Price of gold in bitcoins : a naïve approach

[grondilu]

This is a very naive approach concerning a theoretical price of gold in bitcoins.

Let's say there are about 170,000 tons of gold on Earth's surface (both above and below ground).

If we just divide this quantity by 21 millions of bitcoins, we get a price of about 8 BTC for one kilogram of gold.

Now I know, this amount looks ridiculously small, but somehow this encourages me to sell my gold for bitcoins :-)

[Marlsfarp]

There is no reason that the total value of all gold would be equal to the total value of all bitcoins, any more than either would be equal to the total value of anything else, e.g. "Marlsfarp's Toenail Clippings."

However, I could be wrong, and so I'm willing to offer you a (potentially) fantastic deal for your gold. 8 BTC per gram of gold!

[grondilu]

There is no reason that the total value of all gold would be equal to the total value of all bitcoins, any more than either would be equal to the total value of anything else, e.g. "Marlsfarp's Toenail Clippings."

However, I could be wrong, and so I'm willing to offer you a (potentially) fantastic deal for your gold. 8 BTC per gram of gold!

Well, I don't sell grams for 8 BTC, but for 500 BTC, because there's still the risk bitcoins don't succeed, or that an other block chain gains more popularity.

I might consider higher bids, though.  Check out my web page http://grondilu.freeshell.org/bitXmetal.html.

[theymos]

When comparing the max number of bitcoins to the current USD M1, 1 BTC = ~84,076 USD.

[Anonymous]

There is no reason that the total value of all gold would be equal to the total value of all bitcoins, any more than either would be equal to the total value of anything else, e.g. "Marlsfarp's Toenail Clippings."

However, I could be wrong, and so I'm willing to offer you a (potentially) fantastic deal for your gold. 8 BTC per gram of gold!

Well, I don't sell grams for 8 BTC, but for 500 BTC, because there's still the risk bitcoins don't succeed, or that an other block chain gains more popularity.

I might consider higher bids, though.  Check out my web page http://grondilu.freeshell.org/bitXmetal.html.

Why wouldnt you be able to buy the new block chains coins using the original bitcoins? hmmm maybe some sort of bitcoin foundation would ensure you could 

[matonis]

I think assuming 21 million total bitcoin is what is naïve. Satoshi held the keys initially to this maximum amount of this particular release; however, a parallel network could emerge utilizing bitcoin protocol but set with different maximum(s).  Are those "new" bitcoin backward compatible?  It's too early to declare any network effect/reserve currency winners.

For instance, new release block chains could be structured so that only validated digital currency exchangers with auditable gold bullion backing could generate Bitcoin-Au.  At the very least, this bitcoin generation structure would garner trust in excess of just a non-convertible 21 million limit.  Additionally, it shifts the fundamental issue to one of verifiable gold reserves that are at the same type confiscation-proof.

[grondilu]

I think assuming 21 million total bitcoin is what is naïve. Satoshi held the keys initially to this maximum amount of this particular release; however, a parallel network could emerge utilizing bitcoin protocol but set with different maximum(s).  Are those "new" bitcoin backward compatible?  It's too early to declare any network effect/reserve currency winners.

Such a fork of bitcoin could not be compatible with original bitcoin network.

In order to create more than 21 Mbc, a forked network would have to keep generating 50 bc/block even after the block number 210,000.  The new transactions in these blocks will immediately be spotted as illegals (anyone can confirm that ?), as the nodes will be expecting 25 new bitcoins instead of 50, thus these blocks will be rejected by the original network.

That being said, I confess I kind of feel a little bit anxious about what will append when we reach this 210,000nd block.  It will be an important step in the bitcoin community, imo.

[grondilu]

My understanding is bitcoin doesn't generate 50 btc per block all the way to the end, it halves the reward at certain thresh holds...

That's what I meant (I edited my msg to make it clearer).

From the FAQ we can read :
<< The coin value is 50 bc per block for the first 210,000 blocks, 25 bc for the next 210,000 blocks, then 12.5 bc, 6.25 bc and so on. >>

Thus, a forked network could try to generate more than 25 bc after the block number 210,000.  I guess those block will not be accepted, since the original nodes will expect no more than 25 bc.

[matonis]

Regarding a parallel network, I was actually referring to issues raised in this Bitcoin thread http://bitcointalk.org/index.php?topic=903.0

I am fairly certain that a re-compiled version of bitcoin could alter the 21 million limit prior to release and thereby remove Satoshi as the "ultimate" central banker.  Of course, it would not be part of the original propagated network but it could exist in parallel and it is still too early to declare any winners.  Get ready for multiple bitcoin networks competing on various attributes. Bitcoin will outlive Satoshi and even he would agree with that.

[grondilu]

However, I could be wrong, and so I'm willing to offer you a (potentially) fantastic deal for your gold. 8 BTC per gram of gold!

Well, I've put this bid on my page, using a link to this message as a reference to contact you in case someone is willing to sell 1g of gold for 8 BTC.

[friendsofkim]

The current price of Gold in dollars: $43 per gram. (Goldprice.org)

The current BTC exchange rate: $0.16 (MtGox)

Current price of Gold in bitcoins:

$43 per /0.16 = BTC 268.75 per gram. If someone bought a gram of gold off you for 8 BTC they could make quite a big profit ;-)

Of course, this uses the USD as a proxy currency because there is no real market for gold in BTC yet. However, if Austrian economics is true, in the long run the value of the dollar will be worthless, but the value of gold will not be. At that point it will take infinite USD to buy gold (or anything.) But hopefully not infinite bitcoins...

Maybe if BTC becomes more liquid against other currencies (Euro, Yen, Yuan or GBP) the price could be determined more accurately by weighting against these currencies. Not sure how you'd weight them. I think they do something similar with the dollar index (currencies and commodities.)

[grondilu]

The current price of Gold in dollars: $43 per gram. (Goldprice.org)

The current BTC exchange rate: $0.16 (MtGox)

Current price of Gold in bitcoins:

$43 per /0.16 = BTC 268.75 per gram. If someone bought a gram of gold off you for 8 BTC they could make quite a big profit ;-)

Well, a bid is not a price.  It might be silly to sell a gram of gold for 8 BTC, but who knows ?  It could happen.  A very low bid has at least the merit of existing.  If someone wants to place a bid on the order book, at least he has this as a reference.  It's better than nothing.  You  can place a bid at 10 BTC, if you want

Edit.  I actually still have 40 bc to spend.  I've added a bid for 2 grams at 20 bc each.

Of course, this uses the USD as a proxy currency because there is no real market for gold in BTC yet. However, if Austrian economics is true, in the long run the value of the dollar will be worthless, but the value of gold will not be. At that point it will take infinite USD to buy gold (or anything.) But hopefully not infinite bitcoins...

Maybe if BTC becomes more liquid against other currencies (Euro, Yen, Yuan or GBP) the price could be determined more accurately by weighting against these currencies. Not sure how you'd weight them. I think they do something similar with the dollar index (currencies and commodities.)

Personnaly I predict the price of gold in bitcoin will be more or less constant in the very long term, but with short term huge volatility.  A bit like the price of gold in silver, for exemple.

[friendsofkim]

Well, a bid is not a price.

I assumed that if the market clears the last order at that bidding price, that's the price of the commodity at that time. Isn't that right?

You  can place a bid at 10 BTC, if you want

Cool.   I'll bid four for 400 BTC if they're .999 purity

[grondilu]

You  can place a bid at 10 BTC, if you want

Cool.  I'll bid four for 400 BTC if they're .999 purity

Mines are.  Notice that you won't necessarly buy my bars.  Someone else could send me a sell order.  If this 'ask' matches your 'bid', I'll make you two contact each other.

I put your bid and a link to this message as a reference.

[friendsofkim]

I put your bid and a link to this message as a reference.

Thanks. The way I see it though, nobody rational will sell them to me for 400 BTC, when they could sell them on eBay for at least $50 each, and buy ~$200 worth of bitcoins (1250 BTC.) But you never know..

[grondilu]

I put your bid and a link to this message as a reference.

Thanks. The way I see it though, nobody rational will sell them to me for 400 BTC, when they could sell them on eBay for at least $50 each, and buy ~$200 worth of bitcoins (1250 BTC.) But you never know..

Buying bitcoins is not that easy.  The exchange markets have some drawbacks (one month waiting for mtgox for instance).  Plus someone might want not to pass through the banking system.  Therefore it is very much possible that someone meets your bid.

[ribuck]

When comparing the max number of bitcoins to the current USD M1, 1 BTC = ~84,076 USD.

OK, that's quite interesting for a "naïve approach", so let's play a bit more.

Suppose that, instead of using the USD M1, we look at the US currency in circulation, around 900 billion dollars. Suppose that the population of the USA uses bitcoin for 1% of their "cash-like" economic activity.

Then, 21 million bitcoins would need to have the same purchasing power as 0.01 * $900 billion, and each bitcoin would eventually be worth $428.

But hang on, bitcoin is global. The global economy is about four times as big as that of the US, so if bitcoin was used for 1% of global economic activity, each bitcoin would eventually be worth $1712.

But hang on, not everyone in the world is going to use bitcoin. Let's assume that it becomes as popular as other niche interests (say, Esperanto). There are perhaps a million esperanto speakers worldwide, about 1/7000th of the world's population. So if one million people use bitcoin for 1% of their economic activity, each bitcoin would eventually be worth $0.25.

So there you have it, my naïve prediction is that the value of a bitcoin will end up somewhere between $0.25 and $1712.

Oh dang, there are so many confounding factors. If the takeup is less than a million people, the value will be proportionately less. Oh, and only about 20 million BTC will be generated during my lifetime. Oh, and the world's population keeps growing. Oh, and what about those BTC that are lost forever due to lack of backups or copy-and-paste errors when entering receiving addresses. Oh, and a million other things...

[grondilu]

But hang on, not everyone in the world is going to use bitcoin. Let's assume that it becomes as popular as other niche interests (say, Esperanto). There are perhaps a million esperanto speakers worldwide, about 1/7000th of the world's population. So if one million people use bitcoin for 1% of their economic activity, each bitcoin would eventually be worth $0.25.

I doubt Esperantist community is a good example of a potential niche use of bitcoins.  I guess you mentionned it because you saw the esperanto link on the main bitcoin page, or because you know I am esperantist.  But honnestly I very much doubt I represent esperantists in any correct way.

However, I believe their are definitely some niches where bitcoin could florish :  internet poker, porn, IT freelance business, etc.  Maybe some very small countries could adopt it, also.   I don't know.

But anyway, my approach was explicitely "naive".  There are indeed a lot of factors to take into accompt.  So I don't think there is anyway to get a theoric price for gold in bitcoin.  See precious metals compared to one another :  although there is a very rouhly constant ratio,  it does vary a lot in short time.  I think it could be just the same for bitcoin.

[ribuck]

Grondilu, I was looking for a "ballpark figure" of how likely it is that something will be adopted where it is clear to the adoptees that there are significant benefits to its adoption.

For my purposes, Esperanto and Bitcoin share the characteristic that they achieve their fullest potential only if most people use them. Despite the "obvious" benefits of Esperanto, it hasn't achieved "critical mass" and I expect the same will apply to Bitcoin. I don't expect to be able to buy, say, a hamburger from my local fast food outlet using Bitcoin any time soon, just as I can't order it in Esperanto.

I didn't know that you were an Esperantist, although I saw that there was an Esperanto translation at bitcoin.org.

My grandparents were fervent Esperantists and tried very hard to teach it to me in the 1960s when I was a young child. They spoke it all the time, and went to all the International Esperanto Congresses. But I've never been able to pick up any other languages, and Esperanto didn't stick. Today I can count in Esperanto, and remember another ten or so words, but that's all.

Pacon,
ribuck

[grondilu]

Grondilu, I was looking for a "ballpark figure" of how likely it is that something will be adopted where it is clear to the adoptees that there are significant benefits to its adoption.

As it has been said on some other thread (I forgot which one), bitcoin doesn't really need to be mainstream to be successful.  It can't be compared to esperanto for this matter, imo.

As long as there exists a community that provides convertibility of bitcoins to other currency, it won't matter if you can't buy a hamburger with bitcoins.   Think about gold :  I dout I could go in a McDonald's with a gram of gold and buy a menu with it.  And yet, gold is of course successful (especially nowadays).

Of course, it will depend on the volume of transactions the community can provide.   But such a volume won't have to be huge, imo.  Actually I'd also like to compare it to collector's stamps.  Those are really a niche :  very few people collect stamps and are willing to pay a lot of money to acquire it.  And yet, I heard that some jews during WWII were using them as storage of value (much easier to hide than gold or diamands).

I'd say that bitcoins are even easier to hide than stamps


PS.  I don't say that I wouldn't like bitcoin to go mainstream, though.  Of course I'd like that.  But going mainstream is not a requirement for bitcoins to be considered as a success, imo.