If Bitcoin adoption continues we'll have to rethink the PP

[Jake]

Yes, yes I know: someone is always saying we may need to rethink the PP. And I realise that Bitcoin is in a bubble, there will probably be a frightening correction. Granted. But adoption is increasing fast and that really is significant. It seems to me that with a market cap of over $1bn, Bitcoin is now here to stay. My guess is that volatility will have to go down over time as adoption continues because bitcoin will act more and more like cash does.

There is something really revolutionary to consider here. Bitcoin is a gold-standard type of money that is up and running in our fiat currency world. It has all the advantages of gold's fixed supply but it is immune to capital controls and it is massively cheaper to hold and transact. It  can also be massively safer to hold and transact, if you know what you are doing.  Bitcoin removes the problem of counter-party risk that gold storage gives us. It's easier to check Bitcoin integrity than gold integrity. Little by little, you can actually use bitcoin as a means of payment, just like you once could with gold.

The PP was designed for a fiat currency world. What happens if we have a functional, global, fixed currency in operation? I have not put anything into Bitcoin and I am fully committed to the PP. But if adoption continues, I'm going to have to think about what it means for my use of gold and even possibly cash.

[craigr]

If Bitcoin gets too big it will be shut down by the governments around the world. They might not be able to attack the infrastructure, but they can go after people that accept it for transactions with onerous taxes, etc.

Governments hate anonymous/pseudo-anonymous currency. If they could get rid of cash tomorrow and make it all trackable electronic cards they would. 

I personally hope Bitcoin continues to get traction and grow. But I'm sure in the future we should be expecting to hear the press start running stories about "laundering", "drugs", and of course "child pornography" associated with bitcoin to smear it before the legislation begins to flow.

[Storm]

Good points, Craig.  There is actually a guy, Nick Colas, who appeared on Bloomberg today and really knows what Bitcoin is about.

http://www.youtube.com/watch?v=CdVVECKKSXo

He calls it "gold for nerds."  I agree.  He also says "It's certainly a valuable part of a diversified portfolio."  Interesting times we live in.

I figure if you want to hold a few coins in your VP, it might make sense to have exposure to it just in case it takes off.

[AdamA]

He calls it "gold for nerds."  I agree.

Isn't gold ownership kind of nerdy all by itself?

[Coffee]

No.  All of the cool kids own gold.

[dualstow]

Bitcoins are fascinating to me, and I'd rather own them than get into credit default swaps.
Still, I'm happy to stay on the sidelines just as long as my credit cards work. And, while I may be forced to use them for commerce one day, I doubt I would ever think of it as an investment.

Speaking of commerce, I got rid of my paypal account shortly after signing up. Last year, I was trying to buy some more computer mice carved out of wood but Verified by Visa foiled my attempt to use a card, and rather than use PayPal I just went without. I can imagine doing the same where bitcoins are concerned.

[l82start]

i have been interested in bit coins since early on when they were little more than a gleam in crypto enthusiasts eyes, i got a wallet and a mining program to experiment with not long after they became available and i read the bit coin forums. but i never got any bit coins or invested in real mining equipment, i gave it serious thought but balked at the hoops i had to jump through to buy coins. i am not a fan of mt gox or of having to use dowalla or other exchanges i am not familiar with, and i distrust online banking in general.. i still think bit coin is a very interesting idea and it may even end up working, but i will be a late adopter long after it becomes mainstream (if it does)..

the last time i tried to use pay pal they asked me to create and send digital (scans) of my SS and ID. i have used them many times in the past but i don't trust even them enough to do that ....  i wont be sending money through pay pal any more either i guess...

[stone]

I'm ignorant about bitcoins. Is anyone buying anything with them rather than  simply collecting them? If no one is buying real goods or services with them, then they are not working as money IMO. To the naive outsider it looks as though fairly soon one person (the most avid collector) will end up with all the bit coins. What then? Who is going to know how to receive them as payment when that is the case? Surely for something to work as money it needs to be constantly present in circulation?

[dualstow]

I'm ignorant about bitcoins. Is anyone buying anything with them rather than  simply collecting them?

yep.

[l82start]

http://bitcoinmagazine.com/where-to-spe ... -bitcoins/..  for them to really take off amazon, eBay, pay-pal, and other big name online locations will have to start taking them, it may not happen till somebody tries to steal their market by beating them to it though.

[Ad Orientem]

Bitcoin is gold for nerds. Hmmm. Can I lock them in a safe deposit box or bury them in my back yard? If the answer is yes, this might be worth a look. Otherwise I think I will pass.

[MachineGhost]

I'm ignorant about bitcoins. Is anyone buying anything with them rather than  simply collecting them? If no one is buying real goods or services with them, then they are not working as money IMO. To the naive outsider it looks as though fairly soon one person (the most avid collector) will end up with all the bit coins. What then? Who is going to know how to receive them as payment when that is the case? Surely for something to work as money it needs to be constantly present in circulation?

Freicoins have a demurrage fee of 5% a year to attempt to keep them constantly in circulation, but it is laughable the amount that have been mined compared to Bitcoins.  We could argue that 5% is worse than the negative real rates we have now, so there is no incentive not to hoard Bitcoins which is sort of pseudo-commodity in that it is both a medium of exchange and a store of value (from scarcity).

I suspect what is needed is an xxxcoin that does not have a fixed supply but is limited to 0-1% growth per year with no other fees.  Enough incentive to mine, not so high as to discourage using it as a medium of exchange and not so low as to encourage hoarding.  Maybe I should start that and call it MGcoins.

[whatchamacallit]

It seems like a ponzi to me at first thought.

Early adopters put in less money than they are able to take out now. Once the new funds slow down, wouldn't it have to collapse?

When I think about it though, it seems the same would be true of gold. Nobody owes gold like everyone owes dollars. So we only buy gold because we know its value "can" increase.

I don't see bitcoins as a good store of value though because the same government debasing legal tender controls the infrastructure needed for bitcoins implementation.

Store of value is kind of hard to wrap your head around. I guess knowledge is the best store of value but we have limited storage space.

[stone]

I guess knowledge is the best store of value

From a real economy rather than a financial perspective I think that is totally spot on. Have you seen http://www.interfluidity.com/v2/4218.html ?

In empirical fact, “human capital”? and its more sociable, incorporeal twin “institutional capital”? seem to be much more important predictors of the growth path of an economy than physical capital. Europe and Japan bounce back quickly after war devastates their infrastructure. But imagine that a Rapture clears the Earth and pre-agrarian nomads take possession of perfect gleaming factories. I think you will agree that production does not recover so fast. Human and institutional capital dominate physical capital.

[dualstow]

Al Jazeera interview with three guests.
http://youtu.be/V8ZQXJ5i7F0

Perhaps this Amir fellow is not the best spokesman for bitcoin :-) but I enjoyed the discussion.

[Storm]

Bitcoin is gold for nerds. Hmmm. Can I lock them in a safe deposit box or bury them in my back yard? If the answer is yes, this might be worth a look. Otherwise I think I will pass.

Yes, you can absolutely generate an offline wallet, store multiple copies of it in a safe deposit box, in a pvc pipe in your back yard, etc.  What's great about having an offline wallet is that you can still send funds to it, without even digging it out of your back yard.  I'm too tired to explain how that works right now...

[Libertarian666]

It seems like a ponzi to me at first thought.

Early adopters put in less money than they are able to take out now. Once the new funds slow down, wouldn't it have to collapse?

When I think about it though, it seems the same would be true of gold. Nobody owes gold like everyone owes dollars. So we only buy gold because we know its value "can" increase.

I don't see bitcoins as a good store of value though because the same government debasing legal tender controls the infrastructure needed for bitcoins implementation.

Store of value is kind of hard to wrap your head around. I guess knowledge is the best store of value but we have limited storage space.

As usual, the essential difference between bitcoins and gold is overlooked. Gold is a monetary commodity, meaning it is a commodity (a useful good) that can be used as money. Bitcoins are not any kind of commodity, as they have no use other than for exchange.

[AgAuMoney]

Bitcoins are not any kind of commodity, as they have no use other than for exchange.

Yes and no.

I got my first bitcoins in 2009 when they were of absolutely no use for exchange.  As an example of their no use, witness the bitcoin faucet in 2010 giving away 5 bitcoins per request per day.

Learning about bitcoin, and how the cryptography worked to make it all possible was quite educational.  Applying that cryptography to make impossible the multiple-"spend" of a digital token was a clever insight, given no central authority is required.

One of the cheapest textbooks I've ever owned.  And now one of the most valuable.

Because of that unique (at the time) and clever application of cryptographic technology, more people became interested and by mid-2010 bitcoin started to become useful for exchange.  Late 2010 it took 10,000 bitcoins to buy two large pizzas.  (Twice.)

Originally gold had no exchange value either.  Neither did cowry shells.  Both of those developed exchange value.  So did bitcoin.  Cowry shells have lost their exchange value (for all intents).  Gold is still worth something.  Bitcoins could go either way...