Bitcoin Forum

I was imagining the following situation:

1) Lets say that a food chain really decided to accept bitcoins.
2) The restaurant received bitcoins and sells food.
3) The restaurant must convert the bitcoin to dollars to cover the costs of the food.
4) The sale of bitcoin in the market makes the price drop.
5) Multiply by millions of transactions a day from all the stores.
6) Price keeps falling, since the food chain sells bitcoins humongous amounts of bitcoins

As long as our economy is based on dollars and supplies has to be paid with our national currencies, it will not be stable.
The pseudo-success of businesses adopting bitcoins would keep pushing the prices down...

Tell me where I am failing.

4) Where are the people purchasing their bitcoins to buy the food with, getting their bitcoins?
5) Good.
6) 21million max. Look up the definition of Deflation.

Get out while you can. You are just going to lose money if you don't understand 7th Grade Social Studies level economics.

I think kakaroto is assuming that the restaurant will always be unable to buy food in Bitcoins. Whether that assumption can be made is debatable.

1) Customer buys $150 worth of bitcoins for monthly purchases. (Causes Price to go up)
2) The restaurant received bitcoins and sells food.
3) The restaurant must convert the bitcoin to dollars to cover the costs of the food.
4) The sale of bitcoin in the market makes the price drop. (Only sells what is needed to cover USD bills as Bitcoin has proven to increase in value at twice the rate of a savings or money market account held in USD.)
5) Multiply by millions of transactions a day from all the stores. (Causes Price to really go up)
6) Price keeps falling, since the food chain sells bitcoins humongous amounts of bitcoins (Prices never fall cause governments are inflating their currencies so fast.)

As others have noted, 4-6 is (obviously) wrong. In fact, the fact that people have more incentive to use bitcoins means that there are more bitcoins that are needed (for the duration between acquiring and spending), which causes a rise in price. This is what bitcoin is "backed by". This in turn causes confidence in Bitcoin and increased investing, which results in more rise in price.

I think that assumption is the key. If the whole chain, from raw material to manufactured materials... with absolutely widespread usage, if you can get literally anything with bitcoins, it would be another game.
But as long as you can't pay electricity, gas, water, employees and supplies with bitcoins it would be a gamble.

I guess that the most important thing is the EVENTUAL widespread adoption, but if it fails to attract new adopters and yet sales goes up at this restaurant, it would drop the price severely.

There are two ways of getting bitcoins: by mining or buying.
If you bought and used them, it would balance it, so we would be fine.
But if you farmed it, it would make it drop.
If you bought bitcoins in the past, and now you are spending your savings (just to try out the novelty), and not planning to buy more at this time, it would make it drop too.

Therefore the only hope is that by getting adopted by a high profile business is that:
1) It will cause some awareness, and entice new people to adopt bitcoins, causing them to buy bitcoins (hopefully)
2) Eventually other businesses could jump in and eventually the whole economy will be hopefully self-sustaining with bitcoins. (Very long shot, finger crossed, god willing)

And if these two things don't happen, then bitcoins would be doomed.

I don't get your reasoning. In order for bitcoin to be doomed this way, people would have to spend all their bitcoins there, without earning or buying again. That means only people who currently own bitcoins will spend them. And never buy back. Of course, who are buying the coins from this food chain is a mystery. Some other points:

• There is another way to make bitcoins other than buying and mining, which is earning. Otherwise this hypothetical restaurant wouldn't exist.
• Bitcoins are spread around the world. In order for a business to consume lots and lots of bitcoins, it has to be too. McDonald's for instance.
• If McDonald's is accepting Bitcoin, expecting other businesses to do so is not "a long shot".

as said previously, i'm going to post jeremy's link every time i read this.

http://spendbitcoins.com

Mr. A buys bitcoins. Bitcoin Price might go up at that time.
After a while, Mr. A gives bitcoins to Mr. B for a service. Bitcoin Price is unaffected.

Mr. C saved bitcoins for a while, as an investment (the vast majority are speculators doing this). Bitcoin Price is unaffected.

Mr. D is mining, he is just holding them as well. Bitcoin Price is unaffected.

One day McDonalds announces that accepts bitcoins, all the Mr. As, Mr. Bs, Mr. Cs and Mr. Ds goes to McDonalds that week to spend his bitcoins to try it out, which would then be converted to dollars.
Every single user goes and gets a bigmac for 1 bitcoin, it is so cool that everybody goes to McDonalds to try it out..
That week McDonalds cashes out hundred of thousands of dollars at once. Market Crash.

In the short term, that precise moment, market would horribly crash. It is all about timing.
The potential benefits in the long term would never realize, because it can't survive in the short term.
The adoption of the bitcoin by a popular high profile business (at its current stage) would be deadly for the bitcoin.

In your scenario, why are people buying bitcoins when they cannot spend them and stop buying when they can?

EDIT: Also, this only moves coins from someone who is saving them (Mr. A, B, C or D) to someone who is saving them (Mr. X, who buys them from the restaurant). Why would shuffling coins instead of them sitting where they are change their value? As I said earlier, the number of hops are increased, therefore the demand for coins increase.

The key here I think would be the timing and a heterogeneous market, and not really what's the source of the bitcoins.
If it wasn't a big single company, it wouldn't actually matter. Lets say that the whole bunch of stores in the soho and tribecca in NY start accepting bitcoins, it would be really healthy for the bitcoin economy.

It is a very different scenario from a single conglomerate that suddenly announces that accepts bitcoins, that would hurt it badly.

If 100,000 people goes to these stores opened in the soho of NY, it would be a very smooth transition that gives time to recover, timidly beginning a virtuous cycle that we all expect it to have: more interest, more people involved, more people transacting with bitcoins.
But if 100,000 people purchases one bigmac for 1 bitcoin, and McDonalds converts them all to dollars at once, it would be a drastic movement that doesn't give any chance of recovery: sudden sell of 100,000 bitcoins for USD. It would crash before there was a chance of other people joining the bitcoins and balance it out.