Bitcoin Forum
December 07, 2016, 12:54:57 PM *
News: Latest stable version of Bitcoin Core: 0.13.1  [Torrent].
 
   Home   Help Search Donate Login Register  
Poll
Question: Is Bitcoin better as a Store of Value or as a Method of Exchange?
Store of Value - 9 (20.9%)
Method of Exchange - 18 (41.9%)
Neither - 10 (23.3%)
I Like Turtles - 6 (14%)
Total Voters: 43

Pages: [1] 2 3 »  All
  Print  
Author Topic: Store of Value VS. Method of Exchange  (Read 2218 times)
Jonathan Ryan Owens
Donator
Sr. Member
*
Offline Offline

Activity: 392



View Profile WWW
November 20, 2011, 10:50:55 AM
 #1

I'd like to make a few points. I've been drinking, and I can't sleep. So now I will do my best to give context to the class warfare that is readily apparent in this forum.

Yes, there are quite a few of us who are cheering the decline in value, both because we are in short positions (disclaimer: me = 100%), and also because we see a re-balancing underway in the valuation of bitcoin in the long term. There's those of us who strongly feel that a lower price point and re-balancing  is critical to bitcoin success and adoption. We abhor the manipulator and his tactics, and dream of the day that an increased use of Bitcoin as a medium of exhange will come. Hopefully sooner rather than later.

Further, since we're all participating in this forum, and we all want the Bitcoin to succeed in one form or another, we need to start to come together as a cohesive unit to understand that there are two very distinct camps, and further, two very different ways of thinking going on.

Given any forum participation, you are already familiar with the two different camps. For those who are still not indoctrinated, let me elucidate.

Store of Value camp (bulls):

You claim supreme knowledge, and obsess over the bitcoin being a store of value. You believe that higher prices mean less volatility, and claim that lower prices will mean higher volatility. Further, you think that higher prices will mean less chaos and wider adoption.

Because of this, you clamor for higher prices, and come up with semi-creative insults, twisted logic and economic theories that sound  intelligent, but are actually quite flat and are for the most part speculative and lacking in any real research.

Some of you use flat out mental gymnastics to justify your claims, and virtually no-one has bothered to cite analogous use case or examples to  back up their statements. For you, Bitcoin has has become an almost purely emotionally based belief system, and even though it quacks like a duck, and looks like a duck, you are staunch in your belief that bitcoins are a Store of Value.

From what I have read, it's all guesswork, duct tape and emotion.

So, you believe that Bitcoin is a method to store value. I would suggest to those extremists here who believe such things, that you please find your way to a number of existing PM offerings, and go the proven commodities route to lose your money. Go store value in something that is both digital and backed by thousands of years of trust. You should probably move to the c-gold forums.

I'm going to demonstrate to you why Bitcoin is in fact NOT a vehicle for storage of value in a moment. First I need to address the Bears.

Method of Exchange (bears):

You claim supreme knowledge, and were once bullish in regards to Bitcoin. You believe that lower prices will facilitate increased usage as a method of exchange, and you see the current price point as unsustainable. Congratulations, you're pretty much on point. In a minute I'm going to demonstrate why you're right. However, you are insensitive to the Bulls in these forums, and though your gut is right, you have very little to back up your own economic theories as to why Bitcoin is a better method of exchange than a store of value.

You clamor for lower prices, and believe that a psychological entry point of 1:1 (dollar pegged) is the right course of action. You come up with creative insults, twisted logic and economic theories that sound intelligent, but are actually quite flat and are for the most part speculative and lacking in any real research.

Some of you use flat out mental gymnastics to justify your claims, and virtually none of you has bothered to cite analogous use case or examples to  back up their statements. For you, Bitcoin hat has become an almost purely emotionally based belief system, and even though it quacks like a duck, and looks like a duck, you are staunch in your belief that bitcoins are a Method of Exchange.

In this case, I agree 100%. Sorry, Bulls.

Now for the images that back up my point!

Here's a graph of current mining statistics, including network difficulty and aggregate P/L based on averages


What does this chart tell you?

1. Total miner revenue has gone down
  a. When revenue goes down, weak and inefficient hands are eliminated
  b. Network hash rate goes down (wag the dog.. nobody's decided yet whether there's a correlation between hash rate and price. Hint: there is one)
  c. Electric costs are eating away at total network mining profits at a rate of 125%. Miners are underwater.
  d. There is no profit margin



2. Transaction costs are still at a premium!
  a. When you send 0.1 bitcoins, it costs roughly 2.82 to send that transaction.
  b. Mining is over subscribed!
  c. Total network power is currently a competition in a race to the bottom!
  d. Like it or not, it's a matter of weeks before 40% of miners 1. liquidate their hoarded coins and 2. liquidate hardware

Do you see what I'm getting at? With no commerce, and with Bitcoin continuing to be a purely speculative vehicle, you Bulls are digging your own graves. Once you increase the price, you'll encourage even more miners to come into the fold and take fees for providing near DoD level security to your transactions. You know, the transactions for Poker, Alpaca socks and Mushrooms from Silk Road.

Now, if we can find a price parity where there are merchants and customers cancelling each other out in their in and out exchanges for their flavor of fiat, then we have a real economy. Currently, you're all fixated on the speculative store of value, and trying to buy your own private islands.

News Flash: Not going to happen. Sorry!

Stop believing that Bitcoin is a Store of Value, and watch what happens! Once bitcoin ceases to be used as a speculative vehicle for libertard freedum fighers durhurr! you'll see that the bad name that has been associated with it will start to wane, and that a lower price point (where miners aren't making 2.88 per transaction on average) will encourage more adoption.

$1 is reasonable. Hell, even $1.50 is reasonable. $30 is not reasonable right now. Perhaps in the future it will be, but until that time, we need to back fill the entire system with real commerce, and provide tools for entire distribution chains to use bitcoin as a method of exchange, rather than a store of value.

As long as there are those of you who are credit worthy and able to manipulate the price upward, and facilitate outright fraud and pyramid schemes using bitcoin as vehicle to your success, bitcoin will never rise to prominence. Period.

Bears: be nice to your bullish compadres! They have not seen the light yet, and they're emotionally driven to see bitcoin as a new digital gold. Soon they'll understand why economic activity is a benefit to their aspirations, but until then, be nice and give them the benefit of the doubt. Fact is, most of you were bulls at one point too.

-Jonathan

Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
1481115297
Hero Member
*
Offline Offline

Posts: 1481115297

View Profile Personal Message (Offline)

Ignore
1481115297
Reply with quote  #2

1481115297
Report to moderator
1481115297
Hero Member
*
Offline Offline

Posts: 1481115297

View Profile Personal Message (Offline)

Ignore
1481115297
Reply with quote  #2

1481115297
Report to moderator
S3052
Legendary
*
Offline Offline

Activity: 1946


BTC Up or Down? go to www.bullbearanalytics.com


View Profile WWW
November 20, 2011, 10:57:11 AM
 #2

Interesting thought. I'd like to just comment on one thing: "Once bitcoin ceases to be used as a speculative vehicle.."

This won't happen, at least not as long there are exchanges up and running.

>15years analysis experience

Always do your own due diligence & consult your financial advisor. Never invest unless you can afford to lose your entire investment.

http://twitter.com/BitcoinAnalyst

Subscribe here
Jonathan Ryan Owens
Donator
Sr. Member
*
Offline Offline

Activity: 392



View Profile WWW
November 20, 2011, 11:01:45 AM
 #3

Interesting thought. I'd like to just comment on one thing: "Once bitcoin ceases to be used as a speculative vehicle.."

This won't happen, at least not as long there are exchanges up and running.


True. However, wide bands of volatility can come to an end with increased adoption. Imagine a time when bitcoinica gives default 1:50 leverage. This can only happen with real economic activity. Speculation in forex is a 1.4 trillion dollar market. Obviously speculation is required to provide liquidity, but if it comes before real use, it causes distrust and market volatility.

Thanks for reading Smiley

-Jonathan

julz
Legendary
*
Offline Offline

Activity: 1092



View Profile
November 20, 2011, 11:08:58 AM
 #4

Quote
a. When you send 0.1 bitcoins, it costs roughly 2.82 to send that transaction.

While mining cost per transaction is a nice metric to have - I don't think you're reading it right.
It's not valid to describe that as a 'cost' for the transaction.
It's a cost for the transactions plus network security - plus, dare I say it - for the property of storing value Wink

@electricwings   BM-GtyD5exuDJ2kvEbr41XchkC8x9hPxdFd
Matthew N. Wright
Untrustworthy
Hero Member
*****
Offline Offline

Activity: 588


Hero VIP ultra official trusted super staff puppet


View Profile
November 20, 2011, 11:09:36 AM
 #5

I can't really comment on the topic of this thread much because I don't know much about it but I can comment on an off-topic issue of milk in Korea tasting bad.

fake edit: Bitcoin is not a stored value, it's a public trust registry that we use in combination with authentication to share trust in intention to trade products and services.

Jonathan Ryan Owens
Donator
Sr. Member
*
Offline Offline

Activity: 392



View Profile WWW
November 20, 2011, 11:10:52 AM
 #6

Please make your opinions heard in the form of radio button selection at the top of this thread.

-Jonathan

p.s. what does it taste like?

wareen
Millionaire
Hero Member
*****
Offline Offline

Activity: 742

bitcoin-austria.at


View Profile
November 20, 2011, 11:11:58 AM
 #7

store of value and medium of exchange are two complementary functions - Bitcoin will always have both to some degree.

If the price is dropping, its usefulness as as store of value decreases but the medium of exchange function becomes more dominant (people try to get rid of their coins quickly). If the price rises you'll see people start hoarding again because they think it is a good store of value and hence it becomes less a medium of exchange. Wait for the next bubble, rinse, repeat.

True, for the last few months the price dropped so you're completely right: Bitcoin was not a good store of value. However, this cannot go on forever - if Bitcoin doesn't die then it will inevitably rise again some time (the case of indefinite stagnation would be nearly impossible).

Ideally the price would only change very slowly so that none of the two functions dominates the other. We won't see that happen until Bitcoin is widely adopted, very actively traded and has a very high price though.

I agree with you completely on the cost of the mining network - we have an unjustified and unsustainably high difficulty at the moment and therefore it will come down along with the price. However, I don't think people will be so quick to sell their mining gear.

$1 is reasonable. Hell, even $1.50 is reasonable. $30 is not reasonable right now. Perhaps in the future it will be, but until that time, we need to back fill the entire system with real commerce, and provide tools for entire distribution chains to use bitcoin as a method of exchange, rather than a store of value.

+1

Edit: I voted "Neither" because I think Bitcoin itself works equally well for both, just at different times of economic development!
julz
Legendary
*
Offline Offline

Activity: 1092



View Profile
November 20, 2011, 11:15:35 AM
 #8

store of value and medium of exchange are two complementary functions - Bitcoin will always have both to some degree.

^This..

oh.. and bears and bulls are indistinguishable once they become roadkill on the bitcoin highway.

@electricwings   BM-GtyD5exuDJ2kvEbr41XchkC8x9hPxdFd
zby
Legendary
*
Offline Offline

Activity: 1431


View Profile
November 20, 2011, 12:14:20 PM
 #9

Two questions:

How bitcoin could be a medium of exchange without being a good store of value?

How bitcoin could be a good medium of exchange without having low volatility or how bitcoin could have low volatility at low prices?
zhoutong
VIP
Hero Member
*
Offline Offline

Activity: 490


View Profile WWW
November 20, 2011, 12:31:39 PM
 #10

Bitcoin is both.

Bitcoin solves the problem of fiat currency by creating natural scarcity not influenced by any entity, just like gold. (Better store of value than fiat.)

Bitcoin solves the problem of gold by being very convenient to use with good security and portability, just like fiat currency. (Better medium of exchange than gold.)

Founder of NameTerrific (https://www.nameterrific.com/). Co-founder of CoinJar (https://coinjar.io/)

Donations for my future Bitcoin projects: 19Uk3tiD5XkBcmHyQYhJxp9QHoub7RosVb
cbeast
Donator
Legendary
*
Offline Offline

Activity: 1722

Let's talk governance, lipstick, and pigs.


View Profile
November 20, 2011, 12:50:41 PM
 #11

I'm not clear what this "storage of value" argument is about?
from  http://www.fincen.gov/financial_institutions/msb/definitions/stored_value.html
Quote
Stored value - Funds or monetary value represented in digital electronics format (whether or not specially encrypted) and stored or capable of storage on electronic media in such a way as to be retrievable and transferable electronically.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
November 20, 2011, 12:53:00 PM
 #12

I wonder if anyone has come up with a way to separate network security from coin creation. Hmm.

zhoutong
VIP
Hero Member
*
Offline Offline

Activity: 490


View Profile WWW
November 20, 2011, 12:58:54 PM
 #13

I wonder if anyone has come up with a way to separate network security from coin creation. Hmm.

When all 21 million coins have been generated, there's only network security left.

Let's just wait for another 130 years.

Founder of NameTerrific (https://www.nameterrific.com/). Co-founder of CoinJar (https://coinjar.io/)

Donations for my future Bitcoin projects: 19Uk3tiD5XkBcmHyQYhJxp9QHoub7RosVb
julz
Legendary
*
Offline Offline

Activity: 1092



View Profile
November 20, 2011, 01:20:40 PM
 #14

I wonder if anyone has come up with a way to separate network security from coin creation. Hmm.

I know you've suggested a way with encoin - but a complex trust system involving a mix of anonymous and non-anonymous nodes is far from easily understandable at the moment.
Bitcoin is hard enough to reason about, so it's a hard sell to push something more complex.  

Anyway - obviously this isn't the thread to discuss alternative systems, but I hope you manage to get at least a prototype going to test your ideas.

It's not clear to me just how much the 'store of value' aspect of a currency is dependent on the technical design aspects vs just mass psychology - but I imagine understandability (as a prerequisite to trust/confidence) plays an important role.. and bitcoin is already really stretching that as far as the general populace goes.

@electricwings   BM-GtyD5exuDJ2kvEbr41XchkC8x9hPxdFd
wareen
Millionaire
Hero Member
*****
Offline Offline

Activity: 742

bitcoin-austria.at


View Profile
November 20, 2011, 01:42:29 PM
 #15

It's not clear to me just how much the 'store of value' aspect of a currency is dependent on the technical design aspects vs just mass psychology - but I imagine understandability (as a prerequisite to trust/confidence) plays an important role.. and bitcoin is already really stretching that as far as the general populace goes.
A while ago I also thought that making people understand Bitcoin is important for them to trust it, but actually it isn't really. People use online banking and credit cards without knowing the details of how they work under the hood. For the most part, people don't trust something not because they understand how it works, but because others trust it. Frankly that's also true for myself in things I'm not really interested in. For example: I don't care about the calculations of the structural engineers of every building I enter or every bridge I cross. I trust they were sound because others do.

It's also something I've seen with a few friends I introduced to Bitcoin: the less tech-savvy were happy with a very basic description of the system and when they hear me trusting and using it, they trust it as well!
Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
November 20, 2011, 01:44:52 PM
 #16

Bring on real merchants, and the public will eventually follow. Unfortunately, real merchants don't want to take the risk, and Bit-pay or any of the various payment mechanisms cost about the same as CCs or paypal, so why bother? The volatility will exist for as long as we don't know how much power early adopters control, and we will never be able to determine that. Assuming bitcoin somehow becomes widely adopted, the speculation could go on for decades or more as people hold back hoards waiting for the right opportunity. It just isn't going to work. Your value is stored until someone decides to sell; your medium is just a substitute for CCs that costs just as much for merchants.

wareen
Millionaire
Hero Member
*****
Offline Offline

Activity: 742

bitcoin-austria.at


View Profile
November 20, 2011, 01:52:58 PM
 #17

Bit-pay or any of the various payment mechanisms cost about the same as CCs or paypal, so why bother?
That won't be the case for much longer (at least in my country Smiley)

The volatility will exist for as long as we don't know how much power early adopters control, and we will never be able to determine that.
That's simply not true - the volatility doesn't come from some unknown big holders and it would not just suddenly disappear if everybody's holdings were published with name and amount either.
julz
Legendary
*
Offline Offline

Activity: 1092



View Profile
November 20, 2011, 02:03:48 PM
 #18

For the most part, people don't trust something not because they understand how it works, but because others trust it.

That's a fair point.. although I'd think you need a critical mass of geeks to understand something in order to get that initial momentum.


Quote from: Etlase2
Assuming bitcoin somehow becomes widely adopted, the speculation could go on for decades or more as people hold back hoards waiting for the right opportunity.

If it were that widely adopted - there'd be less interest in 'cashing out' of the hoard anyway..   maybe holding it and spending it directly as needed would be more appealing. 

@electricwings   BM-GtyD5exuDJ2kvEbr41XchkC8x9hPxdFd
Etlase2
Hero Member
*****
Offline Offline

Activity: 798


View Profile
November 20, 2011, 02:06:53 PM
 #19

That's simply not true - the volatility doesn't come from some unknown big holders and it would not just suddenly disappear if everybody's holdings were published with name and amount either.

Sure it would, "Yoshi Nakatendo - 1.5 million BTC" and millions sell to never return, and BTC achieves its true value of pennies.

The price went up because nobody sold. How many nobodies can we group think up to $30 USD before selling? Not many. Nobody bought millions of dollars worth of BTC to manipulate the market, they spent a few dollars on electricity. Regardless if BTC is $2 or $2,000 USD each, the early adopters have the same ability to crash the market value on a whim. All BTC proponents can argue is that "ohhh they probably lost a lot" or "how do you know they didn't sell." Pathetic prove a negative (appeal to ignorance fallacy) arguments. Almost 50% of all BTC to be mined are mined. That isn't going to change.

If it were that widely adopted - there'd be less interest in 'cashing out' of the hoard anyway..   maybe holding it and spending it directly as needed would be more appealing. 

Then what's the point? To have generations of descendants be wealthy for naught? Why have such a flawed distribution? The people who came up with such an ingenious idea couldn't think of a way to more reasonably distribute the currency? Or did they really think that tens of thousands would jump on the bitcoin bandwagon from the get-go?

Technomage
Legendary
*
Offline Offline

Activity: 1610


Affordable Physical Bitcoins - Denarium.com


View Profile WWW
November 20, 2011, 03:26:16 PM
 #20

In its current state Bitcoin is horrible as a store of value and decent as a medium of exchange. In the long run Bitcoin could be perfect as a store of value and excellent as a medium of exchange, but we're not there yet.  

Denarium - Leading Physical Bitcoin Manufacturer - Special Xmas deals now live!
Pages: [1] 2 3 »  All
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!