Bitcoin and inherent value

[Anonymous]

Every major currency has third party verification done constantly. There seems to be this common misunderstanding that a combination of scarcity and security create value, when in reality there are essentially an infinite number of things that are both impossible to counterfeit and have a limited number. The value in bitcoins as it stands now is that it is an anonymous bond for US dollars, it's value is almost completely dependent on that (for the time being).

[MikesMechanix]

First, don't ever sell bitcoins on the exchanges.  Instead, look hard for ways you can spend it on things you need.  

Isn't the difference between buying currency rather than goods, using Bitcoins, mostly philosophical? Otherwise, I can't see a difference.

FWIW, in Europe a lot of EUR prices fluctuate according to the USD exchange rate, since the importers need to pay in USD. Computer parts are an obvious example, the prices can change a lot over time.

[Jaime Frontero]

everything is pegged to something else.  all that really matters is how you, personally, manipulate exchange rates in your own head.

me, i look at everything in terms of how many loaves of bread it'll get me.  a nifty trick my dad taught me - it's gotten me around the world a couple of times without a hitch.

[Anonymous]

And the number of loaves of bread a bitcoin will get you is exactly as many as the USD you can trade that bitcoin for will get you. I love the idea of bitcoin, but I still don't see how they're more than bonds at this point, and any counterargument seems to involve the economics equivalent of "a wizard did it" followed by fantasy scenarios they view as inevitable (such as major retailers adopting bitcoin).

[indio007]

Every major currency has third party verification done constantly.

For example?
If you buy something at a store and the cashier counterfeit tests the bill and gives you a receipt that would be one verification of the instrument and transaction.
Both don't happen. Neither happen till you transfer the note. Bitcoin network does this while you passively hold them, before they are spent and after they are spent.
It's not even  a close comparison.


I can't even believe you're trying to muddle people's minds that the usage of the Bitcoin network has no value. Believe me, the courts will find it has value.

[realnowhereman]

And the number of loaves of bread a bitcoin will get you is exactly as many as the USD you can trade that bitcoin for will get you. I love the idea of bitcoin, but I still don't see how they're more than bonds at this point, and any counterargument seems to involve the economics equivalent of "a wizard did it" followed by fantasy scenarios they view as inevitable (such as major retailers adopting bitcoin).

Here's a hypothetical: a baker accepts USD or BTC.  However, given that transactions are more secure, and there are no bank fees, he is willing to offer 3% off the equivalent USD price for paying in BTC.  What happens then?  Bitcoins will buy you more loaves than the USD do.  Is it still a bond?

Let's say there was a global payment system based on the internet that charged 3%.  Would it not be worthwhile for a merchant to offer 2.5% off for paying in BTC?

Equivalent prices are not going to last long once merchants realise they can compete on price using bitcoins.

[mmdough]

And the number of loaves of bread a bitcoin will get you is exactly as many as the USD you can trade that bitcoin for will get you. I love the idea of bitcoin, but I still don't see how they're more than bonds at this point, and any counterargument seems to involve the economics equivalent of "a wizard did it" followed by fantasy scenarios they view as inevitable (such as major retailers adopting bitcoin).

Here's a hypothetical: a baker accepts USD or BTC.  However, given that transactions are more secure, and there are no bank fees, he is willing to offer 3% off the equivalent USD price for paying in BTC.  What happens then?  Bitcoins will buy you more loaves than the USD do.  Is it still a bond?

Let's say there was a global payment system based on the internet that charged 3%.  Would it not be worthwhile for a merchant to offer 2.5% off for paying in BTC?

Equivalent prices are not going to last long once merchants realise they can compete on price using bitcoins.

As a baker, I would say that this scenario is unrealistic. Bakers who wish to sell their products via mail, with transactions taking place over the internet, are poor bakers. Bread doesn't ship well.

So, instead, you're talking about a face-to-face transaction. Cash would be inherently simpler than BTC, free from bank fees, anonymous, instantaneous, and I pay my suppliers in it.

BTC would be preferable to credit cards, especially for small transactions, but currently transactions are verified so much more slowly that there might actually be a greater security risk involved. Plus, I can't pay my suppliers with it.

So, if anything, I would probably have to charge a small premium for BTC, although I might waive this if I'm confident that they'll be a more valuable asset long-term. This confidence is going to be based on the speculation marketplace which, hey surprise, is denominated in dollars.

So, as a merchant, my best bet is to peg my BTC transactions to the dollar exchange rate, making them function more or less like secure bonds.

I don't think OP's point was to criticize BTC or the technology underlying them-- nor is this my point-- merely to suggest that the value of that technology is limited by the social systems which accept them.

[realnowhereman]

As a baker, I would say that this scenario is unrealistic. Bakers who wish to sell their products via mail, with transactions taking place over the internet, are poor bakers. Bread doesn't ship well.

Okay; well I was only giving an example using the same commodity that the poster picked: loaves. I don't think I said anything about mail order bread. I was hoping that the point would make its way through without needing exact details.  Obviously not though; let's pick another trade to make my point.

How about this: I have a car to sell, as a private citizen.  I'm already into bitcoins, and am not scared of them at all.  I want $5000.

Which option has least risk for me (and let's assume a timescale were bitcoins are going to change value significantly): (a) a stack of dollars; (b) paypal; (c) bank transfer done in my presence; (d) bitcoins.

(a) Fake notes are close to indistinguishable nowadays.
(b) Ha.  Not while I'm still in my right mind
(c) Stolen bank details is a possibility; reversed transactions or even a faked web page that looks like an online bank.  Let's remember the three day clearing period.
(d) MINE, MINE, MINE.  I can see the broadcast transaction instantly.  In ten minutes it'll be in the block chain and require more computing power than the NSA to double spend.  In an hour it'll be so confirmed that it couldn't be undone by Bletchley park.

Given that; I could probably knock 5% off the selling price for Bitcoins.  Therefore bitcoins are not a proxy for dollars.

So, instead, you're talking about a face-to-face transaction. Cash would be inherently simpler than BTC, free from bank fees, anonymous, instantaneous, and I pay my suppliers in it.

BTC would be preferable to credit cards, especially for small transactions, but currently transactions are verified so much more slowly that there might actually be a greater security risk involved. Plus, I can't pay my suppliers with it.

If there is greater risk, then you might offer a discount for dollars.  The point is the same: bitcoins are not proxy dollars; and so aren't bonds.

Double spending is a risk; but it's not a big risk.  Seriously the amount of investment an attacker would have to make to steal one loaf of bread is ridiculous.  No one would do it.

Even for a car sale; I personally wouldn't be that upset at 0 confirmations.  I'd probably wait for one or two.  I'd like to hear any single report of anyone having being fleeced on a double-spend attack.  Or even an attempted double spend.

They just are not happening.

So, if anything, I would probably have to charge a small premium for BTC, although I might waive this if I'm confident that they'll be a more valuable asset long-term. This confidence is going to be based on the speculation marketplace which, hey surprise, is denominated in dollars.

I'm pretty sure you can set Mt.Gox up to convert instantly from incoming BTC to USD for a merchant account.

I don't think OP's point was to criticize BTC or the technology underlying them-- nor is this my point-- merely to suggest that the value of that technology is limited by the social systems which accept them.

I don't think that either; I'm happy with just a discussion.

However, bitcoins are definitely not bonds.  There is far too much decoupling them to make this true, whether you think bitcoins are better or worse; they aren't the same.

[indio007]

Bitcoins most definitely are not bonds. The idea is absurd.

A bond is merely an obligation under seal. Commonwealth v. Smith, 92 Mass (10 Allen) 448, 455, 87 Am. Dec. 672.
A "bond" may be briefly defined to be a sealed obligation to pay money. 1t may be either single and absolute, or upon condition and contingency. However complicated may be the condition or contingency, and however alien from pecuniary considerations may seem the inducements to its execution or the circumstances surrounding the parties, a bond will always be found to resolve itself into an obligation to pay money sooner or later— either absolutely or upon some condition or on the happening of some future event Rawson v. Taylor (Neb.) 95 N. W. 1033, 1036 (citing Murfree, Off. Bonds).
A bond, as defined by Blackstone, is a deed whereby the obligor obligates htmself, his heirs, executors, or administrators, to pay a certain sum of money on a day appointed. Williams v. State, 6 South. 831, 832, 25 Fla. 734, 6 L. R. A. 821; Rondot v. Rogers Tp. (U. S.) 99 Fed. 202, 209, 39 C. C. A . 462.
"A bond is what binds. Therefore any instrument in writing that legally binds a party to do a certain thing may be called a bond." Courand v. Vollmer, 31 Tex. 397, 401.
Bonds are obligations payable at a definite time, running through a series of years. They are payable when the time of their maturity arrives, independent of any presentation. Shelley v. St Charles County Court (U. S.) 21 Fed. 699, 701.
The term "bond" la sometimes used as a generic term—as a written instrument by which a person has become bound or committed legally. Usually the word is taken to mean a secondary or accessory securing a primary obligation in favor of some third person. Thus, an instrument declaring, "1 agree to stand security for L. to the amount of his contract," is not technically a bond. State T. Leo, 32 South. 447, 452, 108 La. 496.
The word "bond" has a definite legal signification. 1t is a clause, with a sum affixed as a penalty, binding the party to pay the same, conditioned, however, that payment of the penalty may be avoided by the performance by one or more of the parties of certain acts. United States v. Rundle (U. S.) 100 Fed. 400, 403, 40 C. C. A. 450 (citing 1n re Fitch [N. Y.] 3 Redf. Sur. 457).
A bond by specialty to pay a certain sum of money is a deed or instrument under seal, by which the maker or obligor binds himself to pay a designated sum of money to another, usually with a clause to the effect that, on the performance of a certain condition, the obligation shall be void. "A bond is said to be prima facie a penal obligation, and the sum mentioned therein is not construed as liquidated damages unless other language used in the instrument, or accompanying circumstances, shows that such was the intention of the contracting party; but, if the sum named is to be taken as penalty only, on a breach of the obligation the obligee is en
titled to recover only such actual damages as he may suffer from the breach of the condition." Turck v. Marshall Silver Min. Co., 5 Pac. 838, 839, 8 Colo. 113.
A bond is a deed or obligatory instrument in writing whereby one doth bind himself to another to pay a sum of money or do some other act 1t contains an obligation with a penalty and a condition, which expressly mentions what money is to be paid or other thing performed, and the limited time for the performance thereof, for which the obligation is peremptorily binding. The ceremony, as necessary to a bond or obligation, consists of writing on paper or parchment, sealing, and delivering. Boyd v. Boyd (S. C.) 2 Nott 4 McC. 125, 126.
The word "bond" necessarily imports that there is a written instrument Pierson v. Townseud (N. Y.) 2 Hill, 550, 551.

[elk-tamer]

Bitcoins most definitely are not bonds. The idea is absurd.

A bond is merely an obligation under seal. ...

Sure, that's a book definition, but here  in the bitcoin forum, when we use a word,  it means just what we choose it to mean — neither more nor less.

[indio007]

Bitcoins most definitely are not bonds. The idea is absurd.

A bond is merely an obligation under seal. ...

Sure, that's a book definition, but here  in the bitcoin forum, when we use a word,  it means just what we choose it to mean — neither more nor less.

Well i think a glossary needs to be included in the post then ....

[elk-tamer]

Well i think a glossary needs to be included in the post then ....

Glossary

[ShireSilver]

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.

Sorry to wake a sleeping thread, but there's news somewhat relevant to the thread. As of last week Shire Silver does now accept bitcoin using our shopping cart! (We did accept it on an ad-hoc basis before that, but it was too clunky.)

And we are a fan of letting currencies float against each other.

[triplehelix]

the more bitcoin is used for retail transactions, the more stability it will have.  i honestly believe that is were the current stretch of stability is founded on, with silkroad accounting for a large percentage of the transactions.

[niko]

What if major exchanges got shut, perhaps due to legal isssues?  People would have a much harder time exchanging BTC to/from fiat in centralized fashion. The market would get fragmented and really decentralized, with exchange value varying significantly from one location to another due to differences in supply/demand. Perhaps then people would start simply assigning a BTC price to goods/services they offer, rather then to the USD?  This would be a reboot of the current economy, and we would be starting from scratch, but it may be a good thing.  The way things are now, BTC simply serves as an intermediary in fiat transactions.

[triplehelix]

What if major exchanges got shut, perhaps due to legal isssues?  People would have a much harder time exchanging BTC to/from fiat in centralized fashion. The market would get fragmented and really decentralized, with exchange value varying significantly from one location to another due to differences in supply/demand. Perhaps then people would start simply assigning a BTC price to goods/services they offer, rather then to the USD?  This would be a reboot of the current economy, and we would be starting from scratch, but it may be a good thing.  The way things are now, BTC simply serves as an intermediary in fiat transactions.

i think if mtgox got shut down, another exchange would step in to fill the vacuum.  there is enough money in play to be relatively confident of that.

as for bitcoin mostly being an intermediary in fiat transactions, i think that will remain bitcoins ultimate potential.  at least in my lifetime.  i think we'll see the ability to use bitcoin in retail transactions increase, possibly signifigantly, but i believe its misguided to think bitcoin is going to usurp the USD, RMB, Euro and/or BP.