Do you really want a Currency or a Speculation vehicle?

[andes]

Trying to peg bitcoin to something is like trying to peg gold to something.

Good luck.

Exactly.

Guys you are in the wrong forum, you need to start a new currency, cause with bitcoin that cant be done.

Study how the dollar was pegged to silver and gold early on, and you say it cant be done.

We already have a Fort-Knox, its called the Block Chain.

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[hashcoin]

I personally agree the current bitcoin economy seems to be dominated by irrational speculators and this makes it basically useless for transactions.  However I think you'll find that most on this forum disagree with that view, and either way, changing bitcoin as you suggest is not reasonable and won't happen.  A better plan is to take our ball and move to another court.  There are others with similar thoughts trying to come up with a way to simultaneously achieve the fast consensus of bitcoin with the stable value/real backing of a commodity.

The best I can think of so far is something like namecoin but with a better architecture and general storage, not just DNS.  In any case, rather than demand bitcoin change our time is much better spent carefully designing something new.  If it is indeed better, and provides a promise of greater stability, rational people will realize that and switch, leaving the speculators in a circle-jerk.

[NO_SLAVE]

Bitches at comex for messing with price of silver and wants to set the price of bitcoin. Nice.

Okay let's do it, tell us how to start.

You create of stockpile of what you will peg it to,  document and prove you have those reserves and insure you will do not liquidate it for anything but btc  and and put in a non revokable standing offer to buy all btc for the price you want to peg it at.

why do you need to do all that? why not base the price on statistics of mining costs?  Say globally it costs 17.51 to mine 1 BTC .  All the math of the costs were covered in the mining thread many times. As prices of electricity , computers etc increase, so do the mining costs.  If its costs $35 to mine 1 BTC in the future (includes labor costs), then one BTC is $35.00. and this price will change with difficulty or other variables. 

and the costs and the price increase based on actual costs tied to labor, electricity, global economics, etc etc.

a statistician could put together a reliable pricing matrix in a day. 

its just Ideas people, just ideas.....just like BTC was once an idea. 

 

 

[NO_SLAVE]

I personally agree the current bitcoin economy seems to be dominated by irrational speculators and this makes it basically useless for transactions.  However I think you'll find that most on this forum disagree with that view, and either way, changing bitcoin as you suggest is not reasonable and won't happen.  A better plan is to take our ball and move to another court.  There are others with similar thoughts trying to come up with a way to simultaneously achieve the fast consensus of bitcoin with the stable value/real backing of a commodity.

The best I can think of so far is something like namecoin but with a better architecture and general storage, not just DNS.  In any case, rather than demand bitcoin change our time is much better spent carefully designing something new.  If it is indeed better, and provides a promise of greater stability, rational people will realize that and switch, leaving the speculators in a circle-jerk.

very level and true post.  Im with you.

[twobits]

So far the only "solution" to market volatility that I've seen anyone put forth is to eliminate the "market." This is obviously ridiculous and unworkable. Got a better idea?

Same way it is handled with other forex risks.   People will profit off buying the risk.

[swusc2]

Why do people say things like "Bitcoin needs to be pegged to gold", "Bitcoin can't be pegged to anything". Ultimately what is going to happen is Bitcoin is going to be pegged to its usefulness as a means of transactions. As a decentralized currency, the value directly correlates to the use of Bitcoins to buy and sell and exchange.

The reason why right now Bitcoin seems speculative is because, people invest in what they believe is going to be worth if and when it becomes a legitimate means of exchange.

[dennis_sweden]

The only way that Bitcoin can become an established method of payment is by people and merchants adopting Bitcoin. If Bitcoin does manage to establish itself as a method of payment, the eventual price of Bitcoin is likely to be something along the line of: size of the economy divided by amount of Btc available to facilitate the trade + the markets combined growth potential forecast + the cost of mining.

i.e. On a yearly basis services and goods of a value of $12M are traded through Btc. At that point of time, maybe 8M Btc exist, and maybe 500.000 Btc users exist. However, around 5M Btc are likely to be held by early adapters who do not use the Btc to trade goods and services with. So 3M Btc must facilitate trade. In this scenario, each Bitcoin must be transferred 4 times per year, however, Btc are likely to be transferred more than 4 times per year. However, suppose each Btc is only transferred 4 times per year. A reasonable price for Btc would perhaps be between $5-10. Based solely on the trade volume versus trade circulating Btc, price would be $3. If each Btc was tranferred more times, the price of Btc would be lower. However, if the Btc economy had grown in 1 year to become a $12M economy with 500.000 Btc users/owners, potential for further growth would obviously exist, which could account for $2-7 of Btc price. If some early adopters were to cash out and their Btc were bought by traders rather than "hoarders", the price of Btc would fall in a rough proportion to the amount "released" into the economy. Speculation in Btc would reflect all the inherent price dependents, and speculators would keep track of the amount of Btc released into the economy, so although the average trader would not possess relevant market information, the price of Btc would more or less equal the value of Btc due to competitive speculation.

However, if the Btc economy were to have a value of $120 m per year and only 8M or maybe 8.5M Btc are in existence, of which perhaps 6M Btc facilitate trade (if the economy was that large and stable, I suspect many early adopters would in due course of time cash out on a fair amount of their holdings, which would not sink the price and which could be invested more profitable,) the price of Btc, without taking speculation into account, would be less than $20, depending on the amount of trasfers of each Btc per year.

All of above numbers are just hapzard guesses, however, the above calculation could be used to forecast the price of Btc in the future, and also determine whether today's price reflects reality or not; or so I believe.

Disclaimer: I withdrew my USD from Mtgox without having made any trades, and am not looking to put any money into the market before an actual marketplace exists, or is at least far more developed than today.

EDIT: I FORGOT TO ACCOUNT FOR THE COST OF MINING IN THE CALCULATION

[twobits]

Bitches at comex for messing with price of silver and wants to set the price of bitcoin. Nice.

Okay let's do it, tell us how to start.

You create of stockpile of what you will peg it to,  document and prove you have those reserves and insure you will do not liquidate it for anything but btc  and and put in a non revokable standing offer to buy all btc for the price you want to peg it at.

why do you need to do all that? why not base the price on statistics of mining costs?  Say globally it costs 17.51 to mine 1 BTC .  All the math of the costs were covered in the mining thread many times. As prices of electricity , computers etc increase, so do the mining costs.  If its costs $35 to mine 1 BTC in the future (includes labor costs), then one BTC is $35.00. and this price will change with difficulty or other variables. 

and the costs and the price increase based on actual costs tied to labor, electricity, global economics, etc etc.

a statistician could put together a reliable pricing matrix in a day. 

its just Ideas people, just ideas.....just like BTC was once an idea. 

 

 

Because otherwise all you are setting is a suggested retail price.  If you do not have some entity willing to always buy at the pegged price it is worthless and meaningless.

[error]

This is all starting to sound like Soviet style central economic planning. Good luck with that.

[CurbsideProphet]

I personally agree the current bitcoin economy seems to be dominated by irrational speculators and this makes it basically useless for transactions.  However I think you'll find that most on this forum disagree with that view, and either way, changing bitcoin as you suggest is not reasonable and won't happen.  A better plan is to take our ball and move to another court.  There are others with similar thoughts trying to come up with a way to simultaneously achieve the fast consensus of bitcoin with the stable value/real backing of a commodity.

The best I can think of so far is something like namecoin but with a better architecture and general storage, not just DNS.  In any case, rather than demand bitcoin change our time is much better spent carefully designing something new.  If it is indeed better, and provides a promise of greater stability, rational people will realize that and switch, leaving the speculators in a circle-jerk.

Great post.  

I guess for me the concept of Bitcoin is very intriguing, downright ingenious in some respects.  So there's a part of me hoping it succeeds.  Unfortunately there's a more rational part of me that sees gaping holes in the model as to why it will fail.  But you're right, Bitcoin is what it is and certain aspects just cannot be changed.  Perhaps Bitcoin will be the jumping off point for a truly workable currency and in that respect, has value or at least a place in the history books for what may someday be the next currency.

I'll continue to watch this experiment closely but will stop harping on others as to its shortfalls.  We all have our opinions but you've made me realize that mine cannot change Bitcoin for the better.  

[tanerlorn]

This post, written by bitcoinbull, is so good, I'm just gonna keep quoting it whenever I see the word "speculation"

You've already assumed that people buy BTC in order to buy real goods.  They don't.  We know that because the volume on the exchanges (who trade BTC for USD etc) is far greater than the volumes merchants see (who trade BTC for goods).

So we know that most people buy BTC to store and transfer value, not goods per se.  They do so because bitcoin has many advantages over USD and gold (digital, decentralized, etc).  I agree it carries more risk, but with that risk also comes reward Smiley.  Bitcoin is like any other speculative asset (which can include any investment: currencies, real estate, commodities, tulips, etc) and is certainly one of the riskier (since it is newer).

But the speculation is not that people will want bitcoins as collector items or to buy alpaca socks or virtual avatars or anything else.  I speculate mainly that people will want bitcoins to store or transfer value not seizable by a central authority (which is to say that bitcoin is secure), and that others will continue speculating.

Ask the financial industry if speculation isn't a "real economy".  Or ask a homeowner burnt buy the mortgage crisis.  Bitcoin is a very real economy of a digital good and could be sustainable for as long as we live in a digital age.

[Rassah]

Talk to china about pegging, I suppose you all know more than china.
Study how the dollar was pegged to silver and gold early on, and you say it cant be done. Where do you think chinas prosperity came from? THE DOLLAR PEG.

pick up a book.

Suggest you follow your own suggestion.
The wa China is able to peg the Dollar to their own Yuan, despite a MASSIVE trade imbalance, if by constantly buying more and more dollars with yuan. That is a COMPLETELY unsustainable system, since they are basically amassing a huge amount of dollars and are forcing the value of their own currency down artificially. VERY soon (it's starting to happen already) China will not be able to continue doing this any more, and as a result, their propping up USD and pushing down Yuan will "snap," which will result in a rapid rise in the value of their own currency, and a huge inflation of USD (though that may be mitigated by our own banks). In the end, pretty soon China's products will become very expensive, US products will become very cheap, and China will crash HARD due to no longer being able to export anything.
Read history. Pegging ALWAYS caused massive problems.

[dennis_sweden]

Talk to china about pegging, I suppose you all know more than china.
Study how the dollar was pegged to silver and gold early on, and you say it cant be done. Where do you think chinas prosperity came from? THE DOLLAR PEG.

pick up a book.

Suggest you follow your own suggestion.
The wa China is able to peg the Dollar to their own Yuan, despite a MASSIVE trade imbalance, if by constantly buying more and more dollars with yuan. That is a COMPLETELY unsustainable system, since they are basically amassing a huge amount of dollars and are forcing the value of their own currency down artificially. VERY soon (it's starting to happen already) China will not be able to continue doing this any more, and as a result, their propping up USD and pushing down Yuan will "snap," which will result in a rapid rise in the value of their own currency, and a huge inflation of USD (though that may be mitigated by our own banks). In the end, pretty soon China's products will become very expensive, US products will become very cheap, and China will crash HARD due to no longer being able to export anything.
Read history. Pegging ALWAYS caused massive problems.

I entirely agree with this, and which is why I suggest that the actual price of Btc will in relation to the size of the market.

[andes]

pick up a book.

Pegging ALWAYS caused massive problems.

No slave, pick a book and learn how did the pegging end in Argentina. Literally overnight, the savings of all its citizens were devalued to 1/3. Thats the power of (suppresing) the free market.

[Rassah]

pick up a book.

Pegging ALWAYS caused massive problems.

No slave, pick a book and learn how did the pegging end in Argentina. Literally overnight, the savings of all its citizens were devalued to 1/3. Thats the power of (suppresing) the markets.

How is "the savings of all its citizens were devalued to 1/3" not part of "ALWAYS caused massive problems?"

[NO_SLAVE]

this is going nowhere, thread locked