The Bitcoin Singularity is Near

[Zomdifros]

I'm quite surprised to see that there are so many people here worried about the recent rise in price. Of course, there has been an increase of 50% in just a few months, but to be honest, I think the rate at which Bitcoins are increasing in price is still quite slow. It will go much faster in the nearby future. This may not happen for another few months or even years, but if Bitcoin survives, which I believe it will, there will be a price explosion of epic proportions.
 
Think of it: the total Bitcoin market is somewhere north of 200 million USD, divided over almost 11 million BTC. From the Ron/Shamir paper we know that around 7 million BTC never move. That means that the total amount of fiat invested in Bitcoin is well below 100 million USD. In every possible scenario where Bitcoins are known to the general public, the total amount of money invested will be in the billions. The online gambling market had a turnover of 21 billion in 2008, according to Wikipedia. The online shopping market is at least tenfold that number, as is the amount of money people wire through Western Union and the like. And think of the money which could flow in the system once the drug cartels, hedge funds and tax evaders find out about it.

Although Bitcoin is still very young, it has survived to the point where there is enough wealth in the system that people will go to great lengths in order to repair or save it, once it will be struck by some disaster. This could either be an internal threat, such as scalability issues, or an external threat such as legal issues. In any case, Bitcoin will survive, simply because it has proven itself to work. Alternative currencies are irrelevant at this point, because any enhancement they might offer can and will be implemented by Bitcoin if there is even the slightest threat to it. The network effect will make sure Bitcoin won't allow contenders on the block. Whether you like it or not, Pandora's box has been opened and not even Satoshi himself will be able to close it.
 
When we look at Bitcoin in terms of expected value, the odds are thus astronomical. The only reason Bitcoins don't trade for 100k USD right now is because most people either haven't found out about it or don't understand it yet. When they do, there will be a rush from people afraid of missing the boat. Remember that never before in the history of mankind a new currency came on the market so suddenly and right there for everyone to pick up for a bargain. Once the banks and governments of this world find this out, there will be a race to get in on it as fast as possible. This will be the tipping point, where we can expect to see an exponential increase in value. As long as this point has not been reached, it is incredibly silly to worry over a few dollars in a few weeks.

[btcgoldsilver]

Interested in what you mean by a bitcoin singularity is near? Thats a provocative title. I attributed the price rise to the mining reward halfing from 50 to 25 but now I think thats only part of the story and more psychological than anything. Starting to think another steep rise is on the cards, possibly a scaled up version of what happened in 2011.

[Zomdifros]

Interested in what you mean by a bitcoin singularity is near? Thats a provocative title. I attributed the price rise to the mining reward halfing from 50 to 25 but now I think thats only part of the story and more psychological than anything. Starting to think another steep rise is on the cards, possibly a scaled up version of what happened in 2011.

What I basically mean with that title is that the price rise of bitcoins will not be steady. Once it reaches a tipping point, or singularity, that fact alone will cause a rapid acceleration. We might already see this happening when we get above the 2011 high because this will generate a lot of positive media attention. First hedge fund managers will wake up and come to realize that this bitcoin thing they heard about a few years ago ought to be taken serious. Then banks will find out that this may one day be the backbone of international money transfers and that it will be essential for them not to miss out. After that governments want to maintain their economic power and if they can't shut it down, they better get in on it.
 
My point is that we compare Bitcoin with things we know, like shares of Microsoft, Apple or Google. We are afraid of a bubble when it goes to fast. However, the potential Bitcoin has cannot be compared to anything we have ever seen before. Bitcoin is the ultimate positive black swan.

[Offthechain]

I think it could be a number of things, possibly a mixture of any of these too.

1) People hearing viraly about how those of us who hold BTC have made big 'gains' in the last 2 months or more and wanting in.

2) Organised crime getting heavily involved as they can see its potential for laundering / transferring their money.

3) Bigwig investors / rich kids buying up loads... because they can.

4) Day traders seeing easy profits from noobs who have little understanding of markets (pump and dumps etc.)

5) The Silk Road growing

6) (And a paranoid one) The Government secretly buying loads, then selling loads to cause instability to try and put people off Bitcoin.

Personally I am very excited as I see massive potential here. I just read that Venezuela had devalued its own currency by 46%.
If Venezuelans invested in Bitcoins they could 'save' their savings! And that is only one small country!

Even though there is currently very little to buy with Bitcoin, (especially in my country)... things move fast on the internet.
The problem is, with prices rising so rapidly I don't even want to spend my coins!!!

[Offthechain]

Oh yea, I nearly missed off a massive one... Gambling!!!!
I think Americans are going to lap this up!

But yea, this could be a perfect storm with an upward trajectory... meaning more news reports causing a feedback loop

[TraderTimm]

What I basically mean with that title is that the price rise of bitcoins will not be steady. Once it reaches a tipping point, or singularity, that fact alone will cause a rapid acceleration. We might already see this happening when we get above the 2011 high because this will generate a lot of positive media attention. First hedge fund managers will wake up and come to realize that this bitcoin thing they heard about a few years ago ought to be taken serious. Then banks will find out that this may one day be the backbone of international money transfers and that it will be essential for them not to miss out. After that governments want to maintain their economic power and if they can't shut it down, they better get in on it.
 
My point is that we compare Bitcoin with things we know, like shares of Microsoft, Apple or Google. We are afraid of a bubble when it goes to fast. However, the potential Bitcoin has cannot be compared to anything we have ever seen before. Bitcoin is the ultimate positive black swan.

It would one hell of a thing if we achieved a "hockey stick" exponential curve that ended in a new plateau instead of retracing immediately after. I think this is what you're suggesting, and I can see where you're coming from.

[SgtSpike]

What was the actual wording on that Ron/Shamir paper?  I can't remember if they said that 7 million bitcoins had never moved, or that 7 million hadn't moved for a particular time period.

Regardless, I think if the US doesn't change its stance with regards to online gambling, Bitcoin will continue to see exponential growth in that area until it makes up a significant portion of online gambling activities (say, 25%).  Gambling turnover of $21B divided by BTC turnover of multiplied by BTC price multiplied by 25% = new price.  Blockchain.info shows transactions per day of around 250,000 BTC/day.  Some of that (maybe half) is people sending to themselves (I know I do it all the time).  So, 125,000 in legitimate BTC activity daily.  $2.5M/day.  $912.5M/year.

So then, our calculation...

$21B / $912.5M * $22.82 * 25% = $131.29/BTC.

Hmmm... anything I'm missing?

[Spaceman_Spiff]

Anyone else think this is the new "I am pretty confident we are the new wealthy elite, gentlemen." thread?
Don't get me wrong, I am very bullish on bitcoin, and haven't sold any yet in the current rally, but tell me how this https://blockchain.info/charts/market-cap?timespan=1year&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= is not already an exponential rise? 
This makes my 'sell' finger itchy...

[Zomdifros]

What was the actual wording on that Ron/Shamir paper?  I can't remember if they said that 7 million bitcoins had never moved, or that 7 million hadn't moved for a particular time period.

Regardless, I think if the US doesn't change its stance with regards to online gambling, Bitcoin will continue to see exponential growth in that area until it makes up a significant portion of online gambling activities (say, 25%).  Gambling turnover of $21B divided by BTC turnover of multiplied by BTC price multiplied by 25% = new price.  Blockchain.info shows transactions per day of around 250,000 BTC/day.  Some of that (maybe half) is people sending to themselves (I know I do it all the time).  So, 125,000 in legitimate BTC activity daily.  $2.5M/day.  $912.5M/year.

So then, our calculation...

$21B / $912.5M * $22.82 * 25% = $131.29/BTC.

Hmmm... anything I'm missing?

From Ron/Shamir: "If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC's, we see that they contain 7,019,100 BTC's, which are almost 78% of all existing BTC's."
http://eprint.iacr.org/2012/584.pdf

They made a couple of other calculations in regard to dormant bitcoins, but basically the point is that all the fiat ever used to buy bitcoins is substantially less than the total Bitcoin market cap.

I used the number on online gambling to illustrate the difference in size with the Bitcoin market cap. Even a small increase in amount of money going in the system might be enough to have a large impact on the price, especially when account holders decide not to gamble away all their bitcoins but perhaps safe a few. Given that the Forbes article by Jon Matonis on the SatoshiDice profits is now a few weeks old, my guess would be that we are currently seeing the results of it.

[marcus_of_augustus]

Remember that never before in the history of mankind a new currency came on the market so suddenly and right there for everyone to pick up for a bargain. Once the banks and governments of this world find this out, there will be a race to get in on it as fast as possible. This will be the tipping point, where we can expect to see an exponential increase in value. As long as this point has not been reached, it is incredibly silly to worry over a few dollars in a few weeks.

You may well be right in most of what you say here but your time-scales will probably be well wrong. Mega-banks and govt.s are not going to be hopping on to any "crypto-currency" band-wagon any time soon and the infrastructure does not yet exist inside bitcoin world to support them anyway. That is not to say that they never will however.

The great thing about this experiment is the little people can enter first, and to the fullest they wish to risk, but the big guys have to wait ....  ".... it is easier to fit a camel through the eye of a needle".
Just by the logistics involved, the system will grow naturally and the size of entrants to the system will be commensurate to the size of the system at the time.

It will look like an exponential singularity if it all pans out, but you will have to look back from 2035 and scale the chart accordingly.

On the little details, I think we are in a rather powerful wave 3 of 2, heading for a re-test of $32 June 2011 high from first wave up. I'm expecting a blow-off to the $25.88 area and collapse back to re-base around $20.8 region ... fwiw. (Longer term in an unknowable time-frame waves 4 of 2 and 5 of 2 should takes us past the $32 to finally top out around $51.7.)

[mb300sd]

From Ron/Shamir: "If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC's, we see that they contain 7,019,100 BTC's, which are almost 78% of all existing BTC's."
http://eprint.iacr.org/2012/584.pdf

That doesn't sound very accurate. Receive and never send would include all change addresses and newly generated addresses. The majority of those bitcoins are likely accessible... I never reuse addresses (as evidenced by my 20MB wallet.dat) so every one of my coins is in that count.

[n8rwJeTt8TrrLKPa55eU]

In spite of the recent rise, BTC as a product/technology is still grossly undervalued due of (warranted or not) fear over government intervention and leftover perception as rogue and shady.  To the extent that uncertainty is cleared via increasing non-black-market usage and more balanced media coverage, look out, marketcap is going straight into the many billions.  Could happen over some time, or could happen rapidly in a vertical phase transition: if a major consumer brand like Google or Amazon were to announce that they'll start accepting Bitcoin, the price could easily go up 10 fold within a short time, WordPress effect times 10.  Singularity right there.  It just needs the right catalyst.

[Bit_Happy]

Anyone else think this is the new "I am pretty confident we are the new wealthy elite, gentlemen." thread?
Don't get me wrong...

But everyone is having so much fun.   

...
Hmmm... anything I'm missing?

Speculators reassured by an increase in gambling revenues, what could possibly be missing?

[Zomdifros]

Remember that never before in the history of mankind a new currency came on the market so suddenly and right there for everyone to pick up for a bargain. Once the banks and governments of this world find this out, there will be a race to get in on it as fast as possible. This will be the tipping point, where we can expect to see an exponential increase in value. As long as this point has not been reached, it is incredibly silly to worry over a few dollars in a few weeks.

You may well be right in most of what you say here but your time-scales will probably be well wrong. Mega-banks and govt.s are not going to be hopping on to any "crypto-currency" band-wagon any time soon and the infrastructure does not yet exist inside bitcoin world to support them anyway. That is not to say that they never will however.

Well I guess you're right, it's much harder to predict when anything will happen than to predict what will happen. However, we are used to thinking events will develop on a gradual scale, while in fact it may happen suddenly, all at once. And this can be next month or not before the end of the decade, but it will happen eventually.

[FreeMoney]

From Ron/Shamir: "If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC's, we see that they contain 7,019,100 BTC's, which are almost 78% of all existing BTC's."

This is way way different from saying that 70% of 'coins' (whatever that means) never move. If every bitcoin moved every single hour but everyone always used new addresses then every single address with coins at it would receive but never send!

[Bit_Happy]

From Ron/Shamir: "If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC's, we see that they contain 7,019,100 BTC's, which are almost 78% of all existing BTC's."
...

Hoarding can help fuel Speculation Bubble 2.0, but not a true Bitcoin Singularity.
Where is the real economic development, Satoshi dice? Now that is change I can believe in.   

[Zomdifros]

From Ron/Shamir: "If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC's, we see that they contain 7,019,100 BTC's, which are almost 78% of all existing BTC's."

This is way way different from saying that 70% of 'coins' (whatever that means) never move. If every bitcoin moved every single hour but everyone always used new addresses then every single address with coins at it would receive but never send!

Of course you are right, but then again you'll find that one of the conclusions from their paper was that many bitcoins are in some way dormant, while a much smaller number is very active. The point is that this is a clue to the amount of fiat invested in Bitcoin, which I believe is much lower than number of mined coins * price (I would guesstimate somewhere around 100 million USD).

As the price goes up further, some of the currently dormant coins will wake up. If I were an early adapter in possession of 25k BTC, a price of 24 USD would probably be a good moment to sell a small percentage to cover your initial investment. As the price goes up even more, I might sell some more to buy a car, a yacht, a house or whatever. The fact of the matter is that right now, bitcoins are far more scarce than we believe them to be.

[||bit]

[...] Then banks will find out that this may one day be the backbone of international money transfers and that it will be essential for them not to miss out. [...]

I have a feeling this won't be embraced by banks. If anything, I think they will be the greatest threat to bitcoin by either lobbying governments to stop it, or a direct attempt to sabotage it.

||bit

[marcus_of_augustus]

[...] Then banks will find out that this may one day be the backbone of international money transfers and that it will be essential for them not to miss out. [...]

I have a feeling this won't be embraced by banks. If anything, I think they will be the greatest threat to bitcoin by either lobbying governments to stop it, or a direct attempt to sabotage it.

||bit

Except for the small, upstart, 'renegade' banks that are shooting for the fences and adopt the disruptive superior bitcoin tech. to intentionally out-compete and bring down the big, entrenched, dinosaurs. It's how capitalism is supposed to work.

[Zomdifros]

[...] Then banks will find out that this may one day be the backbone of international money transfers and that it will be essential for them not to miss out. [...]

I have a feeling this won't be embraced by banks. If anything, I think they will be the greatest threat to bitcoin by either lobbying governments to stop it, or a direct attempt to sabotage it.

||bit

I believe it is unavoidable. And banks aren't all that bad, they do provide useful services. They are simply much too large and costing all of us too much money due to the fact that they are so close to the money creators at central banks. Bitcoin will take this away from them and there is absolutely nothing that can be done about it. Sabotage is highly unlikely to succeed and lobbying governments won't work either, just look at the war on drugs.