Bitcoin Forum

Well it's official,   we're down by millions of dollars since the most recent post.   It's a tidbit of good and bad news when brought into current context.   The entire bitcoin economy has shrunk from

June 9, 2011 the total Bitcoin economy was valued at $210,000,000,
September 28, 2011 the total Bitcoin economy was valued at $36,126,021.96
October 17th, 2011 the total Bitcoin economy is now valued at $19,000,000

This also means now that we need roughly 1/2 a million USD invested into bitcoins in terms of services / merchants as well as direct investment.  

This figure is dramatically lower than previously noted because of the same corresponding dramatic decrease in price.   It's reaching equilibrium. At current rates BTC will be trading at $1.xx to BTC by years end,  and will continue to drop until the printing rate will decrease or a sudden dramatic uptick in general public interest in BTC.   Both are related and driven by current prices.  Which most likely won't change it's current trajectory until 2012 when the high rate of BTC creation slows down to a rate that the BTC community can absorb (currently the very high printing rate is out of control compared to very low rate of new adoption levels).

At that point,  we might expect to see a modest increase of BTC to USD exchange.

Debate away and argue how hard statistics don't matter.

This doesn't apply to economics area,  because now it's reaching the point where the decreased value of Bitcoins has generally lowered innovation in the area.   There isn't as much incentive (financially) to innovate as there was when the bitcoins were valued higher.

In an Ideal World:
We'll need the lower the printing rate.
We'll need to increase adoption rate.
We'll need to have some firms adopt BTC credits rather than Microsoft Xbox Live points or Facebook Credits,  something along those lines.

The Bitcoin economy has grown actually. The exchange rate has fallen.

Current market price X Bitcions outstanding =/= "value of bitcoin economy"

no man it tanked.  

http://www.flexcoin.com/calc

We printed so many of them when the value was still decreasing.    Causing hyperinflation.   Peter the formula is there as well.

Also the entire valuation of all the BTC combined dropped 200k since I hit submit 2 minutes ago.

Total Value of Entire Bitcoin Economy $18,996,192.35

This however does change by the second,   and will go up and down,  but the trend is down and will continue to be until we slow down on printing them.

So here's perhaps a naive question,

Is it time for a reboot?

AFAIK "Bitcoin" is just a proof of concept.  And it's shown to 'work'.  But the initial release and distribution was so narrow, we have these massive sell-offs from just a handful of individuals.  Now that the 'cryptocurrency' idea is out there and more people are aware, would it be prudent to launch a new chain with some of the lessons we've learned?

The real value of bitcoins has been increasing all along.  The speculative bubble has burst, yes.  At the height of the bubble who was talking about innovation?  The only innovation I saw was ASICs for faster mining... to make more profit, not to build an economy.  Now what do we have?  People are reaching out to OWS, to the FSP, making conferences, making businesses out of ideas, etc.  The economy is much healthier, even if the outlook is less optimistic, than it was in March or April.

the proof of concept worked amazing.  The idea behind bitcoin is rock solid.  How it was released and how narrow the bitcoin community was is the problem.

If it was released in a fashion that widened it's appeal.. or got more bitcoins into the street with more people it would have been a very different story.    I hate to say it,  but us Geeks keep it as a community within a closed gate.     We knew how to build something, just not how to distribute it.

Mulitplying the price by the number of bitcoins in existance is too simplistic. Stored bitcoins have no inherent value. Only Bitcoins being spent have value.

Edit: Bitcoin is still an experiment. The client is not really designed for general use. I personally think bitcoin should not be forked until we see what happens with the first drop in the block-reward.

anyone one of a graph that generally shows number of transactions vs btc/usd value?

just wondering what the correlation is

There are no other reliable statistics to use,  plus it's assumed (and highly supported)  that people trade BTC is relation to their value.   So the method, though mathematically simplistic is the most accurate.

Again, you are making a serious error in terminology economic reasoning. You are multiplying the market price of a bitcoin by the total bitcoins outstanding, then labelling THAT as the "value of the bitcoin economy"

Why is that an error? Because the "bitcoin economy" is far more than the sum total of Bitcoins. It is the sum total of Bitcoins + the entire ecosystem of systems, goods, services, and intangible capital that constitutes the "Bitcoin economy" + any speculative value ascribed to either of the first two parts.  As a quick example - I own and am building a handful of Bitcoin systems and companies. They have some value, call it "XX".  Now, I also have about 250 bitcoins with a current value of about $600.  Using your calculation, you're adding the $600 + "XX" and calling that equal to $600.  So the only way your calculation is valid, is if my projects have a value of exactly zero, and I promise someone would pay at least $1 for what I'm building =)

You really need to stop attributing the "bitcoin economy value" to the "aggregate market price of all bitcoins."  They are not equivalent in any sense, and you are contributing to a "de-education" of people that read your posts.

I personally don't want to reboot it...   but you know...    if we launched a fork OR had a consenus within the BTC community to halt printing of BTC.

Moving forward the only on miners transaction fees (no more printing) you'll see the prices stablize and rise.   In other words make it the year 2140 tomorrow.   That would send BTC rising in value and most likely would attract investment again into it.

That's my opinion,   I just think Satoshi had a great idea.... a REALLY great idea,  but he grossly misgauged the adoption rate....   

We needed to stop at 6 million coins,  not 21 million coins. 






 

I promise you a "reboot" would have an even narrower "distribution" than what Bitcoin currently has.

There is no reason for a "reboot" and doing so would shatter the entire value of Bitcoin. A currency that is "rebooted" is no currency at all, and certainly setting such a precedent would preclude any serious adoption of the subsequent currency.

The ironic thing about your statement, is that if a narrow handful of "rich early adopters" are selling off, then it is achieving precisely the more broad distribution you seek.

People are creating alternative chains... but so far I see none that are an improvement on Bitcoin, mainly because Bitcoin as a protocol or "set of rules" has not shown any serious flaw. It is secure and works as described. It's fast and efficient for all the transactions I've done with it. Inflation rate is known to all participants, and it has the brand recognition that no alt chain can compete with. When a -fatal flaw- in Bitcoin is discovered, then it makes sense to move to a different crypto-currency. Thus far, Bitcoin is devoid of fatal flaws and that alone is a remarkable feat.

Please do create a fork with your proposed rules, then we can see what the market prefers.

In any rational discussion, if reason to prevail, one side must end up 'in error'.  however, if that 'in error' side never speaks, there can be no discussion.

However, your post has shed some light. I would also agree that the total 'economy' of bitcoin is not simply market value x total.

But what disturbs me is that regardless of the recent 'programs' to spread bitcoin in the last few months... it's still going down vs fiat.  Hard.  I didn't even get into the scene until late August, and I've already seen a a fall of 80% (10->2). As a merchant, that means I gotta sell off my BTC right away inorder to pay for stock.  Until people can pay for stock in BTC, that'll continue.  And until people can be paid in BTC to make the stock, to be sold to the merchant... (of course, unless I'm confused about something).

I think a better way to look at things is as not the 'Bitcoin' economy, but rather the 'cryptocurrency' economy.  Things are looking bright for the blockchain concept - just not so much for the biggest one.

Edit: Ahh yes I agree perhaps a 'reboot' wasn't the best choice of words.  Perhaps I should have said 'fork'.  But perhaps 'reboot' is still a better idea.  If there were some massive global PR about a new 'Bitcoin' which everyone can 'get in on', I could see that working.  Of course these are all big 'ifs', and I admit I'm not educated in market forces at all... but that's why I ask questions :)

but Matthew,  please tell us how you really feel ;)

I do agree with you on some points. But i think many ppl think total value of the bitcoin economy as such is because bitcoin isnt a currency.

No matter what kind of bitcoin related business you're working one, it still falls back on fiat currency. As a business owner, you cant put food on your table by using bitcoin.

+1

Creating a sound feedback mechanism for the coin production rate is about as hard as correctly predicting the adoption rate prior to the start of the blockchain. All of the proposed mechanisms I've seen so far had major flaws which made them unpractical and/or ineffective.

Yeah it is kinda sucky, no argument there. But - until some stability in the exchange rate is achieved (whether at $.01 or $100), people need to not try and use Bitcoin in ways that volatility precludes. What I mean is, even a volatile currency is effective in certain situations. Consider Bit-pay's solution, wherein they allow a merchant to receive Bitcoin and "cash out" instantly upon receipt. This fully eliminates exchange rate risk, but still allows the merchant to receive payment with zero chargeback risk from any country in the world. If you're a merchant, don't try to hold bitcoins (unless you want to speculate on appreciation). Bitcoin is most useful in those situations where it can be purchased, transferred, and sold very quickly. Moving money from Japan to the US very quickly, buying something anonymously, or making a donation to a politically unpopular cause - these core uses are valid even without a stable exchange rate.

Once market use for the above payments is widespread, the volatility will subside. Then, Bitcoin can increasingly be held on to.  Bitcoin adoption will work in stages, and those who try to use it in "stage 3" type behavior before it has reached stage 3 will be disappointed.



I think that plan would fail miserably, but it's always okay to speak your mind =) Remember that Bitcoin IS open to all people. Anyone can "get in on it."  But like all real commodities, it has a price, and the ability to "get in" is limited by one's funds. This is not a shortfall of Bitcoin, but simply the natural property of a scarce commodity. Creating a new chain that "everyone could get in on" would mean either that it was given away freely based on something other than a pricing mechanism ( a lottery or something), or it was unlimited in its supply (in which case it'd be worthless and impotent in the transfer of value).

Price mechanisms are our friend. Distributing valuable goods with anything other than a free market price will result in serious economic distortions. Create an alternative currency without a market price and a price will set itself in a black market, or shortages will occur.

You're funny Matt ...  you insult me (and everyone else on this forum)  then agree with the person you're insulting.  

Keep up the good work!   Keep stating all the problems,  but never come up with any solutions.  

You just confirmed my point then.

The best BTC can become is a way to transfer money. I dont know if corporations would ever look into BTC.

Maybe this idea has already discussed, but imagining a broker site like Alibaba that only use BTC for every transactions... As its a pain right now to do wire transfer, especially to  a country like China

hence why the formula is accurate.

People can get in on it now, yes - if they're aware.  Awareness isn't there.  Hell, my neighbor didn't even know the OWS protests were going on in the first place.

Raising awareness now about Bitcoin doesn't bode well.  The trend is down, and once it gets super-low, we have another distribution problem - one entity with a reasonable ammount of wealth can 'gobble up' all the cheap ones, and put is right into a speculative bubble.  Rinse/repeat, with no real room for reliable business transactions.

What I'm primarily concerned about is IF the variables in BTC (x coins at y rate, etc) are correct to nourish an economy before people just 'give up'.

Edit: Also, the lower the prices go, the more miners turn off their rigs, the conceptually easier it becomes to pull off a 51% attack on an exchange.

This is indicative of singers, musicians, artist, etc., like my brother-in-law.

You could be the best guitar player in the world, but not get recognized, let alone a break, without an agent or a remarkable PR campaign.

It was never worth any of those figures, the drop proves this. I doubt it's even worth even $2 mil atm.

Possibly.   However that still doesn't detract from the fact that value is 99% perception and 1% fact.

Gold is worthless too.   You can't eat it,  you can't us it to build virtually anything. But people perceive it to be valuable so it is.

Helium is actually valuable,  there's even a tighter supply of Helium than Gold in relative terms.  A kids helium birthday balloon should be worth at least 200 dollars.    But it's not perceived as such,  so it's not.

+1

Founder, I really wish you would study this topic a bit deeper until you understand what evoorhees and others here are trying to tell you.  The price of a bitcoin multiplied by the number of bitcoins mined tells you zilch about anything.  Trying putting up 10,000 bitcoins for sale and see what that does to the price of a bitcoin and your "total value of the bitcoin economy" figure.  I imagine that would be sufficient to push the price of a bitcoin to below $1, in which case you have to ask yourself where the other $10+ million of value went if all you collected was less than $30k and the total economy is then worth only about $7million.

You are correct that the continued generation of coins will put downward pressure on the price of bitcoin.  If there's no growth in the use of bitcoin then short of another speculative bubble, the price of bitcoin will continue to fall.  You can flexbank on it, so plan accordingly.

As for rebooting bitcoin...it's already been done at least a half a dozen times...see the alternative crypto currencies section of this forum.  There, you'll find a graveyard of reboot attempts.

There is nothing wrong with the bitcoin generation function (and there's nothing particularly magic about it either).  The only thing that was wrong were expectations about how quickly people would start using bitcoin or what price was necessary to support real economic activity using bitcoin (which I think is probably well below $1).  I think even the run up to dollar parity was almost purely speculation.  If you think of it in terms of a stock P/E ratio, it's like bitcoin was trading at a 300x multiple and it simply didn't have the growth rate to justify that...and now it's falling back to a much more modest and appropriate P/E ratio.

It might also have something to do with the fact that it's difficult to turn helium into coins that are easily traded and stored.

Gah more fallacy heaped upon fallacy!

Gold is not worthless. Just because it's not for eating, nor for building things, doesn't mean it's worthless. It is attractive to people in ornamentation and that is where its original value comes from. On top of that, it is used as a money because its properties make it very effective for this specific purpose. Gold's value as money is not arbitrary... in fact it is almost inevitable given the geographic makeup of the Earth and the properties inherent in the gold element.

So people did not just "decide" that gold had value - it has value because of its usefulness and its properties. The same goes for Bitcoin - it has value because of its usefulness and properties as an international frictionless payment system. Specifically with Bitcoin, it is the protocol which has use value, and the Bitcoin units have market price because their supply is scarce and they are the only units usable with the Bitcoin protocol.

If you really want to claim that helium is more valuable than gold, because it's more useful, then you've lost your final credibility as an economic thinker  ;). Gold's primary value is in its effectiveness as money - this is an elementary concept. Money, as a "good," is far more useful than helium, and thus gold (being useful as money) is correctly priced above helium in the marketplace. The demand for money FAR outweighs the demand for birthday baloons (and whatever else helium is used for), so even if helium is more scarce it will still command a lower price than gold.  

If someone is going to trade bitcoins,  they are going to trade them for their value.

"I'd like to buy a bag of popcorn for a bitcoin"

The merchant then looks at what a bag of popcorn costs him,  then he'll say 3 BTC because that's what he needs.

If these things approach 1 dollar,  then he's going to ask for 6 BTC for that same bag of popcorn.

The value of the bitcoin economy dropped in that case by half...

But remember,  it's not just one merchant,  it's all of them combined buying and selling BTC ...   it's the true value of the Bitcoin economy.  

I know you disagree with me.. it's fine... and I respect your opinion...  I think you built the best payment option for merchants regarding bitcoins and you clearly know what you're doing in that regards.

I just believe that you're wrong in this instance....  :)

Actually it's government manipulation in the market :)  you might see the price of Helium skyrocket in terms of an overnight WTF just happened moment.

http://arstechnica.com/science/news/2010/07/science-policy-gone-bad-may-mean-the-end-of-earths-helium.ars

Founder - the "true value" of the Bitcoin economy is coins + goods/services + infrastructure + net present value of all future coins/goods/services/infrastructure.

That value is impossible to calculate... but you are not even trying to calculate it. You are ONLY extracting that first component "coins" and labeling that as the "true value of the bitcoin economy."

Surely you must now understand your error? This is not a matter of economic opinion here, this is a matter of logical fallacy and I cannot endure the head of FlexCoin, the Bitcoin bank, to perpetuate it.  :'(

zlol   :D

how better can I calculate it using existing figures available?

I am on board with improving it.   I'm being serious...  I need to figure a way to create a true value of the BTC economy using existing tools so individuals can update and check it in real time.

The way I came up with it appears to be valid in my opinion,  however...  objections from you guys does lead me to believe that you want more input into the variables to make it more robust...  tell me what to do and i'll do it.


The only thing I ask is that I need existing figures to input.. 

If I had 20million USD laying around I'd probably buy out the current BTC market.

Or maybe offer an insurance backing service of some sort, insuring the value of your BTCs up to $1 each.

I think the problem is not many people have 20 million USD laying around that are involved with BTC :)

It's not necessary for one person to put up money to buy out the whole market...lot's of individuals with smaller amounts would do that as the price creeps lower.  The floor price is set by the demand for coins for facilitating commerce (which we know is not much right now).  Anything above that floor represents savings demand (aka speculation).

Here are some wild guess about what is needed for actual commerce today.  If you assume 10,000 people wanted to retain $100 worth in bitcoin just to have on hand for spending, then the implied price of bitcoin would be $0.13.  If 100,000 people wanted have $100 spending money, or 10,000 wanted to have $1,000 in spending money, then the implied price is $1.30.  $100 seems like a reasonable bare minimum that someone interested in using bitcoin for commerce would want to have on hand for spending.  Currently, I'd guesstimate that the fundamental value of bitcoin is definitely less than $1 and probably less than $0.25.  Everything above that reflects the savings (speculation) demand.  Of course, if actual commerce with bitcoin slows down, then the fundamental value could fall as well.  And, inflation is always eating away at the price.

One area of commerce that I've found bitcoin to be particularly convenient is paying for software related services (programming, website design, logos, graphics, etc).  I think if someone put together a nice site focused on software development related services where people could offer their talents in exchange for bitcoin, it might help get some more commerce going.

Sorry for cross-posting, but I have the same idea.
   
We need a Bitcoin Foundation.

Sad to admit it, but bitcoin society need credible trusted organization, which would regulate the market of bitcoins. Some rich man could take on this responsibility, but it would be much better if it was an open non-profit organization with the Supervisory Board consisting of eminent people with a good reputation.

This organization will accept donations in fiat money and at least guarantees the minimum price on bitcoins. For example, if the organization took donations for the $ 1 million, it can guarantee a price not less than 1/7.5 = $ 0.13 per bitcoin.

I believe that it is possible to imagine a more subtle mechanisms, but they must be clear to all market participants.

What happens if the market wants 10 cents per BTC ?  Everyone goes there to sell at 13 cents..  Until all the funds run out?  Then it goes to 10 cents right after?

Could you explain what you mean by "the market wants"?

it means people value BTC at 10 cents... this organization is paying 13 cents...   so it becomes buyer of last resort,  and at the end it shelled out all it's money buy the BTC .. but can't offload them at the price they paid for them.

I understand the reasons for backing them,  I don't understand the reasons on why anyone can do it profitably.

charts would be much better than single numbers

what I thought about adding to my site was a graph of bitcoin days destroyed * current market value (in a graph together with market value itself)

I am taking my time with this one and other graphs, because they do not look so good  ::)    maybe I should just go for it and try and hit the market ;)

+1  really good post

I also like the glbse idea very much.

It's a nice idea, but has lot's of problems.  For one, it creates a central authority...what happens when that authority is compromised (perhaps shutdown by a gov't)?  I once thought about having an option on the exchanges to place a special bid that represented the amount of dollars (or other currency) you'd be willing to spend if the price went low enough...across all exchanges, the sum total of these special bids would be divided by all bitcoins ever mined to create a floor price...all these bids would execute if the price ever reached that floor.  However, people could just cancel those bids if the price started going low enough...so in the end, such a thing would be pretty useless (and needlessly tie up peoples' money at an exchange).

Maybe better indicators would help people estimate the fundamental and speculative demand.  That in turn might give some people more confidence that there actually are real support levels for the price of a bitcoin.  I'm not sure exactly what kind of indicators would help however.

I'm talking about non-profit organization created for market stability. This organization will accept donations in USD. Every day they will calculate current proportion between amount they have and total amount of BTC and set their price for BTC in USD. They will ensure that they can buy all the bitcoins at this price.

Only somebody as retarded as Atlas would come up with something like this. So hows it going old friend?

This organization will be absolutely legal as well as Wikipedia or Apache Software Foundation. It would be difficult to shutdown it. Also, there may be more than one such organization. For example one in USA, one in Europe, one in Russia or China.


Yes, it's a good idea, we should think about it.

I do not understand your skepticism, my young friend. Do you have a better idea?

I have heard different.


There is a lot more Bitcoin flaws listed on this page http://solidcoin.info/solidcoin-ready-for-bitcoin-collapse.php ;)

Oh gosh.  No need to redirect people to a scam.

My suggestion for a fork would be:  Modify the reference client so that after a certain block number, only transactions from users who agreed to abide by a certain price floor (say $1/BTC initially) would be accepted.  If the major pools adopted the new client, it would become the de facto standard.  Periodically, the community could agree by consensus in this manner to raise the price floor steadily until it reached levels high enough to allow Bitcoin to take over the world economy.

I agree with the OP that the current money injection rate couldn't support the high prices over the last few months; however, there are two competing perspectives on this issue.

1) Centralized solution
2) Decentralized solution

Advocating that we fork the chain or create an alternate currency simply because Bitcoin does not meet someone's expectations is a mentality of centralized control. It is impossible to create a truly decentralized currency like Bitcoin and have it counter all the irrational market decisions we as individuals make. If we changed the injection rate now (by forking or new alt-currency) we would only be doing it again down the road (another fork) and this is nothing more than centralized control. The reality: few would follow or such actions would simply divide, counquor, and destory all decentralized currencies.

The Decentralized solution: trust the market to sort it self out. Those that reconize this problem should short it helping the price to acheive a value that can be sustained faster.
Those proping up the price from its fundamental value will be punished. Those that helped it acheive it fundamental price are rewarded. Why wouldn't you want it any other way than that?
That's what free markets are all about. Trying to create a currency where no one goes unpunished for irrational decisions is impossible without centralized control and a huge loss of freedom.

The money injection rate is not the problem. The problem is all the people that made the irrational decisions to pump it up and sustain it over the last few months. Let them be punished and hopefully they will have the humility to rid themselves of their greed, their fear, and learn a lesson so they do not do it again. (My self included - I've had an expensive lessen).