Topic: Watching amateur finance types flail - page 5. (Read 35334 times)

Nobody is going to make a professional exchange for BTC.   At the hype-peak of ~33USD the entire "market cap" for BTC was under 200 million dollars.   That's less than the commission a goldman-sachs type institution makes on an average deal.

All the pro-markets have billions or trillions in volume.   With the micro-scale of BTC, you're lucky to get Magic: the Gathering nerds to break financial laws to exchange for you.   I've yet to see anything AT ALL in the entire bitcoin ecosystem that isn't rank-amateur.   From the hilariously basic scams to the mining pools to the exchanges, it's all done by people with no experience in these things.   Even the design of BTC itself suffers from serious naivety in financial matters - an inherently deflationary system can't grow.   Even if (and it's a big if) the exchanges manage to keep going, as the mining rewards dwindle to nothing over the next two years and more and more BTC is lost to deleted wallet.dat files, where is the currency going to come from for new entrants to the market?  Every new good will be chasing scarcer and scarcer BTC.

 

I plan to use Bitcoin to lower my transaction costs. Paying by mail costs about $30. It doesn't take many transactions before using Bitcoin pays for itself.

http://en.wikipedia.org/wiki/Tulip_mania

There's always something "new" and "it'll work this time!" about whatever bubble.  Tulips, land in florida, dot-bomb stocks, CDOs, land in florida (again, now with air-conditioning!).  The current bubble-mania is Commodities, which spiked the price of grain and oil and sparked the Arab Spring.  Following closely on the heels of food is the student loan/for-profit-college bubble which is at it's early stages.

Bitcoins are as non-bubbly because of their "technology" as petsovernight.com was.

*lol*

impressive, really.
the fact alone that someone even tries to dispute your argument proves your argument (in your mind).
that's some self-defense you built up here.


BUY BUY BUY

Thank you for providing an example of my point.

we have lots of things to compare it to, not only previous e-currencies but other monetary systems throughout history and, quite frankly, other manias.
of course bitcoin has some new aspects, otherwise we wouldn't be talking about it, but "this is entirely new you can't use any existing method of valueation or compare it to anything" just isn't an argument.

if you think it is, look up what was being said during the "new economy" era and how many "page impression"-valued companies survived.

The whole point is that bitcoin is something new. Trying to understand it strictly in terms of cash, banking, stock market, etc. is not going to work. It's also completely unlike previous forms of digital cash, but really not very many people understand that yet. As it becomes more widely understood, more people will want bitcoins. Where will they get them? The supply is limited.

I guess part of my attitude comes from the fact I expect Bitcoin to fail in the medium term and be replaced by something better. Monkeying with the experiment too early will change too many variables, making the ultimate collapse more difficult to interpret. I don't really expect Google and world governments to set up datacenters dedicated to mining because I expect it to fail before it replaces a major currency.

I think using the hash as proof-of-work is elegant. It is useful to tie integrity checking to proof-of-work. I also think Bitcoin is useful, even if I wouldn't store all of my savings in it: I can't use other forms of electronic payment because I don't agree to the terms and conditions imposed on them.


I think a sleeper issue, more than computing cost, is bandwidth*. A few months ago I saw somebody on the forum from Africa saying they had cheap power, but expensive bandwidth. In North America, few people actually have a "real" Internet connection: residential ISPs say you are only allowed to use half of the connection (no server hosting). Residential and commercial bandwidth caps of 250GB/month or less may become a problem before the block reward drops again for the first time (encouraging more pooled mining).

I believe this has been discussed in the development forum as well. Maybe I should read that section more often.

Edit: Unk, in searching your posting history, I was not able to find any instances where you explain that mining capacity does not follow stored value and the security implications. The closest I have found is you saying the cost of attacking the network only goes up linearly with mining capacity.

I remember reading on the forum that mining capacity seems to have a two week lag where capacity is added to match any price increase.

*Topic: Why bitcoin cannot grow past 4 million users.

for what?

it hasn't so far. i've explained why in other discussions, and how it could lead to exploits. the incentives do not directly align the 'security' of the network with the wealth of the network. indeed, the suggestion that economic incentives discourage attacks on the legitimate network for a block chain is perhaps the only significant flaw in satoshi's original paper outlining the design of bitcoin.


this is, again, not a property of 'useful' work, just a property of some kinds of useful work. there is nothing magical about sha-2, and it is incorrect to suggest that cryptographic proof-of-work cannot have positive side effects. all work has side effects, some negative and some positive.


there is a difference between cryptographic proof of work and integrity checking. the same technology does not need to be used for both.


again, hashing is not the only thing that allows for difficulty adjustments, and it is also not the only thing that prevents precomputation, this has been discussed time and again in the development forums.

perhaps this is too harsh, but you very much sound as if you're reaching to defend the details of the current implementation of bitcoin at all costs, without understanding them fully. this is a very common attitude in the forum, but it's inexplicable to me. if bitcoin needs blind faith to survive and to be promoted, it's already failed. i don't understand why people refuse to evaluate its costs and benefits with open eyes, to consider changes to the protocol that would improve the technology, and so forth.

for example: the future costs of transactions is potentially a considerable problem, and nothing guarantees that bitcoin will be superior to its competitors in that respect. it is an untested, empirical question. bitcoin doesn't magically prevail because of some genius in the design.

indeed, decentralisation is almost always far more expensive than centralisation. a system like bitcoin is adopted not because of cost-minimisation but because lack of trust may be desirable. i am not clear that the extreme lack of trust that bitcoin establishes is in fact desirable to most consumers, but that is the question: do the significant costs of decentralisation pay for themselves in terms of a network structure that people want?

Corporations control a lot of capital. It make sense that they would want to act as their "own bank." If nobody else, the banks will turn to Bitcoin mining to get the transaction fees. They may even refuse to process "no fee" transactions.

Edit: To be clear, I don't think will happen unless Bitcoin replaces a major world currency.
Edit: Bitcoins can't inflate indefinitely: There is a hard limit of 21 Million (The value of each can't pass 0). Over the last two years, Bitcoin has experienced hyper-deflation.

why? maybe governments but that's a longshot.
large corporations don't have a history of spending big money on something that benefits all instead of themselves. only
there is the same lack of motive as with the sender of an transaction.

this might be the best argument for (unlimited) inflation of bitcoins so far.
(I don't see a deflation spiral happening)

My view is that the money spent on "security" (mining) will closely follow the stored value of all Bitcoins. If Bitcoin displaces the US dollar, large corporations and governments will dedicate datacenters filled with computing clusters to the problem. If Bitcoin crashes due to (for example) a widespread security compromise, forever tainting the blockchain, Bitcoin mining will only be carried out by a few hobbyists once again.

The problem with doing "useful"  work like looking for large primes is that discoveries are more unpredictable. If you reward people for doing "shares" of work, dishonest participants a can say "nope, didn't find anything" without actually doing the difficult computation.

The use of hashes also guards the transaction block against corruption: a single-bit error, deliberate or not, will be detected. The hash function also allows the difficulty to be lowered if needed. Any task involving otherwise "useful" work can be pre-computed. This is very bad from a security point of view. With the problem changing every 10 minutes or so, it takes about 50% of the total network computing power to successfully take over the network. If the "useful work" can be pre-computed, somebody with only 10% of the network computing power can toil away in isolation for 20 hours for every hour they spend attacking the network.

thats a little OT but an interesting question. if the official client makes no default minimum of a transaction fee and keeps relaying all transactions that means everyone sending a transaciton decides what transaction fee he pays. miners might reject some transactions, but only if there are enough other transactions that do have a high transaction fee.
eventually that will be the only income of a miner, and by mining the miner makes it less likely that the bitcoin network can be attacked, so he is a benefit to the entire network.
but network security isn't a benefit to the 1 guy who is right now sending a transaction. so why would there be any significant transaction fees as a whole?

why doesnt the mining community dry up and a large number of transactions are secured by very miniscule computing power?

I guess(!) initially the network was supposed to be secured by each client doing some mining and specialized hardware wasnt anticipated. correct?

incorrect. whether the computation is 'useful' is an externality; it has no direct bearing on its suitability for use in bitcoin.

a thought experiment: suppose computing sha-2 hashes below certain values were discovered tomorrow have a very important benefit to the progress of applied mathematics, or (more fancifully) to curing a disease or searching for extraterrestrial life. would that undermine the use of sha-2 in bitcoin? the answer is that it obviously wouldn't.

likewise, it is not possible to rule out more 'useful' substitutes for sha-2 hashing as proof-of-work - i.e., substitutes that have more positive externalities. some good analysts in the development thread have occasionally proposed alternatives (like the computation of mersenne primes) that seem at least potentially workable.

what a lot of people fail to understand is that mining is a cost of bitcoin. it may be a necessary cost, but someone in the system has to pay for it. it is unclear in future whether the costs of bitcoin's mandated proof of work will outweigh the benefits of the currency. for example, the costs may be so great that the transaction fees that need to be paid to miners will be greater than the transaction fess of paypal or mastercard. that future comparison is, among the developers, an open question.

bitcoin was designed to be entirely decentralised, and decentralisation has substantial costs. it may also have substantial benefits. time will tell.

Of course you don't have to tell me what I should do.  But, that's what an argument is - i.e. an attempt to tell people what they ought to think or do if they accept the premises of the argument.

I don't have to tell you what you should do, do I?
my own conclusion is that I don't want to time a market, especially not a bubble market. so I personally don't buy and would get out as soon as possible.
you might be a trader who wants to profit from the psychology of other people during a mania. your choice.

I'd expect the trade value to significantly decrease if no other significant changes appear, yes. bubbles have lasted for years in the past, so again, this is hard to time. but given the high inflation of bitcoins during the next couple of years I'm guessing it's sooner rather than later.

usoundmad.  99% of bitcoin activity is speculation, obviously.  I personally can't use it for day-to-day stuff because no business in town accepts bitcoin and I do business locally, with the exception of big-ticket purchases at shoppes such as NewEgg, who also don't accept bitcoin.

Link me to a gas station, laundromat, grocer, hardware retailer, hospital, college, etc., that accept bitcoin.  ....... ustillmad?

Wait, then I'm not sure I see any practical conclusion.  You say that your "whole argument is that these prices are ridiculous", so, then, is this your argument:

P3':  If something's exchange-value is greater than it's current use-value, then it's exchange-value is ridiculous.
P4:  Bitcoin's exchange-value is greater than it's current use-value.
C2':  Therefore, Bitcion's exchange-value is ridiculous.

If that's your argument, then here's my question:  So what?  Even supposing I accept the argument, and therefore accept the conclusion, how should I then behave with respect to bitcoin?  Should I not participate?  Should I participate?  Should I expect it to fail?  Should I not expect it to fail?  If something's exchange-value is ridiculous should I expect it likely to significantly decrease in the (near?) future?  Besides attributing ridiculousness to the exchange-value, should your readers conclude anything else?

I recognize in OP's argument my original doubts about Bitcoin.
But there is one major thing OP seems not to have considered : the demographics behind Bitcoin, and its motive.
People at the core of Bitcoin are not your average gullible Joe.
People at the core of Bitcoin are geeks, and many are also traders, scholars, hackers, businessmen or a mix of all these traits.
And they know what they are doing when they decide not to drop Bitcoin at the first occurence of the usual financial troubles.

This is the kind of demographics that has, countless times in the past, taken over huge slices of power from the hands of the establishment.
Free software that was seen as an amateurish nerd hobby, and an economical non-sense, is now the new paradigm that dominates the industry.
Peer-to-peer file sharing, this phony and illegal extension of private copy, is now maintream and on the verge of abolishing copyright.
Blogs may be perceived as amateur journalism, but they effectively shreded the business of major newspaper.
Hacktivism left the underground and is acting openly in the wild, leaking state secrets, crusading against liberticid laws, pushing transparency and accountability in government agendas, and triggering revolutions in despotic countries.
Influent black hats are in crontrol of armies of machines in the tens of thousands, that can lay waste at will in the digital economy.

Finance and monetary policy have remained surprisingly untouched... until now.
What you are seeing here is the first sizeable attempt by the geeks to take over the banking system.
That may sound unrealistic, but past occurences of such bottom-up revolutions show that this is a very possible outcome.

OP, you are right when you tell Bitcoin is a bubble.
But what you fail to understand is that unlike natural bubbles driven by greed, and broken by fear, Bitcoin is a programmed bubble driven by logic rules that guaranty a steady deflation for the years to come. We all know it, and we all know that this built-in mecanism gives us a few years to push Bitcoin into mainstream before it reaches the critical point where it can not anymore sustain alone its expansion.
If we fail to push Bitcoin in the mainstream, the bubble will burst before it gained enough momentum, and all we will have left is exhilarating memories of an epic ride (which in the end may account for more subjective value than the money that was lost).
If we success, the bubble will merge into the real word economy and stabilize before it has the time to burst.

Bitcoin may not generate value, but there is a huge slice of the real world economy at stake.
That is more than enough potential value to keep everyone on board until the end.