I've studying this for 2 weeks, learned a lot...
I've decoded the Block Chain...
And analyzed every trasaction so far (about 4,000,000).

There's some brilliant tech-crypto ideas in BitCoin...
I've been all over the map on this, but here's the dope:

(1) BitCoin is a VERY clever Ponzi Scheme...
The key driver is a built-in deflation spiral...
Which is designed to enrich the Founders + Early Adopters.

(2) BitCoin is a Cult, this is an absolute key...
The Ponzi Scheme cannot work...
Unless you have 5,000 19 yo True Believers driving it...
All religious Cults are full of young people that know-it-all.

(3) The median BitCoin Transaction is about $1.50...
Total "commercial activity" is about $50,000/day...
So it's 100% a Speculative Bubble.

(4) It cannot be used for large transactions...
Without building "Trust Institutions" = Banks on top.

(5) There is no point talking to people at BitCoin Forum...
They are hackers turned self-stylized Cult Leaders.

(6) The whole thing is quasi-legal on so many fronts...
That there is a 100% chance the DOJ will shut it down...
But it's gonna have a very interesting run for 2-3 years.

That said...
It's still early enough that money can be made...
But the endpoint for BitCoin is likely near $0.00...
So get in, ride it, and get out with your money....
I'm going back to my 100% legit businesses.

http://liminalhack.wordpress.com/201...le-petri-dish/

It seems to me that the "killer app" for BitCoin is money laundering. If BitCoin gains critical mass, it could well become the medium of choice for the drug economy. While I'm no expert on money laundering, my impression is that it is a huge problem for drug dealers today, and one that BitCoin addresses.

While this may or may not be what the founders of BitCoin want, it seems they are powerless to prevent this from happening.

On the other hand, "legitimate" users (i.e., people not buying or selling drugs) may piggyback on the liquidity provided by the underground economy buying and selling BitCoins. So we may eventually see a significant legitimate economy, but it will be the underground economy that provides the early adopters and gets this thing off the ground.

I see Cowen's point that it will always be more convenient to have your money in dollars when it comes time to buy something. But even if BitCoins is only used as essentially a secure US dollar transfer mechanism, does it necessarily follow that the velocity increases without bound to the point that things fall apart? I guess I'm not seeing that.

ok, i will feed the troll....


1) Perhaps you should look up the definition of Ponzi.

2) Perhaps you should look up the definition of a cult.

3) Of course there is speculation, but there is real economic activity. Just because you can't figure it out from the blockchain (coin-mixing and large e-wallet providers mask the true from/to of many transactions). Put simply, you have no idea who is trading these coins and what they are being used for. They are a substitute for local currencies providing an economic benefit to their users.

4) That's funny, I see a lot of large transactions without banks. There is the Web of Trust, and other personal, private trusted networks using bitcoins.

5) Stay away from the forums then.

6) Just like they shut down BitTorrent? Newsflash, it's decentralized - their is nothing to 'shut down'. And even if they tried to force ISPs (american only) to try to block Bitcoin usage, it can be hidden by using VPN/proxy/ other ports / encryption. It's an open source protocol. It's not something that can be shut down any more than http or ftp could be shut down, worldwide.

Why Ponzi? Even if it is a scheme, I don't see why it's a Ponzi. Also, if it IS a scheme then what's the difference in that respect between it and the dollar or any other fiat currency?

I haven't seen an explanation as to why bitcoin generated fastest at the beginning rather than say a normal curve over 20 years. There could be technical or other reasons I just haven't come across them.

Cult seems harsh, but certainly people do "believe" in it or at least know that they want something that isn't fiat currency.

It's obviously heavily speculative at the moment. I would not expect $ to BTC rate to be at all stable.

If true then so what? However you haven't explained why. Purely security?

Haven't tried so okay.

I agree but it probably stands a better chance outside of the US.

Is this yours or somebody else's?

just wanna point out that it just traded at 1.7

up 31% in about 30 hours

Don't get caught holding the bag!

Grunching a bit here, because I've had these discussions on how it works for too long, and it's getting old going over the basics and economics of it again and again. I thought I'd share my experience and brag a bit.

I've been on the bitcoin scene for almost a year now. I immediately saw the value in a decentralized p2p currency. I told all my friends to go to the major exchange (who took paypal at the time) to just spend $100 and buy as many coins as you could. You could have bought as many as you wanted for under 7 cents a piece. Although no one laughed at me to my face, only one took me up on my offer, and that was a friend of a friend.

It was either self-imposed or pay-pal imposed, but the most I could do in a day was a $500 transfer. I bought as many as I could, and my ultimate goal was to buy 210,000 coins, or 1% of the total coins ever in existence. Since then I've been in some crappy deals. I spent ~25,000 coins to a developer for a website that never really panned out (about $1500 at the time). It was my fault, not his. Financially, I should have just kept the coins. But I've met good, honest people who really know their stuff, and have gained more than $1500 in friendships and experience (probably not $30,000 though)

I currently have 4x5970's banging away in my basement and the electric bill to show it. Still way profitable. But you know what happens if I'm wrong? - I lose. So what. It's not that big of a deal, I look at it as chasing the flush on the river when you think you have outs.

Right off the bat I saw these advantages:
1) Gambling. The costs associated with transferring money to and from banks is quite large. The major sites pick up this tab now. A way to move money freely and anonymously has advantages.

2) Drugs. There is now a place to buy LSD on the internet with bitcoins. Never did the drug thing, so I'm not exactly sure of the logistics. But I know people love their drugs.

3) Porn. I have never used a credit card to buy porn - because I don't want to give my CC# to shady people, and I don't want my wife to find out. If I see some total hottie behind a webcam, and it's about $1.00 in anonymous, instant bitcoins to see her naked, I bet I'd take her up on that now. No different than going to a strip club and spending $1.00. I think this will be the best reason bitcoins take off.

4) IRS / Divorce / Expatriation issues. Imagine the guy who drains his bank acct and buys bitcoins to avoid splitting up his estate with his wife. The guy who transfers his wealth to bitcoins before the IRS seizes his accounts. Need to leave the country for good? You're not going to leave with $50k in your pocket or 30 oz of gold without the chance of getting caught. With bitcoins, you just encrypt your wallet.dat file and leave it on the internet somewhere and you can leave the country with nothing but the shirt on your back. There are other ways around all this, but another tool in the toolbox doesn't hurt.

My biggest fear: Google thinks this is a great idea and starts a p2p currency themselves called gcoin. It would probably crush bitcoins within hours.

I wound up very shy of my 210,000 target, but currently have a little over 50k and I'm generating 100 or so per week. I have an option to buy several thousand coins at 50 cents or so that expires in a couple months. I won't be doing any more serious buying, I lost my opportunity. I also own some major bitcoin domain names.

At $50 each, this would put bitcoins at a billion dollar industry. Gambling + drugs + porn + shady stuff >>>> $1 billion, so I'm looking for a number much larger than that. I said that from day 1. Coins are $1.50+ right now, but what will they be after they headline on the WSJ or CNBC? For some rich guy/hedge fund to throw $100k or $200k into this idea doesn't seem like much.

I think the internet was a solution in search of a problem. No one was thinking about downloading music, blogging or playing poker with people across the globe 20 years ago. I see bitcoins the same way: Now that there is a way to transfer wealth anonymously, what is it good for?

What would happen if the remaining us poker sites started taking bitcoins?

I think Bodog should do exactly this. They wouldn't have to worry about transfers so much and that is their biggest problem.

Bodog would have to either spread games in bitcoins or convert the bitcoins to dollars. I doubt they'd expect enough demand/action for them to want to spread games denominated in btc, and doing the conversion exposes them to a lot of risk since the btc exchange markets are pretty unstable.

Adding a currency can't be that hard. They can trade BTC/USD in realtime 24/7 and give you the rate they get. The players would get the instability, but at least they can play for money and not have it seized.

Oh, I was assuming that, if you send them bitcoins which are converted to dollars to play with, they'd be expected to convert back to bitcoins whenever you want to withdraw.

edit: I guess what they could do is just hold the bitcoins sent to them and force people who deposited in bitcoins to cash out in bitcoins. Assuming btc-depositors aren't strongly predisposed to being winning players, that would eliminate most of the risk to the site.

nevermind the above, i think i was overcomplicating things. what i get for posting right after i wake up.

so yea, should we start petitioning them by email?

Very sharp post - but the people you mentioned: Gambling, Drugs, other shady stuff - they will never user Gcoins or any centralized service. Google will obv adhere to all USA money laundering, kyc, sanctions laws, etc. which means their accounts/coins could be frozen/seized.

The beauty of bitcoin is that it is decentralized, nobody can enforce those types of standards, globally.

It would definitely hurt bitcoin and pull away some of the 'just curious' users, but the real private networks of grey-market economies already involved are not going anywhere.

I pretty much agree with everything else you said. Wish I found it a year ago.

I suspect you're right.

I worry it would make economic sense for google to offload some of their workload onto everyday users, in return for google ad coupons. Since people pay to advertise on google, these coupons would be marketable.

Gold is a consumable good:

http://geology.com/minerals/gold/uses-of-gold.shtml

http://en.wikipedia.org/wiki/Gold#Consumption

Now the value of any good (units of gold, bitcoins, bread, etc.) depends on the collective willingness of individuals to exchange other things of value for that good in question, and at what ratio (price). This depends on many factors, such as:

• individual perception of the ability of the good in question to fulfill certain needs (benefit)
• relative importance of fulfilling those needs compared to those which would go unfulfilled if the exchange were made (cost)
• availability of alternate sources of the goods in question or the goods to be exchanged (scarcity)
• availability of alternate goods which can be used as a means to fulfill needs from either of these groups (substitutability)

Gold is generally more valuable that bread even though none of the uses of gold listed in the links above are more important than preventing starvation. This is because of the relative abundance of bread and scarcity of gold, as well as the abundance of other goods which can substitute for bread in preventing starvation, and the relative lack of suitable substitutes for gold. Obviously this situation can be reversed if food became scarce.

Now the questions for analyzing the value of bitcoins are:

• what benefits does using bitcoin provide?
• what will people be willing to give up to have these benefits?
• how hard is it go get bitcoin?
• how hard is it to get these benefits without using bitcoin?

And, since people mostly care about the future value of bitcoin, how will these factors change over time? I personally have not studied bitcoin, so perhaps someone else could address these in greater depth. But it seems clear to me that there are needs that bitcoin can fulfill, and it is therefore a good. However, this is not the only factor or even the most important factor, as we can see in the case of bread and gold.

Also to add, just because something only has use as a medium of exchange does not mean it is not good for anything. A medium of exchange is useful to the extent that it solves the problems associated with barter. Therefore people who desire more efficient trade should be willing to part with valued goods in order to achieve this greater efficiency. In addition, every good which could possibly serve as a medium of exchange, including bitcoin, has different properties which may make it more or less suitable for that purpose in various situations. I therefore see no inconsistency in the idea that something which has no other use than to be a medium of exchange can have tangible value.

Yes, Gold has industrial and commercial uses. However, that alone doesn't come close to justifying the value it currently has.

Benefits for using Bitcoin - incredibly easy to perform transactions (once you have Bitcoins). It's also incredibly cheap, compared to traditional means (PayPal, Credit Cards). It's irreversible as well. Decentralization is also important, meaning governments can't just shut down how it's used. Remember how PayPal was shut down from gambling sites (way back), from paying for WikiLeaks donations, etc... It's great for setting up tip jars, microtransactions, and payments where I don't want to have publicly tied to me.

Your second question is certainly a good one. Right now, people have no reason to use it. They will use it if it's cheaper, they will use it if they need anonymity or no central records of their transactions, and they will use it if they have no other way to fund something (think gambling, buying drugs off the internet). Enthusiasts will use it just to use it.

Right now, getting small amounts of BitCoins is fairly easy. Getting medium amounts is harder, and getting large amounts is a bit more complicated than that.

As for the benefits it has, they are quite limited at this stage. It's almost all speculation. Gambling is the first big player that might change that. They have a legitimate need that they could serve by using Bitcoins and could drive a lot of play in the industry.

The one reason you would want to purchase Bitcoins right now is either gamble with them, buy drugs, or play games with them. There are a few other businesses you can use them with, but there's not much reason to. This could change, and that's what the speculation is based on.

gambling "might" change that?? It already has...If you are an american and tried to fund/get paid by a sportsbook in the last few years, you know the absolute nightmare.

compare that to btcsportsbet dot com for example: anonymous, automated funding & payouts. No overhead. No jumping through hoops, fake names for WU, foreign third party money orders, none of that. It's a complete game changer and as more and more industries / businesses seek solutions to these types of issues, bitcoins make a lot of sense.

I haven't played much with BTCSportsBet. I did play with some real amateur hour sites and while not impressive in its current form compared to the major players, the potential is there. It comes across as a niche service right now. There's a missing step where it needs to be easier for casual bettors to get bitcoins. Not sure what the best solution is, but it's a missing piece.

It reminds me a lot of the Neteller days, although maybe that's the piece that's missing. Creating an e-wallet that you give your bank account info just like you did with Neteller, then it can transfer cash and get bitcoins for it. I wish I could make something like this, there's a huge demand, but it's playing with fire right now especially in the US. I'm sure there are some countries you could set up such a service and be fine. The beauty is the exchange site does not need to ever link to gambling sites, making it hard to have the government prohibit it. All it is doing is buying and selling Bitcoins, which is as far as I can tell legal. Perhaps mtgox is the best place for this, but it needs to become a lot more user friendly.

Buying and selling bitcoin is definitely illegal in some countries. I'd guess that it is effectively illegal in the USA as well as we know the government doesn't play fair.

Anyone know how to get this into an excel sheet?

edit: lol, after seeing .csv in the file name I figured out you can just save it straight to a .csv file and it opens

exchange rate on mtgox just jumped to 2.5btc/$

re-quoting for lulz

This market is nuts. I've just been trying to get in position to easily buy and sell some, and it jumps by almost 400% in that time.