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Author Topic: Bitcoin .......... bull vs bear POST CRASH  (Read 1359 times)
xavier
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April 15, 2013, 09:19:40 PM
 #1

DISCLAIMER: Below post is my opinion only posted for the benefit / interest of any speculators or investors in Bitcoin

Well the crash is behind us. The price went from around 40 - 260 ithen back to 100. Now it seems to be falling slowly, hitting 90 today, with the potential to fall more based on short term negative sentiment. There is no doubt that the last week has been messy. I'd like to also raise the validity of DDoS and whether it actually existed, or whether it was just MtGox trying to delay the inevitable price crash that occurred.

Whilst the hysteria in the media has blazed in the past week, the bitcoin network has continued to run steadily on, processing transactions as it has since it was first created. The fundamental value of the network has not changed during the last few months.

Legally, it also seems nothing has changed. No governments have commented further on bitcoin. It seems they might be adapting a 'wait and see' attitude before formally introducing any (more) regulation.

What has changed is the public perception. Bitcoin is now very well known. However most of the media coverage I've seen has become very cynical about it. Those same journalists who began by describing it as a passing fad back in February, have now morphed into describing how (1) it is inevitably going to be illegal, (2) how it is deflationary ("imagine what would happen if you had a mortgage in bitcoin"), (3) how it cannot scale, (4) how it is a scam orchestrated by 'hackers' who lack any credibility (this argument still continues) (5) lacks any (military) backing from western governments; we cannot pay our taxes in it; (6) exhibits some technical flaws which make it worthless.

There is no doubt that the media has swung full circle from talking about how bitcoin could be a 'threat to the Euro' and change the world, to now how it is worthless scam item that is worthless. It is difficult to find a single article that talks about anything more than the value of bitcoin being worthless.

The main arguments for bitcoin have been proposed many times on these boards. Just to reiterate: fungible, digital currency that cannot be double spent and does not depend on any 3rd party. The cheapest and most technically secure way to transfer monetary value between two people in the world.

I'll discuss the 6 main arguments which are appearing in the press against bitcoin here as I see them.

(1) The US government has already adopted a libertarian view on bitcoin in the initial stages, through its formal FinCEN notice released in February. It has not made it explicitly illegal as yet, and will probably only do so if enough traction is gained to make it worthwhile making it illegal. At this point, it may be difficult to ban - due to the decentralized nature. However, let's be in no doubt that it would make bitcoin unfeasible for use as a currency in a country to say compete with the USD if a nation's government banned it.
 
(2) Many different theses exist regarding the feasibility of a deflationary currency vs inflationary, and the differences between them. For example, stuff has been written about the difficulty of borrowing money with a deflationary currency. However I do not think there would be any difficulty using a deflationary currency in theory. The truth is that no western world has ever operated on a deflationary currency, so it is impossible to say if it would be feasible. Whilst in an inflationary environment money lenders use positive interest rates on loans, could it be possible to use the opposite in a deflationary environment? Example: I take a loan for BTC 100, I *receive* money from the bank after the loan is taken out to compensate for the fact that when I have to pay back the 100 BTC, the intrinsic value of the 100 BTC will be a lot higher than when I took out the loan. The difference between the bank's 'interest' payment to me and the 100 BTC I pay to the bank is their profit on the loan. Lets not forget also that such discussions over deflation are very far out, right now Bitcoin is an inflationary currency.

(3) This could be the primary problem for bitcoin that is really not discussed enough, in my opinion. The fact is that in its current design, Bitcoin cannot scale to the level of the VISA network. However, some simple modifications would allow Bitcoin to scale (an adjustment in the block size limit). The difficulty is whether agreement can be reached within bitcoin to allow this adjustment (I would speculate: Yes). After this, there is the question of whether the ever increasing storage size, which allows bitcoin to keep an infinitely sized block chain on every client can be possible. Storage is not infinitely available; there is no reason why storage size should ever increase at the same rate as transactions are added into the block chain. Unless this problem can be solved, this seems to me to be the number one future problem that faces bitcoin.

(4) Bitcoins roots are unconventional, however its important for a completely different reason to what is cited in the media. Its no coincidence that Bitcoin was released into the wild at the same time as the world was in the middle of a financial crisis. Maybe Satoshi anticipated that the financial crisis could play right into the minds of speculators and could create an investment rush, just like we've seen recently. Maybe for this reason, he invented bitcoin. Technically however maybe the timing of bit coin's release could be off. Perhaps the internet infrastructure is just not ready right now for Bitcoin (because of the scalability issues - the bandwidth and storage technologies available are/may just not be good enough for Bitcoin to be feasible at the same level as VISA in the current era).

(5) I do not see how this argument could affect adoption of bitcoin. I don't think anybody (excluding speculators who hopefully may be leaving the market after the recent crash) is buying it right now because they will use it to replace their fiat currencies. They are buying it because it has complimentary uses. My feeling is that such uses will grow and continue to grow over time. Let me repeat for the time being: nobody is claiming that bitcoin will be replacing fiat. To claim this is ridiculous; funnily enough this is what the media were writing in the run up to the crash.

(6) It seems that alternative crypto currencies are gaining some attention now that more people are writing about Bitcoin. Litecoin in particular seems to have a block rate of 2.5mins vs 10mins. There is no doubt that bitcoin may lack some features of newer currencies. However my opinion is that is could be 70% fit for purpose. The remaining problems that need to be ironed out, in the form of for example shorter block rates, could be incorporated to the bitcoin software in the future. The risk with this is in the form of agreement between all parties that do business in the bitcoin community on any future changes to the protocol. Certainly a block size limit for one would be simple to change. The one thing bitcoin has that litecoin does not is a user base and public recognition. It retains a 'first mover' advantage in the crypto currency space. These things have got to be worth something.

I will now refresh the advantages and disadvantages of Bitcoin as a method of transfer of monetary value.

ADVANTAGES

- Decentralised digital payment network that does not depend on any single 3rd party; the cheapest way of transferring monetary value digitally with the highest level of current adoption that currently exists worldwide

- Thoroughly secure; has been operating globally for 4 years and 'hacked to death'

- Publicly known and acknowledged by main media (albeit with a lot of skepticism/current bad press)

DISADVANTAGES

- Operates in a legally sensitive area; vulnerable to government regulation or restriction

- Scaling challenges are present in immediate future

- Requires 'exchanges' to operate: a way to convert fiat into Bitcoin

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sunblaster
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April 15, 2013, 09:24:09 PM
 #2

Bitcoin Market Update 15 Apr 2013: Today 80 is new 90, tomorrow 70 is new 80, etc till who knows how low.
sunblaster
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April 15, 2013, 09:55:13 PM
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Nvrmd spoke too soon 70 is new 90! Tongue
xavier
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April 16, 2013, 01:22:29 AM
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Dont usually bump... but anyone want to comment?Huh? come on, even just 1 criticism?? There must be something there worth commenting

The more I think about it, the more I was probably too negative. The advantages seem greater than the disadvantages....... anyone?
keystroke
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April 16, 2013, 01:33:40 AM
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Dont usually bump... but anyone want to comment?Huh? come on, even just 1 criticism?? There must be something there worth commenting

The more I think about it, the more I was probably too negative. The advantages seem greater than the disadvantages....... anyone?

Very nice overview Smiley I think increasing the block size is an economic debate so it might be harder to change than we imagine... but I'm not really up to date on all of the arguments. I think the main concern is making sure anyone can mine without needing to require massive amounts of bandwidth.

"The difference between a castle and a prison is only a question of who holds the keys."
bitrider
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April 16, 2013, 01:48:21 AM
 #6

Well I'll dive in...basically I think you have hit some of the key arguments on either side.

From my point of view the challenges to bitcoin have been in discussion for years - nothing new to us here. And nothing has changed, except you have a lot of new people starting to look at it. The media flip flops are irrelevant. They know nothing.

My opinion  (just that) is that solutions will evolve quickly now that the real demand is starting to show up. And that VC money is available. The bubble served to wake up the world to crypto currencies and bitcoin. This will force resolution of outstanding issues - such as scalability.

Most people, experts included have not understood the full implications of what bitcoin can bring to the table. As this realization dawns in millions of minds over the next couple of years, new applications and the demand will create strains on the system in every way. It will be messy, and may take longer to stabilize than many of us would wish (I've been through enough new software implementations to know it could get very ugly), but I believe the future for bitcoin looks as bright as ever. I'm actually surprised at how good it looks so early in the game. The fundamentals look great to me.
bitcoiners
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April 16, 2013, 02:16:41 AM
 #7

Lol... the "crash" isn't over yet.
bitrider
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April 16, 2013, 03:01:15 AM
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Lol... the "crash" isn't over yet.

+1 Right you are...
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