Why I think the Bitcoin wealth pyramid hinders economic development

[ElectricMucus]

I know so much has been written on this subject, and the consensus is that the hoarders deserve their wealth.

However I think this hinders the growth of the bitcoin economy and here is why:

People currently possessing thousands to several thousands of bitcoins are holding them back in order to keep the prices up and with the goal of becoming wealthy from them in the next several years.
However, as in pointed out in another thread which drifted way off topic over half of all bitcoins currently in existence are held by such individuals.

To it comes the iterated Prisoners dilemma: The more people holding a significant amount of Bitcoins sell the more it crashes the price, we are seeing this right now and there seems to be a lot of pressure. However most of it is sold in bulk on the exchanges.
This is not good.

Yes with a few thousand bitcoins people can get enough fiat money to buy themselfes something nice in the fiat economy. That is not the problem.
The problem is it makes the bitcoin holdings even more centralized than they already are. People with deep pockets have no problem sucking those up and hoarding them. Possibly a lot of them have no real interest a future bitcoin economy or even with disruptive intentions. (mind you that is just a suspicion!)

My point is, people need to spend their Bitcoins into the economy with lots of little purchases. Even a percentage of the bitcoins currently hoarded as a ticket into the 'bitcoin billionaire club' could make a tremendous difference in the direction the economic development is headed.
And I personally believe it would increase the overall value of those holdings in real life value within a lifetime.

So if you are currently hoarding consider my suggestion if you aren't planning to sponsor your great grandkids with your stash. 

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[evoorhees]

My recommendation is for "hoarders" to do whatever they want. There is not necessarily any special gain made when a "hoarder" spends the money with a merchant. If the merchant saves the income, he becomes a "hoarder." If he cashes out, it drops the price and people get worried (though they shouldn't).

"Hoarders" do plenty of good to the economy - and it's made more clear when you realize they are no different than any merchant. A merchant sells a good for Bitcoins. Well - "hoarders" simply sold the good called "US Dollars" or another currency good for the Bitcoin. They then save the Bitcoins, raising market price and indicating to the market that Bitcoins have increased in demand.

Further, it's also important to realize that the more people "hoard" Bitcoin, the further the price increases, and this allows people who wish to spend their bitcoins to enjoy greater purchasing power. This increase in purchasing power is not only beneficial if you want to spend on consumption, but also on capital investment for Bitcoin projects.

Consider if Wealthy Investor A puts an order to purchase 5 million Bitcoins. He wants to "hoard" them. This will raise the price massively. Those holding Bitcoins now can spend each one to greater effect - the man with 1,000 coins is now sitting on substantial resources, and he can use that to invest in new startup businesses. If that Wealthy Investor A bought the coins then simply purchased tons of stuff with them, the 5 million coins would flow around and many would be sold off for other currencies. Good for the merchants in the short term, yes, but long term the effects are more complicated.

tl;dr - "hoarding" is neither good nor bad. It has positive and negative effects, based on who you care to look at and what your goals are. There is no need to either encourage it, nor discourage it.

[Steve]

Why do you assume that the amount of bitcoins that one spends is in any way affected by the amount of bitcoins that same person saves (as I prefer to call hoarding)?  You can use bitcoin earnings, spending, buying and selling to adjust your savings balance, but the decision to buy something or not doesn't have to be related to your desired level of savings.  Someone with 100,000 bitcoins can spend as many or few bitcoins as they like without dipping into their savings.  All you really need to encourage is for people to spend bitcoins instead of other currencies whenever possible (and go to the extra effort that might be required to do so...because going to that extra effort benefits the bitcoin economy).  There's no need to call upon people to reduce their savings.

[ElectricMucus]

5 million bitcoin is an extreme example, I don't consider that a realistic chance of happening.
I think that only real purchases can in effect make bitcoins more valueable in a long term trend.

Speculation does as well but has the downside of crashing the price, to a higher extent than a merchant liquidating their income. The merchant will use part of their profit to expand their operation which will result in economic growth.
Pure Speculation is a zero sum game and will only result in bubble behavior.

I even go as far as saying that only bitcoins used in secondary circulation will in effect increase their long term value.
As an example consider a web hosting service buying hardware with bitcoins. So if the hardware store hosts it's e-commerce platform on this provider we have a closed system.

And the more parties are involved the more permanent and stable will the value of bitcoin develop.

I know there are different theories about this and some might disagree with my assessment, but I can't see it any other way... If you believe otherwise please point out why...  

[adamstgBit]

I bought 25$ worth of bitcoin when it was ~0.75$
and then 100$ worth when it was ~13$
I'm saving these coins. and buying more as price drops
In the end i'll have invested 200$

i don't like buying things online because of the shipping and handling fees.
if there was a place in Montreal that accepts bitcoin i would go there weekly!
i would keep my 200$ investment, and only buy more coins when i plan to spend them.

if buying in btc was somehow cheeper. like a Groupon for bitcoin. i would buy.

[BitcoinPorn]

I know so much has been written on this subject, and the consensus is that the hoarders deserve their wealth.

The consensus?  This doesn't even make sense to me.  How can hoarding be equated to wealth.  I figure those who are spending are the only ones seeing the value in whatever it is that would be hoarded, so they would be the true wealthy, right? 

For example, the only people who are wealthy off of Bitcoin, are the people who have sold or mined or got something from their coin, not from just holding it, right?   If Bill Gates was homeless, but had the same amount of money he has, unless he uses on that money to take his ass off the streets, is his cash not worthless unless he spends it?   Well that doesn't make sense either, but then again cash does not fluctuate the way Bitcoin does.

[cypherdoc]

My recommendation is for "hoarders" to do whatever they want. There is not necessarily any special gain made when a "hoarder" spends the money with a merchant. If the merchant saves the income, he becomes a "hoarder." If he cashes out, it drops the price and people get worried (though they shouldn't).

"Hoarders" do plenty of good to the economy - and it's made more clear when you realize they are no different than any merchant. A merchant sells a good for Bitcoins. Well - "hoarders" simply sold the good called "US Dollars" or another currency good for the Bitcoin. They then save the Bitcoins, raising market price and indicating to the market that Bitcoins have increased in demand.

Further, it's also important to realize that the more people "hoard" Bitcoin, the further the price increases, and this allows people who wish to spend their bitcoins to enjoy greater purchasing power. This increase in purchasing power is not only beneficial if you want to spend on consumption, but also on capital investment for Bitcoin projects.

Consider if Wealthy Investor A puts an order to purchase 5 million Bitcoins. He wants to "hoard" them. This will raise the price massively. Those holding Bitcoins now can spend each one to greater effect - the man with 1,000 coins is now sitting on substantial resources, and he can use that to invest in new startup businesses. If that Wealthy Investor A bought the coins then simply purchased tons of stuff with them, the 5 million coins would flow around and many would be sold off for other currencies. Good for the merchants in the short term, yes, but long term the effects are more complicated.

tl;dr - "hoarding" is neither good nor bad. It has positive and negative effects, based on who you care to look at and what your goals are. There is no need to either encourage it, nor discourage it.

well said.

[ElectricMucus]

I know so much has been written on this subject, and the consensus is that the hoarders deserve their wealth.

The consensus?  This doesn't even make sense to me.  How can hoarding be equated to wealth.  I figure those who are spending are the only ones seeing the value in whatever it is that would be hoarded, so they would be the true wealthy, right?  

For example, the only people who are wealthy off of Bitcoin, are the people who have sold or mined or got something from their coin, not from just holding it, right?   If Bill Gates was homeless, but had the same amount of money he has, unless he uses on that money to take his ass off the streets, is his cash not worthless unless he spends it?   Well that doesn't make sense either, but then again cash does not fluctuate the way Bitcoin does.

heh

Well said, but that is just word play.


Real wealth has to develop itself and the only scenario for a wealthy bitcoin community is a flourishing economy. As for why I think it is up to the massive bitcoin holders to initiate economc growth:
Because they can, it makes a tremendous difference in the amount of bitcoins involved in a closed system loop.

If we consider these 3 choices what to do with a bitcoin stash:
-Selling them on the exchange for fiat and possible crashing the price.
-Don't spend them yet.
-Using them for purchases

My opinion is that only the latter increases their value and even withholding them does not since speculators assess the real economic growth in order to determine the price they are willing to pay. (ultimately)

Currently over half of all bitcoins is in the hand of a few people, a fraction of them has decided to sell them for fiat money. Another has decided to not spend them yet.
The other half is currently in the hand of the masses which are dependent on the other half.

In order to have a healthy economy a currency should have about 50% hoarding and 50% circulation. Wealthy speculators (in terms of bitcoin holdings) are hoping that the masses use 100% of their bitcoins for circulation.
This will not happen, obviously the half in possession of the masses will be in wider circulation but some of it will be hoarded even there. That amount has to be compensated for by the bit-rich.

That is a responsibility those people need to recognize and until this happens I don't see the booming economy we are all hoping for.  

[Steve]

You do have a point that people sitting on 100,000 bitcoins have a lot of spending power that isn't being utilized.  They might not be in a position to buy more bitcoins and purchase, but they could dip into their savings and make purchases to help get the economy going.  Note however, that this too would cause the price of bitcoin to fall further (but that's okay too).

[ElectricMucus]

You do have a point that people sitting on 100,000 bitcoins have a lot of spending power that isn't being utilized.  They might not be in a position to buy more bitcoins and purchase, but they could dip into their savings and make purchases to help get the economy going.  Note however, that this too would cause the price of bitcoin to fall further (but that's okay too).

Exactly and that's where secondary circulation comes in and once the figure is above
50%^(1/N... numbers of times in circulation before exit into fiat)
spending will actually increase the the price.

[Littleshop]

One thing hindering economic development is the price.  People do not want to spend BTC when they are valued this low.  My sales go away when bitcoin is dropping. 

[Steve]

One thing hindering economic development is the price.  People do not want to spend BTC when they are valued this low.  My sales go away when bitcoin is dropping.

This is unfortunate...and the wrong way to look at.  If you're concerned about draining your bitcoin balance by buying something, just buy additional bitcoins to cover the purchase.  It may be a bit more of a hassle, but it supports the bitcoin economy.  And look at the flip side, if you're allocating a portion of your income to bitcoin savings, then with each paycheck, you're able to buy more bitcoins as the price falls.

[error]

This thread again? I thought I unsubscribed from your newsletter.

You said "hoarding." Virtually every use of this word I've ever seen has been from someone horribly misusing it. Your use of the word is no exception.

[ElectricMucus]

This thread again? I thought I unsubscribed from your newsletter.

So then why are you bumping the thread?


Again my core point is: Big btc holders who are hoping that the masses will use all of their half only for circulation are livin in illusion.

[Littleshop]

This thread again? I thought I unsubscribed from your newsletter.

So then why are you bumping the thread?


Again my core point is: Big btc holders who are hoping that the masses will use all of their half only for circulation are livin in illusion.

You know the great part about bitcoin?  We can see just by looking at the blockchain if your idea that the big btc holders are just waiting (or already) dumping BTC.   Guess what.  They are not.  The coins that move and that are bought and sold are mostly newer coins.  Not early adopters.  Most of those coins just sit, and a huge chunk of them may not even be spendable anymore. 

[ElectricMucus]

Did I say anything about early adopters? No I said large bitcoin holders that includes early adopters and everybody else who belongs to the group holding the upper 50% of currently issued coins.

And the fact that the early coins aren't moving confirms exactly my point.
If people would care they would order their groceries with BTC, host their projects on one of the many companies accepting it, I'm sure lots of these people don't even have the keychain... you know what I mean.  

And that a two figure percentage of issued coins are already lost?

NFW, how naive would you be to believe that?

[asdf]

Hoarders spending money into the economy doesn't grow it. That's just consumption: taking real wealth out and putting currency in, bidding up prices.

To grow the economy, hoarders would need to invest their coins. investment creates or grows new businesses, which is precisely economic growth. The thing is, you can't really loan out bitcoins at the moment, but this is a problem of a lack of infrastructure, which will come with time.

Just holding coins forever doesn't impact the economy, except by lowering prices due to reduced supply of coins in the active economy.

[ElectricMucus]

Right, lending...

LOL
That is fiat economy talk where that actually means something. What would a merchant do with a BTC loan? Sell the coins and buy more product stock/resources? Then he'd sit on it.
The only way the economy will grow at a healthy rate is by an increase in business volume.

Most people just don't know how to play the prisoners dilemma that's the only reason for the current situation but don't you worry silkroad will be around and the next selloff is coming. 

[asdf]

Right, lending...

LOL
That is fiat economy talk where that actually means something. What would a merchant do with a BTC loan? Sell the coins and buy more product stock/resources? Then he'd sit on it.

Why are you talking about merchants? Businesses take loans to improve their infrastructure/efficiency/capacity with the intention of paying if of using the increased productivity that follows. If successful, the economy is more productive than it was before; there is more output for the same input. This is growth.

The only way the economy will grow at a healthy rate is by an increase in business volume.

Selling more goods doesn't make the economy any more productive. The input output ratio is still the same. Unless that business saves the extra profit due to increased volume to later invest in equipment upgrades to make their process more efficient. ie. they hoard money then invest it; their input output ratio improves.

Just consuming resources doesn't create economic growth.

[ElectricMucus]

Strawman