Why Bitcoin is ultimately doomed to fail (not today or tomorrow)

[AnonyMint]

deisik now I hope you see that for me it is always about the logic, not personal.

I have no qualms whatsoever agreeing with you and noting how insightful this thread is.

And if someone shows me logically how perfect Bitcoin is, I have no qualms with accepting sound logic.

Cheers.

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[Zangelbert Bingledack]

Central bank? Inflation via derivatives? No, Bitcoin can't be centralized and dissolves the government power necessary to enforce the perverse incentives that created the present fiat money derivative situation.

Bitcoin can't be centralized? Now I'm not sure what you mean by being centralized. Look, I already encountered two contradictory ideas about what Bitcoin decentralization actually is, so what is your take on this? If someone grabs more coins than anyone else, would this go for centralization? Or, rather, what could in this case prevent their owner from inflating Bitcoin derivatives if he decides to?

It's a long story if you're not familiar with Austrian economics, but as far as one person or group amassing too many coins, it can't happen for very long. Even if one guy magically had 90% of all coins, he could only enjoy this situation to the extent that he spends them. 

[AnonyMint]

Central bank? Inflation via derivatives? No, Bitcoin can't be centralized and dissolves the government power necessary to enforce the perverse incentives that created the present fiat money derivative situation.

Bitcoin can't be centralized? Now I'm not sure what you mean by being centralized. Look, I already encountered two contradictory ideas about what Bitcoin decentralization actually is, so what is your take on this? If someone grabs more coins than anyone else, would this go for centralization? Or, rather, what could in this case prevent their owner from inflating Bitcoin derivatives if he decides to?

It's a long story if you're not familiar with Austrian economics, but as far as one person or group amassing too many coins, it can't happen for very long. Even if one guy magically had 90% of all coins, he could only enjoy this situation to the extent that he spends them. 

Incorrect. There are many ways to employ wealth without spending it, e.g. loaning it. In an economy dominated by hard money, burying hard money in a hole is equivalent to usury.

[JTrain_51]

Sorry but I don't see how you prove that Bitcoin is going to fail.

What do you mean by fail ?

I totally agree question marks are flying above my head currently!

[AnonyMint]

He means failure in that we end up back at a fractional reserve system of private issuers as we had in the 1800s.

But then the public will clamor for a central bank to stop the frequent depressions due to bank runs on the fractional reserves.

Note the Bitcoin would then be hoarded and not be a currency (not trade) due to Gresham's Law. People would transact with the fractional reserve units. It would quite easy then to make the fractional reserve electronic currency a central bank issued fiat.

[deisik]

Bitcoin can't be centralized? Now I'm not sure what you mean by being centralized. Look, I already encountered two contradictory ideas about what Bitcoin decentralization actually is, so what is your take on this? If someone grabs more coins than anyone else, would this go for centralization? Or, rather, what could in this case prevent their owner from inflating Bitcoin derivatives if he decides to?

It's a long story if you're not familiar with Austrian economics, but as far as one person or group amassing too many coins, it can't happen for very long. Even if one guy magically had 90% of all coins, he could only enjoy this situation to the extent that he spends them. 

I'm familiar with Austrians (sometimes even think myself belonging to them), consider their theory of subjective value brilliant (which started with Carl Menger). I know what you mean here, but, I'm afraid, this idea is not the only option in this case (and probably not the best one either). If that guy accumulated 90% of all coins he would be a central bank himself (remember, there is no other currency in circulation but Bitcoin). He wouldn't need to spend the coins, he could just issue "paper" BTCs, allegedly covered by real bitcoins. And then we have Gresham's law...

[PenAndPaper]

People are much smarter today than 50 years ago, bankers can not scam all the people all the time

People in bitcoin should know better because the firsts bubble happened during the Cyprus bail in.
So people might be smarter but they are still helpless.

[Hippos4ever]

They say that right now there are about 12 million bitcoins in circulation or having been stashed away, and eventually the production of new coins will stop, so only around 21 million of them will be available, and no more... Now, what will happen next if it ever comes to that, and Bitcoin is finally accepted as a legal tender?

I think that nothing life-changing is actually going to happen. We have already been there. And by there I mean a time period in the 19th century, commonly referred to as a Free Banking Era when banks could issue bank notes against specie (gold and silver coins). It is during these times when the term inflation began entering into widespread usage and emerging in literature, though not as a reference to price changes but as something pointing to disproportions between paper representing money and the amount of specie actually available in the bank

So, this time instead of gold we will have Bitcoin (which will be hoarded as per Gresham's law) and all kinds of "paper" derivatives inevitably entering the circulation as a means of exchange. These "papers" allegedly backed up by Bitcoin will in fact leave behind them only inflation, even despite Bitcoin intrinsic deflationary nature...

And welcome back to fiat!

But thank gawd the good lord bless us with millions of alt coins, right?! all having a sub value of BTC, establishing en so that a full BTC (while in the future will be NEARLY IMPOSSIBLE to possess will not be out of your grasp through good investments or trading)

- also feel I should note -

The way your argument was phrased, it was almost as if once we reach 21mil BTC, transactions stop, but the .00055 (probably raised to .001 soon) will feed the network as people still transact… so, we got QUITE a ways be fore we got to worry about BTC's having a truly unattainable value, or difficulty associated with them...

[AnonyMint]

It is not necessary to own a lot of BTC to begin fractional reserves. Just open a bank, take deposits pay interest, and provide loans in BTC receipts. That is how it worked in the 1800s with gold on deposit.

Of course that (meaningful interest) can't happen until BTC's value stabilizes.

[Zangelbert Bingledack]

Bitcoin can't be centralized? Now I'm not sure what you mean by being centralized. Look, I already encountered two contradictory ideas about what Bitcoin decentralization actually is, so what is your take on this? If someone grabs more coins than anyone else, would this go for centralization? Or, rather, what could in this case prevent their owner from inflating Bitcoin derivatives if he decides to?

It's a long story if you're not familiar with Austrian economics, but as far as one person or group amassing too many coins, it can't happen for very long. Even if one guy magically had 90% of all coins, he could only enjoy this situation to the extent that he spends them.  

I'm familiar with Austrians (sometimes even think myself belonging to them), consider their theory of subjective value brilliant (which started with Carl Menger). I know what you mean here, but, I'm afraid, this idea is not the only option in this case (and probably not the best one either). If that guy accumulated 90% of all coins he would be a central bank himself (remember, there is no other currency in circulation but Bitcoin). He wouldn't need to spend the coins, he could just issue "paper" BTCs, allegedly covered by real bitcoins. And then we have Gresham's law...

Why would people accept paper BTC? People accepted paper gold because they didn't want to lug around gold bars. Bitcoin has a weight of zero and is even easier to hide than paper bills.

He can only be a central bank if he uses his BTC to pay off government officials to get him special privileges. In a Bitcoin world, there is no central government, or only very weak ones.

[AnonyMint]

Why would people accept paper BTC? People accepted paper gold because they didn't want to lug around gold bars. Bitcoin has a weight of zero and is even easier to hide than paper bills.

He can only be a central bank if he uses his BTC to pay off government officials to get him special privileges. In a Bitcoin world, there is no central government, or only very weak ones.

Loans baby. We love loans.

Private banks didn't have a central bank in the 1800s. That came later as the private banks were often failing and taking the USA into depressions too often. Rollercoaster.

[deisik]

I'm familiar with Austrians (sometimes even think myself belonging to them), consider their theory of subjective value brilliant (which started with Carl Menger). I know what you mean here, but, I'm afraid, this idea is not the only option in this case (and probably not the best one either). If that guy accumulated 90% of all coins he would be a central bank himself (remember, there is no other currency in circulation but Bitcoin). He wouldn't need to spend the coins, he could just issue "paper" BTCs, allegedly covered by real bitcoins. And then we have Gresham's law...

Why would people accept paper BTC? People accepted paper gold because they didn't want to lug around gold bars. Bitcoin has a weight of zero and is even easier to hide than paper bills.

I didn't mean anything like notes made from actual paper (hoped this would be self-evident like today's paper gold). Something more like present Visas or MasterCards

Indeed, people may try to avoid accepting paper BTCs as much as possible if their aim is to hoard bitcoins (see goldbugs as an egregious example), but they are not always in the position to choose (see Weimar Germany as another example). Also, if they can always redeem paper BTCs for true bitcoins at any time (or at least promised to) and paper BTCs provide as much convenience as true bitcoins, I see no reasons why these bitcoin derivatives couldn't be used for everyday activities

The majority of people wouldn't probably need some advanced features of Bitcoin such as anonymity and whatnot, so the paper bitcoins might actually be made more convenient as a means of exchange (having been deprived of such features)...

[deisik]

He can only be a central bank if he uses his BTC to pay off government officials to get him special privileges. In a Bitcoin world, there is no central government, or only very weak ones.

If there is no central government or any other body that would explicitly prohibit him doing so, he has a free hand to do anything with his bitcoins including introduction of his own debt money covered to a degree by his Bitcoin reserves (what FRB is about)...

[pand70]

Why would people accept paper BTC? People accepted paper gold because they didn't want to lug around gold bars. Bitcoin has a weight of zero and is even easier to hide than paper bills.

He can only be a central bank if he uses his BTC to pay off government officials to get him special privileges. In a Bitcoin world, there is no central government, or only very weak ones.

Loans baby. We love loans.

Private banks didn't have a central bank in the 1800s. That came later as the private banks were often failing and taking the USA into depressions too often. Rollercoaster.

Loans are moving the economy for sure and banks keep on failing even with a central bank being established.

[deisik]

Loans baby. We love loans.

Private banks didn't have a central bank in the 1800s. That came later as the private banks were often failing and taking the USA into depressions too often. Rollercoaster.

Loans are moving the economy for sure and banks keep on failing even with a central bank being established.

With the central bank often bailing troubled banks out (not considering whether it's good in the long term on the economy scale). And in many countries money in the deposits of individuals is often insured to some extent too. Obviously, the situation is much better now than it was in the 19th century...

[AnonyMint]

Loans baby. We love loans.

Private banks didn't have a central bank in the 1800s. That came later as the private banks were often failing and taking the USA into depressions too often. Rollercoaster.

Loans are moving the economy for sure and banks keep on failing even with a central bank being established.

With the central bank often bailing troubled banks out (not considering whether it's good in the long term on the economy scale). And in many countries money in the deposits of individuals is often insured to some extent too. Obviously, the situation is much better now than it was in the 19th century...

The central bank means the multiple smaller bank runs and depressions of the 19th century (1800s) will be delayed into one HUMONGOUS apocalyptic TBTF failure coming before 2024 and lasting through 2033.

We just bound ourselves together in one-for-all-and-all-for-one to delay the correction. So the correction will be one-for-all-and-all-for-one.

Have you ever tried to move a huge crowd in lockstep with zero degrees-of-freedom (in an analogy of the financial derivatives of mass destruction which have enabled debt to rise unabated to 300+% of the global GDP) as if all of their shoestrings were tied to all others? There is only one way, dead.

I expounded on degrees-of-freedom.

[PenAndPaper]

Loans baby. We love loans.

Private banks didn't have a central bank in the 1800s. That came later as the private banks were often failing and taking the USA into depressions too often. Rollercoaster.

Loans are moving the economy for sure and banks keep on failing even with a central bank being established.

With the central bank often bailing troubled banks out (not considering whether it's good in the long term on the economy scale). And in many countries money in the deposits of individuals is often insured to some extent too. Obviously, the situation is much better now than it was in the 19th century...

The central bank means the multiple smaller bank runs and depressions of the 19th century (1800s) will be delayed into one HUMONGOUS apocalyptic TBTF failure coming before 2024 and lasting through 2033.

I think they are working on schemes to avoid things like that. With the "to big to fail" regulations and such.

[deisik]

With the central bank often bailing troubled banks out (not considering whether it's good in the long term on the economy scale). And in many countries money in the deposits of individuals is often insured to some extent too. Obviously, the situation is much better now than it was in the 19th century...

The central bank means the multiple smaller bank runs and depressions of the 19th century (1800s) will be delayed into one HUMONGOUS apocalyptic TBTF failure coming before 2024 and lasting through 2033.

I've already noticed somewhere that you don't quite understand what FRB actually means. For an economy as whole this is a zero sum game because for every loan given out by a bank there is a deposit put into the bank (or somewhere in the system). Fractional in FRB means that a bank retains only a portion of deposits as reserves, but this in no case means that the bank can issue more loans than it has in deposits. Strictly speaking, it can actually issue more loans than it has in its customers' deposits, but it will have to close the gap as soon as possible (within the same day, if I'm not mistaken). A bank can fail only if it has a bank-run or its debtors default (or both) whereas it is not able to revoke loans or get help from outside, but this couldn't fail the whole system for the central bank which would just offset financial assets and liabilities, socializing the likely net loss through inflation...

[twoez]

It will fail if it doesn't get accepted by millions of shops. Any currency accepted as a legal payment method could and should survive. Right now it's nothing more than an investment. People trade btc's for real money instead of psychical products. Bitcoin is a product right now, no currency. And one of the biggest problems (if not the biggest) are govenrments and banks who see bitcoins as a serious threat. The chances are realy small that they will accept Bitcoin.

[newtothescene]

It will fail if it doesn't get accepted by millions of shops. Any currency accepted as a legal payment method could and should survive. Right now it's nothing more than an investment.

I think that for the very reasons you listed, it will end up a common payment method.  Accepting bitcoin can reduce the merchant paid service fee on credit cards and switch that over to customer paid transaction fees.  Mom and pop stores are mainly the ones taking bitcoin now, but as soon as a few major chains figure out that they can boost profit by 1-2% by changing how they accept payment it will be all over.