Bitcoin Forum

Currently, almost all shops and services tie their Bitcoin prices 24/7 to an exchange rate which changes every second.

By doing this, the consumer cannot know how much a product generally costs in Bitcoins. He has no sense what a Bitcoin is at least minimally "worth". It results in what is a major problem with Bitcoin: it is not a unit of account. Merely a payment system or a Dollar proxy.

Today, I have noticed that on what.cd, a private torrent tracker accepting Bitcoins for donations, it is cheaper to acquire a Bitcoin to be a donator than it is to pay with 5€. It is currently cheaper by more than 40%! Now everyone has an incentive to buy Bitcoins to pay with it.

Imagine if everybody did that. Of course this is not feasible with most products/services, but there are examples in which it is possible due to low marginal cost. Or, if you have a monopoly and lots of demands for your product, you can simply make the other payment methods a bit more expensive.

If we could achieve a sort of community agreement on a certain base price and have it for lots of things in demand, we could indeed have true backing for Bitcoin, as currency arbitrage will occur and influence the exchange rate.

Thoughts? :)

Price stabilization is key in BTC adoption, but artificially setting the price won't work. The market has to dictate the price.

I think a popular, mainstream BTC-only service will help stabilize the price. We need to work on creating valuable products/services that can't be purchased with USD.

I don’t think price stabilization is possible at all in the near future (it only will be once Bitcoins are worth a lot), and I don’t consider the example I gave "artificial price setting". It’s just an incentive for using Bitcoins, and if it is done enough, then the market will arbitrage the exchange rate if it falls too low.

I agree that all it takes is such a service, a "killer app" we are searching for. Silk Road in my opinion is one, though it can’t really provide price backing.

I think the best candidate to establish the value of bitcoin is some rigorous mathematics and some system to establish an agreement on thus value.
What do I mean?

The thing worth the most in society is time, or the time consumed to produce a good. This is true for every commodity as well be it gold, real-estate, stocks or something else. As with bitcoin there are several factors which must be considered.

At first there is mining, the producing of hardware takes resources, energy and labor. The latter 2 take labor to be prospected, mined, refined, the power plants have to be built and run which require resources and more labor.
If we follow this part recursively we get to a point where we can estimate the total amount of human labor involved in the production of one bitcoin.

Second there is the labor involved in the goods and services offered for bitcoin.
If we apply the same kind of process to it we can multiply the amount of hours with the amount of hour spent on generating all bitcoins who exist to time.

The resulting unit is hour²  :D

More later I have to figure out how to relate this figure to some "salary"  ;)

The market price of all things float in relation to each other, this is not a unique phenomenon to Bitcoin. But, everyone notices this with Bitcoins because they are highly volatile. Volatility will fall long term, until it starts becoming reasonable to price goods at set BTC prices, irrespective of the dollar. That point is years away, regardless of how successful Bitcoin is.

What is perhaps more interesting, is that at some point Bitcoins will in fact become more stable and predictable than USD (for a number of reasons). Then, people may start pricing in dollars based on the BTC price. This is pretty far in the future, of course =)

You're spouting silliness. The difficulty of producing a thing does not dictate it's "value."  We could easily calculate the man-hours required for creating an baseball-size ball of chewed gum, say it's 450 man-hours? Call this X. We could also easily calculate the cost of the raw input gum material. Call this Y. If we combine X and Y with some fancy math formula, will it yield any results upon which we can base the "fair" market price of the chewed ball of gum?

Pricing is determined by supply and demand, period. Cost of production influences the supply side, but is fully irrelevant for the demand side. For this reason, it is a very poor determinant of price and basing Bitcoin pricing on such a fallacy would be pointless.

Limited supply and stable price...


Just like


Oil and water...

That DON'T mix.

you cant arbitrarily set a currencies exact worth, they don't even do that in a planned economy AFAIK.

you can try to do math, last figure i herd was USD56T in the world total, so USD56T/BCX21=2666666.66USD per BCX. it would be more now because 21M don't exist.

or you can try the arduous task of dividing the entire worlds GDP by 21million

or [insert other arbitrary calculation here]

I've gone over this in a video before

http://www.youtube.com/watch?v=N1r7Fcm4pwA

I love the idea of Bitcoin and want it to succeed. Right now there is just no compelling reason to use it, and it's still too much hassle to move in and out of Bitcoin. I'd love to use it for international money transfers. Right now every Bitcoin I'd send/receive has to make it's way through a bank to an ATM  to reach me in a useable form.

It truly does need a "killer app" - like in the early days of the PC when businesses bought them just to run a spreadsheet program. I don't know what that "app" is but for most people it isn't going to be because they can buy something that they can easily buy with paypal already.

It probably needs some big company to do something amazing but I don't see that happening as no big company, with deep pockets to promote the amazing thing, has incentive to use anything like Bitcoin (vs. their own centralized system). So we're left with a crowd of only partially effective wanna-be promoters searching madly for a compelling reason to use it.

So Bitcoin is a solution looking for a problem to solve. That's the opposite of what makes good business sense. Philosophically and politically I'd love to see it succeed. Rationally, I don't know what's going to make that happen but I hope someone can find something.

bitcoin is still unknown to the general public. everybody knew what computers were, because they were a major technological breakthrough.

While that is true it wasn't at first. I was an avid electronic hobbyist in 1977, reading many electronics magazines each month back then, and building circuits. I was writing Z80 code in a notebook because I didn't have money for a system. The microprocessor breakthrough took many years before it made it to the mainstream. I'm not sure of the first release date of VisiCalc but it took years before (small) businesses really understood what they could do with computers and had Lotus123 and Excel to work with. And even by 1986 many small businesses were still waking up to the possibilities.

I do all my accounting for both of my businesses in bitcoin. I am literally using it as a unit of account. And not because I'm some kind if stubborn idiot. All of the money I have to invest and all of my revenue and most of my expenses are set in Bitcoin.

I think you were trying to say that it isn't your unit of account.

Nice. So are the expenses fixed and not subject to any exchange rate?

I think that paying as much of expenses as possible in Bitcoins is one of the things that can really make it a currency. One area where I already see this being done a lot is domains, hosting etc.

Some costs are dollar. I don't know what you consider this though: I emailed about an ad, got a price in dollars, said "can I pay in bitcoin. is X BTC good?" they said yes. Is that bitcoin or dollar? I never intended to give dollars and I am not committing to paying any dollars in the future. In this case I didn't commit to paying future bitcoins either, but in other cases I have. I have one ongoing dollar denominated cost, settled in bitcoins weekly.

My other venture which is mostly on autopilot now was 100% bitcoin costs, and no revenue (yet).

That is just a hypothetical thing. Bitcoin is real, so is everything else I talked about and there is demand for it _and_ people charge money for everything in the chain. Every activity which exists can be done for money, you can come up with the most ridiculous example from real life and I bet there is someone on earth paying money for it's product.

i took that as a challenge, and i think i failed miserably.

As far as I'm aware, to peg one currency to another, you need a central bank to control the money supply and maintaining a reserve of foreign currency, so it's not really feasible in this instance.

The first and most compelling use for Bitcoin is a better Pay Pal - an online payment system that is not subject to chargebacks, arbitrary limitations or prior restraint.

One thing you should know is that most merchants hate Pay Pal. They use it because there really isn't a viable alternative out there but it's a pain in the ass to deal with and expensive. That's will be the driver for Bitcoin adoption once the software and services are polished enough to make it easy for the average web store to switch over.

From what I know there is no currencies in the world with any "backing".  All are fiat currencies, not much different from Bitcoin.  At least bitcoin has the backing of "electricity and CPU cycles".  The rest of the currencies are just pieces of papers which depend on the confidence of the investors in them.

Bitcoin is not a fiat currency, is the opposite, a voluntary currency.

Fiat does not mean without backing.

There can be no talk about stabilization until the recent speculative bubble defuses. Stabilisation could happen in the less than 1$ range. A functional bitcoin ecosystem will bring about much higher velocity of money that, counterintuitively, will further depress prices. If 5 million bitcoins worth 1$ each change hands once every week, the annual GDP of the bitcoin economy will be 250 million $. We're far, far from that.

So when has the bubble begun in your opinion? February? Or at the first price spike to 50 cents?

Is it not possible that Bitcoin can simply evolve into a long term store of value, given its pre-defined, decreasing inflation rates?

Bitcoin Bubblegum - endless bubbles in many exciting flavors with lasting chewy satisfaction, from ponzi to troll.

What do you believe the word "backed" means? As far as I know it means something thats supports it, like a back-up plan. You can back a currency by allowing it to be redeemed for something else, or by forcing other people to see the value you have assigned to it. It makes it nothing more than a promise. The assumption that Bitcoin is backed by CPU Cycles is incorrect. Can I redeem the Bitcoins for CPU cycles to devote to my supercomputer? Are CPU Cycles seen as a sacred thing that we should be forced to value anything that takes CPU cycles to achieve?

If anything, what makes BTC valuable is what you can do with it or what you believe you will be able to do with it in the future.

Well, Bubbleboy has changed his mind. First Bitcoin was going to crash into nothing and disappear. Now he is saying that it will crash into $1. Who knows what he will be saying in 3 months.

In fact I still maintain that the current blockchain is flawed and will eventually fade away into obscurity - as all human endeavours do. Surely you don't believe that Bitcoin is immortal ? Given the overall rate of innovation in the technical field, I would expect a worthy Bitcoin successor sooner rather than later.

That being said, I can approach the price issue on the economic fundamentals, just as you can take an economic approach to the supply of prostitution in 3rd world countries. I don't own significant amounts of bitcoins nor do I rent child prostitutes, but I will not deny their reality.

And the fundamentals say that a price in the 10 - 20$ within a functional economy is a pure fantasy - it requires an equivalent GDP in the billions of dollars.

Ah, so how’s the gold economy doing?

I don't think you can talk about "GDP" at all, as bitcoin is not a country. Also the volume of transactions does not really seem linked to the trading price in dollars in practice.