mtgox might just kill Bitcoin's chances of success

[hazek]

This is a serious problem and I sincerely hope you are able to read this post as objectively as you possibly can.


First let me define what successful Bitcoin means to me: It means Bitcoin is used on a daily bases and on a large scale to facilitate trade between people.

It does not mean Bitcoins have to be worth a specific amount of something else, it does not mean the price needs to keep rising, it does not mean people aren't losing money speculating about their value.

Now that I've cleared that up I will get to the point of this post. I think we all already understand that one of the main factors that will play a huge role in Bitcoins success (as I defined it) is if merchants adopt it as a payment method. This is one of the biggest obstacles we face and even though we're still in it's infancy and we already have quite a few merchants accepting it I think we have a problem.

The problem lies in what is happening with the spot price this weekend. These huge horrendous fluctuations aren't problematic because speculators are losing money, no! they are a problem because merchants can't possibly trust Bitcoin to keep it's value if they accept it for their goods and services. And yes I know there's options trading going on where they can insure themselves but I just believe that's too much of a hurdle and also wipes out any profits they gain by not paying fees to traditional online payment service providers.

Simply put Bitcoin absolutely needs some semblance of price stability in order to be considered by merchants as a viable option.

So what does that have to do with mtgox? Well I believe they create an environment where people are making a bunch of bad decisions based on incomplete information. First big problem are the dark pool orders that hide a potentially huge chunks of oversupply or over-demand from us. Then they have this ridiculous 0.73/1.73 depth table rule where they don't even show all the orders placed and active. That's right, they only show bids with a price from spot to 27% below and asks with a price from spot to 73% above.

Essentially everyone gets to see a partial picture of supply and demand with 3 times as much asks as they see bids, and that's even if we could see the hidden dark orders.

How are people suppose to know what is a good price in such an environmental? How is the price suppose to remain stable if all everyone ever does is at best educated guessing about what their Bitcoins are worth? The answer is obviously they can't. Hence the horrendous volatility of the past 60hours or so.

If we want stable prices, the market needs to have all the information in order to make educated decisions.


In conclusion: I wrote this post with the intention of raising this issue and making a plea to everyone who shares my hopes of success for Bitcoin. I don't care what mtgox does, they can do whatever the hell they want. But please listen to me and please strongly consider switching over to tradehill.com where there are none of these shenanigans and we can all see everything and make educated decisions about what our Bitcoins are worth and maybe just maybe maintain a more stable price, stable enough for merchants to see it as a viable option and adopt it.

Thank you.


tl;dr: mtgox creates an environment of imperfect information which causes crazy volatility which then hurts Bitcoin's credibility and chances of merchants picking it up as a viable payment option and ultimately it's success. Please switch to an exchange that offers full transparency, like tradehill.com for example does!

p.s.: I'm not in anyway affiliated with tradehill, I do have an account that I created today but I wont even give you my referral code because I don't care where we move our trades, as long as we can see all the information like we can on tradehill.

p.s.2: I have more Bitcoins right now then I had before the volatility started so you can't attribute this post to any sort of rage or anger on my part.

[davout]

dl;dr

It's tl;dr and even that looked too long

tl;dr : make your own exchange

[hazek]

Don't believe me about the depth table rule?:

Code:

[22:38] <hazek> hey man
[22:40] <MT`AwAy> hi
[22:40] <hazek> ppl told me you wrote mtgox
[22:40] <hazek> would you be so kind and explain to me how the depth table works
[22:40] <hazek> what are the rules on what get's shown and what doesn't
[22:41] <hazek> for orders that are far from spot
[22:44] <MT`AwAy> I didn't write MtGox, however I maintain it
[22:45] <MT`AwAy> and have written a new one to replace the current one
[22:45] <hazek> well would you know the answer anyway?
[22:47] <MT`AwAy> there's a rule a 0.73/1.73 if I remember well
[22:47] <hazek> so 27% under and 73% over?
[22:48] <MT`AwAy> something like that
[22:48] <hazek> ok ty

[TraderTimm]

I'd say having both exchanges encourages price stability. The more traders you have participating in price, the deeper the combined order books. More orders == less variance when price moves, on a percentage basis. In short, you would want dark pools, regular traders, and as many exchanges functioning at any given time. Shifting everyone over to one exchange or another shouldn't be done on an artificial basis, but up to the traders themselves.

There's enough volume to have many more exchanges than we do now, and I'm sure we'll see that in the future.

[jed]

Bitcoin is going to be highly volatile for a long time no mater what exchage is used. The way for merchants to accept bitcoin is to give the customer their price using the current exchange rate and then instantly convert when receiving the BTC. This way the merchant has no exposure to BTC rate changes.
Mtgox is working on something to make this process easy.

The clipping of the depth chart was a hack I threw in there to make the graph legible. I'm sure magicaltux will show the whole thing when the new backend is rolled out.

[jgarzik]

Bitcoin is tiny, and will be for a while yet.

That means, necessarily, that one bored VC or trader can create a major move in the market.

Volatility is a given when it's young.

[rezin777]

Bitcoin is going to be highly volatile for a long time no mater what exchage is used.

Hear, hear!

[rezin777]

Volatility is a given when it's young.

This is the proper response to every Bitcoin rally / crash thread in existence!

[grue]

dark pools favor the rich, because an order has to be above a certain level to be a dark pool order. solution? MAKE AN TRANSPARENT EXCHANGE

SOMEBODY DO IT, K?

[Sukrim]

MAKE AN TRANSPARENT EXCHANGE

You saw yesterday what happens when someone puts up an open sell order...

Also I didn't see any mention of dark pools on Tradehill so far, try them maybe.

[FreeMoney]

This is like blaming the mirror for your face.

[hazek]

This is like blaming the mirror for your face.

No. It's like a girl blaming a crooked mirror for messing up her make-up i.e. completely justified.

[LHutz]

I think you're correct. Full information is needed in order to proceed acordingly.

Anyway, I think that the price will eventually reach a stable growth, which should be somewhat proportional with difficulty increases, in order to keep miners producing and the market stable.

[grue]

You saw yesterday what happens when someone puts up an open sell order...

that was because the BUY side wasn't revealed.

[NO_SLAVE]

Agreed the exchanges and lack of transparency are major setbacks to the progress of BTC.  I would also say that having a floating value is a killer for BTC to actually be used as a medium of exchange. The fluctuation is way too insane, something like 5,000% more volatile than the USD.   A currency cannot be this volatile, its not functional. As a specualtion vehicle, the volitility is a decapitator, and as a storage of wealth highly risky at best. Lots of issues, for sure.  will these issues be worked out? or more correctly asked, can these issues be worked out?

[DamienBlack]

Agreed the exchanges and lack of transparency are major setbacks to the progress of BTC.  I would also say that having a floating value is a killer for BTC to actually be used as a medium of exchange. The fluctuation is way too insane, something like 5,000% more volatile than the USD.   A currency cannot be this volatile, its not functional. As a specualtion vehicle, the volitility is a decapitator, and as a storage of wealth highly risky at best. Lots of issues, for sure.  will these issues be worked out? or more correctly asked, can these issues be worked out?

Volatility will go down with adoption. Having two big exchanges is a big step in this direction.

[justusranvier]

Lots of issues, for sure.  will these issues be worked out? or more correctly asked, can these issues be worked out?

They will be worked when more people spend their Bitcoins on products and services so that the actual economy is larger than the speculative economy.

[hazek]

Lots of issues, for sure.  will these issues be worked out? or more correctly asked, can these issues be worked out?

They will be worked when more people spend their Bitcoins on products and services so that the actual economy is larger than the speculative economy.

Wrong. We will first have to have stability before we can have more products and services offered for Bitcoins. This kind of was my whole point in the OP.

For this to happen market needs transparency.

In the past 48hours we had: trades: 28,004 for 346,324.23btc or $5,920,117.86usd

Whoever thinks we still need to grow to achieve stability is kidding themselves. I've experienced way smaller and stable markets in online games where pure supply and demand ruled and it all had to do with full transparency of all the trades.

We don't need to grow, we just need all the information available so everyone can make better decisions.


Oh and again, I'm not asking mtgox to change how they do business, I'm asking you, their clients to reconsider and switch to a different exchange, one that reveals all the available information, like tradehill for example does.

[Macho]

I think we need more quality exchanges, Mt.Gox is good and well but no monopoly is a good thing ... there are enormous money in exchanges obviously, why nobody else creates kickass exchange I can not understand ... I'm trying the TradeHill, we'll see if it lives up to the challenge. In the meantime it's better to diversify ...

[detroit]

So who's the clown on TradeHill that's asking $999.99 for his two bitcoins?
He's ruined their plots!

I was totally with you on the need for stability, how can you price an item in BTC when the value fluctuates so wildly?  But I don't understand how seeing the data from the lowballers or the starry-eyed/disruptive miners impacts the true value of the BTC.  I don't know if you're wanting the API for Mt. Gox to show that info, or if it does now, but that doesn't seem relevant to the value of the currency.  Dark pools... maybe.  Then again, I'm no financial guy, either, it could be easy to change my mind, perhaps.  I mostly just wanted to talk about the guy screwing up the chart at TradeHill with his $999.99 ask price!