Topic: The Next Step for Bitcoin: From Mining to Transaction Economy (Read 4655 times)

+1
Agreed, just look at gold's value and the fact that it is not currently used as a medium of exchange in any meaningful way. Imagine what the price of bitcoin can be if bitcoin simply assumes a similar role. I took some "back of the envelope" calculations and took the total ounces of gold in the world and divided them by the final total number of bitcoin and came up with 254 ounces per 1 BTC. With gold currently priced at approximately US$1,500 per ounce, the value of 1 bitcoin could ultimately be $381,000. This doesn't even account for the likely huge amounts of government money-printing in our near future.

Math: 32150 troy ounces per tonne x 166000 existing tones of gold in the world (source: World Gold Council) = 5,336,900,000 oz / 21,000,000 ultimate total supply of bitcoin = 254 oz per 1 BTC or 254 x $1,500 gold = $381,000 per BTC

You lost me there. Why should those be in competition? They appear complementary to me. Infinite divisibility is what allows a deflating medium to still be able to serve as the Numéraire for small amounts of value.

I partly sympathize with the OP's point. But I think there's an alternative hypothesis.

Precious metals are not (normally) used in transactions yet retain use as a store of value. They support a rather large network of bullion and coin dealers, who exist by collecting a transaction fee when it is bought and sold. Reputable bullion dealers serve to give confidence against counterfeit coins and the like. Their function is similar to the function of miners in Bitcoin (conferring trust in the blockchain), who can likewise survive on transaction fees, post block-bounty. Even if Bitcoin's use as a transaction medium remains small, why can't Bitcoin serve the same store of value purpose? The miners collecting transaction fees would serve the same role as the dealers in the bullion realm. Bitcoin could survive as a capital asset. The market has already demonstrated a willingness to ascribe value to its money-like characteristics.

I'm not arguing in any way against the desirability of Bitcoin-denominated trade of goods and services. I hope it flourishes. I'm merely arguing that there is a rationale for the survival of Bitcoin without commensurate growth in such trade.

You lost me there. Why should those be in competition? They appear complementary to me. Infinite divisibility is what allows a deflating medium to still be able to serve as the Numéraire for small amounts of value.

You got the gist of it in this one sentence !
After a bunch of deep economic / sociological philosophy posts and a couple of libertarian / utopian / hippie posts in this thread, here's one that's simple and makes perfect sense.

The confused view of Bitcoins as something of intrinsic value (deflationary and capped in amount) versus its infinite divisibility (representing a view of Bitcoins as currency) are directly in competition with each other.

I understand how bartering works, and bitcoin's intention and necessity to be barter fodder, and I also understand what it will take bitcoins to become a transaction currency. What I don't understand is whether satoshi realized he was overcompensating the bitcoin or not. It's not a revolution of the currency system, but moving complexity to another part of the system. The revolution is in the p2p / electronic transactions. Why go through all this trouble and not design it so trading was inevitable? To me, that's a fundamental flaw. Would the best currency not be immediately apparent even to average Joe? Would it not automatically assume control of all businesses because it just does what its supposed to? Bitcoins are slowed down by the nature of their existence; prospecting.

Most people don't hoard US dollars because the money supply inflation rewards "double debt now pay back later"...they hoard ownership and deeds instead. That's why I said that people will spend everything else, before bitcoins, then obviously use bitcoins and other precious things like gold when they have nothing else but need to pay for something. This is all assuming negative cashflow, of course, as that's the only reason to ever really dip into savings.

Gold has a value over bitcoins simply because there is intrinsic value: "If I can't find a buyer for this in the future, I'll just let my wife wear it, or use it in electronics etc." But the governments have decided to hoard it, and it's a pain in the ass to melt down and split all the time. Bitcoins are easy in that way, but do not have intrinsic value, so thus must get 100% of their value from being that trade token. How much would you pay for the the ability to not have to buy a whole pig? In the fiat system, you pay the banks an interest rate for the creation of their IOU barter notes, and that is the premium. With bitcoins, the premium is the mining and network hashing involved, but current prices are ruined by speculators of the "bitcoins are valuable in 20 years" school - enough to destroy their use as a trade token (the premium is too high).

Satoshi has achieved ability to trade and difficulty in forgery. However, by making it like gold, but not gold, there is no "fall back" if it no one will trade it. Fiat currency *has* to be guarenteed by the government issuing it, essentially saying they'll tax the crap out of everyone to make sure it holds its value, and they do. Gold is guarenteed by the fact that it is a great heavy inert metal and looks good. Bitcoins are backed by nothing, and that's the experiment; to see if people will accept it just because it is, and they will not if the premium to use it is too high (hence this thread, but add cost of speculation). Businesses don't care how they get paid. People care about how they pay. I don't see other currencies vanishing anything time soon, and thus, bitcoins only value is in value storage due to scarcity.

What I don't understand, then, is why Satoshi decided to allow the creation of bitcoins via competitive mining (which has its own merits if you want to create a store of value), when its to be used as a currency (which is simply an IOU). Gold is not an IOU...gold is...jewelery and happy wives. Fiat currency used to be a paper version of gold, since they could be exchanged, and since that stopped...it has been narrowing down to essentially it's real worth; nothing but the paper its printed on. Why not simply design bitcoins to be a record of a transaction in a community? In a way it supposedly is, but there's a subtle difference.

If the idea is to use bitcoins as "a valuable thing" to trade for a "valuable thing", as opposed to an IOU for "a valuable thing", then there's nothing wrong with what's going on now. The market will take its course, in 100 years all the coins will have been mined and its established that they're safe, and at some point close to that time bitcoins would have built a working trade economy around the bitcoins. However, because bitcoins are NOT a commodity that can be consumed (essentially a fiat currency), they are not an inherently valuable thing, and so must be used as an IOU, which is again unlikely when they're so expensive.

You cannot understand bitcoins isolated from its context. This is a typical mistake I see over and over in this forum. Most people are so corrupted by the fiat monopolic currency mentality, that they cannot see beyond that reality.

Bitcoin will not grow in value for ever, that is impossible in a free market. If the bitcoin concept prooves to be succesful, many other similar crypto currencies will come along. As long as there is enough incentive to mine, there is no problem for other currencies to come along. Of course right now nobody knows if bitcoin will last, so no serious contender has come along yet. But expect more currencies (wich means more crypto currency supply) will come along in a not very distant future. As there is more competition and supply, bitcoin price will eventualy drop or become stable.

Bitcoin is an experiment in free markets; bitcoin and its philosophy are inseparable. You cannot understand one, without the other. If you see bitcoin through the lens of a monoplistic currency (that has to dominate the whole economy), you will invariable come to false conclusions. Instead, if you see bitcoin in the context of free market in currencies, you will start think more clearly.

You got the gist of it in this one sentence !

(Who knows, maybe we virtual entities living in virtual worlds *do* have some "essential self" in some world somewhere; is that somewhere to be a "hell on earth" or an open universe of open minds and hearts and... mining opportunities?

-MarkM-

PS Does anyone else find it ironic that this forum considers the word bitcoin to be incorrectly spelt?

I am just saying, a LOT of people who have BTC right now are the type of people who want to store wealth. These people didn't get wealth by buying overpriced goods from inept merchants that may or may not be trusted by the community.

So don't be surprised if you start BitAccordions.com and have to shut down because of lack of demand.

"The Important Things to Take Away"
What we need right now is developers to make some very very user friendly sites, i.e. something in the likeness of Ebay in combination with escrow service that provides both buyer and seller protection (since Bitcoin makes punishing scammers considerably harder). Once people have a concrete and reasonably safe place to sell and exchange individual goods, we will see more large legitimate businesses spring up, where escrows will not be necessary for them and quality control and reputation will prevent the majority of scamming.

I'd like too but I neither have the money nor the programming experience or connections to pursue such an endeavor. Although I would greatly enjoy providing a developer with ideas.

People pay for convenience and safety! Right now Bitcoin is heading towards being a transaction based currency with no reasonable means of transacting.

We need to be able to buy them easily, store them securely, exchange them with smartphones.

Seriously, it's only going to take an easy to use smartphone app to go viral to send bitcoin skywards. As long as it checks the market, uses a barcode scanner, has a secure wallet, and is fast, we will have a useful ninja currency.