The current Bitcoin economic model doesn't work

[kiba]

And what exactly is the problem in joining a sane, stable marathon? I have yet to see a single economic or technical argument against my suggestion. I think most "skeptics" are simply happy with the current system because they want to earn huge early-adopter profits when more patsies join in.

I'm even beginning to seriously doubt that Satoshi (not his real name) specifically designed the system that way so he could get away with whatever he made at the very beginning before the network went public. The dude could simply be a millionaire now. You guys are just hoping to become mini-Satoshis when more people jump on board.

If you don't want to join in the bitcoin spectulation and ignore all the arguments that been made, that's fine.  

When somebody invest 10 million dollars into the market, it's going to increase the price widely anyway. You can't expect price stability at time of extreme adoption.

In the meantime, I will keep posting that bitcoin bubble comic everytime somebody cry "BUBBLE!" on this forum. More traffic for me.

[Suggester]

@ Suggester - As I said, I agree that Bitcoin is currently highly speculative which is unhealthy. The way to solve this is to get more mainstream shops to accept Bitcoin payments. Why do you keep obsessing about speculation as if that's all there is to Bitcoin?

That's not addressing the problem. What happens if the whole world accepted bitcoin tomorrow? The price would still be jumping up and down because it's not tied to any stable thing. We need a damn price anchor for stability. Bitcoins will eventually be like Picasso paintings, they can be sold at absolutely any price at any point in time.

In a pyramid, each person can own at most one ticket and can sell as many copies of that ticket as he likes.

In the ones I was familiar with you get only 3 or 5 or whatever limited number of tickets. Had it been unlimited the system would've collapsed too early because all patsies would be "early adopters" with no one to cough up the money.

Regardless, with bitcoin you simply earn more money the longer you hold on to the coins. Deflation is the same as "more tickets coming from nowhere".

In a ponzi, there is someone running the show who promises high returns on investment. In Bitcoin - even in its current unfortunate highly speculative state - there's no one at the top

So early adopters didn't have the advantage of creating 1 block per hour or per day when now you need to wait for weeks to create one? How the hell does that make any sense? Can you imagine the EU giving early "euro adopters" more euros?

And that whole risk argument is strawman. It's all about "early adopters taking more risk". Crap. Had they immediately spent their coins then they took no risk. But had they kept them then they're speculators not adopters. They were waiting for the price to go up because the system was built so the price perpetually goes up. And what risk did they take anyway? $10 on their electricity bill to generate 1000 BTCs? Does this justify the current profit rate of 100,000% for "early adopters" and even higher for "earlier adopters"? That's a pyramid scheme by definition.

When somebody invest 10 million dollars into the market, it's going to increase the price widely anyway. You can't expect price stability at time of extreme adoption.

Nobody smart enough to make $10M would join a Ponzi scheme. And it's exactly these kind of expectations which paralyze the market: "I'll hold on to my coins because soon enough some dude with $10M will enter the market, and then I can exit making a good buck!" Given no such thing can happen in the proposed system, it's much better than the current one as far as stable medium of exchanges (as averse to crazy speculations and price bubbles) are concerned.

[DrSammyD]

People want to consume goods and are willing to spend their coins for it at some price (amount of goods). The lower the price, the higher the time preference. Also, why would you ever be able to buy bitcoins? Clearly some people want to trade bitcoins even at $7. But no, those people are idiots.

With the exception of people being forced to sell their coins for an emergency and the exception of "hit-and-run" transactions, most buyers buy now on hope that the coin's price will rise and most sellers on the expectation that it will drop. How otherwise can you justify a ten-fold increase in a single month? It wasn't a sudden surge in child porn anonymous sales I suppose. No, it was speculation. Virtually the whole bitcoin market is speculation.

People didn't know about bitcoins before, then it go a lot of publicity, now people want the value that they didn't know it had before. Demand grew, price went up. Dollars are becoming worth less, and that hasn't been reflected in bitcoins until just now. I suspect the volatility is due to the inability to short bitcoins right now. So all speculators can only go up. Once we see speculators shorting, we'll get less volatile exchange (assuming the dollars being exchanged aren't themselves volatile)

Suggester also doesn't understand what marginal utility is.... hoarding and increasing your stockpile (of money. I added this because the parts of my quote you skipped make this distinction clear) doesn't make sense into infinity because as you increase the amount you have, the less utility you are acquiring.

Hmm, I wonder how we ended up with quite a few millionaires and billionares on this planet then. Weird. Perhaps they don't understand marginal utility either. Why don't you explain it to them DrSammy? Maybe they'll give up their hoarded money to charity.

They don't hold those billions in cash. They hold them in assets with different uses. Liquidity is less and less valued the more they have, then they start doing stuff with their money, not hording it all. Also, bitcoin isn't going to represent all transactions of the entire economy. There will probably be other monies and competing currencies. It's up in the air whether or not they understand marginal utility, but clearly you do not.

Also, the higher the value, the more you can buy with it, and the more you can buy with it, the more incentive you have to spend it. Yes, some people have really low time preference, and so they save their bitcoins. But everybody has a price. At some price, they will spend their bitcoins, thus increasing their availability and lowering the amount people are willing to pay for coins certis paribus . Supply/Demand.

I'm pretty tired of having to repeat this, but let's say it one more time: Yes they will sell at some point, but to another investor who'll keep the coins till the price is right before selling them again. That's a Ponzi scheme by definition.

No, that's called a bubble, not a ponzi scheme. A ponzi scheme is where you pay the old people dividends with the new people's money but everybody get's to keep the assets they had in the scheme. Bitcoin is a clear transfer of assets. Also it's only a bubble if the underlying value of it is much much lower than what it's trading for. And it's only a bubble if the underlying value can never catch up to the trading price. That all depends on it's ability to be traded for goods and not just dollars. The increase in value will convince people to accept bitcoin for trade. Which if it is in a bubble, will decrease it's severity.

[kjj]

@ Suggester - As I said, I agree that Bitcoin is currently highly speculative which is unhealthy. The way to solve this is to get more mainstream shops to accept Bitcoin payments. Why do you keep obsessing about speculation as if that's all there is to Bitcoin?

That's not addressing the problem. What happens if the whole world accepted bitcoin tomorrow? The price would still be jumping up and down because it's not tied to any stable thing. We need a damn price anchor for stability. Bitcoins will eventually be like Picasso paintings, they can be sold at absolutely any price at any point in time.

You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...

Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.

[markm]

Quote: "Given no such thing can happen in the proposed system, it's much better than the current one as far as stable medium of exchanges (as averse to crazy speculations and price bubbles) are concerned."

Great, lets do it. What IRC network and channel do you want it to use, or do you propose leaving out the IRC method in this new better currency?

How much better, in dollars cents or bitcoins, is this new currency, exactly, to you personally, as in how many dollars cents or bitcoins are you willing to buy how many coins of it for? There are quite a few blockchains already up and running any one of which might be more amenable than this crowd to simply eliminating the ever-less-minted "feature" from their code, so how many you want to buy will help determine which will be eligible (as in having already minted sufficient coins to satisfy your initial demand for such coins) and how much you want to pay per coin can then serve to eliminate those that consider your offer too low to be worth bothering with...

...Or, looking at it another way, once I know the price per coin you are willing to pay, for how many of these better coins, I will have the info needed to select among the various blockchains already implementing your idea or amenable to implementing it those closest to fulfilling your order...

-MarkM-

[Suggester]

You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...
Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.

Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

If you want stability in a decentralized p2p system you must have it tied to some external stable commodity such as global electricity prices. The recent bubbles and crashes along with perpetual deflation says enough. I shouldn't need to "prove" my point because it's empirically proven by the price graph. You can't have a medium of exchange without stability, period.

I'm still waiting for one sound argument against the proposed suggestions.

[markm]

You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...
Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.

Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

If you want stability in a decentralized p2p system you must have it tied to some external stable commodity such as global electricity prices. The recent bubbles and crashes along with perpetual deflation says enough. I shouldn't need to "prove" my point because it's empirically proven by the price graph. You can't have a medium of exchange without stability, period.

I'm still waiting for one sound argument against the proposed suggestions.

I am not against the proposed suggestions, I am saying great idea how much is it worth to you.

However, I believe you are wrong in your above-quoted assumption set.

These so called central banks of which you speak are in essence an early-adopter-cabal that, for various reasons (possibly including reputation, national reputation, or even (not so sure of this one) patriotism; or maybe even some even-more-practical reasons and rationalisations; and likely also fraud law adjudicators eager to punish them for giving the nation or law or legal system a bad name) seem by and large to prefer to attempt to prop up their ponzi scheme than to "cut-and-run" aka "fly by night".

What is there to stop those who converted early cheap bitcoins into millions of dollars, yen, GBP etc from using a possibly even very large proportion of such holdings to "prop up" bitcoins much as various nations attempt to keep their national currency from dropping too low in price by buying it back using their reserves of other currencies?

If anyone has managed to convert early bitcoins into vast sums of fiat currencies they should be in an excellent position to buy back bitcoins any time the price of bitcoins seems poised for a precipitous fall.

It might actually be very useful for such purposes to deliberately launch a bunch of variants that they *do* treat as ponzi schemes, both to make money with which to prop up the "real" / "original" bitcoins and to "demonstrate" that "no competing blockchains can in fact compete because we the original are so cool and so first-mover-fiat-reserve-rich we can back ours with more fiat than competitors can back competing chains with".

-MarkM-

[Anders]

Why should the early adopters be rewarded with incredible wealth while I get a pittance?

But if you buy bitcoins today for $7 and sell them after three years for $100,000 isn't that enough reward for you? Sure, the value of a bitcoin after 3 years may still be $7 or even zero, but there is a also a chance that it really reaches to extremely high values.

Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.

Hmm... You could be right. I'm not sure, but I would like to have a digital currency whose value was even over time, with some algorithm that stabilized inflation and deflation, pretty much in the way the Bitcoin algorithm stabilizes the amount of coins produced into a linear and steady pace.

[BitterTea]

Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.

Your analogy does not take into account the risk of early adoption. A better example is investors who bought an expensive stock at dollars per share when first offered. Is it unfair to an investor years later that they must pay hundreds of times more for the same share?

Yes, it is fair. They were either unwilling or unable to take that risk at that time. If it wasn't for those both willing and able to do so, they would have nothing in which to invest.

[db]

Can you imagine the EU giving early "euro adopters" more euros?

That's exactly what they did. They gave euros to adopters of the national currencies in proportion to how much they already had. In general, fiat currencies are introduced by the people with the printing presses printing it and then spending it. And bitcoin, that releases currency to anyone who helps secure the transactions, no privileges, is somehow worse!?

[caveden]

Fiats are relatively stable because they've got central banks keeping them stable.

Seriously? The guy says such a thing and yet receives attention?

Stop feeding the Keynesian troll.

[jerfelix]

You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...

Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.

I noticed that in BTC, all those other currencies are fluctuating wildly.  The Bitcoin is the ONLY one that's stable, relative to the BTC.

 

[Anders]

Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

The problem with fractional reserve banking is that it has inbuilt inflation. There is never enough money in circulation at any given point in time to pay both the loans PLUS the interest. So new credits are continuously forced to be created in order to keep the fractional reserve banking monetary systems going. This leads to overall inevitable inflation. Even exponential inflation!

The Bitcoin system has massive deflation built in instead. I don't know if that is a sustainable model. It could be! It will be interesting to see what will happen with Bitcoin. One problem could be that Bitcoin will be less liquid than it would be with another algorithm. Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

[markm]

It seems like a pretty good model for a reserve currency.

Keep your wealth in bitcoins until you reluctantly find you need some pocket change to make it through another day or even just another meal, then cash it out to inflationary fiat as close as possible to the time you plan to eat / spend.

Maybe it is not necessary for merchants to accept it directly at all, as if you constantly keep facing those horrible inflationary fiats each time you face the prospect of spending maybe you'll be reminded why you prefer to hold the good currency and spend the bad stuff.

When bad currency forces out good, does that make the good stuff worthless as currency, or just make it worth more as reserve/savings than as pocket-change / spending-money?

Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?

(Is having them directly accept gold silver platinum and palladium bullion as important too?)

-MarkM-

[db]

Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.

[Anders]

Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.

That was an interesting analogy. Hoarding money is like a capacitor in an electronic system. I like the idea! It's less depressing than thinking of hoarding money as blood clots that hinder the flow. It would be interesting to do a more analytical examination of both those analogies.

[markm]

Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.

That was an interesting analogy. Hoarding money is like a capacitor in an electronic system. I like the idea! It's less depressing than thinking of hoarding money as blood clots that hinder the flow. It would be interesting to do a more analytical examination of both those analogies.

The part of the money flow as electrical flow model that always intrigued me is the step-up transformer...

-MarkM-

[Anders]

Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto have been thought?

-MarkM-

On the Internet it would be good if more and more websites started accepting bitcoins (or similar digital currency). And to have easy ways to quickly convert ordinary currencies from and to bitcoins. To be able to buy hamburgers at McDonald's with bitcoins is not equally important yet I think. Bitcoin would first have to be used a lot on the Internet. Imagine the majority of transactions on the Internet being done with bitcoins. That would be pretty cool. That's a huge amount of money transactions.

"Internet as a sector is about 3% of GDP, or bigger than agriculture or energy, and represents over 20% of economic growth in the past 5 years, and growing." -- From: http://www.businessinsider.com/mckinsey-report-internet-economy-2011-5#ixzz1NM8ZxI2x

[Anders]

The part of the money flow as electrical flow model that always intrigued me is the step-up transformer...

-MarkM-

In an electric system there is the flow of current and also electric potential and resistance. Such as in Ohm's law. The transistor is also an important component in electronic systems which allows a small current to regulate the flow of a much larger current. The Bitcoin system could perhaps be modeled using the electronic analogy. I don't know how though.

[Meni Rosenfeld]

Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?

Yes. Bitcoins will have no value if nobody accepts them as payment.