Bitcoin Forum

The bitcoin model will eventually fail. Don't worry this won't happen for a very long time (perhaps not). In fact, for everyone reading this, it probably won't happen within our lifetime. Although, it will certainly start to happen in around 130 years (for sure), if not way before. I'm not talking about worth or value, bulls and bears, up and down trends etc., I mean it can't survive as a long-term 'currency'...

When bitcoin was first established, a bitcoin was worth nothing, except perhaps for the cost of the hardware (software), an internet connection, the electricity and the time required to generate them, as in fact it remains today.

When I first joined this forum NewLibertyStandard had an electricity meter plugged into the wall socket for his PC to calculate the exact cost required to generate a bitcoin. Thus, fixing a simple exchange rate for PayPal and the US dollar, of just a few cents.

Whilst most forum members at that time were aware the price would probably increase with a growing demand for 3rd party exchangers and 'real world' exchange for goods and services, few (including myself) could of predicted the very fast inflation or increased 'value' against real currencies.

However, what I did model at that time and what I will share with everyone now are the reasons why bitcoin will imho eventually fail as a currency. The model is inherently flawed and unfair.

Bitcoin has a hard limit of about 21 Million bitcoins. See: http://bitcoin.org/en/about

As per. the wiki page See: https://en.wikipedia.org/wiki/Bitcoin "...a hard limit of 21 million bitcoins is reached during the year 2140."

Most studies into bitcoin have focused on price, inflation, technical specifications and the model up to the end of this graph. This is certainly the boom time?

Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×10 14 currency units.

What will happen when all of the 21 Million bitcoins are in circulation?

Bitcoin will, in theory, experience some years of perceived stability (with some initial price 'spikes') with a long-term 'table top' like chart, although still with the potential for sizable peeks and troughs, although leading to eventual and certain pricing decline, with a strong and continual downwards trend throughout. If you like, a 'wonky' table with two short legs!

Why? Quite simply because the money supply has stopped.

No one will want to buy into a currency that is in constant and perpetual decline. It will effectively be the exact opposite to what we have already seen to date. Bitcoins 'bankers' (the major miners and holders of bitcoins) will be clambering to sell and trade-off their bitcoins, as they become ever increasingly scarce and therefore 'worthless stock'. On this basis, some may also retain bitcoins, with the hope of price increases in relation to rarity, moreover there will be inevitably less and less people to actually trade bitcoins with...

Consider in 200+ years just how many of these 21 Million bitcoins will of been 'lost' forever. The 8 decimal places are irrelevant long-term.

Now imagine, what would happen if say the US Federal Reserve one day just decided to stop printing any new money. All of the money in circulation would eventually, in theory, disappear. Moreover, Its overall value as a currency would certainly diminish, in favor of other new / existing currencies, crypto or otherwise. Bitcoins will not even be worth their 'weight' in anything! :'(

Printing to much currency against your GDP output is very problematic. Again, its boom time for a while and then total bust (in theory). This is currently true for the Euro and the Dollar.

See: http://www.youtube.com/watch?v=O_TjBNjc9Bo

Not printing enough currency is also very problematic.

See: http://www.youtube.com/watch?v=vm3DixfL9o0

What is much much worse is to stop printing anymore currency whatsoever!

Ironically, the bitcoin supply had to be limited for the purpose of implementing the original client protocol, by design. It is in fact the limited and finite supply that gives it any 'value' in the first place. It created the 'gold rush'... Satoshi remains a genius cryptographer, over being an economist? This project remains an experiment, although it is a fantastic and innovative one.

The frantic necessity to generate and to save bitcoins is currently inherent amongst bitcoin users.  "I sold all my bitcoins and now the price has sky rocketed" or "I bought into bitcoin high and now the price has plummeted" or "I spent thousands on mining hardware and can never recover my costs" etc. It's very difficult to know what the best thing to do with your bitcoins really is at any given moment actually is, right?

In Modern Money Mechanics, money is only actually money if it is 'moving'. All money is effectively 'debt' i.e. it is owed to someone by somebody for something. If this wasn't true, then we wouldn't need any currencies at all i.e. we would all still be happy swapping say apples for oranges etc.

The crypto model adopted by bitcoin is inherently 'unfair' and 'flawed' imho, just like in capitalism where the already rich and powerful become increasingly richer and more powerful at the expense of others. We are already seeing this with bitcoin. Soon, (if not already) only established and large corporations, big banks, already very wealthy individuals, governments and nation states, with access to super computers will be the only people able to generate any bitcoins. This 'free market' will be totally monopolized, this has already started to happen.

I believe there is a better model and a better approach, although that is entirely another topic.

So, when does the bitcoin bubble actually burst? Probably, at exactly the very moment when the 21 Million bitcoins are generated, followed by a 'spike' and then a theoretically 'steady' decline back down to zero? A bitcoins intangible 'true worth'? Probably. Until then, there will be many new bitcoin adopters, users and investors that will come and go, we will see more bullish and bearish movements, although imho the major price trend can only really go one way, until all of the coins are in circulation and perhaps it will even continue beyond that, maybe not!

Is bitcoin really the internet currency of the future? I'm not so sure about that. Something very similar to bitcoin probably stands a very good chance for true internet and financial freedom for the masses and there are certainly much worse alternatives.

Bitcoin is a 'bubble' !?! http://www.youtube.com/watch?v=A7TuFy0fcuw

TL;DR (read part of it) but: Supply drops ---> Price Rises.

Exactly. A whole lot of text with one fundamental flaw!!!  ???

I have referred to that very price rise, as the potential 'spikes' after all bitcoins are in circulation.

It does not matter who long it takes to happen, the model does and will eventually fail, you can't trade in diminishing intangibility.

One way or another there will be no bitcoins left to trade with!

The system maybe expanded upon or replaced before that time, but with the current model there is no other eventual outcome. It is a certainty.

You can work around with lot of theories about what could happen in the future. You can predict 130 years? Anything can happen in that time. Actually is probable that in 130 years the money wont be used anymore, I mean the actual bills, everything will be done electronically.

A lot of economists have spoken about the scarse bitcoin supply in the future. No currency in the world have experienced this, thats why Bitcoin is an experiment, and is getting more real everyday.

Its true that when supply goes down, the price goes up. So there'll be a time when most people wont want to trade them or sell them. Price will continue to go up then, more value. If price would happen to go down, then you'll see people trading with the currency.

What you basically are saying is that Bitcoin is doomed by its increasing value. How is this a bad for the currency?

Last example:

I live in Argentina, the local currency called (Argentine Peso) is devaluating, with an annual inflation of 25%.
So people don't trust the local currency and shelter their savings in US dollars.
The US dollar price is getting more valuable, from the Argentine pesos point of view.

There's a lot of exchange, people selling and buying, but the value increases over time.
Cars, Real state properties, investments, are all done in US dollar.

Think about Bitcoin as the US dollar in my country. It can have up and down, but it always be better than Argentine Pesos.

You can read about the situation here:
http://thebluemarket.wordpress.com/2012/10/18/bitcoin-dollars-and-pot-banging-protests-in-argentina/

No. All value is irrelevant. The model is 'doomed' because there will only ever be 21 Million Bitcoins.

There are not enough bitcoins to sustain adoption by the masses, in accordance with population growth against an increasing number of internet users.

Aside from this, assume that say only 10 bitcoins a year are 'lost', because someone dies and no one knows the password for their wallet etc.

In the early days, on this forum, I once sold someone 1,200 bitcoins, they tried to transfer them to a usb via a linux 'live' cd... and lost them.

'No worries' you might say we can still trade 0.1 , 0.01 , 0.001 . 0.0001 , 0.00001 etc.

I does not matter how long this takes, once 21 Million bitcoins are generated, it will happen.

Reverse / flip this triangle image, as if it were my modeled graph.

https://upload.wikimedia.org/wikipedia/commons/thumb/5/5c/Triangle_sommeangles.svg/500px-Triangle_sommeangles.svg.png

C to A is the boom. Point A is 21 Million Bitcoins. A to B is the inevitable and intangible 'deprecation' back to zero.

In the actual models I ran C to A was usually more curved i.e. the opposite concave to this...

https://upload.wikimedia.org/wikipedia/commons/thumb/5/54/Total_bitcoins_over_time.png/740px-Total_bitcoins_over_time.png

A to B was less steep and even flat, but the outcome is always the same. That's the model, reality will be different, but there is only one overall conclusion. Eventually 0 Bitcoins are left.

damn i'm screwed/ i won't be able to pay for the nursing home in 2140
when i will be 191........well past my prime earning years

This is the most sensible comment yet !  8)

Can't you just add more decimal places?

Yes.

You sould set some axis labels on it. Y axis is bitcoins total, and X is time? What do you mean C to A is the boom? A to B ? You go backwards?

You shouldn't worry about 130 years. A lot of things can happen in between. Bitcoins banks can be founded. Even Bitcoin private keys can be backed-up in cold storage or in people's will document or whatever. In the future if BTC is so valuable as it is intented, people will safe-secure this and wont be lost so easily. Gold exists since forever, and people don't lose it easily. Even if its lost, BTC currency will get more value overtime and people will only have fractions of BTC. BTW, Bitcoin is not intended to be the absolute only currency in the world, if the fractions gets too little and difficult to get, just use your local currency. Its simple, BTC is just an awesome option, that gets more and more value over time, for different reason, just like the one you said.

deflation is simply the speculation of money, just like the speculation of any other asset. A deflationary spiral is simply a speculative bubble of money.

Do you believe bubbles can last forever? If no, then you do not believe that deflation is a problem with bitcoin.

Correct. More decimal places can be added.

However, there is a 3rd fundamental factor to all of this. As the total popularity and distribution increases, the overall rate of lost wallets increases as well.

As the decimal places are moved to cope with this and match with the transaction distribution we basically continue to run out of bitcoins against worth. This again makes it even harder to make transactions or to trade anything with others.

This also creates a 'human' factor, where the user base declines or migrates to another currency / system and this further compounds our problem.

As I described, as soon as all bitcoins are in circulation, there is only one eventual outcome. The time that takes to happen afterwards is the only real unknown.

Anyone still want a slice of Pizza ? Get it while its hot !  :D

I do not think the limit of 21 million will cause it to fail. As others have posted a single bitcoin can be divided into many decimal places, and that number can be increased if needed. It is all simply a matter of nomenclature. We can think of the whole US GDP in terms of a single unit called "One US Economy" that unit is divided into trillions of dollars or hundreds of trillions of pennies. It's all just naming. I think the most valuable aspect of bitcoin is the ability to easily transfer them anywhere for free.

You forget that paper is not durable, and this is the reason that bills are removed from supply.

In the case of BTC, their durability is dependent on the strength of the network, and a user's ability to store password information properly.

How durable will networks be in 100 years? The future is never certain.

I think that "found" wallets could be more of a problem. Let's say that all but 1000 or so bitcoins remain in circulation in say the year 2200. These would still be viable for an economy as they can be sub-divided to many decimals. But, what if someone finds Grandpa's old computer with 10,000 BTC on it?

Perhaps eventually, I think a more realistic concern is that Bitcoin is rendered obsolete by some new technology or a huge portion of the worlds computers are destroyed by EMP or something of that sorts. I just don't think this is a legitimate concern.

Assuming that the network still functions, the less Bitcoins the more they are worth. If the price dropped, that means they are likely to circulate more, in other words becoming a valid currency again. If circulation drops, the price will rise.

Would you say that because eventually we may run out of gold, uranium or some other valuable metal, it would start to drop in value as we got close to running out? I don't think so.

Furthermore, as much as most of us would hate it, from what I understand the system could be changed to bring back small block rewards if it became absolutely necessary.

I hoped for a serious discussion, but OP is quite oddly deceived, unless he's a troll.

Deflation is a serious problem for any economy, nevertheless.

Eventually as other currencies are sucked into Bitcoin their buying power would stabilize, I think

nothing to worry about, there will only be 500 million people on the planet by then.

That is hilarious!  Nice thought.

You know, it really isn't necessary to respond to every troll that rehashes these topics.  If the original poster is too lazy to search for the thousands of threads that cover these topics in gruesome detail, why do you feel like you need to retype it all for him?

That are currently divisible by 8 decimal places, with the capability to expand that if needed.

I don't see a problem.

That would screw up a lot more than just bitcoin, and would be quickly addressed.

Agree with Myrkul.

@OP - No, the bitcoins aren't consumed by being spent. We're expecting a slowly declining actual number of bitcoins once we reach 21m - and are prepared to add decimal places to compensate for the associated price increase. Right now we're still inflating the currency via block rewards.

Your theory doesn't make any sense.

The value of bitcoin doesn't have to drop simply because the money supply is in decline. So what if a satoshi is worth $200. It just means that you can't use it as your primary currency. Instead, you swap your satoshi for BitcoinV2 and trade in that instead.

By that time I do not believe that Bitcoin would be the primary mode of exchange, instead it would become more like gold. It would be held on reserve and people would (hopefully) be using another alt coin as their primary exchange.

I believe Bitcoin will ultimately fail as a global currency because governments around the world will not allow it to happen. People need fiat in the short to medium term because you can't feed your family on Bitcoins. And very few governments around the world will want large amounts of wealth moving into a digital currency

If Grandpa followed proper wallet security and encrypted it like he should have, it might as well have BTC1,000,000 on it.

 :D
Imagine that for a moment!!!! 60 years into the future, your grandson finds granpa's wallet with 1,000,000 btc in it and at that moment, a satoshi is 200$!!!!!!


Wow!!!! I'd love to give my grandchildren something like that!!

I've not been back on this board that long and yes I have a lot of reading to do. I'm hardly a troll, although you gotta love the trolls, right ?

I was looking way way into the future with this thread, its partly the reason why I don't have the thousands of BTC in my wallet that I once had, in fact I don't think I have any BTC left accessible to me at all anymore.

Please don't misunderstand my original post. Bitcoin is a currency and a commodity. That's its issue!

When the oil well's dry up are you going to be putting 'gas' into your cars still ? No, it will be something else entirely.

I wrote this topic as a warning for the future, that's all! The current bitcoin model does 'eventually' fail. So, just remember that and develop it along the way with that in mind! Most of all look after your wallets.

I love (to hate) Bitcoin !  :D

This what.  At Satoshi worth $0.1, bitcoin uses all the electrical energy produced in the world.  That's kind of a problem.

You're going to have to back that up with some maths.

I don't see the logic here. Less supply (with constant or rising demand) means increasing price, not decreasing price.


Why would the money disappear? Are you talking about dollar bills? The money that the Fed "prints" is electronic, not paper. How can you be certain that people would switch out of Bitcoin into another currency?

https://bitcointalk.org/index.php?topic=169927.msg1771378#msg1771378 (https://bitcointalk.org/index.php?topic=169927.msg1771378#msg1771378)

Awesome. A list of numbers. How about some maths to back those estimates up?
Show me how you derived those figures.
Unless, of course, you just pulled them out of your ass. I've seen the Goatse image, I don't need to see it again.

Sure, this is the problem we are trying to solve.

If bitcoin uses $200,000 per day in electric power per day,  at what price point does it use total energy same as the total power in the world.

total electric power in the world from wikipedia:  2.3 TW
cost per kWh: $0.1

cost of total worlds el. power usage per day:  2.3 TW * 0.1$/kWh * 24 = $5500 million

$5500 million is  how many times larger than 0.2 million:  27500 times

So, if bitcoin price increases 27500 times, we get the same energy usage.

100$ 27500 = $2.75 million, price of one bitcoin

divide this by 100000000 to get price of satoshi:  $0.027.


That guy said that there would be no problems if price went up to $20 per satoshi. Lol at that.

But technology progresses. ASIC needs only 6-10W/(GH/s). That's missing in your calculation. Also "$200,000 per day" is wrong in current situation.

Change to ASIC has nothing to do with it.  Economic incentives for mining do not stop at a certain hash point, they stop at a certain profit point, (that is, where there is no profit.)   

A easy market force argument will always push the mining running costs to be in the order of magnitude proximity to the total awards.  Perhaps in the 50% to 75% range.  For the next 3.5 years this is 50% of 3600 * price.   

If $200.000 per day is wrong, then give us what you think is the correct number.

I am just saying, that for asics to be unprofitable miners don't need to use up all the energy created on Earth. That's just impossible (common sense).

I don't know the correct number and I am not in the position to fabulate one. I just know that your number is incorrect. Actually, on blockchain.info is this info:

Electricity consumption is estimated based on power consumption of 650 Watts per gigahash and electricity price of 15 cent per kilowatt hour. In reality some miners will be more or less efficient.

Asics tend to use 6-10W, which is 100 times more efficient than estimation for $150,000-$200,000. How much of hashrate is created by asics? I don't know, maybe half.

Yes but by then BTC could fork to a PPC like solution, adds a bit in proportion to lost coins, or another Coin will be invented to address this and BTC could still be like a reserve currency

I think you have confused the imutability of the 21 million coins which is not true, and the vested interest in BTC to change how the coins works

This is where you lost me. Care to explain why no one will want to buy into bitcoin just because the total amount in circulation is decreasing?

If this sort of fail is all they can come up with when the world is looking at bitcoin, Id bank on bitcoin.
Satoshi is a genius.
Bitcoin is software and it can be updated with new technology, it is not hardware that becomes redundant. In 150 years the software will be much more advanced than what we see today, problems will be ironed out and bitcoin will continue to grow in leaps and bounds.
People who can make predictions like this who have been involved in bitcoin since the beginning should be very very wealthy now shouldn't they? They should at least own a huge amount of bitcoins.
I keep reading and listing to people opinions to why bitcoin will fail, This is something I am constantly talking about with people. I am yet to hear any credible information.         

21,000,000 coins. With 8 decimals that is 2,100,000,000,000,000 lowest divisible units. 2.1 quadrillion.

2011 Nominal GWP (Gross World Product) was $69,110,000,000,000. Even putting that into pennies to get lowest divisible unit count it's 6.9 quadrillion.

Most currencies seems to do fine without being enough in circulation to account for 30% of Gross World Product. Bitcoin will too. Assuming 1/2 of all coins are lost, 15% of GWP isn't bad.

Your logic is good, but you assume that the number of bitcoins mined is constant. If the price of a bitcoin rises to an absurd value today, then the amount of energy consumed would also follow and rise to an absurd value. However, the reward is cut in half every 4 years, so the amount of energy used will also be cut in half every 4 years.

The question you should be debating is whether bitcoin will be successful during it's life span or not ;)

Exactly, all the numbers are valid for the next 3.5 years only.

And you expect it to get to $200k/BTC in the next 3.5 years?

Dude, I'm a bull, but not even I'm that hopeful.

Wow, I think you have wrapped every stupid and often debunked argument into one giant pile of steaming trash.

Once all the bitcoins are mined the miners will be paid by the transaction fees. If you insist on valueing a bitcoin based on what it costs to mine one, then you can still do that calculation by comparing how much a miner gets from transaction fees and how much they spend in electricity.

You seem to be focusing solely on people buying currency to speculate on exchange rate variance. Since bitcoins are traded freely there will always be room for such people, and indeed they provide a service to the rest of us by providing price discovery and mitigating the price variance. But there are other reasons to hold currency. There are people who use it for transactions and people who are using it as a savings vehicle, these people are actually helped by having a steady exchange rate, and the steadier the exchange rate is the more they will be willing to use it.

You are right. Bitcoin cant survive as it is. The limited supply is a problem. And the problem is amplified by the fact that half of the supply was produced when only a tiny tiny fraction of the worlds people where participating. Sure I know that wealt is unevenly distributed in any well-functiong economic system, but if bitcoin were to become a currency of reasonable size, it would take uneven distribution to new heights!

Only for so long as it took for those with lesser amount to offer sufficient goods and or services to those with greater. And remember, a fool and his money are soon parted.

The distribution of bitcoins has and will have little impact on the distribution of wealth. The portion of total wealth represented by money is very small. Even if I owned all the bitcoins in the world, I would certainly not be the richest person in the world. Compare the amount of money in your savings account to the total value of all your assets.

The exact same reason why people want to mine or buy into Bitcoin when the price is seen to be increasing. Speculation aside.

This is what I meant to demonstrate with the triangle diagrams that I posted.

Rarity will theoretically cause massive price increases, this is obviously very different to the economic principle of scarcity or Bitcoins becoming scarce.

Definition of SCARCE. 1: deficient in quantity or number compared with the demand : not plentiful or abundant.

 

I think the missing part here is the fact there are more coins than just Bitcoin now.

Let's assume Litecoin takes it's place as the "shoppers" coin having much faster transaction times and 4x as many coins (all divisible by 8 decimals as well), and Bitcoin is so valuable and slow it is only used for large wealth transfers. This means there are a lot more coins in circulation than just 21 Million, you are assuming Bitcoin is the only coin there would be in the distant future. The individual coins may be capped at a certain amount, but there is no limit to how many currencies there can be. Who says each nation doesn't start their own blockchains, or even each corporation could have its own currency (though this concept would be awful in practice I think..). Just because Bitcoin itself was the grand-daddy of it all doesn't mean it will be around long enough to even reach 2140, or even a year from now. No one can predict the future in this because it has never been tried.

As far as the greedy and wealthy cornering a coin, the decentralized and open source nature of the protocol means that the commoners could easily revolt by deploying a new coin. Unlike the current model where the creation and distribution of capital is controlled by the wealthy elites making changing it very difficult, anyone has the tools to create a new blockchain and push for adoption. If anyone somehow managed to eat up all the Bitcoin, a new standard could be put in its place and make Bitcoin worthless and undercutting their wealth. Bitcoin can't solve the problem of human greed, but it does level the playing field. Wealthy Bitcoin elites may not be quickly if they get out of hand and Joe Everyman makes his own coin to use and stops accepting Bitcoin.

Certain aspects seem monopolized already, but that is only because these digital currencies are so young still. Bitcoin's market cap is around $1-1.5 Billion, which seems like nothing compared to the GDP of the world at $70 Trillion or so. Wealthy elitists can already buy and sell Bitcoin's entire market cap before lunch.

Even still, I don't feel it a good use of time to speculate on the distant future when there are plenty of problems with digital money to be solved today, or it will never last long enough to get to the later issues.

 

I can agree with much of this. I do also wish I'd put a question mark in the threads title. My main aim was to try and make people aware of the facts and to promote discussion. Folks taking the time to construct good thought through responses to the issues Bitcoin will face in the future is what I really intended.

I'm a Bitcoin and crypto-currency supporter, I wouldn't put the time in myself otherwise!

Who's to say that at some point there won't be a bitcoin2.0, where an entirely new protocol is released, and the "new" bitcoins can only be issued if exchanged for the "old" bitcoins?  Sure, those would technically be an "alt coin", but if they are offered only in exchange for the "old" bitcoins, they act as a "bridge" for bitcoin to continue.