Bitcoin Forum

I think current prices are highly speculative, and even if bitcoins will be a huge success story cannot be sustained for the next few years.

Here's why, counter-arguments welcome. If you think I'm just trolling or trying to buy cheap, simply ignore this thread please.

I'll assume a price of 20$/BTC from here on, even though the top was at 30.

1.

2.6 million coins a year are mined until 2013, 1.3 million coins a year after that.
at 20$/BTC, that's equivalent to more than 50 million dollars in one year, or approx. 170 million dollars within 5 years, that have to flow into the system to sustain this price.

i.e. people have to buy BTCs for 170 million dollars!
what are the circumstances to make that happen?

(that's of course only if miners sell all of their gains, but if miners keep some of their coins it only means they expect to sell it for even more in the future!)

2.

bitcoin can draw its value only from demand from circulation, and temporarily from speculation.

money supply definitions are very diverse and incomparable, but just to give you an idea: M1 money supply of the eurozone is about 28% of annual GDP, M1 money supply of the US about 14% of GDP.

a bitcoin economy with a money supply of even 30% annual GDP would be valued at 21 million BTC, or 430 million $ a year.
what do you think the bitcoin economy amounts to a year? 5 figures? 6 figures?
what demand for bitcoins do you think that creates?

3.

in addition to that, by the above numbers and 6.5 million BTC supply now, the BTC money supply grows by 40% within a year, or by 18% a year over the next 5 years.

that's huge inflation, unless there is ADDITIONAL demand from circulation and/or speculation.

a bitcoin economy valued at 430 million dollars a year now at 20$/BTC is at 600 million $ in a year, or 1 BILLION $ a year in 5 years.

==>

20$/BTC is HIGHLY speculative.
maybe the bitcoin economy explodes and these prices are sustained, but to think that the price even rises substantially would mean the scenario above would have to be outperformed, or demand from speculation increase even more so, for years to come.


edit: corrections. I miscalculated the GDP numbers.

First you overestimate by assuming that all mined coins are sold. I think 80%+ are kept. Rerun all those number with only a fifth the coins for sale.

Secondly, judging by the bids that got filled recent crash, there was millions of dollars worth sitting in open buy orders. There may be many millions more that just didn't get a chance to be involved in that trade. My point -- bitcoins are starting to become really big, and it has attracted some people willing to put some serious money down.

$170 million in 5 years is actually a really small market on a global scale. Small businesses make that much. For a comparison that might be close to home -- Dungeons and Dragons brings in $1 billion a year. And yet, very few people actually ever spend any money on it. M:TG doesn't release their stats, but people have estimated it could be greater than $5 billion a year.

So if bitcoins only become as big as magic the gathering (which, lets face it, not many people have heard of), we may see $25 billion in the next 5 years. By your simplistic calculations, that would put the price of a bitcoin at > $3,000.

I've addressed that. if that's correct it makes it an even worse bubble.


ok, if you think 170 million $ will come in (or a lot more in case you're speculating on a rising price), you are set.
I don't think very many people realize though what kind of numbers are required to sustain this price.


I don't understand this comparison. people spend money on games.
they expect returns on investments.


fun fact: the bitcoin economy will be as big as antigua and barbuda in 5 years ;-)

price is actually right about where it should be at right now, $32 was when it wasn't. The more people that use bitcoin, the greater the value they become, and thats why you can divide them up by 0.00000000 -- if we all ended up switching to this currency it would be very common to use a lot of decimals. I decent wage monthly would be 0.500000000 which might equal $5000 USD.

Once you understand that, you understand what keeps bitcoins at the current rate they are at and can judge the bitcoin economy based on the price per btc.

The price is always where it should be.

http://falkvinge.net/2011/06/16/bitcoins-four-drivers-part-one-unlawful-trade/
http://falkvinge.net/2011/06/18/bitcoins-four-drivers-part-two-international-trade/


These are the other side's fantasy. The other side being the opponents of OP in this debate.

I was merely trying to drive home how small an amount $170 mil is.

And the piece you might be missing is that this isn't some pyramid scheme where the money would only come from people investing. Say a poker site open up that is as big as pokerstars but uses bitcoins. In that case, people will want bitcoins to _use_, not as an investment. Pokerstars generated > $10 billion in deposits a year (before the US restrictions). If that much money is trying to funnel itself through the bitcoins system, the price of a bitcoin will be huge.

And that is just one industry. There are thousands of industries that could benefit from bitcoin. Some less legal than others. If a couple catch on, there is a chance that the value of a bitcoin will be so huge we won't even think in terms of bitcoins anymore. But it is only a chance, and maybe a very slim chance. That slim chance is what is giving bitcoin its value right now.

actually, from speed-reading alone, I think we are on the same side.
they postulate that a substantial part of international trade will move their "demand from money circulation" to bitcoin and that causes prices to rise.

no argument there. if you are reasonably sure that happens, buy buy buy.
I doubt the majority of bitcoin "investors" have that view.

Bitcoin - learn it.

At block 210,000 the reward is reduced to 25BTC/block.

edit: maybe you did know that.

Regardless, 1 billion dollars is like 16 cents per person which is like .009 cents per day.

if I'm not mistaken, that's factored into my numbers. that's at the end of 2013, right?

yes sorry.

I'm not sure I understand what you're saying.  US annual GDP is around $15 trillion.

You're looking short term.  Long-term, the supply is *done* and people continue to lose irreplaceable coins in various, incredibly pathetic ways.  That's what screws up your analogies to other money supplies, which have no such deflationary mechanism built in.  We're aware of the current inflationary pressure, but pricing in the fact that it has an expiration date.

No, January of 2013.

yes my mistake by saying "end of". the numbers are still correct.
I calculated with 1,5 years of 50*6*24*365 coins and 3,5 years of 25*6*24*365 coins.


I used the (conservative) ratio of money supply vs. GDP (0,3 : 1) to estimate what size the bitcoin economy would have to be to sustain this price.
the US economy has a ratio of (0,28 : 1) if you use M1 (which is questionable because it is a wider definition of money supply. but it's also in favor of BTC

Go away.

"Bitcoin will make the US dollar worth pennies compared to what its worth to us today."
-AnonymousCSP


"Gold started off having almost no value, pennies for a chunk. Now look at it today, hundreds of dollars for a chunk, ever growing in value."
-AnonymousCSP

"Like Bitcoins, the more people that want and use gold, the higher in value it becomes."
-AnonymousCSP

I asked you to ignore this thread, Mr. I-sell-bitcoin-shirts-for-euros, didn't I?

back in April, $5 was unbelievably high for BTC

There is no such thing as "too high" of a price. It just comes down to demand and supply. Saying it's "too high" will prevent you from making an underlying analysis. You can't be choking at the price level, look at the big picture and extrapolate however you see fit.

For me, I see value increasing over time.

what is the underlying analysis? (seriously)

admittedly, you can just as well draw another conclusion from the same numbers. you can agree with them, but still think that BTC will be even more successful than outlined here. then it isnt too high for you.

I was surprised what an extremely optimistic scenario 20$/BTC (mid-term) implies.

go away, yes I'm trolling this pathetic thread.

go away

you are trolled by this pathetic thread

I don't think that word means what you think it means.

"In Internet slang, a troll is someone who posts inflammatory[citation needed], extraneous, or off-topic messages in an online community, such as an online discussion forum, chat room, or blog, with the primary intent of provoking readers into an emotional response[2] or of otherwise disrupting normal on-topic discussion."
http://en.wikipedia.org/wiki/Troll_%28Internet%29

I am trolling his thread by not allowing normal discussion. Everyone here knows what he's trying to do, and if the mods won't step in, then I sure as hell will. The price of bitcoin is highly devalued, everyone knows that, so no point in discussing an entire thread about how it's supposed to be lower. This is the lowest any of you are ever going to see it.

$20 *IS* too high... especially when they're only $16/BTC at TradeHill ;)

Let's see... generating 2.5 million coins a year for 3 years... then 1.25 million coins a year after that.  Yeah, good math chief :)  And you posted sooooo many lines in that OP!

what am I trying to do, tell me? manipulate prices while noone is trading? that makes sense  ::)

I don't even have an account at an exchange. bitcoin intrigues me because of its technology and potential, so of course you think about "investing" (really, speculating on its success).

decided against it. here's (part of) the reason. if you're not interested, go away. if you have something to add, you're welcome.


for 1.5, until 2013

I can use quoting too :)

Make sure your next post is about your account getting hacked.

that's great. here's a link for you http://upload.wikimedia.org/wikipedia/en/thumb/5/54/Total_bitcoins_over_time.png/740px-Total_bitcoins_over_time.png

;D dont have one though.

the only troll in here is Vegetta

no one knows what the price will be in any amount of time, it may go to $1000/bitcoin it may go down to $1/bitcoin - no one can tell the future

The OP has a very valid argument.  It's truly sad to see that any perceived negative comments towards BTC is immediately met with hostility (by some).  Maybe, just maybe, take an objective view and see that he might have a point.  $50 million a year.  Where is all this liquidity going to be injected from?  And where are all these funds going to trade?  On these exchanges with a $1,000 cap?  ROFL.

I agree with this. Bitcoin does not have a "killer app". There needs to be something cool, that will bring people in from the mainstream. There needs to be a place where BTC is always valuable,, and you don't have to be a merchant to earn coins.

You guys have heard me say this before,, we need a game like Second Life, with it's own economy. Something that allows everyone to earn/sell something of value BTC.

A persistent economy will justify BTC,  not matter what the price.

I think we will find that a major, if not the predominate use of BTC, will be as a store of value.  You know, the _other_ function of money.  Using BTC for ordinary and "legal" trade has a blizzard of intractable problems with no obvious (to me) benefit.  How is BTC better than Paypal if you plan to obey the "law" ?

On the other hand I very much enjoy having a store of value, the safety of which is subject only to my responsibility.  Its security is not subject to .gov edict and it will not be taxed, seized, capital controlled, or otherwise molested.  Wherever I am in human space, there is my money as well.

Although I think it would be foolish to pour lots of "real" money into BTC right now, over the long haul, millions of people putting a few thousands of dollars (or more) into this would easily generate the influx of fiat required to pump up the price to amazing levels.  Once people have put "real" money into this, they're going to be reluctant to liquidate at a loss and this will provide a resistant floor to panic.  Notice how well the prices at Tradehill have stabilized, despite the Mt. Gox attack.  During a panic, I will merely sit and watch and wait for the storm to pass, instead of running for the exits.

All of the recent Mt Gox/hacker hooplah is merely evolution in action.  When the weak are slaughtered the survivors will be much harder to attack.  Trial by fire.

Paypal charges 2.9% + $0.30 USD for every payment received. Which means, if I want to donate a dollar to my favorite charity via Paypal, they only get $0.67. In essence, I'm donating $0.33 to Paypal!

BTC enables practical micropayments.

1)  Bitcoin transfers are cheaper.

2)  Bitcoin gift transfers do not require that both parties are registered with the same website.

3)  Bitcoin does not discriminate against users who live an certain countries.

4)  It's impossible to violate the terms of service or policies of Bitcoin.

5)  If you are from certain countries, using Bitcoin doesn't contribute to the tax base of your perceived (true or not) oppressor or occupier nation.

6)  Bitcoin transactions between two people can occur off of the Internet altogether, as there is no server necessary to actually perform the transaction.

7)  If you are the vendor, Bitcoin won't take back your sales revenue because someone says their account was hacked or because they claimed that you defrauded them; nor can Bitcoin reverse any transactions for any  reason without your consent.

8)  Bitcoin won't submit tax reporting on you if you exceed $600 in sales in a single year.

But you're right, there is no obvious benefit to using Bitcoin over Paypal for legitimate transactions, to you.

I agree with all the above... but Bitcoins would be so much better if I didn't lose 1/5 of them at Mtgox.

All that I can say about that is take a hint from your great-grandmother and learn a bit more distrust of banking institutions.  I had a trade account at MtGox as well, but I have less than 5% of my bitcoins holdings even exposed to the Internet in total.  MtGox had less than 2%.  Yes, it sucks.  But never risk what you can't afford to lose, and there is no logical reason to keep a vast sum of coins at MtGox, or any other exchange, unless you intended to risk them in speculative plays.

And Paypal can be hacked as well.

I bought a bunch, and was withdrawing the max each day. Didn't make it to the end. I definitely didn't plan on keeping them there.

imho money can only function as a store of value if that function is a "side show" , i.e. the medium of exchange function is predominent.
people have to be _very_ convinced they can get out of their position. for example, they've been able to spend their dollars their entire lifes. and even given that, investors react rather panick-y if they suspect that might change (see recent shift towards real assets/commodities since 2008).

if you buy bitcoins now even though it isnt really a medium of exchange, I wouldn't call that storing value. it is speculation on bitcoin's success as a medium of exchange.

nothing wrong with that though, if you're convinced of its success. but it is comparable to investing in a startup company, not to storing money at a bank.

relative,
Aren't all of these things only a problem as long as you're concerned about convertability to USD?  From my pespective as a newbie to the currency and community, this is the very beginnings of a new marketplace being formed - Take a look at the auction sites, or classified sites and you'll find a suprisingly diverse variety of goods and services available.  Sure there are gaps, but every new convertee potentially adds to that pool, especially if they see it as a way to invest in a currency with good fundamentals while not having to put down an outright capital outlay (i.e. buying BTC for USD).

This is only the beginning, and I for one am very excited to watch and participate in what we're going to build together over the next few years.  Very exciting times!

i think thats a great idea, but there must be many very capable programmers working on this...

except that anything made in sl is just as worthless as bitcoins... lol....

sl will replace the USD one day, it's inevitable! ;)

the funny thing is, people were saying similar things at the heights of the SL hype. not replace, but that it'll be used for realworld trade.

Someone should make a Farmville clone that uses BTC.

6 million bitcoins, 6 billion people  :D

what is sl?

Bitcoin will not replace US currency until you can pay your taxes with it and my mother can understand it.

Second Life.

Famous words before every bubble.

Property.

Dot Com Boom.

Plenty more examples.

If your 'bubble' assertions were true, then TradeHill would've been a collapsed heap of nothing but offers in the market. Yet, I open my browser and see them trading at 15.45 last.

Is 15 'too high'?

To you, I suppose, thinking that any sustained price level is too 'bubblicious', it may be. To me, I understand how price fluctuates and know how to formulate a trading strategy to capture this. Right now, I'm fine with the price where it is because I not only see the last quote, but what the potential target is.

Keep saying 'bubble' though, I suppose you have a chance every hundred years of being right. If you remain solvent, that is.

Silk Road? :) Ok, maybe 'killed by app' :)

Mainstream can only mean major merchants adopting it. Not the mom and pop socks, fringe esoteria and undergrad webdesign type peanut markets but a seriously large one like bol.com (Bertelsmann) or Ikea. But I don't think that's very realistic right now.


A persistent economy justifies BTC, but not any price. If 60k traders have on average put $100 into the economy, then that should be the real valuation (6.7 million BTC/6 million USD -> 1 BTC=~0.90 USD). I came to a similar back of a napkin calculation based valuation of the actual economy using Bitcoin (<5 million USD -> <0.8 USD/BTC). Add reasonable speculative margin and it's still not worth anywhere near $15-20. Also factor in 50% inflation from mining this year, 33% next year, I'm pretty sure that kind of growth is not happening on the economy side without a different kind of participation (i.e. I have a feeling the technologically savvy/mental contingent who would accept BTC already do, this market will not grow by 50/33% anymore). If the miners don't cash out, the nominal value diverges from the theoretical one by that amount.

The price must eventually track the size of the economy. Don't make the mistake of extrapolating economy size from all BTC at current price, because most BTC are actually 'worthless' in the sense that they have been mined at near 0 difficulty and aren't participating in the economy (add up the entries in the rich 100 list (http://bitcoinreport.blogspot.com/2011/06/bitcoin-top-100-rich-list-17th-june.html) which haven't moved in blockexplorer). When they suddenly do, at current valuation ($16), the socks and undergrad free time instantly run out, as does exchange liquidity. Which is exactly what you saw in the flash crash, even though that was done with the express intent of driving price down.

You could look at it another way: even though the Mt. Gox attack was dumping ~500k BTC at 0.01, there were still not enough orders to satisfy more than half of it. 260k+ went to an opportunistic 0.01 USD order. If we take the wildly speculative average of 17.5 and 0.01, i.e. 8.75 and multiply that by the ~240k that did go through, we get a liquidity of 2.1 million USD. This is a good indication that the economy cannot be much larger than that (i.e. not orders of magnitudes larger, like a ~200 million USD valuation at a $30 high).

So then you arrive at the speculative value for future expansion of the economy. This simply means that sure, $20 may be reasonable, if you do expect 180 million USD influx within a certain amount of time. The question is, what is this amount of time, and will everyone holding on to BTC keep waiting for this. (the influx itself is possible, there is no $1000 a day limit for putting money in AFAIK, and this limit can be lifted anyway)

Speculative valuation is just that, gambling with the future. Even gamblers have cut off dates by which the gamble has to pay off compared to a traditional investment's return, or a different gamble will be made. When that cutoff date arrives the price must drop and if the gamblers are large enough, it will implode. That will make a large dent in the economy (merchants holding BTC from daily trade will suddenly take a large hit) and many will lose confidence/leave the market, which could end up in a death spiral.

Then there are two other major factors noone seems to take into account: even if speculators hold on and Bitcoin putters on for years without significant leaps, long before then there will be a more or less effective crackdown, and/or preemptive strikes in the form of competing currencies, not to mention the possibility of a protracted smear campaign that will prevent Bitcoin adoption to any significant degree. That eventually means the deathspiral described above.

This danger should offset the speculative optimism and lower the price accordingly, which hasn't happened yet.

BTW, any services around Bitcoin like option markets, banks, podcasts and magazines do NOT constitute a productive economy, they may only enable it. Without agriculture and industry, hairdressers, speechwriters and telephone sanitizers will meet an altogether different fate than they expected :)

The OP's argument is meaningless since you can't compare a rapidly increasing population base (bitcoin users) with a stable, slightly increasing population base (currency users).  Take this factor into consideration and bitcoin is in hyper-deflation (since it's obvious anyways, price per coin from 0.01 to $15, difficulty up x 100000)

if it was in deflation that would show up in a massively growing productive economy.

also note that the conclusion from my points is only a small part of my post.
most of it was describing a scenario that is required to sustain this price. if you think this scenario is likely I disagree but I don't have any problem with that.
I don't think though that an increase in difficulty and price shows that we're on our way to that scenario.

what exactly is a "bitcoin user"? and what differentiates him from a bitcoin speculator?

heres your typical 'bitcoin user'

http://forum.bitcoin.org/index.php?topic=22245.0

This pretty much sums up my experience trying to buy/sell things in bitcoins.  Lowballers, scammers, snotty 18 year olds, europeans, you pay first, no u pay first, etc.. then 'screw it go on ebay and sell it to regular people using regular money'

Is this where I sign up to join "the bitcoin is too damn high!" party?

If I and grow one of those weird mustaches thats is halfway up my face and then put on a tuxedo or whatever
can i be a that guy and get a million $$$

how come in politics people can wear a bow tie or whatever like that one weird senator from illinois or other things like in politics u can wear a mr peanut monocle for real and people have to not laugh cuz yer like a real guy in politics...

the more retarded u the more they have pretend yer a real person... but if yer just a regular person u cant get anywhere in politics cuz u got no 'zazz'

Amusingly the founded and primary candidate of "The Rent is Too Damn High" party lives in a rent controleld apartment, and pays about 50% the going rate lol.

I have a headache.

If you mean a barely visible to 'first world' citizens but nonetheless thriving second/third world use is enough to sustain Bitcoin and the current speculative pricing, I'm not sure this could be reached without the 'mainstream' taking off before.

As long as the exchange rate for that $20k is fueled by speculators for lack of a stabilizing, legitimate economy, noone in their right mind will use it for large sums that could move the market and lose quite a bit on exchange, or during regular swings over time if it was offloaded slowly to prevent market swings. Chicken and egg I'm afraid.

Also, if you exchange the USD to Bitcoin for transfer into Azerbaijan, unless they are going to use the BTC themselves, they need to exchange it back out. If they can do that, they could have probably done a straight USD transfer without Bitcoin as intermediary. It would only be interesting if USD wire to local exchange + USD wire from exchange closer to Azerbaijan with Bitcoin in between would be quicker or cheaper than USD wire to Azerbaijan directly.

The only way I can see a non-mainstream economy taking off earlier is if maybe druglords or similar will use it and set their own prices for stability, but if they do they'll probably fork the blockchain and make sure noone interferes with pricing by running their own private exchanges.

Bitcoin will probably continue to appreciate in value, and the exchanges will be very volatile, until a superior successor to bitcoin is introduced or the speculative bubble that props up 99% of bitcoin's value collapses.  I'd definitely buy them at 5-10 cents a coin, but I think that anything over 25 cents/coin is pure speculation, based upon their historical average price. 

Who wouldn't buy them at 5 or 10 cents each? I'm still pissed off that I was on vacation last Sunday when the whole mtgox affair happened.

That said, we are still in the very early days of Bitcoin. A year from now when a BTC costs $500, we'll all be dreaming of the days when we could have bought them for $20.

You're either going to change this position eventually or be bitcoin poor.

Seriously -- you can't go by the "historical average" because for most of that time, NOBODY knew about Bitcoin -- there was even less Bitcoin economy than there is today (if that's possible!) and much less demand.

I understand your point, there could be a lot of speculation built into the price. But 15 cents? Difficulty was pretty low back then -- if you wanted 20 BTC, you just fired up your old Pentium-133 from 1996, installed CPU miner, and ran it for a day!

Of course such a Bitcoin can't be worth much.

"You guys have heard me say this before,, we need a game like Second Life, with it's own economy. Something that allows everyone to earn/sell something of value BTC."

Bitville comes to mind.

Allow me to brainstorm for a sec. Start small like Farmville, but instead of farming, you're mining. Get paid exponentially for each level reached with each level harder to obtain but pays out more. Start off with the mining aspect where you have to mine a certain amount before you can buy virtual goods. Or, instead of being a miner, you can open up a virtual shop (paid for with REAL bitcoins) to sell your virtual stock. Whether you're a miner, shop owner, brother or casino operator. etc., the challenges are equal to advance to the next level.

Feel free to take my idea and run with it.

Bitcoin does have a killer app, and it's one we all use.  The near zero costs of transfering value across limitless distances.  If you don't think that this is a revolutionary core feature, try sending 20 Euros to Kenya.

You forgot the word 'instantly'. :)

That is great and all, but until a large amount of people on the street in Kenya or Azerbaijan or wherever are willing to accept those bitcoins, or make it easy to convert those bitcoins into the local currency, then it really doesn't matter.  That's the direction things need to go before this supposed "killer app" of zero transfer costs will actually matter to anyone in practice.

Or maybe they, you know, want to spend their bitcoins.

It's not zero costs - doing so securely requires miners, which requires electricity and expensive hardware. Currently, those costs are subsidized by new Bitcoins entering the market, but it's idiotic to think that it's without cost.

Also, as others have said, you have to have a way to redeem that value at the end of the line, otherwise all you're doing is transferring Bitcoins across long distances.

This is all well and good, but why not just figure out a way to use the same platform for, you know, actual currency like the US dollar.  Bitcoin is a commodity with zero intrinsic value.

Your head is filled with electric impulses. I can't use those to light a flashlight, power a motor, or any other electrical device. I guess that means your brain has no intrinsic value.

Do you have any other purpose here other than trolling with your alleged 'Economist' title? If you hate bitcoin so much, why even bother spewing out your bile? Wouldn't your services be needed with that 'real' currency you keep rambling on about?

I do not hate Bitcoin and am invested in the commodity.  My brain is clearly not a commodity, by definition. 

transferring money to kenya is a killer app for whom?
obama and his uncle?

killer app: jargon of marketing teams, has been used to refer to any computer program that is so necessary or desirable that it proves the core value of some larger technology

Considering Kenya only got international fiber connection a few years ago, and India's wages are increasing about 10% a year, Kenya is posed to be the new India within a few short years. So the killer app is for anyone who's planning to do some outsourcing or business in Kenya.

relative: $50 million is only $100 from 500k users. 500k users isn't very much for something popular on the internet. And I suspect the average user wants to hold more than $100 worth of btc.

This

They do, since at some point they want to buy cars, boats, food etc. that the regular economy provides. Without an exchange these are not possible, unless as I stated, a legitimate economy already precedes it.


I'm not sure what you mean to say. Either why use Bitcoin in the first place when you can just talk to eachother on the phone and make a gentlemen's agreement? Or, Alice gives 100 USD to Bob, Bob uses his network to tell Charlie to give 100 USD (or equivalent) to Donald for an IOU. If this involves Bitcoin for 'network', then Bob and Charlie will have to deal with an exchange, or be one themselves at some point.

Unless of course you are talking about a future where Bitcoin is so big you don't need local currencies, but my point is exactly that in order to get there you have to solve the above problem first.

IMHO this is possible, but not by pie in the sky valuations to attract speculators; rather by attracting merchants who use it for its currency characteristics.

There are tons of people who would like to send money internationally for cheaper than they already do.

As far as I'm concerned the sooner you don't need an exchange at all the better, but I'm not saying that's going to happen soon, or is very realistic to begin with either.


Seems laborious to use Bitcoin as some kind of token, why not just use signed messages then? If the keys are in a web of trust that is just as good and a lot simpler, no problems with valuation/exchange, dependence on mining network (or any network really, as long as you have the other's public key) etc.


But this presupposes that both ends have the required liquidity. Which in turn would have to mean a symmetrical flow of Bitcoins, or going over exchanges. As soon as the latter is involved, valuation of BTC is going to play a part (and these agents may influence the price too).

I don't need an exchange now.  I've never cashed out.  I've bought many physical and digital goods, but never cash.  I'm sure that day will come, but I'm not really willing to do so before Bitcoin is big enough that local people are asking for exchange.

Which makes you an exception. You either bought them at an earlier stage where due to a lower price you can have a hoard that does not need an exchange to be replenished, or you were mining with a low difficulty level to the same effect, or you are one of the few people getting paid in Bitcoin.

The majority of Bitcoin users will be none of the above, so they'll need an exchange.

You can't possiblely know this with any certainty.

How many of those were from sellers that could only offer goods for bitcoins because they had access to an exchange?

I couldn't possibly answer that question.  Exchanges are a good thing, my point is that they are not critical to the functions of Bitcoin.  As Bitcoin matures, exchanges will become even less relevant until they are as necessary to the average bitcoiner as the Forex is to the average first world citizen, which is almost zero.

Do you mean none of the three possibilities I listed apply to you? I'm sure there are others that fit these constraints, but you and they are still exceptions if you look beyond the first few thousand early adopters. Imagine millions of users in a year's time. The majority of those will not be paid in Bitcoin, mining will be off the table by then and of course they aren't early adopters with a hoard. Some will be able to accept Bitcoin for their services. The average corporate Joe will not, for quite a while. In this context corporate includes any organization that employs and pays in USD.

None of the three conditions apply to myself, but that is not what I was refering to.  You can't possiblely know if I'm an exception.  You can make such an assumption based on what little of the market you can personally observe, and likely be correct, but you cannot know because of the high degree of anominity.

Ok, strictly speaking you are right, I'll rephrase that as "there is a reasonable chance one of these attributes apply to you, but whether or not they do, they will definitely not apply to the majority, who will need exchanges until the economy grows large enough to be sustainable as a closed loop - which I don't think it will for the next decade at least".

I would like to know what other attribute applies to you for this not to be true (which would constitute an exception in itself :)), if your anonymity isn't hurt by it. I can't possibly know for sure, but according to the same probabilistic reasoning as above, I will assume you are not Satoshi :)

I have purchased a relatively small sum of bitcoins some time ago, prior to the founding of MtGox.  It was a direct exchange between persons, and did not involve an exchange market acting as a matchmaker.

EDIT:  I guess this would apply, "bought them at an earlier stage where due to a lower price you can have a hoard that does not need an exchange to be replenished", because you didn't actually mention an exchange acting as a matchmaker or middle man.  I just assumed that it was implied.

Not to the fundamental technical function no. But for practical/economic function very much so, at least in the beginning.

Without them, there is no influx of capital possible, which is needed to enable the merchants taking part to continue taking part until the economy grows large enough so they don't need this external capital (USD, whatever).

Maybe something like Ford starting to pay employees and taking payments in BTC could kickstart a closed loop growth, but this is an extreme balancing act, especially while pricing is volatile.

I can agree with this viewpoint.

Ok, but that person has to have gotten them somewhere, and it's likely he/she directly or again indirectly falls in one of the three mentioned categories.


Right. Some assumptions were made, you could of course have 0.03 BTC from the faucet and just sit on it. This would arguably also fall in the 'hoard' category :)

This is a reasonable assumption in general, and correct in particular.  But my real point is that the exchange markets exist because of convience, not necessity.  For if they were really necessary, I wouldn't have been able to buy any prior to MtGox, since they were the first.  My method of seeking out an early miner to engage in trade with is both inconvient and time consuming, but it's still a viable way to obtain bitcoins sans any established or otherwise accessible exchange market.  I would think that, if all of the exchanges we presently have, were knocked off of the Internet tommorrow, then direct exchanges would return until another exchange market were to pop up to fill the void.  The demand creates the market.

True, but from that follows that those who would adopt Bitcoin because it is easier/cheaper than say Paypal would be eliminated from the picture without exchanges, because seeking out someone already holding Bitcoin is neither easier nor cheaper (time=money). I cannot guarantee that this is the majority, but I'm reasonably certain it is.

IMO it's too low.

100 Bucks before X-Mass FTW!!!!!!!