When I exchange Dollars for Rand, I can more easily use the Rand to purchase goods and services in South Africa. I'm not speculating the Rand will be worth more in 2 weeks time. I just want something more fungible.

It seems people who are buying bitcoins now aren't doing so to purchase goods/services. They are buying and hoping the price goes up.

I'm just guessing but I'd bet most of the transactions happening now are for speculative purposes and not for increased fungibility which I believe to have been the point.

If people keep buying as an investment, they'll eventually start cashing out and the herd will follow to avoid losses.

Bitcoin may recover after a future crash but because nothing is really backing it, it's likely it'll fade into history.

When bitcoin was first brought into existence it was worth nothing, and people invested anyway for mostly speculative reasons. Lets assume that at some point in the future it will be worth zero again, once the current batch of investors cash out. Why will it suddenly not have the speculative value it did before? If anything, it should have more, since it will have a more complete infrastructure and more momentum than it did when it was first created.

When I said that it'll fade into history I meant that sites like Amazon will never accept it. By definition, currency is "the fact or quality of being generally accepted or in use".

If it isn't widely accepted, it's just not currency IMO.

The primary benefit seems to be anonymity and the majority of people don't care about that. I live in the US and we already have an anonymous form of money (cash) and I rarely see that used.

Why would "normal" people start using a more difficult to use currency just to be anonymous?

Of course I really don't know what's going to happen but my best guess with what I know is that it'll fade into obscurity within a year.

Probably my #1 reason for BTC failing is that it's not fiat. All popular currencies are fiat for good reasons.

BTC sort of reminds me of the gold standard being finite and initially "mined". Maybe it's fate is similar. People who don't trust state backed currencies will find use but it will ultimately remain on the fringe for everyday trade.

The cross-border, "offshore", unseizable aspect was the biggest reason for my initial interest. Not the potential price gains (I always assumed price would top below $100 and remain a relatively tiny niche currency forever thereafter).

I cannot buy groceries, pay my mortgage, put gas in my car, etc as I do with the USD right now. Because I can't use BTC as easily as USD it is by definition less fungible.

It also seems seizable. Didn't Silk Road have their stuff taken?

It does seem more safe in BTC form but again to use it for most things requires an exchange back into a popular currency and state actors can easily control exchanges.

Paypal-USD is not fungible with Alipay-CNY, they are separate payment networks (if you don't believe me, try to find an exchanger). The situation is like the days before SMTP, when AOL and Compuserve had different e-mail networks and a user of one couldn't send an e-mail to a user of the other. But BTC is easily exchanged for either Alipay-CNY or for Paypal-USD, so it is more fungible than both.

having thought about it - the argument that bitcoin is going to be worth a lot "because there are only 21 million" - we have to consider that bitcoin is just one of "n" virtual currencies.

while bitcoin may be limited, we already have 37 alternatives (at least) and there's no reason another hundred can't be started up within a year.

So, i see there will be a lot of virtual currency flying around, all of it as qualified as bitcoin (sharing similar source code) and the idea that it will all be worth 1,000 a unit (or more) forever just doesn't make sense.

Do you remember the time when twitter was the new hotness? And like everybody and his aunt where building a twitter clone. I mean, it's so simple, just a list of teensy messages, how hard can it be. And we joked how the operators of twitter had like a couple servers and some louse PHP scripts to glue it all together, it was just so laughable from the outset. And most laughable of all, people where flocking to it like mad.

Twitter is the remaining "twitter like" website, all the clones quietly shut their doors again and twitter went public with market cap valuation of $22 billion...

I could now ask: Are you kidding me? A website where people can post 140 character messages is now worth $22 billion.

Ah but the wonders of the network effect. You see the value isn't in twitter. The value is in who uses twitter. Because everybody uses it, it's valuable, and because nobody used the clones, they're not valuable.

while bitcoin does have a big user base, currency is a more personal thing and if people see too much volatility they'll just pick the one that is most stable, meaning without this flawed crazy dispersement scheme

i, for one, do think Bitcoin is a ponzi scheme but it's a more complex one with a lot of Game Theory involved. That's whats unique about the scheme -- it guarantees the founder and early adopters a ridiculous amount of wealth, while still having the ability to satiate the greed/hope of new buyers

Also people need to stop comparing this to company/stock valuations. Those are more like an estimate of a company's worth whereas in Bitcoin the figures given are always a supposed value of currency unit.

Consider this -- when companies sell stock it is to fuel more work and production within the company. When a Bitcoin is sold for $600, it is so some dude can by a Playstation 4. It's not attached to lifestyle in the same way as stock/investment in companies.

The source code is open but the processing power is not so quickly reproducible. I think this is the biggest argument for bitcoin's sustained dominance at the moment.

There could be many cryptocurrencies. Some issued by commercial entities like Amazon, some for use in a specific online game, others perhaps behave like an ETF and are backed by USD or Gold, may be even a cyptocurrency that magically(?) security-ignorant individuals can use. These currencies could all be subject to market exchanges and futures.

Bubbles are fermented in hysteria that if you don't buy now you will never get a chance again. Whenever I start hearing those arguments my interest in speculative investment begins to dissipate. A bubble will not deter me from my optimistic interest in bitcoin because I believe its properties are incredibly productive.

As for bitcoin and ponzi schemes, the withdraw caps and illiquid nature of certain exchanges right now make it very possible to conceal a ponzi scheme.

Here is my challenge: for those really bullish on bitcoin, build things that use it! When all you do is speculate, then you stand on equal ground as everyone else. Do something to get an advantage.

Not to mention the safety - it's easier to pull a 51% attack on the other currencies (see the attack performed on Feathercoin)

The other, more difficult problem is building trust in the underlying mechanism. The systems have to be open to take advantage of Linus's Law "given enough eyeballs, all bugs are shallow", but there has been such a proliferation of altcoins that I doubt there are enough skilled eyeballs to go around.

There are a lot of people jumping on the altcoin bandwagon hoping to be the next Satoshi. It is almost certain that some of those altcoins will have fundamental flaws. If they fail catastrophically, the reputational damage will, no matter how unfairly, impact upon all of the others. That will make the job more difficult, even for the worthy contenders.

It's really not a technical question. Bitcoin came first, it has the traction.

Getting traction into another chain is possible, but much more difficult than with Bitcoin. (Which only involved creating the first of a new, disruptive technology).

Simply said, why would I want to buy any of the alternate coins? As long as you can't give me a satisfying answer to that, your argument is moot.

So you'll buy them because of speculation. Hence the proliferation of these various currencies, the latest of which -- QuarkCoin -- is probably going to surge tomorrow on Bter.com and other exchanges :-P

The fact that he owns between 4-9% of all bitcoins that will ever exist... This fact is frankly outrageously frightening. We have no idea who this person or group is. They might end up being the wealthiest person in the world, by a large margin.

When I tell someone about Bitcoin for the first time, and that it is developed by some mysterious person who is completely unknown... the reaction without exception is "WTF!"

This also doesn't appear to be true: see David Graeber's book Debt: The First Five Thousand Years for his descriptions of how money actually emerges from religious ceremonies and temples, not barter (as most econ books have it) or "market exchanges."

(Incidentally, I don't agree with Debt's main implications about debt, but its anthropological work on money is fascinating! (https://jseliger.wordpress.com/2013/04/28/thoughts-on-debt-t...)

> Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages

but there are plenty others, an exhaustive list of which would be inappropriately long for a HN reply. This isn't one of those things where people don't understand computers, this is one of those things where someone just completely makes shit up. He's also a somewhat unhinged and deeply horrible person. Discussed here by Brad Delong who is about as far left as real economists come: http://delong.typepad.com/sdj/2013/04/david-graeber-april-fo...

1 http://www.businessweek.com/finance/occupy-wall-street/archi...

As I said before: Graeber's premise is interesting, but he's definitely tainted goods from here on out, and I'll have to verify any of his claims/statements before using them elsewhere.

Pity.

http://crookedtimber.org/2012/04/02/seminar-on-debt-the-firs...

Graeber's response to the criticism doesn't instill much confidence in him. Though DeLong setting up a taunt-o-matic is a tad interesting....

He does thoroughly deconstruct the barter origin story, by showing that barter economies were actually driven by credit (and thus credit pre-dates money).

The story about religious ceremonies and temples is that in pre-market societies, there was a social currency (wampum, copper rings, special cloths, etc) used for ceremonial purposes. It was when market economies (and market currencies) became entangled with the social currencies that you see the development of slavery.

Btw: As the rules and mechanics of the Bitcoin network are enforced by the majority of clients it would be pretty simple to invalidate these bitcoins if the majority of the Bitcoin software authors would agree to do so. Just ignore any transaction regarding these old addresses.

However I think you will find that really nobody wants to participate in such a scheme for a pretty simple reason.

Fungability is an important concept for money in order to work. A landmark case in scottland around 1750 (Crawfurd v. The Royal Bank) recognized that fungability is more important than the individual right in the money. The very same conclusion has been held up in virtually every juristiction imaginable since.

Miners, which very much depend on fungability to run their business, would be dammaging the very foundation on which they are running their business, if they would undermine fungability.

Since you would need the cooperation of the majority of miners, to do something that is not in their self-interest, a serious attack on fungability is not easy to pull off, although it gives credible threat to encourage debate.

The difference between cutting the Satoshi stack and the Crawfurd v. The Royal Bank case IMO is that in the latter invalidating money in active use greatly threatened the viability of the currency whereas in the former the money is just lying around anyway and its existence is a threat to the stability of the currency itself.

For real fungibility with bitcoin we need to add real anonymity, something like zerocoin or some bank like structures that provides huge scale money laundering (in the way this currently works with established money). At the moment bitcoins leave behind such a huge paper trail you can hardly describe any coin as equal to any other, except those freshly minted.

The majority of miners would need to adopt the new software, and in theory the "economic majority" would too: https://en.bitcoin.it/wiki/Economic_majority

I see the software engineers of the Bitcoin clients as a largely underestimated force in the network dynamics. Even one subtly placed bug could bring down the whole currency in the long run.

In addition, everyone who bought in over the years implicitly accepted this deal. I'm sure if the inventor had claimed 50% of the total currency pool, there would have been less interest.

At the increasingly slow rate that coins are produced, this won't happen for some. But assuming that bitcoins are still around and in use at the point in time in the future when this happens, what will be the effect of this?

The supply is fixed and no more can be produced; and since it's still around, chances are there is demand / usage that would likely grow. The likely result seems to be that from that point onwards, bitcoin's value would only grow to due an increase in its scarcity. Perhaps, this is a possible justification or rationalization for bitcoins as a (very) long term investment.

Also, not too familiar with the internal bitcoin protocol but what will happen to the network of miners who help with verifying / maintaining the transaction ledger? I think the reason they participate is that they are (proportionally) rewarded for their services in new bitcoins. When this is no longer the case, who will agree to do this work then?

Nothing at all. There have been dozens of "competing" digital currencies for several years now. Litecoin came along in early 2011. And it's extraordinarily easy to change Bitcoin to other digital currencies (much easier than USD <> digital currencies).

So obviously being first counts for a lot here. The network effect is strong.

Or is there something that forces the null prefix lenght to change?

As an artificial scarcity, it strikes me similar to the king of an island who would collect all the shells, and distribut only a few of the as money.

Any would be king could start to collect square shaped pebbles, and do the same.

At least, the one who would choose to hoard coconuts would provide for money something that can be used, that has some intrinsic worth.

The miners will still get transaction fees even after all the Bitcoins have been mined.

It should clear to everybody who holds bitcoin, that there is massive volatility, and that you might buy your coins at a time, which can be very dammaging.

I would argue however that this isn't an unsurmountable obstacle. A person can substantially lower the volatility he's exposed to at least in the buying phase by dollar cost averaging. An advise btw. that Warren Buffet has publicly given about the current stock market as well.

1. Single drug company selling the life changing drug = High near-fixed-global price | As soon as more drug companies can sell increase price competition, higher variance in generic pricing, different rates globally

2. All company valuations remain relatively steady until an IPO

3. If a man/woman suddenly gets a lot of suitors their current relationship if less than optimal may crash and burn , in the absence of alternatives the relationship may have a better chance of survival.

2. Big cap vs Small Cap != Necessarily More Relevant (its relevant to the principle of volatility, but requires more complex understanding. This understanding is absent for the OP of comment thread I replied to - to explain further the presence of market makers, prop desks/professional traders, institutional block trades, quant. systems, availability to borrow shares to short, short sqeezes etc. that are present in large cap equities/futures/opts markets reduce volatility and skew the data towards the hypothesis that more owners reduces volatility. A number of these influencer's make the topic relatively more complex to understand for a layman and the people who feed them information aka news media).

For comparison, the foreign exchange markets do trillions of dollars every day in volume. The daily volume of Bitcoin trading is around $100 million at times.

Certainly groups of two or three who all sell fairly large quantities of BitCoins around the same time, even just by coincidence, can trigger a panic sell-off.

The more BitCoins are distributed are among more people the less a few people selling can snowball into a price collapse.

BitCoin already seems to be much less volatile than it was even a few months ago. The up-and-down fluctuations are a much smaller percentage of the price. In the last few days it's been hovering around $1200, without falling below $1100 or rising above $1300. A year ago it was routine for BitCoin to lose half its price and then recover and then lose half again.

One of the real dangers to Bitcoin is precisely that sort of public image.

I'm also aware of what happened to the term beyond its origins. And that is the problem.

Whether Bitcoin can be mined or not has absolutely nothing to do with whether it's a fiat currency or not, so your logic does not follow. Fiat doesn't mean "can easily manipulate". Any currency that isn't backed by (value derived from) a hard asset is a fiat currency. Burning electricity to create bitcoin's is not "backed by", that electricity is gone, used up, wasted. Other crypto currencies like peercoin or primecoin address bitcoins wasted energy, but they are all fiat currencies. Their value derives from confidence, not assets.

(I'm not a gold bug, I could care less about gold, if gold offends, substitute some other tangible commodity)

That's my point that Bitcoin is more of a commodity currency and is not (at present) a fiat currency. The fact that the electricity is gone doesn't make any difference. Mining gold requires fuel and labor which is gone, used up, and what remains is gold. This expense is what limits the production of and correlates the commodity to the underlying economy.

What is really interesting is your assertion that the value derives from confidence and not assets. I would argue that value derives from the fact that its supply is limited by the use of resources and labor.

Its limited supply doesn't give it value because it's but one of many crypto currencies[1] and its value is derived only from being the first mover and thus network effects and confidence. That money could easily abandon Bitcoin and flee into another crypto currency any time general confidence in it fails; for example if say LTC or PPC show more stability over time because of their differences from BTC and BTC fails to stabalize over time due to its deflationary nature.

[1] http://coinmarketcap.com/

Like, now, I'm free to accuse you of being a secret agent of the notorious hacker group named Anonymous, infiltrating this site under an assumed pseudonym. And worst of all, I could make that claim non-ironically, if I so desired.

Do you see how ridiculous this is all becoming?

Use of terms like "fiat currency" is, in my experience, similarly an attempt to mimic the behavior of people they've seen winning arguments, in hopes that doing so will result in winning arguments.

Bitcoin is successful as a proof of concept of how you can create a modern currency that retains most the benefit of electronic and physical money. For the supply, I have just the opposite reaction. I used to think that the limited supply of bitcoin was a great idea, now I'm thinking all the clever people that wanted to get us out of the gold standard may have had a point after all.

It is also not a ponzi scheme, just a risky investment.

(no sarcasm intended) Are you saying that a currency that cannot be controlled (e.g. the money supply controlled by something like a federal reserve) is more dangerous than one that is?

With that out of the way. I don't want to live in a country or principally trade in a currency that can react as bitcoin. I don't have a lot of cash sitting in my bank account, instead I have a small amount of debt (only Banker salary allow you to buy a flat cash in London) so I fail to see any situation where a 10,000 % deflation rate can affect me positively. (Similarly 10,000% inflation - actually 0% inflation is the stuff I can deal and be happy with)

So I don't mind a uncontrollable currency as I don't mind the wind being uncontrollable. I mind hurricane and if I cannot afford to deal with it, I simply prefer to live in an area without hurricane or as a last resort, government provided countermeasures. So in my situation, one I share with the majority of the first world, I prefer a currency controlled by FED-like central banks, than a currency without control that can increase my debt by 2 order of magnitude and at the same time likely put me out of work. So it is a choice 100% pragmatic rather than based on any type of economic theory.

I would not mind to be convinced otherwise, preferably without assumption like "when everybody uses it", or "if a country like China uses it as its currency".

But right now, it seems opinion are split between people in denial with 10,000 bitcoin in their wallet assuring me that what is happening with bitcoin right now is Good (sometime with the argument "deflanationary currency is good" as if that did not require further explanation). Others are blog like this one made by doomsayer simply angry they didn't buy 10,000 bitcoin last year.

Inflation and deflation only really impact you when a) your wages get out of sync with cost-of-living prices, or b) you are borrowing or lending money (or just have cash sitting around that isn't being utilized in any fashion). If your wages and prices all fell to 1/10000th of what they are today, your purchasing power (in terms of hours worked per loaf of bread gained) would remain the same.

Deflation would harm your ability to (responsibly) take on debt. But, it's arguable that our current economies are so heavily debt-fueled because of our inflationary policies, as well, so it's worth keeping in mind as a variable when processing the concept that deflation = less borrowing. Deflation is scary to Keynesian economists because the Keynesian model only works when people aren't significantly saving anything beyond what they invest - that is, their money is all either spent on goods, or is loaned to other people. Holding money in an inflating economy is irrational since it is constantly losing purchasing power; thus, since it is in your best interest to spend your money as soon as you make it (either on goods and services, or by investing it somewhere that will offer a return greater than the rate of inflation), money keeps on rolling around in the economy.

The theory is that once people start socking away money in their mattresses, you get recession or depression. Deflation would encourage lending (either directly or through investment), but since it discourages borrowing, people may end up unable to find people to accept their money, and the economy grinds to a halt.

What would be an example of the "wide range of issues" that policy-controlled inflation helps prevent?

The tl;dr on "inflation is good" is that it benefits people borrowing money. If your wages keep pace with inflation, then things like your car loan and mortgage ultimately cost less, leaving you with more inflation-adjusted money to lubricate the economy with. Inflation stalling (or even receding into deflation) means that it's much more expensive in terms of wage-hours to pay back an existing debt, which discourages people from taking on new debt. http://www.nytimes.com/2013/10/27/business/economy/in-fed-an... is a decent article on the concept.

A deflationary currency, by contrast, will heavily discourage borrowing. This analogy is a little stilted by the BTC<->USD conversion, but if I agree to loan you 10 BTC to be paid back over 5 years so you can buy a $10,000 car, and over the term of the car loan, let's say that the value of BTC is going to increase from $1000 to $4000 (that is, the amount of value traded in BTC is increasing faster than the amount of BTC in the market), then you'd be a fool to take my loan, since you would effectively end up paying me $40,000 worth of BTC for a $10,000 car. This would discourage you from taking my loan and buying the car, just because of the behavior of the currency.

(That said currently, since lenders get a chunk taken out of their loan by inflation, they make it up in the interest rate. In a consistently deflationary market, it seems to my non-economist brain that the answer would be a smaller - potentially even negative - interest rate, which would be pegged at a point that the lender still makes money over the course of the loan without being overly discouraging to borrowers.)