Why Bitcoin is ultimately doomed to fail (not today or tomorrow) - page 19.

deisik

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Quote from: Hashcesar84 on January 12, 2014, 09:08:54 AM

Quote from: deisik on November 29, 2013, 06:18:09 AM

They say that right now there are about 12 million bitcoins in total, some part of which stashed away. Eventually the production of new coins will stop, so only around 21 million of them will be available, and no more... Now, what will happen next if it ever comes to that, and Bitcoin is finally accepted as a legal tender?

I think that nothing life-changing is actually going to happen. We have already been there. And by there I mean a time period in the 19th century, commonly referred to as a Free Banking Era, when banks could issue bank notes against specie (gold and silver coins). It was during those times when the term inflation began entering into widespread usage and emerging in literature, though not as a reference to price changes but as something pointing to disproportions between paper representing money and the amount of specie actually available in the bank

So, this time instead of gold, we will have Bitcoin (which will be hoarded as per Gresham's law), and all kinds of "paper" derivatives inevitably entering the circulation as a means of exchange. These "papers" allegedly backed up by Bitcoin will in fact leave behind them only inflation, even despite Bitcoin intrinsic deflationary nature...

And welcome back to fiat!

price will grow as enough as people request

Excuse me, price of what?

Hashcesar84

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Quote from: deisik on November 29, 2013, 06:18:09 AM

They say that right now there are about 12 million bitcoins in total, some part of which stashed away. Eventually the production of new coins will stop, so only around 21 million of them will be available, and no more... Now, what will happen next if it ever comes to that, and Bitcoin is finally accepted as a legal tender?

I think that nothing life-changing is actually going to happen. We have already been there. And by there I mean a time period in the 19th century, commonly referred to as a Free Banking Era, when banks could issue bank notes against specie (gold and silver coins). It was during those times when the term inflation began entering into widespread usage and emerging in literature, though not as a reference to price changes but as something pointing to disproportions between paper representing money and the amount of specie actually available in the bank

So, this time instead of gold, we will have Bitcoin (which will be hoarded as per Gresham's law), and all kinds of "paper" derivatives inevitably entering the circulation as a means of exchange. These "papers" allegedly backed up by Bitcoin will in fact leave behind them only inflation, even despite Bitcoin intrinsic deflationary nature...

And welcome back to fiat!

price will grow as enough as people request

Lloydie

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Quote from: nodroids on December 29, 2013, 10:35:10 AM

Yes, bitcoin is a market determined currency/reserve of liquidity existing in a market economy. Bitcoins will be backed by other things and will be the backing for other liquidity. But then we live in capitalism which is one big ponzi-pyramid scheme. Bitcoin is a market inside of market capitalism, I take your point, and it's no surprise. Until another ecomics system comes into play, bitcoin is the absolute best play going in the current pyramid scheme economy.

Yes, I agree with you. Bitcoin is the ultimate asset class right now.

Kungfucheez

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Well, telephones already started that chain of events awhile ago with the introduction of the cell phone. No one is going to buy a telephone that has only one function, when they can buy a phone that has multiple functions, and functions as a telephone just fine. In that regards yes, a telephone is in itself worthless when you have the ability to use multiple functions for the same device. That's just technology making your life easier. Bitcoins aren't necessarily correlated though to that same idea though, at least no more then regular fiat money already is.

deisik

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Quote from: deisik on December 28, 2013, 05:39:49 AM

Those numbers allow you to postpone your consumption (that's one of their functions), but they have no utility by themselves. If everyone refuses to sell you something worthy or vital, your "paper wealth" instantaneously evaporates...

In the same way a telephone has no utility by itself, because if everyone refuses to talk to people on the phone, your telephone is worthless?

If the utility of a telephone is making distance calls only, then yes, as long as this telephone remains the only sample in the world (which is what your assumption can be reduced to), it will be useless as a means of communication...

deisik

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Quote from: nodroids on December 29, 2013, 10:35:10 AM

Yes, bitcoin is a market determined currency/reserve of liquidity existing in a market economy. Bitcoins will be backed by other things and will be the backing for other liquidity. But then we live in capitalism which is one big ponzi-pyramid scheme. Bitcoin is a market inside of market capitalism, I take your point, and it's no surprise. Until another ecomics system comes into play, bitcoin is the absolute best play going in the current pyramid scheme economy.

Why do you think so? We get resources from nature and return what consider as waste, but even for us what we thought as waste two hundred years ago may no longer be that nowadays. For nature itself it makes absolutely no difference at that...

nodroids

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Yes, bitcoin is a market determined currency/reserve of liquidity existing in a market economy. Bitcoins will be backed by other things and will be the backing for other liquidity. But then we live in capitalism which is one big ponzi-pyramid scheme. Bitcoin is a market inside of market capitalism, I take your point, and it's no surprise. Until another ecomics system comes into play, bitcoin is the absolute best play going in the current pyramid scheme economy.

deisik

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Quote from: johnyj on December 27, 2013, 05:44:27 PM

Quote from: deisik on December 27, 2013, 05:10:26 PM

Quote from: aggster on December 27, 2013, 03:30:00 PM

if everyone adopts the price goes up till there is no value left in fiat, hopefully ending the current banking and monetary system

Wealth is not money. Money in economy pays only auxiliary role in facilitating exchange of goods and providing a store of value for postponed expenditure. The possession of goods makes people rich while the hold of power allows to maintain one's position of being rich through times...

It seems that I have no wealth because all I have is useless numbers. But as long as I can exchange those numbers to something valuable, those numbers have value. From this point of view, wealth can be anything that others are willing to exchange with their goods/services, so money itself is also wealth, just this wealth can not be consumed directly, but require a market

If the market is removed, many of the wealth today are not wealth anymore

It seems that deep inside you understand everything yourself. Those numbers allow you to postpone your consumption (that's one of their functions), but they have no utility by themselves. If everyone refuses to sell you something worthy or vital, your "paper wealth" instantaneously evaporates...

johnyj

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Beyond Imagination

Quote from: deisik on December 27, 2013, 05:10:26 PM

Quote from: aggster on December 27, 2013, 03:30:00 PM

if everyone adopts the price goes up till there is no value left in fiat, hopefully ending the current banking and monetary system

Wealth is not money. Money in economy pays only auxiliary role in facilitating exchange of goods and providing a store of value for postponed expenditure. The possession of goods makes people rich while the hold of power allows to maintain one's position of being rich through times...

It seems that I have no wealth because all I have is useless numbers. But as long as I can exchange those numbers to something valuable, those numbers have value. From this point of view, wealth can be anything that others are willing to exchange with their goods/services, so money itself is also wealth, just this wealth can not be consumed directly, but require a market

If the market is removed, many of the wealth today are not wealth anymore

deisik

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Quote from: aggster on December 27, 2013, 03:30:00 PM

if everyone adopts the price goes up till there is no value left in fiat, hopefully ending the current banking and monetary system

Wealth is not money. Money in economy pays only auxiliary role in facilitating exchange of goods and providing a store of value for postponed expenditure. The possession of goods makes people rich while the hold of power allows to maintain one's position of being rich through times...

aggster

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if everyone adopts the price goes up till there is no value left in fiat, hopefully ending the current banking and monetary system

deisik

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Quote from: aggster on December 27, 2013, 01:17:18 PM

Bitcoin is like the perfect Ponzi scheme except everyones a winner, and the end game will be the death of fiat

Well, it sounds promising... Any cogent reasons behind?

aggster

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Bitcoin is like the perfect Ponzi scheme except everyones a winner, and the end game will be the death of fiat

deisik

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Quote from: ?? on ??

Quote from: deisik on December 25, 2013, 02:39:51 PM

Yes, but it turns out that with bitcoin they are gaining part of the profits they didn't contribute to.

By waiting to purchase, I can get more for the same cost. If I bought a terabyte hard drive 5 years ago, it would cost one amount. If I wait, and buy it today, it costs less.

Is that gaining part of the profits that I didn't contribute to?

In a sense, yes. You just didn't contribute to technological and scientific advances which allowed to lower the cost of production per terabyte. People that bought a terabyte hard drive 5 years ago paid much more and thus they financed technological progress the results of which you're reaping today. If there weren't those improvements (through financing), you would still have had to pay the same price for the same volume of storage...

deisik

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Is stock market investing, for people who don't actually contribute anything to the company but merely buy their shares from someone else, also stealing?

I didn't quite understand your question really. Companies issue shares and get money from investors at IPOs, so they get cheap financing (they aren't giving them away for free). Who is then stealing from whom and in what way?

deisik

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Quote from: deisik on December 25, 2013, 01:57:29 PM

Quote from: ?? on ??

What do you mean by people who got their coins without earning them? Like people who stole their bitcoins?

I didn't mean this. I mean that existing coins of those people who don't contribute to production would also gather in purchasing power (in a sense stealing it from the productive forces) due to the expanded production through socializing profits of those who do. The number of coins remains the same, and all of them would be appreciating even only a small group of people made this possible (which is not fair in my opinion)...

But for the most part people who have bitcoins did earn them. They did contribute to the growing economy. They may not have contributed directly to Bitcoin, though they did, unless they stole their coins, give something to someone who gave something to someone (etc.) who mined those Bitcoins.

That's what socialists would say

Yes, but it turns out that with bitcoin they are gaining part of the profits they didn't contribute to. You may say indeed that when they did earn their own coins, somebody had got some share of their profits too and now they have a right to be compensated. This wouldn't be a problem but for human nature (why should I give part of my profits to who's happened to gain some coins in the past?) since it disincentivizes production. Also, once you earned some coins, you could potentially capitalize on them infinitely (provided the economy is expanding). Why should you?

In short, this scheme simply wouldn't work...

deisik

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Quote from: deisik on December 25, 2013, 12:45:11 PM

Yes, but the difference is that the number of coins remains the same, so even those who didn't earn them, still get their coins appreciating (what that means you should know by now), since the total output has increased through the economy expansion, but the quantity of coins hasn't. Socializing profits (that's what socialism is all about) is one of the harmful consequences of bitcoin's deflationary nature, among many others...

What do you mean by people who got their coins without earning them? Like people who stole their bitcoins?

I didn't mean this. I mean that existing coins of those people who don't contribute to production would also gather in purchasing power (in a sense stealing it from the productive forces) due to the expanded production through socializing profits of those who do. The number of coins remains the same, and all of them would be appreciating even only a small group of people made this possible (which is not fair in my opinion)...

deisik

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Quote from: deisik on December 25, 2013, 11:36:57 AM

You yourself assumed that bitcoin is the only currency in the entire world with no competition, right?

For the sake of argument. I don't think this is actually a realistic scenario.

Quote from: deisik on December 25, 2013, 11:36:57 AM

So everyone will have their part of the loaf which is socialistic.

Not everyone in the world holds the same amount of currency. Not even close.

Quote from: deisik on December 25, 2013, 11:36:57 AM

In a capitalistic society the major part goes only to the creators of this new loaf and those who financially supported them through buying corresponding stocks (through the creation of new money to support the expanded economy, which is impossible in the case of bitcoin). I think this is pretty obvious...

Oh well. I don't understand what you're saying. In a capitalistic society money (whether bitcoins or dollars or gold coins or whatever) goes to those who earn it. I don't know of anything about Bitcoin which changes this.

Yes, but the difference is that the number of coins remains the same, so even those who didn't earn them, still get their coins appreciating (what that means you should know by now), since the total output has increased through the economy expansion, but the quantity of coins hasn't. Socializing profits (that's what socialism is all about) is one of the harmful consequences of bitcoin's deflationary nature, among many others...

deisik

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Quote from: deisik on December 25, 2013, 10:49:00 AM

Quote from: ?? on ??

That said, the economy will likely continue growing even after the population stops. So let's say on average the world GDP grows by 3% a year. Is this a fair estimate?

So, if Bitcoin was the only currency in the entire world, and had absolutely no competition, you could, on average, earn 3% a year by sitting on your bitcoin stash. On the other hand, you could probably on average earn 5% or more by investing in stocks.

What's the problem?

You have two major courses (or sources) of earning through stocks. The first is speculation when you earn at someone's expense, meaning it is a win-lose situation (since it is a zero sum game in the short term). You win, someone loses, as simple as that. The second way of earning (which is what investing is for) is through the economy growth and expansion (some part thereof), so that only you get your slice of the newly baked loaf (i.e. expanding part of the economy). This is a win-win situation, but only for those who made right investment decisions for the right stocks beforehand (as distinct from bitcoin and its socialistic nature in this respect, where the new loaf is shared between all)...

Socialistic nature where the new loaf is shared between all? No, the increase in value of Bitcoin is shared pro-rata by people who hold BTC.

So I still don't see what the problem is.

You yourself assumed that bitcoin is the only currency in the entire world with no competition, right? So everyone will have their part of the loaf which is socialistic. In a capitalistic society the major part goes only to the creators of this new loaf and those who financially supported them through buying corresponding stocks (through the creation of new money to support the expanded economy, which is impossible in the case of bitcoin). I think this is pretty obvious...

Regarding the equity premium puzzle, I would love to refrain from discussing it here, since I know the problem but don't have any firm opinion on that. If someone wants to continue, you're welcome

deisik

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That said, the economy will likely continue growing even after the population stops. So let's say on average the world GDP grows by 3% a year. Is this a fair estimate?

So, if Bitcoin was the only currency in the entire world, and had absolutely no competition, you could, on average, earn 3% a year by sitting on your bitcoin stash. On the other hand, you could probably on average earn 5% or more by investing in stocks.

What's the problem?

You have two major courses (or sources) of earning through stocks. The first is speculation when you earn at someone's expense, meaning it is a win-lose situation (since it is a zero sum game in the short term). You win, someone loses, as simple as that. The second way of earning (which is what investing is for) is through the economy growth and expansion (some part thereof), so that only you get your slice of the newly baked loaf (i.e. expanding part of the economy). This is a win-win situation, but only for those who made right investment decisions for the right stocks beforehand (as distinct from bitcoin and its socialistic nature in this respect, where the new loaf is shared between all)...

Topic: Why Bitcoin is ultimately doomed to fail (not today or tomorrow) - page 19. (Read 40844 times)