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Author Topic: "Game over" scenario for Bitcoin  (Read 4926 times)
jon_smark
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February 21, 2011, 06:01:32 PM
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Hi,

Looking at the current valuation of Bitcoin against the dollar, I know I'm not the only one to find Bitcoin to be overpriced given the size of its economy.  Therefore, there are strong indications that the current valuation (even taking into account the recent slump) is largely driven by speculation about the future value of the Bitcoin currency.  However, and though I love Bitcoin as much as the next guy, realistically speaking there are some strong arguments as to why Bitcoin -- at least in its current incarnation -- might fail.  Moreover, I suspect that speculators may not be adequately pricing the risk of a Bitcoin failure into their investment.  If this risk is properly taken into account, then the true valuation of Bitcoin against the dollar should be much lower than the current (almost) parity.

And what arguments for Bitcoin's failure are these?  Well, foremost is the risk of a second genesis or the rise of a competing system based on similar principles (or even the same code base!), particularly if backed by a strong player (think Google).

Hypothetically speaking, suppose Google were to announce gCash: an electronic currency very much like Bitcoin, but with builtin support in the Chrome browser and accepted as payment in all of Google's services.  They could even throw in builtin support for cooperative mining in the standard client to encite people to use Chrome all the time.

Bitcoin's economy is currently so small that it would be dwarfed overnight by gCash.  In a sense, Bitcoin's philosophy and principles would win, but the current block chain would either fade into oblivion or become such a niche player that its valuation would come down drastically, reflecting the true size of its tiny economy.

Now, I used Google only as an example, as I have no indication they actually have such plans.  The point is that the risk of such a scenario is not zero, and I reiterate my initial point that speculators may not be pricing it adequately.
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kiba
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February 21, 2011, 06:04:53 PM
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Now, I used Google only as an example, as I have no indication they actually have such plans.  The point is that the risk of such a scenario is not zero, and I reiterate my initial point that speculators may not be pricing it adequately.


You don't have any evidence to suggest the speculators are not pricing it properly except your feeling about the matters. If you're right, why don't you speculate?

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February 21, 2011, 06:14:18 PM
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Of course bitcoin is high risk, and might fail due to any number of factors.

See post "The beginning of the beginning of something great".

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February 21, 2011, 06:30:07 PM
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Moreover, I suspect that speculators may not be adequately pricing the risk of a Bitcoin failure into their investment.

Fear not! If they are found wanting, they will be punished for their mistakes (in the sense that their bitcoins will be worthless)?

Hypothetically speaking, suppose Google were to announce gCash: an electronic currency very much like Bitcoin, but with builtin support in the Chrome browser and accepted as payment in all of Google's services.  They could even throw in builtin support for cooperative mining in the standard client to encite people to use Chrome all the time.

Google is not going to want to get involved in the complicated legal issues surrounding bitcoin. Secondly any significant advantages for Google imply some form of centralization, negating bitcoin's fundamental benefit. Google could avoid the first issue by setting it up as an open source project online, using a mysterious anonymous persona with a funny Japanese name who neither speaks nor writes Japanese. The second is more fundamental.
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February 21, 2011, 06:31:24 PM
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a healthy dose of skepticism is always good for any new innovation, but the emergence of another block chain has been discussed on this board before.

The general belief was, the moment google or someone else starts offering g-cash, many exchanges will start offering conversion service between btc and g-cash. In the end, it's not about block chain, it's about people, it's about user base and their preference.

P2P currency concept itself is inherently anti-corporation, g-cash if ever exist will more likely go Q coin route than bitcoin.
http://en.wikipedia.org/wiki/Tencent_QQ

dannyjpw
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February 21, 2011, 07:37:44 PM
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The general belief was, the moment google or someone else starts offering g-cash, many exchanges will start offering conversion service between btc and g-cash. In the end, it's not about block chain, it's about people, it's about user base and their preference.


in which case the exchange rate will be determined by demand, which in turn is determined by the range of goods one could buy with the two currencies in question, so I think the OP point is valid.

I think its a fallacy to suggest that currencies can exist side by side in a given market segment in the absence of forced usage of one or all of them since herding and winner-takes-all effects will tend toward the emergence of a single winner. That winner may later fail but not before it drives all the others out.

There is a reason why for a long time gold and silver were really the only money - because of exactly this society wide winner takes all effect.
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February 21, 2011, 07:52:13 PM
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I don't think a second block chain would be any problem for Bitcoin. Nevertheless, it might be interesting to start one up, just to illustrate that point. What do people think?

(We can't count testnet as an alternative block chain anymore, now that it gets reset for the convenience of the testers.)
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February 21, 2011, 07:58:43 PM
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The general belief was, the moment google or someone else starts offering g-cash, many exchanges will start offering conversion service between btc and g-cash. In the end, it's not about block chain, it's about people, it's about user base and their preference.


in which case the exchange rate will be determined by demand, which in turn is determined by the range of goods one could buy with the two currencies in question, so I think the OP point is valid.

I think its a fallacy to suggest that currencies can exist side by side in a given market segment in the absence of forced usage of one or all of them since herding and winner-takes-all effects will tend toward the emergence of a single winner. That winner may later fail but not before it drives all the others out.

There is a reason why for a long time gold and silver were really the only money - because of exactly this society wide winner takes all effect.

Bingo.

Two bitcoin type chains will never both be valuable for long. I think currencies with different properties like bitcoin and gold can.

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February 21, 2011, 08:03:46 PM
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Bingo.

Two bitcoin type chains will never both be valuable for long. I think currencies with different properties like bitcoin and gold can.

First... silver and gold have similar properties, why are they both valuable?

Second... I don't think it really matters which block chain is prevalent as long as at least one is. If that happens, there will be some early adopters of the winning chain and some late adopters. As long as there continues a decentralized system such as Bitcoin, I don't see a problem.
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February 21, 2011, 08:14:40 PM
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Has anyone thought about using a different block chain as local currency?

http://en.wikipedia.org/wiki/Local_currency#Modern_local_currencies

One thing has been bothering me is the scalability of bitcoin, and how fast the database will grow if it needs to handle thousands or millions transaction per second. If this happens, putting a minimal threshold on transactions and using other block chain spinoffs may be the solution.
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February 21, 2011, 08:16:23 PM
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Starting a new block chain tends to imply the new block chain having much less "strength", making it easier to gain >50% network power.

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February 21, 2011, 08:26:11 PM
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Starting a new block chain tends to imply the new block chain having much less "strength", making it easier to gain >50% network power.
true, but once people find out a block chain is manipulated, they will abandon it.
there will be false starts, and great risks. Luckily current bitcoin chain seems to have passed that stage Smiley (knock on the wood)
jon_smark
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February 21, 2011, 08:40:44 PM
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in which case the exchange rate will be determined by demand, which in turn is determined by the range of goods one could buy with the two currencies in question, so I think the OP point is valid.

Yeap, which is why if Bitcoin is to sustain its current valuation on a foundation more solid than just speculation about a golden future which may or may not come to fruition, then the size of the bitcoin economy must grow.  Unfortunately, I see people more obsessed with mining than in actually putting Bitcoin to use in the real world.

I think its a fallacy to suggest that currencies can exist side by side in a given market segment in the absence of forced usage of one or all of them since herding and winner-takes-all effects will tend toward the emergence of a single winner. That winner may later fail but not before it drives all the others out.

My feeling exactly.  Which is why I think that if a big player (the "Google" in my example) were to launch a Bitcoin-like currency, they could overnight create far more momentum than Bitcoin currently has.

There is a reason why for a long time gold and silver were really the only money - because of exactly this society wide winner takes all effect.

I don't believe that gold winning the ultimate throne was mere happenstance.  There were other reasons why societies eventually converged on gold and silver.  If you look at all the elements, gold occupies a sweet spot when it comes to a number of useful properties for currency: it exists in solid form, it does not rust, it is rare but not too rare, it has a relatively low melting point, etc.  If history were to be re-run, I would venture that gold would re-emerge as the winning element.
jon_smark
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February 21, 2011, 08:41:43 PM
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I don't think a second block chain would be any problem for Bitcoin. Nevertheless, it might be interesting to start one up, just to illustrate that point. What do people think?

(We can't count testnet as an alternative block chain anymore, now that it gets reset for the convenience of the testers.)

I think it's a terrible idea.  The last thing that Bitcoin needs is balkanisation.
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February 21, 2011, 08:43:35 PM
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I think it's a terrible idea.  The last thing that Bitcoin needs is balkanisation.


First mover advantage in so far the gathered momentum is difficult to overcome.

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February 21, 2011, 08:53:37 PM
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Yeap, which is why if Bitcoin is to sustain its current valuation on a foundation more solid than just speculation about a golden future which may or may not come to fruition, then the size of the bitcoin economy must grow.  Unfortunately, I see people more obsessed with mining than in actually putting Bitcoin to use in the real world.


I absolutely agree. Unfortunately for many here the only way that the bitcoin economy is going to really grow is by having debt denominated in bitcoins.

The debt denominated in a currency is what gives the currency its value, because it creates demand for the currency to clear the debt.  Alone it has no value, regardless of how scarce it is decreed to be.

This is why you should all be taking a look at ripple, starting with this thread: http://bitcointalk.org/index.php?topic=3557.0

kiba
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February 21, 2011, 09:00:09 PM
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The debt denominated in a currency is what gives the currency its value, because it creates demand for the currency to clear the debt.  Alone it has no value, regardless of how scarce it is decreed to be.


Nonsense. Bitcoin today are worth .80 USD.

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February 21, 2011, 09:05:04 PM
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Bingo.

Two bitcoin type chains will never both be valuable for long. I think currencies with different properties like bitcoin and gold can.

First... silver and gold have similar properties, why are they both valuable?

Second... I don't think it really matters which block chain is prevalent as long as at least one is. If that happens, there will be some early adopters of the winning chain and some late adopters. As long as there continues a decentralized system such as Bitcoin, I don't see a problem.

Got me, what I said was straight wrong.

Obviously pretty much everything is valuable to some level. I think that only one thing of a given type can get that huge boost of added currency value. I don't know if silver and/or gold have any of this extra value now. I suspect both a little of it as people speculate on what will ultimately take the position of money.

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February 21, 2011, 09:07:43 PM
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The debt denominated in a currency is what gives the currency its value, because it creates demand for the currency to clear the debt.  Alone it has no value, regardless of how scarce it is decreed to be.


Nonsense. Bitcoin today are worth .80 USD.

Maybe that's only because some people owe bitcoins to someone. I don't think the debt claim is true, but you don't show that by saying the price of a coin.

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February 21, 2011, 09:11:20 PM
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I don't think a second block chain would be any problem for Bitcoin. Nevertheless, it might be interesting to start one up, just to illustrate that point. What do people think?

(We can't count testnet as an alternative block chain anymore, now that it gets reset for the convenience of the testers.)
I think it's a terrible idea.  The last thing that Bitcoin needs is balkanisation.
well if the idea is feasible and profitable, someone or some people will try it, no matter you like it or not.
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