Topic: Some comments on the Prague Talks (Read 3354 times)

Ha, nice to recognize people here in the forum. We've talked during the conference, OP. I'm the Brazilian-living-in-France guy. Guess I'll just add a photo of me too so that people can recognize me like I just recognized you.

About the topic, I agree with those saying that bitcoin can be both things. It's clear that so far, it is not a good store of value, and won't be for a while. But I'd expect it to become stable one day.
But you and Tony are correct when they say that currently, bitcoin is "only" a superior means of payment. Most people should only use bitcoin like that, for now.

Sorry, I admit you'll have to remind me your name and/or the time we got a chance to talk.
Scratch that, a search in Google's cache revealed your identity. Of course, we talked a lot and it was a pleasure.

Pretty cool. Though a beginner may not know what "currency risk" is, so...

Wonderful.

I think it can achieve stability in terms of not having large daily, weekly, or monthly moves. Merchants and users will feel confident that the price tomorrow will be almost identical to the price today, just as we do with USD/EUR today (maybe bad example

However, since it's not a "managed" supply of money, and the supply is strictly limited to 21m units, we should expect price levels to fall over time in a predictable pattern. Just as in today's world we know goods and services will cost 1-5% more next year (due to inflation), so in a Bitcoin world we'll know goods and services will cost X% LESS next year. Instead of expecting to get a raise every year to compensate for cost of living, perhaps a salary will stay flat or even fall over time. It's wierd, I know, but so long as these moves are predictable and relatively steady, the market actors will adjust.

But with all of this, I'm talking very long term... 10-20 years away. Until Bitcoin is really universal, it will be volatile, mechanisms like Bit-pay that allow traders to move in and out of the currency in the blink of an eye will be essential.

Love it!  hahaha

Meni, you just gave me an awesome idea.  Who's ready for ski season??



I will start to incorporate this little idea into our getting started content. 

Hello Meni,

I'm happy as well to have talked to you in person.


I find this very interesting, because in order to build economic theories about Bitcoin, I have been hypothesizing about a viable model for if not stabilising the price, then at least making sure that Bitcoin does not collapse. I imagined a two-tier system: professional speculators trading Bitcoin on the exchanges 24/7, and casual users doing JIT transactions. But you (and Tony) point out that a more natural three-tier structure is also possible, with people switching between these three positions any time based on their own preferences.

I just gained even more confidence in the future of Bitcoin .

This is true, and actually these levels show a good way for people to ease into Bitcoins.

Beginner users start with #1 to start playing with bitcoins with minimal risk.  As bitcoins become more popular, some of these users start moving to type 2.  And eventually to type 3.  It will take years to get there, and some users may never move up from level 1, but that's ok.  As long as they use bitcoins in some fashion, instead of their debit card, or credit card, or bank wire, we are moving in the right direction.

Sure, I have no problem with that as long as we understand that this is a bootstrappnig model we want to phase out eventually. Since the buyer and seller can choose separately how to handle Bitcoin payments on their end, we have 3 scenarios:
1. Ok - both buyer and seller make JIT conversion
2. Good - one of the buyer or seller holds bitcoins, the other does JIT conversion
3. Great - both buyer and seller hold bitcoins and transact directly with Bitcoin
I maintain my position that scenario #1 offers very little advantage over the current system. But if we assume that, say, 1% of people (both customers and merchants) who use Bitcoin in some way are willing to hold bitcoins, then about 98.01% of transactions will be of type 1, 1.98% will be of type 2 and 0.01% of type 3. This is a good setup for a positive feedback loop where as Bitcoin becomes more popular, it is less volatile so more people can afford to hold bitcoins, increasing the percentage of people who handle bitcoins directly.

Yeah, it was a pleasure meeting you too, maybe I should have started with that

Because I'm a Bitcoin enthusiast and have a long position, I'm holding bitcoins and willing to eat the volatility. This doesn't mean I enjoy it, I do want it to be stable 10 years from now. But for this to happen enough other people need to also use Bitcoin the way it was intended.

As the market grows and the price rises we should see lower volatility, a narrower spead, and  more competitive exchange fees. However I don't see why the Bitcoin volatility should be lower than gold or silver for example.  The only circumstance that this might happen if there were large scale intervention in the market by a large firm, or by government.

Hi Meni, it was nice speaking with you in Prague.

I see Bitcoin as open money - the service that I suggest may be more appealing to a wider user base but doesn't impinge on the other ways you can use Bitcoin. You can continue to 'be your own bank' and assume the risks of volatility and security of your Bitcoin. But recognize that this is not an appealing proposition to everyone.

Even if the majority were to use banks, this is still immeasurably preferable to current banking. It would be a much easier market for new banks to enter the market, ensuring greater variety and more competition, thus lower prices for the user. Also the user always has the option to transact directly in Bitcoin if no bank will accept his business or no bank has reasonable terms. This helps to keep the banks honest.

But the question is, can a currency that has an inelastic supply ever achieve the level of stability that a currency with an elastic supply can achieve?  Set aside the issues with centralized control, trusting a centralized entity, etc and ask yourself that question.  I question whether bitcoin, or any currency with an inelastic supply, can ever achieve the stability of a well managed currency with an elastic supply.  The problem of course is the "well managed" part (and the recognition that a currency with an elastic supply can never exist in the absence of centralized power and control).  

Maybe bitcoin (or any currency with an inelastic supply) can never achieve the level of stability relative to various other things that a well managed currency with an elastic supply can achieve.  But this is not a condemnation of bitcoin.  I say this not because I think bitcoin isn't viable, quite the contrary.  I say it because we need to be honest and come up with solutions that preserve the essential attributes of bitcoin while making it practical.  People will need stable purchasing power over varying time horizons.  I do agree that over sufficiently large time horizons, bitcoin will preserve purchasing power, but those horizons could be measured in decades (much like gold).

The solutions to this problem will actually help stabilize the value of bitcoin on shorter time horizons.

I disagree strongly with this statement (and Bitcoin is certainly already a "unit of account"... that is a very easy definition to satisfy).

Bitcoin will become a store of value over time. The reason it's volatile is because A) it's new, B) it's userbase is extremely tiny, C) adoption and usage patterns are volatile.  These three things diminish over time, and as they diminish the exchange rate of Bitcoins to other currencies will become smoother.

In a world where millions of people were using Bitcoins and buying and selling them, the market depth would be massive, and individual purchases would not cause 20% swings. The USD doesn't move 20% in a day not because it's a superior currency (quite the contrary), but because it has a market depth and breadth that is enormous. If Bitcoin ever achieved a similar usage extent, we could expect similar stability (though likely with a long-term price increase pattern relative to other goods due to the supply limit - and this is okay also).

As with many criticisms of Bitcoin, the argument that "it's too volatile so it won't be adopted as money" is resolved with time. Don't confuse the short-term observation of volatility for long-term, fundamental behavior.

With that said, I do agree with Tony's thesis that Bitcoin's use as a quick money transfer/exchange system is also valid. Bitcoin doesn't require stability for it to be valuable, but I expect it will achieve stability over the years anyway.

Yes, exactly.  The next wave of Bitcoin users aren't going to be the power users and fanatics like us.  I would say the typical amount is smaller, like $100, but allowing the user to always keep the balance in dollars will maintain their purchasing power.  Unfortunately, this is something the exchanges will need to implement, since Bitpay does not have a wallet or an exchange.  We do the receiving lock for the merchant, where their dollar value is locked in at the moment of receipt.  I'd like to see the spending side of this feature be implemented by the exchanges.

Thanks for your feedback, I appreciate it!

Meni - I think we can separate the "power users" of Bitcoin from the casual users.  If we have a goal of reaching 1 million users, which would basically render any regulation useless, then we need lots of new casual users.  And the casual user is not going to be a currency trading expert.  They simply want to put $50 or $100 into their account, and spend it, without losing purchasing power.  By buying Bitcoins at the exact moment they need to be sent, the buyer is insulated from any currency risk.  And the seller locks in their value at the moment the bitcoins are received.

Now the power users and day-traders will always be there in the marketplace to take the other side of these trades from the casual users.  They are needed, but the vast majority of casual users will have a better experience with Bitcoin if they have no volatility risk, and this setup is good for them.

I think you're correct, but so is Tony.  Volatility is going to be with us for a long while yet.  Fiat currencies are stabilized (relatively speaking) by their elastic supply controlled by a central authority.  Because fiat currency is backed by debt, you do get periods where debt is over extended in general and that compromises the central bank's ability to stabilized the value of the currency.  Outside of such periods, I think fiat currencies can be made much more stable than any currency like bitcoin that has inelastic supply.  However, in my opinion, this does not justify the existence of a central bank and the corruption that surrounds them.  I think the likely evolution is in a direction where you have a currency with an inelastic supply like bitcoin at the basis of the system with various diversification instruments that allow people to easily protect themselves against the volatility on various time scales (think of them like ETFs tracking a basket of commodities (with bitcoin a part of it) but something that banks pretty much do automatically when people open an account).

I strongly disagree. If that was true Bitcoin would be completely pointless. If you need to use an exchange just to be able to pay with Bitcoin then the exchange (and/or service like bit-pay) becomes the new bank/PayPal offering no advantage whatsoever over the current system. The point of Bitcoin is that you can store and transfer your wealth without a third party, and only use third party services where they provide additional value. Otherwise you lose all advantages of Bitcoin such as:
1. No sending fee (and thus competing with payment processors who will have to lower their own fees).
2. No currency exchange fee for international payments.
3. Ability to hold and control your wealth without using banks (which are a single point of failure, a hassle and so on).
4. A currency which can be used by countries not strong enough to make up their own currency, and which isn't devalued by monetary inflation.

Also, Tony's suggestion of "buyer buys bitcoins when sending, seller sells bitcoins when receiving" is a bit naive. Yes, it's a passable bootstrapping option for people using Bitcoin now and don't want volatility risk. But -
1. Some time elapses between the buyer buying and the seller selling, at which the rate will change so it does not completely eliminate the risk.
2. If everybody did that and nobody would be actually holding bitcoins, the volatility would be orders of magnitude more than what it is now, making point #1 that much more relevant.

I also don't understand your belief Bitcoin will always be highly speculative even with mass adoption. If fiat currency maintains a more or less predictable purchasing power without being pegged to anything, solely by its ubiquitous use in trade, why can't Bitcoin?

In short, Bitcoin can only work as a value transfer mechanism if it is also used as a value store mechanism.

So nothing really earthshaking was announced in Prague?    I hope people had fun anyway. I plan to attend the meeting in Austin in March. Perhaps there will be some better news by then.

-1, I disagree. Mobiles are devices used by the authorities for tagging and monitoring personal freedoms. This is the antithesis of bitcoin. with as much respect as I can muster the thought of a majority of bitcoin users in Nigeria frankly frightens me. Lets wait and see the out come of the French court decision. I hope it will be deemed not money as it does not physically exist so the untraceble transfer of bitcoins internationally seems the best way forward to me.  Ok, so I can be tracked to my PC and charged with what? sending and recieving a string of random charachters? The biggest problem I see at the moment is avoining verification at the point of transfer to a fiat currency- maybe open transfer will do this- I hope so . regards reg

+1. This bears repeating.