State of the Real Bitcoin Economy

[CIYAM]

Though it would be nice if Bitcoin were to become widely used for payments, it doesn't need to in order to be valuable.

True - but when most of the coins have been mined the tx fees are the *only* thing that will keep the network secure so if bitcoins aren't being used for many transactions then it could spell doom for the current implementation (so best to be used both as a store of value and as a currency rather than just the former).

[d'aniel]

Though it would be nice if Bitcoin were to become widely used for payments, it doesn't need to in order to be valuable.

True - but when most of the coins have been mined the tx fees are the *only* thing that will keep the network secure so if bitcoins aren't being used for many transactions then it could spell doom for the current implementation (so best to be used both as a store of value and as a currency rather than just the former).

Tx fees aren't the only way to buy network security.  For example, Mike Hearn talked about using assurance contracts to do it here: https://bitcointalk.org/index.php?topic=157141.0.  It's pretty silly IMO to assume that people with a whole bunch of stored value at risk of becoming worthless wouldn't find ways to collectively ensure it doesn't.  Plus that's decades away, and not really worth thinking about now, as things will likely look so much different at that point.

[johnyj]

IMO, we should not care too much about real economy, the future is in virtural economy and its size will bypass real economy later

Look at my nephews who are about 13-14 years old, most of their interest is in the internet, not real world. For this generation, the real world is only a support for the physical body, at least half of their enjoyment comes from the virtual world, since many things in virtual world are more perfect than real world and they have much more fun there. The only draw back is that today's virtual reality realisation is still far away from comfortable, 3D TV is a joke and very uncomfortable to use

Another fact is that merchant can handle the bitcoin sales seperately, not like fiat money sales, you can put those bitcoins at a saving account and hold it for a longer time. Because anyway people will not be totally dependant on bitcoin, the fiat sales could be enough to make back their cost, and bitcoin sales will become their capital reserve

Currently there are not so many people spend bitcoins, but that will improve over time, when more exchanges and more miners are willing to sell/spend their coins. Actually miners are the only provider of new coins to the economy, and if the coins they mined worth enough, they will start to spend them. Now daily new spending is maximum 3600 coins. Comparing with FED's daily spending of 2.8 billion new USD, it is obvious not so many people can receive bitcoin as a payment, if its price stayed at current level

[CIYAM]

Tx fees aren't the only way to buy network security.  For example, Mike Hearn talked about using assurance contracts to do it here: https://bitcointalk.org/index.php?topic=157141.0.

Interesting link - thank you for posting that (well worth reading).

It's pretty silly IMO to assume that people with a whole bunch of stored value at risk of becoming worthless wouldn't find ways to collectively ensure it doesn't.

As the link you provided does point out if "no-one wants to pay" then worthlessness could indeed be the result - but I think the point of such contracts makes perfect sense and so I do also think that such creative solutions will probably address the issue that I raised (so point taken).

[chrono]

go on everyone continue...

[oda.krell]

Bitcoin economy? Who cares? Bitcoin has its backstop as a medium of exchange because it is popular for certain types of transactions that would otherwise be impractical. It only needs a small backstop. With that, it comes into its own as a store of value. Volatility is more than made up for by massive, consistent yearly gains. It is a superhero store of value, because it is immune to scrutiny and control by third parties, like no other asset out there.

It isn't written in the stars that Bitcoin's first best use will be as a medium of exchange. That is something people have projected onto it due to their preconceptions. The Bitcoin doesn't care. It's its own thing. Network effects and inertia are a huge botteneck to rapid adoption in most types of commerce for now anyway.

It's as if people are stuck in the old paradigm, where the original vexing problem was how to get people to value bitcoins at all. Lazlo and some others solved that problem, then SR and some others provided permanent deep backing - not gigantic but deep enough that "you can always eventually find someone who needs bitcoins."

Let's stop living in the past with the vestigial obsession with commerce driven by the lurking fear that maybe bitcoins aren't really going to be valued. We're past that. More commerce helps, everything helps, but we're past the point where Bitcoin's utility as a store of value was dependent on getting trade for actual goods and services kickstarted.

This dependence mindset needs to die. It is a relic of problems that Bitcoin hasn't had for years. Bitcoin has arrived. It's here to stay, barring major technical catastrophe or obsolescence due to something better (and the latter is no cause for concern, since we'll all have plenty of advance warning because anything new needs time to develop reputation and infrastructure). The actual use of Bitcoin for trade is never going to die out, even if it remains small for a while. It's too useful as a store of value, and that utility will inevitably drive it into more people's hands, driving up the price, stabilizing the price with larger volume, boosting mining incentive to make the system more secure, and increasing development and infrastructural investment in a virtuous cycle. When more people have it and the price is stabler and the infrastructure sounder and the apps more user-friendly, trade will develop naturally.

Commerce will take its turn at prominence when it's ready. For now I see no reason to fret about slow progress on that front given how amazingly successful Bitcoin continues to be as a store of value. It is only natural that these two functionalities will take turns leapfrogging each other in importance over the years as Bitcoin (or another cryptocurrency) zigs and zags its way onto the world stage.

It's too bad nobody picked up on this excellent post so far.

I don't necessarily think what you say is true, but *if* your assumption is true (that bitcoin doesn't need commerical transactions to be valuable), then that's a powerful argument against the claim that, for example, current btc/USD price is entirely "speculative".

And the argument is simple enough: gold hasn't been used for "transactions" in a long time, and has become less and less important as a tool to back up national currencies, but that certainly doesn't prevent it from storing a whole lot of wealth to this very day (the current price decay does not principally change this).

We will see... if enough people think bitcoin *needs* commercial transactions to be valuable, then it *will* need commercial transactions to be valuable. If enough people believe bitcoin's value is independent of that, then it'll be that. That's the basic truth of wealth and trading wealth anyway.

[johnyj]

Here you can see from ASICMiner's relay of blocks that how many real transactions there are, comparing with the payment transactions from mining pools

[benjamindees]

Only twice as many transactions as a year ago, with a market value 10 times as large, and no reason to believe this is due to anything but speculation.



http://blockchain.info/charts/n-transactions
http://blockchain.info/charts/market-cap

[countryfree]

The bitcoin economy is growing, no doubt about this, but nobody said growth should be perfectly linear. There's a bit of a slowdown right now, but we shall not overreact to it. Things take time. In Europe, when national currencies were replaced by the Euro, with full support from all governments, many people kept on thinking in their old currencies. It's much more complicated with bitcoin that no government and no big company officially supports.

[oda.krell]

Only twice as many transactions as a year ago, with a market value 10 times as large, and no reason to believe this is due to anything but speculation.



http://blockchain.info/charts/n-transactions
http://blockchain.info/charts/market-cap

Unless part of that increase in market cap to no. of transaction ratio is due to bitcoin being used as a store of wealth. I'm not saying that is the reason, but I'm not lazy enough to rule it out purely on whim either.

[westkybitcoins]

Let's stop living in the past with the vestigial obsession with commerce driven by the lurking fear that maybe bitcoins aren't really going to be valued. We're past that. More commerce helps, everything helps, but we're past the point where Bitcoin's utility as a store of value was dependent on getting trade for actual goods and services kickstarted.

QFT.

[benjamindees]

You know, for a group of people using a currency supposedly built on a rejection of the "bubble-economics" of central banks, you guys sure sound like a bunch of dot-com investors claiming that the "old rules" no longer apply.

[WaverleyStreet]

The success of Bitcoin comes from the Silk Road.

now stop that Atlantis NARC website is easier to find and more stable!!!!!


>>>NOW WE KNOW~BITCOIN IS "BAD" DRUGS MONEY PERIOD!!!!!!

[nwbitcoin]

Great discussion but it needs a little more depth from the big picture!

What is the time frame for success? Everyone using bitcoins tomorrow? Next year? by 2020? Without a goal, we have nothing!

Secondly, as many people have pointed out, Bitcoin is the Internet circa 1992 - I was there, it was awful. If we use this as a guide, then we have a number of hurdles to deal with.

Firstly, we are beyond the technical issues, bitcoin works as it should, and it can be tweaked for scale, just like the interest in 1992.  
The current problem is legal, which the internet also had to deal with.  Online copyright was a huge problem in 1992 - who owned what? What laws counted?  Who was responsible if? etc - these are the same questions that bitcoin needs to address.  Once that happens, then its the next stage, mass adoption.

In the UK, we had a number of ISPs who gave us the push to make the internet popular, the most famous being Freeserve.  The downside of this popularity was that the freeservers knew nothing, and blocked up the bandwidth!  
Who will be the market makers for bitcoin?  We need to grow the current market from its 2 million users to at least a billion, if not more before bitcoin becomes something.

With mainstream we got economies of scale, and finally e-commerce stared making sense - and this only really stated happening in the last 10 years.  Bitcoin needs to find its niche, which I agree is probably micro payments of less than $100 a deal. It needs to be better, and cheaper than paypal - and be able to prove it to anyone who doubts it.

There is a huge difference between being an asparagus type geek who can handle the foibles of bitcoin, and the rest of society.  The mindset change needed to turn bitcoin into a a must have useful and appealing tool of the mass market is so big, I can't even start to describe it.  We are talking about thinking like a 15 year old girl, and getting her to expect to use bitcoin everywhere - because she finds it better than anything she currently uses!

Please don't think I'm being ageist or sexist or whatever offensivist I might be! The point is that mainstream take up has far more 15 year old girls than it have technical libertarian geeky types.

Once we turn that corner, then the son of bitcoin will be in every digital wallet on the planet, but in reality, its not going to happen until at least 2025!

[101111]

So, what do you guys think is the way forward?  Now that we have ASICs, and Bitcoin is technically secure against all but the most capable threats, how will the real Bitcoin economy grow to capitalize on this investment?  Or do you still think that Bitcoin can survive as an investment only and, if so, for how much longer?

Bitcoin will see mass adoption for transactions far faster than you expect.

There is some mind-blowing stuff coming out. Look at https://www.pikapay.com/ (in beta) for example, in which btc can be simply tweeted (send or receive) by anyone with a twitter account, they hint at a massive future for btc transactions. It's pure bloody genius systems like this that keep me very positive.

[foggyb]

Only twice as many transactions as a year ago, with a market value 10 times as large, and no reason to believe this is due to anything but speculation.

Compare to Dot-com era:

Total number of websites took 3 years to double between 2000-2003. Internet growth was in a bubble at the time and suffered a crash, yet look what happened: it wasn't all speculation & hype.

[WaverleyStreet]

LMFAO====> how about try 1981 !!!

*link restored!*~> http://en.wikipedia.org/wiki/BITNET

[HongkongShanghaiBitCoin]

Great discussion but it needs a little more depth from the big picture!

What is the time frame for success? Everyone using bitcoins tomorrow? Next year? by 2020? Without a goal, we have nothing!

Secondly, as many people have pointed out, Bitcoin is the Internet circa 1992 - I was there, it was awful. If we use this as a guide, then we have a number of hurdles to deal with.

Firstly, we are beyond the technical issues, bitcoin works as it should, and it can be tweaked for scale, just like the interest in 1992.  
The current problem is legal, which the internet also had to deal with.  Online copyright was a huge problem in 1992 - who owned what? What laws counted?  Who was responsible if? etc - these are the same questions that bitcoin needs to address.  Once that happens, then its the next stage, mass adoption.

In the UK, we had a number of ISPs who gave us the push to make the internet popular, the most famous being Freeserve.  The downside of this popularity was that the freeservers knew nothing, and blocked up the bandwidth!  
Who will be the market makers for bitcoin?  We need to grow the current market from its 2 million users to at least a billion, if not more before bitcoin becomes something.

With mainstream we got economies of scale, and finally e-commerce stared making sense - and this only really stated happening in the last 10 years.  Bitcoin needs to find its niche, which I agree is probably micro payments of less than $100 a deal. It needs to be better, and cheaper than paypal - and be able to prove it to anyone who doubts it.

There is a huge difference between being an asparagus type geek who can handle the foibles of bitcoin, and the rest of society.  The mindset change needed to turn bitcoin into a a must have useful and appealing tool of the mass market is so big, I can't even start to describe it.  We are talking about thinking like a 15 year old girl, and getting her to expect to use bitcoin everywhere - because she finds it better than anything she currently uses!

Please don't think I'm being ageist or sexist or whatever offensivist I might be! The point is that mainstream take up has far more 15 year old girls than it have technical libertarian geeky types.

Once we turn that corner, then the son of bitcoin will be in every digital wallet on the planet, but in reality, its not going to happen until at least 2025!

+1

[WaverleyStreet]

Here you can see from ASICMiner's relay of blocks that how many real transactions there are, comparing with the payment transactions from mining pools

http://photo.mystisland.org/transactions.jpg

who is ASICMiner? 


>>WTF!!!!!

[painlord2k]

Bitcoin features should be used to enter existing markets but also to create new markets where payments would be impossible or very difficult/dangerous/impractical to do.

This is what happened with Silk Road and now Atlantis. It made online purchases convenient, easy and safe even for difficult products and services.

Another field available is upload/download services. I looked for and just a couple of file hosting services accept bitcoin.

In my opinion, a plug-in to tip good eMule uploaders would be an interesting way to diffuse the use of bitcoin on a large group of people.
For example: Good uploader Hans upload 1 GB of data to me. With the plug-in I tip him 0.01 BTC (around 1 US$) and automatically Hans' client (and mine) reduce his "credits" versus me by 1 GB.
Now, for him I become a good uploader with a verified history and he become a good uploader for me.

If 1/10th of the users paid 1$ worth of bitcoin to the good uploaders, they would pay 50K US$ every month (at least). This is chips & fish, but more people would have bitcoin to spend and reasons to spend them and hold them and maybe use or acquire them for other uses. People could finance their monthly subscription in this way and have Bitcoins to spend.

I added a feature request to the Official eMule forum:
http://forum.emule-project.net/index.php?showtopic=156816&st=