Bitcoin discussion and news

[Crispy]

Again, CMIIR, but I don't think there's any way of telling, just from looking at the transaction record, which transactions are cash exchange and which are paying for goods/services.

 

[butchersapron]

So, bitcoiners, how you going to keep credit out?

 

[littlebabyjesus]

I haven't totally got this straight in my head, but I don't think hoarding is neutral. It will lead to scarcity, thus driving the price up but also reducing the currency's usefulness. And I think I'm right that this is simply a bubble that has to burst as it isn't backed by real value. It's a manipulation of the market in order to grow fictitious capital, I think - just as engineering a housing shortage can cause fictitious capital in the form of house prices to grow.

So it would follow that deflation and the incentive to hoard that this brings is the cause of an asset bubble that could bring the whole thing tumbling down.

It would also follow that stability will be an indicator of success - finding a level and sticking to it.

 

[kabbes]

So, bitcoiners, how you going to keep credit out?

This is a crucial point and I can't believe I overlooked it.

Most of the money supply is credit, not cash. It's the credit that will create inflationary pressures.

 

[Sprocket.]

It's bollocks, it's all virtual, digitalised bollocks that does not exist except in some fools heads.
In reality there is about £35 in cash and a blackbird's egg for every adult in the country.

 

[camouflage]

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.

I don't think btc would suffer from being to 'strong', the decimal point is not a stopper for prices sinking as low as they need to if that makes sense. But what one should measure to judge the success of btc is an interesting question. Prices relative to other currencies seems the best reflection at the moment, but of course as speculation grows, the amount of stuff trade shrinks as a proportion of all transactions. Or to put another way, where a drug-enjoyer previously needed say 50 btc for their weekendly drugs party, as the price explodes upwards, they will only need 0.5 btc to purchase the same amount.

I saw an interesting post on the btc forum, I don't post there and don't like the flavor, or the hysterical bull-running or the libertarded upchuckery, but you do get the occasional gem:

The reason everyone is so freaked out about Bitcoin's exchange rate volatility is that they are thinking of it as money, and as such it seems 'broken' because the exchange rate fluctuates so much. How can Bitcoin provide a store of value while being so volatile?

However, I submit the proposittion that Bitcoin is not money at all. It obviates money. Bitcoin is anti-money.

Strictly speaking, there are no 'coins'. There is a public ledger, and through the technology of triple-entry bookkeeping you are provided with receipts which prove that transactions occured. There is absolutely no need of a stable exchange rate to store value, there isn't even a need for a single exchange rate. All that is required for a Bitcion economy to persist is liquidity, because liquidity makes it easier to conduct transactions.

It will probably draw ire from Misean's but, it is the velocity of money that ultimately drives the exchange rate, and the higher that rate goes the more types of transactions can occur without causing a liquidity crisis. Generally, over the long term the rate will be higher as the velocity of money is higher. Only, it is a mistake to think of Bitcoin as that money, the money is actually what is being exchanged, be it dollars, or socks, or houses. Bitcoin is just a ledger receipt.

I have always thought of $50/BTC as a kind of rubicon because it marks Bitcoin as a billion dollar market. More kinds of transactions can occur with greater regularity at $50/BTC than at $5/BTC. Beyond that, the exact exchange rate from moment to moment is irrelevant, it is only necessary that there be sufficient liquidity for whatever is being used as the actual money. Again—be that dollars, or socks, or houses.

I will not be shocked by a $1,000/BTC, or a $100,000/BTC exchange rate, or by any ridiculous arb spread. It is just going to take a while for everyone to get used to the idea of an anti-money.

This caught my attention because I'd already started thinking of bitcoin as 'anticredit'. Not quite sure I grasp this 'antimoney' concept though, or why this term should be used in this way.

 

[camouflage]

So, bitcoiners, how you going to keep credit out?

How? Why? My advice to anyone as I've said before, don't borrow btc. Some (imo) crazy fools might, some have tried. As mentioned just above though, I consider btc 'anticredit'.

Fiat's for borrowing and trade, bitcoins for saving and trade, credit shouldn't be scarce anyway in my opinion, the value is in the paying back I think. But all the same people are free to devize whatever crazy schemes they want with the things, if they want to introduce btc denominated credit, have at it, succeed or fail.

 

[not-bono-ever]

but dont you think that as BC attarcts speculators and punters - driven by real world potential profit - a grey market of short sales and other instruments, will develop ?

Now that the big boys see it as a viable market for gambling, you dont actually need to hold any BC to exploit the volatility = potential cart driving the horse scenario ?

 

[butchersapron]

How? Why? My advice to anyone as I've said before, don't borrow btc. Some (imo) crazy fools might, some have tried. As mentioned just above though, I consider btc 'anticredit'.

Fiat's for borrowing and credit, credit shouldn't be scarce anyway in my opinion, the value is in the paying back I think.

Why? Are you joking? It's not a question of your individual advice (and that you have to answer questions in terms of what individuals should do reveals rather a lot) it's about the existence of credit undermining the potential that you think bitcoin has to regulate/sustain an entire world economy. Here's how in brief (and it also demonstrates that the major problem with bitcoin is not that it's anti-money, but that it is forced by its own internal contradictions and those of market dynamics to take on the necessary properties of money and this in turn is entirely shaped by the demands of capital):

Furthermore, under the dictate of the free market, success itself is a question of how much money one can mobilise. The more money a company can invest the better its chances of success and the higher the yield on the market. Better technologies, production methods, distribution deals and training of workers, all these things are available – for a price. Now, with the possibility of credit the necessity for credit arises as well. If money is all that is needed for success and if the right to dispose over money is available for interest then any company has to anticipate its competitors borrowing money for the next round of investments, rolling up the market. The right choice under these conditions is to apply for credit and to start the next round of investment oneself; which – again – pushes the competition towards doing the same. This way, the availability of money not only provides the possibility for credit but also the basis for a large scale credit business, since the demand for credit motivates further demand.

Even without fractional reserve banking or credit money, e.g., within the Bitcoin economy, two observations can be made about the relation of capital to money and the money supply. If some company A lends some other company B money, the supply of means of payment increases. Money that would otherwise be petrified to a hoard, kept away from the market, used for nothing, is activated and used in circulation. More money confronts the same amount of commodities, without printing a single new banknote or mining a single BTC. That is, the amount of money active in a given society is not fixed, even if Bitcoin was the standard substance of money.

Instead, capital itself regulates the money supply in accordance with its business needs. Businesses ‘activate’ more purchasing power if they expect a particular investment to be advantageous. For them, the right amount of money is that amount of money which is worth investing; to have available that money which can be used to make more money. This is capital’s demand for money.31

 

[camouflage]

Why? Are you joking? It's not a question of your individual advice (and that you have to answer questions in terms of what individuals should do reveals rather a lot) it's about the existence of credit undermining the potential that you think bitcoin has to regulate/sustain an entire world economy. Here's how in brief (and it also demonstrates that the major problem with bitcoin is not that it's anti-money, but that it is forced by its own internal contradictions and those of market dynamics to take on the necessary properties of money and this in turn is entirely shaped by the demands of capital):

It doesn't say as much as you might think, only that I am humblely presenting a hunch, not some grand unified theory of bitcoin economics here. I don't beleive in a btc-only world economy... I think fiat has its place and credit should belong to fiat. Nobody borrows flakes of gold afterall.

 

[butchersapron]

You appear to be sliding by each point or question put to you over the last few pages to be honest. I've no particular problem with that, i've spent more time that i would have liked reading up on the subject myself over the last few days and don't particularly want to spend much more on it, but the question about credit (and the others asked by kabbes and lbj) remain.

 

[camouflage]

but dont you think that as BC attarcts speculators and punters - driven by real world potential profit - a grey market of short sales and other instruments, will develop ?

Now that the big boys see it as a viable market for gambling, you dont actually need to hold any BC to exploit the volatility = potential cart driving the horse scenario ?

Didn't see this b4, but shorting has been attempted by some but seems there aren't many people prepared to lend their coins even for a fee. Why risk it (scuze me kabbes) when just holding em would probably profit you more in deflation?

I think a lot of inflationary-universe concepts so to speak, don't make as much sense in a deflationary universe. It' money though, not an ideology, so it's not like there are rules against using bitcoins in certain ways or asserting "We must keep out short-selling" or anything like that.

 

[camouflage]

You appear to be sliding by each point or question put to you over the last few pages to be honest. I've no particular problem with that, i've spent more time that i would have liked reading up on the subject myself over the last few days and don't particularly want to spend much more on it, but the question about credit (and the others asked by kabbes and lbj) remain.

To be honest, I banned myself from talking about bitcoin months ago, decided I wouldn't bore everyone and myself about them anymore. *slaps self on wrist*.

However I have provided my answers to those questions (except maybe all of kabbes list) if they were insufficient for your purposes or caught in my (or your) cognitive blind-spots, then you'll have to research the matter for yourself or see what some other reluctant enthusiast has to say. Them's the breaks fella.

 

[camouflage]

Why? Are you joking? It's not a question of your individual advice (and that you have to answer questions in terms of what individuals should do reveals rather a lot) it's about the existence of credit undermining the potential that you think bitcoin has to regulate/sustain an entire world economy. Here's how in brief (and it also demonstrates that the major problem with bitcoin is not that it's anti-money, but that it is forced by its own internal contradictions and those of market dynamics to take on the necessary properties of money and this in turn is entirely shaped by the demands of capital):

Reading this link now, very interesting so far and it turns out you weren't saying what I thought you were saying when I (must admit) scanned your post earlier.

It does occur to me to point out some things I said earlier, a) I'm no libertard, b) there's no evidence that Satoshi Nakamoto (whatever he/she/it/they are) is a libertarian, and c)... there's gotta be a better way than capitalism.

This idea of trade as a matter of mutual advantage (rather than a form of conflict) makes me think of the Islamic origins of neo-classical economics by the way, for them a shake of the hands and a glance at the sky was enough, no need of digital signatures for them!

anyway, reading on.

 

[Jean-Luc]

There was an article defending Bitcoin in yesterday's Times, the full text of which can be found here. The best critique of the scheme, answering all the claims for it made here as well as exposing the ideology behind many of its supporters is still this:

http://gegen-kapital-und-nation.org/en/bitcoin-finally-fair-money

 

[Idaho]

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.

One could argue that the speculative phase is useful to bitcoin, or the development of crypto currency generally. It provides a working example and allows the hackers and defenders to see the weak points as well as giving the entire crypto currency "economy" (limited and frothy as it is) an extended period to iron out the problems. With bitcoin worth $5 each and only owned by technologically savvy people, the infrastructural weaknesses aren't exposed. But make them worth $100 each and have all kinds of shmoes involved, then we can see some more extensive testing.

People are (rightly) skeptical about crypto currencies. Is it all just a pile of bullshit? A big scam? Can they actually work? How will we use them? What's the downsides? And then moving on to the more ideological challenges - will they make any real difference to the global economy or are they just a novel bit of capitalism? Can cryptocurrencies ever make a difference to economic and political relations? I don't have answers to any of these, and if someone says they do, then they are an arse.

Whether cryptocurrency amounts to anything in the short, medium or long term, it's certainly a very interesting technological development that is worth keeping an eye on. Is it a good idea to buy them as a punt? That's up to whether people like to have a punt now and again.

 

[Idaho]

Just for giggles, and to give people a chance to play with the tech. Any regular urbanite who hasn't yet got a bitcoin wallet or used bitcoin before; download a basic bitcoin wallet:

https://multibit.org/

.. and post up a receive address and I will send you 5mBTC (1mBTC = 0.001BTC) currently worth 35p!

You can either keep it or mess about and send it to someone else!

 

[Jean-Luc]

Not quite sure I grasp this 'antimoney' concept though, or why this term should be used in this way.

I agree. I can't think of what an "anti-money" is or even could be.

 

[Crispy]

 

[littlebabyjesus]

It isn't anti-money. It's just money.

I've heard it put that money itself is 'anti-value'. That's probably what that poster is getting at.

 

[camouflage]

View attachment 31734

Pyrite?

 

[kabbes]

Pyrite?

I'm guessing it's antimony.

Very clever, Crispy.

 

[butchersapron]

Or an antinomy: money/bitcoin.

 

[Crispy]

I'm guessing it's antimony.

Very clever, Crispy.

I almost laughed to myself. Almost.

 

[Idaho]

(Insert 6 pages of element puns)

 

[camouflage]

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!

Finally got round to looking at these questions with a mind to answering them properly... only to realize that although I understand your examination here, and see how the structure of these questions is important (What is risk and reward, how does reward reflect on the balance of risks, what are the categories of risk involved with a venture etc) and I talked about my thoughts on the difference between a gamble and an investment earlier, but aside that I honestly can't work up the interest to properly engage with the subject of risk and reward.

I think the problem is that I'm essentially risk averse. A speculator might come along and sink their teeth into them but for me if there are questions of some sort of risk involved then I'm not really interested.

 

[butchersapron]

Slide on by

 

[camouflage]

So, bitcoiners, how you going to keep credit out?

So I finished reading that link you posted (do you speak German by the way?). Most of it I would file under "yes, the relationships inherent in money and the imperatives of capital do suck, there's gotta be a better way than money and make money, but until the Revolution comes what are ya gonna do." sort of thing. But I disagreed with what was said about bitcoins being lent out to make new investments in pursuit of new profits. Credit-money based on bitcoin would just collapse whenever the beat stops (or at least slows) on this game of musical chairs called an economy, leaving only the actual bitcoins left. I honestly don't see why anyone would bother with all that with bitcoin when fiat money already does the being lent at interest to be invested in new ventures thing, and it's easy enough to thin-air it existence as well (I have no problem with the out-of-thin-air thing by the way, it's a matter of who controls that process and to whose benefit that I think should be re-thought but that's another thread).

By the way there was already a bitcoin shares market thing called GBLSE or something that was setup to sell shares in bitcoin businesses and pay out in btc. You could see it would fail many months before it... well, failed. A game of musical chairs where the winner of each round wins a chair from the ring of chairs around which the game is played. Just not sustainable.

Hope that made some sort of sense.

 

[not-bono-ever]

a c&P from Kaminska @ the FT on bitcoin - she usually has a handle on all things commodity - she does argue that hoarding is key & makes a few digs at the speculators now involved

"If the meteoric rise and fall of the cyber crypto currency Bitcoin this month teaches us anything, it’s to what degree a market can be influenced by speculative flows pumped up by internet hysteria and viral marketing.
There is no intrinsic value to a Bitcoin.

The asset class, in many ways, behaves just like gold. Bitcoins can never be consumed. They can never be destroyed. They can only ever be hoarded or transacted.

If there is value to a Bitcoin (or gold) it is tied to its cost of production, that being the energy it costs to produce it, its restricted supply — a function of a computer protocol — and the cult-like beliefs of its dedicated followers.

In many ways the movement is akin to a religion, one spawned from the foundation myth of the pseudonymous Satoshi Nakamoto, the mysterious architect of the high-level programming that backs the system. Its followers are attracted by the promise of a new age of decentralised currency markets, in which Bitcoin reigns supreme under no authority but its own, free of government interference.
This anarchic philosophy is propagated on a daily basis through the counterculture internet community, often by vested interests, vying for the hearts and minds of a disillusioned and vulnerable post-financial crisis generation.

But just like with any product being pitched by snake oil salesmen there is a twist. The marketing reads “fairer system for all” but the content is actually intended quite strategically to concentrate wealth amongst the view and increase inequality more generally.
Proponents of Bitcoin (and gold), of course, cry out for its currency status.

But while the nature of money has been long debated, there is a general consensus that its core attributes consist of it being a stable store of value, a universal unit of account and a liquid form of exchange. Some have even argued it is primitive version of technological memory.

If last week has shown anything, it is that the Bitcoin system is fundamentally flawed in that capacity. It is at worst a useless commodity and at best a speculative asset class resembling an investment in a high-risk technology stock. Or even worse than that a money laundering scheme for criminal economy.

If it was a currency, it would be a deflationary one by design — hardly the makings of a viable monetary system that spreads wealth.
The problem lies in the rigidity of the source code, and its inherent inflexibility and volatility.

In a normal commodity market when prices go up, the mining industry responds by producing more to capture as much of the price rise as possible. This inevitably brings more supply to the market, leading prices to adjust to the downside. At that point miners rein in their supply and a new price equilibrium is set.

The only exception to that model is if speculators believe, for some reason — perhaps due to marketing — that miners will never be able to satisfy demand in the future even with increased production today. In that case speculators end up paying too high a price for the commodity’s delivery in the future, which incentivises miners to keep producing regardless. These supplies, instead of being consumed, go into financialised hoards — kept safe for the eventual day that consumption demand returns.

Like the biblical Joseph encouraging pharaoh to hoard during the seven years of plenty.

With Bitcoin (and gold), however, there is never any potential for consumption. These coins can never be consumed, leaving them fit only for hoarding.

Miners can also never produce more to respond to a demand shock, making them in some ways worse than the now-notoriously indisciplined Opec cartel. For Bitcoin, when prices go up, production discipline is maintained by the need to solve a statistical cryptogramme, whose difficulty increases as more players enter the game. If you happen to crack the code you get to benefit from the high price. If you don’t, you have to invest in more computer power so that the code can be cracked more quickly.
Consequently, the perception of a shortage in the future is always maintained and prices continue to go up until the rush of speculative “retail” interest realises that there is more logic in learning how to mine than in competing for existing supply. When that happens, demand is diverted from speculative inflow to production — or perhaps even into forging a competitive system (like Litecoin, or Ripple) that compromises the monopoly.

Either way, the inflection point creates a powerful incentive for more-established miners to cash out. It is greed and fear in its purest form. At that point, the dam holding back hoarded supply inevitably breaks, and the price has no choice but to correct lower. At least until a new Bitcoin cartel can be revived.

Exactly the same mechanics apply to gold.

All that said, the phenomenon has had its uses. People are debating the nature of money and the economic system on an entirely new level.
It has also taught us that the current e-money infrastructure must be lacking in some capacity."

 

[butchersapron]

The asset class, in many ways, behaves just like gold. Bitcoins can never be consumed. They can never be destroyed. They can only ever be hoarded or transacted.

It has no use value. An exchange value, but not a use value - yes?