Bitcoin Forum

First let me say I am excited to learn more about a private currency with no central bank authority to control it. A colleague who I respect though offered the criticism that Bitcoin (BTC) will not get off the ground because people will hoard the currency. Thus even if the BTC economy starts having to use fractions of  BTC it might hinder wide spread usage. I have to say I agree partially with his sentiment, though:

1. the same could be said of any stable thing of value given the rapidly depreciating currencies from governments of the world
2. this will send price signals to the market to encourage better value to entice BTC holders to spend them

However I agree that I want BTC to take off sooner rather than later as a viable currency. I agree with the hoarding fears because I myself have an instinct to hoard as many BTCs as I might be able to get, with my only fear being BTC will not take off or be cracked down on by authorities, thus harming the BTC value.

To combat the hoarding issue, I would like to brainstorm on ideas for making BTCs easier and more commonplace for use. We need projects to encourage and make it easy for suppliers of goods and services (stores, businesses, individuals) to accept BTCs and then the demand that is already there will be more easily met by supply. I think the speed of transactions is definitely a hurdle currently for point-of-sale transactions at neighborhood stores for example. What can we do to spread the idea and adoption of BTC?

Walk into a store selling gold. Look at all those outstanding offers. Realize hoarding is a myth.

Using fractions of BTC is not a problem. We just move the decimal. The bitcoin economy is growing just fine with people hoarding bitcoin.

I've been thinking about this. If Bitcoin becomes a dominant currency, hoarders could represent future "stimulous packages".

The only obvious potential downside is if one of them dumps too quickly.  I imagine that there will be a market for accountants managing Bitcoin Billionaires.

Rich hobo bitcoiners don't need accountants to manage their wealth! http://bitcoinweekly.com/articles/bitcoin-rising

All they need is the ability to run and escape from anything.

Have you really tried this? Was this a private store in a rural area? I'd really be curious. I suspect most people would still not know the value of gold. This is slightly dated but I think largely still holds true, here's what happens offering gold to the average American - http://www.youtube.com/watch?v=WAaVK5AkZzI

Do you really think these people would give you *anything* in return for a BTC? Gold suffers from the same problem - how can I really use it to live my daily day-to-day life? Especially since so much of the economic system is setup to discourage alternate currency....

Freedom is a tough pill to swallow, eh?  Fear and greed will make it so that hoarding will not be a major flaw of Bitcoin.  We come from such a warped economic system that we find this freedom odd.  In the US debt-based economy, inflation is a problem.  Interest rates are at zero percent.  People with savings are earning a negative return after adjusting for inflation.  Who hasn't noticed rising gas prices?  Rising food prices?  How do these rising prices benefit you?  Do you want your cost of living to increase every year due mainly to monetary inflation?  Only speculators are rewarded in the US system.  They borrow money cheaply and put it into risky assets.  Regular people who save money are punished by inflation.  And this is the system we want?  I choose Bitcoin.

Hoarding is only a problem if the hoarded value is ever dumped at the same time.  If it's gradual, things will adjust fairly well.  Or if they just hoard forever and never spend it, it's like the coins never existed and that's fine.

Eventually we will hit a point that each hoarder will realize he has a lot of wealth and wants to enjoy it.  Just hope it's not all at the same time.

You'll get no argument from me. However even if I am sold on BTC, unless I can use it down at the grocery store, to buy clothing and energy, it will be of very limited value to me, as much as I like it. BTCers need to consider how to get the mainstream to adopt it because most in the mainstream aren't sharp enough yet to know they need it. If they were there would be riots in the streets. I believe their ignorance is is due to government schooling and government propaganda (which it took me many years to overcome) but recognizing this is an issue and doing something about it are separate actions.

We need to do something about it and if they haven't woken up by now, we need to figure out alternate ways and means to get them to adopting BTC. This may happen anyway but I would like to speed up the process!

Saying we need is a lot different than doing. Yes, everyone would like the average person to adopt bitcoin. And we're working on solutions to problems anyway.

It's not even going to be all at the same time for each individual in most cases. And unless people are dumb they're going to try to dump during periods of influx of demand (I assume these will continue, what do I know though?). This will temper spikes.

The existential problem for the holders of BTC, potentially is, if people don't spend it, suppliers will see no reason to adopt accepting it. This will harm the value of what they hoard. The market might then adjust to "fix" the imbalance but it will not lead to wide spread acceptance of BTC. We'll just continue to need to use the USD and related currencies... until disaster ensues. I want faster adoption and am merely pointing out an area of market opportunity which I see in my current readings on BTC.

OK good - I will be doing some things too. =)

You miss my point. You say hoarding will hurt the economy because it lowers liquidity. So I refer you to gold. Gold is a deflationary store of value. You perception dictates it should be hoarded. Yet buying gold is easy, and widely available. This is a live example that hoarding won't impact liquidity.

I don't think hoarding in and of itself is bad.  People need reliable ways to save for future purchases just as much as they need a way to spend.  Also, if people hoard enough, eventually they will need to eat or buy things and they'll have no choice but to spend.  However, people do need to recognize that each incremental bitcoin they hoard is worth less and less.  For example, if you cornered 90% of all bitcoins, the market price would skyrocket, but the market price would not be an accurate indicator of the true purchasing power of the bitcoins you possess (it would be far less).  If there was some mathematical model that could make a person aware of this in the client, it might help people better gauge when hoarding starts to have increasingly significant diminishing returns.  If you could somehow estimate the portion of the bitcoin price that is attributable to your hoard, you could better understand it's true purchasing power.  That might discourage excessive hoarding.

People will hoard until the value of Bitcoin reaches a point where they'd rather spend. This is a self-correcting situation. Not a problem.

It probably won't, but it might.  If there was a lack of confidence in the system, or perhaps a panic where people thought "this is the absolute peak, it's going down to 0, better get what I can", you'll see a massive dump.  That would only happen if the actual value of the coin was much higher than the perceived value by the hoarders, and they believed that everyone else was figuring it out as well.

This problem is somewhat magnified by the fact that a very few number of people have a significant amount of hoarded coins.  This means that there are less decision points on when to sell, and it's easier to get a panic when you only need a few people involved.  On the other hand, it means those few people are fairly dedicated and unlikely to panic where a lot of people in a crowd may.  It does create a more volatile market since smaller number of individuals act with bigger forces than a lot of little ones, but it just means things might be rockier than normal.

There is only one way to do it. Get more people to accept it, so that would-be hoarders have plenty of opportunities to spend. And here is how you do that:

First, recognize that most businesses in the mainstream (your local supermarket, for example) are totally reliant on state capitalism. You will have to look outside the mainstream economy to find merchants who will accept bitcoin. Look further to find more who are open to persuasion. What we need to do now is to get enough people using bitcoin so that when - not if, but when - the dollar becomes useless as a medium of exchange, bitcoin already exists as an alternative. We won't find those people running brick and mortar businesses that have the approval of the FTC, FDA, and (certainly) the IRS. We will find them online, primarily; but also in the black and grey markets that the government so kindly provides for us by making "legitimate" business so hard to do.

People for whom reputation replaces licensing, and relationships substitute for advertising. Your landscaper who already takes payments under the table. The local farmer's market, where people barter all the time. Flea markets which trade off the books in bullion. Small-time, unlicensed contractors. Underaged laborers, illegal immigrants, used book sellers, greasy spoon restaurants, pawn shops... you can find them wherever you go if you look for them. Get to know them; build mutual trust. And then make an offer. Pay a little extra. Help them get started. Get them hooked - and then tell them to go and do likewise.

Concerns over hoarding should be avoided and the energy should be transferred into producing

Why would anyone want to discourage savings and investment?

Because they've drank the Keynesian kool-aid. But I'm willing to define hoarding, for the sake of discussion, as saving money to the point of a loss currency's usefulness as a medium of exchange. I'm aware of the extreme unlikelihood of that happening, but I do like to address people's concerns on level ground.

If this were a reasonable concern, we would already see its effects with things that are already "deflationary" such as PCs and PC components. Yet people buy these all the time.

It is an unreasonable concern. But seeing how people had already pointed that out in rare form, I decided to offer something that someone who worries about such a thing (however unjustifiably) can do to remedy it. Call it a placebo, if you want. But it isn't really, because encouraging more people to accept bitcoin is good advice even if nobody ever worried about hoarding.

I believe that for this discussion to be productive, the emphasis would be on first identifying how we can 'help the average person to adopt bitcoin'. If this is accomplished, then the hoarding won't be that much of an issue as there's an active consumer economy based on Bitcoin market.

That what entrepreneurs are for.

This! +1  "Hoarding" is just a slanderous term for "saving" and savers build capital reserves to fund investment. If money is "hoarded" and becomes scarce, interest rates rise and the incentive to lend is increased, thereby correcting the problem.

Hoarding is a non-issue in the long term. It is self-correcting. In the short term, Bitcoin speculators may hoard coins but they risk severe losses proportional to the extent of such hoarding. Free markets work - we just need to stay out of their way, and not concern ourself with the sometimes uncomfortable or even painful short-term fluctuations.

The biggest risk from hoarders is a severe panic that would wipe out the value of Bitcoins. 

You mean, the biggest risk from hoarders is if they all stop hoarding at the same time?

In the event of massive hoarding couldn't we just establish a 2nd IRC channel and issue a 2nd genesis block?  That would start the chain for 21 Million more coins.  There would need to be an exchange between the two different coin generations but that isn't any different then the bitcoin to flat currency exchanges today.

Pretty much.  It can lead to a positive feedback loop.  If a few big hoarders decide to unload coins, then the value drops.  Then the other hoarders get scared and dump as well, causing a bigger drop, which causes more people to get scared until no one is willing to buy bitcoins (or only for super cheap).

It's just supply and demand.  The supply of Bitcoins is those that are actively participating in the economy.  That's far less than 6 million.  Say half the coins are being hoarded, and half are actively trading hands for goods and services (including USD).  If twice as many show up, the purchasing power of a Bitcoin gets cut in half.

So, great, they drop to tiny cost to buy, is that simply going to lead to another round of the same due to only a few people buying up millions of coins at dirt cheap prices, or is it possible it could instead lead to many many people each dropping a centime or two on a few hundred or few thousand coins so that on the next upswing there will be many many many more "early adopters" as in people who got their coins dirt cheap the first time it tanked?

-MarkM-
 

I think we're 'what-iffing' a bit too much in this thread. Yes it can go up and down. No, we can't predict which will happen when or what will be the result.

Who wants to catch that falling knife?  It would scare a lot of potential people from buying them if they are potentially worthless.  A lot of people cannot stomach losing 50% on something.  It's easy to throw money down like candy on an investment "that can only go up".  But when the reality of losses set in, people will sell sell sell!

It just makes things very volatile, which will scare off a lot of people.

All the more reason to diversify into BitNickels and Britcoins and Martian Botcoins and so on and so on before that time comes.

There are plenty of people who will still find use for bitcoins and their variants even when they are worth less than a fiat-penny each.

In fact dirt cheap ones might be a lot more useful if they aren't zooming up in price as fast as bitcoins have lately been doing, as maybe people might actually spend some instead of just getting into a get rich quick bubble mentality.

-MarkM-

+2. However I guess what I am saying is that although I will be buying BTC I see nowhere I would want to spend them at the moment. But that's just me.

Coins are emitted by miners. Miners have costs and are competing against each other, it is very likely that most miners will sell their BTC. Coins issuances will stop circa 2140, by then Bitcoin will be dead or filled with vendors, at which point hoarding won't be a problem.

The price will eventually go up high enough the hoarders will start using them.  Or it will stagnate long enough they will start using them.  It's a self-correcting problem.

I am finding myself that hoarding has a psychological barrier because I know I am not going to want to spend bitcoins once I have them. Strangely enough this has led not to pouring all my money into bitcoins until I want to spend some but rather to not putting any money into bitcoins that I think I might actually want to spend sometime in the next few years. So basically the rapid rise in price is leading me to consider bitcoins only for "savings" and look for other things to use for day to day transactions.

I wish I knew of an actually functioning ripple or open transactions or loom or something that has merchants I can look at to see what a given amount of whatevers will buy me, but none of those systems seem really to have merchants yet either even though in principle they ought to be providing units of account tha somewhat stably relate to goods I can buy instead of acting as a get rich quick bubble system.

I rather hope that Canadian Digital Notes that pretty reliably buy a CAD dollar per CDN catch on or something like that, so I can use an alternative to paypal and pecunix and liberty reserve and so on that can eventually become open like bitcoin but in the startup phase can have a reasonably reliable pricing for quite some time. This skyrocketing of prices is disconcerting, maybe it would have been better not to have used 1,0E8 units as "a coin" but instead used the raw units, so we would right from the start had a psychologically much vaster number of coins available, maybe short-circuiting the perception of rarity bitcoins have gotten at their present scale of how many base units are spoken of as "one bitcoin". The current "scarcity" seems somewhat aritificial or contrived or an illusion produced by cunning placement of the decimal point...

-MarkM-

OP - You spelled "encourage" wrong in the title.

direct bitcoin-bitcoin market would be best idea, but there is "chicked or egg" closed loop problem, cuz some people depend on traditional economics for living.
so i guess, until someone Invest something into make BTC more widely accepted/recognized, as well direct trading for BTX.
remember WebMoney, PayPal and few similar stories ? 1st step - most hardest.

I think more people would be happy to invest their saved bitcoin, which is why we opened up glbse.com

On the op's question about finding ways to discourage hoarding:  It's unnecessary because these incentives are self regulating.  I also agree with other poster's takes on the word "hoarding", a negative connotation for "saving", which is actually vital to growth and investment, but for the sake of argument lets work under the assumption that it is actually bad.

"Hoarding" only pushes up the value of bitcoins remaining in circulation, as well as the demand for bitcoins.  At some point a hoarder will sell bitcoins or buy goods when he feels the value of the bitcoin has risen to his expected level. Hoarding for the sake of hoarding has no value whatsoever, because bitcoins themselves have no utility by themselves, only as a tool to facilitate transactions.  So yes a hoarder could change the value of coins, but the value fluctuations are necessary to create incentives to spend or save. 

Eventually as the economy grows, i see the value stabilizing, but right now things seem very volatile since the only real utility is speculation.