Bitcoin Forum

To open this discussion up I would like to ask, does Bitcoin's long term success depend of users spending/buying (goods, services, etc...) with the currency?

If the answer is yes, which I believe so then how do we overcome the following dilemma? I often notice posts from users who believe in Bitcoins long term potential, yet they follow the sentiment by suggesting that they are hoarding the coins as a result, for when they are worth $xxxx amount. I am personally guilty of this too, it is difficult enough for me to get Bitcoins in the UK, that subsequently I am also fairly hesitant towards spending them. I realize the market is new, commerce channels will slowly improve with new Bitcoin related features. The question is, do we need to start spending our Bitcoins before the ball starts to gain any real momentum?

Perhaps this is one of those catch 22 situations:

Bitcoin users waiting for Bitcoin to go mainstream before spending...
Bitcoin waiting for Bitcoin users to start spending before implementation into mainstream infastructure...

The only thing you need to do is to instantly rebuy the coins you want to spend.
The problem is that buying them is a hassle.

The smartest thing to do imho is, spend some and save some.
You can for example, keep a certain amount in a savings wallet (secure offline) and also have a spending wallet.

Birdy is right.

You can always buy more coins. And if the price is somewhat stable, it makes it easier to replace coins you've sent at a later day.

Also, you could keep a BTC savings and buy new coins whenever you need to make a transaction, instead of using your stash and kicking yourself when the price goes up a bit the next day :D

True, both spending and hoarding(saving) can be done at the same time and would levitate some of the pressure. I think the best way to encourage spending would be if employers started making payments in Bitcoin, the fact that I dont get a regular flow of BTC like I do with FIAT kind of makes every day purchases more cumbersome.

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Do we agree hat this long term hoarding mentality is our there though, and is a problem worth addressing?

If so then perhaps simple things like mentioning your saving wallet & spending wallet in talks as separate entities would help, this would create a slight psychological division in other users minds that their own wallet can have multiple uses. I am not eliminating the fact I am the only one who has not applies this common sense logical to my Bitcoin usage.  ;D
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I think catch 22 is not exactly accurate.  Those two scenarios apply to different people at different times,  not the same person at the same time,  or all people at all times.

additionally,   animorphicizing bitcoin is going to cause problems trying to communicate clearly.  'bitcoin' itself cannot do anything or wait for anyone.  It might be more accurate to say bitcoin companies aren't making enough profit to justify the infrastructure that you mentioned.

also,  'success' is subjective and in the case not defined.  What do you consider 'success'?

I would consider bitcoin to be an outrageous success already.  

'success' might be considered additional companies offering additional products and services in exchange for bitcoin.  To the point where it might approximate the USD economy minus all the war and what not.

lastly,  it's important to realize that hoarding serves an economic function that is crucial for price and supply stability.

so what will 'get the ball rolling'? many people trying many things and the free market deciding which ones add value and which ones don't.  

I have a spending wallet & a savings wallet. I limit myself to how much I want to spend on a monthly basis, if I go over, then I have to go without that amount next month. It's working for me, and I think it's a good idea.

Until the Exchange Problem is addressed and alleviated...
Human nature is to hoard scare, hard to acquire commodities.

This is the fact.  Bitcoin will explode in value when the exchange problem is solved.  Until then, it makes no sense to spend them.  After that, the price will be stable and they will be offloaded in exchange for houses, cars, boats and all the other things a currency is useful for.

Makes sense, so who wants to make an exchange?
...and who wants to fund with their capital?

Nobody will fund this to have a profit margin of even 10 , 20% when they can get bitcoins for the usd and wait till next year when 1 BTC= 300K.

I'd love to.  But to do it in the UK, you really need to incorporate as a bank rather than just as a business with a bank account.  Otherwise you will keep having your accounts frozen.  It takes about £5 million in capital.  I don't have that :(

According to an expert in this forum , this will be only 20 BTC next year so I think you can afford it.

Well I have over 2000 Bitcoin so if that really came to pass, I'd probably just buy Goldman Sachs and have my vampire squid minions do it all for me.

Out of interest do you spend too or just hoard, judging from your pic it seems you are a serious miner?

Don't want to ruin your dream , or nightmare of rulling Goldman but
1) If bitcoins go over 300k , I doubt somebody (you)  will be interested in Goldman Sachs
2) I doubt he hasn't already bought 2000 coins himself
3) I can top that offer =)))))))))

I stopped mining as GPU wasn't worth it.  Now I am strictly in the hoarding camp.  I did try to increase my holding through day trading but it looks like I don't have a talent for it.  I'm thinking of buying again.

It was a joke.  They aren't really squids either.

New user Whizz94 sent me this private message as he cannot reply, seems fair to share his post in case anyone wants to respond.

I think you have a good point, at the moment my merchant store by default lands on a FIAT (GPB) pricing option, perhaps directing straight to BTC prices would encourage spending in BTC. Restricting only to BTC at present would only be sensible for a Bitcoin related niche but perhaps in the future producers/merchants could make BTC the primary payment option. I guess in relation to the last question it is a bit of both, both savers and producers play a part in the Bitcoin ecosystem but without some collaboration, coupled with failing exchanges we wont realize the full potential of Bitcoin. As a network circulation is key, transactions & exchanges need to flow freely between each node(point) in order to encourage new levels of growth otherwise we are just a bunch of strangers living in the same house.

Sorry about my abstract metaphors, I am a visual person lol.

I think as the currency matures, thats what will happen, the price will be somewhat tied into the energy that is required to mine it/purchase it. Thats really all any currency is when you get down to it, a means of exchanging spent time and energy.

If the current monetary practices continue then at some stage in the future BTC or Precious metals will be the preferred medium of exchange instead of USD. Bitcoin has a long way to go before thats viable, gold and silver don't perform adequately either because you can't easily transfer them. Whether Bitcoin gets there or not remains to be seen, i think if the exchange issues are overcome then the chances are very high that it will end up being the case.

As to the hoarding or not, people only hoard it so they can sell it at a later date... I don't think its something that needs to be worried about as long as a decentralized exchange gets off the ground and retail POS purchases are made easy by some means. Those 2 issues are the real barriers to BTC gaining traction as a truly viable alternative to mainstream fiat currency, solve them and there won't be issues with liquidity, there'll always be someone willing to sell.

First hoard, then spend

Gavin just said, if you spend half of your coin each year and the value of bitcoin doubles each year, you can spend forever ;)

In other words, if Bitcoin doubles in price every year, and you have $5000 in Bitcoin now, and spend $2500 a year, you'll always be able to spend ... $2500 a year?  Sigh...  Not fabulous...

Agree with the OP and I believe this is what is constraining the growth of Bitcoin.

People need to realize that in order to break through to the next 'level' of Bitcoin valuation, the infrastructure and ease of use need to be improved for less tech-savvy people. This requires an investment from the people who know Bitcoin best.

The issue is that many of the people who have profited so immensely from being an early adopter are hoarding their coins instead of using them to improve Bitcoin, relying on others to do the legwork in getting Bitcoin mainstream.

i think people need to define 'hoarding'

if i buy a bitcoin and dont trade it for 1 year is that hoarding? 1 month? 1 week? 1 hour?

people hold onto something for a reason. they arent doing it to be annoying.

define your terms. make an argument. show your work.

If your not spending it then your hurting bitcoin.

There is no such thing as continuously spending anything!

You are constantly holding onto one thing or another.  You aren't spending your house.  therfore you are hurting the housing market.  You aren't spending your organs therefore your hurting the organ market.

If you spend your bitcoin,  then you start to hold onto whatever you just bought and are now hurting THAT market.

You hold onto something because you believe it will be useful at some time in the future.  It is impossible to buy something and use it at the same time.  You might buy a hot dog because you plan on eating it a few seconds from now. You hold bitcoin in order to use it at some time in the future,  5 seconds from now or 5 years from now.  The principle is the same.

asking people not to hoard is not to improve the bitcoin economy. ...

It's merely a way to convince people to sell you their bitcoin at a cheaper price.

lol. I feel like I'm taking crazy pills!

I spend bitcoins just like I would do with my fiat money. If I need something I look at and compare prices, if it is cheaper in bitcoins I will buy in bitcoins otherwise I use fiat.

If you add another zero to those figures, then it starts to sound kind nice.

Hmmm, well I have been spending half my Bitcoin income each year, I like the trajectory of that balance sheet a lot better.   

Maybe the long term success depends on users that hoard and never spend their coins?

1. There will be no scalability issues because people won't create that many transactions

2. The price will always go up because bitcoins are really scarce in comparison with world population, the publicity is increasing and the supply is decreasing

3. If people know that the price will always go up, they have no reason to sell bitcoins unless they really need to buy something

Thus the system rewards hoarding, and hoarding is good for everybody. There is absolutely no reason to spend bitcoins unless you starve or don't have fiat income.

As the price goes up and they become more valuable, people will be more willing to spend them on more fiat value items. The market cap is still too small to hold much value, you can't have a big economy without the value base to go with it.

If I only have $1000 in coins I took an effort in obtaining, I'm not going to spend them. If they were to be worth $10k, I would be very much open to spend some of them. If they became $100k then I would be spending a whole lot more again.

If you were sitting on a million dollars in cash separate to your every day account and expenses, would you be able to no spend a cent of it? See a nice watch, phone, car, etc. that you would normally not buy, you would have second thoughts about it when you got spare wealth that you don't need.

keep all your money in bitcoin then try and save what you can. Spend bitcoin where you can and only convert back to fiat when you need to.

Yes, there are people out there that are willing to hoard their bitcoins for now and spend them later, but it's not a problem at all.  In fact, it's the "hoarding is a problem" mentality that is so prevalent amongst bankers and politicians, and their insistence that "something must be done" that is, in part, leading to the demise of their fiat currencies.  Fortunately, there is very little they can do to discourage hoarding when it comes to bitcoins.

The commodity nature of Bitcoin will dissolve eventually. As long as it is interfaced with fiat and used as a speculative tool it will just be this way for the time being.

Though once fiat fails completely (and it will in the very near future I think) a Bitcoin will simply be worth a Bitcoin, as any valuation in USD or other fiats will be absolutely meaningless if they are so hyperinflated as to be basically worthless. The markets will have to readjust after that, it is difficult to say if fiat is no longer viable what prices would become, as fiat can't be used as a reference any longer to the price of goods and services.

For now, hoard some, but do your part and spend some too to help the economy grow and get it adopted by businesses. The only reason I have yet to spend any is that there is simply nothing I need at the moment that can be bought with BTC. Unfortunately my local grocer hasn't caught on yet  :)

"Hoarding" gives it a negative tone in terms of saving unless you really are just stuffing every BTC you earn into a paper wallet assuming they will have a much larger fiat value someday, as if they are real gold. What is wrong with having a savings account? Usually that is encourage by financial institutions and financial people...

When this happens, the value of bitcoins won't be measured in units of fiat.  Purchasing power will be measured with how much can be bought with a particular amount of bitcoins or how many bitcoins it takes to purchase a particular good or service.  Of course there will be those that claim constantly declining prices are detrimental to an economy, but they will eventually fade away—like all of those people that used to think that Earth was flat.

I'm surprised that no one, even remotely, considers the possibility that fiat currencies may eventually be run on a protocol similar to bitcoin, with the government mining pool representing more than 51% of the hashing power of such block chain.

How do you get the smartest people to work on the next technological breakthrough?... You let them run amok with bitcoin!  ;)

What we are discussing here is called Gresham's Law
http://en.wikipedia.org/wiki/Gresham's_law (http://en.wikipedia.org/wiki/Gresham's_law)

Bad Money Drives Out Good.
The idea is that when bad money is in circulation, good money will go into treasure troves, hoarding, offshore, it will flee the marketplace to places of safety hiding.

When a currency is debased, as happened in the USA in the 60's when they stopped putting silver in the coins, all the silver coins left the market place as quickly as the cashiers could discover them, put them in their pocket and replace it with a new debased coin.

We have this today with bitcoin.  However, bitcoin is also a social phenomenon.  I do trade my bitcoins, but I do so with people I feel some affinity for or with whom I have a sense of alliance. 
Currently, this is most any other honest person who trades in bitcoin, because our universe is so small.
I always thank those that purchase my New Liberty Dollar silver pieces in bitcoin, as I know they are honoring me in the same way.

So we have this dilemma, to hoard, or to spend.  The answer of course is to do both.  Spend especially with those who are either new to bitcoin, or who you may cherish for some reason.  The more that start posting out in the open the beautiful "Bitcoin accepted here" graphic, the more bitcoins will be a useful currency.
https://en.bitcoin.it/wiki/Promotional_graphics (https://en.bitcoin.it/wiki/Promotional_graphics)

The only problem with your logic is that bitcoin represents "bad" money. Question is will it ever be used as legal tender? Because, if you had not noticed, in order for Gresham's Law to take effect both forms of money must be represented as legal tender, at equal value.

Though if fiat operated on a similar protocol, it isnt fiat, it is another cryptocurrency. Not to say the government wouldn't like to operate a centralized version of Bitcoin only they control, though if they left the mathematical constants in place this control would not necessarily afford them many benefits.

The power of fiat for them is the ability to endlessly print new money. This money they mostly just give to themselves, creating a disgusting system of corruption.

You can do that with bitcoin, provided you have the majority of the hashing power... Think "base units" per bitcoin (see "Output value (http://james.lab6.com/2012/01/12/bitcoin-285-bytes-that-changed-the-world/#tx_out_value)"). This is only a hint, not an explanation.

Interesting thoughts, I guess hoarding is only an issue if everybody does it and the same principle applies to spending. I do still feel that more spending will boost the long term potential of Bitcoin though. I have found that people seem a lot more inclined to pay for services such as freelance with Bitcoin which is interesting, perhaps it is just the niche area I have been catering too. I have made perhaps 75% more from working on freelance projects then I have in the past using FIAT, has anyone else experienced this? The same goes for funding now that I think about it, people are always offering to fund random projects lol.

Problem is not with hoarding per se, but with hoarding by miners (a.k.a. the central banks of bitcoin economy). It's everyday people who make a currency what it is, by using it to track the daily exchange of goods and services between themselves. Miners' only responsibility (aside from keeping the block chain alive and intact) is to seed enough bitcoins into circulation in order to grease enough of those daily exchange transactions between people.



But are you charging in fiat-based prices, or BTC-based prices? By that I mean, are you relying on speculative exchange rates when setting your prices?

The printing of fiat currency is in no way like how the crypto economy works. You cannot simply "print" Bitcoins this way as you can't just create new physical gold out of nothing either. After 21 Million that is all the coins there will ever be, and no more can be created after that, ever. With the Dollar they just keep printing sheet after sheet of worthless money with zero intrinsic value or rarity. To have the majority of hashpower worldwide would be very difficult and VERY expensive to do, plus this is why the network is metered to combat anyone just plopping a million Mhash rig on it and cleaning house. The addition of more power just makes mining that much harder to do. Whether the network is a single CPU or a giant hashfarm, coins only come into the system every 10 minutes, and the amount of them rewarded per block only decreases over time.

But, should probably not hijack this thread....

This rarity and difficulty in creation is what gives Bitcoin an inherent value as it took a lot of work to make them. Even when they pass the stage of a commodity, they will still continue to appreciate as Bitcoins are destroyed, kind of like a built in savings account interest whether you spend it or save it. Not a bad idea to keep some for later at this stage. China is getting on board with their own government educating their people about it, The Push 2 is on the way I think. BTC is starting to rise once more, and slowly.

I use FIAT prices as a rough guide however I actually offer lower prices in return for Bitcoin so I would say that my FIAT and BTC quotes are separate. I tend to quote a price I feel is appropriate at the time, sometimes factoring in the direction I feel the market is heading. I do see the issue you are getting at though, it is also the basis for my questions in regards to the OP, until the community is spend and buy we dont really know the value beyond what is speculated. Once I know what my 0.4BTC is worth over extended periods, irrespective of FIAT I can the provide quotes without thinking about FIAT at all.

Every 100 new dollars that are put into circulation merely represent 100 new rows in the dollar block chain; just like the inclusion of additional 100 base units in every bitcoin would amount to 100x21MM new rows in the bitcoin block chain. The only difference is that new dollars are put into circulation through borrowing, and not through adjustments to an algorithm.

Just a thought, do miners sell BTC for less FIAT than it costs them to generate each BTC?

Selling at a lower price provides value to the client but in the long run I make up the difference and then some once the prices rise. I have made more from lower BTC quotes then I have my average FIAT prices so I am not in doubt of the strategy, I would not continue to use it if I was losing out. Remember the miners make profit too so they could sell their BTC lower (cutting into profits) but without cutting into the base cost of running the rigs, your proposition assumes anything lower is taken out of the running costs. If a miner was to sell lower this would give them a competitive edge over other sellers so I see no reason why a miner wouldn't also use this strategy.

Freelance services and mining are two very different income streams anyway, a good illustrator could spend an hour creating an image and sell it for upwards of £300, if he was to sell at 2BTC(lower) he still made a good amount considering he spent an hour working.

Not after today's sell out. Then it will be at least another 2 years of drought, as after the 2011 crash.

Don't undersell yourself, that's all I'm saying. We need to establish BTC prices the right way.

That's false.   Bitcoin's issuance is fixed, so even with majority of the hashing power the only thing that attacker can do is be the recipient of the entire block reward subsidy.  But even with a majority of hashing capacity does that give the attacker the ability to issue more than the Bitcoin protocol allows (currently 25 BTC every ten minutes).    So "endless" in terms of no upper limit, is not possible with Bitcoin.

I think "hoarding" has too much of a negative connotation to it nowadays. Might have something to do with the talking head rhetoric all over the media proclaiming spending and spending and spending some more is the way to prosperity.

The hoarding (aka. not spending your money on stuff you don't need, especially if you can get that stuff for currency inferior to Bitcoin) aspect of Bitcoin is brilliant in my opinion, because it pushes us from away from the exponential growth oriented economic models of today and towards sustainability.

That being said, I view spending some BTC here and there essential towards helping adoption and thus stability and arguably value of Bitcoin.

Personally I do it like this:

every month I buy BTC for a certain % of my (variable) monthly income. However many BTC I buy I divide them between a savings wallet and a spending wallet in a way where I put whole Bitcoins into the savings wallet and whatever fraction above a certain Bitcoin I bought into my spending wallet. For Example I end up buying 2.345BTC so 2BTC go into savings and 0.345 BTC go into my spending wallet. If I had a particularly good month and manage to buy lots of BTC I might put some extra BTC into the spending wallet. This way I always have some BTC looking to get spent (with the added benefit of generally increasing in purchasing power) as well as a growing stash of BTC in reserve.

Yes, constant economic growth is declared to be always good and that's not true.
E.g. if everyone sells shitty fridges that have to be changed every year, you will have more "growth".

It was a reference to bitcoin base units, not bitcoins per se.

Here's an interpretation (https://bitcointalk.org/index.php?topic=210102.msg2287697#msg2287697) of why I said what I said.

Mind you, it's only a hint.

I have to agree with the OP here. It is hard already to acquire bitcoins and there are already transaction fees involved in sending money to mtgox to their polish bank. The other alternative is in purchasing mining rigs which are itself liquid assets and thus mine bitcoins at a slow but steady pace.

I would like to see smaller communities in the UK embrace bitcoins to buy goods instead of using fiat GBP.

If I gave you the BTC would you be able to buy a fridge, even a shitty one? The problem is not enough merchants know about Bitcoin, and those who do probably don't see many people spending it. I have been suggesting that spending will be beneficial as more merchants will see it as a viable option worth implementing. This is not about supporting a consumer culture which I totally disagree with, this is about showing businesses that Bitcoin can be used as money and they will get earn new revenue if they start using it. Imagine if articles started popping up showing new businesses making a killing through the Bitcoin community buying their products, this would quickly encourage new merchants, new customers, new savers, new spenders and everything in between. The alternative would be a continued progression of some new merchants, some customers and a shit load of new hoarders lol.

At least not in UK. Not even academics that I know of, know what a bitcoin is because they think of it as a fluffy technology. My guess is there is a lack of education in economics in that people still think that fiat money is backed by the gold standard and regard bitcoins as something that can be created out of thin air. This is what I thought of 3 years ago when bitcoins was introduced to me.

I believe that to get people into the mode of using this alternative new currency, first they must understand the economics of fiat currency and how inflation affects their money. That is, money is created via loans (i.e borrowed money = debt money).

Well said, indeed!!!

Having the MAJORITY (51%) of the hashing power, more or less ends the currency, doesn't it?  The goal for sustainability is widely distribute the hashing power.

Everyone should do a bit of both. Save and spend.

No. The effects of a 51% attack are only temporary. As soon as the attacker stops attacking, or is overpowered by legitimate miners, the network will instantly resume normal operation. Some people may have been ripped off the attacker's double-spends, and everyone will be forced to temporarily stop accepting bitcoins to avoid becoming a victim of a double-spend themselves, and the exchange rate will likely take a massive hit as many people lose confidence in the currency, but apart from that it'll be as if nothing ever happened.

Apart from that?  That is quite a lot actually.

What will get the attack to stop, other than defeating it?

So a hashrate / difficulty increase is a call to arms for those that would defend the currency.
The army of gamers and their GPUs can be called on via bitcointalk and STEAM and WOW (or whatever game might be popular now) to leave their raids and get to mining instead.  That is our bitcoin Paul Revere
These gamers are our minute-men and women.

The alerting and alarming systems should be prepared and tested if we are going to expect them to be effective.

Anyone with enough hashing power has a vested interest in the success of bitcoin. Unless the Chinese government take over AM of course....maybe AM is the chinese government OMG!!

....horder/trader

1. Earn more fiat and/or BTC.
2. Spend less fiat on goods/services.
3. Convert fiat into BTC.
4. Save some BTC and spend some BTC on goods/services.

If enough people do this, fiat currencies will die through hyperinflation. And they call bitcoin a ponzi...

 :o

Honestly this makes a fair amount of sense.

Sounds more like a bitcoin arms race to me. Whoever gets first to the ASIC supply chips gets to control the BTC market.