At this point, we can write off Bitcoin as a failed experiment. It's worth thinking about how a different distributed digital currency might be made workable. A few problems which have to be solved:

• Mutual mistrust between buyer and seller needs to be supported. This is the toughest problem. Right now, sending Bitcoins is not tied to receiving something in return, and is irrevocable.
• The double-spending check system has to be as least as fast as normal credit card processing. Waiting minutes for the block chain to update is unacceptable.
• Some price stability is needed. Value shouldn't change more than 1% per week, worst case. 1% per month would be better.
• A better way of launching the currency needs to be developed.

There's an approach to mutual mistrust that might work.  First, as with credit cards, there's a need for an "authorize" and a "capture" stage. In the "authorize" stage, A indicates that they intend to send value to B. This locks up the value from other use by A, and B receives a reliable confirmation that A has that value. In the "capture" stage, the value is actually transferred to B. A has to authorize the "capture". 

That's the normal case. The hard cases might work as follows:

• If A does an "authorize", and then does nothing, a "capture" automatically takes place after some number of days. So sellers don't have to nag buyers.
• If B cancels the capture, that's an agreed cancellation of the transaction, and the value becomes available to A again.
• If A does an "authorize" and later cancels before a "capture", the value becomes available to them again after some number of days. This is the tough case, and it puts B at risk of the buyer backing out after shipment of the product. To discourage backing out, when A does this, they are no longer anonymous to B, and B can publicize the cancellation, which affects A's reputation. Also, because cancellations aren't immediate, A's value is tied up for days, so they can't do this too often.

Discuss.

There's not likely to be an upswing at the end.  When a company's stock goes low enough, it may be worth buying if they have production capacity and a market.  A company may become profitable when its capital costs decline.  Or at least it may be able to cover its operating costs. (Venture capitalists call this "zombie mode", where a startup can't possibly pay back its investors but can cover its operating expenses.  Companies can limp along in zombie mode for years.)

But Bitcoin generates no revenue. It's a pure speculation, a pyramid scheme, really,  In the end, it will go to 0.

Agreed.  I've been saying it's going to be a long, slow slide since shortly after the $30 peak. There's just no pressing reason to use Bitcoins for anything, so it's a pyramid scheme, and those always crash after the peak.

In the real world, brokerages do disclose periodically how much total cash they have in customer accounts. That number appears in quarterly financial statements, and it's necessary to keep them honest. It's not a number that's disclosed daily, though.

No, that's 7200/7000000 every day. That's about 38% per year.

At this point, I don't think anyone wants to put real money into Bitcoin infrastructure.

Just fell below $8. Next wall is at $7.5.

Interestingly, there are plenty of buyers in the market today.  This isn't the usual low-cash weekend situation. But the buyers are mostly bidding around $7 to $7.5.

I stand by my "long, slow slide" prediction. It's a post-bubble situation.

As I keep saying, this is the long, slow slide after a bubble popped.


$/BTC, Mt. Gox, last 6 months.

That is an absolutely classic speculative bubble. And when bubbles pop, they pop all the way.  Because there is no intrinsic value to Bitcoins (unlike, say, houses), "all the way" means down to zero.

Bitcoin was an interesting idea as a medium of exchange for micropayments. But it turned into a pyramid scheme. Once it did, it was doomed to repeat the pattern of all pyramid schemes.

Read the FTC's history of pyramid schemes in the last 30 years..

Oh, and for those people who keep yelling "Troll":

"Beware of any plan that delays meeting its commitments while asking members to "keep the faith." Many pyramid schemes advertise that they are in the "pre-launch" stage, yet they never can and never do launch. By definition pyramid schemes can never fulfill their obligations to a majority of their participants. To survive, pyramids need to keep and attract as many members as possible. Thus, promoters try to appeal to a sense of community or solidarity, while chastising outsiders or skeptics. Often the government is the target of the pyramid's collective wrath, particularly when the scheme is about to be dismantled. Commission attorneys now know to expect picketers and a packed courtroom when they file suit to halt a pyramid scheme. Half of the pyramid's recruits may see themselves as victims of a scam that we took too long to stop; the other half may view themselves as victims of government meddling that ruined their chance to make millions." - FTC general counsel, 1998.

It takes a lot of financial strength to peg a currency or a commodity. However, it can be done for short periods as a convenience to markets. The price of gold is "fixed" twice a day, by five big banks, in London. Before trading became so fast, there were more currency pegs. See the Bretton Woods agreement.

There is currently no Bitcoin exchange sound enough to lend to.

Name one Bitcoin exchange or exchanger with a Dun and Bradstreet listing, let alone a decent credit rating.

FOREX trades are required to settle by day T+2. Bitcoin "exchanges" should be held to the same standard.  If the money hasn't shown up on day 3, assume they're crooks.

Looks like a problem with the market depth data making it from Mt. Gox to Bitcoincharts. The market depth data on Bitcoincharts is not changing, but the price is.

It looks like Bitcoincharts' market depth data has been stuck for at least 20 minutes, maybe longer. Bitcoincharts needs to post alarm messages when their data sources are stale. 

Current price 10.1999, high bid 10.85, low ask 10.88, from BitcoinCharts,
What broke this time?

There aren't any Bitcoin services which come up to the reputability level and financial stability of a small-town bank. Every Bitcoin exchange is a startup with no money behind it. None of them are additional services of a real bank or brokerage. 

Also, none of them guarantee a settlement date. In the real world, brokerages are required to pay up within N days of a transaction; the number of days ranges from 2 to 5 depending on what's being traded. Foreign exchange transactions normally settle within 2 days, stocks in 3 days. None of the Bitcoin exchanges commit to that, and routinely take longer. People are constantly complaining about exchanges not paying promptly.

The whole ecosystem is flaky. Too flaky for retailers. No major retailer could accept Bitcoins when they didn't know how long it would take to convert them to something they could pay their suppliers. 

(The above is from someone promoting pyramid schemes in their signature: "Random Pyramid - make BTC for life with 1 deposit", "Another Pyramid game", "Bitcoin Kamikaze is BACK!". So they need people to act like suckers, putting money into questionable operations. Assurances from such a source are questionable.)

In the past two months, most of the organizations which purport to be "financial institutions" for Bitcoins, taking deposits and holding money for others, have had serious problems. With the possible exception of Dwolla, none are in compliance with laws on money-transfer firms or financial institutions for the country in which they operate. Mt. Gox should be registered as a money-transfer service in Japan, and it isn't. Global Standard Bank should be registered as a bank in Quebec, and it isn't. MyBitcoin and Bitomat were fronts for someone acting anonymously. Liberty Reserve is in Costa Rica, and may or may not be legal there.

The list:

• Mt. Gox - claims to have been "hacked" and is still operating, but it's not clear if they actually have all the funds on deposit.
• Bitomat - claims to have lost their data in Amazon's cloud, and went out of business without paying their debts.
• Global Standard Bank - faked pictures of bank building, not registered with Canadian banking authorities. Site exchange rates no longer being updated.
• Dwolla - began "reversing transactions" which were supposedly complete after some fraud against them.
• MyBitcoin - claims to have been "hacked" and is going into "receivership", but isn't disclosing the name of the party going into receivership or in what jurisdiction.

The Bitcoin ecosystem is very, very flaky. And when these semi-anonymous outfits get in trouble, they disappear, rather than paying up.

Right. If you consider the cost of power, air conditioning, floor space, and labor, it's far worse. Most of the
people mining are probably losing money if they amortize all their costs.

OK, I see.  Where they write "less power costs", that's after the subtraction, not before.

The calculator at http://bitcoinx.com/profit/index.php is broken. If you change the USD/BTC conversion
rate, the power cost per day changes.  Oops.

Sure they will, when they realize that the only alternative is selling at a bigger loss later.

Bitcoin was a bubble, like tulips, and it's over.


Bitcoin, last 6 months.

We're in the long, slow slide phase. Remember, Bitcoin generates no revenue. It's a pure speculation. So it can go all the way to 0.

Bitcoin as a currency has failed. There's too much volatility. Even the Silk Road people are fed up. Getting money in and out of Bitcoins is slow and unreliable. None of the exchanges offer a guaranteed settlement time.  The intermediate "exchangers", Dwolla and Liberty Reserve, are all flaky. "Global Standard Bank" pretends to be a bank, but isn't. MyBitcoin.com, which ran an online wallet service, apparently shut down and took all the money. That's no basis for a currency.

It's over. Get out and go do something else.