Bitcoin too valuable to spend

[flug]

Lots of people here would not sell bitcoins at the current exchange rate because they think it's too low, so why would they spend them for something using the exchange price as reference?

If the current exchange rate is so low, why aren't people buying them to make the price go up?

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[foggyb]

Due to the design of bitcoin, even if it does become highly valuable the fact you can express fractions to eight decimal places will ensure it does enter the overall economy.

jesus. is there anything this argument doesn't solve?

You're right, math does solve a lot of problems

A hard drive deep to center field, its going . .going . . GONE!!!.  

[Grinder]

If the current exchange rate is so low, why aren't people buying them to make the price go up?

They are, but currently they are being outvoted.

[JoelKatz]

A divisible and fungible asset like a currency can never be "too valuable to spend", since by definition you get the value of the amount you spend.

Of course it can. Lots of people here would not sell bitcoins at the current exchange rate because they think it's too low, so why would they spend them for something using the exchange price as reference? Unless they have no fiat currency it would be irrational, because converting fiat to bitcoins has a fee. It's more economical to use the fiat.

There will always be some people who believe that the market is underestimating or overestimating the future value of something. The people who will not sell bitcoins at the current exchange rate believe that the market is drastically underpricing the future value of bitcoins. There are also people who think that bitcoins will become worthless any day, and therefore you shouldn't pay $15 for them today because they might crash before you can do anything with them. These people think the market is overpricing the future value.

The exchange rate for bitcoins is the weird balance largely between these two extremes. This is, I think, a temporary issue for bitcoins. Either bitcoins will die or the volume will increase to the rate that people's disagreement over the future value is not so great.

[oOoOo]

This is known as "Gresham's Law" which is: Bad money drives out good.

Fiat is hot-potato money.

This is not entirely true.


Gresham's Law states that bad money drives out good only as long as there is a law requiring people to use the "bad" money.
Since the Bitcoin is decentralized and independent, and therefore by its very nature "lawless", it should drive out all the bad (fiat) currencies. So states Gresham's Law.


Not "bad" money drives out "good", but Government Force!

.

[JoelKatz]

Deflation destroys trade is not an argument, but rather an opinion. If I believed that money stored in BTC was at least as safe as money stored in local currency and I could buy the same products and services with bitcoins, then why would I want to use the local currency that is being devalued by the central bank every year? The amount needed for taxes could be exchanged to local currency when taxes are to be paid.

You would want to use the local currency because there is no advantage to not doing so. Your reasoning includes all the factors in favor of your conclusion, but ignores all the precisely equal factors that lead to the opposite conclusion. If your argument were correct, it would mean almost everyone would prefer bitcoins to dollars at the current price, which would mean practically nobody would sell bitcoins at the current price and most people would want to buy them. This would raise the price to higher than it is. But not only is the price not higher than it is, it can never be higher than it is. Any argument that bitcoins are superior to another currency because of their expected future value is an argument that bitcoins are being sold too cheaply to account for that value.

If most people agreed gold would rise to $5,000/oz in the next two years, it would rapidly rise to nearly $5,000/oz today. In that case, an ounce of gold today includes the right to have an ounce of gold in two years and so the value of gold today would include the value of that right. Similarly, a bitcoin today includes the right to have a bitcoin in two years and so the value of a bitcoin today includes the value of that right. The problem is, the value of that right is somewhere between $0 and $10,000.

[mouse]

The thing is, no matter what the exchange rate of BTC to USD settles at, bitcoin will still have properties that make it more valuable than USD. For me, bubbleBoy has given the best account for the hoarding scenario, deflationary expectations.

For those that argue that, essentially, the free market will value BTC to account for this, your missing the fact that the price can never account for certain properties of bitcoin, because whatever the price settles at, it still has those properties. Even if 1BTC is worth 1 Billion USD, a merchant will price a product in USD and in the equivalent BTC, based on exchange rate, and the BTC will still have those properties that make you value it over the USD, namely, deflationary expectations.

The only solution I can see it to provide a different force the stops people hoarding it, and makes them want to spent it. There are 2 universal properties people value that bitcoin could give them, that at the same time would make them want to spend it. First is low transaction fees. This is something Bitcoin already has. The second is ease of use. This is something that bitocion does not (yet) have. Even if it did, USD already has this. A niche use case (for the general population) is anonymous payments. Bitcoin will always be the preferred payment there.

My prediction:
Bitcoin will always have 'hoarding forces' acting on it, but it will also have 'spending forces' acting on it. Thus, whenever there is a tie in the forces (which depends on the situation), and a product is available in USD and BTC, the user will choose to use USD. I don't think the hoarding forces for BTC will be as strong as they are for gold.

You will always slaughter the old cow, not the gestating one.

[JoelKatz]

For those that argue that, essentially, the free market will value BTC to account for this, your missing the fact that the price can never account for certain properties of bitcoin, because whatever the price settles at, it still has those properties. Even if 1BTC is worth 1 Billion USD, a merchant will price a product in USD and in the equivalent BTC, based on exchange rate, and the BTC will still have those properties that make you value it over the USD, namely, deflationary expectations.

This makes no sense. Say we all had good reason to believe that gold would raise to $5,000/oz over two years due to deflation. The price would rapidly be bid up close to $5,000/oz today. Yes, it would still have the property that it will be worth $5,000/oz in two years, but that would no longer be any big deal.

Once the deflation is built into the present price, it will no longer deflate. The idea that everyone can expect a currency to deflate is simply not possible under any realistic situations. An expected deflation will already be priced into the market. It is not possible for a currency to deflate regardless of what its current price is -- that's like saying it is worth more than it is worth.

[FreeMoney]

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

that's like saying it is worth more than it is worth.

x7

[NghtRppr]

I've just been listening to an interview on Agorist Radio with Justin from Voucher-Safe (podcast here http://agoristradio.com/?p=433)

The interview is about what Voucher-Safe tries to solve, and what it doesn't. While talking about gold he mentions that, after the thrill of buying something with a gold-based currency wears off, people rarely use it. Instead they tend to hoard it, keeping it as a store of wealth. A good example of this is http://www.goldmoney.com/ with 1.8 billion in gold, available digitally, that for the most part just sits there as a gold savings account. He then predicts that if bitcoin turns out to be as good as its proponents say it is, it will have the same problem.
Why? Because if a merchant accepts both Bitcoin and Fiat currency people will always prefer to pay with fiat currency simply because the equivalent bitcoin is seen to be more valuable (i.e. $100 woth of bitcoin is > 100$ fiat).

I think this is an interesting point. Thoughts?

The market volume is over 3,000 BTC a day. Someone is spending BTC.

[mouse]

Once the deflation is built into the present price, it will no longer deflate.

that's like saying it is worth more than it is worth.

x7

Clearly I'm not an economist, but I don't buy your line. Your saying that theres a current price now, X, that will drive out all future inflationary pressures, including accounting for fiat inflation. This seems unlikely. And anyone who holds both BTC and USD knows this. Thuse, there is a hoarding presure.

[FreeMoney]

Once the deflation is built into the present price, it will no longer deflate.

that's like saying it is worth more than it is worth.

x7

Clearly I'm not an economist, but I don't buy your line. Your saying that theres a current price now, X, that will drive out all future inflationary pressures, including accounting for fiat inflation. This seems unlikely. And anyone who holds both BTC and USD knows this. Thuse, there is a hoarding presure.

Sure there is a pressure, but it moves everyone to a point where a bit of extra coin is worth as much as a bit of extra dollar to them.

If you are in a position where $15 is worth less to you than a coin, buy a coin. Then if $15 is still worth less to you than a coin, buy a coin. Keep going until you have so few dollars that dollars are just as precious to you as coins. Now you are ambivalent between spending dollars or coins. If you greatly prefer spending dollars to coins you are making a big mistake in your allocations.

[JoelKatz]

Clearly I'm not an economist, but I don't buy your line. Your saying that theres a current price now, X, that will drive out all future inflationary pressures, including accounting for fiat inflation. This seems unlikely. And anyone who holds both BTC and USD knows this. Thuse, there is a hoarding presure.

Yes, that's exactly what I'm saying. Think about it: Would you rather have 10 bitcoins today or 10 bitcoins next year? If you say 10 bitcoins next year, you're an idiot because 10 bitcoins today includes the right to have 10 bitcoins next year, plus the ability to spend 10 bitcoins before that should it be beneficial to do so. So everyone expecting a currency to deflate is impossible. It implies that the choice spend the currency rather than saving it is not just worthless (which is possible) but less than worthless (which is absurd).

[mouse]

Thanks to everyone who contributed to the thread.

I have a lot to think about, even though I'm not actually convinced either way. I agree with many of the arguments, both for and against, but I can't reconcile this with the general failure of gold backed digital currencies to resist hoarding, and why bitcoin will be immune to the same fate, since it shares a lot of similar properties. Hence the quote from the voucher-safe guy in the original post. I think something is missing from the model but I can't work out what it is. I'll get there eventually

Cheers

[freetx]

This is not entirely true.


Gresham's Law states that bad money drives out good only as long as there is a law requiring people to use the "bad" money.
Since the Bitcoin is decentralized and independent, and therefore by its very nature "lawless", it should drive out all the bad (fiat) currencies. So states Gresham's Law.

I think you reversed things mid-stream....yes, BTC is not being forced on anyone....but USD / EUR / etc *are* being forced on people (via Legal Tender laws).  Therefore this is why good money (like bitcoin / gold / silver) is being driven out of the market.

People will naturally choose to first spend all their 'bad money' in such situations and hoard the 'good' money. This is exactly what we see with regards to BTC.

[Jeremy West spendbitcoins.com]

EDIT: Sorry, wrote this after reading OP without realizing this argument has already been made several times in this thread.

While talking about gold he mentions that, after the thrill of buying something with a gold-based currency wears off, people rarely use it. Instead they tend to hoard it, keeping it as a store of wealth. A good example of this is http://www.goldmoney.com/ with 1.8 billion in gold, available digitally, that for the most part just sits there as a gold savings account. He then predicts that if bitcoin turns out to be as good as its proponents say it is, it will have the same problem.
Why? Because if a merchant accepts both Bitcoin and Fiat currency people will always prefer to pay with fiat currency simply because the equivalent bitcoin is seen to be more valuable (i.e. $100 woth of bitcoin is > 100$ fiat).

I think this is an interesting point. Thoughts?

I don't know anything about goldmoney.com, but I do think the bitcoin design gives people reason to spend it rather than just hoard it.

For one thing, if you actually believe that it will generally be going up in value week on week (a good reason to hold on to as much as you can), then you would be wise to put your whole paycheck into bitcoin when you receive it. If you do this, then when you want to spend money at a merchant who accepts both fiat currency and bitcoin, then you will find it far easier to just spend your bitcoins than to transfer them back into fiat currency.

[Babylon]

silk road does not accept dollars.

[Chick]

lol.
[/quote

This response come from the gods!

[eugene2k]

I've just been listening to an interview on Agorist Radio with Justin from Voucher-Safe (podcast here http://agoristradio.com/?p=433)

The interview is about what Voucher-Safe tries to solve, and what it doesn't. While talking about gold he mentions that, after the thrill of buying something with a gold-based currency wears off, people rarely use it. Instead they tend to hoard it, keeping it as a store of wealth. A good example of this is http://www.goldmoney.com/ with 1.8 billion in gold, available digitally, that for the most part just sits there as a gold savings account. He then predicts that if bitcoin turns out to be as good as its proponents say it is, it will have the same problem.
Why? Because if a merchant accepts both Bitcoin and Fiat currency people will always prefer to pay with fiat currency simply because the equivalent bitcoin is seen to be more valuable (i.e. $100 woth of bitcoin is > 100$ fiat).

I think this is an interesting point. Thoughts?

If gold is so good for savings, why have any fiat currency at all? Why not save your money in gold from the very start right until you need the money and only then convert them into fiat? It would be stupid to have always inflating fiat currency when you can have always deflating gold/bitcoin, wouldn't it? The problem with gold lies in the conversion to/from fiat currency. It's either too costly or too cumbersome. If it was easy you would prefer to store all your money in gold, and only convert into fiat currency when you need to. In a trade though, you would prefer to pay with gold because converting isn't free and involves a third party.

Bitcoin, however, is not gold, in the sense that it's very easy to convert to and from fiat currencies. The problem with bitcoin is in the risk of having it. You don't know what the price of bitcoin will be tomorrow, whether it's going to be 2x its price today or 0. And until you do you'll want to store some of your money in bitcoin, while still keeping most of it in fiat currency, since you don't want to lose everything in one day because you were storing it in bitcoins, but you also don't want to be the loser that didn't invest into bitcoin early and become rich with little effort. In other words if one wishes to solve the hoarding problem of bitcoin, one needs to up the chances of bitcoin becoming mainstream. Built-in deflation has nothing to do with hoarding.

[Stephen Gornick]

I can't reconcile this with the general failure of gold backed digital currencies to resist hoarding, and why bitcoin will be immune to the same fate, since it shares a lot of similar properties.

Two reasons: Fees and convenience

Metals purchases, from GoldMoney, costs from 2.5% (for gold) to 4.0% (for silver) to replenish any spending I might wish to do.  
Bitcoin costs, from Mt. Gox, 0.65% to replenish (Plus charges for adding funds, which are $0.25 with Dwolla, for example)

Cashing out USD funds from GoldMoney costs another 1% (minimum about $0.50, maximum about $5).  
Cashing out USD funds from Mt. Gox costs $0.25 (the Dwolla per-trx fee).

Because GoldMoney's purpose is high dollar investment, their systems are built to be very secure.  This also makes it inconvenient to use by the customer for spending, and inconvenient to use by the merchant for use in receiving payment.

Because of Bitcoin's P2P nature, convenience can range from easy to hard based on the level of security needed and on other factors (e.g. use of an e-wallet like MyBitcoin on one end to an offline "air gap" wallet on the high-security end.)

Bitcoin is an agile currency.  GoldMoney is not.  Gold and silver such as bullioin or junk silver is not.  

That doesn't mean Bitcoin should replace gold and silver, but it does mean that Bitcoin doesn't suffer the same propensity for hoarding.