More than that: the loss/gain in "real wealth" (or quality of life, or hapiness, whatever) is not linear in the dollar amounts.
In those examples, consider a 100 k$ investment that has 60% change or returning 200 k$, 40% chance of returning 0$. For the millionaire, value is pertty much proportional to dollars. So his expected return over investment is +40 k$, so he definitely should take the chance.
I guess that's why some people play russian roulette with real bullets.
[ ... ] over the following 12 months Bitcoin went from $10 to $1,000. The shock (lost opportunity) made me reconsider my assumptions.
I finally reconciled my understanding with the fact Bitcoin could be used as a currency for e-commerce, if it's price collapsed.
I am not sure I understand. Its supposed "deflationary" character is a substantial argument against its adoption as a currency, but that is not my reason.
At first I attempted to apply the monetarists velocity value of money to estimate value of Bitcoin. While it has value it doesn't describe Bitcoin's value. My thinking was it's just a greater fool's game or a ponzi if the underlying value isn't justified. I was looking for intrinsic value. While I have derived a value it doesn't account for the speculative greed investors. My original point being the loss of potential gain was huge enough to make me rethink why several orders of magnetude in perceived value was possible when I couldn't see it.
Actually I have no strong feelings about what its price will do in the medium term. Its price is not tied to anything, there is no argument that would justifify why its price now is 500$, why it was 800$ two months ago, why it can't be 5,000$ or 5$ tomorrow. It is the result of suply and demand, sure, but the demand is due to perceptions of future prices that are not based on anything. "The market" thinks that it is worth 500$, but no trader can convincingly explain why.
Agreed traders just trade, there why is to proffit, but to trade Bitcoin to this high you have to invest a lot of energy (wealth) ultimately it's a martingale should there be no underlying fundamentals, and while there are surly gamblers out ithere they would need, asymmetric information in there modeling to pump this up over $10 without risking $10's of millions.
To make the point clearer, consider the "extreme libertarian" scenario where Bitcoin (THIS bitcoin) is the only currency in use for all payments.
In that scenario, every person in the world is forced to keep his money stored in one single "bank", the Bitcoin Network. That "bank" is different in many ways from the banks we have now, publlic or private. One may argue whether these differences are advantages or disarvantages, but that still is not my point.
In that scenario, the money held by every person in the world is determined by its balance on that "bank"'s ledger, the BTC blockchain.
In that scenario, the BTC blockchain is still the same blockchain that Satoshi started and is in use today.
But, in this blockchain, all the BTC that exist now, which is more than 50% of all the money that will exist in that scenario, are already assigned to a few thousand people. And the coins that are yet to be found will be given exclusively to the "bankers" -- the miners who keep the "bank" running.
Moreover, the vast majority of the existing coins are in the hands of people who did nothing more than run an algorithm in their laptop for some time, or invest a few thousand dollars. Worse, the owners of those coins include all sorts of scammers and sleazy entrepreneurs, criminals, corrupt officials, and common thieves -- such as the MtGOX Thief, be it Mark or anyone else -- who have amassed large hoards of bitcoins by unethcal tricks, or worse.
Now, do you think that, if the world decides that cryptocoins are a god idea, they will create their "global universal bank" with a ledger that, right from the outset, assigns all the money in the world to those people?
That scenario is an extreme example, (not an "extreme libertarian" one) I believe it is less extreme that the fractional reserve system of today, in today's model my savings are diluted by inflation and in the extreme Bitcoin example work slaves can erode wealth by saving.
The extreme libertarian advocates extreme liberty and choice, choice to leave and choice to join or start anew.
I see Bitcoin as non violent whereas gold and all other forms of wealth have been plundered by us the civilized world for centuries (look at Germany gold it's still happening) Bitcoin on the other hand isn't as clean as I thought but we are learning with freedom comes responsibility. Every heist comes opportunity to learn for some the cost is dear, but those heists only happen untill we learn to avoid them, and those coins only get a one time benifit, unlike many systems today.
The issue I see you describing is with a finite number of monetary units (divisibility being ineffective because it results in asymmetrical distribution of wealth) how can the units be equitably distributed so an economy can effectively distribute resources and maximize participation?
They can't, it's a risk a leap of faith one you take if you believe or are stupid and greedy. But what is for sure is this problem is not new. Buying 1000 Bitcoin's for $5.00 was as much a leap of faith as buying 1 Bitcoin for a $1000, and untill Bitcoin has a distribution similar to the wealth in the world today it will have long bear markets. I beleve most Bitcoin enthusiasts will go for a bird in the hand over 2 in the bush.
Everyone will be tested, those early adopters know it is not who holds the most Bitcoin wins but who gains the most wealth, this is what describes how the coins will enter the market. Bitcoin will only be successful if this happens, and greed will ensure it.
Granted that the "extreme libertarian" scenario is extremely unlikely by itself. But the problem remains even in more limited scenarios where bitcoin is used only for some fraction of the e-commerce. Anyone who adopts BTC as currency will be sharing his real weatlh with the current BTC owners, just as anyone who uses dollars is sharing his real wealth with the US government (or US citizens, if you wish). Will people accept that? Will governments allow that? (Why is it that they don't allow private money?)
True Misunderstanding Using only M0 US dollars outside the US is a benifit to government and citizens.
M1 M2 and M3 is a results of fractional reserve funds using this money benefits corporations and banks a result of the inflammatory nature inherent as a growth target which syphon wealth from the bottom to the 0.01% at the top.
This is also the mechanism by which our environment is consumed.
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