Bitcoin Forum

I'd like to make a few points. I've been drinking, and I can't sleep. So now I will do my best to give context to the class warfare that is readily apparent in this forum.

Yes, there are quite a few of us who are cheering the decline in value, both because we are in short positions (disclaimer: me = 100%), and also because we see a re-balancing underway in the valuation of bitcoin in the long term. There's those of us who strongly feel that a lower price point and re-balancing  is critical to bitcoin success and adoption. We abhor the manipulator and his tactics, and dream of the day that an increased use of Bitcoin as a medium of exhange will come. Hopefully sooner rather than later.

Further, since we're all participating in this forum, and we all want the Bitcoin to succeed in one form or another, we need to start to come together as a cohesive unit to understand that there are two very distinct camps, and further, two very different ways of thinking going on.

Given any forum participation, you are already familiar with the two different camps. For those who are still not indoctrinated, let me elucidate.

Store of Value camp (bulls):

You claim supreme knowledge, and obsess over the bitcoin being a store of value. You believe that higher prices mean less volatility, and claim that lower prices will mean higher volatility. Further, you think that higher prices will mean less chaos and wider adoption.

Because of this, you clamor for higher prices, and come up with semi-creative insults, twisted logic and economic theories that sound  intelligent, but are actually quite flat and are for the most part speculative and lacking in any real research.

Some of you use flat out mental gymnastics to justify your claims, and virtually no-one has bothered to cite analogous use case or examples to  back up their statements. For you, Bitcoin has has become an almost purely emotionally based belief system, and even though it quacks like a duck, and looks like a duck, you are staunch in your belief that bitcoins are a Store of Value.

From what I have read, it's all guesswork, duct tape and emotion.

So, you believe that Bitcoin is a method to store value. I would suggest to those extremists here who believe such things, that you please find your way to a number of existing PM offerings, and go the proven commodities route to lose your money. Go store value in something that is both digital and backed by thousands of years of trust. You should probably move to the c-gold forums.

I'm going to demonstrate to you why Bitcoin is in fact NOT a vehicle for storage of value in a moment. First I need to address the Bears.

Method of Exchange (bears):

You claim supreme knowledge, and were once bullish in regards to Bitcoin. You believe that lower prices will facilitate increased usage as a method of exchange, and you see the current price point as unsustainable. Congratulations, you're pretty much on point. In a minute I'm going to demonstrate why you're right. However, you are insensitive to the Bulls in these forums, and though your gut is right, you have very little to back up your own economic theories as to why Bitcoin is a better method of exchange than a store of value.

You clamor for lower prices, and believe that a psychological entry point of 1:1 (dollar pegged) is the right course of action. You come up with creative insults, twisted logic and economic theories that sound intelligent, but are actually quite flat and are for the most part speculative and lacking in any real research.

Some of you use flat out mental gymnastics to justify your claims, and virtually none of you has bothered to cite analogous use case or examples to  back up their statements. For you, Bitcoin hat has become an almost purely emotionally based belief system, and even though it quacks like a duck, and looks like a duck, you are staunch in your belief that bitcoins are a Method of Exchange.

In this case, I agree 100%. Sorry, Bulls.

Now for the images that back up my point!

Here's a graph of current mining statistics, including network difficulty and aggregate P/L based on averages
https://i.imgur.com/e7QIx.png

What does this chart tell you?

1. Total miner revenue has gone down
  a. When revenue goes down, weak and inefficient hands are eliminated
  b. Network hash rate goes down (wag the dog.. nobody's decided yet whether there's a correlation between hash rate and price. Hint: there is one)
  c. Electric costs are eating away at total network mining profits at a rate of 125%. Miners are underwater.
  d. There is no profit margin

https://i.imgur.com/nlu14.png

2. Transaction costs are still at a premium!
  a. When you send 0.1 bitcoins, it costs roughly 2.82 to send that transaction.
  b. Mining is over subscribed!
  c. Total network power is currently a competition in a race to the bottom!
  d. Like it or not, it's a matter of weeks before 40% of miners 1. liquidate their hoarded coins and 2. liquidate hardware

Do you see what I'm getting at? With no commerce, and with Bitcoin continuing to be a purely speculative vehicle, you Bulls are digging your own graves. Once you increase the price, you'll encourage even more miners to come into the fold and take fees for providing near DoD level security to your transactions. You know, the transactions for Poker, Alpaca socks and Mushrooms from Silk Road.

Now, if we can find a price parity where there are merchants and customers cancelling each other out in their in and out exchanges for their flavor of fiat, then we have a real economy. Currently, you're all fixated on the speculative store of value, and trying to buy your own private islands.

News Flash: Not going to happen. Sorry!

Stop believing that Bitcoin is a Store of Value, and watch what happens! Once bitcoin ceases to be used as a speculative vehicle for libertard freedum fighers durhurr! you'll see that the bad name that has been associated with it will start to wane, and that a lower price point (where miners aren't making 2.88 per transaction on average) will encourage more adoption.

$1 is reasonable. Hell, even $1.50 is reasonable. $30 is not reasonable right now. Perhaps in the future it will be, but until that time, we need to back fill the entire system with real commerce, and provide tools for entire distribution chains to use bitcoin as a method of exchange, rather than a store of value.

As long as there are those of you who are credit worthy and able to manipulate the price upward, and facilitate outright fraud and pyramid schemes using bitcoin as vehicle to your success, bitcoin will never rise to prominence. Period.

Bears: be nice to your bullish compadres! They have not seen the light yet, and they're emotionally driven to see bitcoin as a new digital gold. Soon they'll understand why economic activity is a benefit to their aspirations, but until then, be nice and give them the benefit of the doubt. Fact is, most of you were bulls at one point too.

-Jonathan

Interesting thought. I'd like to just comment on one thing: "Once bitcoin ceases to be used as a speculative vehicle.."

This won't happen, at least not as long there are exchanges up and running.

True. However, wide bands of volatility can come to an end with increased adoption. Imagine a time when bitcoinica gives default 1:50 leverage. This can only happen with real economic activity. Speculation in forex is a 1.4 trillion dollar market. Obviously speculation is required to provide liquidity, but if it comes before real use, it causes distrust and market volatility.

Thanks for reading :)

-Jonathan

While mining cost per transaction is a nice metric to have - I don't think you're reading it right.
It's not valid to describe that as a 'cost' for the transaction.
It's a cost for the transactions plus network security - plus, dare I say it - for the property of storing value ;)

I can't really comment on the topic of this thread much because I don't know much about it but I can comment on an off-topic issue of milk in Korea tasting bad.

fake edit: Bitcoin is not a stored value, it's a public trust registry that we use in combination with authentication to share trust in intention to trade products and services.

Please make your opinions heard in the form of radio button selection at the top of this thread.

-Jonathan

p.s. what does it taste like?

store of value and medium of exchange are two complementary functions - Bitcoin will always have both to some degree.

If the price is dropping, its usefulness as as store of value decreases but the medium of exchange function becomes more dominant (people try to get rid of their coins quickly). If the price rises you'll see people start hoarding again because they think it is a good store of value and hence it becomes less a medium of exchange. Wait for the next bubble, rinse, repeat.

True, for the last few months the price dropped so you're completely right: Bitcoin was not a good store of value. However, this cannot go on forever - if Bitcoin doesn't die then it will inevitably rise again some time (the case of indefinite stagnation would be nearly impossible).

Ideally the price would only change very slowly so that none of the two functions dominates the other. We won't see that happen until Bitcoin is widely adopted, very actively traded and has a very high price though.

I agree with you completely on the cost of the mining network - we have an unjustified and unsustainably high difficulty at the moment and therefore it will come down along with the price. However, I don't think people will be so quick to sell their mining gear.


+1

Edit: I voted "Neither" because I think Bitcoin itself works equally well for both, just at different times of economic development!

^This..

oh.. and bears and bulls are indistinguishable once they become roadkill on the bitcoin highway.

Two questions:

How bitcoin could be a medium of exchange without being a good store of value?

How bitcoin could be a good medium of exchange without having low volatility or how bitcoin could have low volatility at low prices?

Bitcoin is both.

Bitcoin solves the problem of fiat currency by creating natural scarcity not influenced by any entity, just like gold. (Better store of value than fiat.)

Bitcoin solves the problem of gold by being very convenient to use with good security and portability, just like fiat currency. (Better medium of exchange than gold.)

I'm not clear what this "storage of value" argument is about?
from  http://www.fincen.gov/financial_institutions/msb/definitions/stored_value.html (http://www.fincen.gov/financial_institutions/msb/definitions/stored_value.html)

I wonder if anyone has come up with a way to separate network security from coin creation. Hmm.

When all 21 million coins have been generated, there's only network security left.

Let's just wait for another 130 years.

I know you've suggested a way with encoin - but a complex trust system involving a mix of anonymous and non-anonymous nodes is far from easily understandable at the moment.
Bitcoin is hard enough to reason about, so it's a hard sell to push something more complex.  

Anyway - obviously this isn't the thread to discuss alternative systems, but I hope you manage to get at least a prototype going to test your ideas.

It's not clear to me just how much the 'store of value' aspect of a currency is dependent on the technical design aspects vs just mass psychology - but I imagine understandability (as a prerequisite to trust/confidence) plays an important role.. and bitcoin is already really stretching that as far as the general populace goes.

A while ago I also thought that making people understand Bitcoin is important for them to trust it, but actually it isn't really. People use online banking and credit cards without knowing the details of how they work under the hood. For the most part, people don't trust something not because they understand how it works, but because others trust it. Frankly that's also true for myself in things I'm not really interested in. For example: I don't care about the calculations of the structural engineers of every building I enter or every bridge I cross. I trust they were sound because others do.

It's also something I've seen with a few friends I introduced to Bitcoin: the less tech-savvy were happy with a very basic description of the system and when they hear me trusting and using it, they trust it as well!

Bring on real merchants, and the public will eventually follow. Unfortunately, real merchants don't want to take the risk, and Bit-pay or any of the various payment mechanisms cost about the same as CCs or paypal, so why bother? The volatility will exist for as long as we don't know how much power early adopters control, and we will never be able to determine that. Assuming bitcoin somehow becomes widely adopted, the speculation could go on for decades or more as people hold back hoards waiting for the right opportunity. It just isn't going to work. Your value is stored until someone decides to sell; your medium is just a substitute for CCs that costs just as much for merchants.

That won't be the case for much longer (at least in my country :))

That's simply not true - the volatility doesn't come from some unknown big holders and it would not just suddenly disappear if everybody's holdings were published with name and amount either.

That's a fair point.. although I'd think you need a critical mass of geeks to understand something in order to get that initial momentum.



If it were that widely adopted - there'd be less interest in 'cashing out' of the hoard anyway..   maybe holding it and spending it directly as needed would be more appealing. 

Sure it would, "Yoshi Nakatendo - 1.5 million BTC" and millions sell to never return, and BTC achieves its true value of pennies.

The price went up because nobody sold. How many nobodies can we group think up to $30 USD before selling? Not many. Nobody bought millions of dollars worth of BTC to manipulate the market, they spent a few dollars on electricity. Regardless if BTC is $2 or $2,000 USD each, the early adopters have the same ability to crash the market value on a whim. All BTC proponents can argue is that "ohhh they probably lost a lot" or "how do you know they didn't sell." Pathetic prove a negative (appeal to ignorance fallacy) arguments. Almost 50% of all BTC to be mined are mined. That isn't going to change.


Then what's the point? To have generations of descendants be wealthy for naught? Why have such a flawed distribution? The people who came up with such an ingenious idea couldn't think of a way to more reasonably distribute the currency? Or did they really think that tens of thousands would jump on the bitcoin bandwagon from the get-go?

In its current state Bitcoin is horrible as a store of value and decent as a medium of exchange. In the long run Bitcoin could be perfect as a store of value and excellent as a medium of exchange, but we're not there yet.  

;)

http://blockexplorer.com/block/00000000049172ba3ec1b673cf13e3d0049c1c07bb103ed3fa300e3833480055

lol I've been marked a bear.

lol :D

Sorry, I'm nowhere near the categories you describe. And I don't care in the slightest what happens in mining. It could be a pink squid selling coins for shrimp for all I care.

Interesting post OP... a couple points:

It does NOT cost $2.82 to send a transaction. You are confusing fixed costs of running the network with variable costs of sending the transactions.

The variable cost of a transaction is well close to zero - and if transactions doubled tomorrow the cost of mining computation resources would remain roughly flat.

Also, you have still not made the case why a lower Bitcoin price is "better for commerce," and calling the people who disagree with your assessment a bunch of starry-eyed libertards is not furthering your argument.

Also, "store of value" and "method of exchange" are in no way mutually exclusive concepts. A good money is both things, and one might argue that both features reinforce and depend upon each other.  Don't assume that just because something is "volatile" that it is not a store of value.

Regarding price, Bitcoins are probably over-valued in relation purely to the current bitcoin economy. However, they are almost certainly under-valued if you consider the net present value of their future use. There's nothing wrong with speculators in both directions trying to price Bitcoins somewhere in between its narrow current use and broad potential future use.

evoorhees, I appreciate how precisely you can always express my own thoughts. Unfortunately, thanks to my limited language skills, I'm everytime failing with express them by myself :-).

LOL that was an awesome sentence. I think you express things just perfectly slush and your English is better than most Americans, thanks for the compliment =)

Hey thanks. Yeah, I sort of trailed off and finished this post with haste once I could no longer focus on the screen, and once my typing skills became significantly diminished. 20oz of delicious pino nior. Mmmm..

But I digress..

I am not misinterpreting the network, though I should have given my statement context (quick, 10 Bitcoins to send a message back in time. Someone use their rig and hack into CERN to send me a message from the future on this point). The volume of real transactions is very low right now, and we are ALL paying the ~$2.5 per transaction because of that. Cost per transaction IS a really good indication that the current price of Bitcoin is too high, and that its use as a method of exchange is far from reality. The cost per transaction should be much lower than it currently is to support the current price. ~40 transactions per an average of 10 minutes does not justify the current cost.

I see a lot of "if" coming from people on this board. If you build it, they will come. What matters is the network NOW. Mining is vastly oversubscribed, and at the same time we ALL pay WAAAAAAY too much to miners through higher exchange rates, while the miners themselves see no benefit or upside because of the oversubscribed competition.

In normal commodities production, there's little room for emotion. With Bitcoin, the network size at current seems to have very little grip on reality. It's not profitable to mine, while at the same time it is makes no sense to pay the equivalent of $2.5 per transaction to the same miners. If real transaction volume tripled through real commerce, then we'd likely see a higher value point, and a more healthy ecosystem. However, as it is, it's becoming very apparent that most of us are not rational actors, be it miners, speculators, developers or merchants.


I don't think I've ever uttered the phrase "starry-eyed". Sorry if you don't like it, but the libertards here have not demonstrated sanity at any point that I can recall. I'm entitled to my opinion.


Of course you are correct. However, when you have one without the other, you have a recipe for fail. Not only do I assume that something that is volatile is by its very nature a poor store of value, I *KNOW IT*, and so do many of you who'v lost 20, 50 and some of you nearly 90% of your investment.

[/quote]

Again, Bitcoins are definitely over-valued in relation to the current economy. Let's fix that.

Thanks for your input.

-Jonathan

I agree with the remark about needing more of a bitcoin economy.  Everyone should be focusing more effort on getting businesses accepting bitcoins.  Both online and in Brick & Mortar stores.  That is key for bitcoin's success.

I haven't verified your stats on bitcoin transaction fees, but I do agree that these need to be cheap for the currency to make sense.  The difficulty and market will determine whether miners mine or not.

Is bit-pay.com the only merchant solution?  Is there a way for merchants to accept bitcoins without using bit-pay? 

How does the 3% fee for USD option compare to credit cards?  Does anyone know the actual fee structure for credit card payments?

Disagree. You can compare *relative* numbers of tx/hour (say changes in network activity between June and now), but calculating costs per tx using absolute numbers is just stupid.

a) I can generate 1000 txes every hour just for you, with single line in shell. Does it mean that market price is going to equilibrium with transactions on the network? Surely not.

b) Bitcoin transactions does not reflect real economy size. Do you know how many coins is changing hands inside markets using user to user transfers? They're instant and usually for free, but they're still bitcoin transactions.

Jonathan I appreciate the discussion... but, I'm a bit confused by what you mean here. I am not paying miners $2.50 per transaction. The only people "paying" to operate this network are the miners, and they are paying the electric company. They decide on a case by case basis if that cost is worth it. But you and I, as participants in the network, are not paying these miners $2.50 per transaction in any way/shape/form. Please explain what you mean.



Am I a "libertard" because I think people shouldn't use force on each other when no crime has been committed? And you say such people "have not demonstrated sanity at any point that you can recall."  Now you are resorting to both name-calling and hyperbole and that is not a good indicator that you know what you're talking about.

I've seen very foolish and very wise people discuss things on this forum, from both libertarian and statist perspectives. Saying that a certain group "hasn't demonstrated sanity at any point" is so clearly incorrect that it makes me wonder why you are trying to sabotage your own arguments?



Are you talking about the USD? It's lost over 96% of its value since 1913. 

Be careful when you claim that something is not a store of value, categorically. It all depends on your time horizon. Over the past year, Bitcoin has not only been a store of value, but it's been one the best investments in the entire world. Over the past few months, it's been a terrible investment. Over the past 24 hrs, it's also been excellent as an investment.

So what is a better store of value? The USD which falls continually in value, or the BTC which - to this point from it's beginning - has outperformed any other asset class in the world. Certainly, the USD is far less volatile than BTC, but that is more a question of market depth and adoption. Please give the BTC a few decades at least to reach an adoption level where you could accurately gauge relative volatility between it and fiat currencies.

Stating categorically that BTC is and will never be a good store of value is hubris at best and economically foolish/flat out wrong at worst.



Proper valuation of an asset is comprised of many parts, but simply looking at the "current spot of the moment economy" is an insufficient basis on which to price it. The net present value component of future use is very important, and a market price far higher than today may be quite warranted depending on the future outlook.

Thankfully, free markets enable shorting of over-valued assets, and I'm glad you are contributing your price estimations via that mechanism. The BTC market is healthier for it.

I do appreciate the discussion Jonathan, you have some good things to say.

Everyone who is buying bitcoins is paying that $2.50 cost for the electricity required to mine the coins. There's no reason bitcoins can't be 10 cents a piece and only need 1TH/s or so to secure the network. If you think 1TH/s is not enough... well that is a design problem.


Oh there has been absolutely nothing like BTC's gain in history, ever. Oh wait, tulips. Bitcoin-tard right here, get your bitcoin-tard.

Agreed, you shouldn't pay 500 * the cost of a tulip for a tulip bulb.  Bitcoins are a little bit more complicated, but I like where you're head is at.

I still say, we need to be getting businesses and people accepting bitcoins for them to gain intrinsic value.  Let's focus on that now.  Where is the best place to start focusing on local markets?  Would that be the Marketplace directory of this forum?

I agree, we need more business in bitcoin...


...but my point is that there's nothing how we can realize that <something> *is* the real value.

What is "correct" bitcoin value now and why?
What will be "correct" value when new 100 merchants will accept bitcoins?
What will be "correct" value when ebay will accept bitcoins?
What will be "correct" value when US government start accepting bitcoins for paying taxes?

There's NO way how to realize it! Everything we have is the market and trading of individuals for their best personal interest. Somebody thinks that current "correct" value is 1$, because it is "sounds good" for them. Some other people think that "correct" value is 5$. And the final equilibrium is *now* at 2.20-2.30. There's no need to say bulls are "less inteligent" with twisted theories and call your own opinion as only one correct.

In more or less the same way can electricity be a good medium of exchange of energy while being a shitty way to store it.


Evolve beyond thinking of paper price-tags hanging off of trinkets, and hold the currency for only as long as needed for a transaction.


I doubt that it can, but I don't believe that that is a show-stopper for a lot of things.

The exchange of bitcoin for fiat is the mechanism that pays the electric costs. Currenly, about $14k a day is getting paid to the electric company. That's $11k of exchange value going out the door, never to return, and an additional $3k that has to come from somewhere. Currently, it's the miners pockets and their bitcoin savings, causing additional downward pressure. Think about it! Since July the collective pool of Bitcoin owners has seen a loss of around $1.6 million dollars from electricity to secure the network. You're mistaken if you think this doesn't have an effect on the price, participation and viability of Bitcoin. Hopefully this will change soon, as structured ASICs make it to market, and mining is no longer a GPU heavy enterprise.


You seem rather level headed. You make some rational points, and from your post history I can see that you hold your temper. I do resort to name calling and hyperbole, it's true. However, mine is a unique experience, and I have a bad taste in my mouth for the self serving randian libertarians. They add no value to the system, and are ideological to a fault. I don't think someone is a libertard simply because they're libertarian. I'm a libertarian, I am a capitalist, and I am also a bit of an anarchist.


And it only took 100 years. In the case of bitcoin, it has taken months. This is not a good comparison, sir.


You're conflating bitcoin here, sir. Bitcoin may be a good day trading opportunity, but for something to be a good store of value, it must demonstrate the ability to actually HOLD VALUE over some period of time. Bitcoin has not demonstrated this ability yet. At best, bitcoin is a good temporary store of value, and speculative vehicle. That is all.


It has both outperformed and conversely underperformed compared to every asset class in the world. The USD is a store of value for many because it has worldwide utility. If a country wants to purchase oil from Saudi Arabia, it must do so with USD. This is an example of method of exchange building the foundation for a good store of value.

I never stated categorically that BTC will never be a good store of value. Right now, it's a horrible store of value because there is no foundation to support it, we pay too much per transaction, miners are underwater and at current, the bitcoin marketplace has as good a foundation as a wet paper towel. Again, let's fix this.


First of all, we absolutely need a new paradigm of mining. The miners are the backbone of the network. Without them, Bitcoin ceases to function. With them, however, we collectively pay over $10k USD per day to subsidize their cost of operation to secure a network that has 40 transactions per block on average. GPU mining is a zombie, and its replacements will hopefully be here soon, with much lower electric bills!


I appreciate the discussion as well, and I'll be keeping my short position for some time.

-Jonathan

You're the only one who said there has been "nothing like BTC's gain in history ever."  Please don't make up stuff and attribute it to me.

Lots of assets endure speculative bubbles, what's your point? There will be many more speculative bubbles in the btc price, I assure you.

yeah, ok bub. "hay guise this digital trash token was worth nothing now it's worth 0.01, it has outperformed any other asset class in teh world!!!11 infinite returns!"

There is something for how we can realize the real value... see you last line, the market.  Right now the real value is 2.2-2.30.

That's what I'm trying to say. Current real value is $2.2-2.30. Obviously there's some temporary balance between future expectation, mining costs, bitcoin utility etc. Anybody saying that current price is (for any reason) 1$ or 0.1$ or 100$ is lying for himself.

Agreed, I like your style Slush.

Parity for Bears is $1 = 1 BTC
Parity for Bulls is  $1 = 1 Satoshi
 ;D

It's good to have both bears and bulls. If the market has only bulls, we'd call it bubble.