Bitcoin Forum

First, because an expected fall in bitcoin prices motivates people with bitcoins to delay, as much as they can, their bitcoin expenditure (why buy something today if it will be cheaper tomorrow?).

Don't dismiss this guy! He is an economic advisor to Valve Corporation.

 ... It is these two activities, production and investment, that preclude the possibility of apolitical money.

So, bitcoin is not novel because it is a digital currency or because it is a ‘made up’ currency. Digital, ‘made up’ currencies are everywhere. What is, however, genuinely novel and unique about bitcoin is that no ‘one’ institution or company is safeguarding the so-called Ledger: the record of transactions that ensures that, when you have spent one unit of currency, there is one less unit of currency in your (digital) wallet.

What is, however, genuinely novel and unique about bitcoin is that no ‘one’ institution or company is safeguarding the so-called Ledger

True, no bank, government or institution can manipulate it  ;) It is so dangerous yeah?  ;D

Maybe someone would like to leave a comment about the deflation scare argument by this "professor of economics":
http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/ (http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/)

edit: but on a second thought, is a waste of time: if he feels smarter believing in Santa Claus/politics, and the same do his followers, it's hopeless.

The same can be said about you.

Maybe someone would like to leave a comment about the deflation scare argument by this "professor of economics":
http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/ (http://yanisvaroufakis.eu/2013/04/22/bitcoin-and-the-dangerous-fantasy-of-apolitical-money/)

edit: but on a second thought, is a waste of time: if he feels smarter believing in Santa Claus/politics, and the same do his followers, it's hopeless.

Your ignore tag is already very brown. So guess who's who, troll.

The main problem with anyone relying on Mises Regression Theory is they ignore the virtual. By their very nature, bits and bytes have intrinsic value. They allow us to do computations, they carry information across the internet, they enable the entirety of global commerce.=

But because you can't scoop up a bunch of stored charges on a whirling platter or tumble them out of your ethernet cable and hold them in your hand -- bits are given short shrift in economists eyes. Sorry, but the regression theory has been proven, they're just too blind to see it.

Bitcoin has taken raw bits and an initial state of high entropy and have forged order and non-entropic states to convey value. The technical people get it first, because they never had a problem with dealing virtually in the first place. Its all the other fossils that can't get their thick meat-brains around the idea.

This. If you've ever found yourself sitting at a bench, soldering iron in hand, staring off into the distance marveling at the thought that voltage levels on the boards in front of you represent ones and zeros that can be ordered stored, processed using binary mathematics into numbers, words, phrases, equations, books, pictures .... (gaze off into distance now and wonder about that) ... then you'll have no problem understanding the tangibility of bitcoin.

If it is as voltages inside electronic components or magnetic charge on a spinning disk,  at some level the bits are physically manifest, if they were not you computing device with which you are reading this would not work. As surely as the ordering of protons, neutrons and electrons in the  atom define gold, silver and all the other elements, the human construct of computing ordering physical bits makes them identifiable as tangible objects ... and we choose to trade them. Simple.

Dancing on the head of a pin is where we eat breakfast!

This. If you've ever found yourself sitting at a bench, soldering iron in hand, staring off into the distance marveling at the thought that voltage levels on the boards in front of you represent ones and zeros that can be ordered, stored, processed using binary mathematics into numbers, words, phrases, equations, books, pictures .... (gaze off into distance now and wonder about that) ... then you'll have no problem understanding the tangibility of bitcoin.

If it is as voltages inside electronic components or magnetic charges on a spinning disk,  at some level the bits are physically manifest, if they were not your computing device with which you are reading this would not work. As surely as the ordering of protons, neutrons and electrons in the  atom define gold, silver and all the other elements, the human construct of computing ordering physical bits makes them identifiable as tangible objects ... and we choose to trade them. Simple.

More businesses are accepting Bitcoin. Because Bitcoin increases in value, it encourages saving (often referred to has “hoarding”). Of course, if your savings are not being inflated away artificially, then you can in a few years buy say a car. Or a house. Or pay for college.

Or invest. Invest money. Money you saved.

But in the Keynesian take on the world, we don’t want people to save, i.e. have resources that they might use as they see fit. We want them to borrow. From the bankers. And return what they borrow along with interest from what they earn.

The technology sector has been in “crippling” deflation for 40 years. If falling prices prevent people from buying iPhones and computers, it isn’t any effect I have ever seen in the real world.

At the end of the day, do you want your savings to be worth more at the end of the year? Or quite a bit less? The value does exist somewhere in the economy. So another way to view this is whether you want the value of your money? Or should the bankers get it?

And a final note applies. Gresham’s law only applies when currencies have mandated exchange rates. Then of course, foreign countries will demand the better currency for pay, while providing the poor currency in exchange (as its value is set by law). Thus Bad Money drives out (to other countries) good money.

Where exchange rates are allowed to float, Thier’s law applies. Good money drives out bad. That is because the value of the poor money falls as the good money is desired. The inevitable “Hot Potato” game, where everyone converts to the good money as fast as possible to maintain as much value as possible leads to the quick demise of the bad money.

It really is that simple. Who in their own self interest is going to want to hold currency that loses value? And at 2 percent inflation each year (the target of the Federal Reserve) amounts to burning nearly a trillion dollars of value from anyone holding dollars. Every year.

“Alas, permit me to say, yours is a fictitious universe utterly disconnected from the one we (including your good self) live in.”

Actually, I would say that the world where individuals desire a currency that loses value over time over a currency that holds value or increases in value over time … that is the fictitious universe utterly disconnected from the one we (including your good self) live in.

Just answer the question right there at the end. Who would pick dollars over the last four years for holding their savings over Bitcoin? And what if Bitcoin continues to rise in value?

Even if Bitcoin slows to only a 2 to 5 percent increase in value per year, where can I get interests rates like that for dollars that doesn’t also come with all kinds of risk and limits on access? That’s 4 to 7 percent for dollars (just to make up for CPI).

And I can hold my Bitcoin in a ridiculously secure, 256 encrypted account, beyond the reach of anyone at all. All I have to do is maintain a private key. If I had 1 million in a bank account, I could lose all but 250K of that. Or get a Cyprus hair cut.

There is 30 Trillion dollars out there in off shore accounts for lots of rich people. If even a few of them realize that Bitcoin can hold that value more securely, I don’t think your arguments about the need for central banks is going to mean squat.

As I have said before, I don’t really know how the economy would actually react to a powerful and successful Bitcoin. But I don’t see how anyone is going to stop it from coming to be.

Alax68: “Can you please explain your take on Keynesian economics as what you have written in your comment conflicts with my understanding re Saving & Hoarding…”

I don’t think that Keynesian economics is entirely wrong about how economies can get into a pattern where saving impacts some economic sectors. The biggest reason to save is to be able to buy later. Saving is worthless if you never intend to use your savings, ever. Why you might as well just burn your money in that case.

If the inflation of money exactly matched the increasing number of transactions, then the cost of all goods (including the basket of goods from which we compute the CPI) would fall. Why? Because just like in the Long Depression of 1873-1879, productivity increases are lowering the real cost of producing goods.

This points to the fact that the real inflation rate ignores productivity gains. The common statement that medical costs are rising faster than inflation, and education costs are rising faster yet is a lie. This was actually predicted in the 1960′s by William J. Baumol and William G. Bowen in the 1960s. It is called Baumol’s cost disease. They predicted large drops in costs of goods, but medicine would have labor costs that resist drops in cost. Education has fixed costs nearly resistent to productivity gains. But if you forget productivity, then goods are flat, and medicine costs are rising, and education is out of hand.

And it is all a lie.

The problem we have in our economy is that we have impoverished most of the population through a systematic and understated policy of inflated money. It didn’t have to be that way, but it is.

Expecting Bankers to “do the right thing” is like expecting me not to eat that donut at work.

Being divisible to such small amounts means that Bitcoin can inflate as needed to denominate transactions within the economy simply by increasing in value. It isn’t a perfect system, and at times prices might be higher, and at others might be lower than the money supply can support. But the adjustment is done not by some “all knowing” central bank, but by the simple process of setting prices by merchants.

And the “new value” would fall on everyone! According to their wages and savings (think dropped from helicopters). All done buy simply raising in value. And people that can afford things will, as they feel comfortable with their savings, buy things. Bitcoin is in the middle of a “land rush”. But a “land rush” doesn’t last forever, and it will stabilize.

Imagine a world where computer goods REALLY drop in price. Consumer good! Even Medicine!

Imagine Educational institutions whose foundations can actually support services like colleges, Endowments that do not evaporate! Where year after year expenses fall!

People will be able to take wages in dollars, at least for many years. But eventually, Bitcoin might be preferred. And wage adjustments may have to be something people live with. But wages are always sticky, and the value of wages will rise, reversing the income gap.

Currency wars will end. You can’t debase your currency (cutting wages of your people) to attempt to increase exports (to increase profits to investors and banks). Everyone world wide can take Bitcoin payments. And they are the same world wide.

The federal reserve also inflates the money supply. Using figures on the economy that are admittedly inaccurate (they frequently adjust figures 3 months and even 6 months after the fact), they manipulate interest rates, provide low-to-no cost loans to various large actors (financial sector companies) at various rates to maintain the “money supply”. By that, we mean the value of money held by many people, and their wages, are reduced in value by some amount that approaches the target value for inflation. For the next many years, that target is 2 percent.

Managed Inflation by the central banks has produced a gradient that has concentrated wealth for 40 years (as we see with the income gap) into the hands of a very, very few. Even most of the 1% and near 1% now find it difficult to afford college for their kids.

Bitcoin at the very least offers someplace to put money where it cannot be inflated away. Value diluted by giving for nothing money to favored economic actors. The result may very well turn out badly. I really don’t know. But at the individual level, it is very hard to understand why anyone would hold to the current system of devalued money year after year and reject money that gains in value.

“Two reasons: First, because they can pay their taxes in it as well as a great variety of ‘stuff’ that is unavailable in bitcoins. Secondly, because if you are a producer and you need to buy raw materials (in bitcoins) at one price but then, by the time you manufacture the final product and take it to market all prices (in bitcoin) have fallen, your margin has shrunk and you wish that, instead of this deflationary currency, you bought and sold at an inflationary one. Economics 101…”

Taxes: You hold your money in the appreciating currency, and convert to pay taxes. (That is what my link to E-GovLink does for you in one step! You pay in Bitcoin, it is exchanged into dollars, and those dollars are handed to government.

Producers: Yes, if Bitcoin is rapidly increasing in price, they could very well make more money holding Bitcoin than producing a product. If too many people quit producing products, the price of products go up (less supply, more demand; Economics 101). There is a point where deflation is a factor reducing the numeric number of Bitcoins a company can make. But the numeric number of currency is meaningless. It is the value of the profit that matters in the end (despite the psychological pump a person gets from bigger numbers).

But most likely everything in the near future will be priced in dollars. Holding Bitcoin becomes another place to increase value, because (converted to dollars) your scenario increases the number of “dollars” at the end if any value held in currency by the company is held in Bitcoin.

So again, very simply: Why do you believe people do not want to have hold a currency that increases in value?

And just another observation: Bitcoin “accounts” amount to free “checking accounts” that support direct deposit from employers, customers, suppliers, and support payments to the same. No hold times, no overdraft fees, no chargebacks. Full International support.

Why would one prefer credit cards and bank accounts? Particularly for funds being kept for some period of time (say like a CD, or an Emergency Fund)? The only issue today is liquidity, but let’s assume demand eventually (this year) solves that issue please. Why wouldn’t people at least convert to Bitcoin and pruchase? Then the Merchant can quickly (or not quickly [arguments above]) covert to dollars?

Basically, you haven’t explained why people WANT to spend more money for banking services, for less reliable services, for delays in processing, for added risks (charge backs, bad checks, fraud), when a very inexpensive alternative provides solid services, is free, requires no contracts, and utilizes a currency that pretty much insures your “holding cash” gains in value as others figure out the advantages and switch over?

Why do you believe people want to pay more? And have savings depreciate by design and policy?