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Author Topic: We need to break the loop FIAT->BTC->FIAT  (Read 3511 times)
Rampion
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April 18, 2013, 04:02:36 PM
 #1

Everybody is speaking about how BTC is deflationary... Well, didn't you see how its value just got from $266 to $100 in hours? What was that, the USD deflating?

We mustn't fool ourselves. Bitcoin is not going to be truly deflationary nor a safe store of value if we don't break the loop. While the "value" of Bitcoin is established with its exchange rate for FIAT... We are just fucked, and it will just be a TOY for speculation, while being very vulnerable to attacks from its enemies.

Think about the most likely attack to BTC from its natural enemy, the FED: they own fiat money, and if they feel BTC is a danger for them, they can just pump it to the fucking sky to crash it to almost $0. Explain then about how it is a "store of value" to those who lose everything. How do we avoid that? Breaking the fucking loop FIAT->BTC->FIAT.

We need business that set their prices in BTC, and pay all their costs (including salaries) in BTC. We need to break the laces with fiat money. When we do that, then we will have a really deflationary currency that will truly serve as a store of value. Until BTC's value is related with the exchange rate with fiat... We are fucked, and it will be useless as soon as the FED decides it has to go.

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April 18, 2013, 04:18:01 PM
Last edit: April 18, 2013, 04:45:36 PM by DeathAndTaxes
 #2

It is a fools errand.  It would limit the entire Bitcoin economy to just those products which can be produced completely with a Bitcoin supply chain, all raw materials, production, labor, etc solely in Bitcoins.  We are likely decades (as in plural) if ever from that happening.

Also goods even if priced in BTC have to be competitive to alternate currencies.  Here is an example.  I will sell you 1 oz gold coin right now for 20 BTC.  See nice round number 20 BTC.  You won't take it.  Why? Because you could sell BTC for USD and buy the same gold coins for cheaper.  Why would you pay more just to buy it in BTC?  Maybe you would pay a slight premium to avoid the cost and hassle of conversion but to know what a "slight premium" is you need an exchange rate.  Of course by the same logic you would gladly buy a 1 oz gold coin for 10 BTC right?  Even if you are bearish on gold you could buy the coin for BTC.  Sell it and use those USD to buy more BTC.  Still nobody (outside of scammer who doesn't intend to deliver) would sell you 1 oz of gold for 10 BTC because they could do the same thing (GLD -> USD -> BTC) and get more than 10 BTC.

Exchange rates will always exist.  
Merchants will always have at least some costs in dollars.  
Goods will always need to be competitive to other currencies because people have the choice to spend USD/EUR/JPY etc.
Even if you never exchange BTC for fiat or fiat for BTC you need to know an exchange rate to make your services competitive to those offered in other currencies.


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April 18, 2013, 04:33:49 PM
 #3

We are all participating in a global experiment to move value into Bitcoin. This isn't going to happen all at once, in fact, it will probably never end. But before we have "stable" prices in BTC, we would have to reach some kind of saturation point.

Even as fast as things are growing, we are incredibly far away from that right now. The good news is that so many new businesses are accepting BTC every single day that I don't bother to announce them all any more.

Some things I consider huge as far as "closing the loop" for BTC in the last few weeks:
4 property management companies (Memphis, Vegas, NYC, Houston) are now accepting BTC for rent. This is not one or two people renting their personal houses, there are now thousands of properties you can rent for BTC.
Last year we had a handful of restaurants that accepted BTC. Thanks to Foodler.com, now over 17,000 restaurants, in 48 states, accept BTC.

We are definitely moving forward at a rapid pace.
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April 18, 2013, 05:06:17 PM
 #4

We have to make people want to list their prices in BTC. That means it has to have some semblance of stability. Otherwise it can be nothing more than a proxy for actually stable currencies. Deflation itself isn't the solution or the problem, it's stability. If BTC gained 5% of its value every day, it still wouldn't work as a currency because the value isn't stable. It's gotta do something like only gain 5-10% of its value every year so that people can know the value of a Bitcoin. We need to be able to go to the store and have an expectation for how many BTC a loaf of bread costs without it changing every week.

Without stability, BTC can never stand on its own.
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April 18, 2013, 05:28:26 PM
 #5

We have to make people want to list their prices in BTC. That means it has to have some semblance of stability.

Bitcoin could use an anchor business. No big business accepts Bitcoins. If you could buy iTunes tracks with Bitcoins (from Apple, not someone selling their gift card), or phone minutes (from an actual phone service), and people actually did that, it would tend to provide some price stability. If Amazon or Alibaba accepted Bitcoins, it would become a real currency overnight.
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April 18, 2013, 05:40:05 PM
 #6

We have to make people want to list their prices in BTC. That means it has to have some semblance of stability. Otherwise it can be nothing more than a proxy for actually stable currencies. Deflation itself isn't the solution or the problem, it's stability. If BTC gained 5% of its value every day, it still wouldn't work as a currency because the value isn't stable. It's gotta do something like only gain 5-10% of its value every year so that people can know the value of a Bitcoin. We need to be able to go to the store and have an expectation for how many BTC a loaf of bread costs without it changing every week.

Without stability, BTC can never stand on its own.

Well that will only happen when Bitcoins much much larger.  Of course how do you get much much larger with exchange rate only rising even say 2% per month?  You don't.  The value of Bitcoin's money supply is ~$1B, the value of all Silver Bullion is ~$30B, the value of all Gold Bullion is ~$7,000B.  Now bring up a daily candle stick chart of BTC, SLV, and GLD.  Ignore the long term trend (rotate the chart in your mind so the starting and ending points are at the same horizontal level) and just focus on the day to day directionless volatility. 

Even silver is many times for volatility than Gold and Bitcoin is many times more volatile than Silver.  Why?  The size of the market.  Gold is relatively stable because it is so massive.  It takes pretty massive buys or sells to even move the price 1%.  Silver can be thrown around a lot easier and Bitcoin well it only takes a token amount of funds to make a large move.

You can't have a small stable currency (at least not without a central bank*). The road from $1B to $30B is going to be rough.  There is no way to make it slow and smooth.  Maybe the road is too rough and Bitcoin can't ever make it and some alternative (no not the copycat alt-coin junk but a real out of the box alternative) replaces it but I am not willing to write it off yet.  Still even this alternate will have high volatility until it can get "large enough".



* Small currencies (i.e. countries with a money supply of less than say $50B) often need to hold a large reserve of more stable currencies (EUR, USD, JPY, etc) and precious metals.  By controlling the "native" currency and buying their own currency back using foreign reserves they (at least in theory) can reduce volatility.  Essentially as the currency falls against competitors the bank prints more and when it rises against competitors they buy it using their foreign reserves.   The bank works against the actions of the market participants and creates a dampening effect.  Generally central banks can't prevent the long term trend but they can dampen the day to day swings.  Understand that a central bank loses money in this operation, and these losses show up in inflation.  It is the price of stability.

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April 18, 2013, 06:00:33 PM
Last edit: April 18, 2013, 07:52:31 PM by jdbtracker
 #7

Solution for maintaining transaction value between bitcoin senders & receivers to create stability



Now, everyone may have noticed that people are using the Bitcoin system to speculate.

The purpose for Bitcoin: To securely move financial value from one point on the planet to another with no errors.  though what people are doing is quite amazing! very interesting.

now the sandbox elements of bitcoin currently being exploited by the financial sector is fine, the price of bitcoins should not affect our customers as long as an agreed upon price is set between sender and receiver.

Bitcoin was originally meant to work under traditional banks infrastructure as a sub-layer of security; the price would have been fixed and outside speculators ability to destabilize would be non-existent.

I.E. Bitcoins value would have followed a controlled growth pattern, exhibiting signs of both inflationary and deflationary characteristics depending on Global transaction volume; this would have set the value of each BTC

e.g.: if I wish to send money to my mom, I set the price to (Fair-market-value)(this is the set price for transmission so it does not affect the people using Bitcoin as a speculative commodity, it should be fair market value so you don't spend an eternity waiting for your order to go through) someone buys my currency and exchanges it into bitcoins, I then in turn tell my mom at what price I bought the bitcoins, she receives the  bitcoins goes to the exchange and demands a sell order at the same price. That way no value is lost during the transmission due to the speculators and the transaction fees should be paid to avoid being victim to speculators... otherwise your going to lose your shirt in the transmission if the transmission takes more than an hour.

the market cap of Bitcoin should reflect how much money is being transfered by the system and not as in traditional markets; the measure of value... its just the value of the volume of transactions.

hope you like my solution it is deceptively simple, it solves more than one problem if you realize it



I wrote that on another post, it solves the stability problem too,   though I must say it starts something... interesting, once the stability is created, how do we scale the bitcoin market for larger and larger transactions? Because at a cap of 2 billion... it does not scale to worldwide demand, to accommodate the entire world market the value of bitcoin would have to be $200,000 USD/BTC and 10 times that to handle all world wide transactions... if the market gained that consensus right now... it would be a disaster for bitcoin. someone would start hashing with a supercomputer, maybe several, destroying the p2p network, it would be brutal.

how does it relate to market prices for bitcoin adoption? the stability is caused because people are entering the same value twice at the exchanges within 1 hour, the more people start using it as it was intended as a medium of exchange to transfer money across the planet means the transactions in the millions would outnumber the speculators.  The people who just want to move their money around would stabilize the system, because they do not want instability, inherently they want to feel secure that their money is not going to fluctuate wildly in the space of 1 hour.

now to the scale problem... if the price of bitcoin is not at the right point at the right time it will hobble the system introducing lag between fiat to BTC conversions and vice-versa. So we have stabilized the Bitcoin market, now we have to grow the price of BTC in a controlled manner. The miners set the minimum price, their costs determine the price growth... so if the market reached that 200,000 USD/BTC point  the BTC4000 +/- coins produced each day would create a market liquidity of  $800,000,000 USD/ Day... now you see why the bitcoins have to be halved every few years?

so what determines the cost of operations to the miners? the difficulty;  If more miners get on the system the difficulty increases slashing their revenue, hence they must sell their bitcoins at a higher price or hold on to them until the market is able to afford the liquidity. so we have a problem, we need miners to verify the transactions, so we have to keep their number stable,

now here is the second effect of my solution people aware of the instability begin to add their transaction fees to accelerate their transaction to avoid falling victim to speculators. The revenue from these Fees creates incentive to continue mining when the bitcoins they are introducing into the market are not needed. but if people do not add the fees what motivation do they have to continue.

 So a two prong approach was created to control the market value through the miners, if both of the above criteria are not met, then the network can safely get rid of excess hashing power because the miners have no motivation to remain.

the fees increase as urgency increases, i'm sure people want their transaction done now... not tomorrow, so they pay.

Increases in lag time to include each transaction in the next block motivates higher transaction fees, higher transaction fees equal more miners to lower the lag.

now, something I have noticed; since the price is not set by the banks it is set by supply and demand, this means that the price of BTC can increase slowly because some people may try to buy at $100 then the recipient buys at $101 if the market accepts it they just payed their transaction fee back and they can repeat it too, ... this will undoubtedly have an incremental effect on the price of BTC. What will happen because of this? I do not know and can only speculate, sorry.

Bitcoin is a whole different animal; It only likes to be treated in a certain way.

But then again I could be wrong, you may want to poke holes in my logic, we have to figure this thing out somehow.

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April 18, 2013, 06:48:59 PM
 #8

You can't have a small stable currency (at least not without a central bank*).

Is there anything that could be done about this? I know what I'm about to say is impossible, but... if we could make a currency in which one denomination was worth some set amount of value, and no matter what the currency's market cap was, that denomination always had the exact same value or slightly more over time, it would imho be the ideal currency. I know that can't happen exaclty but is there any way an approximation of this could be possible during a rapidly changing market cap? Could Bitcoin's mining difficulty be used somehow to intelligently control the supply to reduce volatility?

Also, jdbtracker, I don't really understand what you're saying. Could you please re-explain your last post, because I can't understand what you're trying to say.
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April 18, 2013, 06:56:58 PM
 #9

Bitcoin is about freedom, forcing your idea will fail. If people want to sell bitcoins for fiat, it is their right to do so.

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April 18, 2013, 11:01:26 PM
Last edit: April 19, 2013, 01:02:45 AM by jdbtracker
 #10

You can't have a small stable currency (at least not without a central bank*).

Is there anything that could be done about this? I know what I'm about to say is impossible, but... if we could make a currency in which one denomination was worth some set amount of value, and no matter what the currency's market cap was, that denomination always had the exact same value or slightly more over time, it would imho be the ideal currency. I know that can't happen exaclty but is there any way an approximation of this could be possible during a rapidly changing market cap? Could Bitcoin's mining difficulty be used somehow to intelligently control the supply to reduce volatility?

Also, jdbtracker, I don't really understand what you're saying. Could you please re-explain your last post, because I can't understand what you're trying to say.

Bitcoins price was supposed to be set to scale according to transaction volume, the banks would have set a specific price to accomodate all denominations of currencies world wide.   It would have been stable.

but now... to stabilize it people need to begin using it as a service to move funds from point A to B on the earth or from one Currency to another and get that money into a stable bank account ASAP! this has to be done on the short term, until someone figures the problem out with a less work intensive solution or the market cap gets large enough to be stable.

that stability will create the conditions necessary to have Bitcoin as a stable currency, but we are a long way away, ... it will be a rough road, there is no going around that, just not enough miners to carry out the volume of transactions, not enough interest to allow it to become what it was intended to be by the people.  

What the Bitcoin community has built is light years ahead of what it originally was meant to be, now we just wait to see if all the improvements that allow it to function in the free markets are solid, the speculator problem was quite a doozy, it seriously hurt the Bitcoin community.

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April 19, 2013, 12:11:40 AM
 #11

Bitcoin was originally meant to work under traditional banks infrastructure as a sub-layer of security; the price would have been fixed and outside speculators ability to destabilize would be non-existent.

Bitcoins price was supposed to be set to scale according to transaction volume, the banks would have set a specific price to accomodate all denominations of currencies world wide.   It would have been stable.

Who are you and what are you talking about?

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April 19, 2013, 01:08:57 AM
Last edit: April 19, 2013, 03:23:43 AM by jdbtracker
 #12

Bitcoin was originally meant to work under traditional banks infrastructure as a sub-layer of security; the price would have been fixed and outside speculators ability to destabilize would be non-existent.

Bitcoins price was supposed to be set to scale according to transaction volume, the banks would have set a specific price to accomodate all denominations of currencies world wide.   It would have been stable.

Who are you and what are you talking about?

I've been looking at the structure of Bitcoin and I can tell how it should have functioned it seems quite obvious to me, The fluctuations in the market are telling me it's being destabilized by speculators.

I read Satoshi's paper and I know how they intended it to work, it doesn't describe it as an economic system, it was described as a Cryptography Engine and no mention of economic effects is anywhere to be found on the paper. so I figured it would be more stable if it works closer to what was described in the paper.

The rest is me just trying to figure out how to stabilize bitcoin so that it can be used as described, It obviously was supposed to spread the wealth among the population, with greater and greater automation occuring the wealth of the world is being concentrated into the hands of the few causing massive inflation and instability in the economic system., the p2p Bitcoin system was supposed to counter that.

Plus it does not help that so many people outsourced their jobs to China, India, and other countries, stripping the wealth from the developed nations. if people can't make a living how the hell are they going to buy all those chinese made goods? It's obvious Satoshi knew this and started solving the problem with this protocol.

now how did Satoshi plan to reverse the loss of wealth of the people while still encouraging automation? Satoshi realized that the online payment industry was going to grow to match the real economy, so that the transaction fees would scale to 2.7 trillion dollars/ year in fees alone. It's obvious, Satoshi may have just saved us all from ending up as serfs to the 1%.

Bitcoin is a distributed wealth,p2p open source Corporation model.

watch this one it's a summary.

https://www.youtube.com/watch?v=DxxL0EcpvdQ

and here are all the examples to automate all jobs in every single industry. from transportation, avionics, construction, sales, warehousing etc.

http://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/

http://singularityhub.com/2013/02/28/high-tech-clothing-store-hointer-employs-robots-and-mobile-technology-instead-of-salespeople/

http://singularityhub.com/2013/01/22/robot-serves-up-340-hamburgers-per-hour/

http://singularityhub.com/2012/11/12/1-million-robots-to-replace-1-million-human-jobs-at-foxconn-first-robots-have-arrived/

http://www.ted.com/talks/mick_mountz_the_hidden_world_of_box_packing.html

https://www.youtube.com/watch?v=eoAJdvFOaQs   automated slaughterhouse

https://www.youtube.com/watch?v=unS_WdnyDQY  google automated vehicle

http://www.youtube.com/watch?v=BoPpod1tsDM automated aircraft

http://www.youtube.com/watch?v=JdbJP8Gxqog  automated protrution construction

http://www.youtube.com/watch?v=M-QUkgk3HyE  Artifical intelligence helicopter

http://www.youtube.com/watch?v=cDn8biQny9M  automated Accounting software

http://www.youtube.com/watch?v=b79pwb6Wlsc automated restaurant

https://www.youtube.com/watch?v=2qk5vxWY46A  Circuit board assembly

http://www.youtube.com/watch?v=WFR3lOm_xhE    IBM's Watson Supercomputer Destroys Humans in Jeopardy

http://www.youtube.com/watch?v=YXldB7KbP1c Progress Report IBM Watson Utilization Management Pilot at WellPoint, Inc.

http://www.youtube.com/watch?v=9dW3FUZdYx4  

Brothers and Sisters are you picking up what i'm putting down?

https://www.youtube.com/watch?v=32INUJdxbRk&list=FLrYYkONYExBwGM5haeG7B7w

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April 19, 2013, 02:47:14 AM
 #13

with greater and greater automation occuring the wealth of the world is being concentrated into the hands of the few causing massive inflation and instability in the economic system.

Inflation is caused by central banks printing money.  This does cause instability, but it isn't caused by automation.

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April 19, 2013, 03:55:14 AM
 #14

A possible interesting outcome: Automation reduced the amount of people who need to work, those who don't need to work will mine bitcoin, and mine bitcoin is not a very difficult work, just need some basic computer knowledge, so mining will absorb all the jobless people. Now everyone will have a job

If too many people join the mining, then there will be less and less people working with production of other goods/services, this will increase the price of those goods/services and reduce the bitcoin relative exchange value, reach a balance




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April 19, 2013, 12:59:44 PM
Last edit: April 19, 2013, 10:52:57 PM by jdbtracker
 #15

A possible interesting outcome: Automation reduced the amount of people who need to work, those who don't need to work will mine bitcoin, and mine bitcoin is not a very difficult work, just need some basic computer knowledge, so mining will absorb all the jobless people. Now everyone will have a job

If too many people join the mining, then there will be less and less people working with production of other goods/services, this will increase the price of those goods/services and reduce the bitcoin relative exchange value, reach a balance

Did you check out the first link with the talk by Marshall Brain? that is really good for describing whats going to happen, did you see the graph with the market job rates? it looked pretty grim, I figure if someone could find the graph he was showing we could extrapolate a trend line.

but yeah, the difficulty would scale to those people too eventually, but I think while it is being adopted the price should increase to increase the system capability of handling all transactions globally, so the system has a built in incentive to add as many miners as possible until it scales to unprofitability... of course counting on the fact that there are enough transaction to pay for all those miners cause the Bitcoin lottery is not going to cut it if there's too many miners.

The production of goods could be further automated, Have you seen the FPGA chips? They are Programmable Field Gate Arrays, these chips could be programmed to virtualize any instituions work load, Bitcoin could be a model for sustainable automation. I mean we have to have a measure of scarcity in the system, it has to be, otherwise jeez someones going to start using their new 3d printers to print a bazzilion trinkets just like a hoarder. they'd probably just do it to spite everyone else too.

jeez it could get crazy because I know you can build neural chips for neural networks with a FPGA... this could be interesting, those chips cost millions of dollars for each one, one of those FPGA could make a Semantic Web Machine for 1/10000 of the price.

jeez all I can think of are all the industries that could be Virtualized and distributed just like Bitcoin thanks to these FPGA chips.

Hmmm. the loss of the work force would occur slowly, cause I don't think all those unemployed people have the money to buy a GPU. cause I know people are greedy they would still try to work while their rigs were happily virtualizing all human institution for a fee or they could be incentivised to start another open source corporation like bitcoin to generate more revenue...

but wow, I mean wow Satoshi designed and created the first client and then got input from thousands of people, this is a viable method of building a company...

lets see what industries could be automated: everything pretty much, just thinking of something to virtualize.

Accounting companies done online, instead of inhouse they could send their work loads to the network to start managing their AR/AP work.

maybe distributed research farms for the pharmaceutical companies, I mean if they got paid in bitcoins they can take some of the miners away to do some useful tasks like finding new cures for cancer. etc.  the network would have more processing power than anything the pharmaceutical industry could come up with cost effectively.

massive p2p simulators for governments and other virtualized companies.   my head is full of ideas. Smiley


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April 19, 2013, 01:05:59 PM
 #16

I am an idiot, I started reading Satoshi's old posts, he does describe some economic effects. wow, the paper is so sanitized, but I guess it would be if it was intended as a academic paper.

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April 19, 2013, 03:43:41 PM
 #17

I think the biggest selling point of BTC it's anonimity.
And that is the biggest drawback too.

Us people, Loooove to have a currency where the government can f**k off, and don't know how much we have or not have.

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April 19, 2013, 04:04:10 PM
 #18

I think the biggest selling point of BTC it's anonimity.
And that is the biggest drawback too.

Us people, Loooove to have a currency where the government can f**k off, and don't know how much we have or not have.


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April 19, 2013, 06:32:07 PM
 #19

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April 19, 2013, 10:39:34 PM
Last edit: April 19, 2013, 11:38:52 PM by jdbtracker
 #20

Yo I had a stroke of inspiration!

I figured it out, The deflationary nature of Bitcoin... and all these failing economies. They kept printing money, more and more just trying to stave off economic collapse. the only way to avoid the Fiat/BTC/Fiat cycle is to convince these countries that to save their economies they have to convert to Bitcoin(Gold Standard) and Litecoin(Silver Standard)! We may need a bronze standard for quick store front purchases.

the only way they could avoid collapse would be to start buying Bitcoins and Litecoins!!!

the mere fact that this would allow their currencies to safely collapse would further increase the value of bitcoin to USD, this would effectively introduce another scaling mechanism for Bitcoin.

If you think my efforts are worth something; I'll keep on keeping on.
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