Bitcoin, Blessing or a Trap?
Bitcoin now stands at $89. It’s the most ridiculous bubble in ages and its bust will be legendary.
Not an extensive analysis this time, just calling the now obvious: Bitcoin is trouble.
Bitcoin was at a mere $6 only 15 months ago and traded at $30 last month. Combined value of outstanding Bitcoins is now almost $1 billion.
As we have analyzed Bitcoin was designed to be deflationary. As a result it suffers from a rising exchange rate, making people hoard it instead of using it for what money was designed to do: exchange goods and services. As it stands now, Bitcoin is just another completely bogus speculative item.
The whole thing is ridiculous, of course: people are paying $89 for just bits and bytes and it is basically no different than speculating with cyberland and ‘avatars’ in on-line computer games. Hardly any serious goods or services can be bought with Bitcoin.
Once reality sinks in, people are going to suffer, not only because of their losses but also because of the dream. And there is a far greater issue here: Bitcoin’s failure will provide regulators with the ideal excuse to clamp down on free market units. The whole thing is starting to look so blatant, it’s probably not unfair to suggest this is just another problem-reaction-solution operation. Considering its shady designer, CIA involvement, recent news that the Government is already looking to get it under control and what is at stake, Bitcoin has become a major liability to free market monetary reform.
I greatly disagree. Bitcoin is a great asset for free monetary markets.
It has many uses besides those in the digital world:
https://en.bitcoin.it/wiki/Trade
I think it’s possibly undervalued at its current price.
But I agree that is flawed and that’s why we created Freicoin.
Demurrage also makes it less speculative.
Well, 1 billion in capital outstanding should provide 1,4 billion in yearly trade if the Bitcoin circulates at the slow pace of the dollar. I’d be completely and utterly shocked if it came even close to that.
Do you have data on Bitcoin turnover?
I fully agree with your Freicoin analysis.
I would say that bitcoin is faster than usd because it’s simpler to spend, but not much faster.
All transactions are public, but it is hard to tell, because people can just send to themselves to improve privacy, to move their funds from web-wallets to installed clients, between different clients owned by the same person, etc.
From…
http://bitcoincharts.com/bitcoin/
Now, it says 64,430.52 BTC are sent per hour on average, that would be 64430.52 * 24 * 365 = 564,411,355.2 BTC moved yearly or 50,232,610,612.8 usd at 89 usd per btc.
But as said you cannot be sure that all those are real payments.
Here you have more info, you can select the denomination you want at the bottom:
http://blockchain.info/
Note how many transactions can be identified as gambling transactions through SatoshiDice.
Not the best thing of the world, but all those are real payments.
interesting and impressive. But do these figures include buying and selling on Bitcoin exchanges?
No, those are excluded. Exchanges just change their internal balances.
What you’re trading there are really just usd IOUs and btc IOUs (the exchange owes you).
It includes deposits and withdrawals to the exchanges though.
Now there’s also Ripple.com where you can trade those IOUs p2p. You first need some xrp, the new ripple implementation’s internal currency. Necessary for preventing spam in their mining-less security model but deflationary like bitcoin (well, more deflationary because fees are destroyed).
It’s a great p2p platform for mutual credit though. You can easily create a LETS currency using Ripple, for example. Well, is not really p2p yet because the source code of the servers hasn’t been released yet. But they will make it free software once the protocol is more stable.
We plan to add ripple-like transactions and custom currencies to Freicoin too, but we’re still designing the required changes to our protocol (those changes could be reused by Bitcoin if the they want to). Our version will enable demurrage and interest (for p2p lending) too. That’s different from ripple.com and bitcoin’s colored coins.
Bitcoiners are good people, they just don’t understand basic interest and demurrage.
They don’t understand the flaws of gold as money.
Thanks Timon, great input.
“Bitcoiners are good people, they just don’t understand basic interest and demurrage.”
Of course, I fully agree. As you know I’ve covered Bitcoin as positively as humanly possible, considering its design flaws.
But something is going wrong and there are some worrying connections becoming visible.
Timon, I think Freicoin is fantastic. The problem is that I think Freicoin is fantastic, and not the profit-motivated businesspeople who — let’s face it — a lot of the world relies on. That’s the puzzle I still haven’t figured out, and maybe you have: how the hell do you get people to voluntarily use this?
By promising new turn over.
turn over with things that people don’t *really* want to have? things that get kaputt all too fast?
Sorry, still not convinced folks.
There’s also a lot of complaint about the mania of growth and progress. Guess where that comes from.
Keynes liked Gesell not for nothing, inflation has just always been easier to implement. 😀
Demurrage is better for workers than inflation, but macro-economically, they’re one and the same.
Really Herzmeister? Inflation leads to rising prices (if the economy is function at (near) max capacity). This is not the case with demurrage.
Businesses will always accept depreciating units, as long as they can spend them themselves.
Yes really.
“Leads to rising prices.”
That’s correct. But better:
Leads to less spending power.
However, wages would also rise.
At least in theory.
Workers have to renegotiate them anew all the time.
That’s why I said demurrage is better for workers.
But I was talking macro-economically.
That means all economic interplay at the national or even global level.
Here both inflation and demurrage both mean devaluation of the dominant means of exchange.
This leads to flight into consumption (to get rid of the money), and the flight into real assets and investments for the more wealthy.
That’s what Gesell wanted, however, as we see today, investing just for the sake of investing creates over-speculation and bubbles (i.e. false signals).
The rich grab land and real estate, which drives up rents, makes all remaining land more expensive, and everything that’s produced on it.
This is what *truly* leads to rising prices.
Gesell wanted “Freiland” to compensate for the land grabbing part, but that’s another story (and beyond the influence of Freicoin anyway).
Yes, I understand, you’re right. This is a possible scenario. Normally speaking this would not be problem. For instance, in the Wörgl scenario the volume of money was very low. The economy was really depressed when they started it. No price rises were reported, probably because there was such a backlog in outstanding bills that had to be settled. But we have not seen its effects under full employment. However, Unterguggenberger was in a position to manage the volume directly. Should prices have started to rise, he’d been able to reduce volume. I’m not sure how volume is managed with Freicoin.
Once the 100 MM Freicoin are out the supply becomes fixed.
In Bitcoin the supply is somewhat deflationary due to lost wallets, but Freicoin recycles all wallets through demurrage, so the supply will always tend to 100 millions.
You may think, is that enough?
My opinion is that any quantity is enough. While economic growth is below the demurrage rate (~5%), freicoins will keep flowing.
I think freicoin usage will grow faster than 5% for several periods in the beginning, but is precisely in the beginning when new coins are issued. The 80% the foundation has to distribute is more flexible to “break sudden rises in price”, but our plan is still to get rid of all the foundation’s funds within 3 years.
@Zacqary
At first, only convinced merchants will accept it.
Then merchants will accept freicoin just like most merchants are accepting Bitcoin: through a payment processor. They will set their prices in EUR or USD and just enjoy the advantages of being paid with cryptocurrencies, letting the user pay for the conversion costs and the like.
So if most people sell them, where comes the demand appart from miners and foundation grantees? Borrowers will love Freicoin.
Once we implement Ripple transactions inside Freicoin, mutual credit users may want to hold small amounts for additional liquidity, since freicoin will be the only pure cash (no one else’s liability) within the system (much like xrp is the only cash within Ripple).
I know there’s still a long way to go, but it is very possible in my opinion.
@herzmeister
I think Keynes thought that inflation was equivalent to demurrage, but that’s not the case.
First of all, demurrage is instant and applies to all holders at the same time. That’s not the case with inflation. Monetary inflation becomes price inflation only when the new money enters the market. There’s privileged positions in that money flow. Ironically big companies holding big piles of fiat are the ones who lose less (or even gain) from inflation, because they have privileged information and more time and capacity to prepare.
That’s why inflation doesn’t has the same effect over interest than demurrage.
Yes, central banks can provide zero interest loans, but again only to privileged borrowers (comercial banks, in europe not even states share such a privilege). And it doesn’t prevent money from being hoarded by real savers (you know the people who actually have to produce something to be able to lend and whose savings should finance all investments, as opposed to privileged money creators that have no limit to fund bubbles).
This is the part Keynes differs from Gesell, Gesell actually predicts hyper-inflation as the unavoidable result of the Keynesian model (well, Silvio talks about Michael Flürscheim, not Keynes, but it’s similar): https://www.community-exchange.org/docs/Gesell/en/neo/part3/13.htm
This is probably the concept (differences between demurrage and inflation) that was harder for me to understand too. Math just tells you they’re equivalent right away, until you realize how the unavoidable frictions in the market make inflation useless to suppress the basic interest. It is certainly not obvious.
These two are actually the more reasonable objections to Freicoin that people often make, I hope you like my answers.
The main problem with Bitcoin is that it’s deflationary, so people are incentivized to hold on to it and have it accumulate (fake) value rather than spend it. Money is supposed to be a means of exchange NOT a means of making more money just by sitting on it (didn’t Gesell figure this out????). Regardless, the bubble will burst very, very soon, leaving all the Bitcoin bugs crying.
Mutual credit FTW.
yep!
Bitcoin has big problem if value is changing in such extreme amounts. It is really some kind of techno roulete. Good luck techies. Thanks Rduanewilling
and you Rduanewilling!
One can deceive all the people all the time for a short period, but the long damage is done in the meantime
indeed moneylender
I think you’re wrong Anthony.
The Bitcoin value will at most consolidate and move sideways for a while, but not collapse (if there is no catastrophe).
Reason: http://falkvinge.net/2013/03/06/the-target-value-for-bitcoin-is-not-some-50-or-100-it-is-100000-to-1000000/
I think we may finally better define what Bitcoin actually is. It’s not mere worthless unbacked bits and bytes. The comparison to “gold” being “mined” falls flat and is often confusing.
It’s much more akin to an asset, or a stock, but a stock of an open source borderless non-bureaucratic potentially anonymous value transfer system, which is quite a novelty. And you can invest just by holding some of the limitied 21 million transfer units.
It’s also a network to store value in, in these day and age of raped bank accounts. Why not?
Admittedly it’s not as *current* as some of you folks would like it to see. But to me, something like demurrage has always felt enforced. I want to spend my savings when *I* want, and not when some kind of fee forces me to.
Isn’t Bt com based on the value of the U$dollar.?
No, it’s freely traded.
Promises promises.!!
🙂
Go on clink on to any straw in the wind, as you have no solution.
It seems to me that Bitcoin is kite-flying for a One-World-Currency not backed by anything. Even if it is intended as a genuine free-market alternative currency at the moment, if it succeeds, it will be taken over with offers too-good-to-refuse (Horse heads in the beds).
Some truth in what you say, but be assured another false dawn
http://www.wired.com/magazine/2011/11/mf_bitcoin/all/1
includes link to 32Mb podcast on the subject
… +90 comments
The Rise and Fall of Bitcoin
By Benjamin Wallace
November 23, 2011
Wired’s December 2011 edition article
http://unenumerated.blogspot.nl/2008/04/bit-gold-markets.html
+17
Saturday, December 27, 2008
Bit gold markets
http://unqualified-reservations.blogspot.nl/2013/03/rip-bitcoin-i-think.html
Monday, March 18, 2013 ——- 26 Comments
RIP Bitcoin, I think
As predicted here last month, USG is killing Bitcoin – I’m pretty
sure. FINCEN has just issued its guidance on virtual
currencies.
TL;DR: every currently operating Bitcoin exchange is operating
in violation of the law – or, if you prefer, “law.” (Obviously
“laws” made in this way are a profound and utter mockery of
the good old English word “law,” but there you go.)
http://unqualified-reservations.blogspot.nl/2013/01/how-bitcoin-dies.html
+100 .. from end januari this year
.. very wholesome and therapeutic lines and squiggles of argument pursuance there … specially for Makow fans.
To me “The whole thing is ridiculous, of course: people are paying $89 for just bits and bytes and it is basically no different than speculating with cyberland and ‘avatars’ in on-line computer games.” is like saying it’s ridiculous to use any dollars since it’s just some worthless paper and some nickel.
I feel a lot for the argument “Recently I’ve read a lot of claims that Bitcoins don’t have intrinsic value. I’ve come to a different conclusion. Bitcoins have intrinsic value if they enable desirable interactions that are not possible without them. Bitcoin is a theoretical and practical breakthrough that makes it possible to decentralize services we couldn’t previously decentralize.”
http://feedproxy.google.com/~r/PaulBohm/~3/Il8tjBun21w/
Please also note the last sentence of that paragraph you are quoting, Tim.
The dollar is powerful, because it can be widely spent. Bitcoin cannot.
Bitcoins of course do not have intrinsic value. Nothing has. The dollar most certainly not, but even Gold does not.
Value is a matter of supply and demand.
Bitcoin are more “widely spendable than some national currencies in small countries.
Some retailers use it in San Francisco and Berlin, for example.
And I repeat the link, here are some places where you can spend it:
https://bitcoin.it/wiki/trade
There’s many use cases for which bitcoin is very superior to usd and others.
“The dollar is powerful, because it can be widely spent. Bitcoin cannot.”
This might be just a matter of time, the number of places where you can pay with Bitcoin is increasing.
“Bitcoins of course do not have intrinsic value. Nothing has. The dollar most certainly not, but even Gold does not. Value is a matter of supply and demand.”
I don’t agree. If things can be built thanks to Bitcoin that can not be built without Bitcoin, then Bitcoin does have intrinsic value. As pointed out by Paul Bohm [1], Bitcoin solves a problem that was long thought not to be practilcally solvable, namely “the Byzantine Generals’ Problem”. With this being solved, thanks to Bitcoin, new services can be built decentrally on a large scale that were previously impossible. So Bitcoin supports setting up structures in a decentral way that without Bitcoin can only be setup centrally. Ofcours a lot of fundamental internet systems that are currently centrally organized come to mind that might benefit from a decentral approach (to circumvent censorship for example).
I can imagine this might only be a small part of all the Bitcoin transactions but it’s definitely supporting structures that otherwise can’t exist (future structures that will be counted and built upon on a global scale).
[1] http://paulbohm.com/articles/bitcoins-value-is-decentralization/
I’m not going to make it a word game about what ‘intrinsic value’ means, I understand your point. But my basic critique of Bitcoin is that it does not allow for usury free credit and is very scarce. Abundant, regional, decentralized currencies already exist. Most notably WIR in Switzerland, but there are many others and they are ballooning. So Bitcoin is not unique in that respect and far from the best in terms of monetary architecture.
The two things I appreciate about it are that it allows for convertibility in the way that it does, on-line bourses, and that it is the first major cyber currency. It’s just too bad the interest-free guys didn’t beat them to it, but I sure salute Bitcoin for it.
“Abundant, regional, decentralized currencies already exist. Most notably WIR in Switzerland, but there are many others and they are ballooning.”
If with regional you mean non-globally used currencies, then the argument about Bitcoin supporting global central structures to decentralize still stands, since a regional currency can never decentralize on a global (non-regional) scale.
Besides that, I’m curious if the decentral currencies you talk about also use a proof-of-work chain like Bitcoin does?
Global central structures are global because they are run by globalists. The last thing they want is decentralization. So I don’t really get this point.
Nonetheless, like I said, I fully support globally operating cyber currencies, but they will only be effective when cheap and abundant.
I’m not sure I know what you mean with proof-of-work chain?
@Tim
We plan to extend freicoin so that local currencies with demurrage can be created inside the system. It is similar to bitcoin’s colored coins or to ripple.com, but we will also support demurrage/interest. So local currencies with demurrage will be able to operate their digital part (not exclusive of paper) of the currency inside a p2p network without needing to start and mine their own chain.
For local currencies without demurrage (mutual credit), there’s Ripple already, although the p2p version is still beta and the servers code is not free software yet.
@Anthony
Decentralization and globalization are not exclusive. No matter what some people want.
Cash needs to be scarce (or it has no value), credit can be abundant.
By proof-of-work chain, he means the technology under bitcoin. The chain that contains all transactions secured by proof of work, a cryptographic technique.
i choose not to own bitcoin, but no knock to those who do. as others have
said, the idea behind it is a worthy one, but there are too many obstacles
in its infancy. it isn’t widely accepted or exchanged, it is dead without an
internet connection, it doesn’t exist in physical form, etc. as of now it isn’t
much more than a means to make a buck through speculation. aside from
all of its hype and praise, it is vulnerable to the tricks of the buyers and
sellers, just like the stock market, etc. you will see bubbles and pops to
shake others out to scoop them up at cheaper prices. the only question
is whether it has potential down the road. in the end, it isn’t meant to be
an investment tool, but a means to purchase goods in a secure fashion.
but the idea of it being a magical currency free of manipulation is false.
Good analysis. It’s much in line of my own take. The problem seems to be it’s deflationary by nature and very vulnerable to speculation and manipulation.
It would be the biggest bubble
“Bitcoin now stands at $89. It’s the most ridiculous bubble in ages and its bust will be legendary.”
Yeah, you re goot at predictions, you should work in money business, oh wait…
Yeah, and who has gained from this bubble? You perhaps, owning a few bitcoins.
But mostly it has been those who have long cornered the market my friend.
I’m not here to promote speculative gain over the backs of the later adapters. I’m here to promote sound, abundant and interest free money for the many.
not sure if you’ve written on this, but unlike paper money and coins the bitcoin is infinitely divisible, so in a sense $200 is really like $2 per millibit (centibit?) or something like that, so without an “anchor” the currency’s value is almost always relative to other values in the world.