Topic: Why has bitcoin been increasing so quickly? - page 2. (Read 4438 times)

Decentralized crypto-currencies could be a one shot deal where only one is the winner and towers over all the others which bounce around at ankle-height.   Bitcoin has a humungous potential vulnerability -- the 51% attack.  The Bitcoin network can be shut down (i.e., all transactions ignored) by any malicious party with 51% of the hashing capacity.

Bitcoin hasn't had anyone (that we know of) even come close to successfully doing a 51% attack.  With multiple ASIC vendors shipping (ASICMiner, shipping to their own mining operatioin) and Avalon ASIC and more coming (BFL, presumably ... have faith   ), there's no way a competing effort using FPGA or GPU has a chance to reach 51%.  Maybe someone is hard at work in stealth mode building new ASIC hardware with an unlimited budget, with malicious intent.   They'll need to beat the free market, and it looks like the free market is winning.  It has quite an advantage though.   Bitcoin is currently paying out $3.5 million worth each month to miners, and miners are buying millions of dollars worth of ASICs.   I can't imagine any single entity that could justify a gamble on procuring ten million USD+ to try to build technology to take on some fledgling digital currency.

But compare that to a fledgling alt currency that is decentralized and uses a similar proof-of-work approach as well.  Bitcoin long ago subsidized the CPU miners, then the GPU miners then the FPGA miners using the seigniorage that came from an exploding exchange rate (able to pay out currency worth ten to twenty million dollars in each of 2011 and 2012, and at an even greater pace so far for 2013).  Bitcoin is currently probably too big to bust today, but back when it was vulnerable nobody took crypto currencies seriously enough to take a serious stab at killing it.   Alts don't have that luxury.  They aren't getting the high valuation to build a resilient network of hashing capacity before anyone notices.   As long as they stay under the porch, it doesn't matter that they exist.  Start to take significant value from the big dog though and it wouldn't be surprising for a couple hundred grand worth of idled GPU equipment to be recommissioned to see just exactly what happens when a functioning and growing decentralized proof-of-work digital currency gets hit with a 51% attack.

Now that doesn't mean it wouldn't be good for one or more alts to succeed (we all benefit when healthy competition exists), or that I don't want an alt or three to succeed (I've at various times held some alts), it is just that people do things to protect that which is valuable.  Most alts work like Bitcoin where any peer node can introduce a solved block.  Or it can be done through Tor as well.  So a 51% attack can be done without anyone knowing who the attacker is.  Add these up and you get a near certainty that someone would start thinking about doing an attack on an alt once it starts gaining altitude.

Would the advent of other crypto currencies not cause inflation in a way?

That's like listening to MSNBC where they say the stock market rose because Netflix did blah, or Apple blah blah, when really it might have been because of a completely different reason -- more cash floating around chasing the same number of stocks.  Ask ten people and you'll learn of ten different reasons why Bitcoin is today valued the way it is.  None have the exact answer but everyone is right.


Anyone who says they can predict the future is lying.   There are patterns that have happened historically.  Sometimes history repeats itself.  There aren't many times in history a decentralized digital currency has gone from being an experiment to becoming functional as a substitute for fiat currency.  In fact, that's never happened before.  Therefore, nobody knows if all bitcoins combined should today be valued  $20 million USD, $350 million USD or $18 billion USD.    The market says about $350 million USD based on what information is known today.


Lost coins are lost.  To spend bitcoin funds the private key for the Bitcoin address with the funds is needed.  Without that private key those funds can no longer be moved.


Right.


It doesn't.  Well, it does, thanks to the block reward subsidy which currently is inflating the bitcoin currency supply at the rate of 12.5% per year, but that will slow gradually, day by day (as a percent of all currency that exists), until all 21 million bitcoiins have been issued and then there are no more issued at all.


The market does.  The value of the remaining coins would likely increase somewhat proportionately as a result.  Lose a hundred dollars worth of bitcoins?  You'll probably start working on buying $100 worth to replace it as a result.  That's the mechanism that corrects for lost coins.

Then allow me to cut in front of you to ask and what is likely your next question.

But won't the increasing exchange rate as the result of lost coins cause people to hoard?  And the currency will fail then, because nobody is spending their coins?

The answer is ... no.  

Bitcoin is both a currency (used as a store of value) but it is also payment system.  It is an efficient payment system which has properties that will cause it to be preferred over other payment systems.  One of these is non-reversible transactions (no chargebacks).   Another property is low fees (about a penny's worth to send thousands of dollars worth, in many instances).  Another property is that it is universal and it knows no borders. And that it can be used anonymosly.    

Because of these advantages people will prefer to send bitcoins or receive bitcoins (or both) over other payment methods.   So there will always be value to bitcoins because you cannot use the bitcoin payment network without first having bitcoins in your wallet.  

Is hoarding good for Bitcoin?  Hoarding is fine.  It is when those hoarding stop hoarding that a problem presents itself.  That causes volatility.  

If I check a yearly chart it looks like around January 1st of 2013 the BTC value has quickly increased from around $13 all the way up to $31 in 2 months. No where in the past 1.5 years it has done that. What is causing it to rise so quickly and can we expect either a crash, flat line or keep increasing?

Also, what happens to coins that are lost or just frozen? Someone loses a wallet. Loses their key. Someone dies. These coins aren't circulated back into the system, right? How does the system get more coins introduced, who controls that?