Topic: Thought Experiment: Is Bitcoin a Ponzi scheme? - page 2. (Read 12373 times)

I've read your posts in this thread and you seem to be stuck in a rut.

Your problem is that you're attaching an arbitrary value to Bitcoin.

Conversion rate from Bitcoin to USD is arbitrary and irrelevant. It tells you nothing. Sure, you can look at the historical price of Bitcoin and see that it's enjoyed a steady rise to USD parity, but that's only because speculators traditionally stabilize speculation around the arbitrary value of USD parity because we're human and USD parity "seems like a good place to stop buying".

Even if one Bitcoin cost $1000, how can you pass a judgment on it beyond referring to historical price activity? Something that costs 1000 USD also costs 1 BTC. It doesn't matter what the conversion rate is in itself because it's market nominal.

By asserting that Bitcoin is overvalued right now, you're playing clairvoyant and suggesting that there's going to be a substantial price drop, but there's no predictable circumstance for that. Currency isn't overvalued just because "it seems high".

Furthermore, Bitcoin has no commercial market to entrench price or give meaningful value to price. Currency markets play much different once they start pushing volume in markets other than currency trades because the currency value becomes objectified with the acquisition and investment in goods/services.

'Early adopters having an advantage over later adopters' is not a sufficient characteristic to classify something as a Ponzi scheme.

In most markets early adopters do not have an advantage, but additional risks.
Could you explain what's meant with "equalizes"?

One must at least accept, that the inflation scheme is not totally irrelevant, by reductio ad absurdum:
If the total block limit had been set to 1000, would we now have this discussion?

Here's the math for the approximate current energy costs, solely for the hashing power:

   (600 Ghash/s / 2 Mhash/Ws) * (0.2 $/kWh)
= (300 kW) * (0.2 $/kWh)
= 60 $/h
= 1440 $/day

Does the Bitcoin economy really warrant that kind of expense, to protect against double spending?

I've refined my preferred inflation scheme, to get rid of the problem with Moore's Law, which would have led to too strong inflation:

• #currency units awarded ~ energy spend on the proof of work
  when a host solves a new block, it gets coins proportional to the current difficulty = amount of work spend
  
• long term adjustment through a conversion factor:
  - the factor will be set to always approximate the real Watt*seconds spend during solving the hash
  - with more efficient or specialized hardware, the factor will fall
  - in case the hash is broken, the factor can be adjusted downwards or a new hash can be chosen
  - in case energy production gets a lot more efficient, the factor could also be adjusted
  

Everybody will understand that electricity can always be turned directly into bitcoins (even anonymously).
The result is that early adopters have the same conditions as late comers.

A key characteristic of money is that it's divisible without loss of value.  Bitcoin is divisible (to 8 decimal places anyway).  It wouldn't matter to me if one bitcoin was $1 or $10,000.  The exchange rate is nothing more than a momentary point of reference.  What does matter to me is what the price of bitcoin was yesterday and what it will be tomorrow relative to what it is today.

So, to answer your question, if you showed me some new invention and it was really cheap, sure, I would buy it.  If it was really expensive, I would still buy 1/10000 of it.

When I first started looking into bitcoin, the only thing that I really cared about was the price history chart...but the values on the y-axis were irrelevant from my perspective.

I have thought on this, I think the answer is yes and no. Yes because the early adopters have an advantage over later adopters. However, it has a built in stop mechanism that will eliminate the necessity to gain supporters. After the fulfillment of the 21 Million BTC, there is no advantage whatsoever. The supply and demand will be purely market driven. It does make sense to provide an incentive to early adopters, but one that equalizes. As with all currencies, the flow of the currency is more important than the holding of currency.

The problem is there will be no Quantitative Easing possible. The Savers have the advantage in the long run, but then again they always did have the advantage no matter what the currency.  Deflationary pressure will strip the advantage of saving if allowed to occur. All modern currencies try everything possible in order to avoid deflationary pressures because it hurts. The irony, is that it suppose to hurt. It means people have been to greedy and not sharing in growth. You can delay it, but not avoid it.

I'm suggesting that we're likely only seeing a fraction of the bids. Prior to the server move there were bids at, for example, the 1c mark. It makes very little sense to me for all these bids to have been pulled by users at exactly the same time that MtGox moved servers. It makes more sense that tcatm's experience at Bitcoincharts is true also for MtGox's market depth reporting.

Bid/ask ratio is not a reliable figure for two reasons:

1) Dark pools
2) Bids and asks that are far from the current trading price would not really affect trading. There are currently well over $10,000 worth of asks above BTC 1.05 .  If I wanted to, I could put in a ton of bids or asks at prices nobody is ever going to trade at, but I seriously doubt these are going to affect near-future prices.


I think if you wanted to predict future prices you'd have to look at the number of bids and asks within, say, 5% of the last traded price. That number, as are all numbers when predicting the future, is entirely subjective.

bid vs ask ratio from MtGox website is 38 vs 126 right now. So unless you're suggesting that because of the move people who'd normally put in bids didn't have access to the site I don't see how that event could have had any effect.

I agree. But what if the rate is too high and I buy BTCs and then a month later before I spend them the rate falls and prices readjust and I just lost all the value? Hmmmm?

How is this so tough to get, I really don't understand.

I'd think there's probably a technical reason why the number of bids fell dramatically in the past few days ;-)

Rate exchange is absolutely neutral for anyone using BTC to buy or sell things, the higher the rate, the few BTC you will need to buy or sell the same goods. Think of the convenience instead.

And what do you think does an unequal bid vs ask ratio spell? Stability of the rate?

Really? It's hard to understand for you how the rate of exchange could play a role in whether or not someone decides to give BitCoins a chance?

Tell me something, if I show you a brand new invention that you might not even fully understand how it works would you be more willing to buy one for a cheap price or buy one if it were really expensive? I mean geesh use some common sense will ya..

The exchange rate should have no effect on peoples' willingness to adopt Bitcoin. Extreme volatility in exchange rate, however, may have a negative effect.

What I don't get is why the exchange rate of BTC would have any affect at all on the adoption and growth of bitcoins.  They could be worth $0.10, $1, $10 or $1000 and I don't think it would make a difference.  But, I can see argument that exchange rate volatility is a hinderance to adoption and use.  If the price moves in large swings over short periods of time, people will be less confident in holding and using bitcoins in commerce.  And that is why we need lots of active BTC traders...people willing to buy as the price falls and unload as it rises in an effort to profit from the volatility (reducing volatility in the process).

What I meant was that the hoarders would have little (or less) incentive to sell as the price fell and that would create a floor under the value of bitcoins (rather than falling to a value of zero as an ealier post implied (based on what I considered a flawed argument that bitcoins have no intrinsic value)).

Don't be childish, it's impossible to know. But I do see a 1 to 4 bid to ask ratio and I do know it's too high. Only the market knows how much though.

Please enlighten us as to what you believe the current value of Bitcoins are, and don't forget to show your math.  I am also interested in hearing about other peer-to-peer, pseudo-anonymous, digital cryptocurrencies.

I'm not stuck I just feel that the current price of BTCs does not validate the gained value of advantages through it's use for most new to this economy.

Btw in your example you're assuming no one has to pay any fees in exchanging between USD and BTC? And are you also assuming there's no other perhaps cheaper option to purchase the same service with another currency?

I think you are stuck on the intrinsic value of money and are neglecting its suitability for exchange.

Example 1: You want to buy oil and you need dollars to do so but you only have yen.  Solution: buy some dollars at the current exchange rate and then buy the oil.  

Example 2: You want to have pseudo-anonymity and a low transaction cost for a series of exchanges.  Solution: buy some BTC at the current exchange rate and then engage in your transactions.

In each example, another currency was better suited to the task at hand than the one you currently possessed, so you did an exchange first.  

Most merchants who price goods and services in BTC adjust their prices regularly to reflect the current exchange rate.  I sell wireless phone minutes for BTC, but my cost basis is in dollars.  So the BTC price of these minutes varies over the course of time.  If you want to refill your wireless phone anonymously, you can buy BTC at the current rate and then buy minutes from me with BTC.  Since my prices are tied to the BTC/USD exchange rate, you won't pay any more or less than if you bought the minutes directly in USD.

I don't think anyone here is suggesting that Bitcoins are superior to gold or silver as a long-term store of value.