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Author Topic: High volatility and sudden crashes will kill bitcoin, unless...  (Read 2198 times)
d5000
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June 11, 2017, 07:20:27 PM
 #61

In fact, this task is perfectly well fulfilled by merchants and service providers just accepting a certain currency (Bitcoin in this case) as a means of payment for their goods and services. It could be said that any currency which is not directly backed up by a specific asset is backed by all the goods that can be bought for it.

Yes, but in the present situation there is a problem: most merchants use a solution like BitPay where the price of the good follows the BTC/USD, BTC/EUR etc. exchange rate. BitPay, as far as I know, guarantees a fixed price only for 15 minutes. If merchants could extend this period to 24 hours, they could really "back" the price in the case of a crash.

On the other hand there are merchants (e.g. in OpenBazaar) that accept fixed prices in BTC for their goods but can end the product sale every time. That is also only a limited "backing" of the price because in the case of a crash most merchants would retire their products until the dust has settled.

So the "price guarantee" for 24 hours should be an option widely available for merchants, in most payment platforms.

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how are you going to implement backing up of a decentralized currency in practice?

It would be - a decentralized backing ecosystem Wink  My proposal is to provide the "backing option" for plugins for most Bitcoin merchant solutions (e-commerce platforms, wordpress commerce plugins etc.) and integrate it into centralized payment providers like BitPay and also into decentralized solutions like OpenBazaar (although that is already a little bit more complicated because we'd need an "oracle" for it like in Bitshares).

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June 11, 2017, 08:07:57 PM
 #62

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how are you going to implement backing up of a decentralized currency in practice?

It would be - a decentralized backing ecosystem Wink  My proposal is to provide the "backing option" for plugins for most Bitcoin merchant solutions (e-commerce platforms, wordpress commerce plugins etc.) and integrate it into centralized payment providers like BitPay and also into decentralized solutions like OpenBazaar (although that is already a little bit more complicated because we'd need an "oracle" for it like in Bitshares).

But who is going to hold the bag?

Who will be that wretched fellow appointed to keep up the rates by selling precious assets if panic sell-offs start all of a sudden? After all, the government which has set the fixed exchange rate for a currency backed up by some hard asset (say, gold) also happens to print that currency. So if it keeps its monetary policy lean and mean, it won't have to face insurmountable difficulties with supporting the exchange rate as it deems appropriate. Besides, I heavily suspect that it is next to impossible (if not outright impossible) with decentralized currencies as well as pretty meaningless, and still more so with currencies which are hard capped (the cap itself would serve as a substitute for a "back-up")

d5000
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June 11, 2017, 09:46:00 PM
 #63

But who is going to hold the bag?

Every merchant can opt to be a bag-holder. But the losses should be minimal in all cases where the merchants sell goods with small marginal costs for them. The prime example for this are digital goods like music, movies and software.

Let's have a case where music and movie producers sell music and movies and with these assets "back" Bitcoin by guaranteeing the price for 24 hours. Now, a 20% crash happens. An "average Joe" (we must assume that he regularly buys movies and music) that has invested in Bitcoin, has the choice to accept the 20% loss or buy some music and movies for it that he wanted to buy.

If he cuts his losses and sells the coins with 20% loss at an exchange, he would drive the price further down - it's an invididual loss for him and also a loss for the Bitcoin ecosystem (at least, everybody that is owning Bitcoin).

But if he accepts to buy the media, he has made no loss monetarily (because he, as a music&movies lover, is satisfying an individual necessity), and the merchant has sold one copy more that costs him closely to nothing. So it would be extremely probable that merchants would achieve more sales in crash periods. It's a win-win situation for both actors.

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stevano
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June 12, 2017, 04:48:23 AM
 #64

I would argue for having good and strong support for defending crashes and controlling high volatility. Look at so many collisions experienced by bitcoin.

deisik
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June 12, 2017, 04:49:19 PM
 #65

But who is going to hold the bag?

Every merchant can opt to be a bag-holder

If wishes were horses, beggars might ride

A simple question begs to be asked, i.e. why merchants would want that in the first place? Are they in for charity or what? If they don't have economic interest in that (which in most cases boils down to pure profits), they won't do anything along these lines. More specifically, they will just increase their profit margins and will ask for hefty premiums to avoid getting caught by Bitcoin volatility (or choose to abandon Bitcoin altogether). Why the American dollar is universally accepted around the globe? Right, because it is as solid as rock

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June 12, 2017, 05:09:42 PM
 #66

Hi Ev'rybody.
Last days we witnessed a 20% crash in bitcoin, not to sepak about other crypto, including ETH that had the most solid growth till then.
These anomalies, as good as they might be for day traders, does not speak well about the BTC as a reserve currency.

As I said before, there's a reason why paper money was pegged to gold prices and reserves. Because any currency needs a reference value if it is going to avoid those dramatic ups and downs. The euphemism of USDT is just out of question.

And even though I'm strongly against any regulation of BTC or any other crypto, I have to say, leaving it freely float poses dangers such those I said, plus manipulations of speculators who can, by their own operations, affect prices at will.

So, I will insist that crypto needs a value reference. And as I said in my other posts, the best reference value is ENERGY. The most pure asset in the universe.
And there's got to be a way to tie the value of bitcoin to Joules. There's already SOLARCOIN, but to be honest I'm not sure how that is working.

Future economy has to be energy-based.

Please feel free to download my proposal in pdf: Teraflops and Terawatts at:

https://drive.google.com/open?id=0B7JgGimv_JMJaWdYQXdtb1RVZVE


Greets,

http://estaciontrend.blogspot.com/


I like your idea, energy-based as one of the most needed things everyday but bitcoin development doesn't run smoothly due to many people involved and they have different thoughts about how bitcoin should be.
Bitcoin still have to fluctuate, rise and drop back, its volatility give several chances​ for everyone to buy and sell at any rate they want.
But as long as bitcoin value keep increasing, than it will be fine even its not pegged by energy-based.

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June 12, 2017, 06:02:24 PM
 #67

But who is going to hold the bag?

Every merchant can opt to be a bag-holder

If wishes were horses, beggars might ride

A simple question begs to be asked, i.e. why merchants would want that in the first place? Are they in for charity or what? If they don't have economic interest in that (which in most cases boils down to pure profits), they won't do anything along these lines. More specifically, they will just increase their profit margins and will ask for hefty premiums to avoid getting caught by Bitcoin volatility (or choose to abandon Bitcoin altogether). Why the American dollar is universally accepted around the globe? Right, because it is as solid as rock

In that case, the merchants needs to use a third party payment processor such as Bitpay or Coinbase, which immediately converts the Bitcoins to USD or any other fiat currency of their choice. In this way, they can insulate themselves from the exchange rate fluctuations. I am not sure about the fee charged by these payment processors. I heard that it is around 1% (still better than the 1.8% charged by Visa/Master).

d5000
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June 12, 2017, 06:57:22 PM
 #68

A simple question begs to be asked, i.e. why merchants would want that in the first place? Are they in for charity or what?

Simple: They get the opportunity to multiply their sales. Above all in the goods I mentioned the number of sales is more important than the value per sale. Producers of digital goods make profit with every copy. They will get more sales when they are "caught by volatility", because for people it will be an opportunity to escape from a crash.

And in every sale they make this way, their brand becomes strengthened. They can even use the "Bitcoin backing" as a marketing vehicle.

It is the same logic like behind special offers of supermarkets.

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deisik
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June 12, 2017, 07:19:32 PM
 #69

But who is going to hold the bag?

Every merchant can opt to be a bag-holder

If wishes were horses, beggars might ride

A simple question begs to be asked, i.e. why merchants would want that in the first place? Are they in for charity or what? If they don't have economic interest in that (which in most cases boils down to pure profits), they won't do anything along these lines. More specifically, they will just increase their profit margins and will ask for hefty premiums to avoid getting caught by Bitcoin volatility (or choose to abandon Bitcoin altogether). Why the American dollar is universally accepted around the globe? Right, because it is as solid as rock

In that case, the merchants needs to use a third party payment processor such as Bitpay or Coinbase, which immediately converts the Bitcoins to USD or any other fiat currency of their choice. In this way, they can insulate themselves from the exchange rate fluctuations. I am not sure about the fee charged by these payment processors. I heard that it is around 1% (still better than the 1.8% charged by Visa/Master).

This is not the point of this discussion

A simple question begs to be asked, i.e. why merchants would want that in the first place? Are they in for charity or what?

Simple: They get the opportunity to multiply their sales. Above all in the goods I mentioned the number of sales is more important than the value per sale. Producers of digital goods make profit with every copy. They will get more sales when they are "caught by volatility", because for people it will be an opportunity to escape from a crash

I don't really see how that would work in practice

I agree that the profit margins of these merchants are pretty high on their own but I still see no logic in that. If they wanted to multiply their sales, they could just go for a sell-out and get done with that. Why all the fuss with Bitcoin? Anyway, if you think that it might work out, why no one has done that already? Further, I don't see a lot of sense in buying 20 copies of the same record just to escape being "caught by volatility"

d5000
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June 12, 2017, 07:29:16 PM
 #70

I agree that the profit margins of these merchants are pretty high on their own but I still see no logic in that. If they wanted to multiply their sales, they could just go for a sell-out and get done with that. Why all the fuss with Bitcoin?

Because they have the additional advantage to promote themselves as "Bitcoin backers". They expand their public into the Bitcoin community. I am pretty sure that every merchant who participates in this mechanism would get much love in the Bitcoin community, above all from newbies that get burnt in crashes Wink

Quote
Anyway, if you think that it might work out, why no one has done that already?

Well, somebody must be the first. Maybe now someone tries it Wink

Quote
Further, I don't see a lot of sense in buying 20 copies of the same record just to escape being "caught by volatility"

The mechanism only can show its full potential when there is a diversity of goods available (many merchants participating). A single merchant/producer would not change much in Bitcoin's volatility. But even if there are only a few goods available, individual users will be able to benefit from it, as they could buy something they like and so cut a part of their losses in the case of a crash.

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June 13, 2017, 02:48:53 AM
 #71

High volatility is not bitcoins fault, the ones at fault are speculators that is it, the op talks as if the price of gold does not move, it does and if you are talking abut volatility look at what has happened to gold in decades prior to this, by comparison it makes bitcoin look stable.

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