Bitcoin Derivatives

[Nattum]

Why would you invest in a bitcoin derivative?? Explain this to me please I fail to see the use. Invest in the hardware companies and make a fortune. Buy Bitcoin low and sell high. Using derivatives in this situation seems like a safe bet with little pay off. The market seems to volatile to sign a contract. Please shine some light on to this for me.

-Nattum

[Sephera]

The reason I got into bitcoin is because I want to get away from Financial Instruments of Mass Destruction. Derivatives will only destabilize. Derivatives is pure financial fraud, the fraud is worst that what the Mafia are doing. The bankers who do this deserve to be in JAIL. It is stealing.

[Nattum]

I think you're using your brain and I'm proud you posted on my poll thank you!!. I would still like to hear from someone who supports derivatives though because I don't get the idea. Another fly buy night long con or financial fumble? I don't see an upside please argue different future posters lets get a debate going!!

[PNTT]

You need to look at why derivatives were invented in the first place.

A classic example if farmers and their corn crop. Should a farmer grow a corn field? Given the current price of corn, it might be profitable. But it takes a while to go corn, what if the corn grows and when it needs to be sold, the price falls? He could sell the corn at a loss.

A farmer can use a derivative contract to sell the corn in say 3 months time for a set price. I.e. Contract to sell 10 bushels of corn for 50USD in 3 months time. This can reduce the risk for the farmer because he needs to make sure the capital investment now will be profitable for him in the future.

An example using Bitcoin and in particular mining which is important aspect in the bitcoin network.

Since now it is much harder to mine bitcoins and usually requires a significant capital outlay how can a person know that if splashing out on cash to buy mining hardware is worth it? As BTC gets harder to mine, more costly equipment is required to mine it.

Mining bitcoins is somewhat predictable but the price of bitcoin is less so. So a potential BTC mining operation can use derivatives to lock in a future selling price for BTC so it has more certainty that the investment in mining will pay off in the future.

Derivatives can be a useful tool but like all tools, can also be used in a destructive way. Does the potential usefulness outweigh potential misuse? That is up for debate.