Bitcoin discussion and news

[camouflage]

Well, that's definitely not an "if you don't agree you don't understand" post.

I agree, it's not.

this is less a point specific to bitcoin though and more a characteristic of 'disruptive' technologies and counter-cultures, "it's not even proper music it's just... a god-awful racket, that lad has no idea how to play a guitar" sort of thing.

 

[FridgeMagnet]

"You don't agree you don't understand" was the nice characterisation.

 

[littlebabyjesus]

I agree, it's not.

this is less a point specific to bitcoin though and more a characteristic of 'disruptive' technologies and counter-cultures, "it's not even proper music it's just... a god-awful racket, that lad has no idea how to play a guitar" sort of thing.

If you can't explain why what you're doing is investment rather than gambling, I'd suggest that you don't understand it.

I'm also guessing that you don't understand kabbes's point. Better just to admit that.

 

[camouflage]

If you can't explain why what you're doing is investment rather than gambling, I'd suggest that you don't understand it.

I'm also guessing that you don't understand kabbes's point. Better just to admit that.

If I don't understand kabbes point about the difference between investment and gambling, then perhaps you can do a better job of explaining it for me.

Go ahead.

 

[Idaho]

He has a point lbj. I don't think you understand kabbes' precise meaning but are doing the usual urban ganging up.

 

[kabbes]

If I don't understand kabbes point about the difference between investment and gambling, then perhaps you can do a better job of explaining it for me.

Go ahead.

I put a lot of time into the following and it has basically been ignored by you. It doesn't contain any specialist language. If you are genuinely interested in exploring the concepts, I am happy to do so. But like any exploration, it needs to be active, not passive.

Rather than assume you're an idiot, let's assume I'm an idiot and I'll ask you some easy questions, and maybe the answers will guide us somewhere.

Is there a difference between investment and speculation? If so, what is it?

What is a "risk"? Are all risks of the same nature? If not, can we identify broad categories?

How can we measure risk? Is the measure absolute or relative? If the latter, what is it relative to? Does it matter which category of risk we are dealing with? If we can't figure out a measure, can we at least figure out some deirable features of a measure?

What does it mean to get reward for a risk? If there are different categories of risk, are there different categories of reward? If not, can we map rewards to all risks? If not, why not?

Does the reward affect the risk measure?
Where do returns come from? Does it matter? Is this related to the risks?

Assuming we can answer all that, can we relate the difference between speculation and investment to the categories of risk? What about the sources of reward?

What are the categories of risk involved in buying bitcoins? Does that tell us anything about it as investment or speculation?

I apologise, that's a lot of questions!

 

[Crispy]

I would have thought the difference is obvious. A return on investment comes about because your money went and funded economic activity, which by the application of labour created value, some of which is returned to you. Gambling, on the other hand, is a zero-sum game (minus a slice off the top to keep the bookie in business). Kabbes' argument is that the amount of actual economic activity being undertaken with bitcoin is so low that it's barely worth describing as an investment. In order to "make" money out of bitcoin, all you can do is speculate. When all's said and done, someone else(s) will have to lose as much as you gain.

Correct me if I'm wrong

 

[King Biscuit Time]

So can you ever truly 'invest' in a currency then? I guess not. Or is it more of an investment in much more widely used currencies because you're investing in the nation as a whole. Except you're not really, aside from providing a degree of fluidity in FX markets that might help to facilitate someone actually doing something tangible.

NB - total economics/money dullard here. I must get around to a Coursera course sometime.

 

[camouflage]

I would have thought the difference is obvious. A return on investment comes about because your money went and funded economic activity, which by the application of labour created value, some of which is returned to you. Gambling, on the other hand, is a zero-sum game (minus a slice off the top to keep the bookie in business). Kabbes' argument is that the amount of actual economic activity being undertaken with bitcoin is so low that it's barely worth describing as an investment. In order to "make" money out of bitcoin, all you can do is speculate. When all's said and done, someone else(s) will have to lose as much as you gain.

Correct me if I'm wrong

I agree with that interpretation, although you should also consider time-delay, investment takes time to bear fruit obviously. I've said as much (or thought I had) in my own words above but apparently my way of saying it wasn't sufficiently clear. Or something.

Better ETA that 'investing' in bitcoin isn't a matter of profit taking the zero sum craps game for today (gambling), but rather buying into an anticipated increase of value down the road, coming about not because of 'new suckers' as in a pyramid scheme, but new and further developed utility and take-up. Obviously I disagree with kabbes in that I beleive that increase in btc utility (and value) will appear down the road because of the activity being funded now.

 

[camouflage]

I put a lot of time into the following and it has basically been ignored by you. It doesn't contain any specialist language. If you are genuinely interested in exploring the concepts, I am happy to do so. But like any exploration, it needs to be active, not passive.

Thanks kabbes, yes you have and I should carefully consider your questions.

For now I was hoping to read lbj's take on what you mean in his own words.

 

[Idaho]

If bitcoin fizzles out and takes its place in the pointless bubble hall of fame, then you will have been right. Buying and selling it will have been merely gambling and will be zero sum. History will judge it to have been a novel variation of a ponzi scheme.

But what if the speculative bubbles keep it alive long enough for wider adoption? What if sites like silk road are merely the pioneers in a future online black market, aslarge as the current offline black market? If that occurs then the very act of keeping bitcoin alive will have had some utility or dividend beyond the zero sum.

 

[ffsear]

So can you ever truly 'invest' in a currency then? I guess not. Or is it more of an investment in much more widely used currencies because you're investing in the nation as a whole. Except you're not really, aside from providing a degree of fluidity in FX markets that might help to facilitate someone actually doing something tangible.

NB - total economics/money dullard here. I must get around to a Coursera course sometime.

Currency is seen as a safe haven investment (as an out right position). Which is why when we see turmoil in the stock markets the USD will rise, as people take their money out of stocks to try and keep it safe.

Of course FOREX traders will use huge leverage to trade currency, under which circumstances it becomes a gamble, rather then an investment.

 

[fredfelt]

I would have thought the difference is obvious. A return on investment comes about because your money went and funded economic activity, which by the application of labour created value, some of which is returned to you. Gambling, on the other hand, is a zero-sum game (minus a slice off the top to keep the bookie in business). Kabbes' argument is that the amount of actual economic activity being undertaken with bitcoin is so low that it's barely worth describing as an investment. In order to "make" money out of bitcoin, all you can do is speculate. When all's said and done, someone else(s) will have to lose as much as you gain.

Correct me if I'm wrong

When you invest in a companies shares you are not directly buying them from the company. You are buying them from a market. You are only directly investing into a company if the shares are an initial public offering. The relationship between buying shares and funding economic activity is not direct. By your definition is it true to say that buying shares is always an investment?

 

[kabbes]

Some interesting points there about whether the purchase of bitcoin may allow for future activity that may otherwise not be possible. I have to say that right now I'm not sure how that argument flows through -- I need to think about it a fair bit more first!

 

[Crispy]

When you invest in a companies shares you are not directly buying them from the company. You are buying them from a market. You are only directly investing into a company if the shares are an initial public offering. The relationship between buying shares and funding economic activity is not direct. By your definition is it true to say that buying shares is always an investment?

I think that a continuation of my logic would say that buying shares is only an investment when it's part of the originating sale, ie. when the company is raising capital, and the shares pay a dividend. Otherwise, it's speculation.

But I'm reasoning from my own assumptions here, not any sort of reliable knowledge, so would like to be corrected!

 

[Idaho]

Some interesting points there about whether the purchase of bitcoin may allow for future activity that may otherwise not be possible. I have to say that right now I'm not sure how that argument flows through -- I need to think about it a fair bit more first!

The californian gold rush occurred because of a promise of getting rich quick, not because people wanted to settle in what would become the wealthiest part of the world.

I concede that this argument is possibly a bit of a stretch

 

[fredfelt]

I think that a continuation of my logic would say that buying shares is only an investment when it's part of the originating sale, ie. when the company is raising capital, and the shares pay a dividend. Otherwise, it's speculation.

But I'm reasoning from my own assumptions here, not any sort of reliable knowledge, so would like to be corrected!

Interesting that you mention a divided. When you invest in shares which don't return a dividend and you are in a sum zero game where you are mealy speculating on future performance of the shares. Especially as the shares value can have a loose relationship with the performance of the company and the shares are not directly associated with investment in that company.

This does not seem that far away from sacrificing current wealth on a Bitcoin in anticipation that the Bitcoin will raise in (relative) value and return a profit in future when you sell it. It may not be correct in the terms Kabbes uses, but to a casual observer this sounds dangerously close to buying Bitcoins as a, dare I say it, an investment.

If nobody placed any value on Bitcoin then it's useless. Bitcoin is clearly creating economic activity, however insignificant or desirable that activity is. Subjectively you may believe that you are putting your money into a system which has potential to create more economic activity and your risky 'investment' will be 'rewarded' in the future when the system further establishes itself.

Personally I don't think the lines between investment, speculation and gambling are so clear cut, at least in general language rather than the specific language used on a trading floor, for instance.

Anyway I'm glad I took a punt on Bitcoins - even if it was nothing to do with considerations of risk vs return.

 

[kabbes]

For the record, I think that the invention of the publicly traded corporation was one of the most harmful things that industrial societies has come up with. it is precisely the divorcing of the investment from the management that generates the value that has caused so much of the mess we have seen happen in the last 50 years.

 

[camouflage]

For the record, I think that the invention of the publicly traded corporation was one of the most harmful things that industrial societies has come up with. it is precisely the divorcing of the investment from the management that generates the value that has caused so much of the mess we have seen happen in the last 50 years.

Is this a remark on the owner/agent problem, or perhaps even finance versus industry?

 

[littlebabyjesus]

If I don't understand kabbes point about the difference between investment and gambling, then perhaps you can do a better job of explaining it for me.

Go ahead.

I have my understanding of the difference, which I explained before kabbes made his post. But the point appears to be a similar one, namely whether or not what you are doing is betting on your investment going up because the business you've bought into is producing something with more value than the sum value of its inputs or whether you are simply taking your profit at the direct expense of others.

It's perfectly possible - and common - for people participating in a system not to really have any deep understanding of what it is they are doing, simply to know how to do their bit of the system in a way that makes them a profit. It strikes me that this is what many people participating in bitcoin are doing when they talk about making money from the changing value of the currency.

The point about using the currency producing its success is a good one at first thought. However, on a bit of reflection, I would question whether hoarding a currency is using it at all. The value of the currency is coming from the transactions being made with it, so anyone holding onto it in the hope that its value will increase is not contributing anything towards the process of increasing its value. Only those who are passing the thing around - circulating it - are participating in the process of producing its success.

 

[fredfelt]

For the record, I think there's little chance that Bitcoin will ever replace, or seriously compete with national currencies - and if it does there could be hugely damaging consequences.

I am however pissed off that through QE any money I may have saved is actually loosing value when I store it in a conventional bank account, even a saving account. I am also pissed off that, mostly due to increased money supply and easing financial regulations, that buying a house, and indeed affordable housing seems to take a greater proportion of earnings than it used to.

Just because I am pissed off with what I see as market failure in banking, and the impact this has on savings and ever increasing house prices it does not follow that I see Bitcoin in any relevance to these problems - except that with my money doing fuck all in the bank I'm happy to risk a bit on novel schemes.

 

[Jon-of-arc]

Scuze the anthropomorphism's but I think they fit well, it's money you see, people come with all sorts of agendas and it'll 'eat' em all. Like one of those alien blobs in sci-fi or something, hit it with the laser and it just grows bigger, hit it with a nuke and it grows bigger still, freezing it might slow it down but throw anything active at it, speculative bit-fever, oppressed markets, straight-forward cross-border transactions, tax evasion, sneaky manipulations... just propels it further.

How many times did you cum when you were writing that paragraph?

I'm personally not bothered about the interest in this subject. It is vaguely interesting, in terms of how value has been created from nothing, and I might even have considered using bit coin to buy drugs if I could be bothered figuring silk road out.

But its hard to view that paragraph as anything other than money fetishism.

 

[spacemonkey]

Spread in the metro today -

 

[fredfelt]

The Daily Mail had a piece on Bitcoins yesterday. The 'Best rated' comment made me chuckle

Didn't understand a word of that.
- perdi36, cambridge, Spain, 16/4/2013 10:54

 

[camouflage]

How many times did you cum when you were writing that paragraph?

I'm personally not bothered about the interest in this subject. It is vaguely interesting, in terms of how value has been created from nothing, and I might even have considered using bit coin to buy drugs if I could be bothered figuring silk road out.

But its hard to view that paragraph as anything other than money fetishism.

To be frank, I just like the sound of my own voice. That's right, I said it. I'm probably cumming now just writing this.

 

[camouflage]

I have my understanding of the difference, which I explained before kabbes made his post. But the point appears to be a similar one, namely whether or not what you are doing is betting on your investment going up because the business you've bought into is producing something with more value than the sum value of its inputs or whether you are simply taking your profit at the direct expense of others.

It's perfectly possible - and common - for people participating in a system not to really have any deep understanding of what it is they are doing, simply to know how to do their bit of the system in a way that makes them a profit. It strikes me that this is what many people participating in bitcoin are doing when they talk about making money from the changing value of the currency.

The point about using the currency producing its success is a good one at first thought. However, on a bit of reflection, I would question whether hoarding a currency is using it at all. The value of the currency is coming from the transactions being made with it, so anyone holding onto it in the hope that its value will increase is not contributing anything towards the process of increasing its value. Only those who are passing the thing around - circulating it - are participating in the process of producing its success.

Hoarding's not the action though is it, hoarded btc may as well be on a usb at the bottom of the Thames, although the attrition of lost btc does increase scarcity (hoarded btc will slowly resurface of course over time).

The active bit is acquiring the btc to hoard in the first place, either buying it (thus funding miners and making them feel that increasing the size/power of their rigs is worth doing, and giving them the buying power to do so) or accepting bitcoins in return for a service or product you can provide (making holders of btc feel that services and products can be exchanged for their btc) or mining btc yourself and thus contributing to network infrastructure, or even just accepting donations in btc which contributes to mindshare and feeds into the btc market when you trade it for fiat or whatever.

Some people turn the same amount of fiat into btc every month, which provides demand for btc, which means liquidity I believe.

 

[kabbes]

Is this a remark on the owner/agent problem, or perhaps even finance versus industry?

Both, and more. For example, there are also significant problems involved with giving an impersonal corporation rights as a legal entity, when many of our usual sanctions and disincentives that work on the personal level have no meaning at the corporate level. How do you put a business in jail?

 

[kabbes]

If it's in the Metro and Mail then the bubble has well and truly burst.

 

[camouflage]

If it's in the Metro and Mail then the bubble has well and truly burst.

Leaving at just under 100 dollars, not a bad gain over pre-bubble a couple weeks ago.

 

[littlebabyjesus]

Hoarding's not the action though is it, hoarded btc may as well be on a usb at the bottom of the Thames, although the attrition of lost btc does increase scarcity (hoarded btc will slowly resurface of course over time).

The active bit is acquiring the btc to hoard in the first place, either buying it (thus funding miners and making them feel that increasing the size/power of their rigs is worth doing, and giving them the buying power to do so) or accepting bitcoins in return for a service or product you can provide (making holders of btc feel that services and products can be exchanged for their btc) or mining btc yourself and thus contributing to network infrastructure, or even just accepting donations in btc which contributes to mindshare and feeds into the btc market when you trade it for fiat or whatever.

Some people turn the same amount of fiat into btc every month, which provides demand for btc, which means liquidity I believe.

I think I may have been being a bit harsh about involvement in bitcoins. If you buy into them in the hope of a profit then buy out without making any other transaction, then all you're doing is betting. It's zero-sum and it adds nothing to the success of bitcoins as a currency. But if you buy them in order to make transactions, then that's different.

Basically, currency traders in the city who do nothing but monitor markets for a tiny sliver of arbitrage and then make huge transactions to get a profit are doing nothing of any social value at all. They are just doing the equivalent of counting cards in a casino - giving themselves a slight advantage over the odds through super-level monitoring of changes in the market so that they can profit from it. Betting that you've read the market right because your information is better than your rivals' isn't adding value.

But of course it's different if you use your bitcoins as a means of exchange.

However, it is not totally straightforward to judge the success of bitcoin by its exchange rate with other currencies. Germany profits from being in the euro precisely because if it had its own currency, it would be valued very high in a way that would affect exports. Germany's export-led recovery post-2008 may not have been possible with the DM. It may have stagnated in a deflationary trap like the one Japan is in. An overvalued bitcoin could similarly lead to a stagnation in the markets for the goods that are sold with it.

So, what is it that you should be measuring when trying to judge bc's success? I would say that it is not its exchange rate that you should be looking at, but the actual economy that is being driven by it - the real things changing hands because of it. The exchange rate with other currencies will reflect that real economy, but it will also reflect other things that may in fact be destructive, such as speculation for speculation's sake.