Trading bitcoins?

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Felix
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Re: Trading bitcoins?

Post by Felix »

I find it ironic that bitcoins are "mined" (to appeal to the gold bug demographic) by solving worthless puzzles using quite a lot of computer power. It's Keynesian ditch-digging at its finest.

And you get the purest fiat currency there is out of it. Given that everyone can create a new virtual currency (Dogecoin! such ecurrency wow), no government backs them, and virtual currencies have no intrinsic value, I do not see much long-term price stability in there. Even the deflationary bias is being outdone by new competing currencies.

It seems like a pump and dump scheme.

That said, it does have its use in tax evasion, drug trafficing and other nice things, there's a clear benefit there and it will not go away. The downside is the possibility of hacked accounts and the rather large volatility of prices but in these niches, this is part of the price to pay.

My favourite nickname for bitcoins is Dunning-Krugerrands.

jacob
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Re: Trading bitcoins?

Post by jacob »

Felix wrote:I find it ironic that bitcoins are "mined" (to appeal to the gold bug demographic) by solving worthless puzzles using quite a lot of computer power. It's Keynesian ditch-digging at its finest.
No, the point is to find a finite resource whose extraction rate converges on zero as it gets harder and harder where , consequently, the total amount of mined material is finite. Gold and bitcoins both obey that law unlike fiat currencies which can and get produced ad infinitum. If people can generally agree on this finite resource as a trading medium it gains value because of its finiteness. This is unlike fiat currency which gains value because the gov will put you in prison if you don't have enough of it to pay taxes. So the value comes from different aspects. Apples and oranges. Another example would be in using rice as a currency---this has value because it can also be eaten.

I don't disagree with your other points.

leeholsen
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Re: Trading bitcoins?

Post by leeholsen »

if anyone is looking for a great site to keep current with bitcoin, i'd suggest: http://libertyblitzkrieg.com/

i'm not a bitcoin believer myself, but he is and puts up an article on it every other day. you could just scroll thru previous posts and learn everything you ever wanted to know.

Felix
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Re: Trading bitcoins?

Post by Felix »

I agree with you that the setup is similar to the extraction of gold in terms of the development of the extraction rate. However, the nature of the work done itself appears like Keynesian shoveling to me in that you essentially waste energy on something that produces no economic value and are rewarded with a bitcoin. Hence my statement that it is similar to Keynesian shoveling (under a gold standard, you do not need a fiat currency for Keynesian fiscal policy).

The difference to real mining is that real mining is simply the way reality works whereas the virtual extraction setup is a deliberate waste of energy that is not necessary. You could set up a lottery-like setup or some other meritocratic metric that follows a similar release rate and does not simply waste energy in the process.

I also don't quite buy the limitation idea. Yes, the bitcoins themselves are limited as you described, but bitcoins are not functionally different from the growing number of other e-currencies. The amount available in e-currencies themselves is not limited at all.

Sure, bitcoin was first and is the most traded one and traded at the highest price, but - unlike with gold - the difference is not one of its fundamental nature (like you can't just use silver or platinum instead of gold in industrial or even decorative use), but simply of perception.

I find it quite absurd. I could start toecoin, where each coin represents (and grants the rights to) some amount of my toenails, which I will collect in a jar till I die. They are unique and limited and the extraction rate can be setup similarly to bitcoin (You could waste computer power or maybe you can upload a video to youtube that you dug up a hole in your backyard and closed it again or you made a beautiful sand mandala and destroyed it right after). None of this means that my toenails are worth $1000 per 1/81Millionth of lifetime production, but they are still worth more than the bitcoins which have no relation to any real value whatsoever. But that's where we stand with bitcoins currently.

That's my reasoning behind remaining sceptical of the idea.

jacob
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Re: Trading bitcoins?

Post by jacob »

@Felix - Gold also have very little industrial use. Hence, waste of time. People only keep it around because it's rare.

Consider that some commodity may in fact be valuable because people are rich enough to waste energy to extract it. Kinda like peacock feathers. Why else would you be mining gold instead of coal and iron? Or compute bitcoins instead of finding the gene sequence of malaria?

You could use many other rare metals instead of gold, e.g. silver, rhodium, tantalum, ... same difference. That people can create other kinds of limited electronic currency just means that people might not agree on what to use just like they may disagree on gold vs silver.

So it all comes down to convention and general agreement on what people will accept as payment simply because they know other people will accept it as well, that is, the the virtue of a barter currency. Toecoin is a valid example because it could work. Consider the collectible coin industry in which gold coins get certified and rated and "frozen" into a piece of plastic.

http://www.google.com/search?q=pcgs&prm ... =isch&sa=X

Those plastic sleeved gold coins then become worth much more than the gold itself. You could do a similar thing with your toenails if you can convince enough people to use it as a trade medium. Wouldn't be the craziest thing humankind has done :)

JohnnyH
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Re: Trading bitcoins?

Post by JohnnyH »

dogecoin :lol: :lol:

tylerrr
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Re: Trading bitcoins?

Post by tylerrr »

@Felix, like Jacob mentioned, many entities(made of people) are continuing to agree that bitcoin has real value. That's all that is needed.

Why does gold have real value in your mind? More than a rock on the street?

Bitcoin is one of the most genius ideas I've ever read about in my lifetime. The way it was designed from inception to be limited, produces scarcity, which is key. In addition, there is no central authority that can control bitcoin and it allows transactions to take place without fees.

It is truly fascinating and I personally own a few bitcoins, which i bought at much cheaper prices than it is today. I'm predicting it will go up much further in value. It's around 647.00 per bitcoin right now.

I can cash out my bitcoin for dollars at any time through the exchange I used.

look here:
https://bitcointalk.org/index.php?topic=378936.0

This guy just bought a lamborghini with his bitcoin.

:)

sleepnot
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Re: Trading bitcoins?

Post by sleepnot »

A trip through the Bitcoin mines http://www.zerohedge.com/news/2013-12-2 ... coin-mines
It looks like the "mining at home" times are completely over now.

Maybe if I could hack into my university super computer... just kidding :)

jacob
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Re: Trading bitcoins?

Post by jacob »

I've noticed that. As with any (most?) commodities, it might be that the best business is in selling the mining equipment, not in the actual mining(?) Mining has definitely gone beyond CUDA programming and moved onto making specialized hardware for computing these keys. Whoever buys the newest hardware first has an advantage until the next generation of hardware is released. As such mining only yields economic profit?

Felix
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Re: Trading bitcoins?

Post by Felix »

I'm certainly the last person to defend gold. :D

I just used it as an obvious example. Might just as well use my toenails. The point is that gold or old toenails have some degree of real value beside being chosen as a trade medium and bitcoins don't.

I am also not convinced of the barter currency narrative in general, subscribing to the state theory of money instead.

Bitcoin is still not very useful as a currency. Very volatile, little acceptance and little trade volume. Most who buy it speculate.

How brilliant it really is remains to be seen. It was a good investment to buy them at a few cents to sell them at over $1000.

jacob
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Re: Trading bitcoins?

Post by jacob »

@Felix - If you believe the state is strong, you subscribe to the state theory? If you believe the state is weak, you subscribe to the barter theory?

Felix
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Re: Trading bitcoins?

Post by Felix »

@jacob: I'm sure that belief in the power of the state has something to do with being persuaded one way or the other. But I think there's more to it. I think that the current money we have can be explained via state theory of money. There have been other systems in the past, but they have been systems of credit and debt, not barter using a commodity as a medium of exchange. Tally sticks come to mind here. I would recommend Graeber's "Debt - the first 5000 years" even though it has quite some odd content in there, but it shows more that people did more strange things than toecoin. :)

I'm also not sure if it is state weakness or not that is the main factor here. After all, natural free market believers tend to consider the state to have a monopoly of force and to be brutal and violent in the enforcement of its laws often against the will of the population and in violation of what they consider their natural rights.

I do not believe barter, trade and private property to be natural to humans and consider them (in line with libertarian tradition) to be an example of misuse of government force for the benefit of a select few who essentially control government action often against the will of the people government is supposed to (and claims to) represent.

Maybe the divide is rather on whether markets are natural or not? It's the European (and also most of the American) tradition in libertarianism and anarchism which is and has historically been very opposed not only to government power, but also to concentration of economic power, wage-slavery, etc. vs. the Austrian economic version of market libertarianism and anarcho-capitalism which is opposed to government power, but considers economic power legitimate.

Both abide by the non-initiation of force principle. But they have different theories of entitlement, which leads to different definitions of what is force and what is voluntary.

I worry that I'm derailing a thread again. :-( New thread?

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jennypenny
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Re: Trading bitcoins?

Post by jennypenny »

Is the difference a change in the purpose of money? We talk about currency's main purpose being the payment of taxes. Has rapid globalization changed that? I was only half joking in the other thread when I said that Google might be the next empire. If the next empire isn't a nation-state in the traditional sense, then a currency like bitcoin seems plausible and might be sustainable at some point. I'm not sure bitcoins specifically are. They may just be testing the waters for a new currency system someday. I wouldn't equate them with Tulips, but they aren't real money yet either.
Last edited by jennypenny on Thu Dec 26, 2013 11:17 am, edited 1 time in total.

Felix
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Re: Trading bitcoins?

Post by Felix »

Amazon might be next in line here. They're already buying up media. They could easily establish Amazon gift cards as a currency. Wait till they have an army of drones. :D

JohnnyH
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Re: Trading bitcoins?

Post by JohnnyH »

http://www.zerohedge.com/news/2013-12-2 ... coin-mines
Image
The wasted computing power is probably the most problematic thing about it, IMO... Too bad the power couldn't be networked and donated to something useful.

At least one of these massive bitcoin mining farms could heat an apartment building... I wonder how efficient the heat produced by a PC is. Maybe .85-.9 (after moving parts; fans, pumps) rather than .98 of a space heater?

@Felix: The chemistry of gold/silver made them basically the only logical choices for money on earth... As far as bitcoin not being useful as a currency; I think bitcoin ATMs would make it very useful and more convenient than most forms of current currency.

tylerrr
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Re: Trading bitcoins?

Post by tylerrr »

should I buy another bitcoin? Are we going up or down? Please tell me experts. :)

JamesR
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Re: Trading bitcoins?

Post by JamesR »

Felix wrote: I do not believe barter, trade and private property to be natural to humans and consider them (in line with libertarian tradition) to be an example of misuse of government force for the benefit of a select few who essentially control government action often against the will of the people government is supposed to (and claims to) represent.
I thought libertarians were all about barter, trade, and private property?

I find that my libertarian/economics background helps me understand the reason for bitcoins. Simply speaking, it is designed to fix all the major problems with existing fiat currency.

Funny thing is that "real money" hasn't been real since it stopped being backed by gold (something that had existing value and fairly limited). Interestingly, fiat money itself is perhaps excellent proof that you truly do not need your currency to be backed by anything at all. ;)

Seneca
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Re: Trading bitcoins?

Post by Seneca »

Felix wrote:...I do not believe barter, trade and private property to be natural to humans and consider them (in line with libertarian tradition) to be an example of misuse of government force for the benefit of a select few who essentially control government action often against the will of the people government is supposed to (and claims to) represent...
We can argue about whether or not property rights are "natural" I guess (in that there are many different types of property), but barter and trade are natural as breathing to humans.

Please don't point me to the book, I started it not knowing anything about Graeber and it is absolutely not a history of debt. It is what I'd expect of the "anti-leader" of OWS and a self proclaimed anarchist.

George the original one
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Re: Trading bitcoins?

Post by George the original one »

I'm of the opinion that bitcoins are the monetary equivalent of limited edition beanie babies.

JamesR
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Re: Trading bitcoins?

Post by JamesR »

So why wouldn't you rely on beanie babies as your primary form of currency? Take a handful with you when you go shopping.

Well, obviously you want something that's far more portable, and easily divisible. ;)

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