Skeptical of the skeptics...

[evoorhees]

Skepticism is a healthy attribute. And to be brutally honest, of course Bitcoin is likely to fail - all new things are likely to fail. We're all engaged in a wildly speculative and risky venture, here. Even conservative ventures usually fail, and this is anything but conservative.

However, skeptics seem to be fixated on Bitcoin as it exists in the immediate present and this is severely damaging their objective analysis. They see that Bitcoin is hard to carry in one's pocket. They see that PC-based wallets are vulnerable. They see that one cannot yet buy gasoline and bread with Bitcoins.  And seeing these problems, they then assume such issues will always remain and thus are hesitant to believe in the Bitcoin idea.

And so I don't mean to be rude, or draw silly comparisons, but it seems this is a bit like observing the Wright brothers, and their floppy, ridiculous plane, and then dismissing air travel because of all the problems. "Well, only one person can fly on that craft," "Well, it can't go much faster than a car," "Well, there is a high danger of crashing and dying," "Well, it is much too expensive to build something so useless." "Well, these are way less convenient and reliable than a horse." "Well, this is nothing but a dangerous toy," "Well, man was not meant to fly," etc. As I've mentioned elsewhere on this forum, my great-grandmother's college science textbook assured her that man would never be able to go to space, because there was no air.

Friends, allow the free market to observe these problems and it will tend to solve them. Can't easily reimburse your friends for drinks using Bitcoin? BAM - Brain Armstrong's Android app is released yesterday and looks brilliant. Tired of using only one vulnerable exchange? BAM - a half dozen more have sprung up in the past month. No easy way to accept Bitcoin payments on your website? BAM - Bit-pay.com appears.

A good skeptic should ask, "is the underlying technology/protocol of Bitcoin sound?" If it is, then all those tertiary issues will be solved over time because the marketplace wants to profit from the efficiency of frictionless-money.

There is too much profit to be made from a Bitcoin world for entrepreneurs to ignore such a revolutionary technology merely because they cannot yet purchase gasoline down the street.

As Wayne Gretzky said, "look where the puck is going, not where it is."

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[w1R903]

A good skeptic should ask, "is the underlying technology/protocol of Bitcoin sound?" If it is, then all those tertiary issues will be solved over time because the marketplace wants to profit from the efficiency of frictionless-money.

I completely agree with your analysis.  Forget all the immediate issues, a good skeptic *should* ask ""is the underlying technology/protocol of Bitcoin sound?"  However, I think an even better skeptic would ask the question "are the people around Bitcoin sound?"  The best technology in the world can fail if it's surrounded and promoted by the wrong people, and the worst technology can succeed if an organizational and marketing genius is behind it (viz., Microsoft).  Well, the devs seem very sound, although sometimes it's not clear to me if they realize they enormity of their task.  I am concerned that many of the businesses emerging around Bitcoin right now seem scam-ridden and/or amateurish, but I try to remind myself that we're in the gold rush days.  My hope is that right now, dozens of competent individuals are building the next wave of Bitcoin businesses, and that more reputable merchants are looking into accepting Bitcoin.  When I see things like the Android app, I am heartened.  But in the end, it will be the people that make or break Bitcoin, not the technology.

[datguywhowanders]

I'm Bob Dole, and I approve this message.

[TraderTimm]

It is one of the few ideas that has ever excited me in the same way as learning about the internet. Just the far-reaching implications, sprawling out to the future. Whatever iteration survives, I know the world won't be the same. (Though I am biased in thinking that the current implementation is solid enough, just needs peripheral enhancements.)

[evoorhees]

But in the end, it will be the people that make or break Bitcoin, not the technology.

Very true. While the decentralized, typically "amateur" nature of the btc marketplace will yield some worthless offerings, it's also open to ANYONE from anywhere in the world. An impoverished Sri Lankan 17 yr old with $200 netbook could write the next killer app for Bitcoin. And the marketplace's hyper competitive nature, with almost no barriers to entry, will tend to produce brilliant products and services but these may be months away.

I also think the core dev team (Gavin et al) is the minority of the development. They're making a better core client, but such gains are marginal compared to the peripheral businesses being developed elsewhere.

[w1R903]

But in the end, it will be the people that make or break Bitcoin, not the technology.

Very true. While the decentralized, typically "amateur" nature of the btc marketplace will yield some worthless offerings, it's also open to ANYONE from anywhere in the world. An impoverished Sri Lankan 17 yr old with $200 netbook could write the next killer app for Bitcoin. And the marketplace's hyper competitive nature, with almost no barriers to entry, will tend to produce brilliant products and services but these may be months away.

You know, you're right.  I forgot about this.  And the low barriers to entry are yet another great asset of Bitcoin.  In fact, Bitcoin lowers barriers for *all* trade, but just those interested in Bitcoin-related business.  An all-around win.  And yes, some 18-year-old Bangladeshi with a $150 netbook could kick all of our asses on this and become the next Bill Gates.  Unlikely, but entirely doable.  It will be an interesting year, that's for sure.

[Astrohacker]

Exactly. What the skeptics miss is that the fundamental problem has been solved: decentralized digital money. All of the other problems (hard to use, pseudonymity instead of real anonymity, etc.) are not fundamental; they are opportunities in disguise.

[Giraffe.BC]

I'm pretty skeptical of Bitcoin's chances at this point.  Not because the underlying technology isn't sound, but because it's been completely co-opted by speculators and "the USD is just, like, paper man!" doomsday nutballs.  I think the problem lies with the mining algorithm:  it's a great idea to use mining to incentivize peer to peer participation in the payment processing network, but the model of exponentially-increasing difficulty is just foolish.  A model where participants earn a share of transaction fees based on the number of actual transactions they help process would be far less wasteful of electricity and CPU cycles and could potentially encourage far broader adoption of the Bitcoin software, thus paving the way for it to be used as an electronic currency by more than a handful of enthusiasts.  There wouldn't be large windfalls for mining, but that's a good thing.  The windfalls and speculation are what are going to kill it as a currency -- right now it's basically a mix between a commodity and a penny stock, which creates a large barrier to entry from anyone not trying to make a fast buck off it before it collapses. 

I still think it's an interesting project that will be used as a model by future economists, but I'd be very uneasy if I had a large amount of money tied up in them at this point. 

[evoorhees]

I'm pretty skeptical of Bitcoin's chances at this point.  Not because the underlying technology isn't sound, but because it's been completely co-opted by speculators and "the USD is just, like, paper man!" doomsday nutballs.  I think the problem lies with the mining algorithm:  it's a great idea to use mining to incentivize peer to peer participation in the payment processing network, but the model of exponentially-increasing difficulty is just foolish.  A model where participants earn a share of transaction fees based on the number of actual transactions they help process would be far less wasteful of electricity and CPU cycles and could potentially encourage far broader adoption of the Bitcoin software, thus paving the way for it to be used as an electronic currency by more than a handful of enthusiasts.  There wouldn't be large windfalls for mining, but that's a good thing.  The windfalls and speculation are what are going to kill it as a currency -- right now it's basically a mix between a commodity and a penny stock, which creates a large barrier to entry from anyone not trying to make a fast buck off it before it collapses. 

I still think it's an interesting project that will be used as a model by future economists, but I'd be very uneasy if I had a large amount of money tied up in them at this point. 

1) There is nothing wrong with speculators (so long as they aren't defrauding anyone) - they are merely individuals who try to predict future value, by putting their own money on the line. An efficient market is made by their actions, as they bring pricing signals forward in time. It's as important in Bitcoin as it is in the oil markets. But people HATE speculators! 

2) The dollar IS just paper, man. It's an important philosophical, economic, and moral issue. Expressing antagonism toward a monetary system which is inflated at whim at the expense of those who are coerced into holding it is a very reasonable position to take, IMO.

3) Regarding mining, exponentially increasing difficulty is anything but foolish. You forget that one of the primary reasons for the number crunching (which you call wasteful) is to make it difficult for any computer or network of computers to manipulate the protocol. The longer Bitcoin operates, the more secure the blockchain becomes due to this dynamic. Not foolish.

At the core of your skepticism is, I think, a disapproval toward anyone who is able to obtain wealth without "hard work." Some miners will indeed make a killing from their early discovery of Bitcoin, and that doesn't sit well with you. You think it's "unfair." The irony, of course, is that in the same breath you defend fiat paper currencies which have for centuries enabled the politically connected to obtain incredible wealth through the process of inflation. Yet, it is not wealthy bankers profiting from the printing presses for whom you seem to have disdain - but rather a small group of tech-enthusiasts who first discovered what may become a revolutionary technology, and risked their own time and capital to invest in it.

[kwhcoin]

A good skeptic should ask, "is the underlying technology/protocol of Bitcoin sound?" If it is, then all those tertiary issues will be solved over time because the marketplace wants to profit from the efficiency of frictionless-money.

There is too much profit to be made from a Bitcoin world for entrepreneurs to ignore such a revolutionary technology merely because they cannot yet purchase gasoline down the street.

I think the majority of Bitcoin skeptics who spend time on this forum are not skeptical about Bitcoin as a concept. Instead, they are skeptical about bitcoins holding their current valuations. However, these same skeptics might think future currencies based on the Bitcoin concept will be wildly successful. There is a big difference between the Bitcoin concept having long term value and bitcoins having long term value and skeptics tend to be aware of this difference. Skeptics may view the Bitcoin concept as revolutionary as search engines or social media but the skeptics are likely to think of Bitcoin as an Altavista or Myspace and imagine there will be lots of competitors that come and go with eventual leaders becoming dominant like Google and Facebook.

[Noam]

Exactly. What the skeptics miss is that the fundamental problem has been solved: decentralized digital money. All of the other problems (hard to use, pseudonymity instead of real anonymity, etc.) are not fundamental; they are opportunities in disguise.

Astrohacker - your last line is so true and absolutely inspiring...

[foggyb]

Skeptics may view the Bitcoin concept as revolutionary as search engines or social media but the skeptics are likely to think of Bitcoin as an Altavista or Myspace and imagine there will be lots of competitors that come and go with eventual leaders becoming dominant like Google and Facebook.

Google, facebook, Myspace, are FREE services. People don't need to trust them. Using these services is like having a friend with benefits. Becoming a bitcoin user involves a little more commitment, a little more trust. In some cases, A LOT.

So I propose Bitcoin will not be abandoned as readily as you suggest. Bitcoin isn't a fickle adventure like some long-forgotten internet upstarts. Bitcoin's properties never change.
 
 *cue 80's dance music*
 *Rick Astley swaggers in from stage left*

"Never gonna give you up...."

[Giraffe.BC]

1) There is nothing wrong with speculators (so long as they aren't defrauding anyone) - they are merely individuals who try to predict future value, by putting their own money on the line. An efficient market is made by their actions, as they bring pricing signals forward in time. It's as important in Bitcoin as it is in the oil markets. But people HATE speculators! 

I have no problem with speculators, but they will kill / have already killed Bitcoin as a currency.  Obviously, if there's money to be made, people are going to try to make it, so the trick is to set up the system so that speculation can't make it so unstable as to be unattractive to new adopters.  I have no idea how to do this, but whoever designs the next cryptocurrency had better be thinking about it.

2) The dollar IS just paper, man. It's an important philosophical, economic, and moral issue. Expressing antagonism toward a monetary system which is inflated at whim at the expense of those who are coerced into holding it is a very reasonable position to take, IMO.

Oh dear, I suspect you might be one of the nutter-butters I was referring to.  Here, write this down:  The USD isn't going anywhere.  It's not 1895, you don't need to trade your greenbacks for shiny metal anymore.  Controlled inflation is a good thing, not a bad thing.

It's puzzling to me that so many people involved with a cutting-edge electronic currency project are so economically primitive.

3) Regarding mining, exponentially increasing difficulty is anything but foolish. You forget that one of the primary reasons for the number crunching (which you call wasteful) is to make it difficult for any computer or network of computers to manipulate the protocol. The longer Bitcoin operates, the more secure the blockchain becomes due to this dynamic. Not foolish.

It's completely foolish.  The actual horsepower needed to validate transactions is a tiny fraction of the horsepower currently being used to mine new blocks.  As for manipulation, the peer to peer transaction network would be far more secure if it were composed of a vast number of individuals with modest computing resources vs. a relatively small pool of dedicated mining clusters.  The choice of an exponential algorithm was arbitrary and is a huge barrier to scalability, since it requires massive hyperdeflation to scale up.  Which is a terrible expansion model for an electronic currency you expect anyone to voluntarily use.

At the core of your skepticism is, I think, a disapproval toward anyone who is able to obtain wealth without "hard work." Some miners will indeed make a killing from their early discovery of Bitcoin, and that doesn't sit well with you. You think it's "unfair." The irony, of course, is that in the same breath you defend fiat paper currencies which have for centuries enabled the politically connected to obtain incredible wealth through the process of inflation. Yet, it is not wealthy bankers profiting from the printing presses for whom you seem to have disdain - but rather a small group of tech-enthusiasts who first discovered what may become a revolutionary technology, and risked their own time and capital to invest in it.

I couldn't care less about who made how much money on Bitcoins, I'm just giving my perspective as a casual miner who is dubious of the long-term viability of this project based on the underlying mechanics and current market conditions.  It wouldn't bother me to be proven wrong.

[Elwar]

I have been following the electric car industry since the early 90s. There have always been people who would build an electric car in their garage or work with others to design the best electric car that they could figure out.

The skeptics always point out the whole thing of not being able to go more than 20 miles on a charge or the amount of time it takes to recharge your car or for those who were saying it was good for the environment they would be shot down by people talking about how most of the US electricity comes from coal.

All true in the early stages. And there are still the same downfalls but the potential is far beyond what it is today. The earliest cars were able to go 20 miles on a single charge. Newer cars are able to go 100 miles on a single charge. If the next generation of electric car takes the same jump you will have electric cars with a range of 500 miles, then over 2,000 miles...

We are in the stage of the 20 mile guy in a garage type of work. I can see 2 to 3 years down the road the big boys needing to start to integrate the use of Bitcoins in a few of their products just to test the waters as the percentage of use grows.

[w1R903]

[...]
I still think it's an interesting project that will be used as a model by future economists, but I'd be very uneasy if I had a large amount of money tied up in them at this point. 

1) There is nothing wrong with speculators (so long as they aren't defrauding anyone) - they are merely individuals who try to predict future value, by putting their own money on the line. An efficient market is made by their actions, as they bring pricing signals forward in time. It's as important in Bitcoin as it is in the oil markets. But people HATE speculators! 

2) The dollar IS just paper, man. It's an important philosophical, economic, and moral issue. Expressing antagonism toward a monetary system which is inflated at whim at the expense of those who are coerced into holding it is a very reasonable position to take, IMO.

3) Regarding mining, exponentially increasing difficulty is anything but foolish. You forget that one of the primary reasons for the number crunching (which you call wasteful) is to make it difficult for any computer or network of computers to manipulate the protocol. The longer Bitcoin operates, the more secure the blockchain becomes due to this dynamic. Not foolish.

At the core of your skepticism is, I think, a disapproval toward anyone who is able to obtain wealth without "hard work." Some miners will indeed make a killing from their early discovery of Bitcoin, and that doesn't sit well with you. You think it's "unfair." The irony, of course, is that in the same breath you defend fiat paper currencies which have for centuries enabled the politically connected to obtain incredible wealth through the process of inflation. Yet, it is not wealthy bankers profiting from the printing presses for whom you seem to have disdain - but rather a small group of tech-enthusiasts who first discovered what may become a revolutionary technology, and risked their own time and capital to invest in it.

Well-said.

[kwhcoin]

Exactly. What the skeptics miss is that the fundamental problem has been solved: decentralized digital money. All of the other problems (hard to use, pseudonymity instead of real anonymity, etc.) are not fundamental; they are opportunities in disguise.

Astrohacker - your last line is so true and absolutely inspiring...

Skeptics don't necessarily miss the fundamental problem that has been solved. Skeptics can also see how Bitcoin's issues can be seen by people as opportunities in disguise  . . .  which includes people inspired to create a better Bitcoin-like system.

[bitfreak!]

I'm Bob Dole, and I approve this message.

That made me LOL so hard. But if I'm brutally honest with myself, I would say Bitcoin has a 35% chance of failing. That's just a wildly speculative guess though, based on my understanding of how it works, which isn't very advanced. I do believe a secure crypto-currency is completely possible. The question is, will Bitcoin be that currency. It already has quite a large sum of real dollars invested in it, so a sudden failure would be quite catastrophic.

[evoorhees]

I have no problem with speculators, but they will kill / have already killed Bitcoin as a currency.  Obviously, if there's money to be made, people are going to try to make it, so the trick is to set up the system so that speculation can't make it so unstable as to be unattractive to new adopters. 

Speculators make markets MORE stable, not less. Or perhaps I should rephrase that - they make markets more rational, because when a speculator sees a price he deems "irrational" he can take a financial position in the other direction and profit if he's correct. This incentive encourages people to critically asses the market in question. A market in which speculation was difficult would be a market I'd be less confident in.

Oh dear, I suspect you might be one of the nutter-butters I was referring to.  Here, write this down:  The USD isn't going anywhere.  It's not 1895, you don't need to trade your greenbacks for shiny metal anymore.  Controlled inflation is a good thing, not a bad thing.

It's puzzling to me that so many people involved with a cutting-edge electronic currency project are so economically primitive.

Protip: name-calling is unnecessary. I'm not going to call you a "nutter-butter" just because you believe economies should be centrally-planned.

People have this impression that the dollar has been around for hundreds of years and has proven its trustworthiness. They do not realize that it has only been a mere 35 years since it was disconnected from gold. The USD, in its current form, is only 35 years old, and given the fact that the US Gov is in debt far beyond what it can repay without printing the money (especially if interest rates rise), and that other nations are growing increasingly skeptical about its place as the world reserve currency, you will see the dollar in a long-term decline over the coming two decades. This decline could turn into a collapse very quickly as the vast sums held in reserves are sold by nations who increasingly prefer to trade without US dollars.

And let us not forget that the US is already defaulting on its debt by buying its own Treasuries with printed dollars from the Federal Reserve (euphemistically referred to as "quantitative easing"). It is paying back creditors with devalued currency - that is a default by any honest assessment.

It was not so long ago as 1895 as you jest that the Dollar was backed by gold. It was the 1970's, good sir. And so you're certainly welcome to put your trust in politicians who understand nothing about economics - for god's sake they listen to Bernanke who was unable to predict the greatest housing collapse and recession in 80 years - but I do not trust them as you do.

You make fun of gold, because you do not understand why it is good money - you do not understand why it is preferable to paper fiat. You claim that "controlled inflation" is a good thing... not realizing that what you advocate amounts to "controlled theft of property" by the Federal Reserve for the benefit of the US Government and at the expense of all holders of US Dollars.  Money itself - the very core commodity of an economy - is a monopoly product and service of the US Government, and yet school children spout that we live under free-market capitalism?! How silly is this! The price of money itself (interest rate), is fixed! 

You call me "economically primitive" because I think money, like all goods and services, should be chosen and priced by the free market, instead of by politicians? That's primitive? Is someone who believes in gravity primitive, merely because such a theory is hundreds of years old? The laws of markets, like those of apple trees, do not change over time. And do you think your beloved fiat is a new invention? Governments have been inflating money supplies for thousands of years, trying to bolster the wealth of a nation by printing it. THAT, in my opinion, is not only primitive but highly immoral and profoundly destructive.

You admit to being "puzzled" that so many Bitcoin advocates are "economically primitive." It would do you well to check your premises.

[BitOffer]

Skepticism is a healthy attribute. And to be brutally honest, of course Bitcoin is likely to fail - all new things are likely to fail. We're all engaged in a wildly speculative and risky venture, here. Even conservative ventures usually fail, and this is anything but conservative.
However, skeptics seem to be fixated on Bitcoin as it exists in the immediate present and this is severely damaging their objective analysis. They see that Bitcoin is hard to carry in one's pocket. They see that PC-based wallets are vulnerable. They see that one cannot yet buy gasoline and bread with Bitcoins.  And seeing these problems, they then assume such issues will always remain and thus are hesitant to believe in the Bitcoin idea.
And so I don't mean to be rude, or draw silly comparisons, but it seems this is a bit like observing the Wright brothers, and their floppy, ridiculous plane, and then dismissing air travel because of all the problems. "Well, only one person can fly on that craft," "Well, it can't go much faster than a car," "Well, there is a high danger of crashing and dying," "Well, it is much too expensive to build something so useless." "Well, these are way less convenient and reliable than a horse." "Well, this is nothing but a dangerous toy," "Well, man was not meant to fly," etc. As I've mentioned elsewhere on this forum, my great-grandmother's college science textbook assured her that man would never be able to go to space, because there was no air.
Friends, allow the free market to observe these problems and it will tend to solve them. Can't easily reimburse your friends for drinks using Bitcoin? BAM - Brain Armstrong's Android app is released yesterday and looks brilliant. Tired of using only one vulnerable exchange? BAM - a half dozen more have sprung up in the past month. No easy way to accept Bitcoin payments on your website? BAM - Bit-pay.com appears.
A good skeptic should ask, "is the underlying technology/protocol of Bitcoin sound?" If it is, then all those tertiary issues will be solved over time because the marketplace wants to profit from the efficiency of frictionless-money.
There is too much profit to be made from a Bitcoin world for entrepreneurs to ignore such a revolutionary technology merely because they cannot yet purchase gasoline down the street.
As Wayne Gretzky said, "look where the puck is going, not where it is."

I think you summed it up quite nicely. The skeptics all focus their points on non issues. Things that will be taken care of by free market exposure, but Of-course, they don't see it that way. They are ingrained of normalcy, and different scares people. You just can't expect regular folks who lack basic economic 101 knowledge to jump on board. If we want to tap the mindless zombie market(people who buy videos games because of the box cover or commercials), we will need proof of success, and that only comes with time.

[kloinko1n]

<snip] but the model of exponentially-increasing difficulty is just foolish.  A model where participants earn a share of transaction fees based on the number of actual transactions they help process would be far less wasteful of electricity and CPU cycles and could potentially encourage far broader adoption of the Bitcoin software[snip>

It is feared that this scheme you propose would lead to an exponentially fast increase in the number of bitcoins, with a sudden stop at 21 million. The current scheme is much less violent.

[kloinko1n]

Im skeptical of this shitty thread. I mean REALLY?

Ignoramus is my name 

[Giraffe.BC]

Speculators make markets MORE stable, not less. Or perhaps I should rephrase that - they make markets more rational, because when a speculator sees a price he deems "irrational" he can take a financial position in the other direction and profit if he's correct. This incentive encourages people to critically asses the market in question. A market in which speculation was difficult would be a market I'd be less confident in.

For commodities markets, sure.  For a fledgling currency?  Not so much.  There's a reason that early on, currencies have always had to be backed by something tangible:  it allows a consistent, stable value for the currency to exist right out of the gate, so people don't have to worry that they're going to be stuck with worthless paper if they accept it for their goods and services.  It's like training wheels on a bike -- you really need extra stability at first to build confidence. 

Protip: name-calling is unnecessary. I'm not going to call you a "nutter-butter" just because you believe economies should be centrally-planned.

If it helps, I meant nutter-butter in the nicest possible way. 

People have this impression that the dollar has been around for hundreds of years and has proven its trustworthiness. They do not realize that it has only been a mere 35 years since it was disconnected from gold. The USD, in its current form, is only 35 years old, and given the fact that the US Gov is in debt far beyond what it can repay without printing the money (especially if interest rates rise), and that other nations are growing increasingly skeptical about its place as the world reserve currency, you will see the dollar in a long-term decline over the coming two decades. This decline could turn into a collapse very quickly as the vast sums held in reserves are sold by nations who increasingly prefer to trade without US dollars.

What other currency is the rest of the world going to switch over to?  Euros?  Yuan?  Yen?  The USD is still far and away the safest place for other nations' currency reserves. 

I agree that our national debt is getting too large and we need to reduce our deficit to avoid getting ourselves into hot water down the road, but it's hardly the impending apocalypse you're trying to portray it as.  As for your 35 year argument, you're trying to create a more uncertain image for the USD than is realistic.  It's not like there was some fundamental shift in the 70's where people were marching down to the bank to get their gold every week and suddenly couldn't because of this massive paradigm shift.  The government simply realized that keeping large reserves of gold was unnecessary -- the training wheels could be taken off and the bike would keep rolling along just fine.  Which it has, and will continue to do.  Better, in fact, because now without the training wheels you can do maneuvers you couldn't do (like avoid a full blown economic depression).

[Giraffe.BC]

<snip] but the model of exponentially-increasing difficulty is just foolish.  A model where participants earn a share of transaction fees based on the number of actual transactions they help process would be far less wasteful of electricity and CPU cycles and could potentially encourage far broader adoption of the Bitcoin software[snip>

It is feared that this scheme you propose would lead to an exponentially fast increase in the number of bitcoins, with a sudden stop at 21 million. The current scheme is much less violent.

Only if you insist on having a 21 million upper limit.  I contend this is a bad idea, and one of the weaknesses of the Bitcoin model.

[evoorhees]

What other currency is the rest of the world going to switch over to?  Euros?  Yuan?  Yen?  The USD is still far and away the safest place for other nations' currency reserves.  

I agree that our national debt is getting too large and we need to reduce our deficit to avoid getting ourselves into hot water down the road, but it's hardly the impending apocalypse you're trying to portray it as.  As for your 35 year argument, you're trying to create a more uncertain image for the USD than is realistic.  It's not like there was some fundamental shift in the 70's where people were marching down to the bank to get their gold every week and suddenly couldn't because of this massive paradigm shift.  The government simply realized that keeping large reserves of gold was unnecessary -- the training wheels could be taken off and the bike would keep rolling along just fine.  Which it has, and will continue to do.  Better, in fact, because now without the training wheels you can do maneuvers you couldn't do (like avoid a full blown economic depression).

Well your response was civil, thank you =)

Regarding the 35 year argument, there WAS a fundamental shift in the 70's. That shift happened August 15, 1971 when the "gold window" was eliminated - the gold window allowed foreign nations to exchange dollars for gold at a fixed rate ($35/ounce). American citizens were not allowed to exchange in this way, but nations could. In other words, the US dollar was still on some semblance of a gold standard until that day.

At the beginning of 1971, a US dollar was essentially still "as good as gold," at least on an international level. After the gold window was closed, the US became pure fiat. This was even more influential because many other countries tied their currencies to the dollar, so it effectively thrust much of the world into fiat. You wouldn't call this a "fundamental shift?" I'm guessing you never learned this in school... I sure didn't. Not surprisingly, after the gold standard was completely destroyed the value of the dollar plummeted and within three years it took $195 to buy an ounce of gold instead of $35.

This was the equivalent of a default on debt obligations. If you were a foreign nation, and held dollars, this dealt you a crushing blow. Instead of your dollar pile representing a set weight of gold, it now represented... nothing. Or more accurately, it represented "faith" in the US Government. The US Gov defaulted only a few decades ago... also didn't learn that in school, right? =)

So perhaps you consider gold "training wheels," and you say a mature currency doesn't need them. Well, the dollar has lost 80% of its purchasing power in these few decades since. It will lose much more than that in the next decade or two.

Voltaire famously said, "paper money eventually returns to its intrinsic value - zero." I think you may find yourself understanding why that is the case over the next several years.

[Nescio]

Speculators make markets MORE stable, not less. Or perhaps I should rephrase that - they make markets more rational, because when a speculator sees a price he deems "irrational" he can take a financial position in the other direction and profit if he's correct. This incentive encourages people to critically asses the market in question. A market in which speculation was difficult would be a market I'd be less confident in.

Then you are naive because a speculator will aim to maximize profit, not 'be rational'. That means striving to control the market to the detriment of all others, eliminate competitors etc. 'People' like Goldman Sachs have been expertly subverting the market for quite a while now (starting with some deregulation in the Reagen era), it's anything but rational now. The result is that the economy and the government are taken financially hostage, if they don't cooperate with the robber barons they simply threaten to let the whole thing collapse.

Otherwise I agree with the rest of your points The US Dollar is dead and buried and quantitative easing is just the last round of wealth redistribution. There are some long term economic problems with the Bitcoin model that I have no answer for, but it's a helluva lot better than the untouchable vampires controlling the economy now.

BTW, the fundamental problem is uncontrolled greed in human nature IMHO, not decentralization.

[billyjoeallen]

Speculators make markets MORE stable, not less. Or perhaps I should rephrase that - they make markets more rational, because when a speculator sees a price he deems "irrational" he can take a financial position in the other direction and profit if he's correct. This incentive encourages people to critically asses the market in question. A market in which speculation was difficult would be a market I'd be less confident in.

Then you are naive because a speculator will aim to maximize profit, not 'be rational'. That means striving to control the market to the detriment of all others, eliminate competitors etc. 'People' like Goldman Sachs have been expertly subverting the market for quite a while now (starting with some deregulation in the Reagen era), it's anything but rational now. The result is that the economy and the government are taken financially hostage, if they don't cooperate with the robber barons they simply threaten to let the whole thing collapse.

Otherwise I agree with the rest of your points The US Dollar is dead and buried and quantitative easing is just the last round of wealth redistribution. There are some long term economic problems with the Bitcoin model that I have no answer for, but it's a helluva lot better than the untouchable vampires controlling the economy now.

BTW, the fundamental problem is uncontrolled greed in human nature IMHO, not decentralization.

You just can't argue with nitwits like this. It's competition between rival speculators that produces stability. Buying low and selling high keeps the price in the middle.

[Nescio]

You just can't argue with nitwits like this. It's competition between rival speculators that produces stability. Buying low and selling high keeps the price in the middle.

You mean like the 35% swing on tuesday/wednesday? Yeah, it's working fantastic Sherlock.

[billyjoeallen]

You just can't argue with nitwits like this. It's competition between rival speculators that produces stability. Buying low and selling high keeps the price in the middle.

You mean like the 35% swing on tuesday/wednesday? Yeah, it's working fantastic Sherlock.

There's no short-selling options (puts) to cover. Gotta have the tools to do the job, Watson.

[patvarilly]

Skepticism is a healthy attribute. And to be brutally honest, of course Bitcoin is likely to fail - all new things are likely to fail. We're all engaged in a wildly speculative and risky venture, here. Even conservative ventures usually fail, and this is anything but conservative.

I agree with you on most of what you say: Bitcoin is a technical marvel, and it's shown by example how to set up a distributed currency system.  I would love to see the day when I can send money internationally instantly and without an intermediary / enormous fees.  I'm learning everything I can about the technical aspects of Bitcoin and am hoping to contribute back to the community in due time to bring its vision to fruition.

But I think what will ultimately happen is that the original Bitcoin will fail and a successor to it with saner economics will take over it.  At the risk of igniting the wrath of others on this forum (as I've seen happen elsewhere, even in this post to a partial extent), the fact that Bitcoin is deflationary will, I think, ultimately be its undoing:

* I don't see how, in the long run, a large number of people will spontaneously show the altruism necessary to get past the hoarding mentality of "why should I buy this today when I can buy twice of it tomorrow".  If everybody hoards their Bitcoins, merchants have no customers.  This is essentially a tragedy of the commons: everyone knows this will be a tragedy, and everyone hopes that there will be a vibrant Bitcoin economy, but the incentives at the individual level are set up so that you participate in that economy as little as possible while hoping that others won't do what you do.  We all know from experience that in these situations, it's the commons that yields, not the individuals.  Bitcoin attracts lots of "free market" people that loudly point out the importance of the word "free", but you can't spell "free market" without the word "market".

* I don't see how any kind of lending will work well (operative keyword: well) in the Bitcoin world.  Put yourself in the mentality of 100 years into the future when everyone earns BTCs and can buy anything with BTCs.  Now, if I lend you money, I will reasonably ask you to pay me back more than what I gave you; otherwise, I might as well have kept my money and not run the risk that you'd default on the loan.  But with every passing month, it becomes harder and harder for you to pay back the loan, as your salary drops and drops every day.  Now imagine something wonderful happens: I don't know, the Internet gets invented and millions of new jobs get created, so the economy expands, and so your paycheck goes *way* down.  Your debt hasn't, and you're screwed, even though things were supposed to have gotten better, not worse.  In an inflationary system, banks get screwed if the inflation rate goes way up (and they marshall the resources to fight this possibility hard), but banks are much better at coping with large economic shocks than are individuals with relatively tiny savings.

In a spirit diametrically opposite to what Bitcoin is supposedly setting out to do, I can't think of a better way of transferring enormous amounts of power to a small clique of bankers than deflationary lending.  All these people have to do is lend out money, charge interest, and never do anything with that money.  So either people aren't going to borrow money (good luck buying a house with your savings before you're 50 if you're in the bottom 98% income bracket), or we get enormous concentrations of power in lenders.  Neither of these prospects is appealing, and if the community's answer to these problems is to pretend that they don't exist, then by and large, the outside world's reaction to Bitcoins will be to pretend that they don't exist.

* By the way, try convincing anyone that its fine for their *nominal* paycheck to go down and down as they work more and more.  I think human psychology will trump the rational explanation that the amount of stuff you can buy with your ever-decreasing paycheck remains constant or increases.  Look at how many gimmicks companies today will go through to avoid cutting salaries during a recession, it's utterly demoralizing.

What I think might actually take off is a Bitcoin-like currency with a baked-in small, fixed rate of inflation, say 2% or so.  This gets rid of the hoarding problem: you're better off investing your money in something productive than sitting on it indefinitely.  It gets rid of the initial distribution problem by inflating away the "hard-earned" savings of the early adopters that stop contributing to the community after a few months of "back-breaking" mining, without undermining the savings of those who invested in furthering the Bitcoin ecosystem (my understanding is that some early adopters hold double-digit percentages of the whole Bitcoin economy, which puts it on par with Zimbabwe's wealth distribution).  It lays down the foundational for a sustainable banking system, where there's actually an incentive to lend money that would otherwise sit idle.  There's no central banker pulling the levers to control the inflation rate or to benefit from its control, if that's the bug that keeps you awake at night (see OP's last few replies), so it's not central-planning [off-topic, just thought I'd mention that there's a wide spectrum of economic possibilities from deflation to authoritarian central planning, and it's a stretch to claim that guiding macroeconomic policy with a single, blunt lever is equal to authoritarian central planning].

The way I imagine this playing out is that Bitcoin eventually forks into separate currencies, and the mildly inflationary variants are the ones that actually gather mass momentum, leaving the deflationary variants in the dust (with their hoarders' fortunes not having lost a cent of nominal value, but becoming ultimately worthless).  Mild inflation, not subject to political influence, is a fair and equitable way of incentivizing economic activity and investment.

I know many of these things have been said before, but I think it's important to keep them in the day-to-day discussion.  The community hasn't come to a consensus that deflation economics is great (I get the sense there's a collective delusion that it has), and to me, that's the point that seems most likely to end Bitcoins as it exists today.  My optimism, which I share with the OP, is that the underlying technology is marvelous and the fundamental idea of Bitcoin is sound, so I expect those portions of the experiment to outlive Bitcoin itself.

[wumpus]

I don't think "deflation is great". I do think it is the only way a new, distributed currency can work. If you don't put limits on the rate in which they can be produced you'll get that crazy inflation that you have in game currencies.

To be able to withstand being able to print money in arbitrary amounts, a currency already needs a lot of trust. Only the USD can pull this off I think

For a distributed currency without central "trusted" entity, a maximum amount is the only reassurance that the amount won't grow sky-high and devalue into nothingness.

[hashman]

I agree with you on most of what you say: Bitcoin is a technical marvel, and it's shown by example how to set up a distributed currency system.  I would love to see the day when I can send money internationally instantly and without an intermediary / enormous fees.  I'm learning everything I can about the technical aspects of Bitcoin and am hoping to contribute back to the community in due time to bring its vision to fruition.

But I think what will ultimately happen is that the original Bitcoin will fail and a successor to it with saner economics will take over it.  At the risk of igniting the wrath of others on this forum (as I've seen happen elsewhere, even in this post to a partial extent), the fact that Bitcoin is deflationary will, I think, ultimately be its undoing:

The number of bitcoins increases with time.  This is called monetary inflation.  Right now it is close to 40% annual inflation.  What is deflationary again?  Perhaps you are referring the the increase in price for a bitcoin as valued in USD.  This is due to rising demand and not monetary inflation.      

* I don't see how, in the long run, a large number of people will spontaneously show the altruism necessary to get past the hoarding mentality of "why should I buy this today when I can buy twice of it tomorrow".  If everybody hoards their Bitcoins, merchants have no customers. 

Actually, we should have spent them three weeks ago because today we can only buy half of what we could then.  However your argument does have merit, in alternative currency communities it is often discussed using a currency that loses value at a specific date, to encourage spending.  Such a currency may have merit but it is not this one.  This one is more modeled after gold.  

Why do you assume my salary drops every day?  It seems you are assuming that demand for bitcoins will rise with no limit.  That isn't possible.  Currencies fluctuate and financial institutions have various means of dealing with that, variable rate loans and options, etc.  One could easily envisage variable rate loan payments tied to other commodities, in the short term such as the USD.  If you really thought the demand was going to outstrip inflation you could offer people loans with negative interest rates.  Stranger things have happened.        

    

[patvarilly]

I don't think "deflation is great". I do think it is the only way a new, distributed currency can work. If you don't put limits on the rate in which they can be produced you'll get that crazy inflation that you have in game currencies.

One simple alternative, proposed here http://forum.bitcoin.org/index.php?topic=18460.0, is to change the per-block subsidy rule so that instead of paying out 50 BTC per block + fees, it pays out (2% of the total money supply)/(number of blocks produced per year) (equal to about 125 BTC nowadays).  That minimally dilutes the value of everyone's BTCs and assigns it proportionally to whoever is securing the blockchain today, which seems at least as good a setup for incentivizing block hashing as the one there is today.  It's only a slight change in the Bitcoin rules (with large consequences of course), and I don't see why the distributed currency wouldn't work if that change were made.  I'm not suggesting this is the best way of implementing algorithmic inflation, but am merely pointing out that doing this isn't impossible.

[wumpus]

One simple alternative, proposed here http://forum.bitcoin.org/index.php?topic=18460.0, is to change the per-block subsidy rule so that instead of paying out 50 BTC per block + fees, it pays out (2% of the total money supply)/(number of blocks produced per year) (equal to about 125 BTC nowadays).

I agree with you that a predefined, fixed % of inflation could have worked too. At least in the long run.

However, to get initial adopters the current approach was a really good idea. Instead of a fixed 2% per year, the inflation (production of new coins) is high in the beginning and goes down over time. I'm not sure why it goes down to 0%, though, but I think it's too late to change that.

[patvarilly]

The number of bitcoins increases with time.  This is called monetary inflation.  Right now it is close to 40% annual inflation.  What is deflationary again?  Perhaps you are referring the the increase in price for a bitcoin as valued in USD.  This is due to rising demand and not monetary inflation.      

No, no, I should have been clearer.  I mean to imagine how bitcoin will work when/if it goes mainstream, long after the initial inflationary push is gone.  Imagine that everyone now uses Bitcoins for everything on a daily basis.  That's where all these problems of hoarding / inefficient lending / salary deflation would become very serious.

Actually, we should have spent them three weeks ago because today we can only buy half of what we could then.  However your argument does have merit, in alternative currency communities it is often discussed using a currency that loses value at a specific date, to encourage spending.  Such a currency may have merit but it is not this one.  This one is more modeled after gold.  

Same thing here, I'm trying to see what the long-term structural problem is.  Right now, as you said, the currency is very inflationary, very volatile, and almost no one depends on its properties for buying food and paying the rent.  I agree that Bitcoin is modeled after gold.  My point is that that's what will eventually kill the current incarnation of Bitcoin.

Why do you assume my salary drops every day?  It seems you are assuming that demand for bitcoins will rise with no limit.  That isn't possible.  Currencies fluctuate and financial institutions have various means of dealing with that, variable rate loans and options, etc.  One could easily envisage variable rate loan payments tied to other commodities, in the short term such as the USD.  If you really thought the demand was going to outstrip inflation you could offer people loans with negative interest rates.  Stranger things have happened.

Again, think longterm.  Say all the initial bitcoins have been handed out, and all that is happening is trading.  Let's say, for purposes of example, that everyone earns a salary in this bitcoin economy.  If each person keeps doing what they do every day, just population growth will increase the amount of economic activity.  Since there are no new bitcoins, the total salary distributed must stay the same, so the per-person salary goes down.  We can't all have constant salaries and there being more of us each day.  In normal times, to population growth you'd have to add additional economic activity (those investments had better do something), which only worsens the problem.  Demand for bitcoins doesn't have to grow without limit: it simply has to grow past the moment when no new bitcoins are generated.

As for the negative-interest loan, you could offer that, and for the whole community, it would be beneficial that you did, but as an individual, you'd be a fool for taking a risk to with a lower reward than taking no risk at all.  Perhaps there are a few altruistic souls out there (think 10,000 BTC pizza), but we can't rely on banker altruism for the well-functioning of an economy.

[patvarilly]

One simple alternative, proposed here http://forum.bitcoin.org/index.php?topic=18460.0, is to change the per-block subsidy rule so that instead of paying out 50 BTC per block + fees, it pays out (2% of the total money supply)/(number of blocks produced per year) (equal to about 125 BTC nowadays).

I agree with you that a predefined, fixed % of inflation could have worked too. At least in the long run.

However, to get initial adopters the current approach was a really good idea. Instead of a fixed 2% per year, the inflation (production of new coins) is high in the beginning and goes down over time. I'm not sure why it goes down to 0%, though, but I think it's too late to change that.

I agree that the initial adoption problem is one of the stumbling blocks.  I've been trying to think of a way that you could set up a transition from the original Bitcoin chain to a new one without necessarily starting out from scratch.  One idea would be for clients to monitor the old and new chains in parallel.  If you decide to switch to the new chain, you would send your Bitcoins to a non-existent address (say, the hash160 of XOR'ing your public key with the string "BERNANKE" repeated a few times).  That would destroy your old Bitcoins, since there's no way of either recovering a private key whose public key will hash to that, or creating a private key on your own that hashes to that.  Then the miners in the new chain would see this nonsense transaction in the old blockchain and add a coinbase transaction in the new chain that deposits those same Bitcoins into the same address on the new blockchain.  The new, parallel chain, relying on pretty much the same technology as Bitcoins, could be incorporated into things like exchanges and payment services nearly painlessly.  However, presumably, the new chain would also have things like a reasonable lending framework, and might attract a bigger following of people than the original chain (it's not a banana republic), so that market forces would make the new chain more valuable.

What do you think?

[wumpus]

I agree that the initial adoption problem is one of the stumbling blocks.  I've been trying to think of a way that you could set up a transition from the original Bitcoin chain to a new one without necessarily starting out from scratch. 

You wouldn't even need to change the chain for that. If everyone agrees to lift the 21 million limit and change the number of coins generated, at some point in the future, the client could be changed to make that change starting from a certain block #.

It will be a very hard sell, of course, and it's arguably a problem that will only occur in the far future as the 21 million limit won't be reached for a long time.

[marcus_of_augustus]

Again, think longterm.  Say all the initial bitcoins have been handed out, and all that is happening is trading.  Let's say, for purposes of example, that everyone earns a salary in this bitcoin economy.  If each person keeps doing what they do every day, just population growth will increase the amount of economic activity.  Since there are no new bitcoins, the total salary distributed must stay the same, so the per-person salary goes down.  We can't all have constant salaries and there being more of us each day.  In normal times, to population growth you'd have to add additional economic activity (those investments had better do something), which only worsens the problem.  Demand for bitcoins doesn't have to grow without limit: it simply has to grow past the moment when no new bitcoins are generated.

You severely confused, probably from being conditioned to an inflationary-monopoly monetary environment. You need to first disentangle monetary economics from the wider economy.

How can a currency be hoarded into a deflationary spiral and become worthless at the same time? Think slowly, and clearly it is impossible, either it is hoarded and gets more valuable or it is dis-hoarded and gets less valuable, it cannot be both.

Currencies that hold their value in a free market of competing currencies will not engender widespread economic deflation by their nature. It is a plain falsehood meant only to support the current state-bankster oligopoly monopolised fiat regimes, stop spreading it. In a monopolistic monetary system a deflationary currency will cause the problems you speak of.

People should be able to save in the money they earn and not get ripped off by inflationistas in the mere act of saving. However, if bitcoin were ever to get co-opted, controlled and monopolised as money by the state then it would be time to get skeptical, deeply skeptical.

[Trader Steve]

For the record, I believe in having a limited supply of bitcoin. If bitcoin was ever changed to be an inflationary money, myself and many others would simply stop using it. We'd probably fork the block chain and refuse to download the latest release. I would venture to predict that the new, inflationary, version would die a quick death.

Just my 2 bitcents.

Trader Steve
http://www.GoldStarBullion.com

[Astrohacker]

Skepticism is a healthy attribute. And to be brutally honest, of course Bitcoin is likely to fail - all new things are likely to fail. We're all engaged in a wildly speculative and risky venture, here. Even conservative ventures usually fail, and this is anything but conservative.

I agree with you on most of what you say: Bitcoin is a technical marvel, and it's shown by example how to set up a distributed currency system.  I would love to see the day when I can send money internationally instantly and without an intermediary / enormous fees.  I'm learning everything I can about the technical aspects of Bitcoin and am hoping to contribute back to the community in due time to bring its vision to fruition.

But I think what will ultimately happen is that the original Bitcoin will fail and a successor to it with saner economics will take over it.  At the risk of igniting the wrath of others on this forum (as I've seen happen elsewhere, even in this post to a partial extent), the fact that Bitcoin is deflationary will, I think, ultimately be its undoing:

* I don't see how, in the long run, a large number of people will spontaneously show the altruism necessary to get past the hoarding mentality of "why should I buy this today when I can buy twice of it tomorrow".  If everybody hoards their Bitcoins, merchants have no customers.  This is essentially a tragedy of the commons: everyone knows this will be a tragedy, and everyone hopes that there will be a vibrant Bitcoin economy, but the incentives at the individual level are set up so that you participate in that economy as little as possible while hoping that others won't do what you do.  We all know from experience that in these situations, it's the commons that yields, not the individuals.  Bitcoin attracts lots of "free market" people that loudly point out the importance of the word "free", but you can't spell "free market" without the word "market".

Hoarding bitcoins is not a problem. There are plenty of units to go around even if everyone hoards. Hoarding merely increases the value of bitcoins.

* I don't see how any kind of lending will work well (operative keyword: well) in the Bitcoin world.  Put yourself in the mentality of 100 years into the future when everyone earns BTCs and can buy anything with BTCs.  Now, if I lend you money, I will reasonably ask you to pay me back more than what I gave you; otherwise, I might as well have kept my money and not run the risk that you'd default on the loan.  But with every passing month, it becomes harder and harder for you to pay back the loan, as your salary drops and drops every day.  Now imagine something wonderful happens: I don't know, the Internet gets invented and millions of new jobs get created, so the economy expands, and so your paycheck goes *way* down.  Your debt hasn't, and you're screwed, even though things were supposed to have gotten better, not worse.  In an inflationary system, banks get screwed if the inflation rate goes way up (and they marshall the resources to fight this possibility hard), but banks are much better at coping with large economic shocks than are individuals with relatively tiny savings.

Lending will be less common in the bitcoin economy, but this isn't a problem. The fact that lending is so common with fiat currency systems is because banks create most of the money out of thin air and give it to themselves, and thus if you need money you have to get it from a bank. So lending is artificially high with fiat currencies because the central banks and their banking cartels have a monopoly on the money. Lending will be back to normal levels with bitcoin.

In a spirit diametrically opposite to what Bitcoin is supposedly setting out to do, I can't think of a better way of transferring enormous amounts of power to a small clique of bankers than deflationary lending.  All these people have to do is lend out money, charge interest, and never do anything with that money.  So either people aren't going to borrow money (good luck buying a house with your savings before you're 50 if you're in the bottom 98% income bracket), or we get enormous concentrations of power in lenders.  Neither of these prospects is appealing, and if the community's answer to these problems is to pretend that they don't exist, then by and large, the outside world's reaction to Bitcoins will be to pretend that they don't exist.

* By the way, try convincing anyone that its fine for their *nominal* paycheck to go down and down as they work more and more.  I think human psychology will trump the rational explanation that the amount of stuff you can buy with your ever-decreasing paycheck remains constant or increases.  Look at how many gimmicks companies today will go through to avoid cutting salaries during a recession, it's utterly demoralizing.

People will accept lower paychecks just like they accept rising prices today.

What I think might actually take off is a Bitcoin-like currency with a baked-in small, fixed rate of inflation, say 2% or so.  This gets rid of the hoarding problem: you're better off investing your money in something productive than sitting on it indefinitely.  It gets rid of the initial distribution problem by inflating away the "hard-earned" savings of the early adopters that stop contributing to the community after a few months of "back-breaking" mining, without undermining the savings of those who invested in furthering the Bitcoin ecosystem (my understanding is that some early adopters hold double-digit percentages of the whole Bitcoin economy, which puts it on par with Zimbabwe's wealth distribution).  It lays down the foundational for a sustainable banking system, where there's actually an incentive to lend money that would otherwise sit idle.  There's no central banker pulling the levers to control the inflation rate or to benefit from its control, if that's the bug that keeps you awake at night (see OP's last few replies), so it's not central-planning [off-topic, just thought I'd mention that there's a wide spectrum of economic possibilities from deflation to authoritarian central planning, and it's a stretch to claim that guiding macroeconomic policy with a single, blunt lever is equal to authoritarian central planning].

No one will want to put their money in an a currency that is just like bitcoin except its value drops with time.

The way I imagine this playing out is that Bitcoin eventually forks into separate currencies, and the mildly inflationary variants are the ones that actually gather mass momentum, leaving the deflationary variants in the dust (with their hoarders' fortunes not having lost a cent of nominal value, but becoming ultimately worthless).  Mild inflation, not subject to political influence, is a fair and equitable way of incentivizing economic activity and investment.

I know many of these things have been said before, but I think it's important to keep them in the day-to-day discussion.  The community hasn't come to a consensus that deflation economics is great (I get the sense there's a collective delusion that it has), and to me, that's the point that seems most likely to end Bitcoins as it exists today.  My optimism, which I share with the OP, is that the underlying technology is marvelous and the fundamental idea of Bitcoin is sound, so I expect those portions of the experiment to outlive Bitcoin itself.

[Nescio]

You just can't argue with nitwits like this. It's competition between rival speculators that produces stability. Buying low and selling high keeps the price in the middle.

You mean like the 35% swing on tuesday/wednesday? Yeah, it's working fantastic Sherlock.

There's no short-selling options (puts) to cover. Gotta have the tools to do the job, Watson.

Oh wait, so you actually concede it's not working right now? Impeccable logic.

[billyjoeallen]

You just can't argue with nitwits like this. It's competition between rival speculators that produces stability. Buying low and selling high keeps the price in the middle.

You mean like the 35% swing on tuesday/wednesday? Yeah, it's working fantastic Sherlock.

There's no short-selling options (puts) to cover. Gotta have the tools to do the job, Watson.

Oh wait, so you actually concede it's not working right now? Impeccable logic.

Something that isn't happening isn't working. Because it isn't happening. Duh.
When short-selling is enabled to a large degree, we will see more short-selling and less volatility.

[Herodes]

There are three kinds of people in this world, which one are you:


The ones that WATCH THINGS HAPPEN,
The ones that MAKE THINGS HAPPEN,
and the ones look around and say WHAT HAPPENED???

[asdf]

2) The dollar IS just paper, man. It's an important philosophical, economic, and moral issue. Expressing antagonism toward a monetary system which is inflated at whim at the expense of those who are coerced into holding it is a very reasonable position to take, IMO.

Oh dear, I suspect you might be one of the nutter-butters I was referring to.  Here, write this down:  The USD isn't going anywhere.  It's not 1895, you don't need to trade your greenbacks for shiny metal anymore.  Controlled inflation is a good thing, not a bad thing.

It's puzzling to me that so many people involved with a cutting-edge electronic currency project are so economically primitive.

Hey, good argument! My turn...

The USD is finished; nobody wants to hold a hot potato. Controlled inflation is a bad thing, not a good thing.

I puzzles me how so many people can make baseless assertions, while being so derogatory and self righteous.

[Giraffe.BC]

Hey, good argument! My turn...

The USD is finished; nobody wants to hold a hot potato. Controlled inflation is a bad thing, not a good thing.

I puzzles me how so many people can make baseless assertions, while being so derogatory and self righteous.

The difference is that my "baseless" assertions actually match reality.  You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.  And probably more than a little greed, as I'm guessing many of you bought gold at absurdly high prices in anticipation of a collapse that's never coming.

[Nescio]

You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.

I don't think there are a lot of people wishing for the complete and utter demise of the USD as that will have global consequences. Nevertheless, it's a real possibility the way things are going.

And probably more than a little greed, as I'm guessing many of you bought gold at absurdly high prices in anticipation of a collapse that's never coming.

You might be right on the second part, a collapse can be prevented by what they are trying to do right now. Raise the debt ceiling and socialize the debt. (Most) US citizens will earn less and less and move towards Chinese wages/standard of living ($2000 a year or something, last I heard). This basically means a reinstatement of feudalism, citizens will work for food and a place to live with little chance of saving anything, just like the Chinese factory wage slaves do now. It's possible, and seemingly in progress already, but obviously not exactly desirable.

Investing in gold will not prevent any of that BTW, there will be plenty of laws to divest you eventually. Maybe there is a chance if you settle elsewhere, provided they don't manage to do the same there. Learn Chinese possibly

[foggyb]

You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.

Then I suppose the meaning and implication of runaway debt is completely lost to you.

US debt will not be paid off. It can't be paid off. NO AMOUNT of taxation, reasonable or otherwise, can put a dent in the US's ocean of debt.

That means a DEFAULT, an overnight trashing of the dollar's value (20-30% inflation in less than a year, it happened to the UK in 1975), large increases in gas and food price, and widespread unemployment of perhaps 30%.

Oh, and world reserve currency status? Say goodbye to it. That will be a killer blow to the USD.

This is coming within a few years at the most, and there is nothing anyone can do about it, except get out of US dollar assets.

[SmokeAndMirrors]

all new things are likely to fail.

I stopped reading here. This quote was probably mentioned and true quite sometime back when neanderthals ruled the earth. Saying something like this now is just retardant( ).

[makomk]

US debt will not be paid off. It can't be paid off. NO AMOUNT of taxation, reasonable or otherwise, can put a dent in the US's ocean of debt.

That means a DEFAULT, an overnight trashing of the dollar's value (20-30% inflation in less than a year, it happened to the UK in 1975), large increases in gas and food price, and widespread unemployment of perhaps 30%.

Oh, and world reserve currency status? Say goodbye to it. That will be a killer blow to the USD.

A good argument, with only one minor issue... why would the US need to pay the debt off in the first place, and how would this lead to a default? US national debt is actually relatively small as a percentage of GDP right now, both compared to historic levels and to other countries. The only thing putting them in any danger of defaulting whatsoever in the imminent future is the Republican's assholish refusal to increase the debt ceiling, and even that's incredibly unlikely to happen.

[EhVedadoOAnonimato]

It's puzzling to me that so many people involved with a cutting-edge electronic currency project are so economically primitive.

"Economically primitive", LOL!

My friend, save yourself the humiliation and go learn some true economics, please. Read some Mises, Hayek, Rothbard. Throw away all your Keynesian crap.

[Nescio]

A good argument, with only one minor issue... why would the US need to pay the debt off in the first place, and how would this lead to a default?

If the US says they aren't going to pay the Chinese, or invent some financial vehicle around it (like inflating the USD into nothingness), the Chinese will retaliate by dumping US treasury bonds. That will default the US without any US say in it. If you say that doesn't matter, then what do you think will happen to Chinese imports? What will happen to the US economy if all the shelves start to resemble the soviet era eastern block? The only thing preventing this is China not wanting a sudden manufacturing collapse either. But eventually they will get to a point where they don't need the US export anymore and other interests will matter more (Taiwan for example).

US national debt is actually relatively small as a percentage of GDP right now,

That depends on whose numbers you believe. Even the cooked numbers say 85% in 2009, 95% in 2010. QE and raising the debt ceiling makes sure it will be over 100% this year.

both compared to historic levels and to other countries.

Heh, the US debt is at a historic high, the US has the largest amount of debt in absolute terms (larger than the whole Euro zone together) and if you exclude tax havens and maybe the UK only a few catastrophies like Iceland, Greece and some IMF colonized African countries come near in relative terms. If you believe some conspiracy sites, the US debt per person is something like 400,000 USD currently. Good luck repaying that by going into more debt (what do you think raising the debt ceiling is good for?).

[Giraffe.BC]

You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.

Then I suppose the meaning and implication of runaway debt is completely lost to you.

US debt will not be paid off. It can't be paid off. NO AMOUNT of taxation, reasonable or otherwise, can put a dent in the US's ocean of debt.

That means a DEFAULT, an overnight trashing of the dollar's value (20-30% inflation in less than a year, it happened to the UK in 1975), large increases in gas and food price, and widespread unemployment of perhaps 30%.

Oh, and world reserve currency status? Say goodbye to it. That will be a killer blow to the USD.

This is coming within a few years at the most, and there is nothing anyone can do about it, except get out of US dollar assets.

Within a few years at most, huh?  You remind me of that guy Camping, who recently predicted the end of the world.  May 21 came and went, and strangely he didn't admit that he was completely wrong.  I doubt you will either when, say twenty years from now or so, you look around and realize everything is still pretty much the same.  No big collapse, no economic apocaplyse (except that gold is back down at $800 an ounce or so, so all the goldbugs lost a ton buying high and refusing to sell), just normal growth and inflation.

Doomsday nuts always seem to forget all their confident assertions as soon as they're proven wrong.



[/quote]

[foggyb]

You remind me of that guy Camping, who recently predicted the end of the world.

99.9999% of all humanity knew Harold Camping was wrong.

I dare you to find five economic experts who agree that US economic health will improve going forward.

Also please note: if the US economy crashes, its not the end of the world, but the end of an era.

[billyjoeallen]

Nobody is more bearing on the long-term American economy than I am, but that doesn't mean hyperinflation is inevitable. A deflationary death spiral is going to happen absent considerable Fed/Treasury intervention (massive money printing). Real estate and labor (wages) are already in a serious deflationary trend. 

Holding physical dollars is the best play if you think one of the TBTFs (such as Bank America) is going down. Considering how overleveraged they are, this is a real possibility.  The majority of dollars, those held in electronic ledgers at banks, would evaporate as the fractional reserve money multiplier works in reverse.  I call this scenario The Great Unwinding.

Bitcoin still has a major roll to play, because if the SHTF, capital controls will be imposed.

[Litt]

OP. Will you be my friend? Because you spoke exactly as my thought process of knowing and understanding bitcoins' main feature that sets it apart with how you compared it with "flight".

All we need to know about bitcoin is that it can indeed "FLY". We don't need to know how fast and how high yet, because we've already learned how to break the barrier of "FLIGHT". All we need now it to make HARDER, BETTER, FASTER, and STRONGER. That will surely come with time. It's not like we are gonna forget how to FLY now that we know how. No matter how much these "skeptics" may want you to believe.

[evoorhees]

all new things are likely to fail.

I stopped reading here. This quote was probably mentioned and true quite sometime back when neanderthals ruled the earth. Saying something like this now is just retardant( ).

Maybe you shouldn't stop reading as soon as a disagreeable point is made, for you may find such a point to be supported by reasoning following the making of said point =)

I said that all new things are likely to fail because it's true. New stuff tends to fail. New businesses, new products, new ideas. The tendency is to fail, and only a minority of them succeed after being tested in the real world. I didn't realize such an observation was contentious?

Statistically speaking, Bitcoin is likely to fail purely because it is new and revolutionary. However, the more one analyzes Bitcoin, the more sound it appears to be. The world will be a much better place if it succeeds... and good riddance to fiat.

[foggyb]

that doesn't mean hyperinflation is inevitable. A deflationary death spiral is going to happen absent considerable Fed/Treasury intervention.

The majority of dollars, those held in electronic ledgers at banks, would evaporate as the fractional reserve money multiplier works in reverse. 

No, not inevitable.  But why would the Fed ever consider backing off with intervention? They know Americans will turn on them if they stop the flow of new money. Since most Americans are in debt, deflation will hurt them just as much as inflation.

[Nescio]

I doubt you will either when, say twenty years from now or so, you look around and realize everything is still pretty much the same.  No big collapse, no economic apocaplyse (except that gold is back down at $800 an ounce or so, so all the goldbugs lost a ton buying high and refusing to sell), just normal growth and inflation.

You do realize that if that 'normal' rate of inflation continues for twenty years as is, the $800 will have become $3200, right? Gold at $1500 now seems a pretty good investment then

Massaged inflation numbers in red, actual in blue, from http://www.shadowstats.com:

A deflationary death spiral is going to happen absent considerable Fed/Treasury intervention (massive money printing).

A deflationary spiral is already happening worldwide, it's just hidden beneath bogus statistics and stimulus packages that temporarily make it appear everything is going well, but in reality are only making things worse. Those packages come from going deeper into debt, which will have its price. The sad truth is, if the Fed does nothing, there will be a sudden crash, if they continue the massive money printing, there will be a long, drawn out one (also see 1920/1921 followed by the roaring twenties vs. the great depression, followed by hyperinflation and WWII..). The sudden crash is better for everybody, even those who stand to lose most from it (politicians/banksters), they just don't want to know it.

None of this is being helped by institutions like Goldman Sachs being allowed to make the same gambits over and over again with impunity (latest example: collude with corrupt Greek politicians to hide Greece's debt while betting against them on the side), and getting bailed out if it backfires.

Holding physical dollars is the best play if you think one of the TBTFs (such as Bank America) is going down.

That logic is mindboggling. Massive money printing, in your own words, will make your Dollars worth more than something they don't massively devalue? If the TBTFs do fail, the first thing to go is the USD. No amount of printing will help that, only accelerate (hyperinflation).

BTW, the off-book debts that are coming out also exist in the US, the UK and the rest of the Eurozone, but they are by far the largest in the US. Hence the ~400k USD debt per capita instead of the so far officially acknowledged ~45k.

If you think gold is in a bubble, at least invest in oil, grain, fresh water or something else that will retain its value then. USD is not that something (neither is the Euro, and definitely not the GBP). I wouldn't actually advise investing in Bitcoin either because that's even more risky right now, but if I had to choose between BTC and USD, I'd take BTC.

And this isn't investment advice, I'm not qualified to give it etc.

[billyjoeallen]

Nobody is more bearing on the long-term American economy than I am, but that doesn't mean hyperinflation is inevitable. A deflationary death spiral is going to happen absent considerable Fed/Treasury intervention (massive money printing). Real estate and labor (wages) are already in a serious deflationary trend. 

Holding physical dollars is the best play if you think one of the TBTFs (such as Bank America) is going down. Considering how overleveraged they are, this is a real possibility.  The majority of dollars, those held in electronic ledgers at banks, would evaporate as the fractional reserve money multiplier works in reverse.  I call this scenario The Great Unwinding.

Bitcoin still has a major roll to play, because if the SHTF, capital controls will be imposed.

The Fed may well intervene. The reason why they may not:
1. because QE2 did fuck-all to lower unemployment and stabilize prices, the two mandates of the Fed.
2. They have to consider the political environment with Ron Paul head of the monetary subcommittee and all-time unpopularity.
3. They could trigger hyperinflation or at least inflation that negates all the positive benefits of money printing (such as lower short-term interest rates). remember the Fed gets it's power from the ability to create money out of thin air. If the dollar became worthless, the FED would be ruined. Paul Volker jacked rates to 20% and threw the entire country into recession circa 1980 to prevent just that scenario from playing out.
4. Money printing could actually raise interest rates if the bond market demands a greater risk premium and real rather than nominal ROI.

What is most likely is that the Fed WILL intervene, but not enough to quell the deflationary pressures.

[hashman]

Again, think longterm.  Say all the initial bitcoins have been handed out, and all that is happening is trading.  Let's say, for purposes of example, that everyone earns a salary in this bitcoin economy.  If each person keeps doing what they do every day, just population growth will increase the amount of economic activity.  Since there are no new bitcoins, the total salary distributed must stay the same, so the per-person salary goes down.  We can't all have constant salaries and there being more of us each day.  In normal times, to population growth you'd have to add additional economic activity (those investments had better do something), which only worsens the problem.  Demand for bitcoins doesn't have to grow without limit: it simply has to grow past the moment when no new bitcoins are generated.

As for the negative-interest loan, you could offer that, and for the whole community, it would be beneficial that you did, but as an individual, you'd be a fool for taking a risk to with a lower reward than taking no risk at all.  Perhaps there are a few altruistic souls out there (think 10,000 BTC pizza), but we can't rely on banker altruism for the well-functioning of an economy.

Interesting.  I never really realized how an inflationary system is required for predatory (profitable) lending.  Well you can make the point that inflationary money encourages spending.. but that doesn't mean it is better because you haven't finished the logical argument.  Perhaps the economy would be better off if we only spend money on things we actually needed.  If you can show me that we would be better off in some way by spending quickly and not hoarding then perhaps I would be convinced. 

Anyway, I love the way btcs have got us all learning about economics!

   

 

[anu]

but the model of exponentially-increasing difficulty is just foolish. 

If the difficulty would increase exponentially, we'd reach the maximum difficulty very quickly. Difficulty is periodically recalibrated so that block generation takes about 10 minutes. The difficulty can also go down, if fewer people find mining worthwile.

-Anu

[Rassah]

Skepticism is a healthy attribute. And to be brutally honest, of course Bitcoin is likely to fail - all new things are likely to fail. We're all engaged in a wildly speculative and risky venture, here. Even conservative ventures usually fail, and this is anything but conservative.

I wish people would stop comparing Bitcoin to a venture/business. It's not an organization, it's a set of protocols that other ventures are built on top of. I think it would be more correct to compare ventures MtGox and BitEscrow to things like Juno e-mail service or Geocities. Sure, those may fail, but the underlying protocol, like e-mail's POP3/SMTP, or web's HTTP, remain intact. The underlying protocol of Bitcoin will likely remain in tact as well, with just upgrades and bug fixes along the way.

[makomk]

Interesting.  I never really realized how an inflationary system is required for predatory (profitable) lending.  

It shouldn't be required for predatory lending - if you're extorting the desperate and foolish for lots of interest payments, you can in theory still make money even if there's some deflation. What deflation does put up a barrier to is sensible lending to (for example) businesses that are looking to expand and expect to make their money back via increased profits, because it puts up the cost of lending significantly. In theory it causes similar problems if you're a business looking to raise money via issuing shares too.

[asdf]

Hey, good argument! My turn...

The USD is finished; nobody wants to hold a hot potato. Controlled inflation is a bad thing, not a good thing.

I puzzles me how so many people can make baseless assertions, while being so derogatory and self righteous.

The difference is that my "baseless" assertions actually match reality.  You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.  And probably more than a little greed, as I'm guessing many of you bought gold at absurdly high prices in anticipation of a collapse that's never coming.

Once again, no argument: "your wrong, just because."

You just keep holding on to those $.

[Giraffe.BC]

The difference is that my "baseless" assertions actually match reality.  You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.  And probably more than a little greed, as I'm guessing many of you bought gold at absurdly high prices in anticipation of a collapse that's never coming.

Once again, no argument: "your wrong, just because."

You just keep holding on to those $.

LOL, you want me to somehow prove to you that the USD is not going to crash?  Want me to prove that an asteroid won't hit Earth next Tuesday while I'm at it?

The burden of proof rests with those making outrageous claims, not with those who are skeptical.

[error]

The difference is that my "baseless" assertions actually match reality.  You and your "OMG the USD is dooooomed!!!" brethren are just spreading FUD based on wishful thinking and a fundamental misunderstanding of basic economics.  And probably more than a little greed, as I'm guessing many of you bought gold at absurdly high prices in anticipation of a collapse that's never coming.

Once again, no argument: "your wrong, just because."

You just keep holding on to those $.

LOL, you want me to somehow prove to you that the USD is not going to crash?  Want me to prove that an asteroid won't hit Earth next Tuesday while I'm at it?

The burden of proof rests with those making outrageous claims, not with those who are skeptical.

OK, so when are you going to prove your outrageous claim that the USD isn't going to collapse?

[Oldminer]

I'm skeptical of this thread

[Bit_Happy]

Exactly. What the skeptics miss is that the fundamental problem has been solved: decentralized digital money. All of the other problems (hard to use, pseudonymity instead of real anonymity, etc.) are not fundamental; they are opportunities in disguise.

Great reminder, thanks. 

[evoorhees]

LOL, you want me to somehow prove to you that the USD is not going to crash?  Want me to prove that an asteroid won't hit Earth next Tuesday while I'm at it?

The burden of proof rests with those making outrageous claims, not with those who are skeptical.

I think history will show that printing trillions of dollars out of thin air and accumulating trillions of dollars in debt tends to be bad news for a currency. And school children years from now will look back with astonishment, giggling among themselves at the stupidity of the former generation.

Rome is burning, but the Romans are drunk on bread and circuses.

[EhVedadoOAnonimato]

I think history will show that printing trillions of dollars out of thin air and accumulating trillions of dollars in debt tends to be bad news for a currency. And school children years from now will look back with astonishment, giggling among themselves at the stupidity of the former generation.

Rome is burning, but the Romans are drunk on bread and circuses.

Interesting you say that and mention Rome in the end, because the Roman empire did pretty much the same thing, by decreasing the amount or precious metal in coins and bars instead of printing money. That brought inflation, to which they reacted with price controls, which, as always, brought scarcity and poverty. That kept going on until people started leaving the cities to live in self-sufficient rural villas, what left the cities unprotected, and the rest we all know.

But school children, more than 1.500 years after, don't learn that. And politicians keep following the same destructive steps almost all over the world, just using fancier and more complicated financial tools.

[Rassah]

LOL, you want me to somehow prove to you that the USD is not going to crash?  Want me to prove that an asteroid won't hit Earth next Tuesday while I'm at it?

The burden of proof rests with those making outrageous claims, not with those who are skeptical.

I think history will show that printing trillions of dollars out of thin air and accumulating trillions of dollars in debt tends to be bad news for a currency. And school children years from now will look back with astonishment, giggling among themselves at the stupidity of the former generation.

Rome is burning, but the Romans are drunk on bread and circuses.

So, what you're saying is that in 500 years, America will become the country with the best pizza and ice cream?

[realnowhereman]

I'm pretty skeptical of Bitcoin's chances at this point.  Not because the underlying technology isn't sound, but because it's been completely co-opted by speculators and "the USD is just, like, paper man!"

I think it helps not to distinguish between trading bitcoins for USD and trading bitcoins for bread.

The sum total of the bitcoin economy is all that is for sale, including USD.  From the point of view of an owner of bitcoins, they are all just products being offered for sale.

At present the bitcoin economy is heavily weighted towards sale of paper with presidents on.  It makes no difference; the economy is flowing, and as long as that sustains, bitcoin will survive.

[makomk]

The sum total of the bitcoin economy is all that is for sale, including USD.  From the point of view of an owner of bitcoins, they are all just products being offered for sale.

At present the bitcoin economy is heavily weighted towards sale of paper with presidents on.  It makes no difference; the economy is flowing, and as long as that sustains, bitcoin will survive.

I don't think that's a terribly useful measure of the size of the economy. In any case, the problem isn't just that most of the Bitcoin "economy" involves buying bits of paper with presidents on, it's that people are getting Bitcoins by selling bits of paper with presidents on in the hope of buying more bits of paper with presidents on with them shortly after, and that's just not sustainable.

[Vandroiy]

I'm skeptical of this thread

++

It really helps to have a statement at hand one is skeptical about. I can provide one if you want; even though I like Bitcoin I'm a skeptic of sorts.

There is just soooo much wrong with the confirmation system. Why is the confirmation timescale so coarse? Why are we using a difficulty changing function that might oscillate? Was it necessary to make the minting cuts so extremely harsh? Why is the system lacking any mechanism to create a reasonable difficulty equilibrium after minting? Why is there no formal plan to use Web of Trust features to augment security without wasting power? Has anyone proven there will be enough incentive to store the block chain in the future? What block size limit can a user expect in the future?

I'm fairly convinced by now that the answer is simple: Bitcoin is a quick-and-dirty design. It is a horrible mess. This is an issue. Should the programmers just walk away, most likely it won't be just the price that drops. The system itself could cease to function. Difficulty too low? Attacker can DoS it. Block chain too large? Nodes become enormous. Block size limit too low? Transaction fees become absurd.

It's not finished. The protocol is incomplete; we all rely on it being somehow worked out in the future. And, seriously: it's 2011. Bitcoin transactions are SLOW.



Everyone's talking as if skeptics must be dollar-lovers or something. I totally want a p2p credit system! I always wanted one. But face the facts, Bitcoin isn't perfect. Instead of solving the issues, everybody is discussing the price chart. That makes me value it lower, because I care for the long-term development -- and most of the current mania is not helping with that.

[anu]

Why is there no formal plan to use Web of Trust features to augment security without wasting power?

Why should there? Any reputation system is orthogonal to Bitcoin.

Has anyone proven there will be enough incentive to store the block chain in the future? What block size limit can a user expect in the future? ..... Block size limit too low? Transaction fees become absurd.

Block size limit is an arbitrary constant in the source. Do you expect raising it to create any dissent that prevents adoption of a new release?

Should the programmers just walk away, most likely it won't be just the price that drops.

That depends on their reason. Should they walk away because they feel like cashing out and retire, others will move in and carry on.

Block chain too large? Nodes become enormous.

That's in fact a nightmare: Bitcoin is wildly successful, but The Bitcoin Network(TM) collapses into a single, enormous data center run by a single corporation when Block size exceeds GBytes. Everyone else runs lightweight clients.

[evoorhees]

It's not finished. The protocol is incomplete; we all rely on it being somehow worked out in the future. And, seriously: it's 2011. Bitcoin transactions are SLOW.

LOL what are you talking about?? In certain circumstances the confirmations can be slow, but you don't need 99.999999999% certaintly for most transactions (and indeed you don't have that now with credit card swipes either, do you?)

Try this and then tell me transactions are slow:
1) Open page at instawallet.org (bookmark that URL, because it's now your unique wallet)
2) Send a btc there from a client that is caught up on the block chain or from a site like MyBitcoin.com

Watch the screen on instawallet.com... the transaction comes through FAST. Very fast, actually.

And what you will see, as the BTC economy matures, is that most wallets will be held in online service providers (like Instawallet etc). Transfers from these trusted sites will be instantaneous when paying others. You will find that BTC transfers become as fast or faster than standard financial transactions, because there are fewer checkpoints/middlemen needed to confirm the trade.

Do you think Diner's Club cards when they were launched in the 1950's were this fast? =)

[evoorhees]

I wish people would stop comparing Bitcoin to a venture/business. It's not an organization, it's a set of protocols that other ventures are built on top of. I think it would be more correct to compare ventures MtGox and BitEscrow to things like Juno e-mail service or Geocities. Sure, those may fail, but the underlying protocol, like e-mail's POP3/SMTP, or web's HTTP, remain intact. The underlying protocol of Bitcoin will likely remain in tact as well, with just upgrades and bug fixes along the way.

That's actually a very appropriate way to look at it - as a protocol.

[billyjoeallen]

Interesting.  I never really realized how an inflationary system is required for predatory (profitable) lending.  

It shouldn't be required for predatory lending - if you're extorting the desperate and foolish for lots of interest payments, you can in theory still make money even if there's some deflation. What deflation does put up a barrier to is sensible lending to (for example) businesses that are looking to expand and expect to make their money back via increased profits, because it puts up the cost of lending significantly. In theory it causes similar problems if you're a business looking to raise money via issuing shares too.

Deflation encourages hoarding, which means savings, which means capital formation. The economiy is ultimately better off when we wait to build something until there are actually enough materials, tools and labor to do it.   Inflation encourages spending which depletes capital formation and therefor production and therefor wealth.

Even in a severe deflationary environment, people still spend. They have to buy food. and money is no good in the first place if you don't spend it.  Computers get cheaper every year and yet somehow people still buy them rather than waiting until next year when they are an even bigger bargain. 

Any amount of money is the right amount. Prices adjust.