I am pretty confident we are the new wealthy elite, gentlemen.

[unk]

you're deriving quite a bit from my post.  All I said is that the world is producing half the wealth it should.  This is a counterfactual and so not really worth arguing over but I regard government as pretty much 100% harmful and governments take around 50% of all income in taxes.

the question was 'what new wealth will bitcoin create?' the relevance of regulation's impact on wealth-creation is relevant only to the extent you believe bitcoin will lead to a reduction in economic regulation.

[MoonShadow]

but creighto, at least you'll have your guns, ammo, and silver to disinfect your milk.

just recall that 'if it sounds too good to be true, it probably is'.

I'm hoping for the best, but still prepared for the worst.

[unk]

I'm hoping for the best, but still prepared for the worst.

by contrast, i aim to optimise for the 99.999999% of outcomes between the two. :-)

(for what it's worth, significant psychological evidence shows that people overestimate the likelihood of extremely unlikely events, both good and bad. being a victim of terrorism is a good example; people should spend more time worrying about sun exposure than terrorism, statistically, but the latter captures their imagination. similarly, people play the lottery.)

[Anonymous]

I'm hoping for the best, but still prepared for the worst.

by contrast, i aim to optimise for the 99.999999% of outcomes between the two. :-)

(for what it's worth, significant psychological evidence shows that people overestimate the likelihood of extremely unlikely events, both good and bad. being a victim of terrorism is a good example; people should spend more time worrying about sun exposure than terrorism, statistically, but the latter captures their imagination. similarly, people play the lottery.)

We must first determine if Bitcoin reaching enormous highs is unlikely.

[Astrohacker]

Unk is correct on his points, and those with the necessary technical skills should carefully consider and attack the issues he raises.

If you say so.

Suppose you constructed a bitcoin competitor, say bitcoin2, that relied on proof-of-work. Your bitcoin competitor has much less computational power than bitcoin. Any of the bitcoin miners could therefore conquer your tiny network and start reversing transactions whenever they pleased. For this reason, there can only be one. Even if your bitcoin competitor were technologically different than bitcoin, but still relied on proof-of-work, then it could be conquered by any of the bitcoin miners at any time.

there isn't just one kind of proof of work, however. an alternative could require a greater (or lesser, or just different) capital investment than gpus and thus be roughly as secure with more or fewer users. for example, consider one network that relied on a computation that could not easily be sped up with gpus, other asics, or fpgas; there, only cpus would be relevant, whereas gpus and other devices would be relevant to bitcoin. the two could exist in parallel without one being monotonically 'more secure' than the other.

I challenge you to actually create this alternative currency that uses an alternative proof-of-work. By the time you do, bitcoin will already be ubiquitous.

but the more important point remains that 'most secure' is not what's important. a system needs only to be good enough to do what people want it to do. multiple competing currencies could achieve that, even though only one of them is 'most secure'.

Sure. People still trade with gold. People probably trade shares of companies without ever using currencies in between. And you can obviously have many---small-time---digital currencies operating at the same time, like Second Life and WoW. But only one will come to dominate as the ubiquitous general purpose currency. Why? Because people will find it more convenient to deal with a single currency. The same basic reason why US dollars dominate world trade at present.

There's an important point here which I have made which I'm not sure you have understood: The details, at this point, are irrelevant. Bitcoin is the first currency to solve the problem it solves. No other currencies of that nature can possibly beat the enormous momentum that bitcoin has. No bitcoin alternatives will survive for the same reason no alternative WWW protocols will survive, or no alternative internet protocols will survive, or no alternative set of microprocessor instructions will survive, etc., UNLESS they solve a different problem than the problem solved by bitcoin.

For what it's worth, I do not believe bitcoin will last forever. There will be a quantum bitcoin for quantum computers on a quantum internet. We shall dub this qbitcoin. Qbitcoin solves the problem of securing a decentralized digital currency in a world where quantum computers can readily crack classical encryption. Since qbitcoin solves a different problem than bitcoin, it can survive alongside bitcoin and even beat it (because at that point people will realize their bitcoins are not secure). However, qbitcoin is obviously many years away. By the time it gets here, bitcoin will have long been ubiquitous.

I agree that if a decentralized currency didn't rely on proof-of-work then it could compete with bitcoin. But no one has actually invented such a thing, and I suspect that it's not possible.

there are two responses to that. the simpler is that proof of work isn't necessary; as satoshi recognized, you just need proof of resources, and he picked work as a judgement call. there are any number of other kinds of resources that could be used. for example, satoshi considered and ruled out ip addresses, but they're not obviously better or worse than cpus or gpus in the steady state. (ip addresses were probably more prone to what would have been perceived as 'manipulation', but then often so are cpus by network administrators, and using computation has many downsides.) there are other resources too, like bandwidth, which is of course the foundation of the emule and bittorrent 'economies'. it could be used in a currency, though it would be more complex to do so.

sheesh. that was what i called the 'simpler' response. the more complex one is that the only feature of decentralisation that requires proof of work is the initial distribution of the currency, though that is perhaps a contentious point. i believe i could show, however, that the block chain's consensus mechanism is not needed merely to prevent double spending; other decentralised technologies could achieve that goal without proof of resources, with whatever probability of correctness was appropriate to a system. (it's all about probabilities; no system to prevent double spending is perfect, including bitcoin's.) the double-spending problem is considerably easier than the question of how to allocate initial wealth without trust, but unfortunately bitcoin uses the same solution for both, thus making the double-spending solution susceptible to more attacks than would otherwise strictly be necessary.

Irrelevant details.

Let me know if you actually figure out how to easily print new bitcoins, easily steal bitcoins, or easily disable the bitcoin network. Those would be problems worth caring about.

[unk]

There's an important point here which I have made which I'm not sure you have understood: The details, at this point, are irrelevant. Bitcoin is the first currency to solve the problem it solves. No other currencies of that nature can possibly beat the enormous momentum that bitcoin has. No bitcoin alternatives will survive for the same reason no alternative WWW protocols will survive, or no alternative internet protocols will survive, or no alternative set of microprocessor instructions will survive, etc., UNLESS they solve a different problem than the problem solved by bitcoin.

i was not responding to that generalised speculation. i was responding to the particular defence you offered of it in your paper, which, as i have said, is not correct as a logical matter.

[jed]

There's an important point here which I have made which I'm not sure you have understood: The details, at this point, are irrelevant. Bitcoin is the first currency to solve the problem it solves. No other currencies of that nature can possibly beat the enormous momentum that bitcoin has. No bitcoin alternatives will survive for the same reason no alternative WWW protocols will survive, or no alternative internet protocols will survive, or no alternative set of microprocessor instructions will survive, etc., UNLESS they solve a different problem than the problem solved by bitcoin.

oh just like how no social network could possibly overtake friendster.
or no payment method could overtake paypal.
I see your point.

[Astrohacker]

If I can turn my bitcoins into billions someday, I will be happy to join you in many such ventures. Its just amazing to even dream of making such difference.

very true. so go to school, start a business, create something useful or beautiful, develop a special talent, or find many of the dozens of other ways to make such a life more probable for yourself. it's not that hard to make a difference, nor is it hard to become 'rich' when you're productive and clever; for example, come up with a product that costs $250, sell 20,000 copies of it, and you've got $5 million in revenue.

by contrast, in the history of the world, i strongly suspect the number of people who've become billionnaires on the back of a tiny capital investment alone is 0. at most it's 1 or 2, with extreme luck, and i can't think of any examples. there's a simple reason for that, which is that if it happened too often, there wouldn't be any money left for anyone else to be contributing their shares of worldwide wealth to the accidental magnates.

That's an interesting claim from someone who just pointed out that past behavior is no predictor of future behavior. It has never happened before, therefore it cannot possibly happen? That same argument would say it is impossible to invent airplanes, or spaceships, etc.

bitcoin does have the potential to create wealth, but not that much wealth. if you add up the surplus from all the transactions you think it enables that are otherwise prevented today, then additionally total the transaction costs that it saves as a payment system (if it does at all, because its long-term competitiveness on fees to other ways of transmitting money is quite contentious), and finally subtract the negative externalities from those newly permitted transactions, you don't get nearly enough wealth created to justify all the personal hopes of the people in this forum. to bank on a mostly-zero-sum transfer to yourself of magnitudes unlike anything the world has ever seen is much more likely the result of a loss of perspective than of neutral, balanced thinking. it's the product of psychological features like confirmation bias, not of reflection.

Yes it does. It can create enormous wealth by at least these methods: 1) It is easier to use, so all the resources wasted on dealing with less-easy systems of payment can be used to produce more wealth. 2) Because it is deflationary (in the sense that prices reliably fall, not in the sense that there is less of it with time), it encourages savings and thriftiness. People will only buy the really useful stuff. Companies will only make the really useful stuff. Everyone will be motivated to work harder. That will create an enormous amount of wealth.

[Timo Y]

There's an important point here which I have made which I'm not sure you have understood: The details, at this point, are irrelevant. Bitcoin is the first currency to solve the problem it solves. No other currencies of that nature can possibly beat the enormous momentum that bitcoin has. No bitcoin alternatives will survive for the same reason no alternative WWW protocols will survive, or no alternative internet protocols will survive, or no alternative set of microprocessor instructions will survive, etc., UNLESS they solve a different problem than the problem solved by bitcoin.

oh just like how no social network could possibly overtake friendster.
or no payment method could overtake paypal.
I see your point.

Network effects for Bitcoin are stronger than for Facebook.

Joining the losing social networking site results in a minor inconvenience the day you switch to the winning one.   

Joining the losing p2p cryptocurrency results in substantial financial losses the day you switch to the winning one.

[IIOII]

While I'm bullish for Bitcoin I get sceptical if people only see huge gains and start to imagine incredible future wealth.
There are many risks along the (possible) road to success - many of these risks may not even been known at this point in time.

Reality employs too many variables...

[mmdough]

No other currencies of that nature can possibly beat the enormous momentum that bitcoin has.

I'm fairly on the fence of this, but I have to ask: What standard are we using for BTC's enormous momentum? Its market price? The size of its goods and services economy? The amount of processing power committed?

It's really remarkable how Bitcoin has appreciated from literally nothing, but I can easily imagine a competitor stealing its thunder. A well-thought-out competitor could study Bitcoin's structure, early history, and problems, prepare a slick brand and tie-ins with major merchants, and destroy BTC's hegemony in a heartbeat.

Such a currency would lack most of BTC's ideological assets, of course, and many would still favor BTC for this reason. It wouldn't die out completely. But it won't necessarily dominate the online marketplace, let alone the global marketplace, without quite a lot of further good fortune.

[unk]

That's an interesting claim from someone who just pointed out that past behavior is no predictor of future behavior. It has never happened before, therefore it cannot possibly happen? That same argument would say it is impossible to invent airplanes, or spaceships, etc.

putting aside the rhetorical games, the point is that the wealth you'd like to have dumped in your lap needs either to come from somewhere else or to be created. those are the only two choices.

Yes it does. It can create enormous wealth by at least these methods: 1) It is easier to use, so all the resources wasted on dealing with less-easy systems of payment can be used to produce more wealth. 2) Because it is deflationary (in the sense that prices reliably fall, not in the sense that there is less of it with time), it encourages savings and thriftiness. People will only buy the really useful stuff. Companies will only make the really useful stuff. Everyone will be motivated to work harder. That will create an enormous amount of wealth.

i already addressed (1) and pointed out that it is far from a consensus belief among the developers and those who have looked at the ultimate costs of transactions more closely.

as for (2), you'd need to spell out the mechanism you're proposing for me to evaluate it. i think, however, you're making the same kind of mistake people make when they say bitcoin can't work because it's deflationary, just in reverse. that a voluntary instrument is inflationary or deflationary doesn't create or destroy wealth, except as mediated through very complicated psychological effects that require empirical study. it would be absolutely wrong, however, to think that the mere widespread availability of a deflationary currency will drive more optimal investment decisions generally; i've seen that point made a number of times in the forum and have debunked it in detail. it doesn't withstand even the slightest analysis.

i most recently addressed more general confusions about the economic effects of deflation here: http://forum.bitcoin.org/index.php?topic=11627.msg170213#msg170213 . i had mostly ignored the discussion but, when i looked at it recently, was surprised to find that that point hadn't yet been made.

[tomcollins]

Are you currently putting all your money into bitcoin?  If you say this, you show you believe it by your actions.  I am putting all my money into bitcoin - I see a possibility of $50-$100+ per coin this year.  Just think, once the "bankers" and hedge funds find out about this, we are going to the moon.  Once my bitcoins are $1,000+ I will be able to pay off my growing college loans and maybe get an apartment, and my first car

I'm only a teenager. I could only scrounge up so much despite my 1000+ BTC loss. I have 95 BTC incubated so far.

This explains a lot.

[Astrohacker]

unk, I think the only way we can resolve our disagreement is to wait and see what happens. Thanks for the thought-provoking discussion.

[Gavin Andresen]

I'm fairly on the fence of this, but I have to ask: What standard are we using for BTC's enormous momentum? Its market price? The size of its goods and services economy? The amount of processing power committed?

I'm optimistic about bitcoin because of two metrics:

1. Lots of people are interested in it, all over the world.

2. There are lots of interesting, innovative projects being built around bitcoin.

It is still VERY early days, and I'll say it again:  expect growing pains.

[frycicle]

I'm fairly on the fence of this, but I have to ask: What standard are we using for BTC's enormous momentum? Its market price? The size of its goods and services economy? The amount of processing power committed?

I'm optimistic about bitcoin because of two metrics:

1. Lots of people are interested in it, all over the world.

2. There are lots of interesting, innovative projects being built around bitcoin.

It is still VERY early days, and I'll say it again:  expect growing pains.

What kind if growing pains are you speaking of?

[justusranvier]

putting aside the rhetorical games, the point is that the wealth you'd like to have dumped in your lap needs either to come from somewhere else or to be created. those are the only two choices.

Exactly. A person wanting to gain wealth has three ways to do so:

1) Do more work
2) Do more productive work
3) Get wealth from someone else

Option 3 isn't necessarily immoral or illegal (receiving charity is an example, so is winning a bet) but it certainly isn't sustainable for everybody to do it.

If you want to improve your own economic situation and build a better society focus on 1 and 2 and forget about 3. (hint: speculation on stocks or currencies is not 1 or 2)

[tomcollins]

I'm fairly on the fence of this, but I have to ask: What standard are we using for BTC's enormous momentum? Its market price? The size of its goods and services economy? The amount of processing power committed?

I'm optimistic about bitcoin because of two metrics:

1. Lots of people are interested in it, all over the world.

2. There are lots of interesting, innovative projects being built around bitcoin.

It is still VERY early days, and I'll say it again:  expect growing pains.

No way, Gavin!  It's gone up, so it will continue to go up.  Everyone's gonna be trillionaires!

I have some other interesting predictions:

This morning it was 72 degrees.  It's 100 degrees only 8 hours later!  In 10 days, we can expect temperatures of 840 degrees!  Invest in snow cones!

In 1970, Hispanics made up 4.7% of the population in the US.  In 2010, they made up 15.5%!  At current rates by 2050, 51% of the population will be Hispanic, and in 2090, 170% of the US population will be Hispanic!  Start learning Spanish!

[tomcollins]

putting aside the rhetorical games, the point is that the wealth you'd like to have dumped in your lap needs either to come from somewhere else or to be created. those are the only two choices.

Exactly. A person wanting to gain wealth has three ways to do so:

1) Do more work
2) Do more productive work
3) Get wealth from someone else

Option 3 isn't necessarily immoral or illegal (receiving charity is an example, so is winning a bet) but it certainly isn't sustainable for everybody to do it.

If you want to improve your own economic situation and build a better society focus on 1 and 2 and forget about 3. (hint: speculation on stocks or currencies is not 1 or 2)

What makes you think speculation on stocks and currencies is not making society better?

[Astrohacker]

putting aside the rhetorical games, the point is that the wealth you'd like to have dumped in your lap needs either to come from somewhere else or to be created. those are the only two choices.

Exactly. A person wanting to gain wealth has three ways to do so:

1) Do more work
2) Do more productive work
3) Get wealth from someone else

Option 3 isn't necessarily immoral or illegal (receiving charity is an example, so is winning a bet) but it certainly isn't sustainable for everybody to do it.

If you want to improve your own economic situation and build a better society focus on 1 and 2 and forget about 3. (hint: speculation on stocks or currencies is not 1 or 2)

Wealth that comes from speculation comes from Option 3. If you take out a loan to buy bitcoin, and bitcoin goes up in price, you are snatching wealth from the bank, because the bank could have just bought bitcoin and earned a much higher return. You are also snatching wealth from the people who put their money in the bank, because they too could have used that money to buy bitcoin. The total wealth in the world hasn't changed; you have just changed the proportions in your favor.