Bitcoin Forum

Hi,

Looking at the current valuation of Bitcoin against the dollar, I know I'm not the only one to find Bitcoin to be overpriced given the size of its economy.  Therefore, there are strong indications that the current valuation (even taking into account the recent slump) is largely driven by speculation about the future value of the Bitcoin currency.  However, and though I love Bitcoin as much as the next guy, realistically speaking there are some strong arguments as to why Bitcoin -- at least in its current incarnation -- might fail.  Moreover, I suspect that speculators may not be adequately pricing the risk of a Bitcoin failure into their investment.  If this risk is properly taken into account, then the true valuation of Bitcoin against the dollar should be much lower than the current (almost) parity.

And what arguments for Bitcoin's failure are these?  Well, foremost is the risk of a second genesis or the rise of a competing system based on similar principles (or even the same code base!), particularly if backed by a strong player (think Google).

Hypothetically speaking, suppose Google were to announce gCash: an electronic currency very much like Bitcoin, but with builtin support in the Chrome browser and accepted as payment in all of Google's services.  They could even throw in builtin support for cooperative mining in the standard client to encite people to use Chrome all the time.

Bitcoin's economy is currently so small that it would be dwarfed overnight by gCash.  In a sense, Bitcoin's philosophy and principles would win, but the current block chain would either fade into oblivion or become such a niche player that its valuation would come down drastically, reflecting the true size of its tiny economy.

Now, I used Google only as an example, as I have no indication they actually have such plans.  The point is that the risk of such a scenario is not zero, and I reiterate my initial point that speculators may not be pricing it adequately.

You don't have any evidence to suggest the speculators are not pricing it properly except your feeling about the matters. If you're right, why don't you speculate?

Of course bitcoin is high risk, and might fail due to any number of factors.

See post "The beginning of the beginning of something great (http://bitcointalk.org/index.php?topic=266.msg51765#msg51765)".

Fear not! If they are found wanting, they will be punished for their mistakes (in the sense that their bitcoins will be worthless)?


Google is not going to want to get involved in the complicated legal issues surrounding bitcoin. Secondly any significant advantages for Google imply some form of centralization, negating bitcoin's fundamental benefit. Google could avoid the first issue by setting it up as an open source project online, using a mysterious anonymous persona with a funny Japanese name who neither speaks nor writes Japanese. The second is more fundamental.

a healthy dose of skepticism is always good for any new innovation, but the emergence of another block chain has been discussed on this board before.

The general belief was, the moment google or someone else starts offering g-cash, many exchanges will start offering conversion service between btc and g-cash. In the end, it's not about block chain, it's about people, it's about user base and their preference.

P2P currency concept itself is inherently anti-corporation, g-cash if ever exist will more likely go Q coin route than bitcoin.
http://en.wikipedia.org/wiki/Tencent_QQ

in which case the exchange rate will be determined by demand, which in turn is determined by the range of goods one could buy with the two currencies in question, so I think the OP point is valid.

I think its a fallacy to suggest that currencies can exist side by side in a given market segment in the absence of forced usage of one or all of them since herding and winner-takes-all effects will tend toward the emergence of a single winner. That winner may later fail but not before it drives all the others out.

There is a reason why for a long time gold and silver were really the only money - because of exactly this society wide winner takes all effect.

I don't think a second block chain would be any problem for Bitcoin. Nevertheless, it might be interesting to start one up, just to illustrate that point. What do people think?

(We can't count testnet as an alternative block chain anymore, now that it gets reset for the convenience of the testers.)

Bingo.

Two bitcoin type chains will never both be valuable for long. I think currencies with different properties like bitcoin and gold can.

First... silver and gold have similar properties, why are they both valuable?

Second... I don't think it really matters which block chain is prevalent as long as at least one is. If that happens, there will be some early adopters of the winning chain and some late adopters. As long as there continues a decentralized system such as Bitcoin, I don't see a problem.

Has anyone thought about using a different block chain as local currency?

http://en.wikipedia.org/wiki/Local_currency#Modern_local_currencies

One thing has been bothering me is the scalability of bitcoin, and how fast the database will grow if it needs to handle thousands or millions transaction per second. If this happens, putting a minimal threshold on transactions and using other block chain spinoffs may be the solution.

Starting a new block chain tends to imply the new block chain having much less "strength", making it easier to gain >50% network power.

true, but once people find out a block chain is manipulated, they will abandon it.
there will be false starts, and great risks. Luckily current bitcoin chain seems to have passed that stage :) (knock on the wood)

Yeap, which is why if Bitcoin is to sustain its current valuation on a foundation more solid than just speculation about a golden future which may or may not come to fruition, then the size of the bitcoin economy must grow.  Unfortunately, I see people more obsessed with mining than in actually putting Bitcoin to use in the real world.


My feeling exactly.  Which is why I think that if a big player (the "Google" in my example) were to launch a Bitcoin-like currency, they could overnight create far more momentum than Bitcoin currently has.


I don't believe that gold winning the ultimate throne was mere happenstance.  There were other reasons why societies eventually converged on gold and silver.  If you look at all the elements, gold occupies a sweet spot when it comes to a number of useful properties for currency: it exists in solid form, it does not rust, it is rare but not too rare, it has a relatively low melting point, etc.  If history were to be re-run, I would venture that gold would re-emerge as the winning element.

I think it's a terrible idea.  The last thing that Bitcoin needs is balkanisation.

First mover advantage in so far the gathered momentum is difficult to overcome.

I absolutely agree. Unfortunately for many here the only way that the bitcoin economy is going to really grow is by having debt denominated in bitcoins.

The debt denominated in a currency is what gives the currency its value, because it creates demand for the currency to clear the debt.  Alone it has no value, regardless of how scarce it is decreed to be.

This is why you should all be taking a look at ripple, starting with this thread: http://bitcointalk.org/index.php?topic=3557.0

Nonsense. Bitcoin today are worth .80 USD.

Got me, what I said was straight wrong.

Obviously pretty much everything is valuable to some level. I think that only one thing of a given type can get that huge boost of added currency value. I don't know if silver and/or gold have any of this extra value now. I suspect both a little of it as people speculate on what will ultimately take the position of money.

Maybe that's only because some people owe bitcoins to someone. I don't think the debt claim is true, but you don't show that by saying the price of a coin.

well if the idea is feasible and profitable, someone or some people will try it, no matter you like it or not.

Aside from selling one's bitcoins and buying them back later, is there a way to profit from a dropping value of Bitcoin?

the bitcoin economy is too small, and includes too few humans to be sure what gives it value at this point. My view is that the current value is attributable to the same kind of speculative 'new economy' impulse that makes facebook worth 10 billion right now.

That's not to say the technical (crypto, not financial) fundamentals are not hugely valuable, I just think the final picture is a long way from being realized.

why would you ask that?

You could offer call options (http://en.wikipedia.org/wiki/Call_option) to people who are speculating that the value will increase.

no you couldn't, because there is no market established to enforce such a contract denominated in bitcoins.

I guess you could try writing your own contract but it would be shaky ground.

No contract necessary...

http://wiki.bitcoin-otc.com/wiki/Option_orders

to be more clear, this is the scenario I am referring to:

If google started their own block chain would it become a sharemarket where a bitcoin = 1 share of the companies economy ?. Anyone could see how many shares have been issued in each case. Then walmart,microsoft and other large companies might start one .....   the value of each companies bitshares is dependent on the perceived security of their chain and the amount of shares already issued / mined. Then anyone could start a clearing house.

from the same link:


There is no legal basis for pursuing debt denominated in bitcoin. So if Jen defaults here Bob is hosed.

Possibly I'm wrong on the legals here, but if so I'd like to know why.

Well, I think ostracism or the threat thereof is a reasonable deterrent, at least in a community this small.

Also, I think you might be misunderstanding how ClearCoin works. Let's say you want to offer me a call option for 100 BTC @ $1 with a $5 service fee, to be exercised on or before 2011-03-01.

You create a ClearCoin escrow account and fund it with 100 BTC, setting the expiration date to some date later than 2011-03-01. Then you send me the link intended for the other user. Once I verify that the account is funded, funds will be released to my address, and that the expiration date is correct, I send you the $5 fee. At any time before the expiration, I can send you $100 more and request that you release the Bitcoin. You can obviously not release, but that's going to hurt your reputation, and you will have to wait until the account expires to get your Bitcoin back. So, if the buyer does not trust the seller, they can request an expiration further in the future.

If there was a factor that would hurt Bitcoin (someway?) then Bitcoin would still have people like myself that are in it because of what Bitcoin is today and until Bitcoin gains popularity with the general people I think it will always be about Bitcoin and I think there will be Bitcoin services where you can buy things with Bitcoin and ways to make Bitcoin by doing things and a bunch of ideas that stem from Bitcoin. I think it would be no different than what Fidonet is which is still being used today and is quite useful by people that are into that technology. If on the other hand Bitcoin were to replace the dollar then that would be quite awesome but until that comes then I say keep using it, keep telling people about it because this technology is going to solve a lot of problems if there remains an interest.

I've seen the Google-monster threat mentioned before, but frankly, the likes of Google or Amazon or Microsoft or whoever have nothing to gain in launching an open-source decentralised peer-to-peer commodity/money-system like bitcoin. As mentioned already on this thread this kind of technology just does not fit the corporate model, there's nothing in it for them. Using it could fit the model but not inventing it, I'd like to see the R&D meeting where some pay-role dreamer tries to justify the time and money to develop an anarcho-currency.

In fact I don't see a system like bitcoin being produced by anyone other than people like Satoshi or the bitcoin/cipher community for the reasons that Satoshi or the bitcoin/cipher community produced and developed bitcoin. That is to say, as a matter of principal and as a labour of love. So why would anyone produce a rival to bitcoin? Egotism I suppose, there really does seem little point unless there was a substantial and qualitative improvement in terms of the technology itself, persued again as a labour of love/pleasure in the technical challenge. Even then so what, there's room for silver and gold.

Because I was responding to a post where someone challenged people who believe Bitcoin will drop in price to speculate on such an event, but to my knowledge, it isn't possible to do so.

And yeah, there is no way that someone can start writing puts options contracts - not enforceable in court, and it's too easy to start over with a new identity on here. Nobody here uses their real name anyway.

Sure, do a manual short:  borrow BTC from someone, sell the BTC, and buy back the BTC later on.

It may be possible if they can mix their brand in there. In fact right this moment they could be running their variation of Bitcoin on a private server generating "g-coins" and then when they have a big enough pool of g-coins they could open it up and say here's our new decentralized g-coin service. You can buy g-coins from us and spend them on g-coin services. I don't know if something like that would happen but then again you never know with big corporations. But I will know one thing if that happens and that is Bitcoin is a really good idea and just like Linux, free and open will always prevail.

having seen so many smaller tech, resource companies that had been naked-shorted to death by those f*king banksters, not giving them those option shorting bitcoin is definitely a good thing.

Anyone creating g-coins could simply allocate all 21M (or whatever) to themselves in the first block...  why generate if you control the network anyway?

There is a big difference between shorting and naked shorting.  Normal shorting adds information to the market.  And I doubt the bitcoin community would be willing to create a vehicle for naked shorting.

It is conceivable that consortium of powerful banks and hedge funds who are not beholden to the current oligarchical monetary system, probably not mega-banks but mid-level up and coming like Saxobank, etc, start up something like bitcoin. They are just as sick of swallowing the costs of bailing out their bigger competiton and playing byu the shit rules coming down from on top.

P2P, using their own computational power, based in zones outside the FATF and KYC BS, and branding to bootstrap a fiat rival but keep it open source, etc with the same qualities as bitcoin but much better start-up public credibility ... wouldn't be the worst thing.

If it is P2P and open source, why is that a bad thing? just because I may lose a few hundreds/thousands dollars on current btc? ... no, the dollars will be worthless anyway.

But if they use their financial advantage to gain more than 50% computation power, we'll all know it's not real p2p currency, just another Q-coin.

Overpriced?  Compared to what?

So what is the "correctly priced" value of Bitcoin?   Ball park?  $0.1 ?   $0.01 ?   $0.001 ? 

And why?

No matter which of these numbers you choose, aren't all of them somewhat arbitrary?



Currently, the value of Bitcoin is too low to make it a useful currency to buy just ONE house or apartment (approx. $200- $1000 k). The entire Bitcoin economy is worth as much as a handful of houses. That is still miniscule, given the fact that we probably have thousands of users.

So the price seems about right to me.

I don't think that is very likely. The problem with bitcoins is that they are not scarce in the limit condition, since while the number of coins per blockchain might be limited, the number of potential block chains is essentially infinite.

IMO to make bitcoin valuable there needs to be some important service or obligation that can only be obtained or settled with bitcoins. Governments use tax and legal tender laws to establish this tension of demand. While you may or may not find such a binding-of-demand morally deplorable, it is necessary for  the creation of a successful currency, whether fiat or metal or crypto.

Well there is, or why do you think we are all here, because we like to play with make-believe tokens?

The security and anonymity afforded by the substantial computational power, and electricity, that goes into maintaining the network integrity provides precisely that value.

If another P2P, or other network, could put up the same hardware and energy for secure, anonymous transactions then their digital units may have similar value.

agreed, but the similar value in question may be zero, or any other number on the 'value line'.

security is a 'necessary but not sufficient' condition for establishing currency value.

demand-binding is also a necessary but not sufficient condition.

likewise, scarcity.

I guess that's another reason to get people using btc for g&s on the internet, especially for net-based services to which btc are particularly suited.

yes, but what would make bitcoin fly is a highly valuable service that ONLY accepts bitcoins as payment.

ideally that service would be something generated by and for the community.

a simple marketplace doesn't count because there is nothing to stop two parties, having established a co-incidence of wants, to just use dollars to settle, or another cryptocurrency for that matter.

How about that 'bitDNS' project... p2p dns should really be free though.

dannyjpw, I've been spending a lot of time at witcoin.com.

I pays my bitcoins to vote and post, and the content is usually fun.

that's pretty cool !

 I doubt I could even get to the payout min of .001 btc. Also I never seem to have any shares accepted I think it's due to the network difficulty being too high maybe.