The next step towards price stability: We back bitcoin - page 2.

johnyj

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Beyond Imagination

Quote from: RomertL on May 04, 2014, 02:02:23 PM

Ultimately any market price depends of supply and demand, but the day we can send/recive/pay most people/companies with Bitcoin is the day we will have stable (and high) prices. Bitcoin will then have higher utility than Visa, PayPal, Western Union, SWIFT etc.

Suppose that you need bitcoin to do cheap money transfer, but you still need to convert them back to fiat money to spend, this will not help to stabilize the market price since you first buy certain amount and then sell same amount at the other end, creating corresponding sell pressure on exchanges

If bitcoin is the only money in circulation and enterprises use it to pay salary and purchase everything, then the utility of bitcoin will definitely help to stabilize its value. But it is not the case today

mysidia

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Quote from: RomertL on May 04, 2014, 02:02:23 PM

Litecoin does not have the same utility as Bitcoin because of the simple reason that you can pay / receive payments from a lot more people with the latter. Ultimately any market price depends of supply and demand, but the day we can send/recive/pay most people/companies with Bitcoin is the day we will have stable (and high) prices. Bitcoin will then have higher utility than Visa, PayPal, Western Union, SWIFT etc.

I don't necessarily expect that fiat currencies will ever become non-volatile with respect to Bitcoin. In the event that the supply and demand of Bitcoin grows; the supply and demand of the fiat currencies will shrink over time.

You may see price volatility still, when you are comparing Bitcoins to fiat at that point, due to the instability of the value of the fiat currencies as a whole, and the relative stability of the value of currencies such as Bitcoin that have a physically fixed or mathematically predictable supply ----- and then, demand only fluctuates with the economy and the health of the network.

Yes. The bitcoin protocol may need some major changes, however, to ever conduct a tx volume approaching Visa or Paypal's; there are surely problems and pain points involved with scaling that will need to eventually be encountered and then addressed by future work in the development of bitcoin protocols and software.

So a positive but manageable rate of growth is key.

More users and more merchants accepting BTC for goods and services coming on board are a fundamental requirement, before Bitcoin begins to become more mature and more valuable.

RomertL

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Quote from: johnyj on May 03, 2014, 09:51:16 PM

Quote from: Melbustus on May 03, 2014, 08:18:25 PM

No. Utility "backs" bitcoin. Things have value because they're useful in some context. Bitcoin is a tool to reduce the friction of exchange. It happens to work very well for that in our modern internet-centric global instant era. We call such a thing money, or currency.

A couple hundred years ago, gold and silver did that very well. They had properties (scarcity, fungibility, recognizability, durability, divisibility, etc) that made them generally work better than anything else for the purposes of reducing the friction of exchange.

What "backed" gold and silver? The only thing that gave them value was their utility. And so it is, should be, and will continue to be, with bitcoin.

Value is not coming from utility, but decided by supply/demand. Utility is only one of the prerequisites for demand, but if the supply is endless, then it will not have value. Email can have great utility but it has almost no value, since it can be duplicated endlessly. Litecoin's utility is as good as bitcoin, but it does not hold 1/20 of bitcoin's value

The value of gold and silver is also backed by supply/demand. If you mass dump all the gold reserves from central banks, the price will crash hard. Today, everything's value is more or less decided by its value on exchanges

Litecoin does not have the same utility as Bitcoin because of the simple reason that you can pay / receive payments from a lot more people with the latter. Ultimately any market price depends of supply and demand, but the day we can send/recive/pay most people/companies with Bitcoin is the day we will have stable (and high) prices. Bitcoin will then have higher utility than Visa, PayPal, Western Union, SWIFT etc.

elavenil

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It is panic that cause price drop in BTC. Most miners afraid bitcoin value may reduce to zero any-day. So when panic strikes that time they start selling.

mysidia

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Quote from: MrBea on May 04, 2014, 02:03:47 AM

What would work in dampening volatility would be ask/bids to be always funded and locked in for a certain amount of time.

What are the individual benefits available to a person for making such a pledge?
Which essentially amounts to a market cartel or "trust" (collusion to not sell a product onto the market below a certain price), come to think of it.

Volatility and the increased liquidity that results from buyer and seller freedom benefits the exchanges and some traders, financially, however. Volatility results in bigger spreads and more trades in the short term; less market freedom implies lower trade volumes, since buyers simply won't place any orders if they perceive Bitcoin's worth drops below the pledged price --- it creates a condition where the market gridlocks.

What benefit could be offered in exchange to an individual to compensate them fairly for the disadvantage of choosing to lock-in an ask or a bid, even after they see the market moving against them?

MrBea

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Bitcorns

For any buy commitment to be meaningful in dampening volatility it would have to be near spot. Any near spot commitment could still create information asymmetry and susceptible to maniplulation namely pump\dump.

What would work in dampening volatility would be ask/bids to be always funded and locked in for a certain amount of time. This way buy/sell walls would have more meaning and not just be canceled when market moves.

chriswilmer

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Quote from: DeathAndTaxes on May 03, 2014, 10:53:22 PM

So a reserve without a reserve and a pledge without enforcement? That will bring stability? If anything it confuses the ideal that bitcoin is backed by utility, it is utility not an easily broken pledge which creates value.

I promise (not really) to buy 21 million BTC @ $100 ea.

Also... I kind of feel like our conversation is going something like this:

[OP and chriswilmer]: "Hey, let's make an applie pie!"

[DeathAndTaxes]: "Applie pies aren't necessary. Apples are nutritious on their own. Baking apple pies will just confuse people and goes against the principle that apples can be eaten on their own."

I completely agree that any reserve/pledge system is not necessary for Bitcoin to work. However, I don't see how a group acting voluntarily to buy/sell at certain prices in anyway detracts from your ability to use Bitcoin as you like.

chriswilmer

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Quote from: DeathAndTaxes on May 03, 2014, 10:53:22 PM

So a reserve without a reserve and a pledge without enforcement? That will bring stability? If anything it confuses the ideal that bitcoin is backed by utility, it is utility not an easily broken pledge which creates value.

I promise (not really) to buy 21 million BTC @ $100 ea.

As you pointed out, anonymous pledges wouldn't work.

If Warren Buffet publicly pledged to buy any amount of BTC @ $100, I would believe him. Ditto with Richard Branson, Bill Gates, etc.

DeathAndTaxes

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Gerald Davis

So a reserve without a reserve and a pledge without enforcement? That will bring stability? If anything it confuses the ideal that bitcoin is backed by utility, it is utility not an easily broken pledge which creates value.

I promise (not really) to buy 21 million BTC @ $100 ea.

chriswilmer

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Quote from: DannyHamilton on May 03, 2014, 10:45:16 PM

Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect.

I'll pledge to buy 1,000 BTC at $1 if the exchange rate that far.
I'll pledge to buy another 10,000 BTC at $0.10.
If it drops all the way to $0.01, I'll pledge to buy an additional 100,000 BTC.

Since:
21,000,000 BTC divided by 111,000 BTC per person = 189 people

We can guarantee that the exchange rate will never drop below $0.01 per BTC if we can find another 188 people to make the same pledge.

Right, exactly. Although, I think a system like this requires more than just 188 random people... each person would need to be perceived as trustworthy (a perhaps impossible task). In all seriousness though, if a group of ~50-100 high net worth individuals did a pledge like this you could probably get a reasonable floor in the double digit range.

@Death and Taxes: What the OP is suggesting is a purely voluntary effort. It's not any more centralized than Bitstamp or Coinbase or Mt.Gox are centralized. It's yet another centralized service/concept that exists in the Bitcoin ecosystem. Probably multiple such "reserves" could exist with different agendas that don't cooperate at all.

DannyHamilton

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Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect.

I'll pledge to buy 1,000 BTC at $1 if the exchange rate falls that far.
I'll pledge to buy another 10,000 BTC at $0.10.
If it drops all the way to $0.01, I'll pledge to buy an additional 100,000 BTC.

Since:
21,000,000 BTC divided by 111,000 BTC per person = 189 people

We can guarantee that the exchange rate will never drop below $0.01 per BTC if we can find another 188 people to make the same pledge.

DeathAndTaxes

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Gerald Davis

The OP used the word RESERVE. I didn't say anything about changing Bitcoin I said "what would be perception if this backing reserve was stolen, seized, and embezzled"? If the reserves boosts faith and stability then the loss of it would undermine the currency.

Now if there isn't even a reserve just a pledge well that is even more worthless. The CHF wasn't held steady by some unbacked pledge. It was held steady by the government having massive funds on hand (both EUR and CHF) and a willingness to aggressive trade against any movement to hold it steady. A pledge without any enforcement is worth about as much as an anonymous petition. I guarantee you the first time the exchange rate falls through the pledge rate that will become obvious.

chriswilmer

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Quote from: DeathAndTaxes on May 03, 2014, 10:36:42 PM

Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect. For many people it seems like Bitcoin "could go to zero" but if you had a credible pledge to buy a large amount of bitcoins below $10, then it would be some reassurance (this is also similar to how central banks work when they are a "lender of last resort," ... by promising to mitigate a catastrophe, you can actually prevent the catastrophe from occurring in the first place).

Pledges are based on trust. So you believe making a trustless system now dependent on trust and a centralized trust at that is a good thing. Lets imagine hypothetically this reserve was managed by say MtGox who defrauded the depositors and used the funds to cover losses in other areas. How much of a psychological effect do you think the headline "bitcoin reserve losses $5B, bitcoins now worthless" would be?

Another scenario would be one or more governments seizing this reserve. That is ultimately what ended eGold. The US government physically seized the gold bullion backing the currency. As such the eGold "tokens" were utterly worthless.

Bitcoin for the first time removes that counterparty reserve risk and the solution to some is to voluntarily reintroduce it. No I think I will keep my wealth (fiat and bitcoins) under my own control.

There's no discussion about changing Bitcoin in anyway in this thread. I think OP's idea about people voluntarily pledging (which obviously is based on trust) to buy at a certain price has nothing to do with the way you use Bitcoin. You wouldn't even notice if it happened (unless you wanted to). Am I missing something about your complaint?

DeathAndTaxes

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Gerald Davis

Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect. For many people it seems like Bitcoin "could go to zero" but if you had a credible pledge to buy a large amount of bitcoins below $10, then it would be some reassurance (this is also similar to how central banks work when they are a "lender of last resort," ... by promising to mitigate a catastrophe, you can actually prevent the catastrophe from occurring in the first place).

Pledges are based on trust. So you believe making a trustless system now dependent on trust and a centralized trust at that is a good thing. Lets imagine hypothetically this reserve was managed by say MtGox who defrauded the depositors and used the funds to cover losses in other areas. How much of a psychological effect do you think the headline "bitcoin reserve losses $5B, bitcoins now worthless" would be?

Another scenario would be one or more governments seizing this reserve. That is ultimately what ended eGold. The US government physically seized the gold bullion backing the currency. As such the eGold "tokens" were utterly worthless.

Bitcoin for the first time removes that counterparty reserve risk and the solution to some is to voluntarily reintroduce it. No I think I will keep my wealth (fiat and bitcoins) under my own control.

chriswilmer

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Quote from: jonald_fyookball on May 03, 2014, 10:32:04 PM

Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect. For many people it seems like Bitcoin "could go to zero" but if you had a credible pledge to buy a large amount of bitcoins below $10, then it would be some reassurance (this is also similar to how central banks work when they are a "lender of last resort," ... by promising to mitigate a catastrophe, you can actually prevent the catastrophe from occurring in the first place).

10? Are you mad. Should be $500

The higher the price, the less credible the pledge. There's a trade-off.

For example, I can potentially publicize that I will buy all bitcoins sold below $0.001 USD. I could safely stake my reputation on that pledge and many people would believe me... even if it wasn't a really noteworthy pledge. If I tried to say the same thing for $100, without cooperating with a large (and wealthy) community, nobody would take it seriously (unless I was a well known billionaire like Richard Branson).

vipgelsi

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Quote from: jonald_fyookball on May 03, 2014, 10:28:48 PM

Miners should agree not to sell below certain price. Kind of like Map pricing for retailers.

Sounds good on paper.

jonald_fyookball

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Core dev leaves me neg feedback #abuse #political

Quote from: chriswilmer on May 03, 2014, 10:31:14 PM

I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect. For many people it seems like Bitcoin "could go to zero" but if you had a credible pledge to buy a large amount of bitcoins below $10, then it would be some reassurance (this is also similar to how central banks work when they are a "lender of last resort," ... by promising to mitigate a catastrophe, you can actually prevent the catastrophe from occurring in the first place).

10? Are you mad. Should be $500

chriswilmer

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I think that even if there was a large commitment to buy Bitcoin at $10, it would have a significant psychological effect. For many people it seems like Bitcoin "could go to zero" but if you had a credible pledge to buy a large amount of bitcoins below $10, then it would be some reassurance (this is also similar to how central banks work when they are a "lender of last resort," ... by promising to mitigate a catastrophe, you can actually prevent the catastrophe from occurring in the first place).

jonald_fyookball

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Core dev leaves me neg feedback #abuse #political

Miners should agree not to sell below certain price. Kind of like Map pricing for retailers.

Bit_Happy

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A Great Time to Start Something!

This is a win/win, great idea johnyj.
The price will probably rarely hit the floor since so many people will put orders starting "a little" above.

Topic: The next step towards price stability: We back bitcoin - page 2. (Read 2398 times)