Bitcoin Forum

Given that there will only be 21 million bitcoins in existence, with an untold number of them disappearing into the void and unrecoverable, I feel like this utopian acceptance is a march toward a great poverty!

Now, granted - bitcoins are very easily divisible to smaller denominations, and 1 BTC could easily turn into a cherishable value.

I just feel like 21 million in existence with no recourse for missing bitcoins presents a problem.

Discuss?

I don't understand. Why do you think that's a problem?

Just because a value is numerically small does not impact it's usefulness.

No one says it'll ever become a currency masses start to accept.

What makes a bitcoin future more like massive poverty than any other currency's future?

Think about it this way.  Even if 20 million of those 21 million are lost, there are still 100 trillion individual units of currency remaining.

I think this question is fascinating. For the past century we've been told by all the powers that be, that inflation is necessary for the economy. The money supply must grow for the economy to grow. If your money became more valuable just sitting in your matress, people would hide all their money under their matress, and not spend any.

Maybe they are right, but Bitcoin is an interesting experiement to see if a deflationary currency can work. I think people will want to spend a deflationary currency, because once it is widely known to be deflationary, they will get better prices purchasing in deflationary currency than an inflationary one. They will transfer some assets from inflationary currencies to deflationary currencies, and then find themselves richer... and spend more as a result.

I hope I'm right. If you look at the numbers on Bitcoin Watch www.bitcoinwatch.com there are 6.7 million bitcoins in existence, and 2 million of them traded hands in the last 24 hours... that seems like a very vibrant economy with a very high velocity of money, no? Then again, it's hardly been a deflationary last 30 days. So the jury is still out.

As for the paying in fractions of bitcoins, currently the annualized GDP of the bitcoin economy is about $10 billion US. (A bit larger than the country of Macedonia.) The US GDP is around 60 trillion dollars. In the highly unlikely event that the bitcoin economy became as large as the US economy, the dollar to bitcoin ratio would need to be 3 million to one. And while you might find it odd to pay BTC 0.00000833 to purchase a book on Amazon.com, I suspect we'd all do our payments in microBTC or some unit that signifies the millionth decimal place. We'd pay mBTC 8.33 for our book and the wheels of the world would go about spinning as before. I don't see this as the fatal flaw in Bitcoins. (Though I will admit that there may be many other flaws... both seen and unforeseen.)

It's just weird thinking that we'll all be buying hotdogs at 0.00000001 bitcoins in a few years. I guess people will have to be comfortable with exponents real soon.

yeah this is what I was getting at: it seems that it can be divisible so people will just make sub-denominations, where 1 actual bitcoin will be like owning a gold nugget.

Take a look at the discussions here and here:

http://forum.bitcoin.org/index.php?topic=24821.msg318718#msg318718
http://forum.bitcoin.org/index.php?topic=57.0

You're not the only rational person in this forum.  I've posted as "patvarilly" over the last two weeks, as I learned and learned of the technical marvel that underpins Bitcoin.  But I got so fed up with the herd mentality of "government bad, deflation good" that I deleted my account on the forum and swore never to associate myself with Bitcoin again.  However, regretting that today, I've started to notice that if you read enough of the posts here, eventually you'll find that not everyone's a libertarian nutjob, a speculator, a ponzi scheme scammer or a me-me-me goldbug.

I hope a successor to Bitcoin without the nonsense economics to which its inextricably linked will one day prosper.  For now, I'd read, learn, and enjoy, but wouldn't touch it with a 10-ft pole.

Hold your horses!!  The overwhelming fraction of those 2 million bitcoins are people sending money to themselves.  The way the Bitcoin client works, if you want to send 42.53 BTC to someone, and all you have is an address with 41689.32 BTC, then you have to send *all* the 41689.32 BTC out, then split it into 42.53 BTC for your recipient and 41646.79 BTC back to yourself:

http://blockexplorer.com/tx/8659d60ef083113240772fa4246c60b5daa4356fde50dc58184a497c2d65280a

Try examining the blocks in block explorer.  It's pretty easy in most transactions to pick out what's actual trading and what's "change" being sent back to the sender (hint #1: if there's an output that's 100 times bigger than the rest, that's usually change; hint #2: people like to send nice rounds numbers of bitcoins to each other, but their wallets usually have ridiculously unround numbers in them due to transaction fees or pooled mining;  hint #3: the "change" output is smaller than all of the "inputs" to any transaction).  An OVERWHELMING fraction of volume is change.  If I had to guess, I'd peg the volume of actual trade around 20,000 - 50,000 BTC (and someone with enough patience to sort out change from trade in the block chain can in principle give you a very accurate estimate).  An overwhelming majority of *that* is going into speculation at the exchanges, which creates no real economic activity (look at the volume exchanged at MtGox, and realize that that's not the only exchange site in operation).  The amount of Bitcoins that are actually facilitating trade is paltry, and the economics of the system is sufficiently crazy to ensure that this remains the case.

if 1 BTC is worth one million dollars, then .00000001 btc would equal one penny.

think about it

^ this.

As for the people who believe that the value of a single Bitcoin goes up. Yes it does, but so many people who started using Bitcoin to check what it is all about, will jump off the bandwagon because it's too geeky, too expensive to maintain and absolutely uncomfortable as payment method. In the end, maybe five people will be left using Bitcoins and everybody else returned to usable currencies, laughing at those loony Bitcoin users. So who cares about the Bitcoin/gold value.

Not just that, but a lot of the volume is the same change being transferred between addresses repeatedly and counted multiple times. If we look at  the address you linked to with 40,000 BTC (http://blockexplorer.com/tx/8659d60ef083113240772fa4246c60b5daa4356fde50dc58184a497c2d65280a), whoever owns that account is sending out small and varying amounts of BTC to a whole bunch of different addresses, and every time they do that it adds another 40,000 BTC to the day's volume.

why?

21 million bitcoins to 8 decimal places.....


Your clinging to whole numbers is strange....

Probably for the same reason that people worry about address collisions; the scale of numbers involved in Bitcoin are so far beyond anything we deal with meaningfully, it's hard to grasp just what they mean.

The USD has dropped in value 96% in the last 100 years, so the cost of a hotdog is ridiculously high nowadays. Dollars are very expensive to maintain as shown by a national debt or over 14 trillion dollars http://www.usdebtclock.org/
Only time will tell who will be laughing at the loonies.

I think either bitcoins will work or something derived from bitcoins will. Cryptocurrency is here to stay and the impact will absolutely massive, like something noone's ever seen before. We're talking change on a galactic scale.

Thank you for the clarification of that point, Patvarilly. That does change things quite a bit. I was wondering why the number of bitcoins sent each day was so much higher than the number traded on MtGox and the other exchanges.

BTW, who will register transactions when there will be no more new blocks available?

Blocks don't run out: there isn't a preset number of them to exhaust.  Perhaps what you're worried about is hash collisions?  Right now, block hashes are essentially 200-bit random numbers (quite a bit fewer than would be implied by hashes being 256 bits long, because of the restriction that the first 50 or so bits be zero to satisfy the proof-of-work requirement, but still astronomical).  If, for didactic purposes, you assume that the difficulty from now on will remain roughly constant (not entirely unreasonable given that the marginal cost to mine nowadays has finally equalled the marginal utility gained from the 50BTC subsidy in each block, and you see that difficulty as of late is tapering off), then the number of years we'll have to wait to witness even a single hash collision can be estimated by requiring that:

  0.50 = 1 - exp( -n^2 / (2 * 2^200) )

where n is the number of blocks generated so far [See http://en.wikipedia.org/wiki/Birthday_problem].  The solution is about

  n = 1.5 * 10^30 blocks,

or, since blocks are produced every 10 minutes, on average, 2.8 * 10^29 years.  To put this in perspective, the estimated age of the universe is about 1.3 * 10^10 years.

Bitcoin has fatal problems related to its economics, but its technical foundations are rock-solid.  In particular, "running out of blocks", i.e., seeing a spontaneous hash collision, is not a problem.

The United States Of America was an interesting experiment as well... A stressful one IMO.

Thank you for explaining all this! My concern was not really about hash conflicts but rather the mining incentive.
For example, there are 135643 now. When there are 210000 blocks, miners will be getting 25BTC per block vs 50BTC now.

My guess, when the whole coin space gets exausted, the only revenue will come from transaction fees, right?

I have no idea, how many transaction fees miners really get now (uneducated guess is 1-3 BTC, depending on the situation.).

That is, who will be interested to produce blocks after that? How bitcoin system will survive?

Keep in mind that transaction fees will have to find a balance with transaction speed. If the fees are too low, speed will be unusable, so people will pay higher fees until they balance. At least in theory...

Aahh!!  Yes!!  Rational thinking!  I recommend reading the forum posts on the economic shortcomings of Bitcoin (I linked to some of them before on this thread).  The sad conclusion I've come to, after an initial love affair with the technical underpinnings of Bitcoin, is that, in its present form, the economics of Bitcoin are a disaster, and so it won't survive long-term. [to put this in perspective, the "orthodox" answer to your question is that the Bitcoin "cognoscenti" believe the popularity of the system will explode beyond their wildest dreams, so that the per-block transaction fees become substantial.  This assumes that people will, to an appreciable extent, use BTCs for trade, not just hoarding and speculation.  This is unlikely, as many other souls capable of thought outside the Ayn Rand dystopia have pointed out.].  My hope is that a successor to it with better economic insight will eventually thrive, allowing us to use a near frictionless currency for worldwide trade.

Do you really think you are bring up something that hasn't been discussed ad nausium?  Check out the threads. I don't like to repeat myself.

I believe the argument is that transaction fees should scale with transactions executed, and that cost (hardware, maintenance, electricity, etc.) to manage the transactions should drop quickly enough that the two meet in the middle, rather than specifically requiring a large number of people trading the coins regularly for it to work.

I will admit I can easily see Bitcoin being the precursor to something better, in the same way Gopher came before the web, but I can't see transaction fees and costs going away.

Certainly true.  The need I see a Bitcoin-like system filling is reducing transaction costs for electronic transactions down from the present extortionary level.  I've paid upwards of $100 for international money transfers, and this isn't uncommon (if you dig deep enough, there's a story on the forums of someone living in the UK having to pay £20k taxes in Austria; the same-day limit for UK-Austria transfers that he was subject to was £5k, so he ended up having to send £5k on each of four consecutive business days, paying a £25 fee each time).  Similarly, credit and debit card processing fees are much higher than they realistically could be today (something like 2-3% + $0.35 per transaction).  While I don't expect any system to be free of fees and costs, I think we can certainly build something much better than what we have to deal with today.

"ad nauseum"

I have read the threads.  They're precisely what encouraged me to think that not everyone in the forum has been co-opted by delusional groupthink!  This being the Newbie section, I think it's important to bring others up to speed on what has been discussed before.

Well then either I clairvoyantly fell victim to groupthink before even discovering the group or I managed to persuade the group before they discovered me. I must be made of awesome. 

It's easy to think you've reached a consensus when you only talk to people who think like you do.  I can see why Bitcoin would, in the beginning, attract people with a particularly quirky worldview.  I can also understand why talking to each other, you might think that you've stumbled onto the one-and-only truth, and you feel that your mission is to open the eyes of the confused and oppressed others.  I'm just glad that it's also attracting other people with saner views.  It gives me hope that the technical solution to the double-spending problem that Bitcoin has demonstrated might actually find its way into the mainstream in the future, help lower transaction costs we all face, and end up facilitating trade and prosperity worldwide.

Ok. We have an equation with many variables, right? The question is, is the system overall stable in the whole range of scenarios
(from 0 usage to everyone on the planet using it), and with different ways to use (that is, including "hoarding and speculation")?

Why do you try to tell by stating "the economics of Bitcoin are a disaster"? I believe, such things should be equally thoroughly researched as cryptoalgos.
If it has been done, then no matter what users do, the only real disaster for the bitcoin is that everyone will abandon it and the electricity required for it will be lost without any sensible return.

Everything else it is possible to balance, to bring nearer a stable equilibrium.

Its another story if bitcoin is not inherently stable though...

Of course, someone will always win. (say, early adopters which mined with easy and sold BTC at 30$ ;-)

I think, these things are not only useful for "the next cryptocurrency", but may advance human economy beyond "hoarding and speculation".

Not being an economist, I can't make educated judgements on the matters. I believe though that bitcoin ecosystem will somehow reflect objective (are there such?) laws of any economics. Like water in the artificial aqueduct behave in a similar way to the water in the natural river.

Sorry, what the groupthink, I do not quite understand. Propagating ideas is known to have an effect (desired or otherwise). I even tend to think that
its better to bias toward positive outcome, because early scepticism really hurts whatever enterprise at hand.

I've asked innocent question if things were designed beyond preventing double-spending... May be it was not even intention this time.

Yes, precisely.  The trouble I see is that almost everyone coming into this project (like me) comes at it from the point of view of technology.  As you read through the explanations of what keeps all the bitcoin structures in place (proof-of-work, blockchaining, public/private keys as handles for money, what have you), you can see that's it's very well thought out, and, as far as its technical aspect is concerned, the thing is a jewel.

Independently, layered on top of this are a series of economic decisions, such as "what is a reasonable way to determine the value of the coinbase transaction?" or "should there be a limited or unlimited number of bitcoins?" or "how should we distribute an initial set of bitcoins to use?", etc.  Economics being a social science, these aren't 1+1=2 questions.  There are centuries worth of ongoing, raging debates in economics as to how to answer many of these questions (the thorough research you are talking about).  They involve all sorts of compromises outside of the realm of clean mathematical abstractions, having to do with human psychology and what makes people tick.  I invite you to read about these debates (the posts I linked to below are an interesting sample of the kinds of diverging opinions people have to whet your appetite).  I think you'll find that the current rules of this system are among the worst that could have been chosen, with well-studied problems.


That's exactly what I mean by a disaster.  I would hate to see the technical innovation introduced by Bitcoin, with its promise of much smoother international transactions, be torpedoed by the fringe economics that's been foisted upon it.  It's too beautiful an idea for it to die like this.  On a more practical note, many people are investing small fortunes into setting up mining rigs and trading, and for them, there's a real loss in having all of this implode.  On a social note, this is happening concurrently with the early adopters reaping ridiculous profits off the backs of naive late comers.  There are many similarities between the current Bitcoin frenzy and Ponzi schemes, pump-and-dump schemes, etc., as is pointed out by many others, and I hope you'll find that there's something substantive to these comparisons.


Neither am I, but I'm a good critical thinker.  Go out there and read as much as possible about the diverging opinions on Bitcoin.  Do this *before* you plunk down any substantial amount of cash into it.  Try to think through the consequences of setting up an economy this way or that way (be sure to peek at what others who spend their lifetimes doing this have said, they've usually thought about all the things you have and many that you've missed).  Then form your own opinions.  A piece of advice, though: if something reads like it's out of the prayer-book of a religious sect, be skeptical.  Very few people who pride themselves in thinking logically see the world in extremes and black-and-white choices.  The world is rife in nuance and complication, and to boot, you have to account for with human psychology and irrationality.

Best of luck!

So please start your own block chain with your own economics and your preferred incentives. Within a year we'll know whether Bitcoin or Patvarillycoin is the one that got it right.

Based on the paragraph that I quoted above, why would you not want to do this? Why would you prefer talk to action?

That's my intention.

You make good point. However, consider the incentives of those with economic power to obscure economic theory. Employers prefer employees don't discuss their wages, just as creditors prefer debtors don't discuss banking mechanics. Bitcoin is an assertion that a different monetary model is possible.

Bitcoin is an experiment, but not with random initial values.

One bitcoin client sets a default transaction fee, but that's easy enough to alter and the market gets to decide the optimal fee on each and every transaction. Distribution of bitcoins is part of the foundation of bitcoin decentralization without which bitcoin would have a very different as yet undiscovered validation model.

The distribution rate (and finite scarcity) was an arbitrary, though darling variable of Satoshi. It is the only significant 'variable' that was truly (and now unalterably) configurable.

It's a fascinating exercise to tweeze out these preconfigurable variables for future or parallel experiments. Maybe a faster validation rate, perhaps constant inflation with no transaction fees, perhaps perhaps... We'll learn an enormous amount by this experiment. I happen to think the experiment will be so successful that it's advantageous network effect will overshadow better implementation models. In other words, sticking to the short comings may be preferable to creating a better model for a long time. IPv4 vs IPv6 anyone? Bitcoin won't die easily.

I agree that it's a fascinating experiment, and I lost sleep over the network effect baking the economic model into the current implementation to the point where no alternative would really have a chance.  Certainly if the only advantage of an alternative implementation where a technicality (say, using 64-bit timestamps everywhere, or an average block generation time of 5 minutes instead of 10), nobody would pick it up.  But I'm pretty convinced that the current economics of Bitcoin isn't just a blemish.  It's a terrible set of rules that makes BTCs unworkable for widespread trade instead of speculation, and that that will prevent it from going mainstream.  An alternative that does away with this problem and actually encourages trade would thus have a fighting chance of overcoming the network effect.  In such a scenario, Bitcoin by itself probably doesn't die (there will always be hardcore supporters), it simply gets overtaken by its workable alternative.  I'm excited by this idea enough that in the near future I'll try to put together a proposal soon for doing just this.

That said, I'm open-minded: if the facts don't fit my thinking, I'll change my thinking.  I'm willing to offer that if, contrary to what seems to me will happen, the current implementation of Bitcoin becomes wildly successful, I will eat a boiled and seasoned copy of Atlas Shrugged, a la Werner Herzog (http://en.wikipedia.org/wiki/Werner_Herzog_Eats_His_Shoe).  A reasonable definition of "wildly successful" shouldn't be too hard to agree on, perhaps something like half of Amazon's trade volume being denominated in BTCs.

I believe the BTC will fluctuate, but in the long run will become extremely valuable in comparison to other economies. Im not saying to start hoarding, but put 50 to the side until 2020 and then see what it's worth.

I think it will be high.