Questioning Bitcoins Wantability

[porc]

I am new to Bitcoin and have several concerns. Maybe you guys can ease my concerns.  

A) I think that when you talk about Bitcoin as money, you have to look at two aspects.

1) USABILITY, meaning can Bitcoin function as money and 2) "WANTABILITY", meaning is Bitcoin practical and better than other alternatives (digital gold, paypal, fiat)

1) Regarding the first aspect the main concern from goldbugs and other people is that bitcoins might not be scarce and thus be unsuitable. The argument is, that bitcoin can experience inflation through the introduction and use of similar alternative currencies. A valid counter argument is that the first to market principle and network effect will mean that alt. currencies can only be successful if they offer significant benefits to bitcoin.

Couple of points that might diminish the network effect: Merchants could use a software that allows them to accept all kinds of cryptocurrencies so that customers can choose which currency they would like to pay in. Litecoiners could use litecoin and bitcoiners bitcoin. This would reduce the network effect.

2) My main concern however is WANTABILITY. Bitcoin would have to offer significant benefits to other electronic currency like paypal or goldmoney.

a) Bitcoin is anonymous and decentralized.

This argument is often brought up by bitcoin supporters as a benefit of bitcoin. However I see it as a disadvantage. Or putting it in another way: If bitcoin wants to become a major currency it will become centralized and loose its anonymity.

The reason for this is banking. Pooling resources so that they can be lend out is a vital need for any economy. This is why banks exist. If you have bitcoin banks anonymity wont be allowed by regulators (thats why number accounts are not allowed in many countries) and this will be easily enforced on the bitcoin bank. Also the bitcoin bank will mean that bitcoin wont be decentralized.

b) Bitcoin transaction costs are cheaper than paypal.

We all know that bitcoin needs miners to ensure that transactions are save and that no double spending occurs. These miners will costs a lot of electricity. At the moment miners are paid through inflation (creation of bitcoins). In future they would be paid with transaction costs. So my question is how can such a system be cheaper than a system that does not need miners?

Secondly if bitcoin wants to become mainstream it will have to comply with all the regulations other systems like paypal have to follow. This will also increase cost.

c) Trust

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it. Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency). Will people want to store wealth in a technology that might be replaced. I think it is rather nerve racking. Also if alt currencies that are similar (like litecoin) can already dilute bitcoin by about 5% what will happen when real marketing gets behind an alternative.

At the end of the day you are asking people to believe that 1) the code cant be hacked 2) No alt. currency will inflate bitcoin or even replace it. With gold for example its easy to trust, as there is a physical limit to it. If people realize that unlimited amounts of alt. currencies with different codes or similar ones can be created they might loose faith in bitcoin. Because at the end of the day its man made and a bunch of air. Every code has errors many might think.

So if we let digital gold compete with bitcoin I think many people will prefer digital gold like goldmoney. Its easier to trust its scarcity and less complex.

B) Bubble at current price?

Obviously the price has exploded. My concern is that the price explosion is due to the fact that people think they will become rich when holding bitcoin. They dont care if its actually suitable as a medium of exchange or if other forms like digital gold might be superior. Also the transactions have not increased with the price. So the explosion in price might be a sign of speculation not a sign that bitcoin is superior to other media of exchange!

[wopwop]

actually, bitcoin isn't more practical than a free One World Currency issued by a central bank.

Central Banks have to just start issuing a One World Currency and Bitcoin is done with

Bitcoin just helped worldwide acceptance of such currency

[Mike Christ]

Why does Bitcoin have to be the only currency you'll ever use?

[Barek]

The reason for this is banking. Pooling resources so that they can be lend out is a vital need for any economy. This is why banks exist. If you have bitcoin banks anonymity wont be allowed by regulators (thats why number accounts are not allowed in many countries) and this will be easily enforced on the bitcoin bank. Also the bitcoin bank will mean that bitcoin wont be decentralized.

Yes, banks certainly make sense. However, I doubt there will be a world Bitcoin bank. How would that even work? Instead, the existing banks could just offer Bitcoin services, like off-chain transactions and customer security. And at the same time, you can still make transfers in Bitcoin directly: quickly, cheap, unstoppable, and private.

b) Bitcoin transaction costs are cheaper than paypal.

We all know that bitcoin needs miners to ensure that transactions are save and that no double spending occurs. These miners will costs a lot of electricity. At the moment miners are paid through inflation (creation of bitcoins). In future they would be paid with transaction costs. So my question is how can such a system be cheaper than a system that does not need miners?

Paypal pays electricity, too. Paypal has to ensure against fraud and charge backs. Paypal has to employ people.

Secondly if bitcoin wants to become mainstream it will have to comply with all the regulations other systems like paypal have to follow. This will also increase cost.

Money exchanges will have to comply with regulations. Bitcoin itself is neutral. Compare Bitcoin to the internet.

c) Trust

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it. Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency). Will people want to store wealth in an technology that might be replaced. I think it is rather nerve racking. Also if alt currencies that are similar (like litecoin) can already dilute bitcoin by about 5% what will happen when real marketing gets behind an alternative.

At the end of the day you are asking people to believe that 1) the code cant be hacked 2) No alt. currency will inflate bitcoin or even replace it. With gold for example its easy to trust, as there is a physical limit to it. If people realize that unlimited amounts of alt. currencies with different codes or similar ones can be created they might loose faith in bitcoin. Because at the end of the day its man made and a bunch of air. Every code has errors many might think.

So if we let digital gold compete with bitcoin I think many people will prefer digital gold like goldmoney. Its easier to trust its scarcity and less complex.

Gold has history and time on its side. That is why you trust it. Once Bitcoin adoption is more widespread and time has passed, it will make people more confident in it. You are completely right that something could happen that will make Bitcoin fail. That is why the exchange rates are low and fluctuate strongly. Buying Bitcoin right now is a high risk investment.

Obviously the price has exploded. My concern is that the price explosion is due to the fact that people think they will become rich when holding bitcoin. They dont care if its actually suitable as a medium of exchange or if other forms like digital gold might be superior. Also the transactions have not increased with the price. So the explosion in price might be a sign of speculation not a sign that bitcoin is superior to other media of exchange!

That's how investment works. Noone knew Facebook would be a success early on, but there were investors that saw potential. Not all investments work out (e.g. Myspace).

[porcupine87]

2b)

At the moment there is a block size limit of 1mb. This means, that you can have only 7 transactions in one second, or 4200 per block. If every transaction would give a fee of 0.0001 this would be 0.42BTC. Compared to the 25 new coins this is not really much.

But now imagine 3 factors in the future:
1. One Bitcoin will be worth much more.
2. The block reward from new coins will be less (12.5 in 3 years, 6.25 in 7 years). -> the 0.42btc would get more important over time. But wait, when 1btc is worth a lot more, the fee of 0.0001 would be much more in terms of purchasing power.
3. The block size limit will be higher and there will be more transactions.

2c)

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it. Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency). Will people want to store wealth in an technology that might be replaced. I think it is rather nerve racking.

You will always have this problem. Not only with private currencies but with state, centralized money, too. For example you traded with cigarettes after the WW2 in Germany. The other part is, that new cryptocurrencies need a long time to establish that trust. I mean you could say the same with gold or Facebook. What, if tomorrow there will be the better gold or better social network. I don't know if you really have this network effekt with cryptocurrencies. I believe when you have a payment system for Bitcoin it is really easy to accept litecoins etc. too. On the other hand I believe you have between Bitcoin, Litecoin, PPCoin in 5 to 10 years an exchange rate fluctuation like between USD and EUR today.

[porc]

2b)

A) At the moment there is a block size limit of 1mb. This means, that you can have only 7 transactions in one second, or 4200 per block. If every transaction would give a fee of 0.0001 this would be 0.42BTC. Compared to the 25 new coins this is not really much.

But now imagine 3 factors in the future:
1. One Bitcoin will be worth much more.
2. The block reward from new coins will be less (12.5 in 3 years, 6.25 in 7 years). -> the 0.42btc would get more important over time. But wait, when 1btc is worth a lot more, the fee of 0.0001 would be much more in terms of purchasing power.
3. The block size limit will be higher and there will be more transactions.

2c)

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it. Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency). Will people want to store wealth in an technology that might be replaced. I think it is rather nerve racking.

You will always have this problem. Not only with private currencies but with state, centralized money, too. For example you traded with cigarettes after the WW2 in Germany. The other part is, that new cryptocurrencies need a long time to establish that trust. I mean you could say the same with gold or Facebook. What, if tomorrow there will be the better gold or better social network. B) I don't know if you really have this network effekt with cryptocurrencies. I believe when you have a payment system for Bitcoin it is really easy to accept litecoins etc. too. On the other hand I believe you have between Bitcoin, Litecoin, PPCoin in 5 to 10 years an exchange rate fluctuation like between USD and EUR today.

A) So one block= many transactions completed at once. You say a fee of 0.42 BTC would be enough compared to a fee of 25 new coins today?? How is that possible... That would mean miners are making a killing through inflation at current prices. Am I understanding you correctly?

Quoting from another forum today following prices exist:

The fee is currently 0.1 mBTC (~$0.05).  While this is not free it is pretty much cheaper than any other payment system.
Credit Cards: $0.30 + 2%
PayPal: $0.30 + 3%
ACH: $0.25 to $0.50
Bank Wire:  $10 to $25
International Bank Wire: $25 to $40
Check processing (business): $0.50 ea

The bitcoin price does NOT include miners as they are payed through inflation. How will the 0.05 cent price be affected when miners and the electricity they consume will have to be paid with transaction fees. How will this price be influenced when the institutions doing the transactions are regulated by the state. I really dont know thats why I am asking this forum

B) The network effect is essential in protecting bitcoin. If thousands of currencies are just added to the "accepted list" of merchants it will destroy trust in bitcoins scarcity. How can you invest in bitcoin when you think the network effect/ security through miners wont limit altcoins?

[Barek]

You are asking questions that can only be answered with speculation. Tell me what you want to read and I'll write it.

Transaction fees directly influence network hash rate and security of the network. Miners are at the mercy of the users and users are at the mercy of the miners. There will be an equilibrium.

It is not in the merchants interest to add different currencies that have the same properties, which is why I think Litecoin won't be used besides Bitcoin. If in the future there is an altcoin that is vastly superior to Bitcoin, people might change to that.

[franky1]

I am new to Bitcoin and have several concerns. Maybe you guys can ease my concerns.  

A) I think that when you talk about Bitcoin as money, you have to look at two aspects.

1) USABILITY, meaning can Bitcoin function as money and 2) "WANTABILITY", meaning is Bitcoin practical and better than other alternatives (digital gold, paypal, fiat)

1) Regarding the first aspect the main concern from goldbugs and other people is that bitcoins might not be scarce and thus be unsuitable. The argument is, that bitcoin can experience inflation through the introduction and use of similar alternative currencies. A valid counter argument is that the first to market principle and network effect will mean that alt. currencies can only be successful if they offer significant benefits to bitcoin.

Couple of points that might diminish the network effect: Merchants could use a software that allows them to accept all kinds of cryptocurrencies so that customers can choose which currency they would like to pay in. Litecoiners could use litecoin and bitcoiners bitcoin. This would reduce the network effect.
much like the store 7-11 accepts dollars in america, euro's in europe and baht in thailand to name a few. there is enough room for more the one crypto currency, much like theres enough room in the world for more then one FIAT currency, and more then one precious metal.
2) My main concern however is WANTABILITY. Bitcoin would have to offer significant benefits to other electronic currency like paypal or goldmoney.
 bitcoin does not have to over power governments of each nation, it doesnt need 100% uptake by all 7 billion people on the planet to be a success

a) Bitcoin is anonymous and decentralized.

This argument is often brought up by bitcoin supporters as a benefit of bitcoin. However I see it as a disadvantage. Or putting it in another way: If bitcoin wants to become a major currency it will become centralized and loose its anonymity.
no it does not. a bank note has been successful for hundreds of years. bank notes have not been required to write your name and address on each note you use.

The reason for this is banking. Pooling resources so that they can be lend out is a vital need for any economy. This is why banks exist. If you have bitcoin banks anonymity wont be allowed by regulators (thats why number accounts are not allowed in many countries) and this will be easily enforced on the bitcoin bank. Also the bitcoin bank will mean that bitcoin wont be decentralized.
research crowdfunding and btcjam. EG Franky 1 lends porc 2 bitcoins. publicly its meaningless because it does not reveal to the public our real life names and addresses. so we do not need to attach real life names and addresses to bitcoins. however if converting to FIAT then and only then will regulators want real life details. and these are held within the exchanges, not made public.

b) Bitcoin transaction costs are cheaper than paypal.

We all know that bitcoin needs miners to ensure that transactions are save and that no double spending occurs. These miners will costs a lot of electricity. At the moment miners are paid through inflation (creation of bitcoins). In future they would be paid with transaction costs. So my question is how can such a system be cheaper than a system that does not need miners?
banks need security guards, technicians, bank cashiers, bank tellers, managers, safe fitters. currently if gavin A and the core developers set Bitcoin-qt to 0 fee and only rely on the 25btc reward along.. and then the devs stopped programming today, we can continue transacting no issues for decades.. no extra fee's ontop of miner 25BTC reward, no donations to bitcoin foundation and the system will still function. even if 98% of miners gave up bitcoin will continue.
Secondly if bitcoin wants to become mainstream it will have to comply with all the regulations other systems like paypal have to follow. This will also increase cost.
regulations only apply to the FIAT side of 'business level exchange' EG the fee bitstamp charge customers to send money to the bank.. it will not affect the fee to send one bitcoin to another bitcoin user.
c) Trust

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it.
much like countries have to trust bank notes, that one day governments wont screw them over or tell them that certain bank notes are not in circulation no more, making the notes you hid under your matress untransferable.

Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency).
the price did not move much when for instance prime coin, zetacoin, feathercoin, terracoin came out... but if something new did come out that had significant benefits then people can always sell and then buy the better coin. much like if a better and more maluable metal then gold came out that was just as scarse. EG platinum

Will people want to store wealth in a technology that might be replaced. I think it is rather nerve racking. Also if alt currencies that are similar (like litecoin) can already dilute bitcoin by about 5% what will happen when real marketing gets behind an alternative.
what will happen to your gold when pawn shops stop selling gold and start selling platinum...

At the end of the day you are asking people to believe that 1) the code cant be hacked 2) No alt. currency will inflate bitcoin or even replace it. With gold for example its easy to trust, as there is a physical limit to it.
there is a physical limit to bitcoin too.. but if you want to try mixing alts into the equation. i can easily mix silver and platinum into your gold equation.. making all of your gold impure and have alot more kg of metals for you to spread around.

 If people realize that unlimited amounts of alt. currencies with different codes or similar ones can be created they might loose faith in bitcoin. Because at the end of the day its man made and a bunch of air. Every code has errors many might think.
so is your gold chain around your neck. thats man made, and between each hoop is a bunch of air..

So if we let digital gold compete with bitcoin I think many people will prefer digital gold like goldmoney. Its easier to trust its scarcity and less complex.

B) Bubble at current price?

Obviously the price has exploded. My concern is that the price explosion is due to the fact that people think they will become rich when holding bitcoin. They dont care if its actually suitable as a medium of exchange or if other forms like digital gold might be superior. Also the transactions have not increased with the price. So the explosion in price might be a sign of speculation not a sign that bitcoin is superior to other media of exchange!

you talk as if bitcoin is fundementaly flawed, useless and not worth investing in.. much like ant farms.. so why are you not on an ant farm forum telling people not to invest in ant farms, because if they catch on they can infest the planet. the answer: because deep down you know, if asked under oath, with obama holding your family hostage, and with a lie detector machine attached to you.. to truly answer: is bitcoin worthy enough to make you worry about your gold hoard. you would answer yes.. after all if it doesnt affect your life, why waste your time and emotion over it.

my opinion is that you normally have a few regular buyers of your gold, and recently they have been telling you they wont buy your gold this month, they have just bought bitcoin. and this has left you in a pickle..

[porc]

You are asking questions that can only be answered with speculation. Tell me what you want to read and I'll write it.

Transaction fees directly influence network hash rate and security of the network. Miners are at the mercy of the users and users are at the mercy of the miners. There will be an equilibrium.

Again: As I understand it miners secure the network/transactions and make sure no double spending happens. Without the miners there is no bitcoin. If you calculate their costs these costs at least have to be paid somehow plus a small profit for their activity.

As I understand it the miners today are paid through:

1) Bitcoin inflation (they mine bitcoins and get to sell them)
2) transaction fees

If you only pay them through transaction fees how high would they have to go and would bitcoin still be competitive to services like paypal and so on.

At the end of the day the miner will HAVE to make a profit. How high are his costs (electricity, equipment, time) and how high do the transaction fees need to go for the miners to be paid? It should not be pure speculation.

[Barek]

Again: As I understand it miners secure the network/transactions and make sure no double spending happens. Without the miners there is no bitcoin. If you calculate their costs these costs at least have to be paid somehow plus a small profit for their activity.

As I understand it the miners today are paid through:

1) Bitcoin inflation (they mine bitcoins and get to sell them)
2) transaction fees

If you only pay them through transaction fees how high would they have to go and would bitcoin still be competitive to services like paypal and so on.

At the end of the day the miner will HAVE to make a profit. How high are his costs (electricity, equipment, time) and how high do the transaction fees need to go for the miners to be paid? It should not be pure speculation.

Gonna need a little background on mining to better explain this. Every 2000 blocks the difficulty is adjusted, so that a block is found roughly every 10 minutes. The more miners there are, the higher the difficulty, the harder it is for everyone to find a block. If miners leave, the difficulty can also go down, making it easier to find a block.

What that means is that in theory one person on his computer could run the whole bitcoin network. This is obviously terribly insecure, but if noone else was mining it would work. That is how things got started. As the exchange rate rose, the number of miners increased, because it was profitable for them. More and more miners appear until it is barely profitable. Exchange rate directly drives difficulty.

The block reward is a means to bootstrap the system, because there will not be many transactions in the beginning and the exchange rates will be low. This reward is halved every 4(?) years and will eventually be gone. The design idea was that by then the transaction fees should be sufficient (through an increase exchange rate) to support a secure network.

[franky1]

You are asking questions that can only be answered with speculation. Tell me what you want to read and I'll write it.

Transaction fees directly influence network hash rate and security of the network. Miners are at the mercy of the users and users are at the mercy of the miners. There will be an equilibrium.

Again: As I understand it miners secure the network/transactions and make sure no double spending happens. Without the miners there is no bitcoin. If you calculate their costs these costs at least have to be paid somehow plus a small profit for their activity.

As I understand it the miners today are paid through:

1) Bitcoin inflation (they mine bitcoins and get to sell them)
2) transaction fees

If you only pay them through transaction fees how high would they have to go and would bitcoin still be competitive to services like paypal and so on.

At the end of the day the miner will HAVE to make a profit. How high are his costs (electricity, equipment, time) and how high do the transaction fees need to go for the miners to be paid? It should not be pure speculation.

the fixed reward is the miners labour costs. and this fixed reward is ample enough for miners, the 'transaction fee' is just a christmas bonus... and wont becometheir main 'commissioned wage' for decades, at which point the price of bitcoin would be higher, the amount of miners will be lower meaning the share of mining income will cover costs. if not then miners will stop.. and their share goes to the miners that continue. in the end it only needs 3 miners of equal hashing power to have a secure network, and in decades time 3 miners with a couple petahashes each will be more then enough thawt out hackers and malicious individuals

[porcupine87]

2b)

A) At the moment there is a block size limit of 1mb. This means, that you can have only 7 transactions in one second, or 4200 per block. If every transaction would give a fee of 0.0001 this would be 0.42BTC. Compared to the 25 new coins this is not really much.

But now imagine 3 factors in the future:
1. One Bitcoin will be worth much more.
2. The block reward from new coins will be less (12.5 in 3 years, 6.25 in 7 years). -> the 0.42btc would get more important over time. But wait, when 1btc is worth a lot more, the fee of 0.0001 would be much more in terms of purchasing power.
3. The block size limit will be higher and there will be more transactions.

2c)

The next problem I have with bitcoin and its wantability is trust. At the end of the day bitcoin is asking people to trust in its code and that no alternative currency will replace it. Its like investing in a technology. You never know if a better cryptocurrency might come along. This will mean that it will fluctuate a lot (every time you hear about a new cryptocurrency). Will people want to store wealth in an technology that might be replaced. I think it is rather nerve racking.

You will always have this problem. Not only with private currencies but with state, centralized money, too. For example you traded with cigarettes after the WW2 in Germany. The other part is, that new cryptocurrencies need a long time to establish that trust. I mean you could say the same with gold or Facebook. What, if tomorrow there will be the better gold or better social network. B) I don't know if you really have this network effekt with cryptocurrencies. I believe when you have a payment system for Bitcoin it is really easy to accept litecoins etc. too. On the other hand I believe you have between Bitcoin, Litecoin, PPCoin in 5 to 10 years an exchange rate fluctuation like between USD and EUR today.

A) So one block= many transactions completed at once. You say a fee of 0.42 BTC would be enough compared to a fee of 25 new coins today?? How is that possible... That would mean miners are making a killing through inflation at current prices. Am I understanding you correctly?

Today the fees are insignificant compared to the new created coins. Today  ~1% of the block reward is from transaction fees. But in the feature, there is just a block reward from fees. And when you have 100 000 transactions per block with 5cent each, this would be 5000$.

B) The network effect is essential in protecting bitcoin. If thousands of currencies are just added to the "accepted list" of merchants it will destroy trust in bitcoins scarcity. How can you invest in bitcoin when you think the network effect/ security through miners wont limit altcoins?

No! Bitcoins would be still scare. When I invent a new scarce metal and call it gold 2, the real gold is as scarce as it was before my invention. There are now dozens of other crypto currencies out there. Does this mean, the trust in Bitcoin decreased?

[Kouye]

Will people want to store wealth in a technology that might be replaced. I think it is rather nerve racking. Also if alt currencies that are similar (like litecoin) can already dilute bitcoin by about 5% what will happen when real marketing gets behind an alternative.

I'm currently working on the design of my new fiat "champions" bills, which I will print myself, if my defective printer(*) allows.
I got this for the 25c bill, so far.



I'm pretty sure a champion will be worth a lot if I tune it, but would not mind any piece of advice to improve it.
I intend to become the mainstream fiat and replace those dirty $, of course.

(*)no HF_CL pun intended.

[corebob]

Not a long answer from me, other than that I consider moving to Berlin and live out of bitcoins and solar energy entirely