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Author Topic: The current Bitcoin economic model doesn't work  (Read 79931 times)
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May 31, 2011, 07:26:34 PM
 #221

You guys seem to forget that the kinds of people that buy irrationally are also the same kinds of people that sell irrationally. If they can't afford to keep buying up the new coins as they are issued/minted/mined at the same rate in which they purchased their last coins, the price will eventually fall. Once it does, it falls heads over heels because these same fools raised their cost average over time as they bought every week or day while the price was rising.

The real people you sound like we should worry about are the ones who bought massive amounts three months ago and have been sitting on it all while the price increases. But these individuals then aren't really hoarders, they are savers. If your only beef with them is that they purchased "too much Bitcoin" then you're basically saying we should despise people who had a lot of capital they wanted to translate into legitimacy of Bitcoin.

I first heard about Bitcoin in 2009 when I was looking for a way to generate money idly by running a Prime Number generator. I found the community and even downloaded a cruddy client. The community was so small then that no one offered money at all for coins. I even forgot the name (or it was never really called Bitcoin). I never took it seriously and left, finding it again well over a year later.

It took a lot of people taking Bitcoin seriously to get it to where it is today. It's going to take a lot more people taking it seriously to get it where it competes with government-backed fiat currency on a global scale. That means larger and larger investors and custom mining ASIC in large datacenters.

The best thing all of us have going for us right now is that we were the pioneers.

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May 31, 2011, 09:23:12 PM
 #222

Ok.  Here is the thing about the bitcoin hoarding arguments.

If people are sitting on bitcoins instead of spending them, then the amount in circulation will fall, and prices (of everything) will fall too.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend...

Get it?

The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?

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May 31, 2011, 09:33:32 PM
 #223

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?

Yes. As the "hoarder" attempts to acquire all the coins, the exchange rate rises (supply diminishes, demand stays the same). The "other" becomes rich in the other currency, while the "hoarder" becomes rich in bitcoins. Essentially, nothing changes.
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May 31, 2011, 09:39:19 PM
 #224

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?

Yes. As the "hoarder" attempts to acquire all the coins, the exchange rate rises (supply diminishes, demand stays the same). The "other" becomes rich in the other currency, while the "hoarder" becomes rich in bitcoins. Essentially, nothing changes.

So a system with 2 currencies would be more 'stable' than a system with just 1?

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May 31, 2011, 09:41:28 PM
 #225

So a system with 2 currencies would be more 'stable' than a system with just 1?

What do you mean by "stable"?
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May 31, 2011, 09:48:41 PM
 #226

So a system with 2 currencies would be more 'stable' than a system with just 1?

What do you mean by "stable"?

I'm sorry. "Stable" was not the right word.

You said that "other" will become rich in the other currency. What if that other currency doesn't exist?

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May 31, 2011, 09:54:08 PM
 #227

I'm sorry. "Stable" was not the right word.

You said that "other" will become rich in the other currency. What if that other currency doesn't exist?

The "hoarder" must trade something in exchange for "other"'s bitcoins. Either some sort of work, a finished product, or another medium of exchange (money). Since he is hoarding (saving) the bitcoins, as he gathers them the supply is still effectively reduced, increasing their purchasing power. That means that the "hoarder" must trade more goods or services in exchange for the same number of coins over time. He will eventually be doing an infinite amount of work for an infinitely small number of bitcoins.

In the real world though, he will quit long before that since there is no point to trying to own all the coins.
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May 31, 2011, 09:57:31 PM
 #228

Ok.  Here is the thing about the bitcoin hoarding arguments.

If people are sitting on bitcoins instead of spending them, then the amount in circulation will fall, and prices (of everything) will fall too.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend...

Get it?

The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?



What good does it do for someone to horde all the bitcoins? If someone gets all the bitcoins everyone would leave the network and the hoarders coins would be worthless. Who would he spend them with? Whats the advantage of hording them? They are only valuable if people are buying them which means someone has to be selling them. Has anyone been able to horde ALL the gold in 5000 years? Not yet. I don't see how something do divisible and liquid as bitcoins could be horded anymore than gold.

Money must originate from a commodity with intrinsic value - ideally, one that is durable and divisible. Money starts out as a commodity with utility value, then, through demands which it satisfies alone, becomes a common medium of exchange, i.e., money. Even the fiat dollar derives its purchasing power from when it was backed by gold. We went from gold, to a paper substitute for the gold, to the acceptance of the paper notes themselves, to paper that is now completely divorced from gold, but has a purchasing power that descends from when it was originally backed by gold. This is best explained by Ludwig von Mises' Regression Theorem.

If I were to make cute little paper certificates and call them, say, Anderson notes, nobody would just accept them. Money originates as a commodity with utility value, and the dollar had to descend from something with a pre-existing demand.

 Since money is a commodity, then paper money is supposed to be a substitute for, not an addendum to, the money supply, redeemable in a fixed amount of specie.

Contrary to popular thinking, money is not supposed to be an abstract unit of account, nor is it imputed with value through some other good, but is, itself, a valuable commodity. Paper money should function much like that of a check, which does not add to the supply of money, but is a stand-in for cash.

This is what Bitcoins does. But it is better than gold because of how divisible it is.

Bitcoins durability comes from the electricity, hardware, software, and its divisibilty  come from the decimal places on the computer much like gold.

the problem is a lack of savings. Encouraging consumption and penalizing saving, which is what inflation does, is the antithesis of what we should be doing. Producers need to consume in order to sustain production. Encouraging everybody to run off and spend their cash balances only lengthens the process of production. Our problem is more like over consumption, which leads to capital decumulation and erodes savings. It was once widely understood that people cannot borrow in excess of available capital, since credit is the trading of future wealth for current wealth.


http://www.american-partisan.com/cols/2003/anderson/qtr2/0422.htm

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May 31, 2011, 10:30:22 PM
 #229

I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

Did I win?


I would say so, but then I'm not the judge here.

Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

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May 31, 2011, 10:37:13 PM
 #230

Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

"Holding an asset expecting an increase in value more than the statistical norm" is a definition of speculation, not hoarding. By this definition I could hold one gun or one bitcoin, expecting the value to skyrocket, and I would be hoarding. Do you agree with this?
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May 31, 2011, 10:39:32 PM
 #231

Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

"Holding an asset expecting an increase in value more than the statistical norm" is a definition of speculation, not hoarding. By this definition I could hold one gun or one bitcoin, expecting the value to skyrocket, and I would be hoarding. Do you agree with this?

As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 

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May 31, 2011, 10:53:33 PM
 #232

As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 

So, is this your definition?

The acquisition of a statistically abnormal amount of a resource, due to a belief that the resource will gain a statistically abnormal amount of value in the future.

My problem is that "statistically abnormal" is subjective.

What is a "statistically abnormal" amount of bitcoins, and what is a "statistically abnormal" expectation of value?
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May 31, 2011, 11:28:10 PM
 #233

Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

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May 31, 2011, 11:33:22 PM
 #234

As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 

So, is this your definition?

The acquisition of a statistically abnormal amount of a resource, due to a belief that the resource will gain a statistically abnormal amount of value in the future.

My problem is that "statistically abnormal" is subjective.

What is a "statistically abnormal" amount of bitcoins, and what is a "statistically abnormal" expectation of value?

I probably should just stick with the term "significant", as abnormal is probably not technically correct.  I am not a statistician, but if you google "statistically significant increase in price", you will see that this is a commonly used term in research.  My definition incorporates the notion that the hoarder expects that prices will increase significantly.  Statistical significance can also be used to measure divergence from the mean in population samples (like whether a particular person's holdings of bitcoins are significantly greater than the average holder).  I can go research how statisticians document statistical significance and report back, but why?  Is there anything in my definition that does not meet your criteria?  

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May 31, 2011, 11:39:04 PM
 #235


He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not). 

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May 31, 2011, 11:54:55 PM
 #236


He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not). 

Except that you haven't removed the personal preference part.  You've merely moved it from the individual to the group.

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June 01, 2011, 12:01:03 AM
 #237


He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not).  

Except that you haven't removed the personal preference part.  You've merely moved it from the individual to the group.

How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence.  What was asked for was an economic definition that distinguishes between the two, this has been accomplished.  According to the definition proposed, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either.  

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June 01, 2011, 12:02:51 AM
 #238

How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either. 

It's because you're defining hoarding based on the preference of others. If nobody prefers to own guns, but I do, then I own a statistically significant number of guns.

It's essentially saying that nobody should own more than the average number of something. Completely and utterly subjective.
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June 01, 2011, 12:10:47 AM
 #239

are you asking for a theory of value that doesn't rely on preferences?  that's pants on head retarded.
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June 01, 2011, 12:13:07 AM
 #240

How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either. 

It's because you're defining hoarding based on the preference of others. If nobody prefers to own guns, but I do, then I own a statistically significant number of guns.

It's essentially saying that nobody should own more than the average number of something. Completely and utterly subjective.

I do not see where I suggested that nobody should own more than the average number of something?  The definition I proposed is completely objective.  It has nothing to do with whether anybody prefers to own the asset in question, only whether they acquire significant amounts of it and expect significant price increases.  The definition simply distinguishes between hoarding and saving without regards to personal preferences, by focusing on other attributes of the acquisition. 

Example: I may have a personal preference for collecting rare earth metals, and I accumulate an average amount of them and also believe they will maintain price stability, my accumulation of rare earth metals is an example of saving, not hoarding under the definition.  But if I have a personal preference for rare earth metals and I accumulate a significant amount of them and expect the price to increase significantly because of scarcity or catastrophe, under the definition I proposed this is hoarding.  So the distinction is without regards to my personal preference for rare earth metals, or any asset.  It is rather an objective test that looks at actions and expectations, not preferences.  I can prefer something and acquire an average amount, or not prefer something and acquire a significant amount.  The definition I proposed looks not at personal preference but rather the objective factors noted.

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