Hoarding Vs. Spending

[Cameltoemcgee]

New user Whizz94 sent me this private message as he cannot reply, seems fair to share his post in case anyone wants to respond.

What I think is needed now is for more commodity trade prices to be defined in bitcoin, along rational lines, so that their purchase in BTC does not involve the hassle of going through a money changer and looking up what the speculators at Mt Gox are paying today for one BTC.

I am a landlord and solar panel operator.  Part of my income is from solar electricity.  I plan to define the 2014 price for electricity sold in BTC and based around the electricity costs of GPU mining then, which with the considerable difficulty expected by then might be an interesting challenge.  That would oblige my electricity customers to either make or buy bitcoin to pay the electricity bill.  Since not everyone has BTC, I'd give them the option in 2014 of looking up the Mt Gox price and paying me £ instead.  But the price of the goods will be defined in BTC.

Does the "hoard v spend" question depend less on what savers are doing and more on producers defining a BTC price for their output?  

I think you have a good point, at the moment my merchant store by default lands on a FIAT (GPB) pricing option, perhaps directing straight to BTC prices would encourage spending in BTC. Restricting only to BTC at present would only be sensible for a Bitcoin related niche but perhaps in the future producers/merchants could make BTC the primary payment option. I guess in relation to the last question it is a bit of both, both savers and producers play a part in the Bitcoin ecosystem but without some collaboration, coupled with failing exchanges we wont realize the full potential of Bitcoin. As a network circulation is key, transactions & exchanges need to flow freely between each node(point) in order to encourage new levels of growth otherwise we are just a bunch of strangers living in the same house.

Sorry about my abstract metaphors, I am a visual person lol.

I think as the currency matures, thats what will happen, the price will be somewhat tied into the energy that is required to mine it/purchase it. Thats really all any currency is when you get down to it, a means of exchanging spent time and energy.

If the current monetary practices continue then at some stage in the future BTC or Precious metals will be the preferred medium of exchange instead of USD. Bitcoin has a long way to go before thats viable, gold and silver don't perform adequately either because you can't easily transfer them. Whether Bitcoin gets there or not remains to be seen, i think if the exchange issues are overcome then the chances are very high that it will end up being the case.

As to the hoarding or not, people only hoard it so they can sell it at a later date... I don't think its something that needs to be worried about as long as a decentralized exchange gets off the ground and retail POS purchases are made easy by some means. Those 2 issues are the real barriers to BTC gaining traction as a truly viable alternative to mainstream fiat currency, solve them and there won't be issues with liquidity, there'll always be someone willing to sell.

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[johnyj]

First hoard, then spend

Gavin just said, if you spend half of your coin each year and the value of bitcoin doubles each year, you can spend forever

[crumbcake]

First hoard, then spend

Gavin just said, if you spend half of your coin each year and the value of bitcoin doubles each year, you can spend forever

In other words, if Bitcoin doubles in price every year, and you have $5000 in Bitcoin now, and spend $2500 a year, you'll always be able to spend ... $2500 a year?  Sigh...  Not fabulous...

[Aedius]

Agree with the OP and I believe this is what is constraining the growth of Bitcoin.

People need to realize that in order to break through to the next 'level' of Bitcoin valuation, the infrastructure and ease of use need to be improved for less tech-savvy people. This requires an investment from the people who know Bitcoin best.

The issue is that many of the people who have profited so immensely from being an early adopter are hoarding their coins instead of using them to improve Bitcoin, relying on others to do the legwork in getting Bitcoin mainstream.

[wolverine.ks]

i think people need to define 'hoarding'

if i buy a bitcoin and dont trade it for 1 year is that hoarding? 1 month? 1 week? 1 hour?

people hold onto something for a reason. they arent doing it to be annoying.

define your terms. make an argument. show your work.

[Stampbit]

If your not spending it then your hurting bitcoin.

[wolverine.ks]

There is no such thing as continuously spending anything!

You are constantly holding onto one thing or another.  You aren't spending your house.  therfore you are hurting the housing market.  You aren't spending your organs therefore your hurting the organ market.

If you spend your bitcoin,  then you start to hold onto whatever you just bought and are now hurting THAT market.

You hold onto something because you believe it will be useful at some time in the future.  It is impossible to buy something and use it at the same time.  You might buy a hot dog because you plan on eating it a few seconds from now. You hold bitcoin in order to use it at some time in the future,  5 seconds from now or 5 years from now.  The principle is the same.

asking people not to hoard is not to improve the bitcoin economy. ...

It's merely a way to convince people to sell you their bitcoin at a cheaper price.

lol. I feel like I'm taking crazy pills!

[gweedo]

I spend bitcoins just like I would do with my fiat money. If I need something I look at and compare prices, if it is cheaper in bitcoins I will buy in bitcoins otherwise I use fiat.

[TheGovernedSelf]

In other words, if Bitcoin doubles in price every year, and you have $5000 in Bitcoin now, and spend $2500 a year, you'll always be able to spend ... $2500 a year?  Sigh...  Not fabulous...

If you add another zero to those figures, then it starts to sound kind nice.

[Mytche]

First hoard, then spend

Gavin just said, if you spend half of your coin each year and the value of bitcoin doubles each year, you can spend forever

In other words, if Bitcoin doubles in price every year, and you have $5000 in Bitcoin now, and spend $2500 a year, you'll always be able to spend ... $2500 a year?  Sigh...  Not fabulous...

Hmmm, well I have been spending half my Bitcoin income each year, I like the trajectory of that balance sheet a lot better.   

[bitcoinator]

Maybe the long term success depends on users that hoard and never spend their coins?

1. There will be no scalability issues because people won't create that many transactions

2. The price will always go up because bitcoins are really scarce in comparison with world population, the publicity is increasing and the supply is decreasing

3. If people know that the price will always go up, they have no reason to sell bitcoins unless they really need to buy something

Thus the system rewards hoarding, and hoarding is good for everybody. There is absolutely no reason to spend bitcoins unless you starve or don't have fiat income.

[dakiller]

As the price goes up and they become more valuable, people will be more willing to spend them on more fiat value items. The market cap is still too small to hold much value, you can't have a big economy without the value base to go with it.

If I only have $1000 in coins I took an effort in obtaining, I'm not going to spend them. If they were to be worth $10k, I would be very much open to spend some of them. If they became $100k then I would be spending a whole lot more again.

If you were sitting on a million dollars in cash separate to your every day account and expenses, would you be able to no spend a cent of it? See a nice watch, phone, car, etc. that you would normally not buy, you would have second thoughts about it when you got spare wealth that you don't need.

[yocko06]

keep all your money in bitcoin then try and save what you can. Spend bitcoin where you can and only convert back to fiat when you need to.

[shawshankinmate37927]

True, both spending and hoarding(saving) can be done at the same time and would levitate some of the pressure. I think the best way to encourage spending would be if employers started making payments in Bitcoin, the fact that I dont get a regular flow of BTC like I do with FIAT kind of makes every day purchases more cumbersome.

*
Do we agree hat this long term hoarding mentality is our there though, and is a problem worth addressing?

If so then perhaps simple things like mentioning your saving wallet & spending wallet in talks as separate entities would help, this would create a slight psychological division in other users minds that their own wallet can have multiple uses. I am not eliminating the fact I am the only one who has not applies this common sense logical to my Bitcoin usage.  
*

Yes, there are people out there that are willing to hoard their bitcoins for now and spend them later, but it's not a problem at all.  In fact, it's the "hoarding is a problem" mentality that is so prevalent amongst bankers and politicians, and their insistence that "something must be done" that is, in part, leading to the demise of their fiat currencies.  Fortunately, there is very little they can do to discourage hoarding when it comes to bitcoins.

[Operatr]

The commodity nature of Bitcoin will dissolve eventually. As long as it is interfaced with fiat and used as a speculative tool it will just be this way for the time being.

Though once fiat fails completely (and it will in the very near future I think) a Bitcoin will simply be worth a Bitcoin, as any valuation in USD or other fiats will be absolutely meaningless if they are so hyperinflated as to be basically worthless. The markets will have to readjust after that, it is difficult to say if fiat is no longer viable what prices would become, as fiat can't be used as a reference any longer to the price of goods and services.

For now, hoard some, but do your part and spend some too to help the economy grow and get it adopted by businesses. The only reason I have yet to spend any is that there is simply nothing I need at the moment that can be bought with BTC. Unfortunately my local grocer hasn't caught on yet  

"Hoarding" gives it a negative tone in terms of saving unless you really are just stuffing every BTC you earn into a paper wallet assuming they will have a much larger fiat value someday, as if they are real gold. What is wrong with having a savings account? Usually that is encourage by financial institutions and financial people...

[shawshankinmate37927]

The commodity nature of Bitcoin will dissolve eventually. As long as it is interfaced with fiat and used as a speculative tool it will just be this way for the time being.

Though once fiat fails completely (and it will in the very near future I think) a Bitcoin will simply be worth a Bitcoin, as any valuation in USD or other fiats will be absolutely meaningless if they are so hyperinflated as to be basically worthless. The markets will have to readjust after that, it is difficult to say if fiat is no longer viable what prices would become, as fiat can't be used as a reference any longer to the price of goods and services.

For now, hoard some, but do your part and spend some too to help the economy grow and get it adopted by businesses. The only reason I have yet to spend any is that there is simply nothing I need at the moment that can be bought with BTC. Unfortunately my local grocer hasn't caught on yet  

"Hoarding" gives it a negative tone in terms of saving unless you really are just stuffing every BTC you earn into a paper wallet assuming they will have a much larger fiat value someday, as if they are real gold. What is wrong with having a savings account? Usually that is encourage by financial institutions and financial people...

When this happens, the value of bitcoins won't be measured in units of fiat.  Purchasing power will be measured with how much can be bought with a particular amount of bitcoins or how many bitcoins it takes to purchase a particular good or service.  Of course there will be those that claim constantly declining prices are detrimental to an economy, but they will eventually fade away—like all of those people that used to think that Earth was flat.

[BTConomist]

Though once fiat fails completely (and it will in the very near future I think) a Bitcoin will simply be worth a Bitcoin, as any valuation in USD or other fiats will be absolutely meaningless if they are so hyperinflated as to be basically worthless.

I'm surprised that no one, even remotely, considers the possibility that fiat currencies may eventually be run on a protocol similar to bitcoin, with the government mining pool representing more than 51% of the hashing power of such block chain.

How do you get the smartest people to work on the next technological breakthrough?... You let them run amok with bitcoin!  

[NewLiberty]

What we are discussing here is called Gresham's Law
http://en.wikipedia.org/wiki/Gresham's_law

Bad Money Drives Out Good.
The idea is that when bad money is in circulation, good money will go into treasure troves, hoarding, offshore, it will flee the marketplace to places of safety hiding.

When a currency is debased, as happened in the USA in the 60's when they stopped putting silver in the coins, all the silver coins left the market place as quickly as the cashiers could discover them, put them in their pocket and replace it with a new debased coin.

We have this today with bitcoin.  However, bitcoin is also a social phenomenon.  I do trade my bitcoins, but I do so with people I feel some affinity for or with whom I have a sense of alliance. 
Currently, this is most any other honest person who trades in bitcoin, because our universe is so small.
I always thank those that purchase my New Liberty Dollar silver pieces in bitcoin, as I know they are honoring me in the same way.

So we have this dilemma, to hoard, or to spend.  The answer of course is to do both.  Spend especially with those who are either new to bitcoin, or who you may cherish for some reason.  The more that start posting out in the open the beautiful "Bitcoin accepted here" graphic, the more bitcoins will be a useful currency.
https://en.bitcoin.it/wiki/Promotional_graphics

[BTConomist]

Bad Money Drives Out Good.
The idea is that when bad money is in circulation, good money will go into treasure troves, hoarding, offshore, it will flee the marketplace to places of safety hiding.

When a currency is debased, as happened in the USA in the 60's when they stopped putting silver in the coins, all the silver coins left the market place as quickly as the cashiers could discover them, put them in their pocket and replace it with a new debased coin.

The only problem with your logic is that bitcoin represents "bad" money. Question is will it ever be used as legal tender? Because, if you had not noticed, in order for Gresham's Law to take effect both forms of money must be represented as legal tender, at equal value.

[Operatr]

Though once fiat fails completely (and it will in the very near future I think) a Bitcoin will simply be worth a Bitcoin, as any valuation in USD or other fiats will be absolutely meaningless if they are so hyperinflated as to be basically worthless.

I'm surprised that no one, even remotely, considers the possibility that fiat currencies may eventually be run on a protocol similar to bitcoin, with the government mining pool representing more than 51% of the hashing power of such block chain.

How do you get the smartest people to work on the next technological breakthrough?... You let them run amok with bitcoin!  

Though if fiat operated on a similar protocol, it isnt fiat, it is another cryptocurrency. Not to say the government wouldn't like to operate a centralized version of Bitcoin only they control, though if they left the mathematical constants in place this control would not necessarily afford them many benefits.

The power of fiat for them is the ability to endlessly print new money. This money they mostly just give to themselves, creating a disgusting system of corruption.