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Author Topic: Economic Value of Bitcoins  (Read 3073 times)
bitcoinuser
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April 09, 2010, 03:30:24 AM
 #1

Guys, first off, I want to say this is AWESOME. I read about "currencies" and other forms of "value exchange." A great way to learn about "value exchange" systems (like moneys, credit systems, etc) is this book:

http://www.transaction.net/money/book/

The Future of Money: Creating New Wealth, Work, and a Wiser World

ALL of the currencies in the world today are closed ones; created and managed by a small group of people. Which means they control the "creation" of wealth, and since they create at will, they can guide the world in the direction they want. For example, they guide the rules of banks and thus control the banks; the banks then use leverage and can "create" money simply by accepting deposits (and then loaning out 100x what is deposited).

SO a system to globally track value-exchange between people that is not centralized (and easy for these above stated people to close down), can actually allow people to exchange value (goods, consulting fees, etc) between each other without the interference of governments.

CURRENCY GROWTH CONCERN:
That being said, in economics we learn that the amount of the currency should grow basically with the number of transactions between people -- if there are only 21 million "bitcoins" and there are 21 million people wanting to buy stuff work 100-bitcoins, then there will be a scarcity of currency and so the "value" of that currency would go up. we need to have a way that is peer-2-peer verified, but allows the currency quantity to grow proportional to need (example, each time a new person joins, then the community gets X additional coins distributed to everyone).

The way this currency grows must be fool-proof, so a person with a network of computers can create currency by having a set of their computers verify transactions, etc... I don't know how this will be done.

CURRENCY LIQUIDITY:
Having an exhcnage system to real-currency is a good idea. However, keep in mind, that governments around the world keep a very strong eye on this (ex. thing the Linden dollar [Seocnd Life] or the chinese QQ [virtual currency]), and they will most likely try to shut down any systems they cannot control (because they perceive themselves/bankers loosing control if people use alternative value-exchange/currencies) ... so the liquidity/exchanges for currency must also be peer2peer and not easy for courts/governments shut down.

There is hope but lots of smart people and work needed to over-come these challenges!

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July 14, 2010, 03:40:34 PM
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That being said, in economics we learn that the amount of the currency should grow basically with the number of transactions between people -- if there are only 21 million "bitcoins" and there are 21 million people wanting to buy stuff work 100-bitcoins, then there will be a scarcity of currency and so the "value" of that currency would go up. we need to have a way that is peer-2-peer verified, but allows the currency quantity to grow proportional to need (example, each time a new person joins, then the community gets X additional coins distributed to everyone).

There won't be a scarcity. Bitcoins can be divided into 8 decimal places (at this time, the software only supports 2 decimal places, however.) When the currency starts deflating, the software will have more decimal places supported.
sirius
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July 14, 2010, 08:39:17 PM
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I added an answer about the value of Bitcoins to the FAQ.

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Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoin has value because it is accepted as payment by many. The initial market value was achieved when people speculated, that because of its properties, the currency would be accepted by others later on.

When we say that a currency is backed up by gold, we mean that there's a promise in place that you can exchange the currency for gold. In a sense, you could say that Bitcoin is "backed up" by the price tags of merchants and currency exchangers - a price tag is a promise to exchange goods for a specified amount of currency. Of course, price tags may or may not be as long-term promises as those made by central banks or governments.

It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value - hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a currency to be useful, it alone doesn't make anything valuable. Your fingerprints are scarce, but that doesn't mean they have any exchange value.

Any comments or grammatical improvements?

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July 14, 2010, 09:33:06 PM
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Might it be useful to make a 'More FAQs' page on the wiki in which new FAQs can be evolved and the most frequently asked ones can then be copied to the main site FAQ?
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July 14, 2010, 09:36:03 PM
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Might it be useful to make a 'More FAQs' page on the wiki in which new FAQs can be evolved and the most frequently asked ones can then be copied to the main site FAQ?

That's a good idea.

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