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Author Topic: Disadvantages of Bitcoin why price might drop.  (Read 6423 times)
steelhouse
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April 29, 2011, 06:42:29 PM
 #1

Seems things are rallying too fast.   Here are some reason why bitcoin could crash. 

1. If you trade in bitcoins you still have to find a buyer of them if you want a pizza.  Thus you will have to use a service to exchange your money to dollars on their terms.  If you drive to a bitcoin meet-up you are still wasting gas to do the exchange.  You will have a middleman more often.

2. There is a risk of lost, stolen, or disk failure wallets.  Yes you can lose your wallet in real life, but you usually find it under the bed. 

3. Shops are slow in adjusting prices, if the price rises and their store might have prices that are 2 months old and they seem expensive.   What if prices crash 90% will the shop honor the price?  I doubt it they buy all their materials in USD, CAD, RUB, or EUD.

4. There is no record of exchange.  What if you buy a car and you go to pick it up and there is no car or address?  You are out 10,000 BTC.  If you buy something over the internet even for 1 BTC, if they don't send it you are out of luck.

5. The churning of your hard-drive is already annoying to run the bitcoin client.  If the economy gets 10x bigger that churning is going to be 10x bigger.  Are there any stats to Mb per day you waste on hard disk space?  What about bandwidth?

6. In the end you might have to end up using a bitcoin bank anyways where you store your bitcoins to take the risk out of lost wallets.  Then you run the risk that the goldsmiths, take your money and spend it loans and blow.

7. There is always the risk of someone destroying the network or finding a flaw and taking the system down.  Since BTC could be used for money laundering, it might be a big goal of the governments of the world to take it down.

8. What if people stopped mining BTC, or the euphoria of a deflationary currency would people lose interest in it?

I suppose you say all these are already factored into the price of BTC.   
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April 29, 2011, 06:59:04 PM
 #2

Lol, those are definitely not all factored into the price. Most of them don't factor into reality. I especially enjoyed 5 and 8.

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April 29, 2011, 07:06:13 PM
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Seems things are rallying too fast.   Here are some reason why bitcoin could crash.

The terms you use are nebulous. How do you know it's "rallying too fast". How do you define a Bitcoin "crash"?

Quote
1. If you trade in bitcoins you still have to find a buyer of them if you want a pizza.  Thus you will have to use a service to exchange your money to dollars on their terms.  If you drive to a bitcoin meet-up you are still wasting gas to do the exchange.  You will have a middleman more often.

This is only true so long as things are not sold directly for Bitcoins. As more individuals and business adopt it as a payment method, this will be less and less of an issue.

Quote
2. There is a risk of lost, stolen, or disk failure wallets.  Yes you can lose your wallet in real life, but you usually find it under the bed.

If you encrypt and back up your wallet, this should not really be an issue. It would be very helpful if there were robust tools to enable this. Additionally, there are many ways to lose physical money that don't apply to Bitcoin.

Quote
3. Shops are slow in adjusting prices, if the price rises and their store might have prices that are 2 months old and they seem expensive.   What if prices crash 90% will the shop honor the price?  I doubt it they buy all their materials in USD, CAD, RUB, or EUD.

Retailers can peg their prices to an exchange. Right now there is still a very low volume on the exchange, and prices fluctuate, but that's the cost of accepting Bitcoins right now. The upside is that the exchange rate could potentially be much higher, and they are quite easy to accept. Again, this is only an issue while prices are first set in USD, and then converted to BTC.

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4. There is no record of exchange.  What if you buy a car and you go to pick it up and there is no car or address?  You are out 10,000 BTC.  If you buy something over the internet even for 1 BTC, if they don't send it you are out of luck.

Everyone has  copy of the block chain. You can indeed prove that you sent 10,000 BTC to the address specified by the seller. Using ClearCoin or other escrow services, and only trading with trusted individuals (see the OTC WOT) can mitigate risks of fraud.

Quote
5. The churning of your hard-drive is already annoying to run the bitcoin client.  If the economy gets 10x bigger that churning is going to be 10x bigger.  Are there any stats to Mb per day you waste on hard disk space?  What about bandwidth?

I agree, this can be annoying. There are two types of clients that exist in theory but not practice. The first is the light weight client, which only downloads block headers. This would be a big improvement over the standard clients, which has to store full blocks. There is also the ultra-lightweight client which would need to store even less information, but would require some method of receiving data outside the normal Bitcoin channels.

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6. In the end you might have to end up using a bitcoin bank anyways where you store your bitcoins to take the risk out of lost wallets.  Then you run the risk that the goldsmiths, take your money and spend it loans and blow.

There's nothing wrong with Bitcoin banks, not even fractional reserve ones. Before central banking, banks were kept from inflating the money supply too much by the threat of bank runs. It would be the same for BTC backed bank notes, as there is and can be no central reserve to create Bitcoins out of thin air.

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7. There is always the risk of someone destroying the network or finding a flaw and taking the system down.  Since BTC could be used for money laundering, it might be a big goal of the governments of the world to take it down.

That is true, but Bitcoin was designed to be resistant to attacks. Cryptographic breaks would most likely also apply to all other financial transactions as well, so I don't see it as a big thing. As far as governments go, I rather doubt they will be able to wield much of their power at Bitcoin. They may label it as a haven of terrorists, pedophiles, and money launderers, but I think it will be too late by the time they bring out the propaganda machine.

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8. What if people stopped mining BTC, or the euphoria of a deflationary currency would people lose interest in it?

I don't think these are very likely scenarios.
rezin777
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April 29, 2011, 07:08:00 PM
 #4

Lol, those are definitely not all factored into the price. Most of them don't factor into reality. I especially enjoyed 5 and 8.

I enjoyed 2 considering that would make the price of bitcoins go up! (lost or destroyed, not so much stolen)
WhatIf
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April 29, 2011, 07:11:29 PM
 #5

Tell me, would you rather save money or make money?  That type of cynicism you've got there is great for playing it safe and pinching pennies, but if you really want to make money then you better BUY while you still can!  This train's a movin' with or without you!   Grin
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April 29, 2011, 07:21:24 PM
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2. There is a risk of lost, stolen, or disk failure wallets.  Yes you can lose your wallet in real life, but you usually find it under the bed. 

Common practice if you have a large amount of coins should be having one wallet with most of your savings, while having a separate spending wallet, or similar setup. Encrypting and backing up would be just as safe as a bank account, especially if you put it in a safety deposit box. Is encrypting and backing up your wallet harder than the first time you learn about banking? I'd make an argument that it's even safer and easier than trying to teach a kid how to open a checking/savings account.

steelhouse
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April 29, 2011, 08:03:00 PM
 #7

I agree, this can be annoying. There are two types of clients that exist in theory but not practice. The first is the light weight client, which only downloads block headers. This would be a big improvement over the standard clients, which has to store full blocks. There is also the ultra-lightweight client which would need to store even less information, but would require some method of receiving data outside the normal Bitcoin channels.

Aren't full blocks required to assure the system of bitcoin stays up. How much disk space does a block take up now?
rezin777
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April 29, 2011, 08:40:00 PM
 #8

Aren't full blocks required to assure the system of bitcoin stays up. How much disk space does a block take up now?

See #7 in the bitcoin.pdf.
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April 29, 2011, 10:07:51 PM
 #9

1. If you trade in bitcoins you still have to find a buyer of them if you want a pizza.  Thus you will have to use a service to exchange your money to dollars on their terms.  If you drive to a bitcoin meet-up you are still wasting gas to do the exchange.  You will have a middleman more often.
As BitterTea mentioned, this is just a problem for the early adopters. The problem goes away the more vendors start accepting bitcoins directly. I don't think the bitcoin system was ever meant to operate with a middleman forever!

Quote
2. There is a risk of lost, stolen, or disk failure wallets.  Yes you can lose your wallet in real life, but you usually find it under the bed. 
Encryption, backing up, etc. Put a copy on a flash drive, then you can find it under your bed right next to your leather one. There's also the option of using a bank, which I'm sure will become a much more attractive option the more time our current banks have to mature and new banks have to pop up. Heck, I've already begun the testing stages of a community bank of my own that bests MyBitcoin and Instant Wallet in certain regards (though, admittedly not others.)

Quote
3. Shops are slow in adjusting prices, if the price rises and their store might have prices that are 2 months old and they seem expensive.   What if prices crash 90% will the shop honor the price?  I doubt it they buy all their materials in USD, CAD, RUB, or EUD.
Yeah. We sure could use a service that automatically adjusts a person's prices for them based on the Mt. Gox exchange rate. (I'm pretty sure MyBitcoin's shopping cart interface does exactly that.)

I feel like this would be more of a problem for places like Bidding Pond. On the other hand, Bidding Pond could act as a price stabilizer of sorts if it gets big enough. After all, if prices keep fluctuating too much either the fluctuation will have to go or those lengthy auctions will.

Quote
4. There is no record of exchange.  What if you buy a car and you go to pick it up and there is no car or address?  You are out 10,000 BTC.  If you buy something over the internet even for 1 BTC, if they don't send it you are out of luck.
BitterTea covered this one pretty well.

Quote
5. The churning of your hard-drive is already annoying to run the bitcoin client.  If the economy gets 10x bigger that churning is going to be 10x bigger.  Are there any stats to Mb per day you waste on hard disk space?  What about bandwidth?
Ultra-lightweight and light-weight clients. Also, banks. Your hard drive does absolutely no churning when there's a bank churning for you!

Quote
6. In the end you might have to end up using a bitcoin bank anyways where you store your bitcoins to take the risk out of lost wallets.  Then you run the risk that the goldsmiths, take your money and spend it loans and blow.
Okay, what BitterTea said, plus: I'm starting a community run bank! It's called Bitcoin Pouch! Right now it's only running on testnet so people can play around with it using fake bitcoins and not have to worry about losing them, but once it's in production I intend to run it under a system of communal governance and accountability. Haven't decided on a model yet. Thinking about having audits every once in a while to prove all the bitcoins are still there. Maybe an annual Run on the Bank event, where everyone withdraws their bitcoins all at once? Seriously, if you insist on complete openness, there's no reason banksters ever need arise again. They'll try, but hey: vigilance and freedom are positively correlated. Wink

Quote
7. There is always the risk of someone destroying the network or finding a flaw and taking the system down.  Since BTC could be used for money laundering, it might be a big goal of the governments of the world to take it down.
Yup. That might hurt the price. Then again it might help it. No telling what actions might be taken and what effect those actions might have. But one thing I do know: taking down the Bitcoin Network (the Bitnet?) will be about as hard as taking down the Internet or, if we're feeling a little less grandiose, BitTorrent.

Quote
8. What if people stopped mining BTC, or the euphoria of a deflationary currency would people lose interest in it?
Yeah. If everyone in the Bitcoin Community were to give the currency a vote of no confidence and walk away for good, THAT would kill bitcoins dead. Okay, do you know what that means? We have created the first truly free and democratic system of currency ever. So... if you were to tell me you think every person in the community is capable of simply walking away from this, well, I'd kinda look at you funny and say I disagreed. Because really, it wouldn't just take the miners giving up. If the miners give up, then the difficulty plunges and we're back to where CPU mining is profitable. The folks who still believe in it will keep that going as best they can. Everyone would have to leave. Or perhaps everyone but two, since a currency needs three people using it to be useful.

This is not a very likely scenario. But hey, maybe that's just me and BitterTea.

</rant>
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April 29, 2011, 10:12:30 PM
 #10

WHAT IF THE WORLD BLOWS UP!!!! Sad
ryepdx
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April 29, 2011, 10:45:30 PM
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WHAT IF THE WORLD BLOWS UP!!!! Sad

+1.   Cheesy
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April 30, 2011, 04:16:58 AM
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9. Intel releases a quantum CPU in Q4 2011.
chickenado
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April 30, 2011, 08:30:13 AM
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1. You can't buy a pizza with gold either.

2. Wallet encrypted and stored in three places including a cloud storage account is safer than any physical wallet can be.  It's not rocket science - it's only a matter of educating people.

3. Stores can hedge if that is a big problem for them.  Or they can just hang on to them until Bitcoin goes mainstream.

4. Nothing stopping the two parties from using an escrow service or web of trust. Except unlike Paypal and CCs,  it's not mandatory.

5. Regular users who switch off the client don't compromise network integrity. The network can easily do its job with miners alone.

6. Or you just sit down for a few days and educate yourself. See (2). It's a worthwile investment considering what's at stake, don't you think?

7. Yes, it's still a beta technology. There are risks and failure scenarios. Don't invest in Bitcoin if you can't affort to lose it.

8. Bitcoin fulfils some real, practical needs that no other technology fulfils at the moment. Even if the euphoria dies down, there will be a core of users who buy Bitcoin for sober reasons.


Yes, all of these are factored into the price, as well as future expectations of all of these.
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April 30, 2011, 10:59:26 AM
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I agree, this can be annoying. There are two types of clients that exist in theory but not practice. The first is the light weight client, which only downloads block headers. This would be a big improvement over the standard clients, which has to store full blocks. There is also the ultra-lightweight client which would need to store even less information, but would require some method of receiving data outside the normal Bitcoin channels.

Aren't full blocks required to assure the system of bitcoin stays up. How much disk space does a block take up now?

technically, the full block chain is only needed for someone who is mining.  for simply doing transactions, the headers-only version of the block chain is perfectly adequate.

at this time, the average block size since the start is about 1.2KB.  the most recent 20 blocks average to 6.5KB
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April 30, 2011, 11:47:58 AM
 #15

WHAT IF THE WORLD BLOWS UP!!!! Sad
BITCOIN WOULD CRASH!!! We must send the contents of our wallets into space immediately, in the hope an alien civilization will continue mining!



 

Bitcoin Core developer [PGP] Warning: For most, coin loss is a larger risk than coin theft. A disk can die any time. Regularly back up your wallet through FileBackup Wallet to an external storage or the (encrypted!) cloud. Use a separate offline wallet for storing larger amounts.
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April 30, 2011, 02:04:42 PM
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+1 to sending wallets into space, lol

If there is some sort of crash (as in value goes down alot and no shops are willing to accept btc anymore) at least all the hardcore miners could host massive FPS LAN parties with their rigs !
But I think individuals will still rely on in for micro transactions and trading, as it is a great tool, being decentralized and sort of anonymous. 
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April 30, 2011, 02:53:49 PM
 #17

I'm not so sure! Yeah, my mining rigs can mine bitcoins, but I can barely open firefox on one. (1.6Ghz single core CPU with 1 Gig of RAM - so slow)
And, did you ever find a block? That'd be like mining gold and diamonds with a toothpick.
Quote
But I think individuals will still rely on in for micro transactions and trading, as it is a great tool, being decentralized and sort of anonymous. 
Exactly. IMO, the only thing that would completely destroy bitcoin would be if an unfixable, retroactively exploitable, mathematical flaw was found in the block hashing/verification algorithm.

Bitcoin Core developer [PGP] Warning: For most, coin loss is a larger risk than coin theft. A disk can die any time. Regularly back up your wallet through FileBackup Wallet to an external storage or the (encrypted!) cloud. Use a separate offline wallet for storing larger amounts.
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April 30, 2011, 06:46:26 PM
 #18

Also in the relatively distant future quantum computers might be a threat (though I am not sure about it).
tomcollins
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April 30, 2011, 08:53:55 PM
 #19

Seems things are rallying too fast.   Here are some reason why bitcoin could crash. 

1. If you trade in bitcoins you still have to find a buyer of them if you want a pizza.  Thus you will have to use a service to exchange your money to dollars on their terms.  If you drive to a bitcoin meet-up you are still wasting gas to do the exchange.  You will have a middleman more often.

2. There is a risk of lost, stolen, or disk failure wallets.  Yes you can lose your wallet in real life, but you usually find it under the bed. 

3. Shops are slow in adjusting prices, if the price rises and their store might have prices that are 2 months old and they seem expensive.   What if prices crash 90% will the shop honor the price?  I doubt it they buy all their materials in USD, CAD, RUB, or EUD.

4. There is no record of exchange.  What if you buy a car and you go to pick it up and there is no car or address?  You are out 10,000 BTC.  If you buy something over the internet even for 1 BTC, if they don't send it you are out of luck.

5. The churning of your hard-drive is already annoying to run the bitcoin client.  If the economy gets 10x bigger that churning is going to be 10x bigger.  Are there any stats to Mb per day you waste on hard disk space?  What about bandwidth?

6. In the end you might have to end up using a bitcoin bank anyways where you store your bitcoins to take the risk out of lost wallets.  Then you run the risk that the goldsmiths, take your money and spend it loans and blow.

7. There is always the risk of someone destroying the network or finding a flaw and taking the system down.  Since BTC could be used for money laundering, it might be a big goal of the governments of the world to take it down.

8. What if people stopped mining BTC, or the euphoria of a deflationary currency would people lose interest in it?

I suppose you say all these are already factored into the price of BTC.   

steelhouse
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April 30, 2011, 10:32:28 PM
 #20

I just thought of a horrible reason for bitcoin.  I think I read about it somewhere else already.  It is a waste of electricity.  There is no reason someone can't make a centralized currency with 21,000,000 of the currency outstanding and use only 1 KW for the entire safe secure system.

BTC is approaching 1000 Gh/s.  At 2Mh per watt.  That means 500 KW to run the current system, enough for a 100 homes.

No Termites. 5% of the crust is iron. Wont burn. Wont rot.
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