That's a key part of what really has me hung up on the whole thing. We can trace the 'loaf of bread for $2.89' price because we can assign a cost, or value, based on real pricing of commodities (grain, milk, egg, sugar, salt, etc.), labor, energy, etc., to produce that loaf of bread, from farming to transport to bakery overhead to labor to transport again to grocery store overhead and labor, and then a little bit of profit for everyone involved. Those are all real things that have fairly stable prices for actually doing something and creating something. And then that can be equated, using the same system, to 'an hour of labor at this job equals five loaves of bread from this store'. Or better yet, to 6-packs of beer.

But it seems that bitcoins are coming from thin air. There isn't a product, or labor, behind it. There is an energy use, and it's debatable whether or not one can break-even in that regard, but that energy isn't making anything tangible. There's no info coming out of mining (like the Folding groups were doing with the Genome Project) and there's no product one can buy. The computer just did something but I'll be damned if we can find any output beyond these fairy-dust Scooby Dollars.



Again, I don't get it. An article I found somewhere last night trying to explain all of this showed that bitcoin is used to buy real stuff, and that someone managed to purchase a half-million dollar real estate property with the currency. Based on... computers shuffling numbers around to accomplish literally nothing? All potential jokes aside, how in the world does nothing turn into a $500,000 real estate purchase? I can understand why people are excited about the prospects (money for nothing - yay!) but I don't see how this can NOT crash and burn sooner or later. I get the bit about speculation, but most investment speculation is based on an actual something: oil, farm goods, minerals, and other commodities, or it's based on the future of companies that work to provide a product or service of actual value.

"I just earned a bitcoin worth $450!" Doing what? "I dunno. Mining." Mining for what? "I dunno. Just... mining." Well, then. What can possibly go wrong?

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On the plus side, when it crashes a bunch of people will have these nice gaming machines with hi-po GPUs, and maybe they'll come to gOg since the PCs will otherwise be sitting idle and collecting dust. The sales numbers will then swell and some high-profile publishers that we've wanted since forever will finally see the light and join the DRM-free goodness. ; ) If that's the case, then mine-on!

For those following at home, I'm not really opposed to cryptocurrency, I just think that none of the ones available at the present are workable. I could definitely see a day coming when cryptopcurrency is a viable option, but without the force of law making people accept it, I just don't see it as being viable any time soon.

But, I think the largest issue that's going to keep this from happening any time soon is the issue of supply. Unless there's a way of creating or removing currency in response to economic activity, there's always going to be issues with uncontrollable inflation and deflation, and that's not something that's particularly good for a currency.

In the US we mostly handle that by issuing bonds that effectively create copies of the money in place. As we issue the bonds the supply increases and as we pay them back the supply decreases. Cryptocurrency doesn't yet have anything like that.
I mostly agree with you there, but the same thing could be said for USD, Euro, RMB or whatever other currency you could care to consider. Currency is basically just a token to reflect how much people generically owe you and how much you owe people in total. It means that you can buy a steak without having to do something with the rest of the cow because collectively enough people are buying the parts for the rancher to earn a living.

The problem with BTC isn't so much that the currency is being created out of thin air as it is the arbitrage of BTC being used as an "investment." The curve is such that people getting in early make a crapload off of people coming in later and have a huge incentive to talk up the currency even though it has serious flaws.

At some point, deflation is going to set in and anybody holding at that point is going to wind up losing anything they put in. Basically because the currency is essentially fixed, as demand for it increases the cost of buying in will increase. At some point enough people will refuse to sell that the values will go up dramatically over a short period and the currency will collapse.

When the USD was facing a similar issue in the mid 20th century, the solution was to take the currency off the gold standard and print money to make up for that. There have been some issues with inflation, but they're minimal compared with what deflation would have done.

I wish I had a clean answer. I suspect that considering the question "How do you create a currency?" will reveal a lot, but I haven't yet put enough thought into it myself to say anything sensible. (Hopefully, you'll be quicker than I am!)

Also, the following quotation keeps bouncing around inside my head:

“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
-Warren Buffett

Provided you can find someone willing to pay $450 for one, or an exchange willing to float the transaction. As I mentioned earlier, liquidity is a major problem for bitcoin. Matching up individual sellers with individual buyers these days is a pretty difficult task, and while exchanges are willing to float smaller transactions many seem to have enough cash-flow problems that trying to sell larger amounts of bitcoins would be much more difficult. To compare bitcoins to other financial instruments, you could sell hundreds of thousands of dollars worth of stock at pretty much the drop of a hat without any problems; you could sell millions of dollars worth of T-bills even more easily. Selling similar amounts of bitcoins? Not so easy.

Except the difference in trust is pretty much the key point. The USD is backed by the full faith and credit of the US government, and say what you want about the government (and I say plenty) that full faith and credit still counts for a lot to a lot of people these days. There's a huge amount of trust, across the entire world, that just about everyone will still be accepting USD into the foreseeable future, and that the currency is managed well enough that there aren't going to be large and rapid fluctuations in its value. None of this is true for bitcoin.

It would have much different problems- namely deflation would have resulted in capital being extremely hard to come by (due to people hoarding money instead of investing it), economic growth severely retarded as a result, and currency going through multiple speculation bubbles (pretty much like what bitcoin has been doing- it's an inherently deflationary currency, and is a great example of the problems inherent to such a thing). The ability to introduce more money into the system to keep things stable at a low rate of inflation is actually a highly desirable feature in a currency.

like i said, i was not putting bitcoin vs usd 1:1 - speaking about the principle. There seem to be still people, who think banks have huge vaults full of money and gold and that when you get a loan from bank, then the bank officer will walk to that bank to fetch it for you.

Bullet or cyanide - suppose one will always choose one over the other. Anyways, i agree with in principle - but as you can see yourself, the "cheap" money has create HUGE national debt problems.

I for one do not understand why individual banks should be able to create money in the first place. They are not and never will be interested in local or global stability - no matter the press statements. When given chance they will pursue their own interest first and foremost.

Power to put more money and remove money should be totally in the hands of government. Atleast cant see it working worse that way.

Then again i am not economist.

One problem with bitcoin, which can affect its success either way, is that it's the Facebook of currencies. Every transaction is public, and while this isn't a problem for privacy nuts or criminals, who could theoretically use a different address for each transaction, the average Joe won't, and everyone: government, employer, ex, ... will be able to know exactly how much money they have and what transactions they're making. This could be attractive to governments, employers, etc., and add to its success. Privacy nuts will probably think "it's their fault they're stupid enough to keep one address" and leave it at that, or at most try the futile exercise of trying to educate others.

I see a couple of issues with Bitcoin atm or any cryptocurrency is that the value will fluctuate with improved computing power or if someone cracks the cipher and these things can happen real quick. The value of the cryptocurrency is based on it's availability and how easy it is to crack. You could have a fortune in cryptocurrency and then lose a lot of value/money if someone hacks it or finds a way to reproduce the currency easily. If someone is intent on investing, I would think you would want to jump on and then convert your coins to regular currency right before a major tech breakthrough (like say a multistate processor, a brand new set of higher bit processors, a huge performance gained graphics processor)

1: It is only as safe as those that store it. A thing with it is that you could be your own bank, BUT that is a lot of effort. Besides all the goddamn exchanges for it are either scams, or collapsing on themselves.

2: Sure they can. And even if not, if you lose your private key, shit's lost. It is not impossible to track, locate, and then freeze or seize them, it is just hard. Then again, the difficulty in doing so is what makes it so appealing for the actual practical use of it (which is drugs and money laundering).

3: You actually consider that a plus? If it was something like folding@home or SETI I could see value in it since it is providing incentives for a goddamn proper useful result. Hashing like mad literally just wastes enormous amounts of resources that could be better allocated to... literally anything else. ASICs are the worst at that since they can't even be repurposed for useful math!
Scarcity as a basis for value is also the most idiotic and retarded thing, since that means it is an inherently deflationary model. You think inflation is bad? Deflation is way, way worse. Inflation, when controlled, leads to capital flow, to make the assets WORK. Deflation leads to stagnating economies since it promotes hoarding, since the currency cannot reflect increases on productivity or an increased population. Same issue with gold, using a scarce commodity as the basis of your economy is just pants on head retarded.
Scarcity does not create value. Demand creates value.

Seriously, this particular line stands out for me " (i.e., requires more and more energy to generate.) "
That is not a positive thing, since bitcoin generation does not produce anything of use other than the bitcoin itself, gold and precious metals at least have practical usages (both in jewlery AND industrial applications because gold is ridiculously good at not being affected by corrosion), but there is nothing useful generated by bitcoin mining.

Well, can we trace a loaf of bread price? Clinging to the "real" pricing of the commodities of which it is made seems to only pros pone the problem, up to the point where it becomes a rather Marxist account of: value equals labor. Nowadays we seem to have a lot of production that does not really match that scheme.

In a sense mining is providing a service, as the miners run the network and are rewarded with the generated Bitcoins in return. The key factor however does seem to be to maintain a degree of scarcity. As far as I can tell, a currency can operate on a sense of scarcity alone at times, for example in Iraq:

"Prior to the 1990 Gulf War, Iraq’s official currency consisted of paper dinars
printed in the U.K using Swiss-engraved plates. During the war, sanctions imposed on
Iraq prevented it from importing more of these notes. Hussein’s government in turn
chose after the war to decry its former currency, issuing so-called “Saddam” dinars in its
place. Saddam dinars were subsequently issued on an enormous scale, both officially
and by counterfeiters, for whom the poor-quality notes were an easy target, causing it to
depreciate rapidly. But Swiss dinars, as the old notes came to be known, continued to
circulate in the northern, Kurdish regions of Iraq; and they, in contrast, held a
remarkably stable purchasing power and exchange rate relative to U.S. dollar despite
gradually deteriorating from constant use."

Aside from that, Bitcoins offer a couple of advantages aside from micro-transactions, for example operating a store without having to pay the costs of a merchant account, which does seem to be a significant cut or paying instantly for a instantaneously used service(like payed Wifi for example).
It might be confusing to think of "real money" as being made, in some sense charged by the real processes of production instead of thinking of it as a mediator for scarcity, which it has to represent in return.

Quoted in the interest of historical preservation.

You're nuts. 1 and 2 are false, and 3 is not a benefit.

The US dollar is backed by the US government, which, in turn, is backed by the US army (and navy, and chemtrail sprayers, and Roswell coroners). As long as the US government accepts taxes in $$, there will always be demand for $$.

I take your point, thanks!

Does this mean I need to stop thinking of exchange value as a single point? Certainly, when I make an exchange, it happens instantaneously at a single price. But it seems now that my idea of price must become some ramp that slopes upward as I'm willing to wait for an exchange. For dollars, though, it'd be a pretty flat ramp. I would have thought that the bitcoin posted price would already have adjusted itself to account for lack of liquidity. But if price and liquidity can both be merged into price, I've lost information somewhere. Unless... selling price and buying price are different, and the difference reflects the lack of liquidity.

Okay please ignore my typing while thinking but I think I understand something new now. Suffice it to say you've been helpful, thanks!

edit: Rereading what I've written, it looks a little contrived! But that's because you can't see that it took me 30 minutes to puzzle through.

It seems you may be mixing up a couple of different things here. First off, government debt is something that can exist regardless of whether currency is tethered to some hard standard. Regardless of the currency system, governments are still free to issue debt in a variety of forms. What the currency system does effect is what options the government has in dealing with its debt. Elasticity in the money supply provides governments with some additional options (although these can have nasty consequences if used too heavily, such as hyperinflation), and having debt owed in currency the government didn't control was a factor that made the Greek debt crisis hit the country particularly hard.

Next up, "cheap" money typically refers to the loan rates between the federal reserve and banks. The effect of low rates is that money is much cheaper for banks to move around, so it's more profitable for them to make loans to companies and individuals (basically increasing the availability of capital). This stimulates the economy (more money is moving around), but can also lead to inflation so it's a delicate balancing act. For the last several years the Fed has kept the rates at almost zero, in order to try to get us out of the recession, but we are seeing more inflation than normal as a result.

As for banks creating money, what you're referring to there is fractional reserve banking, where banks can effectively "create" circulating money by loaning out money that has been deposited, being required to only keep a certain fraction of deposits in their actual reserves. This does allow the banks to have some effect on the currency supply in circulation (although on paper the actual money supply remains the same), but also makes capital much more readily available. The main danger with this is if enough of the bank's financial obligations get called in at once that it doesn't have enough reserves to cover this; the simplest form of this is your standard bank run, although the danger there has been mitigated significantly due to institutions like the FDIC. However, the dangers associated with fractional reserve banking were a major contributor to the 2008 economic crisis, in large part because several safeguards were loosened too much. Fractional reserve banking is independent from currency, though, and bitcoin exchanges could actually engage in it pretty easily (and several exchange collapses are believed to be partially due to some of the aspects found in fractional reserve banking- the exchanges floating loans to themselves using customer deposits, then being unable to cover those loans at a later date).

Nope. Bitcoin transactions have fees. And they take WAY TOO LONG to authenticate.
And besides the whole thing can only handle like 7 transactions per second anyways, and since the exchanges go down pretty regularly, you can't even cash out shit promptly.
Whatever possible benefits the bitcoin structure could have, are more than set back due to those. It's not anonymous, it's not fee-less, it's not fast, it is not secure.

Thanks for asking that question, it's been bugging me as well. So basically I can wear down my expensive computer components that I bought for actual money to do bugger all! ... Yeah.