The economic model behind Bitcoin is flawed

[z0rg1nc]

Hi deisik and hi all
Just have noticed this discussion. I am also a member of BitMoney dev-team. Hope to make all clear about our project, if it is so actively discussed

The one million dollar question... Why should we trust you?

Well, you shouldn't trust, just calculate your profit\risks ratio. You definitely shouldn't hold that 1m$ here, but sell some service with almost immediate BTC withdraw could worth it.

Another one attempt to answer your main question. Lets imagine money workflow.

Client wants to get some currency to buy some good\service, he'll buy it on free market or mine it by himself. In result clients pay to Intel and electricity provider to get medium of exchange. History over, first money holder took the risks here. So actual question for him is - will he be able to sell it month later with the same exchange rate (or what discount will be)? The risks are:
1. Fbi arrests the server, some attack happens, all hardware along with backups fails. Most severe case, there are some ways to mitigate consequences but discount will be big.
2. Mining alg cracked, asic appears, admins print huge amount of money. There will be some reasonable daily limit of mining withdraw so we'll be able to catch emergency cases, algs will be adjusted to existent hardware. We'll not print much because it's a long term story for us, nobody will just throw out the reputation.
3. Economy behind will shrink, trust will fall (if somebody will use as medium of saving too), competitors will rise, velocity of circulation rise. Required money supply shrink too, price will go down. Possible but it's long time processes, it can't happen fast.

As i said, calc it on your own, if the risks are too high for you then sry for bothering.

[deisik]

A recent survey showed:
50% of merchants who accept bitcoin convert it all to fiat. 10% keep the bitcoin. 40% take a mix of fiat and bitcoin.
I conclude that the use and acceptance of bitcoin as money is growing

What fraction the merchants accepting Bitcoin convert to fiat is not as important as the total amount of goods traded for it (in terms of both fiat and Bitcoin). What is it equal to, does it grow and how fast? If two people sold something to each other for bitcoins and kept them, we would have 100% of "merchants" loyal to Bitcoin, wow...

But does this "statistic" tell us anything?

The number of goods traded for bitcoin is basically a function of the market cap

Are you serious? In the case of Bitcoin (as well as other cryptocurrencies) the market cap (in terms of fiat, say, USD) is calculated by the number of coins in circulation multiplied by its current exchange rate (or something to that tune). We don't even know how many bitcoins are lost for good. Indeed, you can always say that the amount of goods traded is some % (or rather ‰, lol) of that number...

But do you have any real figures in absolute terms, however pathetic they might be?

[deisik]

2. Mining alg cracked, asic appears, admins print huge amount of money. There will be some reasonable daily limit of mining withdraw so we'll be able to catch emergency cases, algs will be adjusted to existent hardware. We'll not print much because it's a long term story for us, nobody will just throw out the reputation

Basically, you are admitting that you can inject as much money into the system as you see appropriate (with all ensuing consequences), essentially bypassing the proof-of-work protocol, provided it is in fact implemented (which I doubt). This doesn't bode well...

But everyone is free in drawing their own conclusions, of course

[funkenstein]

In terms of my comment on monetary system, I just meant that it is impossible to have a medium of exchange that isn't intrinsically useless. Even systems like the gold standard relies on people's perception that gold is valuable. People can argue that it is nice for jewelry/pretty but that is mainly because it is expensive to start off with - like everything else, the value is based on societies perceptions (rightly or wrongly we cant change this!)

And fiat, which is intrinsically useless, serves this purpose the best. It is the closest approximation to the concept of money, i.e. a dimensionless yardstick for measuring the value of goods against each other

I like that "dimensionless yardstick"; quite apt   Of course "yard" is a unit aka a dimension, so it appears to be an oxymoron, but "dollar" is similar in that it refers to a real unit or dimension (a quantity of silver) but yet doesn't really.  Dimsensional analysis as any other physical or scientific analysis with such units is doomed to failure.  Perfect!

As in:  I'm 1.5 yards tall.  4 2015-funk yards, which represent some unspecified amount of distance which you can't ever know.  Pretty tall for a dwarf wouldn't you say?

Anyway fiat is also great because you can issue yourself as much as you want at any time with no work.  It only takes 1 bit flip on a 32 bit integer to create over a billion dollars.  Can you do that with bitcoin?  I didn't think so.  You need quadrillions of bitflips just to get 25 coins. 

[deisik]

In terms of my comment on monetary system, I just meant that it is impossible to have a medium of exchange that isn't intrinsically useless. Even systems like the gold standard relies on people's perception that gold is valuable. People can argue that it is nice for jewelry/pretty but that is mainly because it is expensive to start off with - like everything else, the value is based on societies perceptions (rightly or wrongly we cant change this!)

And fiat, which is intrinsically useless, serves this purpose the best. It is the closest approximation to the concept of money, i.e. a dimensionless yardstick for measuring the value of goods against each other

I like that "dimensionless yardstick"; quite apt   Of course "yard" is a unit aka a dimension, so it appears to be an oxymoron, but "dollar" is similar in that it refers to a real unit or dimension (a quantity of silver) but yet doesn't really

That's a nitpicking at its best... Does a sequence of natural numbers have a dimension, wtf?

[funkenstein]

That's a nitpicking at its best... Does a sequence of natural numbers have a dimension, wtf?

No, definitely not.  And hence why I liked your phraseology so much.  Dimension solely comes from a well defined definition of unit.   

Dimensional analysis is the use of well defined units as a sanity check.

Fiat is a dimensionless yardstick.       

[deisik]

That's a nitpicking at its best... Does a sequence of natural numbers have a dimension, wtf?

No, definitely not.  And hence why I liked your phraseology so much.  Dimension solely comes from a well defined definition of unit.   

Dimensional analysis is the use of well defined units as a sanity check.

Fiat is a dimensionless yardstick

You are welcome, bro

[1aguar]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

Nature of the Dollar (it may also contain misunderstanding about "Trust"):
http://thefederalmafia.homestead.com/letteronmoney.html

"Federal Reserve Notes are not Dollars." - Russell Munk Assistant General Counsel, Dept. of the Treasury 1977

"Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." - Daniel Webster

More quotes

[deisik]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it. A yardstick for measuring the value of one good against the other is not required to have value in and of itself, wow. Balance scales to measure weight would work just fine even if they were weightless themselves (in fact, they would work even better)...

They just need to be balanced properly, the scales of justice

[1aguar]

I tire of your theory.
WHO does this system work for?
The current system does not work fine for anyone but the elites; they are the ones who hoard the credit and assets and leave them idle; money velocity has slowed down dramatically. It is pure "idle worship"; energy must flow through a system because stagnation is death.
How all of this could possibly be "economically better" than sound money is something that I fail to comprehend. I don't think that you can determine that an economic system is "better" unless it is in reference to some group of people; economics is a social science and is properly called "political economy". It has been shown that the people manage money better than the State but the peoples' productivity and creativity is cheated by the monetary system. Cui bono??

"Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." - Daniel Webster

[deisik]

I tire of your theory.
WHO does this system work for?
The current system does not work fine for anyone but the elites; they are the ones who hoard the credit and assets and leave them idle; money velocity has slowed down dramatically. It is pure "idle worship"; energy must flow through a system because stagnation is death.
How all of this could possibly be "economically better" than sound money is something that I fail to comprehend. I don't think that you can determine that an economic system is "better" unless it is in reference to some group of people; economics is a social science and is properly called "political economy". It has been shown that the people manage money better than the State but the peoples' productivity and creativity is cheated by the monetary system. Cui bono??

"Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money." - Daniel Webster

People overall are living much better today than they lived some 100 years ago (just when fiat began to take over the so-called "sound" money). I'm not even mentioning the miserable conditions the total majority of population lived 500 years ago. That would simply be beyond comparison. You may indeed question the validity of this assertion (that people live better today), but you can't possibly deny the explosive growth of population as well as human lifespan...

I don't think that any of the latter would be possible if the former was not true

[virtualx]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it.

True, but dollar purchasing power has decreased a lot:


Of course, anything that can be traded will have value. Bitcoins, dollars, paintings or even collection cards

[deisik]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it.

True, but dollar purchasing power has decreased a lot:

But wages did get increased too. Thereby, the dollar purchasing power alone is not enough to draw any definitive conclusions, right?

[ACAB]

There is no economic system that is flawless, so we have to choose the system which has least flaws. That's why I choose Bitcoin over fiat money. Do you suggest me a better monetary system?

[1aguar]

Here is a definitive conclusion:
Ask anyone who was earning a wage prior to Nixon's default on the currency (the end of sound money)
about how much they earned and how much their purchasing power was.
They will all tell you that they had money to burn even though the wages were miniscule.
Nowadays most people are just barely getting by; life was better with sound money.
Basically, their wages were in silver dollars, so one dollar was an ounce of silver (about $15-$17).
The value of labor has obviously been stolen from the workers by the debasing of the currency;
this is what happens in all slavery systems: over time the slaves are made to work harder for less.

As far as living standards, the Fed caused the Great Depression and the next crisis is just around the corner. Wealth has not "trickled down"; inequality and social mobility are important measures of the standard of living and these were clearly better during the sound money eras of the past.

[deisik]

Here is a definitive conclusion:
Ask anyone who was earning a wage prior to Nixon's default on the currency (the end of sound money)
about how much they earned and how much their purchasing power was.

No, I don't actually need to ask anyone living prior to Nixon, lol. Why? Because I already know the answer. Since the life was so much more fun in those good old days. Even the grass was greener back then...

And the light was definitely brighter, amen

[virtualx]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it.

True, but dollar purchasing power has decreased a lot:

But wages did get increased too. Thereby, the dollar purchasing power per se is not enough to draw any definitive conclusions, right?

Depends. The dollar has lost a lot of value over time.  These are the average hourly wages in the US:

[deisik]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it.

True, but dollar purchasing power has decreased a lot:

But wages did get increased too. Thereby, the dollar purchasing power per se is not enough to draw any definitive conclusions, right?

Depends. The dollar has lost a lot of value over time.  These are the average hourly wages in the US:

So inflation-adjusted wages remain essentially the same. Thereby, the real purchasing power of the US dollar didn't change a lot (in terms of hourly wages in the US). That is, the hourly work can buy you the same amount of basic goods...

And in 1964 you just couldn't buy a lot of useful things like cell phones or personal computers

[virtualx]

The Dollar just isn't what it used to be; it is no longer a measure of value, it is pure "dimensionless" ponzi.

It ain't until and unless people are no longer willing to trade goods for it.

True, but dollar purchasing power has decreased a lot:

But wages did get increased too. Thereby, the dollar purchasing power per se is not enough to draw any definitive conclusions, right?

Depends. The dollar has lost a lot of value over time.  These are the average hourly wages in the US:

So inflation-adjusted wages remain essentially the same. Thereby, the real purchasing power of the US dollar didn't change a lot (in terms of hourly wages in the US)...

That is, the hourly work can buy you the same amount of goods

Inflation is not good for a currency. Here is the chart of the German Mark at time of the Weihmar Republic:



You can of course argue that wages rise but for how long can wage scale along with inflation? If inflation out scales the wages there is an enormous catastrophe waiting for us. I think a debt based currency system will always collapse at some point.

[deisik]

Inflation is not good for a currency. Here is the chart of the German Mark at time of the Weihmar Republic:

You can of course argue that wages rise but for how long can wage scale along with inflation? If inflation out scales the wages there is an enormous catastrophe waiting for us. I think a debt based currency system will always collapse at some point.

This is not a topic about inflation vs deflation. If you feel inclined to talk about this issue, there is a special thread sticked right in this sub-forum. Germany lost in WWI (and in WWII, for the record) and had to pay reparations which it simply couldn't pay out. The ultimate fiasco of its fiat currency was due to the failure of the state before anything else...

You don't see the forest for the trees