bitcoins are certainly very alluring, especially to one such as myself who is concerned with privacy and finances. bitcoins allow a person to make anonymous transactions with a digital currency. It is generally used (as of now) for trading drugs on places like the Silk Road, a TOR hidden service, but is also used for more legal transactions as well. bitcoins have been gaining popularity for a short while now since their inception, but unfortunately bitcoins will not be able to survive as a currency because of the issue of hoarding.
In fact, despite bitcoins huge surge in popularity, bitcoins have been made out as a way to make money, rather than to trade. In other words, instead of being used as a currency, bitcoins are today mostly seen as (and traded as) an investment. The reason for this is that the value of bitcoins, in terms of USD, has been skyrocketing at an exponential rate. In July 2010, after the website Slashdot ran an item that introduced the currency to the public (or at least the public enthusiastic about new technologies), the value of bitcoins jumped tenfold in five days. Over the next eight months, the value rose tenfold again. Many people came to view holding Bitcoins as a way to make a quick buck; 1 dollars worth of bitcoins now would be worth 100 dollars in just a year. As a result, many—probably most—Bitcoin users are acquiring bitcoins not in order to buy goods and services but to speculate.
The problem with having the Bitcoin economy dominated by speculators is that it gives people an incentive to hoard their bitcoins rather than spend them, which is the opposite of what you need people to do in order to make a currency successful. Useful currencies are used for trade, that's what makes them successful. But if you buy bitcoins hoping that their value will skyrocket (as anyone investing in bitcoins would), you're not going to be interested in spending those bitcoins, because if you did you would then lose out when the value of bitcoins rises. Instead, you're going to hold onto them and wait until you can cash out.
The way bitcoins are designed makes them conducive to this sort of thinking. Bitcoins are permanently limited; there will never be more than 21 million bitcoins in existence (The total number of coins is a result of the system's initial rules governing how many bitcoins miners could earn, and how often). Bitcoin's limited money supply is what makes it so attractive; the currency cannot be debased as money can when central bankers print more of it. The flip side is that if the demand for bitcoins rises, for whatever reason, then the value of bitcoins will necessarily rise as well. So, if you think that bitcoins are going to become more and more popular, then—again—it's foolish to spend your bitcoins today. The rational thing to do is hoard them and eventually sell them to new users. But that means there will be fewer bitcoins in circulation (and more in people's virtual wallets), making them less useful as an actual medium of exchange and making it less likely that businesses and consumers will ever see bitcoin as legitimate.
This problem is compounded by the fact that bitcoins are not spent for living. We already have a government backed currency that we can use, so spending bitcoins is not necessary. This means that a person can hoard their bitcoins as much as they want and only spend them once their price has jumped to a peak point in it's volatile price compared to the US dollar.
Essentially, bitcoins are not conducive to a spending environment, and as such cannot ever become a popular form of currency. Likely bitcoins will eventually die off and only ever be used in illegal transactions and by diehard bitcoin fans.
So you are saying bitcoins will fail because it will rise in value. But bitcoin won't rise in value because nobody will use it as a currency.
ReplyDeleteMake up your mind!
Bitcoins will initially rise in value, then drop when it becomes clear that they are unusable.
DeleteI bet you do not even know what exponential means! The value of bitcoin does not show exponential curve tendencies overall. The best we could say is that it has been volatile and had extreme bubble like sprints. Anyone holding bitcoins is constantly risking the value collapsing and the risk increases (in value) as the price goes up thus making the game optimal strategy to part with more bitcoins as price increases. I would think you enjoy lazy thinking than real thinking.
ReplyDelete", but unfortunately bitcoins will not be able to survive as a currency because of the issue of hoarding."
ReplyDeleteHow long timeframe do you give Bitcoin? Give me an exakt date.
6 months? 1 year? 2 years? 10 years? 50 years?
With such a statement you need to set a timeframe, otherwise its just nonsense.
I can say the dollar will not survive and be 100% accurate or gold will collapse.
You look at Bitcoin as a FIAT currency. Its simply fails.
People do not have to use Bitcoin everyday in order for it to work.
It does not cost anything to accept Bitcoins. This means that even if there is only 1 who use Bitcoin every day to buy something.
Its still means more business.
If I keep a Bitcoin one year and send it for free all over earth, next year. I will still have saved money on that transaction.
Bitcoin is unlike a FIAT currency in that it must not be used every day in order to work.
Humans have been hoarding gold and diamonds for 5000 years and they are still here and they have kept their value.
Hoarding is not a problem its a feature, it creates and demonstrates that people give Bitcoin longterm value and that they think the value of their Bitcoins is more than $11.
Bitcoin is not only a currency, that does not mean it fails.
Its like saying that a Flashlight fails as a light and is thus not good because its not used every evening.
The flashlight still works and its invaluable when the light goes out.
A free currency that was not worth hoarding would simply vanish.
Everyone would get rid of it as soon as possible.
It would not be attractive to hold and thus not attractive to get.
As a Bitcoin change hand, it often does so to someone who expect it to go up in value. And that is a never ending self fulfilling spiral, because as it rise in value more people will get them expecting it to rise even more in value.
Those who exchange their Bitcoins into FIAT today, do so to people who will hold them until they rise in value or hold them until they have increase in value or they need to buy something, than they will use them and exchange them to someone who will do the same.
Suddenly you have a stable currency that will hold its value longterm.
When it does not rise more I´d say 20-30 years, people will start to trade them for goods in a much higher extent. Giving it even more value as a currency. Driving its value up even more.
There will allways be demand for a currency that can holds its value, because there is a limited amount of it. This statement holds true for all over the world, the demand for a currency that holds it value and can even increase is much bigger than the demand for another countrys local currency.
That demand makes it useful as a currency, since it will allways be in demand.
A guy in africa has no use for Argentina Pesos, but he can have plenty of use for Bitcoins, since the internet does not have any borders.
People also want to use their Bitcoins as they know that it will drive up the value of their other Bitcoins. This also drives useage.
With FIAT currency you dont know what you get. How much new will be printed and when? Only with Bitcoin do people know this.
>How long timeframe do you give Bitcoin? Give me an exakt date.
Delete6 months? 1 year? 2 years? 10 years? 50 years?
>With such a statement you need to set a timeframe, otherwise its just nonsense.
I can say the dollar will not survive and be 100% accurate or gold will collapse.
I don't have an exact date. I'd estimate that they will last for another 5-7 years, but it's just a guess.
>Humans have been hoarding gold and diamonds for 5000 years and they are still here and they have kept their value.
>Hoarding is not a problem its a feature, it creates and demonstrates that people give Bitcoin longterm value and that they think the value of their Bitcoins is more than $11.
But gold and diamonds have value beyond being used as currency. 1 is a precious metal and the other is a clear rock. People actually want gold because it is shiny, so hoarding doesn't devalue the currency. Bitcoins, on the other hand, are worthless beyond their use as currency.
>Suddenly you have a stable currency that will hold its value longterm.
Bitcoins can hardly ever form a stable currency and increase in their use because there is a fixed amount of bitcoins. The more people that are trading in bitcoins, the more valuable a bitcoin becomes. Essentially, any time more people enter the market for bitcoins deflation occurs.
>There will allways be demand for a currency that can holds its value, because there is a limited amount of it. This statement holds true for all over the world, the demand for a currency that holds it value and can even increase is much bigger than the demand for another countrys local currency.
>That demand makes it useful as a currency, since it will allways be in demand.
Maybe this will happen, but I think it won't always be in demand. As I've mentioned earlier, other goods that are hoarded are worth something because they are a commodity, not a fiat currency.
What happens when there's a recession and everyone starts hoarding their dollars?
The dollar loses its value and people switch to buying gold and making other investments. The dollar is used very widely (throughout the entire world), of course, so even as the dollar loses popularity it still retains a huge amount of use. Bitcoins, however, are poorly established, and a good shake in their popularity could potentially result in a relative collapse of it's use.
>A guy in africa has no use for Argentina Pesos, but he can have plenty of use for Bitcoins, since the internet does not have any borders.
Maybe, only if other people are willing to accept it as currency. If someone thinks they can get more value from a dollar than a bitcoin they'd rather accept dollars. For example, while in Africa a friend of mine was offered a better deal when buying art if he used dollars vs the local currency because dollars are more stable and more widely used.
Sometimes I imagine doomsday scenarios. The zombie apocalypse is my current favorite recurring daydream. I do like to imagine what things would look like when cash money is made illegal. In my imaginary scenario all transactions must be electronic, like debit or credit cards. I'm guessing this could happen within the next twenty years. Sooner after a terrorist attack. When that happens, I expect bitcoins to become suddenly more popular.
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