Bitcoin Forum

I'm new to bitcoin idea and find it very interesting, however I've got a question:
how do you protect your wealth from inflation? I know the Bitcoin system is internally protected from an uncontrolled inflation as only a limited amount of currency can be in circulation, but what would happen if Bitcoin became a popular currency with market worth USD millions? Wouldn't it make people clone it and produce an unlimited amount of alternative cryptocurrency systems based on the value of CPU work? Wouldn't these BTC alternatives gradually erode the purchasing power of Bitcoin? Or would BTC value remain constant no matter how many alternatives are there?

Why would people want to switch to a cryptocurrency that's a clone of bitcoin?

It has more features to offer?

Then it's not a clone.

Not an exact clone but something that serves the same purpose - a digital currency. If an alternative became popular enough (for example, a special version for the chinese market), wouldn't Bitcoin have to give a market share to that alternative, and wouldn't sellers want to accept payments both in BTC and in the chinese alt currency? This way, there would be more digital money in the market and their value would have to drop.

Normally, the first to market wins.  Since bitcoin was first to market it has a very big head start.  An analogy could be that bitcoin is like gold.  And the next currency "x" could be silver.

I think the problem with your comparison is that Bitcoin is not like gold - you can't create gold but you can create any number of Bitcoin clones and they are just as good as original Bitcoin.

You can "create" gold. Creating Bitcoins is like mining gold and bringing it to the surface.

Maybe creating Bitcoins is like mining. But not creating Bitcoin clones - this is rather like creating a truck of gold out of thin air.

Well, you can create Gold from other matter through very expensive processes. Scarcity doesn't require a truly finite limit.

You are more than welcome to take the open source software and create your own network.  With a bit of marketing you can probably make it worth something.  BTW, there is another bitcoin network, the test network, and people (developers) do trade bitcoins but they are worth a lot less.

Well, there already has been one Bitcoin clone which is the bitcoin test network, and no-one expects it to reach parity with the US dollar any time soon.

But yes, if Google or Facebook created a Bitcoin clone it would be interesting to see how it played out.

Yes, but any of the clones will not have the same trust and good publicity as the original one.
Less trust = less value.

What your saying is very similiar to "What would happen if i mixed some chemicals (or manipulated matter at subatomic level) and produced something that looks, smells like gold and has every other property of gold".

Nothing special would happen. Depending of how scarce is the thing you are producing, and how easy is it to produce more, it would have bigger or smaller value. The harder is to produce a thing = the more scarce that thing is == the more value the thing has. Also if it is easy to divise, shape and carry, then it can be used as a currency. This rule works with everything.

If Google or Facebook created a digital currency they would probably completely wipe Bitcoin out just by creating a market million times bigger than current BTC market.

It's only a matter of time, I think, that a corporation would create an initiative to copy Bitcoin.  But, I think Bitcoin would remain competitive since it was the first.

Here is a question for you.  Has any corporation copied bittorrent?

No, haven't seen anyone clone Bittorrent, but who would want to do that and for what purpose? Maybe the SecondLife currency (LindenDollars) would be a better example? Many companies want to have such a market where they can control the currency and its purchasing power and that's why there are so many MMORPGs. (FYI, I don't have a SL account and don't know the SL economy at all but as long as people want to pay 'real' money for your digital currency the business is worth a lot).

Bitcoin is a P2P technology like Bittorrent.  If companies want to control the currency then Bitcoin is not for them. 

Bitcoin will have competitors, clones, other P2P crypto-currencies but it doesn't matter. They will all tend towards the cost of computational power on the network that backs them, plus some premium based on perceived trustworthiness, brand recognition and other intangibles. At the moment Bitcoin has huge head start in terms of both computational power and recognition, trustworthiness.

There will be others, but that's all good. The more crypto-currency networks the less chance the statist, scumbag banksters will have of bringing money under their control again. This is the beginning of the end of over 200 years of domination by these evil bastards and their fiat currency bullshit. Megabanks and the central bank models are threatened to the core of their failed premises by this concept. It is going to be great entertainment to watch them fall, ringside side you have here fellas. Congrats on all who got it this far, you have been midwives to something unique in human history that will remembered for the ages.

Celebrate, we have a bonfide people's money again! (but bitcoin is not money for legal purposes of course  ;))

Yes, I agree, but we are talking about a currency here. The currency's value is not that it's decentralized but that it can buy you something.
Some time ago all money was decentralized as well - if you had gold and silver coins you didn't need any central authority to tell people what is the value of your money. The gold coin was worth as much as the gold it was made of, the same with silver. Then money was centralized -you have a piece of paper with a number on it and the government's job is to convince everyone that the piece of paper has a certain value, much greater than the paper itself. So, this is still money, even if the 'underlying architecture' has changed, and still people want to (or have to) use it.

But this diverts quite a lot from my original question which was: how new digital currencies will reduce the purchasing power of existing ones?
maybe if the cryptocurrency's purchasing power will equal the real cost of creating it it won't matter how many new currencies are created, their value will not drop below the cost of creating a new currency unit? Just like the real metal coin - it will never cost less than the metal its made of. (yeah, I think I got what moa was talking about)

Yes, a crypto-currency has real (objective) value, at a minimum the asset cost of the computational power backing the network plus energy costs to run and 'mine' the encrypted transaction blocks.

In the future, not as far off as you might think given the state of failed monetary systems around the globe, I'm seeing hedge funds in the Cayman's with FPGAs lining up to join the crypto-currency networks. And medium-size rogue banks in Panama or Switzerland putting Cray XMT  http://www.cray.com/products/XMT.aspx
size machines onto the network ... think big guys this is gonna blow your minds!

Financial companies already have this kind of hardware at their disposal and once they get the concept they'll be coming .... then there'll be the dying megabanks and cronys at NSA trying to bring it down by bringing there big-iron guns on-line but just adding to the compute power, it's gonna get crazy.

wow sounds like Cryptonomicon

It's a Neal Stephenson plot device!

Actually, after the megabanks dissolve into smoking piles of crappy over-clocked IBM hardware and dilettante quants in suits jump out of windows taking corrupt national govt.s pollies with them .... I was thinking more like a "Snowcrash" crossed with "Cryptonomicon" post crypto-currency war type of world ...

Currencies don't inflate one another.

When Bernanke print USD, he doesn't hurt EUR or JPY

The megabanks are explicitly global in nature now and have been covertly for much longer. When they went bust in 2007 credit market seizure the taxpayers of the world were put on the hook on the order of 10 trillion dollars when national debt was created to bail them out, see Fed. Res. balance sheet for details.  Since there is no way out of the global fiat-digital currency scam and paying taxes into the corrupted system where megabank banksters are raping it out the top, one is as good (and culpable) as the other. An alternative credit digital currency like bitcoin comes along and the whole fiat debt puffball could collapse in favour of unencumbered digital crypto-currencies.

Ruthenium is a metal similar to gold, just as rare and would be just as good as money. Still, only gold is used as a medium of exchange. There is no particular reason for that other than tradition and expectations because gold was first.

http://upload.wikimedia.org/wikipedia/commons/thumb/2/2c/Ruthenium_a_half_bar.jpg/434px-Ruthenium_a_half_bar.jpg
Ruthenium isn't yellow! :P
That's a major problem I guess.

Good for us that the bitcoin symbol is gold-yellowish, otherwise we would be in big troubles for the future.

If you actually look at the numbers and do the math, it looks to me that Ruthenium is actually 20-40 times more rare than gold, and its production is 100's of times lower than gold.

Gold was naturally chosen historically as "money", because it was just rare enough among the "precious metals." Given current population and trade volume, gold has become impractical as a medium of exchange also.

It's a hassle to handle even as 1 gram bullion. Calculate how many grams of gold you could give to each member of just the adult population of China, if you used all the estimated worldwide gold reserves. Looks to me like less than 200 grams. That's not to mention all the gold used in jewelry, industry, etc. There would be nothing left for B2B trade, etc.

So, gold didn't become the traditional medium of exchange because it was first; there were certain market forces that made it so. Those same forces removed it as a primary medium of exchange, imho, when population and trade increased. Now, it's just a great value store, and impractical as money.

Seems to me that if superior cryptocurrencies appear, being first will not preserve Bitcoin's value indefinitely.



   

Lol. Go to the dark side Luke, buy ruthenium.

Maybe the next cryptocoinage will have a silver icon and the network will making them in the 15:1 ratio that silver:gold appears to gravitate towards .... i.e. 315 million silverbitcoins!

Then you would see exchanges springing up trading between all the currencies much as they do for everything else.

Are you really sure about this ?

The reality shows that to keep the economy going if one major currency is devalued all other must be too. Don't know why, probably because it creates a huge imbalance in trade and business competivity.

A friend of mine asked me this the other day.  I think it's important to remind ourselves what the attributes of bitcoin are that make it actually have inherent value and are the reasons why a conglomerate or big brother would not want to touch it with a 10 foot pole.

1.  Transactions are, or at least can be, 100% anonymous
2.  There will only ever be 29 mil ever issued
3.  It is distributed and decentralized


  The big boys (facebook, google, the fed, blah blah etc.) want to control or profit or both.  There is no way that any large organization would or could adopt a bitcoin clone as a model or anything even similar.  Facebook has their credit system they the call a virtual currency (lol),
http://www.facebook.com/help/?page=1038
but I don't think you can sell them or trade them so it's not really a currency but rather a way for you to give them money so it really doesn't count.  Google has their google checkout which I really don't know too much about, but seems to be their answer to paypal.  Paypal on the other hand is the closest thing to a corporately owned digital currency.  We buy paypal dollar credits with our national currency.  Paypal digital currency is of course pegged to the national currency, but we can then buy things with them online, much like we can with bitcoin, admittedly limited at this point, but theoretically exactly the same.  Paypal is however

1.  Not anonymous
2.  Just as suseptable to inflation and helicoptor ben as any fiat currency
3.  100% centralized

Anonymity is not something that is encouraged in the financial industry at least not when it comes to the "little people".  Trust me I work at a bank.  It's also not something the sec or any regulatory system would stand by.  Any profit seeking corporation is going to want to sell their currency to grow the volume to increase their profits and any large entity by definition is not decentralized or distributed or at least not amongst the people.  

It is, to my best understanding, the way that bitcoin is written that makes it so genius genius genius.  I can't think of any way to improve it's design.  At least not to the degree that it would make it obsolete or even worth any less.  If, for instance, a big dog were to step on the scene introducing to the broader general public, "Bitcoin 2 inc." now with a marketing and publicity budget to inform the world on the advantages of an anonymous digital curruncy, insusceptible to inflation and completely decentralized, it would only contribute to the acceptance of an idea I don't think most people have or could wrap their head around yet.  Oh and by the way there is an original bitcoin community that has been establishing itself independently, but pay no mind to the man behind the curtain.  

Bitcoin is something completely new for a completely new era, an era we don't completely understand yet.  Things develop faster than we can understand them.  There was probably a point when someone said "are you stupid, why would I give you my saber tooth tiger coat for a little piece of shiny yellow rock?"

There are other digital currencies out there with different attributes.  OpenTransact, I think will serve to a great degree when it comes to developing local currencies with a hard backing, but bitcoin is unique.  In my opinion it actually resembles some of the great ideas of some of the largest corporations.  Microsoft and Google.  There was a time when people said "why would anyone want a computer in their house?" and "what I don't get it, it's just a search engine?".  Bitcoin is actually a company.  It is an open source, distributed anti-corporation.  It's a company truly owned by the people.  As bitcoin gains in popularity so will the value of the bitcoin.  Bitcoins are the stock and we the people are the stock holders.

If you haven't seen this yet watch it.

RSA-the suprising truth about what motivates us
http://www.youtube.com/watch?v=u6XAPnuFjJc    

      

That's just due to stupid mercantilist believes of governments worldwide. When the dollar devaluates, they devaluate their own currencies in order to subsidize their exporters (at the expense of the rest of the society, but don't expect them to understand/care).

But what grondilu said is only applicable to national currencies like government currencies, which have their own market. USD doesn't impact EUR because mostly they are not used by the same people. An international alternative to bitcoins might take part of its share if it's really better than bitcoins. Simple clones wouldn't.

yes, the idea behind Bitcoin is genius (genial? how to say it in English?) and it has all the properties that an ideal currency should have, being decentralized and escaping any attempts to manipulate or take over by a big enough organization. But this makes it undesirable for the big fish out there, just like gold has very undesirable properties for governments and banks. It makes me wonder if such currency can gain enough acceptance to be considered real money, or if it can survive without acceptance of banks and governments.