If all of the world's paper currency was replaced...

[SgtSpike]

I don't like this estimation. It does not tell you anything and therefore has no meaning, if such situation is impossible. If Bitcoin replaced all cash, there wouldn't be much sense in using these currencies in any other form. I think better way of estimating how much Bitcoin would be worth if it replaced traditional money is to think how many people would use it and how much they would need over a certain period of time(interval between paychecks lets say). Whatever value you get, then you can increase it with respect to how much people would like to have and are able to obtain/hoard.
If bitcoin indeed replaced traditional money, it would be worth a lot more

So we'd be buying bananas with peta-bitcoins? 

I do agree though, it's not a very useful number.  It would be a lot more useful to know the total currency held in the world.  Although, last I checked, the net worth of the world was negative, so how does that work?   

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[ribuck]

I think better way of estimating how much Bitcoin would be worth if it replaced traditional money is to think how many people would use it and how much they would need over a certain period of time(interval between paychecks lets say).

OK, so let's play with some numbers on that basis.

Suppose that 21 million people around the world end up using Bitcoin. Each of them uses it for say 10% of their shopping. Suppose their Bitcoin "float" from paycheck-to-paycheck is $100. Then each Bitcoin will be worth $100.

Suppose that 2.1 million people end up using bitcoin, and each of them only uses it in a very small way (a float of value $50). Each bitcoin only needs to be worth $5 to support this. But if those people also use Bitcoin to stash away savings worth $5000, then each bitcoin needs to be worth $505.

Suppose that 210 million people end up using Bitcoin, with a float of $500 and savings of $10,000. Then each Bitcoin needs to be worth $105,000.

This is just playing with numbers. It's also possible that people will develop lots of forms of credit pegged to bitcoin (though not backed by it), and that will limit the upside to Bitcoin's value.

[marcus_of_augustus]

Well, using US dollars to compare is always going to problematic because it is going to hell in a basket and is inflating way too fast to measure anything sensible against it.

How about you use gold grams (or ounces) since it will still be around when bitcoin matures and won't have inflated much by then.

Imagine Jimmy Rogers 95 yo and still going, crustily popping up on financial TV clip ;

"Ah, today I like the hard monies, gold, I'm buying gold, I'm buying bitcoins, I like bitcoins, also I'm buying silver .... , the hard monies are going to be the place to be in for the next little while, we all remember what became of the dollar in 2012 ..."

[MoonShadow]

I think better way of estimating how much Bitcoin would be worth if it replaced traditional money is to think how many people would use it and how much they would need over a certain period of time(interval between paychecks lets say).

OK, so let's play with some numbers on that basis.

Suppose that 21 million people around the world end up using Bitcoin. Each of them uses it for say 10% of their shopping. Suppose their Bitcoin "float" from paycheck-to-paycheck is $100. Then each Bitcoin will be worth $100.

Suppose that 2.1 million people end up using bitcoin, and each of them only uses it in a very small way (a float of value $50). Each bitcoin only needs to be worth $5 to support this. But if those people also use Bitcoin to stash away savings worth $5000, then each bitcoin needs to be worth $505.

Suppose that 210 million people end up using Bitcoin, with a float of $500 and savings of $10,000. Then each Bitcoin needs to be worth $105,000.

This is just playing with numbers. It's also possible that people will develop lots of forms of credit pegged to bitcoin (though not backed by it), and that will limit the upside to Bitcoin's value.

This is an oversimplification, really.  It doesn't consider the effects of velocity of money on the trade value.  Bitcoin has the potential to have a very high average velocity, as compared to currency fiat currencies.  The effect of a higher velocity is similar to the effects of expansion of credit, both of which temporarily lowers the trade value by increasing the apparent availability of the currency.

[SgtSpike]

Well, using US dollars to compare is always going to problematic because it is going to hell in a basket and is inflating way too fast to measure anything sensible against it.

How about you use gold grams (or ounces) since it will still be around when bitcoin matures and won't have inflated much by then.

Imagine Jimmy Rogers 95 yo and still going, crustily popping up on financial TV clip ;

"Ah, today I like the hard monies, gold, I'm buying gold, I'm buying bitcoins, I like bitcoins, also I'm buying silver .... , the hard monies are going to be the place to be in for the next little while, we all remember what became of the dollar in 2012 ..."

The dollar?  Inflating?  Right now?  Lol.   

Using US dollars, in terms of purchasing price TODAY, it really doesn't matter what inflation does to it tomorrow.  And for the purpose of discussion, it's a lot easier to maintain a grasp on the numbers if it is in USD.  After all, who knows what sort of purchasing power 6830 ounces of gold has, off the top of their heads?  Not many of us, that's for sure.  On the other hand, if someone says the have $10.3M, everyone knows exactly the sort of purchasing power it has right now.

[MoonShadow]

  After all, who knows what sort of purchasing power 6830 ounces of gold has, off the top of their heads?  Not many of us, that's for sure.  On the other hand, if someone says the have $10.3M, everyone knows exactly the sort of purchasing power it has right now.

If gold or bitcoins become the next international reserve currency, you will likely know roughly how much purchasing power 6830 ounces of gold or 6830 bitcoins would have.  Because you would be conditioned to think of value in reference to gold or bitcoins, as you have be conditioned to think of value in reference to the national fiat currencies.

[SgtSpike]

  After all, who knows what sort of purchasing power 6830 ounces of gold has, off the top of their heads?  Not many of us, that's for sure.  On the other hand, if someone says the have $10.3M, everyone knows exactly the sort of purchasing power it has right now.

If gold or bitcoins become the next international reserve currency, you will likely know roughly how much purchasing power 6830 ounces of gold or 6830 bitcoins would have.  Because you would be conditioned to think of value in reference to gold or bitcoins, as you have be conditioned to think of value in reference to the national fiat currencies.

But that's exactly my point.

When we're having these discussions, we should reference currencies that are most commonly known with regards to valuation.

[marcus_of_augustus]

But if they are changing rapidly in value, U$D is down 10% yoy to gold for last 10 years ... and that will likely be accelerating in the near future as the money printed the last 3 years blows the system apart, then why keep using a useless measuring stick?

[SgtSpike]

But if they are changing rapidly in value, U$D is down 10% yoy to gold for last 10 years ... and that will likely be accelerating in the near future as the money printed the last 3 years blows the system apart, then why keep using a useless measuring stick?

Because everyone knows TODAY what USD will buy TODAY.  It's understandable, changing as it may be.  No one knows what 683 ounces of gold will buy.  Everyone knows what $1M will buy.  Whether $1M will buy the same amount of stuff a year from now is not relevant to the discussion, because we are talking about purchasing power TODAY, not a year from now.

[FreeMoney]

But if they are changing rapidly in value, U$D is down 10% yoy to gold for last 10 years ... and that will likely be accelerating in the near future as the money printed the last 3 years blows the system apart, then why keep using a useless measuring stick?

Because everyone knows TODAY what USD will buy TODAY.  It's understandable, changing as it may be.  No one knows what 683 ounces of gold will buy.  Everyone knows what $1M will buy.  Whether $1M will buy the same amount of stuff a year from now is not relevant to the discussion, because we are talking about purchasing power TODAY, not a year from now.

I'd say a lot of people have no idea what a million will buy. Have you seen The Price is Right? People are routinely off by 20%+ when shown ~$50k worth of stuff. Most people probably think that $1M is worth about a million snickers bars.

I don't disagree that people think they know what money is worth, but that's largely an illusion that comes from being around it all the time. Valuing things correctly even in the familiar dollar is not trivial. What is trivial is doing a division from the known market rate of gold or BTC and then doing the hard part.

[ribuck]

This is an oversimplification, really.  It doesn't consider the effects of velocity of money on the trade value.  Bitcoin has the potential to have a very high average velocity...

Indeed Bitcoin may result in a much higher velocity of money than we are accustomed to. It's possible that, with Bitcoin, an employer could pay an employee every hour instead of every week (for example). And a store could pay their suppliers "item by item" instead of monthly.

But no matter how high the velocity of money, you still need a "float" so that you can buy a single item at once. The figures I used ($50 to $500) are just high enough that you could buy something like a TV or an air ticket from your wallet (rather than needing to use a credit card).

As I said though, it's "just playing with numbers". There are so many variables that no-one can predict accurately where the value of a bitcoin will end up.