Bitcoin Economic Numbers

[maxkoda]

Here are some numbers that provide for some interesting thought experiments regarding the future Bitcoin economy.

I wanted to get an idea of how Bitcoin would scale as a global reserve currency.

I went to the CIA World Fact Book at: https://www.cia.gov/library/publications/the-world-factbook/ to find the number of people on planet Earth. I found:
World population = 6,928,198,253 (July 2011).

At the time of this writing there are an estimated 6,884,000 Bitcoins in existence. This means that if we were to evenly distribute Bitcoins throughout the world each person on Earth would get (6,884,000 / 6,928,198,253) = 0.0009936205271 Bitcoins/person.

Even if all the Bitcoins that could ever be created (21 million) were distributed over the current world population this would represent (21,000,000 / 6,928,198,253) = 0.00303109109081 Bitcoins/person.

I wanted to find a number that represented the world monetary value. In the CIA World Fact Book I found a (year 2010) value for World GDP (purchasing power parity) of 74.5 trillion U.S. Dollars.

If we were to distribute that value over the number of Bitcoins that currently exist that would be ($74,500,000,000,000 / 6,884,000) = $10,822,196.40/Bitcoin.

If we calculate that over the total number of Bitcoins that will ever exist: ($74,500,000,000,000 / 21,000,000) =$3,547,619.05/Bitcoin

I think the current exchange value of USD/Bitcoin on Mt. Gox has a lot of room to grow!

Cheers!

maxkoda

[mpfrank]

One could argue that a more appropriate figure would be the value of physical currency (bills and money), since other currency-denominated instruments (bank accounts, various other currency-valued derivatives) could be built on top of Bitcoins in exactly the same manner that they are built on a base of physical currency today.

The amount of physical US dollars (in bills and coins) has been estimated to be about $2.2 trillion, so if BTC replaced physical US dollars that gives a value per BTC of about $100,000 (after all 21M BTC are produced).  Not quite as big as your estimate, but still a lot (>10,000x) higher than today.  

[a63ntsm1th]

I too have used similar methods in some of my models.

They are both flawed but are a good starting point for valuations of bitcoins in the future.

I have tried to find stats on total global wealth but it seems gdp and gnp are favored metrics.

In any event, as mentioned if bitcoins become widely accepted in any manner, their value will be many multiples of current exchange rates.



Lets keep spreading the word!

[julz]

As a counter argument to this..  what would happen if it was *really* easy to convert to and from all existing fiat currencies?

If at a touch of a button on your smartphone you could cheaply convert a portion of your fiat paypacket into BTC for an online purchase, and if merchants could similarly convert out of BTC to their own currency cheaply and quickly .. then the price of a bitcoin becomes irrelevant.

People wouldn't care if one day 1 BTC = $100 and the next it's $10 if they're only obtaining them to perform a purchase.

Even if lots of people are using them this way - what pressure is there for a high price? 

Ironically - the more governments try to clamp down on exchanges and make conversion harder.. the higher the price, because everyone then needs to hold some BTC and drive up scarcity.
If conversion is cheap and instantaneous - nobody needs to hold BTC and they'll still work for facilitating trade even if worth relatively little each.

[maxkoda]

As a counter argument to this..  what would happen if it was *really* easy to convert to and from all existing fiat currencies?

If at a touch of a button on your smartphone you could cheaply convert a portion of your fiat paypacket into BTC for an online purchase, and if merchants could similarly convert out of BTC to their own currency cheaply and quickly .. then the price of a bitcoin becomes irrelevant.

People wouldn't care if one day 1 BTC = $100 and the next it's $10 if they're only obtaining them to perform a purchase.

Even if lots of people are using them this way - what pressure is there for a high price? 

Ironically - the more governments try to clamp down on exchanges and make conversion harder.. the higher the price, because everyone then needs to hold some BTC and drive up scarcity.
If conversion is cheap and instantaneous - nobody needs to hold BTC and they'll still work for facilitating trade even if worth relatively little each.

I'd have a tendency to reflect on Gresham's Law:
"Bad money drives out good if their exchange rate is set by law."

All fiat currencies are ultimately made worthless as a result of human nature. Bitcoin by design, avoids such manipulation. Therefore, I believe Bitcoin fits the category of "good money" in Gresham's Law and as a result will always have a much higher value than any central bank issued fiat.

Cheers!

maxkoda

 

[indio007]

Your not considering the fact Bitcoin  goes to 8 decimal places. When all Bitcoins are finally issued , there will be 2,100,000,000,000,000 units. That's more than enough.

[maxkoda]

Your not considering the fact Bitcoin  goes to 8 decimal places. When all Bitcoins are finally issued , there will be 2,100,000,000,000,000 units. That's more than enough.

I'm not saying that Bitcoin is not divisible and therefore there will not be enough to go around. I'm thinking about the potential value of 1.00 Bitcoin as we move forward. My expectation is that the value of a single Bitcoin must go significantly higher than the current exchange rate values. What I was hoping to get out of this post was opinions from others as to their expectations for the value of a single Bitcoin as we move forward with this experiment.

Initial discussions had it at 10x, 100x its current value. The $10 million number from the first post could suggest a much higher valuation.

Cheers!

maxkoda

[GideonGono]

I did the same calculations when I first found out about bitcoin and I've been hooked ever since. You should check out Rick Falkvinge's articles on bitcoins potential major drivers;

http://falkvinge.net/2011/05/29/why-im-putting-all-my-savings-into-bitcoin/

http://falkvinge.net/2011/06/16/bitcoins-four-drivers-part-one-unlawful-trade/

http://falkvinge.net/2011/06/18/bitcoins-four-drivers-part-two-international-trade/

http://falkvinge.net/2011/07/03/bitcoins-four-drivers-part-3-merchant-trade/

[evoorhees]

I'd have a tendency to reflect on Gresham's Law:
"Bad money drives out good if their exchange rate is set by law."

All fiat currencies are ultimately made worthless as a result of human nature. Bitcoin by design, avoids such manipulation. Therefore, I believe Bitcoin fits the category of "good money" in Gresham's Law and as a result will always have a much higher value than any central bank issued fiat.

Cheers!

maxkoda

 

Gresham's Law is only relevant when there is, as your quotation states, a fixed exchange rate between a "bad" money and a "good" money.  When the exchange rate is market-based, as with Bitcoin, Gresham's Law is not relevant.

In these cases, another law comes into play. It's called "Fiat money sucks balls law" and it predicts Bitcoin will be huge 

[qikaifu]

You should not use GDP, but M2 or M1.

[Enky1974]

Yep, M2 represents money and "close substitutes" for money, usually economists use M2 to quantify the amount of money in circulation and used to forecast inflation, it's around 9 trillion USD. thus 9000000/21 = 428,000 usd/btc

[ercolinux]

Yep, M2 represents money and "close substitutes" for money, usually economists use M2 to quantify the amount of money in circulation and used to forecast inflation, it's around 9 trillion USD. thus 9000000/21 = 428,000 usd/btc

I'll be happy enough if we can reach 1/10,000th of that numbers in 5 years: we'll have 14M BTC mined, so the value will become 65$/BTC).

[fornit]

Yep, M2 represents money and "close substitutes" for money, usually economists use M2 to quantify the amount of money in circulation and used to forecast inflation, it's around 9 trillion USD. thus 9000000/21 = 428,000 usd/btc

I'll be happy enough if we can reach 1/10,000th of that numbers in 5 years: we'll have 14M BTC mined, so the value will become 65$/BTC).

that would roughly equal 900mio usd. to archieve that, the value of all bitcoins combnied has to increase just 60% per year. i think thats a very conservative goal. bitcoin passed 1mio usd just eight month ago, right now its over 90mio. even though a slowdown in growth is realistic, imho that much of a slowdown is not.

[ercolinux]

that would roughly equal 900mio usd. to archieve that, the value of all bitcoins combnied has to increase just 60% per year. i think thats a very conservative goal. bitcoin passed 1mio usd just eight month ago, right now its over 90mio. even though a slowdown in growth is realistic, imho that much of a slowdown is not.

The growt of this first 2 years is somehow "doped"  by speculations. When a strongest economy will grow there will be a faster exchange of money (more velocity in economics terms) so we can reach a "GDP" maybe 3-4 times the number I've depicted but the M2 will stay below 1,000mio $: if 1Mio people (20 to 40 times how many use it now) will using bitcoin in 5 years that means 1,000$ each with a GDP/per capita of 3/4,000$; actually there are at least 100 nations on the CIA facts that don't reachs a similar GDP/per capita.