Bitcoin Forum

Some guys on this forum keep saying that we urgently need people to sell goods/services in Bitcoins, preferably never exchange them to fiat throughout the production process. It's definitely good for the Bitcoin economy if finally many merchants are willing to do that.

However, one thing remains a clear, Bitcoin is still a currency even if this is not possible at the moment. We always talk about difference between Bitcoin and fiat currencies, but in order to Bitcoin to become a real currency, we should let go the term "fiat". Bitcoin, just like any other currencies, should be treated the same way in economic activities.

For example, if you buy an iPhone, even though you may be paying it in USD, the production process is not entirely in USD. The manufacturers in Japan, Korea and China will eventually exchange USD to their local currencies to pay for machines and wages.

This is the same for Bitcoin. It's entirely acceptable to sell a product, and then exchange to USD to buy raw materials.

The real world economy is highly inter-connected. The only way for a virtual economy to survive is to inter-connect with the real world. The death of Bitcoin is not marked by the provision of goods/services, nor by the value. The death of the Bitcoin economy is the isolation from the real world.

There's nothing wrong with trading Bitcoins, just like there's nothing wrong with exchanging USD to EUR to buy a glass of wine.

Everything within reason.

Sure currency exchanges have a reason but in for example USD-EUR exchanges most of the trade is to facilitate commerce.  Sure speculators exist and they will always exist but the REASON for the exchange isn't to be a casino where speculators can win or lose it is to faciliate real commerce.

So:
USD-EUR 99% real commerce, 1% speculation
USD-BTC 1% real commerce, 99% speculation

It's not entirely true.

"About 70% to 90% of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency."

http://en.wikipedia.org/wiki/Foreign_exchange_market#Hedge_funds_as_speculators

So please just complain about human nature. It's not Bitcoin's fault.

Brilliantly stated.  The idea that Bitcoin must operate in a self-contained, self-sufficient ecosystem is foolish. As it grows in usage, we should expect to see greater exchange into and out of bitcoins for other goods, services, and monies. There is no reason to fear "cashing out" into any other currency - it harms Bitcoin's utility not at all.

Ummm it actually increases it me thinks  ;)

I think this is the more important point. Merchants like us who are basically extraterritorial but legally liable face an uphill battle dealing with the conglomerated banking and payment processing interests. But Bitcoin only serves a utilitarian purpose for us as long as our customers are able to buy it with their paycheck and redeem it for bread, or something they can buy their bread with. We're wholly dependent on the functioning of the trading houses, they're the ones who absorb our risk and act as our interface with the world.

Now if it's not Bitcoin, it's gonna be something. Bitcoin didn't spring out of a void, it came out of a basic need that's developed to hold your value outside the government-controlled monetary systems. That demand is only going to increase as further corrupt regulation, sponsored by the banking sector and rammed through by their government cronies, continue to tighten the noose around the middle- and upper-middle class people who spent their lives playing by the rules only to see their life's savings swept up in the giant ponzi scheme that's playing itself out around the world. The further we sink into the crisis, the more people see they have no control over their own survival, the more realize they've been turned into slaves to these interests, the more people will turn to alternate currencies or anything that puts a little of their wealth off the grid for the future. The most productive land in Soviet Russia was the 10% that was set aside from collectivization for personal gardens in the '60s and '70s. [correction: it was 2% of the land, and it accounted for 1/4th the agricultural output. http://en.wikipedia.org/wiki/Agriculture_in_the_Soviet_Union]

Then and now there was a system of corruption masked by, and in the name of, social equality...where distribution from the able to the needy still turns out to be another way for parasites to rape the innovators and producers of value at the point of a gun. Yet the fact that the demand existed then, and exists now, for ways of storing personal wealth outside the crippling system of corruption, did not and will not make it a mainstream action. Even now, in North Korea, there are people privately producing what vegetables they can get away with growing and selling...they're basically in the same position as people who want something like Bitcoin to store their wealth in the Western world. A much worse day-to-day position, but not essentially different: Their product isn't their own.

"Fiat" isn't so much a description for currency as a description for the means by which governments disabuse citizens of their God-given rights as human beings. By fiat, they declare their collection of taxes on penalty of imprisonment. By fiat, they make it illegal to buy or sell outside of the channels they regulate, so they can take a piece of everything. By fiat, Steve Wynn can open as many casinos as he wants, although he personally could never do what we've done. By fiat, we're barred from taking bets in the US, or trading normally through other methods.

But we, and others, will make the most of the opportunity to blow this whole worm-ridden, corrupt corpse of a system sky-high. Maybe not us, maybe not Bitcoin, but the tighter they pull the noose on the ordinary man the more resistance they'll meet.

So fuck them. Bitcoin -- whatever else it might be -- is proof you can't keep humanity in a permanent state of oppression anymore. It might be a wild ride the next few years, and I'm sure it will be. We're gonna keep riding the waves.

I wouldnt argue for isolating BTC if you can come up with a different way to keep speculation in check. There is a reason most countries have regulation that limits speculation, even the US, despite being ruled by bankers and speculators  just passed a law limiting at least individual speculative position in commodity markets. The reason is simple; excessive speculation kills the underlying economy by creating huge price swings.

In actual economies with functional governments, you can regulate or even impose taxes to try and reduce that problem. In bitcoin land, with its huge aversion of anything that even smells like government or regulation, let alone tax and because of its decentralized nature, I dont see a way. Ideally you would want to put a brake on fiat -> BTC -> fiat transactions that have no underlying economic activity, but how would you do that?

So its kind of ironic that government regulations and courts are (IMO) coming to the rescue by isolating bitcoin and thereby possibly allowing it a chance to grow. If nothing else, bitcoin is a great experiment, and one that should make hardcore libertarians think twice before claiming free markets can regulate themselves and intervention, regulation and taxation is always bad. Only bad regulation and stupid taxition is bad but if the commodity and real estates bubbles havent shown it to them yet, perhaps the bitcoin casino will make them reconsider some things.

While I agree with what you write. Balance is good. There seems to be a current lack of balance. It also appears that imbalance is growing. It is a really simple ratio to visualize.

Goods traded for Bitcoins
---------------------------------
Currencies traded for Bitcoins

As this ratio tends toward infinity, Bitcoin tends toward world domination.
As this ratio tends toward zero, Bitcoin tends toward a Ponzi scheme.


The big damper on Bitcoin adoption is that most non-bitcoin users understand the above intuitively. What they perceive is the above ration is tending toward zero. A predominance of speculation talk only reinforces that perception.

Yes, but if you are spending a lot of time or effort trying to make money on an essentially unproductive activity then I think you should ask yourself if there's something else you could be doing that would be more effective at making the world a better place.

I think a lot of buy-low-sell-high, there-is-always-a-bigger-fool, or high-frequency trading fits into the "isn't making the world a better place" category. If you're competing for a bigger slice of a fixed-sized pie, I think you should think hard about what you could do instead to make the pie bigger for everybody.

Mmmm.... pie......

Exactly.  You don't need to be a Bitcoin Jesus.  Just tell your friends, and places where you shop regularly.  You'd be surprised how many people are interested.

Maybe I spend to much time on the speculation board, but it seems to me that a healthy portion of us don't give two shits about making the world a better place, and those who do tend not to agree on what that means.  And all this matters relatively little since an even smaller number of us have the native ability to contribute anything of substance anyway.

In the mean time, I see all the trading and scheming as quite useful as a means of stress-testing the system and exploring facets of it which might not be thought of by the more capable developer class.  I think that it is a huge net positive for the network as a whole at this time particularly as the economy is much smaller than I would have imagined given it's (what I consider to be) quite revolutionary nature.

In order to explain the lack of interest and 'success', I have settled on the philosophy that the current state sanctioned currency systems are working fine and actually work much better than Bitcoin ever could (for now.)  Whether my explaination is correct or not, it is hard to deny that if the world population cannot absorb the current rate of inflation with more ease than seems to be the case, there seem to be issues.  Again, I see it as a big net positive that there is fair amount of trading interest and activity and that at least one example of the system making people $$$RICH$$$ at one time as psychological tool, at least, and one which is likely to pay off going forward if the system hold together.  And speculative interest can be thanked for that I think.

Agreed. That's why innovation is important.

But speculation isn't entirely worthless. Greed is human nature, to a large extent, short sellers, day traders and HFT bots actually counter human greed because they believe in price convergence. About 80% of trading in forex market is speculative, but they indeed make the rest 20% better off.

I always believe that the best way to counter bubbles is HFT. HFT bots catch tiny profits and destroy the dreams of greedy "investors". What's buy-low-sell-high? It's price stability.

At the beginning, speculative trading may cause volatility because of the market power being controlled by a few hands. So we need more speculators. They provide liquidity for everyday bitcoin transactions. They bring Bitcoin closer to our real world economy.

Without speculation, we can hardly produce any goods or services in Bitcoins efficiently.

If there's anything harm about speculators, it means we need more of them, not less, in absolute figures. The way to make the pie bigger is to convince real world merchants to accept Bitcoin, but not criticize the speculators and ask them to provide services instead.

Few points:

#1: Hoarding bitcoins is not like putting money in a bank. The money on "forex" is not being hoarded...its being put to use. The forex acct doesnt take physical receipt of the money and just sit on it.....unlike you. At best, the money you get is working for the govt economy, not bitcoin.

#2: Bitcoin speculators dont provide liquidity....all traders do is seize up the supply and hope the price rises....creating an artifical bubble of higher prices....making it more EXPENSIVE and thus less work(and trading) gets done. All they do is create paper profits and losses, not economic gains. The only people you get to trade are more speculators.

#3:  The problem with speculative bubbles of your kind is they are leveraged....so not only is something amiss, we dont even know if you can handle the exposure and all your contracts can be unwound. That includes depending on you not to bet against your customers.

Its kind of interesting that you are so against providing your bitcoins to be put to use. Im always looking for that in any currency, since that means interest on my holdings. You make it sound like this is OWS(Occupy WallSt)....not the case. A growing bitcoin economy only makes your position better in the long run.

^^ this!

I talked very lightly about Bitcoin to someone(my boss) and without even wanting to know more than "Bitcoin is a way to transfer money from person to person without banks as intermediaries and with very low(or unexistant) fees" he wanted to accept it as payment for the new webshop he was opening just because he thought the idea was awesome. I think this proves the statement "You'd be surprised how many people are interested." as true.
It's just too bad that the only Bitcoin payment he got was from the dude that tested the payment system...

0. This post is not about Bitcoinica, or leveraged speculation in general. I was saying that the mindset that Bitcoin is only useful when we can provision goods and services without having to change Bitcoins into other currencies is not correct.

1. If you want to grow national economy, just use fiat currencies. There shouldn't be any difference between the fiat economy and Bitcoin economy if you really use Bitcoin as a currency. The problem of Bitcoins is that people want to isolate them from the real world. In the very short run, holding USD and holding BTC make no difference to everyone. The Bitcoin economy is not so advanced that banks (or e-wallets or exchanges) can use the deposits elsewhere for investment. At this moment, most people think these are scams.

2. Last week I bought a website for $10,000. The seller and I both agreed that PayPal's awful and international wire is too slow and inconvenient. So we decided to go with Bitcoins even though the guy didn't know anything about it. He was surprised that I had managed to sell 2,000 BTC for $10,000 in a few hours. Who bought those coins? Speculators! Well, another guy is on board. Who else can provide liquidity? If there's no speculators, merchants can't sell their revenues and make products. Also, if you really use Bitcoin as a currency, what does high prices mean to you? Nothing. I was encouraging merchants not to afraid to exchange Bitcoins to other currencies, because Bitcoin is not an investment vehicle for merchants. If the market is stable, they hold, if not, they buy and sell - it's perfectly natural.

3. I know my risk. You don't have to tell me that I shouldn't take too much risk.

I'm never against putting Bitcoins into use. When did I? I against the view that speculators are bad for Bitcoin. If we want to make Bitcoin economy a bigger pie, we shouldn't criticize speculators and investors. They are a very important part to our economy.

Why the registered users doubled in May? Because of media and speculation. At least it makes a lot of people suddenly aware of this stuff. It also reminded me, who will be developing a series of apps to contribute to the community, that Bitcoin is something noteworthy. (I was aware of Bitcoin more than a year ago, I mined some coins (a few hundred) and lost them because they had no value to me. Bitcoin came to my attention again when its value is more than $1.)

The market is always correct. It's just something that everyone follows. It makes no sense to determine the nature of a particular trade - the nature doesn't determine the value. Speculators are the people who "wow" the new adopters, including me in the past. I know the economic importance, philosophical value, technical elegance and social effect of Bitcoin, but at the bare minimum, I know it's something worth trading. We simply can't expect anyone to appreciate a currency without showing them the money and the market.

What's unique about Bitcoin in the very short-term? (Most people think short-term only when they decide whether or not to learn it more. Early adopters of Bitcoin should all be curious, adventurous and open-minded. So they may think long-term. But it's entirely different when we convince others around us to adopt it.)

- Controlled money supply. (I don't think 99% of general population cares. They can't even link the increase in price to the increase of money supply.)

- Sending money in seconds. (Most people send money for consumption. We have credit cards.)

- Irreversible transactions. (Consumers think reversibility a protection. Merchants always strive for conversion rates.)

- No government control. (Over 99% don't care.)

- Unique products? No. Unique services? Hardly any.

- Speculation and investment! This is the main entrance of new Bitcoiners. Many people around me care about a "diversified currency portfolio", and they all agree Bitcoin should be in their portfolios, but they don't really care about the rest.

Bitcoin has the potential to make people feel their lives are being wasted with taxes, inflation and endless debts. But at the very beginning, what we need is:

- Miners to protect the network

- Speculators to provide liquidity

- Investors to increase the value

- Organizations to accept donations

- Consumers to buy the products

- Merchants to sell the products

Without anyone of the above, Bitcoin economy is just a joke.

So, if you are a speculator, good luck with your trade. If you are a merchant, keep selling. If you are a consumer, try to spend Bitcoins if you can. If you are a wealthy investor, make Bitcoin a part of your portfolio. Whoever you are, invite others to join, and we should all do what we love doing.

The human economy is a complex system with full of decentralized decision making, self-interests and property rights. For it to work, we shouldn't stop disrupting others' work. An economy is just a natural mixture of different human behaviors, and Bitcoin deserves to be the same.

zhoutong, you seem in complete denial of the problems caused by excessive speculation.
the comparison with forex is somewhat flawed. Even if 70% of the currency trade would be speculative, in the world of our fiat currencies, there is an immense real economy underneath, and more importantly, we have a counter balance: central banks. As much as most people here despise them, at least they can and constantly do act to counter bubbles and busts created by speculation, by buying or selling foreign currencies and other means of dampening the volatility, thereby protecting their exports and trade from excessive price swings that speculators want and try to create.. At least it used to be that way, but speculation is becoming so rampant that even central banks are running out of ammunition and the result is not stability,its ever increasing instability. You have to be completely blind not to see this.

In bitcoin world its different, and in fact its infinitely worse; not only is the ratio between commerce and speculation pretty much zero, there is not even a central bank or any other mechanism to counter the volatility. There is no possibility to regulate and limit speculative positions or leverage. The results speak for themselves. Anyone who wants to make a case for financial regulation only has to point to the bitcoin experiment to prove their case. If our fiat currencies would see only a 1/100th the volatility that bitcoin sees, the impact on the real world economy would be nothing less than catastrophic.

Speculation is useful, no one argues against that, but only up to the point where its no longer predictive and guided by the underlying economy and its prospects, but instead guiding the economy and predicting itself. At that point, speculation becomes gambling and the first victim is commerce.

I don't deny the problems of excessive speculation. Everything you said is true.

However, no commerce is no commerce. It's not speculators' fault. If all speculators leave Bitcoin today, there will be still no commerce.

That's why I said we should all focus on what we do, and stop blaming others.

I believe that there are many merchants out there are part-time speculators as well, because everyone wants to grow his own wealth, ceteris paribus. Speculation is what made us today, and we are now looking forward to our tomorrow. It just doesn't make sense to me to ask everyone use Bitcoin as a currency. If everyone is using Bitcoin as a currency, Bitcoin will never be a useful currency. It will just be hackers' monopoly dollars.

Speculating can be a productive activity, if done right, that is, if speculators manage to guess correctly the future price movements. A speculator that make mistakes in such guesses make things slightly worse, though. Obviously, nobody has more incentives to make it right than the speculator himself.
http://www.thefreemanonline.org/columns/the-benefits-of-speculation/
http://wiki.mises.org/wiki/Speculation

That's just part of a more general rule actually. If you study praxeology and economic science you'll understand that any activity that brings profit without violating any property right (directly or indirectly) is productive.

Thats where you are wrong. Just talk to the few actual bitcoin merchants we have here, ask them how they feel about the insane price volatility. Its a huge burden on them and anyone who would want to implement bitcoins for any commerce. A more stable bitcoin value is not the only thing needed, but it would the most important step to pave the way for more widespread adoption. Now anyone looking in to bitcoin and looking at trade charts will be scared away, rightly thinking its not a trade facilitator, but a casino. A merchant cant risk 20% daily price volatility when his net margin is usually less than that.


I agree with you on that, because a merchant who is not interested in gambling can almost not do business in bitcoins. Fact is that extreme price volatility is a very big barrier to entry for other wannabee merchants who are not speculators. Price volatility also has another property: it attracts speculators. Catch 22.


I have no idea what you are trying to say here.

Bitcoin speculation brings no profit, its a zero sum game. whatever you win, someone else loses.
Its as productive as a roulette table.

It's simply a wrong statement. There are not only speculators on the market, but also merchants and (since Bitcoinica launch) also hedgers. Sometimes people are selling because they want to cash out or buy coins, not only for speculation. When I want to cash out btc->usd *right now* and I accept current market price, it's *not* a loss for me, but it can be a win for a speculator, who sold coins on higher price days before. This is clean win-win situation, which isn't possible without a speculation.

Actually speculation make exchanges much more usable for merchants, because they can sell or buy Bitcoins at any time, no matter if there's another merchant who want the oposite transaction NOW; this makes price much more stable, although many people won't agree with me.

The amount of actual trade by merchants in the bitcoin economy is completely neglectable compared to the amount of speculation.

If you read my other posts, you would have noticed I fully realize the value of speculation for merchants as long as the trade volume by speculation doesnt completely dwarf the actual economic activity. What we are seeing now in bitcoin is almost exclusively speculation, and the overwhelming majority of that doesnt benefit anyone (other than the speculator that placed the right bets, at the expense of the speculator that made the wrong ones). All of that is no profit to bitcoin, its a net loss because of the excessive volatility it creates .

Any buys or sells by speculators from merchants cashing out or to customers cashing in, those are valuable. Speculator to speculator transactions, which is like 99.9%, are not.

Well, at least it enables the (big) exchanges to fight the legal battles - I consider this very important for Bitcoin. None of them could afford to pay decent lawyers if it were not for the speculators.

To be more precise, if it were not for the loss of the speculators. Yeah the casino makes a profit on the roulette too, after all, exchanges and casino's provide a value added service, but not the gamblers.

Dont get me wrong, I dont think you can blame them, or enablers of services that empower them. You cant expect them to go against human nature and seek a profit if you believe in capitalism, so the problem Im afraid is more fundamental: without any possibility of regulating or taxing, I dont see how bitcoin is going to get out of this viscous circle of volatility, but it will be interesting to watch.

I do fear for bitcoin to have a future as a trade facilitating currency, rather than as casino chips,  someone is going to have to come up with a bright idea for bitcoin 2.0.

No somebody just needs to come up with a way to provide hedging for merchants.  Obviously this involves some risk and it is risk they can be compensated with.  I would have no problem holding assets in bitcoins if I could be at least partially shielded by volatility.  I have no problem giving up some of the upside potential for downside protection.  I don't need bitcoin to go up 10,000% a year to make money as a miner. 


An ever better system would be one which partners with a pool and allows members to be paid in both bitcoins & cash (to cover electrical costs).  By heding part of the posistion and locking in a cash rate which covers electrical cost miners would have more confidence in keeping some of their assets in bitcoins (and bitcoin economy).

A Bitcoin 2.0 is doomed just like alt-chains are doomed.  Bitcoin achieved massive community interest and is still unknown by 999,999 out of 1 mil people on the planet.  Any version 2.0 would have an even tinier base.  Any alt coin has an even tinier base.  Combine that with the inability to "stop" Bitcoin 1.0 the idea of a reboot is simply fail.  It won't happen.  Ever.

Trying to fight speculation without govt decree is futile.  If someone can do something highly repeatable and gain x% they will.  It is human nature.

This is exactly what I'm doing.

Bitcoinica is a good foundation.

Potentially.  I believe easy to use hedging for non-financial experts is the "killer app" for Bitcoin.  Bitcoin makes that task more difficult because the risk of fraud/theft is great but I believe it can be done.

If (and it is a big if) miners can hedge their electrical costs by getting paid in fiat for part of their gross revenue with stable longer term pricing that makes the mining network more secure and increases adoption.

If (and it is a big if) merchants can hedge their holdings in bitcoins then bitcoins can be used more for intra bitcoin transactions which is a virtuous cycle (more merchants paying expenses in bitcoins leads to more merchants accepting bitcoins and paying some expenses in bitcoins, etc).

If (and it is a big if) consumers can hedge their holdings in bitcoins then more will be willing to use them and thus be introduced to the advantages of bitcoins.

I am not saying it is possible or it will happen but it certainly has more potential that a reboot to bitcoin2.0 or some worthless alt-coin.

If you can make that work, it would indeed be a very good thing, as you would separate the currency from the gambling, and put the risk of currency swings where they belong, in the casino.

I just fear it will be too expensive to be practical to hedge against such enormous volatility. If you look at mature commodity markets with more stable prices, with ever increasing speculation, price hedging to actually protect your business form price swings is getting less and less common, because the prices are so high. For a currency that may be different, and perhaps less of an issue, since the absolute value of it is not important, but Im still skeptical.

I have nothing against speculation, but wider adoption is surely linked to bitcoin's utility as money. There is only so much growth in speculation.