Do you have any doubts about BTC's short, medium, or long-term viability?

[Overcast]

I understand that most people who post on this forum are bullish about BTC and its future. I wonder if those people are confident despite one or two lingering doubts? And if so what are these doubts?

As for me I love the fundamental principle behind cryptocurrency and would be very happy to see it play a role in subverting our corrupt governments but I do have some lingering doubts about BTC:

1) What happens when a big exchange crashes? As BTC becomes more valuable the incentive for an exchange operator to make off with the loot increases. So does the incentive for baddies to try to plunder the exchanges. It seems inevitable to me that one of the big exchanges will go down and when they do it will be mayhem.

2) There is no liquidity. How many BTC have actually changed hands in the past 12 months? It seems to me like 99% of BTC in existence have either been put into cold storage or longterm hot storage. Either way their owners haven't touched them and arent about to sell them yet. So the 'market cap' claims are rubbish because they extrapolate the price offered for 1% of all BTC across the whole lot mined up to this point.

3) Why will people continue to process the blockchain in the future? It seems to me like the processing power required to keep the blockchain going even right now is already way too high and this will only get bigger. Why will computers continue to be used to keep the system going? It seems like it depends on increased 'price' growth but when this disappears so will the virtual system underpinning the currency.

4) What makes BTC any better than all of the alt currencies? Apart from higher uptake. If that is all it has going for it over the others then what happens if and when attention turns to the alt currencies and people begin to believe that one might overtake BTC? BTC will be destroyed as soon as it loses the single edge it has over the others.

There is another thing that bothers me too. We know that banks practice fractional reserve banking. What is to stop online wallets from essentially doing the same thing? Especially in a market going up there is lots of incentive for them to do this. And the exchanges which make it hard to get money out essentially act like banks so they could be involved too. And if any online wallets or exchanges are taking advantage from fractional reserves then what happens when there is a run? How do we know they aren't claiming to have more BTC than they really do?

[manoamano]

I have doubts yes, and I don't think that btc will last in the long run

[gerXhonza]

4) What makes BTC any better than all of the alt currencies? Apart from higher uptake. If that is all it has going for it over the others then what happens if and when attention turns to the alt currencies and people begin to believe that one might overtake BTC? BTC will be destroyed as soon as it loses the single edge it has over the others.

Number of people using it. And much higher security against 51% attack.

[manoamano]

4) What makes BTC any better than all of the alt currencies? Apart from higher uptake. If that is all it has going for it over the others then what happens if and when attention turns to the alt currencies and people begin to believe that one might overtake BTC? BTC will be destroyed as soon as it loses the single edge it has over the others.

Number of people using it. And much higher security against 51% attack.

For now on, it is true. But it can change at anytime.
And if 99% of the btc users leave and go to LTC, it will be different.

[gerXhonza]

4) What makes BTC any better than all of the alt currencies? Apart from higher uptake. If that is all it has going for it over the others then what happens if and when attention turns to the alt currencies and people begin to believe that one might overtake BTC? BTC will be destroyed as soon as it loses the single edge it has over the others.

Number of people using it. And much higher security against 51% attack.

For now on, it is true. But it can change at anytime.
And if 99% of the btc users leave and go to LTC, it will be different.

Why would they, LTC is not much different from BTC, only suffers from the two things I highlighted 

[manoamano]

There is no reason explaining that they would.
But there is no reason explaining that they would not.


And in the protocol/idea of btc and ltc, there nothing better in btc than ltc

[Ecurb123]

I think more important than bitcoin is the idea which is in all of our heads now, the idea that we don't need the state for money anymore.

[MoonShadow]

I understand that most people who post on this forum are bullish about BTC and its future. I wonder if those people are confident despite one or two lingering doubts? And if so what are these doubts?

I had doubts three or four years ago, but I aired my doubts and, in every case, my concerned were shown to be due to an error in my own understanding of how bitcoin actually works.  This remains to be the case, for now I am one of only a couple thousand people in the world that understands the nuances of the protocol, and I spend a great deal of my free time on this forum correcting similar errors of understanding where I find it.

As for me I love the fundamental principle behind cryptocurrency and would be very happy to see it play a role in subverting our corrupt governments but I do have some lingering doubts about BTC:

1) What happens when a big exchange crashes? As BTC becomes more valuable the incentive for an exchange operator to make off with the loot increases. So does the incentive for baddies to try to plunder the exchanges. It seems inevitable to me that one of the big exchanges will go down and when they do it will be mayhem.

Exchanges have already crashed in the past, and online wallet owners have stolen users' funds in the past.

Not much changed when these events occured before, so if/when they occur again, I would reason that not much will occur to the greater bitcoin community then either.

2) There is no liquidity. How many BTC have actually changed hands in the past 12 months? It seems to me like 99% of BTC in existence have either been put into cold storage or longterm hot storage. Either way their owners haven't touched them and arent about to sell them yet. So the 'market cap' claims are rubbish because they extrapolate the price offered for 1% of all BTC across the whole lot mined up to this point.

Bitcoins is the most transparent currency in human history.  As a direct consequence, it's easy to disprove your claim above.  Liquidity isn't a function of the entire stock of bitcoins turning over, as tis never happens to any currency.  Liquidityis a function of "velocity" of money, and in the bitcoin world this can be measured in "bitcoin-days-destroyed".

https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed
https://blockchain.info/charts/bitcoin-days-destroyed
https://blockchain.info/charts/bitcoin-days-destroyed-cumulative

If you look at the peak point in that middle link, that is nearly 4.5 million Bitcoin-days-destroyed in a single 24 hour period.  That means that one third of all bitcoins in circulation were spent or otherwise moved in a single day.  No currency in the world, and probably none in human history, has ever had velocity on that scale.

3) Why will people continue to process the blockchain in the future? It seems to me like the processing power required to keep the blockchain going even right now is already way too high and this will only get bigger. Why will computers continue to be used to keep the system going? It seems like it depends on increased 'price' growth but when this disappears so will the virtual system underpinning the currency.

There are more economic incentives for mining than just the block reward.  Most obvious, is that transaction fees go tothe miners directly.  Miners are also expected to be compensated in an indirect fasion.  Us the search function with regard to the term "Walmart/Mcdonalds allaince"

4) What makes BTC any better than all of the alt currencies? Apart from higher uptake. If that is all it has going for it over the others then what happens if and when attention turns to the alt currencies and people begin to believe that one might overtake BTC? BTC will be destroyed as soon as it loses the single edge it has over the others.

Bitcoin has the first to market advantage, as well as a network advantage.  Ask those old guys who bought Betamax video players about first to market.  Ask those blue ray owners about the networking advantage.

There is another thing that bothers me too. We know that banks practice fractional reserve banking. What is to stop online wallets from essentially doing the same thing? Especially in a market going up there is lots of incentive for them to do this. And the exchanges which make it hard to get money out essentially act like banks so they could be involved too. And if any online wallets or exchanges are taking advantage from fractional reserves then what happens when there is a run? How do we know they aren't claiming to have more BTC than they really do?

Nothing stops them from fractional reserve banking practices, if they are honest about it, but that same transparency that the blockchain provides to economics analysis, also permits continous auditting of institutional finances.  Said another way, it's impossible for an online wallet service, acting as a bank, to loan out member's funds without the transfer being observable.  So long as the service is open and truthful about their intentions of loaning out your deposited funds when you open your account, you don't have a complaint (and neither does anyone else) when they actually do so.

[spc]

I think more important than bitcoin is the idea which is in all of our heads now, the idea that we don't need the state for money anymore.

I think you need to have some authority that limits the number of different cryptocurrencies. BTC has all the momentum right now, but if you're like me, you should be worried about a future with thousands of equal cryptocurrencies, and new ones being created daily. This would go against the very idea of a limited supply, because in such case, the monetary unit wouldn't be BTC any more. It would be "a cryptocoin".

[Overcast]

Thankyou for your reply MoonShadow.

I had doubts three or four years ago, but I aired my doubts and, in every case, my concerned were shown to be due to an error in my own understanding of how bitcoin actually works.  This remains to be the case, for now I am one of only a couple thousand people in the world that understands the nuances of the protocol, and I spend a great deal of my free time on this forum correcting similar errors of understanding where I find it.

So are you saying you no longer have any doubts about BTC? There is no doubt in your mind that it will be a success for those 'investing' in it in 2013?

Bitcoins is the most transparent currency in human history.  As a direct consequence, it's easy to disprove your claim above.  Liquidity isn't a function of the entire stock of bitcoins turning over, as tis never happens to any currency.  Liquidityis a function of "velocity" of money, and in the bitcoin world this can be measured in "bitcoin-days-destroyed".

https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed
https://blockchain.info/charts/bitcoin-days-destroyed
https://blockchain.info/charts/bitcoin-days-destroyed-cumulative

If you look at the peak point in that middle link, that is nearly 4.5 million Bitcoin-days-destroyed in a single 24 hour period.  That means that one third of all bitcoins in circulation were spent or otherwise moved in a single day.  No currency in the world, and probably none in human history, has ever had velocity on that scale.

'Bitcoin days destroyed' isn't the same as liquidity. If you had 10,000 BTC sitting there (from say a pizza sale) for 1.25 years and sold them all you would 'destroy' 4.5m bitcoin days. This seems to me to be a crazy way to measure liquidity.

How many BTC have actually changed hands in the past 12 months? We cannot know. The best we can hope to know is how many have changed wallets but one person can have more than one wallet.

There are more economic incentives for mining than just the block reward.  Most obvious, is that transaction fees go tothe miners directly.  Miners are also expected to be compensated in an indirect fasion.  Us the search function with regard to the term "Walmart/Mcdonalds allaince"

Has anybody done any calculations on what price will be required to make it economically viable for miners to process transactions years down the track? And considered what happens if and when the price drops below that amount?

Bitcoin has the first to market advantage, as well as a network advantage.  Ask those old guys who bought Betamax video players about first to market.  

Who is sitting on a goldmine worth of VHS players today?

Nothing stops them from fractional reserve banking practices, if they are honest about it, but that same transparency that the blockchain provides to economics analysis, also permits continous auditting of institutional finances.  Said another way, it's impossible for an online wallet service, acting as a bank, to loan out member's funds without the transfer being observable.  So long as the service is open and truthful about their intentions of loaning out your deposited funds when you open your account, you don't have a complaint (and neither does anyone else) when they actually do so.

How could you or I perform an 'audit' on Mt Gox or BTC-e?

[n691309]

I think more important than bitcoin is the idea which is in all of our heads now, the idea that we don't need the state for money anymore.

I think you need to have some authority that limits the number of different cryptocurrencies. BTC has all the momentum right now, but if you're like me, you should be worried about a future with thousands of equal cryptocurrencies, and new ones being created daily. This would go against the very idea of a limited supply, because in such case, the monetary unit wouldn't be BTC any more. It would be "a cryptocoin".

About half year ago new alternative cryptocurrencies started to pop up daily, and proved the main value coin have is the number of users using it. You may create alt coin youselves with not much effort to add new one to the zoo

[MoonShadow]

Thankyou for your reply MoonShadow.

I had doubts three or four years ago, but I aired my doubts and, in every case, my concerned were shown to be due to an error in my own understanding of how bitcoin actually works.  This remains to be the case, for now I am one of only a couple thousand people in the world that understands the nuances of the protocol, and I spend a great deal of my free time on this forum correcting similar errors of understanding where I find it.

So are you saying you no longer have any doubts about BTC? There is no doubt in your mind that it will be a success for those 'investing' in it in 2013?

Predictions are hard, particularly those about the future.  However, I think that it's a safe bet that someone investing funds into bitcoin now wouldn't lose buying power should they be willing to hold them for 6 months or more.  I'm in a HOLD pattern myself, but the concept of Bitcoins are not at risk, as far as I am concerned.

Bitcoins is the most transparent currency in human history.  As a direct consequence, it's easy to disprove your claim above.  Liquidity isn't a function of the entire stock of bitcoins turning over, as tis never happens to any currency.  Liquidityis a function of "velocity" of money, and in the bitcoin world this can be measured in "bitcoin-days-destroyed".

https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed
https://blockchain.info/charts/bitcoin-days-destroyed
https://blockchain.info/charts/bitcoin-days-destroyed-cumulative

If you look at the peak point in that middle link, that is nearly 4.5 million Bitcoin-days-destroyed in a single 24 hour period.  That means that one third of all bitcoins in circulation were spent or otherwise moved in a single day.  No currency in the world, and probably none in human history, has ever had velocity on that scale.

'Bitcoin days destroyed' isn't the same as liquidity. If you had 10,000 BTC sitting there (from say a pizza sale) for 1.25 years and sold them all you would 'destroy' 4.5m bitcoin days. This seems to me to be a crazy way to measure liquidity.

To be fair, you're mostly right.  Liquidity implies that someone is willing to buy your coins immediately, and with regard to theis, Bitcoin-days-destroyed can be distorted.  However, there are no better metrics in the fiat currency world, at least not concurrent ones.

How many BTC have actually changed hands in the past 12 months? We cannot know. The best we can hope to know is how many have changed wallets but one person can have more than one wallet.

Yes, and this is how BDD can be gamed.  Another metric for liquidity might be the ask/dib walls on the major exchanges.  The liquidity is there, though the market still isn't very deep.

There are more economic incentives for mining than just the block reward.  Most obvious, is that transaction fees go tothe miners directly.  Miners are also expected to be compensated in an indirect fasion.  Us the search function with regard to the term "Walmart/Mcdonalds allaince"

Has anybody done any calculations on what price will be required to make it economically viable for miners to process transactions years down the track? And considered what happens if and when the price drops below that amount?

No calculations can be done, because that assumes we know what the right amount of mining power is correct.  WE don't, and can't really, know that.  Right now the bitcoin network is clocking in around 60,000 Petaflops (http://bitcoinwatch.com/) while the largest single supercomputer publicly known in the world runs around 33 petaflops.  It is a safe bet that 60K petaflops is an order of magnatude more than is presently required, but apparetnly we can afford it.

Bitcoin has the first to market advantage, as well as a network advantage.  Ask those old guys who bought Betamax video players about first to market.  

Who is sitting on a goldmine worth of VHS players today?

I'm sure that you know that is a red herring.

Nothing stops them from fractional reserve banking practices, if they are honest about it, but that same transparency that the blockchain provides to economics analysis, also permits continous auditting of institutional finances.  Said another way, it's impossible for an online wallet service, acting as a bank, to loan out member's funds without the transfer being observable.  So long as the service is open and truthful about their intentions of loaning out your deposited funds when you open your account, you don't have a complaint (and neither does anyone else) when they actually do so.

How could you or I perform an 'audit' on Mt Gox or BTC-e?

If you know what the pool address was when you deposited money to it, you could individually watch that address for changes in balance.  More collectively, http://blockchain.info/ does these kinds of blockchain searches as part of it's function.  Although that single data point isn't proof of anything, it still gives you a glimpse into the running books of MtGox.  If such visability were possible in the US banking system, Leaman Brothers wouldn't have ever been able to get away with a 50:1 lending to reserve ratio.  However, a fraudulantly fractional reserve lening institution might be able to get away with a much smaller ratio, say 2:1, for a time. 

[timoriensis]

Nobody can predict the future. I do know that in many respects bitcoin is the "law of unintended consequences" being played out as a direct result of imbecilic central bank policies.

[gluk64]

My concern is problems with mass adoption. There are strong incentives for merchants to accept bitcoins through services like bitpay (more profit at no risk). However, what are the incentives for the masses to buy and use them?

Here is my list of the strongest pros:

1. Protection against inflation.
2. More security: independence from the banking system and government interventions.
3. Fast and cheap money transfers to anybody around the globe.

And here is how my average fellow citizen sees it:

1. What protection against inflation you're talking about with such wild price volatility? I see the risk of loosing all my money!
2. Big brother is my friend! Big brother takes care of me! All my savings in the state banks are insured by the government (in Germany at least). While with bitcoins there are lots of technical risks which I don't fully understand.
3. Paypal or Visa is even more instant and convenient, I don't have to bother funding my account at all.

Thus I don't see currently what could motivate millions of ordinary people in the developed countries to use bitcoins in everyday life. Even the marginal groups like illegal immigrants will most likely be skeptical of it, especially given the traceability of their transactions.

Further, if mass adoption won't be coming within reasonable time, current investors will eventually start to exit bitcoin, which will crush the prices and undermine the credibility of the cryptocurrency.

This pessimistic scenario doesn't take other uses of bitcoin (such as international remittance market) into consideration. But unless mass adoption will happen, other uses will also remain limited - mostly because of massive price fluctuations.

What do you think?