Long-Term Bulls

[log0s]

Why people would sell you something for bitcoin?  Because they believe that later someone will buy that bitcoin from them.

And since a bitcoin is not a directly serviceable good, that is the *only* reason to buy bitcoins.  It's commonly known as the "greater fool theory": http://en.wikipedia.org/wiki/Greater_fool_theory

Isn't it nice to know that the entire "bitcoin economy" is based on everyone expecting to find a greater fool to buy their bitcoins?

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[zby]

Why people would sell you something for bitcoin?  Because they believe that later someone will buy that bitcoin from them.

And since a bitcoin is not a directly serviceable good, that is the *only* reason to buy bitcoins.  It's commonly known as the "greater fool theory": http://en.wikipedia.org/wiki/Greater_fool_theory

Isn't it nice to know that the entire "bitcoin economy" is based on everyone expecting to find a greater fool to buy their bitcoins?

You seem to be very emotional about this - but call it as you wish - this is the same thing with all money and with gold in particular.  The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Bitcoin is a currency - how it emerged is not relevant for the definition.  If it will survive is a completely different question - lot's of currencies are dead now.

[log0s]

netrin:

Imagine a new shipping company.  This shipping company only offers a free service to ship a special type of box that can only be used to hold a specific type of object, and that this type of object is worthless (it will not fulfill the ends of any person).  Their shipping service cannot ship any other types of boxes.  Their boxes cannot be used for anything else.

What it seems like you keep saying over and over again is that because the box can be used to send a worthless object to someone else, the worthless object that you put inside the box must be worth buying.  (To make sure the analogy is clear, the shipping company is like the current software implementation of the bitcoin rules and the resulting blockchain ledger, the boxes are like bitcoin transactions, and the worthless objects are like the numbers in the "value" field in a bitcoin transaction output.)

[log0s]

The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Indirect exchange is only one of multiple reasons people buy gold.  There are many directly serviceable uses of gold and at least one of those reasons (ornamentation) were why people wanted to acquire gold before it was ever used for indirect exchange. 

There has only ever been one reason to buy bitcoins.  It is circular in that the only reason anyone buys them is to sell them to another buyer, who is only buying them to sell them to another buyer, etc., etc.  No one buys them to provide some direct service because they do not provide a direct service.  They are just a number in the "value" field of a bitcoin transaction.

Although I acknowledge that it is not 100% certain to collapse, I believe it's chances of success are very poor, especially when considering all of the misconceptions bitcoin users have about the system they are using.  This is why I say bitcoin prices do not reflect reality (this is the case with all bubbles), but rather reflects false beliefs that promote higher prices, and therefore is a bubble that is not done deflating.

[proudhon]

The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Indirect exchange is only one of multiple reasons people buy gold.  There are many directly serviceable uses of gold and at least one of those reasons (ornamentation) were why people wanted to acquire gold before it was ever used for indirect exchange. 

There has only ever been one reason to buy bitcoins.  It is circular in that the only reason anyone buys them is to sell them to another buyer, who is only buying them to sell them to another buyer, etc., etc.  No one buys them to provide some direct service because they do not provide a direct service.  They are just a number in the "value" field of a bitcoin transaction.

Although I acknowledge that it is not 100% certain to collapse, I believe it's chances of success are very poor, especially when considering all of the misconceptions bitcoin users have about the system they are using.  This is why I say bitcoin prices do not reflect reality (this is the case with all bubbles), but rather reflects false beliefs that promote higher prices, and therefore is a bubble that is not done deflating.

I'm trying to introspect here and as I reflect on my own intentions I can't find any other reason that I buy dollars with my labor than to sell them to another buyer.  What am I missing?  If that's a criticism of bitcoins, surely it's also a criticism of dollars.

[zby]

The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Indirect exchange is only one of multiple reasons people buy gold.  There are many directly serviceable uses of gold and at least one of those reasons (ornamentation) were why people wanted to acquire gold before it was ever used for indirect exchange. 

Gold is used as ornamentation mostly *because* it is expensive.  The technical uses of gold are tiny.  Most of gold value is what you call indirect - and it relies on other people buying it back from you later.  You can say that the tiny fraction of what you pay for gold is somehow backed by it's serviceable use - but what with the rest?  In bitcoins you don't have that tiny fraction - only the rest, but in exchange it is more convenient as a medium of exchange, in the internet age, then gold.  If you read the books you lectured me about - you'd found out that the reason gold was used as money was because it was a convenient medium of exchange.

Personally I don't like many of the bitcoin system solutions - but bitcoins are money.

[netrin]

It is my position that bitcoin is superior in every way to a fiat currency except that it suffers low volume in its infancy. The problems associated from this low volume may be too great for bitcoin to surmount. But I believe the advantages today are already apparent and useful and bitcoin will be rapidly adopted.

My focus on the bitcoin transaction before the bitcoin unit is only to demonstrate that a bitcoin has value with superior monetary properties that is backed by the inherent utility value of transactions.

Although I would change the objects of analogy, your shipping metaphor correctly highlights a circular logic. Transactions only ship units, which if not for the properties of the transactions, the units would be worthless. This circular logic is precisely what backs the vast majority of all fiat currency today. Paper is used to pay taxes, which are used to support the issuing authority, without whom the paper would be worthless.

The fact is people do value units of account and bitcoin in particular because of the properties with which they can be exchanged. In so many words, I previously asked a single question: Even if bitcoin was used exclusively to transfer wealth denominated in dollars (exchange, transact, exchange) wouldn't that be a valuable service whose value would grow relative to the volume of transactions?

[log0s]

The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Indirect exchange is only one of multiple reasons people buy gold.  There are many directly serviceable uses of gold and at least one of those reasons (ornamentation) were why people wanted to acquire gold before it was ever used for indirect exchange. 

There has only ever been one reason to buy bitcoins.  It is circular in that the only reason anyone buys them is to sell them to another buyer, who is only buying them to sell them to another buyer, etc., etc.  No one buys them to provide some direct service because they do not provide a direct service.  They are just a number in the "value" field of a bitcoin transaction.

Although I acknowledge that it is not 100% certain to collapse, I believe it's chances of success are very poor, especially when considering all of the misconceptions bitcoin users have about the system they are using.  This is why I say bitcoin prices do not reflect reality (this is the case with all bubbles), but rather reflects false beliefs that promote higher prices, and therefore is a bubble that is not done deflating.

I'm trying to introspect here and as I reflect on my own intentions I can't find any other reason that I buy dollars with my labor than to sell them to another buyer.  What am I missing?  If that's a criticism of bitcoins, surely it's also a criticism of dollars.

Dollars had the advantage that they were already a very widely accepted money before their commodity backing was removed.  Bitcoin is not a commodity and has no commodity backing to help in it's adoption.

[netrin]

My train of thought is that you provide an excellent currency agnostic service to merchants, but not to the customer.

Going from bitcoin to dollars is easy...going from dollars to bitcoins is a whole different ball of wax (due to the problems of fraud and theft associated with all other methods of online transactions)

What prevents you from performing the same service as Dwolla? Your users have an account topped up by slow boring bank transfers, cash, and money orders. A merchant publishes a bitcoin address with a value in dollars. The user sends that amount in dollars plus fee through your service. Behind the scenes an amount of dollars are exchanged for bitcoins and sent on the p2p network. On the other end, if the merchant happens to be a Bit-pay customer, you receive the bitcoins and convert them to dollars. Of course you hedge your risk, pass risk as cost, and minimize the actual number of transactions, skipping bitcoin completely if both parties are customers. In this way your customers can choose to hold, send, and receive either currency as appropriate or preferred.

[netrin]

In defense of Log0s' argument, the fact that a bitcoin has no base value means that it can collapse to zero. Simply because it can collapse to zero means that people will fear that possibility and it is more likely to occur. Gold is a great example. The price of gold is above $1600 this week. We can never guess the 'true' value of gold, but I imagine a huge number of people would buy an ounce above $50 even if they believed no one else in the world would exchange them. When the price of gold dramatically tanked from $1950 to $1550 many people panic sold, but absolutely no one feared that the price would fall to zero. Bitcoin on the other hand is much more susceptible to panic sells. Even if we imagine a higher volume and lower volatility, a crash has no theoretic bottom and that fact alone will lead to more dramatic crashes.

Everyone with eyes to see and history books to read knows that this is precisely the same problem with fiat currencies. What differentiates the two asset classes are volume/adoption rates and scarcity. Bitcoin has no inflationary risk due to monetary policy. In the entire miserable history of fiat currency, very few (if any) have fallen out of use with fashion but were either absorbed into another currency or more often hyperinflated. "Inflation is always and everywhere a monetary phenomenon." (Friedman and Schwartz, 1963)

EDIT: Since I quoted Milton Friedman, it's worth noting that while he was critical of Keynes, his economic philosophy shared the belief in a central authority to control the amount of money in circulation. In contrast he thought that money supply targets could and should be fully automated based on a simple algorithm.

[Steve]

My train of thought is that you provide an excellent currency agnostic service to merchants, but not to the customer.

Going from bitcoin to dollars is easy...going from dollars to bitcoins is a whole different ball of wax (due to the problems of fraud and theft associated with all other methods of online transactions)

What prevents you from performing the same service as Dwolla? Your users have an account topped up by slow boring bank transfers, cash, and money orders. A merchant publishes a bitcoin address with a value in dollars. The user sends that amount in dollars plus fee through your service. Behind the scenes an amount of dollars are exchanged for bitcoins and sent on the p2p network. On the other end, if the merchant happens to be a Bit-pay customer, you receive the bitcoins and convert them to dollars. Of course you hedge your risk, pass risk as cost, and minimize the actual number of transactions, skipping bitcoin completely if both parties are customers. In this way your customers can choose to hold, send, and receive either currency as appropriate or preferred.

Even Dwolla has issues providing Dwolla's service (see the recent issues with Dwolla chargebacks).  Dwolla is based on ACH and ACH is reversible (even a push ACH transaction).  That's the crux of the problem.  Dwolla also had some pretty poor security practices which lead to a pretty severe problem with compromised Dwolla accounts being used to buy bitcoins on exchanges. 

At lot of people (namely the exchanges) have put a lot of thought into this issue...at the end of the day, an ACH or credit card transaction is reversible and the banks have set it up such that it's the recipient (merchant) that is always stuck with the losses in cases of fraud.  Wire transfers can be irreversible, but they are very expensive.  It's interesting to note that one of the major advantages of bitcoin (irreversibility) it also part of the reason why they are a bit of a hassle to purchase.  I think ExchB has an excellent service for people in the US where you can deposit actual cash at a bank branch and be able to use that cash for buying bitcoins within a few minutes.  The only other possibility I can see is a ripple like trust network for delivering bitcoins in exchange for dollars owed (I may not trust you, but I might trust a local exchanger who trusts you).  If something like that could be built and made easy to use, it might be possible to better facilitate the dollars->bitcoin exchange.

[Nagle]

Going from bitcoin to dollars is easy...going from dollars to bitcoins is a whole different ball of wax (due to the problems of fraud and theft associated with all other methods of online transactions)

No, going from dollars to Bitcoins seems to work well.  Prying dollars out of the "exchanges" that owe you money is the hard part. That's where customers are constantly complaining. See all the "Mt. Gox won't send me my money" threads.

[netrin]

Even Dwolla has issues providing Dwolla's service (see the recent issues with Dwolla chargebacks).  Dwolla is based on ACH and ACH is reversible (even a push ACH transaction).

I see. I came to the same conclusion when I looked into this in 2010. After the Dwolla/TradeHill charge backs and alternate methods, I had just assumed the risks had magically been reduced.

[Steve]

Going from bitcoin to dollars is easy...going from dollars to bitcoins is a whole different ball of wax (due to the problems of fraud and theft associated with all other methods of online transactions)

No, going from dollars to Bitcoins seems to work well.  Prying dollars out of the "exchanges" that owe you money is the hard part. That's where customers are constantly complaining. See all the "Mt. Gox won't send me my money" threads.

Not what I was talking about (though I personally have never had any issues getting dollars out of an exchange).

I was speaking about the risk situation.  Going from dollars (when using anything other than physical dollars) to bitcoin is asking the seller (the exchange) to deliver bitcoin via irreversible transaction in exchange for dollars delivered via a reversible transaction.  The exchange has to mitigate the risk of fraud in some way.  Conversely, the exchange has no risk (aside from short term double spend risk) in accepting bitcoin and sending you dollars.

[proudhon]

The use value of gold is just a little fraction of it's exchange value - so why people buy it? Because they expect someone else to buy it back from them.

Indirect exchange is only one of multiple reasons people buy gold.  There are many directly serviceable uses of gold and at least one of those reasons (ornamentation) were why people wanted to acquire gold before it was ever used for indirect exchange.  

There has only ever been one reason to buy bitcoins.  It is circular in that the only reason anyone buys them is to sell them to another buyer, who is only buying them to sell them to another buyer, etc., etc.  No one buys them to provide some direct service because they do not provide a direct service.  They are just a number in the "value" field of a bitcoin transaction.

Although I acknowledge that it is not 100% certain to collapse, I believe it's chances of success are very poor, especially when considering all of the misconceptions bitcoin users have about the system they are using.  This is why I say bitcoin prices do not reflect reality (this is the case with all bubbles), but rather reflects false beliefs that promote higher prices, and therefore is a bubble that is not done deflating.

I'm trying to introspect here and as I reflect on my own intentions I can't find any other reason that I buy dollars with my labor than to sell them to another buyer.  What am I missing?  If that's a criticism of bitcoins, surely it's also a criticism of dollars.

Dollars had the advantage that they were already a very widely accepted money before their commodity backing was removed.  Bitcoin is not a commodity and has no commodity backing to help in it's adoption.

I don't see how that's relevant to reasons people buy dollars and sell them to other buyers.  Not once, for example, have I ever bought dollars with my labor with the reason in mind that dollars have the advantage that they were already very widely accepted money before their commodity backing was removed.  As I said, the only reason I've ever had in mind, so far as I can tell, is that I can sell them to another buyer.

You made the claim that that's the only reason people buy bitcoins.  I'm suggesting that for the vast majority of the world's population that's also the only reason they buy most other currencies.  So, if the claim that the only reason most people buy bitcoins is to sell them to other buyers is a criticism of bitcoin, then, if a similar situation obtains for dollars it should count against dollars in the same way.  It seems that the only reason most people buy dollars is to sell them to other buyers.  I'm certain this is true for me.  I'm just a sure it's true for my wife, and I'm quite confident no other reasons (e.g. that dollars had the advantage that they were already a very widely accepted money before their commodity backing was removed) enter into the minds of any of my friends.  Can anyone else speak to this?  Facts about the history of dollars may make dollars more stable compared to bitcoins, but what I'm saying is that those facts don't enter into the minds of most people as reasons they buy dollars.  What is in the minds of most people, I suggest, is that they can sell those dollars to other buyers.

[Crypt_Current]

You made the claim that that's the only reason people buy bitcoins.  I'm suggesting that for the vast majority of the world's population that's also the only reason they buy most other currencies.  So, if the claim that the only reason most people buy bitcoins is to sell them to other buyers is a criticism of bitcoin, then, if a similar situation obtains for dollars it should count against dollars in the same way.  It seems that the only reason most people buy dollars is to sell them to other buyers.  I'm certain this is true for me.  I'm just a sure it's true for my wife, and I'm quite confident no other reasons (e.g. that dollars had the advantage that they were already a very widely accepted money before their commodity backing was removed) enter into the minds of any of my friends.  Can anyone else speak to this?  Facts about the history of dollars may make dollars more stable compared to bitcoins, but what I'm saying is that those facts don't enter into the minds of most people as reasons they buy dollars.  What is in the minds of most people, I suggest, is that they can sell those dollars to other buyers.

Very Yes

[Shinobi]

Most of the former aren't even austrian-minded libertarians, which is a prerequisite for any kind of logical discussion on this forum.

LOL

[netrin]

I don't see how that's relevant to reasons people buy dollars and sell them to other buyers....Facts about the history of dollars may make dollars more stable compared to bitcoins, but what I'm saying is that those facts don't enter into the minds of most people as reasons they buy dollars.

I think his argument is that today bitcoins are not valuable and are grossly overpriced. Since (he claims) there is no reason for the price to go up it will continue to collapse as more people understand this certainty.

He hasn't said this, but I believe his argument assumes a certain acceptance threshold must be reached. The current prices assume that threshold will be crossed, but that as prices come down and more people exit, the threshold becomes less obtainable, and bitcoin will just peter out.

When dollars WERE backed by gold, they easily crossed this acceptance threshold. When the backing was removed, the fiat was sufficiently established. So, while the historical backing is not relevant today, it was relevant to its establishment in people's minds.

[Crypt_Current]

I don't see how that's relevant to reasons people buy dollars and sell them to other buyers....Facts about the history of dollars may make dollars more stable compared to bitcoins, but what I'm saying is that those facts don't enter into the minds of most people as reasons they buy dollars.

I think his argument is that today bitcoins are not valuable and are grossly overpriced. Since (he claims) there is no reason for the price to go up it will continue to collapse as more people understand this certainty.

He hasn't said this, but I believe his argument assumes a certain acceptance threshold must be reached. The current prices assume that threshold will be crossed, but that as prices come down and more people exit, the threshold becomes less obtainable, and bitcoin will just peter out.

When dollars WERE backed by gold, they easily crossed this acceptance threshold. When the backing was removed, the fiat was sufficiently established. So, while the historical backing is not relevant today, it was relevant to its establishment in people's minds.

I personally believe establishing a link between BTC and the OWS Movement in people's minds will be pivotal in widespread acceptance of Bitcoin.

[netrin]

If bitcoin can link the Tea partiers, End the fedders, Occupy wall streeters, with Madison avenuers and Wall street traders we'd have a truly revolutionary medium.