Bitcoin's Future Value, Weighted Scenario Analysis

[BitThink]

You can already rule out scenario A and B because China expressed as openly as they possibly could that Bitcoin is NOT a currency and is NOT money. Good luck trying to be the worldwide anything without China's backing.

It's a prediction, not for now.

My probability distribution (for a not so remote future when I am still alive)
A: 0
B: 0
C: 5%
D: 45%
E: 50%

So the expected value of mBTC is 300 * 0.05 + 17 * 0.45 = 22.65.
Not too bad, it seems I have a good chance to be a millionaire without doing anything.

[xxnewbiecoinerxx]

Am i misunderstanding something here? It seems that your prices are based on a total amount of fiat going to bitcoins divided by the number of bitcoins. Isnt the price based on available supply vs demand. The fiat in bitcoins - doesnt it make a only a fraction of a price?

[Zangelbert Bingledack]

I don't see any possibility of half-measures, ultimately. If Bitcoin gets established in the mainstream as anything, it will inevitably become everything (or the basis for everything). It's simply way too superior to fiat for any other possibility to play out. And if it becomes anything, it will be a store of value. With its properties it will be irrestistable as a store of value and will command insane prices. A ban would just push it to other countries and a coordinated ban would just push it underground and to holdout countries. It might take a few years but eventually it would become so powerful there that it resurges onto the world scene and continues as before.

Or it fails. (Death by altcoin dilution is probably economically impossible, but I haven't reasoned it out conclusively.)

Hence we have the old binary bet. Bitcoin will either be nothing or everything. Either nothing will be denominated in Bitcoin, or the percent of outstanding coins you control will command roughly that same percentage of all the goods, property, and services in the world.

As to the probabilities, I used to give it 90% chance of failure and 10% chance of success (still a staggeringly good investment), but now I'm leaning toward 50/50 or maybe even 60/40 in favor of success. It only makes sense that as upside is reduced (by 100x this year) the probability of success is increased.

[WompRat]

You are making something of a Pascal's Wager style argument here.  Sure, Bitcoin, like believing in God might bring ultimate happiness and for the small entry costs set against the eternal damnation of Hell or the eternal damnation of missing out it might be logical to believe and buy in even if the odds in favor are tiny, but it is not an argument that ever made me want to go to Church or take out a loan for Bitcoin.  You should add an option for gradual decline over time as people find other things to obsess over.

[Zangelbert Bingledack]

The odds in favor aren't tiny or even particularly small, so it's nothing like Pascal's Wager.

[nwbitcoin]

Actually, I can see bitcoin failing, but subtly.

There is no reason that Bitcoin can't be used to prove the concept and get the legislation worked out, and then it gets upgraded to a Government controlled version.

This could easily happen in the same way that the people who bought all those great domain names found themselves being called domain squatters and eventually had to hand everything over for free.

Rather than calculate where bitcoin will be in 7 years, why not work out where it may be in 25 years - that is the sort of time frame the finance industry works to.

 

[SlipperySlope]

Actually, I can see bitcoin failing, but subtly.

There is no reason that Bitcoin can't be used to prove the concept and get the legislation worked out, and then it gets upgraded to a Government controlled version.

This could easily happen in the same way that the people who bought all those great domain names found themselves being called domain squatters and eventually had to hand everything over for free.

Rather than calculate where bitcoin will be in 7 years, why not work out where it may be in 25 years - that is the sort of time frame the finance industry works to.

Interesting approach.

I distinguish bitcoin adoption by speculators apart from bitcoin adoption by the underlying economy. In 25 years I expect bitcoin to completely replace the legacy financial infrastructure and extend its utility through a disruptive combination of lower cost and software-defined features. I expect network effects to strongly favor keeping bitcoin, and to favor amending the consensus protocol to forestall otherwise competitive cryptocurrencies. Bitcoin is the TCP/IP of money in that regard.

Furthermore, consider that bitcoin is not minted by central banks in response to credit demand, rather individuals and commercial entities requiring an amount of bitcoin for working capital, e.g. for ordinary bitcoin-denominated expenses, will have to purchase that bitcoin from some holder. I am beginning to believe, and will look for evidence, that speculative holders are selling bitcoins to transacting users very dearly. Thus using a metric such as world M2 monetary base to figure the extreme high end of bitcoin adoption may be too low a target.

[canth]

Actually, I can see bitcoin failing, but subtly.

There is no reason that Bitcoin can't be used to prove the concept and get the legislation worked out, and then it gets upgraded to a Government controlled version.

This could easily happen in the same way that the people who bought all those great domain names found themselves being called domain squatters and eventually had to hand everything over for free.

Rather than calculate where bitcoin will be in 7 years, why not work out where it may be in 25 years - that is the sort of time frame the finance industry works to.

I take a similar view on the idea that government versions of crypto currency might compete with bitcoin and thus keep it from gaining further value/adoption.
https://bitcointalk.org/index.php?topic=358521.msg3839368#msg3839368

A government issued crypto currency would necessarily be much more centralized than bitcoin - otherwise what would be the point? No large government is going to want transactions that they cannot track, block or reverse. They aren't going to want a finite supply since the central banks would be largely pointless. They sure as hell aren't going to support mining to be the mechanism for controlled distribution.

The question then ends up being whether citizens accept or reject government issued digital currency vs bitcoin. To that answer, I'm not sure - the press has managed to get it mostly wrong about bitcoin so I'm dubious about whether they would do a decent job of educating people on the difference between centralized and decentralized currencies.

In the end, do customers always choose the superior product? I'd say that the answer is no, especially when the product is as complicated to understand as bitcoin is. I'd have to warrant that centralized digital currencies will be a threat at some point.

[lukaszpp]

I would add one scenario:
F - BTC becomes illegal in many countries, although it has implemented more anonymity tools. Bitcoin becomes black market currency, especially for international transactions. It's not widely used, but because it transactions are secure can't be traced. BTC can be exchanged for gold or fiat in little tax-heaven countries. It's hard to asses mBTC value in this case.

Personally I think in that case F is more probable, than E.
I vote for C as most probable, although might be B in optimistic case.

[BTCtrader71]

This is a very interesting thread, as usual for rpietila

I don't know whether this has been discussed elsewhere, but has anyone tried to estimate a value (or stated differently, a market cap) at which the US government (and/or other governments) would feel threatened by bitcoin? People like Ben Bernanke probably do not currently view bitcoin as being particularly dangerous to the dollar. But if they did, then I imagine they could and would do whatever was needed to maintain the dollar's supremacy over bitcoin. Perhaps this will be what determines the steady-state valuation of mBTC for the foreseeable future.

[macsga]

This is a very interesting thread, as usual for rpietila

I don't know whether this has been discussed elsewhere, but has anyone tried to estimate a value (or stated differently, a market cap) at which the US government (and/or other governments) would feel threatened by bitcoin? People like Ben Bernanke probably do not currently view bitcoin as being particularly dangerous to the dollar. But if they did, then I imagine they could and would do whatever was needed to maintain the dollar's supremacy over bitcoin. Perhaps this will be what determines the steady-state valuation of mBTC for the foreseeable future.

One does exclude the other, in my opinion. Dollar/Fiat and Bitcoin can coexist since they each serve a different purpose. Nevertheless, I presume the exact opposite. That is; the BTC-Banks bond getting stronger with banks fulfilling the "escrow" side of things.

Chances are they already at it (it was reported at the senate hearing). I have mentioned it previously in the troll-thread (urm... I mean wall observer ) that there's a strong possibility men like Bernanke are using BTC to absorb a part (or the whole) of the inflation around the world.

If they succeed, BTC has an enormous crash and everyone stays away for about 100 years. If they fail, BTC gets its throne as the primary international coin around the globe. Win-Win situation... It's an extreme scenario; but yet one that we cannot rule out.

[BTCtrader71]

This is a very interesting thread, as usual for rpietila

I don't know whether this has been discussed elsewhere, but has anyone tried to estimate a value (or stated differently, a market cap) at which the US government (and/or other governments) would feel threatened by bitcoin? People like Ben Bernanke probably do not currently view bitcoin as being particularly dangerous to the dollar. But if they did, then I imagine they could and would do whatever was needed to maintain the dollar's supremacy over bitcoin. Perhaps this will be what determines the steady-state valuation of mBTC for the foreseeable future.

One does exclude the other, in my opinion. Dollar/Fiat and Bitcoin can coexist since they each serve a different purpose. Nevertheless, I presume the exact opposite. That is; the BTC-Banks bond getting stronger with banks fulfilling the "escrow" side of things.

Chances are they already at it (it was reported at the senate hearing). I have mentioned it previously in the troll-thread (urm... I mean wall observer ) that there's a strong possibility men like Bernanke are using BTC to absorb a part (or the whole) of the inflation around the world.

If they succeed, BTC has an enormous crash and everyone stays away for about 100 years. If they fail, BTC gets its throne as the primary international coin around the globe. Win-Win situation... It's an extreme scenario; but yet one that we cannot rule out.

Early bitcoin enthusiasts, myself included, have a natural tendency to envision an inevitable struggle between bitcoin (the good) and fiat (the bad), with one ultimately conquering the other. Perhaps. But lately I have become interested in thinking about how they may coexist symbiotically; at least in the short term, and maybe in the long term. After all, it is not in anyone's best interest if bitcoin becomes so overwhelmingly popular so quickly (as some would imagine) that the fiat system collapses; this could be too destabilizing and lead to war and chaos. And the destruction of the internet, and then of bitcoin ... unless Jeff Garzik's bitcoin node satellites are up and running by then ....

Ideally, imho, existing institutions like paypal, amazon, banks, credit cards, Western Union, etc will find ways to make use of bitcoin and in so doing, will strengthen bitcoin (maybe even make themselves richer) in a way that does not destabilize the current system. However, a side effect will be that in a time of localized chaos (e.g.: war in Syria, economic isolation like Iran, hyperinflation in Zimbabwe), bitcoin will make it easy for the population to build a capitalist / free economy from the ashes, and to do so *quickly*. Bitcoin would be as important as social media was to the Arab spring, but better. Imagine if this vision of bitcoin were presented to Congress or the CIA. They would then be in a position to promote and protect bitcoin!

I had not considered that Bernanke might be using BTC to absorb inflation. It is an interesting idea, although I'm not sure I follow what his thought process might be. The USD monetary base has roughly tripled; however, broad measures of the money supply have not expanded, at least not nearly as much as the monetary base, and inflation is not (so far? ...) very high. So how exactly does bitcoin fit into that? (At least, from Bernanke's point of view. Assuming he has even given it much thought.) 

[lukaszpp]

Bitcoin becomes black market currency, especially for international transactions.

and

It's not widely used, but because it transactions are secure can't be traced.

Black market isn't small at all.

I didn't say it's small, just not widely used, a slight difference. Anyway, it's hard to guess black market cap, that could be using bitcoins.

[macsga]

I had not considered that Bernanke might be using BTC to absorb inflation. It is an interesting idea, although I'm not sure I follow what his thought process might be. The USD monetary base has roughly tripled; however, broad measures of the money supply have not expanded, at least not nearly as much as the monetary base, and inflation is not (so far? ...) very high. So how exactly does bitcoin fit into that? (At least, from Bernanke's point of view. Assuming he has even given it much thought.) 

What is wealth? I mean litterally what is it? Imagine someone you know with a lot of money. Do you think you can read about him on the news papers? Most big-cash guys are staying low and that's for a good reason. Their "job" is to control wealth. Being bombed by inflation tools like derivatives, bailouts, stock market bubbles etc, it's rather difficult for them to control things like they used to...

Bitcoin may be able to "fix" this. Imagine some of them holding a great amount of coins (this accumulation is happening as we speak). One who controls the wealth, can control the price; isn't it? I really don't know if they can make it happen. They certainly have the financial tools and resources to do so. I really don't know what to wish for; I want them to succeed or not? I guess in a future not far away from now; they will be ones of the rich (bitcoinwise) as they used to be in their previous monetary life.

Besides of that; there's a strong possibility that these guys see a grave danger coming from bitcoin. This will cause the mother of all storms to its price. People who believe in it though; must be wise and keep their positions. In either case, they won't have to lose anything... the ones who came to short some cash out on the other hand... well I feel sorry for them.

[wo4baba]

I have few ideas to unlock the btc value for everyone.

1. top 100 holders give away certain amount of btc to as many individuals as possible when btc price increases every 2 folds.
this enhances the principle of btc. if mbtc wants to be recognized as USD 5000, it needs to convince everyone on the earth, btc represents ethic of freedom, transparency and fairness far beyond low-cost and anonymity. This will also distinguish btc from other alternative copy-cat coins.

2. open eCommerce site for chinese folks to accept btc, which I would open such service

3. educate all the hookers, massage, escort female or other service providers to start accepting btc, service providers who don't need to buy merchandise for resale are most likely to be btc adapter.

more ideas are coming...

[nwbitcoin]

Why does everyone seem to think Bitcoin is a threat to government?

Its not!

Its a big threat to the banking industry though, and because of that, its actually something that government finds very useful.

I would not be surprised that in 20 years, Bitcoin, the protocol, will be used to do all small value internet transactions but it won't be bitcoin, the coin we are currently trading - that will never actually hit the big time, with the government releasing their own version, a bitdollar or bitsterling as soon as it becomes idiot proof to use. This will be the cash of the future, and be linked in value to the fiat its representing.

The banks, on the other hand, are going to find that Bitcoin removes their unique relationship with governments, and will find that they will start losing their huge protected profits as people can start doing crowd sourced mortgages at real free market low rates.  This does the same to the banks that email does to the postal service.  It doesn't kill it, it just makes it irrelevant to the public.

However, for Government, bitcoin offers automatic taxation on all trades, the removal of the need to chase debts, and the costs of having to do so. The only problem is knowing where its borders are - much like the issues that the US has with knowing who it can spy on and who it can't - and what it does about it!

Personally, I don't see my current Bitcoin investments having any value by 2030!

[macsga]

I have few ideas to unlock the btc value for everyone.

1. top 100 holders give away certain amount of btc to as many individuals as possible when btc price increases every 2 folds.
this enhances the principle of btc. if mbtc wants to be recognized as USD 5000, it needs to convince everyone on the earth, btc represents ethic of freedom, transparency and fairness far beyond low-cost and anonymity. This will also distinguish btc from other alternative copy-cat coins.

2. open eCommerce site for chinese folks to accept btc, which I would open such service

3. educate all the hookers, massage, escort female or other service providers to start accepting btc, service providers who don't need to buy merchandise for resale are most likely to be btc adapter.

more ideas are coming...

LOL @ 3... 

By the way; all of the above should be obsolete ONLY IF *one* company incorporates btc... Paypal.

[martins]

did you put a computer power (i.e Quantum physic's) being implemented in future to break even the SHA256 code? i think it's just a question of time to see real power's that realy affect BTC in his root's, bad news also included like the Chinese Gov. banning it from institutional bank, maybe even a worldwide hacker (group?) knowing a bug and stolen all the bitcoins...

I like the BTC concept to send and do payment's at high speed but it seam's BTC has a long range target mixed with computational power, witch is translated in "Loss"

[macsga]

did you put a computer power (i.e Quantum physic's) being implemented in future to break even the SHA256 code? i think it's just a question of time to see real power's that realy affect BTC in his root's, bad news also included like the Chinese Gov. banning it from institutional bank, maybe even a worldwide hacker (group?) knowing a bug and stolen all the bitcoins...

I like the BTC concept to send and do payment's at high speed but it seam's BTC has a long range target mixed with computational power, witch is translated in "Loss"

There's always the possibility that the quantum computer is already there for mining purposes as well...

[loopgate88]

rpietila, Thank you for your work. This is good speculation.

I would like to take it 1 step back toward the origin of the value of 1BTC. What is the value of 1BTC most equivalent to? A % of mining equiment energy cost? A % of BTC transactions per second? A % of users? A % of the brand?

If these can be established at all, can they be charted into all the factors that make up the value of 1BTC and by how much?