How, Why and When the Bitcoin Model will Fail

[yocko06]

If this sort of fail is all they can come up with when the world is looking at bitcoin, Id bank on bitcoin.
Satoshi is a genius.
Bitcoin is software and it can be updated with new technology, it is not hardware that becomes redundant. In 150 years the software will be much more advanced than what we see today, problems will be ironed out and bitcoin will continue to grow in leaps and bounds.
People who can make predictions like this who have been involved in bitcoin since the beginning should be very very wealthy now shouldn't they? They should at least own a huge amount of bitcoins.
I keep reading and listing to people opinions to why bitcoin will fail, This is something I am constantly talking about with people. I am yet to hear any credible information.         

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[Agorista]

21,000,000 coins. With 8 decimals that is 2,100,000,000,000,000 lowest divisible units. 2.1 quadrillion.

2011 Nominal GWP (Gross World Product) was $69,110,000,000,000. Even putting that into pennies to get lowest divisible unit count it's 6.9 quadrillion.

Most currencies seems to do fine without being enough in circulation to account for 30% of Gross World Product. Bitcoin will too. Assuming 1/2 of all coins are lost, 15% of GWP isn't bad.

[odolvlobo]

Show me how you derived those figures.

Sure, this is the problem we are trying to solve.

If bitcoin uses $200,000 per day in electric power per day,  ...

Your logic is good, but you assume that the number of bitcoins mined is constant. If the price of a bitcoin rises to an absurd value today, then the amount of energy consumed would also follow and rise to an absurd value. However, the reward is cut in half every 4 years, so the amount of energy used will also be cut in half every 4 years.

[master-P]

The question you should be debating is whether bitcoin will be successful during it's life span or not

[mestar]

Your logic is good, but you assume that the number of bitcoins mined is constant. If the price of a bitcoin rises to an absurd value today, then the amount of energy consumed would also follow and rise to an absurd value. However, the reward is cut in half every 4 years, so the amount of energy used will also be cut in half every 4 years.

Exactly, all the numbers are valid for the next 3.5 years only.

[myrkul]

Your logic is good, but you assume that the number of bitcoins mined is constant. If the price of a bitcoin rises to an absurd value today, then the amount of energy consumed would also follow and rise to an absurd value. However, the reward is cut in half every 4 years, so the amount of energy used will also be cut in half every 4 years.

Exactly, all the numbers are valid for the next 3.5 years only.

And you expect it to get to $200k/BTC in the next 3.5 years?

Dude, I'm a bull, but not even I'm that hopeful.

[Peter Lambert]

The bitcoin model will eventually fail. ... I mean it can't survive as a long-term 'currency'...

When bitcoin was first established, a bitcoin was worth nothing, except perhaps for the cost of the hardware (software), an internet connection, the electricity and the time required to generate them, as in fact it remains today.

However, what I did model at that time and what I will share with everyone now are the reasons why bitcoin will imho eventually fail as a currency. The model is inherently flawed and unfair.

Why? Quite simply because the money supply has stopped.

No one will want to buy into a currency that is in constant and perpetual decline. It will effectively be the exact opposite to what we have already seen to date. Bitcoins 'bankers' (the major miners and holders of bitcoins) will be clambering to sell and trade-off their bitcoins, as they become ever increasingly scarce and therefore 'worthless stock'. On this basis, some may also retain bitcoins, with the hope of price increases in relation to rarity, moreover there will be inevitably less and less people to actually trade bitcoins with...

Wow, I think you have wrapped every stupid and often debunked argument into one giant pile of steaming trash.

Once all the bitcoins are mined the miners will be paid by the transaction fees. If you insist on valueing a bitcoin based on what it costs to mine one, then you can still do that calculation by comparing how much a miner gets from transaction fees and how much they spend in electricity.

You seem to be focusing solely on people buying currency to speculate on exchange rate variance. Since bitcoins are traded freely there will always be room for such people, and indeed they provide a service to the rest of us by providing price discovery and mitigating the price variance. But there are other reasons to hold currency. There are people who use it for transactions and people who are using it as a savings vehicle, these people are actually helped by having a steady exchange rate, and the steadier the exchange rate is the more they will be willing to use it.

[wingding]

You are right. Bitcoin cant survive as it is. The limited supply is a problem. And the problem is amplified by the fact that half of the supply was produced when only a tiny tiny fraction of the worlds people where participating. Sure I know that wealt is unevenly distributed in any well-functiong economic system, but if bitcoin were to become a currency of reasonable size, it would take uneven distribution to new heights!

[myrkul]

You are right. Bitcoin cant survive as it is. The limited supply is a problem. And the problem is amplified by the fact that half of the supply was produced when only a tiny tiny fraction of the worlds people where participating. Sure I know that wealt is unevenly distributed in any well-functiong economic system, but if bitcoin were to become a currency of reasonable size, it would take uneven distribution to new heights!

Only for so long as it took for those with lesser amount to offer sufficient goods and or services to those with greater. And remember, a fool and his money are soon parted.

[odolvlobo]

You are right. Bitcoin cant survive as it is. The limited supply is a problem. And the problem is amplified by the fact that half of the supply was produced when only a tiny tiny fraction of the worlds people where participating. Sure I know that wealt is unevenly distributed in any well-functiong economic system, but if bitcoin were to become a currency of reasonable size, it would take uneven distribution to new heights!

The distribution of bitcoins has and will have little impact on the distribution of wealth. The portion of total wealth represented by money is very small. Even if I owned all the bitcoins in the world, I would certainly not be the richest person in the world. Compare the amount of money in your savings account to the total value of all your assets.

[BitcoinFX]

Why? Quite simply because the money supply has stopped.

No one will want to buy into a currency that is in constant and perpetual decline.

This is where you lost me. Care to explain why no one will want to buy into bitcoin just because the total amount in circulation is decreasing?

The exact same reason why people want to mine or buy into Bitcoin when the price is seen to be increasing. Speculation aside.

This is what I meant to demonstrate with the triangle diagrams that I posted.

Rarity will theoretically cause massive price increases, this is obviously very different to the economic principle of scarcity or Bitcoins becoming scarce.

Definition of SCARCE. 1: deficient in quantity or number compared with the demand : not plentiful or abundant.

 

[Operatr]

I think the missing part here is the fact there are more coins than just Bitcoin now.

Let's assume Litecoin takes it's place as the "shoppers" coin having much faster transaction times and 4x as many coins (all divisible by 8 decimals as well), and Bitcoin is so valuable and slow it is only used for large wealth transfers. This means there are a lot more coins in circulation than just 21 Million, you are assuming Bitcoin is the only coin there would be in the distant future. The individual coins may be capped at a certain amount, but there is no limit to how many currencies there can be. Who says each nation doesn't start their own blockchains, or even each corporation could have its own currency (though this concept would be awful in practice I think..). Just because Bitcoin itself was the grand-daddy of it all doesn't mean it will be around long enough to even reach 2140, or even a year from now. No one can predict the future in this because it has never been tried.

As far as the greedy and wealthy cornering a coin, the decentralized and open source nature of the protocol means that the commoners could easily revolt by deploying a new coin. Unlike the current model where the creation and distribution of capital is controlled by the wealthy elites making changing it very difficult, anyone has the tools to create a new blockchain and push for adoption. If anyone somehow managed to eat up all the Bitcoin, a new standard could be put in its place and make Bitcoin worthless and undercutting their wealth. Bitcoin can't solve the problem of human greed, but it does level the playing field. Wealthy Bitcoin elites may not be quickly if they get out of hand and Joe Everyman makes his own coin to use and stops accepting Bitcoin.

Certain aspects seem monopolized already, but that is only because these digital currencies are so young still. Bitcoin's market cap is around $1-1.5 Billion, which seems like nothing compared to the GDP of the world at $70 Trillion or so. Wealthy elitists can already buy and sell Bitcoin's entire market cap before lunch.

Even still, I don't feel it a good use of time to speculate on the distant future when there are plenty of problems with digital money to be solved today, or it will never last long enough to get to the later issues.

 

[BitcoinFX]

I think the missing part here is the fact there are more coins than just Bitcoin now.

Let's assume Litecoin takes it's place as the "shoppers" coin having much faster transaction times and 4x as many coins (all divisible by 8 decimals as well), and Bitcoin is so valuable and slow it is only used for large wealth transfers. This means there are a lot more coins in circulation than just 21 Million, you are assuming Bitcoin is the only coin there would be in the distant future. The individual coins may be capped at a certain amount, but there is no limit to how many currencies there can be. Who says each nation doesn't start their own blockchains, or even each corporation could have its own currency (though this concept would be awful in practice I think..). Just because Bitcoin itself was the grand-daddy of it all doesn't mean it will be around long enough to even reach 2140, or even a year from now. No one can predict the future in this because it has never been tried.

As far as the greedy and wealthy cornering a coin, the decentralized and open source nature of the protocol means that the commoners could easily revolt by deploying a new coin. Unlike the current model where the creation and distribution of capital is controlled by the wealthy elites making changing it very difficult, anyone has the tools to create a new blockchain and push for adoption. If anyone somehow managed to eat up all the Bitcoin, a new standard could be put in its place and make Bitcoin worthless and undercutting their wealth. Bitcoin can't solve the problem of human greed, but it does level the playing field. Wealthy Bitcoin elites may not be quickly if they get out of hand and Joe Everyman makes his own coin to use and stops accepting Bitcoin.

Certain aspects seem monopolized already, but that is only because these digital currencies are so young still. Bitcoin's market cap is around $1-1.5 Billion, which seems like nothing compared to the GDP of the world at $70 Trillion or so. Wealthy elitists can already buy and sell Bitcoin's entire market cap before lunch.

Even still, I don't feel it a good use of time to speculate on the distant future when there are plenty of problems with digital money to be solved today, or it will never last long enough to get to the later issues.

I can agree with much of this. I do also wish I'd put a question mark in the threads title. My main aim was to try and make people aware of the facts and to promote discussion. Folks taking the time to construct good thought through responses to the issues Bitcoin will face in the future is what I really intended.

I'm a Bitcoin and crypto-currency supporter, I wouldn't put the time in myself otherwise!

[BitTrade]

Who's to say that at some point there won't be a bitcoin2.0, where an entirely new protocol is released, and the "new" bitcoins can only be issued if exchanged for the "old" bitcoins?  Sure, those would technically be an "alt coin", but if they are offered only in exchange for the "old" bitcoins, they act as a "bridge" for bitcoin to continue.