Bitcoins. Bubble or newest currency? Your thoughts?

[utebehindenemylines]

As an economics major, I'm having a hard time wrapping my mind around how this works and what it means.


http://www.wired.com/magazine/2011/11/mf_bitcoin/

[Rocker Ute]

As an economics major, I'm having a hard time wrapping my mind around how this works and what it means.


http://www.wired.com/magazine/2011/11/mf_bitcoin/

I've been watching this for a while and find it fascinating in a wild Wild West gold prospecting sort of way.

I've always thought that eventually there would be a single monetary system and this sort of thing makes sense. Are you going to start mining bitcoins?

[DanielLaRusso]

Bitcoins are great for buying acid off of Silk Road. Just don't use the computer after taking it otherwise candy water and aft puris fizzle grapes.

[utebehindenemylines]

Are you going to start mining bitcoins?

You've overestimated my intelligence. I couldn't mine dirt.

[wuapinmon]

You're talking serious computing power to mine bitcoins. It's better to accumulate them through trade. However, this is, in essence, like printing your own money. There's nothing backing this stuff beyond the full faith and credit of anyone else in the newfangled Ponzi Scheme.

[U-Ute]

You are an economics major. I'm just a schlub who, while good with numbers, is still trying to wrap my head around the Dark Arts known as "currency" ever since the Big Recession. I make very little of this, despite my best efforts.

[Uncle Ted]

You're talking serious computing power to mine bitcoins. It's better to accumulate them through trade. However, this is, in essence, like printing your own money. There's nothing backing this stuff beyond the full faith and credit of anyone else in the newfangled Ponzi Scheme.

Yes, it is just like the fed printing paper money backed by nothing.

I see it as a new opportunity for computer engineers, like myself, to building interesting hardware and sell it on ebay... e.g:

http://www.ebay.com/itm/Avalon-Supercomputer-ASIC-Batch-2-Bitcoin-Mining-Rig-BTC-/111044484892?pt=LH_DefaultDomain_0&hash=item19dac45f1c



Preorder for a brand new Avalon ASIC Bitcoin Miner in BATCH #2.
According to online calculator will produce about 14,000$/month.Feel free to ask any proof information about my order.
http://launch.avalon-asics.com/wp-content/themes/base/images/icons/black/box_icon&48.pngAvalon



A standalone, self-contained Bitcoin mining unit.
It is literally plug-and-play; without the need for a separate hosting device.


Hashrate: greater than 65 Gh/s
Power Consumption: 620w@120v AC
Expansion Module Slot: 1
Ethernet and WiFi connectivity.
Standard Power Supply

I'll ship it as soon as I get it. I cannot be responsible for any delays from Avalon's side. According to their newsletter it should take place later this month.
All sales are final.

[wuapinmon]

Yes, it is just like the fed printing paper money backed by nothing.




True, but BitCoins can't tax people to back up their currency.

[Joe Public]

True, but BitCoins can't tax people to back up their currency.

How does taking back a portion of issued fiat currency via tax back up the value of that fiat currency?

[U-Ute]

One thing I have learned about currency is that it is never fully legitimized unless you can pay your taxes with it (see: Tally Sticks (http://en.wikipedia.org/wiki/Tally_stick#Split_tally_in_England)).

[wuapinmon]

Failure to pay taxes results is asset seizure.

[beefytee]

True, but BitCoins can't tax people to back up their currency.

And not just the ability to tax. The government has plenty of resources at its disposal like the US Petroleum reserve and plenty more available should it need it. Bitcoin has nothing.

[beefytee]

True, but BitCoins can't tax people to back up their currency.

And not just the ability to tax. The government has plenty of resources at its disposal like the US Petroleum reserve and plenty more available should it need it. Bitcoin has nothing.

[Uncle Ted]

Failure to pay taxes results is asset seizure.

While I am not a tax attorney nor play one on TV but it seems one would only have to pay taxes on bitcoin mining only when they are exchanged for dollars, kind of like stock. Hmm... maybe I could hold poker games at my home using nothing but bitcoin and not violate my local gambling laws as well.

[sharpone]

One thing I have learned about currency is that it is never fully legitimized unless you can pay your taxes with it (see: Tally Sticks (http://en.wikipedia.org/wiki/Tally_stick#Split_tally_in_England)).

This is true, and it is what gives otherwise worthless paper perceived value. The problem of course is that the government (well the Fed actually) has unchecked power to devalue ALL of the existing currency by printing more. This transfers real wealth from those farthest away from the printing press to those closest to it. Inflation tax.

As far as Bitcoins, they will have value so long as a critical mass of people have the desire to exchange them for goods/services or other currency. Or until some entity with large computing resources (any 1st world government, and a lot of corporations out there) forks the block chain and sabotages the currency.

I have made a bunch of dollars selling Bitcoins, and I intend to do so as long as I can. The last month has been awesome, but I have no delusions that the current prices are sustainable in the long run, so I just mine and sell, mine and sell.

[sharpone]

And not just the ability to tax. The government has plenty of resources at its disposal like the US Petroleum reserve and plenty more available should it need it. Bitcoin has nothing.

Thing is, currency isn't a political invention, it's a market invention. I.e. currency would arise independent of a Government to oversee and regulate it. It has happened continuously in the past, and it is happening now. As long is a mass of people have significant confidence to accept that a currency has 'value', it will be traded for goods and services and for other currencies. Being able to demand that taxes be paid in a certain currency obviously makes that currency a convenient one for the market to give its confidence.

But to say that Bitcoin has no value because it's not 'backed' by anything is a misnomer because, the US Dollar isn't 'backed' by anything either. That is to say, the dollar is not a representation of some commodity with which it can be exchanged at some predetermined rate. E.g. You can't go to the government and say, "I want the predetermined piece of the US Petroleum reserve that this dollar is backed by". It is a free floating entity who's value is determined by the exchange rate with other currencies, goods and services. Bitcoin is no different in this regard.

The principle differences are:
1) the Federal Reserve can and does control the inflation of the dollar, where as Bitcoins can not be inflated at an arbitrary rate. This is a plus for bitcoins, it makes it attractive in that a 3rd party can not steal your accumulated wealth arbitrarily.
2) As pointed out, the dollar is the currency of choice for US tax payers, so at the end of the day it HAS to be used for this purpose, while Bitcoins have no such political role. This is a plus for the Dollar as it will always be required to fulfill a political obligation, and therefore always have perceived value.
3) The dollar has another role as a 'reserve currency' to many other nation's central banks. This also gives it some perceived value, in that to go from currency c to currency d, a lot of times you have to exchange to dollars as an intermediary. Not every currency pair is exchanged directly on the 'foreign exchange' market, only the majors. If this were to change (and there have been several world wide summits to try and change it), you would see the value of the dollar drop drastically as those dollars come home to the US of A to buy whatever goods/services are left to be had for the otherwise worthless dollars. This would be the start of hyper-price inflation.

Confidence plays a major role. If I held up a dollar and said 'This has no intrinsic value, who wants it?' you would snatch it up. That is because you know that you can exchange it for something you want. If you had some bitcoins in your wallet and said to me 'These have no value, want them?' I would snatch them up in a hurry. Why? Because what I can say having been mining bitcoins for about 2+ years now, is that they have real value that has translated to real dollars and real goods and services for me and I don't expect that to change. That value has certainly changed over time, and I'm not saying that the current prices are sustainable, but it has been a long time since they were worth 0 dollars. Since I don't feel the price point has stabilized I don't really keep wealth in bitcoins for long, but that will probably change for me if the market continues to give it confidence. As soon as automated markets sprang up around bitcoin/political currency trading, the value has continuously been non zero.

[U-Ute]

BitCoin surges above $600 (http://www.cnbc.com/id/101205416)



Bitcoin touched a fresh all-time high on Monday as the digital currency continued to gain favor with investors.


The virtual currency rose to just under $619 on Mt. Gox exchange Monday afternoon in Asia, up by over 25 percent from the same time on Sunday.


Its latest gains come as the potential for regulation hangs over the market. The U.S. Senate Committee on Homeland Security and Governmental Affairs (HSGAC) is set to begin a hearing at 3.00 p.m. Washington time on Monday. The event will bring representatives from different federal agencies and representatives from the bitcoin community to discuss virtual currencies.

Meanwhile, in China...

China is quietly positioning itself to dominate the brave new world of Bitcoin. (http://money.cnn.com/2013/11/18/investing/bitcoin-china/)

[U-Ute]

http://blog.samaltman.com/thoughts-on-bitcoin



Maybe bitcoin will be the world reserve currency, maybe it will totally fail, or maybe it will survive in some niche capacity. I don’t know how to weight the probabilities (although I think in the immediate term it's likely to go down), but I do have a thought about the metric to watch: growth in legitimate transactions. A currency without the major use case being legitimate transactions is going to fail.


Right now, the dominant use case of bitcoin seems to be speculation, with a secondary use case for illegal transactions.

Legal transaction volume is still tiny, and many of those involve the seller immediately converting bitcoins to dollars, with the buyer not desiring to use bitcoin as a new currency but instead a version of either money laundering or tax avoidance. (For example, I have bitcoins that have appreciated a lot. If I sell them, I owe taxes on the gain. If I just buy a bunch of stuff, maybe I don’t, or more precisely, maybe it’s harder to prove. Or maybe it’s just hard to cash out my bitcoins to dollars because the wait times at all the exchanges are really long, and I want to buy stuff anyway.)

[U-Ute]

Bitcoin down 50% (http://www.theguardian.com/technology/2013/dec/18/bitcoin-plummets-china-payment-processors-digital-cryptocurrency) as China blocks new deposits.

The first strike of governments fighting back to give currency control back to the banks?

[U-Ute]

MtGox. The beginning of the end? Lots of trust lost there.

[Mormon Red Death]

Freakonomics podcast (http://freakonomics.com/2014/03/27/why-everybody-who-doesnt-hate-bitcoin-loves-it-a-new-freakonomics-radio-podcast/) on Bitcoin. I am all for it.