How To Use Bitcoin – The Most Important Creation In The History Of Man

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Tippit said:
It's far too early to tell whether bitcoin will be a "bad currency". While it's extremely volatile now, it may be a lot less so in the future. It has to find an equilibrium in a world with $30 trillion USD, and numerous other fiat currencies bidding for it. It has to be recognized as a digital store of value before it can function as a currency.....
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Wild swings in value of bitcoin should not prevent it's commercial use for transactions. THe buyer and seller simply check the price at the instant of closing and agreeing on a transaction, then agree or disagree. THen they have a method of sending money internationally with practically zero fees - say for ebay transactions. This is a big dal to numerous sellers who currently have transaction costs at about the level of their net profits.

That's the case with a lot of physical store merchants, also, who have high costs for mc/visa processing.

From the merchant point of view, he can receive funds instantly with no fees. Gee, that beats out MC/Visa and all it's hassle.

This is a more practical point of view than something like "finding equilibrium in a world with 30T USD."

As for your comment about "recognized as a digital store of value", that seems to be more about the process of education and exposure to the subject of bitcoin. This is because obviously, if someone receives bitcoin, they receive the value that comes with it.

It's certainly possible to conceive of a bitcoin or bitcoin like instrument being used in the instant, by both buyer and seller, to execute a transaction at great distance and at almost no cost. This is quite different than considering it "a store of value".
 
mhaze said:
Wild swings in value of bitcoin should not prevent it's commercial use for transactions. THe buyer and seller simply check the price at the instant of closing and agreeing on a transaction, then agree or disagree. THen they have a method of sending money internationally with practically zero fees - say for ebay transactions. This is a big dal to numerous sellers who currently have transaction costs at about the level of their net profits.
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Sounds a lot like trading goats, but will a bit less maintenance.
 
psionl0 said:
I presume you know the difference between an innovator and an inventor.
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I presume you now understand that speaking in generalities and applying sweeping statements of fact to them is largely meaningless.

I don't know how much more computing power it takes to mine for bitcoins compared to 4 years ago but it is a LOT higher. Does that somehow make bitcoin a "pyramid"?
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That's one of the prongs -- the people in (at the 'top') get the easy stuff, and everyone coming in later has to either funnel real money to those people at the top (for the already-mined BTC) OR pay a correspondingly higher price to create their own; a price which is apparently significant. It's not the only prong that is necessary to satisfy the definition, but it's a huge red flag to me; in short, get in early or get boned. Of course, I worked for the corporate arm of a certain legal pyramid scheme for several years, so perhaps I'm a bit more inclined to see this type of thing.

It's certainly possible that Bitcoin shares a number of the 'bad' features of several different schemes out there, for example, and thus doesn't fit neatly into any of the existing categories; I mean, I can't think of any other recent time when someone tried to create an alternate form of money. So there may not be a fit definition for it yet. But from what I have seen so far following as a casual observer, I would never recommend that anyone do anything with BTC other than short-term speculation ("buy as low as possible and sell out as fast as you can when it spikes") or set up a few mining nodes and sell off mined BTC for real money in one of the 'high' swings.

The problem with the latter is that I'm really trying to figure out whether or not it would be even possible to make back the initial investment in hardware to create the mining nodes in a reasonable amount of time. This has implications for Bitcoin in general, of course ("what happens when the supply of new coin stops and the only people who can make anything new are the ones who already have covered their sunk costs"), but it also has some general implications as to whether or not it's even worth getting into, or just standing on the sidelines and raking off the top as much as possible until it collapses under its own weight.

It clearly isn't a functional currency, but I think we all agree on that at this point.

ETA: Oh, hey, it's mhaze! Wow, that only took six months. It seems your thread had an accident, which is a real shame, but I'm sure you know a lot of people have some stuff to ask you. Don't you have some bets to pay off, too?
 
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remirol said:
I presume you now understand that speaking in generalities and applying sweeping statements of fact to them is largely meaningless.

That's one of the prongs -- the people in (at the 'top') get the easy stuff, and everyone coming in later has to either funnel real money to those people at the top (for the already-mined BTC) OR pay a correspondingly higher price to create their own; a price which is apparently significant. It's not the only prong that is necessary to satisfy the definition, but it's a huge red flag to me; in short, get in early or get boned. Of course, I worked for the corporate arm of a certain legal pyramid scheme for several years, so perhaps I'm a bit more inclined to see this type of thing.

It's certainly possible that Bitcoin shares a number of the 'bad' features of several different schemes out there, for example, and thus doesn't fit neatly into any of the existing categories; I mean, I can't think of any other recent time when someone tried to create an alternate form of money. So there may not be a fit definition for it yet. But from what I have seen so far following as a casual observer, I would never recommend that anyone do anything with BTC other than short-term speculation ("buy as low as possible and sell out as fast as you can when it spikes") or set up a few mining nodes and sell off mined BTC for real money in one of the 'high' swings.

The problem with the latter is that I'm really trying to figure out whether or not it would be even possible to make back the initial investment in hardware to create the mining nodes in a reasonable amount of time. This has implications for Bitcoin in general, of course ("what happens when the supply of new coin stops and the only people who can make anything new are the ones who already have covered their sunk costs"), but it also has some general implications as to whether or not it's even worth getting into, or just standing on the sidelines and raking off the top as much as possible until it collapses under its own weight.
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That doesn't really make your case nor does it rebut my recent posts on this subject.

There is no MLM aspect to bitcoin. Nobody is being recruited to sell bitcoins and nobody is getting commissions on the sales (although there is provision to pay "miners" a fee for validating a transaction). Apart from mining, it is just a commodity trade. Some might say the "greater fool" theory applies but no more so than with any other commodity. You try to sell to somebody who is will to buy at a higher price than you did or you try to buy from somebody who is willing to sell at a lower price than you did.

As for the mining aspect, it is little different to any other line of business (and bitcoin mining is a business). Some people initially invest in a new idea hoping that it will take off. If it does they can make a good profit but it isn't long before others (the "imitators") realize that there is money to be made and hop on to the bandwagon. Once enough people are competing in the business, the profits shrink to "normal" levels where by few new entrants are attracted.

You might argue that the "early adopters" got the lion's share of the profit (assuming they held on to their coins long enough) but they also had to bear two risks: one is that the bitcoin idea wouldn't take off and they got no return on their (relatively small) investment and the other is that the bitcoin algorithm got cracked which would vaporize any holdings they had and make their investments a dead loss.

remirol said:
It clearly isn't a functional currency, but I think we all agree on that at this point.
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I'll go along with that (although that may not be the case in the future). The recent developments on the price of bitcoin are more to do with the banking crisis in Cyprus than with any other mooted advantages of bitcoin.
 
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remirol said:
The problem with the latter is that I'm really trying to figure out whether or not it would be even possible to make back the initial investment in hardware to create the mining nodes in a reasonable amount of time.
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If you wanted to plug in some numbers, we could suppose that if you wanted to be able to mine an average of 1 block per week over the next 4 years and supposing that each bitcoin sells at an average price of $80 each then you would be mining 25 x 52 bitcoins for $100,000 per year.

Assuming the running costs of your hardware (depreciation, interest, electricity and maintenance etc) to be a third of the cost of your hardware, that would set an upper limit of about $300,000 on the size of your investment. Of course, that's a lot of assumptions that you could get wrong. That's the nature of business: pick it right and you make a goodly sized profit. Otherwise, you risk losing the shirt off your back. (Maybe you should set up an LLC for the purpose ;)).
 
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psionl0 said:
If you wanted to plug in some numbers, we could suppose that if you wanted to be able to mine an average of 1 block per week over the next 4 years and supposing that each bitcoin sells at an average price of $80 each then you would be mining 25 x 52 bitcoins for $100,000 per year.

Assuming the running costs of your hardware (depreciation, interest, electricity and maintenance etc) to be a third of the cost of your hardware, that would set an upper limit of about $300,000 on the size of your investment. Of course, that's a lot of assumptions that you could get wrong. That's the nature of business: pick it right and you make a goodly sized profit. Otherwise, you risk losing the shirt off your back. (Maybe you should set up an LLC for the purpose ;)).
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It doesn't sound like we're talking about a currency, does it ?
 
The mining rate is 1 block every 10 minutes. The number of bitcoins per block halves every 4 years but that was to set an upper limit on the number of bitcoins.
 
I did the math on my machine at home. It can do 25.5 Mhash/sec. Which means that if I ran it for a solid month, my expected average profit would be... about five dollars. Not worth it!
 
If the blockchain size continues at current rate (doubling every 6 months), by 2020 it will be 10 TB in size.
 
psionl0 said:
The mining rate is 1 block every 10 minutes. The number of bitcoins per block halves every 4 years but that was to set an upper limit on the number of bitcoins.
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Slightly different topic but associated:

Do we have any reliable statistics on the number of merchants who accept them in transactions? Is there a growth component?

This should be part of any basic feasibility report. As a prospective client or investor, I want to know how many more products or merchants a year are accepting them. I want to know the circumstances surrounding any merchant that accepted them at one time and don't any longer, too.

There are plenty of unanswered questions about it and not all of them are about "fraud" or "threats". I know it's not your job, specifically, to look them up or answer them. But aren't these essential questions we'd ask about a new startup in an unfamiliar industry?

Naturally, too, at what point do we think that various governments would simply outlaw Bitcoin because it purports to be a currency when it is not? I'd say it would be at the point some company decides to do all its payroll in Bitcoin.
 
daenku32 said:
If the blockchain size continues at current rate (doubling every 6 months), by 2020 it will be 10 TB in size.
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Is the rate of doubling the right model for this? In any case, what would happen to the growth of the blockchain if it had as many transactions as Visa? Presumably if it were to become a serious international currency, it's got to ramp up to a serious number of transactions. I found a link:

http://corporate.visa.com/newsroom/press-releases/press604.jsp

From 2006 saying Visa peaked at 179 million transactions per day.

This site:
http://blockchain.info/charts/n-transactions
has bitcoin peaking at 70,000 transactions per day. That's ~0.04% of Visa.
 
shuttlt said:
Is the rate of doubling the right model for this? In any case, what would happen to the growth of the blockchain if it had as many transactions as Visa? Presumably if it were to become a serious international currency, it's got to ramp up to a serious number of transactions. I found a link:

http://corporate.visa.com/newsroom/press-releases/press604.jsp

From 2006 saying Visa peaked at 179 million transactions per day.

This site:
http://blockchain.info/charts/n-transactions
has bitcoin peaking at 70,000 transactions per day. That's ~0.04% of Visa.
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That's actually the kind of thing I'm looking for. Do we have a rate of growth for this thing? Also, is there a reliable count not only of the number of transactions but also the number of points-of-purchase?

That might be valuable.
 
mhaze said:
Wild swings in value of bitcoin should not prevent it's commercial use for transactions.
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You're kidding, right? For commercial use you want a medium of exchange that holds it's value over a reasonable period of time. Retail stores don't change their prices every day, wages only get paid once a week, manufacturers may be buying components months ahead of production. Bitcoin is worthless to most 'commercial' users.

they have a method of sending money internationally with practically zero fees - say for ebay transactions. This is a big deal to numerous sellers who currently have transaction costs at about the level of their net profits.
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Credit card transaction fees are 3% or less. If you are only making 3% on eBay sales then you're doing it wrong! And with PayPal you don't have the 'hassle' of dealing direct with multiple credit card companies.

That's the case with a lot of physical store merchants, also, who have high costs for mc/visa processing.

From the merchant point of view, he can receive funds instantly with no fees. Gee, that beats out MC/Visa and all it's hassle.
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Again, you must be kidding. Merchants love credit cards. Credit and Debit cards are a breeze compared to other forms of payment such as:-

Cash:
Have to handle, count and store it physically. Frequent trips to the bank to deposit funds (who may charge you for the privilege). Target for robbers and light-fingered employees. Customers have to carry around enough in their pocket to pay for everything (discourages impulse buying and a pain for expensive items). Not suitable for remote transactions.

Wire transfer:
Have to set up each payment with correct account numbers etc. and may have to wait several days to see your money. High fixed fess for international transfers. Hard to reverse bad transactions. Can we say 'hassle'?

Check:
Bounce, bounce, bounce.
 
stilicho said:
That's actually the kind of thing I'm looking for. Do we have a rate of growth for this thing? Also, is there a reliable count not only of the number of transactions but also the number of points-of-purchase?

That might be valuable.
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I don't think the rate of growth right now matters. Not unless you are talking about short term gambling. If you want to invest in the future of the currency then perhaps the question is what would the maths look like scaled up to this imaginary future where there are 1000x more transactions per day.

It's a technical problem of course, so perhaps there is a technical solution.
 
stilicho said:
Slightly different topic but associated:

Do we have any reliable statistics on the number of merchants who accept them in transactions? Is there a growth component?

This should be part of any basic feasibility report. As a prospective client or investor, I want to know how many more products or merchants a year are accepting them. I want to know the circumstances surrounding any merchant that accepted them at one time and don't any longer, too.

There are plenty of unanswered questions about it and not all of them are about "fraud" or "threats". I know it's not your job, specifically, to look them up or answer them. But aren't these essential questions we'd ask about a new startup in an unfamiliar industry?

Naturally, too, at what point do we think that various governments would simply outlaw Bitcoin because it purports to be a currency when it is not? I'd say it would be at the point some company decides to do all its payroll in Bitcoin.
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You were asking some good questions until the silly bit at the end. :boggled:

I suspect that the price volatility of bitcoin would probably discourage merchants from accepting them as payment for their wares but it appears that the more common use of bitcoin is as a store of value rather than a medium of exchange. Therefore, in the short term, it would probably not be a major consideration for a bitcoin mining company. In the longer term, when the number of coins per block become vanishingly small, the bitcoin miners will have to derive most of their revenue from transaction fees. These fees would have to rise for bitcoin mining to continue to be viable and that would further reduce the incentive for bitcoin holders to use them for transactions.

The effect of prohibition on the price of bitcoin is more difficult to judge (it does wonders for the drug industry :D). I suspect it would just move the miners and exchanges offshore and it would be business as usual.
 
Roger Ramjets said:
You're kidding, right? For commercial use you want a medium of exchange that holds it's value over a reasonable period of time. Retail stores don't change their prices every day, wages only get paid once a week, manufacturers may be buying components months ahead of production. Bitcoin is worthless to most 'commercial' users.

Credit card transaction fees are 3% or less. If you are only making 3% on eBay sales then you're doing it wrong!.....
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Sez WHO for WHAT and with respect to WHERE?

I routinely buy from Hong Kong guys that operate with very low markup, very high volume, and for whom Paypal is a significant cost. Keep in mind there are not just Paypal fees, but currency translation costs involved in many cases.

These vendors can obviously benefit from a payment system that does not involve fees.

As for your assertion that a currency should hold it's value, I have been in many countries where that is not so. Where the equipment in the retail stores computes the payment required on the spot. This is not complicated and is common.

So your comments appear to be sort-of-related to the luxury status quo as has existed in the US in the past. Basically, that's over.
 
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