Store of Value VS. Method of Exchange

[wareen]

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

Evidence? Sources? Besides your ass please, I deem that uncredible.

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[Etlase2]

http://blockexplorer.com/block/00000000049172ba3ec1b673cf13e3d0049c1c07bb103ed3fa300e3833480055

[Vandroiy]

lol I've been marked a bear.

lol

Sorry, I'm nowhere near the categories you describe. And I don't care in the slightest what happens in mining. It could be a pink squid selling coins for shrimp for all I care.

[evoorhees]

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

Interesting post OP... a couple points:

It does NOT cost $2.82 to send a transaction. You are confusing fixed costs of running the network with variable costs of sending the transactions.

The variable cost of a transaction is well close to zero - and if transactions doubled tomorrow the cost of mining computation resources would remain roughly flat.

Also, you have still not made the case why a lower Bitcoin price is "better for commerce," and calling the people who disagree with your assessment a bunch of starry-eyed libertards is not furthering your argument.

Also, "store of value" and "method of exchange" are in no way mutually exclusive concepts. A good money is both things, and one might argue that both features reinforce and depend upon each other.  Don't assume that just because something is "volatile" that it is not a store of value.

Regarding price, Bitcoins are probably over-valued in relation purely to the current bitcoin economy. However, they are almost certainly under-valued if you consider the net present value of their future use. There's nothing wrong with speculators in both directions trying to price Bitcoins somewhere in between its narrow current use and broad potential future use.

[slush]

evoorhees, I appreciate how precisely you can always express my own thoughts. Unfortunately, thanks to my limited language skills, I'm everytime failing with express them by myself :-).

[evoorhees]

I'm everytime failing with express them by myself :-).

LOL that was an awesome sentence. I think you express things just perfectly slush and your English is better than most Americans, thanks for the compliment =)

[Jonathan Ryan Owens]

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

Interesting post OP... a couple points:

It does NOT cost $2.82 to send a transaction. You are confusing fixed costs of running the network with variable costs of sending the transactions.

The variable cost of a transaction is well close to zero - and if transactions doubled tomorrow the cost of mining computation resources would remain roughly flat.

Also, you have still not made the case why a lower Bitcoin price is "better for commerce," and calling the people who disagree with your assessment a bunch of starry-eyed libertards is not furthering your argument.

Also, "store of value" and "method of exchange" are in no way mutually exclusive concepts. A good money is both things, and one might argue that both features reinforce and depend upon each other.  Don't assume that just because something is "volatile" that it is not a store of value.

Regarding price, Bitcoins are probably over-valued in relation purely to the current bitcoin economy. However, they are almost certainly under-valued if you consider the net present value of their future use. There's nothing wrong with speculators in both directions trying to price Bitcoins somewhere in between its narrow current use and broad potential future use.

Hey thanks. Yeah, I sort of trailed off and finished this post with haste once I could no longer focus on the screen, and once my typing skills became significantly diminished. 20oz of delicious pino nior. Mmmm..

But I digress..

I am not misinterpreting the network, though I should have given my statement context (quick, 10 Bitcoins to send a message back in time. Someone use their rig and hack into CERN to send me a message from the future on this point). The volume of real transactions is very low right now, and we are ALL paying the ~$2.5 per transaction because of that. Cost per transaction IS a really good indication that the current price of Bitcoin is too high, and that its use as a method of exchange is far from reality. The cost per transaction should be much lower than it currently is to support the current price. ~40 transactions per an average of 10 minutes does not justify the current cost.

I see a lot of "if" coming from people on this board. If you build it, they will come. What matters is the network NOW. Mining is vastly oversubscribed, and at the same time we ALL pay WAAAAAAY too much to miners through higher exchange rates, while the miners themselves see no benefit or upside because of the oversubscribed competition.

In normal commodities production, there's little room for emotion. With Bitcoin, the network size at current seems to have very little grip on reality. It's not profitable to mine, while at the same time it is makes no sense to pay the equivalent of $2.5 per transaction to the same miners. If real transaction volume tripled through real commerce, then we'd likely see a higher value point, and a more healthy ecosystem. However, as it is, it's becoming very apparent that most of us are not rational actors, be it miners, speculators, developers or merchants.

Also, you have still not made the case why a lower Bitcoin price is "better for commerce," and calling the people who disagree with your assessment a bunch of starry-eyed libertards is not furthering your argument.

I don't think I've ever uttered the phrase "starry-eyed". Sorry if you don't like it, but the libertards here have not demonstrated sanity at any point that I can recall. I'm entitled to my opinion.

Also, "store of value" and "method of exchange" are in no way mutually exclusive concepts. A good money is both things, and one might argue that both features reinforce and depend upon each other.  Don't assume that just because something is "volatile" that it is not a store of value.

Of course you are correct. However, when you have one without the other, you have a recipe for fail. Not only do I assume that something that is volatile is by its very nature a poor store of value, I *KNOW IT*, and so do many of you who'v lost 20, 50 and some of you nearly 90% of your investment.

Regarding price, Bitcoins are probably over-valued in relation purely to the current bitcoin economy. However, they are almost certainly under-valued if you consider the net present value of their future use. There's nothing wrong with speculators in both directions trying to price Bitcoins somewhere in between its narrow current use and broad potential future use.

[/quote]

Again, Bitcoins are definitely over-valued in relation to the current economy. Let's fix that.

Thanks for your input.

-Jonathan

[kjlimo]

I agree with the remark about needing more of a bitcoin economy.  Everyone should be focusing more effort on getting businesses accepting bitcoins.  Both online and in Brick & Mortar stores.  That is key for bitcoin's success.

I haven't verified your stats on bitcoin transaction fees, but I do agree that these need to be cheap for the currency to make sense.  The difficulty and market will determine whether miners mine or not.

Is bit-pay.com the only merchant solution?  Is there a way for merchants to accept bitcoins without using bit-pay? 

How does the 3% fee for USD option compare to credit cards?  Does anyone know the actual fee structure for credit card payments?

[slush]

The volume of real transactions is very low right now, and we are ALL paying the ~$2.5 per transaction because of that. Cost per transaction IS a really good indication that the current price of Bitcoin is too high.

Disagree. You can compare *relative* numbers of tx/hour (say changes in network activity between June and now), but calculating costs per tx using absolute numbers is just stupid.

a) I can generate 1000 txes every hour just for you, with single line in shell. Does it mean that market price is going to equilibrium with transactions on the network? Surely not.

b) Bitcoin transactions does not reflect real economy size. Do you know how many coins is changing hands inside markets using user to user transfers? They're instant and usually for free, but they're still bitcoin transactions.

[evoorhees]

while at the same time it is makes no sense to pay the equivalent of $2.5 per transaction to the same miners.

Jonathan I appreciate the discussion... but, I'm a bit confused by what you mean here. I am not paying miners $2.50 per transaction. The only people "paying" to operate this network are the miners, and they are paying the electric company. They decide on a case by case basis if that cost is worth it. But you and I, as participants in the network, are not paying these miners $2.50 per transaction in any way/shape/form. Please explain what you mean.

I don't think I've ever uttered the phrase "starry-eyed". Sorry if you don't like it, but the libertards here have not demonstrated sanity at any point that I can recall. I'm entitled to my opinion.

Am I a "libertard" because I think people shouldn't use force on each other when no crime has been committed? And you say such people "have not demonstrated sanity at any point that you can recall."  Now you are resorting to both name-calling and hyperbole and that is not a good indicator that you know what you're talking about.

I've seen very foolish and very wise people discuss things on this forum, from both libertarian and statist perspectives. Saying that a certain group "hasn't demonstrated sanity at any point" is so clearly incorrect that it makes me wonder why you are trying to sabotage your own arguments?

Not only do I assume that something that is volatile is by its very nature a poor store of value, I *KNOW IT*, and so do many of you who'v lost 20, 50 and some of you nearly 90% of your investment.

Are you talking about the USD? It's lost over 96% of its value since 1913. 

Be careful when you claim that something is not a store of value, categorically. It all depends on your time horizon. Over the past year, Bitcoin has not only been a store of value, but it's been one the best investments in the entire world. Over the past few months, it's been a terrible investment. Over the past 24 hrs, it's also been excellent as an investment.

So what is a better store of value? The USD which falls continually in value, or the BTC which - to this point from it's beginning - has outperformed any other asset class in the world. Certainly, the USD is far less volatile than BTC, but that is more a question of market depth and adoption. Please give the BTC a few decades at least to reach an adoption level where you could accurately gauge relative volatility between it and fiat currencies.

Stating categorically that BTC is and will never be a good store of value is hubris at best and economically foolish/flat out wrong at worst.

Again, Bitcoins are definitely over-valued in relation to the current economy. Let's fix that.

Proper valuation of an asset is comprised of many parts, but simply looking at the "current spot of the moment economy" is an insufficient basis on which to price it. The net present value component of future use is very important, and a market price far higher than today may be quite warranted depending on the future outlook.

Thankfully, free markets enable shorting of over-valued assets, and I'm glad you are contributing your price estimations via that mechanism. The BTC market is healthier for it.

I do appreciate the discussion Jonathan, you have some good things to say.

[Etlase2]

Jonathan I appreciate the discussion... but, I'm a bit confused by what you mean here. I am not paying miners $2.50 per transaction. The only people "paying" to operate this network are the miners, and they are paying the electric company. They decide on a case by case basis if that cost is worth it. But you and I, as participants in the network, are not paying these miners $2.50 per transaction in any way/shape/form. Please explain what you mean.

Everyone who is buying bitcoins is paying that $2.50 cost for the electricity required to mine the coins. There's no reason bitcoins can't be 10 cents a piece and only need 1TH/s or so to secure the network. If you think 1TH/s is not enough... well that is a design problem.

Stating categorically that BTC is and will never be a good store of value is hubris at best and economically foolish/flat out wrong at worst.

Oh there has been absolutely nothing like BTC's gain in history, ever. Oh wait, tulips. Bitcoin-tard right here, get your bitcoin-tard.

[kjlimo]

Jonathan I appreciate the discussion... but, I'm a bit confused by what you mean here. I am not paying miners $2.50 per transaction. The only people "paying" to operate this network are the miners, and they are paying the electric company. They decide on a case by case basis if that cost is worth it. But you and I, as participants in the network, are not paying these miners $2.50 per transaction in any way/shape/form. Please explain what you mean.

Everyone who is buying bitcoins is paying that $2.50 cost for the electricity required to mine the coins. There's no reason bitcoins can't be 10 cents a piece and only need 1TH/s or so to secure the network. If you think 1TH/s is not enough... well that is a design problem.

Stating categorically that BTC is and will never be a good store of value is hubris at best and economically foolish/flat out wrong at worst.

Oh there has been absolutely nothing like BTC's gain in history, ever. Oh wait, tulips. Bitcoin-tard right here, get your bitcoin-tard.

Agreed, you shouldn't pay 500 * the cost of a tulip for a tulip bulb.  Bitcoins are a little bit more complicated, but I like where you're head is at.

I still say, we need to be getting businesses and people accepting bitcoins for them to gain intrinsic value.  Let's focus on that now.  Where is the best place to start focusing on local markets?  Would that be the Marketplace directory of this forum?

[slush]

I still say, we need to be getting businesses and people accepting bitcoins ...

I agree, we need more business in bitcoin...

...for them to gain intrinsic value.

...but my point is that there's nothing how we can realize that <something> *is* the real value.

What is "correct" bitcoin value now and why?
What will be "correct" value when new 100 merchants will accept bitcoins?
What will be "correct" value when ebay will accept bitcoins?
What will be "correct" value when US government start accepting bitcoins for paying taxes?

There's NO way how to realize it! Everything we have is the market and trading of individuals for their best personal interest. Somebody thinks that current "correct" value is 1$, because it is "sounds good" for them. Some other people think that "correct" value is 5$. And the final equilibrium is *now* at 2.20-2.30. There's no need to say bulls are "less inteligent" with twisted theories and call your own opinion as only one correct.

[tvbcof]

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

In more or less the same way can electricity be a good medium of exchange of energy while being a shitty way to store it.

How bitcoin could be a good medium of exchange without having low volatility...

Evolve beyond thinking of paper price-tags hanging off of trinkets, and hold the currency for only as long as needed for a transaction.

...or how bitcoin could have low volatility at low prices?

I doubt that it can, but I don't believe that that is a show-stopper for a lot of things.

[Jonathan Ryan Owens]

Jonathan I appreciate the discussion... but, I'm a bit confused by what you mean here. I am not paying miners $2.50 per transaction. The only people "paying" to operate this network are the miners, and they are paying the electric company. They decide on a case by case basis if that cost is worth it. But you and I, as participants in the network, are not paying these miners $2.50 per transaction in any way/shape/form. Please explain what you mean.

The exchange of bitcoin for fiat is the mechanism that pays the electric costs. Currenly, about $14k a day is getting paid to the electric company. That's $11k of exchange value going out the door, never to return, and an additional $3k that has to come from somewhere. Currently, it's the miners pockets and their bitcoin savings, causing additional downward pressure. Think about it! Since July the collective pool of Bitcoin owners has seen a loss of around $1.6 million dollars from electricity to secure the network. You're mistaken if you think this doesn't have an effect on the price, participation and viability of Bitcoin. Hopefully this will change soon, as structured ASICs make it to market, and mining is no longer a GPU heavy enterprise.

Am I a "libertard" because I think people shouldn't use force on each other when no crime has been committed? And you say such people "have not demonstrated sanity at any point that you can recall."  Now you are resorting to both name-calling and hyperbole and that is not a good indicator that you know what you're talking about.

I've seen very foolish and very wise people discuss things on this forum, from both libertarian and statist perspectives. Saying that a certain group "hasn't demonstrated sanity at any point" is so clearly incorrect that it makes me wonder why you are trying to sabotage your own arguments?

You seem rather level headed. You make some rational points, and from your post history I can see that you hold your temper. I do resort to name calling and hyperbole, it's true. However, mine is a unique experience, and I have a bad taste in my mouth for the self serving randian libertarians. They add no value to the system, and are ideological to a fault. I don't think someone is a libertard simply because they're libertarian. I'm a libertarian, I am a capitalist, and I am also a bit of an anarchist.

Are you talking about the USD? It's lost over 96% of its value since 1913.  

And it only took 100 years. In the case of bitcoin, it has taken months. This is not a good comparison, sir.

Be careful when you claim that something is not a store of value, categorically. It all depends on your time horizon. Over the past year, Bitcoin has not only been a store of value, but it's been one the best investments in the entire world. Over the past few months, it's been a terrible investment. Over the past 24 hrs, it's also been excellent as an investment.

You're conflating bitcoin here, sir. Bitcoin may be a good day trading opportunity, but for something to be a good store of value, it must demonstrate the ability to actually HOLD VALUE over some period of time. Bitcoin has not demonstrated this ability yet. At best, bitcoin is a good temporary store of value, and speculative vehicle. That is all.

So what is a better store of value? The USD which falls continually in value, or the BTC which - to this point from it's beginning - has outperformed any other asset class in the world. Certainly, the USD is far less volatile than BTC, but that is more a question of market depth and adoption. Please give the BTC a few decades at least to reach an adoption level where you could accurately gauge relative volatility between it and fiat currencies.

Stating categorically that BTC is and will never be a good store of value is hubris at best and economically foolish/flat out wrong at worst.

It has both outperformed and conversely underperformed compared to every asset class in the world. The USD is a store of value for many because it has worldwide utility. If a country wants to purchase oil from Saudi Arabia, it must do so with USD. This is an example of method of exchange building the foundation for a good store of value.

I never stated categorically that BTC will never be a good store of value. Right now, it's a horrible store of value because there is no foundation to support it, we pay too much per transaction, miners are underwater and at current, the bitcoin marketplace has as good a foundation as a wet paper towel. Again, let's fix this.

Proper valuation of an asset is comprised of many parts, but simply looking at the "current spot of the moment economy" is an insufficient basis on which to price it. The net present value component of future use is very important, and a market price far higher than today may be quite warranted depending on the future outlook.

First of all, we absolutely need a new paradigm of mining. The miners are the backbone of the network. Without them, Bitcoin ceases to function. With them, however, we collectively pay over $10k USD per day to subsidize their cost of operation to secure a network that has 40 transactions per block on average. GPU mining is a zombie, and its replacements will hopefully be here soon, with much lower electric bills!

Thankfully, free markets enable shorting of over-valued assets, and I'm glad you are contributing your price estimations via that mechanism. The BTC market is healthier for it.

I do appreciate the discussion Jonathan, you have some good things to say.

I appreciate the discussion as well, and I'll be keeping my short position for some time.

-Jonathan

[evoorhees]

Oh there has been absolutely nothing like BTC's gain in history, ever. Oh wait, tulips. Bitcoin-tard right here, get your bitcoin-tard.

You're the only one who said there has been "nothing like BTC's gain in history ever."  Please don't make up stuff and attribute it to me.

Lots of assets endure speculative bubbles, what's your point? There will be many more speculative bubbles in the btc price, I assure you.

[Etlase2]

BTC which - to this point from it's beginning - has outperformed any other asset class in the world.

BTC which - to this point from it's beginning - has outperformed any other asset class in the world.

BTC which - to this point from it's beginning - has outperformed any other asset class in the world.

BTC which - to this point from it's beginning - has outperformed any other asset class in the world.

yeah, ok bub. "hay guise this digital trash token was worth nothing now it's worth 0.01, it has outperformed any other asset class in teh world!!!11 infinite returns!"

[kjlimo]

I still say, we need to be getting businesses and people accepting bitcoins ...

I agree, we need more business in bitcoin...

...for them to gain intrinsic value.

...but my point is that there's nothing how we can realize that <something> *is* the real value.

What is "correct" bitcoin value now and why?
What will be "correct" value when new 100 merchants will accept bitcoins?
What will be "correct" value when ebay will accept bitcoins?
What will be "correct" value when US government start accepting bitcoins for paying taxes?

There's NO way how to realize it! Everything we have is the market and trading of individuals for their best personal interest. Somebody thinks that current "correct" value is 1$, because it is "sounds good" for them. Some other people think that "correct" value is 5$. And the final equilibrium is *now* at 2.20-2.30. There's no need to say bulls are "less inteligent" with twisted theories and call your own opinion as only one correct.

There is something for how we can realize the real value... see you last line, the market.  Right now the real value is 2.2-2.30.

[slush]

There is something for how we can realize the real value... see you last line, the market.  Right now the real value is 2.2-2.30.

That's what I'm trying to say. Current real value is $2.2-2.30. Obviously there's some temporary balance between future expectation, mining costs, bitcoin utility etc. Anybody saying that current price is (for any reason) 1$ or 0.1$ or 100$ is lying for himself.

[kjlimo]

There is something for how we can realize the real value... see you last line, the market.  Right now the real value is 2.2-2.30.

That's what I'm trying to say. Current real value is $2.2-2.30. Obviously there's some temporary balance between future expectation, mining costs, bitcoin utility etc. Anybody saying that current price is (for any reason) 1$ or 0.1$ or 100$ is lying for himself.

Agreed, I like your style Slush.