The top 50 holders of Bitcoin control 3.5m out of 13m coins, or 27% of the supply. The top 50 richest Americans are worth $700b out of $10t dollars, or 7%. Money supply chart: http://en.wikipedia.org/wiki/File:MB,_M1_and_M2_aggregates_from_1981_to_2012.png

That's assuming their entire wealth is in USD, which, of course, it's not. The dollar is significantly more dispersed.

The high concentration of Bitcoin in few hands has been a lingering deterrent to my investing heavily in it. I wonder if this will be a hindrance to its adoption by big investors and institutions. It's not the uneven distribution of wealth that's the problem, but the danger of few individuals having the power to manipulate the value of the currency at will. The risk may be too much for sophisticated funds to justify investing big.

Now I mostly agree with you! Quantitative easing definitely artificially inflates the amount and size of loans, but the nuance there is that it "inflates" them, it doesn't outright bring them into existence when otherwise they would not have been. I also agree that with 30% monthly expansion in Bitcoin, it is currently difficult to compete with Bitcoin as a speculative investment, but I was talking about the end-game, when "terminal value" is reached, and value appreciation stabilizes at about 2-3-4% per year. The current phase of hyper-growth will be short-lived in the grand scheme of things.

I don't think that is true, Bitcoin being adopted and rejected as a national currency by various countries through time will only increase and reduce demand for it. It won't change the nature of it. When it comes to finance, everything of value is treated as an asset class with its own unique properties that must be analysed - it doesn't matter if it is a national currency or pork bellies.

If this were true, it would still have nothing to do with Bitcoin, and loans should cease today.


That is one reason loans are issued, not every reason, there are still other incentives for loans to exist.

It's all very simple, I'm not sure what the confusion is. If we assume that Bitcoin will appreciate at X% per year, and a class of people with good credit are willing to borrow Bitcoin for X+5%, then a lot of people who own Bitcoin will seek the higher returns and execute those loans. At what point does Bitcoin make people completely irrational?

To create a real example of this, let's say someone came up to you in 2004 with this thing called an "iPhone" (and let's say Bitcoin was the currency). He says he needs to borrow some cash to develop it, and is willing to return 20% interest on what he borrows. Are you saying that no-one would lend this guy money and instead everyone would choose to keep earning a much lower interest?

The other thing to consider is that there already exists tonnes of deflationary asset classes. Almost every asset besides fiat is deflationary. People who have any amount of real money have never kept their wealth in fiat. This is known as a dumb investment. Fiat is only used for transactions, while wealth is stored in any number of currently available deflationary assets: commodities, stocks, etc. Bitcoin will simply be another choice of investment. Very little will change from today.

Wait, I am saying that there is still a lot of incentive to invest a deflationary currency - for safety reasons and higher returns. I believe you are saying that there is zero incentive and that everyone would hoard Bitcoin, and comapnies cannot get funded, loans cannot be made out, etc. Where am I mis-understanding you?

This is completely false. At a minimum, even if Bitcoin were the greatest store of wealth ever known, it would still be irresponsible to keep all your money in there, just for safety reasons. Same if you thought GOOG was the best stock ever, you still wouldn't (or shouldn't) risk all your money it. People will have to invest in other assets just to keep their money safe.

Secondly, the returns on Bitcoin appreciation are going to be far from the highest yielding returns. Bitcoin will only appreciate at about 2-3% per year in the long term, making a wide variety of stocks, bonds, loans, commodities, much more attractive investments to include in your portfolio.

Finally, today we have savings accounts. Recently interest rates have been at historical lows, but generally you could earn 2-3% interest on your fiat. This applies similar pressure to the economy as Bitcoin will apply in the future.

There will definitely be some adjustments here and there, but I don't think the situation will be as different as people are making it out to be.

Right now Bitcoin is appreciating at a furious rate because it is sucking value from other asset classes (primarily fiat holdings). This year it went from $14 to $1000, which is a 7,100% appreciation in value, causing a 7,100% *deflation* in prices. Eventually people will have accumulated enough Bitcoin, that value appreciation (or price deflation), will no longer come from easy conversion of wealth between assets. The value of Bitcoin will come purely from demand to own it and exchange it (and speculation). If the world economy magically remains static after Bitcoin takes over, and the number of transaction do not change, or the wealth transferred between individuals remains equal every year, then Bitcoin's value will also be static - you will be able to purchase the same basket of goods for the same amount of Bitcoin forever. Unfortunately, this is unlikely to happen for the simple reason that historically human populations grow, and along with it so does the size of the economy and therefore the demand for Bitcoin. If only we had a measure of how much exactly the economy grows every year... Oh yeah we do! It's called GDP - and it measures total economic output. Here is the chart of the last 10 years: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=graph

Once Bitcoin becomes saturated, broad economic growth will be the primary driver of its value. Typically the world economy grows at about 2-3-4% per year, but sometimes it doesn't, like in 2009 when it shrunk by 2% (see linked chart). If Bitcoin were the world currency in 2009 there would have been price *inflation* that year, not deflation.

World GDP grows at about 3% per year. When Bitcoin becomes pervasive and stabilizes, its value will increase by about that amount every year. That means that by simply holding Bitcoin, one would make the equivalent of about 3% interest on their money yearly. It also means that one would be motivated to seek out investments that yield higher returns. I can think of many possible loan scenarios that fit that criteria, not to mention stock investments, realestate, bonds, commodities, etc. These will all continue to be actively invested in and speculated on. If Bitcoin wins all it's battles, it will still just be another asset class that a responsible investor can put a portion of their wealth in.

lol, you're right. Thanks for your explanation, makes a lot of sense!

Nothing?

What happens if two miners solve a block at about the same time, with different transactions in them, and one of the blocks gets rejected - aka becomes orphaned? How do transactions in the orphaned block get back into the pool of transactions to be mined and confirmed again?

If the blockchain gets faster it won't achieve what you think it will. Right now the rule of thumb is to wait 6 confirmations before accepting a transaction as complete. The reason for this is that 6 confirmations are so difficult, and take so long to produce, that the effort and luck required to hack a transaction after 6 confirmations is practically unachievable. If difficulty, and therefore confirmation times, were reduced by half, for example - which can easily be done because it's just a toggle in the Bitcoin software - all that would achieve is that we'd have to wait 12 confirmations for the same level security as the previous 6 confirmations. At the same time, the overall security of the network would be reduced because the amount of wasted hashing power on orphaned blocks would increase. A true reduction in confirmation time, while still maintaining the same level of security, can only come from serious innovations, such as making better use of wasted hashing power, or using different/additional proof-of-trust schemes, etc.

Keep in mind that waiting for confirmations is optional, and technically the network is instant. If you were receiving payment from a fully trusted party that isn't trying to rip you off (like a friend or something), you can just wait 1 confirmation to see that the transaction has gone through, or even just that the network has received the transaction (few seconds).

If governments ban them crypto currencies would die. No one raising a family would use them, only criminals, anarchists and radical idealists.

Yes, it could be. The fee is determined by many factors like the size of the transaction (in kb), how many inputs the transaction has, how old they are etc. A smaller transaction made up of a million satoshis will have a higher fee than a larger transaction made up of of 1 input, for example. The other thing is that all fees are technically optional. If you didn't mind waiting days to confirm an ugly transaction, you can avoid paying a fee.


If your transaction is part of an orphaned block and no other block, it gets resubmitted to the transaction pool. That is unlikely as miners generally include all transactions.


No. A wallet is nothing more than a collection of passwords that can unlock coins on the public chain. When people send you coins, all they are doing is adding coins to the block chain that only you can unlock. There is nothing "filling up" or running out of space.

It is possible, even if unlikely, that a flaw is discovered in the block chain itself, rendering existing transactions untrustworthy.

The simple answer is that the costliness and wastefulness of the process is the precise reason we use that process. If someone were to discover a technique that made mining easy and efficient, this would actually "break" Bitcoin, and a patch would be required that re-introduced costliness to the process.

This is because mining is the act of adding new transactions to the existing chain of all previous transactions, making a bigger longer chain. If building up this chain were easy, then people could make their own chains and try to trick the network to accept them as the real chain, changing the record of transactions. But since it is very costly to build up a chain, if you tried to make a competing chain, your chain would look puny, and weak and fake, next to the big, meaty, real chain that included millions of dollars of "wasted" proof of work.

The top 1% is still 3-4 million people, no single individual or small group can significantly manipulate the market. On the other hand, 47 people controlling a quarter of the supply can easily influence prices and value.

NashX is very interesting! Smart. Can I confirm how it works:

1. UserA posts a $300 item
2. UserB sends $600 worth of BTC to a NashX address
3. UserA sends $300 to same address
4. UserA ships item
5. UserB receives item

What happens now? How do both parties tell NashX that all is good?

Yes Bitcoin is based on solid math principles. Yes it is constantly adapting and changing. Yes it has first mover advantage and a powerful network effect. Yes a sophisticated infrastructure is being built around it. There is no denying that Bitcoin is in a very advantageous position.

But Bitcoin is still also an implementation, and implementations can be better and they can be worse. While the idea of a decentralized anonymous currency will never die, the way we achieve that will continue to progress. There may come a time when the recommended updates are so fundamental that the only option is to start over. Or there may be disagreement on the right direction to go.

If that happened, the migration to NuCoin would start out slow, then gradually increase at an accelerated pace as the network proved itself. When a critical momentum is reached, people will begin to realize that it could become the dominant coin, and a large and rapid transfer of value between coins will occur. There will be winners, and there will be losers. It would be up to the individual to foresee the changes.