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Author Topic: Is Bitcoin only a bad proxy of the dollar?  (Read 569 times)
quodo
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July 25, 2012, 05:50:56 AM
 #1

Ok, first thread, so I decided to use a linkbait title. I have several issues with BTC right now so maybe some people can help me. Disclaimer: I'm in now way an economic expert, so I might be completely off.

- The short term issue of BTC is clearly stability. Prices tend to fluctuate too much, especially when the general public reads about it and suddenly buys some.
- As no country/state/city/physical place recognize BTC, all prices are just converted from USD, especially for physical goods.
- It is impossible to live off BTC.

Is the combination of those factors too big for BTC to be a successful currency in the future?
Will BTC remain a currency only used by a few to buy things, and by the others to trade on MTGox and the likes?

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Yoddler
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July 25, 2012, 06:41:11 AM
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Good points, though you're forgetting Bitcoin's greatest public appeal (which you kind of noted in point number 2): No government or country or state or physical location recognizes Bitcoin.  Therefore, it's untaxable and untouchable and 100% in the control of the Bitcoin owner.  Not only that, but if you take a look at the places you need to go through in order to obtain Bitcoins, you'll notice that Bitcoin is side by side with things like gold and silver, even though it's not a physical entity. 

The similarity between them, however, is that they represent value.  You can't exactly place a gold nugget on the counter of your local grocery store and expect them to take you seriously.  Value is based on what we, as the possessors, place into it.  If we wanted to, we could start trading pocket lint instead of Bitcoins, just as long as we believed there was value in it.  In short, so long as we keep wanting Bitcoins and spreading the Bitcoin love, they'll continue to grow in popularity.  Of course, I would prefer pocket lint because I have an entire closet worth of factories.
Stephen Gornick
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July 25, 2012, 08:44:12 AM
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- The short term issue of BTC is clearly stability. Prices tend to fluctuate too much, especially when the general public reads about it and suddenly buys some.

This matters when looking at bitcoin as a store of value.  It really matters little when looking at bitcoin as a payment network.  A $20 today will get you $20 worth of btcoins.   A month from now, $20 then will get you $20 worth of bitcoins then.    When you look at it that way, the exchange rate is irrelevant.

As far as volatility, that's the result of having low liquidity.  There are a few "first time" events coming up (e..g, first block reward drop, first shipment of ASIC miners, etc.) so there is understandably uncertainty.  Not much you can do about it.

- As no country/state/city/physical place recognize BTC, all prices are just converted from USD, especially for physical goods.

The mtgoxUSD BTC/USD market is well over 50% of all trading yet.  That percentage been dropping, so eventually to obtain an accurate "current market price" will require a basket of markets to be evaiuated to determine where the true market price is for each other markets that exist.  But arbitrage does a decent job of keeping exhange rates relatively in check with each other.

- It is impossible to live off BTC.

Perhaps in clusters like in Free State New Hampshire bitcoin will start to be used more widely for in-person commerce.

Is the combination of those factors too big for BTC to be a successful currency in the future?

Successful, meaning displacing fiat?   Bitcoin won't do that. 

But how many other projects in which there is no formal organizational structure, no marketing budget, no backing by some multimillionaire, etc. that you are considering investing or participating in.  There must be something to it that caused you to be reading this right now.   That something shows that Bitcoin is so much more than an electronic store of value, so much more than a medium of exchange, so much more than a unit of account.

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