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

[psionl0]

That is just an assertion.

No, that's a scenario.

It might seem unlikely but otherwise, try imagining what it would be like if the price of bitcoin continued to double every 4 months for the next 5 years.

 

[wrs]

I am late to the discussion but I have been following somewhat. I am not anti-bitcoin. But it seems there is a bit of a "mission creep" regarding how bitcoin was presented and what its become. I was under the assumption from the first line in the OP that bitcoin was to be a currency (see below). The discussion certainly seems to have shifted much much more to "investment" and away from "currency". While certainly not a zero sum idea...it does seem that the more bitcoin is a short term investment with volatility...the less it becomes a currency. My interest is more in currency use. But the volatility prevents me from using it. And the reasons for this are multi-fold even with the overall trend of bitcoin value moving towards "skyrocket". I tend to think its a sound idea to keep my currencies separate from my investments for what should be obvious reasons. But I may just be too risk averse I suppose.

Exactly, someone is playing with bitcoin to make sure it can't become a currency. Who would convert to it and buy anything with it right now? It's too expensive and anyone who is selling in bitcoin is being forced to drop their prices. If a merchant bought product in bitcoin last week and is trying to sell for a bitcoin profit, they are screwed now. They might as well have just used the dollar which has been far more stable.

I don't think the bitcoin lovers can see how this mocks the whole notion of bitcoin ever being used as money, it's just another version of the latest stock mania.................

 

[mhaze]

That is just an assertion. Please describe why a steep increase in price will establish a currency 's bona-fides in international finance? How is its average price rise going to lead to the establishment of a stock market or banks dealing in bitcoins?

If use of and transactions in bitcoin eliminate the need for a bank, why would anyone care about your ideas about 'bona-fides', 'banks dealing in bitcoins', and so forth.

I suspect that you do not understand the fundamental aspect of the bitcoin: that it does it's job without trusted intermediaries. The design is of an instrument which has no need for those. You appear to be thinking that bitcoin must establish a position of 'trust', among those companies and operations that have worked long and hard to get such a reputation.

Reputation, in the case of trusted intermediaries, is what is sought to lower perceived risk by customers. A bitcoin transaction does not operate on trust and thus perceived risk is not an issue. I am not saying that somehow, some customers may not think there is risk. Obviously people can think anything they wish. But the transaction is a simple matter of placing a couple of numbers in the block chain with the public address of the sender and the receiver. Along with a timestamp, etc. The blockchain is public and can be examined by anyone.

E.... Who would convert to it and buy anything with it right now? It's too expensive and anyone who is selling in bitcoin is being forced to drop their prices. If a merchant bought product in bitcoin last week and is trying to sell for a bitcoin profit, they are screwed now. They might as well have just used the dollar which has been far more stable.............

Bitstraw argument.

Note that you have to structure the screnario carefully to get it to have the end result which supports your prejudice.

The more real world situation is that he merchant has THE OPTION of accepting btc or purchasing inventory with it, and he acts as he wishes based on the trends that he sees. Thus your lame argument is confounded by free will as follows with this one simple change...

'if a merchant bought product in USD last week and is trying to sell in btc, he makes a larger profit'.

 

[jhunter1163]

Would you take your paycheck in Bitcoins today, if your rent is due on the 1st? I wouldn't, and I doubt anyone else here would either. Give me those stodgy old USD, any day.

 

[mhaze]

Would you take your paycheck in Bitcoins today, if your rent is due on the 1st? I wouldn't, and I doubt anyone else here would either. Give me those stodgy old USD, any day.

Bitstraw argument.

You're a small business man in China selling $20 items to US consumers, and your out of pocket costs for the auction site, currency conversion fees, and paypal fees average 12%. You learn that you can do the same thing with btc for 1%.

Give me those shiny new ecurrency bitcoins, any day.

 

[psionl0]

Would you take your paycheck in Bitcoins today, if your rent is due on the 1st?

With more than a week to go the odds are pretty favourable but you should never gamble with your rent money.

 

[Tyke]

By your logic it's fine for the US government to print dollars endlessly. The number of dollars is only one factor in establishing their value.

Then that's not by "my logic" is it? I said it was one of the factors, not that it isn't a factor.

One currency has more of it's units every year, the other has a hard limit of 21 million. It follows that one is inflationary, the other deflationary.

At the moment Bitcoin also has more units every year.

Really? Let me apply your tests to Paypal. Odd, it fails.

Paypal is a payment system, not a currency.

 

[mhaze]

Then that's not by "my logic" is it? I said it was one of the factors, not that it isn't a factor.
.

What logic is there when you point out one of several factors, find that refutable, and then just say "oh, but there are other factors?"

At the moment Bitcoin also has more units every year..

By work in mining. Work is not done for free; if the btc value does not pay for the work, the work will not be done. Mining of bitcoins requires hundreds of thousands of trillions of SHA2 computations for each block found. Not cheap or easy. The difficulty of finding the future blocks of bitcoins rises exponentially. Hence, my argument was correct.

Paypal is a payment system, not a currency.

I'm not sure you have a meaningful point there. The mechanism of paypal was created to allow certain styles of transactions with the underlying value backing the transaction being currencies (plural).

Paypal compensates for those deficiencies in the internet markets, Bitcoin has the solutions built in. Yes, buggy whips are useful when you put a steam engine on your buggy but still need a horse or two to get up steep hills.

Buggy whips will always be around.

Won't they?

 

[Belz...]

Bitstraw argument.

Is that supposed to be synonymous with a strawman ? If so, you don't know what a strawman argument is. Can't say I'm surprised.

 

[wrs]

If use of and transactions in bitcoin eliminate the need for a bank, why would anyone care about your ideas about 'bona-fides', 'banks dealing in bitcoins', and so forth.

This is a good thing if bitcoin has a stable recognized value, currently it doesn't, it's in an insane bubble. I wouldn't sell anything right now and accept bitcoin as payment, things don't move in one direction and they don't quadruple overnight and stay there.

Bitstraw argument.

Note that you have to structure the screnario carefully to get it to have the end result which supports your prejudice.

The more real world situation is that he merchant has THE OPTION of accepting btc or purchasing inventory with it, and he acts as he wishes based on the trends that he sees. Thus your lame argument is confounded by free will as follows with this one simple change...

'if a merchant bought product in USD last week and is trying to sell in btc, he makes a larger profit'.

I structured it as if it were an actual currency, but it's not a currency and never has been. Right now it's acting like Twinkies or beanie babies did before they collapsed. The merchant would have been far better off to not buy product and instead hold bitcoin and sell it to the next bigger fool this week. Then he could change it back into real money and retire.

The first problem with it is that the limited number of them makes it impossible to use in a flexible economy. It's got the same built in problem as silver and gold do. Currency has to liquidate transactions and be available as a temporary parking place for value. Money is a step beyond currency, it can be held longer but still must be very liquid, that would be more like savings deposits. The value of currency is based on the money backing it. Bitcoin has nothing backing it, thus it's just a bubble for now.

 

[psionl0]

The merchant would have been far better off to not buy product and instead hold bitcoin and sell it to the next bigger fool this week.

The "greater fool" theory is two years old on this thread and counting.

The value of currency is based on the money backing it.

What money?

 

[Tyke]

What logic is there when you point out one of several factors, find that refutable, and then just say "oh, but there are other factors?"

Because the factors don't exist in isolation!

There's a massive amount of grain in the world at any one time, and a fairly small amount of my toenail clippings. To go by your understanding of economics, I would be stinking rich if I only bothered to put them on eBay instead of in the bin, and grain is worthless because there's so much of it.

By work in mining. Work is not done for free; if the btc value does not pay for the work, the work will not be done. Mining of bitcoins requires hundreds of thousands of trillions of SHA2 computations for each block found. Not cheap or easy. The difficulty of finding the future blocks of bitcoins rises exponentially. Hence, my argument was correct.

What difference does the work actually make? What they're doing is busy work that artifically makes it harder to get coins.

If the same people ran the program and it sat doing nothing, then every so often someone was picked at random to receive coins (weighted by system specs), there would be no discernable difference in outcome.

I'm not sure you have a meaningful point there.

You would probably try not to understand even if I bothered to explain.

Inflation BAD! Deflation GOOD! Bitcoin GREAT!

 

[wrs]

The "greater fool" theory is two years old on this thread and counting.

The last week has some serious fools at work.

What money?

The dollar would be an example of money backed by something. It is backed by the sovereign debt of the US and to a degree, the Federal Reserve Banks of the US. However, dollar is a rather loose term to be sure.

 

[mhaze]

The dollar would be an example of money backed by something. It is backed by the sovereign debt of the US and to a degree, the Federal Reserve Banks of the US. However, dollar is a rather loose term to be sure.

This is, I presume, an example of the previously mentioned 'greater fool theory' at work?

...
Inflation BAD! Deflation GOOD! Bitcoin GREAT!

A country with multiple currencies, one of which was inflationary, the other of which was deflationary, would experience economic effects different than a country which had only one of the two in use.

The combined effect is not a one line linear equation of the sort

currency A*%A + currency B*%B

but may be understood as a matrix calculation where spread across X columns is a basket of goods and services, and across Y are the two currencies. This is a macro view though, bitcoin would certainly cause some failures of business models that inefficiently, attempt to provide service that is obselesced by the bitcoin model.

What difference does the work actually make? What they're doing is busy work that artifically makes it harder to get coins.....

...the work results in the existence of new coins. If the payoff is not adequate, there will be no work and no new coins. There is nothing artificial about it, the cryptographic solution which is 'new bitcoins' can't be just pulled out of a printing press like US dollars.

Originally Posted by mhaze
What logic is there when you point out one of several factors, find that refutable, and then just say "oh, but there are other factors?"

Because the factors don't exist in isolation!

No KIDDING? So your argument was known fallacious by you at the get go. Which was my point, why bother with it?

 

[wrs]

This is, I presume, an example of the previously mentioned 'greater fool theory' at work?

To a degree but because there are so many fools using the dollar, the effect is less noticeable when some decide they are being fooled and convert back out. It is really hard to convince people the dollar is not money, with bitcoin, not so much. It is hard to convince people there is real risk holding dollars, with bitcoin, not so much.

The dollar ship of fools is much larger than the rowboat of fools represented by bitcion. So it will take a typhoon to sink the dollar ship whereas it might only take a squall to tump over the bitcoin rowboat.

 

[mhaze]

To a degree but because there are so many fools using the dollar, the effect is less noticeable when some decide they are being fooled and convert back out. It is really hard to convince people the dollar is not money, with bitcoin, not so much. It is hard to convince people there is real risk holding dollars, with bitcoin, not so much.

The dollar ship of fools is much larger than the rowboat of fools represented by bitcion. So it will take a typhoon to sink the dollar ship whereas it might only take a squall to tump over the bitcoin rowboat.

The analogy of a big steaming ocean liner isn't bad for the US dollar.

BTW there was a great short story by Charles Stross entitled 'ship of fools' about, well, a ship of fools....

But for bitcoin, a reasonable comparable analogy would not be a rowboat but a geosync comm sat.

The old and the new.

 

[mhaze]

...The merchant would have been far better off to not buy product and instead hold bitcoin and sell it to the next bigger fool this week. Then he could change it back into real money and retire.....

His decision to make, not ours. As you note, he would choose wisely. All you've done is to illustrate why the merchant would be 'pro bitcoin' (LOL...)

...The first problem with it is that the limited number of them makes it impossible to use in a flexible economy. .

False. A bitcoin is by design divisable to 1/100M of a bitcoin, that small part being named a 'satoshi'. This invalidates your other comment about the similarity of bitcoin to gold and silver. Bitcoin is easily used in commerce, they, gold and silver on the other hand are not (and don't lend themselves at all to ecommerce).

...Bitcoin has nothing backing it, thus it's just a bubble for now.

Not true. There is a cost to mining bitcoin. The bubble would exist if the market value surpassed the cost to produce new bitcoins using mining. I'd have to check on the current cost of production to be able to intelligently answer that. But it is quite substantial.

 

[pantsorama]

If use of and transactions in bitcoin eliminate the need for a bank, why would anyone care about your ideas about 'bona-fides', 'banks dealing in bitcoins', and so forth.

I suspect that you do not understand the fundamental aspect of the bitcoin: that it does it's job without trusted intermediaries. The design is of an instrument which has no need for those. You appear to be thinking that bitcoin must establish a position of 'trust', among those companies and operations that have worked long and hard to get such a reputation.

Reputation, in the case of trusted intermediaries, is what is sought to lower perceived risk by customers. A bitcoin transaction does not operate on trust and thus perceived risk is not an issue. I am not saying that somehow, some customers may not think there is risk. Obviously people can think anything they wish. But the transaction is a simple matter of placing a couple of numbers in the block chain with the public address of the sender and the receiver. Along with a timestamp, etc. The blockchain is public and can be examined by anyone.[/I]

I understand what you claim bitcoins stated aim is. My point is that you need those trusted intermediaries in order to exist as a entrepreneur of a certain size in this world. Bitcoins may be fine for your crocheted Jayne hats esty page, but I have bigger aspirations. If bitcoin can not give me access to leveraged capital, outside equity, or debt securities, it will not suffice as a currency that provides the functions of other extant government backed currencies.

Which, as I said earlier pretty much relegates it to a niche market. Again, I think its great for people operating in that market, but it's got a long way to go before it can challenge the currency of the Tuvaluan dollar, let alone the USD.

And I am not seeing any arguments here that even outline the path Bitcoin should take to get there, or even if that is a good idea. In fact I would wager that the entire scope of what the USD (or any gov't backed currency) does is lost on some people here.

And again this is not a knock on bitcoins. I am all for it. But I do not see how it will ever make the leap to being used to fund the finance of large businesses. Again - that is perfectly OK it may be enough that the founders and users of bitcoin are content that it does what it does.

If I am missing something then please fill me in.

 

[mhaze]

I understand what you claim bitcoins stated aim is. My point is that you need those trusted intermediaries in order to exist as a entrepreneur of a certain size in this world. Bitcoins may be fine for your crocheted Jayne hats esty page, but I have bigger aspirations. If bitcoin can not give me access to leveraged capital, outside equity, or debt securities, it will not suffice as a currency that provides the functions of other extant government backed currencies......
If I am missing something then please fill me in.

Well, you've posted a problem of interesting sorts. It would be trying to put a square peg into a round hole to try to envision a 'bank account with bitcoins'.

But let's say you are A, and you are competing with B and C in umm, importing carvings and art from sub Saharan Africa. B and C use regular currency. You aim to use bitcoin. You go down to several villages and make deals, and set up a couple traders to handle bitcoin in nearby cities who exchange the bitcoin you sent, for the currency (or more likely the supplies and mobile phone credits that the villagers needed).

Let's say you do this in S Africa, so that you're still alive when you get back to the airport. You run this business, and your competitors B and C run theirs. They are dealing with banks at both ends, official currency exchange rates. The villagers have to deal with those banks and all the corruption up and downstream.

That's a simple entrepreneurial model using bitcoin. Now go ahead, go into a bank and into venture capital firms and pitch your business model against your competitors. You'll be looking for leveraged capital, debt securities, yada yada yada within the traditional banking system. You will be laughing at your competitors B and C when you go into those meetings...those bankers are going to understand exactly why your business model is light years ahead of B and C.

There are hundreds of simple business models such as this capable of exploitation right now. Maybe my example is not perfect but it should suffice. Consider if this business model had been applied to Zimbawee during it's recent dance with hyperinflation. The result would have been some people producing items of value, and getting paid for them, and buying food and supplies, eg, not starving as a result of the hyperinflation. This is a non trivial impact - granted, it is an extreme case as it uses as an example an extremely weak currency. But it happened...

 

[wrs]

His decision to make, not ours. As you note, he would choose wisely. All you've done is to illustrate why the merchant would be 'pro bitcoin' (LOL...)

Wrong, he still wouldn't be operating his business using bitcoin in that case. That was the original premise.

False. A bitcoin is by design divisable to 1/100M of a bitcoin, that small part being named a 'satoshi'. This invalidates your other comment about the similarity of bitcoin to gold and silver. Bitcoin is easily used in commerce, they, gold and silver on the other hand are not (and don't lend themselves at all to ecommerce).

Hardly the issue here but I won't bother trying to explain to you how flexible money has to work because you only see this part of it. The fact that bitcoin is limited in supply makes it useless as currency and as money.

Not true. There is a cost to mining bitcoin. The bubble would exist if the market value surpassed the cost to produce new bitcoins using mining. I'd have to check on the current cost of production to be able to intelligently answer that. But it is quite substantial.

This has no bearing on what I said regarding backing. You are trying to make some claim about cpu cycles translating to backing which has nothing to do with what backs real money and real currency.