@ bitcool, MatthewLM, BitcoinBug:

Yes, yes and yes.

Long-term, follow the fundamentals. Short-term, the manipulation can easily wipe you out.

As proposed earlier, I'm expecting major fireworks to happen with gold rising well over USD$2000/oz then experiencing the usual slam down near the previous base, currently around the $1600 level. As the gold price rises, holders of the metal are more likely to sell, leaving margin traders who can be easily forced out through margin calls. That causes the price to plummet, scaring off investors as the gold-is-a-bubble mentality takes hold again. Meanwhile, the banks cover their previously underwater shorts and continue the games all over again.

Gold will continue to rise because of monetary inflation; the government has no alternative - it's either massive pain and potential economic ruin now or complete collapse further down the road. Putting the day of reckoning off for as long as possible is the easier route and those in power think they can hold things together long enough for real recovery to take root. The current administration will not allow the failure to occur during its time in office, so only the question of how they'll proceed remains.

Here is the most likely means of implementing QE3, as explained by Alasdair Macleod: Repo markets. If you've been wondering who will buy treasuries when China and India are refusing to do so and Europe can't, the major banks will be "encouraged" to (read: forced).

The rules of the game must be changed to keep those in power, in power. Government is the problem.

Bitcoin is better (even more so with Altcoin).

Agreed on the technicals from viper. Very ominous chart formations. Fundamentally, the rise in market "value" has been held aloft by newly-infused money supply since 2008. Basically, the markets are being propped up by an illusion. When the illusion becomes exposed, it all comes crashing down because investors realize there's no real production behind the rise. As more notice this or follow those who do, they start to bail and that then is reflected in panic-selling chart patterns which take the formations viper described.

It's also a scare tactic that was used by the Fed to force acceptance of QE/2. The gist of it is described here as the "Great Excuse". Bernanke and Geithner might as well be parents telling their children that if they don't eat the burnt toast they made, the child will die.

Call bullshit on them and you'll start to see the lies propping up other lies, built upon more lies that have come to be the fraudulent system that exists today.

Spot touched $1825 and front month futures hit $1829. The gap at $1680 has yet to be filled, and I won't be comfortable until it is. Only a week ago, we had the bear raid that took off nearly $100 in two days, yet here we are at new record highs. I'd expect another raid with tomorrow being options expiration, and more raids the rest of the month for futures options expiration and September delivery notification.

Massive amounts of gold and silver are being moved at the COMEX and LBMA. Large shifts in GLD gold related to COMEX member banks with heavy outstanding obligations of delivery to clients, along with movement of metal out of GLD during price rises when the opposite should be taking place.



The big fish are rapidly redeeming their gold. Something is rotten in Denmark...

Easy money is most closely represented by the 3rd item you listed. It's almost impossible to lose with a 0% rate, as you can use it for even highly conservative investments that might return 2% and be nearly guaranteed profit. Gov't takes all the risk and banks keep all the profit.

It's almost impossible to determine when there's excess in a modern economy of sufficient size. There are so many variables and changes take a long time to propagate through an economy. By the time the metrics used to observe an economy and decide how to manage it finally produce recognizable results, there are major distortions. That makes any actions taken more likely to cause harm and further disruption than correct any imbalances in the first place.

In order to truly be able to centrally manage an economy, massive amounts of data must be collected, increasing complexity and potential for errors. The task becomes herculean while allowing the system to manage itself would result in the distortions and imbalances resolving themselves over time.

There are many factors that influence growth rates. Yes, the human aspect among others. Raw resource availability, energy production, global competition, population growth, infrastructure development, etc...

Arguments. 

If I had the time...

BitClockers?

Cards? 5xxx series issue? My 69xx cards are running nicely.

Likewise! I've seen, and agreed with, a lot of your comments in other threads. You brought up some good points and the opportunity to cross-examine conclusions is always welcome.


Nothing about inflation in that sentence, only price stability.


I don't imagine Bitcoin would cause fluctuations in the long-term; wider adoption should see the exchange rates settle and fluctuations become the rarity instead of the norm. The comparison I usually use is to gold, where Bitcoin is the digital version of it. That will last as long as the economy's demand for Bitcoins doesn't outpace the currency's inflation rate - that's when convenience starts to trump value.

Altcoin is different, though. It isn't as predictable because there's no set expansion. If the inflation rate were arbitrarily targeted at 2%, sure you could figure out how many Altcoins there would be in the year 2238. With no specified rate, it'll simply expand to accommodate the participating economy's demand. It could top out at ~10mm units for a year or blaze up to ~100mm within the same time.

As with Bitcoin, the initial growth phase could be turbulent. Bitcoin can be inflated by being dividing units, but it requires increasing effort to do so each time based on the number of participating nodes in the network. It's a similar problem to accumulating >50% of the processing power, though perhaps not quite as difficult. An updated fork would have to propagate sufficiently. Exchanges could accommodate further division, but that's basically patching at a higher level to make things work, introducing external failure potential.

Inflating Altcoin's supply would simply involve more mining. That would take place based on the profitability of generating additional blocks, essentially what the situation in Bitcoin will be until it hits ~21mm units. With no expansion limits, Altcoin can continue to grow with the economy, but during a contraction it can't reduce the number of Altcoins that already exist. It's the opposite problem from Bitcoin's - progressive loss of value instead of progressive gain.

That's where the balance in competing money supplies comes in - Gresham's law means that oversupply of Altcoins will force Bitcoins to be hoarded/saved until Altcoins have dropped in far enough in value to be supported by Bitcoin's rise in value. The corollary is the decline in USD to a point where gold would be preferable for trade. Obviously, the control of dollar supply is too primitive to secure ongoing viability, but the principle remains the same.


Heh exactly. It's a bit tricky, but the pattern of growth would be about the same as Bitcoin's is now. The two are complementary, but we'll get to that in a moment.

There's no need to predict economic growth - the inflationary expansion occurs in response to it. If the money supply in Altcoins lags the economic growth, you can bet it'll be very worthwhile to mine, so there will be processors working overtime to generate as many as possible while the mining's good.

Imagine if Bitcoins were still worth USD$30 per BTC today. How many people would be mining their asses off? That'd happen until either the price dropped as demand fell off, or USD rates on everything increased 30-fold. Because of that, at this point in Bitcoin's growth phase, I entirely agree that they both would share the same inflation problem and that Altcoin's relative price would fall faster than Bitcoin's during a contraction. Once Bitcoin hits its ceiling, Gresham's law becomes apparent.

We can compare the X-coin relative price valuations as helium-filled balloons, one in the air, the other underwater. Altcoin is in the air - as it inflates, it rises; as it deflates, it drops to the ground. Bitcoin is underwater - as it inflates, it rises; as it deflates it still rises. At zero altitude, the two meet.

It isn't about superiority - the two variants work in a complementary fashion. Price stability is as important as having a solid value base. Bitcoin provides the base, but if an economy is expanding and Bitcoin has hit its limit (it doesn't subdivide units automatically to my knowledge), prices denominated in BTC will start to drop suddenly and rapidly. That means that Bitcoin will be gaining value in relation to the broader economy and would be looked at as an investment (again, similar to gold). This hoarding/saving takes BTC out of circulation, leading to further relative value increase in BTCs until a threshold is reached.

With a functioning implementation of Altcoin, prices remain stable because Altcoin's relative value keeps pace with economic growth. Bitcoin's value is still likely to rise rapidly, but not in direct relation to products and services. It rises in Altcoin value as well (e.g. 10 ATC per BTC to 20 ATC per BTC), but businesses pricing goods and services in ATC wouldn't care. The ATC price remains stable even if BTCs buy more ATC and goods now than before. That's the price stability, and Bitcoin's steady valuation acts as a base upon which all other valuation is finally derived.

If you've ever gone SCUBA diving and been unable to see the surface or the seafloor, you know how important a steady reference point is. Bitcoin is the reference point. Above all, it provides a starting point, the origin coordinate of (0,0) from which all other points on the value map can be plotted.

For an excellent visualization of Altcoin's potential progress, Artefact2's Eligius charts shows the pattern very nicely. The blue "Current block estimate" line is the path Altcoin would take and the green "Unpaid reward" line that climbs a stairstep pattern represents economic growth. I imagine the steady slope wouldn't be quite as steady, and would be attributable to speculators who keep mining under the expectation that growth will continue (speculators actually stabilize prices).


You're right - deflation isn't a problem. Currently, mismanagement of our mediums of exchange (Euro, USD, Yen, etc.) in relation to outstanding debt is. And hoarding/saving or whatever you want to call it isn't a bad thing either - it's a defensive reaction.

The difficulty comes from having such a dissociation between the real economy and the illusion of prosperity such that large segments of the illusory economy default during the crunch. Lots of pain and social unrest; nobody wanting to admit they were duped or wrong. The monetary system itself isn't at fault, it's the human control element.

Hoarding/saving doesn't cause the correction, it just accelerates it to completion. Not silly at all - it helps clear up the waste by cutting off access. Even the worst company can continue to function with funding; shut that off and the company fails faster than any other method. Savings: instant deflation!

Electronics are manufactured and their value comes from the way they're used (no electricity, no internet or software == doorstop). Something like that has immediate utility, but certainly isn't a store of value or we'd all be "saving" computers for our retirement. Gold simply exists and for very specific reasons serves almost no other purpose than as money, particularly in the store of value aspect. It also functions as a metric of value, that all-important reference point. Electronics cannot do so reliably. Nor can cars, houses, food, dollars or Euros.

The appropriate asset class needs to be used in the right context. No matter how valid a comparison it might be, imagine how absurd it would be to say that you wanted to pay for a Mercedes with 150 Radeon 5850 cards. Will that still be a legitimate comparison in 5 years?

Speaking of - I have an extra 6-pin power cable and an open PCIe slot - got an extra card?

I couldn't have said it better myself. I actually look at currencies as shares in their respective national/regional economies. What else is a currency if not a piece of the productive power of the issuing entity?

Rants and raves notwithstanding, Bitcoin is effectively a corporation that is owned and operated by its participants while being managed automatically by the system itself. Take that Bernanke.

Decentralized currencies don't necessarily need miners; it's a very ingenious way to spur usage, though. In the Bitcoin system, no miners means no inflation. It's a naturally self-correcting mechanism that prevents runaway devaluation.

Hoarding can be a get-rich-quick method during rapid growth or high volatility, but normally it takes a very long time for hoarding to pay off.

No need for accusation. I have to differ with you on the suggestion that making trade easier is the same as providing "easy money". While I do agree with you that what we call easy money results in bubbles, it's outside of the actual currency demand from an economy. I also think the excessive availability of it is made possible primarily because of the human control element.

It might be good to elaborate on what I consider "easy money" and how it results in problems. In my view, it's a supply of currency above and beyond that which is demanded by the overall economy (consisting of individuals, businesses and the market systems utilized by them to engage in transactions). Because central banks of today use crude methods to determine demand for money, the granularity is often too large to be effective without introducing major price/value distortions.

Each time an intervention occurs, it distorts demand. If the distortions aren't allowed to recede, further interventions that supply "easy money" will exacerbate the problem until it is no longer possible to compensate and the money supply is so far removed from real demand that bubbles form (demand that responds to the increases in money supply as opposed to real assets and productivity).

What I've described goes beyond simply making trade easier and crosses into the limitations of human perception on grand scales. Trade only gets so easy - the excess doesn't help. Because Alt/Bitcoin manage themselves internally, these distortions are virtually impossible. When distortions begin to occur, the system self-corrects. I'm sure there will eventually be certain specific situations where complications could arise, but for now they are two sides of an extremely sublime system (the combination of cryptography, triple-entry accounting and distributed networking/processing).

It's somewhat similar to a parent (as a central bank) attempting to control a teenager's habits (which is impossible, as the parent cannot watch the teenager 24/7) and the teenager (as the currency) learning to take care of himself (he is always around himself and his decisions affect him directly so he would know immediately, or very quickly, when action needs to be taken).

Oh - I keep wanting to squish your user icon

I entirely agree that inflation shouldn't be used simply to keep prices steady and that things should float freely. However, it is still desirable to maintain price stability in order for an economy to function efficiently. Wild fluctuations will cause difficulty in price discovery, thus increasing problems in projecting the viability of business productivity. Basically, it becomes almost impossible to calculate a reliable ROI. This leads to an abandonment of such a manic currency in favor of more flexible alternatives.

The significance of unlimited expansion is not forced inflation or a set rate as central banks today aspire to. Instead, currency demand elasticity is kept stable by the perpetually available expansion; inflation is the result in this case, not the cause. As noted with mining, if it isn't profitable and all miners cease their activity in favor of transaction processing fees, there won't be any inflation at all until mining becomes profitable again (representative of growth and hence demand).

If the economy slows and/or contracts, the existing Altcoins would gradually become worth less. As the economy grows, demand for a common currency increases, so the supply must become available - it must inflate. This keeps the Altcoin value relatively stable and range-bound (elastic). It balances out Bitcoin's nature.

Being a deflationary currency, Bitcoin will become worth more as the economy grows, leading to accumulation - it then becomes a Giffen good. This increase in hoarding reduces currency available for the economy to function, which is a major factor in the bust that occurs after a boom unless there is a means of translating the value difference between the store of value acting as a foundation, and the product or service desired. That's where Altcoin fits.

The big difference from current centrally-managed currencies and the Alt/Bitcoin duality is that the former have no effective restraint and are managed using crude methods while the latter are self-correcting, being managed internally by the system itself. It's kind of like the Holy Grail of monetary theory.


Agreed on all counts, in theory. In practice, that can prove less than functional; consider this: is Bitcoin really infinitely divisible? If it would require a change to the code to increase the precision past 8 digits or some other external translation, the answer becomes less clear. Even as the system stands, what would it take to enact such a change? Would that change the fact that Bitcoin is deflationary by nature, having a set limit of ~21mm units? Again, the Giffen good aspect comes into play with a deflationary asset, as does Gresham's law.

Rather than trying to shoehorn Bitcoin into a role of both the means of exchange and store of value, it can much more easily act as the latter due to its deflationary nature. Altcoin then allows for flexibility in the opposite direction without having to add patches to an elegant system. The more things are changed, the greater the potential for failure. KISS. The exchanges already perform the vital function of acting as bridges between disparate currencies and would afford the same between Altcoin and Bitcoin.

If Altcoin's inflation halted due to unprofitability of mining in a stagnant or contracting economy, the eventual rise in Bitcoin's value will equalize the overall system and allow the economy to continue growing. Altcoin would continue growing to match the economy's pace while Bitcoin maintains its steady value appreciation. It doesn't matter what Altcoin's value is because the economy's growth carries it - it does matter what Bitcoin's is because the economy would rest on it. The same principles apply to the US dollar (Altcoin) and gold (Bitcoin).

Of course, this all assumes widespread adoption of both Altcoin and Bitcoin.

That was a hypothetical for use as an example. Don't focus on the term used, since anything can act as the currency.

I could've said:


The point is that skyhooks are being used by the trading participants to make trade easier. Without enough skyhooks, something else must be used, or trading must be done in-kind (barter).

We can go with currency exchange for further clarification. Let's say that I have 10,000 USD and you have 15,000 BRL. The value representation is approximately equal with 1 US dollar equivalent to about 1.5 Brazilian Reals. If I want 7,500 of your BRL, but you want gold instead of dollars, I will have to use 5,000 USD to buy the appropriate amount of gold. If I can only get 2,000 USD worth of gold, I won't be able to give you enough gold for 7,500 BRL. You would only be willing to exchange for the 3,000 BRL worth of gold that I now have.

The trade is limited by the amount of common currency, in the last case, gold. Obviously there is more gold than that in the world, but again, the situation was hypothetical - an example. Try not to get caught up in the details.

Even better!

This part at the bottom of the spreadsheet cracked me up:
"Quotes may be delayed up to 20 minutes."

Neat! Ars is currently at 2.2% of the entire Bitcoin mining power pool.

http://pident.artefact2.com/

Anything can act as money. Money is simply an abstract concept that is applied to a representative item in order to make trade between differing products possible.

I cannot give someone oranges for his chicken eggs if he doesn't want oranges. A universally or at least widely-accepted medium must be used. Otherwise, a direct barter system is necessary.

As mentioned, anything would work to represent value; even ceramic cups. For simplicity, let's use dollars as they're familiar. When there are 10 dollars in an economy that has a hundred items for immediate trade, there are insufficient dollars to facilitate trade. Even if there were 100 dollars, that may not be enough because some items might be valued more highly than others. At least 100 dollars would be necessary to represent each item of value; more depending on negotiated value of the items.

Thus, there would be an increased demand for the medium of exchange, in our case dollars. If that demand is not met, the items will not be traded. This is one of the arguments used against gold as a currency, which does have some validity. Consider a situation where you might look to buy a pair of sandals. The sandals are $40 and you have a $50 bill. Should there be a shortage of currency, the business might not be able to provide you with the $10 in change you would expect after purchasing the $40 sandals with your $50. Would you be willing to take a $10 loss?

The store management might instead raise the price to $50. Eventually, that would displace values of other goods throughout the economy. Granted, it would be a slight displacement, but done with many items and by many participants, the aggregate changes add up and cause large-scale disruption. Then demand for the adopted currency increases.

It is a matter of convenience that drives the demand for a common currency. If it cannot be supplied sufficiently, trade will be put off until negotiated prices restabilize or alternatives are implemented, thus causing an overall slowdown in the interim. This has nothing to do with the economy itself, as that still retains its objective productive capacity. Instead, the economy's ability to function smoothly is hindered by lack of a fungible exchange method.

You're right, economic growth does not depend on the money supply, but I believe the point being made was that it can be adversely affected or slowed by it. Deflation to anything less than a purely cash-based economy would have to make up the difference in economic activity with delayed payment or barter. Even reduction in available credit can act as a drag when the system has grown into such flexibility.

If a money supply remains constant while the economy grows, eventually the money supply becomes inadequate to facilitate trade throughout the entire economy. Consequences vary, but all are disruptive.

Make the OP work instead of posting useless drivel?

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As far as my understanding goes, that's accurate. If the economy and currency are growing at the same pace, prices remain stable and everyone goes about with business as usual.

With a deflationary money, it's like Gresham's law again. Assume the economy as the bad money and the deflationary money as good. The good is held more because it appreciates in value relative to the economy. Eventually, there's no money to circulate, so the economy grinds to a halt. Altcoin provides a translation layer between the deflationary currency and the broader economy.

So long as the different facets remain freely tradeable, the economy functions smoothly. Without a central human authority mucking around with the money supply, the two forms of money won't be able to get so out of whack as precious metals and fiat currencies are today.

This is exactly what I've been considering since the Bitcoin run up to USD$30. Bitcoin is deflationary. It is the digital equivalent of precious metals, particularly gold & silver. That's wonderful as a store of value and a metric of value, but not well as a means of exchange.

A store of value must remain stable or appreciate. It is an asset, not a liability. This is what Bitcoin achieves by being deflationary.

A metric of value must also remain stable, regardless of whether it appreciates or depreciates. The key is that it is recognizable and universally comparable to anything it is held against. In this respect, Bitcoin is not very effective, but easily could be as it gains widespread adoption. For now, gold remains as the ultimate metric of value, until we start thinking of items in terms of how many BTC they're worth.

A means of exchange only needs to be relatively stable on a momentary or short-term basis. It can be literally anything, from a seashell to a glass bead to a dollar. Its purpose is to facilitate an agreeable rate of exchange wherein acceptance of it indicates confidence that it can be exchanged for something else during its usable lifetime. Modern fiat currencies fit this role.

The Altcoin concept is exactly the appropriate complement to Bitcoin. Americans may find it harder to understand the dichotomy between a store of value and a means of exchange because the dollar has been used as both for so long while the rest of the world has seen many local or regional currencies rise and fall. However, throughout most of history, gold and silver were used as savings or stores of value while other items (bronze, copper, paper certificates, etc) were used as currency or means of exchange.

That isn't to say that gold and silver can't be used as currency. Indeed, they very well can. But consider whether you'd rather carry a briefcase full of coins that weighs over 100kg or a wallet full of dollars and Euros weighing only 50 grams. Convenience trumps security for users when it comes to computers and it also trumps value when dealing with short-term exchange in currencies. Only when convenience is no longer worth the loss in value does that switch, usually temporarily.

In the near future, we might see people being paid in Altcoin and buying goods with it while they hold Bitcoins for long-term savings. That isn't because Altcoins weigh less than Bitcoins. Rationale for this comes from the fact that Bitcoin's structure is rigid, while demand for an exchangeable medium can vary wildly. That is a major reason for failure of adherence to the gold standard. Demand for one property of money (means of exchange) outpaced that particular utility of gold.

With Altcoin (or whatever it will be called - my vote is for "Skrill"), an unlimited expansion of supply allows for demand to determine the inflation rate (it also makes lost coins irrelevant to anyone but the owner). The underlying structure is still the same as Bitcoin, but the distinction is that there is no ~21mm unit limit. That flexibility afforded is the critical factor - the "other side of the coin" (pun intended).

Assuming a set inflation rate is a mistake. Mining for Bitcoins now is an inflationary process and will be until the ~21mm unit limit is attained. Only at that point will Bitcoin truly become a deflationary form of money. Until that point, demand will dictate the expansion rate on a cost/benefit basis. If it is profitable to mine, miners will do so. Otherwise, they will not, until such a point as it becomes profitable again. Very simple. The same will apply to Altcoin wherein the inflation rate might be rapid initially, but the profitability of mining Altcoins will dictate the expansion of the supply. That profitability is determined by the demand for Altcoins. Also very simple.

So long as the Altcoin and Bitcoin systems are structurally intact and remain decentralized, Gresham's law will arrive at a balance where Altcoins act as the primary digital means of exchange and Bitcoins act as the primary digital store of value (means of saving).

Another analogy could be to view the current Bitcoin adoption as the 1800s gold rush and the Altcoin concept as the birth of fiat currencies, minimizing the need to carry a pocket full of highly valuable gold.

I hope this ridiculously lengthy explanation helps in understanding why both forms are necessary for a modern society.