Oh, I do that too. Guess I'm not the hoarder I think myself to be. Made a pretty nice return betting on Pirate's default in August, though.

The one thing I do use bitcoins for now: I've given several friends 1BTC as a gift. I let them know they can cash it out for the $12.50 or whatever the rate at the time is, but I recommend they hold on to it. They make an online wallet, I send it over, and a new Bitcoiner ...Bitcoineer? Bitcoinator!... is born.

I actaully poked around Quantiger's blog for a little while, read most of the posts. He's interesting in some places, sensitive to nuance at times. Though the utterly facile examples (Beanie Babies are the best analogy you can come up with for bitcoins? Really?) raised some red flags, his claims to being peer-review published in economics and exasperation with the 'uneducated' led me to really think hard on what I might be missing...

But yeah, inevitable conclusion: The guy does not understand money.

Money gets chosen by markets primarily on the basis of its utility and only secondarily on the basis of its distribution; its utility stems foremost from the physical characteristics of the substance. (Is it money-apt like gold and bitcoin, short-term-metastable-quasi-money-apt like fiat currencies, or ineffective as money like ice cubes?) The secondary aspects, while relevant, are far more forgiving.

An example:

Warren Buffett once invoked the image of all the gold in the world merged into a giant cube to illustrate the unproductivity/uselessness of gold as such, and his example is contrived to create just that impression. Such a scenario could indeed, at least temporarily, demonentize gold, just as one person holding all BTC would demonetize Bitcoin; a commodity can't act as a medium of exchange without enough eligible exchangers to render it a common value proxy across an economy.

That said, if you owned that giant cube of gold, you'd want to get a chunk of it out into people's hands and in the marketplace as money so that people will accept gold from you in exchange for goods and services. One can see the incentive for large holders of 'money-apt' commodities to circulate them, particularly in those markets that provide the wealth holder useful goods/services. In fact, if someone were to have possession of ALL the world's gold/bitcoins, the smartest thing for him or her to do would be to distribute enough of it, even for free, to remonetize it. All the money-apt characteristics--the primary condition for something to be money--are there lying dormant, as compelling as ever, waiting for the weak secondary condition to be fulfilled. Note that nothing more need be done than to distribute the money-apt commodity past some minimum threshold. Markets will do the rest automatically--Game recognize game; money demand recognizes money.

This is why I don't fear for the scalability of Bitcoin or its appeal to latecomers. Even if it's storing value mostly for a small group, it's just as good a store of value to any new entrant, and of course a great medium of exchange.

Also note what I said about the dominant strategy for the unilateral holder of a money apt-substance implies about the marginal utility of money ownership. If I have 50 bitcoins, I'm more likely to be frivolous with a few Satoshis than someone who owns 1/1000th of a bitcoin. In combination with the limitations on fraud with Bitcoin relative to fiat, I expect some trickle-down on that basis, and from those with large holdings promoting the new currency and assisting their communities.

Gold has similar distributional inequality to Bitcoin. A new, independent form of sound money concentrated within a different group helps to decentralize power in the world. Bitcoin is mostly owned by forward-thinkers, nerds, etc. (I'm venturing a guess there.) Gold ownership rests on a history of violence and theft stretching endlessly back through a savage past. Those massive hoards need a counterweight.

Assuming all goes well with Bitcoin's rise and it reaches its anticipated potential, the challenge for the early adopters will be to use their purchasing power wisely and philanthropically.

Even if newly-created money is distributed in proportion to current money holdings, wealth is transferred to those who spend it first (unless all prices rise in proportion to and at the instant of the money supply increase). Nit-picking perhaps, but it's important to isolate the addition of money itself from the rise in prices as this money starts moving through the economy.

evoorhees, hello. I was just making some posts to finally end my newbie status so I'd stop missing the chance to participate in great convos. I will dedicate my 5th to you, as I've seen you all over these boards, demonstrating an excellent understanding of economics. I anticipate we will engage in riveting discussion at some point and I also like your hat.

OP: While established Bitcoin users certainly trade on current events, a lot of entry is still incidental to when someone 1) hears of Bitcoin, and 2) hits the level of interest/understanding/confidence at which they commit to a purchase. I would agree that the latter is probably the strongest driver of the exchange rate prices at the moment.

I do not advocate the usage of bitcoins in transactions where fiat currencies remain viable as a substitute, in the same way that I wouldn't trade gold or silver bullion as currency before exhausting other means of exchange. Bitcoin is, I believe, lower on Exter's pyramid than fiat, and may prove to be lower than even the monetary metals themselves. All will rise in purchasing power relative to paper assets. As long as the service infrastructure for Bitcoin commerce is thoroughly in place at the point of acute decline in fiat currencies, I don't think it matters if anyone was using it to buy or sell goods and services; being highly liquid and easy to access, it is capable of taking the reins from fiat at a moment's notice.

This is important and necessary work, of course--Speculation is the work of price discovery, and the fact that a speculative profit exists to be made is an incentive for newcomers to arrive to trade Bitcoin. They're pulling Bitcoin out of obscurity and illiquidity into the realm of competition with major state-sponsored currencies--not a task to be taken lightly! Once price speculation has drawn in enough participants and the gains from time arbitrage peter out, we should be left with very stable rates from Bitcoin's perspective. Until then, I don't see the harm in quoting prices of goods/services in, say, dollars and dynamically adjusting the amount of Bitcoins charged based on the present exchange rate or a formula approximating it.

It looks like its on track to do around that well, or better. The waters have calmed over time but are still quite choppy. There's still plenty of speculation ahead. However, a strong growth trend has shown itself, a hard floor has been built, and the critics have been silenced. Hopefully the growth rate of the business/service ecosystem and of the Bitcoin holding community will go noticeably exponential over the next year.

VogueBlackheart signing in. Avid Bitcoiner. Long-time silent forum reader. Philosopher. Gentleman. Rogue.

I believe Bitcoin is a nearly unfathomable advancement in the technology of currency, and am coming to strongly suspect it is itself money in the essential ways that precious metals are.