Thinking in bitcoins?

[blogospheroid]

Most of us do economic calculations everyday, on whether something should be bought or sold at certain prices. We try to sell at the highest price and buy at the lowest. Most of us also have some kind of an idea of what we think is a fair price for various items.

When I was living for a short while in the US, the rates on various items stunned me, because I was used to calculating the prices by converting in my native currency (INR) and it seemed very high. After a while, I got used to thinking in dollars and bought stuff without thinking too much about it.

With bitcoins, most of the community are stuck in my "first month situation in dollars", as we don't know how to value coins. The price at the exchanges provides some kind of an anchor, but recent events have shown that they are not reliable either. It's safe to say that very few people think in bitcoins and do economic calculation of the type we regularly do with our native currencies.

Seeding this "thinking in bitcoins" is an important task until bitcoin truly stabilises as a currency. It can be assisted by something like regular pricing APIs associated with various bitcoin sites.

Price of my item : Price of closely available analogue at bitcoinhop or bitcoinmarket, or a mix of various items.

Are anything like those available for the asking? Could someone raise a bounty for the same? I don't have btc because electricity and chips are expensive in India and no one is sellling BTC for INR.

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[hugolp]

I completely agree with you, but this will only be posible when the bitcoin exchange price stabilizes a bit.

The stabilization might be happening already, who knows. After the rise up to $30 and the correction back to $20, we might see some stabilization of the price, although we dont know yet because all the last events have been moving the price. When the air clears will see.

[triforcelink]

I completely agree with you, but this will only be posible when the bitcoin exchange price stabilizes a bit.

The stabilization might be happening already, who knows. After the rise up to $30 and the correction back to $20, we might see some stabilization of the price, although we dont know yet because all the last events have been moving the price. When the air clears will see.

It was a single dollar just this April... I don't think were even close..

[Shevek]

I completely agree with you, but this will only be posible when the bitcoin exchange price stabilizes a bit.

Price stability will not matter at all.

When BTC-market provide enough services & commodities, people can stop calculating tax rates... except those who receive there usual incomes in $, €, etc  

[Alex Beckenham]

I get what you're saying blogospheroid... I made a similar observation myself:

http://forum.bitcoin.org/index.php?topic=7784.0

[Shevek]

I completely agree with you, but this will only be posible when the bitcoin exchange price stabilizes a bit.

Price stability will not matter at all.

When BTC-market provide enough services & commodities, people can stop calculating tax rates... except those who receive there usual incomes in $, €, etc  

I quoted my own message by mistake an I don't know how to delete it. Moderator can wipe this one.

[cothoms]

Stability comes with knowledge and understanding.  And it is quite obvious from reading all of the uncertain threads/posts on this board that nobody is quite sure where BTC is heading.  Welcome to world of embryonic products.  Until we, as a community, get a better idea of BTC's future, I think stability will continue to struggle with value fluctuation, which, in turn prevents it from wide-spread acceptance.  It's almost like a Catch 22.

[hugolp]

I completely agree with you, but this will only be posible when the bitcoin exchange price stabilizes a bit.

The stabilization might be happening already, who knows. After the rise up to $30 and the correction back to $20, we might see some stabilization of the price, although we dont know yet because all the last events have been moving the price. When the air clears will see.

Price stabilization for Bitcoin is a myth. It presumes that Bitcoin can be treated as a Dollar proxy, which it is not, and never will be. OP has the right idea, the key is to start thinking in terms of Bitcoin pricing instead of in terms of just an exchange rate. Businesses that deal in Bitcoins but only do their accounting in Dollars or some other 'native' currency are in for some nasty surprises. Bitcoin should be treated as a native currency for accounting purposes to ensure that Bitcoin based costs, inventories, and incomes are dimensioned correctly. If businesses fail to do this they will be left wondering why their projections are so far off and why their decisions were so costly.

Right, dont take literal. Bitcoin will always have some price deflation. What I meant is that with the price going from $30 to $6 in a couple of weeks... well, its hard to do economic calculation. When bitcoins stabilize a bit more and start being price deflationary in a more constant way, then it will be a lot easier to start thinking in bitcoins instead of dollars, and people will do it automatically. Right now its not doable.

[hugolp]

But the thing is... Those two things go hand-in-hand. If you have the potential for continued deflation, every time new investors come into the market they will attempt to price in future gains. Since Bitcoin does not have a liquid futures market this gets played out on the exchanges in real-time.

But there is a problem. New investors don't have Bitcoins, and right now there is nobody that will give them the ability to have naked positions, because that would effectively mean lending Bitcoins. But who would lend Bitcoins if they can get a good return on them just by keeping them? This means that new entrants have to buy Bitcoins, they can not borrow them to trade. It is a catch-22. Illiquid futures trading means higher volatility, which means limited volume, which means higher volatility and so on.

It is a situation that may eventually correct itself but it will take more investors with larger positions first, because there presently isn't a good means for them to leverage their positions. I don't think that is a bad thing, because once investors are able to create leverage they have more levers to engage in market manipulation. And with the wild-west nature of Bitcoin markets you can bet this will happen, so the availability of leveraged trading might not really do it either.

There just still isn't enough liquidity to even out the price because of it's rate of growth. And this will not happen until we have market makers with deep enough pockets and cast iron stomachs...

Youve said very well what I was saying, that Bitcoin will be volatile for a while. And that is why it will be difficult to think in bitcoins for a while. Well get there, eventually.

[Litt]

This is the very issue that comes up when miners think about reinvesting btc back into mining rigs to produce more btc. People insists on reinvesting and selling bitcoins to buy more equipment when the math says that the new equipment will never mine more btc than the amount of btc you've put into it. If the goal of the miner is to have as many btc as possible, buying outright likely will yield more btc in total. The hope of the miner is that the value of btc go up enough to give return in terms of USD to pay back the initial investment where their hardware is paid off. So 2-3 months down the line you may have made enough USD from your rig to cover up your initial cost of btc reinvested, but you've only been able to do this because the price rose to make up the difference of # btc mined vs spent. On the other hand due to the increase in difficulty, you will never be able to mine the same amount of btc you originally spend.

[Fjordbit]

This is the very issue that comes up when miners think about reinvesting btc back into mining rigs to produce more btc. People insists on reinvesting and selling bitcoins to buy more equipment when the math says that the new equipment will never mine more btc than the about of btc you've put into it. If the goal of the miner is to have as many btc as possible, buying outright likely will yield more btc in total. The hope of the miner is that the value of btc go up enough in value to give return in terms of USD to pay back the initial investment where their hardware is paid off. So 2-3 months down the line you may have made enough USD from your rig to cover up your initial cost of btc reinvested, but you've only been able to do this because the price rose to make up the difference of # btc mined vs spent. On the other hand due to the increase in difficulty, you will never be able to mine the same amount of btc you originally spend.

When thinking about investing money in buying a rig, you absolutely must think in btc. You take the $ amount for the rig, and convert it to btc at that spot price and then determine how much you can realistically mine out of it versus just buying btc at that moment. If you can't get the btc out, then don't buy the rig.

One thing you have to adjust for, though is that what you are talking about still accumulates wealth in the form of 3D graphics hardware. If all of this has payed for itself in btc, then there could come a time when you can sell the cards to some game kiddies and then use that money to buy btc.

[Litt]

You are right that the hardware cost is a factor. But if you are looking at buying and holding long term, the small dollar amount invested for hardware initially becomes less and less important as the value goes up higher over time.

[bitcoinTrader]

Most of us do economic calculations everyday, on whether something should be bought or sold at certain prices. We try to sell at the highest price and buy at the lowest. Most of us also have some kind of an idea of what we think is a fair price for various items.

When I was living for a short while in the US, the rates on various items stunned me, because I was used to calculating the prices by converting in my native currency (INR) and it seemed very high. After a while, I got used to thinking in dollars and bought stuff without thinking too much about it.

With bitcoins, most of the community are stuck in my "first month situation in dollars", as we don't know how to value coins. The price at the exchanges provides some kind of an anchor, but recent events have shown that they are not reliable either. It's safe to say that very few people think in bitcoins and do economic calculation of the type we regularly do with our native currencies.

Seeding this "thinking in bitcoins" is an important task until bitcoin truly stabilises as a currency. It can be assisted by something like regular pricing APIs associated with various bitcoin sites.

Price of my item : Price of closely available analogue at bitcoinhop or bitcoinmarket, or a mix of various items.

Are anything like those available for the asking? Could someone raise a bounty for the same? I don't have btc because electricity and chips are expensive in India and no one is sellling BTC for INR.

Are you still interested in BTC for INR?

PM sent

[Fjordbit]

You are right that the hardware cost is a factor. But if you are looking at buying and holding long term, the small dollar amount invested for hardware initially becomes less and less important as the value goes up higher over time.

This isn't true if you could take that money on day one and buy 40 bitcoins instead of spending them on a rig that only next 30 in its lifetime due to difficulty increases. In that case, it was a mistake to buy the hardware instead of the coins.

[Findeton]

This is the very issue that comes up when miners think about reinvesting btc back into mining rigs to produce more btc. People insists on reinvesting and selling bitcoins to buy more equipment when the math says that the new equipment will never mine more btc than the amount of btc you've put into it. If the goal of the miner is to have as many btc as possible, buying outright likely will yield more btc in total. The hope of the miner is that the value of btc go up enough to give return in terms of USD to pay back the initial investment where their hardware is paid off. So 2-3 months down the line you may have made enough USD from your rig to cover up your initial cost of btc reinvested, but you've only been able to do this because the price rose to make up the difference of # btc mined vs spent. On the other hand due to the increase in difficulty, you will never be able to mine the same amount of btc you originally spend.

You are wrong. THe hope of the miner is that the price/difficulty will not drop beyond a certain limit. If the price/difficulty doesn't drop beyond a certain limit you can actually mine more bitcoins that the ones you invested.

Moreover, the condition is that the price/difficulty doesn't fall beyond a certain limit in a certain short time (less than 3 months).

[SlipperySlope]

I don't believe that bitcoin values will ever stabilize like paper currencies. 

Central banks can control the amount of currency in circulation, in part to achieve short-term stable values. In contrast the ultimate number of bitcoins will be fixed.  Each person and business entity requires a certain amount of currency to conduct transactions.  I believe that this demanded amount of bitcoins will vary according to overall business conditions - growing during economic expansion and pausing/shrinking during economic contraction.

Informed speculators will be motivated to purchase and sell bitcoins in advance of expected economic expansion and contraction.  Thus I think that bitcoin prices will be similar to those experienced by commodities - and continue fluctuate as they do now.

Because people and businesses seek stable currency values, I think that one or more to-be-created bitcoin futures markets will offer currency instruments derived from bitcoins that promise a certain, more stable value, e.g. US dollars, for a certain duration.  Prices could then be quoted in say December Bitcoins, with the buyer and seller knowing that this value will be say exactly 30 USD from now until December.

[davux]

At the moment, a huge part (nearly all) of the bitcoin economy is made of exchange with other currencies, mainly USD. Just see how everyone's so worried about the future of bitcoin (sic) because the main exchange place was compromised. That tells a lot about what bitcoin means for everyone.

Taking your example situation now. If the only thing you could do with dollars was selling and buying them with your native/former/other currency (INR), you would need to take the exchange rate into account a lot when you see or give a price in dollars – because they would mean nothing else but INR at the end of the day.

As you say, the only way to get an independent notion of bitcoin's worth is by thinking about what you can buy with those coins you just received as a payment. This means we need to stop focusing on the exchange to get coins, and set up more goods and services, so that bitcoins can exist within their own ecosystem. I need coins? OK, I'll sell some goods or provide some service. Exchanging should only be a side solution if we want a sane currency.

[Synaesthesia]

Right now the #1 thing being sold with Bitcoins is probably drugs

[Ian Maxwell]

The biggest barrier to thinking in bitcoins is that I'm not paid in bitcoins. When someone hears that a TV costs $600, what they think isn't "160 Big Macs" but rather "about 3/4 of my paycheck." This is why rich people do seemingly crazy things like pay $500 for a T-shirt---because it sounds to them like $1 does to you.

People who start bitcoin businesses are at an advantage here. They know how hard they work, so they know what a bitcoin is worth to them.

[minor_miner]

At the moment, a huge part (nearly all) of the bitcoin economy is made of exchange with other currencies, mainly USD. Just see how everyone's so worried about the future of bitcoin (sic) because the main exchange place was compromised. That tells a lot about what bitcoin means for everyone.

Totally agreeing with that. Most people see BTC simply as a proxy.

As you say, the only way to get an independent notion of bitcoin's worth is by thinking about what you can buy with those coins you just received as a payment. This means we need to stop focusing on the exchange to get coins, and set up more goods and services, so that bitcoins can exist within their own ecosystem. I need coins? OK, I'll sell some goods or provide some service. Exchanging should only be a side solution if we want a sane currency.

This is exactly why our primary goal (besides increasing the client security for vanillas) should be convincing more shops or other business-people to accept Bitcoins.

As you said, BTC will only get strong if we manage to create an own ecosystem for it.

But for BTC it's going to be substantially harder to establish than for other currencies since the use of BTC isn't forced onto people.

BTC simply needs more trust and that can only be achieved by increased security and more services that you can buy with BTC.

Let us say, for instance, that I have a bunch if Bitcoins and I sell some of them to purchase raw materials for something I am going to manufacture and then sell for Bitcoins. Those materials cost me 1000 BTC on May 22, 2011, my total cost for manufacuring, marketing, etc, is another 1000 BTC, paid on June 5, 2011, and I sell my product for 2200 BTC on June 12, 2011. I have made 200 BTC. "That's only a lousy 10% net you say."

While you are bringing 100% valid points and I agree, the whole "thinking in bitcoins" still has some flaws:

First is, that at the moment it is not possible to buy materials in BTC (and then convert it into products which are being sold for BTC).

You can, of course, buy materials for USD/EUR/GBP and then calculate their costs into BTC, but since it is not possible (YET) to buy food or clothing or to pay your rent, electricity bill or fuel with BTC, you cannot solely rely on BTC for your living.

As long as we don't have enough shops, no own ecosystem for BTC, it will simply stay the proxy for other currencies that it is right now.


Second, albeit you of course cannot simply look at BTC with a constant exchange rate for USD or other currencies, one thing remains pretty constant, and this is workpower.

At the moment I can say that 1 hour of my work is netting me 14 Euros. Even with inflation counted in, i can still buy bread or milk at a very similar rate than it was the case 2 or 3 years ago.

Now we have seen crazy price-jumps of the BTC conversion rate from 1$ to 30$ within not even 2 months and even if you are strictly consistent with "thinking in Bitcoins", you surely wouldn't get the same amount of goods for the workpower you provided during these fluctuations.

And there's a simple reason why: You don't get paid in Bitcoins!

This is, to be honest, the single most concern I have with the bitcoin-system in general. All other currencies have a country where they are enforced by the governments and where people will always get their wages paid with that currency.

BTC does not (and cannot) have such a thing and this will be a major obstacle to some in the way of establishing BTC as a "real" currency.



I know, however, that BTC is still very young and can perfectly imagine that BTC will have an established own ecosystem somewhere in the future.