I'll give it a go. The early distribution of bitcoins seems to have been enough to motivate lots of relatively early adopters to promote it aggressively, maybe out of ideology or maybe just out of greed. Their claims, which fueled the recent speculative frenzy, have always been that Bitcoin would have a continuous, exponential growth against all other currencies. "It always goes up." "Get in before it's too late."
I can see how relatively small amounts of money could be invested into Bitcoins as speculation or just play. Several tens of millions of dollars have presumably been transferred to Bitcoin holders so far, in the aggregate. But many people are investing on claims that a single bitcoin will eventually be worth $10,000, $100,000, or $1 million. For that to happen, the world would have to transfer massive wealth to the early adopters, as this early adopter explains:
Why would anyone do that rather than setting up an alternative? Massive delusions are possible, but it seems far more likely that the claim that a bitcoin will be worth $10,000 will start to seem ludicrous to everyone, as it obviously is.
After that, why would anyone buy a bitcoin for $100, or even $30 or $10? There's little practical use for them other than drugs or illegal gambling. And they're hardly worth speculatively buying at $100 just so that they could be sold at $120 or $150.
It's got to die eventually, unless everyone decide that they don't mind depreciating the value of everything else just so that the early adopters of this scheme can have untold wealth dumped into their laps. It's a fascinating technology, but that doesn't mean the speculative delusion will last forever.
Pyramid scheme? Just so. Of course, to some degree so is gold -- but gold has a much wider existing distribution (compared to Bitcoin), a much deeper history, and backers far more significant, both intellectually and financially, than the childish ideologues of bitcointalk.org.
I'm sorry, but your comment seems blinded a bit by ... I'm not sure what the right word is? angst, self-hatred, jealousy? There's a lot of negativity in general coming from the HN crowd towards BTC, I'm guessing because everyone here was more than capable of installing the original Satoshi client and mining early on, but chose not to or didn't hear about it. With BTC now on the rise, of course it all seems so obvious, and oh so unfair.
Everyone had the chance to mine in the earliest of days, that's certainly true for me and I sometimes kick myself about it. Hindsight is 20/20.
Well, rather than armchair psychology, you could consider the points I made themselves. Do you think there is a good reason for the world to transfer massive wealth to those who currently own bitcoins, rather than setting up an alternative (assuming that the fascinating technology of Bitcoin solves a problem that anyone except ideologues have in the first place)?
I considered your points. You pretend as if the claims of early adopters are to blame for fueling the recent "frenzy". Really? Are you really saying a group of early adopters are entirely to blame for a market appraising a formerly unknown asset?
If you lacked the vision, the luck, the timeliness, etc. of an early adopter, fair's fair. Pay them their respects. I still kick myself for not having my wits about me when I first heard about Bitcoin.
As for your alternative, I don't see why not. You could create a clone of Bitcoin today, why not do it yourself? They did that with Litecoin, too. In fact the author of Litecoin created it because he felt "wronged" the same way you do now. He felt as if too many people missed the boat with Bitcoin, and clearly people should have a second chance of early adopting such a revolutionary concept.
As you'll see from my comment history, I was playing with significant money in Bitcoin early on. I have at least paper gains that are quite satisfying. Nothing I'm saying is personal or is based on any kind of jealousy. It's weird of you to assume that it is.
I call BS here absent a Bitcoin signature proving your supposed ownership of "significant" Bitcoins. If anything is weird, it's that someone who was supposedly interested enough in Bitcoin to buy or mine a significant amount "early on" has spent the vast majority of your past umpteen comments bashing Bitcoin. I think it's sour grapes, and it surprises me that so many on HN, who cheer on every Instagram knock-off that's sold for millions of dollars, are so bitter toward the person or persons who invented and built a truly revolutionary technology that has the potential to vastly change the way we do business.
I'm not "bitter" at Satoshi Nakamoto, or really at anyone. I'm trying to do what I can, as I have from the beginning, to prevent people from falling for a scam. I'm not alone in doing this, and many other good analysts are doing the same thing. Is it worthwhile to try to apply arbitrary, amateur, and frankly embarrassingly bad psychology to all of them?
It is unfair of jnbiche to close discussion by simply saying sour grape, but you seem to be too determined - maybe even evangelical looking at your nick - perhaps its something to do with leftist ideology?
In any event, the article raises two points.
1 - the currency is deflationary.
I'd argue that it is an inherently stable currency no different than gold. Many economists may say that a hard currency is not a good basis for an economy, but many economists say it is. That includes Hayek who won a Nobel for his theory of how best to allocate resources.
So to say that bitcoin will fail because it is deflationary is at best an opinion. You're free to hold it but that hardly makes bitcoins a scam.
2. Something better may come along.
That is basically saying bitcoins may fail, therefore it is a scam. In that case, most of the companies YC funds are a scam. They too disproportionately reward the founder and the first employees. You may say but they create a hard product of value or offer a service. Firstly, I'd say bitcoins is a product. It is not tangible, it is only 0s and 1s, but it is a product created out of applied mathematical theories and formulas and computational power. I'd also say it is a service for obvious reasons.
Even assuming you disagree with the latter points, lets go back to the YC funded company. Lets say they create something like google - a service - facebook - a service - wordpress - a product. Lots of people invest in these - making the founder and first employees rich beyond means - then something better comes along. Are you suggesting google is a scam? Oh but google has value. Say who? It provides a service - so does bitcoin.
The world already has done so. And of course there is a good reason. Like with every creation, they made this possible, they took the risk, maybe even high risk since the government could have gotten involved, and now they are rightly being rewarded for it.
What do you suggest, we tax them 90% so that we can all be equal?
My dislike of BTC is if it prevents an anonymous cryptocurrency from being deployed -- either by displacing it (like craigslist displaces better alternatives), or by collapsing and scaring everyone away.
If it's just a proof of concept of cryptocurrency in general, it's cool. It might remain a decent currency for certain uses in addition to other more transactional currencies, though.
Everything you've described can be applied toward any type of asset.
1. Early adopter wants more buyers in their market to drive up share price? Check.
2. Price bubbles up and crashes due to high expectations? See number 1? Check.
Unlike any asset I'm aware of, this one is open-source and completely transparent.
> There's little practical use for them other than drugs or illegal gambling.
I think these types of statements will be looked back at contemptuously years from now, even if bitcoin fails and is replaced by something else. This is a completely new field. How can you imagine bootstrapping a currency like this? It can't start with nobody receiving any coins, or it couldn't be used. You could give all the coins to a single entity and have that entity distribute (like Ripple is doing) but this is even less fair than Bitcoin, especially since OpenCoin is keeping half of the coins they're minting.
Practically speaking, there is plenty of use for Bitcoins. I don't have to give anybody my personal information to transfer value, which is impossible to fathom in any other existing commodity. There's even more use for them as it grows and concepts which have not been fully implemented (smart property and the like) are developed into/around the protocol. Every month a great new idea pops up, like fidelity bonded ledgers or some zero-knowledge proof system which makes bitcoins pop into and out of existence without a linear path -- all without a central entity and only some crazy tricky math and sometimes game theory.
Gold itself has had a nasty history too. Remember, it was bootstrapped (relatively speaking) off a market of financing war and has been periodically seized by governments for that end. I personally think gold is much more secure of an asset now, as we have to trust that nobody will seize a majority of the hashing power in the bitcoin network for our coins to be valuable, whereas with gold we only have to trust that they are scarce. It's something like NSA vs. Science, really.
Every bubble could be its last bubble and just like the early adopters who were smart enough to cash out in 2011 when they saw the opportunity, there are some who were smart enough to cash out during this last bubble. This is why it is absolutely pointless to call it a ponzi scheme. The economic base does not depend on new users financing it. Massive bubbles do, which is why they should be ignored/hedged against.
On "little practical use," I mean today. Why does anyone buy a bitcoin today? The only reasons that I can see are (1) ideology, (2) illegal activities (including the circumvention of gambling restrictions), or (3) speculation, hoping to sell it to someone who will pay more later.
I think the technology is great. The technology itself gives absolutely no reason for those who don't own bitcoins (in the main block chain) to buy them for any value.
Are we talking about "anyone" buying a bitcoin, or some people? The latter is what truly matters, as it's not immediately useful for anybody. It'll have to grow into its niche.
Want to transfer value to someone half-way around the globe without dealing with Western Union, paying huge international fees, or giving your personal information out? I invested in a Chinese company which went on to pay my investment back and I still collect weekly BTC dividends. I never had to pay more than a dollar in fees the entire time, or give anybody my information (except the tax man).
Circumventing government controls is part of the value, the other part is removing the balkinization of finance which has made a global economy impossible or extremely unaffordable. Imagine being able to 'settle' a gold transaction with someone within 10 minutes, knowing it's not fake gold, half-way around the world, and being able to spend it immediately after back in the 1800's. What is this USD you speak of?
How about simple person to person micro-transactions? Tipping on reddit is a great example. I think it'll find a great niche there. Want to send someone a few cents for reading a good blog post? No problem
Secondly it also excels in that I can send money to someone I don't know for a service, and while they could disappear and run without me having much recourse, they can't steal/lose my bank details or credit card number. There's a different level of risk, one that pays off with small transactions rather than large. Credit cards are the other way, I'm unlikely to call mastercard to reverse a $0.2 transaction, and lots of the consumer protections (in the UK) only apply on certain size transactions.
To pay for something, I have to give someone enough information to take money out of my account. To send bitcoins to someone, it's up to me to send it.
Currently, the maximum transaction rate that Bitcoin can theoretically handle is about 7 transactions per second. Increasing that limit will require a hard fork that breaks all existing clients. A chunk of the community and at least one of the developers is really hostile to the idea, partly because it increases resource usage - every node needs to receive every single transaction and store it forever. At the current, fairly low, transaction rate limit that's 52 gigabytes of new transactions every year.
The other reason is that they feel that, without transaction rate limits, mining won't be profitable when the rate of coin subsidy drops off. Some argue that we need the competition for limited block space in order to drive fees up enough to keep mining profitable. Those same fees kill microtransactions.
Since a hard fork would require agreement from essentially everyone involved in Bitcoin, there's essentially no chance of this limit being increased.
> Since a hard fork would require agreement from essentially everyone involved in Bitcoin, there's essentially no chance of this limit being increased.
The bitcoin network underwent a hard fork a couple weeks ago due to a bug in the implementation of the on-disk database.
The developers reached out to the mining pools and got the vast majority downgraded within 8 or 12 hours. A day or two later a new version was pushed out that mimicked the old behavior up until the point that a supermajority of nodes were upgraded, and then switched to the new behavior.
Forks have happened before, and the community is close-knit enough to resolve them. Everyone's primary goals are a) being ideologically neutral and b) keeping the network running, in equal measure.
For me, the main thing that says "more like a pyramid scheme than like a currency" is that the number of BitCoin in circulation is limited.
Suppose that BitCoin becomes so popular that a country wants to join in. The normal way to do that is to have the central bank exchange your current currency with newly minted 'new' currency. With BitCoin, that isn't possible. The only way to join in is to somehow get BitCoin from existing owners. That will make the BitCoin exchange rate go up. The ones benefitting from that are those who already are 'in'.
Another way to look at this: if this becomes the world's currency, that 1 BTC you mined years ago for $1 of electricity on that $500 PC will be worth 1/21M-th of the wolrd's wealth, and will keep its worth forever.
I can see how relatively small amounts of money could be invested into Bitcoins as speculation or just play. Several tens of millions of dollars have presumably been transferred to Bitcoin holders so far, in the aggregate. But many people are investing on claims that a single bitcoin will eventually be worth $10,000, $100,000, or $1 million. For that to happen, the world would have to transfer massive wealth to the early adopters, as this early adopter explains:
https://bitcointalk.org/index.php?topic=175833.msg1830933#ms...
Why would anyone do that rather than setting up an alternative? Massive delusions are possible, but it seems far more likely that the claim that a bitcoin will be worth $10,000 will start to seem ludicrous to everyone, as it obviously is.
After that, why would anyone buy a bitcoin for $100, or even $30 or $10? There's little practical use for them other than drugs or illegal gambling. And they're hardly worth speculatively buying at $100 just so that they could be sold at $120 or $150.
It's got to die eventually, unless everyone decide that they don't mind depreciating the value of everything else just so that the early adopters of this scheme can have untold wealth dumped into their laps. It's a fascinating technology, but that doesn't mean the speculative delusion will last forever.
Pyramid scheme? Just so. Of course, to some degree so is gold -- but gold has a much wider existing distribution (compared to Bitcoin), a much deeper history, and backers far more significant, both intellectually and financially, than the childish ideologues of bitcointalk.org.