So, this is it: Bitcoin credit crunch.

[Francesco]

When in 2008 the lending bubble collapsed, the Government choose the less-trouble way to just print money, and give banks a free ticket to survival. As we all know, doing so rewards mindless risking, at the expense of the value of everyone's money -even the ones who didn't profit from the scheme, and didn't want to take part in the risk in the first place..
Bitcoin was exactly designed to avoid such a possibility.

Now we have had our bubble: Pirate. Most of the "banks" lied to their depositors saying they weren't investing in Pirate, and they were. But even if they were perfectly honest, the chain effect caused an incredible amount of defaults -so, credit crunch, which now can grow on its own.

The difference is, we don't have a FED to bail them out. This means

1) mindless risking won't be rewarded: people will have to stand the full consequences of their actions.
2) those who wanted to stay out, are left to stay out -in a bitcoin internal perspective, at least: the USD price may have fallen, but 1BTC is still 1/21.000.000 of all the bitcoins that ever will be.

But this also means

3) people that just wanted to invest their coins, at what was widely considered the "normal" and "safe" interest rate of the bitcoin world, are often just about as screwed as those that "invested" in "shut up and take my money" style. Some "low risk", "guaranteed" and "insured" fund is already promising to pay back at least the principal in... 3 years time! 

So in essence, we have built a system in which the only subsidized behaviour is accumulating money in an offline wallet, and never touch it again for the next 10 years. While investing is insanely risky anyway, since there is no way even for honest and legitimate businesses to protect against generalized market crashes. (we had an insurance company, CPA, but it seems it was hit by the crash more than the ones it was supposed to insure...)

Was it worth it?

(I am not saying it wasn't, just that it's worth reflecting on it  )

[JMAHH]

I agree with the beginning with your statement. Pirategate offers a nice - and stark - contrast to 2007-2008 in terms of policy.

So in essence, we have built a system in which the only subsidized behaviour is accumulating money in an offline wallet, and never touch it again for the next 10 years.

What about Bitcoin's purpose as... a currency? Buying and selling?

[symbot]

Really interesting post.

Like JMAHH, I don't fully agree with this:

So in essence, we have built a system in which the only subsidized behaviour is accumulating money in an offline wallet, and never touch it again for the next 10 years. While investing is insanely risky anyway, since there is no way even for honest and legitimate businesses to protect against generalized market crashes.

I think we are still in the infancy of bitcoin-based business, and I believe most of these "financial services" businesses are/were ponzi schemes.  

Most of the legitimate and sustainable bitcoin-based businesses right now are mining operations.  They have not been hurt by pirate's default at all.

[Francesco]

What about Bitcoin's purpose as... a currency? Buying and selling?

Yes, but to create an economy based on bitcoin we need a working banking system, that's not wiped out at every crisis. Is it possible?

Most of the legitimate and sustainable bitcoin-based businesses right now are mining operations.  They have not been hurt by pirate's default at all.

Mining won't be much profitable after ASICs hit. Then what?

[symbot]

Mining won't be much profitable after ASICs hit. Then what?

Mining is becoming unprofitable for individual hobbyists who don't have specialized hardware.  In the near future the only profitable mining operations will be dedicated operations, and the most profitable ones will be able to offer real, stable returns on investments, and they will attract investors.

This kind of thinking is why I am invested in pyramining, by the way.  I think that kind of operation is the wave of the future in mining.

[benjamindees]

What about Bitcoin's purpose as... a currency? Buying and selling?

Yes, but to create an economy based on bitcoin we need a working banking system, that's not wiped out at every crisis. Is it possible?

It's called:

The Blockchain

[Francesco]

What about Bitcoin's purpose as... a currency? Buying and selling?

Yes, but to create an economy based on bitcoin we need a working banking system, that's not wiped out at every crisis. Is it possible?

It's called:

The Blockchain

Sadly, I tried multiple times to contact the blockchain to get a loan for a very promising business, but it seems it just keeps ignoring me... I guess we'll need something else for that   

[sunnankar]

What about Bitcoin's purpose as... a currency? Buying and selling?

Yes, but to create an economy based on bitcoin we need a working banking system, that's not wiped out at every crisis. Is it possible?

It's called:

The Blockchain

Yes. I think he has conflated what service 'a working banking system' provides. Banking used to be bifurcated between payments and lending. The payments mechanism has not been impacted at all by Pirategate because it is built into the Bitcoin source code.

Sure, we have seen a credit contraction with the lending part of the Bitcoin economy but it is no big deal. A fool and his money is soon parted. Those who kept their bitcoins in their own wallet or in ventures where they had done adequate due diligence have not suffered losses beyond their risk profile.

[benjamindees]

It's also somewhat unfair to label this a "credit crunch" when, nine months ago, there was basically zero credit at all in the Bitcoin economy.  And the only appreciable credit aside from a handful of large loans since then, was a ponzi scheme.

[bitcoinBull]

Mining won't be much profitable after ASICs hit. Then what?

Mining is becoming unprofitable for individual hobbyists who don't have specialized hardware.  In the near future the only profitable mining operations will be dedicated operations, and the most profitable ones will be able to offer real, stable returns on investments, and they will attract investors.

This kind of thinking is why I am invested in pyramining, by the way.  I think that kind of operation is the wave of the future in mining.

This is ridicuolous. Anyone who has BFL hardware will be a competitive miner. There are no stable returns in mining, since it depends on the price of bitcoin obviously. Pyramining is just another HYIP.

[Frankie]

Bitcoin was exactly designed to avoid such a possibility.

Huh?  What feature of Bitcoin was supposed to prevent lying and scamming by its users?

Is it the non-reversible nature of its transactions, or the lack of identification required?

Seriously, why do people act as if cutting the Fed out of the picture imbues Bitcoin with superhuman properties?

[Francesco]

Bitcoin was exactly designed to avoid such a possibility.

Huh?  What feature of Bitcoin was supposed to prevent lying and scamming by its users?

Is it the non-reversible nature of its transactions, or the lack of identification required?

Seriously, why do people act as if cutting the Fed out of the picture imbues Bitcoin with superhuman properties?

I meant: prevent anyone from having the power to print and distribute new money at will.

[Francesco]

Mining won't be much profitable after ASICs hit. Then what?

Mining is becoming unprofitable for individual hobbyists who don't have specialized hardware.  In the near future the only profitable mining operations will be dedicated operations, and the most profitable ones will be able to offer real, stable returns on investments, and they will attract investors.

This kind of thinking is why I am invested in pyramining, by the way.  I think that kind of operation is the wave of the future in mining.

This is ridicuolous. Anyone who has BFL hardware will be a competitive miner. There are no stable returns in mining, since it depends on the price of bitcoin obviously. Pyramining is just another HYIP.

I just don't see why BFL should sell their product for much less than you can expect to earn with it, so yes you'll be very competitive, but it is still to see how big what you compete for will be after factoring out hardware expenses... since marginal cost is low, miners will never drop out, so difficulty will keep increasing even if most miners operate at a loss overall. However, this has been discussed over and over I guess.

As for Pyramining, I have seen claims of 10% earnings... in what timeframe? For what I understand, various months. Compared to investing in GLBSE, this is really a LYIP 

[BobbyJo]

Mining will always be competitive for some.  If the difficulty rises so high that its unprofitable unless you get free electricity, then those will be the only miners, and the difficulty will drop again.  New hardware will not change mining, it will simply mean those without it will be uncompetitive.  Those with ASIC or anything comparable will still be competitive!

[symbot]

Mining won't be much profitable after ASICs hit. Then what?

Mining is becoming unprofitable for individual hobbyists who don't have specialized hardware.  In the near future the only profitable mining operations will be dedicated operations, and the most profitable ones will be able to offer real, stable returns on investments, and they will attract investors.

This kind of thinking is why I am invested in pyramining, by the way.  I think that kind of operation is the wave of the future in mining.

This is ridicuolous. Anyone who has BFL hardware will be a competitive miner. There are no stable returns in mining, since it depends on the price of bitcoin obviously. Pyramining is just another HYIP.

I fail to see what was "ridicuolous" about my post.

You say:  Anyone who has BFL hardware will be a competitive miner.
I said:  Individual hobbyists who don't have specialized hardware will be unprofitable.

So we agree about that.

When I say mining operations offer real, stable returns, I mean return of bitcoin on bitcoins invested regardless of what it is worth in fiat.  That is how Pyramining works.  The thread started with a discussion of BCST which offered returns in bitcoin on bitcoin invested regardless of what bitcoin is worth in fiat, so that was the context for my post.

Do you have any evidence that Pyramining isn't an honest operation?  I'd like to hear it if you do...

[DeathAndTaxes]

We got lines of credit for our business in about 72 hours.  We are able to issue both USD and BTC denominated notes.   Getting a SBA loan would require at least a couple weeks and still not been able to provide a BTC hedge. 

Since the Pirate collapse we have seen a large number of potential lenders asking if we are looking for expansion.  I don't see a credit collapse.  I see a ponzi/HYIP/idiot pyramid collapse.   If someone will giving you >100% APR and can't explain how/why both A) they can generate that kind of return and B) why they need your money to do it then .... it probably is a scam.  

[ElMoIsEviL]

The only people hurt were those too greedy for their own good. They risked a lot and lost.

You know there is such a thing as personal responsibility. People who fell for Pirate were being told, by a great many of us, that it was a scam and too good to be true yet they bought into it anyway because the promise of a quick buck overtook what ought to have been a more informed and cautious nature. That's the free market for ya and I like it that way.

[DeathAndTaxes]

I fail to see what was "ridicuolous" about my post.

You say:  Anyone who has BFL hardware will be a competitive miner.
I said:  Individual hobbyists who don't have specialized hardware will be unprofitable.

Why would individual hobbyists not have specialized hardware.  You could say multi-GPU rigs are a form of specialized hardware.  Those hobbyists trying to compete using general purpose comuters and CPU mining have no chance.  BFL has entry level products.  The Jalapeno will be the 2013 equivelent of the single 5830 rig. 

Even if ASICs/FPGA were not possible one would see large mining operations.  Once the potential profits outweigh the risks you would see larger and larger commercial operations.  For example a biz getting 4.5 cents per kWh using warehouse space in say Oregon (nice mild summers and cold winters) and rack and racks and single purpose 8 GPU rigs would always be more efficient than some hobbyist with an ill-designed machine. 

Why wasn't there massive GPU farms (say 1TH/s or more)?   The risk of FPGA/ASICs. 

[symbot]

Once the potential profits outweigh the risks you would see larger and larger commercial operations.

I guess this is the key question.  Is now the time when larger and larger commercial operations are going to develop?  I think so, and I think they are a good investment right now.  But I could be wrong.

[bitcoinBull]

I just don't see why BFL should sell their product for much less than you can expect to earn with it,

Its impossible to estimate expected earnings with any degree of certainty unless you can predict the future price of bitcoin and difficulty. That's what traders do.

BFL profits from manufacturing hardware, not bitcoin trading. So they sell their hardware at a markup for guaranteed profits, not expected profits variant on future bitcoin price.