That's pretty much saying that something a lot of people expect to be important (and put their money behind) are not healthy. Obviously tons of things people expect to be big end up failing. But all else equal more investment must translate to healthier future.

When you say the value is $2-3 does that mean you actually think people's interest/investment/speculation will lead to a $2-3 value again at some point? Or do you have some measure (even rough) that is independent of people's demand for them?

I forget the exact calculation I did (it's in this thread), but the value was based on different adoption levels and probabilities of various scenarios along with how much wealth a person might hold in Bitcoins in each scenario.

When I say it being built on speculation, I talk about people buying just assuming it will go up, without considering what will make it go up, other than finding a "greater fool". The runup last year was exactly that.

Bitcoin needs to be superior to other currencies or payment options to have value. There are certain situations right now where it is superior in very obvious ways. I'm talking about purely being better, rather than just being ideologically preferred. A lot of the demand is simply that, people who *want* it to work, and will use it even if it's worse at the moment.

Bitcoin has obvious advantages (semi-anonymous, no/low transaction fees, able to send anywhere, distributed), along with disadvantages (easy to get scammed/hacked if you aren't a security expert, limited marketplaces, more expensive to pay by BTC if you don't have them already/no scarcity due to clones).

My best guess is if any Cryptocurrency reaches world domination type levels, it will not be Bitcoin. There are some fundamental flaws in how Bitcoin was set up that makes widespread adoption very difficult. The most important is lack of a distribution mechanism to easily distribute the "initial" set of Bitcoins to a wide number of people. In order to get past the bootstrap phase, you need to be able to have enough people with some supply of Bitcoins in a relatively flat distribution. There was too much initial distribution in the "10 guys know about it" phase. Now, in order to get past the bootstrap phase, there needs to be substantial advantages to actually go out and buy/trade for them. The initial holders don't understand that they need to be cultivating this. I believe a lot of this is due to the "geek" mentality, which suffers from the lack of being able to understand mainstream use cases and lack of being able to understand business.

I believe my initial numbers on Bitcoin placed a fair value on about $3-4, but with the "global domination" type numbers dropping considerably in my mind, that puts it closer to the $2 range (which might even be too high). Bitcoin needs an organized player to get things moving. And if such a player got involved, there would be no reason to use Bitcoin and to instead just clone it and start with that. The geeks would revolt and whine, but geeks are meaningless when it comes to adoption. And only in mainstream adoption does the value surge. Otherwise, it's nothing more than a Geek Status Point tool and Small Time Illicit Trade tool.

Some news on bitcoin.

1. bitinstant and auremxchange make it easier to deposit cash into bitcoin.
2. btcncny from China has seen growth in now 8th largest exchange and growing. China's currency is generally pegged to the dollar so they see the same loss in value as we do.
3. MtGox has a new pay now button:
4. Mining block reward is set to drop around December 7th.
5. Most transactions in blockchain associated with Satoshi Dice.
6. http://blockchain.info/charts/n-tran...luding-popular
7. sealswithclub.eu largest poker site

Don't expect bitcoin to drop below $5, however collapse of system due to bug and massive blockchain size could destroy it from witrhin.

Every trade on bitcoin makes initial distribution phase less valuable. Yes, it would have nice to force people to pay $1 per bitcoin. Then put that $21 million in a stock account as a backup if it collapses. But I would bet 90% or more have been sold of all the 1st year distribution and most of those 10 guys are still active in non-paid development. Still most of the coins are yet to be mined, but at least governments and banks can't print more at will like they did even on the gold standard.

Tom, given all the particulars of bitcoin, initial guys, coins earned by mining, reward dropping etc. Would you predict the distribution will flatten over time or bunch up? Is any of the available data helpful for checking this in your opinion? Maybe too easy to fake if the rich guys wanted to.

I disagree with this. I think the major initial hurdle for a new currency is the time where it's not worth anything because no one finds it useful for anything. Bitcoin has successfully broken out of this early development phase and actually has a real value. It is also useful in transactions that require anonymity like internet drug dealing. Those two things should ensure that bitcoin is here to stay (as long as there isn't some undiscovered technical flaw). The bigger risk to bitcoin at this point are some of the scalability concerns and the 50% attack issue. I am not convinced the bitcoin network is strong enough to withstand a government attack that would want to take it down, probably due to the internet drug dealing. Also, it seems a simple game like Satoshi dice is really clogging up the bitcoin network.

I do believe some speculation is driving the price increases more than the real commerce at this point too.

I think it bunches up, but only because people will get tired of it, and liquidate with time.

If it is successful in some ways, it should flatten out some, but it will take a lot longer to flatten than it otherwise could have due to initial distribution and who it got distributed to.

No casual user can mine right now, which basically is the biggest killer of getting new users, other than people just trying to make a quick buck and then liquidate immediately, which is a huge percentage of the miners.

Internet drug dealing is so minor though. It's great for the dealer, not so great for the customer. For the customer, you can buy something overpriced which, if it grows in popularity, will be easy to have a huge sting operation on you.

50% attack is of course real. Another attack is the simple outlawing and making examples of some public Bitcoin users, making it impossible to be used for anything other than illicit goods, which will greatly limit its adoption. Even if it's hard to actually enforce, it will scare a lot of people away.

Scalability and speed is another huge issue of course.

Bitcoin was a great first experiment. But like any first experiment, it usually is flawed and needs to be reworked to be practical. Hopefully that happens.

Right now, a lot of the major threats don't exist simply because it's too small for anyone to care about, though.

I imagine the people actually buying drugs online find it worthwhile or they wouldn't be doing it. If the price is so awesome for the dealers then more dealers will come in and compete for the customers.

Outlawing it will take a long time so it's hard to guess what effect it will have. If it did happen soon I'd expect it to move some people out and draw some others in especially worldwide where the risk is not increased, but awareness would be. Outlawing essentially makes it legitimate money instead of a bunch of geeks passing a file around and calling it money. Also the previously mentioned drugs are illegal already and that hasn't stopped people.

Mining was really clever at getting the first coins out, but it doesn't make a lot of sense for some sexy girl to get her distribution of coins by running hardware, she can take her clothes off and take pictures. There were 5 players in a .6/1.2BTC NL game last night btw. Poker players (most of them anyway) shouldn't mess about with mining either.

The same competition that pushes out casual miners makes us safer from 50% attacks. I think it takes a few million dollars (handled efficiently) to match the current computing power. Gigamining got about 1% of the total hashing power for about $100k worth of equipment. Obviously really rough, but that means 10mil to match the network now.

If a new currency does come out I bet Bitcoins will be a great way to buy it.

The few number of socially inept and paranoid people who don't know how to get them in real life without paying a 2x markup is quite limited, though.

The price isn't awesome for the dealers because they need to spend effort with disguising the packages, shipping costs, etc...

Wow, 5 players? Looks like you are rivaling stars now!

Casual miners being pushed out doesn't help the 50%, in fact, it's just the opposite.

$10M to match the network is a joke for anyone who wants to choke it, and an impossible barrier to entry for people who want to get a handful to get started and screw around.

I don't think you understand the points I'm even making, so either I'm not explaining them clearly or you are irrationally defending it before reading the post.

Imagine if a game like WoW distributed initial bitcoins, where the casual gamer had a chance to get started. The entire system could be decentralized after some time, of course, and the currency count could always be decentralized. Just imagine how much more business there would be if people could play WoW, and get real stuff for it quite easily, and the best people out there only got 10x as much, rather than 100000000x as much?

But, as I mentioned before. Lots of geek sense, no business sense will doom Bitcoin. Anyone with business sense would be foolish to touch Bitcoins, just hire a geek and start your own.

Ouch, all I was saying is that mining isn't the only way to get coins, it just helps make them in the first place. Coins are getting spread around and it helps rather than hurts that people get them doing normalish stuff instead of letting hardware grind.

I don't really understand how a central system gets decentralized later, but I guess that would be cool. I don't think you can just hire someone(s) to make that happen though, it seems like quite a feat.

I didn't mean 10M was hard for gov, only that a few more magnitudes would be, and that's what has to happen before they care anyway.

A lot more than 5 people play bitcoin poker. I was just saying that there is 600NL equivalent action sometimes now.

I didn't say casual miners leaving helps security. I said both are caused by the same evolution of mining hardware. People running out of a burning building doesn't make smoke. But both of those things are caused by fires.

I wish just one old poker site would accept bitcoins.

Just a matter of time imo.

Yes, having a real economy rather than one based on mining is preferable. However, it's a huge chicken and egg problem. You need to have enough people out there willing to spend them to have people offer things that have payment in Bitcoins. You need to have an advantage to do business in Bitcoins for both parties. A widespread distribution makes this phase much easier than if 1 guy has all the coins, and just randomly tries to buy anything he needs with them. Sure, you have the guy who buys a 10,000 BTC pizza and similar stuff to bootstrap, but there are more efficient means that are more likely to include widespread adoption.

Yes, but there is no incentive to get the coins, so you basically need to give them away at first to bootstrap to a wider audience. Mining helped do that, but it was too narrow of a focus initially, due to a constant number distributed each 10 minutes, rather than relative to the userbase. There are better release formulas and difficulty formulas that would have better fostered a slower initial release, followed by a much bigger one as it grew, eventually slowing once the distribution phase was over. The distribution phase could easily be set to last 200 years as well.

The centralized/decentralized system would work by having someone creating Bitcoin, but keeping it closed among a small number of miners, and keeping a huge number of the initial coins. Hell, they could even just code it so they got them initially in a single transaction, then release to the public. The key part of keeping them initially is those initial coins would be pledged to people who do things to make Bitcoin better. You have a central group controlling a lot of them, give out rewards for various goals, and eventually they get distributed. I think someone tried this with a clone, but not sure what ever happened. If it happened, it would have to be a bigger effort.

Another way is to have a game that uses Bitcoin2 as an ingame currency, and just give it away as part of the game. It gets widely distributed, and even if its worthless, people want to play the game anyway, so no loss. But it's able to be bootstrapped much more efficiently, and people have them. You can do both of the above ideas.

I don't have an answer for the last thing, but the way that the coins are generated is cryptographically sound, but not ideal from a distribution phase. You want to have a more democratic system rather than one based on raw power, and one where so many orders of magnitude can be made different with expensive hardware. The reason you want it to be democratic is it's much harder to take over the network when each person has "1 vote" rather than some people have 1 vote, and some people have 10 million votes. I have no good answer on how to do this better, but the algorithm used turned out to be far from ideal. But it might be the best one available. Without this being able to change, my ideas above would be needed to increase adoption.

There pretty much is no incentive for a major site to accept Bitcoins. It's too much of a security risk, too much of a liability to governments who might get pissed off and take away their licenses, etc... It sucks, but it's really hard to make any kind of significant money on the kind of scale a poker site needs (other than a hobby) through illicit channels. Small one-off things will exist, similar to random illegal poker houses in cities. But it's basically impossible to grow to the point of being a major player, and it's silly for the big players to risk anything on it.

What Bitcoin needs is ways to actually be superior. Regular transactions don't appear to be better. Most businesses need to cash out of Bitcoins anyway, and there are transaction fees (this has gone down some), but still its a pain and you need to make sure you don't get hacked.

What you have is:
1) Illegal trade done over long distances
2) Things that are embarrassing and you don't want on a CC bill
3) Things that have incredibly high transaction fees (overseas money transfers)

For #3, I think that had some hope, but I'm not convinced those high transaction fees aren't there for some other reason such as governments limiting the number of businesses, or having high taxes on such transactions. It would be hard to make this effective in a lot of those places since those running such businesses (transferring bitcoins to cash) at the local level would have a huge risk.

I'm not sure how it could be "better" than cash or CCs for everyday transactions. But it needs to be to be a useful currency.

For #1 and #2, it doesn't prop up the value very much since most people trade in and trade out. There is a small holding period, and that props up the value, but it really just is trades in, and trades out, with very little support. What you need is people to actually hold the Bitcoins to give them value.

Tom you should read the alternative cryptocurrencies forum on bitcointalk:
https://bitcointalk.org/index.php?board=67.0

Many of the ideas you are talking about are being discussed or have been implemented in new coins.

________

One of these small networks are going to realize that the attention they would get would be worth the extra work of adding bitcoin deposit & withdrawal. it shouldnt take more than a couple days to set up a system that can hedge deposits instantly using mtgox to eliminate exchange risk and manual withdrawals using a secure offline wallet.

I'm sure a lot of them were in new coins. I saw some of it already happening. Still, the players involved are so minor and have so little resources, I don't have much faith in them.

Still a big LOL @ the idea that poker sites are going to care about the 15 people that still use Bitcoins and play poker and risk pissing off the government when we are on the verge of legalization.

If anything, intermediaries should do transfers for the poker sites, as long as the poker sites were OK with this. But with money laundering concerns and the risk of getting the attention from governments they already are not on the best terms with who they need favors from seems like a completely naive and foolish idea. It's completely idiotic for them.

The second this grows to anything that actually is anything significant, governments will crack down heavily on it.

Many of Tom's concerns are valid for the US market and this is why the US will be one of the last places bitcoin gets widely used. In first world countries, bitcoin is generally not needed because credit cards do a reasonable job. Even with the strengths of bitcoin over credit cards(anonymity, irreversibility, fees), the only places I spend bitcoins in the US are with merchants who offer a discount for paying with them (premiumize.me, prepaid wireless refills), and the only other things it is good for right now in the US are buying drugs, buying digital goods, and avoiding getting raped on currency exchange.

However, this does not apply to the vast majority of the rest of the world because credit cards are not an option for most of the residents of South America, Africa, and Asia. Credit cards are not viable in the developing world due to fraud. Many of these countries have near 100% cell phone penetration and under 10% credit card users, while having irresponsible governments making the currency worthless. This is where bitcoin will be adopted first, where mobile phones and fraud are common, but credit cards and bank accounts are not. This is a much bigger problem than people in the US having to pay 3% fees to credit card companies and $30 to banks to wire transfer money, and it is the problem that will get solved first.

It should be noted that none of the people in the developing world have much chance to mine because they just have cell phones, and that this does not matter at all. The purpose of mining is to secure the network from the double spending problem, which requires computing power most people don't have. The current distribution/mining algorithm is fine. The majority of bitcoins have yet to be mined, and Satoshi certainly deserves to be rich from his invention if it works. Bitcoin uses two different hashing functions, SHA-256 and RIPEMD-160, and this is fortunate because if it was more favorable to CPU power, instead of having "one person one vote", you would have the network being controlled by millions of botnet zombie computers. This concept is used in bitcoin alternative Litecoin, and it will never be as secure as bitcoin for this reason.

It used to be widely believed that alternative cryptocurrencies were the biggest threat to bitcoin, but the events of the last year involving the introduction of many of these alternatives showed this to be false, and I am suprised to see Tom still believes this. Bitcoin being the first is a massive advantage due to both the network effect and security. The only way an alternative will gain traction is if it is superior, and it seems unlikely that someone can come up with an additional property of money, that cannot be incorporated into the existing bitcoin protocol, that is so compelling it makes everyone switch. When alternatives have been introduced which are not superior, they are worthless because we can't spend them anywhere, and their security is compromised because big mining pools in the larger network (bitcoin) execute a variety of attacks against them, including 51% attacks and manipulating the difficulty level, as it is obviously not in their interest to have competitors. Merchants won't accept payment on compromised networks. Bitcoin is a natural monopoly like ebay. Once it got in front of the competitors, no one wanted to use anything else. There are other auction sites, but they are worth thousands of times less than the biggest one. I think changing this outcome will be the aim of a huge crackdown launched by governments and banks, but there is a good chance for even this to fail like it did with bittorrent, especially when the third world will be the biggest beneficiary.

Tom, I am curious about the math you used to assign such a low value to bitcoin. Adoption of any scale in currency exchange, remittances, international trade, or the black market will have it valued very highly. Falkvinge does some math in this article "The four drivers of bitcoin". I don't think this will happen until using bitcoin is made much easier, mainly by sending money securely to email addresses or unique names instead of sending to 31 random characters. The pace of development is slow because all these programmers are developing for free just because they like the concept, but they will get it done in a few years.

It's decentralized. You don't see how that's better? Even if you take lolBernanke out of it, say you have a currency redeemable in gold or whatever goods, you still need to trust someone to actually have the goods. Seems like a huge advantage if not a prerequisite to me, to be decentralized.

I can transfer a bitcoin to anyone in the world and he gets it basically right away with, what, less than a penny cost? Is there actually a way to do this with cash? (Maybe there is, serious question.)

And I wouldn't underestimate the anonymity thing. It might be a small number of all the total transactions who care about this, but that doesn't mean it won't factor in to what wins out (since it isn't a drawback to the people who don't care about it). If you fry your french fries in animal fat and I fry mine in vegetable oil (assume these things taste about the same), all else being equal I'll win even if it's not that common to be vegetarian.

I pay individuals for development and ads. They don't take CC even if we wanted to pay the fees.

I think ads could be a big business for using bitcoins. the biggest worry for publishers is their accounts being frozen and revenue taken back. imagine an ad network that paid out daily (or even multiple times a day) and anonymously.

Hello botnets

I could see a short loop of ads->webmasters->developers/hosting->ads developing an economy for bitcoin. For one thing the loop is small. Secondly, the users are all tech savvy enough to actually acquire BTC. And lastly, most of these people have been screwed by paypal so many times already.

This link seems relevant to the recent discussion:
http://bitcoinmagazine.net/growing-d...tcoin-economy/

Decentralized is great. You know what's decentralized? Gold. Not money redeemable for gold.

But there's a huge risk in storing it yourself. Same thing for Bitcoins.

It's not less than a penny cost. It's the cost to acquire Bitcoins. It's the cost to keep them (risk of getting hacked basically or losing your key). There's the cost of the person you are sending it to to turn it into something valuable. There's finding someone who actually wants a Bitcoin. There are tons of costs here.

The anonymity thing seems good, but I'm not even sure it's there. Plenty of experts have said how hard it is to receive true anonymity and with every transaction logged and easily searchable, put enough honeypots out there, and you can figure out a lot.

I agree with this.

I agree here too. This is where it has a significant advantage and needs to evolve first.


It doesn't have to do with deserving anything. It has to do with the best way to get widespread usage. If you just randomly gave 100 coins to everyone in South Africa, you can see how easy it would be to bootstrap the Bitcoin economy there. Obviously there are difficulties in actually doing this.

The distribution could have been much differently even with the current system in that the distribution actually *increases* for a while, then tapers off and eventually goes back to 0. You simply make it mimic what you expect adoption to be. Paying out the most at the beginning was the biggest mistake.

Bitcoin has a huge advantage over equivalent cryptocurrencies. The biggest property of money that Bitcoin is missing is the bootstrapping qualities of being universally accepted. It might get there on its own, but it will be a slow process. A new currency that is more easily accepted could be better.

Natural monopoly does not mean impossible to displace. Yahoo! used to dominate, Myspace used to dominate. These were "natural" monopolies in the same sense. But it's super easy to do things better than Bitcoin (if you had enough resources).


I am less optimistic about the ability for anyone to actually innovate to the masses. Open source projects are notorious for developing for geeks and having a complete lack of understanding of the masses. And someone who can understand this has no reason to use Bitcoin rather than make their own and actually profit from it. It's a great experiment and I hope it drives the next cryptocurrency.

I thought my guesses were wild-ass-guesses with some fudge factors, but the article you link makes me look like an anal retentive actuary compared to that crap. Complete garbage estimates with no probabilities at all.

Yes 500x is possible. As is -5000%. He neglects a ton of concerns and just makes up numbers without anything backing it. I have the hard time taking the word of evangelists seriously, as they always have agendas and tend to be blind toward anything negative they support. There's no reason to take his estimates seriously. I don't take mine terribly seriously, and they are far more detailed and accurate than his garbage.

Giving away coins to everyone would be a great way to initially distribute if we could do it. Satoshi certainly thought of this and dismissed it because it is not feasible. Instead he came up with the genius solution to the double spending problem that prevented anyone from inventing decentralized currency before 2009. He did this by rewarding people with powerful computers for securing the network by distributing coins to them. This solution to the double spend problem is the most important component of bitcoin. You cannot just throw it out in favor of fairly distributing 100 coins to everyone in South Africa. This is such a bad idea that none of the alternatives have even bothered to try to "fix" this. They all use a form of Satoshi's solution. Also, the algorithm needs to pay out more in the early phase to make up for the lack of transaction fees. Now transaction fees are picking up, and the reward will go down in 6 months.

I think bitcoin is a lot more like eBay than Yahoo or Myspace. Everyone wants to sell on the auction site that has the most users, just like everyone wants the most secure cryptocurrency that is accepted at the most locations. We will never have many competing cryptocurrencies. One will always win out.

I still don't understand your $2-$5 estimate. Could you elaborate a bit? I think bitcoin will either be worth a lot, or go to zero. There is no $2-$5 range in its future past a few years.

After Satoshi's disappearance, the lead developer role for the main client was given to a guy who has never led an open source project. He has made less progress with a huge team than a single guy has with the Armory client. There are some problems that need solving for bitcoin to be universally accepted, and some have not even started to be worked on. But they will get done. I have seen the development roadmap. They are moving in the right direction.

seth-

You are suffering from Satoshi-worship.

Satoshi did a lot. But he's not perfect. He did a great job at what he did. That doesn't mean improvements couldn't be made.

My 100 coin idea was more of a thought experiment than serious proposal. The idea is such an outcome would be more desirable and increase adoption. I think you agree with me, but just think it's not feasible. I agree, there's no good way to do this.

But there are other distribution patterns that more closely mimic that. For example, give out 1 coin every 10 minutes for the first 6 months. Then give out 2 coins for the next. Then 4, then 8, then 16, then 32, then stay at 32 for the next 10 years, back down to 16 for the next 10 years, etc... Obviously the exact numbers would need working out, but the general pattern of the curve is similar. You figure out how many "users" of Bitcoin there would be at various points in time, and have it so that that reflects the number of coins. Once it reaches critical mass, you drop the reward. You hardcode this pattern in so that it either happens or doesn't. Everything else is the same as Satoshi.

You are correct that one will win out. But just because something has the most users or most security or most accepted locations now doesn't mean it will be the same way in the future. What drives being accepted? Basically two things- ability of users to use it to pay, and being able to spend it somewhere else. Bitcoin is such an insignificant dot right now, it's incredibly easy to put it into the dust. It's not Yahoo or Myspace. It's more of AskJeeves or Friendster level.

As for my estimate: I have a coin I will toss and give you $5 if it's heads and $0 if it's tails. Right now, what would you pay to play this game? The game will be conducted in 1 year. If you can't figure out how this analogy relates to my estimate, then you are hopeless. But I think you can figure it out.

There are also quite a bit more possibilities than a lot and nothing. There's niche usage. There's limited black market usage. There's becoming the next PayPal. There are huge ranges that have vastly different values.

The problem is this team thinks that everything can be solved with software. It's not a software issue. It's not a technical issue. (to be fair, there are such things, centered around usability, but they are trivial problems to solve for anyone who actually wants to solve them). It's a bootstrapping issue. It's an economics issue. And it's a business plan issue. Those are the biggest challenges, and the fact that those that have the power and motivation to grow it fail to realize this is what will doom Bitcoin.

The best part is, all these technological issues have been solved and are out in the open, so anyone who can solve the other issues not only can use established and proven technology, but can recreate it from scratch and profit themselves in the process