People in the bitcoin community periodically worries about bubbles. The only thing that we can do is figure out cool stuff that you can only do with bitcoin. Other than that, people are encouraged to sell and buy things for bitcoin.
The bitcoin community has thought more about the weakness and strength of the currency, failure modes and solutions to problems more than any critics about bitcoin in the world. It's just that very few bothers writing and publish these knowledge for distribution to the wider public.
Does community have expert economists? I mean the traditional currency markets have been around for quite a while and a lot of really smart people participated in their development. Bitcoin has a small and immature community and there are a lot of things which require certain expertise and experience to judge about correctly.
Does community have expert economists? I mean the traditional currency markets have been around for quite a while and a lot of really smart people participated in their development. Bitcoin has a small and immature community and there are a lot of things which require certain expertise and experience to judge about correctly.
It really depends on what school of economics you followed. If you follow keynesian economic rather than the Austrian, you will have quite different conclusion about the possible failure mode of bitcoin.
Is deflation bad for the bitcoin economy? Most bitcoiners will say no because they don't buy the idea of deflationary spiral and Keynesian economics plus their experience within the bitcoin economy informs their opinion.
But Paypal and credit cards are based on the USD, or whatever the local currency is. So, in effect, it does have to beat the dollar. Bitcoin must be advantageous enough so that people will want to use that over the standard local currency (e.g. USD). Because, you're assuming that you'd have to convert USD to Bitcoin and then spend the Bitcoins. If you received Bitcoins, you'd need to then convert them back out as dollars. When you do a credit card transaction, you don't convert the money to a different currency. With Paypal, you have the option to receive money and then spend it without adding funds or incurring transaction fees, but how many people really do that?
But, if the system is big enough, you'd be able to limit the USD <-> Bitcoin conversions and transact more of your business in Bitcoins. However, in order for that to happen, it has a lot of currency inertia to overcome.
If Amazon took bitcoin, and I could use it to pay people on Craigslist, and maybe some other little things like that, I would probably just keep a bitcoin account around with a useable balance. If it got low I'd fill it with USD, and if I needed some funds out of it I'd take some USD out. But I don't think I'd need to do a USD conversion for every single little transaction.
Think about if the NYT decided to charge a half a penny to read an article? There's no way for them to collect that right now (it's too small), but bitcoin would work for that, and I sure wouldn't be converting half a cent USD every time I read an article.
Two out of the three words of the title contain buzz words (CHECK!)
Ok but seriously I don't see the "bubble" here. If this is a "bubble" what are the implications of it popping? The value is set by the people who exchange it and not by a governing authority or even, groups of people. As I understand it, that means the value can never be manipulated. Also, don't bubbles imply that there is some sort of governing body that either decreases or increases risk of such an asset? For example in the housing and tech bubble, this would largely be the SEC (among many others). People were wildly spending and loaning money because risk was largely reduced -- a combination of guaranteed government bailouts and "everyone else is doing it!". How is any risk reduced using Bitcoin? If anything isn't Bitcoin a way to prevent bubbles? I see it as real value assessment set democratically by people using the currency.
I don't see Bitcoin itself as "irrational exuberance" at all, in fact quite the opposite. It's attempting to solve a real world problem. Indeed the referring article might suggest that the analysts covering Bitcoin are acting irrationally by making claims like "government take heed, there's a new currency in town". But just as the words "Bitcoin" and "Bubble" were used to grab attention to this article, the analysts covering Bitcoin also (here- Jerry Brito) will make irrational and largely speculative claims to bring viewership.
I don't see Bitcoin itself as "irrational exuberance" at all, in fact quite the opposite. It's attempting to solve a real world problem.
A lot of people I've heard promoting Bitcoin (n.b. these are not analysts) gloss over or outright ignore the more pressing real world problem of being able to spend it on the things you want/need. The solution I hear most often is "convert it to USD."
It looks like we're left with two possible outcomes. Either adoption grows large enough soon enough that converting to USD (or another currency) is no longer a necessary step in using BTC for most transaction, or people get bored/tired of waiting for that time to come and decide to cash out. The latter is the proposed bubble pop scenario, where people decide that they would much rather have some currency other than BTC, and are progressively willing to trade their BTC for less and less other currency. As for its implications, I'm not too worried. I'd expect the worst thing that could come out of it would be increased difficulty in getting similar projects to succeed in the future.
Re: Bubbles - Such as? Let me be more specific. If I shall quote wikipedia - "It could also be described as a trade in products or assets with inflated values" Doesn't Bitcoin set to eliminate inflated values? With no central authority controlling the amount of currency available or loaned at certain rates then valuation becomes absolute, no?
Re: Manipulation - I'm not sure I understand how the value of the currency can be manipulated. If the value is directly set by the end user then it's impossible to manipulate.
If the value is directly set by the end user then it's impossible to manipulate. Only if it is impossible to manipulate the end user. Aka there is nothing in the system to prevent fraud or any other pump and dump scheme you can come up with. So no, with no fraud controls in place Bitcoin does nothing to eliminate inflated values, and really can't unless they have come up with a technological solution to lying.
An example of a bubble before the SEC was created, and in fact lead to its creation.
http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble.
The article neglects that people have to pay income taxes on however many dollars of income you make. If you hypothetically made 100% of your income in bitcoins, and conducted all your financial transactions in bitcoins, then you would have 0 tax liability and wouldn't need dollars to pay taxes.
The thing about law that often confuses geeks is that they think the law works like a rigid algorithm with precisely defined inputs, or that it must limit itself to objective inputs.
They conclude that if they using something other than money as money, the law won't have a say because they are operating outside the precisely defined input.
Not so. The law can handle fuzzy situations, and since it can deal with subjective things such as what was in the minds of the people doing things, it will have no trouble incorporating Bitcoin transactions into the tax structure.
As a first pass, it could treat them as barter transactions, which are well covered by the tax system. In fact, there is a large body of law dealing with people trading non-currency items. It is quite interesting. Suppose I buy an X and you buy a Y. Later, we swap them. If they are the same kind of thing (we are trading my Picasso for your Rembrandt) there are no tax consequences. If I later sell the Rembrandt, it is taxed as if I had bought the Rembrandt for the price I paid for the Picasso, and so my tax is based on the profit based on that. Same for you.
If, on the other hand, X an Y are not the same kind of thing, then it is treated as if we did a pair of sales. For example, if I trade my Picasso for your race horse, the law would treat it as if I had sold my Picasso to you and used the proceeds to buy your horse, and you sold your horse to me, using the proceeds to buy the Picasso. I have to report income equal to the difference in value between the horse and what I paid for the Picasso, and similarly for you.
Subsequently when I sell the race horse, it is treated as if I had bought it for in the imaginary double sale, rather than whatever I paid for my Picasso. This price that you track in order to determine what the base price is to use when determining profit or loss on a real sale is called your "basis" in the item. In a like kind exchange, your basis in the received item is the same as your basis in the item you gave away. In an exchange that is not like kind, you get a new basis that is what you paid for the item in the imaginary double sale transaction.
There's case law and regulations dealing with all kinds of variations on this theme. For instance, if I trade my male horse for your female horse, is that a like kind exchange or not?
I don't think the law will have any trouble at all dealing with taxation and Bitcoin.
You pay income taxes on your income, not on the medium of exchange. Why do you think that if merchants recognize BitCoin as currency the IRS won't? If evading taxes were that simple you could just demand to be paid in gold dust or Swiss francs, and everyone in the US would work for foreign companies as a first preference. As it is the IRS is abundantly familiar with substitution schemes, as you can find out if you arrange to have yourself paid entirely in air miles or grocery coupons.
Do you want to save money on taxes? Then stop working for other people, start your own company or speculate on the markets, and take up philanthropy. Capital gains tax is a lot lower than income tax and charitable deductions are very generous.
Like the money I made in a foreign country last year, the gov will ask you to convert it to USD and use that to file you taxes. Income is income in whatever denomination it's in.
The article assumes we want to pay taxes and that a significant portion of our tax dollars are spent wisely thus making taxation an advantage of the dollar.
Convincing Americans to switch to a currency other than the dollar is roughly as futile as convincing the Internet to switch to a protocol other than TCP/IP, and for the same reasons.
Meh, you don't have to convince Americans, just convince other people. Other countries are already working around the US dollar. Wasn't there a recent deal announced between Russia, China, Brazil and India for them to accept their own currencies as an alternative to US dollars for debts, loans, etc.?
All of the author's arguments are null when you consider that cash registers, phones, your bank, etc. IS a computer so issues of convenience don't really hold up. I don't think it will be that long until my local cooperative bank enables withdrawals from my BitCoin account on my Visa. When you can store your money in an safe and transparent system like BitCoin or a currency controlled by a shadowy Federal Reserve, which would you pick?
The author has given some good reasons why Bitcoin won't become the new global currency, but there's a lot of space between global domination and fizzling out of existence.
Consider probably the most well-known alternative currency, the Ithaca Hour (http://www.ithacahours.org/), which has been going strong for decades now, but has no pretenses of expanding beyond its narrow geographic niche.
There are far more restrictions on dollars if you want to transfer them electronically, because ultimately you need to route them through large financial institutions.
It’s a very cute classroom project – but to really be accepted means the government will have it’s hands on the flow, revenue and taxes from said bitcoin just as with the dollar bill. So besides this being anything more than a social experiment – its about as smart as buying POGS if people remember those things...
FWIW, unlike Pogs or Beanie Babies or Cabbage Patch Kids, does have built-in scarcity. If they do become some crazy fad, the manufacturer can't ramp up production which ultimately only servers to devalue all BitCoins.
But yeah, for now I'd basically think of them as something like baseball cards or comic books.
Allegedly, using a GPGPU to mine bitcoins is still modestly profitable, though a CPU is probably too slow for its earnings to cover the power to run it.
A lot of cool stuff is in the pipeline though:
1. A decentralized DNS registration system utilizing bitcoin technology. http://www.bitcoin.org/smf/index.php?topic=6017.0 There's even a 3500 BTC bounty for it: http://www.bitcoin.org/smf/index.php?topic=2072.0
2. GBSE - Global Bitcoin Stock Exchange: Utilize public key cryptography and other tech to create a bitcoin stock market. http://www.bitcoin.org/smf/index.php?topic=5947.0
3. witcoin - a micropayment social media site. http://witcoin.com
The bitcoin community has thought more about the weakness and strength of the currency, failure modes and solutions to problems more than any critics about bitcoin in the world. It's just that very few bothers writing and publish these knowledge for distribution to the wider public.