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Author Topic: wtf @ the current state of the bitcoin economy  (Read 7620 times)
jhansen858
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June 02, 2011, 05:16:55 AM
 #1

Hi forum,

Is it just me or is the bitcoin economy not looking all the healthy at the moment.   I mean at current rate of deflation, i'll be buying cars with 1 BTC in under a year.  Doesn't this seem a little bit odd to anyone else?  Doesn't this seem reminiscent of the dot com bubble and the housing market bubble?

So far I'm seeing about 95% speculation and 5% actual economic transactions as a way for BTC to change hands. I understand everyone is very excited about this new thing and how huge it could be but it seems like the "fundamentals" don't add up to the current surge in BTC price.  If that magic feeling ever wears off and people see the reality of not being able to buy gas or pizza's or NIKE with BTC, what then.  Am I missing something here or is speculation and greed the main driving factor?  Its ok if it is I'm not judging I just want to call it like i see it.  Also interested in others points of view.

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June 02, 2011, 05:24:58 AM
 #2

Have you seen the trade page: https://en.bitcoin.it/wiki/Trade

That page used to be only 20 sites not that long ago... the 'real stuff' economy is growing at a very fast rate also... It just takes time to build a website or provide a service... Money is many times more liquid than websites... so it is to be expected that it will flow to the low points first (eg. BTC).

One off NP-Hard.
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June 02, 2011, 05:26:17 AM
 #3

http://bitcoinweekly.com/articles/comic-reaction-after-dramatic-rise-of-bitcoin-s-value

Bitcoin Bubble!  Grin

Seriously, what you see is not the whole story. You can't see the long term economic relationship of bitcoiners. You can't see the t-shirts and other goods that are being brought. You can't see people paying for their host. You don't see the black economy that exists within bitcoin unless you dig a little further.

What you can see, is the exchange volume on bitcoincharts. At least, it's a lot easier to see.

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June 02, 2011, 05:42:22 AM
 #4

Once upon a time the only thing you could buy were stickers. Now you can buy lsd stickers from silk road.

True story   Smiley
Sjalq
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June 02, 2011, 06:15:25 AM
 #5

To be able to transact in BTC a view dollars need to be replaced with BTC. There are 33 trillion USD and so far only 6 million BTC. The total currency supply is worth only 60 million USD at this point.

There are almost $100,000 for each American. We don't really know the size of the BTC investors and merchants yet but unless there are only 60 then some of the value of BTC is understandable.
(I get to $100,000 by dividing the currency supply into the US population and then applying that ratio to the BTC supply I get 60)

Generally when currencies collapse the is first a hoarding of a sound alternative before day to day trade move from the collapsed currency to the alternative. Bitcoin is seeing an influx of early adopters and will probably continue rising for some time

LSD resellers really don't help our case much.

Cheesy mine mine mine mine mine mine mine Cheesy
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bitcoinBull
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June 02, 2011, 06:45:26 AM
Last edit: June 02, 2011, 07:02:06 AM by bitcoinBull
 #6

I've said it before (so have others), and I'll say it again.

The speculation on MtGox is the actual economic activity.

It does not matter one bit if you can buy goods directly with bitcoin.

The only thing that matters is that bitcoin is liquid, that you can sell it.

If you can convert it back to fiat in order to buy gas, pizzas, and footwear, then its as good as dollars.

Take gold for example.  Does it matter that you can't walk into Footlocker and buy the latest sneaks with gold coins?  No.  It only matters that you can sell gold coins for dollars with which you can buy your sneakers.

Does the value of gold come from industrial use?  No.  If that were the case, it would still be worth only $300/oz.

The value of gold comes from willing gold buyers.

The value of bitcoin comes from willing bitcoin buyers.

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cloud9
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June 02, 2011, 07:03:20 AM
 #7

Isn't this the way bitcoin will be distributed among all interested users?  Doesn't a venture capitalist together with the efforts of a private/public company's developing team later on distribute their initial shares in a similar way to interested parties in a capitalist setup?

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June 02, 2011, 09:36:34 AM
 #8

It clearly is true that a lot of speculation is going on here.
The inherent value of a bitcoin is just the energy necessary to create it.

But this does not matter much, because an established currency is based on the belief, that one can readily exchange it for another value/good. If this condition is fulfilled, the value of a currency is a function of the available goods vs. available currency (units).

The value of Bitcoins will increase, as long as the number of people believing in its value increases.

Strange...  Roll Eyes
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June 02, 2011, 09:44:34 AM
 #9

The inherent value of a bitcoin is just the energy necessary to create it.

Don't confuse cost with value.  The value of Bitcoin is as an alternate, digital currency.

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June 02, 2011, 11:05:37 AM
 #10

Once upon a time the only thing you could buy were stickers. Now you can buy lsd stickers from silk road.

Funny!   Cheesy
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June 02, 2011, 11:14:04 AM
 #11

The inherent value of a bitcoin is just the energy necessary to create it.

Don't confuse cost with value.  The value of Bitcoin is as an alternate, digital currency.

What I mean is the initial (subjective) value. Of course the value can change over time due to demand-supply characteristics. But no one would rationally create a Bitcoin, if he/she does attribute a lower value to it than the energy invested.
afterburner229
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June 02, 2011, 11:33:20 AM
 #12

Now, we can not proof that bitcoin economy is growing exponetially in its number of members attracted to. Some actual data leads to suppose, there is no growing, last 2 months.

You may analize averaged BTC volume on top BTC exchanges, such as MtGox, etc:

http://bitcoincharts.com/charts/

See,

v (1) ~ const, t <- [Apr 1 2011, Jun 1 2011]
if m(t) ~ exp (t) then v_p_m (t) ~ const/exp(t) ~ exp (-t),
whrere
- v (t) - total BTC volume in work, of all BTC exchanges, per day, averaged by two-week window
- m (t) - total number of people (members) who playing on all BTC exchanges, per day
- v_p_m (t) - average BTC volume per member per day, the member plays with on all BTC exchanges

So, v_p_m (t) ~ exp (-t), in BTC, or v_p_m_$ (t) ~ exp (-t) * ($/BTC) (t), in $,
where
- $/BTC is BTC average rate, currently ~ $9.5/1BTC

For  v_p_m_$ (t) to be slightly growing, or at least const (indicates whether BTC economics is really growing),
we need ($/BTC) (t) ~ exp (+t).

Inflation? No. Deflation. Because we remember, v_p_m (t) ~ exp (-t).

Exchange members & all other bitcoin society members will keep BTC rather than sell/buy for BTC. Because keeping is simply EASY and is profitable *exponentially*, due to ($/BTC) (t) ~ exp (+t).

So, while ($/BTC) (t) ~ exp (+t), bitcoin ecomonics IS FROZEN,
furthermore, if we will see ($/BTC) (t) ~ const, in near future, it leads to
v_p_m_$ (t) ~ exp (-t). if ($/BTC) (t) ~ exp (-t), then v_p_m_$ (t) ~ exp (-2*t) => bitcoin ecomonics WILL COLLAPSE.

------------

So, THE THEOREM:

If we assume number of BTC exchange's players (members) is growing ~ exp (+t), and if we observe average BTC volume per day ~ const, bitcoin ecomonics WILL FREEZE OR COLLAPSE.

Now, average BTC volume per day on all exchanges ~ const for TWO MONTHS.

BUT APPARENTLY, averaged ($/BTC) (t) ~ exp (+t).

And also has strong correlation with mining network's difficulty.. Why? Wink




Bazil
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June 02, 2011, 04:53:40 PM
 #13

Yep I think the growth right now is mostly speculators.  But if you think about it, it might not matter if you can't do anything but trade it back for national currencies because it's still a good place to protect your money from inflation.  Bitcoin, at least after it reaches 21 million coins, will pretty much guarantee deflation.  So it becomes a very good place to put you money for the long term.  Even if you can't directly buy with it in many places.  I mean look at it this way, 10 year ago gold was at like $300 and once, and now it's $1500.  You can't go and buy much with gold either.  It's because people are putting their money in it as a safe harbor from inflation and a bad economy.  Of course if you look at the value of gold vs the number of people in the US, it's way over valued even compared to the USD monetary base.  Right now Bitcoin is massively under valued, mostly because the word hasn't gotten out yet.

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stic.man
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June 02, 2011, 05:20:47 PM
 #14

this was a good point in how many times the client has been d/led at least, might not be accurate to how many people are ACTIVE though

http://forum.bitcoin.org/index.php?topic=11212.msg160894#msg160894
alkor
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June 02, 2011, 06:35:26 PM
 #15

The inherent value of a bitcoin is just the energy necessary to create it.
That's not the value of bitcoin. That's just sunk cost which is of no use.
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June 02, 2011, 08:23:19 PM
 #16

It's really simple math. What is the failure or success chance for Bitcoin? Do you think it will fail with more than 90% chance?

Current value is the sum over each scenario's price times its probability. With the success scenario having people who estimate prices above 100 USD, those people will buy at 10 USD as long as they see a 10% chance of a full success happening! That's not strange, it's perfectly logic!

The question is only of quantitative nature, especially concerning the full success probability and the value it will have if that happens. Both are not known, so everybody takes a guess.
afterburner229
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June 02, 2011, 08:53:45 PM
 #17

this was a good point in how many times the client has been d/led at least, might not be accurate to how many people are ACTIVE though

http://forum.bitcoin.org/index.php?topic=11212.msg160894#msg160894

I has downloaded bitcoin client too. I do NOTHING with it, just try & forget. Download counter does signify nothing, but PR-popularity-blob around bitcoin. I apparently see a correlation between two functions, download_counter (t) and ($/BTC) (t), both ~ exp (+t). LOL))

So, 95% people are dull-witted, 5% are professional gamblers.

Any profitable business itself is when large amount of people are cheated by unapparent volume. Any major crime itself is when small amount of people are cheated by very apparent volume.

For bitcoin society to be a business, not the crime, number of society members must grow exponentially till full world will be bitcoin society.

I proof, we don't observe such a grow, neither amoung number of exchange players, nor among number of miners:
http://forum.bitcoin.org/index.php?topic=9487.msg152755#msg152755

Next step I will proof, also NOR kind & volume of goods, being traded via BTC directly, is growing exponentially. Stand by..
stic.man
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June 02, 2011, 09:00:06 PM
 #18

true, the fact that it has been downloaded 300,000+ times including 174,000+ times just in the last month alone is certainly not indicative on any growth possibility whatsoever.  Absolutely none.  And certainly not in an exponential fashion or anything. Nope.
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June 02, 2011, 09:07:58 PM
 #19

Next step I will proof, also NOR kind & volume of goods, being traded via BTC directly, is growing exponentially. Stand by..

This should not be possible.

An exponential component is what you should mean, and that is very likely in a situation where new people continue to learn about Bitcoin and subsequently start using it. Of course, exponential growth will not continue after Bitcoin becomes macroscopic, which could be within months if things go on the way they are going now. However, you have no reason to expect price or the amount of Bitcoins traded to grow exponentially because of that. Currently, we have speculators -- later, we want traders! The transition will change how reach and price are linked.

Your reasoning assumes Bitcoin behaves like a Ponzi scheme. This need not be in the long run, and the profit margins allow speculators to wait patiently for quite a while. You must take into account that many speculators estimate the potential target price and success probability before buying. Those two multiplied are not growing exponentially just because the number of users is.
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June 02, 2011, 09:12:50 PM
 #20

It's really simple math. What is the failure or success chance for Bitcoin? Do you think it will fail with more than 90% chance?

Current value is the sum over each scenario's price times its probability. With the success scenario having people who estimate prices above 100 USD, those people will buy at 10 USD as long as they see a 10% chance of a full success happening! That's not strange, it's perfectly logic!

The question is only of quantitative nature, especially concerning the full success probability and the value it will have if that happens. Both are not known, so everybody takes a guess.

You are absolutely right, but you think in terms of financial pyramid game! What you say about, is cheat, crime, but not the business. Difference is of quantitative nature - bitcoin IS the currency, and business field for the currency MUST include number of people, comparable with a typical large country.

Bitcoin is in its childhood? No problem! Just give a change to it to grow exponentially. Mining difficulty algorithm does not give such a chance. Bitcoin design is severe and totally damaged, I wrote how to fix it:

http://forum.bitcoin.org/index.php?topic=9487.msg155288#msg155288

nobody cares. anybody plays in MtGox races..
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June 02, 2011, 09:31:44 PM
 #21

Next step I will proof, also NOR kind & volume of goods, being traded via BTC directly, is growing exponentially. Stand by..

This should not be possible.

An exponential component is what you should mean, and that is very likely in a situation where new people continue to learn about Bitcoin and subsequently start using it. Of course, exponential growth will not continue after Bitcoin becomes macroscopic, which could be within months if things go on the way they are going now. However, you have no reason to expect price or the amount of Bitcoins traded to grow exponentially because of that. Currently, we have speculators -- later, we want traders! The transition will change how reach and price are linked.

Your reasoning assumes Bitcoin behaves like a Ponzi scheme. This need not be in the long run, and the profit margins allow speculators to wait patiently for quite a while. You must take into account that many speculators estimate the potential target price and success probability before buying. Those two multiplied are not growing exponentially just because the number of users is.

You misunderstand me. I want to know just number of bitcoin users as function of time. Because bitcoin society is too small, compared with typical large country, and bitcoin is the currency, not a telescope or vynil disc, etc, business field for the bitcoin MUST be comparable with typical large country, or even with the total world.

So actually, exchange volume, difficulty algorithm, etc. are just INSTRUMENTS for me to measure (estimate) number of bitcoin users as function of time.

SHORTLY: is bitcoin society << total world? Yes. is bitcoin society growing exp (+t)? No. => It will fail @ 100% probability.
Will professional gamblers win? Yes, even if bitcoin society will fail.

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June 02, 2011, 10:11:18 PM
 #22

do you think that all these new people d/ling the program and posting in the forums are just bystanders?  The fact that 60% of all BTC clients d/led occurred only in the last month alone isn't exponential?
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June 03, 2011, 09:45:44 AM
 #23

growth of bitcoin is proportional to it's population size = exponential growth.

The more people that know about bitcoin (size), the more people will find out about bitcoin (growth).

This is the nature of a viral entity. Of course, it will reach a saturation point because the population is finite, but for now, at least it's approximately exponential.

Bitcoin growth is so obviously exponential.
afterburner229
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June 03, 2011, 11:48:43 AM
 #24

growth of bitcoin is proportional to it's population size = exponential growth.

The more people that know about bitcoin (size), the more people will find out about bitcoin (growth).

This is the nature of a viral entity. Of course, it will reach a saturation point because the population is finite, but for now, at least it's approximately exponential.

Bitcoin growth is so obviously exponential.

No problem. In this case the only parameter we should monitor - total daily volume in BTC, being circuited upon all BTC exchanges. I proof, if this volume is const, bitcoin society will freeze or collapse much before the saturation point you mentioned. I proof, time interval for such a freeze/collapse is controlled by exponential parameter: exp (t/t0), where t0 is the time, for bitcoin society to grow in e=2.71828.. times.

So, the faster is society growing, while average daily exchange volume = const, the faster society will freeze/collapse.

We observe: average daily exchange volume = const for 2 months..


stic.man
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June 03, 2011, 12:35:10 PM
 #25

hey why don't you measure the volume in dollars instead of fucking coins, i can afford $100, doesn't matter if thats 70 coins or 7 coins.

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June 03, 2011, 12:54:23 PM
 #26

hey why don't you measure the volume in dollars instead of fucking coins, i can afford $100, doesn't matter if thats 70 coins or 7 coins.



Read my post

http://forum.bitcoin.org/index.php?topic=11245.msg160266#msg160266

again.

I've measured all the volumes. In assumption the bitcoin society is growing exponetially in number of users, it is sufficient to observe average daily volume in BTC: if it remains const, society will die, on time interval, roughly the same, as time interval of rate ($/BTC) growing.

Because BTC volume is const for 2 months, april & may 2011, if we suppose, number of users is growing according number of bitcoin client downloads, or according rate ($/BTC) growing, society should be dead already. We observe - No. => number of users is NOT growing exponetially, as fast, as number of downloads, or rate ($/BTC), or mining difficulty (all these have roughly the same parameter t0 in exp (t/t0)).

The entire picture is obvious: there are some 1000-10000 total bitcoin users world-wide including all miners, exchange players, sellers & buyers, and the are some 100000-300000 newbies who just 'play the fool' with bitcoins.

Newbies DO just 'play the fool', because if they will start seriously, bitcoin society will die almost immediately.

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June 03, 2011, 10:11:36 PM
 #27

simple, solution release more bitcoins!  Grin

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June 03, 2011, 11:18:23 PM
 #28

Hey everyone, I've participated in the bitcoin economy for a whole 72 hours!  Let me tell you why it's going to fail....
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June 04, 2011, 08:45:13 AM
 #29

Newbies DO just 'play the fool', because if they will start seriously, bitcoin society will die almost immediately.

The Bitcoin "society" grows in fits and starts.  What happens is that newbies don't jump in right away.  They wait and lurk until they feel comfortable.  Then they see a reason to buy in -- their peers start to do so, or there is some press exposure, or some opportunity, or just general optimism.  Then they all jump in at once, and the price skyrockets.  Rising price triggers early-adopters to cash out, or to make purchases, and new miners to join.  Purchases attract new vendors to open shop.  And the Bitcoin society steadily grows, a little at a time.

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June 04, 2011, 11:10:49 PM
 #30

growth of bitcoin is proportional to it's population size = exponential growth.

The more people that know about bitcoin (size), the more people will find out about bitcoin (growth).

This is the nature of a viral entity. Of course, it will reach a saturation point because the population is finite, but for now, at least it's approximately exponential.

Bitcoin growth is so obviously exponential.

No problem. In this case the only parameter we should monitor - total daily volume in BTC, being circuited upon all BTC exchanges. I proof, if this volume is const, bitcoin society will freeze or collapse much before the saturation point you mentioned. I proof, time interval for such a freeze/collapse is controlled by exponential parameter: exp (t/t0), where t0 is the time, for bitcoin society to grow in e=2.71828.. times.

So, the faster is society growing, while average daily exchange volume = const, the faster society will freeze/collapse.

We observe: average daily exchange volume = const for 2 months..

"total daily volume" - how is this a measure of the population size of the economy? Answer: it's not. Your premise is flawed.

The following figures show exponential growth:
No. forum users
No. downloads.
USD exchange rate
difficulty
google trends
transactions per hour

Daily volume doesn't mean shit, unless you measure it in USD.
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June 04, 2011, 11:25:23 PM
 #31

"total daily volume" - how is this a measure of the population size of the economy? Answer: it's not. Your premise is flawed.

The following figures show exponential growth:
No. forum users
No. downloads.
USD exchange rate
difficulty
google trends
transactions per hour

Daily volume doesn't mean shit, unless you measure it in USD.

Have common sense reined supreme over misapplied academics?

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