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Author Topic: please explain the exchange rate for me  (Read 1515 times)
dewman
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June 16, 2011, 09:59:04 AM
 #1

hi guys,

I know the question I am asking is marginal and the situation like that is not likely to happen, although

let's put it this way:
1. If I had a 1000 gram of gold, I imagine I could "generate" on my own alternatively to your project let's say... 10000 bitcoins2
2. and when people come to me and ask me dollars or euros I go ahead and sell my gold and give them requested in a proportion of what their amount of bitcoins2 is.
3. if dollar falls down due inflation the bitcoins2 is still ok because it is supported by my own gold instead
4. if for some reason my project with bitcoins2 is to be closed and all people who I transfered bitcoins2 to come to me at once and say we want dollars man!.. then I sell ALL the gold and give them what they
ask. We are even, independent and free to go by then

on the other hand:
1. I have the bitcoins generated (mined) according to some algorithm
2. or I bought them from the person
3. and if all  (I mean it: ALL) of those people who has bitcoins come to the  Mt. Cox at once in very same moment of time

will they receive the dollars/euros/pounds/etc..? 
how come  Mt. Cox provides them what they want if the bitcoins are not based on something that can easily traded at once?
The  Mt. Cox has to sell something valuable and this is no doubt can be done (e.g. for closing the project).
The question is what is it that  Mt. Cox will sell to pay back all the people involved in this market?
what the bitcoins rate is based upon?

So far I have not found the answer on this question on your docs and this is making me suspicious whether I should jump in your lake or I should not

Thanks a lot
dewman
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Tobin
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June 16, 2011, 10:11:04 AM
 #2

As far as I understand, Mt. Gox is not buying the coins but is just the broker. So if a lot of people want to sell their bitcoins2, the price will fall since there are not enough buyers.


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dewman
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June 16, 2011, 10:19:27 AM
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As far as I understand, Mt. Gox is not buying the coins but is just the broker. So if a lot of people want to sell their bitcoins2, the price will fall since there are not enough buyers.



oh.. ok. Are you trying to say that the other people like me will pay their dollars to me if I wanted to sell the bitcoins?
So who says that the exchange rate is https://www.mtgox.com/trade/megaChart ?
why does the rate in between 20 and 19 instead of .... 100 and 200? Smiley

dewman
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June 16, 2011, 10:36:09 AM
 #4

hi guys,

I know the question I am asking is marginal and the situation like that is not likely to happen, although

let's put it this way:
1. If I had a 1000 gram of gold, I imagine I could "generate" on my own alternatively to your project let's say... 10000 bitcoins2
2. and when people come to me and ask me dollars or euros I go ahead and sell my gold and give them requested in a proportion of what their amount of bitcoins2 is.
3. if dollar falls down due inflation the bitcoins2 is still ok because it is supported by my own gold instead
4. if for some reason my project with bitcoins2 is to be closed and all people who I transfered bitcoins2 to come to me at once and say we want dollars man!.. then I sell ALL the gold and give them what they
ask. We are even, independent and free to go by then

on the other hand:
1. I have the bitcoins generated (mined) according to some algorithm
2. or I bought them from the person
3. and if all  (I mean it: ALL) of those people who has bitcoins come to the  Mt. Cox at once in very same moment of time


so on one hand if I play my game:
the rate is 10 bitcoins2 for a gram of gold
the rate is 10 bitcoins2 for amount of dollars I can buy the gram of gold for.

if I play real bitcoins game
I cannot see why the rate is what it is https://www.mtgox.com/trade/megaChart

Sad

Tobin
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June 16, 2011, 11:11:18 AM
 #5

oh.. ok. Are you trying to say that the other people like me will pay their dollars to me if I wanted to sell the bitcoins?
So who says that the exchange rate is https://www.mtgox.com/trade/megaChart ?
why does the rate in between 20 and 19 instead of .... 100 and 200? Smiley

The price on the chart is the maximum price someone is willing to pay for a bitcoin. Currently people will only pay 19 to 20 Dollars per bitcoin and not 100 $. (Of course it is a little bit more complicated but this is the principle). Search for stock markets if you want to learn more about this topic.

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dewman
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June 16, 2011, 12:13:58 PM
 #6


The price on the chart is the maximum price someone is willing to pay for a bitcoin. Currently people will only pay 19 to 20 Dollars per bitcoin and not 100 $. (Of course it is a little bit more complicated but this is the principle). Search for stock markets if you want to learn more about this topic.

why do they chose to pay maximum that much and not that much? I am a little familiar with the stock markets.

the rate (and especially rate makers) is the key for any monetary system, especially for the one that is not self sufficient like bitcoins
(I define self sufficient as the one where I can boy whatever I want for the currency I have: any product or service, while I can buy only what is sold on bitcoin market)

so I imagine if I came to the US govmnt and say hey guys, I have 100 bitcoins and I want to exchange them to US dollars, in ideal world they would say: ok fine, what is your 100 bitcoins worth?
and then when we know how much of something in common we can buy (a gold?) for US dollars and bitcoins then we (kinda) know what is the rate bitcoins to US.
This number is pretty mathematical and has nothing to do to what people are willing to pay in dollars for my amount of bitcoins. The peoples wish to pay that and that is only deviation from the number
I referred above, and yes you are right: nobody buys the bitcoins from me if the number is deviating too far from the original rate which is usually set by the local bank that
guarantees the fair exchange via gold or silver or electricity or anything else that has value for both side.

So the questions is still open: where the bitcoins rate comes from?
joan
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June 16, 2011, 02:02:57 PM
 #7

so I imagine if I came to the US govmnt and say hey guys, I have 100 bitcoins and I want to exchange them to US dollars, in ideal world they would say: ok fine, what is your 100 bitcoins worth? and then when we know how much of something in common we can buy (a gold?) for US dollars and bitcoins then we (kinda) know what is the rate bitcoins to US.

But who decide what gold is worth ? Only the collective mind of people willing to buy gold.

This number is pretty mathematical and has nothing to do to what people are willing to pay in dollars for my amount of bitcoins.
On the contrary, the rate is only defined by what people are willing to pay, and there is no equation for it. There is no external truth of the worth of a BTC or a dollar, or gold.

the original rate which is usually set by the local bank that guarantees the fair exchange via gold or silver or electricity or anything else that has value for both side.
The rate of € to $ is not defined by banks for example. It's defined by sellers and buyers of these currencies.

So the questions is still open: where the bitcoins rate comes from?
It comes from what people think BTC can or will allow to afford now or in the future.
If I knew for certain that BTC will be worth 100$ next month, I would be willing to buy some from you at 50$ or 70$ a piece. This is what makes the rate.
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June 16, 2011, 02:14:21 PM
 #8

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

I know this because Tyler knows this.
dewman
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June 16, 2011, 03:04:36 PM
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yeap this is such a nice principle. Although I am afraid it cannot be applicable to a bitcoins currency itself  but rather only for the goods and services sold on the market.
if you interested why, I'll tell you why: some one smart and big who decides to shut down or complicate the bitcoins economy will either

1. buy all (or major share of) the currency available on the market through a set of accounts, or/end
2. buy all the major share of goods and services on the market

and become more less what they call "a monopoly" on  the bitcoins market, so this big and smart one will "own" the bitconis and dictates all the rules he wants...
look if we have (re http://blockexplorer.com/q/totalbc)  6562850 bitcoins available it worth 6562850* 20US = 131 257 000 US
I believe this is pretty affordable budget for big guys, so technically they can shut bitcoins down even without lawyers and lawmakers, police, army of internet workers..
which ever is more affordable.

Now all is stopped even though the monetary system is highly distributed. For those who is partially in the system is going to be a dead season and for those who is entirely
into the economy it will be total failure imho...

I do not understand something do I ?

dewman
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June 16, 2011, 04:29:49 PM
 #10

Thanks for your response

so I imagine if I came to the US govmnt and say hey guys, I have 100 bitcoins and I want to exchange them to US dollars, in ideal world they would say: ok fine, what is your 100 bitcoins worth? and then when we know how much of something in common we can buy (a gold?) for US dollars and bitcoins then we (kinda) know what is the rate bitcoins to US.
But who decide what gold is worth ? Only the collective mind of people willing to buy gold.
yes and no.  It does not have to be a gold, though it has to be something valuable for both sides.
what is this that defines the rather between US and BTC? What is this common thing that the rate is based upon?

This number is pretty mathematical and has nothing to do to what people are willing to pay in dollars for my amount of bitcoins.
On the contrary, the rate is only defined by what people are willing to pay, and there is no equation for it. There is no external truth of the worth of a BTC or a dollar, or gold.
If this this about what people is willing to pay, this is imho is not good enough as a permanent solution.
Tell me that it is something that people know how worth is it for the other currency market?  (US/EURO no matter)

the original rate which is usually set by the local bank that guarantees the fair exchange via gold or silver or electricity or anything else that has value for both side.
The rate of € to $ is not defined by banks for example. It's defined by sellers and buyers of these currencies.
I totally disagree with this one. Look at
http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html
for some reason ECB says otherwise:
"The reference rates are usually updated by 3 p.m. C.E.T. They are based on a regular daily concertation procedure between central banks across Europe and worldwide, which normally takes place at 2.15 p.m. CET. "

So the questions is still open: where the bitcoins rate comes from?
It comes from what people think BTC can or will allow to afford now or in the future.
If I knew for certain that BTC will be worth 100$ next month, I would be willing to buy some from you at 50$ or 70$ a piece. This is what makes the rate.
I believe what people think is not good enough, there should be something that it is worth of.
If say I need EURO and nobody sells Euro for my bitcoins at this time this is a very ticklish limitation

that's what I am trying to understand: if the system is distributed that what body controls and suggest and guarantees a fair rate and not what people think
what body is protecting the market from the internal and external economical aggression that I outlined in a post above?
it's got to be a mechanism that does that, just by looking at the rate I say there should be something that I do not get at the moment.

Please help if you can?

rb2k
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June 16, 2011, 04:32:40 PM
 #11

- Not all bitcoins are for sale (not all Gold is for sale)
- If you wanted to buy all bitcoins that are for sale, the price would go up like crazy because you'd create a high demand for bitcoins

Basically bitcoins are exactly like Gold in that:
- They are can be mined.
- There is only a limited amount available
dewman
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June 16, 2011, 04:53:24 PM
 #12

- Not all bitcoins are for sale (not all Gold is for sale)
- If you wanted to buy all bitcoins that are for sale, the price would go up like crazy because you'd create a high demand for bitcoins

Basically bitcoins are exactly like Gold in that:
- They are can be mined.
- There is only a limited amount available

great! where the rate to the other currency comes from?
and what amount of bitcoins is for sale and what is not?
How can I ensure that if I need 1000 US  now I can get it for my bitcoins now without waiting for this amount of US being available on bitcoin market?
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June 16, 2011, 05:00:56 PM
 #13

The rate comes from whomever wants to trade them... if you want to trade you set the rate.. i want 1oo usd for 1 of my bitcoins.... that sort of thing.

There is a subject that they teach in schools that explains all this.. its called 'Economics'.

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dewman
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June 16, 2011, 05:12:11 PM
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The rate comes from whomever wants to trade them... if you want to trade you set the rate.. i want 1oo usd for 1 of my bitcoins.... that sort of thing.

There is a subject that they teach in schools that explains all this.. its called 'Economics'.

can I be sure that at any time under any circumstances I can sell all my bitcoins and buy euro or us?
rb2k
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June 16, 2011, 05:13:01 PM
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great! where the rate to the other currency comes from?
Where does it come from for gold? supply and demand ...


How can I ensure that if I need 1000 US  now I can get it for my bitcoins now without waiting for this amount of US being available on bitcoin market?

You can't. How can you do it for Gold? It only works if the market is big enough. (it is for Gold, the one for Bitcoins is pretty decent and growing)
dewman
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June 16, 2011, 05:21:28 PM
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great! where the rate to the other currency comes from?
Where does it come from for gold? supply and demand ...
if anything goes wrong with the government market one can claim the loses from the government.

How can I ensure that if I need 1000 US  now I can get it for my bitcoins now without waiting for this amount of US being available on bitcoin market?

You can't. How can you do it for Gold? It only works if the market is big enough. (it is for Gold, the one for Bitcoins is pretty decent and growing)
So basically what you are saying is that if the bitcoins at some point  turns to be illegal (e.g. most governments would not like the not controlled competitor on their market)
and eventually the project will be shut down, then all the US/EURO money I am going to spend to buy bitcoins will be gone forever and I will have no responsible party (e.g. like government)
to claim my euro/us from? Smiley


rb2k
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June 16, 2011, 06:01:03 PM
 #17

if anything goes wrong with the government market one can claim the loses from the government.
At least the US isn't backed by gold anymore and I think most governments aren't

So basically what you are saying is that if the bitcoins at some point  turns to be illegal (e.g. most governments would not like the not controlled competitor on their market)
and eventually the project will be shut down, then all the US/EURO money I am going to spend to buy bitcoins will be gone forever and I will have no responsible party (e.g. like government)
to claim my euro/us from? Smiley

Governments can't shut down Bitcoin, it's a distributed system. The same way that governments can't shut down the internet.
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June 16, 2011, 06:07:44 PM
 #18

The rate comes from whomever wants to trade them... if you want to trade you set the rate.. i want 1oo usd for 1 of my bitcoins.... that sort of thing.

There is a subject that they teach in schools that explains all this.. its called 'Economics'.

can I be sure that at any time under any circumstances I can sell all my bitcoins and buy euro or us?


Yes and no. Yes you can sell at any time under any circumstances....if.... you can find a buyer for what your selling.  you can sell rocks if you can find a buyer (rock crushing company).
 No you cant sell at any time under any circumstances...if...no one wants to buy rocks...... so if you want liquidity (converting something into easily spendable cash at any time) you first need to find a buyer for your rocks (bitcoins) that will pay you in the cash you want to use (euros, usd, chickens, whatever).

Example: You can't trade Euros(e.u.) for Pesos(mx) in Antartica..because no one there uses pesos for currency.
So..to sell find someone who wants to buy.

This is the risk to all economies. You can never be sure that you can trade for what you want, when you want to do it...unless you find other people willing to do the same(in a large audience or market).

Ever try selling coconuts on a small deserted island where you are are the only person around for hundreds of miles?...yeah.. not much profit.

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dewman
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June 17, 2011, 07:15:57 AM
 #19

hi guys,

Thanks you all for explaining the rate for me.  At this time I take it like if is only supply and demand principle and the bitcoins have not backed up by anything valuable.
Some time ago I was part of developing an autonomous monetary system and this principle was considered to be quite risky that's why I am so picky on the explanations, though I really do appreciate your input.

without seeing a mechanism (something more then supply demand) that regulates the exchange rate I still believe that the market that is based only on supply demand principle is vulnerable from the economical point of view and if some one big enough will look onto existing rate and starts buying bitcoins for 30 US instead of average 20 US I see no way the distributed system will stop people from selling their bitcoins to this big one who is big enough to afford a major share of all existing amount (http://blockexplorer.com/q/totalbc)..

I imagine that: I am  having 500 000 000 US and I have 100 bitcoin valets and I am staring to by right now all the bitcoins available on the market for 30 US per bitcoin. What is going to happen, how the market will prevent my buying so much so I can stop all the vital transactions on the market?

thanks
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June 17, 2011, 07:28:22 AM
 #20

It's fairly close to direct supply-and-demand right now, yes.  If someone were to dump $500 million USD into MtGox right now, offering to buy for $30 per coin, he would dominate the market.  All the "sell" orders up to $30 would be instantly bought up, and within a few hours people would begin listing new sell orders for $30 minimum.

As someone before said however, you can't buy something that isn't for sale.  MtGox is the largest exchange right now, and it processed ~72,000 coins in the past 24 hours (if I'm reading that number correctly).  You'd have to clear out the marketplace multiple times before you could control that much of the market.  Possible perhaps, but I don't know how likely it would be.
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