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Author Topic: Why compared to the dollar?  (Read 2241 times)
opentoe
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July 19, 2012, 07:31:43 PM
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Isn't the whole idea behind bitcoin not affiliating itself with regular money as we know it? I see so many comparisons to btc/usd. If people are only interested in what a btc is worth compared to an American dollar then what is the idea behind btc? Why even compare a bitcoin to the dollar? Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.


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July 19, 2012, 07:39:30 PM
 #2

Isn't the whole idea behind bitcoin not affiliating itself with regular money as we know it? I see so many comparisons to btc/usd. If people are only interested in what a btc is worth compared to an American dollar then what is the idea behind btc? Why even compare a bitcoin to the dollar? Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



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acoindr
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July 19, 2012, 07:41:04 PM
 #3

Isn't the whole idea behind bitcoin not affiliating itself with regular money as we know it? I see so many comparisons to btc/usd. If people are only interested in what a btc is worth compared to an American dollar then what is the idea behind btc? Why even compare a bitcoin to the dollar? Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.

Hey, opentoe, I'm actually trying to explain Bitcoin on another forum and a similar question came up. I'll re-post my answer:

Quote
What's in store for bitcoins in the future is not certain, but it could very well be that one day you could pay for typical goods, services, taxes etc. in bitcoins. This doesn't mean Bitcoin becomes the de facto mainstream currency, like U.S. dollars are currently, (although it could be) but it might be a currency used alongside others. This gets into legal speculation about the future of bitcoins, and they are now essentially in legal gray area, which I won't go into now. I will say there are lawyers now actively supporting Bitcoin too.

But I think your question is more about the near term. Yes, since bitcoins are in a very early stage of adoption it's helpful to be able to exchange them for other currencies that are better accepted.
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July 19, 2012, 07:41:39 PM
 #4

Isn't the whole idea behind bitcoin not affiliating itself with regular money as we know it? I see so many comparisons to btc/usd. If people are only interested in what a btc is worth compared to an American dollar then what is the idea behind btc? Why even compare a bitcoin to the dollar? Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.


For me BTC is superior to paypal, western union, credit cards, etc... I can buy anything from anyone anywhere. I don't need to know there name, nor do they need to know mine. They could be in China or Brazil or whatever.
Compare that to the sunglasses I just bought with a credit card. I had to give my identity to a 17yr. old, who even asked for my phone number. Screw that.
Bitcoins are cash you can send over the internet and there is nothing else like it. It's just a better idea.

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evoorhees
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July 19, 2012, 07:55:12 PM
 #5

Every asset has an exchange rate with every other asset. It is impossible to prevent this phenomenon.

Let's assume nobody traded BTC for USD. We'd still have an exchange rate between BTC and a loaf of bread. Perhaps 1btc = 3 loaves of bread. Of course, we also know that 1 loaf of bread = $3.50.  And then POOF there is now, automatically, an exchange rate between BTC and USD, even though we didn't start with one. The exchange rate in this case becomes 0.33 btc = $3.50

So the reason BTC is commonly priced in terms of USD, is because USD is the most purchased commodity with BTC. This should be expected, since both are money, and monies are those things which are the most commonly purchased goods in a society.

tl;dr- It's impossible to prevent an exchange rate from occuring between any two goods on earth.
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July 19, 2012, 07:56:52 PM
 #6

Every asset has an exchange rate with every other asset. It is impossible to prevent this phenomenon.

Let's assume nobody traded BTC for USD. We'd still have an exchange rate between BTC and a loaf of bread. Perhaps 1btc = 3 loaves of bread. Of course, we also know that 1 loaf of bread = $3.50.  And then POOF there is now, automatically, an exchange rate between BTC and USD, even though we didn't start with one. The exchange rate in this case becomes 0.33 btc = $3.50

So the reason BTC is commonly priced in terms of USD, is because USD is the most purchased commodity with BTC. This should be expected, since both are money, and monies are those things which are the most commonly purchased goods in a society.

tl;dr- It's impossible to prevent an exchange rate from occuring between any two goods on earth.

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proudhon
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July 19, 2012, 07:58:39 PM
 #7

Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



Ok.  Say I don't have any bitcoins.  I also don't want to mine for them.  How can I get them?  I suggest that there is no way to answer this question that doesn't imply a BTC to USD (or EUR, etc.) exchange rate.

Edit:  I see evoorhees beat me to it.
unclemantis
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July 19, 2012, 08:03:19 PM
 #8

Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



Ok.  Say I don't have any bitcoins.  I also don't want to mine for them.  How can I get them?  I suggest that there is no way to answer this question that doesn't imply a BTC to USD (or EUR, etc.) exchange rate.

I perform coding services for BTC.

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aq
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July 19, 2012, 08:05:39 PM
 #9

Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



Ok.  Say I don't have any bitcoins.  I also don't want to mine for them.  How can I get them?  I suggest that there is no way to answer this question that doesn't imply a BTC to USD (or EUR, etc.) exchange rate.

I perform coding services for BTC.
Cool, I pay you 1BTC per 1000hr coding work. OK? No? Why? Oh, exchange rate again.
proudhon
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July 19, 2012, 08:06:54 PM
 #10

Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



Ok.  Say I don't have any bitcoins.  I also don't want to mine for them.  How can I get them?  I suggest that there is no way to answer this question that doesn't imply a BTC to USD (or EUR, etc.) exchange rate.

I perform coding services for BTC.
Cool, I pay you 1BTC per 1000hr coding work. OK? No? Why? Oh, exchange rate again.

lol
proudhon
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July 19, 2012, 08:07:40 PM
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Every asset has an exchange rate with every other asset. It is impossible to prevent this phenomenon.

Let's assume nobody traded BTC for USD. We'd still have an exchange rate between BTC and a loaf of bread. Perhaps 1btc = 3 loaves of bread. Of course, we also know that 1 loaf of bread = $3.50.  And then POOF there is now, automatically, an exchange rate between BTC and USD, even though we didn't start with one. The exchange rate in this case becomes 0.33 btc = $3.50

So the reason BTC is commonly priced in terms of USD, is because USD is the most purchased commodity with BTC. This should be expected, since both are money, and monies are those things which are the most commonly purchased goods in a society.

tl;dr- It's impossible to prevent an exchange rate from occuring between any two goods on earth.

I will offer you 10 chickens for your 3 hogs.

You know you're proving his point, right?
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July 19, 2012, 08:08:58 PM
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Wow, bitcoins are worth 1000 minimum wage or better hours of work, awesome! Now lets convert that into USD, it seems offhand like bitcoins have gone up finally to a more reasonable value than had been the case recently... Smiley

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July 19, 2012, 08:10:40 PM
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Can't it just be itself and worth what people would make it worth? I know I'm not explaining myself correctly probably. Like what is the real benefit of bitcoin over the dollar? It is not backed or insured....is it just the "idea" of having an underground money? It is not like I can go out food shopping and pay with bitcoin. I'm just curious...what people have to say.



Ok.  Say I don't have any bitcoins.  I also don't want to mine for them.  How can I get them?  I suggest that there is no way to answer this question that doesn't imply a BTC to USD (or EUR, etc.) exchange rate.

I perform coding services for BTC.
Cool, I pay you 1BTC per 1000hr coding work. OK? No? Why? Oh, exchange rate again.

What if all my goods and services that I pay for are in BTC? Well then. But ya. I am trolling this topic off track. Carry on!

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rebuilder
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July 19, 2012, 08:22:51 PM
 #14

What if all my goods and services that I pay for are in BTC? Well then. But ya. I am trolling this topic off track. Carry on!

Then Bitcoin has taken off in a big way. Bitcoins are compared to other assets such as USD because they are not widely accepted. The question anyone asked to take bitcoins as payments will ask themselves is: "what is a Bitcoin worth?" To answer that question, they must make some comparison between Bitcoin and other forms of compensation. Lo and behold, the exchange rate.

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July 19, 2012, 08:31:30 PM
 #15

The problem here is a matter of currency exchanging.  When you buy something internationally, the price they charge is almost always a converted amount of what your currency is worth in their local currency.  They are expecting payments in their local currency, because that is the most easily utilized currency where they live.  It also makes it easy to push the cost of currency exchanging to the buyer when giving them the converted rate.

Bitcoin functions the same way.  The difference here is that there is no country where Bitcoin is the local currency, so it has no value on its own at this time.  It will take heavy market saturation before we see prices that are independent of another currency, outside of a few major enthusiasts that were offering low cost services/items to begin with.

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July 19, 2012, 08:47:57 PM
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Well if everyone had Bitcoin balances and all business operated in Bitcoin, then simple supply and demand would drive prices of goods in terms of coins. But everyone owns dollars and hardly anyone owns Bitcoin, let alone sells goods for Bitcoin, so the dollar value is a good metric of what the coins are worth.

Answering the broader question requires a more subjective answer, so here's my take: Bitcoin is superior to every other money that exists today, both in theory and practice. Left to the market, money is chosen based on a few properties:

A) People demand it
B) It is easily divisible
C) Fungibility (ex: 1 oz of gold in location A is indistinguishable from 1 oz of gold mined in Location B)
D) It does not deteriorate (ex: Iron oxidizes over time, making it a poor money choice)
E) It is easily exchangeable

Bitcoin satisfies all of these properties very well. Societies originally began using paper certificates as substitutes for commodity money because they were more convenient to handle. Banks typically stored people's gold, and in exchange, the banks gave I.O.Us entitling depositors to their gold on demand. Unfortunately, banks often violated this contract by creating more paper than they had for their gold reserves, causing inflation and rising prices. This fraud always ended in bank runs so that people could claim the true value of their deposit back, but the banks were unable to honor these demand deposits because they issued more paper than reserves. This continued to be a problem when governments were the parties issuing the currency.

We like to pretend that this is not a problem anymore since our paper money nowadays is detached from traditional commodity money entirely. But inflation still exists as it did before, and people have no deposited commodity to fall back on, so people's dollar savings just dwindle over time. Competition can't arise with more reliable competing paper currencies because of the business framework for dollars already in place (a problem for Bitcoin adaptation as well) and because people don't want to trust a different centralized party to properly maintain the currency's value. This has been a problem with paper money throughout history. Bitcoin is revolutionary because it acts similarly to commodities like gold and silver, but maintains the properties of money listed above even better. The coins are even more easily exchangeable than dollars due to no central authority having to manage the transactions. Also, Bitcoin does not need backing for the same reason gold and silver don't need backing: it is effectively a commodity. Its value comes purely from supply and demand, not manipulation.

TLDR: Bitcoin is valuable because it is the first commodity in history to meet, and furthermore to exceed, the properties of money better than paper money.
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July 19, 2012, 08:55:20 PM
 #17

Because bitcoin has no "backer" on my Open Transactions server, the scripts that figure out the value of an asset by examining its reserves, its accounts receivable and so on  (the assets its backer owns with which to "back" the asset by buying it from the markets) trying to figure out how much it is worth becomes an exercise in having faith in the valuations placed on it by others.

So instead of looking around locally to see what one could buy locally with it, one is forced to throw out all the usual "evaluation from fundamentals" and rely on other markets' valuations in terms of something that is in some way at least somewhat evaluable in terms of something you do have locally.

It might seem strange that way until one bears in mind that if we used some kind of USD token on the server we would have exactly that same problem trying to evaluate USD, as again it is backed by some external entity who does not have sufficient assets locally (on the server) "backing" it to permit evaluating it in terms of how much actual local stuff it has in its vault to "back" itself with.

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July 19, 2012, 09:56:26 PM
 #18

Even though most of think the USD is fundamentally flawed, convertibility to USD is still very important at this stage in bitcoins growth. USD is the go to currency for the vast majority of transaction in this part of the world. The fact that it is easily convertible to USD and various other things on numerous exchanges is a testament to just how sought after bitcoin is becoming.

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opentoe
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July 19, 2012, 10:27:03 PM
 #19

Wow, a plethora of information which prompts me to start from the beginning. It is like a movie. You have to watch it several times to catch the things you missed. And when I first "got into" bitcoins I read as much as I could thinking I was understanding everything....but not quite. I'll have to go back to the basics (with more understanding now) and catch all those things I missed the first time. I'm trying to grasp what benefit a merchant has if they start accepting btc? A sporting goods store. They accept credit cards, cash, online orders, all that. What would their benefits be in adding bitcoin as an accepted payment method? Unless buying baseballs completely anonymous online is it.

I also want to thank everyone who took the time to respond. I know some responses took a while, but it really is appreciated. Thank you.


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July 19, 2012, 10:33:46 PM
 #20

I suspect that in the early stages the main benefit of accepting bitcoins will accrue to those who already hold bitcoins. Basically the more places that accept them the more likely they are to succeed thus the more they are likely to be worth. Thus if you do much business, get a lot of the public walking through your store or browsing your site, it might be worthwhile to stash a bunch of bitcoins while they are cheap and start accepting them to help build up their popularity.

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