Interesting argument, I'll have to take that into consideration. I'm no economist by any means, but it just makes sense to me that the optimal economy would be one in which the money supply does not affect the decision to spend or save (or take on debt).
But would an economy in which the money supply dynamics are fully defined and well known with perfect information for all participants affect someone's willingness to invest negatively? Wouldn't the known money supply dynamic just become the backdrop on which people still evaluate whether they can put capital and labor together to yield more than the sum of those costs? Sure, savings would grow purchasing power over time, but investing would bring in profits that also grow purchasing power over time... Doesn't this even out? It seems to me that the key is perfect money supply information. People are exceptionally conditioned to a generally inflating (at variable rates) money supply right now, so if we get brief periods of deflation (or deflation expectations), of course people hoard because they know the supply is just going to inflate again soon. But again, if the supply dynamics are perfectly well known to everyone, it should just come back to sound business decisions without any of the macro-forecasting shenanigans that pervert investment incentives. Bitcoin is the first feasible monetary system ever proposed that credibly offers perfect information to all participants. That changes (purifies) the calculus quite a bit. Let's continue with the maths then. Say I am looking at a potential investment in a company that has a 95% chance of succeeding, and if it does succeed, it'll grow my investment at an average rate of 7% per year, but if it doesn't succeed, then I lose everything. I might value that investment as a potential 2% growth on my money. Now, say that I know that prices are dropping at a rate of 3% per year (purchasing price increasing, due to deflation in the monetary supply). Why would I invest in said business with my money to make 2% per year, when I could just keep the money in my pocket and make a certain 3% per year? I can know everything about the specifics of the money supply, but that wouldn't change the fact that 3% > 2%, and thus saving instead of investing is the wiser business decision. The question I cannot answer is whether the expected 7% return would have been greater in the inflationary economy vs in the deflationary economy. If that is the case, then perhaps my argument would be nullified. HuH? A business making 2% a year is fine, because that would be 2% a year in a currency that is appreciating in value 3% a year. I invest 100 BTC and I make 2 BTC the first year. Let's say the interest doesn't compound so I make 2 BTC again the next year. That 2 BTC will be worth 3% more than the 2 BTC I made the year before. I don't see the problem. |
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By the way, there is one kind of inflation that is harmless according austrian theory that could eliminate all price deflation. That would be a completely even distribution of the newly created money. We could let the money supply double at the end of every year, as long as the newly created money is distributed proportionally according to how much money you currently have (the value of each bitcoin adress is simply doubled). All this would cause is that prices would instantly double as well (and lending contracts would start compensate for this). No one would lose or gain any purchasing power.
In fact, someone could even create an inflationary bitcoin client without even forking the block chain. Just change the unit of representation in the UI at the end of each year, without changing the underlying code. So at the 1 of January every year, everyone's balance doubles. Thinking about it, this would actually be a really good idea to shut the inflationists up. Just give them their inflation client, where they can pick their own rate of inflation.
That is the same as moving the decimal place. That does absolutely nothing except for perhaps arcane psychological effects. |
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It means that loans will be rare in a Bitcoin economy. Growth will come from savings (capital formation).
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
Why would loans be rare? All you do is adjust the interest rate for the expected amount of deflation. |
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But damned if this isn't exactly what to expect from a libertarian leaning community. Bitcoin was already a joke, but you dank, are the punchline.
Now that's the type of horseshit I expect to be reading from TheBible! Thanks for outing yourself! +1 Also, Dank, I suggest you should lock the thread. Everything has been said. Not everything. Can we get a betsofbitco.in going on the success or failure of Dank's Hookah bar? |
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There will continue to be panic buying and selling, causing wild price swings. That's not a 'store of value', that's a speculative investment.
Compared to what? Is the euro, for example, safer than Bitcoin in the long run? I'm not sure about that. But if you are looking for a 'store of value', look at gold, silver, platinum etc. Those have large markets that have a high degree of liquidity. So would you agree that Bitcoin might be a better "store of value" than the euro? Yes, I would agree with that. All the major economies of the world are facing systemic problems, so the Euro could definitely be affected by that in a really bad way. Bitcoin could offer some protection there since it can't be debased by any central bank. But, once again, Bitcoin is currently too volatile to be as good of a store of value as precious metals. |
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There will continue to be panic buying and selling, causing wild price swings. That's not a 'store of value', that's a speculative investment.
Compared to what? Is the euro, for example, safer than Bitcoin in the long run? I'm not sure about that. But if you are looking for a 'store of value', look at gold, silver, platinum etc. Those have large markets that have a high degree of liquidity. |
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If a currency like Bitcoin that can lose half of its value overnight is better than your local currency, that local currency must be pretty damn bad.  You have to be kidding, I hope. Investing into bitcoins or using it as savings usually means that the investment will stay in bitcoins for at least many months, often years. There has been only 1 month period in the entire history of Bitcoin where the value was actually higher than it is now. That was in June 2011. Investing at any other time would have been profitable, most of the time very profitable. This doesn't really prove anything for the future but saying that bitcoins are a bad savings currency is absolutely ridiculous. There is nothing in the whole world that is better right now. The arguments regarding volatility affect a different problem entirely. In the short term or for using bitcoins as a payment method, volatility does matter and it can sometimes cause big problems. This will get better with increased liquidity, however. These are two completely different issues. Long term thinkers know the value in Bitcoin and so far that has been rewarded in a strong way. Bitcoins don't only store value, they actually increase value right now because there is so much growth. Even a 30% inflation of the monetary base (yearly) has done nothing to stop this growth and that is impressive. Soon, with the block halving, even the monetary base will grow much more slowly. Of course the growth of Bitcoin will slow down eventually and it will start to become "just a store of value" and not the super investment it has been thus far, and that's the way it's supposed to be. Something like Bitcoin is not really meant as an investment but it is meant to be good for savings and to work as a store of value. In the long term it truly has been a good savings currency already, it's undeniable.I'm a strong supporter of Bitcoin and I have a significant percentage of my own money in Bitcoin right now, but it is misleading to say that Bitcoin is a good unit of account or store of value. It is just too volatile right now to serve those purposes. It is without a doubt, however, the world's greatest medium of exchange. Let's take for example the use case of saving for a house that I want to buy in a year's time. If I were to have bought Bitcoins as a 'store of value' or for savings back in June of last year, I would have lost over half of my savings for buying a house. That's just unacceptable for a 'store of value'. Unless, however, the local currency you are using is even worse. That seems like it could be the case for Argentina. It certainly seems to be the case for a country like Zimbabwe. Bitcoin is a great medium of exchange, and in my opinion, an awesome speculative investment, but store of value it is not. I cannot in good faith recommend people use Bitcoin as a means of acquiring a 'savings account'. Bitcoin will slow down, but at what price and at what market cap? Will it slow down at a price of $100? A price of $500? A price of $50,000? Maybe governments across the world will launch a coordinated attack on Bitcoin exchanges, shutting them down. Then the price of Bitcoin could plummet to less than $1. There is a huge range of possibility there. As I have said elsewhere, speculators will be trying to find out what the 'true value' of Bitcoin is. Those speculators' sentiments will fluctuate wildly as news comes out about Bitcoin, or for a million other reasons. We have already seen this happen. There will continue to be panic buying and selling, causing wild price swings. That's not a 'store of value', that's a speculative investment. |
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Does this have anything to do with September's announcement?
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The answer is, of course, no. This was a mistake and the bank's representatives were acting illegally. Had the owner been home he/she could have denied entry until the sheriff came. At that time they would have figured it out. This was not the evil banks being evil, a simple mistake which the bank is responsible for fixing.
A simple mistake of breaking into someone's home and clearing out someone's private possessions twice? Really?  |
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If a currency like Bitcoin that can lose half of its value overnight is better than your local currency, that local currency must be pretty damn bad. |
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You're brave, good at writing and just awesome. I'm now officially a fan of yours!
This was refreshing.
Thanks, I write well whenever I can  Fixed. |
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They could. But not the big banks. Maybe some of the smaller banks will try.
They'll accept bitcoins for deposit, with a very small interest. They will also issue loans for bitcoins, with a much bigger interest rate. So they make money on the spread.
Just like any other regular bank account, but in 3rd party currency. You'll keep your money with them because if you don't do anything, it's supposed to earn a little interest.
The rate would be very small, but it's got to be higher than zero otherwise you'd just keep it in cold storage.
Would not work. The banks would have no protection against a run on the bank. There is no central bank of Bitcoin to give out emergency overnight loans etc. CDs would be legit though. |
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Soon as in when hell freezes over, sure.
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Great story! I have a bad feeling that once these bankers and regulators find out more about Bitcoin, they may become a lot less friendly. Keep up the good work!  |
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Could it be that you live near drug addicts who want to buy stuff off of Silk Road? |
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Saying they will accept it after it becomes huge doesn't help much. In fact, it just exacerbates the chicken and egg problem. Saying I'll jump into Bitcoin when it reaches a market cap of $1 Trillion doesn't help Bitcoin get there.
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Donation sent. This is an excellent project. I'm amazed that people have btc to throw into ponzis but none for worthy projects that would benefit their own bitcoin holdings in the long term.
Imagine what 500,000 bitcoins would have built?
I'm going to go out on a limb here and say that many of the people involved in the Ponzi schemes are not involved with the Bitcoin community at all. They are simply buying BTC to get in on the schemes. |
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I have to say, this is a great thread. However, pointing out all of the lack of information in dank's plan could have been avoided. The reason why? Asking for a large loan in BTC for any significant period of time is crazy, especially for funding a business. What happens if the value of the BTC goes way up? The borrower will never be able to pay it back. See this thread here: https://bitcointalk.org/index.php?topic=103275.0Dank's plan is DOA from the thread title: 2000-4000 BTC loan - Hookah Lounge Edit: I see he had thought about the problem of BTC rising in price, but his plan doesn't solve the problem. I have no problem providing identification as requested. I'm interested in any loan between 2000 BTC and 4000 BTC for a term of 1-2 years. To adjust for price influxations between USD inflation and BTC, we would recalculate the payments, every month, relative to the initial start up cost. For example, you lend me 4000 BTC @ $11/coin, $44,000 and I plan on repaying it over two years with 2% interest/month. Our monthly payment would equal $1870, or 167 BTC, including interest. If Bitcoin should rise to $20/coin within that period and USD loses 10% purchasing power, I would recalculate the loan to $48,400 giving us a payment of 101 BTC. This protects me from BTC price variations and you from USD devaluation. If 1 BTC went to $20, the investor would have almost certainly been better off with the BTC. And assuming dank didn't sell all the coins at once, he would now have reaped the rewards of $20 BTC. Real world loan contracts deal with this all the time. You denominate the contract in terms of the most stable currency even if the funds are loaned and the repayments made in another. dank's proposed venture is not a "Bitcoin business" in any meaningful sense of the word. The vast majority of his business will be conducted with USD and that's also the currency in which his accounting records will be maintained. It's a pretty trivial matter to denominate the loan contract in USD and repay the lender in Bitcoins. Yes, that is true. I retract my previous statement. If Bitcoin is merely a pass through medium for the loan, it is legitimate. |
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I have to say, this is a great thread. However, pointing out all of the lack of information in dank's plan could have been avoided. The reason why? Asking for a large loan in BTC for any significant period of time is crazy, especially for funding a business. What happens if the value of the BTC goes way up? The borrower will never be able to pay it back. See this thread here: https://bitcointalk.org/index.php?topic=103275.0Dank's plan is DOA from the thread title: 2000-4000 BTC loan - Hookah Lounge Edit: I see he had thought about the problem of BTC rising in price, but his plan doesn't solve the problem. I have no problem providing identification as requested. I'm interested in any loan between 2000 BTC and 4000 BTC for a term of 1-2 years. To adjust for price influxations between USD inflation and BTC, we would recalculate the payments, every month, relative to the initial start up cost. For example, you lend me 4000 BTC @ $11/coin, $44,000 and I plan on repaying it over two years with 2% interest/month. Our monthly payment would equal $1870, or 167 BTC, including interest. If Bitcoin should rise to $20/coin within that period and USD loses 10% purchasing power, I would recalculate the loan to $48,400 giving us a payment of 101 BTC. This protects me from BTC price variations and you from USD devaluation. If 1 BTC went to $20, the investor would have almost certainly been better off with the BTC. And assuming dank didn't sell all the coins at once, he would now have reaped the rewards of $20 BTC. |
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By "wide adoption" I don't mean a universally accepted world currency (this is a pipedream), but a share comparable to silver or gold, as suggested in the OP.
You are grossly underestimating the size of silver and gold markets. There is trillions of USD value contained within the gold market capitalization; 160,000 tons at 35,274 ounces per ton at $1,730 per ounce or about $9.76T. If there are 7.8m bitcoins in existence, since about 2m have been destroyed, and if the BTC market cap were $.06T, a rounding error of the gold market capitalization of about 0.6%, then the price per bitcoin would be about $7,692. I did not miss a few zeros here or there did I? What percent of gold's market cap is based on demand for jewelry and industrial uses? Subtract those and what is left? I suspect a significant percentage of gold's market cap is jewelry and industrial. |
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