The Free Market, a Real World Test Case

[Fizzgig]

It seems to me that after a few months now of solid volume and huge bidwalls, the price has become very stable. The longer the price stays at this level, the more distributed bitcoins become.

Is this a perfect real world example of a free market, one economists could study?

Will Bitcoin enjoy a steady price rise upward over long periods of time, or will another bubble form quickly and sell off, or will they fall steadily until the rampant inflation recedes?

With a growing number of people dollar-cost averaging their way into bitcoins, we will see if demand meets inflation.

This free, open, rampant speculation is what builds the stability of the currency. Enjoy Bitcoin.

[hazek]

Free market is a theory, a few principles as a prescription of how trade in a free market should be done but it doesn't say anything about the exact rules we human beings would naturally embrace following those principles.

In practice a free market is not really free. In practice a free market is a market regulated and constrained by market participants as oppose to a central authority with a monopoly on violence. And that is what Bitcoin is actually enjoying. We still have rules, we all are strongly against theft, we all are strongly against fraud, we all are strongly for honoring contracts and we deal with people who don't follow these few rules peacefully with ostracism.

[Haplo]

Lol the great bitcoin economy indeed. The largest industry in BTC is drugs, followed by gambling, followed by porn, then a file trading site and a few people selling trinkets on bitmit. At least some of the banks are decent, not including MtGox.

[kjlimo]

1) How does stable price equal distributed coin?

What if this is the perfect price for all the miners to sell to the one guy buying all the bitcoins?

2) Nothing is perfect

3) Anything can be studied.  I hope some economics student writes their thesis on bitcoin.  I kind of want to do this myself...

[ineededausername]

Lol the great bitcoin economy indeed. The largest industry in BTC is drugs, followed by gambling, followed by porn, then a file trading site and a few people selling trinkets on bitmit. At least some of the banks are decent, not including MtGox.

Decent, huh?  Why aren't drugs, gambling and porn decent, in Your Excellency's opinion?

[Vitalik Buterin]

Lol the great bitcoin economy indeed. The largest industry in BTC is drugs, followed by gambling, followed by porn, then a file trading site and a few people selling trinkets on bitmit. At least some of the banks are decent, not including MtGox.

A file trading site? Which one are you talking about there?

[evoorhees]

The longer the price stays at this level, the more distributed bitcoins become.

Not true at all. Steady price has no significant correlation to wealth distribution.

The steady price is important for people to be able to trust in the value-storage aspect of Bitcoin - the extent to which it's stable is the extent to which it can be used not only for wealth transfer but for wealth storage.

[evoorhees]

Lol the great bitcoin economy indeed. The largest industry in BTC is drugs, followed by gambling, followed by porn, then a file trading site and a few people selling trinkets on bitmit. At least some of the banks are decent, not including MtGox.

Of course those industries most tyrannized by the State will be the first adopters of a currency which permits free individuals to remove themselves from that burden.

What's your point?

It should be expected that Bitcoin will move along a curve of adoption - with happy, complacent status quo markets being at the end of that curve, and disrupted, alienated markets being at the beginning.

[Serge]

Lol the great bitcoin economy indeed. The largest industry in BTC is drugs, followed by gambling, followed by porn, then a file trading site and a few people selling trinkets on bitmit. At least some of the banks are decent, not including MtGox.

don't know about drugs, gambling is somewhat adopted still no big sites where anyone can gable with bitcoins. porn hasn't adopted Bitcoin at all

[Haplo]

A file trading site? Which one are you talking about there?

coindl

Of course those industries most tyrannized by the State will be the first adopters of a currency which permits free individuals to remove themselves from that burden.

What's your point?

True, but my point is that besides a couple of exchanges, hardly anyone who can call themselves a businessperson has done anything decent with BTC yet. The more BTC gets a reputation as a "drugs gambling and porn" currency, the less the chances of anybody taking it seriously.

Sure, I believe people should have the freedom to decide to do whatever they want to do. However, I certainly wouldn't call drugs, gambling and porn anything close to the best things in life. If I say "let's go start a utopian society" I would hope your response wouldn't immediately be "Yes! Let's fill it with drugs, gambling and porn!".

It should be expected that Bitcoin will move along a curve of adoption - with happy, complacent status quo markets being at the end of that curve, and disrupted, alienated markets being at the beginning.

I think you have the totally wrong idea about economics. There's no such thing as a "complacent status quo" market. For the consumer a market might appear to be offering the same or more stuff for their dollar, for businessmen it means struggling continuously to make sure your business is efficient and competitive and still exists next year. The efficiency of the free market comes directly from being a few inches from sudden death at all times, and from intelligent businessmen figuring out better/cheaper ways to make it happen. As soon as a market settles into a "happy, complacent status quo" sort of phase, it's time to invest your money somewhere else.

The worst problem faced by economies and currencies with small market caps is wild price swings and fluctuations that occur when capital jumps into or out of the currency. Although the effect is much less with a large market cap, BTC is likely to face that sort of fluctuation until it becomes obsolete. Promoting as much slow, dedicated growth as possible, and discouraging rampant speculation can reduce the problem, but as soon as some idiot like Krugman mentions the word "bitcoin" it's right back to violent swings. Unfortunately, if it takes on a "straight up" kind of curve for a prolonged period, interest rates and RoI fall into the negatives, and the economy stops in favor of hoarding the currency. Fortunately, that is only likely to happen if some idiot exchange starts offering real, resellable options contracts rather than the current, less speculative strict forwards.

don't know about drugs, gambling is somewhat adopted still no big sites where anyone can gable with bitcoins. porn hasn't adopted Bitcoin at all

Silk Road, the largest economic usage of BTC, is about 99% drugs and 1% money laundering. "Gambling" didn't adopt bitcoin, bitcoin adopted gambling. Same with porn.
girls gone bitcoin

Regardless of whether big industries adopt it or not, the currency is what you can (directly) buy with it, and that list isn't terribly long.

[benjamindees]

1) How does stable price equal distributed coin?

Stable price means supporting more businesses with more complex supply chains, which are more likely to offer the quality of goods and services demanded by those with the most Bitcoins, which leads to coin distribution.