Do you actually USE Bitcoin? Or does it use you?

[Matthew N. Wright]

Those already producing, keep up the good work. Those interested only in consuming, thanks for sharing your wealth. Those interested in speculating the exchange rate of bitcoins to USD please understand to the producers in bitcoin you are about as useful as Atlas. The sooner you cash out and go on to the next 'big scheme', the sooner the rest of us actually using bitcoin can have some stability. Bitcoin speculators are no different than the 1%.

P.S. feel free to edumacate me Erik ^_^

I've been summoned!

Matthew your basic sentiment is excellent, and as btc enthusiasts we should all strive to participate in the btc economy. The more Bitcoin is used, the stronger it gets.

However, I strongly disagree with your antagonism toward "speculators" and those who buy Bitcoins merely to hold them. Hoarders of coins, or those who buy them to speculate on future appreciation, are risking their own capital to bring value from the future to the present. Those of us who believe in Bitcoin know that if it succeeds, the price will necessarily be far higher than today, as a massive economy uses it around the world. Speculators offer the crucial service of recognizing that future value and risking their capital to bring a portion of it into the present.

What benefits does that give Bitcoin World? Many. Primarily, it delivers exchange value to those holding bitcoins currently. It provides capital for those who use bitcoins to start new businesses. It demonstrates that people believe in the system, and are willing to risk their own wealth on it - which says much more than any forum post could.

A speculator who risks $100,000 on BTC gets no promise of any return. He may lose everything. But he sees a valuable system, before the world recognizes it, and he stakes his money on that observation. His $100,000 is traded to those in the Bitcoin community who need the dollars instead of the coins. To the extent that money is traded to Bitcoin enthusiasts and entrepreneurs, it becomes the seed capital from which all these endeavors are able to take place. The horder of bitcoins enriches the community with wealth - a portion of which will inevitably be spent building new systems from which Bitcoin gains strength.

Anyone who trades within the bitcoin economy - regardless of whether its for a good, a service, or another currency - enriches the person with whom he trades. The buyer of Bitcoin enriches the seller of Bitcoin, perpetuating the price signal to other market participants that Bitcoins are valued and demanded.

Case in point: I'm working on a new project and needed to buy a VPS a few days ago. Due to recent price appreciation in my BTC holdings, it was very affordable and I was able to purchase it earlier than I would have if the btc price was lower. By holding btc, I was made wealthier by others who sought to hold it, and as a result my Bitcoin project is progressing faster. The greedy speculator, unintentionally, just helped build the Bitcoin economy vis a vis my VPS purchase.

The horders and the speculators bring the future value of Bitcoin into the present. They raise the market price above what it would otherwise be, and in so doing, they enrich the community and advance its cause. It is another beautiful example of Adam Smith's Invisible Hand - for the speculator need only be self-interested for this to work.

Continue to cheer the merchants and developers... but also cheer the speculators, investors, and hoarders. It is the interaction between all these parties which advances the Bitcoin economy.

What you say sounds lovely, but I still see it as a bunch of people dumping money into bitcoin and a bunch of other people cashing out for profit.

My point was, although it seems your points are quite valid, they only apply if people are using bitcoin for more than a pump and dump.

Who is using bitcoin for more than just speculative profiteering? I am personally not seeing it yet. What I'm seeing is one newbie coming in, dumping money, other people waiting for the price to increase cashing out, then the market settling until the next new investor comes along to which the previous investors just cash out on. Endless cycle until people start actually using bitcoin.

I don't see speculating and dropping large amounts of money into the market as helping anyone in bitcoin. It helps people still using USD of course! If 100 people use bitcoin and each invest im each other, buying from each other in bitcoins only, selling to each other in bitcoins only, isn't thst actually healthier? What am I missing here?

[1714162904]

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[koin]

If 100 people use bitcoin and each invest im each other, buying from each other in bitcoins only, selling to each other in bitcoins only, isn't thst actually healthier?

sure, but what is the catalyst to get those 100 people (or 100 thousand people, which is a more necessary target) to start using bitcoin for buying and selling?  well, those speculators aren't just hoarding. i've experienced this first-hand now -- someone i've introduced to bitcoin later bought some with plans to sock them away.  sure enough there have been several times now where he used bitcoins instead of paypal for sending money.

once the finance industry starts to use their derivatives against bitcoin then maybe this volatility will settle down a little.

[Matthew N. Wright]

What am I missing here?

That it doesn't matter what you think is healthier, people will speculate. Does it bother you that people speculate with other currencies as well? Look at the volume of forex compared to GDP. The volume in speculation dwarfs the volume of actual economy. It doesn't matter though, they aren't mutually exclusive.

Bitcoin is young, so it will be volatile (and I think the volatility is what you are actually complaining about, after all, without it people couldn't do the things which you are condemning, e.g., pump and dump). Speculation opens the door for people to easily obtain Bitcoins for use in the economy. As Bitcoin grows, speculation will become more and more competitive and the volatility will slowly fade.

If you are a fan of Bitcoin, which it seems you are, why would speculation bother you? It's a result of the market being free. If you want a stable exchange rate, you either need a much larger, more competitive group of speculators, or artificial controls. One is compatible with Bitcoin, the other is not. I understand the desire to see people using Bitcoins, but speculation doesn't harm that at all, in fact it helps! Even if speculation was harmful, which it isn't, what would you propose we do? Outlaw it in an attempt to promote the Bitcoin economy? If you can see how silly that sounds, you must realize speculation is good for Bitcoin.

What will help dull the effects of pump and dump, profiteering, etc. is a much higher Bitcoin exchange rate and a much more diverse ownership of Bitcoins. That way, the capital requirements needed to affect the market will be greatly increased, therefor less people will have the ability to do so.

TL;DR: It's a waste of energy to complain about speculation, especially if you refuse to look at the whole picture.

There are many things I'm still learning and as Erik and yourself pointed out, what is good for bitcoin is good for bitcoin, so I won't argue about it. What I argue about though is that I  haven't seen the effects of it. All I know is that if my bitcoins were 'worth' $1 or $10, I'd still spend them just the same. So maybe I should just clarify by not saying speculation is wrong, but that people basing their involvement in Bitcoin based off of speculation doesn't make sense to me.

[westkybitcoins]

Those already producing, keep up the good work. Those interested only in consuming, thanks for sharing your wealth. Those interested in speculating the exchange rate of bitcoins to USD please understand to the producers in bitcoin you are about as useful as Atlas. The sooner you cash out and go on to the next 'big scheme', the sooner the rest of us actually using bitcoin can have some stability. Bitcoin speculators are no different than the 1%.

P.S. feel free to edumacate me Erik ^_^

I've been summoned!

Matthew your basic sentiment is excellent, and as btc enthusiasts we should all strive to participate in the btc economy. The more Bitcoin is used, the stronger it gets.

However, I strongly disagree with your antagonism toward "speculators" and those who buy Bitcoins merely to hold them. Hoarders of coins, or those who buy them to speculate on future appreciation, are risking their own capital to bring value from the future to the present. Those of us who believe in Bitcoin know that if it succeeds, the price will necessarily be far higher than today, as a massive economy uses it around the world. Speculators offer the crucial service of recognizing that future value and risking their capital to bring a portion of it into the present.

What benefits does that give Bitcoin World? Many. Primarily, it delivers exchange value to those holding bitcoins currently. It provides capital for those who use bitcoins to start new businesses. It demonstrates that people believe in the system, and are willing to risk their own wealth on it - which says much more than any forum post could.

A speculator who risks $100,000 on BTC gets no promise of any return. He may lose everything. But he sees a valuable system, before the world recognizes it, and he stakes his money on that observation. His $100,000 is traded to those in the Bitcoin community who need the dollars instead of the coins. To the extent that money is traded to Bitcoin enthusiasts and entrepreneurs, it becomes the seed capital from which all these endeavors are able to take place. The horder of bitcoins enriches the community with wealth - a portion of which will inevitably be spent building new systems from which Bitcoin gains strength.

Anyone who trades within the bitcoin economy - regardless of whether its for a good, a service, or another currency - enriches the person with whom he trades. The buyer of Bitcoin enriches the seller of Bitcoin, perpetuating the price signal to other market participants that Bitcoins are valued and demanded.

Case in point: I'm working on a new project and needed to buy a VPS a few days ago. Due to recent price appreciation in my BTC holdings, it was very affordable and I was able to purchase it earlier than I would have if the btc price was lower. By holding btc, I was made wealthier by others who sought to hold it, and as a result my Bitcoin project is progressing faster. The greedy speculator, unintentionally, just helped build the Bitcoin economy vis a vis my VPS purchase.

The horders and the speculators bring the future value of Bitcoin into the present. They raise the market price above what it would otherwise be, and in so doing, they enrich the community and advance its cause. It is another beautiful example of Adam Smith's Invisible Hand - for the speculator need only be self-interested for this to work.

Continue to cheer the merchants and developers... but also cheer the speculators, investors, and hoarders. It is the interaction between all these parties which advances the Bitcoin economy.

Wow. Slam dunk.

[Matthew N. Wright]

I am always more than happy to share my ignorance on certain topics on the forums to get a debate going that creates more solid arguments and explanations for others in the future.

After rereading the responses I think there is some validity to them so I'll hold off debating until I have more information.

[FlipPro]

Yes I use my Bitcoins ALOT...

I think most Bitcoiners use their coins...

[Matthew N. Wright]

What I argue about though is that I  haven't seen the effects of it.

Do you think it's easier today, or a year ago, for the average person to get their hands on some Bitcoins?

Obviously, I'm asking because I assume your answer will be that it's much easier today.

Do you think this is because of people offering goods and services for Bitcoin, or because of speculation?

If it's easier for people to get Bitcoins, it's easier for people to spend Bitcoins! It's also easier for merchants who want to use Bitcoins, but currently have to pay certain expenses in local fiat, to offer Bitcoins as a choice for their customers.

The more liquid the market, the less barriers for wider adoption. Speculation is what has been improving Bitcoin liquidity from the start!

If everyone only mines their coins and never uses a currency exchange, wouldn't that bring much more stability? I know this would create an issue about accessibility, but there is an issue with accessibility of gold too, until there was much more of it on the market.

It's just that it seems the problem is not about the spot price, but the amount of bitcoins in circulation. Is my thinking flawed if I believe none of this will actually stabilize correctly until 20.999999999 million bitcoins have been mined?

[westkybitcoins]

For anyone (not just Matthew) reading this and wondering where evorhees and others are coming from, here's an article that might provide food for thought. A common societal myth is that speculation is the cause of price volatility, or at least increases it. Hopefully this can address that concern (I haven't read it, I'm just providing it for those looking for data:)

Is Speculation Destabilizing?

[Matthew N. Wright]

For anyone (not just Matthew) reading this and wondering where evorhees and others are coming from, here's an article that might provide food for thought. A common societal myth is that speculation is the cause of price volatility, or at least increases it. Hopefully this can address that concern (I haven't read it, I'm just providing it for those looking for data:)

Is Speculation Destabilizing?

Thanks. Reading.

[evoorhees]

What you say sounds lovely, but I still see it as a bunch of people dumping money into bitcoin and a bunch of other people cashing out for profit.

You're observing it correctly, but you're using derogatory terminology which distracts you.

When people "dump money in"... what you mean is they are trading one currency for another, and increasing the price of BTC relative to USD. A portion of those USD then get used to build the bitcoin systems that you think we should all be using. When they "cash out for profit" they are again trading in reverse - but the key is that they are doing that reverse trade sometime in the future. This is what I mean when I say that speculators bring the value (and wealth) of the potential bitcoin economy from the future into the present. You're ignoring the dimension of time. Speculators rush in to this opportunity, price soars, those holding BTC can sell a portion of them at higher prices, and with this newfound wealth they can build the systems they struggle to build.

You think that people should only spend Bitcoin, never USD... but let's examine that.

Suppose for a minute that it was impossible to exchange BTC for USD. Would the Bitcoin economy grow faster? No. It would be seriously hamstrung - the market suffocated of vast amounts of potential trade. Those holding BTC could spend them only on a very narrow range of goods and services. Fine, I want wool socks, but not alpaca wool - I want sheep wool. Ooops too bad, no sheep wool sock merchant yet accepts bitcoin. And why would he? For he in turn would only be able to spend his revenue on a supremely narrow range of goods and services.  

Without the ability to exchange BTC for USD, one's BTC would only be as valuable as that which could directly be purchased with BTC. But WITH the ability to exchange for USD, the BTC is able to gain tremendous value - with two degrees of exchange I can buy anything in the world with Bitcoin. Without a link to dollars, that's impossible. Thank goodness we're able to trade it for more universally accepted forms of money, else Bitcoin would be limited by the merchants who wanted Bitcoin at time=0... and who the hell would want Bitcoin at time=0 when it can only be spent on goods/services existing at time=0?  Only the most foolish of merchants would ever accept such a thing, and in turn consumers would only be able to purchase a narrow range of goods from the most foolish of merchants.

Underlying this is the same reason it's silly when people suggest we move to a "barter" economy. Why produce concrete pilings when you can only trade them with people who directly want concrete pilings? USD let's the concrete piling maker sell for the currency, then trade the currency with anyone. Similarly, USD let's the Bitcoin maker sell for the currency, then trade the currency with anyone - making Bitcoin immeasurably more marketable. The extent of the market is vastly increased when one can exchange Bitcoin with those goods most widely desired around the world - specifcally, those goods called national currencies.  (side note: in reality we DO live in a barter economy, it's just that people choose to barter primarily with the good called USD, which we call money because it's so universally bartered with)



I've had lots of coffee so let's examine it from another perspective...

At time=0, Bitcoins had zero market price. I submit to you that the first person to risk something of real value (say, USD - which has real value because it can purchase things) on Bitcoins was the ultimate speculator, and according to your premise, he was a bad person who was bad for Bitcoin's development. If he had risked a good (like a loaf of bread) then you seem to say that's okay, but that doesn't make him any less of a speculator, because a loaf of bread is worth $3 USD... thus either way he's trading something worth $3 USD for the Bitcoins because he believes the Bitcoins to be more valuable than $3. He either trades $3 directly, or a $3 loaf of bread indirectly. You seem to think the former is wrong and destructive, and the latter valid and constructive. Nonsense. Both are valid and constructive.

Now, why he risked his real value USD, or his real value bread loaf, for zero-value BTC should be irrelevant to us, but he did it because he believed Bitcoins were underpriced at $0 each and was willing to bid $3 worth of currency or of bread. After his purchase, at time=1, that quantity of Bitcoins has a market value now equal to $3 - whether that's priced in terms of $3 USD or a loaf of bread that in turn is priced at $3 USD, the effect is the same. All the holders of coins can now better estimate the value of their holdings. They are made wealthier - their purchasing power increased - and can now more easily trade their BTC for goods that they need. They know that a certain amount of BTC is equal to $3 worth of bread which is equal to $3 USD. The next bidder can raise or lower his bread or USD bid, and from this progression we get a market price for Bitcoin. The reason someone places that bid is irrelevant - he's made a judgement and you can agree or disagree, and from these collective judgments a marketplace spontaneously emerges. Bitcoin sellers, Bread sellers, and USD sellers - all thinking and bidding based on their own demand curve, time preferences, and predictions for the future.

Whether the speculator does any of this trade to "help bitcoin" or to "help himself" is again irrelevant. What we care about is the effect of his action, not his motivation. The effect is demonstrably positive - it is to "bid" on a bitcoin, whether with USD or Bread, giving other market participants a precedent to in turn base their own bids from. A market price emerges- and you ought not care whether that price is $3-worth of bread or $3-worth of USD. Importantly, subsequent speculators after this first guy are no less useful, no matter their motivation, and no matter whether they bid with USD or with Bread.

Time for a sandwhich... which I'd be unable to buy for BTC but which I was in fact able to buy by trading BTC -> USD -> sandwhich ingredients. Some day, a merchant will decide to sell a sandwich directly for BTC, but only because the above process was able to take place.  

[westkybitcoins]

For anyone (not just Matthew) reading this and wondering where evorhees and others are coming from, here's an article that might provide food for thought. A common societal myth is that speculation is the cause of price volatility, or at least increases it. Hopefully this can address that concern (I haven't read it, I'm just providing it for those looking for data:)

Is Speculation Destabilizing?

Hmm. I'm reading this, and it's interesting, but it's technical, and at 37 pages, it'll be a while before I digest it all. Still, I went with this to post rather than the somewhat-demeaning and not-very-technical Forbes article that kept popping up when looking for an appropriate article, so hopefully it'll still be useful enough.

[evoorhees]

If speculating made markets less stable, then all markets would tend toward instability and chaos... because speculators tend toward markets which are volatile. More volatility would then equal more speculators, in turn equaling more volatility. Every market price int he world would freak out and explode with volatility.

Doesn't pass the straight face test. Speculators, whether they intend to or not, MUST make markets more stable over the long term. It's math. =)

[westkybitcoins]

If speculating made markets less stable, then all markets would tend toward instability and chaos... because speculators tend toward markets which are volatile. More volatility would then equal more speculators, in turn equaling more volatility. Every market price int he world would freak out and explode with volatility.

Doesn't pass the straight face test. Speculators, whether they intend to or not, MUST make markets more stable over the long term. It's math. =)

Yep. I like boiling it down to the bare essentials.

If the market price of bitcoins "should" be $10 for the next month, but FUD starts causing the price to sink, that's precisely when you want speculators.

In the interest of making a profit, they'll analyze as well as possible (rather than just swallowing all the FUD,) and determine bitcoins are undervalued. They'll start buying them up, essentially creating an upward price pushback. This will keep bitcoins from sinking as far and fast as they would otherwise, and hopefully help push it back to $10.

The process works on the upside too. Assuming any real, rational speculators were around during Holland's wildly irrational tulip mania, they would have been short selling tulips as fast as possible; their actions would have actually kept the price from going even higher than it did!

You only really run into problems when you have speculators deliberately acting in an irrational fashion... for example, because they know ahead of time they can cheat the system and get bailed out by taxpayers. If you know your losses will always be covered, you'll be incentivized to actually create more volatility to increase your profits, since the increased risk is irrelevant to you.

[evoorhees]

You only really run into problems when you have speculators deliberately acting in an irrational fashion... for example, because they know ahead of time they can cheat the system and get bailed out by taxpayers. If you know your losses will always be covered, you'll be incentivized to actually create more volatility to increase your profits, since the increased risk is irrelevant to you.

Extremely good point.

Another argument also is that speculation done under scenarios of price controls are likely to cause bad outcomes and distortions - onlookers may then blame the speculators, when they should've blamed the price controls.

US housing market is a perfect example of both these phenomenon - speculators knew they'd be bailed out so they took irrational risks, and this combined with the price controls on interest rates led to a predictable disaster. Yet who is blamed?  The greedy speculators!!!

[gnar1ta$]

I use bitcoin, and would love to be able to use it more - and I have no idea how to make that happen.  Well I have a few ideas, I just don't have the resources to implement them, so I'll just keep on spending them on what I can.

@evoorhees "Democracy is the original 51% attack".  That is hilarious, and very true.

[k9quaint]

You only really run into problems when you have speculators deliberately acting in an irrational fashion... for example, because they know ahead of time they can cheat the system and get bailed out by taxpayers. If you know your losses will always be covered, you'll be incentivized to actually create more volatility to increase your profits, since the increased risk is irrelevant to you.

Extremely good point.

Another argument also is that speculation done under scenarios of price controls are likely to cause bad outcomes and distortions - onlookers may then blame the speculators, when they should've blamed the price controls.

US housing market is a perfect example of both these phenomenon - speculators knew they'd be bailed out so they took irrational risks, and this combined with the price controls on interest rates led to a predictable disaster. Yet who is blamed?  The greedy speculators!!!

The housing market is a very complicated example. Some of the speculators misrepresented their assets & earnings in order to take out loans they could only repay by selling the home. Some of those giving out loans lied about the assets & earnings of those who took the loans in order to package these loans into bonds and sell them to investors. Some investors lied about the contents of the mortgage bonds in order to package them into structured debt with inflated ratings and sell them to still more investors. All of these things also took place in countries that did not have the US GSEs or the Fed setting interest rates. It just so happened that by value, the most damage from this occurred in the US. By percentage, Ireland, Spain, and the UK all surpassed the US in housing losses. None the less, these speculators bear a share of the blame because it was their inability to complete the transaction (not the transaction itself) that led to disaster. Had all the housing speculators paid in cash, there would have been no "subprime crisis".

Regarding volatility: one of the most volatile US futures markets is that of onions, and speculators are 100% forbidden from that market. Evidence that volatility exists where no speculators are present.