So people buy something that's going to depreciate in value immediately?! This seems CRAZY, since you said people will just hold Bitcoins forever! Why would they take a less depreciating asset (cash) and trade it for an even more depreciating one (a new computer)?

Oh yeah, because people value having stuff now over later.

So you are going to trade them eventually, right? If everyone hoards them now, what happens to the price? I'll answer since you probably won't be able to figure it out. If everyone anticipates the price of something will go up in the future, then the price will go up now, instead. Accounting for time value, of course.

Is this like when I expect bitcoins to go up in value and then they go immediately up but since I'm smart I don't sold them because I expect them to go up in value in t+1 also and they go up....

and I don't spend them on products but save them as do all of my friends. And we stop spending on stuff that are not necessary so we can save bitcoins that go magically in value. The factory worker is somewhat upset because there is no demand for his product and economy stalls. Huh? Is this deflationary?

So you stop spending them, and take them out of circulation, and this makes the price go up. Eventually the value becomes great enough that you decide to spend them. It's called equilibrium.

And the demand for the factory worker has nothing to do with marginal value of Bitcoins, except when you are keeping score in Bitcoins rather than the value of what he gets. You are assuming that keeping score in currency is the right way to do it. Keeping score in what he is able to purchase is.

The only reason this stalls out is when you build an economy based on ever inflating bubbles replacing any collapsed bubble.

Don't worry, I'm not that naive....

I'm worried that no one wants to lend me money in that equilibrium of yours. Since it's going up it's better to save then to invest, and when it's not better to save it's still better to spend... (oh wait, is that indication of economy stalling as I suggested?)

Why is it better to save than invest? No one said this.

Not lending money to unproductive investments is a feature, not a benefit. You remove bubbles and crashes. You are assuming your conclusions.

And indication does not mean cause of.

What do you guys think about the ASICS. Any scams out there among the 4 (5?) big ones? Any real ones?

The shutdown of bitcoin exchanges used to be my biggest fear. I thought mtgox would have been shut down by now, because the banking industry makes so much money, there is no way they will allow a threat to come against them like this. Two things have changed my mind:

1) localbitcoins.com is working. Not for what it was originally designed for, local money swaps, but instead for trading bitcoins for bank transfers. So you can trade with anyone in the same financial zone in the EU, UK, and US, at very low vig. Only one of the parties needs to have a reputation to enable trading, since both transfers are irreversible. localbitcoins is planning to redo their site to make this usage easier, as it is hard to tell which sellers you can trade with for BofA, Wells, or Chase quick transfers in the US, but it is working great in europe. This shows that decentralized exchange systems can work. Maybe not for transfers over 1k, but that can be handled by big exchanges.

2) Even though I still expect western countries to shut down bitcoin exchanges at some point (while screaming about child porn and illegal drugs), I expect countries who are outside of the western financial system to get behind alternative currencies. It would be a massive benefit them to destabilize the control of the west on the financial system. Iran is constantly in the headlines for its antics in conducting trade outside this system. I expect Iran, Venezuela, and the Russian Federation to come out as pro-bitcoin, as they benefit from anything that damages the US. Here is a quora post where I paid a ton of credits to get some economists to tell me who would benefit from a single world currency. See if you agree with their analysis.

The law is certainly part of it. But bitcoin cuts out the middlemen because there is no need to verify identities. Normally the receiving party has to go into a western union office where their identity gets verified to make sure the money goes to the right party. Bitcoin changes this by allowing the actual medium of exchange to get shipped straight to the receiving party without a middleman.

Bitcoin is accepted at over 1500 merchants now. This is mostly due to its utility, and partially due to ideological reasons. Here is a map of all the places you can spend them in Real World Shops. Internet shops are more numerous by an order of magnitude or two, as bitcoin's utility is much more obvious for commerce at a distance.

aesthetics, I will sell you 2,000BTC for poker money at only 1% vig.

Just noticed you can trade bitcoin on forex at https://www.firstnationalib.com. I bet this picks up steam.
http://www.youtube.com/watch?v=x8ibOGAebW8

And in case you've been living under a rock, when the bitcoincard launches next year, bitcoin is really going to take off.

That is sketching me out. BNAK? Swiftcoin?

Found this old thread about it. https://bitcointalk.org/index.php?topic=51820.0

Stay away imo.

You would never sell them no matter what because the price will always rise and you are sure, is that right? So you must have a ton, right? And getting more all the time no matter the cost since they are only going up because of 'deflation'?

your point?

at least TC is understanding the topic we are arguing about, you on the other hand seem ignorant so please leave this to the grownups...

@TomCollins:

Sry to say, but I understand your points and you are mistaken....
("And indication does not mean cause of" is a rephrase of correlation does not mean causation but it actually does in a closed system with only two elements - that we are arguing about)

Think of it like this, you have two products A and B. At any point product A has a faster growth then B. It means product A has an inflationary tendency and it's loosing value vs product B. People want to preserve their purchasing power and allocate more of their portfolio to product B, right? Now what about if product B is static? Product A is inflationary and product B has two options only (in t+1 it always has equal or better value then product A). At this point there is little incentive to hold product A over product B since you are newer worst of holding B. People will obviously allocate some part of their portfolio to A but this is out of pure necessity.

Now, A is production and B is monetary substitute - bitcoin. We can see how bitcoin produces an incentive tot to allocate into production but to savings....

sry. last sentence should be:

We can see how bitcoin produces an incentive not to allocate into production but into savings....

A is production AND consumption. Having more savings allows more resources to be put toward future consumption and investment. This is a feature, not a bug.

Skip the condensation and answer?

You say bitcoin will fail because their value will go up. You also say you would never spend yours. That seems to imply you would also want to have a lot of them. Do you?

this is where we differ...(I would like you to explain the above statement in more detail, please)

I'm getting a feeling you ether really don't understand or you're intentionally skipping my point... (fell free to comment on: "there is little incentive to hold product A over product B since you are newer worst of holding B")

A is not consumption...consumption can only exist as allocation is flown from bitcoins into buying more products by definition. so consumption in not a independent product...

also, while it is true that savings allows more resources to be put toward future consumption and investment this is not encouraged by bitcoin system since there is little or no incentive to invest if you can obtain risk free profit by simply holding bitcoins and saving... (edit: also consumption is not encouraged beyond the bear necessity)

again, let me put it like you are in elementary school. We are arguing on theoretical ground that bitcoin is a legal tender - the effects of a monetary substitute being bitcoin rather then inflationary currency. What you are doing is called an ad hominem attack implying that I'm not consistent with my observation since I don't hold any bc but this is certainly false since bc is not a legal tender in any country (and yes if it was I would save in bc if there weren't any other better investments).

I am missing your point because you are just plain wrong. Bitcoins are not productive. They do nothing but allow people to store value and conduct trade. By themselves, they have utility. Value is not flowing from Bitcoins into products. Value is flowing from someone who produces something to someone who wishes to purchase it and Bitcoins are given to him so that he can save it, invest it, or consume later. It is essentially an IOU for something he has already created.

A Bitcoin being saved is not some kind of idle production. It simply is reducing the supply of money in the present so that one can spend it in the future. This simply does not harm anyone. It allows the goods that are available during the time the Bitcoins are saved to be purchased more cheaply, due to there being fewer Bitcoins trying to purchase items. It also signals that there is demand in the future for more consumption then, which creates an incentive to withhold consumption now and invest resources towards future production. These are all good things.

And you state that there is no incentive to invest. This is incorrect. There is just as much incentive to invest as before. Although you don't have to worry about being stolen from by *not* investing. If you invest, you are simply able to get EVEN MORE in the future than if you held your assets. Remember that the price deflation can only occur when society is able to produce more in the future than in the present. If there are constant goods over time and velocity is constant, then prices remain constant. So only when society is actually producing more are prices falling. So when you make an investment with a deflationary currency, this means that there are profitable investments (taking X today and being able to have X+Y after some time). If you can make a profitable investment, then you end up with more Bitcoins than you would have had if you saved them. And by investing in this case, you are taking your deferred savings, purchasing resources now (that would have been purchased for consumption, and driving up their prices), in order to create more resources in the future. You are taking away present consumption for future consumption. So long as that is what people prefer, then this works out.

What you will see that is crushed is consumption debt and unproductive debt. This is a great thing. There are only so many resources available at any point in time. Wasting them on unproductive investments is a tragedy. This will prevent malinvestment of resources and free up more resources towards their most productive uses.

I will just address the parts in witch we differ (tho I've quoted a lot for simplicity), everything else we agree upon...

I didn't imply BC produces value (I just used a word product) so it's a semantic misunderstanding. BC stores value, but in a way that as long as economy rises the individual gets a risk-free return on rising economy by holding BC. Since economy rise with investments (that imply spending BC) someone needs to spend their BC for your BC to rise in value. People that save piggyback risk-free into the investment of other people - implying there is better incentive to save then to invest or consume...

you are wrong to assume investments are risk-free or better to say the distribution of investment is highly against you then you imply in your post (If you invest you get nothing in the future since you loose everything, currently somewhere around 1 in 20 investments have long term profitability). This is my argument, deflation produces a strain on the economy since it is better to save then to invest when you look at the payout structure...

sure, it will also prevent highly risky investments since everyone piggybacks on your success by holding BC that rise in value from you production

No, no one needs to spend anything. Investment needs to happen. Production must increase, that is all. They aren't piggybacking anything. They are contributing by deferring consumption into the future. This frees up resources for investment.

Of course they aren't risk free. I never assumed such thing. If you want to get a return on your investment, there is going to be risk. Where is the strain? There is no strain, you are inventing this. By savings, you *are* contributing. You are making it easier for other people to invest.

Whether or not 1/20 or 5/6 investments are profitable long term is irrelevant, what is relevant is the return on investment. If there is no return, then not investing IS better for society. If there is a return, then the number you describe above doesn't matter at all. Just that the ones that are successful make up for the ones that are failures. And there needs to be a reward beyond the risk. Nothing prevents this.

Again, there is no piggybacking. It is symbiotic.

ok, at least we are converging (in identifying where the disagreement is)...

this is a major point, that I don't think it holds true...

Yes, it is symbiotic if it is, but it can be predatory (exploitation) and bitcoins stimulate explotation. How? Savings are used for investments but I'm better of using someone else saving for investments. I can hold my BC in sock (so to say) and if economy rises my BC rise in value. Holding in sock has a payout structure for t+1:

1. same value - economy stagnates
2. higher value - economy rises

So I get a positive payout structure even if I don't use my saving for investing. Since experience shows that investment is highly risky BC does not stimulate moving BC from savings to investments at any level. edit: no symbiotic so to say

But your Bitcoins don't actually do anything when you *do* invest them. You simply are converting them to other assets when you invest. Them sitting in a sock does not harm the economy. In fact, what it does, is provides a benefit to those consuming now and those investing now at the expense of those who spend in the future. Bitcoins don't actually contribute to investment. Present goods and services do. Investment is a way of taking those from consumption (and savings for goods that can be stored) and puts them into future consumption. Investment being risky doesn't matter. You obviously would only invest if you could beat your risk tolerance. If not, you save or consume. If you save, you make it easier for others to invest by deferring consumption, and if you consume, it makes it harder. But that's ok, because consumption in the present signals that investment should *not* occur, since people are preferring present consumption to future.

Yes they do, they go away and I don't know if I'll ever see them. Yes, but I don't know if I wanted this asset or service. I only want it if it brings me back more BC as an investor. You are implying that I can make my risk obvious while I clearly can't... No it doesn't not benefit people that are investing now. They want you spending your BC on their products. And you pesky BC saver want to obtain higher purchasing power in the future that is clearly a result of people that spend their BC on investments. see below If you save, you do not make it easier for others to invest. You are making a classical assumption that I would allocate my savings in a bank that uses it for investments while it is obvious I don't need to. I can simply store it home and obtain risk-free rise in purchasing power (almost like arbitrage) if someone else invests.

Whether you see them or not is irrelevant. You are taking a risk, yes. But you expect to have a positive expectation from it (otherwise you wouldn't do it). It's not that the Bitcoins are being magically transformed into goods or services. It's simply those Bitcoins are now entering the marketplace and outbidding other people for those goods and services.

What makes you think you can't make back your investment? If you can't, it's a dumb investment and harmful for society. You are better off not investing. Society is better off by you not investing.

How does it not benefit people that are spending now? They are able to get more for their money. That's a huge benefit!

And someone producing something now- yes, they would suffer here. But that simply is because they are providing a service that people do not what (goods/services now) compared to what they do want (goods/services in the future). If you produce something that people don't want, you will suffer. This is a good thing. This is the entire point of capitalism- deliver what people want when they want it. This is no different than opening a restaurant in an empty area or a ballet in an area that prefers football. Producing goods/services now when people want them in the future is no different. Instead, you should be investing into the future, when people will consume them.

I am making no such assumption that a bank is using anything. I am making an assumption that they stay out of the money supply. This is simply supply and demand. If there are fewer Bitcoins bidding on something, then it means that the price goes down. Someone wishing to invest (buy capital now to produce consumables later) would benefit from this because they could buy at a cheaper price now, and sell at a higher price in the future. Eventually you reach an equilibrium- prices will come down in the present to a point where people decide to start spending now, as prices would be higher in the future or they wish to consume now rather than later due to time preferences.

It is wrong to assume I can calculate my EV correctly. I'm pretty sure you've spend a lot of time betting if you think this is in the "real word" when investing in offshore drilling...

------------------------------------------------------------------------

I'll give you a small illustration why you are wrong on piggyback:

Rikers (R), TomCollins (TC), AlbertoKnox(AK) and Henry17(H) have 10 BC coins each. There are 40 loaves of bread (LoB). 1 BC buys 1 LoB. Now TC and AK decide to invest 10BC each into H bakery to up the production in the next turn to 80 LoB. There is a 5% chance of failure and H gets all the moneyz or 95% chance H will give them 2.5 BC each. EV >0.

"But, hey. Is it all ok? We are all friends, but R is not investing." - said AK.
"I know what I'm doing" - TC replays assuring the AK.

R smiles, but no one sees him. The explotation game is on.

On t+1 H pulls it of. Woooho... economy now has 80 LoB. R has 10BC, TC has 12.5, AK has 12.5 and H has 5 BC. R can now buy 20 LoB, didn't invest nothing, didn't risk anything and is again smiling.....

R sends text to TC and AK: "xoxo!!" and smiles.

Being able to calculate your EV correctly is not a requirement. Those who do it better will profit more. This is a good thing. Those who are worse at it will lose their money or miss out on good opportunities. This is a good thing.


So what is the problem. I have 12.5 Bitcoins and can now buy 25 LoB. I did better than you. We were better off because you didn't bid up the prices of ovens or flour, and now we met your demand by giving you bread in the future instead of bread now. There is zero problem in your scenario. You are so concerned about someone forgoing consumption to benefit from that. But this is exactly how investment materializes into gains. It requires people forgoing consumption in the present. Of course they should be rewarded for this, they are contributing and not freeriding.

R has successfully capitalized on:

a) work of H
b) capital investment of AK and TC

R didn't do anything and is rewarded for that. Soon AK also spots what R is doing and joins the arbitrage team. Economy suffers. Why? Instead of TC and AK investing there is only TC with half of the capital then usual, obv.

"Who knows. Maybe EV isn't above 0." -AK thinks and conclude it's better to avoid investment at all...

Nobody is better off if people are sitting on the sidelines....