I think bitcoin is an extremely interesting concept, and the economics around it are equally interesting. I bought a tiny amount when the prices were around the $11 mark, and its insane to think of the price-shift. I made a couple bucks off the price shift, but now I'm honestly thinking that the price will fall back down. Despite serving the needs of many SR/SatoshiDice people, I dont think they're quite at the point of being honestly valued at $21 each.
I think the fact that the price jump happened in (basically) a 12 hour period, coupled with the fact that bitcoin is traded as an investment very often makes me believe this is an artificial price jump. I'm no economics guru, but it just seems like common sense to me. Tons of people see a short burst and panic buy, this allows the sellers to ask consistently higher prices as many people panic buy (Lets face it, many, maybe the majority, including myself, in the bitcoin game, are amateurs when it comes to currency trading).
Anyway, it'll be interesting to see where this goes, and I'll almost definetly be buying when/if the price falls to ~$12/$15, which really seems much more appropriate in my opinion.
The problem with all fiat currencies is they have no inherent value; it is all in the eye of the beholder. So what is an "appropriate" price is quite difficult to determine. Most currencies are driven by being effective monopolies wherever they are issued, so the market price remains somewhat stable. Even so, many professional economists have opined that the exchange rates even between major currencies are way too volatile.
This is, among other things, because there is a whole lot of loose money floating around that can easily jump between currencies. We are probably going to see a lot more of this in the Bitcoin world, which I expect has a lot more volatility ahead of it -- somewhat ironically in this case, as the increased liquidity promotes volatility, since it becomes an instrument of pure speculation that was previously too difficult for professional traders to deal in.
In any case, I also had the intuition around the $11-12 mark that bitcoin was a good investment, since the major hurdles around the security issues were probably ironed out, but didn't invest anything -- probably because deep down I'm a value investor and don't see a lot of value in driving speculation in something that doesn't have inherent value (despite the many interesting technical aspects to Bitcoin).
Well Bitcoin is not a fiat currency since it being defined as money is not dictated by fiat. It isn't attached to a physical good which is interesting. I'm guessing that its' value is being helped by the increasing amount of inflation in fiat currencies around the world and that the newly created money doesn't have a better home. Many people are scared of stocks and real estate so other assets become more attractive. I'm not sure I have any use for Bitcoin in my life and in this financial environment I wouldn't be involved in Bitcoin at this or any price.
Exactly. People take note - Bitcoin is NOT fiat currency. Fiat is latin for 'let it be done.' As in governments can create new money at will. New bitcoins can't be created on demand by anyone.
Economically speaking fiat is a currency that exists by rulemaking instead of having an inherent value— it's constructed. The definition doesn't say who does the constructing or how.
Bitcoin is a fiat currency— the fiat is embedded in the software that runs on and is enforced by all the Bitcoin nodes, it's the rules that make the currency exist and work. It's largely immutable, participated with by consent, transparent, and cryptographically strong in the way no government fiat is— bit it is technically a fiat currency.
This is no big deal unless you make the Internet-liberitarian/goldbug mistake of thinking fiat is a dirty word.
Fiat does not imply constructed. The notion that gold (or tulips) are valuable are equally constructed ideas by humans. Nothing has 'inherent' value apart from the value humans perceive these things to have. No, the only thing fiat implies is manipulation - the ability for a government or person to mess with the value of a currency by 'willing it to be.' Bitcoin is not fiat.
So, based on that definition, it is true that Bitcoin is not a fiat currency because it is not given value by law or government. However, although it technically does not have a centralized issuing authority that can arbitrarily create Bitcoins, Satoshi Nakamoto did hard code a creation rate for Bitcoin. In a sense, he is the original issuing authority. The only difference between Bitcoin and fiat currencies, when it comes to currency manipulation, is that Nakamoto committed early on to a specific plan for issuing currency. The government (or the Fed) not only does not make that commitment, but it is unable to make such a strong, unbreakable commitment, although it verbally makes similar commitments all the time.
You're making the mistake of consulting a medium writable by throngs of InternetLibertarians™. :P There is nothing inherent in the economic concept of a fiat currency of government.
What is a law or a government in any case? Bitcoin is created by rules. The rules are embedded in a program instead of a law-book. The governed users opt in by using the software rather than by living in some geography. The rules are enforced by being mathematically unbreakable rather than with courts and prisons. These factors alone shouldn't be especially significant, other than that they make Bitcoin more just and efficient.
Although I do agree with you that the difference between Bitcoin and other fiat currencies is a matter of degree and not type, there is a rather important difference that you are skipping over. The fact is that there is accountability with respect to Bitcoin issuance, whereas there is little to none with respect to the amount of currency issued in other venues (i.e. central banks), except the possibility that people will flee the currency and devalue it.
In fact, with respect to money creation there are not a lot of set rules. The main problem is keeping supply matched with demand. From a governmental standpoint demand is usually enforced (at the very least by forcing taxes to be paid in your currency).
Bitcoin is created by rules of mathematics and mined by problem solving. Gold is creating by mining and refining and governed by the rules of physics.. What does any of this have to do with the definition of fiat? It's already defined, lookup the latin - 'it shall be'
Exactly. Somebody said "it shall be" and behold, there were bitcoins. Fiat currency means no physical asset backing it. Bitcoins have no physical backing.
Show me a fiat currency the appreciates over time and maybe I'll look at it differently. Have you ever thought of that the root of our over-consumption society might be caused by the need to keep our money always moving to prevent it from depreciating?
This is a very complicated and interesting topic. Many economists believe that inflation is necessary to keep people from hoarding. Spending, either in the form of acquisition or investment, is necessary to keep the economy juiced up.
In other words, your criticism would be considered a design feature by many economists. Some even considered adding a fee (demurrage) instead of facilitating inflation, encouraging you to use whatever money you had. This would be akin to a 1% asset tax instead of an income tax.
The rate of bit-coin creation is only fixed over time, you can create a new bit-coin 'out of thin air' if you add enough computing power to the network at the right time and in the short term. The compensation is to slow the rate of bit-coins over the next cycle not shorten this cycle time. In theory you could crate more bitcoins than the 'long term cap' if you had enough computing power.
There is also a voting mechanism that can change the Bitcoin protocol, the NSA for one probably has enough computing power and bandwidth to flat out 'take over' the network and give themselves arbitrary bitcoin amounts.
PS: Voting is a basic problem with all network based protocols. If enough machines say this is what happened then that's what happened.
I could 'create' dollars too if I had a lot of resources the forge bills and coins. The point is any government can fuck with a currency.. what's new? There are plenty of ways to defend against attacks.. I was around during the P2P client wars. I know all about it. Back when the RIAA was trying to disrupt file sharing networks there were trusted/signed black lists of bad hosts to exclude from the network.. and that is only one defense type, there are many.
The point of Bitcoin is to have a currency that isn't subject to central control, but is easier to trade than gold or other commodities.
We can argue about whether or not that is a good thing, but let's at least be clear about what we're talking about. Using definitions of words that are different from what everyone else uses is not the way to communicate your ideas to other people, let alone convince them that you're right.
I disagree on many points, but the easiest to argue is that it does, in fact, have inherent value. At its most general, that value is in allowing people to make exchanges they wouldn't otherwise be able to make. In particular, that sadly seems to be centered on drug trade. The fact that someone designed the mechanics has little to do with it.
Back when BTC was close to USD$30, I was wondering how much meat there was to it. I had enough that if the market was going to vanish it would be a damn shame if I didn't cash out (so to speak) before that happened. After a bit of thought I decided to hold on to the BTC. I made a comment to a skeptical friend that "bitcoin can't fail." Then came the compromises and the price of BTC dropped like a stone.
I was disappointed, but I didn't feel like I'd lost my tiny fortune. When I made the statement to my friend, I knew what people were using it for. I was confident they would continue to find value in it and the price would rise once again. My prediction has been satisfied. I don't feel like my confidence was ill-placed, or that I got lucky to see the rebound and no edict has repaired the shaken confidence of BTC traders.
>> that value is in allowing people to make exchanges they wouldn't otherwise be able to make.
Well, you could say the exact same about every currency. If you are a chicken farmer, it is easier to buy a pound of pork for $5 than trying to trade your chickens for a slab of a pig (i.e. barter). All currencies provide value, since they are a lot easier than barter. The question is not that, it is whether or not they are based on something of inherent value.
Well, you could say the exact same about every currency.
There is an online market (of goods) built around BTC because of its particular properties. This market wouldn't exist without it. You can't sub in barter or gold or most other forms of money, and especially not anything that leaves a record.
The nonsense argument about BTC being a fiat currency is confused. There is an authority in a sense that dictates the mechanics (but I see it much like the 'rules' for determining what is and isn't gold.) However there is no authority that confers value of any kind to the currency.
Well, in general the price level of bitcoins, how much individual bitcoins are worth compared to other goods, is going to end up being governed by
MV = PQ
Where M is the quantity of bitcoins, V is how fast they criculate, P is the price things in bitcoins, and Q is the size of the economy that bitcoins are used for. Since the bitcoin design prevents M from increasing that much, and since V tends to fluctuate a lot but remain stable in the long run, you should find that the value of each bitcoin mirrors the size of the economy that uses bitcoins in the long run. So buying bitcoins is essentially a bet that people will use them for more and more things.
With US dollars the government (or central bank). tries keep M at a level where Q doesn't move around too much, but bitcoin doesn't and can't have an institution like that.
I think you need to include speculators in your equation. If S is the number of bitcoins being horded, we would get (M - S)V = PQ. Since the perception seems to be shifting where more and more people believe that Q is going to continue to increase, S becomes larger (and in extreme cases, a bubble).
>you should find that the value of each bitcoin mirrors the size of the economy that uses bitcoins in the long run.
Your equation is actually saying the opposite, that the value (P) of each bitcoin is inversely proportional to the size of the bitcoin economy (Q):
MV = PQ => (refactored) =>
(MV)/Q = P
Hence P ~ 1/Q.
Thinking about it more, I think you may have Q and M mixed up. From a supply/demand point of view, the greater supply of bitcoin (M), relative to demand at least, the lower the value (P).
If we assume aggregate demand can be approximated by overall size of the economy that uses bitcoin (Q), then
I think Q is closer to the size of the market rather than the size of the "economy." "Economy" implies both tangible goods and buyers and sellers for those goods. The problem with Q in the Bitcoin sense is that it can move around a lot, since it is an obvious target for speculators with no interest in tangible goods.
The dollar has a huge inherent demand in that you need to pay US taxes in dollars. Bit-coins lack that demand but there total value is so tiny just about any perceived long term use creates a huge speculation opportunity.
PS: For comparison WoW gold is a much larger currency.
Nothing has inherent value. All value is relative. The difference between fiat (paper) currencies and currencies that are composed of a physical good, like gold, is solely the ability to control quantity. Fiat currency can be (and often is) produced in unlimited quantities, which leads to inflation. So-called hard currencies, backed by a precious metal, are limited in their expansion by production of that metal.
This is why so many are coming out in favor of metal-backed currencies, because it restrains governments in what they can print to pay their own bills and their ability to devalue the savings of the populace (as Venezuela just did minutes ago, devaluing the savings of its citizens by 47% in one fell swoop).
If all value is relative then there is no such thing as value at all. Of course the converse statement, that "inherent value" is a construct is true, since people rarely agree on the value of any given object, and generally the only way we can speak meaningfully about value is to take something that people agree has value. That said, there are certain types of objects that have been considered by most people to have value at most points in history. Gold, a fungible, maleable, shiny metal has been considered to be this for most of human history. There are other things of course, water being a very good example. The problem for currencies has historically been that alternative valuable objects either are not especially limited or not fungible, making them a bad base for a currency.
There may also be things that have "inherent value" insofar as they are necessary to the continued existence of humanity, whether or not we perceive them as so. Damaging our environment beyond a certain degree would certainly be this. Unfortunately international governance has not risen to this particular challenge and fully utilized available technology (e.g. carbon credits).
The problem with all fiat currencies is they have no inherent value; it is all in the eye of the beholder.
Apart from the claim on a country's treasury which is implicitly backed by a country's resources. Sure, this isn't always reliable, as in the case of countries like Zimbabwe, but they're very much the exception rather than the rule. Bitcoin's fiat value is posited on the artificial scarcity of something that doesn't have any particular utility in the first place. Gold at least has the virtue of looking nice and having useful physical properties (malleability, non-reactivity, high conductivity).
"The problem with all fiat currencies is they have no inherent value; it is all in the eye of the beholder"
We'll see if you really believe that is true if you ever find yourself having to pay taxes but lacking the money needed to do so. Fiat currencies do have value: their value is in their ability to cancel debts (like taxes).
To say Bitcoin has no inherent value is not quite accurate. The inherent value of the Bitcoin comes from the electricity required to power the computational cycles to "create" it.
If I smash the hope diamond and then get the pope and four world leaders to urinate on it— then surely the resulting mush would be the most rare and costly constructed substance on earth. It would also be worthless.
That's the printing/minting cost of conventional currency.
To have "inherent" or "intrinsic" value means that the actual material has marketable value. For a US dollar coin, if you melted it down, the copper, maganese, nickel and zinc is worth about $0.06. The value of the paper of a US dollar is a fraction of a penny for recycling purposes.
A bitcoin is more like paper currency -- it has no intrinsic value. But because of the predetermined control of new coin production, it will display characteristics similar to silver or gold coinage.
Those characteristics include something that nobody talks about -- the "discovery" of new coins. There are likely large dark pools of bitcoin that the initial adopters generated very cheaply. Dumping those pools on the market will have similar effects that gold rushes had.
"It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value – hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a useful currency, it alone doesn't make anything valuable. For example, your fingerprints are scarce, but that doesn't mean they have any exchange value."
Correct. The problem being the use of the word inherent to describe value. There is no such thing as inherent value unless you are describing a use and not the price someone would be willing to pay for something. For example, wood can be used to fuel a fire but that doesn't tell us anything about its' inherent value in exchange. That it has inherent value on these terms is obvious enough. For me it has almost none because I don't have a stove to safely burn it. Others feel differently.
You have to take a more general sort of view to things. To the median person making use of the value, how much are they getting out? How many people would find value?
For example not everyone likes shiny things but gold is also compact, protective, conducting, nonreacting, testable, etc.
Wood has a thousand and one uses but it's a bad currency because in addition to being bulky it's easy to make more wood. But in certain circumstances it would work fine.
There is barely any use people can get out of bags of sand, so it wouldn't work as a currency. Salt looks similar but used to be hard to get and is important to food and living, made a great currency.
Bitcoins by themselves don't have value. You could make a hundred knockoff block chains and they wouldn't do you any good. The bitcoin network as an entity that you can trust is where anything useful is actually derived from.
Just because some things have intrinsic value and have been used as a currency doesn't imply that something that doesn't have intrinsic value and is a currency can't be trusted.
You have to take a look at society's motivations, situation and psychological makeup, and from there you can make a prediction as to whether a currency can be trusted or not.
The fact that there are fewer possible bitcoins than inhabitants on this planet should tell us that bitcoin should be a good investment at the current excange rate...
...given that bitcoin is still around when all blocks are exhausted, legal to most of the worlds population by then and not outcompeted by something better (better marketed?) by then.
Warning: I am no economist, I still don't know what a fiat currency is although I might have an idea after reading this thread.
"I still don't know what a fiat currency is although I might have an idea after reading this thread."
Fiat currencies are currencies whose demand is created by a legal system. The US Dollar, for example, has demand that is created by law: tax laws, bankruptcy laws, etc. Like anything else, the value of money is determined by supply and demand.
Exactly my point. Fractions of a bitcoin will become normal amounts in everyday purchases because since there is not even enough bitcoins for everyone the value of each coin will rise.
I think it would be better to call bitcoin for what it is: entertainment for grown ups.
Whether you use it get drugs, gamble, bet or speculate on some other place doesn't matter. It has become a game on its own right just like UO, WoW or EVE ... You can view it as game of a currency instead of currency of a game. It has intrinsic entertainment value, thus a commodity that can be priced in real currency.
Nobody bats an eye when a mmorpg makes millions in revenues, nobody bats an eye when a gamer builds a four grands rig. Why should we care about bitcoin replacing real money now or ever? It is not like governments will readily hand over monetary control to its citizens anyway.
So I just bought 2 bitcoins on Coinbase (my first purchase congrats to me!) but it's been pending for 5 days and says it will clear today.
My question, is how can they lock in the price 5 days ago for me. Are they selling me the coins 5 days ago and buying it on the market today? It seems like there would be a lot of risk in doing that.
Except that, with the price rising, they're making money from that "exposure" on average.
And they obviously believe the price will keep going up, because they're a bitcoin business, and believe in bitcoin. If the price stops going up, their company will fail anyway.
And finally, perhaps you noticed that coinbase is processing thousands of bitcoin purchases now. So I'd say, with all that data, it's not actually that risky for them. If the price starts going down, they'll know it first, because they'll be the ones making the purchases. :P
So then they are stuck with bitcoins and you get a chargeback fee. No big deal if the value keeps going up. They sell bitcoins anyway, at a market rate plus a percent.
There is a risk that the price goes down, but the bitcoins don't drop out of their pocket because your bank refuses to clear a transaction to your account.
To be a responsible / sane business, they need to keep a hedge of Bitcoins anyway, in case the value spikes and they can't immediately buy the bitcoins for the price that they quoted you, that you locked in when you ordered; that is another factor contributing to their risk of loss as well.
The part that makes the business stable is that 5 day lag between their purchase and sending of your bitcoins. Their losses are limited to whatever can be stolen (now mostly some other way besides bank chargebacks) and whatever swing as described randomly falls above the level of their margin.
They lock in the price. I bought 3 bitcoins for $48.48, and shortly thereafter the price jumped up by a couple dollars. 5 days later, there was a charge in my bank account for a total of $48.48.
Any word on when they'll support purchasing from a UK bank account? Most of the other options are a bit more convoluted than the straight-forward system Coinbase seems to use.
That's a good question. I'm waiting for Bitcoin-Central.net to support IBAN accounts before I intend to buy some Bitcoin myself, but it would be nice if Coinbase could do what they did so they can sell Bitcoin in Europe, and also though IBAN accounts.
It's not that crazy, BTC will continue to have wild swings like any small market with a fixed supply. BTC was worth more for a short time in June 2011 and then crashed. Another crash wouldn't be surprising at all.
Do you really think the price would change very much if the miner payout was raised or dropped by a factor of ten? Over half the bitcoins have already been mined; expecting the price to be based on the trickle of new ones is unrealistic.
It may change eventually, and the exchange rate does fluctuate dramatically sometimes, but it has been shown in the past that the market value of bitcoins tends to stabilize around the electricity cost of mining.
Since the amount of mining is going fluctuate based on the potential profit, I'd say the electricity cost of mining is stabilizing to a factor around the price of bitcoins rather than the other way around.
Does this mean the total value of all bitcoins is similar to the cost of the electricity used for mining them? If so, isn't it worrying that so much electricity has been used because of bitcoin? I have often wondered if a currency could be constructed such that the mining would solve real computational problems, thereby doubling the value produced per energy consumed.
You don't need to buy or sell from just other Coinbase users. It can be anyone. Coinbase doesn't have a huge market share yet, so it's even less likely.
I think a fair way to read it is that $1M worth of transactions occurred of which Coinbase made some money.
Not necessarily. I while ago I ventured myself in the stock market and in less than a month I traded over US$ 150k in call options. How much money did I have? about US$ 2k, but I made over 100 buy-sell transactions that summed up to that amount. Unfortunately for me the strategy I was using wasn't profitable enough to outcome the transaction fees :(
"Unfortunately, we have decided to cancel this order because it appears to be high risk. We do not send out any bitcoins on high risk transactions, and your bank account will not be charged."
I have no idea why I was flagged as "high risk", I'd be interested to know.
Well for those people holding bitcoins might be worthwhile to them. The bitcoins never go anywhere in the same way that physical money never goes anywhere unless you bury it.
That's because it's the unit of value that the article's reader is most likely familiar with. When you go on vacation you're most likely constantly converting prices in the local currency to the currency you're familiar with - that doesn't mean the local currency is worthless (if that's what you were implying).
After I moved from UK to US, it was months before I stopped doing the mental arithmetic from USD to GBP.
Instead of BTC. You know, when US banks talk about how much business they are doing, they speak in terms of dollars. When Japanese banks talk about how they are doing, they speak in terms of Yen. The funny think about Bitcoin is that its success is measured in terms of other currencies, although that should not be too surprising since its utility is absolutely dependent on the existence of other currencies and on the existence of exchanges.
Why might that be, you ask? Simple: everyone still lives in the real world, where taxes and other debts have to be repaid, and nobody can use Bitcoin for that. So any business that accepts a Bitcoin payment, even if it is an illegal business, does so with the intention of trading Bitcoin for another currency later.
Or poker (https://sealswithclubs.eu/). If you snoop around on the twoplustwo poker forms you will see there is some interest and decent reviews of the site. I imagine for someone that gambles regularly, it's easier for them to leave their bankroll in bitcoin rather than continuously exchanging it back to USD or whatever.
I'm no economist but this is how I see a fiat currency like bitcoin deriving value. Even if no one used bitcoin for a currency, there would be some people who would be interested in buying some just for the novelty of it. That alone gives it a non-zero value. From there, if it has the properties of being a useful medium of exchange, people will use it as such. Over time, the value grows as the amount of "float" (value exchanged into it) grows.
Mathematics. Which makes it a lot harder to mess with - as opposed to government backed currencies. It's also harder to forge and easier to transfer than material currencies like gold.
We're close. Online cam performers are taking bitcoins for sessions/requests. There's at least one subreddit for this, though I can't recall the name, having stumbled across it with the /r/random page.
It wouldn't surprise me if bitcoins were already being exchanged for escort service or some kind of "hookup" business via side channels already.
I never understood why people put money into satoshi dice. In my opinion, betsofbitco.in is way more fun, though admittedly slower paced. Similar to intrade.
This isn't a complete, up-to-date answer, but Nicolas Christin estimated in August 2012 that 1.2 million USD worth of transactions are made every month. http://arxiv.org/pdf/1207.7139v2.pdf I imagine that number has grown, but odds are that the vast majority of Bitcoin usage still isn't on the Silk Road.
Also, buyers on the Silk Road have to be careful about which services they use to buy Bitcoin. If CoinBase isn't anonymous (and I'd guess it's not, since it uses bank transfers), Silk Road transactions could be tracked back to the purchaser's bank account.
Can you explain how the BitMe Chase ATM deposit method works? Their website doesn't say a lot (just to make a deposit in their Chase account and save the receipt.)
You go to their website, and say how much you want to deposit (lets say $100). They will give you a final deposit amount that is pretty similar, but different (e.g. $99.86), which allows them to identify your deposit. Once the deposit is made, they verify it, and if there are any problems, they will request your receipt.
Be careful with coinbase
When they were trying to raise money as part of the founders club, they broke a few regulations: they originally were supposed to raise their set limit within 8 weeks and when they missed it they extended the time by 2 weeks and when they missed THAT they extended the timeline by 4 more weeks. At the end they only made their target by a last minute injection from may have been an insider. On top of that, they have NO policy on refunds for acts of god, hacking, or the government .
I just realize that my comment came across wrong. I am very interested in Bitcoin - I just want coinbase to come clean before I put my money and trust in them
In what way is MintChip superior? As far as I can see, it is a system for cryptographically signing transactions denominated in existing real-world currencies (eg CAD or USD), i.e. it's not really a currency at all. Seems terribly inferior to me.
I feel the opposite. A friend and I put a submission together for the MintChip Challenge, mintchipy.com. My bigest concern then and now is that no one can use mint chip because it's not public.
Coincidently I am working on another project now that uses BitCoin... Fad or not Bitcoin serves a very strong need for me an many others.
If I understand correctly, mintchip relies on the private keys inside each chip to remain private, otherwise you can print money by generating fake transactions. Doesn't sound superior to me.
fwiw I agree that Bitcoin is a useful prototype but I seriously question its long-term viability outside of a niche. That niche, however, may be sufficient to continue to sustain high values for a while to come.
Bitcoin shows us some cool stuff, but it's not sufficient for real-world everyday use. It will be an ancestor to a truly disruptive online currency imo. The network has too many fundamental inaccessibilities to make it plausible outside the elite nerd and/or money laundering sector.
"The network has too many fundamental inaccessibilities"
Just because I didn't rattle all of these off doesn't mean "I don't have any actual reasons for it". I suggest you ask more politely for exposition next time.
The blockchain is huge, and splitting it is ad-hoc patchwork. The network was obviously not designed for such a thing and I'm not really optimistic about it. At this point it takes 6+ days to bootstrap a bitcoin client.
There is still no easy integration method with extant payment systems. It takes weeks to transfer money in and out, or you have to make the trade in person. In many cases you must supply a lot of personal documentation to do anything meaningful on the exchanges. This could hypothetically be resolved, but given the stubbornness of banks and the fact that no one has done it yet gives me relatively little hope.
The system of block verification makes it impossible to do truly instantaneous transfers. This is a big one. Double-spend attacks are real, and people want their transactions to go through immediately.
The system is vulnerable to 51%+ attacks. Not a problem thus far, but I seriously believe it's a huge gaping weakness if btc wants to be taken seriously.
Mining is prohibitively difficult for the layman. These days not even reasonable single-home GPU farms are going to be enough to compete. The reward for mining is diminishing quickly.
Many of the perceived benefits of bitcoin are illusory or misunderstood. For instance, people claim bitcoin is private and/or anonymous when in reality, every transaction ever made with bitcoin is published publicly. This has serious implications for practical privacy deployments. The currency, like the US dollar, still has a baked-in elite class, which is the group of people that own the most compute power. This could hypothetically change, but in real life, it probably won't.
I could keep going (have barely mentioned client-side stuff), but I think this is sufficient. I have "actual reasons" for it. I understand the bitcoin guys know about all of this and think it's not a problem, but I disagree with them. A currency that doesn't have (at least most of) these issues will be super awesome, and bitcoin is an important predecessor, but it's not the end of the story.
This is only an issue if you're running a full-node. If you want to place limited trust in others, you can use a light client (like Electrum or blockchain.info), which are very easy to set up.
> There is still no easy integration method with extant payment systems
Coinbase and Bitpay are making huge strides in this area, so I don't agree with you that "no one has done it".
> The system of block verification makes it impossible to do truly instantaneous transfers. This is a big one. Double-spend attacks are real, and people want their transactions to go through immediately.
The legacy financial system takes upwards of 30 days for a transaction to truly be settled. The fact that bitcoin transactions can be provably non-reversible after just 1 hour is an enormous technological leap.
> The system is vulnerable to 51%+ attacks
51% attacks will only get more expensive as time goes on. Also, in the event of an attack, there are strategies [1] that can be employed to minimize their impact.
> Mining is prohibitively difficult for the layman.
I don't think this matters for wide-spread acceptance. Most people don't mine for gold, but they still happily use it as a medium of exchange.
> The network was obviously not designed for such a thing
Are you talking about Section 7 "Reclaiming Disk Space" and section 8 "Simplified Payment Verification" in the initial design document, which have a profound influence on the design— as Bitcoin uses a hash tree to aggregate transactions instead of just a simple hash in order to accommodate those design features?
> There is still no easy integration method with extant payment systems.
Unfortunately existing online payment systems are highly reversible for months after the transaction completes. This is problematic for many kinds of merchants and it's one of the reasons that digital goods sales on the Internet have mostly been a failure outside of a few special marketplaces.
> In many cases you must supply a lot of personal documentation to do anything meaningful on the exchanges.
This is common anti-money laundering law conformance— same thing you deal with w/ paypal... not exactly a limitation of Bitcoin.
> The system of block verification makes it impossible to do truly instantaneous transfers.
Nothing requires you to do payments in Bitcoin by directly transacting on the Bitcoin network. Scalability and speed require that not all transactions are made directly— likewise, the USD is a dumb piece of paper that can't be sent over electronic networks... and yet the USD is a widely used currency. You can do instant transaction trivially in Bitcoin, e.g. using mtgox codes and less centralized systems can be built if anyone cares.
> The system is vulnerable to 51%+ attacks.
Can you suggest any currency or system of agreement that doesn't have an analogous weakness?
At least in the context of Bitcoin the things a majority hashpower attacker can do are strictly limited: they can reorder transactions (and only recent ones unless they are a very big supermajority).
Compare this to a government created currency which can be inflated boundlessly by a small percentage of the population choosing to mint a trillion dollar 'coin' on a political whim.
> single-home GPU farms are going to be enough to compete
Mining's rewards are linear. Participants make on average their share of the new coin relative to the computing power they provide to secure the currency. And indeed, it's specialized. Is the USD uncompetitive because printing your own gets you imprisoned or gold uncompetitive because gold mining is hard?
Get a job, Kid. It's a currency not a free-money-for-nothing-thing.
> Many of the perceived benefits of bitcoin are illusory or misunderstood.
Well, that's true of many things.
> every transaction ever made with bitcoin is published publicly
Not so— a significant fraction of transactions are made off the blockchain, perhaps even a majority. Even within the blockchain the transactions are pseudonymous.
> I have "actual reasons" for it.
You may, but many of your perceived weaknesses are also illusory or misunderstood.
> A currency that doesn't have (at least most of) these issues will be super awesome, and bitcoin is an important predecessor, but it's not the end of the story
The most important difference between Bitcoin and your hypothetical perfect digital currency is that Bitcoin exists and it works. Satoshi didn't waste time waxing philosophical on the internet, he shut up and wrote code. If there is one thing you could learn from Bitcoin, this should probably be it.
>The most important difference between Bitcoin and your hypothetical perfect digital currency is that Bitcoin exists and it works. Satoshi didn't waste time waxing philosophical on the internet, he shut up and wrote code. If there is one thing you could learn from Bitcoin, this should probably be it.
You're taking a lot of offense here over a disagreement. I do write code, and I respect bitcoin a lot, as I've said already three times now. I have and use bitcoins and think it's a cool thing they're doing. I'm glad Sathosi coded it despite its issues. I just don't believe these issues are as minor as the btc community believes they are, and I don't believe the proper response to criticism is "oh yeah well you can't do any better so shut up".
I think the fact that the price jump happened in (basically) a 12 hour period, coupled with the fact that bitcoin is traded as an investment very often makes me believe this is an artificial price jump. I'm no economics guru, but it just seems like common sense to me. Tons of people see a short burst and panic buy, this allows the sellers to ask consistently higher prices as many people panic buy (Lets face it, many, maybe the majority, including myself, in the bitcoin game, are amateurs when it comes to currency trading).
Anyway, it'll be interesting to see where this goes, and I'll almost definetly be buying when/if the price falls to ~$12/$15, which really seems much more appropriate in my opinion.