Topic: Store of Value VS. Method of Exchange - page 2. (Read 2713 times)

http://blockexplorer.com/block/00000000049172ba3ec1b673cf13e3d0049c1c07bb103ed3fa300e3833480055

In its current state Bitcoin is horrible as a store of value and decent as a medium of exchange. In the long run Bitcoin could be perfect as a store of value and excellent as a medium of exchange, but we're not there yet.  

Sure it would, "Yoshi Nakatendo - 1.5 million BTC" and millions sell to never return, and BTC achieves its true value of pennies.

The price went up because nobody sold. How many nobodies can we group think up to $30 USD before selling? Not many. Nobody bought millions of dollars worth of BTC to manipulate the market, they spent a few dollars on electricity. Regardless if BTC is $2 or $2,000 USD each, the early adopters have the same ability to crash the market value on a whim. All BTC proponents can argue is that "ohhh they probably lost a lot" or "how do you know they didn't sell." Pathetic prove a negative (appeal to ignorance fallacy) arguments. Almost 50% of all BTC to be mined are mined. That isn't going to change.


Then what's the point? To have generations of descendants be wealthy for naught? Why have such a flawed distribution? The people who came up with such an ingenious idea couldn't think of a way to more reasonably distribute the currency? Or did they really think that tens of thousands would jump on the bitcoin bandwagon from the get-go?

That's a fair point.. although I'd think you need a critical mass of geeks to understand something in order to get that initial momentum.



If it were that widely adopted - there'd be less interest in 'cashing out' of the hoard anyway..   maybe holding it and spending it directly as needed would be more appealing. 

That won't be the case for much longer (at least in my country )

That's simply not true - the volatility doesn't come from some unknown big holders and it would not just suddenly disappear if everybody's holdings were published with name and amount either.

Bring on real merchants, and the public will eventually follow. Unfortunately, real merchants don't want to take the risk, and Bit-pay or any of the various payment mechanisms cost about the same as CCs or paypal, so why bother? The volatility will exist for as long as we don't know how much power early adopters control, and we will never be able to determine that. Assuming bitcoin somehow becomes widely adopted, the speculation could go on for decades or more as people hold back hoards waiting for the right opportunity. It just isn't going to work. Your value is stored until someone decides to sell; your medium is just a substitute for CCs that costs just as much for merchants.

A while ago I also thought that making people understand Bitcoin is important for them to trust it, but actually it isn't really. People use online banking and credit cards without knowing the details of how they work under the hood. For the most part, people don't trust something not because they understand how it works, but because others trust it. Frankly that's also true for myself in things I'm not really interested in. For example: I don't care about the calculations of the structural engineers of every building I enter or every bridge I cross. I trust they were sound because others do.

It's also something I've seen with a few friends I introduced to Bitcoin: the less tech-savvy were happy with a very basic description of the system and when they hear me trusting and using it, they trust it as well!

I know you've suggested a way with encoin - but a complex trust system involving a mix of anonymous and non-anonymous nodes is far from easily understandable at the moment.
Bitcoin is hard enough to reason about, so it's a hard sell to push something more complex.  

Anyway - obviously this isn't the thread to discuss alternative systems, but I hope you manage to get at least a prototype going to test your ideas.

It's not clear to me just how much the 'store of value' aspect of a currency is dependent on the technical design aspects vs just mass psychology - but I imagine understandability (as a prerequisite to trust/confidence) plays an important role.. and bitcoin is already really stretching that as far as the general populace goes.

When all 21 million coins have been generated, there's only network security left.

Let's just wait for another 130 years.

I wonder if anyone has come up with a way to separate network security from coin creation. Hmm.

I'm not clear what this "storage of value" argument is about?
from  http://www.fincen.gov/financial_institutions/msb/definitions/stored_value.html

Bitcoin is both.

Bitcoin solves the problem of fiat currency by creating natural scarcity not influenced by any entity, just like gold. (Better store of value than fiat.)

Bitcoin solves the problem of gold by being very convenient to use with good security and portability, just like fiat currency. (Better medium of exchange than gold.)

Two questions:

How bitcoin could be a medium of exchange without being a good store of value?

How bitcoin could be a good medium of exchange without having low volatility or how bitcoin could have low volatility at low prices?

^This..

oh.. and bears and bulls are indistinguishable once they become roadkill on the bitcoin highway.

store of value and medium of exchange are two complementary functions - Bitcoin will always have both to some degree.

If the price is dropping, its usefulness as as store of value decreases but the medium of exchange function becomes more dominant (people try to get rid of their coins quickly). If the price rises you'll see people start hoarding again because they think it is a good store of value and hence it becomes less a medium of exchange. Wait for the next bubble, rinse, repeat.

True, for the last few months the price dropped so you're completely right: Bitcoin was not a good store of value. However, this cannot go on forever - if Bitcoin doesn't die then it will inevitably rise again some time (the case of indefinite stagnation would be nearly impossible).

Ideally the price would only change very slowly so that none of the two functions dominates the other. We won't see that happen until Bitcoin is widely adopted, very actively traded and has a very high price though.

I agree with you completely on the cost of the mining network - we have an unjustified and unsustainably high difficulty at the moment and therefore it will come down along with the price. However, I don't think people will be so quick to sell their mining gear.


+1

Edit: I voted "Neither" because I think Bitcoin itself works equally well for both, just at different times of economic development!

Please make your opinions heard in the form of radio button selection at the top of this thread.

-Jonathan

p.s. what does it taste like?

I can't really comment on the topic of this thread much because I don't know much about it but I can comment on an off-topic issue of milk in Korea tasting bad.

fake edit: Bitcoin is not a stored value, it's a public trust registry that we use in combination with authentication to share trust in intention to trade products and services.

While mining cost per transaction is a nice metric to have - I don't think you're reading it right.
It's not valid to describe that as a 'cost' for the transaction.
It's a cost for the transactions plus network security - plus, dare I say it - for the property of storing value

True. However, wide bands of volatility can come to an end with increased adoption. Imagine a time when bitcoinica gives default 1:50 leverage. This can only happen with real economic activity. Speculation in forex is a 1.4 trillion dollar market. Obviously speculation is required to provide liquidity, but if it comes before real use, it causes distrust and market volatility.

Thanks for reading

-Jonathan