Bitcoin Forum

Hi everyone, I'm posting here from Japan.

I have a background in teachnology from decades ago, but come here from an economic background. I came to Bitcoin from financial websites and was very interested in the concept. I have spent a few hours following threads and searching in the forums, but haven't been able to find any queries that address my exact concerns. I think these are pretty much the first things that anyone coming from a finance direction would put forward.

Before I knew the forum etc existed I was in contact with the project development team, but they didn't really offer much in the way of concrete rebuttals. After seeing on this forum that they (as people having first access to capital, in this case as the original miners one presumes...) have a bunch of Bitcoins themselves, that makes sense.

However I was wondering if you, as Bitcoin members/enthusiasts/users etc could give me your personal thoughts on these following matters. Please note, I am not interested in the mechanics of Bitcoin or why fiat goes to zero or how corrupt the Fed is yadda yadda. Thats all by the by and has nothing to do with Bitcoin and its success thereof.  ::)

Anyway, my queries to the development team are pasted below. Sorry if its an essay, but I am intrigued. As I said, this is probably one of my only trips to the tech side of the net, I'll be back with the money pigs soon and want to be able to talk knowledgeably when the topic surely arises. 
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You have already moved Bitcoin beyond the 'hobby' realm, so the next step is actual real finance. Unless you can start to impact in this area it will never be more than it is now (despite exponental recent growth rates). Therefore you have to consider what could be fatal to Bitcoin. I can see some obvious candidates, none of which are it being 'outlawed' or whatever conspiracy people consider being the big dangers mentioned in your interview.

A: You relate Bitcoin most closely to gold in the discussion of intrinsic value. Yet I don't think this is correct. Gold, finally, can be used for something, whether industrially or decoratively. The reason that someone in (say) Vietnam saves in gold and not Dong (which is a GREAT name for a currency btw) is that no matter what happens,the value of gold can never go to zero. A person in Sth Africa or Cuba knows the same thing. They know that someone, somewhere, will ALWAYS want it. That, if you have enough of it, you can escape your country and buy a house in Brazil or whatever. This is a very important distinction between Bitcoin and gold (and no, I'm not a gold bug)....which brings me to my next point.

B: Stability. Going to zero in value (see point C) doesn't even need to happen for Bitcoin to never get off the ground in a significant way. As long as everything flows along nicely, of course there are no problems. But you haven't had a real test of the currency yet. No-one has bought a house with it. No-one has started accepting it as their wage exclusively etc etc. Now, this may happen in the future of course, and I'm sure that it will be all over the media when it does. But for it to get off the ground, people must be able to put their faith in it. Right?

And faith is a weird thing.

Imagine you amassed enough Bitcoin to actually buy something significant. Looking on your site, I see people selling bandwidth for Bitcoin. O.k, say I get enough Bitcoin playing poker to buy a server companies ENTIRE bandwidth. All of it. For 25 years. So I basically own it and then on-sell the bandwidth for Euros. So the owner of that server company is trading his income stream, the one he pays his taxes with and buys groceries with, for Bitcoin. So my problem (a huge pile of Bitcoin) is now his. He is fine, as long as he can trade it for (say) some dudes entire stream of T.Shirt production for the next 15 years. But what happens when someone says 'no'?

We saw it in the housing bust. House prices always go up. Until they don't. A 'million dollar house' is only such until someone pays a million dollars for it. Otherwise, its a million dollar house on PAPER only. You say "Its worth a million bucks." O.k, fine, sell it for a million bucks then. But you can only sell it as long as the next person believes the same thing. The last person left holding the bag loses a LOT. This is the 'greater fool' problem. The first person to blink will cause a cratering in value across the market of ALL Bitcoin.

Therefore people will always hedge their bets with Bitcoin. They won't have much faith. They will say "I'll take Bitcoin to X small amount". Or make sure they can move significant amounts before they will accept any, impacting liquidity. Or run a small side business in Bitcoin but not their main job.

The less 'intrinsic value' something has, the less stable it is, but the main point impacting stability is the currencys lowest bound value. Silver may drop in value by 80%. But you can always sell it for SOMETHING to scrap metal dealers. Houses may drop in value by 80%. But you can always live in them.Linden Dollars can always be used as long as Second Life is going etc etc. This very fact makes them more stable than Bitcoin.  A million dollar house's lowest bound of value (or silver, or Linden dollars) is NOT actually zero. But Bitcoins lowest bound IS zero (see C). Which makes Bitcoin NOT a good currency.

C: Bitcoin could easily drop in value to zero, by becoming a victim of it's own success. You say it has intrinsic value. But thats just it. YOU say it does. But Bitcoin is a concept that has no 'accepter of last resort'. Yes, fiat currency is printed out of the air. But a Government, by decree, will only accept taxes in that currency. Therefore, it DOES have a value. And a big reason that fiat currencies die, is not overprinting per se. Its the fact that Zimbabwe stops accepting ZIM from its own people and demands USD instead. Or the army does.

Bitcoins algorithm itself is not special (if I understand correctly????). Anyone can start another algorithm of their own and say "O.K, THIS is the new digital money." Right?

So Bitcoin has 'value' because enough people are using it that it is established. But as soon as someone with more power as an 'accepter of last resort' shows up, Bitcoin will be shafted. Not instantly maybe. But 100% certainly.The concept will live on of course. Its just that Bitcoin itself won't, making everyones current Bitcoin worthless.

If Hollands weed bars suddenly started using Ganja-coin, or Morroco (being tired of ruinous inflation) start using their own algorithm, Bitcoin will instantly begin dropping in value to zero. Why?

Say, for example, Apple decides it likes the concept. It racks up its own algorithm and with every Itunes or software download it also sends the customer a slice of the AppleCoins it has mined. It also lets people mine AppleCoins themselves.These can be used to buy whatever Apple is selling, from here on out. Boom. You guys are out of business because everyone who likes the idea of digital currency will use that instead.

People will instantly make the mental leap "Well my wealth is in Bitcoins. These non-Bitcoins will also go up and down in value, but at least I will always be able to buy a house in Marrakesh/ 500 grams of weed/ 10,000 copies of Tron/ whatever and SELL THEM." This fact will cause people and businesses to ditch Bitcoin for the 'safer' option.

The very reason that someone with 1,000,000 Euros can sleep at night, even with Greece causing it to go up and down like an elevator, is the fact that the person knows that no matter what happens, Siemans or Vodafone or whoever, will want those Euros to pay their taxes. Or a cop will take it as his salary.

Bitcoin doesn't have this. Therefore Bitcoin will always have this sword of Damoceles hanging over it.

You have half your wealth in Bitcoin xxxxxx (name redacted). I'm sure you have made the calculation yourself. Money, any money, is just a concept until you buy something for actual consumption. Because you, yourself, know that at some point you'll be married with some kids (assuming you aren't already) and want to buy a house. Or have a hospital bill to pay. Or just want to get some dollars in the bank for a rainy day.

So what distinguishes your Bitcoin stash from Pre-IPO stock options on a tech start-up? You have to "Cash-out" if you will. And I'm sure you have started to think how you can monetize your stash of Bitcoin in the final analysis. I put it to you that even your faith in Bitcoin isn't really THAT solid on honest reflection and you are in first place in the queue. How can you expect the millions AFTER you in the queue to have faith?

So the concept of Bitcoin is solid. But because of the reasons above (stability, zero lower bound value and extreme vunerability to competition) it can never be more than a curiosity surely. Comments?
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Thoughts appreciated. Im NOT a hater btw, its a fascinating concept. This is just the first thing that popped into my head when I saw them being interviewed and this wasn't covered at all.

I didn't see a question, only a statement.  Most of us old salts don't think that bitcoin is similar to gold except that it is designed to mimic gold if it could be used in a digital realm.

Right?  Well, at least there was a question mark, but there still isn't a specific concern that can be addressed.

People say no all the time.  That's the default response even in the fiat currency world.  If you were really coming from an economic background, you would know that the market doesn't function anything like the above scenario.
Prices go up, prices go down.  That is the way of the world.  Bitcoin isn't different in this respect, except by a matter of scale at present.
Perhaps they will.  That wouldn't detract from it's usefulness as the currency of the Internet.
Bitcoin is no worse in this respect than any fiat currency that you can name.  And bitcoin has the advantage that no one is passing laws to compel you to use bitcoin.
No, we don't.  Who have you been listening to?
The army stops accepting wages in ZIM because the government has printed so much that it's market value trends towards zero.  The death of a fiat currency is always a political event.
Technically, yes.  Go ahead a try it.  Let's see how successful you are at playing catchup to Bitcoin.  It's taken Bitcoin two years to reach this point.
That is a risk, but is dependent upon the 'accepter of last resort' having enough credibility to make the case that their version is actually better than Bitcoin.

Why, indeed.  Why would these institutions start their own currency to compete with Bitcoin?  That's not a trivial question, motivation is important.
Not everyone.  Not me.  Applecoins would be centralized, and when the government comes to get their cut, applecoins will drop in value relative to Bitcoins.
That depends on whether or not the public actually agrees that Applecoins are the safer option.  I would not.
Wait, you actually still expect the Euro to exist in another decade?

I LOL'd when he said a big pile of Bitcoins was a problem.

You cover a whole lot of ground (and a lot of ground that people have already discussed a great length in this forum).  I won't try to respond to everything, but instead just offer a few points:

- Bitcoin does have plenty of intrinsic value...not as a thing, but as a system (the software platform, trading sites, merchant services, escrow services, the mining community (which secures transactions), and the various people and merchants that use it on a daily basis)

- I think most people would agree that competition from another system that works substantially like bitcoin is a threat to bitcoin...the best way to counter that is to keep improving bitcoin's intrinsic value...at a certain level of adoption, a bitcoin competitor/successor would want to leverage the bitcoin infrastructure (and they would have strong incentive to bootstrap their own currency into existence using bitcoin)

- Gold's metallic properties were only relevant in bootstrapping it as a currency...today, its value has little or nothing to do with its metallic properties.  It is not valuable as money because it's used as jewelry, it is used as jewelry because it is valuable as money.  What does this have to do with bitcoin?  Well, you implied that gold is somehow better because of its metallic properties and I think its metallic properties are irrelevant.

- Gold and bitcoin are basically accounting units that do not require centralized management

- The only thing that will cause bitcoin's value to go to zero is some fundamental technical flaw that renders it useless as money.  That's not out of the realm of possibility.

Are people plotting how to "monetize" their bitcoins (kind of an odd way of putting it since bitcoin is money)?  I really hope so because I would welcome a drop in the price.

So, gold makes for a pretty good and almost pure physical form of money.  While bitcoin is pure money.  I'm excited to see where bitcoin leads.

Have I drunk the bitcoin kool-aid?  yes I have ;)

Your point seems to be that bitcoin is not a good store of value, even if this is 100% true bitcoin can still succeed as a medium of exchange.

@creighto:
The 'You' in my questions refer to the development team. These were views they expounded during previous conversations.

'Bitcoin is no worse in this respect than any fiat currency that you can name.'

Thats actually the point I am making. It is worse as long as you can still pay your taxes in the official fiat or make fillings from gold as there is no final backstop to it.

'That is a risk, but is dependent upon the 'accepter of last resort' having enough credibility to make the case that their version is actually better than Bitcoin.'

Again, thats the point I am making. ANY accepter of last resort would be better than now. But the first credible contender will invariably want their own algorithm, which is not a technically insurmountable problem.

'Why, indeed.  Why would these institutions start their own currency to compete with Bitcoin?  That's not a trivial question, motivation is important.'

Morrocco: Inflation. Weedbars: Security blah blah....all the good things you guys talk about in other posts.

'Applecoins would be centralized'

Technically (please correct me if Im wrong as I probably am) don't Bitcoins have to be centralised to an extent? There must be some form of register showing who owns what???? Plus, I don't think the public would care at all if the infrastructure could handle it more smoothly. Most people don't see money as a political act.They see it as a beer and a bag of chips at the pub.

@Silversurfer.
'I LOL'd when he said a big pile of Bitcoins was a problem.'
Its only a problem in as much as you can't eat them, use them to pay taxes, deposit them in a bank or get beer and chips at the pub. You know that. If you had 20,000 of them, the first thing you would do is try and get rid of most of them. Or no??

@Steve
'Well, you implied that gold is somehow better because of its metallic properties and I think its metallic properties are irrelevant'

No,my position is that gold is accepted worldwide (again, Im not a goldbug) therefore people KNOW others will accept it. Thats why its better. A despot in India can escape with his gold to Vietnem secure in the knowledge that his gold has value there. Thats the only thing I am implying.

'Gold and bitcoin are basically accounting units that do not require centralized management'

Except that gold, as a system, cannot be duplicated. No company tomorrow (or government) can suddenly design 'another gold'.

'I'm excited to see where bitcoin leads.'

Me too! I'm just feel it won't be this particular algorithm.

@Dude
'bitcoin can still succeed as a medium of exchange.'

Yes, it CAN.........my question is if it WILL.....
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Thanks for your replies and time everyone. The whole thing is totally awesome. I think that Creighto is a bit pissed at me, but frankly, if you can't take a look from a few steps back then you aren't being objective. I would say further to his 'political act' statement that ALL money is a political act. Bitcoin is a wicked concept, but its replicable which is a fatal flaw.

IF the concept takes off, then the first Government (or massive company) out there to stand behind an algorithm will cause a flood out of Bitcoin to the more 'secure' competitor.And they wouldn't be interested in anything but their own algorithm. Why would they? After all, the interest that the people who made Bitcoin has is tied to their own hard work and the value of the Bitcoin they received in the first few months. If you had 100,000 of the things because you were one of the first miners, you'd be pretty damm excited too.

Using the industrial or decorative value of gold as an argument to why it is safer is not reasonable. Gold is not intrinsically valuable. Nobody keeps it because he knows it won't go below 10 USD a kilo; almost the entire value would have vanished if that happened.

Gold is valuable because it is manifested in culture. It is a convention, belief, you name it. If just a small fraction of this happens to Bitcoin, the system has succeeded. The gold analog is thus valid.

I've been looking for flaws in Bitcoin for quite a while, and I found only two points that might pose a problem. The first would be not reaching a market size from where it begins to take a natural monopoly on being the independent international currency. The second would be protocol issues causing a non-healthy network state.

As to the other criticisms, especially those concerning how important the state, housing or whatever is... it's not important. Bitcoin just needs to take over any kind of market as long as it can gain further momentum from there. Not having inflation alone might get this into The Economist -- and then it's just over, the people reading that can sustain a price of USD 100 just because they're curious how buying BTC works. Rolex, Private jet? Nah, today I'm getting some BTC, they're better than CHF for inflation comparison, ain't that much cooler to have than a Rolex?

States attacking Bitcoin, mh, that might become a problem, too.

Considering the vagueness of the questions, I'm not surprised that you were generally ignored.  The old salts here get very weary of answering the same questions, and if you want a real answer to an unanswered question you have to frame the question well.


Only if you assume that there is a backstop to the fiat currencies that you compare it to.  In practice, this may or may not be so.  Technically there is nothing backing up the US FRN beyond "the full faith and credit of the United States (government)", so in the end what backs a fiat currency is the faith the general public has in the long term future of said government.  If that is enough for you, then that's fine for you.  You should not assume that others share your religion.

I disagree with this statement.  A defined 'accepter of last resort' takes upon itself a huge liability by this action, potentially to their own destruction should the government decide to go after this institution.  If the public even believes that the government can destroy this institution, then the currency dies for lack of trust in a future trade value.  Bitcoin is valuable without any openly defined supporting institution.  If what you say is correct, this should have never happened.  The reality is that it did happen, so some significant economic support for the currency presently exists, which implies that it will continue to exist provided that said econimc support cannot be identified and subsequently undermined.

That's not an answer, it's a dodge of a serious rebuttal to your statements.  By what premise do you assume that such motivations actually exist?  It's rude to dismiss responders so, please don't do it again.

No.  That's the point.  You can choose to centralize for yourself by depositing into a "bank" or website, but no one has to.

You need ot read some more and return later.
They can have what they want by using a bitcoin bank or online wallet service, but monetary policy is politics.  Bitcoin just makes alternatives to the establishment possible.
If I were mad at you, you wouldn't be talking anymore.  But I do consider you a bit rude, coming into our house to crap on our table.  You are not the first to comeup with this theory.

I agree completely.


Sure.  That's why Facebook never took off, just being a novel version of a wiki after all.  It was doomed from the start.

shane, you should have a look into Namecoin (http://forum.bitcoin.org/?topic=6017.0).

Namecoin has almost the same properties as Bitcoin, on top of that, it solves the issue you are most concerned about: it has "intrinsic value".

No matter what happens to the exchange rate, Namecoins can always be used to purchase .bit domain names.

I foresee that Namecoin will evolve into a major currency in its own right. If your theory is correct, it might overtake Bitcoin.

Just answering your question A, later I come for the rest of the "essay" ;)

You must understand that nothing has intrinsic value. Value is a subjective opinion people have on stuff, not an intrinsic attribute of stuff themselves.

That said, please realize it's not impossible, although unlikely, that gold's value reach zero one day. All it takes is people to find better and cheaper substitutes for everything gold does. Personally, I think distributed cryptocurrencies can be such substitutes in what concerns gold utility as a store of value, but that only long years will tell.

Now, comparing bitcoin particular with gold, of course gold brings much more security as investment. We can rest assure that, no matter what, the value of this ancient precious metal won't go to zero from night to day. We can count on its historical value, which bitcoin, being such a young project, obviously doesn't have.
But then, what did you expect? You can't invent something 5.000 years retroactively. :D

Trying could be fun though.

Why couldn't the ancients have figured out the concept of confirnming previous things/values by somehow incorporating or coding them into later things?

Maybe part of the infamous "secrets" of stonehenge, the pyramids, and so on lies not merely in their stellar alignments but in some kind of chain, whereby each later such site includes some coded proof of knowledge of the previous sites in the "chain"?

Hmm...

-MarkM-

Hey guys! Sorry, I shouldn't have mentioned gold at all. Its has sidetracked my argument. I only had it in my original post because one of the Bitcoin developers I was in e.mail contact with bought up gold as a comparison to Bitcoin. Gold seems to cause instant freakout in every thread it pops up in, especially in the financial forums I am usually in ::) (actually its more like butthurt over there...) ;D)

Anyway, I'll try and pare it down to the basics. Sorry, shouldn't have produced an essay, but I'm trying to get a one-stop shop I can cut and paste onto financial blogs.

Creighto thinks I haven't read around here before posting, therefore I am asking noob questions and being rude. With all due respect, I think he hasn't read my posts carefully and is misunderstanding me, willfully or not. As I see it........
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Each Bitcoin is unique. However there are many algorithms that will give similar results.

As a deflationary currency, those with first access to Bitcoin (ie the first miners and developers) will see the value of their coin increase. This causes hoarding behavior.

Bitcoin must necessarily have a centralized registry (whether in the cloud or encrypted and streamed) to prove ownership, because Bitcoins (being a piece of data and all) can be copied.

As Bitcoin is a piece of data with no physical properties of value  (ie oil, silver, copper, bottles of wine etc), cultural properties of value (gold, diamonds etc), way of producing income (land, housing) or legally defined value (Governmental or local fiat....ie taxes and transactions must be paid by law using it) or other value ascribed to it by corporations (beer coupons, gift certificates, airmiles etc)  and all Bitcoin transactions can be currently enacted in some other way (I can buy Alpaca socks with Yen or Euros), Bitcoin has no value beyond that ascribed to it by the Bitcoin community. (Please note, this is NOT a diss, all I am saying is that there is no-one outside the Bitcoin community that would see Bitcoin as having an intrinsic value beyond the USD they could sell it for to someone inside the community).

In other words, while each Bitcoin itself is unique, and the inspiration for Bitcoin is unique as hell (VERY unique  ;) ), there would be nothing to stop someone else starting a competing algorithm. 

And this is my point. If Bitcoin gets to a level of sophistication and ease of use such that any non-computer literate person can use it easily, then eventually some small government or large corporation or whatever, will want to use something like it. This SYSTEM (not Bitcoin itself) could be the money of the future (as many of you point out in many different places on these boards).

In this case however, since it is a DEFLATIONARY currency, and since Bitcoin itself has no intrinsic value beyond this community, and since the SYSTEM can be duplicated (unlike gold for example), Bitcoin will be a victim of it's own success. The new adopter will go "Great idea! Lets get our own algorithm...Bytecoins!". Because, as we see, the first people with access to the algorithm get a whole pile of these new Bytecoins which increase in value from day one. The leaders will want a pile of them naturally. The new adopter would have no interest in using Bitcoins as first access has already been acquired by Bitcoins developers and 'old salts'. The first thing they will do will be to backstop their currency by law, and Bitcoin will be dealt a fatal blow.

We see it in finance all the time. Government X destroys the currency by mismanagement. New Government Y introduces a new currency, that people must use by law to pay their taxes. Everyone wakes up the next day and their old currency is worthless. Or a new technology comes along with similar but slightly better properties than an old one (how much is whale oil worth nowadays?). A Bytecoin that could be used exactly the same as a Bitcoin, except that if you wanted to gamble in Macao or trade in orange juice futures or pay taxes in Kenya or whatever you had to use Bytecoins and Bytecoins alone, would instantly cause people to start favoring them as there would be an backer of last resort.

Is there something I am stating incorrectly here?

A/B: Bitcoin does have some resistant to going to zero, in that it's scarce. This will make it always potentially valuable.
 
C: As far as new currencies using a similar concept, Bitcoin has a first mover advantage in brand-recognition, supporting software, people with the client installed, accepting merchants, and the security of its block chain, which will make it the safest cryptocurrency for a long time.

It's well designed, so I don't see room for a variation to make gains against it.


Apple couldn't give people Apple products in exchange for AppleCoins, since would not be generating all the coins itself. If it generated the coins itself, then it wouldn't be able to match the computing power currently contributing to the Bitcoin block-chain.

As far as bitcoin's speculative nature: of course! It's a fun experiment, that has potential to change the world. Its rapid growth is what's most phenomenal.

This would not work against bitcoin, as there is no method of enforcement.  If bitcoins were centralized (say, only Americans used them), then it would be possible.  If we can get past the infancy stage, though, no one will be able to enforce a boycott.

@amincd
'As far as bitcoin's speculative nature: of course! It's a fun experiment'
I think that sums it up best. Its awesome. But Apple COULD give people Itunes downloads or movies or whatever for Applecoins, even if it let people mine them themselves. Why not? All they would have to do is start a new algorithm (Applecoins) and accept that plus USD. And not Bitcoins. Anyone accepting digital currency would also start accepting Applecoins (plus Bitcoins). Yet the consumer would rather hold Applecoins because they are backed by Apple. See what I mean? As more newbies got into digital currency, Bitcoin would slowly die as Applecoin becomes ubiquitous.

@bearbones
You misunderstand me. No-one will outlaw Bitcoins. I'm using that analogy to show how it would die.Thats HOW Governments change currencies. Everyone is allowed to keep using the old one as much as they want. It still has all the properties of money. Divisibility, portability, cultural acceptance etc. Its just that the Government will no longer let you pay your taxes with it.  The old currency is exactly the same as the new one, but with one advantage. You have to pay your taxes in the new one.

If Kenya introduced KenyaCoins and accepted payment for taxes in KenyaCoins only, then there would be a backstopped demand and some people somewhere that would ALWAYS need them. That would cause all digital currency enthusiasts to migrate towards KenyaCoin. They wouldn't have to do anything to Bitcoin at all. It would just die on its own.

If (fxxking) Goldman Sachs offered deposit insurance on accounts in GoldmanCoins ONLY then the public would want to hold those instead of Bitcoin etc etc. No-one would have to do anything specifically to try and halt Bitcoin. People would just naturally stop using it in preference for something else.

You answered your own question.  No government currently accepts bitcoins for tax payments, therefore the threat is meaningless.  I also think that it would be very hard to make a privately operated bitcoin-clone profitable.  If you controlled the majority of the network, you'd be paying a huge amount to sustain it and also accepting the other 49% on parity.  No, it is far easier and less risky to bootstrap bitcoin.

Apple couldn't do so. If others are mining its coins, then Apple will lose money every time it gives out an iTunes download (since it must pay the artist 70 cents per download).

@bearbones
'I also think that it would be very hard to make a privately operated bitcoin-clone profitable'
'No, it is far easier and less risky to bootstrap bitcoin.'

Are you serious? That is exactly what Bitcoin (through first access to capital) have done. No-one with any serious economic or political weight behind them would bootstrap Bitcoin.
For two reasons:
1: A huge overhang of unsold Bitcoin the developers are sitting on.
2:By starting a new algorithm they would get the benefits that the first people who got into Bitcoin did. Namely a huge pile of the new digital currency.

@amincd

I'm a Ron Paul supporter too. Fingers x-ed.
Apple could easily do so, they would just pay artists in Applecoin.

I am not convinced that having many variant blockchain based currencies would devalue bitcoin.

For one thing if it constantly pointed out that it is in fact using the bitcoin software or modifications of the bitcoin software, all of its marketing would also to at least some extent also be marketing for bitcoin.

Ideally it would even be able to serve the demographic that feels left out of bitcoin by the escalated cost of entry into the bitcoin-minting business.

Maybe an alternate route from hobbyist earnings up toward full buying power new currency could be games. It has long been a problem that it is hard to set up gaming as something people can legitimately make a living at, such as by their character's actions in a game serving to make the game sufficiently more interesting to play for other players that the value of the game as a whole is increased.

We can see already from games such as World of Warcraft, Second Life and Eve Online that currencies used in games can become tradeable directly with "real" currencies, maybe either setting up more and more games that use bitcoins and also variants of bitcoins, or some existing large games introducting such currencies into their games or rationalising their games' economies by restricting the total supply of various things in the game by means of such blockchains, could be at least as practical a way to start up new blockchain based currencies as would iTunes issuing AppleCoins or Canadian Tire issuing Canadian Tire Coins.

A lot of the value in many private currencies seems to be the sheer number of people they get to spam with whatever they want to spam them with. Whether it is air miles or the customer loyalty points of some particular chain of shops, just having lots of people own some seems to almost have value in itself though more likely much of that value rides upon actually having some means of and excuse for spamming them with some form of promotional material promoting possibly even more things than just one's own products.

So to some extent especially during boot-up it might be more important to get coins out to vast numbers of people than to have those coins initially seem to have any actual value. The more people that have some the more value just the sheer number of people will maybe tend to lend to the things.

-MarkM-

Probably not.  But I contest that what you assume would happen once competing currencies exist would actually happen.  Bitcoin has a strong first to market advantage, so any other competing currency based upon it would have to have some dramatic advantages over Bitcoin.  If a large Western government (i.e. the United States) started such a bitcoin copy with legal tender advantages, that chain would probably become more widely used, and thus more valuable.  That's assuming that no other aspects of Bitcoin are changed, most importantly the cash-like ability to trade anonymously.  I would doubt that if the feds ever do a bitcoin clone that they won't put something in there to identify users, which will inevitablely be used against users either by the government itself or by hacker-thieves.  Just the possibility of such a thing would inhibit adoption.  If nothing else, foreign users would be reluctant to use such a thing.  A corporation might not do the same, but such a corporation would become a central target of governments, and thus a victim of their own successes.

Has Canadian Tire become a central target for government(s) due to their issuing of Canadian Tire money?

If not, is it maybe due to some security blanket effect produced on the government(s) by some kind of record keeping of which serial numbers of Canadian Tire money notes were issued to which customers? (I think I recall cashiers handing out used notes though without any apparent attempt to make sure they gave out precisely the serial numbers the cash register thouht they were giving?)

-MarkM-

C4L FTW!


This is unlikely to work IMO.

There once was a crown jewel called aluminum -or however the British misspell it ;-).

Any rock put into the crown sent the message that it was not only more valuable than anything you will never own, it is more valuable than your existence.

Today, I wrap peanut butter and jelly sandwiches in aluminum foil.

Things change.

In my lifetime, I want to wrap my sandwiches in gold foil.

Look up the relationship between lead and gold.

Silver is inflationary for reasons similar to aluminum.  Silver is a byproduct of zinc and copper mining.

Industrial requirements will win the day with shiny "precious" metals.  There's a lot of money to be made shorting this nonsense.

Another situation relates to the death of De Beers.  Diamond foil.

Quantum computing will require heat resistance that silicon can't handle.  Diamonds can handle it.  Diamond wafers are an absolute necessity to the future and if necessary, the future will crush Debeers.

The point of all of that, which I could've just stated in one line, is that artificial scarcity (example, 21,000,000 bitcoins) backed up by strong mathematics IS the future. I know it's optimistic but post scarcity will come.

And regarding apple coin…

1. The overwhelming majority of artists cannot afford apples.  If anything is post scarcity, it's the music business.

2. "No greater treason than the right deed for the wrong reason."- TS Elliott

I hope to the flying spaghetti monster that Apple does their own variation of bitcoin and then shed their containers before the first bust arrives.

Unfortunately, I think gold is poisonous.  :-/

+1 for the rest of the post!

As a heavy metal, it is indeed poisonous.

Napoleon gave his guests a thin golden leaf for his dinner guests to eat as an appetizer.

The aristocracy of Europe has more problems than just inbreeding.  :-)

Another anecdote on aluminum vs. gold in history…

Napoleon give his VIP guests aluminum flatware for dinner.  Everybody else got gold flatware. 

You don't have to go far back in history to see metals considered more valuable than gold.  Silver basically financed the entire Spanish expeditions to the new world.  Silver was lacking in Europe but, to this day, the western hemisphere is well endowed with this shiny metal.

A currency based on silver for the whole world is possible. Do I want that?  Hell no.  The more virtual, the better.  Fiat is already 97% virtual.  It's very convenient.  It's the smoke and mirrors and power plays (see paypal, Et Al) that ticks off any one not sleeping under a rock.

I'll tell you what cryptocurrency means to me: ability.

I grew up with the science fiction stories with credits as a plot device.  These electronic units were apparently independent of whatever evil empire was wrecking things.

Unfortunately, severe disability precludes using physical cash and coins.  As a consolation prize for disabilities beyond my control, I got to use credit and debit cards.

I get a degree of freedom if I trade for it with my privacy.  Is it necessary to know that I bought a book or went to a restaurant? As a merchant, why does anybody care if a customer buys from me?  Will I get an audit for selling a few hundred units while GM and The Federal Reserve get no audit whatsoever ever.

Nobody's business.

I hope it's not an elaborate (REALLY elaborate) pyramid scheme because that would be so disappointing.

SHA 256 is a good an encryption method at this level.  I'd like to see worst case scenario of what we're going to do in the event of a hack.  I'm like to see the system moved to SHA3 before any catastrophe as it will not have any possible hidden weakness of SHA1 as SHA2 might have.

I don't disagree with your general point, but the above statement is no longer true.  Silver in a mined, refined and elemental state (above ground stock, or basicly bullion, coins and jewlry) is much less abundant in our modern world than gold in the same state.  The reason for this is, although gold has been used primarily as a store of value even in the absence of a gold standard anywhere in the world, silver has largely lost it's monetary and investment value as a precious metal (up until last year, anyway) and it's value for the past 50 years or so has been dependent upon it's many industrial uses.  Many of those industrial uses consume the elemental stocks by using silver in chemical compounds that are difficult to reverse, (i.e. photography development) or by using the metal for it's electrical properties in devices that require it and are thus difficult to retrieve (i.e. satellites, aircraft/spacecraft avionics, military equipment and undersea cables).  So over the past 50 years or so, more silver was consumed in industry than is mined each year; although this may change with the recent rise in silver prices.  While pretty much all of the gold that has ever been mined can still be accounted for, as gold has very little industrial uses that cannot be replaced by cheaper materials.

@Creighto

Good call. I agree with everything you say there.

But whatever the final analysis here, I (and I hope you) are discussing the technology whole rather than the specific algorithm called Bitcoin.If it is sound (and personally I believe it rules for many ideological and practical reasons) then it should be adopted.

Where we disagree is that if Bitcoin (the system) is proven sound, you believe that the first to market advantage Bitcoin has will ensure it succeeds over competing algorithms.

I however feel the first to market advantage will be nothing once a credible contender hits the airwaves. If Bitcoin is tested to destruction and passes with flying colors and finally proves itself as a viable currency, the technology itself will be adopted. And Bitcoins first to market status will prove to be its death.

A credible adopter of the technology will not use Bitcoin. Why would they? Give up first access to capital? Nup.

I contend that if the technology proves sound and is adopted, the public will not make a conscious decision to use Bitcoin or not. They will just be told "From now on, Korea Air accepts KCoins" or "Apple has just unveiled a NEW GREAT TECHNOLOGY called Applecoin (ra ra raaaa) " and the muppets will eat it up.

 I don't think the public has any concept of privacy, govt interference or just how screwed they are. The U.S just extended the 'Patriot' Act (hah) for four more years,  the cops in the U.S can now kick in your door if they smell weed (or say they did) http://justsaynow.firedoglake.com/2011/05/17/constitutional-rights-a-casualty-of-endless-war/
etc etc and Obama will be re-elected in a landslide while adding wars to Bushes total. The public just don't make decisions that are good for them.

So if Bitcoins technology is good enough to be adopted commercially you think they will bootstrap Bitcoin? And pass up those billions and billions of dollars? Doh.

Dramatic advantage? Nah man. All you need is a guarantee from Kirin Beer that each KirinCoin will be able to be redeemed for a 6-pack from here on out and Bitcoin is toast.

The only people with a financially vested interest in making Bitcoin succeed are those who have a bunch of them. If someone with real political or economic power wishes to adopt the technology (and don't forget, I am hoping we are talking about the technology itself here) they will want their own algorithm.

So are you are saying that either the technology itself is not good enough for mass consumption (ie Bitcoin remains a curiosity) and therefore Bitcoin has value because its not good enough to have credible contenders? Or that the technology is sound but anyone wishing to seriously adopt it will bootstrap Bitcoin and forgo all the benefits they could accrue by merely making their own algorithm?

@amincd

Oh, it wouldn't work because they wouldn't accept AppleCoins? Guaranteed by Apple. Yeah man, They' d say "Wee don't accept no skeeeenkin' AppleCoins man. It's U.S dollars, Aussie dollars or Bitcoins only!"

I would be totally into a band that said something like that. They would be making a political statement.
http://www.youtube.com/watch?v=x_EsYmPwYWI&feature=fvwrel
http://www.youtube.com/watch?v=Ju5W_FT2D5I
http://www.youtube.com/watch?v=1zVECruSI3k
http://www.youtube.com/watch?v=yk0086ewpjg&feature=related

But the airwaves are ruled by shit bands. Therefore those bands wouldn't say that.
They'd say 'Meh, Applecoins. Yeah o.k. Lets get Biebers new CD with it."

We might very well see competing cryptocurrencies (to the extent that it is legal to provide comparable services) with commercial backing. Note though that many digital currencies run by companies today are very severely restricted and can't be used as regular money, so with current realities as a guide it is not true that the 'new competition' will be exactly the same as Bitcoin.

Any currency which has a backer of last resort will be heavily controlled and regulated since there is just one entity to send the hounds of the prosecutorial offices upon. I think this by itself is enough to leave a sizeable market for Bitcoin beyond its first to market advantage. There will be people who just don't like Apple or Kenya, or are inconvenienced by the arcane laws and regulations which will doubtlessly control the currency. They might fear that the commercial entity goes bankrupt and takes the currency into the grave with them.

Bitcoin can't go bankrupt precisely because it's a public project. There might be other public projects competing with Bitcoin - there already are - but they won't be the Apple backed kind you describe. Competing public projects must only compete on terms of technical excellence.

So even if the 'muppets', as you call them, will use whatever currency they are told to use, there will still be a market for a free public currency, if small. Leave it up to the market to decide if they prefer the muppet coins or the Bitcoins.

@ shane

I'm not an expert at any of this, but....

You seem to contend that some bigger player can come along, create a clone, and their marketing / influence will make their version more popular.

That *might* be possible at the moment, but as Bitcoin keeps getting more popular...

The many *small* shop type places that accept Bitcoin will add up. And the sum total of small businesses can exceed by a huge amount any one single company.

So maybe, at the moment, a large company could step in and take over... but as time marches on that becomes less and less likely.

Also, maybe in future a new virtual currency does appear. But all these many small businesses will not immediately drop bitcoin in perfect synchronicity. Bitcoin might then slowly decrease in value as a new virtual currency takes over. But as long as it's not an instant drop I don't see how that is a problem.

@stillfire

That's an excellent post.

I guess coming from the finance area we feel it's fun to follow the business. So you try and spot problems or predicate how things could go to improve on it. Which you have done also.

Looking back over my thoughts, my scenario comes true in in a free market, that is what would happen (I believe). Or a variation of it.

Your thoughts are just as likely, and address aspects more political in nature. Certainly most our economic decisions are no longer made with anything but politics in mind.

So many big questions.  

I guess we just have to see what happens.

There is also the possibility that if a major market leading corporation were to set up a chain and start to gain ground on Bitcoin, that corporation's direct compatition is then inclined to do something similar.  Certainly the larger competitors could follow the exact same model, and start their own block chains; but some of the smaller competitors are going to look at the field of choices and chose to simply base their market offering off of the open market choice already in existance, namely Bitcoin.  This effect will all but garrantee that the smaller institutional blockchains are marginalized as many small players in many different industries do the same thing.

I'm saying that, under the premise that the tech is sound and that there are no major flaws left (a large assumption, I admit) that Bitcoin's large first to market advantage will prevent similar competitors from catching up.  An institutional blockchain isn't really comparable to Bitcoin, because (by definition) there is a central institution supporting the value, and any threats to that institution also threaten the trade value of the currency.  That's comparable to Wal-Mart starting a blockchain to use their actual stock price as currency.  That's a possibility, but it doesn't protect Wal-coins from the issues of centralization, and people from Kenya are unlikely to ever have interest in owning Wal-coins.

Bitcoin's first to market advantage protects it from other unbacked and distributed competitors.  But I don't thing there is much threat from institutional blockchains either.  After all, if there was an economic incentive for these institutions to issue their own currencies in direct compatition with the national governments that regulate their charter, they would have already done so.

@Creighto

Aren't we talking about a new technology that will allow them to get the economic advantage? That has just been invented?

No.  Bitcoin has an economic advantage over fiat currencies by reason of it's cash like attributes while in use online.  Decentralization and anoninimity are central to those cash-like attributes.  I can't see an advantage for a centralized blockchain, since the primary reason that the proof-of-work system exists is so that no single institution (or group of institutions working in conjunction) must be trusted for the value of the currency to remain intact.  Wal-coins might be able to make a credible claim towards anoniminty on technical grounds, but would you take that risk?  Would the Federal Reserve suffer Wal-coins to exist if it were true?  The fact that Wal-coins were centrally supported tells those with a vested interest in the status quo exactly which CEO's office to visit, and which board members need a good IRS audit.  E-gold tried the centralization route, and got hammered for it.  And as a matter of quality online money, a gold backed currency is superior on many economic and historical points.  Bitcoin's decentralization says that there is no headquarters to raid, and anoniminty says that end users are hard to find.  Any credible competitor to Bitcoin needs to have both these attributes, and be able to prove it on technical grounds, to even stand an even chance.  If this could be done and also have a credible claim to being backed by gold, silver or even U235, Bitcoin would fade away and I'd be one of the first to sell my bitcoins for the new chain.  But how could that work?  Even if someone could crack that in the near future, it would also have to be a method that Bitcoin couldn't just adopt itself.

@Creighto

I guess I feel that if the concept is as good as it seems, and it seems really good, someone, somewhere will work out the benefits of introducing the worlds first true cryptocurrency and actually having a shot at doing it. The person with first access to that would hold 20% of the worlds money supply for all internet transactions. We have all seen the calculations on the fantasy forums. 21 millions units as 30% of the world money supply means a Bitcoin is a trillion bucks etc etc

But that maths isn't far away if everyone DOES start to use it. If its truely successful, someone will consider it who actually has a chance of doing something like that. Adopting the system but with a new algorithm. It would be like the new Swiss Franc but better because it would have built in deflation, and the people who started it would own a third of them.

I think artists and labels accepting the equivalent of Apple scrip for payment instead of national currencies is farfetched. I think it's even less likely that a large company like Apple can afford the risks associated with making a currency like bitcoin, due to possibility of regulatory action that could be taken against them. It it bitcoin's decentralized nature that is its main strength, and a company issueing it would be a central authority and point of failure.

Only if they can get others to join them.  That is the big if.  Bitcoin was lucky in this way, as there was never any certainty that people would join.  Now they are, and even the users sometimes complain about the 'fairness' of it all.  If any institution were to actually start another blockchain, why would the public favor one set of early adopters over another?

Bitcoins will most likley have value for a long time since there will allways be a need to transfer money across the world anonymously and with almost no fees.

As long as there are drugs to buy with bitcoins. Someone will want them.
As long as there can be use for bitcoins, someone will believe in them.

Most of the things you described actually happened to hard (as in hardware) currencies. Yes, Bitcoin need a bigger market to become more stable. The thing you can do as developer is making things easier, probably providing some services, etc. Yes, it's still risky and most people know this, but because it's risky you can make a lot of money with it. A bit like stocks, but I wouldn't really compare them with stocks. So we need to make some cunning entrepreneurs aware of Bitcoin.

As for simply creating another currency doing the same. Why would anyone use it? Yet another search engine like Google, yet another microblog, like Twitter, yet another social network like Facebook wouldn't be successful unless they provide something very special.

Bitcoin is heavily distributed and so what do you mean when you say "someone with more power shows up"?

Also the statement that a new BitCoin would make the original one worthless isn't true. Namecoins didn't make Bitcoin worthless, like the Euro didn't make the Dollar worthless. Why should it?

I dislike the first to market argument.  The economy of Bitcoin is but a blip on the economic radar.  It's akin to having a mom-and-pop store be first on the block.  That's fine and dandy until a Walmart or Walgreens is constructed next door.  Facebook wasn't the first social media website on the market.  iTunes wasn't the first seller of online music.  Sites like MySpace (or its earlier incarnations) and Napster were innovative and game changing, but in the end they were rendered obsolete.  It's not only arrogant but also foolish to believe that the genesis of an idea will equate to long-term success.  Ideas are modified (stolen) all the time.  I'm sure we can all think of many examples of this, if not see above. 

Call it what you want, a wide moat, high barriers to entry, whatever, these are what you need to give yourself a competitive chance.  I think the OP in a roundabout way is trying to point out that Bitcoin may not possess enough of these barriers.

Scarcity is also a rather weak argument.  If you want something that is scarce, intrinsically valued and useful to just about everyone in the world, buy oil. 

Do I own Bitcoin?  Yes. Have I sold goods for Bitcoin?  Yes.  It's a rather fantastic and ingenious concept.  That doesn't mean I can't be objective about Bitcoin and see that it does have potential flaws.  Other than speculation, Bitcoin's biggest market, unfortunately, is illegal trade.  The legalization of marijuana alone could hit Bitcoin very hard.  It probably wouldn't destroy it but I would guess that it would take a significant chunk of the economy away.  I guess my point is that I see a lot of "this time it's different" arguments.  That's always a very dangerous assertion to make.  I'm hopeful that Bitcoin will be a success but I'm also cognizant that it's chances are rather low (being that we're still in the infancy stage).  Never become emotionally invested in your investments.

I didn't say it can't be obsoleted by something better. It's just that the OP argument sounded like "because stuff is open and therefor there will be lots of Bitcoins". Facebook was better than MySpace in certain way. Maybe it just looked better or something, but people don't simply switch to something new and if there is a new Bitcoin it doesn't mean that Bitcoins will have suddenly zero value.

A. This barriers come to existence. I agree, they might be not high enough for an alternative but
B. Why are alternatives such a huge problem? I mean as long as there aren't tons of them it really isn't that much of a problem. See Namecoin.

I think that possessing and utilizing Bitcoins means that one has to be objective about them. Else there could be a big loss.

And there are also a lot of "Bitcoin is doomed" guys. Most of them just want cheap Bitcoins, else they wouldn't waste their time writing nonsense. One really shouldn't overestimate problems or their potential influence on Bitcoin. While I agree there are lots of hurdles and Bitcoin could be better in many places it's currently(!) does well. Of course there could always be more Bitcoin related projects, services, businesses, but these are things we can work on and it really isn't that bad right now. The stable price is a good things for businesses and I'm sure I am not the only potential customer. Even if Bitcoins will be transferred into Dollars or Euros eventually creating a Bitcoin accepting businesses most likely result in a more customer and the risk isn't that high.

Just to be clear, I wasn't speaking to you or anyone else directly, which is why I didn't quote anyone.  It has been an argument I've seen many times and one I'm not particularly fond of.  That's the reason for my post.

You are forgetting an extremely important aspect of Bitcoin. The fact that it is NOT backed by anyone is one of its greatest advantages. Bitcoin is not the responsibility nor liability of any group or nation. Thus, the failure or targetting of no group or nation could bring Bitcoin down.

THAT in itself is absolutely revolutionary.

If Apple or Zimbabwe or Hooters creates their own similar currencies, they lose this main advantage, and upon losing it... how would they expect to overtake the adoption of Bitcoin?

We already know that Facebook has now created its own currency. They have 1000000x more name recognition than Bitcoin, they have billions of dollars, and many smart people.  And you know how many Facebook credits I intend to purchase?  Zero.

An important aspect indeed.  However, being unaccountable also presents challenges.  Without a captain to steer this ship, it's quite possible Bitcoin could drift aimlessly.  Naturally because the model does not put accountability on anyone specifically, the users of Bitcoin are rather fragmented at the moment.

That's not to say an individual or a group of individuals cannot step up and take initiative (MtGox for example) but it is all the more imperative that people stay proactive and not simply sit content.  Bitcoin by design puts the onus on the user to shape its future.  That is rather revolutionary.  It will be interesting to see if it will be successful.   

When a company decides to create its own scrip based on the bitcoin protocol, there needs to be a serious shareholder's discussion on why the company has decided to suddenly issue liabilities at a pre-decided rate to the rest of world.

When a government decides to do this, then the question that will be raised in the assembly would be as to what makes computational power so unique as a source for backing, especially if the government doesn't have that much computational power at hand.

The OP's point is why will anyone with resources give up the possibility of earning the early adopter money.

My counter question is why would they want to favour people with a specific kind of computational setup instead of backing it with a promise as all currencies are today?  - A possible answer could be sending a strong signal that they are committed to a tight monetary policy. But they can do that by backing it up with gold or pegging to USD, Euro or CHF today. These pegs are much more understood in the world today than a distributed wacko currency scheme (majority public perception when this will come to light)

And the value of the peg is the same as the value of any promise today. Or even the value of the promise that the currency would be accepted for taxes.