Topic: The Five Paradoxes of Bitcoin (Read 6917 times)

I own bitcoins therefore have a part in 'backing up' the currency.  Whilst I acknowledge the possibility (however remote) that it could become stronger than the USD this does not in any way have a part to play in my decision to own bitcoin, nor in my possibly mistaken belief that it is likely to have a more significant role to play than it does today.

So the premise that 'the only thing backing up the currency is [belief x]' has been proven to be a false one given that I don't back up the currency due to 'belief x'.  This renders the remainder of your point irrelevant.

Apologies.  Obviously not obvious to you.  Not false, just incomplete.  I was not referring to the currency market.  I was talking about what one can buy with bitcoin.  The currency market is a means (made possible by liquidity provided by speculators) of getting bitcoins from those who don't need them to those who do without having something to trade for them.  And whilst the speculating might have a big impact on what can be bought and sold with them the bottom line is demand for the purposes of purchasing or sending money electronically.

But if I've got 50,000 bitcoins and I'm not doing anything I have no say in what people choose to pay for those that are on the market.  Of course the absence of my 50,000 will have an indirect influence.  That was my argument against the point in the OP - that having the vast majority 'hoarded' and out of circulation is not a problem for Bitcoin because for however little is left, the active buyers and sellers (who are using it) along with the speculators (providing liquidity) mean demand can meet supply at a price that will enable it to be used for whatever purpose they wish it.

I agree it is not essential.  But if in the process of being (or at least coming across as) contrarian you are making it very difficult for others to ascertain your position then you have no place complaining if people get it wrong.  Where a statement is structurally flawed then bring it on because the idea is one of us may be able to persuade the other to change his position and we both stand a chance of learning something!

It is different because it is not under central bank control.  And its effect on dollar price inflation is dependent more on total dollar value of bitcoin circulating tin the US more than directly on bitcoin's currency inflation (through mining).

When the only thing backing up your currency is the belief that it can become stronger than the USD in mainstream society with no form of legal protection for your funds while simultaneously the majority of holders are buying and selling solely to make more USD, that is not quite a paradox but awfully naive.

Now you're simply being unfair.  I get attacked, i react in kind.  To my defense, while my attackers see fit to speculate on my mother's skills at fellatio & my wanton need of butsecs, in cases like that i respond with a demure "eww?"
As far as my position, i do not see why making it clear is essential or even relevant to objective discussion.  If a statement is structurally flawed, who cares if i like or hate the conclusion it attempts to reach?

It is different because it is not under central bank control.  And its effect on dollar price inflation is dependent more on total dollar value of bitcoin circulating tin the US more than directly on bitcoin's currency inflation (through mining).

I'm sorry, you seem to suggest that by splitting the pounds you convert to bitcoins in two separate parcels (one to buy bitcoin which shall be saved, one to buy bitcoins which shall be spent) you avoid the save/spend dilemma.  I may be reading you wrong, but that's not a solution, it's a Rube Goldbergian obfuscation.  If Bitcoin is a better store of value than fiat, the sound thing to do is convert all of your fiat into bitcoins *as soon as you can* & hold the coins.  Each time you use bitcoins in a transaction, having to repurchase them later with fiat, you lose.  Assuming that Bitcoin value continuously rises relative fiat (the very thing which would make it a better store of value than fiat), the bitcoins you "rebuy" will cost you more fiat than the ones you sold.  Think of it in terms of selling a coin on Gox during a rally, and having to buy it back, oh, 5 minutes later

Apologies.  Obviously not obvious to you.  Not false, just incomplete.  I was not referring to the currency market.  I was talking about what one can buy with bitcoin.  The currency market is a means (made possible by liquidity provided by speculators) of getting bitcoins from those who don't need them to those who do without having something to trade for them.  And whilst the speculating might have a big impact on what can be bought and sold with them the bottom line is demand for the purposes of purchasing or sending money electronically.

But if I've got 50,000 bitcoins and I'm not doing anything I have no say in what people choose to pay for those that are on the market.  Of course the absence of my 50,000 will have an indirect influence.  That was my argument against the point in the OP - that having the vast majority 'hoarded' and out of circulation is not a problem for Bitcoin because for however little is left, the active buyers and sellers (who are using it) along with the speculators (providing liquidity) mean demand can meet supply at a price that will enable it to be used for whatever purpose they wish it.

Let me start by fessing up to my schoolboy error regarding 'money sitting in the bank'.  You are correct of course that it is 'it is invested -- it circulates' and the fractional reserve thing may actually mean it is more harmful in giving the banks an excuse to create more debt than if it were sitting under the mattress.  'Money sitting under the mattress' would actually have been closer to what I had intended.


What makes you think I didn't get the Buicks metaphor?


As for Bitcoin being 'bad' unfortunately I could not remember everything you'd written in this thread so I had to go back and look.  Correct you never said bitcoin is 'bad' but your love of being dismissive about certain aspects of it (along with your preference to talk down at anybody who doesn't see things your way) makes it actually quite difficult to ascertain what your position is.

Had you left out the inflammatory 'counterfeit' out of your first argument the underlying point, which I think I summarised reasonably well, is interesting and I largely agree - that adding another medium of exchange contributes to price inflation for the original currency.

It is different because it is not under central bank control.  And its effect on dollar price inflation is dependent more on total dollar value of bitcoin circulating tin the US more than directly on bitcoin's currency inflation (through mining).


Not very much.  But neither does Paypal.  Yet it contributes to the economy by providing a means of payment some people find useful to enable or ease their purchases.  And Bitcoin, by being that much more efficient, has the potential to contribute more, oiling the wheels of commerce.

The latter.  If it was a dollar doing nothing it is now a dollar doing something because the likelihood is the person who sold the bitcoin knows better than to put it under the mattress whilst watching its value get inflated to oblivion.

But hang on a minute, surely you just implied the dollar that bought the bitcoin is still in circulation so how is it not circulating it to spend it on bitcoin?  I'm confused!

For someone who protests he does not claim bitcoins are bad you do love those terms with negative connotations.  'Drains value' is just another way of expressing what we agreed, that another currency (or more of the same) in the same economy creates price inflation in the original currency.  Is that bitcoin 'draining value' or is it people choosing they prefer at least some of their money not in dollars, the consequence of which is the dollar's worth less?  Ironically your 'drains value' comment was in response to AliceWonder pointing this out to you.


Easy with the 'disingenuous' accusation.  Unless you cease with these petty put downs I'm not going to bother to reply.  Have a little respect.

If by 'shortsighted' you mean I was not assuming bitcoin to have become of a significant market cap in relation to the 'big boys' currencies then maybe.  I will indulge your preferred comparison by saying the effect of allowing counterfeiting (providing they will never be detected) and reducing currency inflation by the same amount would have the same effect globally (and would only make a difference to who gets the initial gain)*.  Likewise for Bitcoin.  If currency inflation is the central bank's primary means of controlling price inflation then the sum of commerce traded by other means of exchange will form part of the central bank's assessment of how much new money to create, whether directly or indirectly.  If bitcoin becomes big enough it will have an influence.  If it becomes bigger still it may become equivalent to QE in which case they would want to stop printing themselves.  If it becomes bigger still they may find they need somehow to deflate USD (apparently in the UK they were originally talking of tightening money supply by selling the assets they've been 'buying' through QE - not that I really understand these central bank mechanisms).  But the 'advantage' they do have over bitcoin is that they do have the means of controlling supply thus reducing or eliminating the impact.

Thanks for the reference.  So you're saying if one does not come to be then the other will (or that the first will be true then the second)?  In the latter case for as long as people remain 'deluded' that bitcoin has value it will be bad for the economy (but not 'bad' in and of itself of course) and that when the world wakes up one morning and remembers the rulebook says it shouldn't have any value and it is suddenly worth nothing that those holding it will make a great loss (not that that bitcoin is 'bad' of course)!


On a 'fair summation of your views' am I right that you believe Bitcoin to be essentially worthless and certainly not a currency (because it has neither the backing of something intrinsic nor by decree of a nation state), that it is pointless as a means of electronic money transfer because we already can take the money to the bank and let them transfer it for us, you believe it is doomed because the powers that be won't let it thrive, you believe all who see a positive future to bitcoin as a disruptive technology are mugs (being played by the 'older kids') and are a bunch of screeming kids that the mature elite including you and Satoshi are fed up of?

Yet you 'welcome buicks' and do not think bitcoin is 'bad'?

Excuse me for not 'getting' what you think of bitcoin!

* I'm not talking about 'allowing' or 'disallowing', 'right' or wrong', just about the practical impact.

I was pre-empting the pedants who I could hear chiming in that bitcoin as it is only has 8 decimal points therefore if the whole of the circulating bitcoin economy was say .00001 bitcoin it could not be used.  The fact that a quick non-controversial hard fork could when required make more decimal places available renders this argument moot.

My point is the save or spend thing is a false dichotomy.  Of course nobody can both save and spend the same bitcoin but we have the option of acquiring to save then acquiring some more to spend where we are spending bitcoin instead of spending the equivalent in pounds.  In the bigger picture I was pointing out that it has zero effect on availability of bitcoins to use for spending because whatever's left can be divided into however many units and their value will reflect demand for those available.

Apologies.  Obviously not obvious to you.  Not false, just incomplete.  I was not referring to the currency market.  I was talking about what one can buy with bitcoin.  The currency market is a means (made possible by liquidity provided by speculators) of getting bitcoins from those who don't need them to those who do without having something to trade for them.  And whilst the speculating might have a big impact on what can be bought and sold with them the bottom line is demand for the purposes of purchasing or sending money electronically.

But if I've got 50,000 bitcoins and I'm not doing anything I have no say in what people choose to pay for those that are on the market.  Of course the absence of my 50,000 will have an indirect influence.  That was my argument against the point in the OP - that having the vast majority 'hoarded' and out of circulation is not a problem for Bitcoin because for however little is left, the active buyers and sellers (who are using it) along with the speculators (providing liquidity) mean demand can meet supply at a price that will enable it to be used for whatever purpose they wish it.

If you quoted what you're replying to, the "decimal places" bit sounds like a non sequitur.  As far as the value of coins not in circulation being determined by the coins that are, that's not obvious & also false, currency trading != circulation.  If i sold bob 5 bitcoins for 5 dollars, and he sold them to me for 5 dollars, there's no circulation, no matter how many times we rinse & repeat.

Let me forget my manners, humility & good taste by quoting myself:
"*I am not the gold-bug here, i don't like gold-bugs, i welcome the gold Buicks."
If i failed to make it clear that the gold Buick is a standin for Bitcoin, i'm spelling it out now.  So, forgive the eye-raping boldface, but i never said that Bitcoin is bad.  I do not think Bitcoin is bad.  Please, re-read the few lines at the very end of my previous post, starting with "Side note:" to get a fair summation of my views on Bitcoin.  Forgive me for not joining the din of children who, along with inventing sex, drugz, rat racing & muzak also invented the concept of monyz.

Your comment about shutting down the money presses for a few minutes is either shortsighted or outright disingenuous.  If you think that Bitcoin is destined to forever remain no more significant than a scavenging pilot fish to the dollar shark, than your "how much harm can it do?" argument has some validity.  As would allowing counterfeiting -- how much harm could a few million $20 notes do?  Just shutting down the money presses for a few minutes would more than make up for the measly amount.   Does that sum up your point?

As far as your "the monyz would otherwise be sitting in banks & buying bitcoins is helping by circulating it" goes, it is simply absurd.  You know as well as i do that banks don't stash the money in a safe for safekeeping, it is invested -- it circulates.  And then there's that fractional reserve bit.  And spending the money on Bitcoin is anything but "circulating it."  Step up ur game & make things interesting.

As far as "not having it both ways," "arguing in the alternative" is valid, accepted in law, and common as dirt. see here: http://en.wikipedia.org/wiki/Argument_in_the_alternative
So yeah, it surely can't be both, but just as surely will be *either.*
 

I really don't get why so many people still seem to have a problem with this one.  Providing if/as/when it becomes necessary additional decimal places can be added it matters not how much of the bitcoin in existence is 'hoarded' and not in circulation.  It doesn't matter if the total bitcoin available for all world transactions is a small fraction of a single bitcoin.  It will still be plenty.  Its value is determined by demand which is determined by the the cumulative number and value of the transactions people want this tiny amount in circulation for.  Obviously the value of those not in circulation is determined by the value of those that are.

Needless to say in this extreme situation anything other than the tiniest amount of hoarded bitcoin coming back into circulation would play havoc with the price because unless it was only used for a tiny number of vary low value transactions the value of bitcoins in this circumstance would be immense - which is also why we are very unlikely ever to get to this.  Because way before the price got that high people would be bringing some of their savings into use.

I'm failing to see why this is so widely perceived as a problem.  Of course none of us knows. Paul Krugman and his ilk may be right.  This is one of the things that makes this experiment so exciting.  We will all find out in due course.

And I suppose it's kinda fun seeing people saying they 'know' what the results of the Bitcoin/cryptocurrency experiment will be because they are so certain that their knowledge of economics or the theory of money tells them what is 'inevitable'.

Are you beginning to wonder by now why not only nobody is agreeing with you on this 'counterfeit'/'quazi' thing but people are also suspecting you're trolling?  You say you think may be being trolled but I strongly suggest you have a look first at what you're saying and have a think why others think it ridiculous before calling everybody stupid for failing to 'get' what you alone appear to be understanding.

I think if I may be as bold as to summarise your position (without the all the negative and derogatory connotations of which you appear to be so fond):
 
Just as issuance of additional fiat currency without a corresponding increase in things on which to spend it devalues existing notes of said currency in any economy that makes use of them, the issuance of units of any currency (or other medium of exchange whatever its legitimacy) without a corresponding increase in things on which spend it will also result in price inflation.

Counterfeit currency if it gets detected and destroyed may cause a bloody nose but has no overall effect on monetary supply.  Undetected counterfeit currency has same effect as QE.  Common usage of an 'outside' currency also has the same effect e.g. USD in Argentina.  It is especially the case where central banks fail to control inflation.

So are you saying bitcoin is bad because it (like currency inflation, like undetected counterfeit currency or any 'outside' currency) is contributing to inflation in the US?  It would be very easy for Bernanke to counter this simply by switching the 'printing press' off a few minutes earlier than he would otherwise have done! As it is if people are spending money on bitcoin that they would otherwise have sitting in the bank or hoarded in gold then we are doing Bernanke's job for him in having more money circulating!

Or might you be saying bitcoin is bad because on the assumption it will become worthless it is like detected counterfeit currency because its holders will get a bloody nose when everybody simultaneously 'discovers' it has no value because something in an old rule book says it shouldn't have?

Surely it can't be both other than in the very short term?

In the sense that it will do exactly the same to the overall price of gold a lump of lead passed off as gold, sure
If this is counterintuitive, let me try to walk you through this, and you can point out exactly where i fail:

For the sake of clarity & my wish to make you fabulously wealthy, assume that you didn't find just a measly nugget.  You discovered a way to turn base metals into gold.  That obscure alchemy major, the one that your college friends poked fun at, paid off.
The Philosopher's Stone turned out to be a simple trick: a can of sugar-free Red bull poured over an old Buick, while chanting "Ben Bernanke" backwards.  Puff!  A solid gold Buick. 4realz.

When the thrill of unalloyed scientific triumph finally wears off, you ask yourself:  Wat do?

Now that you have the key to turning any Buick, or any *anything* -- manhole covers, piles of scrap metal -- anything -- into gold, what do you do with it?  
Specifically, do you share it with the rest of the mankind?  Will the tired get-rich-quick byline, "turn your trash into treasure," finally become a reality?

The answer is obviously f8ck no!1!  Mankind is no better off -- the amount of *stuff to buy* didn't change, just the amount of stuff to buy it *with.*  If everyone turned rusty Buicks into gold, gold would lose its greatest selling point:  limited supply.  So, wat do?

Again it's obvious: keep your mouth shut, and ffs don't turn entire Buicks into gold!  Let the gold-bugs think the gold they hold is still rare & precious -- otherwise thy won't pay money for yours. They will, though, for a while, and the price will sag slowly as more and more gold appears on the market.  Until the cat's out of the bag & the ensuing panic drives the price of gold down to ~ the price of scrap metal.

The "sugar-free Red Bull over an old Buick while chanting "Ben Bernanke" backwards" trick, as slick as it is, won't enrich mankind -- all it would do is redistribute the wealth.  The gold-bugs, with their puny stashes of a few pounds, will be poorer by the amount of gold they hold. They'll be no richer than an enterprising 12-yr-old who buys a can of Red Bull & finds an untended chunk of scrap.

Side Note:  If the gold-bugs find out about your alchemy learningz before you perfect your trick, they'll try to kill you.  The last thing they want is for gold to become as common as scrap iron.  If the makers of Red Bull find out, Red Bull prices will skyrocket -- as the gold market deflates, they will both mine Bitcoin turn Buicks into gold *and* sell you Red Bull for exorbitant amounts.  By controlling the Red Bull supply, they will be able to manipulate the gold market, while you, the alchemist, will be forced to pay extortionate prices for Red Bull to continue plying your trade.

Are the sad parallels between this fairy tale & Bitcoin too subtle?

*I am not the gold-bug here, i don't like gold-bugs, i welcome the gold Buicks.  What i don't like is all the yelling:  "We're lighting our alchemy torches & sharpening our Buick forks!1!  Ur gold empire is coming to an end, stupit gold-bugs!1!"  Ever wonder why Satoshi didn't want Bitcoin on the radar?  Ever wonder why he vanished in disgust?

Question for crumbs: if I go prospecting with my metal detector, find a gold nugget, have it refined and minted into a gold coin and then trade that gold coin for goods and services, is my gold coin functionally equivalent to counterfeit money?

Oy gevalt!  So you get all pedantic on me, bubula?  Everything from Eve ISK to Monopoly Money is technically a currency.  Hotels could be bought with Monopoly Money, and sold for Monopoly Money.  If you're eager enough to win the game, you may even buy Monopoly Money with $$$, if other players sell it to you for lulz.  The problem comes when the game ends & you want to cash out of Monopoly Money.  Unless you do it before the game ends, and there's also a player goofier than you, who's willing to buy, you're left holding the bag.

If you use autumn leaves or used tampons as a medium of exchange, those would be considered a currency too.  Even by FinCEN -- you'll get taxed, even.  The only remaining questions are "how goofy a currency" & "are you sure you're not being trolled by the older kids, the ones who know how money works?"

FinCEN has stated they treat it as a medium of exchange - which is how they define a currency.

It is a currency. It is not a legal tender currency but it is a currency.