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Author Topic: A random slightly negative opinion.  (Read 1702 times)
Meatpile
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June 12, 2011, 03:27:07 PM
 #1

After reading all about bitcoins I love the idea to no end! The long term design is quite good, however the short term "get started" method was not thought out enough it seems.

The only way for bitcoin to become a real currency, rather than the stock-like gambling mechanism that it is, would be if you could only transfer into bitcoins one way. That is traditional currency to buy bitcoins, but not the other way around. You can not sell bitcoins for cash.

The way for that to work would have been that people who wanted into the economy would have had to pay a miner (none of this centralized exchange crap) and as soon as that miner completes a block chain, the 50BTC would go to someone who payed them. (There are tons of ways to turn this into a cooperative business such as the mining pools happening now)

But the simple fact that you have mechanisms to trade back and forth turns it into a gambling mechanism that will never get away from the currencies people are trading it in.


I am in a position right now where I am developing some hardware that could offer bitcoin support. But the only way to do it would be to dynamicly value bitcoins at their exchange rate. And to remove volatility risk, I would have to convert any bitcoins immediately into cash.  This is the exact opposite of the whole point of bitcoins, they should be used as a different currency, not as an exchange mechanism. 

Businesses can not operate on traditional money and bitcoin at the same time. The reason being that big staples of rent / utilities / wages will never switch over to an all bitcoin model.  The only business that can and should accept bitcoin is one that can work only in bitcoins. So perhaps small homemade item trading. That is a huge limiting factor.


So final conclusion: Bitcoins is a great great idea, and a worthwhile experiment. But I dont think it will ever switch from a stock-like gambling mechanism to a currency ever.





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JonathanHiggins
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June 12, 2011, 03:52:06 PM
 #2

You make  a good observation IMO, as a fellow noob im more interested in a user friendly bank model that people like me would feel more comfortable in placing their bit coins in connected to paypal or similar.
Meatpile
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June 12, 2011, 03:59:40 PM
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You make  a good observation IMO, as a fellow noob im more interested in a user friendly bank model that people like me would feel more comfortable in placing their bit coins in connected to paypal or similar.


Jonathan I am sorry to say that I don't think that mindset is proper for bitcoins at all. For bitcoins to work as the currency they were intended, there should be no connections to traditional banking and transfer systems such as paypal or a "bank"   The whole point is paying people directly, and fees going to other "users" or server hosts, not big ugly corporations.

emugoo
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June 12, 2011, 04:00:30 PM
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Im curious, what exactly don't you like about the existing exchanges, which do allow both way transfer of BTC into and from USD or EUR?

As for exchange rates fluctuation, if I would offer services or goods for Bitcoins, I would like the exchange rates to fluctuate as much as possible. And under no circumstance sell into USD directly when receiving Bitcoin payments.

Let me elaborate on that, using the example of Switzerlands CHF vs EUR. The CHF is historically a panic security currency, similar to people banking gold or bonds instead of shares. So currency traders go to the Swiss Frank in times of down markets.

More then 50% of real world product and services geared towards foreign markets in Switzerland are going to the Eurozone. That means that in time of a downwards market, exporting stuff gets increasingly harder, due to exchange rate differences. Now the main problem with that is long term agreements on prices, because that makes the sellers a victim of the exchange rate fluctuation. As competitors to EU markets, there's no way to define the exchange rate willy nilly for these contracts.

But the situation is actually much different for BTC and the high fluctuations. Assuming I'd be a seller on the internet, using Bitcoins or USD. If I would make a Bitcoin price, it would make sense to overvalue it. For example, the current conversion is about 20 USD for 1 BTC. If my Product costs 20 USD, the BTC price should be 25 USD when converted right now. Three days ago the conversion was about 30, so i'd price at about 37 USD. With this security cushion, I can easily hold on to my money, even if Bitcoin goes down on the exchanges. Due to the huge fluctuation in the market, within a week or less, I can achieve a conversion rate of better then the already inflated price that I did demanded from my customer. Sometimes I might need to sell my Bitcoins into Dollars for less then 20, but most often I won't. At least as long as Bitcoin continues to work.

Now one could argue that this is an unfair profiteering on the back of people who want to pay with Bitcoins. But as BTC is a very new thing, compared to other monetary payments, payments made with it need to include a risk payment of sorts. This situation is comparable to how PayPal started. It used to be very new, and offer much better rates then using a Credit Card directly, in additon to gains in convenience (mostly for the seller). These days, Paypal actually costs more then most other third party CC services, and is a pain to use as a seller, and incurs increased callback risks. But that doesn't matter, because it's well established.
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June 12, 2011, 04:06:19 PM
 #5

The only way for bitcoin to become a real currency, rather than the stock-like gambling mechanism that it is, would be if you could only transfer into bitcoins one way. That is traditional currency to buy bitcoins, but not the other way around. You can not sell bitcoins for cash.
But how would you ever stop people trading them both ways?

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JonathanHiggins
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June 12, 2011, 04:20:58 PM
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You make  a good observation IMO, as a fellow noob im more interested in a user friendly bank model that people like me would feel more comfortable in placing their bit coins in connected to paypal or similar.


Jonathan I am sorry to say that I don't think that mindset is proper for bitcoins at all. For bitcoins to work as the currency they were intended, there should be no connections to traditional banking and transfer systems such as paypal or a "bank"   The whole point is paying people directly, and fees going to other "users" or server hosts, not big ugly corporations.



The idea of a bank should be seen to be a trusted medium in which to engage in bitcoin transaction, a Bitcoin bank, not to be confused with current banks dealing in fiat currencies as such, but one strictly for Bitcoins.

A website named "MtGox", bearing no relation or relevance to Bitcoins in name, which appears to be the the largest exchange trading platform for Bitcoin hardly gives off an image of trust and safety that the mainstream would need to gain confidence in this currency.

From what i understand there is also limits on withdrawals which dose not sit well with me.
Meatpile
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June 12, 2011, 04:27:06 PM
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emugoo, you are talking logically. And that is what a business would have to do... But now think of what is happening bitcoin users are paying upwards of 10-20% in "transaction fees"   why would anyone do that when you can just pay direct in USD or whatever I will be eventually converting that money into?

One of the foreseeable benefits of bitcoin is that the fees could be really low, potentially lower than current transaction fees of 3-5% which credit card transactions are.   If people are exchanging back and forth between a currency and bitcoins its defeating everything: 1-2% to convert cash to BTC, 1% transaction fee (0.01 BTC or hopefully less someday?) and another 1-2% to switch back into cash. Thats not how any business can or should operate.

The only business that is profitable and efficient with bitcoin is accepting bitcoins, and then using all of those bitcoins to buy other goods and services. You should never be exchanging back into dollars.



And XLCUS you are right, there really is no way to stop people from doing it. By the same vein that "the majority" of people will just use bitcoins as a stock-market style gambling game, instead of using it as a currency to buy goods and services. It would be hard to stop it from happening. So if this is the case, then there really is no way to make bitcoin work as a currency.




Jonathan, if you wanted a "trusted bank" for bitcoin that could entirely be possible. Someone could hold all your bitcoins for you, and you could tell them who to pay and when? But trust is really relative. For some reason you trust real world banks, which are just another corporation. (I personally dont trust them anymore)


Ben Walsh (beamer)
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June 12, 2011, 04:43:41 PM
 #8

Together, bitoption.org (which allows for shorting of BTC). members who sell "put options" on this forum, and similar activities, should bring about a reduction in volatility over the coming months.

You could even participate yourself in bringing about some of the stability you desire, by buying put options and paying the relevant premium in BTCs, to reduce / remove exchange rate risk. See the bitoption.org FAQ. You could pass on the premium you are charged for this in the BTC price you charge to your customers, allowing them to decide whether the higher price is worth the benefits they get from paying using BTC.

Otherwise, I think we either just have to accept that the price discovery phase is continuing in the market, together with the volatility that comes with that or do as emugoo suggests, potentially choking the growth in use of Bitcoins.




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JonathanHiggins
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June 12, 2011, 04:44:27 PM
 #9

I understand that people do not trust banks, but in my country we have arguably the strongest banking system in the world, so ATM i look in my wallet and i see hard cash, i go into a bank or check online and my money is safe, i check my IB trading account and my money is there, i sleep well at night knowing i have trust in these things, if someone can build a reputable Bitcoin bank that links with the entire block offering a variety of services and even Bitcoin derivatives i would think they are on a winner.

Dont get me wrong, i understand people like the fact you store Bitcoins on your client, i would give users a choice to do both at once or either one if wanted.

You dont have to look too far in this newbie area to see people have lost their bitcoins, cant trade at Mtgox for a variety of reasons and are having difficulty with exchanging $US or $EUR into Bitcoins and vice versa.

I haven't even mentioned the various other exchanges as i wouldn't want to chance my arm on anything but the most trusted source for trading/buying Bitcoins, but given what im hearing at MtGox dark pools and derivative trading are a bit ahead of there time given the infrastructure people are trading with here.

Basically what im trying to say here is that Bitcoins are pretty close to a mainstream idea right now but the infrastructure around them could do with some improvement if you are going to continue evolving exponentially with the current demand for Bitcoins.
gmk80
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June 12, 2011, 04:47:33 PM
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Quote
Basically what im trying to say here is that Bitcoins are pretty close to a mainstream idea right now but the infrastructure around them could do with some improvement if you are going to continue evolving exponentially with the current demand for Bitcoins.

Isn't it great? So many opportunities to create a business to add real value to a growing community.
Meatpile
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June 12, 2011, 04:47:48 PM
 #11

Come on beamer, saying options are going to create stabilization is rediculous. The entire US financial crisis was caused by derivatives speculation.
FlyingFlapjack
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June 12, 2011, 04:53:09 PM
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What currency can not be converted into other currencies? It would cripple any currency.

It is silly to expect a 'one way street' policy to help Bitcoin. Early adopters would be stuck with a bunch of BTC and other people would wonder 'why would I get involved with that' or something along those lines.

Businesses would never want to accept BTC. They have bills and taxes to pay. They have to pay cash for their inputs.

The primary reasons to get involved in BTC right now: relatively anonymous transactions, and low fees for transferring BTC, and of course that you can trade it for other, much more useful currencies.

BTC is doing very well for being in its infancy...or maybe you would say it has made it to being a toddler. Surviving a scare like happened on Friday will work in BTC's favor. In the next phase, more businesses would come into the world of BTC, more exchanges open up, etc.

But one way transactions would kill BTC. Most merchants would be forced to abandon BTC if they couldn't get their local cash for BTC.

...

That the exchanges charge high fees is because there are not many exchanges.

In fact...it's kind of crazy that the main place to exchange BTC for to $ is also the major currency trading market.

It's like...what if there were one airport in the world and one currency exchanging machine at that airport, and that currency exchanging machine also was where you went to play the market. Even if it was a big machine, and had enough inputs to handle all users at once, it'd be crazy.

Although...

Automated 'circuit breakers' that cut off trading in the event of a drop are kind of like what the OP is talking about, in that they slow down 'exit' traffic.

The NYSE has automated cutoffs that shut down trading in the event on major drops in the market. If MTGOX had them, they definitely would have been triggered yesterday.

It's like...10% drop before noon shuts trading down for an hour. Another 20% and it shuts down for the day. Or something like that.

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Meatpile
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June 12, 2011, 04:53:18 PM
 #13

Hey Jonathan read up on Open Transactions https://github.com/FellowTraveler/Open-Transactions/wiki

It is currently extremely beta, and you have to compile everything from source (with a bunch of annoying dependencies)  But it is a pretty neat server based system for writing cheques and vouchers that would go a long way to creating reliable payment methods (and truly anonymous options) for bitcoin.

But I still think you shouldn't be dipping your dank into the bitcoin world. (ha sorry) Because you are clearly set on the fact that you will be converting your bitcoins back into cash via exchanges.

Meatpile
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June 12, 2011, 04:58:16 PM
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So Flapjack you think it is entirely proper to convert cash into bitcoin, make a transaction, and convert the bitcoins back into cash. For every single transaction going through a business?  Why bother? Why not just use the original currency and pay less fees?

emugoo
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June 12, 2011, 04:59:56 PM
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emugoo, you are talking logically. And that is what a business would have to do... But now think of what is happening bitcoin users are paying upwards of 10-20% in "transaction fees"   why would anyone do that when you can just pay direct in USD or whatever I will be eventually converting that money into?

I was talking about the current situation. In the current situation, demanding a surplus payment from Bitcoin payments compared to "old" payment makes sense, because there's few ways to transfer Bitcoins to begin with. So in effect you're offering surplus just by allowing Bitcoins!

Now if the chosen premium restricts sales, it's always possible to revisit the amount, or remove it. But altho most people are aware of the daily price, it's just unfeasible to always offer MtGox rates in an online shop. In effect, you'd need to choose a temporary average amount anyway.

Finally, thinking that bad prices stifles all shopping is just wrong. Just look at any online shop comparison site. most products are sold at very wide band of prices. So if bad prices would destroy sales, everyone would have settled on the same price for all goods by now Smiley
Ben Walsh (beamer)
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June 12, 2011, 05:14:41 PM
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Simple put options to reduce/eliminate exchange rate risk is a world away from CDOs, MBSs, CDSs and the bailouts of those issuing/holding them, resulting in socialised losses and privatised profits.

Those exachange rate related put options have been around since the first traders set sail for foreign shores.

Come on beamer, saying options are going to create stabilization is rediculous. The entire US financial crisis was caused by derivatives speculation.

BTC Difficulty Avg Change Google Gadget - http://bit.ly/nWZLkr
How many Bitcoins can I expect to mine ? - http://bitcoindetailedcalculator.appspot.com
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Meatpile
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June 12, 2011, 05:27:39 PM
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Beamer I see options as just another gambling problem with the currency. I don't fathom why it would create any stabilization of the worth. Granted I do not know a ton about the subject, but you are going to have to explain how an option has "stabilized a currency (not a stock)" in the past to convince me.

Then again if you are just treating bitcoins as a stock to make money speculating upon them, then I guess we are in two different worlds here.
drubs
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January 17, 2014, 09:06:07 PM
 #18

Imagine the initial volatility if USD launched at 1 penny. It would be nuts until it eventually hit its plateau. That is what btc is doing right now.

In any case, bitpay resolves the volatility issue for merchants.
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January 17, 2014, 10:30:22 PM
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In any case, bitpay resolves the volatility issue for merchants.

USD value at introduction was referential. It's sort of irrelevant if it were initially only a penny, it was the trust in the gov't to back the currency for "whatever value they said it had" that garnered people's willingness to use and accept it. -despite the gov't trying several iterations of 'money'.

I love BitPay and the ability it gives merchants to ease into BTC adoption. Though I doubt the posters in this thread had this foresight 2.5 years ago.  Tongue
Gator-hex
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January 17, 2014, 11:12:58 PM
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I dont think it will ever switch from a stock-like gambling mechanism to a currency ever.

Crikey you never head of Forex then?

http://en.wikipedia.org/wiki/Forex

The only reason you have the illusion of currency stability is because the central bank and the fed use mechanisms to paint the ticker.

http://en.wikipedia.org/wiki/Exchange_Stabilization_Fund

The whole point of Bitcoin is a free market currency free from central planning.


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