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Author Topic: Is crytocurrency hyperinflationary?  (Read 4606 times)
robm
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May 05, 2011, 03:23:04 PM
 #1

Bitcoin supply is limited. So far so good.

The supply of alternative, competing cryptocurrencies is unlimited. Very bad.

Imagine a world with dozens or hundreds of competing cryptocurrencies. They would each have minimal value.

Bitcoin doesn't look like a hard currency solution to government money printing. It's the ultimate soft currency.

Bitcoins may have a brief moment in the sun as media coverage inflates a bubble of interest. But I doubt it's sustainable.

I'm sure this simple observation will grate with many of you. Sorry.

Spare me your rants. Share your solutions.
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kiba
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May 05, 2011, 03:26:21 PM
 #2

Not a problem.

All the other currencies have to compete and distinguish themselves from the competition. Bitcoin have a massive first mover advantage that will be very hard to dislodge.


robm
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May 05, 2011, 03:28:10 PM
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Not a problem.

All the other currencies have to compete and distinguish themselves from the competition. Bitcoin have a massive first mover advantage that will be very hard to dislodge.



Yes you might be right. Time will tell.
wumpus
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May 05, 2011, 03:45:19 PM
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Quote
Spare me your rants. Share your solutions.
Yes, it might blow up in your face. The most obvious solution is to just not invest money in it. It's not meant as a speculation vehicle anyway, but to trade with.

Once services are available that are useful to you, denominated in BTC, you can use it to pay for them. Until then, just sit back and wait where it goes.

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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May 05, 2011, 04:08:09 PM
 #5

There will be competitors.

The hyperinflationary ones won't last.

The winning p2p cryptocurrency might not be Bitcoin, but the concept of a p2p cryptocurrency offers new features that are in high demand with a lot of people in the world, so it's more than just a fun new toy that will lose its appeal after the hype is over.


Why are you so absolutist about Bitcoin's future?  Complete failure <=> Huge success  is a false dichotomy.

There is no reason that Bitcoin can't remain sustainable as a secondary currency such as the CHF or silver, or even as a niche product.


One of the closest things to Bitcoin prior to its arrival was Liberty Reserve.

According to  Google Trends, Bitcoin has already overtaken Liberty Reserve in popularity.
http://www.google.ch/trends?q=bitcoin%2C+%22liberty+reserve%22

Liberty Reserve has been a successful niche product for several years now.  Why can't Bitcoin?

GPG ID: FA868D77   bitcoin-otc:forever-d
robm
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May 05, 2011, 04:58:39 PM
 #6

There will be competitors.



Why are you so absolutist about Bitcoin's future?  Complete failure <=> Huge success  is a false dichotomy.

There is no reason that Bitcoin can't remain sustainable as a secondary currency such as the CHF or silver, or even as a niche product.



Not absolutist, just questioning.

I agree it could well have a niche that lasts for a long time. So not a "complete failure", as you put it.

But there just seem to be good reasons to believe it's unlikely to go mainstream, or be a "huge success".

robm
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May 05, 2011, 05:00:12 PM
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Spare me your rants. Share your solutions.
Yes, it might blow up in your face. The most obvious solution is to just not invest money in it. It's not meant as a speculation vehicle anyway, but to trade with.

Once services are available that are useful to you, denominated in BTC, you can use it to pay for them. Until then, just sit back and wait where it goes.


This makes sense.

But if everyone does this then it never gains the network effects to make it successful.

So you still need a lot of people to take the plunge.
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May 05, 2011, 05:10:22 PM
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But if everyone does this then it never gains the network effects to make it successful.

So you still need a lot of people to take the plunge.
There will always be people with more risk appetite.

How big would a niche have to be to be a "success"? Even if it targeted only fringe libertarians, there'd be enough of those on the world to keep it alive.

The current price might not be sustainable. But I'm pretty sure that BTC will eventually settle at some price.


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.
robm
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May 05, 2011, 05:12:40 PM
 #9

@forever-d

Put another way, bitcoin's success could sow the seeds of its ultimate failure.

Copycats and government intervention in other words.
wumpus
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May 05, 2011, 05:17:28 PM
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Copycats and government intervention in other words.
OK, let's say you forked the bitcoin chain right now. Would you expect robm-coin to be more succesful than the main chain? If so, why? If not, why would other copycats be better off?

If you don't agree on a currency you can't trade, it's as easy as that.  Which means that it pays off to use a chain/cryptocurrency that other people use as well.

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.
robm
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May 05, 2011, 05:21:40 PM
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How big would a niche have to be to be a "success"? Even if it targeted only fringe libertarians, there'd be enough of those on the world to keep it alive.



A niche would be a "success", but by definition not "huge".

My business targets investors outside the mainstream Wall Street advice. Many would even call themselves "fringe libertarians", including a lot of the people I work with. The guy I share office space with even calls himself an anarchist - basically a libertarian under his definition.

Anyway, it's a very successful niche. But we'll probably never have more than a few thousand customers worldwide.

Some of the stuff circulating about bitcoin seems to point to it replacing all fiat currency and taking over the monetary world. I've learnt quickly that I should ignore that and focus on more realistic aspirations.
robm
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May 05, 2011, 05:24:29 PM
 #12

Copycats and government intervention in other words.
OK, let's say you forked the bitcoin chain right now. Would you expect robm-coin to be more succesful than the main chain? If so, why? If not, why would other copycats be better off?

If you don't agree on a currency you can't trade, it's as easy as that.  Which means that it pays off to use a chain/cryptocurrency that other people use as well.


Who's to say. It would be organic. It will be fascinating to see how it works out. Unfettered libertarian capitalism, for now at least.

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May 05, 2011, 05:25:02 PM
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The specific reason that cryptocurrencies like BitCoin won't proliferate without heavily differentiated features is security.  Blockchain-based systems become more secure the more people use them, so there isn't a very good reason to use anything but the most secure one out there.  This means that there are very few if any equilibria where similar cryptocurrencies will coexist.  I could see fiatcoins (nondistributed cryptocurrencies with single trusted government issuers like today's paper currencies) and bitcoin carving out separate niches, but for almost any feature that proves worthwhile in a distributed currency it's very likely bitcoin would just add this feature, immediately making that the most secure way to utilise it.  It makes very little sense for there to ever be a competing version of BitCoin unless it is fundamentally different in some respect.

None of this even takes into account the network effects of being already trusted, already accepted, software and services being available for it, etc.  Why weren't there many competing shell currencies in 19th century Africa?  Because only one made sense for a given society at a given time, despite the trivial possibility of more.

Some of the stuff circulating about bitcoin seems to point to it replacing all fiat currency and taking over the monetary world. I've learnt quickly that I should ignore that and focus on more realistic aspirations.
Good!  Such extreme changes in our economic systems are at best very speculative and much longer term (decades or centuries).

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robm
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May 05, 2011, 05:40:25 PM
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The specific reason that cryptocurrencies like BitCoin won't proliferate without heavily differentiated features is security.  Blockchain-based systems become more secure the more people use them, so there isn't a very good reason to use anything but the most secure one out there.  This means that there are very few if any equilibria where similar cryptocurrencies will coexist.  I could see fiatcoins (nondistributed cryptocurrencies with single trusted government issuers like today's paper currencies) and bitcoin carving out separate niches, but for almost any feature that proves worthwhile in a distributed currency it's very likely bitcoin would just add this feature, immediately making that the most secure way to utilise it.  It makes very little sense for there to ever be a competing version of BitCoin unless it is fundamentally different in some respect.

None of this even takes into account the network effects of being already trusted, already accepted, software and services being available for it, etc.  Why weren't there many competing shell currencies in 19th century Africa?  Because only one made sense for a given society at a given time, despite the trivial possibility of more.

Thanks this is helpful perspective.

You've just provoked another thought though. If bitcoin is super successful in the crytocurrency space, taking say 90% market share in 10 years time, then it will be time for the antitrust regulators to start getting heavy.

Maybe the technology makes this hard. Maybe the supranationality makes it hard. Maybe the de-centralisation makes it hard. But where there's a will there's usually a way.

Bitcoin hoarding might be an issue as well. Price deflation (measured in bitcoins) would make it a bad decision to ever spend them unless you have no alternative.

Lower transaction volumes would reduce its utility as a form of exchange. Then it becomes more of an investment tool than a transactional tool. Plus it would gravitate towards the hands of a few rich people, as with all forms of wealth since time immemorial.
tomcollins
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May 05, 2011, 05:46:56 PM
 #15

Bitcoin supply is limited. So far so good.

The supply of alternative, competing cryptocurrencies is unlimited. Very bad.

Imagine a world with dozens or hundreds of competing cryptocurrencies. They would each have minimal value.

Bitcoin doesn't look like a hard currency solution to government money printing. It's the ultimate soft currency.

Bitcoins may have a brief moment in the sun as media coverage inflates a bubble of interest. But I doubt it's sustainable.

I'm sure this simple observation will grate with many of you. Sorry.

Spare me your rants. Share your solutions.

This is my #2 worry, besides a government crackdown.  Might even be #1.  Imagine being able to instantly create something that was just like gold, but green.  Then purple.  Then red.  Then any other color.  And there was just as much of that to be mined as there was gold.  And then repeat 1000 times.  Gold isn't looking that great then.
tomcollins
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May 05, 2011, 05:49:34 PM
 #16


Bitcoin hoarding might be an issue as well. Price deflation (measured in bitcoins) would make it a bad decision to ever spend them unless you have no alternative.

Lower transaction volumes would reduce its utility as a form of exchange. Then it becomes more of an investment tool than a transactional tool. Plus it would gravitate towards the hands of a few rich people, as with all forms of wealth since time immemorial.

Unless you had no alternative, or ACTUALLY WANTED SOMETHING.  Gee, I'll just live in a cardboard box hoarding my bitcoins since tomorrow they might be worth more.  I guess I won't eat today anything more than cat food and out of a dumpster since I have to eat something, but the I'll save the rest for the magical day that I actually want to spend my bitcoins.
Garrett Burgwardt
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May 05, 2011, 05:51:07 PM
 #17

You can make another currency based off of bitcoin, but it wouldn't have the economic backing that bitcoin does. It wouldn't have the network security that bitcoin does. It wouldn't be worth what bitcoin was worth, because it isn't bitcoin. That's like worrying that the US Dollar will hyperinflate because other countries make their money out of cloth with security features as well.

As for anti-trust, there's no trust or company to go after, just a protocol. That's like trying to break up gasoline burning cars because they're almost a monopoly.

All of these arguments are nonsense.

Especially, by the way, the deflationary spiral one. We've hashed that one over way too many times - learn to search, even just the wiki has a dedicated page for it.
robm
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May 05, 2011, 05:51:28 PM
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This is my #2 worry, besides a government crackdown.  Might even be #1.  Imagine being able to instantly create something that was just like gold, but green.  Then purple.  Then red.  Then any other color.  And there was just as much of that to be mined as there was gold.  And then repeat 1000 times.  Gold isn't looking that great then.

You just reminded me of a great "Blackadder" episode in series 2, where Lord Percy tries his hand at alchemy.

He succeeds in creating a blob of "purest green".

Thanks.
tomcollins
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May 05, 2011, 05:51:34 PM
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Copycats and government intervention in other words.
OK, let's say you forked the bitcoin chain right now. Would you expect robm-coin to be more succesful than the main chain? If so, why? If not, why would other copycats be better off?

If you don't agree on a currency you can't trade, it's as easy as that.  Which means that it pays off to use a chain/cryptocurrency that other people use as well.


They could be more successful if they were easier to use, easier to obtain.  Perhaps the distribution through mining was too steep with Bitcoin.  Perhaps someone creates a slick new client for theirs that is easier for casual users to have.  Perhaps someone markets it better.  I guess you guys are all on Friendster since why would anyone ever displace them since they were first to market.
robm
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May 05, 2011, 06:00:45 PM
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You can make another currency based off of bitcoin, but it wouldn't have the economic backing that bitcoin does. It wouldn't have the network security that bitcoin does. It wouldn't be worth what bitcoin was worth, because it isn't bitcoin. That's like worrying that the US Dollar will hyperinflate because other countries make their money out of cloth with security features as well.

As for anti-trust, there's no trust or company to go after, just a protocol. That's like trying to break up gasoline burning cars because they're almost a monopoly.

All of these arguments are nonsense.

Especially, by the way, the deflationary spiral one. We've hashed that one over way too many times - learn to search, even just the wiki has a dedicated page for it.

New countries a rarely created or destroyed. Only after major upheavals. So the numbers of "normal" currencies are in more or less fixed supply, even if the quantity of "notes" of each of them isn't.

Cryptocurrencies can be created on a whim, just like bitcoin was.

So I don't think your analogy works.

NB you'll have more success spreading the word if you don't hack the arms and legs off potential converts.
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