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Author Topic: Bitcoin and inherent value  (Read 3279 times)
Anonymous
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July 19, 2011, 11:44:12 PM
 #1

Bitcoin as it stands today is an unstable currency, and one lacking any inherent value outside of the dollar that it can be traded for. As I've brought up in other threads, one of the biggest problems I myself see with Bitcoins is that people are (mostly) refusing to accept Bitcoins at their face value instead of relative worth. For example, I know there are places selling gold or silver for Bitcoins, but I've only ever seen it pegged to the dollar rate of silver.

What would it take to see a Bitcoin to Silver rate? Would it take one investor buying a whole load of silver and hoping that he doesn't lose his return by pegging prices? Would that even be a good thing? It might limit the worth of Bitcoins in some way, but stability would be a good thing, especially because at this point there seem to be some new major problems arising (particularly with regards to malicious programs).

In other words, could stability be forced onto the bitcoin by a single investor willing to peg it's rate to an intrinsically valuable resource? And if so, would that be a good thing? Would it have to be some big MTGox style thing or could it be a retailer?

Personally, I think the future of Bitcoins is dependent on convincing people to stop cashing out. As long as there is major concern over the dollar worth of Bitcoins then it is nothing more than a less stable bond, but if people can be convinced of it's true worth, then we can really see an economy begin to flourish independently of major economic structures.
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There are several different types of Bitcoin clients. Server-assisted clients like blockchain.info rely on centralized servers to do their network verification for them. Although the server can't steal the client's bitcoins directly, it can easily execute double-spending-style attacks against the client.
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July 19, 2011, 11:53:51 PM
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In other words, could stability be forced onto the Bitcoin by a single investor willing to peg it's rate to an intrinsically valuable resource? And if so, would that be a good thing? Would it have to be some big MTGox style thing or could it be a retailer?

Easily and for not much money, either. A credible trader could offer 1 milligram of gold per bitcoin. to back the entire 21 million bitcoins eventually in existence, it would take only 21,000 grams and BAM! gold standard. This would be a floor value, not a constant or ceiling. Others would likely be willing to trade much larger amounts of gold, but unable to back the entire monetary stock. 

a milligram of gold could be traded easily as gold leaf encased in clear plastic the size and shape of a credit card.

I am not recommending anyone do this, BTW. It's silly and completely unnecessary.  I'm just saying it's easily accomplished if anyone wanted to do it.

insert coin here:
1Ctd7Na8qE7btyueEshAJF5C7ZqFWH11Wc

Open an exchange account at CampBX: options, lowest commissions, and best security
https://campbx.com/register.php?r=0Y7YxohTV0B
Anonymous
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July 19, 2011, 11:55:51 PM
 #3

That's true, but to matter it's value would have to be recognizable. A milligram would be throwing away Bitcoins.
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July 20, 2011, 12:09:10 AM
 #4

a milligram of gold could be traded easily as gold leaf encased in clear plastic the size and shape of a credit card.

Shire Silver already makes these. No idea if he accepts Bitcoin though.

15UFyv6kfWgq83Pp3yhXPr8rknv9m6581W
Anonymous
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July 20, 2011, 12:20:41 AM
 #5

What if someone made a move without intentions of backing the entire currency though?
Anonymous
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July 20, 2011, 12:24:03 AM
 #6

Realistically, it would be decided by an investor. Linking it to gold could be interesting, but you'd need the gold to back it in the first place.
Anonymous
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July 20, 2011, 12:27:23 AM
 #7

Because most of those goods are pegged to USD, and at that point we might as well be trading unstable bonds.
Bitcoin_Silver_Supply
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July 20, 2011, 01:00:25 AM
 #8

Because most of those goods are pegged to USD, and at that point we might as well be trading unstable bonds.

This.

Also, I listened to this while reading your original post http://www.youtube.com/watch?v=6CMTXyExkeI
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July 20, 2011, 01:30:57 AM
 #9

I'd say bitcoins have inherent value equal to the cost they save. Any transaction made cheaper or safer by using them demonstrates that. Pegging it to gold or anything else non-digital is going to complicate transactions and so lower their value.
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July 20, 2011, 02:08:17 AM
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Anyone who thinks a currency can be pegged to anything, but especially to another currency, needs to visit South America in the 90's... That didn't turn out so well now, did it?
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July 20, 2011, 02:12:01 AM
 #11

This will only happen when a huge merchant like walmart or amazon accepts bitcoin, even then they might still peg to the dollar until bitcoin is more widely accepted than usd. at that point USD would be pegged to BC.

Anonymous
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July 20, 2011, 07:11:36 AM
 #12

Because most of those goods are pegged to USD, and at that point we might as well be trading unstable bonds.

Are they really pegged to dollars? If I am selling something, and dollars inflate, then I raise the price.

That is literally what being pegged to USD means.
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July 20, 2011, 09:10:40 AM
 #13

Bitcoin as it stands today is an unstable currency, and one lacking any inherent value outside of the dollar that it can be traded for.

There's no such thing as inherent value. We value things.
Gold is so expensive because it is money, not because of its industrial uses.
Money doesn't need "intrinsic value": it can be made of paper or bits.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
Anonymous
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July 20, 2011, 02:42:13 PM
 #14

Your point is correct, those who think gold has some truly inherent value are going to be shocked if the world somehow ended. They may be able to trade a few bars of gold for some bread. Nonetheless, perception of value gives money intrinsic value, as does utility. In this way gold is an average standard, since a lot of its value stems from jewelry, bullion, and other useless nonsense while the majority of the industrial uses are simply ignored. Even if it weren't valuable due to historical reasons though, gold still has a massive amount of industrial value. If you wanted to peg a currency to something genuinely valuable, we could peg it to wheat or rice. Perishable goods are less stable though, and metals have a long history and are thus favored.

Still, if you want people to perceive Bitcoins as valuable, then you're going to have to accept that the way things are now aren't sustainable. People on here love talking about how Bitcoins will be amazing once Wal-Mart takes them but completely skip their own heads as to why a company would adopt a currency capable of fluctuating $5 in value during the time a customer travels around the store.

Stability is a key thing missing from Bitcoins, and some kind of non-USD pegging could go a long way towards remedying that. What about an exchange that traded in a single commodity instead of currency like MTGox does?
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July 20, 2011, 04:51:41 PM
 #15

I wonder how closely bitcoin is pegged to the dollar. If for some reason the dollar plunged 50%, would BTC follow it down? What about the bitcoins traded for other national currencies? Bitcoins traded for goods? Won't these influence the BTC value too?
Anonymous
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July 20, 2011, 08:55:40 PM
 #16

Not likely, the majority of trades take place in USD.
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July 20, 2011, 09:13:14 PM
 #17

Personally, I think the future of Bitcoins is dependent on convincing people to stop cashing out.

For people that are unsure about the success of BTC (and don't want to or aren't able to invest much in buying coins), but would like to see it succeed, here's what you can do to help bitcoin:

First, don't ever sell bitcoins on the exchanges.  Instead, look hard for ways you can spend it on things you need.  There are several market places that are already operational and there are various goods and services that people are willing to provide in the marketplace forums.  People will even let you pick things on amazon or barnes and noble, pay for them in BTC and then ship the goods to you (I've done this myself before).

And, when you need to buy something, always ask yourself first whether you can buy it with bitcoin.  If you can, go buy some bitcoins from an exchange and then buy the product or service using bitcoins.  It may be a bit of a pain right now, but it's getting much easier and the selection of goods much better.  And enduring a little bit of hassle in the short term will go a long way to helping bitcoin succeed (and help make it much easier to use in the future).


(gasteve on IRC) Does your website accept cash? https://bitpay.com
Anonymous
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July 20, 2011, 09:25:23 PM
 #18

But nothing is saying that those people aren't cashing out. You as an individual did a great job in passing off your coins without selling them, but the problem isn't with buyers. It's with retailers. Personally, I made an investment in creating a Bitcoin-based business because I believe there is something there in the future worth striving towards. Right now we're nowhere close, but every little bit helps. My storefront should be ready by september, and my plan is to sell something with real value (as opposed to just stickers and patches that say "BITCOINS") at a pegged rate to Bitcoins. I think the feedback I receive from that will be very telling.
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July 20, 2011, 10:57:07 PM
 #19

But nothing is saying that those people aren't cashing out. You as an individual did a great job in passing off your coins without selling them, but the problem isn't with buyers. It's with retailers. Personally, I made an investment in creating a Bitcoin-based business because I believe there is something there in the future worth striving towards. Right now we're nowhere close, but every little bit helps. My storefront should be ready by september, and my plan is to sell something with real value (as opposed to just stickers and patches that say "BITCOINS") at a pegged rate to Bitcoins. I think the feedback I receive from that will be very telling.

Correct, nothing is saying that those merchants aren't cashing out and in fact many will need to because the merchants will need to pay expenses for which they'll require dollars.  However, at least some commerce in bitcoin (aside from exchange) has taken place.  If the merchants then try and pay some of their suppliers with bitcoin, the use of bitcoin grows by that much more.  This is the way to make bitcoin a success IMO.  At bit-pay.com we're trying use bitcoin as much as possible to pay vendors we use.

Glad to hear you'll be opening a storefront!

(gasteve on IRC) Does your website accept cash? https://bitpay.com
indio007
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July 21, 2011, 04:43:44 AM
 #20

The inherent value in Bitcoin is the continuous security provided to users. The blockchain and all transactions are being continuously verified and authenticated. What other money is there that is having a multitude 3rd parties verify it's legitimate.

Anyone that thinks bitcoin is not backed by a valuable consideration is plain wrong.
Any service is a valuable consideration.
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