Bitcoin Forum

Assuming that we want bitcoin to replace the current paper currency

So, does anyone here believe that bitcoin can replace the $?

bitcoin is now getting stable
less volatility

bitcoin is now getting stable

Things like bitcoin can not be stable due to pre-scheduled supply rate. Market demand always varies, and since supply can not be adjusted to demand, bitcoin price will always be volatile.

I am wondering...

One can trust the dollar, euro, pound, yen or whatever because they are stable.
Meaning that if I can buy a popsicle at a nearby convenience store for 1$ I will probably be able to do so tommorow or next week.

volatility is great that's why wall street is going crazy for bitcoin. 2015 is going to be a special year

Yes it is, and only wider adoption will help here.

@bornil267645

Is still not enough. If you get pay in Bitcoins on Monday and you could buy 10l of Milk with it, but on  Friday only 8 then it is to volatile.

I agree with that.  The only way to go for bitcoin is merchant adoption.  I know that people say that this will not increase price, because it increases velocity.  Probably true.

However, consider this.  If there is initial merchant adoption, those merchants have to pay their stuff in fiat, so they convert immediately in fiat, to avoid the exchange risk.  Prices are still based in fiat, and only converted into bitcoin.  
However, the more there is merchant adoption, the more it will be interesting for merchants to keep some coins, to pay their suppliers who accept bitcoin too, in coins (and avoid double exchange costs).  When merchant adoption will generalize, there will be much less incentive for a merchant to immediately convert to fiat.  It may also begin to become interesting to receive (part of your) salary in coins directly.  Prices would still be first quoted in fiat, and then converted in bitcoin, at current exchange rate.  But the more trade is done directly in coins, the more there will be a desire to have prices quoted directly in coins, not and not floating conversions in fiat.

I can ONLY think of this as the way of adopting bitcoin.  And that may take quite a while.  

I guess the "Is bitcoin too volatile" discussion is over now that the price is stabilizing between $300 to $400.

A few months ago, it was the talk of the time, but now everyone is worried about the price, being too low.  :(

We seem not to be satisfied, with anything BTC has to offer. 

It is very complicated.

How is Bitcoin valued against?... USD, Yuan, Yen, Euro...?

if it is lets say $100 USD... 614.295 Yuan... If USD Rises in price... What is Bitcoin's price?

Te value is general, really measured against all goods. Since it is often traded against the various fiats, it is easy to discover the price of bitcoin in those fiats. But this is not necessary. Bitcoin can also be bought for diverse consumer goods, which is the same as diverse consumer goods can be sold for bitcoin.

When BTC is used more in daily life, it will be less volatile.

The problem is the small market cap. Every sale of a Bitcoin whale (I mean four digit amounts of Bitcoins) ends in a dicrease of the price + panic sales etc. If we'd have a stable fundament we wouldn't have such a high variability and volatility...

Once it hits $5 trillion a day volume it will be stable

Isn't $5 trillion too much?

I tried searching for the USD money supply. According to this article on howstuffworks.com, the money supply (M0) in the US last year was $1.2 trillion.
I guess the money supply today won't be too different.
http://money.howstuffworks.com/how-much-money-is-in-the-world.htm


Do we need Bitcoin's market to be 4 times the US money supply before stability is attained?

Do users actually want BTC to be stable?

Do users actually want BTC to be stable?

Isn't $5 trillion too much?

I tried searching for the USD money supply. According to this article on howstuffworks.com, the money supply (M0) in the US last year was $1.2 trillion.
I guess the money supply today won't be too different.
http://money.howstuffworks.com/how-much-money-is-in-the-world.htm


Do we need Bitcoin's market to be 4 times the US money supply before stability is attained?

I don't think so. I think that many users make money on the BTC price fluctuations and stability of BTC price deprive them of this opportunity

The problem is the small market cap. Every sale of a Bitcoin whale (I mean four digit amounts of Bitcoins) ends in a dicrease of the price + panic sales etc. If we'd have a stable fundament we wouldn't have such a high variability and volatility...

Isn't $5 trillion too much?

I tried searching for the USD money supply. According to this article on howstuffworks.com, the money supply (M0) in the US last year was $1.2 trillion.
I guess the money supply today won't be too different.
http://money.howstuffworks.com/how-much-money-is-in-the-world.htm


Do we need Bitcoin's market to be 4 times the US money supply before stability is attained?

I think this time bitcoin very volatile compared with the beginning of 2014, I do not whether this is due to the celebration of Christmas is almost near, plus New Year celebrations, maybe now people in desperate need of fiat money to fulfill the needs of christmas and new year, I hope bitcoin prices will return to normal as the beginning of 2014, hopefully ...  :o

Volatility is actually much lower now.
$400 seems to be a tough resistance to break.
$350-$400 seems to be a range where bitcoin will trade in the near future.

I think you should compare bitcoin more to M2 than to M0.  The reason is that bitcoin is already "bank accounts" and "saving accounts", and that there won't be fractional banking with bitcoin (there will always be a difference between 'true' bitcoins - those on the blockchain - and any stuff that looks like bitcoins but are just debt expressed in bitcoin.  Only a fiat system, or a system where "real" money is stored and "certificates of money" are circulating allow for a confusion of both, and allow for fractional banking.
As you cannot loan out bitcoins, and keep them nevertheless simultaneously on your wallet, there can be no double-counting of coins (as it is with fiat money on bank accounts).

Which means that what we use as M2 money, will have to be supported by all of bitcoin if bitcoin is to replace fiat.

World-wide (all fiat money included, not just dollars), this is estimated to be equivalent to something like $ 55 trillion I thought.

Do users actually want BTC to be stable?

Price of btc is not important. Only important parts of btc are volume of trade, number of transactions and businesses accepting it as payment. I personally dont have BTC to profit from capital gain, there are better options for that, less risky. Why I decided so? If BTC will someday replace US dollar and other fiats, the value of BTC wont be measured in fiat anymore, because it will be replaced by BTC... When that happens all ''value'' from fiats will be converted in BTC, so you will end up with capital loss not profit. Thinking about how it will be worth a lot of money is just like... in which money, btc is new money remember? 

Bit coin is now rather stable. Smart investors can actually make nice profits trading bitcoin daily as it generally tends to chchange at a rate of 1 to 5 % daily as seen on btc e. But I would say that the price will be dropping as less people are saving it and more people using it for daily real life transaction.

While the price hasn't moved much in the last one month, daily volatility can be high compared to other asset classes. As you say, this is one reason why traders are able to make reasonable profits on Bitcoin.

I think this time bitcoin very volatile compared with the beginning of 2014, I do not whether this is due to the celebration of Christmas is almost near, plus New Year celebrations, maybe now people in desperate need of fiat money to fulfill the needs of christmas and new year, I hope bitcoin prices will return to normal as the beginning of 2014, hopefully ...  :o

I don't think that BTC will completeley replace fiats. It can become equal to them but not totaly replace them.

My mother was talking like that 20 years ago about credit cards and today she almost don't use cash.  ::)

Thats a different thing. You still use your fiat while you're using cards. The payment is instant. No volatility too.

Ok. But who said that after next 20 years we will have to use paper money? maybe that will be plastic or some cheap metal.. or just chip in your finger  ;)

Without solving the volatility issue bitcoin is going nowhere. Which seems impossible for now. Btc will be a bears and whales toy while it is dat volatile.

Yes it is and it is killing btc slowly day by day.

I completely agree. With it's current volatility, bitcoin will never be widely accepted as a currency. I would never accept bitcoin from my employer as my monthly pay until I can be sure that what I am paid today will be worth the same tomorrow and the next day. If I wanted such volatility and uncertainty in a primary currency, I'd move to a third world nation. Most people feel the same as I do in this regard.

Bitcoin is still in its infancy stage. I would say wait till its market cap becomes so high that it would be impossible for large players to move the market.
Then you can accept your wages in Bitcoin.

Volatility is a problem. I helped my friend buy an $800 PC the other day from Dell. I really wanted to use Bitcoin, but I didn't have quite enough on hand. The current price trend means I would probably lose 10% or so during the 3-5 days the bank transfer would take if I bought some. So... I used a credit card.

the funny thing about volatility is that you never see anyone complaining about it when the direction is up.

the funny thing about volatility is that you never see anyone complaining about it when the direction is up.

the funny thing about volatility is that you never see anyone complaining about it when the direction is up.

In my prior post I made the argument that a stable currency was both impossible and undesirable. What we really want is a currency that grows in value at the same rate as the economy as a whole. Since then Vitalik has responded with some critiques that made me realize I didn’t present the argument as clearly as I could have. There was confusion over the difference between pegging assets and creating a stable currency. My argument boiled down to the fact that only fiat currencies are considered stable and pegging to a fiat currency isn’t decentralized nor stable.

For all practical purposes the dollar is considered stable by most, but pegging to the dollar doesn’t help give us freedom from the FED. Other national currencies are just as problematic because they are controlled by their own version of the FED. My goal with crypto-technology is to create a store of value that does not grant some elite the power of the printing press. After all what good is it to have a decentralized currency who’s value can be directly controlled by the current powers that be?

It is possible to create two assets that are pegged to one another; it happens every day with debt instruments. An IOU is worth its face value if it is liquid and the issuer is credit worthy. This is the foundation of the BitShares BitAsset system where every BitUSD is similar to an IOU from the blockchain backed by sufficient collateral and can be sold at the market price within 30 days.

The real debate is not whether or not we can peg one asset to another, it is whether or not we can create a stable crypto-currency that is entirely free of centralized control (i.e. government). This means establishing a stable unit of account that is independent of national currencies. As most people realize, only national currencies are currently considered ‘stable’ and this is what makes creating a truly ‘free-market’ and truly stable currency that is not subject to the government printing press a challenge. After all, if I hold BitUSD and the FED prints 10% more USD then I just lost 10% of my crypto value. In effect, you gain little freedom by holding BitUSD.

Consumer Price Index
In my prior post I suggested that we could create an artificial asset tied to the consumer price index. This would have the impact of simulating what would happen once a fixed supply currency was universally adopted. The downside is that it is impossible to come up with a long-term universal consensus on what the growth rate of the economy is by traditional means. You end up having to come to a consensus on what basket of commodities and currencies to use, what measure of value, what relative weights, and what substitutions to make from year to year. It is the whole consensus process all over again and which ever entity is responsible for estimating inflation would be completely in control of monetary policy.

One thing Vitalik did point out was that Shadow Stats was a bad source of data, for which I thank him. That said, I still believe that the CPI and the cited Billion Prices Project is an equally bad source of data. There are three primary reasons all of these CPI measurements are flawed.

They exclude entire asset classes that have experienced the greatest inflation (stock market
They fail to account for economic growth that would normally lead to falling prices
They are fully centralized and lack a consensus process.
If one wanted a reliable, decentralized, trust-free way of estimating the relative change in the value of the dollar, then a prediction market would be the best method. With a prediction market you give everyone an opportunity to contribute to the estimation and gain a continuous source of information. Unfortunately, a prediction market will only tell you what everyone thinks everyone else will eventually think. If actual inflation is 10% but the masses believe a 2% number then a wise investor would bet on what the masses will think in the future and thus even with a continuous prediction market the data you get is only slightly better than the stats published by the government.

Stable (Constant Standard of Living) Currency is Undesirable

This gets back to my point about a stable currency (defined as a constant standard of living) being undesirable. It is undesirable because we want the average individual to be able to “invest in the economy” simply by saving the money of the economy without having to take any risks. If you make the currency a “constant purchasing power” then the average man ends up having to make investment decisions he is not qualified to make. This ultimately leads to the centralization of money management in brokers and other middle men. Centralization of money management has inefficiencies and moral hazards in abundance.

 Perhaps the most damning problem with centralization of money management is the inability of any bureaucracy to efficiently abstract and process all market signals. This gets back to the “Economic Calculation in the Socialist Commonwealth”. Pooled funds placed in the hands of investment gurus are a form of voluntary socialism where the money manager makes money from commissions whether or not he makes money for his clients. It is often a “heads I win”, “tails you lose” situation.

From a crypto-currency perspective, our primary goal is to eliminate the need to trust. If we design a crypto-currency that is trust-free, but in order to get any positive return on investment requires trusting someone else to invest it for you then we have not minimized the need for trust to the maximum extent possible nor have we realized the maximum economic efficiency possible.

Fortunately most proposed systems end up with a pair of currencies: volatile and stable. The result is that the volatile currency acts as a kind of reserve for the stable currency. The average man could simply invest in the “volatile” currency to get the growth he wants assuming the volatile currency has a fixed supply. With this approach the only question is what should we peg the “stable” currency to? With BitShares we allow pegging to any other currency or commodity. There is no reason to invent a new unit of account that has its own centralization issues.

Systems such as Nubits which are tied to the dollar will fail with the dollar. The only reliable approach is to have a system where there are many pegged assets that can be used as money all of which use the same reserve currency. In this way the market can switch from BitUSD to BitGOLD or BitSILVER in the event that the worlds fiat currencies collapse. A basket of pegged assets is the key to a stable solution.

Fixed Supply Currency is Ideal

A fixed supply currency will naturally fluctuate in value over time as the supply of goods and services in the economy grows or contracts. It will also fluctuate in value as the demand for saving vs. consuming changes. One would expect that during the Christmas season prices will rise as money comes out of savings to buy gifts. The rise and fall of a fixed supply currency is a critical market signal that should not be masked.

At any point in time the market needs to allocate all of the resources in the economy. Every single trade represents a re-allocation of resources in an attempt to maximize each individuals personal value preferences. If everyone attempted to consume resources at the same time then the result would be hyperinflation. Prices would rise until all property was divided among the population in proportion to the percent of the money supply they held. If you multiply all of the inventory in the world by its price per item and sum it up you get a value many orders of magnitude greater than all of the money in the world. It works very much like a market cap of a crypto currency. You could never dump 100% of the supply and receive market cap valuation.

From the markets perspective, it sees no difference between a resource being consumed for enjoyment or being consumed for the purpose of enabling future production. For example, the price of corn is set by the cumulative demand for seed corn, animal feed, and human consumption. Without proper market signals no one can tell how to allocate the available corn among the three options. If we are not careful we could consume all of the corn this year and have no corn at all next year. Corn is a metaphor for all economic resources. We need to save some so we can produce more next year.

When someone chooses to save a currency they are delaying consumption today with the expectation that they will have greater enjoyment by consuming tomorrow. This means that wise investors save while others are consuming and consume while others are saving. More specifically, they save during Christmas and spend during the year. In other words, they buy low and sell high.

The volatility of a fixed-supply currency is critical for balancing saving and consumption in the economy. It is a proxy for physically saving a claim on a percentage of all global resources. The value of that claim will rise and fall as the economy grows, contracts, saves, and consumes.

The Goal of BitShares

Based upon this analysis the goal of BitShares is for BTS to become a global currency in its own right and for the dilution that we experience today to fund development to taper off until we have a fixed supply. BTS is being positioned as a reserve currency for the issuance of collateralized IOUs that are useful in facilitating trade today. In the long run, if BitShares is successful, its value will behave exactly like an ideal currency. Today the BitShares economy is small, but you can expect a rate of return proportional to the growth of our micro-economy.

the funny thing about volatility is that you never see anyone complaining about it when the direction is up.

True enough. Of course, why would anyone complain on getting a profit?  ;D Up or down, volatility is a problem because it scares off future users.

WHen the US Colonies were first established each State had it's own currency, and exchange rates were likely a bit volatile. It wasn't until a single currency (the Dollar) emerged that things settled down. It's possible we're seeing the same with cryptocurrencies today...with the difference being that the strong contender to be the single cryptocurrency already exists, bitcoin.

WHen the US Colonies were first established each State had it's own currency, and exchange rates were likely a bit volatile. It wasn't until a single currency (the Dollar) emerged that things settled down. It's possible we're seeing the same with cryptocurrencies today...with the difference being that the strong contender to be the single cryptocurrency already exists, bitcoin.

It's not  the same tho. Dollar is under severe regulations, Bitcoin is true free market, so not sure if it can be as stable without extreme regulations.

Regulation is anathema to Bitcoin. Better to have a volatile, unregulated cryptocurrency than a stable, regulated one.

To be widely accepted bitcoin needs to settle down. People want their currency value to remain stable, not fluctuate wildly like a commodity stock.  Imagine if your paycheck was paid only in bitcoins and you would gain or loose 30% of it's value week to week.  Could you pay your rent, mortgage, car & health insurance or buy groceries? Sorry kids, we don't eat this week:(

A swizz employee living in france got his spending power increased by 30 % last week. A french empoloyee living in Schweiz got his spending power reduced. Only regulated currencies, no bitcoins involved. Regulators can not fix that, any more than daytraders. Probably, the market can do the regulation better. Stable value of money is an illusion, has always been.

Merhaba Erdogan, I lived in Turkey for 3 years and as economies go, you have a unfortunate base economic reference.  I appreciate that you have suffered through some of the worst economic times that most people can't even imagine.  In the US the landlord or mortgage company want their money on time and on value.  They aren't interested in spending power, they want $$$.

I don't live in Turkey, I just run it. :)

Do you live in Germany or Austria?

I could tell you, but I prefer to be maximally anonymous here, so I can express myself freely. Anyway, a friend of a friend is hired by a swiss company, but lives in france.

bitcoin is not volatile, and it's value is not volatile, only the price is volatile

bitcoin is not volatile, and it's value is not volatile, only the price is volatile