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Author Topic: Bitcoins are most like shares of common stock  (Read 6539 times)
epaulson
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August 17, 2010, 06:45:18 PM
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There has been a lot of debate about what Bitcoins are -- i.e. currency vs. commodity. Also there has been a lot of debate about inflation vs. deflation with respect to Bitcoins, whether people would lend them, at what rates, etc.

I think the most apt description of Bitcoins is that they are shares of stock in this communal Bitcoin enterprise we are undertaking. It is a lot like being part of a company (right now a very small company) and being paid in stock shares. There are a fixed number of Bitcoins, as there are a fixed number of shares in a company (barring new issues/etc.).

The primary value of Bitcoins right now is the hope that they will someday be worth significantly more than they are right now. For that to happen, the Bitcoin enterprise as a whole needs to gain collective value. We, as employee/owners of Bitcoin need to generate that added value. The most obvious way is to facilitate internet commerce by bartering shares of Bitcoin for other goods. The collective computational effort of all the employee/owners helps ensure that the barter is fair by keeping a record of each transaction. The individual efforts of some Bitcoiners are helping to make the barter of Bitcoins easier or more useful.

Regarding lending/borrowing of Bitcoins, to me it is analogous to lending/borrowing stock. The primary reason to borrow Bitcoins would be because you think they are overvalued and will be worth less when you have to return them. When you borrow the Bitcoins, you can sell them now (barter them now) and hopefully it will cost you less to buy them back at a later date so that you can return them to your lender (probably plus a fee).

In essence, Bitcoins are like a "direct public offering" of stock in the Bitcoin enterprise.
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Red
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August 17, 2010, 07:11:55 PM
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I want to be the first to say "No, they are not!"

I'll edit this to support that statement later. :-)

--- Edit ---

It is very important to any new venture to NOT define it in terms of a well known scam. No one here would say bitcoin is like a Ponzi scheme except without the scam part.

But that is what you are doing by saying, it's like issuing stock in a corporation, except without all that bother of actually creating a product. Let's just consider the stock the product and get right to selling it! It's a limited edition product, so its price will vary based upon supply and demand.

Trust me, that metaphor has been used for thousands of scams. It is equivalent to a "red flag" warning to all authorities.

You are really much better saying bitcoins are like sets of collectable poker chips. Some people will want them, some will not. If lots of people want them you can sell each poker chip separately.
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August 17, 2010, 07:27:07 PM
 #3

This is by far the best way to think about bit coins.  It clearly explains why they have value, where the value comes from (productive employee/owners).  

The only reason not to think about it this way is legal issues regarding issuing stock.   But this is the fundamental problem with all regulations, there are always "multiple ways to think about the same thing".  Changing the description does not change the nature of things though.


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August 17, 2010, 07:35:26 PM
 #4

Stock represents a "share" of ownership where the sum of all shares equals 100%

Thus each bitcoin represents a percentage of the total.

Bit coins have a "market cap" of $1.38M

The only "moral" inflation is a "stock split".

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August 17, 2010, 07:42:49 PM
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Bit coins have a "market cap" of $1.38M

1.38M BTC right? It is much less in USD at the moment I think.
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August 17, 2010, 07:58:15 PM
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I think the most apt description of Bitcoins is that they are shares of stock in this communal Bitcoin enterprise we are undertaking. It is a lot like being part of a company (right now a very small company) and being paid in stock shares. There are a fixed number of Bitcoins, as there are a fixed number of shares in a company (barring new issues/etc.).



This is not quite right either, I think.  However, I have heard the explaination that the US FRN is akin to a national stock with a reverse dividend, so if this manner of thinking about it helps some people wrap their heads around it, then I won't object.  That is, other than to say that this is an analogy only.

Personally, I don't think that there is anything we really can compare Bitcoins to that anyone really would have any prior experience with.  Bitcoin is something altogether new in the realm of trade.  It is a solution to a set of problems, and (potentially) serves as a solution well.  I don't, personally, think that it's a good idea to compare Bitcoin to *anything*.  Expecially since most people, including most people that seem to post often on this forum, lack a true understanding of what these other comparitive things are.  The best thing to say to describe Bitcoin is to talk about *Bitcoin*, and accurately describe how the system works as well as what it was designed to accomplish. 


Think about this, children have experience with money very young, but have you ever tried to explain what money actually is to a child?  Complete understanding of a monetary system is not a requirement of it's successful use.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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August 17, 2010, 08:08:33 PM
 #7

Bit coins have a "market cap" of $1.38M

1.38M BTC right? It is much less in USD at the moment I think.


Yeah, I don't know where he got that from.

3.75M BTC have been "released" The "marginal bitcoin" is trading for about 7 cents right now. I don't really know if it's useful to multiply those numbers together, but if you do you don't get $1.38M anyway.

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August 17, 2010, 10:16:14 PM
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Edited above and reposted so you don't have to look up.

I really wanted pride of place on this one.

------------

It is very important to any new venture to NOT define it in terms of a well known scam. No one here would say bitcoin is like a Ponzi scheme except without the scam part.

But that is what you are doing by saying, it's like issuing stock in a corporation, except without all that bother of actually creating a product. Let's just consider the stock the product and get right to selling it! It's a limited edition product, so its price will vary based upon supply and demand.

Trust me, that metaphor has been used for thousands of scams. It is equivalent to a "red flag" warning to all authorities.

You are really much better saying bitcoins are like sets of collectable poker chips. Some people will want them, some will not. If lots of people want them you can sell each poker chip separately.
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August 18, 2010, 12:35:23 AM
 #9

$0.06 per BTC   * 23,000,000 total potential shares = $1.38M market cap.   Most shares are held by the "corporation" which is exchanging them for processing power over time.   

This is just one way of looking at the coins.   I contend that if some rich dude held 95% of all gold and he was selling gold for processing time at a fixed rate that it would not be considered monetary inflation any more than an individual with 1% of all gold in saving deciding to spend it.   The fact that this "rich dude" is the the bitcoin algorithm does not change the fact that there are only 23,000,000 possible BTC.

   


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August 18, 2010, 01:07:04 AM
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$0.06 per BTC   * 23,000,000 total potential shares = $1.38M market cap.   Most shares are held by the "corporation" which is exchanging them for processing power over time.   

This is just one way of looking at the coins.   I contend that if some rich dude held 95% of all gold and he was selling gold for processing time at a fixed rate that it would not be considered monetary inflation any more than an individual with 1% of all gold in saving deciding to spend it.   The fact that this "rich dude" is the the bitcoin algorithm does not change the fact that there are only 23,000,000 possible BTC.



Isn't the limit just shy of 21,000,000 possible BTC?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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August 18, 2010, 01:47:07 AM
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Isn't the limit just shy of 21,000,000 possible BTC?

That's right. It is under 21M because amounts less than .00000001 get rounded away.

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August 18, 2010, 02:21:17 AM
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Just for reference:

Market capitalization/capitalisation (often market cap) is a measurement of size of a business enterprise (corporation) equal to the share price times the number of shares outstanding (shares that have been authorized, issued, and purchased by investors) of a public company.

I don't think the un-generated shares would be counted. They would be authorized shares, but they have not been issued through their IPO phase yet.
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August 18, 2010, 03:40:11 AM
 #13

"the US FRN is akin to a national stock with a reverse dividend,.." ROTFLOL!

I challenge this group to think simple!

Bitcoin is something we use, but Bitcoin is not the use! It is simply a machine. Don't give it names it doesn't deserve.




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August 18, 2010, 10:41:02 AM
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"the US FRN is akin to a national stock with a reverse dividend,.." ROTFLOL!

I challenge this group to think simple!

Bitcoin is something we use, but Bitcoin is not the use! It is simply a machine. Don't give it names it doesn't deserve.

Bingo! I've been following this thread and others thinking to myself "why the money obsession?". Even those that argue on different economic philosophies compare to money, use money, use the lack of money, money, money, money...

I compare Bitcoins to beans... when we played cards as kids we used beans as measure of wins / losses. We didn't trade it for money, we didn't play for "make believe money", we played for beans. It worked because we all agreed that beans where the game measure, and because there was a limited supply of them (in our game table, that is).

If we had some special engineered beans instead of Bitcoins, that took a full hour to produce a batch and for some quantic weirdness could only be produced one batch at a time in the whole universe, but anyone could try and grow them, we could use those instead of BTCs, with the obvious caveat of not being virtual, of course... They wouldn't be money, they would pretty much not have any value except for what you and your peers agree it had. It's the same. If I think you whispering 545 decimals from pi to my ear is worth me giving you a deed to my house, does that make pi, or it's value, a currency?
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August 18, 2010, 02:06:49 PM
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I compare Bitcoins to beans... when we played cards as kids we used beans as measure of wins / losses. We didn't trade it for money, we didn't play for "make believe money", we played for beans. It worked because we all agreed that beans where the game measure, and because there was a limited supply of them (in our game table, that is).

If we had some special engineered beans instead of Bitcoins, that took a full hour to produce a batch and for some quantic weirdness could only be produced one batch at a time in the whole universe, but anyone could try and grow them, we could use those instead of BTCs, with the obvious caveat of not being virtual, of course... They wouldn't be money, they would pretty much not have any value except for what you and your peers agree it had...

You could trade beans for marbles or baseball cards, but they would be totally independent of the bean thing, right?

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August 18, 2010, 04:02:10 PM
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I think the most apt description of Bitcoins is that they are shares of stock in this communal Bitcoin enterprise we are undertaking.

I'd like to submit that I think the most apt description of bitcoin is that it is most like a Global Exchange Trading System (GETS) which is a variation on the LETS concept that isn't for hippies.

Descriptively it differs because it's community is loosely knit and global rather than an intertwined small-town. As such, there can be no commonly trusted party to operate and monitor the system, so that function is trusted to redundancy and mathematics. (block list)

LETS communities can rely on "local knowledge" of peoples historical behavior and intentions. As such it is perfectly reasonable for them to advance credit to people (negative balances) in certain situations. In a GETS community advanced knowledge of all parties and intentions is not practical or even preferred. As such, GETS operates on a zero credit policy. (no negative balances)

Also, since GETS trade globally, there is no "national currency" that can be used for equivalence. As such, GETS defines it's own unit for accounting purposes. Since this currency must necessarily vary against some national currencies, the LETS strict "no interest" principle cannot be preserved.

----
I think if people understood LETS they would intuitively understand GETS. The rest of the bitcoin details are just one possible GETS monetary policy.
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August 18, 2010, 06:27:07 PM
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I think the most apt description of Bitcoins is that they are shares of stock in this communal Bitcoin enterprise we are undertaking.

I'd like to submit that I think the most apt description of bitcoin is that it is most like a Global Exchange Trading System (GETS) which is a variation on the LETS concept that isn't for hippies.

Descriptively it differs because it's community is loosely knit and global rather than an intertwined small-town. As such, there can be no commonly trusted party to operate and monitor the system, so that function is trusted to redundancy and mathematics. (block list)

LETS communities can rely on "local knowledge" of peoples historical behavior and intentions. As such it is perfectly reasonable for them to advance credit to people (negative balances) in certain situations. In a GETS community advanced knowledge of all parties and intentions is not practical or even preferred. As such, GETS operates on a zero credit policy. (no negative balances)

Also, since GETS trade globally, there is no "national currency" that can be used for equivalence. As such, GETS defines it's own unit for accounting purposes. Since this currency must necessarily vary against some national currencies, the LETS strict "no interest" principle cannot be preserved.

----
I think if people understood LETS they would intuitively understand GETS. The rest of the bitcoin details are just one possible GETS monetary policy.



Well done, indeed!  I think that you have nailed it one the head.  A Global Exchange Trading System.  I think that you should write an expanded article along these lines, if you are willing, and post it both on the wiki and wherever else that you would like.  So that we can establish early that Bitcoin is a 'trading system' and *not* a currency (hard or otherwise) and *not* a commodity or intended to be traded  as such.

Are you willing, Red?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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August 18, 2010, 07:40:09 PM
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Are you willing, Red?
Wow! That is high praise from you Creighto!

I'm willing to start a new thread about it. I'm also willing to contribute to the project. However, by nature I'm very lazy! I often fail to complete projects like this.

However, should my laziness consume things, you've already demonstrated your aptitude for the project. After all, it was your analogy to begin with!

Cheers!

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August 19, 2010, 05:40:46 PM
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... since GETS trade globally, there is no "national currency" that can be used for equivalence. As such, GETS defines it's own unit "for accounting purposes". Since this currency must necessarily vary against some national currencies, the LETS strict "no interest" principle cannot be preserved.

----
I think if people understood LETS they would intuitively understand GETS. The rest of the bitcoin details are just one possible GETS monetary policy.


Has anyone noticed that the FRN is exactly that, "it's own unit for accounting purposes"?

The lawful United States dollar is defined in law as 371 4/16th grains of silver. This has been slightly modified, but never repealed. The "dollar" is actually a unit of measure, you can look it up. Bet they didn't tell you that in school!

The Federal Reserve Note is "denominated in dollars", or as Red above states, they have defined their own unit for accounting purposes. Write the Fed a letter, press them on the subject. The will reply that the FRN is "backed by the full faith and credit of the U.S. government." What they won't admit is that the FRN is NOT a U.S. dollar as defined in law. It is "denominated" as one only because you agree to the terms in commercial contract.

Why did we take this little tour? Because it illustrates that we can define our terms. And that it is foolish to use their terms -- money, cash, dollar, currency, and a crapload of others.
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August 19, 2010, 06:46:04 PM
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Has anyone noticed that the FRN is exactly that, "it's own unit for accounting purposes"?

The lawful United States dollar is defined in law as 371 4/16th grains of silver. This has been slightly modified, but never repealed. The "dollar" is actually a unit of measure, you can look it up. Bet they didn't tell you that in school!

The Federal Reserve Note is "denominated in dollars", or as Red above states, they have defined their own unit for accounting purposes. Write the Fed a letter, press them on the subject. The will reply that the FRN is "backed by the full faith and credit of the U.S. government." What they won't admit is that the FRN is NOT a U.S. dollar as defined in law. It is "denominated" as one only because you agree to the terms in commercial contract.

Why did we take this little tour? Because it illustrates that we can define our terms. And that it is foolish to use their terms -- money, cash, dollar, currency, and a crapload of others.


I thought that it proved that we can use whatever words we want and define them however we want and just because 'they' use the word 'dollar' to mean something does not mean we can use a word spelled the same way to mean something completely different.
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