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Author Topic: The Next Step for Bitcoin: From Mining to Transaction Economy  (Read 4018 times)
Trader Steve
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July 03, 2011, 02:42:13 PM
 #41

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The confused view of Bitcoins as something of intrinsic value (deflationary and capped in amount) versus its infinite divisibility (representing a view of Bitcoins as currency) are directly in competition with each other.

You lost me there. Why should those be in competition? They appear complementary to me. Infinite divisibility is what allows a deflating medium to still be able to serve as the Numéraire for small amounts of value.

I partly sympathize with the OP's point. But I think there's an alternative hypothesis.

Precious metals are not (normally) used in transactions yet retain use as a store of value. They support a rather large network of bullion and coin dealers, who exist by collecting a transaction fee when it is bought and sold. Reputable bullion dealers serve to give confidence against counterfeit coins and the like. Their function is similar to the function of miners in Bitcoin (conferring trust in the blockchain), who can likewise survive on transaction fees, post block-bounty. Even if Bitcoin's use as a transaction medium remains small, why can't Bitcoin serve the same store of value purpose? The miners collecting transaction fees would serve the same role as the dealers in the bullion realm. Bitcoin could survive as a capital asset. The market has already demonstrated a willingness to ascribe value to its money-like characteristics.

I'm not arguing in any way against the desirability of Bitcoin-denominated trade of goods and services. I hope it flourishes. I'm merely arguing that there is a rationale for the survival of Bitcoin without commensurate growth in such trade.



+1
Agreed, just look at gold's value and the fact that it is not currently used as a medium of exchange in any meaningful way. Imagine what the price of bitcoin can be if bitcoin simply assumes a similar role. I took some "back of the envelope" calculations and took the total ounces of gold in the world and divided them by the final total number of bitcoin and came up with 254 ounces per 1 BTC. With gold currently priced at approximately US$1,500 per ounce, the value of 1 bitcoin could ultimately be $381,000. This doesn't even account for the likely huge amounts of government money-printing in our near future.

Math: 32150 troy ounces per tonne x 166000 existing tones of gold in the world (source: World Gold Council) = 5,336,900,000 oz / 21,000,000 ultimate total supply of bitcoin = 254 oz per 1 BTC or 254 x $1,500 gold = $381,000 per BTC
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July 03, 2011, 03:00:10 PM
 #42

+1

Good post.  Along the lines of Falkvinge's writing, especially the most recent post:

http://falkvinge.net/2011/07/03/bitcoins-four-drivers-part-3-merchant-trade/


My advice: don't hold your breath.  How long did it take before email went mainstream?  More than the usually quoted 10 years for technological breakthroughs.  When money is involved, it will take longer.  Social inertia is tough to combat.  Keep up the good work and think long term. 

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July 03, 2011, 10:38:07 PM
 #43

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The confused view of Bitcoins as something of intrinsic value (deflationary and capped in amount) versus its infinite divisibility (representing a view of Bitcoins as currency) are directly in competition with each other.

You lost me there. Why should those be in competition? They appear complementary to me. Infinite divisibility is what allows a deflating medium to still be able to serve as the Numéraire for small amounts of value.

I partly sympathize with the OP's point. But I think there's an alternative hypothesis.

Precious metals are not (normally) used in transactions yet retain use as a store of value. They support a rather large network of bullion and coin dealers, who exist by collecting a transaction fee when it is bought and sold. Reputable bullion dealers serve to give confidence against counterfeit coins and the like. Their function is similar to the function of miners in Bitcoin (conferring trust in the blockchain), who can likewise survive on transaction fees, post block-bounty. Even if Bitcoin's use as a transaction medium remains small, why can't Bitcoin serve the same store of value purpose? The miners collecting transaction fees would serve the same role as the dealers in the bullion realm. Bitcoin could survive as a capital asset. The market has already demonstrated a willingness to ascribe value to its money-like characteristics.

I'm not arguing in any way against the desirability of Bitcoin-denominated trade of goods and services. I hope it flourishes. I'm merely arguing that there is a rationale for the survival of Bitcoin without commensurate growth in such trade.



+1
Agreed, just look at gold's value and the fact that it is not currently used as a medium of exchange in any meaningful way. Imagine what the price of bitcoin can be if bitcoin simply assumes a similar role. I took some "back of the envelope" calculations and took the total ounces of gold in the world and divided them by the final total number of bitcoin and came up with 254 ounces per 1 BTC. With gold currently priced at approximately US$1,500 per ounce, the value of 1 bitcoin could ultimately be $381,000. This doesn't even account for the likely huge amounts of government money-printing in our near future.

Math: 32150 troy ounces per tonne x 166000 existing tones of gold in the world (source: World Gold Council) = 5,336,900,000 oz / 21,000,000 ultimate total supply of bitcoin = 254 oz per 1 BTC or 254 x $1,500 gold = $381,000 per BTC

So are both of you saying that bitcoins can just be a store of value like gold? I don't think we were arguing against that, just that a bit of gold or bitcoins does not lend itself well to being a currency.
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