Topic: Why bitcoin is doomed: I can't couterfeit them (Read 5791 times)

I'm still not convinced that the 21mil bitcoins would ever need to be expanded.

We'd be talking about ~1,666,666 USD per bitcoin before we'd even have to consider moving the decimal place.

I actaully poked around Quantiger's blog for a little while, read most of the posts. He's interesting in some places, sensitive to nuance at times. Though the utterly facile examples (Beanie Babies are the best analogy you can come up with for bitcoins? Really?) raised some red flags, his claims to being peer-review published in economics and exasperation with the 'uneducated' led me to really think hard on what I might be missing...

But yeah, inevitable conclusion: The guy does not understand money.

True.

If there really is a need for more monetary signs, they will appear as secondary currencies.  And the market will give them their appropriate price.

Just like silver and copper coins were used during the gold standard.

Unlike fiat, bitcoin is freely copyable - free open source.

So unlike fiat, with bitcoin anyone who produces a bunch of widgets could also produce a bunch of widgetcoins, fully compatible with bitcoin handling systems merely by choosing a different port number to connect to for each such currency whose daemon you want to talk to for a particular transaction.

Thus any time a whole bunch of new value is created, a whole bunch of new currency can also be created, and like the new goods its issuer offers in exchange for it it is plainly something new; it is not snuck out of other people's purses nor does it sneak extra, un-earned value into the purses of the hoarders of the older varieties of coin.

Canadian Tire, Walmart, Macdonalds, and such are probably in a good position to issue new coins, but wait, do they actually create new goods? Maybe having the retailers issue currency is just yet another usurping, a step closer to the actual producers maybe than the banks but still, maybe it should be the factories that issue the new coins? Hmmm...

-MarkM-

Relax, brother. It is obviously unrealistic to tie this to an exact real-world scenario, but I am giving a similar parable to the person I quoted. You are derailing that.


This is all completely irrelevant to the example I provided.


This is where you are exceptionally wrong. Those manipulating the economy know precisely what is happening, and how best to take advantage of it. See the ENTIRE HISTORY OF MONEY.

While your argument is correct, it leaves out some subtleties. Let's say in the bitcoin scenario the value of a bitcoin has increased solely because of increased value in the economy, and this value is 10%.

If person X has 10,000 bitcoins, he now effectively has 11,000 bitcoins, a real increase worth 1,000 (original) bitcoins in value.
If person Y has 100 bitcoins, he now effectively has 110 bitcoins, a real increase worth 10 bitcoins in value.

While this may be slightly more fair than the way fiat works (this is not necessarily true because of the issues of employment when it comes to deflation; factoring in deflation into the economy is still upsetting to the economy and probably more so than inflation), it still isn't that much different. It is not the people producing the new value that benefit, it is those that have control of the wealth in currency (banks mostly). And if it is money from the banks that is being lent to produce this new wealth, it is doubly advantageous for the banks because not only do they get the lion's share of the new wealth, but they also earn interest on it. A situation that is remarkably similar to fiat.

But the worst part is that Bitcoin doesn't know if new value has been added to the economy or if the velocity of money has reduced (equation of exchange). It has no way of knowing, and the wealthy can spend/loan less to make it seem like new value has entered into the economy, when in reality it is just manipulation of the supply. So while no new value has entered the system, person X still has 11,000 effective bitcoins and person Y has 110 effective bitcoins, but 1,000 bitcoins buys a lot more existing value than 10. And once those 1,000 effective bitcoins get into the economy and increases the velocity of money, person X has more real world value than he traded for in bitcoins.

The problem with this article is that it's undermined by it's title. The author's argument would have a lot more credibility if it was titled "why Bitcoin is doomed at failing to replace the current monetary system". However the author chooses to intellectualize an argument based on what he defines as the ultimate goal or purpose of Bitcoin and doesn't elaborate that he is countering the crazy idea a few have of Bitcoin taking over the world until his blog comments.

I thought it was a well written, interesting piece from someone that clearly understands economics as much as someone can, but as the above the title undermines the argument IMO.

As Joel Katz pointed out in his blog comment

I did write the reasons why I think so which it appears you aren't even willing to address. So it's not like I'm ad homineming you.

Ok. Never mind then.

The blogger is a fool. It is perfectly possible for a debt + interest of 110 coins to be paid out of a total money supply of 100 coins.

Every month a debtor pays monthly interest to the lender. This is the lending banks revenue stream. Out of that revenue the lender pays their staff wages, salaries, operating costs, utilities, rents, taxes, dividends etc. They spend that money out into the economy where it can be earned again by the debtor to pay next months interest.

In theory the debtor could actually earn the same banknote with the same serial number, that he used to service his loan the previous month.

You, you know what I think? I think [your "supply" of bitcoins] == [trolling].

Let's refresh our memory what we are really talking about for a second:

This is how new value is accounted for in bitcoins by moving the decimal point to the right:
First by doing so you get 10 times more coins each worth ten times less than the original coin. And when the new value is added and then PRICED in these new coins, their purchasing power raises. If item x required 1 old bitcoin and now after the split required 10 bitcoins with the new value added this might change to a PRICE of 5 new bitcoins. In other words value is added the only way it can possibly get added - through a revaluation.

The SAME THING HAPPENS if you inflate(increase) the supply by creating new money instead of splitting the old. Then too a revaluation happens but in this case instead of holders of currency having their purchasing power increased, which is what really matters and not the number of coins one has, their purchasing power stays the same or decreases if more money was created than value added. But the newly added dollars now also have the same value or purchasing power, where did that come from? It came directly from holders of the currency before it was inflated. In this case if item x cost 10 dollars before inflating after the revaluation it now still costs 10 dollars or maybe a bit more AND someone else new that before the increase of supply didn't have any purchasing power now also has 10 dollars to spend. The revaluation in this case happened where the newly created dollars went from being nothing to being worth exactly the same as the old ones meaning the purchasing power of 10 new dollars increased from 0 to being able to buy item x.


Voila, value or rather purchasing power added in both cases. In the first I as the holder of bitcoins am the one that gets it, in the second the money printers get it.

Well... I think [my "supply" of bitcoins] != [ur "supply" of them]. If there are 90% of bitcoins mined (10% in supply) then after a split there are still 10% in supply. At extremum when all bitcoins in someone's hand splitting doesn't create bitcoins somewhere else.

I really love the “Bitcoin will die because it will be valued too much” theories! I mean, look at gold. It’s very deflationary, so it’s doomed too!

Regarding his $100 example. That is true if all he did was sit on the money paid back to him. If, instead, his borrowers paid him back $1 at a time, and he went out and spent that money for something else, that $1 would get recirculated back into the economy, he would own that something else, AND that $1 would eventually make it back to him as a loan repayment, again. In the end, he would have received a total of $110, though not all of that money would have been in his bank at the same time. Also, the value of everything he owns and bought would be worth $110 using pre-loan exchange rates.
Is that about right?

This is the best rebuttal in the comments to the inflation argument:

Just red this piece of crap.  What a troll.


« And yet, these very same designers of BitCoin are part of the segment of society that creates new utility value. Engineers dream up things that never existed before and bring them into the world. There are reasons why the money supply needs to be something that can enlarge. Creation of new value, new products, new capabilities that never existed before is one of them.  When new value appears it must be accounted for somehow. »

Duh...yeah...  with prices!   Jeez.

Wealth is created, prices fall.  So we know wealth has been created and we can even measure it with falling prices.  That's what money is about: measuring the value of things.   In a world with X apples, the price of an apple is twice the price as in a world with 2*X apples.   And in a world where there is more wealth, things look cheaper.  Because people are richer, because there is more wealth.  What's so hard to get, seriously?

For all intents and purposes, the deflationary problem with gold and bitcoin is the same. And divisibility isn't really a factor, unless you consider it to add to price stickiness.  My questions are more general than being specific to just Bitcoin. Also, I think a few decades from now Bitcoin (if it still exists) will have so many hardforks it won't be recognizable.

Yes, I agree. So it is somewhat a hypothetical exercise. This deflation thing always comes up and has always bothered me. For the next decade, bitcoin supply is highly inflationary, with a decade of moderate bitcoin supply inflation after that, so, once again, discussing this money supply is irrelevant to the present (insofar as future expectations can't affect the present).

By year 2013 there will be about 11 million bitcoins, about half of the maximum, which will be reached by year 2100+.
By year 2020 there will be about 18 million bitcoins, almost close to 90% of all possible bitcoins.

There will be another 80 to 120 years after that of very slow growth or increase in the amount of bitcoins.

The value of the bitcoins is another matter. Right now it is about $10 per bitcoin.

Also, we have about 8 billion people on this planet. Not everyone is going to use bitcoins for the same reason not everyone has every other government denominated currency except what they use regularly in their home country. The biggest ones would be the US Dollar and the Euro.

We can estimate the population of an imaginary country that uses bitcoin at maybe a maximum of 1 billion people, and probably not even that. Maybe it's closer to 10 million individuals, within the next few years. Right now, the numbers are probably close to 100,000 people, as in people, not addresses, maybe even less.

On average, everyone of those 100,000 people would have about 100 bitcoins each, on average. Some people will have more, some people will have less.

I don't know what the value of the bitcoin will be against the dollar or whatever currency by next year, but I do know it will be higher than it is today.

Bitcoin is not doomed, but it will not completely replace other currencies, for the same reason not everyone trades on the biggest ones. Depends on where you live.

I find it a little strange that this subject comes up as a point against Bitcoin, as it is surely only an issue in the rather unlikely scenario that an *entire economy* is running on Bitcoin.
Surely most people see Bitcoin as something that will somehow slot in amongst other currencies rather than something that will take over the world?

Anyway - my take is that even if an entire economy were running on bitcoin, the divisibility could *in effect* allow expansion and contraction of money supply as necessary, simply through price adjustments.  The counter to this argument is that prices, and particularly wages can be 'sticky'.
(The unions will need to do a bit of rethinking - and base their negotiations on some metric of maintaining spending-power per week for example. Well I guess they already do, but they'll have to be transparent and rigorous in their calculations to overcome people's psychological distaste for a 'smaller' paypacket)

In a computerised age where recalculating & repricing is relatively trivial, (along with adjustments to people's expectations of 'my wage must go up' etc)  - it should surely be the case that such a highly divisible system would be the fairest  way of keeping the effective money-supply in sync with economic activity, all through the mechanisms of supply & demand without intervention required.

Hey that's ok. You've learned a theory of how the economy works and you're having a hard time letting go, it happens. Maybe it will be easier for you to believe what we're telling you is actually how reality works once Bitcoin turns out to be the best thing yet for an economy a few decades from now.  

I would think you would want people investing (as opposed to saving/sitting-on-money) to rebuild back to the equilibrium established previous to the economic contraction.

Isn't that what was tried at the beginning the great depression, which lead to its longevity? The countries which bounce back fastest were the ones which dropped the gold standard the soonest.

Thank you hazek and joel for your helpful, informative replies. I want to believe a an economy can be run on a fixed amount of money, but I'm having trouble getting past this. Cheers