never work, regardless of it’s value-transfer utility, if they cannot stabilize the price of it. If nobody can guarantee what it will be worth in the next ten minutes nobody can afford to contract, price, nor comfortably and safely wait the hour it takes to transfer, be paid in or even to spend it.
To be a Medium of Exchange it must be quick and easy to obtain an exchange value that's always close to what one would expect it's value to be very cheaply (in fees)
To NOT be a Medium of Derivative Speculation (wild gambling) it must be made much harder and more expensive in fees to enter bids or asks beyond a stable, small, restricted fine gradient trading range centered about the current value.
The only way to fix it is to impose a tightly-tiered sale and redemption trading priority system, imposing limited Asking and Bidding points very close in value and to current value, and imposing exponentially higher (punishing) extra fees for both less- and more- extremely out of current range Trading Orders
They must fairly reduce the numeric ranges between all valid competing bids and asks by extending the temporal (more sequential) queues of buyers and sellers instead of promoting sparsely populated price level differences (with big jump-gaps) between them. This simple "counter-speculative fee market policy" would form a natural price stabilizing Exchange Market Regulation that would greatly increase the appeal of Bitcoin to savers, spenders and merchants, while making it far less attractive and conducive to hostile traders and speculators.
In addition trading (sheer speculation) fees must not encourage and promote "churning volatilities" by offering bargain fees for larger amounts of BTC/X exchanges, they must do the opposite and penalize farther out of reasonable-bounds bids and asks, that create an "irrationally exuberant" auctioning mechanism that will always increase volatility.
Is Bitcoin intended as a money or as a derivative?
Cheers!
Preamble and disclaimer:
I am an avid supporter of and user of Bitcoins who has nonetheless become extremely disturbed at the serious and near fatally suicidal shortcomings of it's very, very poorly designed exchange-trading systems.
Bitcoins are the new virtual, encrypted, invisible, untraceable and anonymous "gold" for mankind. Most importantly, they are OURS and we all independently "back" and profit from owning them as a derivative of their greater use and wider acceptance. They, unlike even national-socialist tokens (Revolutionary Greenbacks) are the first TRULY HUMAN "globally freed market" currency!
Why the last statement above is so involves a rather long National Economics 101 and Theory of Money discussion/explanation I'll post for you here later. My crucial point here is that we all have a stake in the success of this new, digitally secure and decentralized human "Medium of Labor Exchange" utility, so we better get this right! We all know what is "right" about Bitcoins but now it's time to admit and to urgently fix what's terribly WRONG about them. The first aspect of them that we must address is the small matter of their "derivative resource" nature.
Einstein's definition of insanity is doing the same thing over and over again and expecting a different result.
The Pyramid-Derivative Trading Monster, explained:
A “derivative-stock” exchange is generally understood only as latter-day a scam designed to “churn value into” valueless assets that can neither be written off nor liquidated (sold for book-losses).
Say you have an Olympic pool full of sour, junk-mortgage-bond “watered down lemonade” but still want to keep yourself (or get back) all the nice properties the worthless stuff still holds titles to. So you stir them all up and “dilute them” with a half a shot of some good “Stella Artois” AAAA-rated mortgage bond joy-juice and then make a trillion worthless-nothing “shandy nano-shooter packs” out of them who's contents couldn’t make a newborn baby burp. The stuff in them once had some value which you now proclaim loudly as the "value of all of them". Now you name these trillion new worthless-derivative shooter-packs “Mortgage Backed Securities” and set up a “stock market” for them. The word “security” is always good in a name, even if it names a stupid, annoying battery eating thing that beeps like a UPS whenever your luggage moves.
All of a sudden your worthless non performing and illiquid liability-nothings are generating you an income and a cash flow! Buyers are buying them, trading things with each other for them, and outbidding each other and all sorts of real money is changing hands over them with your (small-fee) help, and suddenly they are “performing” (with “values” totally unrelated to their own) on paper again.
You have successfully made yourself (and a circle of your closest pals) a mountain of "something" out of an Olympic sized valley of near-nothings! No sane number of “shandy nano-shooter packs” has anything to do with nor actual claim to any bond or mortgage. Everybody who has or will ever have one merely holds a derivative-token of what (the somethings) the guy who sold it to him made off with.
In fact, the first, “top” floor of the derivative-pyramid-market “shandy nano-shooter packs” derivative traders have already paid you all the money you thought you’d lost before, and saved you your properties, which you've now recovered for yourself from mortgage auction fire-sales. Still the derivative market continues to churn more money into the now totally-nothing half-shot of good beer “shandy nano-shooter packs” derivatives you called “securities”, each happily passing on to the next their “shandy nano-shooter pack” derivatives for real loot unless or until everybody finally realizes (or it becomes all too obvious) they've all ended up with nothings for their somethings…
A worthless-derivative market allows you to put in a lot of money and make a lot of money on paper, or put in a bit of money and make, lose and/or take out a bit of money, but you can never ever (all) take a lot of money out of it. The one exception is that, if/once it flies, the originator (the apex) usually always gets all or most of of his money, first… Then there is the hugely troublesome matter of the upper-level "bought cheap and held" Nano-shandy-pack Derivative Pharaohs who, like the Rothschild-Bilderberg Gold Pharaohs of 1913-1971 begin to feel like Nano-shandy-pack Derivative Billionaires who should still own and rule the world market with all their unclaimed Gold-Reserve-Note Derivative "valuation", who get really edgy when things seem to be about to tumble, and hit their Office Depot "Easy" big dump buttons. (before the last Bretton Woods conference)
Anyways, you still have all the rest of your very fine AAAA-rated beer to enjoy, as long as not too many Pharaohs attempt to take a lot of money out of the rolling asset-exchange bubble of your derivative market.
If that happens you're either a Bernie Madoff, a John Corzine or (at very worst) a Ben Bernanke. The wise developers of Bitcoins kindly ruled out the last option, by making Quantitative counterfeiting impossible. Oddly enough this isn't a tabloid attack aimed at Bitcoins, all "token derived" currency systems (and other miscellaneous misdemeanors) are designed this way. But usually only big, "central" (Tory Trotskyite) "governments" can get away with it.
The above discussion of unsavory realities aside, they are important to understand when addressing the topic of monetary stabilty.
Exchange vs Speculation.
Bitcoin thus far has been a rather profitable and resilient trading-exchange commodity, but during the rather riotous taxi-cab type birth of our new Bitcoin "crypto-currency" (their name for it, not one of my first choices) we have come face to face with a few ugly realities. The first is that both speculation and mischief in the Market mechanisms cause wild fluctuations in the stability of the thing we are trying to promote as a stable "currency".
The merchantability of any Medium of Labour Exchange rests upon it's absolutely assured stability of value. Merchants simply cannot afford to reprice products innumerable times a day, let alone bear the nuisance of doing so continually. Entrepreneurs of every single type including the largest group of professionals/labourers cannot contract their services at a price denominated in a token of wildly variable and unpredictable values! (unless the tokens are guaranteed to always rise-deflate or, at very worst, only fall-inflate in value over nominal holding time by a very small amount.)
The Economic Nation of Bitcoin's Labour-Exchange Currency has already suffered at least three major devaluations!
Labour is the PRIME COMMODITY in all economies. Without it nothing happens, and there is none! Even if it is writing something, down, passing a note, picking up a phone or tapping a key some entrepreneur must get paid for it. The fundamental purpose and utility of a National Economic Labour-Exchange Currency Token ("money") is it's inter-exchangeability for BOTH labours and for all other commodities. For a contractor to offer an assured contract to a property developer priced in a "money" the assured value of that "money" must be stable. He cannot offer to pay his tradesmen different wages for different minutes, hours, weekdays or months in tokens who's future values are always uncertain!
As it is, Bitcoin can never ever become a “currency” or be used in business and commerce as a stable Medium of Labor-Exchange of Reasonably-Assured (more or less constant) Value, because it's derivative market trading mechanism is mis-configured to do the exact opposite, or adversely over-do the desirable, rather than to assure incremental and gradually deflationary added-value to the stability, dependability and benefit of itself and equal benefit to all who use it.
To be a successful candidate in the global marketplace as a stable Medium of Labor-Exchange of some reasonably-assured “currency-value” range, that economic token’s “assured value” must, in the eyes of the Global Marketplace, vary only by a few minor 100ths of a percentile of daily, weekly or monthly “drift”. It cannot be subject to wild, daily, hourly, weekly or monthly swings, let alone 15 minute ones.
The entire notion of the speculative market-trading of the value of the Bitcoin derivative itself is almost nonsense, if you ever honestly intended it to be a “currency”.
If the BitCoin asset pool were merely valued by simple Debit-Balance and Credit-Balance Bookkeeping all varied-currency-converted values coming into it would always exceed all varied-currency-converted values flowing out of it. It’s mere “funding” would generate a constant surplus that would assure each token’s constant value. But that would require an accountable “Central Exchange Authority” to take in the value and dispense the tokens.
But, the BitCoin “asset pool” is a Derivative Market where the coins themselves are ALSO THE DERIVATIVE, and are only worth their FUTURE (not current), highly volatile gambling-derivative market value, an hour from now. This derivative market also suffers from the underlying "pyramid pressures" where a few Bitcoin-flush “somebodies” got (or feel they deserve) a lot of something for little and are unafraid to go in hard after that something whenever the grass starts looking a bit greener.
Meanwhile the Bitcoin buyers are merely holding a derivative of it’s former owner’s withdrawal from the asset-exchange system. The only thing that keeps it's value-growth expanding are the "buy and holders" who don’t (and can’t really) spend their derivatives anywhere save by cashing them in, or by patiently selling them (at some break even or gain) to newbies or other speculators, so as not to tip the applecart.
The corollary is that despite there being no central boardroom-socialist banksters, the more aggressive BitCoin Pharaohs can (must and do) still take every opportunity to devalue “our” currency, and they are not alone as other enemies can come in with worthless cash that costs them nothing to feed speculative bubbles and then dump too, to devalue the currency and discredit us..
Bitcoin will never work, regardless of it’s value-transfer utility, if they cannot stabilize the price of it. If nobody can guarantee what it will be worth in the next ten minutes nobody can afford to contract, price, nor comfortably and safely wait the hour it takes to transfer, be paid in or even to spend it.
To be a Medium of Exchange it must be quick and easy to obtain an exchange value that's always close to what one would expect it's value to be very cheaply (in fees)
To NOT be a Medium of Derivative Speculation (wild gambling) it must be made much harder and more expensive in fees to enter bids or asks beyond a stable, small, restricted fine gradient trading range centered about the current value.
The only way to fix it is to impose a tightly-tiered sale and redemption trading priority system, imposing limited Asking and Bidding points very close in value and to current value, and imposing exponentially higher (punishing) extra fees for both less- and more- extremely out of current range Trading Orders
They must fairly reduce the numeric ranges between all valid competing bids and asks by extending the temporal (more sequential) queues of buyers and sellers instead of promoting sparsely populated price level differences (with big jump-gaps) between them. This simple "counter-speculative fee market policy" would form a natural price stabilizing Exchange Market Regulation that would greatly increase the appeal of Bitcoin to savers, spenders and merchants, while making it far less attractive and conducive to hostile traders and speculators.
In addition trading (sheer speculation) fees must not encourage and promote "churning volatilities" by offering bargain fees for larger amounts of BTC/X exchanges, they must do the opposite and penalize farther out of reasonable-bounds bids and asks, that create an "irrationally exuberant" auctioning mechanism that will always increase volatility.
Is Bitcoin intended as a money or as a derivative?
Cheers!
One cannot argue that mtgox is quite naive in terms of "market making"... mtgox with 80$ share in THE market for bitcoins. The delays caused by huge lags and other technical issues have only exacerbate volatility. If bitcoin becomes too "hot" or volatile a currency for any serious entity to conduct meaningful commerce with it then that could spell its doom. Current backers argue that the anonymous and worldwide instantaneous nature of bitcoin transactions and an upper limit on the total bitcoins in existence command a high price for a bitcoin. After all, there can only be 21million possible to come into existence, there are 7 ? or 6 billion people on earth. On the other hand, detractors say that there is no intrinsic value for a bitcoin, such that if one were to amass as much bitcoins in existence it would not be worthwhile because its intrinsic value is 0$ if everyone in the world suddenly stops accepting it as a medium of value. That wide gulf in opinion along with a poor trading infrastructure either by design or accident is what is causing the current wild swings in current prices.
Now what if an altcoin upon its inception was backed by a prize. let's say 20million $ in gold for 20 million said altcoins and only 20 million with similarly a 21 million coin upper limit. Theoretically, it would have a book value of 1$ per coin (not taking into account discount/premium calculations that would affect its present value). So assuming its "mining" infrastructure would reach a point at par with bitcoins, speculation on what should the value of this gold backed altcoin would be tempered as it would affect..
1.speculators argument that its value should shoot to the moon because another viable altcoin with all the features of bitcoin has been created.
2.detractors argument that it is worthless, it is has a prize $20 million worth of gold for 20 million said altcoins.
Now my argument could definitely be too simple to create intrisic value for this altcoin, because...
#1... one unit of said altcoin is worthless, you must get 20 million out of 21 million to get the prize. How should one value 1 unit? What if everyone see that the condition of getting 20million coins for the prize is intractable then the value of one coin might as well be worthless.
#2... what if the database is corrupted or forked??? what will happen to the prize, that being said, the same thing can happen to bitcoins...
#3.. other nuances or details just hast come to my mind yet..
Another possible solution is to pre-create the altcoins and "sell" them at book value, but then who would "mine" for the next block?
Now what if an altcoin upon its inception was backed by a prize. let's say 20million $ in gold for 20 million said altcoins and only 20 million with similarly a 21 million coin upper limit. Theoretically, it would have a book value of 1$ per coin (not taking into account discount/premium calculations that would affect its present value). So assuming its "mining" infrastructure would reach a point at par with bitcoins, speculation on what should the value of this gold backed altcoin would be tempered as it would affect..
1.speculators argument that its value should shoot to the moon because another viable altcoin with all the features of bitcoin has been created.
2.detractors argument that it is worthless, it is has a prize $20 million worth of gold for 20 million said altcoins.
Now my argument could definitely be too simple to create intrisic value for this altcoin, because...
#1... one unit of said altcoin is worthless, you must get 20 million out of 21 million to get the prize. How should one value 1 unit? What if everyone see that the condition of getting 20million coins for the prize is intractable then the value of one coin might as well be worthless.
#2... what if the database is corrupted or forked??? what will happen to the prize, that being said, the same thing can happen to bitcoins...
#3.. other nuances or details just hast come to my mind yet..
Another possible solution is to pre-create the altcoins and "sell" them at book value, but then who would "mine" for the next block?
I'm not sure it is clear what caused the bitcoins "crash". One story is that the server at MTGox was overwhelmed, another is the DDOS attacks as well as many small .01 BTC transactions coupled with the preceding. What was it?
Outside of the buttercoin project and talk of a decentralized way of processing things, I would say we need some basic securities against clear manipulative manual selling off, for starters. In the stock market they will freeze a stock so as to keep things semi calm. Now, maybe that is against some of the freedom BTC stands for, but until we get the DDOS attacks and other attacks under control, we can make our own rules!
The great news is that this "crash" happened as things were starting. Had we been to $1000 things might have hurt quite a bit more. As of now, the correction actually seems more than reasonable. The best part is that BTC's code is very very strong and all of these attacks, crashes, etc. just make the BTC stronger. In a way, it needs to happen.
Consider this, BTC's have been around for a few years now. It involves a fair amount of money. The code seems more than secure. It seems like some VERY high level programmer(s) created it. Dare I say it may not even be what we can suppose...
IAS
Outside of the buttercoin project and talk of a decentralized way of processing things, I would say we need some basic securities against clear manipulative manual selling off, for starters. In the stock market they will freeze a stock so as to keep things semi calm. Now, maybe that is against some of the freedom BTC stands for, but until we get the DDOS attacks and other attacks under control, we can make our own rules!
The great news is that this "crash" happened as things were starting. Had we been to $1000 things might have hurt quite a bit more. As of now, the correction actually seems more than reasonable. The best part is that BTC's code is very very strong and all of these attacks, crashes, etc. just make the BTC stronger. In a way, it needs to happen.
Consider this, BTC's have been around for a few years now. It involves a fair amount of money. The code seems more than secure. It seems like some VERY high level programmer(s) created it. Dare I say it may not even be what we can suppose...
IAS
The current situation would need one very rich patron though.
Offer to sell 10,000 bars of gold for let's say 20 million bitcoins and only 20 million bitcoins. So one person would need to amass 20m out of a total 21m coins to get the gold. at 400 troy ounces per bar and for simplicity let's say about 1500$ per ounce.
thats 400x1500x10000 = 6000000000 or $6B
if you can find someone with this much gold AND is willing to exchange this gold for ONLY 20m bitcoins for this then the book value of a bitcoin would be 300$ ($6B/20M). But of course it would might well be discounted for future value (ie. figure when do we actually get to a total of 20m bitcoins in circulation) and the volatility of gold pricing in $$, and the risk of bitcoin's compromise (crypto cracked, database fork, scalability issues, etc etc.)...
Such an offer that can be proven legitimate would put a psychological floor in the value of bitcoins other than 0$ to those who need to see tangible value in the coins. Right? But of course it would all depend on the fine print of the offer where everyone can see the race for the gold is a fair game.
Also, we have to answer the question... would such a game lead to a stable equilibrium for bitcoin pricing???
Offer to sell 10,000 bars of gold for let's say 20 million bitcoins and only 20 million bitcoins. So one person would need to amass 20m out of a total 21m coins to get the gold. at 400 troy ounces per bar and for simplicity let's say about 1500$ per ounce.
thats 400x1500x10000 = 6000000000 or $6B
if you can find someone with this much gold AND is willing to exchange this gold for ONLY 20m bitcoins for this then the book value of a bitcoin would be 300$ ($6B/20M). But of course it would might well be discounted for future value (ie. figure when do we actually get to a total of 20m bitcoins in circulation) and the volatility of gold pricing in $$, and the risk of bitcoin's compromise (crypto cracked, database fork, scalability issues, etc etc.)...
Such an offer that can be proven legitimate would put a psychological floor in the value of bitcoins other than 0$ to those who need to see tangible value in the coins. Right? But of course it would all depend on the fine print of the offer where everyone can see the race for the gold is a fair game.
Also, we have to answer the question... would such a game lead to a stable equilibrium for bitcoin pricing???
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