The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: MrThatsDifferent on November 16, 2017, 09:47:45 PM
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Ughhh, my friend is obsessed with bitcoin and I was this close to investing $3k as experiment money in August but I didn’t because I set a goal for my Vanguard account ($100k) and haven’t reached that yet. Now I’m kinda kicking myself and wondering if I should invest now or leave the game to the more fearless? (I still wouldn’t invest more than $3k max). If I don’t do it, will I be regretting it in 5 years?
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Some people here love it... I think avoiding it is best.
The last conversation I had with someone on here ended with the mutual conclusion that bitcoin has no intrinsic value, but they still wanted to keep buying it. To me no intrinsic value = $0 value. [shrug]
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Maybe.
I kicked myself a long time then jumped in a few months ago. Tripled my money so far. But if it all goes away it won't hurt me.
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I'd be more confident of a crash in Bitcoin than I would be about a crash in the stock market
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I will never put my cash in BTC, but I do mine it and plan to hold onto the little BTC I have.
As always, only invest what you can afford to lose.
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I'm no longer in bitcoin, so I can't speak for it.
I do have some questions though: Why bitcoin and why now? Do you think 8k is the best price to get in at or do you expect a correction? Do you feel confident enough in it to hold through volatility and contradicting sources of information? Do you think it will be able to effectively scale second layer? Compare it with its forked counterpart, bitcoin cash. If you're still keen on bitcoin, I would not recommend more than $1k. Crypto has significant risk (depending on your entry amount; in your case, it's minor) and you should diversify into at least one or two other crypto.
Look through coinmarketcap.com and read up on other coins. If you're not already aware; included in the definition of cryptocurrency is that it is decentralized (protects against double-spend), with inherent costs and incentives to achieve consensus (currently proof-of-work and proof-of-stake systems). Not all the coins listed meet this criteria. Just something to be aware of. Permissionless vs permissioned; censor-resistant versus alteration; true financial sovereignty vs central control. The aspects of one is more valuable than the other.
The two that I would recommend researching are ethereum and omisego. Both have (or will have) extreme utility.
Omisego (omg), once it goes live (expected 2nd qtr 2018), will be a blockchain that aims to implement plasma, with smart contract enforcement through ethereum. The ambition of plasma is to scale transaction levels to millions per second, instantly and with low fees. It will be a decentralized exchange as well as a payment network, among other things. More than 5,000 merchants that conduct operations through omise will shift to the omisego blockchain. There will be fiat gateways. Potentially, it could be listed on gdax (https://www.gdax.com/static/digital-asset-framework-2017-11.pdf). Gdax is an offshoot of coinbase. Omg currently has a small cap, with promising opportunity for significant returns. If you own omg and stake it, you will receive a portion of the transaction fees.
Ethereum's (eth) underlying premise is that it is decentralized computational power. You can use it as peer-to-peer cash, or to pay network fees to gamble, or to buy into icos, or to set up smart contracts or some other instructions. The future holds immense possibilities, with dapps that will eclipse our imagination. Something that is a type of fuel, energy, power; what can you do with it? Throw in zero-knowledge proofs (you can prove you know a secret without revealing it). Ethereum solves and will solve mathematical problems that have immense real-world applicability. The internet, with cryptography, improved quality of life; blockchain tech will do the same, with a financial basis.
Apart from your first sentence I didn't understand a word of what you have written. Which is exactly why I would stay away from crypto currencies.
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ETH is the one I was thinking about as I like the idea of blockchains that have real world applications.
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This crossed my mind and then I thought -- let's say I have $7,000 laying around. Do I really want a Bitcoin most of all with that money, or are there other ways that money can be used that would be more beneficial?
I am not a speculator. If I bought into bitcoin or other crypto it would be for diversification, but I'm happy with my investments now. I would be buying out of greed or fear and neither is a good reason.
I need to learn a lot more about crypto before thinking about putting any cash into it.
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Ughhh, my friend is obsessed with bitcoin and I was this close to investing $3k as experiment money in August but I didn’t because I set a goal for my Vanguard account ($100k) and haven’t reached that yet. Now I’m kinda kicking myself and wondering if I should invest now or leave the game to the more fearless? (I still wouldn’t invest more than $3k max). If I don’t do it, will I be regretting it in 5 years?
Most of the answers you've gotten have focused on why bitcoin is or isn't a good investment. Let's put that aside.
My personal rule of thumb is to never buy something when my motive is that it already went up a lot in price and I'm kicking myself for not buying it earlier. If that's why you want to invest, whether it is in bitcoin, or amazon stock, or san francisco real estate -- I've seen lots of similar "is it too late" threads about buying houses out there -- I'd not suggest putting your money in.
I own a bit of bitcoin, but I do because it was fun to figure out how to buy it, and how to use it, and actually using it to make purchases. If it goes to zero, that's okay, I consider what I've put in hobby spending, not part of my investments or net worth.
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I have a coworker that was talking about buying into bitcoin yesterday. I am still on the fence about it. Probably wont buy into the hype myself. Maybe it will go somewhere but idk.
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This kind of thing goes directly OPPOSITE to what this blog is about and what brings people here for discussions. That said, basically greed is at the root of your upcoming decision.
This is your life we’re talking about. I don’t think it’s wise to use even “ play money” (whatever that is) to speculate.
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I'm not going to debate the merits or downsides of bitcoin since there are plenty of threads on the forum so far that have done just that at great lengths. You can search for them and read through the discussions if you'd like.
What I will say is that, as with anything that you put money toward, it is always wise to learn as much about whatever it is as possible. So if you don't know what bitcoin is or how it works, then my advice is to learn about it as much as you can before you put your money anywhere. Here is an excellent video that I always refer people to that explains how bitcoin works and digs into some of the technical side of things in a way that anyone can understand. I hope it helps your understand of bitcoin.
https://www.youtube.com/watch?v=bBC-nXj3Ng4 (https://www.youtube.com/watch?v=bBC-nXj3Ng4)
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I will never put my cash in BTC, but I do mine it and plan to hold onto the little BTC I have.
As always, only invest gamble what you can afford to lose.
FTFY
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Bitcoin is not an investment. It's a form of cash, and really unstable one at that. It's only an investment if you're mining or in some kind of interest-bearing account. Otherwise there's no actual return, and it's just gambling with the exchange rates.
I wouldn't put any money in bitcoin unless I was either planning to start buying things with it or it was just fun money that I'd be willing to take to a casino.
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I got in late, about 6 weeks ago. Invested in both Bitcoin and Ethereum, the percent of each based on market cap. I'm up around 25-30% so far.
I didn't buy crypto at first because 1) I felt it was too late to become so rich I could FIRE off of the investment and 2) because I figured even if I did buy, I wouldn't know when to sell and I'd probably sell it too soon and miss out on the chance to be too rich from it. But I recently decided I would hold it as a percentage of my portfolio. I first started at about 5% but as the price went up, I changed it to 10%. That's where I really wanted to be at first but didn't have enough cash to put that much in (most money is in tax-advantaged accounts). Now I figure I know when to buy and when to sell based on rebalancing my portfolio, so I was able to justify holding it that way. I don't expect to get rich from it, but I'm hoping it increases my overall return a little. If not, it's a small enough amount that I can lose it and shrug it off.
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I'm still waiting for my tulip bulbs to go back to their old highs. Then I'll cash out and put it all into bitcoin.
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bitcoin is just one regulation away from being obsolete.
I'm surprised its taking so long for the US / EU to shutdown its trade.
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Maybe, who knows, I'm definitely not interested.
Even if I could triple or quadruple my money I wouldn't be willing to put enough in to make a significant impact on my networth.
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Yes, it's too late :)
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bitcoin is just one regulation away from being obsolete.
I'm surprised its taking so long for the US / EU to shutdown its trade.
There may be stupid regulations around it like New York and Hawaii's, but it won't be banned. The major investment banks have gotten on board so there's lobbying power to shape regulation in their favor.
FWIW, my asset allocation includes 4% to cryptocurrency, but I own 0 BTC. I have mostly ETH and intend to diversify into some other cryptocurrencies soon.
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I'm still waiting for my tulip bulbs to go back to their old highs. Then I'll cash out and put it all into bitcoin.
👍
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Avoid cryptos at all cost.
why? because you don't understand them, and therefore look at them as not being wise investments? if most people attempted to learn about them with the same dedication as a "normal investment", you'd be more educated, and therefore see value where it exists. most ICO's serve no purpose (it's pointless for them to issue a token), but there are many that have a specific use case and are actually forward-thinking.
to the OP, i would suggest buying at least 1 BTC. you don't need to buy an entire BTC at once, but dollar cost average until you possess 1 if that's easier. there are BILLIONS of dollars flowing into cryptocurrencies right now (specifically BTC) and these are traditional hedge funds and other institutions. they aren't idiots...
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From my perspective, the current market for cyrptocurrencies sure feels a lot like tech stocks around 1998 or 1999. My guess would be that just like 1999, the real question is not whether or not it is too late to get into cryptocurrencies but which cryptocurrencies will survive the coming cull. Bitcoin is the current leader of the field, but so were America Online and Yahoo. My predictions for 10 years from now are: 80%+ of the current crypto currencies are defunct, bitcoin/ethereum are worth a fraction of their current value, and 1 or 2 cyrptocurrencies you haven't heard of today dominate the field.
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Avoid cryptos at all cost.
they aren't idiots...
Well, depends how you define the term. :) I'm anxious to see how the crypto market will do in the next correction and recession. These are very good times! They don't last forever....I hope the Gen Y / millennial crowd doesnt take this 10 year (yes....10 years!!) bull market for granted.....it will end eventually. Just don't want to see you holding the hot potato ;)
From my 30+ years of investing, I plan to stay away from such specialization.....Been there done that twice now. I would be a much richer man if I had just invested in a simple index fund and spent my valuable time doing other things. Not to mention the stress of huge price swings we see in the crypto markets.
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Avoid cryptos at all cost.
why? because you don't understand them, and therefore look at them as not being wise investments?...
...they aren't idiots...
The more I understand bitcoin the less interested in it I am. In addition, you can't 'invest' in bitcoin, because it isn't an investment. Investments pay dividends, income, share business profits, etc. Bitcoin's value is completely based on speculation. The price can go up and down, but at the end of the day no one has any clue what a bitcoin should really be worth. It's intrinsic value is $0.00. To me, that means it is worthless. Even tulips during tulipmania had an intrinsic value. It was very low... how many calories are in a tulip bulb if you ate it? It was still a positive number. If the markets decided bitcoins were worth $0 tomorrow, what could you do with a bitcoin? Nothing.
Hedgefunds buying something doesn't mean anything. There are plenty of hedgefunds run by idiots. While most active funds underperform their benchmarks... hedge funds normally do even worse than active mutual funds. A hedgefund could buy bitcoin just for the talking point of owning Bitcoin, or they could be buying it for short term gains with the intention of dumping it. Bitcoin can be both a long term failure and a short term trading opportunity.
Billions of dollars flowing into something doesn't mean it's good. Adjusted for the current price of gold, a tulipmania era tulip would be worth over $650,000. Hundreds of billions flowed into tech bubble era tech stocks. Trillions were wrapped up in the housing bubble. If something is hot people will throw far more money at it than it is worth.
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The more I understand bitcoin the less interested in it I am. In addition, you can't 'invest' in bitcoin, because it isn't an investment. Investments pay dividends, income, share business profits, etc. Bitcoin's value is completely based on speculation. The price can go up and down, but at the end of the day no one has any clue what a bitcoin should really be worth. It's intrinsic value is $0.00. To me, that means it is worthless. Even tulips during tulipmania had an intrinsic value. It was very low... how many calories are in a tulip bulb if you ate it? It was still a positive number. If the markets decided bitcoins were worth $0 tomorrow, what could you do with a bitcoin? Nothing.
Again, I'm not going to comment on whether bitcoin is a good investment, but I will reply to a comment that attempts to make a claim that bitcoin has no "intrinsic value". There are a lot of things that I could say that would demostrate the opposite, but to me this is one of its most important...
Zimbabwe had a government that hyper-inflated its own currency to unimaginable levels that made their currency useless. This left the country's own citizens desperate for a means to transact. The humanitarian impacts that this had were profound. By the time Zimbabwe's currency was denominated in the trillions, it left its citizens looking to foreign currencies to store their wealth and make purchases. However, this requires physical currency to flow into the country in crisis times like that and thus this option is not an adequate solution to protecting citizens from governments with corrupt monetary policies. Currently, Bitcoin is trading for $13,000 in Zimbabwe (approximately twice that of the rest of the world). Bitcoin's value to people in situations like this is immediately apparent. The reason is because all that is needed to own and transact with Bitcoin is a phone and an internet connection; something that is in much larger supply than trusted banks in countries like that. No identification is required and therefore Bitcoin does not discrimate.
Zimbabwe is a great example of the potential good (and thus intrinsic value) that bitcoin can provide to the citizens of the world. Zimbabwe may be one of the first prime examples of hyper-inflation in Bitcoin's lifetime, but it certainly won't be the last. Facebook has value because it possess a network effect among its millions of users. A network like bitcoin that possesses millons of users and consists of billions of dollars of wealth means that in times of crisis around the world, the network itself can provide relief to anyone without discrimination. This is bitcoin's intrinsic value and the longer it exists, the more apparent it will be. It might be difficult for people in America to realize this value since we have access to a dizzying amount of financial services, but it is value none-the-less to the billions of people around the world that don't.
In otherwords: people aren't transacting with Bitcoin because it has value. Bitcoin has value because people can transact with it.
I hope Bitcoin succeeds for this reason alone.
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I would recommend not investing anything in Bitcoin that you aren't prepared to lose, I agree with YttriumNitrate, the current market is very unstable and while Crypto Technology's will probably still be around in the following decades, it's unlikely that Bitcoin and the other main suppliers will be the ones to reap the benefit.
Like Yahoo being the first does not necessarily mean they will be the best.
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you might regret buying it, you might regret not buying it, none of us know the future.
FOMO ( fear of missing out ) is quite powerful in a bull market cycle, I'd always suggest questioning yourself as to your reasoning to deploy your hard worked for capital in this manner at this moment . Why ?
My philosophy is to invest my excess capital into bright, clever people, working hard, doing good and interesting things . So for me bitcoin doesn't fit with my philosophy.
I wish you luck if thats your thing though .
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Bitcoin is the 2017 version of tulips
If you feel like gambling, go for it!
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Well, depends how you define the term. :) I'm anxious to see how the crypto market will do in the next correction and recession. These are very good times! They don't last forever....I hope the Gen Y / millennial crowd doesnt take this 10 year (yes....10 years!!) bull market for granted.....it will end eventually. Just don't want to see you holding the hot potato ;)
From my 30+ years of investing, I plan to stay away from such specialization.....Been there done that twice now. I would be a much richer man if I had just invested in a simple index fund and spent my valuable time doing other things. Not to mention the stress of huge price swings we see in the crypto markets.
yes, many will end up holding the "hot potato". there are huge price swings for sure, which is why i suggested buying at least 1 just for speculation reasons. the downside is that you lost a (somewhat) small amount, the upside potentially being a great payoff.
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The more I understand bitcoin the less interested in it I am. In addition, you can't 'invest' in bitcoin, because it isn't an investment. Investments pay dividends, income, share business profits, etc. Bitcoin's value is completely based on speculation. The price can go up and down, but at the end of the day no one has any clue what a bitcoin should really be worth. It's intrinsic value is $0.00. To me, that means it is worthless. Even tulips during tulipmania had an intrinsic value. It was very low... how many calories are in a tulip bulb if you ate it? It was still a positive number. If the markets decided bitcoins were worth $0 tomorrow, what could you do with a bitcoin? Nothing.
Hedgefunds buying something doesn't mean anything. There are plenty of hedgefunds run by idiots. While most active funds underperform their benchmarks... hedge funds normally do even worse than active mutual funds. A hedgefund could buy bitcoin just for the talking point of owning Bitcoin, or they could be buying it for short term gains with the intention of dumping it. Bitcoin can be both a long term failure and a short term trading opportunity.
Billions of dollars flowing into something doesn't mean it's good. Adjusted for the current price of gold, a tulipmania era tulip would be worth over $650,000. Hundreds of billions flowed into tech bubble era tech stocks. Trillions were wrapped up in the housing bubble. If something is hot people will throw far more money at it than it is worth.
i completely understand where you're coming from. yes, plenty of hedgefunds are ran by idiots, but the fact that institutional money is flowing into this space means that there's some weight to to this... yes, they're hedging their bets and speculating like everyone else, but the same can be said for every other asset in existence. the mainstream view of bitcoin is still very young, which is why i suggested the OP buy at least 1 if possible. i've been in this space for awhile, and i'm pretty confident that we're still nowhere near an all time high. leaving ethics out of the equation, many can still profit even at the current price.
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I am currently mining Monero and Ethereum. I would not personally buy any cryptocurrency for the sake of "investing." Specifically, cryptocurrencies are supposed to be a store of value the same way that the USD, Euro, or gold are supposed to be a store of value. I do own some BTC, but I purchased it to buy things online, not to be a currency trader.
All my investments are held in either Vanguard's VTWSX or the SP 500 index fund that is offered through my employer's 401k.
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Avoid cryptos at all cost.
why? because you don't understand them, and therefore look at them as not being wise investments? if most people attempted to learn about them with the same dedication as a "normal investment", you'd be more educated, and therefore see value where it exists. most ICO's serve no purpose (it's pointless for them to issue a token), but there are many that have a specific use case and are actually forward-thinking.
to the OP, i would suggest buying at least 1 BTC. you don't need to buy an entire BTC at once, but dollar cost average until you possess 1 if that's easier. there are BILLIONS of dollars flowing into cryptocurrencies right now (specifically BTC) and these are traditional hedge funds and other institutions. they aren't idiots...
No, from an investment standpoint, I understand them perfectly well. That is the source of my warning.
As other commenters have said here (and as I have said in other threads) they have no intrinsic value. If something has no intrinsic value, then it cannot, ipso facto, be considered an investment. If you buy something with no (or only nominal) intrinsic value, you are speculating. Period, end of story. That is simply the definition of a speculation. Is it possible to "make money" while speculating? Yes, of course it is. However, the money made while speculating is akin to the money one "makes" when gambling. Since there is no real intrinsic value of the asset like a bitcoin, the only source of possible gains comes from the hope or belief that another person in the future will pay more for the thing. This is not the case with a true investment.
I think deep down bitcoin holders know this to be the case -- or at least they should. Without fail, everyone I've run into who holds a bitcoin or some other crypto becomes a true-believer, and crypto salesman the minute they buy one... Why? because they have to if they ever hope to see a profit. Since there is no real underlying asset value to bitcoin, the bitcoin holder needs to constantly be talking it up to others to ensure that there will be a steady stream of buyers who bring actual money to the table -- because let's be honest, this is the only thing that is supporting its value at the moment. If the buyers dry up even for a few hours the price of a bitcoin could plummet -- theoretically to zero.
It’s funny because I have two friends who are bitcoin zealots and one posts constantly that everyone who hasn’t gotten bitcoin is an idiot and it’s working. It makes you question yourself and think, am I a Luddite who, like those in the past who didn’t believe in the internet or smartphones, just doesn’t understand this concept of crypto currency? Will we look back in 10 years and say, thank jeebus I didn’t put money on that or damn, blew my chance!?! No one has a crystal ball. FOMO is definitely driving things, especially with all the, wish I had...
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I'm still waiting for my tulip bulbs to go back to their old highs. Then I'll cash out and put it all into bitcoin.
Lol. I laughed way too hard at this, well played.
As many have said in differing ways, this is a question that can't be answered by facts. Bitcoin has no fundamentals behind it or intrinsic value. With a speculative item like this, who knows how high it can go. This may just be the beginning, or it could be the end.
I personally own zero Bitcoin and don't intend to.
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I was interested late last year when it was under $1,000 but was starting to get hyped. Then it became hot and I lost interest before I could figure out the best way to buy and store it. Even if i had bought then, I'd have sold long ago.
My feeling is whatever intrinsic value cryptocurrency has will manifest in the world's markets anyway, and I'd rather hold small pieces of the world's markets. Blockchain technology seems to have real and valuable uses but again, I don't necessarily think that value will be captured in a currency basically created out out of thin air. Additionally a very small number of people hold the bulk of Bitcoin and it's likely being manipulated by a very few large coin holders. Even with the boom, it's still only about .003 percent of the world's market cap and that's insignificant in a truly diversified portfolio.
I can't predict the future but I'm happy to sit it out and stick with owning the world's companies that produce goods and provide services, and the debt markets of those who make and do things.
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sorry but we can't take comfort in the "intrinsic value" of the stocks we're all accumulating. look at the price/book ratio listed here for the VTSAX (you'll see its at 3.0):
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0585#tab=2
why are we all willing to invest in something priced more than 3x its "intrinsic value"? because 100+ years of stock market history shows us we can probably assume future buyers will be there when we go to sell our shares.
your stocks have their current value because that's what people are willing to pay for them. not because of intrinsic value.
that being said, putting money into bitcoin to try to make an easy profit is a bad idea... just like stock picking is a bad idea.
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Intrinsic value = the value based on financials.
This is not whether it gives you a happy feeling or might save the world in some hypothetical future. It is not related to the current market price. It's the value something is worth even if no one wants to buy it.
Stocks: what are the earnings, what is my cash flow if I hold it(dividends), etc. (Note: I'm talking about stocks with earnings. Dotcom era tech stocks, penny stocks, stocks without revenues, etc. have little value outside of speculation.)
Bonds: how much is the income stream I can get if I hold it, what are prevailing interest rates?
The US dollar: Yes, it's a fiat currency. It is also legal tender for all debts, public and private. The dollar could suffer hyperinflation. However, I have a debt, my mortgage, and the bank is legally obligated to accept my dollars. That means, at least in one aspect of my life, the dollar has a fixed value. I need X dollars to keep a roof over my head for the next 30 days so I have an incentive to keep collecting dollars. Apply that same logic to every person and business with dollar denominated loans and the dollar has an established intrinsic value.
Bitcoin: if I owned 1 bitcoin, and tomorrow no one wanted to trade bitcoins with me, what is my bitcoin worth? Hmmm... no dividends, banks aren't legally obligated to accept it... it's worth... absolutely nothing. It's intrinsic value is $0.00.
Why would no one want to trade bitcoins with me? Many possibilities, but four big ones stand out to me.
1. Something better could come along, looking at the competition this seems highly probable. Plus if the Fed & ECB decided to create their own blockchain tech then bitcoin's chances of going mainstream are gone. It would still be useful for black market deals, but that doesn't justify an $8,000 market value.
2. The energy consumption makes it unfeasible, which is already the case. It's been calculated that the average bitcoin transaction uses more energy than the average US home uses in a week. How do you scale that?!? https://motherboard.vice.com/en_us/article/ywbbpm/bitcoin-mining-electricity-consumption-ethereum-energy-climate-change
3. Bitcoin gets hacked, or it is proven that it can be hacked. No one has to hack it, just the threat that it can be hacked makes it irresponsible to hold onto. Current computers would have a hard time. However, quantum computers could do it. https://www.cryptocoinsnews.com/quantum-computers-will-destroy-bitcoin-scientists-warn/
4. The speculation dies down. If Bitcoin's price drops too much then there is less financial incentive to be a bitcoin miner. Miners might mine other crypto currencies instead. Less Bitcoin miners = less computing power to process bitcoin transactions. Then what happens?
For fun, what is a tulip bulb worth if no one wants to trade tulip bulbs with me? 1.48 calories per gram. 300 years after tulipmania tulips were valuable again. In WWII, due to a Nazi blockage, there wasn't any food, so people ate tulips. ;-)
@Shadow: I hear you. I however do not believe for a second that bitcoin is the next internet or electricity. I think it is far more likely to be the next dotcom bust. In 1999 an online toy company had a larger market cap than Toys R Us, even though ToyRUs did more sales.... even online sales. It didn't make sense. It was stupid. That online toy store went under when the tech bubble burst. Fast forward to 2017 and Toys R Us is filing bankruptcy. The technological predictions of the tech bubble are coming true, just 18 years too late. Toys R Us also wasn't brought down by an online toy store. They were brought down by Amazon, which in 1999 was an online bookstore. Blockchain tech might improve how we transfer money, it might also improve other technology, but that doesn't mean Bitcoin's price will continue to go up over time. For that to happen Bitcoin has to start replacing currencies, which for the reasons I've listed, I don't see happening... ever.
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I've heard three principal arguments in favour of cryptocurrency, and I've yet to be convinced by any of them.
1. Is cryptocurrency actually a currency? I've never met anyone in the flesh who's actually paid for goods or services using it. It's almost impossible to use without first converting it to dollars, euro or yuan. This isn't a simple one to solve: the delays in transaction processing and the ridiculous price volatility make it very difficult to imagine a world in which crypto as it's currently comprised can operate successfully as a currency. Right now, Starbucks loyalty points probably have a better claim to be classed as a currency: they're accepted at a reasonable minority of retail establishments around the world, they can be used immediately, and their value is fairly consistent.
2. Is crypto a store of value? This is a controversial one, as there are crypto advocates who believe that currency should never be a store of value at all. So when discussing this one, it's possible to be faced with two utterly contradictory arguments: that no currency should be a store of value, and that cryptocurrency is a solid store of value.
The usual comparator for establishing crypto as a store of value is to bring up Venezuela or Zimbabwe - in other words, to bring up the spectre of two of the most catastrophic economic disasters of the post-war world and then talk about them as though that represents a reasonably likely scenario for people around the world. It's not: those two are wildly divergent outliers, and even in cases where the local currency suffers catastrophic inflation, the historical result has been a black market operating in US dollars specifically because it's stable and extremely easy to use. At any rate, crypto is a terrible choice of alternative currency, as it's more volatile than almost every currency on earth and requires a computing infrastructure that isn't present in a lot of countries which might be at risk of hyperinflation.
That's before we get to the fact that it would be trivially easy for the US, EU and China to reduce crypto values to zero if they decided to do so. Criminalise conversion to real currencies and the price would crater in minutes and keep falling.
3. The last use case I've seen is the ICO argument: that crypto allows an effective public offering for a business model without going through the usual steps prior to that. This one looks legitimate at first glance, but is actually potentially an even worse idea than the other two. IPOs are incredibly tightly regulated and controlled, and for good reason. Going with an ICO bypasses all kinds of relevant regulation and enables business to launch with none of the usual safeguards in place to protect investors. Instead of having to provide a coherent and convincing business case to professional investors, startups can potentially launch an ICO and sell to crypto enthusiasts instead. That's a dangerous lowering of the bar.
The last thing that's worth bearing in mind is simple: even if my analysis is completely wrong, it doesn't change the fact that crypto pricing is in a speculative bubble. Even if it turns out bitcoin is an essential component of a grey economy, there's no intrinsic reason that means it needs to be at seven thousand dollars a coin to fulfil that role. If Ethereum is a genuinely useful platform for certain applications, it may well be enough to support a price a tenth of what it is now. Prices right now bear no relationship to projected future values or real-world data: if they did, they'd be orders of magnitude less volatile and would visibly move in reaction to relevant information.
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Why would no one want to trade bitcoins with me? Many possibilities, but four big ones stand out to me.
1. Something better could come along
2. The energy consumption makes it unfeasible
3. Bitcoin gets hacked
4. The speculation dies down
Indexer, I appreciate your response. I don't agree with it, but you're one of the first people in this thread that has talked about risk and what those risks are.
The reason why I've stated numerous times why I won't say whether or not Bitcoin is a good investment for someone is because determining whether something is a good investment for someone requires that we know what that person's risk appetite is and what their portofolio should look like to match that risk appetite. Some people like 100% stocks, some like a varying mix of stocks and bonds, some like some stocks, bonds, and a small percentage of high risk, high yield, etc. The point is, unless we know what someone's risk appetite is, then you can't give good advice on whether something might be a good fit for any individual.
I often here people talk about the speculative nature about bitcoin without really mentioning any specifics at all. People don't realize that speculation goes both ways. You can speculate that something will be worth a lot, but you can also speculate that something with be worth a lot less in the future. The only thing that decreases the speculative nature of any given investment is to lay out the risks, both inherent and residual, of the investment.
Rarely do I ever see people do this when they say "well someday bitcoin could go to zero". Sure, absolutely...gold could also go to near zero, Apple as a company could go bankrupt, and the US dollar could see hyper-inflation. All of these things have varying degrees of risk and saying that they could happen without discussing the realities of such an occurrence isn't a proper way to do risk assessment. Some are more likely to occur than others, but unless you actually populate the risks and each of their likelihoods of occurrence, then you won't truly understand what the risk of the investment actually looks like.
So again, I'm not going to state whether or not I feel bitcoin is a good investment for the OP, but I can provide some additional thoughts on the given risks involved with Bitcoin as Indexer had:
Bitcoin's price is strictly supply and demand driven. Since it supply is statically hard-coded and deflationary, then that means the main driver for its price is simply demand. So if the price were to decrease, then that means demand would need to decrease. As Indexer mentioned, what are some things that would cause demand to decrease?
1) A better crypto-currency is developed. This could happen, but I feel the likelihood of this occurring is extremely small at this point. SegWit was enabled recently that will allow Bitcoin to develop advancements in its capabilities much quicker and without necessarily the need to hardfork. This means that any crypto-currency that comes along to try and supplant bitcoin as the market leader, not only needs to compete against the size of bitcoin's market itself, but also has to compete against the fact that any technological improvements that the competitor has can simply be implemented in bitcoin before a competing market ever gets strong enough. Take for example the RSK side chain that will allow for smart contracts to take place on the bitcoin network and be backed by bitcoin. This means that many of the technological features that Ethereum has over Bitcoin would then be able to take place on the bitcoin network. Here is a good article that also talks about why Bitcoin has such a massive market lead on other crypto-currencies and why it will be extremely difficult for others to supplant it as the leader. Keep in mind this article was written back in May before Bitcoin saw massive market growth, investment. development, and withstood several hardfork attempts against it.
https://medium.com/@jimmysong/why-bitcoin-is-different-than-other-cryptocurrencies-e16b17d48b94 (https://medium.com/@jimmysong/why-bitcoin-is-different-than-other-cryptocurrencies-e16b17d48b94)
2) The energy consumption makes it infeasible. I don't see this as a risk at all, and it actually isn't even in my risk profile for Bitcoin, but I'll address it since it was mentioned. The energy consumption of the Bitcoin network today is massive. That much is true. But it isn't unsustainable and it is actually a problem that I feel will solve itself. The amount of energy that it takes to solve a block is directly dependent on the difficulty of solving that block and the efficiency of the mining hardware. I see a lot of articles always compute the energy consumption of the bitcoin network in relation to the number of transactions it performs, but this is a useless calculation since the energy spent per block isn't really tied to how many transactions are in that block. There could be 1,000 transactions in a block or 1,000,000 transactions and the energy consumed to solve the block and add it to the block chain will be about the same give the same difficulty level at the time. Therefore, as the network scales and grows, the ratio between the number of transactions it processes and the energy spent will begin to decrease.
Also, there are layer-2 side chain possibilities such as the Lightning Network that will allow for an immense number of transactions to be processed on the equivalent computing power of a small server. This will allow the bitcoin network to process massive amounts of micro-transactions for a lot less energy than our payment systems are capable of now.
Finally, energy consumption is Bitcoin mining's business model. Unlike many traditional business that don't take power consumption into consideration, for Bitcoin mining, it is its business. Therefore improving inefficiencies and costs in energy is Bitcoin mining's main profit driver. This will likely lead to Bitcoin (as it already has been shown) to be a first adopter and main driver of more sustainable energy practices in the long run.
3) Bitcoin gets hacked. This is certainly a legitimate concern and it makes my list as well for possible risks to Bitcoin. This is a risk that could actually damage Bitcoin's price significantly. Bitcoin is a safe and secure network for value storage due to the fact that it is a decentralized and secure network. If this were to become compromised due to a vulnerability in the code, then that could posed a significant risk to the sentiment of the market to trust its wealth in the network. I don't feel that the likelihood of this risk is very high however. The security in the blockchain itself would still be valid due to the proof-of-work that it took to secure the blocks. The more likely scenario would be a flaw in the security of the wallets themselves or in the transactions that take place, but not necessarily in the Bitcoin network. Consumers are always in control of the wallets they use however and there is a massive number available. So in the event of a vulnerability in one wallet, the users can choose to move their funds to another. In the event of a vulnerability discover in the transactions that could allow for information disclosures or leaks, the Bitcoin network can always patch and hardfork to mitigate the vulnerability while the market holds transactions to prevent risk during the time. I don't think this risk is a massive risk to Bitcoin's long term value. Finally, Bitcoin uses many of the same cryptographic algorithms that the rest of the world users for security and has second layers on top of these to protect against failures in the cryptography. Most other traditional institutions are much more susceptible to cryptography failures than bitcoin is.
As far as quantum computer, this is not a very big threat to Bitcoin despite a lot of media attention around the subject. Most of the articles are simply clickbait due to the amount of attention that both bitcoin and quantum computer receive. The reality is that quantum computing problem solving is very limited in scope and Bitcoin has several features that protect it against the types of problems that quantum computing could be utilized in attacking. Furthermore, any advancements in commercially available quantum computer will not be immediate and Bitcoin will have plenty of time to upgrade in advance of this to sufficiently protect itself. Here is a good article regarding quantum computing and Bitcoin:
https://news.bitcoin.com/antonopoulos-bitcoins-protection-against-quantum-computing/ (https://news.bitcoin.com/antonopoulos-bitcoins-protection-against-quantum-computing/)
4) Finally, government intervention could play a role in diminishing demand for Bitcoin. However, I feel that the time for this has long past. If democratic governments were to take a stance against Bitcoin, it would've had to have been well before it became an established market. Derivative markets are now becoming a reality and that means that there will be substantial institutional investment taking place that will rely on the Bitcoin market. Since this institutional money will likely be intertwined with other derivative bets taking place in other markets, that means that it will not be feasible for any large democratic government to shutdown Bitcoin without also unraveling other large economic markets that are now meshed with Bitcoin. There may be totalitarian or communistic governments that take a stand against Bitcoin exchanges (see China), but for the most part democratic and capitalist governments and economies are now faced with the reality that Bitcoin is a part of our economy. It will need to be regulated, but it will not be squashed.
These are the biggest risks that I feel bitcoin faces. Since bitcoin's price is simply demand driven, then these are the biggest risk factors against a growing demand. Outside of these, I don't see very many risks (especially in the foreseeable future) that would hinder demand for it. So simply just saying "but demand could go to zero" is not enough. Demand doesn't just go to zero for those holding bitcoin unless there is a market force that would drive that downturn. Demand could stabilize, in which case the current market price would also see a stabilization, but for a significant downturn to occur, there would need to be a systemic risk to Bitcoin itself (as mentioned above) to take place to drive a massive fleeing from the market.
There are absolutely other risks involved with bitcoin. This is not an exhaustive list by any means, but I hope it provides people with a better understanding for some on how to look at what the risks to the Bitcoin market are.
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I've heard three principal arguments in favour of cryptocurrency, and I've yet to be convinced by any of them.
1. Is cryptocurrency actually a currency?
2. Is crypto a store of value?
3. The last use case I've seen is the ICO argument
I don't understand why people feel the need to place Bitcoin into a rigid categorization based on our historical definition of terms. Rarely do revolutionary technologies fit into our historical categorizations. Therefore I don't feel there is a pressing need to categorized bitcoin as a currency or store of value. I see people go at lengths to try and determine whether it is either/or. It is whatever it needs to be. If the market wants it to be a store of value, it can provide that. If the market wants to use it to facilitate transactions, it can provide that as well. It can be both, it can be only one, it can be neither. It's value doesn't depend strictly on what it is categorized as with regards to these ideas.
As far as ICO go, saying that ICOs bypass regulation is not a dig against ICOs, it is a dig against the regulation. Governments are always slow to react against new technologies, so it is not a surprise that a new technology that allows for something such as ICOs to catch governments off guard and force them to be reactionary. That does not mean that ICOs will always be unregulated or risky. The opposite is actually much more likely to be true. It is much more likely that regulation will be put in place that make it so that a future of ICOs are tightly regulation and become a very common way for business to seek startup funds. This will be yet another improvement in our economy that will lead to a much faster pace for innovation to occur.
Also, as it stands, protocol innovation is hindered by the "chicken or the egg" scenario. Developing a new protocol that requires as broad userbase for adoption of the protocol will lack the broad userbase it requires because of the fact that there are no other users to share the protocol with. This has hindered protocol innovation for the last 20 years. With crypto-currencies, there is now a tool that allows for a whole network of users to share in the adoption of the protocol and receive a stake of the monetization of said protocol. This provides an immediate userbase for the protocol and provides incentive for its adoption. Decentralized storage solutions are a prime example of this. No one is going to offer up their storage to a network to get used if there are no users using the network. No users are also going to use a decentralized storage solution that has no storage available for storing things. ...chicken or the egg? I expect crypto-currencies to provide a massive leap in innovation over the next decade because of this.
There are also many other use cases outside of what you listed that will all provide varies degrees of value:
1) Remittances
2) Other cross-border transfers
2) Donations
3) Protest - People in the streets can simply display a QR code and anyone can donate to the cause
4) Irreversible transaction security
5) Smart contracts
6) Anything digital can be made scarce or counterfeit proof
7) Timelocked transactions
8) Multi-signature security
There more, but these are some big ones that I feel are very unique to crypto-currencies that there really aren't good solutions for otherwise today.
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Avoid cryptos at all cost.
why? because you don't understand them, and therefore look at them as not being wise investments? if most people attempted to learn about them with the same dedication as a "normal investment", you'd be more educated, and therefore see value where it exists. most ICO's serve no purpose (it's pointless for them to issue a token), but there are many that have a specific use case and are actually forward-thinking.
to the OP, i would suggest buying at least 1 BTC. you don't need to buy an entire BTC at once, but dollar cost average until you possess 1 if that's easier. there are BILLIONS of dollars flowing into cryptocurrencies right now (specifically BTC) and these are traditional hedge funds and other institutions. they aren't idiots...
Why is this "you don't understand them" slur always part of the pro-crypto response to skeptics?
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How could Apple stock fall to zero? They could burn through their entire cash pile, forget to sign any contracts beyond the end of the week, tell their entire supplier network to go find new jobs, lose the keys to their warehouses, have all their property holdings confiscated around the planet, and deliberately crater the brand. All of that, done tomorrow, might be enough to reduce the stock to near zero.
How could bitcoin fall to zero? A joint announcement by the US, EU and China of a severe crackdown on cryptocurrency would quite possibly be enough.
And as for why people are seeking to categorise cryptocurrency: it's being traded for seven thousand dollars a pop. People are trying to figure out whether it's worth that. So far, I've seen nothing to justify the pricing.
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A joint announcement by the US, EU and China of a severe crackdown on cryptocurrency would quite possibly be enough.
...Which is about as likely as Apple burning through its entire cash pile...
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People are trying to figure out whether it's worth that. So far, I've seen nothing to justify the pricing.
I don't understand this concept. I hear it a lot when it is stated that "people don't know what bitcoin is worth".
The market determines its worth. If 1 million people want to own $1 worth of bitcoin and there are 1 million bitcoins in circulation, then each bitcoin would need to be worth $1 to accommodate that. In other words, the valuation of what 1 bitcoin is worth takes care of itself. The market determines it based on how much stake the market wants to put in bitcoin. If suddenly the market of 1 million people wants to own $2 worth of bitcoin but there are still only 1 million bitcoin in circulation, then each bitcoin needs to be worth $2 to accommodate the market.
This isn't like trying to create a valuation of a company based on revenues, net worth, etc. This is simply supply and demand and if more people want to use the network (ie, own some bitcoin), then the valuation is a simple calculation to determine what each bitcoin needs to be worth in order to accommodate the appropriate level of demand. If someone feels they own too much bitcoin, then they can sell theirs which opens up more supply for those who wish to own more. It is less of trying to determine how much a single bitcoin should be worth and more about how much monies worth of bitcoin any given individual feels they should own. The valuation part is easy and justifying the pricing doesn't really make sense unless you don't believe in free market economics.
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A joint announcement by the US, EU and China of a severe crackdown on cryptocurrency would quite possibly be enough.
...Which is about as likely as Apple burning through its entire cash pile...
There's no point in continuing the conversation if you think a crackdown on crypto is as likely as Apple deliberately destroying itself for no good reason. If you think so, fine, but you're operating under assumptions that render any conversation pointless. A crackdown may not be likely, in the immediate future, but it's orders of magnitude more likely than Apple stock tanking - which was my point. It would take a great deal less to crater cryptocurrencies than it would to trigger US hyperinflation or reduce Coca-Cola stock to nothing.
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People are trying to figure out whether it's worth that. So far, I've seen nothing to justify the pricing.
I don't understand this concept. I hear it a lot when it is stated that "people don't know what bitcoin is worth".
The market determines its worth. If 1 million people want to own $1 worth of bitcoin and there are 1 million bitcoins in circulation, then each bitcoin would need to be worth $1 to accommodate that. In other words, the valuation of what 1 bitcoin is worth takes care of itself. The market determines it based on how much stake the market wants to put in bitcoin. If suddenly the market of 1 million people wants to own $2 worth of bitcoin but there are still only 1 million bitcoin in circulation, then each bitcoin needs to be worth $2 to accommodate the market.
This isn't like trying to create a valuation of a company based on revenues, net worth, etc. This is simply supply and demand and if more people want to use the network (ie, own some bitcoin), then the valuation is a simple calculation to determine what each bitcoin needs to be worth in order to accommodate the appropriate level of demand. If someone feels they own too much bitcoin, then they can sell theirs which opens up more supply for those who wish to own more. It is less of trying to determine how much a single bitcoin should be worth and more about how much monies worth of bitcoin any given individual feels they should own. The valuation part is easy and justifying the pricing doesn't really make sense unless you don't believe in free market economics.
In other words, there is no such thing as an asset bubble, because "justifying the pricing doesn't really make sense unless you don't believe in free market economics".
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I always find the argument "it can't be a store of value when it's supposed to be a currency" funny.
That doesn't make sense in my mind. Dollars are a currency but people also use dollars to "store" wealth. If I currently have $50k in my bank account in US Dollars I don't say, "well it's not storing value because I'm only supposed to use it as currency to facilitate transactions". It stores value UNTIL I want to use it as currency.
Cryptos can store value UNTIL you decide to use/sell/trade or whatever and get something out of it. My couch is currently storing value. I could sell it if I wanted and fairly easily at that. I could even trade it for a bike. Does that make it a currency? Sort of.
Am I proponent of Crypots? Nope. Just stating that something can fit more than one definition at a time and who really gives a shit how other people invest their money.
These threads are like political arguments. Please state the number of people you've converted one way or the other over threads debating cryptos, religion, or politics? I would venture to guess it's less than 1.
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There's no point in continuing the conversation if you think a crackdown on crypto is as likely as Apple deliberately destroying itself for no good reason. If you think so, fine, but you're operating under assumptions that render any conversation pointless. A crackdown may not be likely, in the immediate future, but it's orders of magnitude more likely than Apple stock tanking - which was my point. It would take a great deal less to crater cryptocurrencies than it would to trigger US hyperinflation or reduce Coca-Cola stock to nothing.
I say this because the US government only has a few months before billions of dollars of institutional money comes into the derivative market for bitcoin. Derivatives are a very messy thing. They're essentially a massive global financial casino. Some institutions take bets in one direction and others take bets in another. Some take bets with the assumption that they'll win some bets. When institutions leverage derivatives markets, they become absolutely dependent on them and the market as a whole is a house of cards. It's the reason why Warren Buffet says they're a financial "weapon of mass destruction".
The reason I state this is because the derivatives market for bitcoin is only a month away and that means that many companies beyond even the crypto-industry will become somewhat financially dependent on Bitcoin one way or the other. This means that democratic nations, like the US and EU will find it politically suicidal and economically infeasible to kill the bitcoin market without also collapsing the derivative house of cards that now depends upon its existence. The market cap of the bitcoin market is one thing, but the market cap of the derivatives market that depends on that market will be several fold larger and will make Apple look small in comparison.
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Another thing, the thread topic "Is it too late?" is a classic economic bubble question.
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We got into mining 4 years ago and have made $. We have cashed out some along the way so we have all our original $ back plus more. I would only risk the amount of $ that you can afford to lose.
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Back to the OP's question. I recommend the bitcoin investment, but only after you answer the following questions to yourself:
1) If you had put your entire portfolio in a cryptocurrency like Etherium this time last year, and you were a millionaire (in terms of the current trading value of your cryptocurrency) now, would you still be holding the cryptocurrency, or would you sell and trade them for an investment portfolio? Would you sell in one personal circumstance but not another?
2) Suppose a cryptocurrency will either double or go to zero in a year. Is this the highest-odds double-or-nothing wager in the marketplace? For example, you could buy a put option on Sears (SHLD) that will yield a 100+% return if their stock goes to zero in a year and lose 100% if SHLD only loses X%. Is the rationale for that bet weaker than the rationale for the continuation of a known bubble?
3) Would you do business or make loans to a drug dealer, a person who pimps young girls for prostitution, or a Russian money launderer, or would you have an ethical problem with that? These are the primary use cases for why the world needs cryptocurrencies instead of dollars, you know.
4) How will you know what is a fair value for your cryptocurrency? When will you sell?
5) Would you be a buyer right now if the cryptocurrencies had lost 90% of their value in dollars this year, instead of gaining triple digit percentages? If you bought, and then lost 90%, how would your attitude about cryptocurrencies be affected?
6) If you are only willing to gamble what you are willing to lose - say $2,000, will that amount be enough to change your FIRE date, even if you score a 4-5X return? Would shifting slightly more of your portfolio out of bonds and into equities achieve the same overall effect on portfolio risk and returns? Is tracking e-currency prices the best use for many hours of your time?
7) If you could buy a put option or futures contract on a cryptocurrency that would gain 100% if the cryptocurrency collapsed, would you consider that bet?
8) How much time would you spend at work to earn a bitcoin, assuming you could never sell it for dollars? A week? A month? A year?
9) What made it irrational for investors in 1998-2000 to buy Pets.com? Suppose you had a time machine and you wanted to go back and talk someone out of this investment. They'll never believe your time machine story, so what reasons would you give? How would you respond to their counterarguments, such as how much it's gone up, how online sales are the future, and how they'll have the discipline to sell at the right time?
10) If the bubble bursts while you're still in it, will you feel dumb or just unlucky?
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3) Would you do business or make loans to a drug dealer, a person who pimps young girls for prostitution, or a Russian money launderer, or would you have an ethical problem with that? These are the primary use cases for why the world needs cryptocurrencies instead of dollars, you know.
Wait, what? Right now the major use case for bitcoin is when you want to pay money to someone you haven't meet in person (ie over the internet), and conventional credit cards/bank wire transfers are too slow, too expensive, or not available to one or both parties. That last case certainly encompasses a lot of illegal activity, like drug dealing, or trafficking in stolen credit card numbers. Generally there are better solutions available for money launderers, but yes, there may certainly a fair bit of traffic from people in that field.
But what exactly is the use case for bitcoin in prostitution, or specifically in child prostitution? By definition doesn't this require that the parties meet in person? If so I don't see any advantage to bitcoin relative to cash, and several significant disadvantages.
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Along those same lines, the internet has provided immense opportunities for child pornographers, drug dealers, money launderers, weapons dealers, and all sort of bad things to now take place much easier than before. But that doesn't make me any less comfortable using the internet or promoting its existence.
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Back to the OP's question. I recommend the bitcoin investment, but only after you answer the following questions to yourself:
1) If you had put your entire portfolio in a cryptocurrency like Etherium this time last year, and you were a millionaire (in terms of the current trading value of your cryptocurrency) now, would you still be holding the cryptocurrency, or would you sell and trade them for an investment portfolio? Would you sell in one personal circumstance but not another?
2) Suppose a cryptocurrency will either double or go to zero in a year. Is this the highest-odds double-or-nothing wager in the marketplace? For example, you could buy a put option on Sears (SHLD) that will yield a 100+% return if their stock goes to zero in a year and lose 100% if SHLD only loses X%. Is the rationale for that bet weaker than the rationale for the continuation of a known bubble?
3) Would you do business or make loans to a drug dealer, a person who pimps young girls for prostitution, or a Russian money launderer, or would you have an ethical problem with that? These are the primary use cases for why the world needs cryptocurrencies instead of dollars, you know.
4) How will you know what is a fair value for your cryptocurrency? When will you sell?
5) Would you be a buyer right now if the cryptocurrencies had lost 90% of their value in dollars this year, instead of gaining triple digit percentages? If you bought, and then lost 90%, how would your attitude about cryptocurrencies be affected?
6) If you are only willing to gamble what you are willing to lose - say $2,000, will that amount be enough to change your FIRE date, even if you score a 4-5X return? Would shifting slightly more of your portfolio out of bonds and into equities achieve the same overall effect on portfolio risk and returns? Is tracking e-currency prices the best use for many hours of your time?
7) If you could buy a put option or futures contract on a cryptocurrency that would gain 100% if the cryptocurrency collapsed, would you consider that bet?
8) How much time would you spend at work to earn a bitcoin, assuming you could never sell it for dollars? A week? A month? A year?
9) What made it irrational for investors in 1998-2000 to buy Pets.com? Suppose you had a time machine and you wanted to go back and talk someone out of this investment. They'll never believe your time machine story, so what reasons would you give? How would you respond to their counterarguments, such as how much it's gone up, how online sales are the future, and how they'll have the discipline to sell at the right time?
10) If the bubble bursts while you're still in it, will you feel dumb or just unlucky?
What's missing from this list is consideration of whether you frequently buy goods/services for which merchants are accepting crypto- now.
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3) Would you do business or make loans to a drug dealer, a person who pimps young girls for prostitution, or a Russian money launderer, or would you have an ethical problem with that? These are the primary use cases for why the world needs cryptocurrencies instead of dollars, you know.
Wait, what? Right now the major use case for bitcoin is when you want to pay money to someone you haven't meet in person (ie over the internet), and conventional credit cards/bank wire transfers are too slow, too expensive, or not available to one or both parties. That last case certainly encompasses a lot of illegal activity, like drug dealing, or trafficking in stolen credit card numbers. Generally there are better solutions available for money launderers, but yes, there may certainly a fair bit of traffic from people in that field.
But what exactly is the use case for bitcoin in prostitution, or specifically in child prostitution? By definition doesn't this require that the parties meet in person? If so I don't see any advantage to bitcoin relative to cash, and several significant disadvantages.
Historically the first people to adopt crypto currencies for actual use have been people doing illegal stuff. That's why there exists a burning need to keep everything off the books and off the government's radar. Prostitution and human trafficking has been one of the best use cases of bitcoin and cryptocurrency:
http://www.dailymail.co.uk/indiahome/article-3552796/Bitcoin-India-s-currency-choice-drug-trafficking-illegal-arms-prostitution.html (http://www.dailymail.co.uk/indiahome/article-3552796/Bitcoin-India-s-currency-choice-drug-trafficking-illegal-arms-prostitution.html)
https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/ (https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/)
https://www.weforum.org/agenda/2016/12/fighting-human-trafficking-tracing-blood-diamonds-and-other-surprising-uses-for-blockchain/ (https://www.weforum.org/agenda/2016/12/fighting-human-trafficking-tracing-blood-diamonds-and-other-surprising-uses-for-blockchain/)
http://engineering.nyu.edu/press-releases/2017/08/16/follow-bitcoin-find-victims-human-trafficking (http://engineering.nyu.edu/press-releases/2017/08/16/follow-bitcoin-find-victims-human-trafficking)
https://cointelegraph.com/news/arkansas-police-generates-its-own-cryptocurrency-to-track-child-porn (https://cointelegraph.com/news/arkansas-police-generates-its-own-cryptocurrency-to-track-child-porn)
. . . etc.
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Thanks everyone for sharing your thoughts. When I discovered MMM last year I quickly worked out that my strengths are not in finance and numbers and the only way I was going to make this work was by keeping it simple, doing what the most successful were doing, create a plan and stick to it come hell or high water. So far, so good. What’s holding me back from bitcoin is it violates my plan: I barely understand it, none of the finance gurus I’ve been following advocate it, it’s not a part of my strategy and outside of playing with $3k to experience it, I don’t know what else I’d do with it? I certainly wouldn’t keep investing my paychecks like I’m doing with Vanguard. I’m smart enough to not be too stupid. I think I have missed out and I think it’s cause I don’t have the tolerance for risk. I’m late to the party as it is, I can’t afford to be wrong when I’m finally on a good path financially. The boat I missed wasn’t 3 months ago, it was 7 years ago. If I want to accelerate my FIRE plans I’ll need to do it the old-fashioned way—through side-hustles and bonuses at work.
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I always find the argument "it can't be a store of value when it's supposed to be a currency" funny.
That doesn't make sense in my mind. Dollars are a currency but people also use dollars to "store" wealth. If I currently have $50k in my bank account in US Dollars I don't say, "well it's not storing value because I'm only supposed to use it as currency to facilitate transactions". It stores value UNTIL I want to use it as currency.
Cryptos can store value UNTIL you decide to use/sell/trade or whatever and get something out of it. My couch is currently storing value. I could sell it if I wanted and fairly easily at that. I could even trade it for a bike. Does that make it a currency? Sort of.
The definition of money is largely philosophical when you get right down to it. For example rai Stones. One of which is still traded even though it fell out of a canoe and resides on the bottom of the ocean. But everyone agree is a rai stone down there somewhere, so it has value.
https://en.wikipedia.org/wiki/Rai_stones
There are any number of even odder things that have functioned as currency over the centuries as well. But philosophy aside, just being a store of value by itself isn't enough to be considered currency. It also needs to be a medium of exchange. The guy with the bike might trade for your couch, but the grocery store won't, and neither will your mortgage company. There also has to be a unit of account. I suppose one couch is a unit, but hard to subdivide. So no, there is no reasonable definition of currency that includes couches.
Bitcoin clearly is a currency in my view, it ticks all the boxes although the "store of value" thing is admittedly a little hard to pin down. I also believe the intrinsic value question is moot. Bitcoin will have value as long as people wish to complete transactions in Bitcoin, and it is a good bet there will always be people who can't or don't want to complete transactions with the traditional banking system.
That said, I think people who are talking about "investing" in bitcoin are barking mad. Unless you need to complete transactions in Bitcoin it is a fool place to put your money.
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The reason one would use a cryptocurrency rather than, say, PayPal, Square, a free ACH transfer, a money wire, a credit card, or a checkout service is so that their transactions are untraceable by governments, who can subpoena financial firms. This privacy is an aspect actively promoted by supporters/sellers of cryptocurrencies, and it has real utility - to some users doing illegal things.
See https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/ (https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/)
And no, cryptocurrency speculators don't commit the crime. But their speculation does justify investments in a financial system whose main purpose or advantage over other means of trade is to hide illicit transactions from governments. (The internet, on the other hand, has many noncriminal purposes and noncriminal advantages over other means of communication, such as phone calls or snail mail.).
If you're unbothered by the presence of victims in cryptocurrencies' intended ecosystem, just skip to the other questions, which rely more on self-interest. I think they're more compelling too.
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The top is officially in - or will be within the next 7 days. Bitcoin is a total Ponzi scam, a mania. My proof of all this is that I bought $100 worth of Bitcoin (via Coinbase) today. I am notorious for getting in on anything/everything at the top!
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The reason one would use a cryptocurrency rather than, say, PayPal, Square, a free ACH transfer, a money wire, a credit card, or a checkout service is so that their transactions are untraceable by governments, who can subpoena financial firms. This privacy is an aspect actively promoted by supporters/sellers of cryptocurrencies, and it has real utility - to some users doing illegal things.
See https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/ (https://news.bitcoin.com/backpage-effect-sex-industry-thrives-bitcoin/)
And no, cryptocurrency speculators don't commit the crime. But their speculation does justify investments in a financial system whose main purpose or advantage over other means of trade is to hide illicit transactions from governments. (The internet, on the other hand, has many noncriminal purposes and noncriminal advantages over other means of communication, such as phone calls or snail mail.).
If you're unbothered by the presence of victims in cryptocurrencies' intended ecosystem, just skip to the other questions, which rely more on self-interest. I think they're more compelling too.
If you think Bitcoin is hiding transactions from governments, then you're a little misinformed. It is a big myth that bitcoin is anonymous. It is pseudo-anonymous and at worst, provides law enforcement and governments a new avenue for tracking illicit transactions that they never had before. All transactions on the blockchain are publicly searchable. With cash, all transactions are completely anonymous. The more money flows out of cash and into bitcoin, the more opportunities governments and law enforcement have to tracing those transactions to who's making them.
Studies have shown that it is possible to track transactions and addresses using a few techniques to who they belong to http://cseweb.ucsd.edu/~smeiklejohn/files/imc13.pdf (http://cseweb.ucsd.edu/~smeiklejohn/files/imc13.pdf). It makes for good headlines that illicit markets are using bitcoin, but the truth is that the amount of illicit activity that takes place in cash dwarfs those same markets that are within bitcoin. The IRS already tracking transactions and bitcoin activity with a service called Chainalysis to determine who isn't paying up in taxes.
If you're using bitcoin because you think you can be anonymous and you're conducting illicit activity, then you might want to think again. And if you're judging bitcoin for the illicit activity that takes place because of its capabilities, then you might not want to judge bitcoin so harshly as those capabilities are now being realized to catch those who commit crimes as well.
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We have different understanding of crypto. Your understanding leads you to believe it's gambling.
no, my understanding has allowed me to profit from it because i work in technology, and know how to connect dots... every commodity in existence by your definition is gambling. i get that this is space is young, but it's internet 3.0. unsure if you get / know the reference.
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If you think Bitcoin is hiding transactions from governments, then you're a little misinformed. It is a big myth that bitcoin is anonymous. It is pseudo-anonymous and at worst, provides law enforcement and governments a new avenue for tracking illicit transactions that they never had before. All transactions on the blockchain are publicly searchable. With cash, all transactions are completely anonymous. The more money flows out of cash and into bitcoin, the more opportunities governments and law enforcement have to tracing those transactions to who's making them.
I would add that there is ~1.2T USD in cash circulating the world (https://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html), and that ~50% of it is unaccounted for (https://www.npr.org/templates/story/story.php?storyId=99147699). Let's call that ~600B USD in unaccounted for currency. The total market cap for BTC is only ~138B USD. What do you think those $600B is being used for? I promise you that large amounts of it is for criminal enterprises.
For the people that think that cryptocurrency is only good for crime, please take a trip to Venezuela or Zimbabwe.
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I promise you that large amounts of it are for criminal enterprises.
definitely. cash in general is also more anonymous than bitcoin.
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Well it depends. If I'm meeting a dealer to buy something, cash is definitely superior to bitcoin. If I'm a minor drug dealer and I want to buy a pound of pure fentanyl from a chinese chemical factory (enough to make ~3,000 fake doses of heroine) and have it delivered by mail without ever meeting (or even knowing) my supplier, there certainly are advantages to being able to work with cryptocurrencies.
@ChpBstrd, I read through that link. There are sourced links to people using bitcoin to buy pornography (where I could see it having definite advantages relative to credit cards), and it sounds like people were using it to pay for backpages (a legal service) when it was cut off by the major credit card processors because some of the services advertised on the website were illegal. But the only reference to actually paying for sex with a cryptocurrency in the article was a quote from one sex worker that being paid in cash felt dirty and it would be nice if they could be paid in cryptocurrency instead.
Don't get me wrong, I don't doubt that someone, somewhere has paid for sex with bitcoin. I just don't think that the existence of cryptocurrencies makes it any easier for people to pay for sex then if they're paying with cash.
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I'm still waiting for my tulip bulbs to go back to their old highs. Then I'll cash out and put it all into bitcoin.
👍
+1
It really has been a lost 4 centuries for the tulip market.
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I'm still waiting for my tulip bulbs to go back to their old highs. Then I'll cash out and put it all into bitcoin.
👍
+1
It really has been a lost 4 centuries for the tulip market.
I think you mean that it has been a fantastic buying opportunity.
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We have different understanding of crypto. Your understanding leads you to believe it's gambling.
no, my understanding has allowed me to profit from it because i work in technology, and know how to connect dots... every commodity in existence by your definition is gambling. i get that this is space is young, but it's internet 3.0. unsure if you get / know the reference.
Actually, yes, buying any commodity with the idea you're going to make money on the price going up is gambling. The risk is a lot lower with something that's had a long-standing value like real estate or gold, but it is still gambling.
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I get the usefulness of block chain tech. Bitcoin just uses a block chain. As a semi-anonymous and low friction medium of cyber exchange also ok. But there is no need for anyone to own the stuff for that exchange to happen. You go to an app that converts $ to btc, do the transaction, And (almost) immediately the other party converts btc to $.
The value of 1 btc will be determined by whatever the transaction cost is (in fractional btc and real world costs) And some profit for a few market makers to enable the transaction.
The rest is speculation as that real intrinsic value is quite small, no?
Unless you need bitcoin to launder money and enable sightless transfer from place to place.
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I get the usefulness of block chain tech. Bitcoin just uses a block chain. As a semi-anonymous and low friction medium of cyber exchange also ok. But there is no need for anyone to own the stuff for that exchange to happen. You go to an app that converts $ to btc, do the transaction, And (almost) immediately the other party converts btc to $.
The value of 1 btc will be determined by whatever the transaction cost is (in fractional btc and real world costs) And some profit for a few market makers to enable the transaction.
The rest is speculation as that real intrinsic value is quite small, no?
Unless you need bitcoin to launder money and enable sightless transfer from place to place.
Converting the funds directly between BTC and fiat requires a central custodial account set up with a third-party to handle the conversion at the time of the transaction. This effectively loses one of the primary benefits of Bitcoin and the blockchain.
Bitcoin is a permission-less system where transactions are push instead of pull. Permission-less in the sense that anyone can use it without the need to verify identity first and "push" in the sense that the merchant does not receive any authority of the funds in the account. As with credit card and ACH transactions, the merchants have full authority to withdraw funds from the account and must also maintain the consumer identification information on their systems to allow for this. This is the crux of the problem with today's payment systems. They require identification to be used because they're pull based systems that give whichever merchant the authority to pull funds from the account. In doing so, every single merchant you deal with must be trusted to handle not only your funds, but your identity. The very act of being a consumer in the market means that our identities and wealth are carelessly handled by any merchant you interact with. There isn't a month that goes by without another data breach in the news. Fraud is a multi-billion dollar problem that costs everyone in the economy massive amounts of money and hardship. This is a systemic failure based on the fact that we are approaching consumer protecting from the wrong angle and we put band-aid regulations in the name of consumer protection that are ineffective and just cost even more money.
Bitcoin fixes all this. By not requiring identity, no merchant receives the identity of who's funds are being spent (similar to using cash). They're also push transactions which means that the only person who has authority to spend those funds is the one who owns them. This whole security concept would bring massive protections to the consumer and save billions of dollars for everyone involved.
Using custodial accounts to make transactions with Bitcoin might be a partial resolution to this problem, but it doesn't take full advantage of what bitcoin can provide with regard to consumer protections. I do see custodial accounts being a primary solution in developed countries at first, but I think the non-developed world that is struggling with creating proper institutions to serve their consumers and that lack the consumer protections will leap frog that approach and go directly to bitcoin or another crypto-currency instead much like they skipped landline phones and went straight to cell phones.
You make the argument that it doesn't make sense to hold BTC to simply partake in economic transactions with it, but if economic transactions are being made in BTC, then my question to you would be why would it make sense to convert to USD (assuming volatility stabilized by that time)?
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We have different understanding of crypto. Your understanding leads you to believe it's gambling.
no, my understanding has allowed me to profit from it because i work in technology, and know how to connect dots... every commodity in existence by your definition is gambling. i get that this is space is young, but it's internet 3.0. unsure if you get / know the reference.
Are you referencing L.A.S?
Speculation and gambling have very different meanings. Speculation: taking a calculated risk on the expectation that fundamentals will drive demand. Gambling: you hope for a return base on luck. I don't view crypto as gambling.
There's a pretty big gray area in the middle; a lot of people seem to be low on the "calculated." Whether you call it speculation or gambling, it seems like a much better idea to skip hording bitcoins and buy something that will get you a return. Bitcoins may or may not be the next big thing, but it's still a form of holding cash and risky cash at that.
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I don’t get why Bitcoin is valued so high. Not being critical, but I don’t get the appeal.
And what are people really investing in when the invest in Bitcoin?
Who even uses Bitcoin for transactions? Drug dealers? Criminals who hack a website and hold it hostage for a large Bitcoin ransom (like the recent Greys Anatomy episode)
If you invest in real estate and rent out a home, you help provide someone with housing.
If you invest in a drug stock like Pfizer, you are investing in an American Company and in healthcare.
If you invest in Apple, you are investing in an American company who provides us with technology.
Why give your money to Bitcoin?
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It's never too late to flip a coin and bet on the outcome. None of what I read in this thread convinces me the return is any more stable than that. That the technology might become commonplace is no guarantee that any one coin will generate a return.
I'm reminded of a bunch of investor letters I got saying 3d printers were the next big thing simply because they were cool - only, just like led tvs, everyone jumped in and they became commodities. They are still cool, but no one can actually make huge money making them...
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CME Group - (The Chicago Mercantile Exchange & Chicago Board of Trade) , is launching Bitcoin futures on Dec. 11:
http://www.cmegroup.com/trading/bitcoin-futures.html?itm_source=cmegroup&itm_medium=flyout&itm_campaign=bitcoin&itm_content=tech_flyout
https://www.coindesk.com/cmes-bitcoin-futures-likely-start-trading-december-11/
I have not yet read through this, but considering it is launching on Dec 11, do you think it might be a good option to get in?
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CME Group - (The Chicago Mercantile Exchange & Chicago Board of Trade) , is launching Bitcoin futures on Dec. 11:
http://www.cmegroup.com/trading/bitcoin-futures.html?itm_source=cmegroup&itm_medium=flyout&itm_campaign=bitcoin&itm_content=tech_flyout
https://www.coindesk.com/cmes-bitcoin-futures-likely-start-trading-december-11/
I have not yet read through this, but considering it is launching on Dec 11, do you think it might be a good option to get in?
Christopher Giancarlo, chairman of Interactive Brokers, warns this could destabilize the CME's ability to perform its function as a clearing house for ALL of its products.
http://www.businessinsider.com/interactive-brokers-chairman-warns-about-dangers-of-bitcoin-futures-wall-street-journal-ad-2017-11
"If the Chicago Mercantile Exchange or any other clearing organization clears a cryptocurrency together with other products, then a large cryptocurrency price move that destabilizes members that clear cryptocurrencies will destabilize the clearing organization itself and its ability to satisfy its fundamental obligation to pay the winners and collect from the losers on the other products in the same clearing pool."
Systemic risk, anyone?
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Speculation and gambling have very different meanings. Speculation: taking a calculated risk on the expectation that fundamentals will drive demand. Gambling: you hope for a return base on luck. I don't view crypto as gambling.
agreed 100%.
seeing how an emerging technology can transform anything/everything is simply connecting dots; it just makes sense. i wouldn't expect people who are new to this space to always agree, but if you've followed bitcoin/adoption of blockchain closely for at least a couple years, it's obvious... this argument to me is no different than brick and mortar businesses vs. the internet, automobile vs. horse & buggy, etc. those examples however, are probably a little easier to comprehend.
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Who even uses Bitcoin for transactions? Drug dealers? Criminals who hack a website and hold it hostage for a large Bitcoin ransom (like the recent Greys Anatomy episode)
over 250,000 merchants (regular businesses) in japan accept bitcoin as payment. i use this example because japan is typically a forward thinking country when it comes to the adoption of new technology. there are many retailers in the united states who accept bitcoin as payment too (amazon is rumored to be the next huge one). with any new technology, there will always be hiccups. the unfortunate one with bitcoin is arguing over which bitcoin is the "true" bitcoin (bitcoin cash vs. bitcoin core/legacy (the original). there are many reasons for this... i believe this has stifled many from using it daily, as well as more businesses and individuals from adopting it as a form of payment. 2018 will be a huge year for cryptocurrency, and i hope the average person gains a better understanding of what cryptocurrencies are, the benefits of using them, and the myths behind them.
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@Shadow: I hear you. I however do not believe for a second that bitcoin is the next internet or electricity. I think it is far more likely to be the next dotcom bust. In 1999 an online toy company had a larger market cap than Toys R Us, even though ToyRUs did more sales.... even online sales. It didn't make sense. It was stupid. That online toy store went under when the tech bubble burst. Fast forward to 2017 and Toys R Us is filing bankruptcy. The technological predictions of the tech bubble are coming true, just 18 years too late. Toys R Us also wasn't brought down by an online toy store. They were brought down by Amazon, which in 1999 was an online bookstore. Blockchain tech might improve how we transfer money, it might also improve other technology, but that doesn't mean Bitcoin's price will continue to go up over time. For that to happen Bitcoin has to start replacing currencies, which for the reasons I've listed, I don't see happening... ever.
But, with Etoys you got to say cool things like "They have the internet in their DNA" and "Brick and Mortar is so last century." Nobody seems to talk about business DNA anymore as it's all about "disruptive" technologies these days (which 20 years from now will undoubtedly seem quaint as the business jargon moves on).
Also, Toy 'R Us decline is far more complicated than just "the internet killed it" and involves massive debt as a result of a leveraged buy out.
https://www.youtube.com/watch?v=4JYUo9WKkao (https://www.youtube.com/watch?v=4JYUo9WKkao)
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Bitcoin is up 25% since OP asked "Is it too late?"
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6) If you are only willing to gamble what you are willing to lose - say $2,000, will that amount be enough to change your FIRE date, even if you score a 4-5X return? Would shifting slightly more of your portfolio out of bonds and into equities achieve the same overall effect on portfolio risk and returns? Is tracking e-currency prices the best use for many hours of your time?
I think this is what's keeping me from getting in on Bitcoin. Even if Bitcoin hits $100k in the next 3 years, I'd never have enough money into it to make that worthwhile. $2,000 is probably accurate for what I'd be willing to put in, so I'm looking at $20k by 2021. $20k, however, would be pretty insignificant to my financial goals.
I just don't have enough "fun money" to put into Bitcoin that would make it worthwhile.
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Translation: in my gut, I realize that the risks are too great for that chance at an extraordinary return.
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Who even uses Bitcoin for transactions? Drug dealers? Criminals who hack a website and hold it hostage for a large Bitcoin ransom (like the recent Greys Anatomy episode)
over 250,000 merchants (regular businesses) in japan accept bitcoin as payment. i use this example because japan is typically a forward thinking country when it comes to the adoption of new technology. there are many retailers in the united states who accept bitcoin as payment too (amazon is rumored to be the next huge one). with any new technology, there will always be hiccups. the unfortunate one with bitcoin is arguing over which bitcoin is the "true" bitcoin (bitcoin cash vs. bitcoin core/legacy (the original). there are many reasons for this... i believe this has stifled many from using it daily, as well as more businesses and individuals from adopting it as a form of payment. 2018 will be a huge year for cryptocurrency, and i hope the average person gains a better understanding of what cryptocurrencies are, the benefits of using them, and the myths behind them.
Yes, but how many of the people exchanging money into bitcoin are actually planning to use it to buy from one of those merchants? If most people are buying it just to cash in when it goes up, then it is a bubble. That doesn't mean that bitcoin won't be useful in the future, but just that the exchange rate is way out of whack.
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Bitcoin is up 25% since OP asked "Is it too late?"
So are my UVXY put options. I'll know it's too late when I lose 100% of my investment in them. :))
Translation: there are all sorts of time bombs that will pay a person double-digit returns to hold them. There's a whole marketplace for stratospheric risk/rewards. Next example: Venezuelan bonds could rapidly increase if the Russians or Chinese essentially buy out the country, or the government is overthrown. Some of these scenarios are arguably more likely than "bitcoin will increase another 1,000X."
I just saw article on Fortune.com titled "Bitcoin for beginners: 3 things to know before you invest". Another on CNBC reports that 'Buy Bitcoin with credit card' is spiking as a google search term. These red flags will be obvious in hindsight.
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The transaction fees are high to use Bitcoin to buy things. Bitcoin is speculation but when you mine like we are you are earning the bitcoin even after paying the high electricity costs. The other thing is it is very complicated and you really have to know what you are doing. My son is the brains of this operation and we all have made $.
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A lot of people misunderstand that bitcoin isn't just a currency and so they place too much emphasis of its value on the idea about using it to purchase their daily coffee. Bitcoin isn't just a currency, it is both a currency and a payment network. In the modern world, where we already have payment services such as VISA, using Bitcoin to purchase coffee doesn't see like an exciting value proposition.
But, Bitcoin's value doesn't just come from being able to purchase coffee. By being both a payment network and a currency, its true value comes from the fact that it can be used to send value and thus the network itself is the value. The currency's price is just the result of that value and the connecting of people through this network.
How many here think VISA, as a company has value? It is a widely adopted payment network. If you own S&P index funds, you likely hold VISA stock, so I'm guessing most would feel that VISA as a company holds value. VISA's value therefore is derived from the idea that allowing companies and individuals to send monetary value through its network provides value.
Bitcoin is no different, in the same value proposition that VISA holds, except that it goes even further than that. Above and beyond what VISA offers, it provides the following additional value:
1) Decentralized
2) Global
3) Permission-less (anyone, anywhere can use it)
4) Counterfeit proof
5) Peer-to-Peer
6) Fraud proof consumer protection
7) Nearly unhackable
8) Immutable
9) Extensible for use with smart contracts
10) Can't be confiscated
11) Low cost/fast transactions
...And more...
If you feel that VISA has intrinsic value as a company, then you have to agree that the Bitcoin network itself, also has value. The use of this network and all those features takes place through the currency Bitcoin. The idea that the bitcoin blockchain can be decoupled from the currency bitcoin is false. The two go hand-in-hand and the bitcoin network is a one of a kind and therefore this network has value. Bitcoin is both a currency and payment network and the two are inseparable of each other. The more people who choose to use this network (and thus own its currency), the more value this network has. This value recognition is true of all networks (the internet, phones, Facebook, etc).
The price of a bitcoin token is essentially irrelevant when determining the value of what bitcoin is. If bitcoin and all of the features list above have value to people (which they do), then the network has value because of that. This is bitcoin's "intrinsic" value. The price of a single bitcoin is simply a reflection of how many people wish to use the network and how much of one's worth they'd like to be a part of this network. There are less than 16.5 million bitcoin in circulation (something like 20-30% of which is estimated to be lost for good). Therefore if the world begins to recognize the value proposition that the bitcoin network can provide the world, then to support the monetary needs of the world, a single bitcoin must be valued according to the network's utilization. That is to say that the supply of bitcoin must meet the monetary demands of its network's users.
In this sense, bitcoin today is extremely undervalued today. The number of outside people that want to be a part of this network far exceeds the number of people that are currently utilizing it. Bitcoin will have value for the foreseeable future and I can say this with great confidence because of the fact that all of the above listed features are, together, all features that only bitcoin can provide today. People won't suddenly stop demanding or wanting those features in a payment network and this is why Bitcoin will continue to exist...because it is demanded and there is a need for it in this world.
I highly recommend these reads:
http://www.runtogold.com/the-great-bitcoin-bull-market-of-2017/ (http://www.runtogold.com/the-great-bitcoin-bull-market-of-2017/)
https://fee.org/articles/what-gave-bitcoin-its-value/ (https://fee.org/articles/what-gave-bitcoin-its-value/)
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No.
Crypto is not going away and bitcoin has first mover advantage. There is a good chance something like ETH will take off too. There is massive misinformation on this forum. Please go watch most of these videos as he wrote the book on bitcoin.
https://www.youtube.com/channel/UCJWCJCWOxBYSi5DhCieLOLQ
If you have decided you still want to invest (it is an investment no matter how many people call it gambling) here are the basics. This is highly speculative however, so only put in money you plan on holding long and not cash out because you need the money. You should probably limit yourself to no more than 10% of all your assets. Rebalance into other uncorrelated assets as it sky rockets so you do not relive the fun times of the dotcom crash and loose almost everything. Keep in mind, most of this negativity was around in the mid 90's for something called the "internet". People resist change, it is natural.
Go to coinbase and start dollar cost averaging in with money you are comfortable loosing. Once you get more comfortable, start using gdax for lower fees (same company).
https://www.coinbase.com/
Get a hardware wallet (or paper) and get it off the exchange since like banks, they are vulnerable to greed and hacking, but not backed up by the government printing presses. Bitcoin has never been hacked, but exchanges have.
https://www.ledgerwallet.com/products/ledger-nano-s
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Above and beyond what VISA offers, it provides the following additional value:
I'm not claiming that Bitcoin or similar will not have a place in the long-term world, but let's look at a few of these.
1) Decentralized
5) Peer-to-Peer
These are actually the same thing, are they not? And you are presuming that this is a good thing. All other considerations being equal (like availability and legality) downloading something from a central location is typically much easier / faster / better than bittorrenting it. There is a reason that the internet routes traffic through a few high-capacity backbones instead of forcing all traffic to bounce from computer to computer in some sort of crazy mesh peer-to-peer network.
2) Global
Practically speaking, so is Visa.
3) Permission-less (anyone, anywhere can use it)
10) Can't be confiscated
Okay, but that seems to have limited utility in first-world nations outside of illegal activity.
4) Counterfeit proof
7) Nearly unhackable
8) Immutable
I wouldn't really call these benefits, that's just what allows cryptocurrencies to exist as an electronic-only currency. There may be some value to the fact that it's counterfeit proof, but that's a direct contradiction to this next one.
6) Fraud proof consumer protection
No, no it's not. If I the consumer am defrauded by an online merchant (intentionally or on accident), with Visa I can initiate a charge-back and my money will reappear in my account in a mater of days. With Bitcoin I have no recourse and have just lost whatever Bitcoin I have irrevocably transferred. This in-and-of itself is an enormous advantage that traditional payment networks have over Bitcoin.
9) Extensible for use with smart contracts
Okay, great I guess. There may be an extremely limited use-case for that. I'll get really excited when the software industry learns how to always write bug-free code.
11) Low cost/fast transactions
No, it's not. Visa transactions have always been faster and are already cheaper.
No one is saying that Bitcoin / cryptocurrencies / blockchain technology doesn't have legitimate uses. But the question of "should I 'invest' in Bitcoin" requires a lot more then that.
1) You have to justify why cryptocurrencies are better enough than the existing solutions to overthrow large, well-established players. Bitcoin (in particular) can't come anywhere close to the transaction rate that Visa currently handles, so even if there are specialized uses for Bitcoin it's not looking to unseat the major financial players anytime soon.
2) You have to justify why even if Bitcoin does come into its own and find a long-term market the price of a Bitcoin should increase. The built-in deflationary nature maybe? But rising transaction costs could counteract that. That the future market is much larger than the current market? Maybe, but that remains to be seen.
3) You have to justify why Bitcoin in particular is going to be the long-term winner over other cryptocurrencies, including those that have yet to be invented. I see no particular reason other than momentum. While that may be a reason it's not a particularly good one. The transaction cost / rate alone could cause everyone to jump ship to a newer crytocurrency when the difficulty gets too high. And again to a new one after that. Forever. Even if cryptocurrencies have a long-term use, there's no reason it always has to be the same one. And at every transition the "investors" will be left with a lot of worthless 1s and 0s.
In this sense, bitcoin today is extremely undervalued today. The number of outside people that want to be a part of this network far exceeds the number of people that are currently utilizing it.
It seems completely obvious to me that the vast majority of people who "want to be a part" today really want to be a part of the huge speculative price surges, not the actual currency / transaction network.
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We have different understanding of crypto. Your understanding leads you to believe it's gambling.
no, my understanding has allowed me to profit from it because i work in technology, and know how to connect dots... every commodity in existence by your definition is gambling. i get that this is space is young, but it's internet 3.0. unsure if you get / know the reference.
Actually, yes, buying any commodity with the idea you're going to make money on the price going up is gambling. The risk is a lot lower with something that's had a long-standing value like real estate or gold, but it is still gambling.
I agree with this. A bitcoin, like a kilogram of gold, a flat in London (when you live in Moscow), or a 1967 1/2 Mustang, does not generate value even in the loosest sense. You may have a reason to buy any of those things that makes sense to you, but the question is how you would know when it makes sense to sell? But then, I'm one of those people who gets stressed out trying to decide how to feel about the P/E ratio of VXUS vs VTI. :)
Since this thread has been short on stories like this: I bought some BTC in the past for reasons that, in hindsight, were immature. Expressed as a fraction of my disposable income, the figure was small but large enough that I would have been mad at myself for more than a few minutes if my investment had gone to zero. Some time passed, I came to my present opinion, and I decided to liquidate my position, making a profit of, I dunno, something between one hundred and one thousand percent. That number would be more like ten thousand percent if I had held onto it today. I don't regret my decision: I did the best I could with the information I had available.
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1) Decentralized
5) Peer-to-Peer
These are actually the same thing, are they not? And you are presuming that this is a good thing. All other considerations being equal (like availability and legality) downloading something from a central location is typically much easier / faster / better than bittorrenting it. There is a reason that the internet routes traffic through a few high-capacity backbones instead of forcing all traffic to bounce from computer to computer in some sort of crazy mesh peer-to-peer network.
They're similar, but not quite the same. Peer-to-peer I mentioned in reference to the network itself. But, decentralized I mentioned in reference to not just the network, but everything in regards to the bitcoin ecosystem. For example, there is no one single person who created it. No one knows who Satoshi Nakamoto is or if it is even a single person. This was done on purpose as a truly decentralized network needs to not have a central authority over it. The development team is decentralized. There is no central exchange. There is no central wallet software that's required to use it. There is no central media authority over what bitcoin is or isn't. Decentralization runs so much deeper than just the peer-to-peer aspect of the network itself. This is what ultimately makes it so resistant to government control.
It is funny that you mention BitTorrent. It isn't true that BitTorrent is slower than centralized connections. BitTorrent can not only offer faster downloads, but can do it for cheaper. There is a reason why many large downloads (such as OS images) offer BitTorrent links as an option for download. Not only is it usually faster, but it can be offered that way for very cheap. Downloading a 5GB file from 1000 seeders that are each offering 200Kb/sec speeds will be a lot faster than downloading from an entity that you can download from at 100Mb/sec. Also, the fact that you're talking about internet routing over backbones as an argument against decentralization tells me you don't have any idea how internet routing and BGP work. If everything on the internet needed to be routed over the backbones of the internet, then the internet would not function and could never handle the total aggregate data sent daily across the network, so your argument against decentralization fails miserably here.
2) Global
Practically speaking, so is Visa.
Practically doesn't mean anything here. Only about 30 countries have what would be considered modern financial services. Roughly 4 billion people don't have access to modern financial services such as credit, savings, and insurance. So while VISA may make the claim that they offer services in 200 countries, as they do, that doesn't mean that the people of these countries has the capability to access their services. All one needs to have access to the bitcoin network is a phone and an internet connection. This is true regardless of the geographic location of that individual. Thus, by having access to the bitcoin network regardless of geographic location, you can therefore participate freely in the global economy. Therefore, Bitcoin is global, VISA is not.
3) Permission-less (anyone, anywhere can use it)
10) Can't be confiscated
Okay, but that seems to have limited utility in first-world nations outside of illegal activity.
As I said, there are 4 billion+ that lack access to banking services. Being permission-less means that they can have access to the financial services that bitcoin offers without discrimination. The fact that bitcoin can't be confiscated also means that many of the world's high net worth individuals will also be looking to bitcoin as a safe haven asset much like gold. But, instead of needing their own gold vault to store physical gold bars in, they can simply store their wealth digitally. High net worth individuals like to use safe haven assets like that because once an individual becomes rich, they like to ensure that they'll always be rich even when the sh*t hits the fan. The fact that bitcoin offers this is an extremely enticing benefit to the world's rich.
4) Counterfeit proof
7) Nearly unhackable
8) Immutable
I wouldn't really call these benefits, that's just what allows cryptocurrencies to exist as an electronic-only currency. There may be some value to the fact that it's counterfeit proof, but that's a direct contradiction to this next one.
These are all benefits. Just because you don't see them as such, doesn't mean anything. Being counterfeit proof doesn't just extend to the currency token itself. Anything digital can be make immutable and counterfeit proof. The rootstock network can be used for smart contracts that will allow for a massive amount of possibilities. Essentially the future need for notaries will become a thing of the past. Anything notarized can simply be put on the blockchain and become as immutable as bitcoin's blockchain itself. Bitcoin's blockchain will change how we handle digital information in the future. All other blockchains from other alt-coins don't offer the same level of security and immutability that bitcoin's blockchain provides. This is a huge advantage to bitcoin and a massive feature that can't be overstated.
How is being nealy unhackable not a benefit? Not sure how or why you lumped that one in there. The fact that it is decentralized and immutable makes it an extremely difficult to attempt to alter or compromise the network. It is also virtually quantum computer proof with the use of public keys that are hidden until after wallet addresses are emptied.
6) Fraud proof consumer protection
No, no it's not. If I the consumer am defrauded by an online merchant (intentionally or on accident), with Visa I can initiate a charge-back and my money will reappear in my account in a mater of days. With Bitcoin I have no recourse and have just lost whatever Bitcoin I have irrevocably transferred. This in-and-of itself is an enormous advantage that traditional payment networks have over Bitcoin.
I'll reference my previous post on this one in case you missed it:
https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165 (https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165)
As someone who works in Information Security in the financial services industry, I understand first-hand the shortcomings of how our traditional financial systems operate. Furthermore, as you mention chargebacks can occur due to the fact that our current centralized financial intermediaries must act as mediators to all financial transactions that take place. This comes at great cost to the consumer. On top of that, merchants that offer irreversible services are always at risk of chargebacks. This leads to another benefit of bitcoin that I didn't list in the sense that all transactions are irreversible. This allows merchants who offer irreversible services to receive irreversible transactions. There is a reason why many contractors today look to receive some type of down payment for services requested prior to doing any work.
9) Extensible for use with smart contracts
Okay, great I guess. There may be an extremely limited use-case for that. I'll get really excited when the software industry learns how to always write bug-free code.
Saying "Okay, great I guess." shows how little innovative foresight you have into how new technologies can transform the way we do things today. There is a reason why Overstock's stock has sky-rocketed recently with the announcement that they're looking to reissue their stocks via their own blockchain to counter the damage that was done to their stock via naked short selling. The bitcoin network will be used in ways that are completely revolutionary and unforeseen today. Writing bug-free code is irrevelant to this fact. Putting innovation on hold until bug-free code is presentable is a stifling attitude to take.
11) Low cost/fast transactions
No, it's not. Visa transactions have always been faster and are already cheaper.
Yes, it is fast and it is low cost. I sent $80k dollars last week on a Friday late at night after-hours for only $5. No traditional financial institution could've provided that same capability with as low of a cost. VISA transactions cost 2-4% and while those transactions don't show up on your receipts, they are baked into the costs of all purchases we make at merchants that accept VISA. Finally, merchants who accept VISA transactions, don't receive payment for those transactions until the end of the month. Meanwhile, during that time they're at risk of chargebacks. Therefore, finality of payment for VISA transactions is a month whereas with Bitcoin it is typically at most a day before confirmation and transactions that take a day to confirm are much cheaper than 2-4%.
I find this infographic very informative about the state of bitcoin's ecosystem. When discussing what bitcoin is and everything that goes with it, this provides good insight to it. Much of this ecosystem is specific to bitcoin itself and is something that no other alt-coin provides. The fact that several derivatives markets are opening up soon specifically for bitcoin futher puts all other alt-coins at a severe disadvantage when competing against bitcoin.
EDIT: I shrunk the image below since it was massive and here is a link to the full size image so people can look at the details without taking up so much space in this thread...
http://www.runtogold.com/images/bitcoin-ecosystem.jpg (http://www.runtogold.com/images/bitcoin-ecosystem.jpg)
(http://www.runtogold.com/images/bitcoin-ecosystem.jpg)
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2) Global
Practically speaking, so is Visa.
Practically doesn't mean anything here. Only about 30 countries have what would be considered modern financial services. Roughly 4 billion people don't have access to modern financial services such as credit, savings, and insurance. So while VISA may make the claim that they offer services in 200 countries, as they do, that doesn't mean that the people of these countries has the capability to access their services. All one needs to have access to the bitcoin network is a phone and an internet connection. This is true regardless of the geographic location of that individual. Thus, by having access to the bitcoin network regardless of geographic location, you can therefore participate freely in the global economy. Therefore, Bitcoin is global, VISA is not.
What exactly are the requirements you're referring to that are necessary to access VISA services?
What exactly are the requirements you're referring to necessary to access bitcoin services?
Off the top of my head, I'm thinking:
- reliable computer
- reliable internet access
- reliable power
- translation services
- vendors and people who accept bitcoin
Which countries specifically meet the requirements for bitcoin, but not VISA?
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What exactly are the requirements you're referring to that are necessary to access VISA services?
What exactly are the requirements you're referring to necessary to access bitcoin services?
Off the top of my head, I'm thinking:
- reliable computer
- reliable internet access
- reliable power
- translation services
- vendors and people who accept bitcoin
Which countries specifically meet the requirements for bitcoin, but not VISA?
This was less of a technical point and more of a logistical point. Bringing the "unbanked" into the global economy through traditional financial services is not very efficient from a brick and mortar perspective.
To use VISA you also need identification and proper financial services available to citizens to utilize it. This means that the citizen of a country that does not have modern financial services available to them or do not have the proper identification can not obtain a VISA account through banking services in their region. Someone who is not "banked" is not capable of utilizing the VISA payment network. VISA saying that they're in 200 countries just means that there are some merchants in those countries that accept VISA or that somewhere in that country there are financial services available through which a person could obtain an account. That doesn't mean that citizens in those countries are able to access VISA services themselves and therefore they're not able to participate in the global economy.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions. VISA is more merchant-to-consumer based transactions where Bitcoin is more peer-to-peer based transactions. There is massive potential for bitcoin to bring in billions of people to the global economy that are not a part of it today.
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What exactly are the requirements you're referring to that are necessary to access VISA services?
What exactly are the requirements you're referring to necessary to access bitcoin services?
Off the top of my head, I'm thinking:
- reliable computer
- reliable internet access
- reliable power
- translation services
- vendors and people who accept bitcoin
Which countries specifically meet the requirements for bitcoin, but not VISA?
This was less of a technical point and more of a logistical point. Bringing the "unbanked" into the global economy through traditional financial services is not very efficient from a brick and mortar perspective.
To use VISA you also need identification and proper financial services available to citizens to utilize it. This means that the citizen of a country that does not have modern financial services available to them or do not have the proper identification can not obtain a VISA account through banking services in their region. Someone who is not "banked" is not capable of utilizing the VISA payment network. VISA saying that they're in 200 countries just means that there are some merchants in those countries that accept VISA or that somewhere in that country there are financial services available through which a person could obtain an account. That doesn't mean that citizens in those countries are able to access VISA services themselves and therefore they're not able to participate in the global economy.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions. VISA is more merchant-to-consumer based transactions where Bitcoin is more peer-to-peer based transactions. There is massive potential for bitcoin to bring in billions of people to the global economy that are not a part of it today.
Fair points, but I think are overselling the problems with Visa a bit. Bitcoin transactions are online. You don't need need identification to use Visa for online transactions. And you can buy a pre-paid Visa even if you don't have ID or access to the traditional banking system.
In underbanked parts of the world (and even in underbanked populations in this country) people rely heavily on cash. You don't need an internet connection to turn cash into Visa cards. But you do need one to turn cash into Bitcoin. You can see the problem there. The advantage I see for Bitcoin is lower transaction costs.
A disadvantage I haven't seen anyone bring up is the difficult of pricing contracts (wages for example) in Bitcoin because no one knows what the future value of Bitcoin will be. It is easy enough to set the price in dollars, to be paid in Bitcoin. But that adds an extra step in each transaction. And of course eventually you have to exchange the Bitcoin for cash, which again is another step.
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Fair points, but I think are overselling the problems with Visa a bit. Bitcoin transactions are online. You don't need need identification to use Visa for online transactions. And you can buy a pre-paid Visa even if you don't have ID or access to the traditional banking system.
In underbanked parts of the world (and even in underbanked populations in this country) people rely heavily on cash. You don't need an internet connection to turn cash into Visa cards. But you do need one to turn cash into Bitcoin. You can see the problem there. The advantage I see for Bitcoin is lower transaction costs.
A disadvantage I haven't seen anyone bring up is the difficult of pricing contracts (wages for example) in Bitcoin because no one knows what the future value of Bitcoin will be. It is easy enough to set the price in dollars, to be paid in Bitcoin. But that adds an extra step in each transaction. And of course eventually you have to exchange the Bitcoin for cash, which again is another step.
No doubt prepaid VISA cards offer a valuable avenue onto the VISA payment network for those that are unbanked. The higher costs of those cards can add up though.
True, you may not necessarily need an internet connection to purchase a prepaid VISA card at a retailer if they're offered. But, again that goes back to the logistical challenges of maintaining a network of brick and mortar establishments in large vast regions where the unbanked are located and need to be served. I believe that, similar to the flow of foreign cash today, bitcoin can flow in the same manner throughout these regions to bring these people into the global economy. Bitcoin can move between individuals in the same manner that cash can. So when you mention that these societies rely heavily on cash, the transition should be rather seamless when it comes to using bitcoin. Cell phones and internet access is much more ubiquitous than modern financial services are.
As far as pricing goes, I think that is less of a problem with Bitcoin itself and merely a problem due to the fact that it is still at a young stage with a small market size. As the market grows, this becomes less and less of a problem. Volatility will naturally decrease as the market grows. I think we're a long way from needing to worry about large numbers of people receiving wages in bitcoin though. I can definitely see bitcoin helping foreign workers receive wages when doing remote work for foreign companies, but outside those circumstances I don't see wages being received in bitcoin until mass adoption occurs. At which point, discussions like this will be pointless anyway.
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What exactly are the requirements you're referring to that are necessary to access VISA services?
What exactly are the requirements you're referring to necessary to access bitcoin services?
Off the top of my head, I'm thinking:
- reliable computer
- reliable internet access
- reliable power
- translation services
- vendors and people who accept bitcoin
Which countries specifically meet the requirements for bitcoin, but not VISA?
This was less of a technical point and more of a logistical point. Bringing the "unbanked" into the global economy through traditional financial services is not very efficient from a brick and mortar perspective.
To use VISA you also need identification and proper financial services available to citizens to utilize it. This means that the citizen of a country that does not have modern financial services available to them or do not have the proper identification can not obtain a VISA account through banking services in their region. Someone who is not "banked" is not capable of utilizing the VISA payment network. VISA saying that they're in 200 countries just means that there are some merchants in those countries that accept VISA or that somewhere in that country there are financial services available through which a person could obtain an account. That doesn't mean that citizens in those countries are able to access VISA services themselves and therefore they're not able to participate in the global economy.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions. VISA is more merchant-to-consumer based transactions where Bitcoin is more peer-to-peer based transactions. There is massive potential for bitcoin to bring in billions of people to the global economy that are not a part of it today.
How does one get an internet connection without identification? You're talking about an internet cafe kinda thing? You believe that this is a safe enough scenario that people would trust their life savings to it? I'd think that the total lack of consumer protections that Bitcoin has would play into adoption of this technology in this scenario.
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How does one get an internet connection without identification? You're talking about an internet cafe kinda thing? You believe that this is a safe enough scenario that people would trust their life savings to it? I'd think that the total lack of consumer protections that Bitcoin has would play into adoption of this technology in this scenario.
Well many prepaid phone services don't require identification. Also, my point about identification also has to do with whether an individual needs to provide identification to use the service. This fact alone leads to discrimination by central payment authorities where perhaps sanctions are in place or the choice of doing business in a region is not justifiable. This can be a large hurdle to getting access to modern financial services in regions where, logistically, traditional financial services are not feasible. Like I said, phones and internet access are more ubiquitous than modern financial services are.
What lack of consumer protections in particular are you speaking of? Are you referring to loss of private keys?
https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165 (https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165)
Most people who are unbanked are less worried about "life savings" and more worried about being able to be a participant in the global economy. If someone who is unbanked can receive a peer-to-peer loan over the internet and paid out in bitcoin from the global economy and use those funds to stock a local shop, then that will go a long way toward bring many people out of poverty in many places around the world.
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How does one get an internet connection without identification? You're talking about an internet cafe kinda thing? You believe that this is a safe enough scenario that people would trust their life savings to it? I'd think that the total lack of consumer protections that Bitcoin has would play into adoption of this technology in this scenario.
Well many prepaid phone services don't require identification. Also, my point about identification also has to do with whether an individual needs to provide identification to use the service. This fact alone leads to discrimination by central payment authorities where perhaps sanctions are in place or the choice of doing business in a region is not justifiable. This can be a large hurdle to getting access to modern financial services in regions where, logistically, traditional financial services are not feasible. Like I said, phones and internet access are more ubiquitous than modern financial services are.
What lack of consumer protections in particular are you speaking of? Are you referring to loss of private keys?
https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165 (https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165)
Most people who are unbanked are less worried about "life savings" and more worried about being able to be a participant in the global economy. If someone who is unbanked can receive a peer-to-peer loan over the internet and paid out in bitcoin from the global economy and use those funds to stock a local shop, then that will go a long way toward bring many people out of poverty in many places around the world.
How does one apply for a loan without providing any identification?
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How does one apply for a loan without providing any identification?
There are peer-to-peer lending services online that are pretty lax in their identification requirements. Bitbond is one that I've used. Granted, the less identification verification you give, the lower your borrower rating is and higher your interest rate is as well.
I don't want to get stuck arguing this point when the only point I was trying to make was that the barrier to entry for Bitcoin with regards to identification is much lower than the barrier to entry for other traditional financial services when it comes to identification. In fact, bitcoin has no identification barrier of entry. Contrast this however you'd like to other financial services.
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How does one apply for a loan without providing any identification?
There are peer-to-peer lending services online that are pretty lax in their identification requirements. Bitbond is one that I've used. Granted, the less identification verification you give, the lower your borrower rating is and higher your interest rate is as well.
I don't want to get stuck arguing this point when the only point I was trying to make was that the barrier to entry for Bitcoin with regards to identification is much lower than the barrier to entry for other traditional financial services when it comes to identification. In fact, bitcoin has no identification barrier of entry. Contrast this however you'd like to other financial services.
I agree with you that using bitcoin doesn't require ID. It's the same as using cash in this regard. There doesn't appear to be any benefit to using bitcoin though . . .
Required information to borrow (from the bitbond terms of use - https://www.bitbond.com/terms_of_use (https://www.bitbond.com/terms_of_use)):
- Credit Check (requires Name, Address, SSN and reveals credit history, previous addresses, past employers and relatives)
This doesn't sound too different from getting a loan from a bank as far as information that you've got to provide. Except that you're charged a non-refundable fee for them to run the credit check. This was the only example of how Bitcoin benefits people who can't access a bank because of information problems. . . and it requires all the same information you would need from a bank. What is the benefit that we're supposed to get excited about?
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I agree with you that using bitcoin doesn't require ID. It's the same as using cash in this regard. There doesn't appear to be any benefit to using bitcoin though . . .
OK, then we're in agreement it seems.
I simply put being "global" as a benefit to bitcoin and you're nitpicking about what that actually means. You say a broad statement that there doesn't appear to be any benefit to using bitcoin when I've laid out examples of plenty.
The truth of the matter is that bitcoin's barrier to entry is the same as cash, except where cash requires physical proximity, Bitcoin does not.
Just because the services today don't take advantage of this fact, doesn't mean that the services of tomorrow won't either. I believe there will come a time where bitcoin will be able to extend monetary services beyond just personhood. This means that identity won't be required to utilize finances in the innovations we seek to implement. The implications for this are profound and it is hard to imagine what this could entail for the future simply because we have no precedent for it today. We can have millions of IoT devices all around the world that "own" their own money and pay for services and use services all on their own accord. This is only possible with a financial instrument that does not require identity. In a world where AI is aimed to take over much of our daily lives, having a currency that doesn't require personhood identification just makes sense and is a natural evolution that will support this transition.
Along these lines, another benefit that I didn't list, but should've absolutely have been listed is programmability. Bitcoin is a programmable currency and this will lead to massive amounts of innovation.
20 years ago we couldn't ever have imagined where the internet would've taken us today. The same is true when it comes to trying to determine where bitcoin will take us in the future. We lack precedent for any of this and it takes thinking outside of our current paradigm to see this.
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This is your last chance to get in under $10k, it's going to $100k in the next 12 months at this pace.
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This is your last chance to get in under $10k, it's going to $100k in the next 12 months at this pace.
(https://imgs.xkcd.com/comics/extrapolating.png)
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I agree with you that using bitcoin doesn't require ID. It's the same as using cash in this regard. There doesn't appear to be any benefit to using bitcoin though . . .
OK, then we're in agreement it seems.
I simply put being "global" as a benefit to bitcoin and you're nitpicking about what that actually means. You say a broad statement that there doesn't appear to be any benefit to using bitcoin when I've laid out examples of plenty.
I questioned if the 'global' benefit you listed really existed, and you were unable to provide any real world example of a benefit from bitcoin's 'global' benefit.
The truth of the matter is that bitcoin's barrier to entry is the same as cash, except where cash requires physical proximity, Bitcoin does not.
Not really. Bitcoin requires access to the internet and a computer. Cash does not. That is a barrier to entry that is quite different than cash.
Just because the services today don't take advantage of this fact, doesn't mean that the services of tomorrow won't either. I believe there will come a time where bitcoin will be able to extend monetary services beyond just personhood. This means that identity won't be required to utilize finances in the innovations we seek to implement. The implications for this are profound and it is hard to imagine what this could entail for the future simply because we have no precedent for it today. We can have millions of IoT devices all around the world that "own" their own money and pay for services and use services all on their own accord. This is only possible with a financial instrument that does not require identity. In a world where AI is aimed to take over much of our daily lives, having a currency that doesn't require personhood identification just makes sense and is a natural evolution that will support this transition.
Along these lines, another benefit that I didn't list, but should've absolutely have been listed is programmability. Bitcoin is a programmable currency and this will lead to massive amounts of innovation.
20 years ago we couldn't ever have imagined where the internet would've taken us today. The same is true when it comes to trying to determine where bitcoin will take us in the future. We lack precedent for any of this and it takes thinking outside of our current paradigm to see this.
I agree, that there are potential benefits. I guess I'm getting tripped up on the part where the future is being sold to people even though none of these benefits have really materialized as of yet. I've dealt with enough software vaporware to be leery of these types of claims.
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I questioned if the 'global' benefit you listed really existed, and you were unable to provide any real world example of a benefit from bitcoin's 'global' benefit.
I gave numerous examples of how being global was a benefit that bitcoin provides directly. You may not accept those benefits as they are, but they're benefits. Some of these benefits might not be materialized because we're trying to fit bitcoin into our existing financial frameworks and regulatory structure. That doesn't mean that those benefits aren't sitting there with bitcoin waiting to be taken advantage of. You said it yourself even, bitcoin does not require identification and is permission-less to use. Therefore this is a direct benefit that bitcoin as a payment network provides. Just because there are limited seconary layer solutions on top of this to take advantage of this benefit or just because some regulatory structures in certain countries don't allow for this idea to be fully realized doesn't take that away from bitcoin.
The truth is that I can send someone anywhere in the world monetary value of any amount without requiring them to provide identification first. They'll receive it in a matter of minutes at any time of day and they can then (for the time being) use localbitcoins.com or any other peer-to-peer exchange method to then exchange that for fiat if they wish. Or they can spend it directly as bitcoin. Just because adoption and innovation has yet to catch up to the benefits that bitcoin can provide does not mean that bitcoin does not provide those benefits.
I think that is one of the biggest hurdles I see when discussing bitcoin with other people who are skeptical of its innovation. They have trouble seeing the value in something in a society that hasn't yet adopted the benefits of a technology. The same misconceptions I saw when the internet was in its infancy I see with bitcoin. People wondered why anyone would spend 15 minutes trying to boot a computer and get connected to the internet just to pull up a few webpages with sparse information on them. They couldn't image that a decade from then the internet would contain all of humanity's information and it would all be accessible at the tip of your finger in a matter of seconds.
Not really. Bitcoin requires access to the internet and a computer. Cash does not. That is a barrier to entry that is quite different than cash.
Good point. From a technology point of view there is absolutely additional barriers to bitcoin when compared to cash. But those barriers are certainly a lot lower than what the modern financial services industry can offer. Also, once those barriers are met, there really isn't much else in the way that would prevent someone from participating in the global economy from within the bitcoin network. The more the world realizes that there is an ever growing market within this ecosystem, the more business will flock to set up shop "within" this network. Bitcoin's market cap is already larger than many countries and businesses that see this opportunity will be able to capitalize on this market.
I agree, that there are potential benefits. I guess I'm getting tripped up on the part where the future is being sold to people even though none of these benefits have really materialized as of yet. I've dealt with enough software vaporware to be leery of these types of claims.
Certainly it will take some time for many of these additional use cases to come to fruition. I don't think much of today's value is being hedged on those farout scenarios however. There is absolutely value in what the bitcoin network provides as it is today. There is a growing demand in the world for a monetary system that is decoupled from government. This alone has an immeasurable amount of value. The feature list I posted earlier are all features that are fully realized today. These are not vaporware features and they are all mostly features that people demand from their currency and payment networks. Therefore, if people demand it, then that means that the payment network itself has value. Unless people stop demanding these features or another better payment network comes along to provide these features, then bitcoin will always have value to its userbase.
1) Decentralized
2) Global
3) Permission-less (anyone, anywhere can use it)
4) Counterfeit proof
5) Peer-to-Peer
6) Fraud proof consumer protection
7) Nearly unhackable
8) Immutable
9) Extensible for use with smart contracts
10) Can't be confiscated
11) Low cost/fast transactions
12) Programmable
13) Deflationary monetary policy
14) Irreversible transactions
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What are the opinions of the future of crypto currencies with the next serious recession and bear market?
Has anyone here who is a miner or serious speculator actually experienced a recession or bear market? The kind where jobs are lost and you lose half your net worth in a short period?
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The--ahem--underground economy in the US increases during times of recession. I cannot see how that would be bad for crypto's.
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6) Fraud proof consumer protection
14) Irreversible transactions
These items in your list are contradictory.
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6) Fraud proof consumer protection
14) Irreversible transactions
These items in your list are contradictory.
I already pointed that out. His answer (if I understood it correctly) was that the systemic gains of merchants / financial institutions not having to deal with chargebacks will end up being of greater value to the consumer than actual fraud protection.
I don't buy it personally though. Crypto transactions are irreversible. Which means there is no such thing as fraud protection for the consumer. That alone will prevent cryptocurrencies from ever replacing Visa.
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6) Fraud proof consumer protection
14) Irreversible transactions
These items in your list are contradictory.
I already pointed that out. His answer (if I understood it correctly) was that the systemic gains of merchants / financial institutions not having to deal with chargebacks will end up being of greater value to the consumer than actual fraud protection.
I don't buy it personally though. Crypto transactions are irreversible. Which means there is no such thing as fraud protection for the consumer. That alone will prevent cryptocurrencies from ever replacing Visa.
If this is true and if it is also true that the person who designed bitcoin is still anonymous, its blows my mind that there are intelligent people out there who feel this is a worthy place to put your hard earned money. Unless of course greed is involved ;)
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The--ahem--underground economy in the US increases during times of recession. I cannot see how that would be bad for crypto's.
Because there is a difference in people using Bitcoin for short-term transactions and those using it for speculation. If the economy goes into a recession, you may see a huge sell-off event by investors trying to avoid getting caught up in an extreme price drop. Those using it for transactional purposes will still do so, but can simply increase the number of coins used based on current exchange rates. Since a transactional use of Bitcoin involves both buying _and_ selling the coin over a short time period, it will have a much smaller effect on determining the exchange value as those holding coins for speculative purposes.
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If this is true and if it is also true that the person who designed bitcoin is still anonymous, its blows my mind that there are intelligent people out there who feel this is a worthy place to put your hard earned money. Unless of course greed is involved ;)
Well obviously the huge speculative price surges are primarily motivated through greed. But I think the real problem is that the people all excited about it are techies who are geeking out over the cool-technology aspect of it. I think the Finance industry and governments have been pretty universally negative on cryptocurrencies, and stand aghast that people are dumping this much money into them.
But of course to some conspiracy-oriented people that's only proof that this is going to be the next big thing and "the man" is just trying to keep them down.
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What are the opinions of the future of crypto currencies with the next serious recession and bear market?
Has anyone here who is a miner or serious speculator actually experienced a recession or bear market? The kind where jobs are lost and you lose half your net worth in a short period?
I'm sure I'll be written off as the tired old man here. I'm 49.
Was concerns me the most is that most of the under 35 crowd has only know an EXTREME period of market growth their entire investing lives. Not just extreme but unprecedented!
Twice I've seen my stash grow to unbelievable levels and lose its value in a matter of a year. I've seen friends lose homes, jobs, spouses, etc. over these market crashes .
Do any of you ever experienced an extended bear market? Where you lost hundreds of thousands in equity value in a matter of months?
If so, do you feel comfortable with things like bitcoin? Yes? How?
I want to hear from the 40+ crowd who have experienced these kinds of events.
Oh man. This is a millennial train wreck.
Then again, I doubt most on this thread know anything about what a bear market is....too young, most of you. ;)
surfhb, is there a reason why you feel that you're the only one to have ever experienced a bear market or recession? These are some of your quotes from this and the other crypto thread showing your attitude with a clear prejudice that others have never experienced an economic hardship.
Sent from my iPhone using Tapatalk
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Coinbase service outage today due to all-time record high traffic. Bitcoin's trading range was about $1,000 wide just today alone. The stampede is apparently gaining momentum. Tulips, anyone?
(http://www.autoremarketing.com/sites/default/files/styles/story_page_main_image/public/bubble%20popping_1.jpg)
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Prediction- the servers go back up and the price does as well...
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What are the opinions of the future of crypto currencies with the next serious recession and bear market?
Has anyone here who is a miner or serious speculator actually experienced a recession or bear market? The kind where jobs are lost and you lose half your net worth in a short period?
I'm sure I'll be written off as the tired old man here. I'm 49.
Was concerns me the most is that most of the under 35 crowd has only know an EXTREME period of market growth their entire investing lives. Not just extreme but unprecedented!
Twice I've seen my stash grow to unbelievable levels and lose its value in a matter of a year. I've seen friends lose homes, jobs, spouses, etc. over these market crashes .
Do any of you ever experienced an extended bear market? Where you lost hundreds of thousands in equity value in a matter of months?
If so, do you feel comfortable with things like bitcoin? Yes? How?
I want to hear from the 40+ crowd who have experienced these kinds of events.
Oh man. This is a millennial train wreck.
Then again, I doubt most on this thread know anything about what a bear market is....too young, most of you. ;)
surfhb, is there a reason why you feel that you're the only one to have ever experienced a bear market or recession? These are some of your quotes from this and the other crypto thread showing your attitude with a clear prejudice that others have never experienced an economic hardship.
Sent from my iPhone using Tapatalk
Why would I feel that way? Lots of people on these threads have lived through recessions.
However, since this lastest bull market is pushing a decade in length I firmly feel most younger investors don't understand the pitfalls of speculation. I'm still waiting from some the older crowd to throw their opinion into the ring.
I'm trying to warn people of these kind of things...that's all. I'll wont post anymore about this.
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Prediction- the servers go back up and the price does as well...
I have no doubt that you will be proven correct. The outage indicates the stampede is apparently still in its inflationary cycle, possibly hyper-inflationary at this point.
They'd better buy a lot more servers. I have a feeling that when the stampede turns around, folks will be looking for the exit pretty much all at the same time.
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I'm still waiting from some the older crowd to throw their opinion into the ring.
I was in the market during the crash of '87, so I guess I qualify.
I'm trying to warn people of these kind of things...that's all. I'll wont post anymore about this.
Your intentions are laudable, and for very young investors, very likely on-point. Don't let one objection throw you. I think every generation has to experience one or two crashes for themselves. If you enlighten just one among them, then you have done your good deed for the day. ;)
Regardless of any real merits of block-chain technologies, there simply is no rational explanation for the hyper-acceleration of the cryptos' perceived value other than "it's a bubble."
When the bubble bursts, and it will, only then will we be in the hypothetical position to realize any true benefits this technology has to offer. I mean, tulips didn't simply vanish centuries ago; there's still a market for them today. But it's a rational market now. The ones who sold early bought a castle. Those who went "all in" and got caught at the top became florists, and had to work for their bread for the rest of their days.
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I'm still waiting from some the older crowd to throw their opinion into the ring.
I was in the market during the crash of '87, so I guess I qualify.
I'm trying to warn people of these kind of things...that's all. I'll wont post anymore about this.
Your intentions are laudable, and for very young investors, very likely on-point. Don't let one objection throw you. I think every generation has to experience one or two crashes for themselves. If you enlighten just one among them, then you have done your good deed for the day. ;)
Thanks!
Like I said, I'm still waiting to hear from any proponents of crypto currencies who have lived and lost any sizable amount of their stash in 2008 and the early 2000s. (and 1987 ;)
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I'm still waiting from some the older crowd to throw their opinion into the ring.
I was in the market during the crash of '87, so I guess I qualify.
I'm trying to warn people of these kind of things...that's all. I'll wont post anymore about this.
Your intentions are laudable, and for very young investors, very likely on-point. Don't let one objection throw you. I think every generation has to experience one or two crashes for themselves. If you enlighten just one among them, then you have done your good deed for the day. ;)
Thanks!
Like I said, I'm still waiting to hear from any proponents of crypto currencies who have lived and lost any sizable amount of their stash in 2008 and the early 2000s. (and 1987 ;)
I lost a million in 2000. And I'm playing with bitcoin but not enough to matter. My $10,000 has turned into about $40,000 and I almost got my $10,000 out this morning and let the other $30,000 ride, but the market didn't go quite high enough before the server outage. I still have my sell order in though.
I wouldn't do this with any serious money, but I'm just entertaining myself and hoping to accidentally make some real money along the way. If I couldn't afford to lose it I wouldn't do it.
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I'm still waiting from some the older crowd to throw their opinion into the ring.
I was in the market during the crash of '87, so I guess I qualify.
I'm trying to warn people of these kind of things...that's all. I'll wont post anymore about this.
Your intentions are laudable, and for very young investors, very likely on-point. Don't let one objection throw you. I think every generation has to experience one or two crashes for themselves. If you enlighten just one among them, then you have done your good deed for the day. ;)
Thanks!
Like I said, I'm still waiting to hear from any proponents of crypto currencies who have lived and lost any sizable amount of their stash in 2008 and the early 2000s. (and 1987 ;)
I lost a million in 2000. And I'm playing with bitcoin but not enough to matter. My $10,000 has turned into about $40,000 and I almost got my $10,000 out this morning and let the other $30,000 ride, but the market didn't go quite high enough before the server outage. I still have my sell order in though.
I wouldn't do this with any serious money, but I'm just entertaining myself and hoping to accidentally make some real money along the way. If I couldn't afford to lose it I wouldn't do it.
Wow! Losing $1 million dollars! eek I'm surprised anyone who lost so much would be ok with losing another 10K?
BTW....congrats on anyone who has made a killing in bitcoin. I hope your luck continues. Honestly, I do
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Wow! Losing $1 million dollars! eek I'm surprised anyone who lost so much would be ok with losing another 10K?
Once you've lost a million, survived, and regained the million, losing 10K isn't that important.
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I'm so fascinated by this whole craze. It is so obviously pure FOMO psychology right now, I just can't look away. Personally I would never put my money anywhere near cryptos (even to 'explot' bubble psychology) because they are indirectly horrible in both enabling criminal activity and power consumption/pollution (the energy behind each btc transaction could power 20 US homes for a day).
I don't believe there is any evidence of any existing business (apart from criminal businesses or crypto trading platforms) gaining a competitive advantage from the application of either blockchain or cryptocurrencies. It's all talk, hot air and promises of some vague future.
Bitcoin itself is so laughably incapable of fulfilling any of its most basic promises that it's proponents all end up sounding like conmen or idiots.
anonymity - psuedonymous at best, a permanent record of all your financial activity at worst
decentralised - mining activity rapidly centralises control (major miners have 'split' into different entities to prevent concern about their >51% stake)
low fee - low fee transactions are sent to the back of the queue and are often dropped completely. fees increase when mining becomes harder
fast - often delays of multiple days and again, many transactions are ignored and dropped
limited supply aka 'there'll only ever be 21 million' - regular forks and innumerable cryptos with more appearing every day makes this a ridiculous claim
transactions per second are limited theoretically to 7 per second, in practice more like 3 per second. visa is 2,000ps on a slow day, 50,000 peak. multiple 'forks' have tried to fix or improve this basic problem and they've been defeated by juvenile reddit memelords. the promised solutions (lightning network) are vaporware, forever 6 months away
and then there's Tethers, the craziest crypto scam of them all - literally printing tens of millions of 'dollar-backed' monopoly money several times weekly with zero credible evidence that the money supposedly backing it actually exists, and then using that to buy bitcoin from another company which is owned by the same people
oh and ICOs (aka digital ponzi schemes), smart contracts (where a single bug in an immutable program can lose 300 million dollars of other peoples' money instantly and it's just another week), all bullshit, bullshit, bullshit.
Personally I think it needs to stop. Regulate the fuck out of these shitty, shitty scams or better yet outlaw them. If digital currencies are useful, let competent and accountable companies develop them instead of this backwater internet wild west. If blockchain is useful, prove it - turn it into competitive advantage instead of hype.
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Wow! Losing $1 million dollars! eek I'm surprised anyone who lost so much would be ok with losing another 10K?
Once you've lost a million, survived, and regained the million, losing 10K isn't that important.
Good for you! Unfortunately, there are millions of people right now who are not wealthy like yourself who are putting their hard earned money into things like bitcoin hoping to be FIRE. Its these people who have much to lose if they are wrong.
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If digital currencies are useful, let competent and accountable companies develop them instead of this backwater internet wild west.
You mean something like this: https://entethalliance.org/members/
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Personally I would never put my money anywhere near cryptos (even to 'explot' bubble psychology) because they are indirectly horrible in both enabling criminal activity and power consumption/pollution (the energy behind each btc transaction could power 20 US homes for a day).
cash, especially the US dollar, enables the vast majority of both everyday criminal activity and international organized crime. are you in favor of eliminating cash?
the energy bitcoin uses is required for proof-of-work. that's how it's secured and that's why you can't decide on a whim to create yourself some bitcoin out of thin air. you need to pony up the $ and use some energy. the "energy required per transaction" is a load of ignorant journalistic nonsense. the energy required to create a block secures all past transactions, not just all transactions in the block. it's the cumulative (10 years' running) proof-of-work that bitcoin users agree keeps their past transactions secure and permanent.
a non-proof-of-work cryptocurrency is free to come along and dethrone bitcoin (since it's a free market) and many are trying to do so.
limited supply aka 'there'll only ever be 21 million' - regular forks and innumerable cryptos with more appearing every day makes this a ridiculous claim
the 21 million coins limit is only enforced by consensus, as are all the other rules governing bitcoin. you are free to go right ahead and make yourself a fork and pay yourself 1,000,000 BattlaPCoins.
If digital currencies are useful, let competent and accountable companies develop them instead of this backwater internet wild west.
accountable companies? that's laughable. so that when the currency has a backdoor or major bug we can file a class action suit? companies like jp morgan chase, wells fargo, hsbc, equifax, yahoo, RSA security, infineon technologies, and even US government entities like the Office of Personnel Management, NSA, and CIA have all had major lapses in security and ethics. you want them to create a digital currency? open source currencies competing in a free market is the only way this can be done.
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Wow! Losing $1 million dollars! eek I'm surprised anyone who lost so much would be ok with losing another 10K?
Once you've lost a million, survived, and regained the million, losing 10K isn't that important.
Can I have 10K of your unimportant money? It's very important to me. :P
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cash, especially the US dollar, enables the vast majority of both everyday criminal activity and international organized crime. are you in favor of eliminating cash?
false equivalence. cryptos enable criminal activity, darknet markets and rampant ransomware which would otherwise be far less prevalent. I don't particularly want to engage with you further, I've made my points and frankly you responded quite poorly to a small fraction of them.
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cash, especially the US dollar, enables the vast majority of both everyday criminal activity and international organized crime. are you in favor of eliminating cash?
false equivalence. cryptos enable criminal activity, darknet markets and rampant ransomware which would otherwise be far less prevalent. I don't particularly want to engage with you further, I've made my points and frankly you responded quite poorly to a small fraction of them.
prepaid cash cards were used extensively to power ransomware before cryptocurrencies were. isn't ransomware actually enabled by crappy software full of security flaws?
you came slinging mud, calling crypto proponents "conmen or idiots," and you don't care to respond when your ignorant points get shot down. not surprising. still entertaining to see the haters come out of the woodwork when the market gets a bit bubbly.
fwiw, i agreed with most of the rest of your points including FOMO/speculation, tethers, ICOs, buggy "smart" contracts, and the poor state of discussion/censorship on reddit.
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I find it strange that you would agree with most of my points but call the specific one on criminal activity 'ignorant'. Do you actually believe that ransomware could be conducted anywhere NEAR the scale it's currently being propagated based on 'prepaid cash cards'? How would darknet markets function without the promised anonymity of bitcoin/monero? (I'm leaving aside that this little white lie about bitcoin has led to successful prosecutions based on information obtained from darknet markets and bitcoin's handy complete history of all transactions. Monero might actually be better at this job for mr. criminal)
And yes, haters (like me) will come out of the woodwork at times like this, to hopefully stop people like OP losing their shirts. People get can get swept up in this sort of shit and lose their kids' college funds, their life savings. I actually think the current state of things is overblown - its just too difficult currently for most people to actual obtain crypto so they mostly end up making an account somewhere and then just giving up or making tiny 'testing the waters' purchases. Most of the current liquidity/value is probably wash trading and other forms of fraud (tether) and day trading/arbitrage transactions, with a core bunch of super savvy r/bitcoiners 'dollar cost averaging' their wages into a hyper risky speculation and posting rollercoaster memes. But still, it doesn't hurt to go and answer questions like "is it too late?" with "it's never too late to observe insanity in action. grab some popcorn"
here, enjoy the latest taste
https://twitter.com/YoloCapMgmt/status/936045815973294080/photo/1
margin trading crypto. if only someone had told him this was a terrible, terrible idea, and he had the sense to listen
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Do you actually believe that ransomware could be conducted anywhere NEAR the scale it's currently being propagated based on 'prepaid cash cards'?
It's called Western Union. No Visa card required. It's been enabling international scammers for decades.
Google "419 Eaters".
419 is the section of the Nigerian criminal code for scamming. Nigerian Prince scam, anyone?
Bottom line: I don't believe there are any credible arguments, based on morality, against crypto currencies. But until you can pay your tax bill with one (without first converting to USD), I will refuse to regard them as actual currencies. Right now, it's just another bubble; nothing more or less than that.
If you can cash out in time to buy your castle, I'll applaud you. If you can't, I'll feel your pain. And I'll be sorry for having to do that.
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cash, especially the US dollar, enables the vast majority of both everyday criminal activity and international organized crime. are you in favor of eliminating cash?
false equivalence. cryptos enable criminal activity, darknet markets and rampant ransomware which would otherwise be far less prevalent. I don't particularly want to engage with you further, I've made my points and frankly you responded quite poorly to a small fraction of them.
If you want an amazing economic story, read the case of India, which basically did this (the elimination of cash part). Seriously. Their "de-monetization" program began on Wednesday, Nov 9, 2016, which is probably why you weren't paying a lot of attention.
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https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3 (https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3)
IDK if this marks a characteristic fast turnover from the peak of the bubble, but I wouldn't be surprised.
Folks, if this is not your definition of bubble, you have no definition of bubble.
Man, I wish I could buy an options straddle on bitcoin. I'd be all in.
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6) Fraud proof consumer protection
14) Irreversible transactions
These items in your list are contradictory.
How are these items contradictory? Care to elaborate a little on that?
I already pointed that out. His answer (if I understood it correctly) was that the systemic gains of merchants / financial institutions not having to deal with chargebacks will end up being of greater value to the consumer than actual fraud protection.
I don't buy it personally though. Crypto transactions are irreversible. Which means there is no such thing as fraud protection for the consumer. That alone will prevent cryptocurrencies from ever replacing Visa.
I guess you didn't understand then, because that wasn't my point at all and I said nothing along those lines at all (where did you even get that from?). Here is a link to my previous post where I discussed this in detail.
https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165 (https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1781165/#msg1781165)
Almost the entire purpose of chargebacks are to combat fradulent transactions. Almost the entire reason we have fradulent transactions are because are POS systems are designed around giving merchants our identities and "pull" authority over the funds in our accounts. This makes every single merchant we interact with a single point of failure for massive amounts of consumer information. We then try to overlap consumer protection regulation on top of this failed system that doesn't do anything but cost more money. Case in point being the fact that Target was a PCI certified company and yet they were breached which exposed tens of millions of consumer account data and resulted in millions of dollars in damages due to fraud.
The way Bitcoin works is that payment fraud like this would completely disappear. When you make a transaction with bitcoin, the merchant doesn't receive anything. The consumer simply broadcasts a transaction to the blockchain which the merchant simply verifies was made. The merchant has no authority to pull funds and requires no identification (similar to cash) of the consumer. Therefore there is no data on the merchant side that could be compromised that would result in a loss of funds for the consumer.
Consumer refunds aren't handled any differently with bitcoin. If a consumer requires a refund from a merchant, the merchant can simply return a transaction back to the consumer for the amount that was paid. There isn't any reason for chargebacks. That's like saying we need chargebacks with cash. No you don't. If you paid for a TV in cash and you need a refund, you just get cash returned back to you.
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Almost the entire purpose of chargebacks are to combat fradulent transactions.
If a consumer requires a refund from a merchant, the merchant can simply return a transaction back to the consumer for the amount that was paid.
I respectfully disagree. Far more of the times I've done charge backs was because of a shady merchant that disagreed that I was due a refund, or tried to force me to settle for a "store credit" as some kind of consolation booby-prize to replace the perfectly spendable USD that I gave them.
If I'd had to rely on the merchant to agree, I would have been stuck paying for dead batteries, expensive software that doesn't even install, upgrades that don't upgrade, power protection units that don't even conduct electricity, etc, etc, on and on.
With a credit card, I get a very authoritative say in whether I get ripped off or not. With crypto, I'd be at the mercy of those who care only for profits; even if at the expense of fair and above-board dealings in transactions.
Whenever I hear the words, "I'm sorry, sir, our policy is . . .," I interrupt them immediately with, "Let ME explain MY policy to YOU! And I'm only going to explain it once, so you'd better listen up."
I can become a very unpleasant person when someone tries to rip me off. My policy has never failed me yet.
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Let me pose a couple simple questions.
-If VISA announced that they're going to begin operating in 10 new countries, would their valuation go up?
-If VISA announced that they have a new method for combating fraud on their network, would their valuation go up?
-Does VISA's valuation partly come from its assets and the capital that it owns?
Without complicating the questions any more than necessary, the answer to these questions is most certainly yes.
You see the thing with bitcoin is that everyone is so lost and caught up in the currency. But Bitcoin is a currency and a payment network.
It doesn't matter what the value of the currency is. We could value the currency at $.0001. Which, if we're talking about Satoshis, is actually about what its worth today. The media probably wouldn't be too caught up with bitcoin frenzy if its currency were valued at $.0001 and the talks about bubbles wouldn't be nearly as pronounced today. Proof to that is that bitcoin's price actually was that at one point in time and rose to dollar parity and yet bitcoin was never even on the radar for the media or anyone for that matter.
The price of the currency doesn't matter. This isn't like a physical commodity where the price of oil at $300/barrel versus $50/barrel has very real consequences in what is received for the money.
Let me make another analogy. An arcade uses token for all of the games inside. To have fun using the arcade, you must exchange your dollars for tokens and then use those tokens in the arcade games to have some fun. There is no underlying value in the token itself. However, the arcade itself does have underlying value. People go there to have fun and as a business it has real value. But, to use this business, you must use their tokens in order to play games. It doesn't matter what the exchange rate of the token is worth. That doesn't change the underlying value of what the arcade provides. The arcade decides one day, instead of exchanging 4 tokens for $1, you now only get 2 tokens for $1. You can still play the same amount of games for $1 though. So each token is worth more itself, but it still doesn't have any underlying value itself. Again, the underlying value of the arcade is still based on providing entertainment to its users.
This is Bitcoin. People who get caught up in the price of what a bitcoin is worth aren't seeing the big picture. Almost every bubble article I read on bitcoin is simply looking at the price charts of the token and comparing it to past bubbles and nothing more. They get caught up in making claims that the currency of bitcoin has no underlying value. The truth is that none of this matters.
As I mentioned previously, bitcoin is both a currency and a payment network. The currency is simply a token that is used if you wish to use this payment network. The payment network, like the arcade, is where the underlying "intrinsic" value is found. The benefits of this payment network are profound and numerous as no other payment network on earth has all of these qualities combined.
1) Decentralized
2) Global
3) Permission-less (anyone, anywhere can use it)
4) Counterfeit proof
5) Peer-to-Peer
6) Fraud proof consumer protection
7) Nearly unhackable
8) Immutable
9) Extensible for use with smart contracts
10) Can't be confiscated
11) Low cost/fast transactions
12) Programmable
13) Deflationary monetary policy
14) Irreversible transactions
VISA might have some of these benefits. SWIFT might have some of these benefits. ACH might have some of these benefits. But no traditional financial payment network has all of these features. Arguing each feature on its own compared to traditional solutions ignores the fact that bitcoin has all of these features. Some people might value some of these things and not others. For example, an immigrant might value the fact that it is both global and low cost so that they can send remittances back to family overseas. A wealthy CEO might value that it can't be confiscated and is a deflationary store of value. A web developer might value that it is programmable. A merchant might value fraud protection and no chargebacks. An activist might value that it is decentralized and permissionless. The truth is that many people will value the bitcoin payment network for different reasons and it is the combination of all these reasons that gives bitcoin its underlying value. Unless these people stop valuing these things in a payment network, then it will continue to have value.
Back to my original questions, VISA's valuation comes partly to the capital and assets that it owns. Its value also comes from the services it provides. If VISA starts operating in additional countries, the value of the company would rise because it can now reach additional customers. Likewise, bitcoin, as a payment network, has underlying value because there are over 10,000 nodes all around the world that are running this network. There is about 12 Exahash/sec worth of computing power on the network currently. That's more than about 600 of the world's top supercomputers combined. You can't separate bitcoin the currency from the bitcoin blockchain. To use the arcade, you must use their token and this is a one of a kind in the world arcade. There is no other payment network that provides all of these features (listed above) with all of the same security, decentralization, computing power, etc. Each one of the features it provides adds additional value to the network and each feature will bring in different people who value different aspects of the network.
Hopefully some people found this all helpful.
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I respectfully disagree. Far more of the times I've done charge backs was because of a shady merchant that disagreed that I was due a refund, or tried to force me to settle for a "store credit" as some kind of consolation booby-prize to replace the perfectly spendable USD that I gave them.
If I'd had to rely on the merchant to agree, I would have been stuck paying for dead batteries, expensive software that doesn't even install, upgrades that don't upgrade, power protection units that don't even conduct electricity, etc, etc, on and on.
With a credit card, I get a very authoritative say in whether I get ripped off or not. With crypto, I'd be at the mercy of those who care only for profits; even if at the expense of fair and above-board dealings in transactions.
Whenever I hear the words, "I'm sorry, sir, our policy is . . .," I interrupt them immediately with, "Let ME explain MY policy to YOU! And I'm only going to explain it once, so you'd better listen up."
I can become a very unpleasant person when someone tries to rip me off. My policy has never failed me yet.
Yes, but that's not fraud and I don't think that the payment network should be the mediator in those situations. There's nothing to say that we couldn't have regulations that prevent merchants from giving store credit where full refunds are in order (not saying that is a good idea, just an example). The payment network should provide security over the payment transaction itself, not mediation of the innumerous amount of services than any merchant can provide to a consumer. And if you don't think that you don't pay for that chargeback ability, I think you're being a little naive. Businesses account for all the lost revenue due to return policies, chargebacks, credit card fees, etc. While it might give you peace of mind to know that you can cancel a payment at any time, we'd be much better off with a system that had no merchant fees and no fraud in it to begin with. That's ultimately where real power will be returned to the consumer.
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Yes, but that's not fraud and I don't think that the payment network should be the mediator in those situations.
If you truly believe that, then you have an extremely narrow definition of fraud. If a transaction doesn't deliver the promised goods or services, and the merchant wants to keep your money anyway, that absolutely is fraud.
fraud
frôd/
noun
noun: fraud; plural noun: frauds
wrongful or criminal deception intended to result in financial or personal gain.
Selling me supposedly brand new batteries that don't even have a charge is at the very least wrongful deception (even if unintentional). Refusing to give me my money back when I return them, with proof of purchase, is when it crosses over into fraud.
You might disagree about where or how specific types of fraud should be protected, but I think it's pretty inarguable that VISA, etc, already provides that protection (without new regulation), while crypto does not.
Even with new regulation, where is the enforcement mechanism? Do I have to sue in court to get my $14 back for dead batteries? Right now all I have to do is click a few links on a web-site. Presto-bingo. I am protected.
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If you truly believe that, then you have an extremely narrow definition of fraud. If a transaction doesn't deliver the promised goods or services, and the merchant wants to keep your money anyway, that absolutely is fraud.
fraud
frôd/
noun
noun: fraud; plural noun: frauds
wrongful or criminal deception intended to result in financial or personal gain.
Selling me supposedly brand new batteries that don't even have a charge is at least wrongful deception. Refusing to give me my money back when I return them is when it crosses over into fraud.
You might disagree about where or how certain types of fraud should be protected against, but I think it's pretty inarguable that VISA, etc, already provides that protection (without new regulation), while crypto does not.
Even with new regulation, where is the enforcement mechanism? Do I have to sue in court to get my $14 back for dead batteries? Right now all I have to do is click a few links on a web-site. Presto-bingo. I am protected.
I'm not going to argue that your battery scenario doesn't constitute as fraud. But in an industry where fraud is a multi-billion dollar business unit, your battery scenario isn't in the discussion. VISA and its like are failing us miserably in this area and as an information security analyst in the financial industry, it is an issue I am faced with every day. While it is unfortunate that your battery scenario occurred, as consumers we have direct control of those types of interactions. We can simply stop doing business with those merchants and it will eventually become astutely clear that policies that don't favor their consumers will harm their business. In the face of true fraud however, we have little power when our identity and payment information is stolen. VISA does not provide us enough protection in that regard.
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I'm not going to argue that your battery scenario doesn't constitute as fraud. But in an industry where fraud is a multi-billion dollar business unit, your battery scenario isn't in the discussion. VISA and its like are failing us miserably in this area and as an information security analyst in the financial industry, it is an issue I am faced with every day. While it is unfortunate that your battery scenario occurred, as consumers we have direct control of those types of interactions. We can simply stop doing business with those merchants and it will eventually become astutely clear that policies that don't favor their consumers will harm their business. In the face of true fraud however, we have little power when our identity and payment information is stolen. VISA does not provide us enough protection in that regard.
It's not in the discussion because it isn't broken. It works perfectly, as is. I'm not suggesting that everything-VISA is perfect. But your repetition of "Fraud proof consumer protection" as a crypto benefit, while omitting very salient limiting qualifiers to that, is simply untrue, no matter how many times you say it. It simply doesn't offer that. Whatever consumer protection it might provide, it is incomparable to what VISA provides. Apples to Oranges. Or perhaps more appropriately, a whole apple (VISA) to just a wedge of an apple (crypto).
For the sake of argument, I'll concede that crypto's wedge is more robust than the corresponding wedge in VISA's apple. But it still leave a gigantic hole, unaddressed, in the full spectrum of consumer protection.
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It's not in the discussion because it isn't broken. It works perfectly, as is. I'm not suggesting that everything-VISA is perfect. But your repetition of "Fraud proof consumer protection" as a crypto benefit, while omitting very salient limiting qualifiers to that, is simply untrue. It doesn't offer that. Whatever consumer protection it might provide, it is incomparable to what VISA provides. Apples to Oranges. Or perhaps more appropriately, a whole apple (VISA) to just a wedge of an apple (crypto).
No, it's not in the discussion because of all the slices in the fraud pie, legitimate consumer chargebacks is the smallest slice. Unauthorized payments and account takeovers are the biggest slices in the fraud space and it costs multi-billions of dollars to both consumers and merchants. Global Risk Technologies examined chargebacks and found that 86% of chargebacks by consumers were fradulent. So not only are legitimate chargebacks a small problem, but fradulent chargebacks only make a big problem even worse. Like I said, your scenario, while unfortunate, is at least a scenario where we as consumers can protect ourselves by choosing who we do business with. Bitcoin provides consumer protection against a fraud problem that we largely don't have control over. It is a problem that is rampant and expensive and costs consumers way more than any amount of faulty or poor refund practices do annually. Your continued assertion that poor refund practices is in any way comparable to the amount of fradulent transactions that occurs in the payment industry shows a misunderstand of this area.
With bitcoin, I can do business with any reputable merchant regardless of their cyber security practices or the security of the connection between us without fear of my payment or financial account being compromised now or at any time in the future. That's true consumer protection.
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. . . is at least a scenario where we as consumers can protect ourselves by choosing who we do business with.
No it isn't. Your so-called "solution" only protects me from getting ripped off a second time, not the first time. Denying future dealings with that merchant will not get my money back.
This, to you, seemingly insignificant protection, has saved me far more dollars over the years than any fraudulent charges against my card (yes, I've had that happen too).
I'm not pretending to be an expert in all the other problems inherent in credit cards. And I'm not looking at this from the perspective of an industry security specialist. I'm looking at it as a consumer. This one single aspect of the CC system is why I never use cash when I have a choice. And I'll never use crypto, either, until that base is covered.
You are looking at this from a static perspective. Once you remove that "small problem" protection, it will rapidly mushroom into a "big problem" just as soon as merchants realize that we are, quite literally, at their mercy.
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You might disagree about where or how specific types of fraud should be protected, but I think it's pretty inarguable that VISA, etc, already provides that protection (without new regulation), while crypto does not.
Even with new regulation, where is the enforcement mechanism? Do I have to sue in court to get my $14 back for dead batteries? Right now all I have to do is click a few links on a web-site. Presto-bingo. I am protected.
It isn't true that chargebacks are provided without regulation. I want to point out, since you mentioned it, that you're probably unfamiliar with reg Z in TILA and reg E in EFT Act that allow you to do those chargebacks in the first place. These are the regulations that give consumers those reversal rights with chargebacks. I'm not saying we need regulations to protect the consumer from poor refund practices in the absense of fradulent transactions, but if regulations is what gave us chargeback rights and enforcement seems to work just fine there, then regulations could certainly be an option. Chargebacks are a poor solution to a small problem and exacerbate fraud given the fact that 86% of chargebacks themselves are fradulent.
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A question for the cryptocurrency proponents on here:
At what price point would you consider a Bitcoin to be overvalued? Why?
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You might disagree about where or how specific types of fraud should be protected, but I think it's pretty inarguable that VISA, etc, already provides that protection (without new regulation), while crypto does not.
Even with new regulation, where is the enforcement mechanism? Do I have to sue in court to get my $14 back for dead batteries? Right now all I have to do is click a few links on a web-site. Presto-bingo. I am protected.
It isn't true that chargebacks are provided without regulation.
Where did I suggest there was no regulations for chargebacks? Obviously I'm not going to go read a stack of regulations that have nothing to do with the point I made.
Your otherwise fairly thorough description of crypto features make it clear that I cannot get a transaction reversed without a crooked merchant agreeing to do it.
I don't care about fraudulent chargebacks, because I don't commit fraud. It's not my problem to solve. And yes, I do understand that the cost of dealing with that is baked into the system that we all pay for in some way or the other, so I don't want to digress about that point, either.
So let's at least agree to stay a little focused on the one point I made, ok?
A chargeback against a fraudster merchant is at least technically feasible to do with credit cards. Since it's not technically feasible to do that with crypto, what are you suggesting the solution should be? A law suit? Call Tony the enforcer? Something else?
How do I get my $600 back from a merchant I've never done business with before for a software package that won't even install, if the merchant is unwilling to cooperate?
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. . . is at least a scenario where we as consumers can protect ourselves by choosing who we do business with.
No it isn't. Your so-called "solution" only protects me from getting ripped off a second time, not the first time. Denying future dealings with that merchant will not get my money back.
This, to you, seemingly insignificant protection, has saved me far more dollars over the years than any fraudulent charges against my card (yes, I've had that happen too).
I'm not pretending to be an expert in all the other problems inherent in credit cards. And I'm not looking at this from the perspective of an industry security specialist. I'm looking at it as a consumer. This one single aspect of the CC system is why I never use cash when I have a choice. And I'll never use crypto, either, until that base is covered.
You are looking at this from a static perspective. Once you remove that "small problem" protection, it will rapidly mushroom into a "big problem" just as soon as merchants realize that we are, quite literally, at their mercy.
But that isn't what you're understanding. You're not looking at this from a consumer perspective like you say you are. You're only looking at this from your perspective instead of looking at it from the perspective of the system as a whole. Estimates show that fraud costs the average organization more than 5% in revenue every year. Combine that with the fact that VISA charges 2-4% merchant fees and we're looking at between 7-9% that could be returned directly to the consumer for every purchase we make. I understand that you might feel protected because you can chargeback any transaction you want, but the truth is that comes at the hidden cost of 7-9% on every transaction you make with a credit card. I'm sure that would add up to way more than what you'd ever lose in your refund scenario each year.
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This is only the beginning of the bitcoin price drops!
I would think that 30% or 40% drops are right around the corner on thin transactions.
Get ready for a rush to the exit.... It's about to get messy.
This isn't going to age well.
My question to the skeptics.
Have you ever used bitcoin, studied it, or the ecosystem? Have you read about the banks who are developing their entire future around it?
https://cointelegraph.com/news/koreas-second-largest-bank-building-secure-crypto-wallet-services
https://news.bitcoin.com/japans-sbi-crypto-businesses-mining/
Also, when would you ever considering using bitcoin? What would it take? Or do you just scream ponzi, scam, tulips until you die, regardless of how many people are using it?
Since I am certain that it is B.S., I will never use bitcoin. I will mock it to the end.
This guy's ancestors: "Horseless carriages?!?!? That's absurd!"
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. . . is at least a scenario where we as consumers can protect ourselves by choosing who we do business with.
No it isn't. Your so-called "solution" only protects me from getting ripped off a second time, not the first time. Denying future dealings with that merchant will not get my money back.
This, to you, seemingly insignificant protection, has saved me far more dollars over the years than any fraudulent charges against my card (yes, I've had that happen too).
I'm not pretending to be an expert in all the other problems inherent in credit cards. And I'm not looking at this from the perspective of an industry security specialist. I'm looking at it as a consumer. This one single aspect of the CC system is why I never use cash when I have a choice. And I'll never use crypto, either, until that base is covered.
You are looking at this from a static perspective. Once you remove that "small problem" protection, it will rapidly mushroom into a "big problem" just as soon as merchants realize that we are, quite literally, at their mercy.
But that isn't what you're understanding. You're not looking at this from a consumer perspective like you say you are. You're only looking at this from your perspective instead of looking at it from the perspective of the system as a whole.
Geez Luise! Yes, of course I am. It is the same perspective I apply to shopping for groceries, cars, services; pretty much everything. I, the consumer, get to pick the perspective I use for my own consumer decisions. Guilty as charged. So can we get on with the point I made that you seem so eager to get away from?
I never suggested there aren't 10,000 (however many) more pressing issues from the industry's perspective, so can we please just skip all those other digressions?
How do I get my $600 back from a merchant I've never done business with before for a software package that won't even install, if the merchant is unwilling to cooperate?
You can't regulate a capability into a technology that is incapable of delivering it. So let's just fast-forward and assume all the new regulations are now in place. What's the mechanism for execution? How is that consumer protection delivered to the consumer, in your view?
If your answer is, as it seems to be, "that's just not important, and there is no practical remedy with crypto," then please just say it so we can agree to disagree and wrap this up. Then I'll happily abstain from opining on any other issues with the CC system that you want to post about. This is a gaping flaw in the whole BitCoin-as-a-payment-system story, and that's the only point I ever made.
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Geez Luise, yes, of course I am. It is the same perspective I apply to shopping for groceries, cars, services; pretty much everything. So can we get on with the point I made that you seem so eager to get away from?
How do I get my $600 back from a merchant I've never done business with before for a software package that won't even install, if the merchant is unwilling to cooperate?
If your answer is, as it seems to be, "that's just not important, and there is no practical remedy" then please just say it so we can agree to disagree and wrap this up.
If my choice is between paying 9% more on every transaction I make versus taking the risk that the merchant I am dealing with might not refund me in the way that I'd like, I'd take the latter every time. So we can agree to disagree.
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As the saying goes... "What the wise man does in the beginning, the fool does in the end."
If someone has made gains in bitcoin (or other cryptos) to date, I see no reasons not to sell it all out now, chuckle to oneself, and walk away richer instead of waiting for a huge wipe-out drop to come along.
or maybe we'll continue holding, just like we did when the bubbles popped and "the end was near" in 2011, 2013, and 2014?
have you made profits on your stock holdings? how do you convince yourself to not sell your stocks and enjoy a nice chuckle?
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Dogecoin was started as a joke and it now has a market cap of $227 million. So does it really matter if it's "worth" nothing? It's just a faith system like any other, including the US dollar.
Then again, I thought Facebook would die since it's a plaque on the human race, and now Zuck is wanting to run for president. I guess nobody knows nothing, especially me.
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I purchased 25 BTC when the price was around 2.60, and sold it at around 12 dollars. A few years later it was at 1,000. Now it's around 10k. Still kicking myself.
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If someone has made gains in bitcoin (or other cryptos) to date, I see no reasons not to sell it all out now, chuckle to oneself, and walk away richer instead of waiting for a huge wipe-out drop to come along.
because some people realize that things are just beginning...
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I purchased 25 BTC when the price was around 2.60, and sold it at around 12 dollars. A few years later it was at 1,000. Now it's around 10k. Still kicking myself.
my friend purchased 1,000 btc at $4, and couldn't (and can't) remember his private key!
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A question for the cryptocurrency proponents on here:
At what price point would you consider a Bitcoin to be overvalued? Why?
I think this is the wrong question and it focuses on the price of the currency, when that really should be the focus. I'll refer to my previous post for further details on why in case you missed it here:
https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1791232/#msg1791232 (https://forum.mrmoneymustache.com/investor-alley/is-it-too-late-(bitcoin)/msg1791232/#msg1791232)
The reason why the price of the currency doesn't matter is this. Let's say that the price of the currency has reached $500,000 per bitcoin. Why does that matter? It doesn't. At that point volatility in the price would be miniscule. If you make $50,000 a year (regardless of whether you're paid in crypto or not), if you chose to move that money over into crypto, you'll have $50,000 worth of bitcoin. You own the same amount of monetary value, but the value in that exchange is that you'll be able to use the Bitcoin payment network to make transactions and take advantage of the features it provides.
So I don't think bitcoin can be over or undervalued. It is simply a reflection of the size of the market at that given time. Whether we chose to denominate a bitcoin as Bitcoins or Satoshis or any other unit is irrelevant. The underlying value comes from the bitcoin network, not the currency token. Therefore, the value of the token is irrelevant so long as the network continues to provide value. If it fails to provide value as a payment network, then I would not put money into it since it would not make sense to do so and likely others would see it that same way. So I don't think of it from the perspective of whether the exchange rate is over or under valued. It's more along the lines of whether or not I find value in the bitcoin network itself and whether or not I see it having continued value in the future. In which case, I do find value in it and therefore I chose to put some of my money there so that I can use the bitcoin network. If that someday ceases to be the case, then I will no longer choose to hold any bitcoin.
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The reason why the price of the currency doesn't matter is this. Let's say that the price of the currency has reached $500,000 per bitcoin. Why does that matter? It doesn't. At that point volatility in the price would be miniscule. If you make $50,000 a year (regardless of whether you're paid in crypto or not), if you chose to move that money over into crypto, you'll have $50,000 worth of bitcoin.
Again, I respectfully disagree. Your assumption is apparently based on an idea that BitCoin valuation isn't a bubble. I don't share that view.
If I earn $50,000, and I need to pay my income taxes in dollars, rather than in BitCoin, then it matters a great deal if I can't convert my $50,000 worth of BitCoin back into enough dollars to even cover my tax bill. Not only am I unable to pay my taxes, I'll have nothing left to live on after I pay what I can.
That matters.
The only way valuation doesn't matter is if BitCoin completely displaces USD for legal tender. Then I get paid in BitCoin, I pay taxes in BitCoin, all investments are quoted and paid for in BitCoin, and I make all other purchases and cash donations with BitCoin. If everything else is valued in BitCoin, the question of BitCoin's valuation then becomes moot for anything other than foreign exchanges into other currencies.
Until then, valuation matters.
Then again, if BitCoin does take on the role of legal tender, what happens to the purchasing power of those who "invested" USD to buy into it early is an utterly open question with no precedence, and with no basis for conjecture. The changeover would be governed by legislation, not by the market. We all know how predictable and "fair" that is, right?
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I'm actually pretty well on board with the idea that the value is in the network and the technology rather than the tokens. However to me, that speaks to the idea that if you need to use Bitcoins to complete some sort of financial transaction you should just buy the tokens you need at that point, rather than buying them now and holding for some potential future time when you might need them.
When you're buying something as an investment you do so because you believe its market value at some future point when you want to sell would be higher than it is today. By that metric, the question of whether the token is overvalued or undervalued at this moment is very relevant, and you should be able to speak to that question if you want to advocate for purchasing those tokens as an investment.
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Again, I respectfully disagree. Your assumption is apparently based on an idea that BitCoin valuation isn't a bubble. I don't share that view.
If I earn $50,000, and I need to pay my income taxes in dollars, rather than in BitCoin, then it matters a great deal if I can't convert my $50,000 worth of BitCoin back into enough dollars to even cover my tax bill. Not only am I unable to pay my taxes, I'll have nothing left to live on after I pay what I can.
That matters.
The only way valuation doesn't matter is if BitCoin completely displaces USD for legal tender. Then I get paid in BitCoin, I pay taxes in BitCoin, all investments are quoted and paid for in BitCoin, and I make all other purchases with BitCoin. If everything else is valued in BitCoin, the question of BitCoin's valuation then becomes moot for anything other than foreign exchanges into other currencies.
Until then, valuation matters.
But not being able to convert your $50,000 worth of bitcoin back to USD operates under the assumption that the bitcoin network no longer provides value to people and therefore there are no more people looking to buy tokens in order to use the network. This is why focusing on the price misses the main concept that the value comes from the network, not the token. If you feel that the network is what provides value and you see that people understand that value and there are buyers, then you won't have any problem converting back to USD knowing that there will be people who want to use bitcoin.
With regards to bitcoin as an investment, if you're again focusing on the price, you're going to be mislead. The real answer to the question is whether or not you feel there will be more users of bitcoin tomorrow than there are today. The number of users of bitcoin today is extremely small and the number of new signups at exchanges is rapidly growing every day. Understanding the value that the network provides and knowing that the longer the network operates, the more people will come to realize this value, then the answer to your question is:
"Yes, I feel that tomorow there will be more users of bitcoin than there are today."
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Again, I respectfully disagree. Your assumption is apparently based on an idea that BitCoin valuation isn't a bubble. I don't share that view.
If I earn $50,000, and I need to pay my income taxes in dollars, rather than in BitCoin, then it matters a great deal if I can't convert my $50,000 worth of BitCoin back into enough dollars to even cover my tax bill. Not only am I unable to pay my taxes, I'll have nothing left to live on after I pay what I can.
That matters.
The only way valuation doesn't matter is if BitCoin completely displaces USD for legal tender. Then I get paid in BitCoin, I pay taxes in BitCoin, all investments are quoted and paid for in BitCoin, and I make all other purchases with BitCoin. If everything else is valued in BitCoin, the question of BitCoin's valuation then becomes moot for anything other than foreign exchanges into other currencies.
Until then, valuation matters.
But not being able to convert your $50,000 worth of bitcoin back to USD operates under the assumption that the bitcoin network no longer provides value to people and therefore there are no more people looking to buy tokens in order to use the network.
Again, you're reading way more into my statements than what I actually said. I will not waste time arguing the opposing side of points that you want me to argue against, but that I never made, or even oppose, for that matter.
I am assuming nothing, except that the valuation of BitCoin is a bubble.
It is a fact that the perceived value of BitCoin is priced in USD.
It is a fact that the imputed value of BitCoin is determined by a free and open market.
It is a fact that volatility, regardless of whatever incredulous, and hypothetical future, is very much in play right now.
It is a fact that it lost over $500 in imputed value yesterday. 5%+ in a single day.
It is a fact that you cannot pay your taxes in BitCoin.
It is a fact that the typical honest worker does not get paid in BitCoin.
It is a fact that nothing at any significant scale is priced in BitCoin.
It is a fact that the vast majority of all purchases must be converted into USD to consummate the transaction.
It is a fact that BitCoin is not legal tender for all debts, public and private.
It is a fact that valuation matters.
So tell me, please, which of these facts you regard as assumptions, and how the valuation "doesn't matter." Then we can very quickly, and quite efficiently, agree to disagree.
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6) Fraud proof consumer protection
14) Irreversible transactions
These items in your list are contradictory.
How are these items contradictory? Care to elaborate a little on that?
Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
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When you're buying something as an investment you do so because you believe its market value at some future point when you want to sell would be higher than it is today. By that metric, the question of whether the token is overvalued or undervalued at this moment is very relevant, and you should be able to speak to that question if you want to advocate for purchasing those tokens as an investment.
Actually the only thing that holders do is take more bitcoin tokens out of circulation. All that means is that the amount of bitcoin available to the market to use needs to accomodate the size of that market. Since supply is restricted, the only way it accomodates a bigger market is to have a higher price. But, again, the price doesn't matter, especially for those using the network and simply converting to and from Bitcoin/USD. However, the more people who are using the network, even if you're immediately converting from BTC/USD, then the larger the demand (and thus price) to use the network will be.
So it all comes down to whether or not you feel the network provides value and that you feel people will want that value.
Again, you're reading way more into my statements than what I actually said. I will not waste time arguing the opposing side of points that you want me to argue against, but that I never made, or even oppose.
I am assuming nothing, except that the valuation of BitCoin is a bubble.
It is a fact that the perceived value of BitCoin is priced in USD.
It is a fact that the perceived value of BitCoin is determined by a free and open market.
It is a fact that it lost over $500 in value yesterday. 5%+ in a single day.
It is a fact that you cannot pay your taxes in BitCoin.
It is a fact that the typical honest worker does not get paid in BitCoin.
It is a fact that nothing of any significant scale is priced in BitCoin.
It is a fact that the vast majority of all purchases must be converted into USD.
So please tell me again which of these facts you regard as assumptions, and how the valuation "doesn't matter."
You said that you wouldn't be able to convert back to USD, which is why I said you're assuming that the network would stop having value because that is what is required for that statement to be true. What do any of those bullet points have to do with whether or not the bitcoin network provides value? Almost everything is priced in USD for Americans since that is our current frame of reference for value. That doesn't mean that those things that we value in reference to USD don't have value (which is ridiculous for me to even say). The fact that bitcoin lost value doesn't mean anything either. With a few million in liquidity for a 5% price movement, that only explains that the network is currently small. So any variation in the number of users in any given direction can have large price fluxuations. Which again is why it is useless to focus on the price when the real trend is to focus on the usage of the network and the number of people using it. When looking from that angle it is clear that the number of users using it grows every day.
Why would one need to be able to pay taxes in bitcoin in order for it to have value? Why would one need to get paid in bitcoin for it to have value?
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Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
Actually anonymity is not one of the benefits that I touted and it was not in the list I posted anywhere because bitcoin is not fully anonymous.
Certainly being taken advantage of by fraudsters seeking victims like those today who call you claiming to be someone and asking for credit card info. Done it bitcoin, I agree there is little recourse to get that money back. But, I'd much rather have inherent protections against fraud that I don't have control over (unauthorized transactions and account takeovers) versus having inherent protections from something I do have control over (like being manipulated to make a payment without understanding what I'm purchasing). That's the whole point about bitcoin, I'm the only one who can authorized payments, so it gives us control of our money back instead of the fraudsters.
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When you're buying something as an investment you do so because you believe its market value at some future point when you want to sell would be higher than it is today. By that metric, the question of whether the token is overvalued or undervalued at this moment is very relevant, and you should be able to speak to that question if you want to advocate for purchasing those tokens as an investment.
Actually the only thing that holders do is take more bitcoin tokens out of circulation. All that means is that the amount of bitcoin available to the market to use needs to accomodate the size of that market. Since supply is restricted, the only way it accomodates a bigger market is to have a higher price. But, again, the price doesn't matter, especially for those using the network and simply converting to and from Bitcoin/USD. However, the more people who are using the network, even if you're immediately converting from BTC/USD, then the larger the demand (and thus price) to use the network will be.
So it all comes down to whether or not you feel the network provides value and that you feel people will want that value.
Again, you're reading way more into my statements than what I actually said. I will not waste time arguing the opposing side of points that you want me to argue against, but that I never made, or even oppose.
I am assuming nothing, except that the valuation of BitCoin is a bubble.
It is a fact that the perceived value of BitCoin is priced in USD.
It is a fact that the perceived value of BitCoin is determined by a free and open market.
It is a fact that it lost over $500 in value yesterday. 5%+ in a single day.
It is a fact that you cannot pay your taxes in BitCoin.
It is a fact that the typical honest worker does not get paid in BitCoin.
It is a fact that nothing of any significant scale is priced in BitCoin.
It is a fact that the vast majority of all purchases must be converted into USD.
So please tell me again which of these facts you regard as assumptions, and how the valuation "doesn't matter."
You said that you wouldn't be able to convert back to USD . . . <misdirection snipped>
Why would one need to be able to pay taxes in bitcoin in order for it to have value? Why would one need to get paid in bitcoin for it to have value?
More deflections and digressions. Stop running away. I never said, or even implied, that BitCoin doesn't have value. Value doesn't equal valuation.
You said valuation doesn't matter:
The reason why the price of the currency doesn't matter is this. Let's say that the price of the currency has reached $500,000 per bitcoin. Why does that matter? It doesn't.
I never said you couldn't convert BitCoin to USD. I never said the BitCoin network didn't have value.
I'm not going to waste time arguing in opposition or support of points I never made, just because you want to argue the other side, solely for the purpose of deflecting discussion away from the point I actually did make.
That's called a straw man. It's a weak-sauce tactic employed to avoid debating a point you know you can't win; just like the "consumer protection" debate you've apparently conceded by silently withdrawing from that discussion.
And just so it doesn't get lost behind your latest smokescreen, the only point I did make was that VALUATION DOES MATTER. You said it doesn't matter. I say it does. You don't need to write a novel about everything else, excluding that singular difference of opinion. Stay on point, or agree to disagree (or just silently withdraw again).
At the very least, you should display the courage to back up your own words, or just continue retreating from them. I don't really care which of those you choose to do. But I won't allow you to stuff words into my mouth that I never so much as even whispered to myself. If you actually do have something to say, it really doesn't have to be all so complicated and convoluted. Just say it, in your own words, and stop pretending that you are qualified to speak for me.
I can assure you that you aren't even remotely qualified to speak for me. So all of that nonsense is just a waste of time, and an all-too-obvious ploy to cover your retreat while you run away from your own words.
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This guy's ancestors: "Horseless carriages?!?!? That's absurd!"
I think you can only use this analogy if it goes something like this:
-Horseless carriages are invented. They all kinda suck but the potential is obvious.
-Company A starts selling a horseless carriage that *really* sucks and has obvious problems, but they're first to market.
-Horseless carriages from company A and a variety of other companies (most of which don't even make any cars or know anything about how to make cars) are snapped up as fast as they can be made by ravenous buyers who immediately park them indoors and never drive them, because they're expecting them to sextuple in value in the next week.
-Retired grandmas and gullible people who have never invested in anything in their lives bid Company A's cars up to thousands of times their original value, to the point that to actually drive the car would be pure folly.
My point is that you can be all in on the *technology* involved while still realizing that Bitcoin itself (both the product and the valuation) are a bad joke/bubble and that it's pretty likely that a lot of people will lose their shirts.
-W
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At its current rate of growth, in 3 years bitcoin will be worth more than the total US GDP. Obviously bitcoin cannot survive at its current trajectory and Capital will eventually run out, big investors will bail causing a severe crash.
Blockchain technology may well indeed become a foundation of the future of capital and finance, but that does not mean bitcoin is going to survive...along with the money you people are thinking of putting into it.
Someone is going to be holding the hot potato. Don't fuck with your money...its too important.
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When you're buying something as an investment you do so because you believe its market value at some future point when you want to sell would be higher than it is today. By that metric, the question of whether the token is overvalued or undervalued at this moment is very relevant, and you should be able to speak to that question if you want to advocate for purchasing those tokens as an investment.
Actually the only thing that holders do is take more bitcoin tokens out of circulation. All that means is that the amount of bitcoin available to the market to use needs to accomodate the size of that market. Since supply is restricted, the only way it accomodates a bigger market is to have a higher price. But, again, the price doesn't matter, especially for those using the network and simply converting to and from Bitcoin/USD. However, the more people who are using the network, even if you're immediately converting from BTC/USD, then the larger the demand (and thus price) to use the network will be.
So it all comes down to whether or not you feel the network provides value and that you feel people will want that value.
Yes, the price to use the network is quite high. It's been over $5 per transaction for a month now (https://bitinfocharts.com/comparison/bitcoin-transactionfees.html). This is an artifact of the protocol design inherent in the network. The rate of block discovery is predetermined, the size of each block is strictly limited, and transactions take a certain amount of space on the block. The network is basically maxed out. It can't accept any greater transaction volume than it currently has. People keep bidding up the transaction fees to get their transaction accepted by the network, and in so doing they make the network completely useless for small-value transactions. This seems like a major flaw for a so-called "currency."
But that doesn't seem to have any inherent relationship to the value of the currency tokens themselves. People just using the network to facilitate financial transactions don't care what the price is. I think we're all agreed on this point. They'll buy some number of coins and send them to another person, who will immediately sell them again. I'm therefore not convinced that the price of the coins should have anything to do with the number of people using the network. The transaction rate is basically maxed out as is. The price seems to be driven by speculation amongst people who are trying to use the coins as an investment rather than as a currency.
So, it all comes back to my initial question. What is a fair value for a bitcoin? At what price would you agree that the price is too high and sell yours?
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When you're buying something as an investment you do so because you believe its market value at some future point when you want to sell would be higher than it is today. By that metric, the question of whether the token is overvalued or undervalued at this moment is very relevant, and you should be able to speak to that question if you want to advocate for purchasing those tokens as an investment.
what you just described is speculation, requiring a 'greater fool' to sell your whatever to later on.
investments are based on expected returns, such as dividends, rent, capital growth, business expansion, etc. 'fundamentals', if you will. none of which bitcoin possesses.
I know this is probably what you're trying to wring out of the enthusiasts eventually but I'll leapfrog that and just point out the obvious.
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I'm generally bullish on crypto in general over a 10 year + period, but don't want to keep up with best practices for security and alt coin diversification, as this seems like quite a skilled and labour intensive job
So is there a recommendation for a managed, security minded trust or fund I can invest in with relatively low costs that will track the industry in general?
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I already pointed that out. His answer (if I understood it correctly) was that the systemic gains of merchants / financial institutions not having to deal with chargebacks will end up being of greater value to the consumer than actual fraud protection.
I don't buy it personally though. Crypto transactions are irreversible. Which means there is no such thing as fraud protection for the consumer. That alone will prevent cryptocurrencies from ever replacing Visa.
I guess you didn't understand then, because that wasn't my point at all and I said nothing along those lines at all (where did you even get that from?).
Oh I don't know, maybe because you say things like this?
But that isn't what you're understanding. You're not looking at this from a consumer perspective like you say you are. You're only looking at this from your perspective instead of looking at it from the perspective of the system as a whole. Estimates show that fraud costs the average organization more than 5% in revenue every year. Combine that with the fact that VISA charges 2-4% merchant fees and we're looking at between 7-9% that could be returned directly to the consumer for every purchase we make. I understand that you might feel protected because you can chargeback any transaction you want, but the truth is that comes at the hidden cost of 7-9% on every transaction you make with a credit card. I'm sure that would add up to way more than what you'd ever lose in your refund scenario each year.
Almost the entire purpose of chargebacks are to combat fradulent transactions. Almost the entire reason we have fradulent transactions are because are POS systems are designed around giving merchants our identities and "pull" authority over the funds in our accounts. This makes every single merchant we interact with a single point of failure for massive amounts of consumer information. We then try to overlap consumer protection regulation on top of this failed system that doesn't do anything but cost more money. Case in point being the fact that Target was a PCI certified company and yet they were breached which exposed tens of millions of consumer account data and resulted in millions of dollars in damages due to fraud.
Consumers are not the victims in that scenario, the banks are (the consumers will initiate a chargeback and be made whole again, the banks will be out the money if the merchants can't or won't refund it). You are intentionally confusing protecting *merchants* and *banks* from fraud when we are talking about protecting *consumers* from fraud. Protecting merchants /banks from fraud is a valid consideration, sure. But bitcoin offers exactly zero *consumer* fraud protection, which is what we're talking about. So stop saying it does.
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Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
Actually anonymity is not one of the benefits that I touted and it was not in the list I posted anywhere because bitcoin is not fully anonymous.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions.
?
Certainly being taken advantage of by fraudsters seeking victims like those today who call you claiming to be someone and asking for credit card info. Done it bitcoin, I agree there is little recourse to get that money back. But, I'd much rather have inherent protections against fraud that I don't have control over (unauthorized transactions and account takeovers) versus having inherent protections from something I do have control over (like being manipulated to make a payment without understanding what I'm purchasing). That's the whole point about bitcoin, I'm the only one who can authorized payments, so it gives us control of our money back instead of the fraudsters.
Let's say I want to buy a widget. I find an online merchant on the global market selling widgets for a good price.
- I pay for it with bitcoin. No shipment comes. I have no recourse or options.
- I pay for it with my credit card. No shipment comes. I dispute the charges and get my money back.
I'd much rather have protection from things that have occasionally happened to me (items not as described or not shipped from a seller) rather than the imaginary boogeymen (unauthorized transactions and account takeovers) that you're worried about.
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If my choice is between paying 9% more on every transaction I make versus taking the risk that the merchant I am dealing with might not refund me in the way that I'd like, I'd take the latter every time.
9% on every transaction?
I get gas at Costco using a credit card that takes 4% off that price. Costco gas is typically about 20 cents per gallon cheaper than surrounding gas stations. If a Bitcoin gas station opens up, will it beat Costco's price by 9%?
Is there a Bitcoin grocery store that will be 9% cheaper than current ones? I also get 3% back on those purchases with a credit card.
Groceries and gas are the bulk of my credit card transactions. I'm all ears if I can reduce my expenditures by ~5-9%.
Bonus points potential for Bitcoin - lower my non-credit card transactions by 9% as well, e.g. mortgage and student loan payments - that'd be great!
I'm surprised MMM doesn't espouse Bitcoin more often if you can save 9% on every transaction. It seems like the obvious choice for frugal-minded people, so odd.
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sherr and GuitarStv, what you're not understanding however is that even though the fraud costs of unauthorized transactions and account takeovers are "picked up" by merchants and banks, it is a systemic problem with massive costs and those costs are shared by everyone. You may think that you don't pay for it, but you do. It is an externalized cost no different than the bludgeoning costs of poor health or pollution. It doesn't matter whether or not fraud ever happens to you directly much the same way that it doesn't matter if a heart attack doesn't happen to you. You still pay for it. Saying that health care protects the patient from heart attacks because it will cover the costs of treatment and passes those costs on to everyone is no different than saying that our current system of fraud protection protects us from fraud because it covers the costs of individualized fraud and passes those costs on to everyone. Both of which ignores the main idea about what protection should be about: prevention.
To blatantly ignore it and say that the individual consumer isn't paying for it therefore it has no effect on them it absolutely ridiculous. If you both don't want to understand that, that's fine. We can just agree to disagree. I have nothing more to say about it.
Simonsez, no unfortunately you wouldn't save money by switching to bitcoin and shopping at the same locations. This is definitely a notable problem in a transition to bitcoin. It is no different than taking the personal desire to become healthier yourself and wishing for the rest of the country to do the same. In the mean time everyone else will still be having heart attacks for which the costs will still be shared by everyone. The same is true with bitcoin and fraud. So even if I switch to bitcoin and take advantage of its fraud protection, the industry as a whole will still have the financial burden on it and therefore I'll still be paying for it. I'm just espousing the benefits of bitcoin in hopes that we see a world with less systemic fraud in the same way that I hope that one day heart attacks are a thing of the past.
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sherr and GuitarStv, what you're not understanding however is that even though the fraud costs of unauthorized transactions and account takeovers are "picked up" by merchants and banks, it is a systemic problem with massive costs and those costs are shared by everyone. You may think that you don't pay for it, but you do. It is an externalized cost no different than the bludgeoning costs of poor health or pollution. It doesn't matter whether or not fraud ever happens to you directly much the same way that it doesn't matter if a heart attack doesn't happen to you. You still pay for it. Saying that health care protects the patient from heart attacks because it will cover the costs of treatment and passes those costs on to everyone is no different than saying that our current system of fraud protection covers the costs of individualized fraud and passes those costs on to everyone. Both of which ignores the main idea about what protection should be about: prevention.
So, you are arguing that you best protect the consumer by creating a mechanism for the fraud to happen predominantly on an individual level?
Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
Actually anonymity is not one of the benefits that I touted and it was not in the list I posted anywhere because bitcoin is not fully anonymous.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions.
?
I'm still confused by this part. Could you explain this better to me? Is bitcoin anyonymous like cash (and thus can be used by anyone with a phone and internet connection) . . . or is it not anonymous and easy to trace who has what bitcoins?
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Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
Actually anonymity is not one of the benefits that I touted and it was not in the list I posted anywhere because bitcoin is not fully anonymous.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions.
?
I would call bitcoin pseudonymous at best. Every transaction is recorded forever in the public record. Person names are not recorded in the blockchain, but it's possible to trace a Bitcoin from its initial mining through every transaction it's ever been through. If at any point that Bitcoin is involved in a transaction where personally identifying information is collected (such as if you order something to have shipped to you, or you convert to fiat currency on a major exchange that collects this information to comply with local banking laws), your name will become associated with that bitcoin at that point in time, at least in that merchant's database. One could imagine such records (even from legitimate transactions) being collected as part of a criminal investigation, working backwards and forwards along the blockchain to try and identify people involved in illegitimate transactions.
The only way to remain truly anonymous when using bitcoin is to avoid such transactions entirely. Always trade bitcoins for goods or services with people who are keeping no record of your name or address.
Needless to say, this pattern does not fit how most people behave in commerce.
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I'm still confused by this part. Could you explain this better to me? Is bitcoin anyonymous like cash (and thus can be used by anyone with a phone and internet connection) . . . or is it not anonymous and easy to trace who has what bitcoins?
Bitcoin does not require identification which therefore means it can't be discriminatory against who can use it and who can't use it. Much like anyone can pick up a dollar bill off the ground and spend it at the store. However, bitcoin is not fully anonymous which means that all transactions are tracked and therefore offers a trail behind for investigators to follow. It's as if every dollar bill's serial number was documented each time it exchanged hands on a publicly viewable ledger. There are methods by which law enforcement can use that information to follow the flow of money through the system. If at any point in time identification was leaked for any given transaction, the origin of that bitcoin can be traced through the entire blockchain. So yes, there is a difference between anonymity and the requiring of identification to be able to use bitcoin. They are not mutually bound features and bitcoin does not provide anonymity.
EDIT: seattlecyclone beat me to the answer...
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Sure.
If you pay your bitcoin to someone perpetrating fraud, it's gone forever. One of the benefits of bitcoin that you tout is that here's no way of tracing who has it, and it's anonymous so there's no way of knowing who you've paid. Since transactions can never be reversed there's therefore no way to protect a consumer in a case of fraud.
Actually anonymity is not one of the benefits that I touted and it was not in the list I posted anywhere because bitcoin is not fully anonymous.
Because bitcoin does not require identification, this means that anyone with a phone and an internet connection can use the payment network. Capital can simply flow naturally through peer to peer means if needed similar to the way that cash flows into these regions.
?
I would call bitcoin pseudonymous at best. Every transaction is recorded forever in the public record. Person names are not recorded in the blockchain, but it's possible to trace a Bitcoin from its initial mining through every transaction it's ever been through. If at any point that Bitcoin is involved in a transaction where personally identifying information is collected (such as if you order something to have shipped to you, or you convert to fiat currency on a major exchange that collects this information to comply with local banking laws), your name will become associated with that bitcoin at that point in time, at least in that merchant's database. One could imagine such records (even from legitimate transactions) being collected as part of a criminal investigation, working backwards and forwards along the blockchain to try and identify people involved in illegitimate transactions.
The only way to remain truly anonymous when using bitcoin is to avoid such transactions entirely. Always trade bitcoins for goods or services with people who are keeping no record of your name or address.
Needless to say, this pattern does not fit how most people behave in commerce.
So, then although:
10) Can't be confiscated
is true, it should therefore be possible to set up a system to mark bitcoins as stolen / used in fraudulent transactions so that people are prevented from spending them again in the future? This would enable a level of consumer protection.
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So, you are arguing that you best protect the consumer by creating a mechanism for the fraud to happen predominantly on an individual level?
I'm simply saying we're better off with a system that prevents the largest brunt of the costs of fraud across the industry (fraudulent transactions and account takeovers) and be left to our own devices to avoid situations where we deal with shady merchants with poor return policies and avoid the will to send money over the phone to some Nigerian Price. If I go to a reputable merchant with decent return policies, I know I'll be able to return my good even without the threat of a chargeback.
If someone sends money over the phone to a Nigerian Price, then I shouldn't be forced to share the costs of that stupidity. That person should just chalk it up to one of life's lessons as harsh as that may sound. Fortunately (or unfortunately depending on your perspective), fraud like this pales in comparison to the fraud I mentioned that's the result of massive data breaches on a regular basis.
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sherr and GuitarStv, what you're not understanding however is that even though the fraud costs of unauthorized transactions and account takeovers are "picked up" by merchants and banks, it is a systemic problem with massive costs and those costs are shared by everyone. You may think that you don't pay for it, but you do.
I do understand all that, that's what I said and what you took such issue with:
I already pointed that out. His answer (if I understood it correctly) was that the systemic gains of merchants / financial institutions not having to deal with chargebacks will end up being of greater value to the consumer than actual fraud protection.
I don't buy it personally though. Crypto transactions are irreversible. Which means there is no such thing as fraud protection for the consumer. That alone will prevent cryptocurrencies from ever replacing Visa.
I guess you didn't understand then, because that wasn't my point at all and I said nothing along those lines at all (where did you even get that from?).
And I still don't buy it. If consumer fraud protection becomes impossible then consumer fraud will skyrocket. I'd much rather exist in a system where fraud protections exist and we all have to live with a small transactional fee to support those protections than one where they don't exist. And it's not like bitcoin transactions are actually cheaper, they're not and only going to get more expensive.
So, then although:
10) Can't be confiscated
is true, it should therefore be possible to set up a system to mark bitcoins as stolen / used in fraudulent transactions so that people are prevented from spending them again in the future? This would enable a level of consumer protection.
Yes, but it would only operate by consensus. Which is to say that it wouldn't operate at all.
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Also, when would you ever considering using bitcoin? What would it take? Or do you just scream ponzi, scam, tulips until you die, regardless of how many people are using it?
I basically view all money as illusion. I don't care if you call it bitcoin, dollars, or seashells. But I run a business. Here is when I would consider accepting or using bitcoin when 1) I can pay my taxes and payroll with it, which currently is prohibited by law, and 2) if the price was stable. For business purposes, you simply can't have your money be as volatile as bitcoin. Can't do it.
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Back to OP's question, it's never too late to take up gambling.
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https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3 (https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3)
IDK if this marks a characteristic fast turnover from the peak of the bubble, but I wouldn't be surprised.
Folks, if this is not your definition of bubble, you have no definition of bubble.
Man, I wish I could buy an options straddle on bitcoin. I'd be all in.
According to this article, you can!
https://www.investopedia.com/articles/investing/033115/it-possible-trade-bitcoin-options.asp
However, with implied volatility sometimes in the hundreds, that may damper your enthusiasm a little.
Maybe playing a straddle on CME Group might be a less nausea-inducing proxy for bitcoin. Both CBOE and CME launch bitcoin futures contracts on 12/18. Maybe not exactly what you're looking for in a bitcoin straddle (they're going to make money regardless of bitcoin's direction), but you wouldn't even have to wait until the 18th to test-drive that, or some other more directional strategy.
Then again, if a hiccup in clearing bitcoin contracts drives CME into insolvency (as at least one person has warned), maybe a straddle would be an appropriate strategy anyway. ;)
According to this article, you can trade options on futures contracts as well, but there's probably going to be that implied volatility gorilla there, too. But you would get the juice from a straddle in both directions.
https://www.investopedia.com/articles/active-trading/052214/trading-options-futures-contracts.asp
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https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3 (https://www.reuters.com/article/us-global-markets-bitcoin/bitcoin-loses-over-a-fifth-of-its-value-in-less-than-24-hours-idUSKBN1DU1Z3)
IDK if this marks a characteristic fast turnover from the peak of the bubble, but I wouldn't be surprised.
Folks, if this is not your definition of bubble, you have no definition of bubble.
Man, I wish I could buy an options straddle on bitcoin. I'd be all in.
According to this article, you can!
https://www.investopedia.com/articles/investing/033115/it-possible-trade-bitcoin-options.asp
However, with implied volatility sometimes in the hundreds, that may damper your enthusiasm a little.
Maybe playing a straddle on CME Group might be a less nausea-inducing proxy for bitcoin. Both CBOE and CME launch bitcoin futures contracts on 12/18. Maybe not exactly what you're looking for in a bitcoin straddle (they're going to make money regardless of bitcoin's direction), but you wouldn't even have to wait until the 18th to test-drive that, or some other more directional strategy.
Then again, if a hiccup in clearing bitcoin contracts drives CME into insolvency (as at least one person has warned), maybe a straddle would be an appropriate strategy anyway. ;)
According to this article, you can trade options on futures contracts as well, but there's probably going to be that implied volatility gorilla there, too. But you would get the juice from a straddle in both directions.
https://www.investopedia.com/articles/active-trading/052214/trading-options-futures-contracts.asp
Thanks for the tip / update, ILD. Unfortunately, the cryptocurrency options company mentioned in the article has some steep qualifications to set up an account. It's essentially limited to institutions.
https://ledgerx.com/trade-on-ledgerx/ (https://ledgerx.com/trade-on-ledgerx/)
The angry mob with torches, pitchforks, and suddenly-outraged-politicians came after financial industry participants who facilitated the dot com and housing bubbles. Perhaps there's some hesitation this time around because everyone in the financial industry knows cryptocurrencies are a bubble.
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Also, when would you ever considering using bitcoin? What would it take? Or do you just scream ponzi, scam, tulips until you die, regardless of how many people are using it?
I basically view all money as illusion. I don't care if you call it bitcoin, dollars, or seashells. But I run a business. Here is when I would consider accepting or using bitcoin when 1) I can pay my taxes and payroll with it, which currently is prohibited by law, and 2) if the price was stable. For business purposes, you simply can't have your money be as volatile as bitcoin. Can't do it.
Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
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Also, when would you ever considering using bitcoin? What would it take? Or do you just scream ponzi, scam, tulips until you die, regardless of how many people are using it?
I basically view all money as illusion. I don't care if you call it bitcoin, dollars, or seashells. But I run a business. Here is when I would consider accepting or using bitcoin when 1) I can pay my taxes and payroll with it, which currently is prohibited by law, and 2) if the price was stable. For business purposes, you simply can't have your money be as volatile as bitcoin. Can't do it.
Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
This is my issue with Bitcoin too
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Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
There are a couple of misunderstandings in this post that I'd like to point out.
The first being that Bitcoin at the moment is not deflationary. It is inflationary and at the moment it is experiencing inflation at about 4%. The only reason why its price is going up is because demand in outpacing the rate of that inflation dramatically.
The point at which we'd see prices of goods displayed in bitcoin wouldn't happen until critical mass adoption has taken place for an extended period of time and a large portion of our economy is taking place in bitcoin. At that point demand will have likely stabilized which would mean that the volatility of its price would've dramatically decreased as well.
At that point bitcoin will likely be deflationary in nature due to the much lower rate of inflation (mined bitcoins) and the rate at which bitcoins are permanently lost. This will lead to a stable slowly growing value over time.
There are some misconceptions I feel about deflationary currencies that lead people to think that hording will take place with the currency and result in a massive decrease in consumer spending. However, real world economics has shown us that this is not the case. For example, today people line up outside doors on release day to purchase the new iPhone even though they'd be able to purchase that same phone for half the price one or two years later. While this is not currency economics at play, it is psychological economics that would lead a person to make the decision of whether to hold off a purchase knowing their buying power will be higher (2x) in a year or two for the same product. Also, people have basic needs that need to be met such as food, shelter, and clothing that most certainly would not be put off simply because of the deflationary aspect of the currency being used. If a person earns a salary in a deflationary currency, part of their weekly earnings will always go towards those basic needs before any deflationary effects of the currency are even felt. In other words, consumerism is a much more powerful economic force than deflation is.
What deflation does do is help protect worker wages over time as opposed to our current inflationary system that erodes wages over time. Wages are typically sticky which means that they don't adjust as easily to changes in the economic environment. So if worker wages are inherently tied to a deflationary currency, this will help protect the buying power of the working class regardless of whether or not working class citizens are receiving wage increases that meet the rate of inflation over time (and thus promote a more stable economy).
The idea that hording would take place of the currency under conditions where deflation is at or below 4% I believe to be false though. Today's massive price growth for bitcoin is not due to deflation though. If we reach a point where prices of goods are displayed in bitcoin and salaries are earned in bitcoin, then it will likely be the case that mass adoption has taken place in which case the price volatility will have decreased dramatically due to a stabilized demand. At that point the deflationary effect of bitcoin would simply be due to the rate at which bitcoins are lost and permanently removed from the market supply. In the meantime, as shadow said, volatility can be taken out of the equation for good purchases by continuing to peg the price of goods in a more stable currency such as the USD.
Let's not forget, currencies are not a zero-sum game. Bitcoin can become widely adopted and be an integral part of our world economy while perfectly co-existing with fiat currencies. This is a much more likely scenario contrary to what some on both sides of the virtual coin you're on would claim.
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I see random people on facebook with no investing experience posting about bitcoin and how to buy "stock" in cryptos. Is this the modern day equivalent of the shoe shine boy?
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If I were to invest in bitcoin this late in the game, what is your advice?
How would someone who is just learning about Bitcoin and other crypto currencies invest for the first time?
Are Bitcoin futures offered via CME group available to individual investors?
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I see random people on facebook with no investing experience posting about bitcoin and how to buy "stock" in cryptos. Is this the modern day equivalent of the shoe shine boy?
Yes, it's awful.
They also post about it being a passive investment opportunity, which is even worse.
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If I were to invest in bitcoin this late in the game, what is your advice?
Don't. You won't see people around these forums advocating for it. The point of MMM is to get rich slow.
How would someone who is just learning about Bitcoin and other crypto currencies invest for the first time?
There is a documentary on Netflix about it. I haven't seen it but have been meaning to. It got good reviews.
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Keep in mind a future is a leveraged bet on the underlying asset. Leverage increases volatility. Cryptos are volatile enough as it is. I don't comprehend why anyone would want to make a leveraged bet on them to increase volatility.
The CME group proposal as best as I can understand it is half-baked since it does not address which bitcoin, bitcoin future contracts are to be settled against if there is an intervening hard fork between when the futures contract is written and when it settles. This oversight is ripe for manipulation.
What makes you think that volatility will increase when futures markets open up? It is widely expected to decrease volatility.
Leverage works both ways and in CME's futures market, every long position must be matched with a corresponding short position.
Also, CME's futures market will have volatility limits imposed like some of their other markets have in place to limit or halt trading if there are price fluctuations beyond specific thresholds (https://www.investopedia.com/news/could-bitcoin-futures-help-limit-volatility/ (https://www.investopedia.com/news/could-bitcoin-futures-help-limit-volatility/)).
Right now in the bitcoin market, there is no reciprocal pressure on the market when panic selling ensues because there aren't many options out there for shorting your position. This means that investors are completely exposed to volatility which is why panic selling takes place. These futures markets will give investors opportunities to limit their risk in the market and thus this will have an effect on the underlying market.
Also, I don't think CME is making an oversight in regards to hard forks. They state on their website that there will be a policy in place for viable hard forks should one be planned. Also, their reference rate is based on several large exchanges and therefore their pricing in their futures market is directly dependent on how the market itself reacts to the hardfork. I don't think there will be much of a conflict in existing futures contracts in the event of a hardfork.
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Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
There are a couple of misunderstandings in this post that I'd like to point out.
The first being that Bitcoin at the moment is not deflationary. It is inflationary and at the moment it is experiencing inflation at about 4%. The only reason why its price is going up is because demand in outpacing the rate of that inflation dramatically.
Can you provide more details about how you calculated this 4% figure? Jargon is fine, I have a graduate degree in economics.
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Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
There are a couple of misunderstandings in this post that I'd like to point out.
The first being that Bitcoin at the moment is not deflationary. It is inflationary and at the moment it is experiencing inflation at about 4%. The only reason why its price is going up is because demand in outpacing the rate of that inflation dramatically.
Can you provide more details about how you calculated this 4% figure? Jargon is fine, I have a graduate degree in economics.
He's just saying that at the current rate at which Bitcoins are mined, the total supply will increase about 4% this year. There were 16.4 million BTC in mid-2017. The reward rate is 12.5 BTC per block. At a block rate of around 10 minutes per block, that adds 650000ish BTC per year, or around 17.06 million in mid-2018, for an increase of about 4%.
That doesn't count the lost Bitcoins that are out of circulation which would leverage the trend rate. For example, if enough were lost forever such that there are really only 12 million in circulation in mid-2017, adding 650,000 BTC would give you an increase in the trend rate of about 5.5%. BTC are still being lost today, but I'd guess it's at a lower rate now that they are worth more and the stakes are higher.
That rate trends down to 0% over time.
ETA: I edited to add the calculations while lifeanon was posting essentially the same thing just below this.
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Can you provide more details about how you calculated this 4% figure? Jargon is fine, I have a graduate degree in economics.
Currently, every block mined rewards 12.5 new bitcoins. The network is designed to mine one block every 10 minutes on average. This means that each hour will introduce 75 new bitcoin to circulation. There is currently a total of about 16.7 million bitcoin that have been mined to date. This means that annually at a rate of 12.5 new bitcoin every 10 minutes, there will be about 657,000 new bitcoins added (until the next halving in ~2020). So the annual inflation rate is around 4%...
657,000/16,700,000 = 3.93%
https://charts.bitcoin.com/chart/inflation (https://charts.bitcoin.com/chart/inflation)
https://www.reddit.com/r/Bitcoin/comments/1s3buc/chart_of_bitcoin_inherent_inflation_rate_til_it/?st=jau1dgkw&sh=c08ff143 (https://www.reddit.com/r/Bitcoin/comments/1s3buc/chart_of_bitcoin_inherent_inflation_rate_til_it/?st=jau1dgkw&sh=c08ff143)
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Thank you for that clarification. The change in money supply by itself is not enough to compare to an "inflation" rate, because the later includes a measure of the price of real goods and services that are produced using that currency. Comparing that 4% figure to any mainstream measure of inflation in the US economy would not be correct.
For Bitcoin, the set of goods/services are very different than for the average household using the US Dollar, they would skew more towards web/computer related items, and, yes, some "gray market" transactions. I have never heard of a rent or housing transaction being done in bitcoin, although I am sure there are several like this by now. The definition you give for reaching that 4% figure would be more akin to the growth of a measure of money supply, such as M1, which is the amount of currency in circulation, as well as liquid deposits in checking accounts.
According to data from the FRB of St. Louis, this measure increased by about 7.5% over the twelve months ending in October 2017.https://fred.stlouisfed.org/series/M1SL (https://fred.stlouisfed.org/series/M1SL) Indeed this would suggest that during those twleve months, the money supply for the US economy increased faster than did that for the "Bitcoin Economy."
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Thank you for that clarification. The change in money supply by itself is not enough to compare to an "inflation" rate, because the later includes a measure of the price of real goods and services that are produced using that currency. Comparing that 4% figure to any mainstream measure of inflation in the US economy would not be correct.
For Bitcoin, the set of goods/services are very different than for the average household using the US Dollar, they would skew more towards web/computer related items, and, yes, some "gray market" transactions. I have never heard of a rent or housing transaction being done in bitcoin, although I am sure there are several like this by now. The definition you give for reaching that 4% figure would be more akin to the growth of a measure of money supply, such as M1, which is the amount of currency in circulation, as well as liquid deposits in checking accounts.
According to data from the FRB of St. Louis, this measure increased by about 7.5% over the twelve months ending in October 2017.https://fred.stlouisfed.org/series/M1SL (https://fred.stlouisfed.org/series/M1SL) Indeed this would suggest that during those twleve months, the money supply for the US economy increased faster than did that for the "Bitcoin Economy."
I wasn't making any comparison to anything else. I was merely discussion bitcoin's inflation rate in regards to the currency itself. I wasn't discussing anything with regards to something like the consumer price index (CPI) which is what I think you're alluding to which takes into account the price of goods and wages, etc.
Since bitcoin is a negligible part of our economy, it has a negligible impact on the CPI and therefore it isn't measurable at this point. If bitcoin were to ever become a major part of our economy, it will absolutely be deflationary in nature due to the amount of bitcoin being lost compared to the amount in circulation. By the time that were to occur, the number of newly mined bitcoin will be extremely small. However, by that time, its volatility would also be very low due to the relatively static nature of the supply and demand for it it.
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Please provide examples of the real-world, practical applications of deflationary currencies which support the claims that they are so great compared to inflationary ones.
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Please provide examples of the real-world, practical applications of deflationary currencies which support the claims that they are so great compared to inflationary ones.
Well there really isn't any real world example of inherently deflationary or inflationary currencies themselves. So it really comes down to looking historically to see how the economy (low unemployment, economic growth, etc) has performed during periods of deflation and inflation.
Several federal reserve economists did just that and looked historically at economic performance during periods of inflation and deflation. They found a much higher correlation between inflation and depressions and that there were many more periods of growth during periods of deflation than there were periods of depression.
https://www.minneapolisfed.org/research/sr/sr331.pdf (https://www.minneapolisfed.org/research/sr/sr331.pdf)
"... the only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929-34). We find virtually no evidence of such a link in any other period. ... What is striking is that nearly 90% of the episodes with deflation did not have depression. In a broad historical context, beyond the Great Depression, the notion that deflation and depression are linked virtually disappears."
https://mises.org/library/deflating-deflation-myth (https://mises.org/library/deflating-deflation-myth)
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That's because the long period of deflation that occurred during the late industrial revolution (think 1865-1913) came with extraordinary productivity growth. The productivity growth caused both the deflation and the prosperity.
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That's because the long period of deflation that occurred during the late industrial revolution (think 1865-1913) came with extraordinary productivity growth. The productivity growth caused both the deflation and the prosperity.
That's a light bulb moment for me. I think it would be hard to argue that the productivity and prosperity growth over the last two or three decades wasn't similarly extraordinary.
As I follow the summaries of the fed meetings, it seems they are quite perplexed at why inflation is so persistently resistant to ignite; struggling to hit their target.
Perhaps a valid argument to be ever-vigilant in trying to combat deflation?
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That's because the long period of deflation that occurred during the late industrial revolution (think 1865-1913) came with extraordinary productivity growth. The productivity growth caused both the deflation and the prosperity.
Are you suggesting that there has been no growth in productivity since post-WWII where there has also been no notable deflationary periods? Has our economy changed so drastically that these periods cannot be compared?
"Note that most of the episodes in the data set that have deflation and no depression occurred
under a gold standard; does that somehow make them irrelevant for shedding light on deflations
under a fiat system? No. If we interpret such standards as a rule with some commitment, as many
(like Bordo and Finn Kydland 1995) do, then these episodes seem at least as relevant for thinking
about the effects of following a Friedman rule as are the episodes in the post-WWII data, when
policy was more discretionary. And if we think that the world economy has changed so much since
WWII that all the data before it sheds no light on what might happen in an economy today, then
there is not much to discuss, since in the post-WWII period, there are no episodes of deflation.
Moreover, as has been commonly noted, inflation is actually negatively related to output growth in
the post-WWII data.
A more compelling objection is that the data from periods of world wars are just not relevant
for other periods. We thus investigate the data excluding all war-related episodes. We find that war
does seem to play a role in generating depression. Of the 21 depression episodes without deflation,
10 were related to a world war: 4 during WWI, 3 during WWII, and 3 right after WWII. (We
view Japan’s dismal growth in 1949—54 as war-related.) But that does not change our result about
deflation and depression. Based on all of the data outside of the Great Depression, a regression
of output growth on inflation has a slope coefficient of .04 (.03). Excluding all the data from
the war-related episodes (1914—19, 1939—44, 1944—49) and the 1949—54 episode for Japan gives a
slope coefficient of .10 (.03). These data thus show little or no relationship between deflation and
depression. This finding is consistent with that of Michael Bordo, John Landon-Lane, and Angela
Redish (2002)."
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Actually it looks like productivity per unit of labor growth is actually declining significantly in the last couple of decades.
(https://cdn.static-economist.com/sites/default/files/images/2012/09/blogs/free-exchange/us_total_factor_business_productivity.png)
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That's because the long period of deflation that occurred during the late industrial revolution (think 1865-1913) came with extraordinary productivity growth. The productivity growth caused both the deflation and the prosperity.
Are you suggesting that there has been no growth in productivity since post-WWII where there has also been no notable deflationary periods? Has our economy changed so drastically that these periods cannot be compared?
Yes actually. We went from a gold backed currency which meant an essentially fixed supply of currency prior to the great depression, to a non-backed currency which let central banks increase or decrease the money supply after world war II.
With a fixed money supply, changes in the size of the economy (and the velocity of money) are the main drivers of inflation/deflation. Once the size of the money supply can change it has big impacts on inflations/deflation which I'm guessing tend to swamp out the effects of changes in money velocity or the size of the economy (although maybe talltexan can comment on this point since I don't have any actual economics training).
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Actually it looks like productivity per unit of labor growth is actually declining significantly in the last couple of decades.
Don't mistake a decreasing rate of productivity growth for negative productivity growth.
Yes actually. We went from a gold backed currency which meant an essentially fixed supply of currency prior to the great depression, to a non-backed currency which let central banks increase or decrease the money supply after world war II.
That was kind of the point I was making.
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Actually it looks like productivity per unit of labor growth is actually declining significantly in the last couple of decades.
Don't mistake a decreasing rate of productivity growth for negative productivity growth.
Of course. If anything what we're seeing is a reverse to more "normal" levels of productivity growth. I was making the point that the last couple of decades haven't been anything extraordinary in terms of productivity growth. (ILikeDividends was saying that the last several decades were extraordinary.)
Yes actually. We went from a gold backed currency which meant an essentially fixed supply of currency prior to the great depression, to a non-backed currency which let central banks increase or decrease the money supply after world war II.
That was kind of the point I was making.
Wait so you agree it's not informative to compare the relationship between monetary policy and economic growth between pre-greater depression and post-greater depression datasets? If so, yes we're in agreement. But then what was the original point you were making with the link to the minneapolis fed study? (Which does makes comparisons combining those two datasets).
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Comparing a ~90% agrarian economy with a ~1% agrarian one probably doesn't make much sense.
-W
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Wait so you agree it's not informative to compare the relationship between monetary policy and economic growth between pre-greater depression and post-greater depression datasets? If so, yes we're in agreement. But then what was the original point you were making with the link to the minneapolis fed study? (Which does makes comparisons combining those two datasets).
The original question (as posed by BattlaP) was to provide examples of deflationary currencies (of which a gold-backed USD would apply) which support the idea that economic growth and stability can occur when compared to a currency that is inflated in response to the economy. This historical review does just that. It should also be noted that during the gold standard, the supply of the US dollar was not fixed, it was merely tied to the supply of gold.
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Actually it looks like productivity per unit of labor growth is actually declining significantly in the last couple of decades.
Don't mistake a decreasing rate of productivity growth for negative productivity growth.
Of course. If anything what we're seeing is a reverse to more "normal" levels of productivity growth. I was making the point that the last couple of decades haven't been anything extraordinary in terms of productivity growth. (ILikeDividends was saying that the last several decades were extraordinary.)
I stand corrected. So, to the point of my question, if I extend the time-frame of productivity growth back to 1947, roughly equivalent to talltexan's timeframe, would you then consider that productivity growth sufficiently extraordinary, as compared to talltexan's reference?
In other words, is a deflationary spiral, à la the Great Depression, a likely risk for the same reasons? Or is that specific scenario now mitigated by the transition from gold to a fiat currency?
And for extra credit, any thoughts about why the fed has been so apparently ineffective at nudging inflation up? Perhaps the answer is that we are in unprecedented times with no historical guide, until we normalize again and reverse all or most of the QE that was done since 2008?
I recall then chairman Bernanke promising, on TV, that QE would not result in inflation. It appears he was correct. Could it be that we are now stuck in an alternate economic universe, unable to inflate meaningfully, until that QE is unwound?
I can barely wrap my head around these questions. If QE defrosted the locked up credit markets, it seems quite reasonable to suggest that reversing QE would have the opposite effect.
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Oh absolutely. The 1950s and 1960s were a time of extraordinary economic growth in the USA. But because the money supply wasn't tied to the amount of gold sitting in bank vaults, the currency supply could be expanded with the economy, so you didn't see deflation as the size of the economy (and hence the total number of transactions that had to happen every day) increased.
If you trust the fed to behave intelligently, then yes, the risk of a deflationary spiral like what we saw in the great depression is much lower when the size of the money supply is arbitrary (fiat) rather than approximately fixed (gold backed).
Now the counter argument, which is also valid, is that the risk of an inflationary spiral is much greater when the size of the money supply is arbitrary rather than approximately fixed.
Edit about the extra credit question: I think the problem is that we're living in a time where there is a surplus of capital looking for high return (but safe) investments and a shortage of good investments (which gets back to that decrease in productivity growth). You see this in how much cash most major companies are holding on to today, and also how much funding is available to startups like Uber and AirBnB which might ultimately make loads of money, but might also go bankrupt, but are already valued in the double digit billions.
If there's no good place to invest money to earn a strong return, giving more money to the rich (the people who were holding the assets which were purchased by the Fed as part of QE) doesn't simulate inflation because they don't invest the money, they sit on it. So the money supply goes up, but the velocity of money goes down, and prices stay the same.
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Oh absolutely. The 1950s and 1960s were a time of extraordinary economic growth in the USA.
I think that economic growth in the USA (as opposed to productivity growth) for that period was unique, and very materially influenced by the devastation of much of the world's manufacturing and labor capacity resulting from WWII. The US went largely unscathed in both regards.
If I recall correctly, the US "only" lost about a quarter million men in WWII. Yes, that's a huge and tragic number, but nothing compared to all of WWII's casualties around the world. The majority of the US service men and women came back to join a still intact economy.
Also resulting from WWII, the job opportunities for women broadened way out to include just about any job a man could do; increasing the effective size of the labor pool.
Those factors left the USA with a competitive advantage that would take a few decades for the rest of the world to catch up to.
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To follow up on Maizeman's point, though - you can have a money supply that is fixed but slowly increasing (current US dollars, or gold, for example), fixed but slowly decreasing (Bitcoin will eventually act this way), or anything else.
In other words, you can not trust politicians to do the right thing with the money supply, but that's a separate question from whether or not inflation/deflation are good or bad. My personal feeling is that bitcoin's design probably dooms it as a currency because of the deflation problem, but it might be able to be a sort of virtual gold (setting aside for now the other issue, which is that bitcoin is just being bought/hoarded, not actually used much).
-W
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That's certainly true, but don't discount the effects of near universal electrification, which was largely completed in the 1940s. After the war it was suddenly possible to design and build and sell all sorts of new labor saving machines from refrigerators to vacuum cleaners to electric typewriters and have them be usable basically anywhere in the USA. At the same time the interstate highway system was vastly lowering barriers to commerce, and a half dozen other major step changes in the technology and infrastructure that powered our economy kicked in around the same time.
I tend to put more weight on these factors and less on the reduced destruction of WWII in the USA relative to the rest of the world, because you see the same dramatic economic growth in places like China when the same technological and infrastructure factors kick in (for them in the '90s and '00s), but *shrug.*
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That's certainly true, but don't discount the effects of near universal electrification, which was largely completed in the 1940s. After the war it was suddenly possible to design and build and sell all sorts of new labor saving machines from refrigerators to vacuum cleaners to electric typewriters and have them be usable basically anywhere in the USA. At the same time the interstate highway system was vastly lowering barriers to commerce, and a half dozen other major step changes in the technology and infrastructure that powered our economy kicked in around the same time.
I tend to put more weight on these factors and less on the reduced destruction of WWII in the USA relative to the rest of the world, because you see the same dramatic economic growth in places like China when the same technological and infrastructure factors kick in (for them in the '90s and '00s), but *shrug.*
All valid points. It's been a pleasure exchanging thoughts with you. Apologies to everyone else for the off-topic digression.
Edit to add: I've bold-texted a very synergistic point in your post with some of the positive effects of WWII. Many of those innovations you mentioned freed up women to pursue careers, other than "housewife," which arguably wouldn't have been open to them were it not for WWII pulling them into male-dominated occupations, e.g., building war planes, producing munitions, tanks, etc.
Not intended as an argument, just to emphasize that WWII, as well as all of your other points, had self reinforcing synergistic effects that boosted economic growth during that specific period, and beyond.
That specific result had a permanent effect. But it first exerted its influence on economic growth in the USA during the immediate decades following the war. The devastation around the rest of the world provided the customer base needed to absorb those women into the American workforce beyond the need to replace the male casualties of the war, without the social disruption that might have occurred if they had simply competed to displace their male counterparts in the workforce.
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To follow up on Maizeman's point, though - you can have a money supply that is fixed but slowly increasing (current US dollars, or gold, for example), fixed but slowly decreasing (Bitcoin will eventually act this way), or anything else.
In other words, you can not trust politicians to do the right thing with the money supply, but that's a separate question from whether or not inflation/deflation are good or bad. My personal feeling is that bitcoin's design probably dooms it as a currency because of the deflation problem, but it might be able to be a sort of virtual gold (setting aside for now the other issue, which is that bitcoin is just being bought/hoarded, not actually used much).
-W
This gets back to the debate we've had a couple of times about which is the most important characteristic of a currency: facilitating transactions, acting as a store of value, or acting as a unit of account (salary contracts or mortgages denominated in bitcoin would be really REALLY bad ideas). So while I don't agree with you that bitcoin's design dooms it as a currency, I agree with most of the rest of your post, and the part I disagree with says more about how we each define what it means to be a currency than about differences in our predictions for the future of bitcoin.
It's worth mentioning that bitcoin's design with a fixed maximum number of coins ever produced isn't universal among cryptocurrencies. For example, ethereum's roadmap calls for a fixed number of new currency units to be added to the money supply every year in perpetuity. However, this still represents a smaller percent of the total money supply each year, so the growth of the supply of ether will approach, but never reach 0%/year.
I don't know that there is any reason you couldn't design a cryptocurrency which did have a fixed annual percent growth in the money supply each year (which could check of the box of a "money supply that is fixed but slowly increasing") and for all I know there is already an altcoin out there which does just that.
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It isn't out of the question for the Fed to introduce its own cryptocurrency that has all the characteristics needed for both utility and regulation. The Fed is not the only central bank kicking this idea around, but that's not likely coming any time soon.
Federal Reserve May Introduce A Cryptocurrency In The Future
https://www.investopedia.com/news/federal-reserve-may-introduce-cryptocurrency-future/
It would be interesting to see what effect, if any, such a move would have on the speculative bubble in bitcoin. Assuming that bubble doesn't pop before then, that as.
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In other words, you can not trust politicians to do the right thing with the money supply, but that's a separate question from whether or not inflation/deflation are good or bad. My personal feeling is that bitcoin's design probably dooms it as a currency because of the deflation problem, but it might be able to be a sort of virtual gold (setting aside for now the other issue, which is that bitcoin is just being bought/hoarded, not actually used much).
Isn't that somewhat of a paradoxical proposition though? If bitcoin's adoption rate were ever to reach a point where its deflationary monetary policy would have a noticable impact on the economy (for better or for worse), then wouldn't that mean that bitcoin had succeeded in becoming adopted as a currency which would invalidate your claim that bitcoin was doomed to succeed?
In my opinion there are a lot more reasons why bitcoin could possibly fail and its deflationary monetary policy isn't one of them. In fact, I think its monetary policy is one of its biggest reasons why people are adopting at this point at all. Given the fact that most people have lived under the influences of inflationary economic cycles, I think there is a longing among many to inject a deflationary monetary policy into our world economy.
I think the main point that I was trying to convey was that economies are extremely complex and there are an immense number of factors at play that lead to deflationary or inflationary economic cycles. I don't think anyone can make a claim that a deflationary currency (like bitcoin) will lead to the deflationary spiral that many purport considering we historically haven't really seen that to be the case.
Bitcoin's monetary policy is just one monetary policy in a sea of crypto-currencies all of which have varying degrees of inflationary and deflationary policies. We don't know if long term its monetary policy will be best for whatever economic conditions that arrive at our doorsteps. The idea behind a decentralized currency such as that isn't to lock us into a monetary policy forever, but to allow the greater economic community decide that policy for itself with a transparency that is unparalleled in comparison to fiat currencies today.
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This discussion really took off without me...you guys are doing a great job thinking through the issues. Some important books on the topic:
Capital in the Twenty-First Century by Thomas Picketty (early on this book discusses the importance of the Gold Standard in holding down inflation in Europe and US during the 1800's).
The Rise and Fall of American Growth by Robert J. Gordon (you can watch his Ted Talk here: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwivoqXIyvXXAhUq0oMKHauUAl4QtwIIJzAA&url=https%3A%2F%2Fwww.ted.com%2Ftalks%2Frobert_gordon_the_death_of_innovation_the_end_of_growth&usg=AOvVaw0C8-meuYA4-z1aQJPHcHMu (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwivoqXIyvXXAhUq0oMKHauUAl4QtwIIJzAA&url=https%3A%2F%2Fwww.ted.com%2Ftalks%2Frobert_gordon_the_death_of_innovation_the_end_of_growth&usg=AOvVaw0C8-meuYA4-z1aQJPHcHMu)
A Culture of Growth by Joel Mokyr. (he usually takes the opposing side to Dr. Gordon, insisting that dynamic growth in today's economy is still possible)
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That's certainly true, but don't discount the effects of near universal electrification, which was largely completed in the 1940s. After the war it was suddenly possible to design and build and sell all sorts of new labor saving machines from refrigerators to vacuum cleaners to electric typewriters and have them be usable basically anywhere in the USA. At the same time the interstate highway system was vastly lowering barriers to commerce, and a half dozen other major step changes in the technology and infrastructure that powered our economy kicked in around the same time.
I tend to put more weight on these factors and less on the reduced destruction of WWII in the USA relative to the rest of the world, because you see the same dramatic economic growth in places like China when the same technological and infrastructure factors kick in (for them in the '90s and '00s), but *shrug.*
All valid points. It's been a pleasure exchanging thoughts with you. Apologies to everyone else for the off-topic digression.
Edit to add: I've bold-texted a very synergistic point in your post with some of the positive effects of WWII. Many of those innovations you mentioned freed up women to pursue careers, other than "housewife," which arguably wouldn't have been open to them were it not for WWII pulling them into male-dominated occupations, e.g., building war planes, producing munitions, tanks, etc.
Not intended as an argument, just to emphasize that WWII, as well as all of your other points, had self reinforcing synergistic effects that boosted economic growth during that specific period, and beyond.
That specific result had a permanent effect. But it first exerted its influence on economic growth in the USA during the immediate decades following the war. The devastation around the rest of the world provided the customer base needed to absorb those women into the American workforce beyond the need to replace the male casualties of the war, without the social disruption that might have occurred if they had simply competed to displace their male counterparts in the workforce.
Wow, I missed your edit, just spotted it when talltexan bumped the thread. (With my apologies as well for going so far off topic.)
It certainly hadn't occurred to me how the lack of devastation in the USA relative to the rest of the industrialized world could have played into the USA being able to absorb large numbers of women into the (paid) labor force without significant economic disruption (since all that extra labor could be put to work building things for export around the world). But now that you bring it up it certainly seems plausible that this did play a significant role. And because every discussion of labor force participation needs a good graph showing changes in the participation rates for men and women from post-world war II to today: https://aneconomicsense.files.wordpress.com/2016/10/labor-force-participation-rate-ages-25-to-54-all-male-female-jan-1948-to-sept-2016.png (Long story short, the participation of working age women in the paid labor force grew from 35% to 75% in the four decades following world war II, that's a really big change.)
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I see random people on facebook with no investing experience posting about bitcoin and how to buy "stock" in cryptos. Is this the modern day equivalent of the shoe shine boy?
Yes, just the other day I saw a post on Facebook by a guy I know from high school who has no computer science, financial or investment experience post about how it's not too late to get rich with Bitcoin.
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This is your last chance to get in under $10k, it's going to $100k in the next 12 months at this pace.
(https://imgs.xkcd.com/comics/extrapolating.png)
+30% since my post ;)
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This is your last chance to get in under $10k, it's going to $100k in the next 12 months at this pace.
(https://imgs.xkcd.com/comics/extrapolating.png)
+30% since my post ;)
Fair enough. I realized some mining gains and sold some yesterday morning at the then-all-time-high ($11,600), but kept some of my BTC for fun. :) It'll be worth a pretty penny in a few years if John McAfee still has a penis.
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Wow, I missed your edit, just spotted it when talltexan bumped the thread. (With my apologies as well for going so far off topic.)
It certainly hadn't occurred to me how the lack of devastation in the USA relative to the rest of the industrialized world could have played into the USA being able to absorb large numbers of women into the (paid) labor force without significant economic disruption (since all that extra labor could be put to work building things for export around the world). But now that you bring it up it certainly seems plausible that this did play a significant role. And because every discussion of labor force participation needs a good graph showing changes in the participation rates for men and women from post-world war II to today: https://aneconomicsense.files.wordpress.com/2016/10/labor-force-participation-rate-ages-25-to-54-all-male-female-jan-1948-to-sept-2016.png (Long story short, the participation of working age women in the paid labor force grew from 35% to 75% in the four decades following world war II, that's a really big change.)
FWIW, I also heard other narratives surrounding the push behind women entering the workforce. The other narrative being that due to the stagnant working-class wages since the 70's, it lead to women needing enter the workforce to help support their families. I'm sure it is a mixture of all of the above.
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Can you imagine a store labeling the prices on their shelves in bitcoin?
This is a good a good example of deflation. A loaf of bread went from 3 millibits to 0.2 millibits in a year. Now people are hoarding cash hoping goods will be cheaper in the future. That's not a stable currency.
There are a couple of misunderstandings in this post that I'd like to point out.
The first being that Bitcoin at the moment is not deflationary. It is inflationary and at the moment it is experiencing inflation at about 4%. The only reason why its price is going up is because demand in outpacing the rate of that inflation dramatically.
The point at which we'd see prices of goods displayed in bitcoin wouldn't happen until critical mass adoption has taken place for an extended period of time and a large portion of our economy is taking place in bitcoin. At that point demand will have likely stabilized which would mean that the volatility of its price would've dramatically decreased as well.
At that point bitcoin will likely be deflationary in nature due to the much lower rate of inflation (mined bitcoins) and the rate at which bitcoins are permanently lost. This will lead to a stable slowly growing value over time.
There are some misconceptions I feel about deflationary currencies that lead people to think that hording will take place with the currency and result in a massive decrease in consumer spending. However, real world economics has shown us that this is not the case. For example, today people line up outside doors on release day to purchase the new iPhone even though they'd be able to purchase that same phone for half the price one or two years later. While this is not currency economics at play, it is psychological economics that would lead a person to make the decision of whether to hold off a purchase knowing their buying power will be higher (2x) in a year or two for the same product. Also, people have basic needs that need to be met such as food, shelter, and clothing that most certainly would not be put off simply because of the deflationary aspect of the currency being used. If a person earns a salary in a deflationary currency, part of their weekly earnings will always go towards those basic needs before any deflationary effects of the currency are even felt. In other words, consumerism is a much more powerful economic force than deflation is.
What deflation does do is help protect worker wages over time as opposed to our current inflationary system that erodes wages over time. Wages are typically sticky which means that they don't adjust as easily to changes in the economic environment. So if worker wages are inherently tied to a deflationary currency, this will help protect the buying power of the working class regardless of whether or not working class citizens are receiving wage increases that meet the rate of inflation over time (and thus promote a more stable economy).
The idea that hording would take place of the currency under conditions where deflation is at or below 4% I believe to be false though. Today's massive price growth for bitcoin is not due to deflation though. If we reach a point where prices of goods are displayed in bitcoin and salaries are earned in bitcoin, then it will likely be the case that mass adoption has taken place in which case the price volatility will have decreased dramatically due to a stabilized demand. At that point the deflationary effect of bitcoin would simply be due to the rate at which bitcoins are lost and permanently removed from the market supply. In the meantime, as shadow said, volatility can be taken out of the equation for good purchases by continuing to peg the price of goods in a more stable currency such as the USD.
Let's not forget, currencies are not a zero-sum game. Bitcoin can become widely adopted and be an integral part of our world economy while perfectly co-existing with fiat currencies. This is a much more likely scenario contrary to what some on both sides of the virtual coin you're on would claim.
I think this missed the paradigm that is lacking. From the perspective of the price of goods as priced in bitcoin, it's deflation. Instead of thinking about the value of bitcoin going up in relation to dollars and goods, think about the value of goods and dollars going way down when you're looking from the perspective of paying in bitcoin. That's deflation. Because of that deflation, people actually are hoarding cash that they could otherwise be using to buy furniture, collectibles, cars, or actual investments like stocks. Bitcoin is cash. They're hoping that bitcoin will go up in relation to dollars. If you look at it from the perspective of bitcoin, though, they're actually hoping they will be able to use their cash (bitcoin) to buy the items they actually want at a cheaper price (when priced in bitcoin) in the future. This is what you actually see happening right now.
At some point bitcoin may stabilize, but that point is not now. I don't think all the volatility is helping bitcoin except that it may be worth it as a massive marketing campaign. We're discussing it right now, so that aspect is working well.
Bitcoin may have a place in the future, but that won't be until people are buying it to actually use for purchases or at least to store value long-term as you would with gold. As long as most bitcoin is being exchanged with the idea of making quick money we're in a bubble.
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This discussion really took off without me...you guys are doing a great job thinking through the issues. Some important books on the topic:
Capital in the Twenty-First Century by Thomas Picketty (early on this book discusses the importance of the Gold Standard in holding down inflation in Europe and US during the 1800's).
The Rise and Fall of American Growth by Robert J. Gordon (you can watch his Ted Talk here: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwivoqXIyvXXAhUq0oMKHauUAl4QtwIIJzAA&url=https%3A%2F%2Fwww.ted.com%2Ftalks%2Frobert_gordon_the_death_of_innovation_the_end_of_growth&usg=AOvVaw0C8-meuYA4-z1aQJPHcHMu (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwivoqXIyvXXAhUq0oMKHauUAl4QtwIIJzAA&url=https%3A%2F%2Fwww.ted.com%2Ftalks%2Frobert_gordon_the_death_of_innovation_the_end_of_growth&usg=AOvVaw0C8-meuYA4-z1aQJPHcHMu)
A Culture of Growth by Joel Mokyr. (he usually takes the opposing side to Dr. Gordon, insisting that dynamic growth in today's economy is still possible)
Thanks for posting that.
I watched the Ted Talk from Dr. Gordon.
And I just found an hour and half Youtube video on Joel Mokyr's book.
https://www.youtube.com/watch?v=wNbe7uwbiKE
I haven't watched it yet, but I thought it might save anyone else who cares the time and expense of buying the book.
Edit to add: and here's a 1:45 lecture from Thomas Piketty on his book:
https://www.youtube.com/watch?v=RRI6JuxTyrQ
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I just watched the Robert Jordan Ted Talk video, I'd highly recommend it to anyone else following this thread, thanks for posting it TallTexan.
It really explains why people who'd lived through the changes created by technological progress between 1910 and 1960 really found it plausible we'd have flying cars and be visiting other planets by the year 2010.
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I just watched the Robert Jordan Ted Talk video
Maizeman a Wheel of Time reader :-) ?
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I just watched the Robert Jordan Ted Talk video
Maizeman a Wheel of Time reader :-) ?
Oh that's why he uses a middle initial. I knew I recognized the name from somewhere. ;-)
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You know it's a bubble when dead fantasy authors start showing up on TED talks about crypto!
Hmm. Jordan "died" just before bitcoin was introduced...
-W
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So much for these unhackable cryptos...
http://money.cnn.com/2017/12/07/technology/nicehash-bitcoin-theft-hacking/index.html
And, since by its nature the bitcoins can't be recovered -- they are not subject to government seizure, remember -- nicehash can kiss them goodbye.
In theory the bitcoin protocol itself might be "nearly unhackable" (whatever that means), but in practice it's only a matter of time before a breach could hit you, too....
To those thinking of buying a bitcoin or other crypto, you're money is gone when you buy. Whether you can cash out later and get any money back is a completely different story. Just ask all those poor folks who lost their private keys or kept their bitcoins at a hacked exchange. There is no legal remedy or regulation to resolve these problems, nor is there a large organization with good customer service to "make things right."
Here is your only remedy if you suffer a problem with bitcoin: Go sh*t in your hat.
For someone who dislikes crypto-currencies so much, you certainly hang around these parts frequently spreading FUD like no one's business.
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And that's why you learn what the hell you're doing before you do anything with crypto. Not your own private keys, not your Bitcoin. Nicehash pays out when you hit 0.01BTC accumulated with them if you use a non-Nicehash wallet (like clearly from this, everyone should). I had about $12 (I think) worth with them that wasn't paid out to my real wallet yet. I'll live.
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For people looking to enter in the space, watch all of Andrea's videos. He has a way with explaining everything so newbies can understand. Take your time and don't rush in. Buy a portion of bitcoin that you're comfortable with. This is not going away. Don't let everyone here tell you it's a scam ponzi.
To be fair, it can be an unsustainable bubble very easily without being a scam (there are certainly scams associated with lots of cryptos, but the concept itself isn't a scam) or a ponzi scheme (in which the money coming in from later investors is used to pay the early investors and create the illusion of great returns).
I don't think anyone here would claim that bitcoin is either of those things. We are just saying that when random investing naifs are talking something up on Facebook (no matter what it is!) you should probably run the other way.
-W
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Now up $4400 in about 36 hours.
As Walt said, you can be very optimistic about the long term potential of cryptocurrencies, and still be worried that the current price trajectory of bitcoin is in a bubble that is going to result in a lot of people who are completely new to crypto buying during the rapid upswing getting burned by losses in a crash, damaging the reputation of cryptocurrencies as a whole, and causing harm to the general public's interest in the adoption of cryptocurrencies to actually make payments in the medium term.
Also, credit where credit is due, I didn't think the incipient launch of "bitcoin futures" would have such a big effect on the price of the currency itself. Lifeanon predicted that this news would cause a big uptick in demand (and hence price). With the first bitcoin futures market launching on Sunday, it is clear that I was wrong in my prediction, and Lifeanon was correct.
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Now up $4400 in about 36 hours.
As Walt said, you can be very optimistic about the long term potential of cryptocurrencies, and still be worried that the current price trajectory of bitcoin is in a bubble that is going to result in a lot of people who are completely new to crypto buying during the rapid upswing getting burned by losses in a crash, damaging the reputation of cryptocurrencies as a whole, and causing harm to the general public's interest in the adoption of cryptocurrencies to actually make payments in the medium term.
Also, credit where credit is due, I didn't think the incipient launch of "bitcoin futures" would have such a big effect on the price of the currency itself. Lifeanon predicted that this news would cause a big uptick in demand (and hence price). With the first bitcoin futures market launching on Sunday, it is clear that I was wrong in my prediction, and Lifeanon was correct.
We'll see what happens when futures actually launch though. Some on /r/bitcoin and the like seem to think "big money" is entering right now in an effort to pump and dump via shorting it once futures are available and it'll correct next week. Nobody really knows though, of course. My crystal ball is in the shop.
Also, I sold about a grand's worth of BTC just before this 36 hour ridiculous gain. Whee.
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As Walt said, you can be very optimistic about the long term potential of cryptocurrencies, and still be worried that the current price trajectory of bitcoin is in a bubble that is going to result in a lot of people who are completely new to crypto buying during the rapid upswing getting burned by losses in a crash, damaging the reputation of cryptocurrencies as a whole, and causing harm to the general public's interest in the adoption of cryptocurrencies to actually make payments in the medium term.
People are not thinking of these as currencies, they are thinking of them as magic free money. When that comes to an end (and there's still no way to go buy a bagel for lunch with any of them) I *hope* that some form of low transaction cost crypto payments system survives and is widely adopted. I agree with Maizeman here, though - the existing price trajectory is a bad thing in the long run.
The removal of the stranglehold of the credit card companies and money transfer fees is the societal benefit we want here. That 2-5% skimmed off the top of every transaction is a HUGE drag and an enormous waste. I *hate* that I can't accept quick electronic payments from customers or send payments to vendors without someone (ok, really, everyone) paying these fees.
That idea is getting lost in the "just buy as much bitcoin as you can because it always goes up" craziness. The goal here should be to let people seamlessly pay for and be paid for things (as cheaply and securely as possible) without *any excitement or expectation of crazy gains at all*. It should be boring!
-W
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Why is there an increase in value in Bitcoins? I don't understand why someone would pay 2$ for 1$ (since Bitcoin is an exchange mechanism)
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At what point do regulators step in? I mean, if the value gets high enough (especially if people are creating Bitcoin derivatives), it *does* become a systemic risk. Right now a bunch of people would lose a bunch of money, but not enough to cause a recession or other downstream consequences. Give it another couple orders of magnitude and it's a big big problem.
Man, I'm glad I'm FI and don't have to worry about this. It would drive me a little bit nuts to either own or NOT own any bitcoin during times like these. As it stands I can just break out the popcorn and hope that not too many people get hurt.
-W
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At what point do regulators step in? I mean, if the value gets high enough (especially if people are creating Bitcoin derivatives), it *does* become a systemic risk. Right now a bunch of people would lose a bunch of money, but not enough to cause a recession or other downstream consequences. Give it another couple orders of magnitude and it's a big big problem.
Man, I'm glad I'm FI and don't have to worry about this. It would drive me a little bit nuts to either own or NOT own any bitcoin during times like these. As it stands I can just break out the popcorn and hope that not too many people get hurt.
-W
Actually the higher the value goes, the lower the risk would be because volatility would go down. The global derivatives market is already a system risk. Adding the straw that is bitcoin to the camel's back I don't think will make much of a difference. Regulators haven't really stepped in on the unregulated ~$1.2 quadrillion derivatives market yet, what would make them step in on a few billion dollar derivative market?
Also, I don't think the risk goes away whether your FI or not, unless you've found a way to not be tied to the markets or the economy in anyway.
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Now up $4400 in about 36 hours.
As Walt said, you can be very optimistic about the long term potential of cryptocurrencies, and still be worried that the current price trajectory of bitcoin is in a bubble that is going to result in a lot of people who are completely new to crypto buying during the rapid upswing getting burned by losses in a crash, damaging the reputation of cryptocurrencies as a whole, and causing harm to the general public's interest in the adoption of cryptocurrencies to actually make payments in the medium term.
Also, credit where credit is due, I didn't think the incipient launch of "bitcoin futures" would have such a big effect on the price of the currency itself. Lifeanon predicted that this news would cause a big uptick in demand (and hence price). With the first bitcoin futures market launching on Sunday, it is clear that I was wrong in my prediction, and Lifeanon was correct.
Actually I was wrong too. I was far too low in my estimate. I didn't think the price would be anywhere near what it is currently. As you and others have stated, that is quite alarming. I'm a big bitcoin bull long-term, but I'm not rabid to the point where I can't recognize when something might not be sustainable.
It isn't the price that I'm concerned with. What's also alarming is the fact that the big price spike today was largely seen on Coinbase which is the market entry point for all new users to bitcoin. That means that the large spike in price likely has to do with new users making first time purchases. New users are a good thing, but when it happens in a frenzy like it did today, then that's probably not going to end well for many of those new users. Especially considering the fact that arbitrage sharks were just circling around waiting to eat some of the new users willing to buy at sky high prices relative to the going rate for bitcoin on most other exchanges.
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Also, I don't think the risk goes away whether your FI or not, unless you've found a way to not be tied to the markets or the economy in anyway.
Sorry, those paragraphs were intended to be separate thoughts. Poorly written on my part. What I meant was that I don't have to spend any time kicking myself for not putting all my money in bitcoin a year ago, nor do I have to sweat out when to sell my Bitcoin gains. I can just watch and be entertained.
If the whole economy goes to hell because of bitcoin somehow, I'm just as screwed as everyone else. :)
-W
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Why is there an increase in value in Bitcoins? I don't understand why someone would pay 2$ for 1$ (since Bitcoin is an exchange mechanism)
Currencies are constantly increasing/decreasing in value. It's not unique to Bitcoin.
https://www.bloomberg.com/markets/currencies
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Why is there an increase in value in Bitcoins? I don't understand why someone would pay 2$ for 1$ (since Bitcoin is an exchange mechanism)
Currencies are constantly increasing/decreasing in value. It's not unique to Bitcoin.
https://www.bloomberg.com/markets/currencies
Yes, but for most currencies a 1% change in a day is a pretty big deal. I know that something costing $10 today will cost roughly $10 tomorrow.
Bitcoin has doubled in the past month. They're not really the same thing.
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Why is there an increase in value in Bitcoins? I don't understand why someone would pay 2$ for 1$ (since Bitcoin is an exchange mechanism)
Currencies are constantly increasing/decreasing in value. It's not unique to Bitcoin.
https://www.bloomberg.com/markets/currencies
Yes, but for most currencies a 1% change in a day is a pretty big deal. I know that something costing $10 today will cost roughly $10 tomorrow.
Bitcoin has doubled in the past month. They're not really the same thing.
The post I was responding to implied that currencies shouldn't change in price. (Why is there an increase in value in Bitcoins?) The poster didn't question the rapid or large changes in Bitcoin price, but the mere fact that it was changing at all. So you're adding irrelevant details to the topic being discussed: Do currencies change in price? The answer is "yes." All the time.
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Why is there an increase in value in Bitcoins? I don't understand why someone would pay 2$ for 1$ (since Bitcoin is an exchange mechanism)
Currencies are constantly increasing/decreasing in value. It's not unique to Bitcoin.
https://www.bloomberg.com/markets/currencies
Yes, but for most currencies a 1% change in a day is a pretty big deal. I know that something costing $10 today will cost roughly $10 tomorrow.
Bitcoin has doubled in the past month. They're not really the same thing.
The post I was responding to implied that currencies shouldn't change in price. (Why is there an increase in value in Bitcoins?) The poster didn't question the rapid or large changes in Bitcoin price, but the mere fact that it was changing at all. So you're adding irrelevant details to the topic being discussed: Do currencies change in price? The answer is "yes." All the time.
A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro. You will only notice that difference if you're trying to buy an asset or commodity (bread, for instance) with USD which is priced in Euros, because you have to then exchange your dollars for Euros at the going rate in order to purchase that bread.
I won't get into a debate about whether gold or bitcoins are currencies. Regardless of where you stand on that, it is inarguable that both are assets that react to the forces of supply and demand. And that is why both gold and bitcoins go up or down in price at any given time. They are both assets that are subject to market forces, priced in whatever currency you happen to be buying or selling them in at the time.
If you want to "spend" a part of your bitcoin on a loaf of bread, you have to sell enough of it to pay for the bread, and pay capital gains tax (if any) first, at the market price, before you can do that. You could probably spend your bitcoin directly to get access restored to your hacked computer, but I kind of consider that to be an outlier scenario at the moment.
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So much for these unhackable cryptos...
http://money.cnn.com/2017/12/07/technology/nicehash-bitcoin-theft-hacking/index.html
And, since by its nature the bitcoins can't be recovered -- they are not subject to government seizure, remember -- nicehash can kiss them goodbye.
In theory the bitcoin protocol itself might be "nearly unhackable" (whatever that means), but in practice it's only a matter of time before a breach could hit you, too....
To those thinking of buying a bitcoin or other crypto, you're money is gone when you buy. Whether you can cash out later and get any money back is a completely different story. Just ask all those poor folks who lost their private keys or kept their bitcoins at a hacked exchange. There is no legal remedy or regulation to resolve these problems, nor is there a large organization with good customer service to "make things right."
Here is your only remedy if you suffer a problem with bitcoin: Go sh*t in your hat.
For someone who dislikes crypto-currencies so much, you certainly hang around these parts frequently spreading FUD like no one's business.
+1
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro.
A bitcoin is going to be worth 100,000,000 satoshis regardless of whether its exchange rate rises or falls against the dollar.
I hope you realize why that doesn't make sense now, right?
You will only notice that difference if you're trying to buy an asset or commodity (bread, for instance) with USD which is priced in Euros, because you have to then exchange your dollars for Euros at the going rate in order to purchase that bread.
I won't get into a debate about whether gold or bitcoins are currencies. Regardless of where you stand on that, it is inarguable that both are assets that react to the forces of supply and demand. And that is why both gold and bitcoins go up or down in price at any given time. They are both assets that are subject to market forces, priced in whatever currency you happen to be buying or selling them in at the time.
If you want to "spend" a part of your bitcoin on a loaf of bread, you have to sell some if first, at the market price, before you can do that. You could probably spend your bitcoin directly to get access restored to your hacked computer, but I kind of consider that to be an outlier scenario at this point.
A US dollar does have a value that rises and falls in and of itself regardless of whether or not you're exchanging it for another foreign currency. If you're only looking at the exchange rate between the USD and a EUR, for example, you're only looking at the relativity between the two. So if the USD falls compared to the EUR, some of that difference could be due to the EUR's strength and some of that could be due to the USD's decline.
Meanwhile, back home if part of the drop in the USD compared to the EUR was due to the USD's decline in value, then a loaf of bread will suddenly be more expensive to buy with US dollars. You might not notice it day to day, but you most certainly will over the course of a few years or even decades.
Like thenextguy said, all currencies change in price and that change is noted in its actual value whether you're exchanging it for another currency or for a good at the store.
Volatility will come down with bitcoin as its market matures. Volatility is not a critique against bitcoin, but a critique against the fact that the market is as small as it is. However, price volatility is not a hinderence to its use as a currency or medium of exchange if all goods are still priced in USD or any other fiat currency. The cost in bitcoin can simply be adjusted or calculated at the time of purchase when paying with bitcoin and this can happen automatically with whatever POS system is being used. There's no need to adjust good prices according to the price of a bitcoin. It is however a hinderence to lending which is why you won't see loans pegged to the price of a bitcoin for quite a while. Loans can be issued in bitcoin, but as with goods, their amounts and amortization schedules will be pegged to USD to protect the borrowers and lenders from large increases or decreases over the course of the loan.
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro.
A bitcoin is going to be worth 100,000,000 satoshis regardless of whether its exchange rate rises or falls against the dollar.
I hope you realize why that doesn't make sense now, right?
Please explain how it doesn't make sense. I will have 100 cents worth of buying power in the USA regardless of whether the USD rises or falls against the Euro. Its value or utility doesn't change here regardless of whether it goes up or down against the Euro.
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I agree that a bitcoin is going to be worth 100,000,000 satoshis regardless of whether its price goes up in dollar terms or not. Are you saying that your statement doesn't make sense?
I don't realize a capital gain or loss when the dollar's buying power changes due to inflation or deflation.
A fifty year old dollar is still worth a dollar now. It just has less buying power now.
Your situation with bitcoin is similar, but with one very big difference. You can't buy much of anything with your bitcoin without first realizing a capital gain or loss by selling it for whatever the market thinks it's worth in current dollars at that time; just like with gold.
If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
You can't even hide a bitcoin under your mattress, but that's neither here nor there.
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro.
A bitcoin is going to be worth 100,000,000 satoshis regardless of whether its exchange rate rises or falls against the dollar.
I hope you realize why that doesn't make sense now, right?
Please explain how it doesn't make sense. I will have 100 cents worth of buying power in the USA regardless of whether the USD rises or falls against the Euro. Its value or utility doesn't change here regardless of whether it goes up or down against the Euro.
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I agree that a bitcoin is going to be worth 100,000,000 satoshis regardless of whether its price goes up in dollar terms or not. Are you saying that your statement doesn't make sense?
I don't realize a capital gain or loss when the dollar's value changes due to inflation or deflation.
Your situation with bitcoin is similar, but with one very big difference. You can't buy much of anything with your bitcoin without first realizing a capital gain or loss by selling it for whatever the market thinks it's worth in current dollars at that time; just like with gold.
If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
You can't even hide a bitcoin under your mattress, but that's neither here nor there.
It is an exchange rate. Bitcoin is or at least is meant to be a currency. The idea was that you'd be able to pay for a croissant and coffee with it. And that's also why holding bitcoin is holding cash.
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro.
A bitcoin is going to be worth 100,000,000 satoshis regardless of whether its exchange rate rises or falls against the dollar.
I hope you realize why that doesn't make sense now, right?
Please explain how it doesn't make sense. I will have 100 cents worth of buying power in the USA regardless of whether the USD rises or falls against the Euro. Its value or utility doesn't change here regardless of whether it goes up or down against the Euro.
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I agree that a bitcoin is going to be worth 100,000,000 satoshis regardless of whether its price goes up in dollar terms or not. Are you saying that your statement doesn't make sense?
I don't realize a capital gain or loss when the dollar's value changes due to inflation or deflation.
Your situation with bitcoin is similar, but with one very big difference. You can't buy much of anything with your bitcoin without first realizing a capital gain or loss by selling it for whatever the market thinks it's worth in current dollars at that time; just like with gold.
If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
You can't even hide a bitcoin under your mattress, but that's neither here nor there.
It is an exchange rate. Bitcoin is or at least is meant to be a currency. The idea was that you'd be able to pay for a croissant and coffee with it. And that's also why holding bitcoin is holding cash.
I'd love to be a fly on the wall when you try to explain that to the IRS auditor for not reporting your capital gains.
You can conflate market price with exchange rate if you wish to, but that doesn't make it true.
And you can "intend" it to be a currency all you want. I'm not going to debate that any more than you would debate about whether my intentions could turn a bowl of oatmeal into a currency..
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You can't even hide a bitcoin under your mattress, but that's neither here nor there.
Actually you can if you have a hard copy private key, but that's also neither here nor there. ;-)
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I'd argue exchange rate vs market price is a distinction without a difference. The whether you say market price or exchange rate, you need variable numbers of dollars to buy a given amount of euros, RMB, bitcoin, gold, or porkbellies. In all four cases that price is determined by how many people are willing to buy (and at what prices) and how many are willing to sell (and at what prices).
But I remain open to being proven wrong though. How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity, because that would just become circular reasoning).
I don't realize a capital gain or loss when the dollar's value changes due to inflation or deflation. ... If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
That's because you live in the USA where our tax code is denominated in dollars. If you lived in Europe or China where the tax codes use Euros or RMB you would indeed realize taxable gains or losses as the value of a dollar changed. If you hold Euros or RMB in the USA you would indeed incur tax liability as the the market price of these currencies increased (in USD terms). I think these are actually taxed as ordinary income, not capital gains.
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You can't even hide a bitcoin under your mattress, but that's neither here nor there.
Actually you can if you have a hard copy private key, but that's also neither here nor there. ;-)
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I'd argue exchange rate vs market price is a distinction without a difference. The whether you say market price or exchange rate, you need variable numbers of dollars to buy a given amount of euros, RMB, bitcoin, gold, or porkbellies. In all four cases that price is determined by how many people are willing to buy (and at what prices) and how many are willing to sell (and at what prices).
But I remain open to being proven wrong though. How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity, because that would just become circular reasoning).
I don't realize a capital gain or loss when the dollar's value changes due to inflation or deflation. ... If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
That's because you live in the USA where our tax code is denominated in dollars. If you lived in Europe or China where the tax codes use Euros or RMB you would indeed realize taxable gains or losses as the value of a dollar changed. If you hold Euros or RMB in the USA you would indeed incur tax liability as the the market price of these currencies increased (in USD terms). I think these are actually taxed as ordinary income, not capital gains.
I said I wasn't going to debate whether bitcoin is a currency, and I'm going to hold to that.
But I think I can convince you of the difference in those terms simply by using the dictionary.
ex·change rate
noun
noun: exchange rate; plural noun: exchange rates; noun: rate of exchange; plural noun: rates of exchange
the value of one currency for the purpose of conversion to another.
cur·ren·cy
ˈkərənsē/
noun
noun: currency; plural noun: currencies
1.
a system of money in general use in a particular country.
"the dollar was a strong currency"
synonyms: money, legal tender, cash, banknotes, bills, notes, coins, coinage, specie
"foreign currency"
2.
the fact or quality of being generally accepted or in use.
"the term gained currency during the second half of the 20th century"
synonyms: prevalence, circulation, exposure; More
acceptance, popularity
"a term that has gained new currency"
the time during which something is in use or operation.
Bitcoin fails the test on both counts.
USD, Euros, and RMB all pass with flying colors.
Now, I'm not saying that bitcoin isn't a currency. But that doesn't mean that I agree that it's a currency, either. I'm simply saying that by definition, it doesn't have an exchange rate, while it very clearly does have a market price.
I concede the point about hiding it under a mattress. Well played. ;)
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The moment it gets accepted (Which is what people are betting on) it will be a currency/method of exchange.... If it ever does.
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Please explain how it doesn't make sense. I will have 100 cents worth of buying power in the USA regardless of whether the USD rises or falls against the Euro. Its value or utility doesn't change here regardless of whether it goes up or down against the Euro.
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I agree that a bitcoin is going to be worth 100,000,000 satoshis regardless of whether its price goes up in dollar terms or not. Are you saying that your statement doesn't make sense?
I don't realize a capital gain or loss when the dollar's buying power changes due to inflation or deflation.
A fifty year old dollar is still worth a dollar now. It just has less buying power now.
Your situation with bitcoin is similar, but with one very big difference. You can't buy much of anything with your bitcoin without first realizing a capital gain or loss by selling it for whatever the market thinks it's worth in current dollars at that time; just like with gold.
If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
You can't even hide a bitcoin under your mattress, but that's neither here nor there.
Because that's no different than saying that the value of a dollar is a dollar. It isn't necessarily that it doesn't make sense, but just that it is an absurb obviousness that wasn't in question by anyone. A dog will always be a dog too.
Just $1 buys you a bagel today doesn't mean that will always hold true. An exchange rate between two different currencies is only the relativity of those values between the currencies being exchanged.
The fact that bitcoin needs to be exchanged before being spent is irrelevant as to whether it has the capability of being used as a currency. If you take a euro to a US store, you probably won't be able to buy much with it. That doesn't mean that it doesn't have use as a currency at all. It's just that you'll have better success with it in Europe. If you use bitcoin in Japan where merchant adoption is much higher, then you won't find this as being a problem. Considering the fact that bitcoin is a global currency, then it is to be expected that its success as a currency would vary greatly by region.
Being forced to pay taxes on any capital gains or losses on every exchange of bitcoin in the US is definitely a hindrance to its use as a currency (what relevance was this to the discussion?). I do have hope that will change someday in the US. But, that's a local regulatory problem for whatever region you're in. Since bitcoin is global, that's not the case for everyone that goes to use it as currency (why were capital gains brought up?).
The original point that was being discussed however was just simply the fact that currencies go up and down in value and that is not unique to bitcoin alone. I don't know what you're arguing and why there were so many tangents taken here. Excuse me if I jumped all around, but I'm just trying to address each of the various points you brought up.
Looking back at thenextguy's post who you responded to, it looks like you're now in agreement with him (that currencies can change value in their own right). So I guess we all are in agreement. So that's great! Cheers.
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Please explain how it doesn't make sense. I will have 100 cents worth of buying power in the USA regardless of whether the USD rises or falls against the Euro. Its value or utility doesn't change here regardless of whether it goes up or down against the Euro.
Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price.
I agree that a bitcoin is going to be worth 100,000,000 satoshis regardless of whether its price goes up in dollar terms or not. Are you saying that your statement doesn't make sense?
I don't realize a capital gain or loss when the dollar's buying power changes due to inflation or deflation.
A fifty year old dollar is still worth a dollar now. It just has less buying power now.
Your situation with bitcoin is similar, but with one very big difference. You can't buy much of anything with your bitcoin without first realizing a capital gain or loss by selling it for whatever the market thinks it's worth in current dollars at that time; just like with gold.
If I hide a dollar under my mattress for 10 years, I can still spend it for whatever goods or services it will buy at a later time, without realizing a taxable gain or loss.
You can't even hide a bitcoin under your mattress, but that's neither here nor there.
Because that's no different than saying that the value of a dollar is a dollar. It isn't necessarily that it doesn't make sense, but just that it is an absurb obviousness that wasn't in question by anyone. A dog will always be a dog too.
I'm glad we can agree on that.
Just $1 buys you a bagel today doesn't mean that will always hold true. An exchange rate between two different currencies is only the relativity of those values between the currencies being exchanged.
The fact that bitcoin needs to be exchanged before being spent is irrelevant as to whether it has the capability of being used as a currency. If you take a euro to a US store, you probably won't be able to buy much with it. That doesn't mean that it doesn't have use as a currency at all. It's just that you'll have better success with it in Europe. If you use bitcoin in Japan where merchant adoption is much higher, then you won't find this as being a problem. Considering the fact that bitcoin is a global currency, then it is to be expected that its success as a currency would vary greatly by region.
I never disputed whether it has the capability of being used as a currency. Bowls of oatmeal have the capability of being used as currency too. Something being accepted as a currency has nothing inherently to do with what it is or can do.
Being forced to pay taxes on any capital gains or losses on every exchange of bitcoin in the US is definitely a hindrance to its use as a currency (what relevance was this to the discussion?). I do have hope that will change someday in the US. But, that's a local regulatory problem for whatever region you're in. Since bitcoin is global, that's not the case for everyone that goes to use it as currency (why were capital gains brought up?).
If it did not elucidate anything for you, you should feel free to ignore it.
The original point that was being discussed however was just simply the fact that currencies go up and down in value and that is not unique to bitcoin alone. I don't know what you're arguing and why there were so many tangents taken here. Excuse me if I jumped all around, but I'm just trying to address each of the various points you brought up.
Looking back at thenextguy's post who you responded to, it looks like you're now in agreement with him (that currencies can change value in their own right). So I guess we all are in agreement. So that's great! Cheers.
Yes, I too think it's good that we can agree on stuff we never disagreed about.
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I'd argue exchange rate vs market price is a distinction without a difference. The whether you say market price or exchange rate, you need variable numbers of dollars to buy a given amount of euros, RMB, bitcoin, gold, or porkbellies. In all four cases that price is determined by how many people are willing to buy (and at what prices) and how many are willing to sell (and at what prices).
But I remain open to being proven wrong though. How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity, because that would just become circular reasoning).
I said I wasn't going to debate whether bitcoin is a currency, and I'm going to hold to that.
But I think I can convince you of the difference in those terms simply by using the dictionary.
ex·change rate
noun
noun: exchange rate; plural noun: exchange rates; noun: rate of exchange; plural noun: rates of exchange
the value of one currency for the purpose of conversion to another.
cur·ren·cy
ˈkərənsē/
noun
noun: currency; plural noun: currencies
1.
a system of money in general use in a particular country.
"the dollar was a strong currency"
synonyms: money, legal tender, cash, banknotes, bills, notes, coins, coinage, specie
"foreign currency"
2.
the fact or quality of being generally accepted or in use.
"the term gained currency during the second half of the 20th century"
synonyms: prevalence, circulation, exposure; More
acceptance, popularity
"a term that has gained new currency"
the time during which something is in use or operation.
Bitcoin fails the test on both counts.
USD, Euros, and RMB all pass with flying colors.
Now, I'm not saying that bitcoin isn't a currency. But that doesn't mean that I agree that it's a currency, either. I'm simply saying that by definition, it doesn't have an exchange rate, while it very clearly does have a market price.
I concede the point about hiding it under a mattress. Well played. ;)
If I follow the reasoning from your two definitions, your argument is:
(A) the difference between an exchange rate and a market price is that an exchange rate is defined as the rate at which two currencies can be converted from one to the other, and a market price is is the rate at which one currency and one commodity can be converted from one to the other
(B) if bitcoin is not a currency, USD and bitcoin, by definition, cannot have an exchange rate.
I don't actually disagree with either A or B. But I will say that the logically consequence of accepting those two statements is that stating "[I think] Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price." is simply another way of restating "[I think] Bitcoin is not a currency."
Which is a perfectly reasonably view to hold. But saying bitcoin has a market price rather than an exchange rate is not a form of evidence that bitcoin isn't a currency, it's a somewhat less direct way of informing the reader that your view is that bitcoin is not a currency.
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I'd argue exchange rate vs market price is a distinction without a difference. The whether you say market price or exchange rate, you need variable numbers of dollars to buy a given amount of euros, RMB, bitcoin, gold, or porkbellies. In all four cases that price is determined by how many people are willing to buy (and at what prices) and how many are willing to sell (and at what prices).
But I remain open to being proven wrong though. How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity, because that would just become circular reasoning).
I said I wasn't going to debate whether bitcoin is a currency, and I'm going to hold to that.
But I think I can convince you of the difference in those terms simply by using the dictionary.
ex·change rate
noun
noun: exchange rate; plural noun: exchange rates; noun: rate of exchange; plural noun: rates of exchange
the value of one currency for the purpose of conversion to another.
cur·ren·cy
ˈkərənsē/
noun
noun: currency; plural noun: currencies
1.
a system of money in general use in a particular country.
"the dollar was a strong currency"
synonyms: money, legal tender, cash, banknotes, bills, notes, coins, coinage, specie
"foreign currency"
2.
the fact or quality of being generally accepted or in use.
"the term gained currency during the second half of the 20th century"
synonyms: prevalence, circulation, exposure; More
acceptance, popularity
"a term that has gained new currency"
the time during which something is in use or operation.
Bitcoin fails the test on both counts.
USD, Euros, and RMB all pass with flying colors.
Now, I'm not saying that bitcoin isn't a currency. But that doesn't mean that I agree that it's a currency, either. I'm simply saying that by definition, it doesn't have an exchange rate, while it very clearly does have a market price.
I concede the point about hiding it under a mattress. Well played. ;)
If I follow the reasoning from your two definitions, your argument is:
(A) the difference between an exchange rate and a market price is that an exchange rate is defined as the rate at which two currencies can be converted from one to the other, and a market price is is the rate at which one currency and one commodity can be converted from one to the other
(B) if bitcoin is not a currency, USD and bitcoin, by definition, cannot have an exchange rate.
I don't actually disagree with either A or B. But I will say that the logically consequence of accepting those two statements is that stating "[I think] Bitcoin doesn't have an "exchange rate" any more than gold does. Both have a market price." is simply another way of restating "[I think] Bitcoin is not a currency."
Which is a perfectly reasonably view to hold. But saying bitcoin has a market price rather than an exchange rate is not a form of evidence that bitcoin isn't a currency, it's a somewhat less direct way of informing the reader that your view is that bitcoin is not a currency.
I'll repeat (since you probably didn't see my edit) that I'm merely stating what should be an obvious fact, that by definition, bitcoin doesn't have an exchange rate. I don't need to agree or disagree with that in order to cite definitions from the dictionary, or use words properly from the dictionary in a sentence.
While you probably can deduce what my real opinion is, I don't need or want to join in on a debate that I don't personally think has any merit in being argued. The distinction between exchange rate and market price should be self-evident to anyone who wants to use those terms.
When I correspond with other people, I make every effort to choose words having semantics that don't need to be debated.
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You're certainly welcome to state that bitcoin does not satisfy your own definition of the word currency. But I still don't see what the exchange rate/market price distinction adds to the discussion other than being a more complicated way of indicating the same view about whether bitcoin is or isn't a currency.
The reason I think you're trying to back away from that debate is that the same word will have different meanings to different people, and be defined differently in different dictionaries. For example, I'm not sure where you found you set of dictionary definitions. I looked currency up on dictionary.com (http://www.dictionary.com/browse/currency) and this is what I found there.
currency
[kur-uh n-see, kuhr-]
noun, plural currencies.
1. something that is used as a medium of exchange; money.
2. general acceptance; prevalence; vogue.
3. a time or period during which something is widely accepted and circulated.
So I'm happy to put aside the debate about whether bitcoin is or is not a currency. Arguing with people about the meanings of word (rather than the concepts behind those words) isn't particularly satisfying. My point is simply that once we do put the currency/not-currency debate aside, there is no remaining distinction between the idea represented by the words "exchange rate" and the idea represented by the words "market price."
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro. You will only notice that difference if you're trying to buy an asset or commodity (bread, for instance) with USD which is priced in Euros, because you have to then exchange your dollars for Euros at the going rate in order to purchase that bread.
I won't get into a debate about whether gold or bitcoins are currencies. Regardless of where you stand on that, it is inarguable that both are assets that react to the forces of supply and demand. And that is why both gold and bitcoins go up or down in price at any given time. They are both assets that are subject to market forces, priced in whatever currency you happen to be buying or selling them in at the time.
If you want to "spend" a part of your bitcoin on a loaf of bread, you have to sell enough of it to pay for the bread, and pay capital gains tax (if any) first, at the market price, before you can do that. You could probably spend your bitcoin directly to get access restored to your hacked computer, but I kind of consider that to be an outlier scenario at the moment.
It seems like either ILikeDividends is in the mood to argue semantics or I'm just having a hard time understanding the point trying to be made and how we got to discussing what is being discussed. This was your original post that started the discussion in Reply #265. If your 6 posts were to simply say that you don't think that Bitcoin is a currency (which is a very roundabout way of doing so), why not be forthright and just say that and discuss that as opposed to arguing semantics about something completely unrelated?
For the sake of being even more forthright, since this was your original post and it seems like all 6 of your posts were simply an attempt to explain why bitcoin is not a currency, then can you answer this question? Given your above quoted reply, if Bitcoin were being used widely to be spent directly on goods (just like in your outlier scenario above), then wouldn't that qualify bitcoin as a currency to you? I'm not sure how you could answer 'no' to that without leading to some irrationality at somepoint along the way.
I say this because in Japan you can easily use Bitcoin as a currency to purchase goods directly in many local shops and it is recognized as legal tender there. So if Bitcoin is recognized as a currency in at least one nation, then wouldn't that classify it as currency? Most national fiat currencies are only recognized as legal tender in their respective nation, that doesn't disqualify their classification as being recognized as currencies regardless of your origin.
I know you said that you didn't want to debate that, but it seems like after 6 posts of strange circular replies from you, you've been doing that all along anyway.
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You're certainly welcome to state that bitcoin does not satisfy your own definition of the word currency. But I still don't see what the exchange rate/market price distinction adds to the discussion other than being a more complicated way of indicating the same view about whether bitcoin is or isn't a currency.
The reason I think you're trying to back away from that debate is that the same word will have different meanings to different people, and be defined differently in different dictionaries. For example, I'm not sure where you found you set of dictionary definitions. I looked currency up on dictionary.com (http://www.dictionary.com/browse/currency) and this is what I found there.
currency
[kur-uh n-see, kuhr-]
noun, plural currencies.
1. something that is used as a medium of exchange; money.
2. general acceptance; prevalence; vogue.
3. a time or period during which something is widely accepted and circulated.
So I'm happy to put aside the debate about whether bitcoin is or is not a currency. Arguing with people about the meanings of word (rather than the concepts behind those words) isn't particularly satisfying. My point is simply that once we do put the currency/not-currency debate aside, there is no remaining distinction between the idea represented by the words "exchange rate" and the idea represented by the words "market price."
I actually have already stated my opinion about whether bitcoin is a currency upthread. I'm not actually trying to hide my opinion. I just don't want to engage in a debate over it.
If I mistakenly saw other nuances to the question asked by the post I responded to, which weren't actually valid, it wouldn't be the first time I've committed such an offense. I apologize to any who were offended, without reservation.
However, there is no debate to back away from. Hey, I'm ok using the dictionary of your choice. If your argument is founded on that first definition, then bitcoin fails that, too.
Your dictionary defines medium of exchange as follows:
noun
1. anything generally accepted as representing a standard of value and exchangeable for goods or services.
Again, we weren't having a debate about whether bitcoin is a currency; at least I wasn't. But that doesn't mean I'm willing to dismiss the meaning of words, and make up new unconventional semantics that other people won't understand, either, and then use them in correspondence.
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A dollar is going to be worth a 100 cents regardless of whether its exchange rate rises or falls against the Euro. You will only notice that difference if you're trying to buy an asset or commodity (bread, for instance) with USD which is priced in Euros, because you have to then exchange your dollars for Euros at the going rate in order to purchase that bread.
I won't get into a debate about whether gold or bitcoins are currencies. Regardless of where you stand on that, it is inarguable that both are assets that react to the forces of supply and demand. And that is why both gold and bitcoins go up or down in price at any given time. They are both assets that are subject to market forces, priced in whatever currency you happen to be buying or selling them in at the time.
If you want to "spend" a part of your bitcoin on a loaf of bread, you have to sell enough of it to pay for the bread, and pay capital gains tax (if any) first, at the market price, before you can do that. You could probably spend your bitcoin directly to get access restored to your hacked computer, but I kind of consider that to be an outlier scenario at the moment.
It seems like either ILikeDividends is in the mood to argue semantics or I'm just having a hard time understanding the point trying to be made and how we got to discussing what is being discussed. This was your original post that started the discussion in Reply #265. If your 6 posts were to simply say that you don't think that Bitcoin is a currency (which is a very roundabout way of doing so), why not be forthright and just say that and discuss that as opposed to arguing semantics about something completely unrelated?
For the sake of being even more forthright, since this was your original post and it seems like all 6 of your posts were simply an attempt to explain why bitcoin is not a currency, then can you answer this question? Given your above quoted reply, if Bitcoin were being used widely to be spent directly on goods (just like in your outlier scenario above), then wouldn't that qualify bitcoin as a currency to you? I'm not sure how you could answer 'no' to that without leading to some irrationality at somepoint along the way.
As I've stated numerous times, I'm not going to be drawn into a debate that has no merit. I would derive no satisfaction in convincing you one way or another on whether bitcoin is a currency or not.
That would be akin to engaging in a religious debate with you. That would also be a complete waste of time.
I say this because in Japan you can easily use Bitcoin as a currency to purchase goods directly in many local shops and it is recognized as legal tender there. So if Bitcoin is recognized as a currency in at least one nation, then wouldn't that classify it as currency? Most national fiat currencies are only recognized as legal tender in their respective nation, that doesn't disqualify their classification as being recognized as currencies regardless of your origin.
I know you said that you didn't want to debate that, but it seems like after 6 posts of strange circular replies from you, you've been doing that all along anyway.
You have an uncanny knack for seeing arguments where there are none. I'm not arguing semantics, I'm simply showing them to you without opining one way or another.
If you want to argue against either of those dictionary's definitions, then have at it. I won't join in that debate either.
If you want to continue redefining words with your own "secret" meaning, have fun with that, too. Just don't be too shocked if nobody has a clue what you're talking about.
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In my original post I stated that, unless one is debating whether something is or isn't a currency, I was aware of no other difference between an exchange rate and a market price.
After several rounds of discussion back and forth with you, I remain unaware of any other differences between an exchange rate and a market price.
But that doesn't mean I'm willing to dismiss the meaning of words, and make up new unconventional semantics that other people won't understand, either, and then use them in correspondence.
Please point to the post where I proposed unconventional semantics?
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In my original post I stated that, unless one is debating whether something is or isn't a currency, I was aware of no other difference between an exchange rate and a market price.
The difference between exchange rate and market price does not depend on whether we are debating anything, or on whether you are aware of that difference.
After several rounds of discussion back and forth with you, I remain unaware of any other differences between an exchange rate and a market price.
But that doesn't mean I'm willing to dismiss the meaning of words, and make up new unconventional semantics that other people won't understand, either, and then use them in correspondence.
Please point to the post where I proposed unconventional semantics?
That was an assumption on my part. As far as I know, you have not explicitly redefined the meaning of the term, "currency." However, if my assumption was incorrect, then I can't for the life of me figure out why we keep going around and around on this.
This is getting interesting now. Are you now offering an opinion that bitcoin is not a currency? Just curious. Personally, I don't care one way or another.
If you do think it's a currency, then I don't need a quote from you to justify my assumption that you don't agree with the conventional semantics.
You can prove my assumption correct or incorrect in your next post, if you care to. I won't try to change your mind in either case.
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As I've stated numerous times, I'm not going to be drawn into a debate that has no merit. I would derive no satisfaction in convincing you one way or another on whether bitcoin is a currency or not.
That would be akin to engaging in a religious debate with you. That would also be a complete waste of time.
Likewise, but then I find it puzzling that you just spent 7 posts having that very exact debate in an extremely indirect way. For someone who is against wasting time, I find it even more odd considering the fact that yours was the post that originally even brought up the question as the whether or not bitcoin was a currency or not (no one else here was putting that into question at all).
You have an uncanny knack for seeing arguments where there are none. I'm not arguing semantics, I'm simply showing them to you without opining one way or another.
Actually I'm just baffled at trying to understand the difference between that...
If you want to continue redefining words with your own "secret" meaning, have fun with that, too. Just don't be too shocked if nobody has a clue what you're talking about.
I wasn't defining any words at all in any of my posts. Care to quote me where I defined any words with secret meaning?
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As I've stated numerous times, I'm not going to be drawn into a debate that has no merit. I would derive no satisfaction in convincing you one way or another on whether bitcoin is a currency or not.
That would be akin to engaging in a religious debate with you. That would also be a complete waste of time.
Likewise, but then I find it puzzling that you just spent 7 posts having that very exact debate in an extremely indirect way. For someone who is against wasting time, I find it even more on considering the fact that yours was the post that originally even brought up the question as the whether or not bitcoin was a currency or not (no one else here was putting that into question at all).
I don't consider having fun a waste of time. I find the intensity of your apparent desperation to draw me into a debate that will never occur fascinating and thoroughly entertaining.
You have an uncanny knack for seeing arguments where there are none. I'm not arguing semantics, I'm simply showing them to you without opining one way or another.
Actually I'm just baffled at trying to understand the difference between that...
Acknowledged.
If you want to continue redefining words with your own "secret" meaning, have fun with that, too. Just don't be too shocked if nobody has a clue what you're talking about.
I wasn't defining any words at all in any of my posts. Care to quote me where I defined any words with secret meaning?
If you'll scroll up one post, I think my last reply should pretty much apply to your question as well. And the invitation to resolve the question is extended to you, too.
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In my original post I stated that, unless one is debating whether something is or isn't a currency, I was aware of no other difference between an exchange rate and a market price.
The difference between exchange rate and market price does not depend on whether we are debating anything, or on whether you are aware of that difference.
You are correct that there could still be another difference in the ideas represented by these terms which I'm unaware of. But since you've yet to propose any additional differences we are left with three possibilities:
1) there are no additional differences between the two terms
2) there is some additional technical difference neither of us aware of (but there is no functional difference between this and #1 for the purposes of our discussion)
3) there is a difference you're aware of, that I'm not aware of, and for some reason you don't want to state what it is (which seems unlikely but if so would make further discussion with you seem particularly fruitless).
But that doesn't mean I'm willing to dismiss the meaning of words, and make up new unconventional semantics that other people won't understand, either, and then use them in correspondence.
Please point to the post where I proposed unconventional semantics?
That was an assumption on my part. As far as I know, you have not explicitly redefined the meaning of the term, "currency." However, if my assumption was incorrect, then I can't for the life of figure out why we keep going around and around on this.
This is getting interesting now. Are you now offering an opinion that bitcoin is not a currency? Just curious. Personally, I don't care one way or another.
If you do think it's a currency, then my assumption doesn't need a quote from you to justify my assumption that you don't agree with the conventional semantics.
I've found the best way to avoid debates I'm not interested in (and I'm really not interested in having this debate, with either side) is to genuinely not have a position, rather than stating or implying "I believe X, but I don't want to discuss or debate it."
All I'm trying to get across at this point* is that -- unless option #3 above is correct -- a discussion of whether bitcoin has an exchange rate with the US dollar or a market price in US dollars is the exact same discussion as whether bitcoin is or isn't a currency. There's no additional information content.
*Originally I was trying to figure out if you were trying to convey some additional idea with the exchange rate vs. market price distinction.
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In my original post I stated that, unless one is debating whether something is or isn't a currency, I was aware of no other difference between an exchange rate and a market price.
The difference between exchange rate and market price does not depend on whether we are debating anything, or on whether you are aware of that difference.
You are correct that there could still be another difference in the ideas represented by these terms which I'm unaware of. But since you've yet to propose any additional differences we are left with three possibilities:
1) there are no additional differences between the two terms
2) there is some additional technical difference neither of us aware of (but there is no functional difference between this and #1 for the purposes of our discussion)
3) there is a difference you're aware of, that I'm not aware of, and for some reason you don't want to state what it is (which seems unlikely but if so would make further discussion with you seem particularly fruitless).
But that doesn't mean I'm willing to dismiss the meaning of words, and make up new unconventional semantics that other people won't understand, either, and then use them in correspondence.
Please point to the post where I proposed unconventional semantics?
That was an assumption on my part. As far as I know, you have not explicitly redefined the meaning of the term, "currency." However, if my assumption was incorrect, then I can't for the life of figure out why we keep going around and around on this.
This is getting interesting now. Are you now offering an opinion that bitcoin is not a currency? Just curious. Personally, I don't care one way or another.
If you do think it's a currency, then my assumption doesn't need a quote from you to justify my assumption that you don't agree with the conventional semantics.
I've found the best way to avoid debates I'm not interested in (and I'm really not interested in having this debate, with either side) is to genuinely not have a position, rather than stating or implying "I believe X, but I don't want to discuss or debate it."
All I'm trying to get across at this point* is that -- unless option #3 above is correct -- a discussion of whether bitcoin has an exchange rate with the US dollar or a market price in US dollars is the exact same discussion as whether bitcoin is or isn't a currency. There's no additional information content.
*Originally I was trying to figure out if you were trying to convey some additional idea with the exchange rate vs. market price distinction.
This isn't a multiple choice question. The only thing I ever asserted, apart from actually using that term properly in a sentence, is that, by definition, bitcoin doesn't have an exchange rate.
If you don't agree with that, then I propose that we agree to disagree.
You can agree, disagree, agree to disagree, continue posting, or withdraw. Those are really the only multiple choices available.
It seems that the only thing we are debating is whether we are actually having a debate or not about bitcoin as a currency. And I'm quite happy to debate that. I never said I wouldn't debate anything. I just said I wouldn't debate whether bitcoin is a currency or not. And I won't.
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So in summation, after rounds and rounds of discussion in response to the very simple question "How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity)?" the answer is there are no other differences between the two terms you would care to name.
You really could have saved us both a lot of time (and everyone else following this thread a lot of extremely boring posts) if you'd just said that at the beginning.
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So in summation, after rounds and rounds of discussion in response to the very simple question "How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity)?" the answer is there are no other differences between the two terms you would care to name.
You really could have saved us both a lot of time (and everyone else following this thread a lot of extremely boring posts) if you'd just said that at the beginning.
You said flatly, without qualification, that you'd argue there was no distinguishable difference between the two terms.
I'd argue exchange rate vs market price is a distinction without a difference.
Then you said this:
But I remain open to being proven wrong though. How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity, because that would just become circular reasoning).
I proved you wrong on my very first reply, and then you were the one who flooded the thread with redundant posts after that.
I didn't agree (or fully even understand) how currency vs commodity amounts to circular reasoning, but I didn't want to debate that point. That point was neither resolved or conceded without comment from me; i.e., we never debated it. I merely withdrew from that point.
Based on your articulation of the point you said you were willing to argue, it quite understandably wasn't obvious that your acceptable proof was contingent on anything more than what you said you'd argue for.
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Indeed, this is a dumb argument.
I am more interested in the conundrum that something that had the promise to make money flow more easily and cheaply between normal people has been hijacked by nutty speculators such that it's practically useless for it's intended (ok, who knows what the intent really was, but still) purpose. The coming (who knows when) crash will give the whole industry a black eye and probably tie us to the stupid credit card processors and their vampire fees for another decade.
-W
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New summary: you are not interested in answering my original question: "How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity)?" and apparently have been trying to have an unrelated argument.
I don't know how I could have been clearer about the question I was asking than I was in my original post. However, it's clear you feel very strongly about whatever separate discussion you've been having the whole time.
I apologize for taking so long to realize we have been apparently been having completely unrelated conversations, thank you for clarifying.
(https://imgs.xkcd.com/comics/one-sided.png)
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New summary: you are not interested in answering my original question: "How would you define the difference between a market price and an exchange rate (other than that one applies to a currency and one applies to a commodity)?" and apparently have been trying to have an unrelated argument.
I don't know how I could have been clearer about the question I was asking than I was in my original post. However, it's clear you feel very strongly about whatever separate discussion you've been having the whole time.
I apologize for taking so long to realize we have been apparently been having completely unrelated conversations, thank you for clarifying.
(https://imgs.xkcd.com/comics/one-sided.png)
I am literally thrilled to finally find some common ground with you on this. If the distinction between currency versus commodity is deemed irrelevant, then the distinction between exchange rate and market price is equally meaningless.
I propose we jointly declare this debate resolved.
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I am literally thrilled to finally find some common ground with you on this. If the distinction between currency versus commodity is deemed irrelevant, then the distinction between exchange rate and market price is equally meaningless.
I propose we declare this debate resolved.
Exactly! Yes, if we can agree on that point then we are, in fact, in agreement.
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I am literally thrilled to finally find some common ground with you on this. If the distinction between currency versus commodity is deemed irrelevant, then the distinction between exchange rate and market price is equally meaningless.
I propose we declare this debate resolved.
Exactly! Yes, if we can agree on that point then we are, in fact, in agreement.
<Gavel slams with a loud whack.> The resolution is adopted.
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Thats it???? That's your rebuttal??
I guess there wasn't much you disagreed with then...
And yeah, this is a forum for people who are seeking financial independence, not a crypto fan-club. So, assuming the mods will still have me, I'll continue to giving advice I think will help advance people towards the goal of FI. This includes not speculating on cryptos. I do weigh in on other topics as well. Sometimes I agree with the consensus, sometimes not.
You know, for being on a financial independence forum, you certainly spend a lot of time hanging around these parts talking nothing but cryptos.
That was my rebuttal because that has already be discussed with you and it has been explained several times here and in the other Bitcoin threads which you were a part of why Bitcoin's blockchain is so secure.
You even had a post you created yourself here where you questioned this very topic of security with a clear misunderstand of how it all works:
https://forum.mrmoneymustache.com/investor-alley/things-i-don't-understand-about-bitcoin/ (https://forum.mrmoneymustache.com/investor-alley/things-i-don't-understand-about-bitcoin/)
Here you said:
"3.) It's secure... But for how long? Taking into account the ever increasing computing power, at what point will it be simple to brute-force into bitcoin wallets. The blockchain is a public ledger so I assume someone could download the whole thing and set a stable of computers against determining the private key for high value bitcoin wallets until they are cracked. With the exponential advance of computing power, i.e. Moore's Law, how far away are we really?"
In another post, you said:
"I believe that the block-chain is growing exponentially such that at a certain point the power/energy required to continue to validate the blocks in the block chain will be impossibly large. At that point the network will collapse under its own weight and no new transactions will be validated."
It seems like you have a misunderstanding on how the blockchain works and why it is so secure. As someone who works in Information Security, I will take to time to explain a few things for you.
Bitcoin's security comes from several specific areas and I'll list out the three of the most important ones:
1) Decentralization: Bitcoin's main security protection comes from the fact that it is a decentralized network. There are currently tens of thousands of bitcoin nodes around the world that each store their own copy of the entire blockchain and that validate and propagate blocks across the network to ensure they are valid blocks that meet all the rules of the network. This makes it theoretically impossible to hack the entire network. If there were a remote code execution vulnerability in the bitcoin core software, you'd be able to compromise and run code on that individual node itself, but the blockchain is public information, so there is no confidential data to steal. You could compromise the keys that are stored on that individual's node and potential steal bitcoin from one user, but that isn't a compromise that threatens the entire network. Contrast this to traditional centralized institutions that store massive amounts of confidential consumer information. Many of the data breaches that take place go unnoticed for months or even years, meanwhile millions of dollars are lost due to unauthorized transaction fraud because of these breaches. These damages are completely lost and unrecoverable, not unlike lost bitcoin are today. Most large companies that handle payment information now have cyber-security insurance to help pay for damages in the event of a breach to protect the consumers. This same protection can be applied to centralized bitcoin organizations. Insurance payouts can be used to return the stolen amounts of bitcoin back to consumers that lost it for those people that had bitcoin stored with centralized institutions. Breaches against central authorities that result in financial loss for consumers is not a critique against bitcoin, it is a critique against centralization. However, the Bitcoin network has a solution for this. It allows for users to take security into their own hands by giving them the power to own their private keys. This eliminates the central single point of failure inherent in our institutions today and makes it much more difficult for attackers to steal large amounts of funds from massive stockpiles of information.
2) Proof-of-work: Proof of work is what is used to include transactions onto the blockchain so that they're immutable and permanently stored as part of the transaction history for the public ledger. SHA256 is a hashing algorithm. Hashing algorithms are considered one-way encryption. That means that there is data loss involved in the process and the output can never be transformed back to the input that created it. That means the only viable method of retrieving the input from the output is to simply brute-force all possible combinations. For a primer on how secure 256-bit hashing is, here is a good video to watch:
https://www.youtube.com/watch?v=S9JGmA5_unY (https://www.youtube.com/watch?v=S9JGmA5_unY)
Also, here is a snippet of text regarding the thermodynamics required of today's computing technology in order to break 256-bit security:
"We cannot even imagine a world where 256-bit brute force searches are possible. It requires some fundamental breakthroughs in physics and our understanding of the universe.
One of the consequences of the second law of thermodynamics is that a certain amount of energy is necessary to represent information. To record a single bit by changing the state of a system requires an amount of energy no less than kT, where T is the absolute temperature of the system and k is the Boltzman constant. (Stick with me; the physics lesson is almost over.)
Given that k = 1.38 × 10−16 erg/K, and that the ambient temperature of the universe is 3.2 Kelvin, an ideal computer running at 3.2 K would consume 4.4 × 10−16 ergs every time it set or cleared a bit. To run a computer any colder than the cosmic background radiation would require extra energy to run a heat pump.
Now, the annual energy output of our sun is about 1.21 × 1041 ergs. This is enough to power about 2.7 × 1056 single bit changes on our ideal computer; enough state changes to put a 187-bit counter through all its values. If we built a Dyson sphere around the sun and captured all its energy for 32 years, without any loss, we could power a computer to count up to 2192. Of course, it wouldn't have the energy left over to perform any useful calculations with this counter.
But that's just one star, and a measly one at that. A typical supernova releases something like 1051 ergs. (About a hundred times as much energy would be released in the form of neutrinos, but let them go for now.) If all of this energy could be channeled into a single orgy of computation, a 219-bit counter could be cycled through all of its states.
These numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space."
Another unique property to hashing is that every unique input has a completely unique output. Currently, there are no known collisions for the SHA256 algorithm that bitcoin uses. This means that for all the infinite possible inputs, we have currently not found any two inputs that yield the same output. This is critical for the next security feature. For each new block that is added to the blockchain, the hash of the previous block is included and hashed into the new block. This is what creates the immutable blockchain. This means that if any prior block were to be altered, the entire proof of work that went into all blocks there afterward would need to be rehashed in order for the blockchain to stay valid.
Currently, the bitcoin network consists of the most computing power in any one single network in the world. There is more computing power on the bitcoin network that the total of the world's 600 top supercomputers combined. This is an immense amount of computing power that provides bitcoin its security and is completely unique to bitcoin's blockchain. I am not sure exactly the current number as it is constantly changing, but in order for the entire bitcoin blockchain to be reworked, the current bitcoin network would need to calculate for something like 200 days straight. This means that for any other entity that wanted to alter the transaction history of the bitcoin blockchain, not only would you need to have more computing power than the rest of the bitcoin network, but you'd need to put it to work for a very long time which would quickly become cost prohibitive (as if having that much computing power wouldn't be cost prohibitive for one single entity in the first place). The further any given block is buried in the blockchain, the more secure it becomes. Estimates are something around the vicinity of $60 billion dollars to attempt to "counterfeit" one single bitcoin which means economically it just makes sense to purchase bitcoin on the market as opposed to trying to cheat the system. That cost will only continue to rise as more computing power is added to the network.
3) Quantum computing protection: Now the idea of computers being made of something other than matter and occuying something other than space (as noted in the quote above) alludes to the idea of quantum computers. Quantum computers use qubits instead of bits consisting of 1's and 0's. Qubits can be a 1 or a 0 and essentially any superposition of those two states. Using specific algorithms (like Shor's algo), quantum computers can take an integer and finds its prime factors extremely quickly because of the fact that it can solve for many states at the same and solve the equation in polynomial time.
In otherwords, given a public key (which is based on two very large prime numbers), you can find the original prime used numbers which is essentially the private key. Bitcoin uses public and private keys for digital signatures for securing bitcoins for their owners. However, bitcoin uses clever techniques to protect against the threat of quantum computing. Whenever a transaction is signed to send money to another address, its public key is added to the signed transaction so that the network and recipient can verify that the signer was indeed the owner of the bitcoin's being sent. Because addresses are hashes of the public key, this means that the only time that the actual public key is exposed is when the bitcoin address is actually being emptied and sent to the recipient. This is why it is important to never use the same bitcoin address twice. By the time a quantum computer receives the public key in order to attempt to decipher the private key from it, the address will have already been emptied of bitcoin and be worthless. Since quantum computers are not efficient at solving hashing equations, this protects bitcoin from the threat of quantum computers. Should there be a need to change encryption algorithms or increase the key size, this can be done through an upgrade and due to the decentralized nature of the network, the threat of this type of issue in the future is a much bigger threat to existing traditional centralized institutions that depend on these same encryption algorithms for security and rely on single points of failure to protect massive amounts of confidential data.
This is just a small sample of some of the more major components of the security that bitcoin provides and I hope I explained it in a way that is easy to understand.
L.A.S., I gave you the rebuttal I did because it is clear from your posts that after information like this is provided for you, you still continue to post FUD information about bitcoin such as an article about a data breach that is not unique to bitcoin, but is commonplace among every industry out there. The fact that the bitcoin that were stolen cannot be recovered is no different from the billions of USD that are stolen every year before even the data breaches that were the root cause were even discovered. At least when bitcoin is stolen, it is apparent immediately that they are gone compared to the covert fraud that takes place from compromised payment information every single day before it becomes clear there was a breach somewhere.
You're free to post on any topic you'd like, but don't mistake what you're posting as advice to anyone when it is clear from your post history that you have a clear bias against this technology and a lack of understanding of it as well. I welcome any open dialog and debate and if you'd like to engage in that, I'd be more than happy to.
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L.A.S., I gave you the rebuttal I did because it is clear from your posts that after information like this is provided for you, you still continue to post FUD information about bitcoin such as an article about a data breach that is not unique to bitcoin, but is commonplace among every industry out there. The fact that the bitcoin that were stolen cannot be recovered is no different from the billions of USD that are stolen every year before even the data breaches that were the root cause were even discovered. At least when bitcoin is stolen, it is apparent immediately that they are gone compared to the covert fraud that takes place from compromised payment information every single day before it becomes clear there was a breach somewhere.
The difference with bitcoin is that there is no consumer protection at all. Once money has been stolen it's gone. I mean, if there's a data breach at my bank at a billion dollars are lost . . . I don't care because it doesn't impact me. If my credit card is stolen and there are fraudulent charges, they don't impact me. When there's a data breach at a place holding bitcoin for people, each of those people will lose their funds. There also currently exists no real way to trace the missing money.
While I agree with you that there's a lot of cool security technology involved with crypto-currencies, your continual refusal to acknowledge the poor (non-existent) level of consumer protection that comes from using them is a bit odd.
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L.A.S., I gave you the rebuttal I did because it is clear from your posts that after information like this is provided for you, you still continue to post FUD information about bitcoin such as an article about a data breach that is not unique to bitcoin, but is commonplace among every industry out there. The fact that the bitcoin that were stolen cannot be recovered is no different from the billions of USD that are stolen every year before even the data breaches that were the root cause were even discovered. At least when bitcoin is stolen, it is apparent immediately that they are gone compared to the covert fraud that takes place from compromised payment information every single day before it becomes clear there was a breach somewhere.
The difference with bitcoin is that there is no consumer protection at all. Once money has been stolen it's gone. I mean, if there's a data breach at my bank at a billion dollars are lost . . . I don't care because it doesn't impact me. If my credit card is stolen and there are fraudulent charges, they don't impact me. When there's a data breach at a place holding bitcoin for people, each of those people will lose their funds. There also currently exists no real way to trace the missing money.
While I agree with you that there's a lot of cool security technology involved with crypto-currencies, your continual refusal to acknowledge the poor (non-existent) level of consumer protection that comes from using them is a bit odd.
Shall I assume that you don't agree that bitcoin is suitable for wide adoption and a general acceptance as a standard of value and a medium of exchange?
I have no noteworthy disagreements with your post. Just curious. ;)
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The difference with bitcoin is that there is no consumer protection at all. Once money has been stolen it's gone. I mean, if there's a data breach at my bank at a billion dollars are lost . . . I don't care because it doesn't impact me. If my credit card is stolen and there are fraudulent charges, they don't impact me. When there's a data breach at a place holding bitcoin for people, each of those people will lose their funds. There also currently exists no real way to trace the missing money.
That's not really a difference. If there is a data breach at a company, there will likely be millions of dollars that were permanently stolen that can never be returned. The company covers those costs for the consumer. Why can't that same thing be true for centralized companies that handle bitcoin? It isn't the currency that is providing the protection in either case. Most data breaches that occur go unnoticed for months all the while millions of dollars are being stolen. The protections that are in place that protect the consumer are not protections provided by the currency, they're just simply protections provided by the companies because they'd like to stay in business. The customers are protected not because they were able to retrieve the stolen funds (that's almost never the case), but simply because they're protecting their business...the customers...by not putting the loss on them. Cyber-security insurance is a massive industry now for this very reason. Coinbase undoubtedly has as massive insurance policy to protect their customers in the same way that many other companies that handle confidential information do.
If we're talking about individuals holding their own private keys, then the comparison there is no different to anyone holding cash. Once its stolen, its likely gone forever unless you can find who stole it. The same is true for bitcoin.
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L.A.S., I gave you the rebuttal I did because it is clear from your posts that after information like this is provided for you, you still continue to post FUD information about bitcoin such as an article about a data breach that is not unique to bitcoin, but is commonplace among every industry out there. The fact that the bitcoin that were stolen cannot be recovered is no different from the billions of USD that are stolen every year before even the data breaches that were the root cause were even discovered. At least when bitcoin is stolen, it is apparent immediately that they are gone compared to the covert fraud that takes place from compromised payment information every single day before it becomes clear there was a breach somewhere.
The difference with bitcoin is that there is no consumer protection at all. Once money has been stolen it's gone. I mean, if there's a data breach at my bank at a billion dollars are lost . . . I don't care because it doesn't impact me. If my credit card is stolen and there are fraudulent charges, they don't impact me. When there's a data breach at a place holding bitcoin for people, each of those people will lose their funds. There also currently exists no real way to trace the missing money.
While I agree with you that there's a lot of cool security technology involved with crypto-currencies, your continual refusal to acknowledge the poor (non-existent) level of consumer protection that comes from using them is a bit odd.
Shall I assume that you don't agree that bitcoin is suitable for wide adoption and a general acceptance as a standard of value and a medium of exchange?
I have no noteworthy disagreements with your post. Just curious. ;)
I think that the potential exists, but this is one of several bugs that needs to be worked out for that to happen.
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I think that the potential exists, but this is one of several bugs that needs to be worked out for that to happen.
Then we have nothing to argue about. Apologies for the intrusion. ;)
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If we're talking about individuals holding their own private keys, then the comparison there is no different to anyone holding cash. Once its stolen, its likely gone forever unless you can find who stole it. The same is true for bitcoin.
Wait, Bitcoin has something similar to FDIC? If someone robs my bank, I'm still good to go.
Or do you mean if someone robs me on the street and takes the cash I carry with me that is the same as people's Bitcoin private keys being stolen? The former is likely to be $20. I'm not sure what the average value of Bitcoin private keys is but I suspect the order of magnitude is different.
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If we're talking about individuals holding their own private keys, then the comparison there is no different to anyone holding cash. Once its stolen, its likely gone forever unless you can find who stole it. The same is true for bitcoin.
I think cash is actually a very good analogy.*
Many of the concerns people have about using bitcoin as a store of wealth (as apposed to a method of facilitating transactions) are the exact same concerns which would arise with using cash as a store of wealth. In both cases, transactions are irreversible, which both decreases transaction costs and increases wealth.
The lack of consumer protections against either theft of fraudulent protections really isn't a big concern for me in either case as long as the overall sums of money are small. (If someone steals my wallet with a few hundred bucks in it, I'm out that money in just the same unrecoverable fashion as if someone steals the private key to my bitcoin wallet.) I've never used the chargeback functions on credit cards, so for me they don't provide a lot of extra value over using cash/bitcoin for day to day transactions.
In contrast, if I had a significant fraction of my total net worth tied up in either a bitcoin wallet or a big pile of 100 dollar bills in my apartment, I suspect I would be much more stressed, and sleep less well at night, than I am with most of my total net worth tied up in index funds, bank accounts, and real estate.
*For a sense of the logistical and security problems faced by using physical cash as a store of wealth, reading up on the marijuana industry in the USA, where many states have legalized the trade, but the federal government prevents these business from opening bank accounts, is a great resource.
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If we're talking about individuals holding their own private keys, then the comparison there is no different to anyone holding cash. Once its stolen, its likely gone forever unless you can find who stole it. The same is true for bitcoin.
I think cash is actually a very good analogy.*
Many of the concerns people have about using bitcoin as a store of wealth (as apposed to a method of facilitating transactions) are the exact same concerns which would arise with using cash as a store of wealth. In both cases, transactions are irreversible, which both decreases transaction costs and increases wealth.
The lack of consumer protections against either theft of fraudulent protections really isn't a big concern for me in either case as long as the overall sums of money are small. (If someone steals my wallet with a few hundred bucks in it, I'm out that money in just the same unrecoverable fashion as if someone steals the private key to my bitcoin wallet.) I've never used the chargeback functions on credit cards, so for me they don't provide a lot of extra value over using cash/bitcoin for day to day transactions.
In contrast, if I had a significant fraction of my total net worth tied up in either a bitcoin wallet or a big pile of 100 dollar bills in my apartment, I suspect I would be much more stressed, and sleep less well at night, than I am with most of my total net worth tied up in index funds, bank accounts, and real estate.
*For a sense of the logistical and security problems faced by using physical cash as a store of wealth, reading up on the marijuana industry in the USA, where many states have legalized the trade, but the federal government prevents these business from opening bank accounts, is a great resource.
Forgive me if I'm wrong, but isn't that the complete opposite scenario of most bitcoin investors at the moment? Few people have only a couple hundred dollars of bitcoin, most appear to be hoarding large sums with the intent to use as an investment rather than for any transactions that can be carried out.
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Well, to clarify, I'm not an (intentional) bitcoin investor. So don't take any of my posts as representing the "buy bitcoin" worldview.
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Again, to reiterate though, the critique about protection from breaches is not a critique against bitcoin itself, it is just a critique against centralized organizations that don't provide adequate protections for their consumers. It is only a matter of time where it is common place to have larger bitcoin institutions (like Coinbase) that provide the same consumer protections against data breaches that today's traditional institutions provide.
The benefit that bitcoin does provide the individual is that if they choose not to trust that central authority (which many around the world don't and shouldn't), then you can choose to take security into your own hands.
I do this myself and I am fully confident in my ability to store a large amounts of bitcoin securely. I have a seed stamped on to steel that I used Shamir39 to generate a 2 of 3 seed. Those three copies are stored in geographically diverse locations from each other. I only need 2 of the 3 different seeds to restore my bitcoin. My seed was also generated off-line using 12 rolls of 4 dice and a quarter and it has never touched an online computer before. Obviously, taking security this seriously is not something that everyone will do our have the know how to do, but the technologies are there (hardware wallets, etc) to allow for adequate security for the individual. Additional technologies that will continue to increase ease of use will no doubt be developed. In my opinion, this gives a much greater degree of security when compared to straight cash.
Also, further technologies for institutional protections will continue to be developed. Coinbase has already implemented some such features such as their Vault accounts. Multi-signature online custodial accounts provide a mix of both worlds that allows the end-user to own a portion of the private key along with another party and a combination of the keys are needed for withdrawals. Withdrawals with Coinbase's Vault accounts take 2 days to go through which allow for adequate reaction time in the event of an unauthorized withdrawal. Again, these are technologies and system designs that can be layered on top of bitcoin. Critiquing bitcoin for a failure in centralized institutions to provide adequate protections to their consumers only validates the main concept behind bitcoin's decentralized design in the first place.
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Again, to reiterate though, the critique about protection from breaches is not a critique against bitcoin itself, it is just a critique against centralized organizations that don't provide adequate protections for their consumers. It is only a matter of time where it is common place to have larger bitcoin institutions (like Coinbase) that provide the same consumer protections against data breaches that today's traditional institutions provide.
Are you sure about that? Most financial institutions do not actually hold large quantities of cash at any given time, it's digitally recorded debt that gets swapped back and forth all over the place. It's not possible for someone to break into the bank and cart away all of the money. It seems like any institution holding bitcoin would need to actually have the bitcoin, and therefore be vulnerable to this concern wouldn't it?
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Again, to reiterate though, the critique about protection from breaches is not a critique against bitcoin itself, it is just a critique against centralized organizations that don't provide adequate protections for their consumers. It is only a matter of time where it is common place to have larger bitcoin institutions (like Coinbase) that provide the same consumer protections against data breaches that today's traditional institutions provide.
...
Report back when I can get FDIC backed Bitcoin accounts to store my crap in. None of the Bitcoin infrastructure has ever been tested against a bank run. Well, actually Mt. Gox did and it failed miserably.
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I do this myself and I am fully confident in my ability to store a large amounts of bitcoin securely. I have a seed stamped on to steel that I used Shamir39 to generate a 2 of 3 seed. Those three copies are stored in geographically diverse locations from each other. I only need 2 of the 3 different seeds to restore my bitcoin. My seed was also generated off-line using 12 rolls of 4 dice and a quarter and it has never touched an online computer before. Obviously, taking security this seriously is not something that everyone will do our have the know how to do, but the technologies are there (hardware wallets, etc) to allow for adequate security for the individual. Additional technologies that will continue to increase ease of use will no doubt be developed. In my opinion, this gives a much greater degree of security when compared to straight cash.
I'm just curious, when you have your seed stamped on steel (it's really weird to say that btw) in different geographic locations, can you still use your bitcoins easily, i.e. do you need to find 2 of your 3 seeds every time you want to buy something with your bitcoin, or buy more bitcoins? If so that is inconvenient. If not then please educate this ignoramus.
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Are you sure about that? Most financial institutions do not actually hold large quantities of cash at any given time, it's digitally recorded debt that gets swapped back and forth all over the place. It's not possible for someone to break into the bank and cart away all of the money. It seems like any institution holding bitcoin would need to actually have the bitcoin, and therefore be vulnerable to this concern wouldn't it?
Most data breaches do not consist of heist style robberies where millions of dollars are exfiltrated (as you noted). It is the payment information and PII that is exfiltrated. This often happens without the companies knowing. The fraud/theft then happens afterward in the form of unauthorized transactions. Yes, financial organizations holding bitcoin would need to store that bitcoin, but the positive trade off is that you don't have aftermarket fraud taking place in the form of unauthorized transactions. On top of that, if bitcoin is stolen, it is noticeable immediately after the funds are withdrawn as opposed to having a breach remain dormant for months or years on end while consumer data is being stolen.
Report back when I can get FDIC backed Bitcoin accounts to store my crap in. None of the Bitcoin infrastructure has ever been tested against a bank run. Well, actually Mt. Gox did and it failed miserably.
FDIC does not insure against fraud though (which is what the discussion was about). I agree that FDIC insurance would be valuable in the event of institutional insolvency. But, again, that is not a critique against bitcoin, that's a critique against the institutions around it. We may very well see a day where FDIC/NCUA type insurances are extended to bitcoin accounts as well.
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I'm just curious, when you have your seed stamped on steel (it's really weird to say that btw) in different geographic locations, can you still use your bitcoins easily, i.e. do you need to find 2 of your 3 seeds every time you want to buy something with your bitcoin, or buy more bitcoins? If so that is inconvenient. If not then please educate this ignoramus.
That's my cold storage vault. That very secure wallet contains 99% of my bitcoin. I rarely ever withdraw from it (maybe once a month) and I can still send money to it any time without needing the seed. The seed is only needed for spending. I chose to stamp it on steel so that it is better protected against fire, corrosion, electricity, and water (compared to just storing it on paper in a fire safe, for example). For spending, I just use the online wallet through Coinbase where I keep small amounts of funds (<$1000) at any given time. I have a bitcoin debit card tied to that wallet that allows me to spend that bitcoin anywhere VISA is accepted without any transaction fees.
Hope that helps.
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Yeah, what kind of steel did you use? Steel, even many "stainless" steels varieties are still prone to rust, pitting, and corrosion over long durations and poor environmental conditions... Its why they don't use it for coins, at least not in the U.S.
100% stainless AISI 304 steel
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Are you sure about that? Most financial institutions do not actually hold large quantities of cash at any given time, it's digitally recorded debt that gets swapped back and forth all over the place. It's not possible for someone to break into the bank and cart away all of the money. It seems like any institution holding bitcoin would need to actually have the bitcoin, and therefore be vulnerable to this concern wouldn't it?
Most data breaches do not consist of heist style robberies where millions of dollars are exfiltrated (as you noted). It is the payment information and PII that is exfiltrated. This often happens without the companies knowing. The fraud/theft then happens afterward in the form of unauthorized transactions. Yes, financial organizations holding bitcoin would need to store that bitcoin, but the positive trade off is that you don't have aftermarket fraud taking place in the form of unauthorized transactions. On top of that, if bitcoin is stolen, it is noticeable immediately after the funds are withdrawn as opposed to having a breach remain dormant for months or years on end while consumer data is being stolen.
Agreed mostly.
The difference is that data breaches do not really financially impact end users under our current banking system. Data breaches will directly impact end users who have bitcoin held somewhere. So the case of a data breach with bitcoin is very similar to a heist style robbery that hits safety deposit boxes where someone has squirreled away some cash.
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Agreed mostly.
The difference is that data breaches do not really financially impact end users under our current banking system. Data breaches will directly impact end users who have bitcoin held somewhere. So the case of a data breach with bitcoin is very similar to a heist style robbery that hits safety deposit boxes where someone has squirreled away some cash.
Again, that is a critique against the institutions providing services for costumers, not against bitcoin. Data breaches with most traditional financial institutions do not impact the end user because most of those institutions value their business and purchase insurance so that if a breach were to occur, it doesn't have to impact their customers.
Case in point, Coinbase is insured in this same way against data breaches as it states on their website:
"Digital Currency
All digital currency that Coinbase holds online is fully insured. This means that if Coinbase were to suffer a breach of its online storage, the insurance policy would pay out to cover any customer funds lost as a result.
The insurance policy covers any losses resulting from a breach of Coinbase’s physical security, cyber security, or by employee theft.
Coinbase holds less than 2% of customer funds online. The rest is held in offline storage."
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Agreed mostly.
The difference is that data breaches do not really financially impact end users under our current banking system. Data breaches will directly impact end users who have bitcoin held somewhere. So the case of a data breach with bitcoin is very similar to a heist style robbery that hits safety deposit boxes where someone has squirreled away some cash.
Again, that is a critique against the institutions providing services for costumers, not against bitcoin. Data breaches with most traditional financial institutions do not impact the end user because most of those institutions value their business and purchase insurance so that if a breach were to occur, it doesn't have to impact their customers.
Case in point, Coinbase is insured in this same way against data breaches as it states on their website:
"Digital Currency
All digital currency that Coinbase holds online is fully insured. This means that if Coinbase were to suffer a breach of its online storage, the insurance policy would pay out to cover any customer funds lost as a result.
The insurance policy covers any losses resulting from a breach of Coinbase’s physical security, cyber security, or by employee theft.
Coinbase holds less than 2% of customer funds online. The rest is held in offline storage."
No insurance covering acts of God? Destruction from acts of war? Not trying to gin up a religious debate. Just curious. I'm trying to read that language the way the insurance adjuster might.
I mean, insurance companies aren't filthy rich because they pay out on every claim, right?
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I read it as meaning only 2% of the bitcoins held are insured. Since it only refers to insurance for bitcoins held "online" and only 2% is held online. So, I'm guessing the other 98% held offline is uninsured?
Good point. Are you an insurance adjuster by any chance? ;)
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So there's a pretty high chance of a future in which some form of crypto currency is accepted by many merchants as a payment. No one is denying that, right? Even people who don't want to own Bitcoin now think that future is coming, right?
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So there's a pretty high chance of a future in which some form of crypto currency is accepted by many merchants as a payment. No one is denying that, right? Even people who don't want to own Bitcoin now think that future is coming, right?
Heck, most of our money is already moved around digitally. Why stop short of crypto?
Even the federal reserve (and other central banks) have kicked that idea around. They don't speak highly of bitcoin, but in my mind, a federal reserve issued fiat-friendly crypto, eventually, is as near a certainty as the sun coming up tomorrow. Hello FDIC insurance. Settle your tax bill with the IRS using crypto, anyone? ;)
Volatility and valuation will never be problems searching for solutions. No price discovery needed.
Acceptance by merchants, at least in the USA, will not be optional. Acceptance will be required by law, unless specifically exempted. Then again, maybe credit card companies will step up and solve that problem with existing partnerships and infrastructure. Either way, problem solved.
I don't seriously expect any central bank to embrace a "global" crypto currency, such as bitcoin. That would cede too much authority over monetary policy, and I just can't imagine congress authorizing that. I'll let the lawyer-inclined members debate whether a constitutional amendment would be needed for that.
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So there's a pretty high chance of a future in which some form of crypto currency is accepted by many merchants as a payment. No one is denying that, right? Even people who don't want to own Bitcoin now think that future is coming, right?
Even if it is the future, you still have the two real questions of
- Will it be Bitcoin specifically?
- Is the current exchange rate justified right now?
I think the answers are "maybe" and "most likely no."
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I could see Zelle taking over most of the money-transferring market. I've already had a number of customers use it, though I think there's a ~$2k daily transaction limit. Early days, of course.
-W
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top post of r/jokes today is highly relevant here: https://np.reddit.com/r/Jokes/comments/7ieoji/a_boy_asked_his_bitcoininvesting_dad/
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So there's a pretty high chance of a future in which some form of crypto currency is accepted by many merchants as a payment. No one is denying that, right? Even people who don't want to own Bitcoin now think that future is coming, right?
I think it will look very different to anything around now. The whole model whereby the inventors, their mates and early adopters end up owning a significant percentage of the total supply, is unnecessary, overtly scamish and detrimental to adoption efforts. I think if there turns out to be any benefits to any of the concepts over current banking solutions, they will be integrated into the backend of existing institutions and the frontend of interacting with day-to-day finances will not change at all for the individual. The average person doesn't know or care about cryptography, it will be managed behind the scenes. Any actually successful 'crypto currency' in terms of actual daily use will most likely be created 'above board' by existing banking institutions.
The notion that such a thing can only be invented/created through an evolutionary 'free market' free-for-all meme war that we are currently seeing is a naive libertarian belief/desire. I think there's a chance that it ends up going so badly that the whole notion will become something that culture will look upon in the same way as pyramid schemes, MLM, beanie babies, etc, which could really slow down or kill development/investment/interest/adoption of the ideas.
I've said it before and I'll say it again, I have yet to see any proof of the existing application of cryptocurrencies/blockchain (that haven't been bastardised into being basically databases anyway) that leads to an undeniable competitive advantage that means businesses need to adopt it or risk being left behind. The overwhelming bulk (if not literally all) of journalism you see reporting on 'adoption' are companies doing preliminary investigation, experimentation, or just signing up to lists (ethereum foundation) that are essentially them saying 'sure, we'll use your technology if it ever becomes practical and advantageous' (basically, hedging their bets). Or the name 'blockchain' being applied to things which are obviously not blockchain as it espoused by the crypto community (eg the recent ASX news).
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I could see Zelle taking over most of the money-transferring market. I've already had a number of customers use it, though I think there's a ~$2k daily transaction limit. Early days, of course.
-W
Zelle's impact on Venmo, Paypal, ect will be interesting. The banks are slow, but they own Zelle and it can be instantaneous vs. through an intermediary.
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Bitcoin. A "currency" that no one uses to buy stuff with. Backed by nothing but the faith of a small number of American millennials and a lot of rich Chinese trying to smuggle money out of their country. It's all about smuggling and speculative "investing."
Reminds me more of a 1999 profitless ".com" than an investment (plus the smuggling).
It's in full mania mode now, so the end game (collapse) is likely near.
Though, as with all manias, a certain number of fools who had not heard of Bitcoin before a week ago, will pile on at the end ("Greater Fool" theory of investing) and lose nearly everything they invest.
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It's in full mania mode now, so the end game (collapse) is likely near.
Don't forget the old saying that the market can stay irrational longer than you can stay solvent.
My typical gauge for determining if a correction/collapse is coming is to watch and see if the particular investment is discussed on Christmas day at the gathering of my extended family.* If bitcoin is not discussed two weeks from now, then my prediction is that bitcoin is good until 2019.
**I purposefully won't be bringing up the topic to see if someone else does.
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I have some thoughts on bitcoin. First it is a currency, but no one here that I have seen (just skimming through the posts, if I missed one) has used it as such. In the press, there hasn't been any discussion on what large numbers of people are purchasing with it. I am sure it has happened, "businesses accept it", though at what level I am not sure. As someone posted here, how would a business price something in bitcoin with such swings in volatility?
Secondly, why would anyone use bitcoin as opposed to dollars or any other currency? The plus is anonymity. That is a good thing only if you are trying to hide what you are doing. I bet the Norks, Chinese, and Russians love it. For the average person, is hiding what you are doing that important day-to-day?
Finally, "bitcoin is going up!" at a rocket rate. Reading the posts here, and reviewing the press, everyone seems to be trying to lasso the rocket to get rich quick (or even just to make a little extra). I believe that will work as long as people keep pumping money into the system buying into the dream. When that slows, or when the big players cash out......
It might be the way of the future, but at some point governments are going to get involved and heavily regulate it. There was post buried in here that less than 2% is insured by coinbase. There is no protection there, so if someone boosts your wallet they will be zero help.
In short, it just looks like a gambling frenzy to me; wrapped up in financial terms. That said if you bought bitcoin when it was 1$, you'd be sitting pretty. Now that is over $10000, it has to climb to even more super-highs to realize more modest gains.
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There was post buried in here that less than 2% is insured by coinbase. There is no protection there, so if someone boosts your wallet they will be zero help.
The 2% is the amount of crypto Coinbase says they keep in online storage. They say rest is kept in offline storage. They claim all crypto funds are fully insured from theft on their side. Who knows if it is or not. They specifically say no funds will be covered for someone hacking an individual account. I would not keep anything in Coinbase or any other exchange except that which is needed to trade.
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I have some thoughts on bitcoin. First it is a currency, but no one here that I have seen (just skimming through the posts, if I missed one) has used it as such. In the press, there hasn't been any discussion on what large numbers of people are purchasing with it. I am sure it has happened, "businesses accept it", though at what level I am not sure. As someone posted here, how would a business price something in bitcoin with such swings in volatility?
Secondly, why would anyone use bitcoin as opposed to dollars or any other currency? The plus is anonymity. That is a good thing only if you are trying to hide what you are doing. I bet the Norks, Chinese, and Russians love it. For the average person, is hiding what you are doing that important day-to-day?
*Waves* Hi there! I've used bitcoin to actually pay for goods online.
I wasn't trying to be anonymous,* but the very first time I bought bitcoin I was ordering something from India, from a company I hadn't heard of before, and I didn't feel at all comfortable giving them my credit card info and setting up a bank wire for a $60 purchase seemed ridiculous.
Like paypal, the nice thing about using bitcoin to process payments is that it's "push" driven, rather than "pull" driven, so you can do business with someone without having to trust them to A) not decide to bill you again later without your consent, B) use appropriate data security so no one else can steal your credit card info and run around buying all sorts of stuff on your account. Unlike paypal, transactions have the potential be be very low cost, and you don't have to worry about paypal draining bank accounts you have linked to you paypal account if someone does a chargeback (or various other (https://gizmodo.com/i-cant-afford-not-to-have-that-money-the-worst-paypa-1705854399) horror stories (https://news.ycombinator.com/item?id=13851124)). At the time, transaction fees were on the order of $0.05, and the whole thing went quite smoothly.
Right now the fees are ridiculously high, and I agree with you that the rapid run up in price has brought in a lot of people who are buying bitcoin in the hopes of making a lot of money rather than because they're actually needing to use it to buy and sell things.
*And bitcoin is not a particularly good way to stay anonymous. If you were actually getting into the drug trade I assume you'd pick a currency like monero instead.
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I have some thoughts on bitcoin. First it is a currency, but no one here that I have seen (just skimming through the posts, if I missed one) has used it as such. In the press, there hasn't been any discussion on what large numbers of people are purchasing with it. I am sure it has happened, "businesses accept it", though at what level I am not sure. As someone posted here, how would a business price something in bitcoin with such swings in volatility?
Secondly, why would anyone use bitcoin as opposed to dollars or any other currency? The plus is anonymity. That is a good thing only if you are trying to hide what you are doing. I bet the Norks, Chinese, and Russians love it. For the average person, is hiding what you are doing that important day-to-day?
*Waves* Hi there! I've used bitcoin to actually pay for goods online.
I wasn't trying to be anonymous,* but the very first time I bought bitcoin I was ordering something from India, from a company I hadn't heard of before, and I didn't feel at all comfortable giving them my credit card info and setting up a bank wire for a $60 purchase seemed ridiculous.
Like paypal, the nice thing about using bitcoin to process payments is that it's "push" driven, rather than "pull" driven, so you can do business with someone without having to trust them to A) not decide to bill you again later without your consent, B) use appropriate data security so no one else can steal your credit card info and run around buying all sorts of stuff on your account. Unlike paypal, transactions have the potential be be very low cost, and you don't have to worry about paypal draining bank accounts you have linked to you paypal account if someone does a chargeback (or various other (https://gizmodo.com/i-cant-afford-not-to-have-that-money-the-worst-paypa-1705854399) horror stories (https://news.ycombinator.com/item?id=13851124)). At the time, transaction fees were on the order of $0.05, and the whole thing went quite smoothly.
Right now the fees are ridiculously high, and I agree with you that the rapid run up in price has brought in a lot of people who are buying bitcoin in the hopes of making a lot of money rather than because they're actually needing to use it to buy and sell things.
*And bitcoin is not a particularly good way to stay anonymous. If you were actually getting into the drug trade I assume you'd pick a currency like monero instead.
Not a very good reason to buy a product with bitcoin IMO. First off you are not accountable if someone steals your account and secondly, your product is insured if you have an issue with the vendor.
BTW....NO ONE should ever link their bank account to anything online OR even use one for purchases. I learned that lesson before. Use a credit card!!! Its a no brainer. No way in hell I'm going to give a vendor my hard earned money within an anonymous environment!
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Not a very good reason to buy a product with bitcoin IMO. First off you are not accountable if someone steals your account and secondly, your product is insured if you have an issue with the vendor.
BTW....NO ONE should ever link their bank account to anything online OR even use one for purchases. I learned that lesson before. Use a credit card!!! Its a no brainer. No way in hell I'm going to give a vendor my hard earned money within an anonymous environment!
I definitely agree with you that credit card > bank account for online purchases.
In my observation cleaning up the mess left behind by credit card/identity theft is a huge pain and hassle even if the loses are ultimately covered by someone other than you. I'd much rather work with "push" based methods for online payments instead of "pull" and never have to go through the hassle in the first place. I acknowledge other people with weight the same pros and cons and come to the opposite conclusion.
Anyway, I'm not trying to convince you to replace your credit card spending with bitcoin spending. But if the question is whether anyone in this thread has used bitcoin to make purchases, the answer is "yes."
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It's in full mania mode now, so the end game (collapse) is likely near.
Don't forget the old saying that the market can stay irrational longer than you can stay solvent.
My typical gauge for determining if a correction/collapse is coming is to watch and see if the particular investment is discussed on Christmas day at the gathering of my extended family.* If bitcoin is not discussed two weeks from now, then my prediction is that bitcoin is good until 2019.
**I purposefully won't be bringing up the topic to see if someone else does.
Oh, this old bubble indicator is already flashing like crazy for me personally. Besides being a frequent topic of conversation amongst those with some knowledge of it, two of my older friends who have absolutely zero interest in new technology and/or serious investments have independently registered new Coinbase accounts in the past week. One jumped right into the craze and just bought some BTC despite my warning that they're playing with fire. Neither has any interest in cryptocurrency other than to try to sell it to a greater fool. What strikes me as really odd is that these are among the last people I would have expected to jump on the crypto bandwagon. These two happened to ask me my thoughts about it, assuming that I had some knowledge of it and then they largely viewed my skepticism with their own (uninformed) skepticism about my views. I can't imagine how many millions more are doing the same and I also can't imagine it'll end well for many.
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For argument's sake, lets call it a Fad (possibly even a pyramid scheme)... It has value but for the most part you are now seeing Bitcoin everywhere in the news. As of Monday (yesterday), it is now being traded on the futures market. 2014 the US IRS said gains were taxable so the government makes their cut on the profits. Every time a chain is completed via mining a little more bitcoin makes itself into the market (It costs money, electricity, and time to produce).
That aside it is limited. Unlike currency printing there is a finite amount. Even with the decimal points the lowest denomination is a satoshi (0.00000001 bitcoin). If one satoshi becomes worth 1 cent ($.01) then one bitcoin becomes worth $1M. It will take 100 years before all the bitcoin is completely mined. By design more cannot be created.
"The combined value of the US paper currency printed each day is thought to be about $900 million"
Pros:
Governments cannot control the value of bitcoin. They can try to regulate the currency exchanges but hundreds if not thousands of computers worldwide agree to each new block entered into the Bitchain. Kind of reminds me of how governments try to take down WikiLeaks. The issue is everyone started mirroring the site. Causing the site to always be up.
If you don't trust your country's banking system (no FDIC/SPIC), the current government (mass corruption), local currency (over inflated/worthless), or a million other reasons then the global cryptocurrency has value.
So after doing weeks of research lots of youtube videos for and against, I have decided to go the route of investing $3k into where the market currently is. Gives me a better chance to see it from an inside perspective rather than speculate. Plus if one day, CryptoCurrencies completely replace the paper currency of the US (not money due to no gold standard since 1971).
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Report back when I can get FDIC backed Bitcoin accounts to store my crap in. None of the Bitcoin infrastructure has ever been tested against a bank run. Well, actually Mt. Gox did and it failed miserably.
FDIC does not insure against fraud though (which is what the discussion was about). I agree that FDIC insurance would be valuable in the event of institutional insolvency. But, again, that is not a critique against bitcoin, that's a critique against the institutions around it. We may very well see a day where FDIC/NCUA type insurances are extended to bitcoin accounts as well.
FDIC doesn't protect against fraud. It does protect against the institution going bankrupt. The institution protects against fraud. Therefore, if the fraud was bad enough that the institution became insolvent FDIC would step in to reimburse depositors.
I don't see bitcoin getting FDIC insurance or anything similar. SIPC, which protects investment accounts, has already said they will not reimburse stolen bitcoins. They also have ponzi scheme and fraud alerts on bitcoin, but that's another conversation. FDIC and SIPC have strings attached. Banks and investment firms have know your customer laws, anti-money laundering laws, and suspicious transaction reports. I highly doubt any government would extend the same protection to bitcoin when bitcoin's appeal is that it gets around those laws.
If we are going to keep calling bitcoin a currency I have an important question. Is anyone using it to buy things? I hear about companies accepting it, but does anyone actually use it? I know there are illegal transactions it is used for, but it's current price can only be justified if people think it will go mainstream. Is it being used for regular legal transactions? I imagine there are a few, but do we have any data on how frequently?
Transaction fees: I've read in multiple places of late that a transaction can take a week unless you pay $20 for priority processing. I thought bitcoin was supposed to be faster and cheaper. $20 for a same day transaction... that's the international wire fee at many major banks. Credit card and ACH transactions, what bitcoin should be competing against, clear much faster and much cheaper.
I've heard about how it is easier for international transfers, but I know someone who tried to do that and the receiving company would only do the transaction if the buyer insured the bitcoin against market fluctuations. They didn't want to agree to $200k in bitcoins and then have the bitcoins drop in value to $160k before they could sell them. The buyer didn't want to insure the bitcoin either, too much risk. They opted for a bank wire transfer. Fee was probably $20...
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If we are going to keep calling bitcoin a currency I have an important question. Is anyone using it to buy things?
No, not really. Aside from drug/child prostitute related uses, there's really only disadvantage for most people and companies in attempting to use bitcoin as a currency at the moment. Data regarding frequency of uses of bitcoin to buy things is never going to be available because there's no record kept of what a bitcoin transaction is actually for.
Transaction fees: I've read in multiple places of late that a transaction can take a week unless you pay $20 for priority processing. I thought bitcoin was supposed to be faster and cheaper. $20 for a same day transaction... that's the international wire fee at many major banks. Credit card and ACH transactions, what bitcoin should be competing against, clear much faster and much cheaper.
I've heard about how it is easier for international transfers, but I know someone who tried to do that and the receiving company would only do the transaction if the buyer insured the bitcoin against market fluctuations. They didn't want to agree to $200k in bitcoins and then have the bitcoins drop in value to $160k before they could sell them. The buyer didn't want to insure the bitcoin either, too much risk. They opted for a bank wire transfer. Fee was probably $20...
The behaviour you're describing is caused by the design of bitcoin. The blockchain is the permanent record of all bitcoin transactions. When you 'spend' a bitcoin, you say 'I want to transfer this bitcoin to XXX'. Then you have to pay a fee and wait for this to be recorded on the blockchain.
Just including this information in a block on the blockchain isn't enough to guarantee that the transaction has been made (on average several times a day a single block from the blockchain becomes orphaned - which means that the record of transactions might not actually be kept). Each block produced after the block that contains your transaction makes it less likely that your transaction will be orphaned and forgotten. The current standard with bitcoin is to wait for at least six blocks after the transaction (so 7 blocks total) before you consider the transaction confirmed. It is an average of 10 minutes per block to complete, but this number can grow or shrink depending on the hash power of the Bitcoin network.
A block handles about 2500 transactions. I mentioned that you have to pay a fee to include your transaction in a block. If you pay a bigger fee, you get higher in the queue to have your transaction happen. If there are more transactions taking place than can fit in a single block, then you can choose to wait for the next block (or maybe the next block after that, or after that, etc.) for a lower price. Bitcoin has recently become popular, so there are longer queues for transactions . . . so if you want to complete your transaction more quickly you have to shell out lots of money or you have to wait a long time.
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I found this article "HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH" written by the NSA in 1996. It makes me question the who and why behind its creation.
http://groups.csail.mit.edu/mac/classes/6.805/articles/money/nsamint/nsamint.htm
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I found this article "HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH" written by the NSA in 1996. It makes me question the who and why behind its creation.
I wouldn't read too much into it. No new technology springs from a void, they all are developments of previous years / decades worth of foundational work. The NSA is possibly the world's most expert organization on things related to cryptography, so it's completely unsurprising that they would have looked at stuff like this before.
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I wouldn't read too much into it. No new technology springs from a void, they all are developments of previous years / decades worth of foundational work. The NSA is possibly the world's most expert organization on things related to cryptography, so it's completely unsurprising that they would have looked at stuff like this before.
NSA had backdoor access (private key) to the early cryptography that was sold and used by businesses. This issue actually still prevails in today's infrastructure: (example) google controls the master key for gmail. Of course, blockchain with zero-proof resolves this (decentralized messaging), which would allow greater security for trade secrets.
I am not a crypto expert, but I don't think this response makes much sense. First of all because it doesn't seem to apply to anything we were talking about.
Secondly, Google knows about the contents of your GMail not because of any secret cryto backdoor, but because you are sending them unencrypted emails that they store in their database on their servers. You are using their application, of course they can look at it and see what's in it. You don't want them to? Okay, then pre-encrypt your message and copy the encrypted nonsense blob into GMail. Now they can't read it. They can still see the blob, but they won't understand what it says.
Yes it is known that the NSA had backdoored several crypto algorithms in several different ways. You can read about some of them starting here:
https://en.wikipedia.org/wiki/National_Security_Agency#Bypassing_encryption
It is also reasonably suspected that they have unknown-to-the-public tricks that weaken several others. And that's part of the point, they know more than anyone else. They are a thousand times smarter and sneakier than you and I put together. So it's almost literally impossible to tell what they can do and what is just rumor.
Blockchain / cryptocurrencies are no more immune than their underlying cryto algorithms. Certainly not from decentralized messaging, that's a minor speed bump to them not a roadblock. And as a non-crypto-expert it's not clear to me what zero-knowledge proofs have to do with anything. Nor does zero-knowledge proofs have anything really to do with decentralized messaging.
All that being said, just because the NSA published a paper 20 years ago that laid some of the groundwork for cryptocurrencies means nothing about the security or vulnerability of blockchain / cryptocurrencies. The NSA also has an interest in making sure strong crypto works so that no one else can spy on them. And banks don't want people to be able to steal from them, and software companies don't want to be at fault if software they sell to their customers ends up getting them hacked, etc. So there is a lot of work that goes into making sure that crypo algorithms actually are working as advertised, and presumably blockchain / cryptocurrencies would be using the best-available algorithms, not known-weak ones.
I could be wrong about everything and it could be that you know way more about this than I do, but I would caution people in general about just throwing around jargon and pretending it's a magic solution to a problem. Crypto is really hard and there are probably only tens of people worldwide who actually really truly know what they're talking about. If you're not one of them you basically have to trust that they're not missing something. But at the same time I don't have any reason to suspect that blockchain / cryptocurrencies are vulnerable to anything, and that article should not make anyone suspicious of anything either.
Edit: This is also why the FBI and anyone else who complains about why the government should have backdoors into crypto algorithms "for national security reasons" should be boo'd out of office. There is no such thing as a backdoor that only the "good guys" can use. Either crypto is strong and your bank transactions are secure and your blockchain works and your private messages are private and the website you are visiting is actually the real website it says it is, or it's not and it's only a matter of time before the "bad guys" figure out how to break it (if they havn't already). There is no in-between. Support politicians who support real crypto, literally the entire internet depends on it.
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"Bitcoin plays a very small role as a payment system. It is a highly speculative asset."
"It is not a stable source of value, and it doesn't constitute legal tender."
Quotes from outgoing fed chair, Janet Yellen, about two hours ago.
http://money.cnn.com/2017/12/13/investing/bitcoin-janet-yellen-federal-reserve/index.html
No doubt these remarks will not be regarded as surprising by many on this thread.
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"Bitcoin plays a very small role as a payment system. It is a highly speculative asset."
"It is not a stable source of value, and it doesn't constitute legal tender."
Quotes from outgoing fed chair, Janet Yellen, about two hours ago.
http://money.cnn.com/2017/12/13/investing/bitcoin-janet-yellen-federal-reserve/index.html
No doubt these remarks will not be regarded as surprising by many on this thread.
I don't really have much of an issue with her assessment. Seems pretty spot on to me and non-controversial.
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Thank you for this comment about the Byzantine general. I found this useful article that really answers some of my skepticism about the Blockchain.
https://medium.com/@DebrajG/how-the-byzantine-general-sacked-the-castle-a-look-into-blockchain-370fe637502c (https://medium.com/@DebrajG/how-the-byzantine-general-sacked-the-castle-a-look-into-blockchain-370fe637502c)
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(https://pbs.twimg.com/media/DOHka7iWsAAsU4Q.jpg[)
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I just wanted to add some info to the discussion about "backdoors" with regard to bitcoin.
The only way anyone can ever spend bitcoin that you own is to be able to sign a transaction from an UTXO using the associated private key. Even if proof-of-work were compromised (51% attack), they would still need to be able to compose and sign a transaction with the private key associated with a UTXO. If you're not reusing bitcoin addresses after spending from them (which you shouldn't be), then you shouldn't have to worry about double spending in the event of a (highly unlikely) 51% attack and you also won't have to worry about your public keys being exposed for bitcoin addresses that still contain funds.
The question then becomes, how well is your private key protected from attack, given a known bitcoin address? To understand that, you have to understand how bitcoin addresses are composed.
Bitcoin addresses are made up of the public key that is first hashed with SHA256 and then it is hashed with RIPEMD160. That result is then hashed twice with SHA256 and the first 4-bytes are used as a checksum and appended to the previous RIPEMD160 hash. This checksum prevents people from mistyping in a bitcoin address and sending bitcoin to an invalid address where it would be permanently lost. A version number is prefixed to this payload and then the prefix+RIPEMD160hash+checksum is then run through Base58check encoding. This encoding is the same type of encoding as Base64 encoding except it omits several characters such as "O,0,I,l" so that bitcoin addresses avoid characters that are difficult to determine when various fonts are used to display them.
It is a pretty clever use of hashing and encoding to not only provide security for the public key being used, but to also make it easy for people to type in bitcoin addresses and not worry about making a mistake and losing funds.
One of the important things to understand about this is that because the public key is hashed twice with two different hashing algorithms, there would need to be a significant compromise in both of those algorithms (SHA256 and RIPEMD160) in order to lead to a compromise in the actual underlying public key used for that bitcoin address. If you aren't able to determine what the public key is, then it is impossible to determine what the private key is for that bitcoin address as well. If you can't determine the private key, then there is no way for anyone to be able to spend any of the funds that are sent to that bitcoin address.
This is why bitcoin is such a secure method of transacting. Because it is a push mechanism for conducting transactions and because of the techniques that are used for protecting that push mechanism (digital signatures+hashing), it makes it nearly impossible for a set of circumstances to arise that would lead to a fundamental compromise in the way that private/public keys are secured.
This is why it comes down to: protect your private key and your funds are most assuredly protected. Without your private or public key, there really isn't any way for anyone to compromise it otherwise. The idea that anyone would have a "backdoor" in any of this is completely unfounded.
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If it is so safe, why is it constantly getting hacked? (And yes, intermediaries/wallets are parts of the system too.)
If it's not a bubble, why does it look like every other bubble?
(https://pbs.twimg.com/media/DOHka7iWsAAsU4Q.jpg)
If it's not a bubble, what is the fair market value of one coin? What would cause that to change? At what price would you sell everything tomorrow?
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If it's not a bubble, why am I getting ads on the MMM forum for a free crypto masterclass from this dork? ;)
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If it's not a bubble, why am I getting ads on the MMM forum for a free crypto masterclass from this dork? ;)
Because he knows it's a bubble, and doesn't dare touch it with his own money.
Just like every other get-rich-quick internet "Guru," he'll rack up profits "teaching" you how to do something he never even heard of until last week.
His bread is buttered by suckers, rather than by practicing what he preaches.
I'll bet you a ten-spot to a doughnut that his, "free Masterclass," is nothing more than a long list of glowing testimonials and a standard marketing pitch for his, "Super Duper Double Top Secret Advanced Class," for "only" $597 $297, marked down just for those who order today.
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If it is so safe, why is it constantly getting hacked? (And yes, intermediaries/wallets are parts of the system too.)
If it's not a bubble, why does it look like every other bubble?
If it's not a bubble, what is the fair market value of one coin? What would cause that to change? At what price would you sell everything tomorrow?
How much would you pay for value that can be moved anywhere in the world with a low fee, fast speed and is completely permission-less and immune to censorship and seizure? There is nothing like that currently in place, the only comparison can be Gold but Gold is incredibly difficult to move and store.
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I'm interested in bitcoin. I'm 26. Should I go through Vanguard to buy it if I decided I wanted to? Or is an app a better option?
I literally would put only what I don't care to lose and leave it there for 2-4 weeks and see what happens.
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If it is so safe, why is it constantly getting hacked? (And yes, intermediaries/wallets are parts of the system too.)
No, Bitcoin isn't constantly getting hacked and no, intermediaries and wallets are not a part of the system. That's like saying that the internet is getting hacked because of some schmuck's Wordpress website was hacked because they were using an outdated version. There is no more obligation to using any given service or wallet in order to use Bitcoin as there is to running Wordpress for a website.
Wallets and intermediaries are services built on top of Bitcoin, they're not Bitcoin. When choosing to use Bitcoin, you can choose to use various services and wallets and your decision to use any given service will be based on your own risk assessment as to whether or not you want to expose yourself to any of those services and tools that are built on top of Bitcoin. All these services are aimed at providing additional ease of use and features above and beyond what bitcoin provides. It goes without saying that any additional complexity beyond the Bitcoin protocol itself will add security risks just like any of the myriad application services that are built on top of any of the base layer protocols that make up the internet adds security risks. It pays to do proper research into the various applications built on top of Bitcoin and the security risks associated with them. If you want the ultimate level of security, then running a full Bitcoin node gets you as close to the Bitcoin blockchain as you can get.
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If it's not a bubble, why does it look like every other bubble?
The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0. No other historical bubble came from a starting price of $0. They were all established markets that became greatly skewed and out of balance for various reasons. This is why they were bubbles because of the fact that their rise above the previous market equilibrium was so extraordinary. Bitcoin also has a completely restricted supply that has no means of reacting to demand, unlike every other bubble on that list.
Have you ever looked what the price of bitcoin looks like on a logarithmic scale? See for yourself: https://blockchain.info/charts/market-price?showDataPoints=false&show_header=true&daysAverageString=1×pan=all&scale=1&address= (https://blockchain.info/charts/market-price?showDataPoints=false&show_header=true&daysAverageString=1×pan=all&scale=1&address=)
That is probably a better way at historically looking at the price of bitcoin given the fact that it was a bootstrapped currency that originated from a starting price of $0. How else in the world would you expect a restricted supply currency to become widely used without it going parabolic on a linear scale? Even if that adoption took place over the course of several decades (which is unlikely for digital technology), it would still look parabolic given the kind of drastic value differences in the starting and end points at hand.
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How much would you pay for value that can be moved anywhere in the world with a low fee, fast speed and is completely permission-less and immune to censorship and seizure? There is nothing like that currently in place, the only comparison can be Gold but Gold is incredibly difficult to move and store.
Damn near nothing.
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If it's not a bubble, why does it look like every other bubble?
The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0. No other historical bubble came from a starting price of $0. They were all established markets that became greatly skewed and out of balance for various reasons. This is why they were bubbles because of the fact that their rise above the previous market equilibrium was so extraordinary. Bitcoin also has a completely restricted supply that has no means of reacting to demand, unlike every other bubble on that list.
Have you ever looked what the price of bitcoin looks like on a logarithmic scale? See for yourself: https://blockchain.info/charts/market-price?showDataPoints=false&show_header=true&daysAverageString=1×pan=all&scale=1&address= (https://blockchain.info/charts/market-price?showDataPoints=false&show_header=true&daysAverageString=1×pan=all&scale=1&address=)
That is probably a better way at historically looking at the price of bitcoin given the fact that it was a bootstrapped currency that originated from a starting price of $0. How else in the world would you expect a restricted supply currency to become widely used without it going parabolic on a linear scale? Even if that adoption took place over the course of several decades (which is unlikely for digital technology), it would still look parabolic given the kind of drastic value differences in the starting and end points at hand.
I guess we're not counting the pre-bubble phase of bitcoin from 2009 to mid 2013, and the 2014 buildup and drop.
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I'm interested in bitcoin. I'm 26. Should I go through Vanguard to buy it if I decided I wanted to? Or is an app a better option?
I literally would put only what I don't care to lose and leave it there for 2-4 weeks and see what happens.
Sweet Jesus. ^ This is how we know we are in bubble.
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You're welcome!
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If it's not a bubble, why does it look like every other bubble?
The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0. No other historical bubble came from a starting price of $0.
It is truly astonishing that you would define a bubble based on whether the asset ever had a starting price of $0; even more astonishing that you would actually state that position in a public forum.
But, ok, I'll play.
How tulips came to the Netherlands - and even saved lives
http://www.dw.com/en/how-tulips-came-to-the-netherlands-and-even-saved-lives/a-40208176
In the 16th century, Ogier Ghiselin de Busbecq was serving as the ambassador of the Habsburg monarchy to the Ottoman Empire. While visiting Turkish sultan Suleiman the Magnificant, a fan of tulips, he was given some bulbs to take back to Vienna.
De Busbecq then passed the tulip bulbs on to his friend, Flemish botanist Charles de l'Écluse, the prefect to the emperor's garden in Vienna. When d'Écluse left Vienna to teach at a university in Leiden, Netherlands, he brought the bulbs along and planted them there.
Starting as a mere gift, tulip bulbs flourished, and then became the bubble that sets the standard for every bubble ever since.
So I suppose you reject the notion that there ever was a tulip bubble, since it came to the Netherlands by way of a (free) gift? I really don't know what other conclusion to draw from your statement.
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I guess we're not counting the pre-bubble phase of bitcoin from 2009 to mid 2013, and the 2014 buildup and drop.
What do you mean? That's the whole point of looking at it from a logarithmic scale. It shows how the previous historical rises in the price of bitcoin were much more astronomical in relativity than compared to now.
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It is truly astonishing that you would define a bubble based on whether the asset ever had a starting price of $0.
Where did I define a bubble as whether or not it ever had a starting price of $0? Don't put words in my mouth.
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I guess we're not counting the pre-bubble phase of bitcoin from 2009 to mid 2013, and the 2014 buildup and drop.
What do you mean? That's the whole point of looking at it from a logarithmic scale. It shows how the previous historical rises in the price of bitcoin were much more astronomical in relativity than compared to now.
You were saying that the starting price of bitcoin before the bubble phase was 0$. I was pointing out that for the first four years or so, bitcoin wasn't 0$ and wasn't in a bubble.
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It is truly astonishing that you would define a bubble based on whether the asset ever had a starting price of $0.
Where did I define a bubble as whether or not it ever had a starting price of $0? Don't put words in my mouth.
Um, here:
If it's not a bubble, why does it look like every other bubble?
The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0. No other historical bubble came from a starting price of $0.
That was your answer to a question asking you to explain why bitcoin isn't a bubble.
Silly me, that's what I assumed you actually thought.
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It is truly astonishing that you would define a bubble based on whether the asset ever had a starting price of $0.
Where did I define a bubble as whether or not it ever had a starting price of $0? Don't put words in my mouth.
"The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0."
There may be some incredibly narrow semantic needle to be threaded here, but under any non-tortured reading of the above sentence, you're saying that it doesn't make sense to compare Bitcoin to historical bubbles because Bitcoin started from zero. From there, it is an extremely short journey to the conclusion that you think the start from zero means we're not dealing with a bubble. Like I said, there may be a very narrow and specific reading of what you said that doesn't imply that you think a starting point of zero means it's not a bubble, but to nine out of ten readers that's the conclusion that would be drawn.
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I guess we're not counting the pre-bubble phase of bitcoin from 2009 to mid 2013, and the 2014 buildup and drop.
What do you mean? That's the whole point of looking at it from a logarithmic scale. It shows how the previous historical rises in the price of bitcoin were much more astronomical in relativity than compared to now.
You were saying that the starting price of bitcoin before the bubble phase was 0$. I was pointing out that for the first four years or so, bitcoin wasn't 0$ and wasn't in a bubble.
I'm underlying the key word here. You're saying bitcoin is in a bubble today. Which I completely agree with given the behavior of prices in 2017, and the fact that all the discussion I hear about it in non-geeky venues is focused solely on the price increase, not on actual use cases.
Others are saying that bitcoin, itself, is a bubble, which would mean that has no underlying utility at all, which I disagree with because I do think it, or similar cyptocurrencies, do provide some utility to our society.
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The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0.
For clarification, this response is not me defining whether an asset or investment is in a bubble based on whether or not it ever had a starting price of $0. That's what ILikeDividends claimed, but that's not what I meant. To put it more clearly, the key part of that statement that was missed was the "in comparison" portion. In other words, looking at bubbles relative to each other simply based on the prices of the underlying in each given bubble is a complete failure in analysis. A $0 starting point is not a defining characteristic of what makes a bubble or not, that's absolutely true, we're not in disagreement there. But, it makes no sense to compare bubbles simply on the merits of their prices without understanding the underlying forces in the market behind those prices.
This is why looking at the price of bitcoin on a logarithmic scale is so important. You could've easily taken a snapshot of bitcoin's price at numerous points along the way and it would yield a similar curve to match up to historical bubbles just like the above chart showed. Yet, doing so wouldn't give you any indicator at all as to whether or not you're dealing with a bubble in bitcoin or any other asset for that matter. For example, you could've taken a snapshot starting in Jan 2012 when it had a starting price of $4 and then had "today's" price on that graph be Jan 2014 where it had a price of around $1000. That's a multiplier of 250x and it would've dwarfed every bubble on that chart. In otherwords, this chart skews data historically simply based on arbitrary prices without regard to what determines those prices in the market.
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I guess we're not counting the pre-bubble phase of bitcoin from 2009 to mid 2013, and the 2014 buildup and drop.
What do you mean? That's the whole point of looking at it from a logarithmic scale. It shows how the previous historical rises in the price of bitcoin were much more astronomical in relativity than compared to now.
You were saying that the starting price of bitcoin before the bubble phase was 0$. I was pointing out that for the first four years or so, bitcoin wasn't 0$ and wasn't in a bubble.
I'm underlying the key word here. You're saying bitcoin is in a bubble today. Which I completely agree with given the behavior of prices in 2017, and the fact that all the discussion I hear about it in non-geeky venues is focused solely on the price increase, not on actual use cases.
Others are saying that bitcoin, itself, is a bubble, which would mean that has no underlying utility at all, which I disagree with because I do think it, or similar cyptocurrencies, do provide some utility to our society.
While I wouldn't disagree that stating "bitcoin is in a bubble" would be more grammatically correct than stating "bitcoin is a bubble," but I would argue that the latter expression shouldn't be taken as anything more than a less-than-perfect version of the former expression.
Personally, I don't think it refers to any utility it might have. E.g., if I referred to "tulip mania" as the "tulip bubble," would you spend any time puzzling over how a tulip could BE a bubble?
But if it's possible to find common ground here, I would at least agree that, "bitcoin is a bubble," is a nonsensical statement, if taken too literally.
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The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0.
For clarification, this response is not me defining whether an asset or investment is in a bubble based on whether or not it ever had a starting price of $0. That's what ILikeDividends claimed, but that's not what I meant. To put it more clearly, the key part of that statement that was missed was the "in comparison" portion. In other words, looking at bubbles relative to each other simply based on the prices of the underlying in each given bubble is a complete failure in analysis. A $0 starting point is not a defining characteristic of what makes a bubble or not, that's absolutely true, we're not in disagreement there. But, it makes no sense to compare bubbles simply on the merits of their prices without understanding the underlying forces in the market behind those prices.
Okay. So what is the market force driving the rise in bitcoin? Is it:
1) People are clamoring to buy and sell stuff with bitcoin therefore driving demand? Or,
2) People are buying bitcoin hoping to participate in future price increases?
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It can be simultaneously true that bitcoin (and other cryptos) are massively overvalued/well into bubble territory, AND that some of them (which may or may not be extant today) will be someday useful for making transactions.
If I were a big crypto guy I'd be *furious* about the bubble. It makes it hard/impossible to actually buy things, and it runs the risk of discrediting the whole enterprise after the inevitable collapse such that Goldman Sachs' or Chase's take on the blockchain is the one that ends up getting widely used.
-W
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Waltworks and ILikeDividends, I think we are in fact in agreement here.
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Going to repeat my earlier questions and see if anyone pro-bitcoin will bite.
Is anyone using it to buy legal goods and services?
I imagine there are a few, but do we have any data on the frequently?
If the answer is no, which I assume it is, then bitcoin has no future. I get the very strong impression it is only be traded back and worth between speculators and that no one is actually using it... outside of money laundering and buying drugs.
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Is anyone using it to buy legal goods and services?
Yes, I have used it to buy legal goods from overseas. If transactions fees don't come way back down from their current prices in the mid-$20 I'm not going to ever again though (although I might try some other cryptocurrency instead at some point in the future).
I imagine there are a few, but do we have any data on the frequently?
To the best of my knowledge there isn't any good data on specifically legal usage frequency. Bitpay says they are on track to process approx. $1 billion worth of bitcoin payments. That's almost certainly all payments for legal goods and services, but who knows whether that's 1% of the the total volume being used for actual payments, or 10% or 50%.
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AND that some of them (which may or may not be extant today) will be someday useful for making transactions.
This is an undervalued point. There are already today crytocurrencies that are better than Bitcoins for any particular use-case. You can transfer value worldwide for cheaper and faster with any of them. So then what is Bitcoin's long-term valuation? Nothing. The only thing driving the prices and continued use is speculation and momentum. There will come a day when bitcoin transactions are too slow or too expensive or too hard compared to something else, and everyone will jump ship to the other thing. And then the same thing will happen to that and they'll jump ship to the next thing.
I'm sure that there are some long-term use-cases that will make cryptocurrencies stick around. But the long-term value of any particular cryptocurrency will always be zero, and people who jump in to the middle of a price spike will loose their shirts when the bubble pops. Cryptocurrencies and Blockchain as a *technology* I think has some staying power. Any individual implementation is transient.
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AND that some of them (which may or may not be extant today) will be someday useful for making transactions.
This is an undervalued point. There are already today crytocurrencies that are better than Bitcoins for any particular use-case. You can transfer value worldwide for cheaper and faster with any of them. So then what is Bitcoin's long-term valuation? Nothing. The only thing driving the prices and continued use is speculation and momentum. There will come a day when bitcoin transactions are too slow or too expensive or too hard compared to something else, and everyone will jump ship to the other thing. And then the same thing will happen to that and they'll jump ship to the next thing.
I'm sure that there are some long-term use-cases that will make cryptocurrencies stick around. But the long-term value of any particular cryptocurrency will always be zero, and people who jump in to the middle of a price spike will loose their shirts when the bubble pops. Cryptocurrencies and Blockchain as a *technology* I think has some staying power. Any individual implementation is transient.
One could argue that this is now a historical fact, rather than mere speculation about the future.
'Bitcoin Jesus' is 'really, really concerned' about the future of the digital currency
https://www.cnbc.com/2017/12/11/bitcoin-jesus-is-really-really-concerned-about-the-future-of-the-digital-currency.html
Since this guy, AKA Roger Ver, reportedly turned $25K into $244 million buying into bitcoin at a dollar, I would dare say that he speaks from a pretty strong position of authority, and he seems to agree with your points, exactly as you stated them.
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
Cheap? Ok, I'll bid $18,000. Going once, going twice . . .
(BTW, what is a baseball card, what is a rookie card, and who the heck is Ken Griffey Jr?)
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Is anyone using it to buy legal goods and services?
I imagine there are a few, but do we have any data on the frequently?
If the answer is no, which I assume it is, then bitcoin has no future.
I use bitcoin for all my purchases. Granted, probably about 95% of my purchases are made off-chain through a payment provider, but I do make many purchases with bitcoin as on-chain transactions for a few legal services that I use that justify the on-chain transaction costs (which are about $4-6 for me at the moment).
I suppose I don't understand the emphasis on the necessity for bitcoin to be used for everyday legal goods and services to justify its existance. Bitcoin has use cases that extend well beyond paying for your coffee (remittance, censorship resistant store of value, international payments, programmability, irreversible transactions, etc). In fact, I'd argue that a proof-of-work crypto-currency like bitcoin's last use case should be coffee purchases. We already have plenty of payment technologies that can provide services such as that without requiring the security that a decentralized censorship resistant proof-of-work payment network provides. For the most part, fast and cheap transactions don't require that level of security. Therefore, requiring the full proof-of-work of the most secure payment network on the planet (Bitcoin) is not required. This is why side chain solutions for scaling are being introduced for bitcoin and why intermediary payment providers or other less secure crypto-currencies can offer better "coffee payment services" than on-chain bitcoin transactions can provide. That being said, the fact that people are paying anywhere from $4-$15 for on-chain bitcoin transactions shows that the network provides value to the people looking to transact on it. So if you're assuming that bitcoin has no future because there aren't enough coffee cups being purchased with it, then I'm afraid you miss the entire point of Bitcoin.
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
I'll trade you all my copies of X-men #1. With all the different covers. Best investment ever! They're printing 7 million and maybe 100,000 people want to actually read it, it's an instant collector's item!
-W
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I suppose I don't understand the emphasis on the necessity for bitcoin to be used for everyday legal goods and services to justify its existance. Bitcoin has use cases that extend well beyond paying for your coffee (remittance, censorship resistant store of value, international payments, programmability, irreversible transactions, etc). In fact, I'd argue that a proof-of-work crypto-currency like bitcoin's last use case should be coffee purchases. We already have plenty of payment technologies that can provide services such as that without requiring the security that a decentralized censorship resistant proof-of-work payment network provides. For the most part, fast and cheap transactions don't require that level of security. Therefore, requiring the full proof-of-work of the most secure payment network on the planet (Bitcoin) is not required. This is why side chain solutions for scaling are being introduced for bitcoin and why intermediary payment providers or other less secure crypto-currencies can offer better "coffee payment services" than on-chain bitcoin transactions can provide.
The problem isn't that there are some use cases that can still work with $20 transaction fees. The problem is that once those other cyptocurrencies start getting a lot more real world use for things like buying cups of coffee where transaction fees should really be a few cents at most to be competitive, it's hard to see why those new more cost effective cyptocurrencies couldn't also replace bitcoin for the use cases where people would be willing to pay a $20 transaction fee. (Because who wouldn't rather pay $0.02 than $20, all things being equal?).
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The problem isn't that there are some use cases that can still work with $20 transaction fees. The problem is that once those other cyptocurrencies start getting a lot more real world use for things like buying cups of coffee where transaction fees should really be a few cents at most to be competitive, it's hard to see why those new more cost effective cyptocurrencies couldn't also replace bitcoin for the use cases where people would be willing to pay a $20 transaction fee. (Because who wouldn't rather pay $0.02 than $20, all things being equal?).
I'll argue the opposite of that. As I said, there are already plenty of other crypto-currencies and payment systems out there that can be used for buying cups of coffee. This misunderstands the value that the Bitcoin proof-of-work network provides. No other currency has found a way to provide the decentralized security and censorship resistance that the Bitcoin network can provide while at the same time being able to scale to meet the global demand that a POS system requires. The truth of the matter is that POS payments don't require that level of security and so therefore it makes no sense to sacrifice the one thing that makes Bitcoin unique (decentralized censorship resistance provided by proof-of-work). This is why the Lightning Network is such a novel concept. It allows for massive scalability (millions of tx/sec) without requiring any proof-of-work, but can still settle back to the same secure blockchain when needed. Another solution could be to possibly utilize atomic swaps between another crypto-currency that can handle higher volume, but isn't as decentralized or use the same secure proof-of-work Bitcoin provides.
You can only choose two, unless you can break the laws of physics:
1) Fast, cheap on-chain txs
2) Secure, censorship-resistant txs
3) Widespread adoption
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The problem isn't that there are some use cases that can still work with $20 transaction fees. The problem is that once those other cyptocurrencies start getting a lot more real world use for things like buying cups of coffee where transaction fees should really be a few cents at most to be competitive, it's hard to see why those new more cost effective cyptocurrencies couldn't also replace bitcoin for the use cases where people would be willing to pay a $20 transaction fee. (Because who wouldn't rather pay $0.02 than $20, all things being equal?).
I'll argue the opposite of that. As I said, there are already plenty of other crypto-currencies and payment systems out there that can be used for buying cups of coffee. This misunderstands the value that the Bitcoin proof-of-work network provides. No other currency has found a way to provide the decentralized security and censorship resistance that the Bitcoin network can provide while at the same time being able to scale to meet the global demand that a POS system requires. The truth of the matter is that POS payments don't require that level of security and so therefore it makes no sense to sacrifice the one thing that makes Bitcoin unique (decentralized censorship resistance provided by proof-of-work). This is why the Lightning Network is such a novel concept. It allows for massive scalability (millions of tx/sec) without requiring any proof-of-work, but can still settle back to the same secure blockchain when needed. Another solution could be to possibly utilize atomic swaps between another crypto-currency that can handle higher volume, but isn't as decentralized or use the same secure proof-of-work Bitcoin provides.
You can only choose two, unless you can break the laws of physics:
1) Fast, cheap on-chain txs
2) Secure, censorship-resistant txs
3) Widespread adoption
Apart from you, and maybe 100 other people, who actually knows what this means, or even cares?
I can wholly appreciate why someone in Venezuela or China would, out of desperation, use bitcoin to "stache" (pun intended) their wealth in a presumptuously safer place, but I doubt any of them would understand, or have even the slightest appreciation for any merits (if any actually exist, net net) for what you just said.
They are desperate to preserve their wealth, and would doubtless choose the baseball card option, if they thought that was a more viable choice.
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Apart from you, and maybe 100 other people, who actually know what this means, or even cares?
I can wholly see why someone in Venezuela or China would want to use bitcoin to "stache" (pun intended) their wealth in a safer place, but I doubt any of them would understand, or have even the slightest appreciation for any merits (if any exist) for what you just said.
You don't seem to be giving humans that much credit. I'm pretty sure if you asked someone what a URL was back in the early days of the internet, you'd probably get a lot of blank stares as well.
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Apart from you, and maybe 100 other people, who actually know what this means, or even cares?
I can wholly see why someone in Venezuela or China would want to use bitcoin to "stache" (pun intended) their wealth in a safer place, but I doubt any of them would understand, or have even the slightest appreciation for any merits (if any exist) for what you just said.
You don't seem to be giving humans that much credit. I'm pretty sure if you asked someone what a URL was back in the early days of the internet, you'd probably get a lot of blank stares as well.
That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the infirmary, as compared to URLs and the internet.
(I give humans the credit they have earned. After all, I kind of qualify as a member of that same category)
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That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the hospital, as compared to URLs and the internet.
(I give humans the credit they have earned. After all, I kind of qualify as a member of that same category)
If your point was that bitcoin is a newborn babe, in response to what in regard to my post does that argument apply?
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That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the hospital, as compared to URLs and the internet.
(I give humans the credit they have earned. After all, I kind of qualify as a member of that same category)
If your point was that bitcoin is a newborn babe, in response to what in regard to my post does that argument apply?
I'm sure it was just an oversight that you "accidentally" edited out your comment that I replied to, so I'll help you out there; just 'cause I'm a good guy at heart. Hint: look for the bold text I've added to your comment. Therein lies the answer to your latest question.
Apart from you, and maybe 100 other people, who actually know what this means, or even cares?
I can wholly see why someone in Venezuela or China would want to use bitcoin to "stache" (pun intended) their wealth in a safer place, but I doubt any of them would understand, or have even the slightest appreciation for any merits (if any exist) for what you just said.
You don't seem to be giving humans that much credit. I'm pretty sure if you asked someone what a URL was back in the early days of the internet, you'd probably get a lot of blank stares as well.
Given the proper context, my reply should now make a little more sense to you:
That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the infirmary, as compared to URLs and the internet.
(I give humans the credit they have earned. After all, I kind of qualify as a member of that same category)
No need to thank me. I'll just consider this my good deed for the day.
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I'm sure it was just an oversight that you neglected to include your comment that I replied to, so I'll help you out there; just 'cause I'm a good guy at heart. Hint: look for the bold text I've added to your comment. Therein lies the answer to your latest question.
Debating you is painful sometimes, lol.
I originally posted about Bitcoin's proof-of-work security stating in Reply #384:
I'll argue the opposite of that. As I said, there are already plenty of other crypto-currencies and payment systems out there that can be used for buying cups of coffee. This misunderstands the value that the Bitcoin proof-of-work network provides. No other currency has found a way to provide the decentralized security and censorship resistance that the Bitcoin network can provide while at the same time being able to scale to meet the global demand that a POS system requires.
In response to this, in Reply #385 you said:
Apart from you, and maybe 100 other people, who actually knows what this means, or even cares?
To which I responded with the URL comment.
You then responded in Reply #388 with:
That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the infirmary, as compared to URLs and the internet.
To which I asked:
If your point was that bitcoin is a newborn babe, in response to what in regard to my post does that argument apply?
So again, where in my original response (Reply #384) does bitcoin being a "newborn babe" apply?
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I'm sure it was just an oversight that you neglected to include your comment that I replied to, so I'll help you out there; just 'cause I'm a good guy at heart. Hint: look for the bold text I've added to your comment. Therein lies the answer to your latest question.
Debating you is painful sometimes, lol.
I originally posted about Bitcoin's proof-of-work security stating in Reply #384:
I'll argue the opposite of that. As I said, there are already plenty of other crypto-currencies and payment systems out there that can be used for buying cups of coffee. This misunderstands the value that the Bitcoin proof-of-work network provides. No other currency has found a way to provide the decentralized security and censorship resistance that the Bitcoin network can provide while at the same time being able to scale to meet the global demand that a POS system requires.
In response to this, in Reply #385 you said:
Apart from you, and maybe 100 other people, who actually knows what this means, or even cares?
To which I responded with the URL comment.
You then responded in Reply #388 with:
That pretty much makes my point. Bitcoin is a newborn babe, still wailing away in the infirmary, as compared to URLs and the internet.
To which I asked:
If your point was that bitcoin is a newborn babe, in response to what in regard to my post does that argument apply?
So again, where in my original response (Reply #384) does bitcoin being a "newborn babe" apply?
I didn't even know we were debating something. I merely expressed (and then unsuccessfully attempted to explain) the point of an opinion.
However, if you regard this a debate, then I will rest my case on statements I've already made, and formally withdraw, with the undisputed understanding that my opinion was not understood by you.
Giving you the benefit of the doubt, I will naturally assume that you wouldn't have agreed with my opinion, even if you had understood it.
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
Sorry dude, the baseball card bubble ended years ago.
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Criticisms against lightning network:
https://www.youtube.com/watch?v=UYHFrf5ci_g&feature=youtu.be&repost
https://www.reddit.com/r/btc/comments/7jnr31/the_lightning_network_is_not_at_alpha_release/
https://www.reddit.com/r/btc/comments/64de93/basic_questions_about_the_lightning_network/
Also, bitcoin core is less secure than bitcoin cash. The segwit change to signature validation added an additional point of risk.
You can only choose two, unless you can break the laws of physics:
1) Fast, cheap on-chain txs
2) Secure, censorship-resistant txs
3) Widespread adoption
I choose all 3 and a proof-of-stake crypto.
I certainly agree that there are some valid criticisms against the lightning network (ie, channel monitoring), but make no mistake it is a legitimate scaling solution that can handle thousands, if not millions, of transactions/sec with out requiring proof-of-work being it. I watched the video that you posted regarding the lightning network and there were a lot of myths spouted about the lightning network in it and bitcoin in general (stealing bitcoins, centralization, Satoshi's vision>Gavin, etc). The Lightning Network has been successfully tested (on mainnet) amongst several clients for compatibility and therefore the link you posted with regards to the development stage it is in is pointless and doesn't really make an effort to critique the network on any merit.
Please explain to me (technically) how bitcoin core is less secure than bitcoin cash? SegWit resolved transaction malleability which was a legitimate security concern. By having the transaction idenifier no longer take into account the signature, an attack who modifies the signature cannot also modify the transaction identifier. Just blindly saying that SegWit is an additional point of risk without explaining that point of risk is a faulty argument against it. On top of that, Bitcoin's network is much more decentralized compared to Bcash, both by hash rate and by node count/location. Considering the fact that a vast majority of bcash's hashrate is controlled by a single entity, it is an extremely centralized currency. Its nodes are also much more centralized when compared to Bitcoin cores. This decentralization across all aspects is what provides the censorship resistance that is required of a proof-of-work network.
Finally, how would it ever be possible to scale, on-chain, a proof-of-work system that can process millions of transactions per second. Give the fact that 1MB blocks can process about 6 transactions per second, in order to process transactions on the order of millions of transactions per second, that'd require blocks on the order of terabytes in size. There is simply no way you can propogate blocks of that size and have them reach all the necessary nodes around the world every 10 minutes. It isn't possible. Secondary solutions are required, whether it is atomic swaps with non-proof-of-work currencies (which Bcash can't do because it doesn't have SegWit) or something like the Lightning Network.
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AND that some of them (which may or may not be extant today) will be someday useful for making transactions.
This is an undervalued point. There are already today crytocurrencies that are better than Bitcoins for any particular use-case. You can transfer value worldwide for cheaper and faster with any of them. So then what is Bitcoin's long-term valuation? Nothing. The only thing driving the prices and continued use is speculation and momentum. There will come a day when bitcoin transactions are too slow or too expensive or too hard compared to something else, and everyone will jump ship to the other thing. And then the same thing will happen to that and they'll jump ship to the next thing.
I'm sure that there are some long-term use-cases that will make cryptocurrencies stick around. But the long-term value of any particular cryptocurrency will always be zero, and people who jump in to the middle of a price spike will loose their shirts when the bubble pops. Cryptocurrencies and Blockchain as a *technology* I think has some staying power. Any individual implementation is transient.
One could argue that this is now a historical fact, rather than mere speculation about the future.
'Bitcoin Jesus' is 'really, really concerned' about the future of the digital currency
https://www.cnbc.com/2017/12/11/bitcoin-jesus-is-really-really-concerned-about-the-future-of-the-digital-currency.html
Since this guy, AKA Roger Ver, reportedly turned $25K into $244 million buying into bitcoin at a dollar, I would dare say that he speaks from a pretty strong position of authority, and he seems to agree with your points, exactly as you stated them.
I have noticed that lifeanon suddenly "magically" becomes extremely active about some other topic whenever this point is raised. Funny that. It's almost like he's merely a troll who has a vested interest in Bitcoin (specifically) being successful for as long as possible.
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The problem I have when people try to line up bitcoin's price rise in comparison to other past historical bubble is that bitcoin's price rise came from a value of $0.
For clarification, this response is not me defining whether an asset or investment is in a bubble based on whether or not it ever had a starting price of $0. That's what ILikeDividends claimed, but that's not what I meant. To put it more clearly, the key part of that statement that was missed was the "in comparison" portion. In other words, looking at bubbles relative to each other simply based on the prices of the underlying in each given bubble is a complete failure in analysis. A $0 starting point is not a defining characteristic of what makes a bubble or not, that's absolutely true, we're not in disagreement there. But, it makes no sense to compare bubbles simply on the merits of their prices without understanding the underlying forces in the market behind those prices.
This is why looking at the price of bitcoin on a logarithmic scale is so important. You could've easily taken a snapshot of bitcoin's price at numerous points along the way and it would yield a similar curve to match up to historical bubbles just like the above chart showed. Yet, doing so wouldn't give you any indicator at all as to whether or not you're dealing with a bubble in bitcoin or any other asset for that matter. For example, you could've taken a snapshot starting in Jan 2012 when it had a starting price of $4 and then had "today's" price on that graph be Jan 2014 where it had a price of around $1000. That's a multiplier of 250x and it would've dwarfed every bubble on that chart. In otherwords, this chart skews data historically simply based on arbitrary prices without regard to what determines those prices in the market.
I know this was intended as an explanation of how bitcoin isn't in a bubble, but to me it reads as confirmation that bitcoin has never been anything except a bubble. Logarithmic growth by itself isn't necessarily a guarantee that something is in a bubble (although it's a useful indicator), but logarithmic growth for years on end is hard to classify as anything except a bubble. Your argument regarding logarithmic growth feels a lot like someone whipping out a PowerPoint presentation during an evacuation to explain that this isn't an emergency, the building has always been on fire.
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I know this was intended as an explanation of how bitcoin isn't in a bubble, but to me it reads as confirmation that bitcoin has never been anything except a bubble.
Hey, Ilikedividends? Statements like the one above are why I spend time clarifying the difference between say that something is in a bubble and that something is a bubble. ;-)
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
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I know this was intended as an explanation of how bitcoin isn't in a bubble, but to me it reads as confirmation that bitcoin has never been anything except a bubble.
Hey, Ilikedividends? Statements like the one above are why I spend time clarifying the difference between say that something is in a bubble and that something is a bubble. ;-)
Looks like a tied score to me. You should at least feel some gratification in taking half a victory lap. ;)
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Ugh, we're clearly having separate discussions past each other again. Nevermind.
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Ugh, we're clearly having separate discussions past each other again. Nevermind.
Well, hmm. I thought we already agreed that, if taken too literally, that statement you quoted is nonsensical.
If you were referring to that post to illustrate your prior point, well, I'd have to say, yes, I still agree. That was as good an example as any.
Maybe I'm missing something more subtle than that? It wouldn't be a first.
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
Sorry dude, the baseball card bubble ended years ago.
That's.
The.
Joke.
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In the original bitcoin, the way a coin is transferred is taking the prior signature and the next user's public key, and hashing that. Miners saw this data and updated the utxo to the ledger. The original bitcoin was defined as a chain of digital signatures, and accompanying that was a longstanding economic model base on being able to verify the signatures. Segwit removes miners ability to 'witness' the signatures. It changed the economics and weakened the security model. In segwit, signatures have no value; the lack of witnessing a signature can allow malicious miners to redirect transactions to their own address. This, in addition to pruning and increasingly rewarding segwit transactions, creates a situation of new risk.
Here's a more in-depth article can about segwit risk: https://calvinayre.com/2017/06/19/bitcoin/risks-segregated-witness-opening-door-mining-cartels-undermine-bitcoin-network/
This is not true at all. Saying that signatures have no value with SegWit is completely false. They're still the basis and necessity for being able to spend one's bitcoins. Craig Wright has a history of misinformation (Satoshi Nakamoto ID theft?) and he has always downplayed the role that nodes play in the bitcoin network and overstates the role that miners play in the network. Any node that recognizes SegWit transactions and addresses see the signatures and therefore will validate those transactions and blocks. What Craig Wright is stating in that article would essentially result in a hard fork. It is only the old nodes that wouldn't see the witness data for SegWit transactions, so if a miner were to attempt to spend transactions that didn't meet the rules of the network according to the nodes that recognize SegWit, they'd effectively be performing a hardfork and creating a blockchain that is ignoring the rules of the network that dictate that those coins can't be spent without a valid signature. A miner attempting to mine a block trying to steal coins from SegWit transactions, those blocks would only be recognized by a few old nodes on the network and that block would get quickly orphaned as soon as more legitimate blocks that all the rest of the SegWit nodes recognize get mined. In other words, this is no different of a 51% attack under a SegWit scenario than we would have under a non-SegWit network. This is a similar soft-fork technique that P2SH scripts used when implemented.
As we've already seen this year, it has been shown that miners have much less power over the network than they've realized and Craig Wright (the author of your article) has always neglected the power that the nodes and userbase/market have in dictating the direction that the network takes.
https://seebitcoin.com/2017/02/segwit-facts-not-anyone-can-spend-so-stop-saying-they-can/ (https://seebitcoin.com/2017/02/segwit-facts-not-anyone-can-spend-so-stop-saying-they-can/)
I don't know the technical side of OMG and how that works, so I can't comment there. I'd have to do some research on it more. Thanks for the info.
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I'll concede that segwit signatures retain value, but remain firm that the economic model has changed to increased risk, due to segwit. User non-mining nodes cannot validate transactions. Miners are the ones who decide what to validate. User nodes cannot stop what miners validate. If the reward or reason is large enough, and large number of miners collude on malicious behavior, then the chances of a hardfork are very high. What do miners lose, in this situation, and what do they stand to gain? You can't simply assume that it can't happen, or if it happens, that it will not be a big impact, especially when there is a chance of it happening.
There are a ton of controversy surrounding segwit signatures. Physicist and chief scientist of bitcoin unlimited, Peter Rizun, backs up the claim that segwit signatures have little or no value (let's make the distinction to mean monetary value (https://www.youtube.com/watch?v=hO176mdSTG0&feature=youtu.be&t=783). Segwit also poses a forensics issue: "SegWit is not concerned with maintaining digital signatures, only with validating transactions as they occur. The SegWit approach creates significant uncertainty as to whether only a hash of signature data can meet the e-SIGN statutory requirements to prove a digital signature." https://www.coindesk.com/the-risks-of-bitcoins-segregated-witness-problems-under-us-contract-law/
Segwit changed the economic model and introduced a point of risk.
What are you talking about that non-mining nodes cannot validate transactions? Non-mining nodes are the very nodes that validate transactions. Miners don't validate anything. I bolded your statement above because that statement is fundementally not true. Miners perform the proof-of-work to build each of the blocks, but they don't validate those blocks. Only the non-mining nodes that store the blockchain validate whether or not a block that a miner solved is valid. This is the key misunderstanding that Craig Wright and Peter Rizun in his presentation have. We even saw this play out quite vividly this year with several of the hardforks that occurred (Bcash and S2X). Hashpower does not get to dictate what bitcoin is and isn't. A massive number of bitcoin core nodes validate and accept SegWit blocks and transactions and they view all witness data. The market sees bitcoin as having SegWit implemented and so do all the exchanges that are a part of this ecosystem. As we saw with the BCash EDA hassle this year, hashpower had little sway in what the market viewed as being bitcoin.
If you watch Peter Rizun's video that you linked to, the very first question that was asked pointed out this very clear misunderstanding and Peter Rizun's response was...
"I'm assuming that the non-mining nodes don't have too much influence over the protocol."
Peter Rizun views the bitcoin ecosystem as a closed system from the standpoint of miners and only miners. As we've seen, this is a faulty viewpoint and it isn't how the economical market reacts to what bitcoin is and isn't. If all nodes are validating SegWit blocks with witness data and the market views this as bitcoin and all the exchanges view this as bitcoin and there is massive economic activity that occurs with SegWit transactions, then the miners have very little influence with regard to trying to take over SegWit transactions without witness data. This will only get more and more true as time goes on and more and more economic activity occurs with SegWit transactions that include the witness data. As exchanges like Coinbase and many others make their transition to SegWit, it will become less and less likely that there would ever be an attempt to hard fork away from SegWit. That's essentially what is being argued here...that the miners would make an attempt to hard fork away from a Bitcoin network that uses SegWit and back onto a chain that does not recognize SegWit transactions. The economic model has not changed at all. In fact, it is the economic model (the market determines what Bitcoin is and isn't) that makes this arguement invalid in the first place. What you're essentially arguing is that nodes that don't recognize SegWit transactions that strip witness data will someday be the nodes that determine that Bitcoin no longer utilizes SegWit. In doing so, a hardfork would occur and the market would also need to agree with that fact idea...given the fact that the market would likely have billions of dollars locked up in SegWit addresses, I can assure you that would not happen.
Miners can hardfork to their hearts content, we've all seen how well that has worked in the past for them.
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What are you talking about that non-mining nodes cannot validate transactions? Non-mining nodes are the very nodes that validate transactions. Miners don't validate anything.
false. miners validate the entire history of the blockchain (that's the whole point) to decide which blockchain to work on top of, and miners validate all outstanding transactions in the mempool when deciding which transactions to include in a block.
Hashpower does not get to dictate what bitcoin is and isn't.
false again. hashpower does determine which blockchain is the "concensus" blockchain. again, that's the whole point. hashpower = secure blockchain = bitcoin.
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false. miners validate the entire history of the blockchain (that's the whole point) to decide which blockchain to work on top of, and miners validate all outstanding transactions in the mempool when deciding which transactions to include in a block.
Wrong, the decentralized network of non-mining nodes that store a copy of the blockchain is what validates the historical blockchain. The mining nodes simply take a hash of the latest block from those nodes to work on top of for the current block that they're processing. They can certainly choose which transactions to process from the mempool, but if they don't build a valid block that the non-mining nodes agree to, then they will have wasted their hash power. That's the whole point in how the checks and balances work between nodes and miners. If a miner builds an invalid block, that block will not be accepted by the network.
false again. hashpower does determine which blockchain is the "concensus" blockchain. again, that's the whole point. hashpower = secure blockchain = bitcoin.
That's not really true as we saw and was proven this year. Hashpower is completely economically driven. If the market and ecosystem values bitcoin as being a certain chain and the tokens on the forked chain don't hold any value, then the miners would be operating at a loss under the rules of the forked chain. While they might be able to hold out for a short while, if the market does not get behind that forked chain, then ultimately the miners would need to mine the more profitable chain to stay in business. There is certainly a give and take between the two forces, but it just isn't true that hashpower is what determines what the bitcoin blockchain is. History clearly shows this to be true, so I don't really feel as if I need to argue it.
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Shadow, the argument you're making against "user" full-nodes is not an argument I ever made. Not once did I ever mention "user" full-nodes or making the case for the ability of users to run full-nodes on Raspberry Pis.
There is a big difference between "user" full-nodes and just the idea of full-nodes in general. Essentially if you're a non-mining Bitcoin business, you're going to want to run a full node. As a business, you're not going to want to trust your business to some other third-party that is running a full-node. Secondly, Coinbase, for example, as an Exchange will want to run a full-node to ensure that their transactions are fully validated and that they're also a complete check and balance against the rest of the community. If the only full-nodes out there were miners, then that would mean miners would be able to dictate the business decisions that Coinbase as an exchange were to make. Also, since Coinbase is a business that relies directly on its userbase, Coinbase has a vested interest in listening to that user base to determine what path to follow. This is the key market mechanism that people miss when they place too much emphasis on the power that miners have over Bitcoin. Coinbase isn't in the mining business, but it most assuredly is in the business of making sure that Bitcoin follows the path that the market demands. That is essentially its entire business model and that model depends directly on running a non-mining full-node.
The article you linked to and the argument you've made only make sense when talking about "user" full-nodes, but don't make much sense in the context of what I stated above.
Finally, if you value decentralization (which the article never mentions), then you must also value non-mining full-nodes. I run cold-storage watch only Electrum SPV wallet. At any given time it is connected to about 10 different servers, many of them are Tor hidden servers, and are very geographically diverse. This is a very critical component when it comes to creating a payment network that is censorship resistant. Bitcoin mining is essentially performing energy market arbitrage by being able to be located in areas with cheap electricity. Because of this, there is a reason why a large chunk of the mining resources are located in China. I mine with an ASIC at my house and use the Slushpool mining pool since it gives me a vote as to which Bitcoin version I mine for. Since most mining takes place in pools, if only miners were the ones running full-nodes, then my SPV wallet would not be making nearly as many diverse connections around the globe. This is very bad for decentralization and censorship resistance. Large numbers of geographically diverse full-nodes provides a proper check against mining, especially when that mining is not nearly as geographically diverse.
I agree that Bitcoin without mining is not Bitcoin, but if you put too much emphasis on the power that mining has over the network, then I'd absolutely argue that Bitcoin without a large number of geographically diverse full-nodes is not Bitcoin either.
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The mining nodes simply take a hash of the latest block from those nodes to work on top of for the current block that they're processing.
sorry but there's no point in continuing this discussion in this thread. you've obviously been misinformed.
mining nodes don't have to take a block hash from non-mining nodes. miners can ignore new blocks coming in from the network and create their own chain in secret, then broadcast this secret chain later once they have the most cumulative proof of work. that's how a "51%" attack works.
They can certainly choose which transactions to process from the mempool, but if they don't build a valid block that the non-mining nodes agree to, then they will have wasted their hash power.
that's all they do. there's no other way for transactions end up in a block. if the majority of miners are working on a chain a node doesn't consider valid, and the node wants to follow a different chain, then the node has to follow some other consensus rules. the node would then not be a "bitcoin" node. in fact this is exactly how the bitcoin forks work.
false again. hashpower does determine which blockchain is the "concensus" blockchain. again, that's the whole point. hashpower = secure blockchain = bitcoin.
That's not really true as we saw and was proven this year.
...
History clearly shows this to be true, so I don't really feel as if I need to argue it.
i don't know what you're talking about. no other chain has ever had the most cumulative proof of work.
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My statements don't disagree with this. Businesses that accept btc will want to run nonmining fullnodes. Enthusiasts and researchers may want to run a nonmining fullnode.
I agree. I was a little confused then that you linked to an article that was literally titled: "Why non-mining full nodes are a terrible idea." and you claimed that Bitcoin = miners. If you agree that non-mining full-nodes are a critical component of the Bitcoin network, then we can agree there, but it didn't seem as if your post was arguing for that at all.
The thing about decentralization in a proof-of-work, is that it faces unsustainability and other risks. Every performance tweak, every optimization, every competitive advantage, every newer model of of asic, creates a situation where miners must adapt similiar enhancements to compete. Factor in areas where you get cheap electricity. Miners are ok as long as they operate in the black, but if they can't keep up with costs (higher and higher costs, or btc value doesn't keep pace with costs), they have to shutdown part of the mining operation or they may even entirely have to give it up.
Another thing about decentralization is that there is no agreement on what constitutes decentralization in a proof-of-work crypto. Miners are distributed groups, but we see a trend toward greater and greater centralization base on the factors listed above. Those who support running nonmining fullnodes says the more people that run fullnodes the better: for example, 100 users, 10 miners, and if 90 people are nonmining fullnodes, then you've extended decentralization by including nonmining fullnodes across 90% of users. You limit a protocol blocksize increase base on this decentralized reasoning
The problem with this is that it affects usability. The crucial aspect impacted is infrastructure. The people who believe concentrated pools of miners are ok, given the factors of increasing efficiency that will phase out smaller miners, also believe that decentralization naturally results from a higher blocksize limit, which increases usability. Businesses are the ones who must at least run nonmining fullnodes because they process customer transactions. So greater usability --> more users --> more businesses. Now, you have 1000 users, 10 miners or even more (systems that rent mining power to normal users increase), and 90 businesses that run nonmining fullnodes. The percentage of nonmining fullnodes are lower than in the limited blocksize scenario (10% vs 90%), but that does not make it more centralized then the other scenario.
It seems to a be question of perspective: which situation would actually better defend against centralization?
It seems like you operate with a very black and white perspective.
Since hashrate within mining pools can be fairly dispersed, I don't feel there is a need to have a large number of mining pools, so long as the hashrate within them is fairly decentralized. So long as you have enough mining pools to cover the varying degrees of consesus, then you can withstand various attacks and censorship. Since mining pools are more abstract and application layer entities, it is very hard to censor a mining pool itself even if there are only a few of them. Having a geographically decentralized and disperse group of non-mining full nodes however is even more important since often these groups of nodes need to talk the Bitcoin protocol across the internet and often are businesses themselves that depend on these nodes to run their business. Since these business operate within the jurisdiction of any given nation, it would be much easier to censor non-mining full-nodes than it would be to censor any given mining pool of diverse miners. As I stated earlier, it is this large group of decentralized and geographically disperse non-mining full-nodes that provide a proper check against the mining infrastructure.
Again, I'm not for or against a bigger blocksize at some point. It will need to be an inevitable change to be made to the protocol in order to scale it even with adequate side chain solutions in place. But, I feel like you're straying from the original argument and trying to now squeeze a blocksize debate into the picture where there was none previously. Aside from acknowledging that blocksize increases are not a valid form of scaling exponentially (which is needed for large scale adoption), then I understand the need for blocksizes that are larger than the current restriction today.
However, our original argument was in regard to whether mining is the central form of power within the Bitcoin network and ecosystem and whether or not SegWit introduces security flaws. As I've stated, unless you feel that miners are the sole dictators of Bitcoin, then SegWit does not introduce any more security issues than were already present with the risk of a 51% attack or a contentious hardfork driven by miners. I stand by my position on the fact that non-mining full-nodes are a check and balance against miners and even though you've now strayed into a separate debate altogether (block-size), I haven't heard a valid argument against having that check and balance in place. That check and balance provides security and will ensure that SegWit is a secure part of Bitcoin going forward that can't simply be contentiously removed one day by a malicious group of miners, no matter how strong they think they are.
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sorry but there's no point in continuing this discussion in this thread. you've obviously been misinformed.
mining nodes don't have to take a block hash from non-mining nodes. miners can ignore new blocks coming in from the network and create their own chain in secret, then broadcast this secret chain later once they have the most cumulative proof of work. that's how a "51%" attack works.
But they still need to choose a valid block height to operate from as a point of fork. That was my point. They obviously don't need to pull that block from a non-mining node, but that misses the point that they'd certainly need to pull that block from a legitimate chain (whether their own copy or not) in order to present their fork chain for consensus. Otherwise what would be the point of forking?
that's all they do. there's no other way for transactions end up in a block. if the majority of miners are working on a chain a node doesn't consider valid, and the node wants to follow a different chain, then the node has to follow some other consensus rules. the node would then not be a "bitcoin" node. in fact this is exactly how the bitcoin forks work.
I'm not up for arguing semantics, so please don't underline my sentence and claim like I was stating anything other than what was clearly typed out. We're in full agreement with how transactions end up in a block.
i don't know what you're talking about. no other chain has ever had the most cumulative proof of work.
I agree we haven't. But that's certainly not without an effort to have one, as was shown with the proposed SegWit2X fork. That was a proposed hardfork that had a majority of hashrate behind it. Had it gone through, it would have been the most cumulative proof of work chain. However, due to the lack of support from the community, the number of non-mining full-nodes in opposition, and the lack of ecosystem support (exchanges, payment operators, etc), then the fork didn't go through (not taking into account that the code itself was screwed up).
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It may be too late to get into bitcoin investing, but it's never too late to get into baseball card investing. I have a Ken Griffey Jr. rookie card that I'm willing to part with. Cheap.
Sorry dude, the baseball card bubble ended years ago.
Don't you dare drag Junior into this. That man is one of the most talented athletes ever, and nothing but a class Act.*
*Besides, he's still on the Reds' payroll today because he signed a brilliant contract with a ton of deferred money, so he's probably being paid by them in bitcoin, too
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Ughhh, my friend is obsessed with bitcoin and I was this close to investing $3k as experiment money in August but I didn’t because I set a goal for my Vanguard account ($100k) and haven’t reached that yet. Now I’m kinda kicking myself and wondering if I should invest now or leave the game to the more fearless? (I still wouldn’t invest more than $3k max). If I don’t do it, will I be regretting it in 5 years?
BTC when OP asked the question: $7813.50
BTC now: $18211
Gain: +133%
CAGR: OMFG
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Bitcoin is exactly as risky today as it was in November. It's just more expensive now...
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Recently we sold most of ours. WE decided a bird in the hand is better and just kept a few in case it goes up even more.
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Ughhh, my friend is obsessed with bitcoin and I was this close to investing $3k as experiment money in August but I didn’t because I set a goal for my Vanguard account ($100k) and haven’t reached that yet. Now I’m kinda kicking myself and wondering if I should invest now or leave the game to the more fearless? (I still wouldn’t invest more than $3k max). If I don’t do it, will I be regretting it in 5 years?
BTC when OP asked the question: $7813.50
BTC now: $18211
Gain: +133%
CAGR: OMFG
Come on, it only needs to double about 15 more times before everyone holding at least 1 BTC is a USD billionaire. At this surely sustainable growth rate that should happen by this time next year.
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How do people feel about coinbase adding BCH?
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Ughhh, my friend is obsessed with bitcoin and I was this close to investing $3k as experiment money in August but I didn’t because I set a goal for my Vanguard account ($100k) and haven’t reached that yet. Now I’m kinda kicking myself and wondering if I should invest now or leave the game to the more fearless? (I still wouldn’t invest more than $3k max). If I don’t do it, will I be regretting it in 5 years?
BTC when OP asked the question: $7813.50
BTC now: $18211
Gain: +133%
CAGR: OMFG
Come on, it only needs to double about 15 more times before everyone holding at least 1 BTC is a USD billionaire. At this surely sustainable growth rate that should happen by this time next year.
Damn! In August when my best friend tried to get me to buy bitcoin it was $3k and I thought that was too high to buy in. He thought $10k was the ceiling and it would take a year.
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Bitcoin is exactly as risky today as it was in November. It's just more expensive now...
yeah. To be fair, with zero intrinsic value the PE ratio (or whatever) is no worse at $20k than at $2k..
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Bitcoin is exactly as risky today as it was in November. It's just more expensive now...
yeah. To be fair, with zero intrinsic value the PE ratio (or whatever) is no worse at $20k than at $2k..
There is no PE ratio because E=0.
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Bitcoin is exactly as risky today as it was in November. It's just more expensive now...
yeah. To be fair, with zero intrinsic value the PE ratio (or whatever) is no worse at $20k than at $2k..
There is no PE ratio because E=0.
Exactly. Just like intrinsic value, and potential value, or future earnings, or spending power, etc etc. Math is easy when it's all zero!
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How do people feel about coinbase adding BCH?
open competition between BTC and BCH is good. the actual announcement and start of trading didn't go well, but i don't think that will matter either way in the long run.
my guess is all the people that tried to make a quick buck and sold all their BCH early now regret it because of the current price of BCH. if BCH drops to zero they'll be vindicated but i don't think that's likely.
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
It is very hard call a bubble/top without the benefit of hindsight:
(https://pensionpartners.com/wp-content/uploads/2017/08/charts9.png)
From this great series of charts (https://pensionpartners.com/put-these-charts-on-your-wall/)
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
It is very hard call a bubble/top without the benefit of hindsight:
(https://pensionpartners.com/wp-content/uploads/2017/08/charts9.png)
From this great series of charts (https://pensionpartners.com/put-these-charts-on-your-wall/)
There's a difference between calling a bubble and calling a top. You can be in a bubble for years.
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Forgive me if I'm wrong, but isn't that the complete opposite scenario of most bitcoin investors at the moment? Few people have only a couple hundred dollars of bitcoin, most appear to be hoarding large sums with the intent to use as an investment rather than for any transactions that can be carried out.
The original premise was that bitcoin would have use-cases that would compel people to acquire it to use; and this would therefore escalate demand and value. However, rising use-cases and transactions have shifted to newer, superior crypto. My prediction is that by 2019, bitcoin's market dominance will dip below 50% (it's currently 62.4% and one year ago it was 86%). There will be crypto that will outperform bitcoin; and a few of these crypto have the potential for a huge breakout due to true onchain scalability, mass adoption, and compelling use-cases (superior remittance system, access to online financial services, a platform that allows payment networks to instantly settle and various units of value to be traded with each other, etc).
I recall reading something about how a bank (or some financial institution) was trialling cryptocurrency. One of the team mates was totally into Bitcoin and had personally invested into it but after performing the rigourous tests he decided that it was a bad investment as it takes hours to transact.
I didn't know about the dip in market dominance but I'm also not surprised. That's why I think Dash, Ripple, and other similar crypto will win the day. The only thing is I don't think Dash and Ripple are seriously considered a digital currency as opposed to Bitcoin.
Ethereum might win as well but I have heard they are having some serious problems as well. I'm not too sure about Litecoin though as I'm not sure what its use cases are.
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At this surely sustainable growth rate that should happen by this time next year
Just in time for me to buy the Carolina Panthers with my bitcoin billions!
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
I just read that too.
What's a good name for the impending bust? The dotcom era led to the dotbomb. The bitcoin era has a...bitless crash?
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
I just read that too.
What's a good name for the impending bust? The dotcom era led to the dotbomb. The bitcoin era has a...bitless crash?
VaporCoin?
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
WTF? That's not real is it? Pivoting from iced tea to blockchain.. something? Whaa??
And to be fair to the dot-com boom those companies at least had the potential to make money. Pets.com could have been profitable, at some point. BTC can...eh, function as a highly volatile middle-man to buy starbucks, which is instantly converted to USD.
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
It is very hard call a bubble/top without the benefit of hindsight:
(https://pensionpartners.com/wp-content/uploads/2017/08/charts9.png)
From this great series of charts (https://pensionpartners.com/put-these-charts-on-your-wall/)
Sure. These are economic experts, not kindergardeners.
Sent from my SAMSUNG-SM-G930A using Tapatalk
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
It is very hard call a bubble/top without the benefit of hindsight:
(https://pensionpartners.com/wp-content/uploads/2017/08/charts9.png)
From this great series of charts (https://pensionpartners.com/put-these-charts-on-your-wall/)
Sure. These are economic experts, not kindergardeners.
Sent from my SAMSUNG-SM-G930A using Tapatalk
i hope you don't heed the financial advice of these "economic experts":
here's The Economist in October 2011, with the price around $3: "BITCOIN, briefly the world's favorite cryptocurrency, is in trouble."
https://www.economist.com/blogs/babbage/2011/10/virtual-currencies
here's CNN Money in April 2013, with the price around $80: "Bitcoin bubble may have burst"
http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/index.html
here's The Economist again in November 2013, with the price around $1000: "the recent price surge, driven by Chinese investors stashing money offshore, looks like a classic bubble."
https://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-if-digital-currency-crashes-others-will-follow-bitcoin
and again in May 2015, with the price near $225: "Six-and-a-half years on, the bankers may feel they can relax a little. Interest in bitcoin has waned."
https://www.economist.com/news/special-report/21650295-or-it-next-big-thing
here's The Wall Street Journal in June 2017, with the price near $3000: "Bitcoin [...] roughly tripled this year. Given bitcoin’s history of volatility, a tumble at some point seems inevitable."
https://www.wsj.com/articles/bitcoin-drives-to-a-new-high-but-is-it-headed-for-a-crash-1496771053
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I didn't post that graph to say whether it is true that we are in a bubble or not, nor whether it would be prudent to invest in Bitcoin or not, but rather about the fallacy of making predictions without hindsight, especially if you were going to act on them (no shorting is available that I know of).
It's a bit of a semantics argument, but I'm not sure one can call a bubble until it is popped. It has to be done with hindsight.
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agreed that hindsight is needed to declare bitcoin was "in" a bubble. time will tell if bitcoin altogether "is" a bubble. if you look at the log chart the history appears a lot less dramatic, but it's still climbing at an unsustainable pace:
(https://i.imgur.com/16vqzhZ.jpg)
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I didn't post that graph to say whether it is true that we are in a bubble or not, nor whether it would be prudent to invest in Bitcoin or not, but rather about the fallacy of making predictions without foresight, especially if you were going to act on them (no shorting is available that I know of).
It's a bit of a semantics argument, but I'm not sure one can call a bubble until it is popped. It has to be done with hindsight.
Call me a sematics geek, but it's a bubble. It can continue to be a bubble for another 10 years, but it's a bubble, nevertheless. Hopefully, many can make fortunes before the bubble bursts. But it will burst. I don't intend to be there when it does, and I won't regret the potential billions I could have made in the mean time. There is potentially functional value with this technology, but there is no economic value.
At some point, the functional value of this technology will be exploited. But it will not be in the form of a currency. The company that can exploit that will be the next Google, but they are not on the investment horizon yet.
Right now, there are penny stock Tea companies (who actually just sell tea) changing their names to "block chain Tea," and realizing a 1,000% appreciation in share price in mere days (less than a week), simply because of a name change.
That's a bubble, my friend, no matter how you want to slice it, semantically.
And, unlike BCOs, they fall under the regulatory purview of the SEC.
The regulators commeth.
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
It is very hard call a bubble/top without the benefit of hindsight:
(https://pensionpartners.com/wp-content/uploads/2017/08/charts9.png)
From this great series of charts (https://pensionpartners.com/put-these-charts-on-your-wall/)
Sure. These are economic experts, not kindergardeners.
Sent from my SAMSUNG-SM-G930A using Tapatalk
i hope you don't heed the financial advice of these "economic experts":
here's The Economist in October 2011, with the price around $3: "BITCOIN, briefly the world's favorite cryptocurrency, is in trouble."
https://www.economist.com/blogs/babbage/2011/10/virtual-currencies
here's CNN Money in April 2013, with the price around $80: "Bitcoin bubble may have burst"
http://money.cnn.com/2013/04/12/investing/bitcoin-bubble/index.html
here's The Economist again in November 2013, with the price around $1000: "the recent price surge, driven by Chinese investors stashing money offshore, looks like a classic bubble."
https://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-if-digital-currency-crashes-others-will-follow-bitcoin
and again in May 2015, with the price near $225: "Six-and-a-half years on, the bankers may feel they can relax a little. Interest in bitcoin has waned."
https://www.economist.com/news/special-report/21650295-or-it-next-big-thing
here's The Wall Street Journal in June 2017, with the price near $3000: "Bitcoin [...] roughly tripled this year. Given bitcoin’s history of volatility, a tumble at some point seems inevitable."
https://www.wsj.com/articles/bitcoin-drives-to-a-new-high-but-is-it-headed-for-a-crash-1496771053
^ It really is the dot-com bust all over again.
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Recent article in Wall Street Journal today says that 51 out of 53 economic experts and forecasters surveyed says Bitcoin is a classic bubble.
Sent from my SAMSUNG-SM-G930A using Tapatalk
Well 51 out of 53 were right. Down more than 50% off it's high.
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Bitcoin is so stupid. Imagine if the US dollar behaved like Bitcoin. The US economy would be in ruin.
Stay away from this nonsense. If you do throw money at it (I refuse to call it investing) assume you will lose it, and if you win, its just like going to the casino.
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This is only the beginning of the bitcoin price drops!
I would think that 30% or 40% drops are right around the corner on thin transactions.
Get ready for a rush to the exit.... It's about to get messy.
This isn't going to age well.
My question to the skeptics.
Have you ever used bitcoin, studied it, or the ecosystem? Have you read about the banks who are developing their entire future around it?
https://cointelegraph.com/news/koreas-second-largest-bank-building-secure-crypto-wallet-services
https://news.bitcoin.com/japans-sbi-crypto-businesses-mining/
Also, when would you ever considering using bitcoin? What would it take? Or do you just scream ponzi, scam, tulips until you die, regardless of how many people are using it?
Ahhem...
https://www.cnbc.com/2017/12/22/bitcoin-plunges-below-12000-on-coinbase-as-rout-accelerates-now-down-40-percent-from-record.html
Uh...if you invested on the day you made that post, November 30th. You'd be up over 30% today. Nice try though.
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Exactly... you just said invested. I can invest in playing slot machines too. And when I am up I can say this was a worthwhile investment, but we all know its just gambling.
Bitcoin and others are supposed to be a currency, which needs to be stable, which they are far from. So people are not buying them to use as a currency, especially since any place that does accept them also legally has to accept their local country's currency as well, which they will already have. They are buying them because they see the value going up and don't want to be left out. That is speculation. Its essentially gambling.
Its going to be fun coming back to this thread in a few years when all this implodes, and there are tons of people who will be left crying, the congressional hearings that follow, and eventually these random currencies become sanctioned by governments. Much like the way the US prevents banks and credit card companies from dealing directly with online casinos. Yes, you can get money into and out of them, but it is a pain in the ass and time consuming. I don't doubt something similar will happen with Bitcoin and others.
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Exactly... you just said invested. I can invest in playing slot machines too. And when I am up I can say this was a worthwhile investment, but we all know its just gambling.
Bitcoin and others are supposed to be a currency, which needs to be stable, which they are far from. So people are not buying them to use as a currency, especially since any place that does accept them also legally has to accept their local country's currency as well, which they will already have. They are buying them because they see the value going up and don't want to be left out. That is speculation. Its essentially gambling.
Its going to be fun coming back to this thread in a few years when all this implodes, and there are tons of people who will be left crying, the congressional hearings that follow, and eventually these random currencies become sanctioned by governments. Much like the way the US prevents banks and credit card companies from dealing directly with online casinos. Yes, you can get money into and out of them, but it is a pain in the ass and time consuming. I don't doubt something similar will happen with Bitcoin and others.
do you think this downturn in bitcoin's price is fundamentally different than the downturns in 2011, 2013, or 2014? or are cryptocurrencies categorically not able to survive long-term for some particular reason?
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Exactly... you just said invested. I can invest in playing slot machines too. And when I am up I can say this was a worthwhile investment, but we all know its just gambling.
Bitcoin and others are supposed to be a currency, which needs to be stable, which they are far from. So people are not buying them to use as a currency, especially since any place that does accept them also legally has to accept their local country's currency as well, which they will already have. They are buying them because they see the value going up and don't want to be left out. That is speculation. Its essentially gambling.
Its going to be fun coming back to this thread in a few years when all this implodes, and there are tons of people who will be left crying, the congressional hearings that follow, and eventually these random currencies become sanctioned by governments. Much like the way the US prevents banks and credit card companies from dealing directly with online casinos. Yes, you can get money into and out of them, but it is a pain in the ass and time consuming. I don't doubt something similar will happen with Bitcoin and others.
do you think this downturn in bitcoin's price is fundamentally different than the downturns in 2011, 2013, or 2014? or are cryptocurrencies categorically not able to survive long-term for some particular reason?
Tulips didn't just disappear when the mania crashed. There is still a market for tulips, it's just a rational market now.
Having said that, bitcoin's swoon today isn't really much different, in magnitude, then what it's had several times this year alone. The bubble could go on for quite a long time, and reach new highs as well. That doesn't mean it's not a bubble. It just means there's enough disagreement about that to keep it going, at least for now.
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Exactly... you just said invested. I can invest in playing slot machines too. And when I am up I can say this was a worthwhile investment, but we all know its just gambling.
Bitcoin and others are supposed to be a currency, which needs to be stable, which they are far from. So people are not buying them to use as a currency, especially since any place that does accept them also legally has to accept their local country's currency as well, which they will already have. They are buying them because they see the value going up and don't want to be left out. That is speculation. Its essentially gambling.
Its going to be fun coming back to this thread in a few years when all this implodes, and there are tons of people who will be left crying, the congressional hearings that follow, and eventually these random currencies become sanctioned by governments. Much like the way the US prevents banks and credit card companies from dealing directly with online casinos. Yes, you can get money into and out of them, but it is a pain in the ass and time consuming. I don't doubt something similar will happen with Bitcoin and others.
do you think this downturn in bitcoin's price is fundamentally different than the downturns in 2011, 2013, or 2014? or are cryptocurrencies categorically not able to survive long-term for some particular reason?
For cryptocurrencies to survive as currencies, rather than just vessels for the human speculative impulse, then their value relative to the price of goods needs to remain relatively stable. For that, supply will need to fluctuate to adapt to fluctuating demand. Bitcoin fundamentally can't do that, so IMO, it's already obsolete as a currency. But I don't think it's a stretch at all to think that some other current or future cryptocurrency might eventually be adopted and widely used as a currency - perhaps with a monetary policy administered by some decentralized algorithm, though I have no idea how that might work.
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
I just read that too.
What's a good name for the impending bust? The dotcom era led to the dotbomb. The bitcoin era has a...bitless crash?
Reminds me of the late 90s, when essentially every company that built a web site, became a ".com play" people worked themselves into a lather to buy it. Didn't matter if the company made a profit or even had significant sales. Just needed a .com web site.
Even quaint, mundane little companies. I still remember sometime in 1999? almost falling out of my chair when some analyst called "Vermont Teddy Bear" an internet play because they added a web site, with the resulting ridiculous price surge.
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Exactly... you just said invested. I can invest in playing slot machines too. And when I am up I can say this was a worthwhile investment, but we all know its just gambling.
Bitcoin and others are supposed to be a currency, which needs to be stable, which they are far from. So people are not buying them to use as a currency, especially since any place that does accept them also legally has to accept their local country's currency as well, which they will already have. They are buying them because they see the value going up and don't want to be left out. That is speculation. Its essentially gambling.
Its going to be fun coming back to this thread in a few years when all this implodes, and there are tons of people who will be left crying, the congressional hearings that follow, and eventually these random currencies become sanctioned by governments. Much like the way the US prevents banks and credit card companies from dealing directly with online casinos. Yes, you can get money into and out of them, but it is a pain in the ass and time consuming. I don't doubt something similar will happen with Bitcoin and others.
I still haven't been able to find a single store in San Antonio, a city of 1.3 Million people, that accepts Bitcoin. One of the malls has a Bitcoin ATM, but none of the stores in the mall takes Bitcoin.
I also found a Bitcoin ATM at a Quickie Mart type store in SA. I asked if I could pay for my gas, coffee, and chips with Bitcoin. They said "no, we don't accept Bitcoin, we just have the machine for people who want to buy Bitcoin (apparently, they take an 8-10% commission on each Bitcoin purchase)."
Bitcoin is about as much "currency" as a truck load full of anvils. Sure, you might be able to find someone, somewhere who will take that anvil (or Bitcoin) in exchange for a product or service, but it's kinda hard to do so. Not exactly "currency."
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In my honest opinion it is safer to run around olongapo with no condoms than to trust bitcoin as a long term investment.
Happy Holidays, No Hell no fuck that, Merry Christmas!
Mike
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It really is the dot-com bust all over again.
https://www.marketwatch.com/story/long-island-iced-teas-stock-rockets-nearly-500-after-changing-name-to-long-blockchain-2017-12-21?siteid=yhoof2&yptr=yahoo
OMFG
I just read that too.
What's a good name for the impending bust? The dotcom era led to the dotbomb. The bitcoin era has a...bitless crash?
The bitshit, clearly :D
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I still haven't been able to find a single store in San Antonio, a city of 1.3 Million people, that accepts Bitcoin. One of the malls has a Bitcoin ATM, but none of the stores in the mall takes Bitcoin.
...
Bitcoin is about as much "currency" as a truck load full of anvils. Sure, you might be able to find someone, somewhere who will take that anvil (or Bitcoin) in exchange for a product or service, but it's kinda hard to do so. Not exactly "currency."
How many local stores have you found that accept gold bullion? Does that make it a bad inflation hedge?
I don't invest in BTC, but I have used it for half a dozen online transactions.
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How many local stores have you found that accept gold bullion? Does that make it a bad inflation hedge?
To answer your first question . . . about as many as I've found that accept bitcoin.
To answer your second . . . No. It's a bad inflation hedge, bad low interest rate hedge, bad tail risk hedge, AND a bad replacement for currency (https://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n4.1 (https://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n4.1)).
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To answer your second . . . No. It's a bad inflation hedge, bad low interest rate hedge, bad tail risk hedge, AND a bad replacement for currency (https://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n4.1 (https://www.cfapubs.org/doi/pdf/10.2469/faj.v69.n4.1)).
Sure, absolutely. I don't invest in gold because I live in a developed nation with a trustworthy fed. Not all of my friends and family can say the same.
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Bitcoin scares me. It just seems to be currency speculation without the stability of a currency. The time to buy was a few years ago when it was cheap. It will have to make even more extraordinary gains to make more modest growth.
"Everyone" at my work is talking about it. Their main argument for doing so is "it just keeps going up!" Many have bought small amounts of bitcoin and other so-called crypto-currencies. That tells me if you were a huge investor it is getting close to the time to dump it. Stupid money is being fed into it.
I don't have a dime into it, though I wish when it was around a penny each! LOL
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One serious question: Is anyone paying capital gains tax, or any applicable tax (when you convert bitcoin back into dollars? I never have traded any currency and don't know what would apply.
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One serious question: Is anyone paying capital gains tax, or any applicable tax (when you convert bitcoin back into dollars? I never have traded any currency and don't know what would apply.
I haven't realized any capital gains on cryptocurrency, but I absolutely do plan to pay capital gains tax when I do.
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One serious question: Is anyone paying capital gains tax, or any applicable tax (when you convert bitcoin back into dollars? I never have traded any currency and don't know what would apply.
CRA (Canada tax agency) has a FAQ that talks about Bitcoin. I'm guessing there must be some sort of guideline in most countries... it's been in existence long enough that people want to tax it :D
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I read one report that said on any given day, approximately 30% of all bitcoin trades involve North Korean money laundering. It's a way for them to avoid UN sanctions on their financial markets.
Just saying. Sometimes operating outside the traditional financial sector isn't quite the moral high ground that some people wish it could be. Are you comfortable supporting a terrorist state, if it could make you money?
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Hey sol, do you happen to have a link to that report handy? Would be curious to read a bit more about how that statistic was estimated.
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Hey sol, do you happen to have a link to that report handy? Would be curious to read a bit more about how that statistic was estimated.
I don't remember where I read it, but google can probably point you in the right direction.
https://www.google.com/search?q=bitcoin+in+north+korea
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I read one report that said on any given day, approximately 30% of all bitcoin trades involve North Korean money laundering. It's a way for them to avoid UN sanctions on their financial markets.
Just saying. Sometimes operating outside the traditional financial sector isn't quite the moral high ground that some people wish it could be. Are you comfortable supporting a terrorist state, if it could make you money?
What a load of crap! Of course, there would be no bitcoin without the internet, so I guess everyone on this forum is supporting terrorists!
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What a load of crap! Of course, there would be no bitcoin without the internet, so I guess everyone on this forum is supporting terrorists!
I think the specifics were not that North Korea was just buying and holding 30% of the bitcoins in the world, but that they were hosting the tumblers that anonymize bitcoin purchases to make them untraceable. The tumblers execute thousands (millions?) of tiny bitcoin transactions in order to obscure the blockchain histories. They're a necessary step if you want it to be truly anonymous. https://www.bloomberg.com/news/articles/2017-12-14/north-korea-s-bitcoin-play
North Korea also likes bitcoin for investment purposes, because it's one of the very few things they are allowed to legally export for profit. They have large coal reserves, and so lots of cheap power, but there are sanctions on exporting raw coal. There are no sanctions on burning your coal to run bitcoin mines and then selling the bitcoins anonymously. http://money.cnn.com/2017/12/12/technology/north-korea-bitcoin-hoard/index.html
We also know that several of North Korea's global ransomware attacks demanded payment in bitcoin. How else would North Korean hackers get paid for unencrypting your files, if the're not allowed to use regular banks? It sounds like they mostly made immediate conversions from bitcoin to other crypto currencies, again as a way of anonymizing their crimes. https://www.wsj.com/articles/its-official-north-korea-is-behind-wannacry-1513642537
And North Korea is clearly responsible for several of the major bitcoin heists from the exchanges, especially the ones in South Korea. http://fortune.com/2017/12/22/north-korea-bitcoin-heist/
So no, I don't think it's quite as simple as "using the internet supports bitcoin terrorists." North Korea is a terrorist state, that is super involved in bitcoin because it allows them to skirt sanctions. I think this is probably the single biggest threat to the bitcoin "industry", that the UN may decide to sanction and restrict it because it's a tool used primarily by terrorists and criminals. https://www.express.co.uk/news/world/895564/North-Korea-news-World-War-3-latest-bitcoin-price-Kim-Jong-un-nuclear-Donald-Trump
The global financial system may by universally corrupt, but it does have some benefits. One of those benefits is that the world's financial powers can use it to restrict rogue states that threaten us with nuclear weapons. Bitcoin's founders may have had high ideals about subverting a corrupt system, but there is definitely a reason why bitcoin's primary uses have been in black markets and it's NOT because criminals love their digital freedom.
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What a load of crap! Of course, there would be no bitcoin without the internet, so I guess everyone on this forum is supporting terrorists!
I think the specifics were not that North Korea was just buying and holding 30% of the bitcoins in the world, but that they were hosting the tumblers that anonymize bitcoin purchases to make them untraceable. The tumblers execute thousands (millions?) of tiny bitcoin transactions in order to obscure the blockchain histories. They're a necessary step if you want it to be truly anonymous. https://www.bloomberg.com/news/articles/2017-12-14/north-korea-s-bitcoin-play
Thanks for posting a link sol, but having read through it I didn't see any reference to evidence that bitcoin tumbers being hosted in North Korea, although it sounded like maybe they might sometimes be used by North Koreans (which seems plausible). Did I miss something?
If folks genuinely want to be anonymous, generally they are going to use a currency like Monero or ZCash. The coins you receive back from a bitcoin tumbling service may not be linked to your own misdeeds, but they are pretty darn certain to be linked to SOMEONE's misdeeds. Also with the current spike in transaction fees (we're now on the 3rd day over $50/transaction), it would surprise me a lot if bitcoin tumbling was still economically viable.
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Thanks for posting a link sol, but having read through it I didn't see any reference to evidence that bitcoin tumbers being hosted in North Korea,
I haven't been able to relocate the source where I read the 30% number, sorry.
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Here we go:
Israel is the latest country to signal a crackdown on cryptocurrencies
Israel's stock market regulator has proposed bans on stock exchange listings for firms based on cryptocurrencies such as bitcoin.
Read more: https://www.cnbc.com/2017/12/25/israel-may-ban-bitcoin-cryptocurrency-companies-from-tel-aviv-listing.html
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In my honest opinion it is safer to run around olongapo with no condoms than to trust bitcoin as a long term investment.
Happy Holidays, No Hell no fuck that, Merry Christmas!
Mike
I had to google it to understand the reference. But why did you pick olongapo of all places, not say Manila or Cebu?
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I had to google it to understand the reference. But why did you pick olongapo of all places, not say Manila or Cebu?
Personal experience?
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I had to google it to understand the reference. But why did you pick olongapo of all places, not say Manila or Cebu?
Personal experience?
Are you assuming my gender?
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I had to google it to understand the reference. But why did you pick olongapo of all places, not say Manila or Cebu?
Personal experience?
Are you assuming my gender?
I can't possibly see how. Did I use a gendered pronoun?
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I am guessing sol meant "personal experience?" as speculation about why aboatguy used Olongapo in their original post on Dec. 22nd and not more widely known cities like Manila.
I am guessing Podanak read the same "personal experience?" as a question by sol about whether Podanak had traveled to Manila or Cebu as a customer in the sex trade (which, if conforming to gender stereotypes would imply that Podanak was male).
If these guesses are correct, hopefully that helps clear things up. If the guesses are incorrect, please disregard and carry on.
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Here we go:
Israel is the latest country to signal a crackdown on cryptocurrencies
Israel's stock market regulator has proposed bans on stock exchange listings for firms based on cryptocurrencies such as bitcoin.
Read more: https://www.cnbc.com/2017/12/25/israel-may-ban-bitcoin-cryptocurrency-companies-from-tel-aviv-listing.html
Quote from the article: "Shares of Blockchain, which on Sunday changed its name from Natural Resources, have soared some 5,000 percent in the past few months since it announced it would shift its focus from mining for gold and iron to mining cryptocurrencies."
What? I assume the company executives know that specialization in mining gold doesn't translate to mining bitcoin, but do their investors know that?
Let's pretend for a second this was their real strategy, which I doubt. What do they do with their existing mining equipment, mining employees, land rights, assets, debts, etc.? That is all worthless mining bitcoins. Are they going to sell it all and buy server farms? How long will that take? Are they going to lay off the existing workforce? What will the severance and/or unemployment benefit costs be? How long will the layoffs take? Do they have any crypto experts now? Will they hire more? What will that cost? How long will it take to hire the new employees? How long will it take for the crypto side of the business to reach profitability? Will the new cash flows cover existing debts? Speaking of debts, how much new debt will the company have to take on to finance all of this? How will this new business compete with existing crypto companies who already have experts, server farms, and who don't have all of this additional baggage? This all sounds incredibly risky, time consuming, and less viable than their existing business. Anyone thinking about this rationally wouldn't drive the stock price up 5,000%, they would be driving it down while insisting on leadership changes.
Conclusion: it's irrational exuberance
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Both articles basically say it's inconclusive that crypto is being used to effectively finance terrorism:
That's probably fair, in broad terms. I haven't heard of ISIS going all in on bitcoin.
But North Korea totally is. I don't think they're doing it for the traditional reasons that terrorist networks need to raise money, like paying for desert training centers and paying off the families of suicide bombers. They're doing it because it operates outside the traditional financial sector, which is currently allied against them. And isn't that kind of the point of crypto currencies, to operate outside the traditional financial sector? My understanding is that is exactly why they were created in the first place. It seems almost tailor-made for places like North Korea that need to circumvent traditional banking.
Bitcoin has been a hugely profitable investment for some people, as lavish press coverage has brought in thousands and thousands of new investors to be the greater fool. We've seen this story play out before, when an asset class gets too popular and prices spike beyond all reasonable expectations of profitability. Dotcoms did it. Iceland's currency did it. Tulip bulbs did it. I'm not saying bitcoin is trash, because I rather like the idea, personally. I'm just saying that the market price of bitcoin, and the firms associated with it, has become totally disconnected from the normal rules of economics by the explosive interest from get-rich-quick public investors. Just like with tulip bulbs.
And that sort of cash cow, however fleeting and/or technologically savvy it may be, is always going to attract organized crime and rouge nations looking to make a quick buck. It sounds like North Korea is trying to cash in. Maybe they're failing at it, I don't know, but they're certainly trying. They've stolen a bunch of bitcoins, and they've run spearfishing campaigns to steal more, and they've ransomed a bunch with the WannaCry attack, and now they're mining them and actively developing exploits to steal more in the future. Their stolen bitcoins are mostly traded for other digital currencies, and then into cash they can use to finance a regime that is currently under economic sanctions and unable to raise funding in other ways. I suspect it's a tiny fraction of their total national revenue, but it's not zero and if you've bought or sold bitcoins before then it sounds like there's a very real chance that you've transacted with North Korea.
And like I said before, that's why I think bitcoin is a risky investment. Not because the price is crazy volatile, or because I think it's insecure (though it has proven to be both of those things), but because I think it is potentially threatened by the international banking system locking it down, or at least making it much harder to exchange for normal money, because of it's historical involvement with places like North Korea (and with child porn, murder for hire, drug running, etc). I think that's the real threat to bitcoin. Civilized society might try to say no thank you, and then it won't matter how good your blockchain is. If they make it too hard to convert it into groceries, it's just another online gaming megasword item, invaluable to the right gamers but worthless to the rest of us.
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It's in full mania mode now, so the end game (collapse) is likely near.
Don't forget the old saying that the market can stay irrational longer than you can stay solvent.
My typical gauge for determining if a correction/collapse is coming is to watch and see if the particular investment is discussed on Christmas day at the gathering of my extended family.* If bitcoin is not discussed two weeks from now, then my prediction is that bitcoin is good until 2019.
**I purposefully won't be bringing up the topic to see if someone else does.
Update from YttriumNitrate Family Christmas 2017: Bitcoin was mentioned on Christmas day (not by me). If I had any bitcoin, I'd be selling now.
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After this bubble, we will read back over this thread. What will we think?
I predict the discussion will seem remarkably detailed, when simple bubble pattern-recognition was all there ever was to talk about.
The various technical-yet-vague justifications will seem fascinating, but catastrophically misapplied. The fact that many of the people who lost their life savings on the cryptocurrency fad also lived through the housing and dot-com bubbles will seem like a puzzle.
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Just to pile on, after my posts above, Richard Spencer has declared bitcoin "the currency of the alt right." Yea, no thanks.
After Nazis literally marched in Charlottesville, American extremist groups started pushing digital currencies as a way to avoid government control. They didn't like having their social media accounts suspended, and bitcoins can't be taken away from them. It's all part of their protest. They helped fuel the demand that has inflated the prices so much. Thanks, hate groups!
14.88 bitcoins were semianonymously donated to the Nazi website dailystormer after it went offline. 1488 is a reference to a nazi slogan. Nazis love bitcoin!
And why shouldn't they? It lets them, like North Korea, avoid restrictions placed on them by traditional financial institutions. It's like digital gold. I seem to recall the Nazis were very fond of hoarding literal gold, too, for identical reasons.
Is this the price we must pay for freedom? Sometimes I wonder how many crypto enthusiasts have thought through the consequences of these things. Somehow, I doubt satashi nakamoto was trying to help out the Nazis.
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But sol, Nazis also use the US dollar! Surely you aren’t in favour of removing the US dollar?? /s
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But sol, Nazis also use the US dollar! Surely you aren’t in favour of removing the US dollar?? /s
That's not really a comparable example.
There are federal banking controls on reporting cash transactions to the government which don't exist for crypto currencies. The lack of these controls make crypto transactions much more attractive for cloaking illicit activities.
Federal Banking Rules on Withdrawing Large Sums of Cash
https://finance.zacks.com/federal-banking-rules-withdrawing-large-sums-cash-1696.html
A 1970 anti-money-laundering law known as the Bank Secrecy Act spells out the rules for large cash withdrawals. In general, banks must report any transaction involving at least $10,000 in cash. That includes not only withdrawals but also deposits, currency exchanges (such as swapping dollars for euros or Japanese yen) and the purchase of traveler's checks. The law also requires banks to check identification on any transaction that would trigger a report. In other words, even if your bank doesn't usually ask for ID with withdrawals, it must do so for withdrawals over $10,000.
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I saw the white supremacist article and wondered if it would show up in this thread.
To have a meaningful debate we'd need to know two things: 1) how significant are the negative uses as a proportion of the total use of the technology* and 2) how large is the benefit for negative actors of using the technology relative to their next best option.**
Since we don't have good data on either of these things with regard to cryptocurrencies and either north korea or white supremacists, any discussion is going to boil down to us having different assumptions about what the most likely "real" answer is for #1 and #2 above. Doesn't seem like a particularly fruitful topic for discussion to me.
*Roads are used in the commission of almost every bank robbery, yet bank robberies make up a tiny fraction of the uses of roads, so banning roads to cut down on bank robberies would be silly. In contrast, KTW ammunition ("cop killer bullets") are used in only a small fraction of total crimes, yet a large fraction of the total civilian use cases for KTW ammunition were criminal, resulting in a federal ban.
**If you want to inject heroin, and you don't have access to a needle, the next best alternative is ... I'm honestly not sure, I don't know much about heroin, but I'm pretty sure it's a lot less effective than a needle, so there are lots of efforts (rightly or wrongly) to control access to IV needles. Because the next best alternative is an awful lot worse.
In contrast, if you want to smoke pot, and you don't have access to proper rolling paper, you could substitute a piece of newspaper, and probably make a joint which worked about as well (again I don't have experience). So laws to control access to cigarette paper isn't a great way to control marijuana use. Because the next best alternative is only a bit more inconvenient than the thing you would ban.
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Just to pile on, after my posts above, Richard Spencer has declared bitcoin "the currency of the alt right." Yea, no thanks.
...
And why shouldn't they? It lets them, like North Korea, avoid restrictions placed on them by traditional financial institutions. It's like digital gold. I seem to recall the Nazis were very fond of hoarding literal gold, too, for identical reasons.
Is this the price we must pay for freedom? Sometimes I wonder how many crypto enthusiasts have thought through the consequences of these things. Somehow, I doubt satashi nakamoto was trying to help out the Nazis.
"free as in liberty" decentralized currencies have been invented. "it's too late" -- they can't be uninvented and they can't be killed by banning them. bad people will use them, and good people will use them. yes, that's the price we pay for freedom.
how does bitcoin help the nazi cause? and if it did, what's the problem? nazis are free to gather and say whatever they want. if you're against the free movement of money, are you also against the first amendment?
do you sit in the comfort of an American home paid for with freely-open global investment options as you disparage anything that helps prospective investors in China looking for a way to get some of their money out of China? are you against corruption-resistant smartphone-based banking for the billions of unbanked people around the world?
do you trust governments to be in charge of currencies for the long term? governments which can be headed by people like Putin, Erdogan, Trump, Assad, Kim, Maduro, and Mugabe? governments that fiddle with inflation however they want, get into trillions of dollars of debt, and use taxpayer money to fund unpopular wars, corrupt government contracts, pet pork barrel projects, and copious amounts of golf? i'm not against taxation or governments in general, but they have proven time and again that they are terrible with managing money on a good day, and criminally corrupt on a bad day.
if you're against the free movement of money then you're probably against libertarianism in general. that's a valid position but i'm surprised to see it so often on this board. financial independence is only possible because of freedom and privacy we enjoy with our careers, our investments, and our money.
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Banning roads would have far-reaching detrimental effects outweighing whatever harm they might prevent in the success of bank robberies. A dubious assumption, since bank robberies are as old as banking.
Likewise, banning IV needles would also have far-reaching detrimental effects.
Banning cigarette rolling paper would at least have negative economic consequences for companies, employees, and taxing authorities that profit from their legitimate use, and would likewise be pretty useless in discouraging marijuana consumption.
I'm not necessarily advocating banning crypto currencies because of neo-Nazi or NK exploitation. My point is, that even if they were banned, what far-reaching detrimental effects would that ban have? In my life, personally, that would be a giant ZERO effect. There is nothing in my life that I need that I cannot get easily without using that technology at all, or ever.
Conversely, I use roads every day. And IV needles have, upon various occasions, saved my life. If cryptos disappeared tomorrow, I wouldn't even notice it. For bad actors, it helps solve an obvious problem. For the vast majority of hard-working honest folks, it really is nothing more than a novelty.
Having said all that, I do have libertarian leanings, and I wouldn't support a ban of crypto currencies any more than I would support outlawing casinos. People that want to roll the dice should be allowed to own dice.
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Oh another government stepping up:
Bitcoin drops 11% as South Korea moves to regulate cryptocurrency trading
Bitcoin fell on Thursday, marking the latest gyration following a major sell-off at the end of last week.
Read more: https://www.cnbc.com/2017/12/28/bitcoin-drops-11-percent-as-south-korea-moves-to-regulate-cryptocurrency-trading.html
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I'm waiting for the US govt to come down hard on crypto currency thru the N. Korea angle and the sanctions.
Sent from my SAMSUNG-SM-G930A using Tapatalk
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There is nothing in my life that I need that I cannot get easily without using that technology at all, or ever.
Crypto is fledgling tech. You're also never fully cognizant of what you're missing until it exists (like the modern internet).
Yup. So the North Korea/white supremacist debate just boils down to whether the person posting thinks there are significant benefits (existing or potential) to the technology, which is the same debate people have been having for pages and pages on this thread already.
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debate just boils down to whether the person posting thinks there are significant benefits (existing or potential) to the technology
I still don't see any.
Bitcoins are just digital objects. They don't have any value on their own, they serve no useful purpose. Credit cards and paypal are both easier ways to buy things online, and they work more seamlessly with our existing financial structures.
Most objects have SOME intrinsic value. If you buy a ton of oranges or pork bellies, you can eat them. If you buy a building you can live in it or rent it out. Bitcoins don't appear to have any intrinsic value at all, since they can't do anything. The only thing they are good for is selling to someone who values them more highly than you do, which is the same thing good old US dollars are already good for. Except dollars are much more widely available and accepted, hold their value better, are more anonymous, are easier to exchange into other formats, can be converted into a physical form for offline transactions, and are easier to manipulate for economic policy reasons.
The ONLY added utility that I can see bitcoin providing is that they can be easily traded outside of the banking restrictions of the kind we place on organized crime, rogue states, and terrorist networks. After being traded they can be converted back into real money, which is deliberately more difficult to trade if you are a criminal or rogue state or terrorist. So their great advantage is that they subvert the existing power structure, but for most of us the existing power structure is working just great, thanks.
The blockchain idea is cool. Conceptually, I like it. But I don't see any reason for all of the hype, like there is literally NO chance bitcoins are ever going to supplant normal money in the global economy (for a variety of reasons). I can see some nation states using similar technology (not bitcoin) to back their currency, but the national currencies will still exist and bitcoin will not exist in any meaningful way. I mean tulip bulbs still exist too, but not as an investment.
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Yup. And given that you hold that point of view (that there is no potential societal value to the technology of cryptocurrencies*), it makes complete sense to me that you'd feel things like the use of bitcoin by undesirable actors (north koreans and white supremacists) is enough to condemn the technology.
*Which is a separate debate from "the current price of bitcoin at this particular point in time is the result of a bubble" debate. I think pretty much everyone on this thread is on the same side of that second debate.
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Yup. And given that you hold that point of view (that there is no potential societal value to the technology of cryptocurrencies*), it makes complete sense to me that you'd feel things like the use of bitcoin by undesirable actors (north koreans and white supremacists) is enough to condemn the technology.
Let's slow up a second, there. I don't "condemn" the technology. I like the technology. It's just a useless and overhyped technology with no long term role in our society, like fidget spinners and the Macarena. Whether or not "undesirable actors" also use bitcoin is totally secondary to my opinion about its utility. It was a scam long before any of that happened.
I can see a long term use for blockchain technology. I see zero long term use for bitcoin, other than as a historical artifact for niche collectors interested in the "first" example of the technology, like dudes who collect Model T cars. Bitcoin will be easily surpassed by superior examples of digital currencies, because it was poorly designed to be a global currency in a global economy, just like the Model T was poorly designed compared to modern cars. Except you can't polish a bitcoin and put it in a museum.
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But sol, Nazis also use the US dollar! Surely you aren’t in favour of removing the US dollar?? /s
That's not really a comparable example.
There are federal banking controls on reporting cash transactions to the government which don't exist for crypto currencies. The lack of these controls make crypto transactions much more attractive for cloaking illicit activities.
Federal Banking Rules on Withdrawing Large Sums of Cash
https://finance.zacks.com/federal-banking-rules-withdrawing-large-sums-cash-1696.html
A 1970 anti-money-laundering law known as the Bank Secrecy Act spells out the rules for large cash withdrawals. In general, banks must report any transaction involving at least $10,000 in cash. That includes not only withdrawals but also deposits, currency exchanges (such as swapping dollars for euros or Japanese yen) and the purchase of traveler's checks. The law also requires banks to check identification on any transaction that would trigger a report. In other words, even if your bank doesn't usually ask for ID with withdrawals, it must do so for withdrawals over $10,000.
Just for your own internet education, ‘/s’ is a sarcasm tag.
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[
Just for your own internet education, ‘/s’ is a sarcasm tag.
Ah, sorry about that. My internet school practiced a more explicit tag.
<SARCASM>
Guess I'm just an old HTML fogy.
</SARCASM>
;)
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Just to pile on, after my posts above, Richard Spencer has declared bitcoin "the currency of the alt right." Yea, no thanks.
After Nazis literally marched in Charlottesville, American extremist groups started pushing digital currencies as a way to avoid government control. They didn't like having their social media accounts suspended, and bitcoins can't be taken away from them. It's all part of their protest. They helped fuel the demand that has inflated the prices so much. Thanks, hate groups!
14.88 bitcoins were semianonymously donated to the Nazi website dailystormer after it went offline. 1488 is a reference to a nazi slogan. Nazis love bitcoin!
And why shouldn't they? It lets them, like North Korea, avoid restrictions placed on them by traditional financial institutions. It's like digital gold. I seem to recall the Nazis were very fond of hoarding literal gold, too, for identical reasons.
Is this the price we must pay for freedom? Sometimes I wonder how many crypto enthusiasts have thought through the consequences of these things. Somehow, I doubt satashi nakamoto was trying to help out the Nazis.
This kind of reminds me of the early 2000s commercials that claimed if you smoke pot you fund terrorism. Take a behavior that you (government) don't agree with and tie it to nefarious activities to shame people into the behavior you desire. Good show, i say.
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This kind of reminds me of the early 2000s commercials that claimed if you smoke pot you fund terrorism.
Nah, trading bitcoins and smoking pot aren't necessarily good for you, but neither are they evil because of terrorism. They're just bad for you.
In this case, the analogy between bitcoin and opium is probably more apt, since terrorists have historically grown and processed opium explicitly to fund terrorist activities. Is it the only way terrorism is funded? Certainly not, but it is one way.
I make the same argument about oil, btw.
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Yup. And given that you hold that point of view (that there is no potential societal value to the technology of cryptocurrencies*), it makes complete sense to me that you'd feel things like the use of bitcoin by undesirable actors (north koreans and white supremacists) is enough to condemn the technology.
Let's slow up a second, there. I don't "condemn" the technology. I like the technology. It's just a useless and overhyped technology with no long term role in our society, like fidget spinners and the Macarena.
you "don't condemn it" but "it's just a useless technology"? what?
Whether or not "undesirable actors" also use bitcoin is totally secondary to my opinion about its utility. It was a scam long before any of that happened.
how to you define "scam"? it's abundantly clear that it's a highly volatile and speculative market without government oversight.
I can see a long term use for blockchain technology. I see zero long term use for bitcoin, other than as a historical artifact for niche collectors interested in the "first" example of the technology, like dudes who collect Model T cars.
i assume by "bitcoin" you mean "cryptocurrencies" here. what's the long-term use for blockchain without a built-in incentive mechanism for participants?
Bitcoin will be easily surpassed by superior examples of digital currencies, because it was poorly designed to be a global currency in a global economy, just like the Model T was poorly designed compared to modern cars. Except you can't polish a bitcoin and put it in a museum.
i agree that bitcoin isn't performing well at a technical level for the last year or two years. and as you know there are thousands of competing cryptocurrencies. there's a good chance one or more of them will take bitcoin's place sooner or later. but bitcoin isn't a stagnant thing. it's like the "toyota camry". it can be (and has been) tweaked and upgraded over time. there's also a good chance that some upgraded fork of a fork of bitcoin will still be around decades from now.
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Bitcoin will be easily surpassed by superior examples of digital currencies, because it was poorly designed to be a global currency in a global economy, just like the Model T was poorly designed compared to modern cars. Except you can't polish a bitcoin and put it in a museum.
i agree that bitcoin isn't performing well at a technical level for the last year or two years. and as you know there are thousands of competing cryptocurrencies. there's a good chance one or more of them will take bitcoin's place sooner or later. but bitcoin isn't a stagnant thing. it's like the "toyota camry". it can be (and has been) tweaked and upgraded over time. there's also a good chance that some upgraded fork of a fork of bitcoin will still be around decades from now.
Yup, I can agree with this statement as well. Average transaction fees for bitcoin have been greater than $30 since the 19th, merchants and payment processors are starting to either reverse course on adopting the currency or at least adopt several other cryptocurrencies in parallel (and yes in theory the lightening network is going to fix that, but right now it doesn't exist in any widely adopted form).
So if your definition of "the technology" is bitcoin specifically and not cryptocurrencies generally, then please do carry on, nothing to see here.
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This kind of reminds me of the early 2000s commercials that claimed if you smoke pot you fund terrorism.
Nah, trading bitcoins and smoking pot aren't necessarily good for you, but neither are they evil because of terrorism. They're just bad for you.
In this case, the analogy between bitcoin and opium is probably more apt, since terrorists have historically grown and processed opium explicitly to fund terrorist activities. Is it the only way terrorism is funded? Certainly not, but it is one way.
I make the same argument about oil, btw.
I guess my libertarian stripes are going to show clearly here.
There are many very safe ways of ingesting pot besides smoking it. Smoking just about anything is a crap-shoot, health wise, because combustion creates thousands of chemicals, randomly, that didn't ever exist in the original material.
In a supposedly free society, where there is mass appeal for a relatively harmless product (especially harmless as compared with alcohol), outlawing that substance is downright anti-American, in my humble opinion.
So the government outlaws it anyway. Then the only source to satisfy that demand comes from a criminal enterprise. Then, to top it all off, the government rhetoric is that the customer is funding a criminal (or terrorist) enterprise.
Wait a minute. Didn't the government just drive that highly lucrative business opportunity straight into the eager (non-tax-paying) hands of the criminals? Talk about shooting yourself in the foot.
</RANT>
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you "don't condemn it" but "it's just a useless technology"? what?
Exactly. Just like fidget spinners. They're not evil. I don't hate them, or want them destroyed. They're just silly and useless and a passing fad.
how to you define "scam"? it's abundantly clear that it's a highly volatile and speculative market without government oversight.
In this case, I define the scam as "an artificially created new product with no intrinsic value, vastly overhyped by paid media exposure to pump the price up, and then sold for a profit to greater fools." Just like all of those .com companies that didn't actually have an internet business model, and only used the .com label to draw investors and cash out. Did you see that the Long Island Ice Tea company spiked their stock price by announcing they were considering investing in blockchain technology? No relevance, no expertise, no plan. Just a press release and a quick $20 million payday. That's a scam.
I can see a long term use for blockchain technology. I see zero long term use for bitcoin, other than as a historical artifact for niche collectors interested in the "first" example of the technology, like dudes who collect Model T cars.
i assume by "bitcoin" you mean "cryptocurrencies" here.
No, I explicitly meant bitcoin. The language was precise. Other cryptocurrencies may find utility someday, but bitcoin will not. Bitcoin will be worthless in a few years, except to novelty collectors. Which is why the current price of bitcoin is stupid.
If you like the idea of decentralized online transfers of digital objects that can then be converted into real money, that's all well and good. It's a fine technology for preventing counterfeiting of abstract digital objects. That is not a reason to buy bitcoins as a long term investment.
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how to you define "scam"? it's abundantly clear that it's a highly volatile and speculative market without government oversight.
In this case, I define the scam as "an artificially created new product with no intrinsic value, vastly overhyped by paid media exposure to pump the price up, and then sold for a profit to greater fools." Just like all of those .com companies that didn't actually have an internet business model, and only used the .com label to draw investors and cash out. Did you see that the Long Island Ice Tea company spiked their stock price by announcing they were considering investing in blockchain technology? No relevance, no expertise, no plan. Just a press release and a quick $20 million payday. That's a scam.
first of all i agree that bitcoin is performing so terribly, on a technical level with fees and congestion, that there's a good chance it's doomed. there's a good chance you're right and the current consensus fork will be worthless in a matter or years or even months. time will tell. but i think it's performed well on a technical level, and survived over the last 8-9 years, and therefore it no longer qualifies as a "fad" or "scam".
that being said -- that's an extremely wide definition for scam. "artificial" is a non-argument. society and everything in it is artificial. "intrinsic value" is also a non-argument. if "intrinsic value" isn't an oxymoron the only things that have it are food and water. fidget spinners are very artificial and have no intrinsic value, and they enjoyed a lot of media exposure this year. does that make fidget spinners a scam? perhaps anything you don't like or didn't personally profit from is a scam.
i agree that the company name change was a scammy opportunistic move. but that has nothing to do with the price people have been buying and selling bitcoin at for the past 8 years.
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"intrinsic value" is also a non-argument. if "intrinsic value" isn't an oxymoron the only things that have it are food and water. fidget spinners are very artificial and have no intrinsic value, and they enjoyed a lot of media exposure this year. does that make fidget spinners a scam? perhaps anything you don't like or didn't personally profit from is a scam.
lol no dude intrinsic value is like paying a dividend, owning assets, profits from an established customer base, etc. To turn your stupid example into something that makes sense, a business selling fidget spinners might have some intrinsic value and might be an investment worth looking at. Buying individual fidget spinners and hoping to sell them to someone else later on for a higher price would be stupid.
One of the main reasons that bitcoin can drop 30% a day is because there is no intrinsic value, nothing that people can agree has a distinct dollar value attached, therefore there is really no floor to its price. Its utility would not change if it was worth one cent or one million.
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lol no dude intrinsic value is like paying a dividend, owning assets, profits from an established customer base, etc.
Right, all investments generate profits. When you buy stock you are buying a slice of that corporation's future quarterly cash flow. When you buy bonds you are buying future interest payments. When you buy real estate you are buying future (real or imputed) rents. The generation of regular future profits is what makes them investments.
When you buy beanie babies, they produce nothing. There is no dividend, no interest, no utility you can sell every month. The only potential way to make money is to find some "greater fool" willing to pay a higher price for an otherwise depreciating asset.
Bitcoin is much closer to beanie babies than it is to real estate. It doesn't do anything. It only has value as long as it remains popular to collect.
edited to add: my wife made some serious money on beanie babies. Some people still pay good money for mint condition original issue ones, even today. That doesn't make them an investment.
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What cracks me up about listening to people defend bitcoin or these other cryptos, is that all I hear how great the technology that involves them is. What I can't understand is how few address how many cryptos there are, how many that are no doubt being developed (and I mean, who wouldn't want to create an artificial currency, sell it all off to morons, and walk away with a profit?). Think things are confusing now? Wait a couple of years. Today its Bitcoin, tomorrow it seems it will be Ripple. Well, wait, after Ripple it will be something else. And where am I able to spend all this funny money? Can I buy gas with it? Groceries? Pay my mortgage? No? Then what the hell am I paying $1000s for them? Oh wait, Bitcoin lists some 20 companies foolish enough to deal with it. Its hysterical. I know people have made some money off trading bitcoin, but its really much like making money trading Monopoly money.
Some people bring up comparing it to gold. I don't own gold either. I figure if the sh!t hits the fan where GOLD is more important than the US dollar, then society as we know it will have collapsed and I am better off stocking up on bullets and cigarettes, but I know people have made money off that too. But gold is a natural resource and there is a finite amount on Earth. Its been sought after by just about every civilization. I have no need for it, but I can understand others that might.
I can develop a crypto currency. You can. We all can. And that's a problem.
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I also want to add that all this is happening because the world economy is doing pretty good. I can assure you if we were in tough times, no one would be spending their hard earned and limited funds on this stuff. Cryptos are a fringe 'investment' (~ I hate calling it that), and in hard times people are going to want payment in currencies that are STABLE, and these wont be.
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KTG, I disagree with some of your post, but I agree with you that it will be fascinating to see how cryptocurrency prices respond during the next recession. Since bitcoin dates back to January 2009, all but the first two months of the set of "historical" cryptocurrency data coincide with a nearly nine year long bull market.
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I personally think Bitcoin is fascinating, and from reading around on this site it looks like I'm going to be in the minority view. I do believe its past the time to invest in bitcoin, but I'm currently investing in ripple and etherium and have been advocating to my friends and family to do the same (in small amounts)
Ripple cannot be mined so I've just purchased a few thousand dollars worth and plan to hold offline in a hardware wallet for several years (the nano ledger hardware wallet to be exact). Maybe it has an insane run like bitcoin and I can cash out in a few years.
Etherium can be mined, I have servers already constantly running as part of a small web design business so I simply allocated any extra resources towards mining etherium. It cost about 80/month in extra electricity to mine but so far it has a positive ROI (it generates about 2 etherium coins per month). If you have the technical knowledge to build a mining computer I'd say go for it! I'm happy to share the exact specifications of the mining machine I built with you in a DM if you would like.
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Belly, does your business already require that your servers have lots of GPUs? Or are you mining ethereum on CPUs? Or installing GPUs into existing machines to make them better at mining?
One of the startups I'm associated with has a lot of computing power that is sitting idle about 80% of the time and we've discussed whether it'd make sense to configure it to mine cryptocurrencies during downtime. I hadn't found a currency where CPU mining makes significant economic sense (we need machines with lots of CPUs and extremely large amounts of RAM, but don't do a lot of parallel computing, so the machines don't have any GPUs at all), but maybe the recent run up in prices has changed the math.
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Here’s an article about the web from 1995.
http://www.newsweek.com/clifford-stoll-why-web-wont-be-nirvana-185306
It’s very interesting because the author raises some valid criticisms of the web at the time. What he was completely clueless about was that there were people working on these issues.
It’s baffling to me that people look at the current state of cryptocurrencies and think they’ll never be anything more because they have some issues that need to be addressed. There is a ridiculous amount of development going on in this space and I predict that one day many of its critics will look as equally silly as the author of that Newsweek article.
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It’s baffling to me that people look at the current state of cryptocurrencies and think they’ll never be anything more
It's not that I don't think the idea has merit, it's that I think bitcoin and the rest of these early coins will be virtually worthless.
Remember that when you pay $17k for a bitcoin, you are not investing in a blockchain technology company. You are not betting on the successful future of crypto currencies in the global economy. You are only betting that some other buyer in the future will pay you more than $17k for a specific bitcoin. Just like with beanie babies.
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Belly, does your business already require that your servers have lots of GPUs? Or are you mining ethereum on CPUs? Or installing GPUs into existing machines to make them better at mining?
One of the startups I'm associated with has a lot of computing power that is sitting idle about 80% of the time and we've discussed whether it'd make sense to configure it to mine cryptocurrencies during downtime. I hadn't found a currency where CPU mining makes significant economic sense (we need machines with lots of CPUs and extremely large amounts of RAM, but don't do a lot of parallel computing, so the machines don't have any GPUs at all), but maybe the recent run up in prices has changed the math.
Your right on the money, we have web servers that do not require any GPU's. This year we had it in the budget to build a new machine, when we priced out the machine it added an extra 2k to add 6 GPU's to the machine. All the mining is done by the GPU's, all the web traffic is served with the CPU's and the machine does have a good amount of RAM as well.
We are only a few months into our test but right now the machine runs with an added electricity cost to power the GPU's of right around $82/month. We are mining in a pool right now and the machine has generated about 1.8 coins per month so far over the first few months. With the average cost of etherium hovering around $700 per coin the machine is seemingly very profitable to run. It definitely helps that the electricty is already a business expense and thus a write off + we had to build the machine anyway so the only "added" cost was for the GPU's.
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lol no dude intrinsic value is like paying a dividend, owning assets, profits from an established customer base, etc.
Right, all investments generate profits. When you buy stock you are buying a slice of that corporation's future quarterly cash flow. When you buy bonds you are buying future interest payments. When you buy real estate you are buying future (real or imputed) rents. The generation of regular future profits is what makes them investments.
When you buy beanie babies, they produce nothing. There is no dividend, no interest, no utility you can sell every month. The only potential way to make money is to find some "greater fool" willing to pay a higher price for an otherwise depreciating asset.
Bitcoin is much closer to beanie babies than it is to real estate. It doesn't do anything. It only has value as long as it remains popular to collect.
edited to add: my wife made some serious money on beanie babies. Some people still pay good money for mint condition original issue ones, even today. That doesn't make them an investment.
a share of a stock does not itself do anything. yes, you may get dividends but that lowers the market price proportionally. the share of stock represents partial ownership of a company that produces value. and that share of stock is currently priced at 3x the company's book value, so 2/3 of your stock "value" is simply speculation on future earnings*.
for a unit of bitcoin to exist (not be valueless) there has to be a miners or other nodes consuming electricity and putting real work into the blockchain on which that coin exists, processing transactions. similar to a share of stock, each unit of bitcoin doesn’t do anything** but it represents its a functioning global payment network, and that global payment network produces value.
for price/book for bitcoin, it's probably mostly speculation. but again, bitcoins cost about as much to create as they're worth (the mining difficulty tracks the market price and mining profit tends to zero) and you can't just wave your hands to create some.
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* see price/book at "3.0x": https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0585#tab=2
** unlike a share of stock, units of bitcoin have utility: you can freely transact units of bitcoin with others around the world using the built-in payment network
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What cracks me up about listening to people defend bitcoin or these other cryptos, is that all I hear how great the technology that involves them is. What I can't understand is how few address how many cryptos there are, how many that are no doubt being developed (and I mean, who wouldn't want to create an artificial currency, sell it all off to morons, and walk away with a profit?). Think things are confusing now? Wait a couple of years. Today its Bitcoin, tomorrow it seems it will be Ripple. Well, wait, after Ripple it will be something else. And where am I able to spend all this funny money? Can I buy gas with it? Groceries? Pay my mortgage? No? Then what the hell am I paying $1000s for them? Oh wait, Bitcoin lists some 20 companies foolish enough to deal with it. Its hysterical. I know people have made some money off trading bitcoin, but its really much like making money trading Monopoly money.
Some people bring up comparing it to gold. I don't own gold either. I figure if the sh!t hits the fan where GOLD is more important than the US dollar, then society as we know it will have collapsed and I am better off stocking up on bullets and cigarettes, but I know people have made money off that too. But gold is a natural resource and there is a finite amount on Earth. Its been sought after by just about every civilization. I have no need for it, but I can understand others that might.
I can develop a crypto currency. You can. We all can. And that's a problem.
how is that a problem? have you looked at the open source software movement? there are tons of near-clones of any kind of software imaginable. anyone on earth can create any software at any time. does that mean Microsoft is worthless? anyone can create any website or blog they want, does that make websites worthless? cryptocurrencies are only worth something if they are secure and people use them.* people have to expend effort and money to make a cryptocurrency worth something. yes, if you create a cryptocurrency today it'll probably be worthless, as it should be. bitcoin or any other crypto can go poof to zero overnight if they are abandoned or proven not secure.
i agree with you that gold and cryptocurrencies will be worthless if society collapses. but that doesn't make those useless non-correlated asset classes while society is running along normally. (i personally think gold is about as useless as it gets so i don't own any.)
* https://forum.mrmoneymustache.com/investor-alley/official-crypto-currency-portfolios-and-discussion/msg1706244/#msg1706244
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how is that a problem? have you looked at the open source software movement? there are tons of near-clones of any kind of software imaginable. anyone on earth can create any software at any time. does that mean Microsoft is worthless? anyone can create any website or blog they want, does that make websites worthless? cryptocurrencies are only worth something if they are secure and people use them.* people have to expend effort and money to make a cryptocurrency worth something. yes, if you create a cryptocurrency today it'll probably be worthless, as it should be. bitcoin or any other crypto can go poof to zero overnight if they are abandoned or proven not secure.
i agree with you that gold and cryptocurrencies will be worthless if society collapses. but that doesn't make those useless non-correlated asset classes while society is running along normally. (i personally think gold is about as useless as it gets so i don't own any.)
* https://forum.mrmoneymustache.com/investor-alley/official-crypto-currency-portfolios-and-discussion/msg1706244/#msg1706244
Despite other alternatives, gold alloy is still the best material for dental work.
Gold powder is used in other medical treatments, such as for reducing swelling of arthritis.
Gold is one of the best materials for shielding ultraviolet rays; think satellites and astronaut face visors.
Gold is highly conductive and malleable, and never tarnishes. Got a cell phone or computer? Chances are there's about 50 milligrams of gold in each of them, simply because of its unique physical properties.
And of course, there's the obvious applications in jewelry and building materials, etc., for anything from modest to extravagant expressions of love or wealth.
I'm sure there's other examples; but hopefully you get my point. It's not just an otherwise valueless metal that sits as inert bricks in a vault. Its unique properties give it an intrinsic value that goes far beyond just a betting chip for speculators.
Bitcoin, as a payment system, is inferior, on balance, to existing systems. Sure, that's just my opinion, and I'm sure it's debatable.
Leaving that aside, what else can I do with a bitcoin, other than sell it to someone willing to pay a higher price than I did?
If society collapses, gold will still retain intrinsic value that will remain unexploited, but only until society rebuilds itself. Golds unique physical properties do not depend on any specific social structure.
Case in point: Confederates who used Confederate dollars to buy gold had an asset that was valuable long after the war was lost to the Union. Any who held on to paper currency found that their money simply expired, valueless, six months after the war was lost.
If society collapses permanently, then yeah, it's a moot point in any case.
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Bitcoin, as a payment system, is inferior, on balance, to existing systems. Sure, that's just my opinion, and I'm sure it's debatable.
Leaving that aside, what else can I do with a bitcoin, other than sell it to someone willing to pay a higher price than I did?
yes of course, if you "leave aside" the main function of something you don't have much left. if you "leave aside" transport from point A to B, what else is a car good for?
i completely agree that those of us in the US* and elsewhere have "good enough" electronic finances already. there is not a lot of benefit to bitcoin when all you're doing is paying your credit card balance and making a Vanguard transaction every now and then. but anyway:
- you can embed the signature of an electronic file/document in the blockchain, which proves the document existed at that time
- you can store value for escrow or trusts, for example with time-locked transactions or M-of-N-signatures-to-redeem transactions
- you can store value purely in your brain with a memorized wallet seed -- no EULA to agree to
If society collapses, gold will still retain intrinsic value that will remain unexploited, but only until society rebuilds itself. Golds unique physical properties do not depend on any specific social structure. If society collapses permanently, then yeah, it's a moot point in any case.
i think it's fair to say gold "may" retain some value. not "will." and again in that situation, food, clean water, your ability to do physical work, perhaps weapons, etc., will have value. you'd better hope whoever you're desperately buying food from wants a few shavings of gold, and not something else. your 10 pounds of gold or whatever won't tarnish, but it may get stolen or it may be a nice doorstop until society rebuilds. and yes in this situation bitcoin and the internet itself would be only a memory.
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* only ~5% of people on earth live in the US
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Bitcoin, as a payment system, is inferior, on balance, to existing systems. Sure, that's just my opinion, and I'm sure it's debatable.
Leaving that aside, what else can I do with a bitcoin, other than sell it to someone willing to pay a higher price than I did?
yes of course, if you "leave aside" the main function of something you don't have much left. if you "leave aside" transport from point A to B, what else is a car good for?
i completely agree that those of us in the US* and elsewhere have "good enough" electronic finances already. there is not a lot of benefit to bitcoin when all you're doing is paying your credit card balance and making a Vanguard transaction every now and then. but anyway:
If the main function of bitcoin is as a payment system, then it seems you are agreeing that it has no real intrinsic value to those of us in the USA and other developed countries.
And of course, as a resident of the USA, that is the perspective I am coming from. A car will take you from point A to point B in the USA, North Korea, or Venezuela, so I think that comparison is a bit of a red herring.
If I lived in Venezuela, then of course I would have to agree that bitcoin would be the least worst choice available for protecting my wealth from government seizure. But I don't live there, so it's an obviously inferior vehicle as a payment system for me.
- you can embed the signature of an electronic file/document in the blockchain, which proves the document existed at that time
- you can store value for escrow or trusts, for example with time-locked transactions or M-of-N-signatures-to-redeem transactions
- you can store value purely in your brain with a memorized wallet seed -- no EULA to agree to
That is a hypothetical "value" that has yet to find a real-world scenario. I would never sell my house and put it in an escrow account denominated in bitcoin, simply because I have no guarantee of getting paid in a real currency anywhere near the value of my house after closing escrow. That would seem to defeat the whole purpose of escrow.
If society collapses, gold will still retain intrinsic value that will remain unexploited, but only until society rebuilds itself. Golds unique physical properties do not depend on any specific social structure. If society collapses permanently, then yeah, it's a moot point in any case.
i think it's fair to say gold "may" retain some value. not "will." and again in that situation, food, clean water, your ability to do physical work, perhaps weapons, etc., will have value. you'd better hope whoever you're desperately buying food from wants a few shavings of gold, and not something else. your 10 pounds of gold or whatever won't tarnish, but it may get stolen or it may be a nice doorstop until society rebuilds. and yes in this situation bitcoin and the internet itself would be only a memory.
There have been numerous massive societal collapses throughout history, and gold has always emerged as the same coveted asset that it was before the collapse. History is on the side of "will" not "may."
I don't think anyone is arguing that gold is more valuable than food, clean water, or the ability to do physical work. But if that is the point of your assertion, then of course, I would have to agree.
But in the worst possible scenario, gold would at least still exist in the physical world, and not just as a fading memory. I would rather own something that is at least worth stealing, than own nothing anyone wants at all. Who wouldn't?
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* only ~5% of people on earth live in the US
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I'm surprised more countries have not cracked down on bitcoin as it effectively undermines their currencies, the dollar included. I wonder about the intentions of the creators as well. The idea may be neat, a global currency of one value.
However, I find it a little funny a bunch of "investors" are falling over themselves to buy the next "it". I read an article on a site that said "ripple" is now the number 2 cryptocurrency....WTF? Someone posted earlier there are "thousands" or cryptos out there. I don't know about the number, but if there is a bunch what is the point. No one is using these as currencies, they are just pumping money into one or another hoping it will take off. Looks like a sucker's game to me.
Reminds me of a corny commercial I saw a while back where some huckster was hawking penny stocks, "Pump and Dump!" He actually used those words.
At some point in the future we will perhaps all be on some cryptocurrency but it will be government regulated, and not created in a basement.
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I just had to talk a colleague out of blowing her life savings on Bitcoin. Probably saved her future retirement in the process. At the same time, I helped her recognize that her teenage son is probably doing illegal sales of some type on the Darkweb. Hope she can keep him out of jail. That seems to be the primary function of cryptocurrencies. Doing illegal stuff like selling guns and drugs. It's like the Wild West out there on the internet these days and lots of people are going to end up getting hurt because they lack basic common sense.
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Cryptos are a fringe 'investment' (~ I hate calling it that)
Then stop calling it that. People misuse the word investment to describe all sorts of stupid things. People will say a new pair of shoes are an investment. No they aren't and neither is bitcoin.
It’s baffling to me that people look at the current state of cryptocurrencies and think they’ll never be anything more
It's not that I don't think the idea has merit, it's that I think bitcoin and the rest of these early coins will be virtually worthless.
Remember that when you pay $17k for a bitcoin, you are not investing in a blockchain technology company. You are not betting on the successful future of crypto currencies in the global economy. You are only betting that some other buyer in the future will pay you more than $17k for a specific bitcoin. Just like with beanie babies.
THIS!!! Blockchain technology will likely do great things, and I see reasons to invest in it. That doesn't mean anything for Bitcoins.
lol no dude intrinsic value is like paying a dividend, owning assets, profits from an established customer base, etc.
Right, all investments generate profits....
a share of a stock does not itself do anything. yes, you may get dividends but that lowers the market price proportionally. the share of stock represents partial ownership of a company that produces value. and that share of stock is currently priced at 3x the company's book value, so 2/3 of your stock "value" is simply speculation on future earnings*.
for a unit of bitcoin to exist (not be valueless) there has to be a miners or other nodes consuming electricity and putting real work into the blockchain on which that coin exists, processing transactions. similar to a share of stock, each unit of bitcoin doesn’t do anything** but it represents its a functioning global payment network, and that global payment network produces value.
for price/book for bitcoin, it's probably mostly speculation. but again, bitcoins cost about as much to create as they're worth (the mining difficulty tracks the market price and mining profit tends to zero) and you can't just wave your hands to create some.
This is a false equivalency.
1. Stock dividends = profits. Dividends don't make the stock price go down over time, they just make it drop when the dividend is paid. The reason the stock price goes down when a dividend is paid is because the dividend was priced in, investors knew it was coming so they drove the stock price up in anticipation of the dividend. Investors buying the stock the following day want a lower price because they missed out on the dividend. The next time there is a dividend the stock price will likely rise in advance to that dividend, unless of course the stock price moves for other reasons as well, like long term appreciation due to earnings growth. The stock represents ownership in a company and claims to profits and assets. Profitable companies normally trade higher than their book value, people want access to those profits and future profits. Yes, part of this is speculation, speculation that the company will continue to grow and be more profitable. Note, the speculation is that a company with assets and earnings will grow those assets and earnings over time. That is investing, not gambling.
2. The fact that a miner mined Bitcoin doesn't give it value. The fact that it uses stupid amounts of electricity doesn't give it value. If I use my valuable time and resources to draw "B" on a bunch of Chuckie Cheese coins that doesn't make them valuable(actual person did this and sold them as Bitcoins, made over $1 million). A Bitcoin doesn't represent the profits of blockchain technology or claims against assets or profits. That would be a stock. A Bitcoin is code that some people have decided to trade like a currency. Speculation with Bitcoin is not that assets and earnings will grow, there aren't any. Speculation with Bitcoin is that someone will be willing to pay more for a Bitcoin in the future. This is the textbook definition of the "Greater Fool Theory." This is gambling, not investing.
See the difference?
On the note of a global payment network: in 1950 that would be cool. In 2017 there are more than enough means of transporting money and data worldwide. A current transaction prices using Bitcoin is more expensive than a bank wire.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
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i assume by "bitcoin" you mean "cryptocurrencies" here.
No, I explicitly meant bitcoin. The language was precise. Other cryptocurrencies may find utility someday, but bitcoin will not. Bitcoin will be worthless in a few years, except to novelty collectors. Which is why the current price of bitcoin is stupid.
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I rode bitcoin up from $2.5k and sold out at $18k, fully agree with Sol's opinion above (the second quote, messed up the edit). I also hold a small but rapidly growing portfolio of crypto after gotten back my original investment plus some profit. It's interesting to watch this "not real until I sell" money go from $4k to $20k in a month and then up to $35 k in a few days ( thanks Ripple). No plans on buying bitcoin again.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Still not buying it. I will call it a currency when it is stamped as legal tender.
And proof of stake doesn't equate to dividends either. You may receive a benefit in proportion to your holding, but you still have to actively mine the "currency".
Assuming the value of the "currency" (and I am using that term very very generously) stays stable (which it should if you want to call it a currency), then you are telling me the only way you generate a return is by doing work?
Sounds to me you have to sell your computing services to the company that created the cryptocurrency, which seems shockingly like an employee/employer relationship, where you get paid in things you hope other people place a greater value on than you...
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
You seem confused about the definitions of all of the important words in your own post.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Still not buying it. I will call it a currency when it is stamped as legal tender.
And proof of stake doesn't equate to dividends either. You may receive a benefit in proportion to your holding, but you still have to actively mine the "currency".
Assuming the value of the "currency" (and I am using that term very very generously) stays stable (which it should if you want to call it a currency), then you are telling me the only way you generate a return is by doing work?
Sounds to me you have to sell your computing services to the company that created the cryptocurrency, which seems shockingly like an employee/employer relationship, where you get paid in things you hope other people place a greater value on than you...
Except you can’t just sell your computing services. You have to stake your currency and validate transactions. Yes, it’s not exactly the same as bond dividends but also not exactly the same as working for money. Surprise! This is new territory; it doesn’t fit exactly into our predefined definitions of things.
But the bottom line is that you can buy ETH and use negligible amounts of power (it’s not mining) to earn more ETH.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
You seem confused about the definitions of all of the important words in your own post.
Are you 5 years old? Cuz you just did the equivalent of stomping your feet and saying “nuh uh”!
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Still not buying it. I will call it a currency when it is stamped as legal tender.
And proof of stake doesn't equate to dividends either. You may receive a benefit in proportion to your holding, but you still have to actively mine the "currency".
Assuming the value of the "currency" (and I am using that term very very generously) stays stable (which it should if you want to call it a currency), then you are telling me the only way you generate a return is by doing work?
Sounds to me you have to sell your computing services to the company that created the cryptocurrency, which seems shockingly like an employee/employer relationship, where you get paid in things you hope other people place a greater value on than you...
Except you can’t just sell your computing services. You have to stake your currency and validate transactions. Yes, it’s not exactly the same as bond dividends but also not exactly the same as working for money. Surprise! This is new territory; it doesn’t fit exactly into our predefined definitions of things.
But the bottom line is that you can buy ETH and use negligible amounts of power (it’s not mining) to earn more ETH.
Perish the thought that my investment relies on me having a computer on 24/7 to do the work in validating transactions of others around the world*. Better hope there are no blackouts.
* Just a thought. If my computer validates an illegal transaction, (I don't know, say someone who has extorted some poor sod using ransomware) allowing funds to be transferred as part of a criminal enterprise... am I aiding and abbetting that criminal syndicate?
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Still not buying it. I will call it a currency when it is stamped as legal tender.
And proof of stake doesn't equate to dividends either. You may receive a benefit in proportion to your holding, but you still have to actively mine the "currency".
Assuming the value of the "currency" (and I am using that term very very generously) stays stable (which it should if you want to call it a currency), then you are telling me the only way you generate a return is by doing work?
Sounds to me you have to sell your computing services to the company that created the cryptocurrency, which seems shockingly like an employee/employer relationship, where you get paid in things you hope other people place a greater value on than you...
Except you can’t just sell your computing services. You have to stake your currency and validate transactions. Yes, it’s not exactly the same as bond dividends but also not exactly the same as working for money. Surprise! This is new territory; it doesn’t fit exactly into our predefined definitions of things.
But the bottom line is that you can buy ETH and use negligible amounts of power (it’s not mining) to earn more ETH.
Perish the thought that my investment relies on me having a computer on 24/7 to do the work in validating transactions of others around the world*. Better hope there are no blackouts.
* Just a thought. If my computer validates an illegal transaction, (I don't know, say someone who has extorted some poor sod using ransomware) allowing funds to be transferred as part of a criminal enterprise... am I aiding and abbetting that criminal syndicate?
I don’t know. Are you guilty of a war crime if a tax-funded missile blows up a hospital? Aren’t hypotheticals fun?!
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Except you can’t just sell your computing services. You have to stake your currency and validate transactions. Yes, it’s not exactly the same as bond dividends but also not exactly the same as working for money. Surprise! This is new territory; it doesn’t fit exactly into our predefined definitions of things.
But the bottom line is that you can buy ETH and use negligible amounts of power (it’s not mining) to earn more ETH.
Yes, you are selling your computing services when you mine Bitcoin. That is exactly what you are doing. You are processing other people's Bitcoin transactions, and being paid in Bitcoin. If you chose a different currency then you would be processing their transactions instead.
It is not a bond. With a bond you are loaning an entity, normally a corporation or government, money and they are paying you interest in exchange. With a stock you are buying ownership in a corporation, and as a rightful owner they share their profits with you in the form of dividends.
* Just a thought. If my computer validates an illegal transaction, (I don't know, say someone who has extorted some poor sod using ransomware) allowing funds to be transferred as part of a criminal enterprise... am I aiding and abbetting that criminal syndicate?
I don't think the individual miner is at risk since you don't know what each transaction is used for. Now exchanges have been shut down for money laundering.
In the traditional, legal, financial system you have to know your customer before you store or move money on their behalf. If you suspect they are doing something illegal you are legally required to report it. Unless a Bitcoin exchange is gathering information on each customer, the same information you would need to open a bank account, then they are at risk of aiding money launderers.
Example 1: https://www.cbsnews.com/news/two-bitcoin-exchange-operators-charged-in-money-laundering-scheme/
Example 2: http://fortune.com/2017/07/27/btc-e-digital-currency/
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Indexer & thenextguy, I think you are talking past each other. Indexer, you're talking about mining bitcoin which is a form of proof-of-work validation. thenextguy, you're talking about proof-of-stake validation in ethereum, which, to be far, is supposed to roll out as the way only a small small percentage of ethereum's blocks are validated sometime in 2018 with the Constantinople/Metropolis upgrade, although the roadmap has ethereum moving to 100% proof-of-stake eventually.
Indexer, in proof-of-stake validation you don't need to have a computer on. You can use a smart contract (essentially code embedded in the ethereum blockchain) to let a validator somewhere in the world use ether you own as part of the pot of currency they are putting at stake as a guarantee that they will only validate valid transactions. The more ether the validator has at stake, the more frequently they will get to create a block and receive a block reward + transaction fees. The validator then pays out a portion of the ether they receive each time they create a block to people who let the validator use their ether. In practice, it is anticipated that this would work a little like* a savings account at a bank, where essentially you're letting others use money you don't need at the moment, and are rewarded with interest payments.
thenextguy, I think it is a little disingenuous to describe the change to proof of stake in ether as automatically making cyptocurencies into investments. First of all, a lot of major currencies (like bitcoin) have shown no interest in transitioning to proof of stake. Secondly, even in ethereum, you wouldn't be getting rewarded for just holding ether, you'd get rewarded if you decided to risk forfeiting your ether to provide a validator with an increased stake. It is probably also worth bringing up that the overall return on investment for proof of stake validation is going to be rather low for the folks who have gotten excited to see their money double every couple of months as cryptocurrency exchange rates change. The discussions I've read suggest that proof-of-stake will grow the ether money supply perhaps 2% per year. Not all ether will be staked, so let's say 50% of the ether is receiving interest payments from that growth. Now we're at 4% ether-on-ether return annually. Add in some transaction fees and maybe we can make it 6% or 8%.
*Please note that I am not saying it IS a savings account. There are also a number of critical differences (such as the risk of completely losing the ether you've agreed to let the validator use if they decide to validate an invalid block).
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lol no dude intrinsic value is like paying a dividend, owning assets, profits from an established customer base, etc.
Right, all investments generate profits....
a share of a stock does not itself do anything. yes, you may get dividends but that lowers the market price proportionally. the share of stock represents partial ownership of a company that produces value. and that share of stock is currently priced at 3x the company's book value, so 2/3 of your stock "value" is simply speculation on future earnings*.
for a unit of bitcoin to exist (not be valueless) there has to be a miners or other nodes consuming electricity and putting real work into the blockchain on which that coin exists, processing transactions. similar to a share of stock, each unit of bitcoin doesn’t do anything** but it represents its a functioning global payment network, and that global payment network produces value.
for price/book for bitcoin, it's probably mostly speculation. but again, bitcoins cost about as much to create as they're worth (the mining difficulty tracks the market price and mining profit tends to zero) and you can't just wave your hands to create some.
This is a false equivalency.
1. Stock dividends = profits. Dividends don't make the stock price go down over time, they just make it drop when the dividend is paid. The reason the stock price goes down when a dividend is paid is because the dividend was priced in, investors knew it was coming so they drove the stock price up in anticipation of the dividend. Investors buying the stock the following day want a lower price because they missed out on the dividend. The next time there is a dividend the stock price will likely rise in advance to that dividend, unless of course the stock price moves for other reasons as well, like long term appreciation due to earnings growth. The stock represents ownership in a company and claims to profits and assets. Profitable companies normally trade higher than their book value, people want access to those profits and future profits. Yes, part of this is speculation, speculation that the company will continue to grow and be more profitable. Note, the speculation is that a company with assets and earnings will grow those assets and earnings over time. That is investing, not gambling.
when a company pays out dividends, the price doesn't go down because investors are sad they missed the dividend. that's ridiculous. the price goes down because the company is not worth as much because it just gave away a big chunk of its cash assets. if a company keeps profits instead of giving dividends, then the value of the stock should go up, because as a share owner you are entitled to a slice of that company's assets -- which for the average share of stock is about 33% the market price.
2. The fact that a miner mined Bitcoin doesn't give it value. The fact that it uses stupid amounts of electricity doesn't give it value. If I use my valuable time and resources to draw "B" on a bunch of Chuckie Cheese coins that doesn't make them valuable(actual person did this and sold them as Bitcoins, made over $1 million). A Bitcoin doesn't represent the profits of blockchain technology or claims against assets or profits. That would be a stock. A Bitcoin is code that some people have decided to trade like a currency. Speculation with Bitcoin is not that assets and earnings will grow, there aren't any. Speculation with Bitcoin is that someone will be willing to pay more for a Bitcoin in the future. This is the textbook definition of the "Greater Fool Theory." This is gambling, not investing.
bitcoin's market price is largely due to speculation. i think we're in agreement about that. the point about miners is that they're not creating bitcoin for $100 and selling them for $13000.
the chuckie cheese coins example you use here, a scam, is a false equivalency. bitcoin miners' profits tend to zero. that scammer's profits were high because he was scamming people. if his profits were close to zero you'd have never heard of it.
On the note of a global payment network: in 1950 that would be cool. In 2017 there are more than enough means of transporting money and data worldwide. A current transaction prices using Bitcoin is more expensive than a bank wire.
yes as has been noted all over the internet, the consensus fork of bitcoin is not performing well, and in my opinion it's doomed. the bitcoin cash fork works the same way but has much lower transaction fees.
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when a company pays out dividends, the price doesn't go down because investors are sad they missed the dividend. the price goes down because the company is not worth as much because it just gave away a big chunk of its cash assets.
We are saying the same thing. The company isn't worth as much after the dividend = investors aren't willing to pay as much for it.
Yes, we are in agreement about the speculation. Chuckie Cheese guy was a scam, that's the point. He sold something that was completely worthless. Do I care how much work he put into making those coins? Nope. Same thing with Bitcoin miners. The fact that they made something doesn't make it valuable. People keep going on about the cost to make Bitcoin as if that justifies the price. If it's worthless than I don't care how much work someone put into creating it.
yes as has been noted all over the internet, the consensus fork of bitcoin is not performing well, and in my opinion it's doomed. the bitcoin cash fork works the same way but has much lower transaction fees.
So the price should be $0, not $13,000?
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It's the beginning. Many more currencies are to come and the possibilities will be endless. Bitcoin investments are still profitable if you invest now. It will continue going up the more popular it gets. There are rumors that Ripple is about to be launched with other household names. This is good news for that currency and it will also be great news for bitcoin. A great place to check on the movements of bitcoins and all other currencies is https://coinmarketcap.com/ (https://coinmarketcap.com/) Compare the prices and history of the currencies with a lil googling on why they moved up and down. You will form the knowledge to predict when to buy or sell. One thing for sure is bitcoin does not move like the traditional stock market. Things that would point to bitcoin failing does not seem to work when it comes to crypto currencies
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I also think that eventually this craze with bitcoin will help in the fight for cleaner/safer and cost efficient energy. When we have solved this problem the transitions over the blockchain will work perfectly. The only problem would be the computer power which at this time could be cheaper but due to the vast majority of miners byuing up all the graphics card it has become a nightmare finding good cards at a great price.
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The only problem would be the computer power which at this time could be cheaper but due to the vast majority of miners byuing up all the graphics card it has become a nightmare finding good cards at a great price.
On this point, this hackernoon article (https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100) makes the observation that bitcoin transactions are so terribly inefficient that scaling up to the size of the VISA processing network would require all of the electricity generated on Earth.
Plus, it’s not actually that good a payment system — Visa can handle sixty thousand transactions per second, while Bitcoin historically taps out at seven. There are technical modifications going on to improve Bitcoin’s efficiency, but as a starting point, you have something that’s about 0.01% as good at clearing transactions. (And, worth noting, for those seven transactions a second Bitcoin is already estimated to use 35 times as much energy as Visa. If you brought Bitcoin’s transaction volume up to Visa’s it would be using as much electricity as the rest of the world put together.)
It's a good read all around, I recommend it: https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100
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On this point, this hackernoon article (https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100) makes the observation that bitcoin transactions are so terribly inefficient that scaling up to the size of the VISA processing network would require all of the electricity generated on Earth.
Plus, it’s not actually that good a payment system — Visa can handle sixty thousand transactions per second, while Bitcoin historically taps out at seven. There are technical modifications going on to improve Bitcoin’s efficiency, but as a starting point, you have something that’s about 0.01% as good at clearing transactions. (And, worth noting, for those seven transactions a second Bitcoin is already estimated to use 35 times as much energy as Visa. If you brought Bitcoin’s transaction volume up to Visa’s it would be using as much electricity as the rest of the world put together.)
That's a rather misleading way to describe it. The amount of electricity being spent mining bitcoin today is indeed huge, but it's the exact same amount of electricity whether there are 4,200 transactions per block (7 per second), or 1 transaction per block.
The amount of electricity used can also vary dramatically without the number of transactions which can be sent per block changing. In 90% of the ASIC farms currently mining for bitcoin disappeared tomorrow, the exact same number of transactions could be sent each second, but the electricity usage per transaction would magically be 1/10th as much. This is easy to see when you look at bitcoin cash, which is essentially the exact same mathematics and software as bitcoin except that its blocks are 8x larger and only 1/10th as much hashing power is devoted to mining for new bitcoin cash coins. As a result, without changing anything about the underlying technology, the amount of electricity used per transaction in bitcoin cash uses only 1.25% (1/80th) as much electricity as the original bitcoin.
TL;DR There is no direct relationship between the number of transactions processed by bitcoin and the amount of electricity used to mine for bitcoin. Therefore trying to project how much electricity bitcoin would need to confirm X times more transactions per second than it does today by looking at total bitcoin electrical usage divided by total bitcoin transactions doesn't work.
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That's a rather misleading way to describe it.
Sure, but it's not irrelevant either. Bitcoin can't handle the massive throughput that would be required for it to be a genuine currency. It inefficiently duplicates information everywhere, instead of just where it is needed. The decentralization that makes it so unique is the same thing that handicaps it, at scale.
Besides, the rest of that article seems like a pretty elegant restatement of the same arguments we've been having here. Namely, that bitcoin doesn't actually do anything better than existing systems that we already have, so there seems to be very little potential future for it outside of black markets.
It wouldn't surprise me if it lives on in some other little niche community somewhere, like gamers or furries or preppers or something. Nazis, maybe. But as a widespread alternative to USD? No chance. That's all marketing hype, paid for by people trying to turn a quick buck.
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I expect there to be lots of bargain solid state drives and graphics cards on eBay when this bubble busts. Nvidia might not be the best place to work.
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I expect there to be lots of bargain solid state drives and graphics cards on eBay when this bubble busts. Nvidia might not be the best place to work.
Sweet, I'm due for an upgrade.
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The statement that scaling bitcoin to handle as many transactions as the VISA network would require all the electricity on earth is A) false and B) contributes to people misunderstanding how the actual tech works even more than most of them already do.
It sounds like we actually agree on the above, you're just okay with it as dramatic license to emphasize the problem with scaling and I'm more focused on actually trying to get people to understand the tech better.
Edit: The other problem with promoting the idea that dividing total electricity usage by number of transactions and treating that as a scaling factor is that it implies that bitcoin cash (the exact same tech) could scale to handle all of VISAs transactions using only 1.25% of the earths energy, and less popular cryptocurrencies (like zclassic) with lower hashrates could scale to handle all of VISAs transactions with vastly less electricity than either of them (which is also false).
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https://www.bloomberg.com/news/articles/2018-01-02/criminal-underworld-is-dropping-bitcoin-for-another-currency
lol
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Yup. By letting its transaction fees get so extraordinarily high, bitcoin is essentially destroying its first mover advantage/network effect, which was the main reason bitcoin was getting used for illegal transactions more than other currencies (you paid for drugs with bitcoin because that's the cryptocurrency your online dealer was set up to accept, and your online dealer wasn't going to go to the work of setting up alternative payment methods because all of his or her customers were already set up to pay in bitcoin).
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I just wanted to add to the conversation about Bitcoin and electricity consumption. Here is an article and video that discuss this that I hope will help those understand why it is a fallacy that Bitcoin's energy consumption is excessive relative to our other financial systems and why it won't "consume all the energy on our planet to scale".
https://hackernoon.com/the-bitcoin-vs-visa-electricity-consumption-fallacy-8cf194987a50 (https://hackernoon.com/the-bitcoin-vs-visa-electricity-consumption-fallacy-8cf194987a50)
https://www.youtube.com/watch?feature=youtu.be&v=2T0OUIW89II (https://www.youtube.com/watch?feature=youtu.be&v=2T0OUIW89II)
As Maizeman said, the amount of energy consumed by the Bitcoin network is not relative to a per transaction basis. So saying something like the amount of energy required to process one transaction is as much as powering 10 households for a day is very misleading. The Bitcoin network already consumes enough energy to maintain a globally secure currency and payment network and it doesn't matter whether that network is processing 400k or 400 million+ transactions per day.
There are also a lot of comparisons between Bitcoin and VISA and the energy costs of VISA alone, but again this is extremely misleading. VISA is not a standalone network. Any VISA transaction goes through a large number of intermediaries, that without, VISA would not function. So to leave them out of the equation when making the comparison between VISA and Bitcoin (which is a standalone network) fails to compare apples to apples. The Hackernoon article I linked to talks to this in greater detail.
Finally, the bitcoin network is not geographically dependent for its mining to function and because its mining profitability is directly dependent upon its energy efficiency, then bitcoin mining is essentially a form of energy market arbitrage. This is why bitcoin mining typically takes place in areas with cheap energy. Areas with cheap energy typically have cheap energy because there is an overabundance of energy; energy that would otherwise go wasted. Also, as Andreas explained, Bitcoin mining can and does allow for the subsidizing of costs for renewable energy installation. Since it is often the case that new renewable power plants are built for a given area's future needs and not today's needs, then the return on investment in such a power plant won't be for decades. Building Bitcoin mining infrastructure along with renewable energy allows the investment of renewable energy to be returned in a few years instead of decades.
This is not true for the energy consumption of the rest of our financial system. All the energy that goes into creating a traditional functioning financial system is stuck to the whims of whatever energy source is available in the area where the system is require to function. The bank branch buildings, offices, datacenters, armored trucks, currency minting, forexs, etc. There is a massive amount of energy consumed by all this infrastructure and while bitcoin won't be replacing all of it, it CAN replace a greater portion of it than the amount of energy the Bitcoin network currently consumes. This is why merely stating that the Bitcoin network consumes more energy on a per transaction basis alone is extremely misleading because we aren't just looking at the costs on a per transaction basis alone, we're looking at what the costs are compared to the systems we use today as a whole. Our current financial systems are much more energy inefficient than Bitcoin is, it just so happens that the energy consumption of Bitcoin is a lot more transparent and calculable than the costs of our traditional systems which are much more hidden in nature.
Finally, when we talk about whether the energy of the Bitcoin network is a waste, in my opinion creating a completely secure, immutable and independent transaction network is much more worthwhile than the amount of energy spend on a lot of things in this world. After all, more energy is spent on Christmas lights every year during one holiday than is spent powering the Bitcoin network and what benefit do Christmas lights provide society?
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The Bitcoin network already consumes enough energy to maintain a globally secure currency and payment network and it doesn't matter whether that network is processing 400k or 400 million+ transactions per day.
I think this is missing the point. It sounds like the bitcoin network can't process 400 million transactions per day, at any cost. The article quoted suggests a historical max of seven transactions per second.
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Bitcoin, as a payment system, is inferior, on balance, to existing systems. Sure, that's just my opinion, and I'm sure it's debatable.
Leaving that aside, what else can I do with a bitcoin, other than sell it to someone willing to pay a higher price than I did?
yes of course, if you "leave aside" the main function of something you don't have much left. if you "leave aside" transport from point A to B, what else is a car good for?
i completely agree that those of us in the US* and elsewhere have "good enough" electronic finances already. there is not a lot of benefit to bitcoin when all you're doing is paying your credit card balance and making a Vanguard transaction every now and then. but anyway:
If the main function of bitcoin is as a payment system, then it seems you are agreeing that it has no real intrinsic value to those of us in the USA and other developed countries.
...
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* only ~5% of people on earth live in the US
I don't want to enter the debate fully, as I dont have any crypto skin in the game, but I would point out that building a global payment system is historically non-trivial to create and lucrative to operate.
I would put crypto's future as a potential competitor in the Paypal/VISA/AMEX/UnionPay/NYSE space, and the opportunity to shave points off global financial transactions is intrinsically valuable. It is an asset class I used to call either Habit or Brand when I wrote about value creation strategies. Payment habits, if fully established, can become 'sticky' and pay out some revenue to owners (the member banks in VISA's case). Plastic has been disintermediating cash currency and bank checks markers share for some time, and it is rightly pointed out that crypto will need to be able to outperform the plastic networks, which will also fight back with new tech.
Payment networks and financial marketplaces (and increasingly to varying degrees other commodity exchange marketplaces) are highly lucrative business to be in, so I believe crypto networks do have a business opportunity to survive, and the network can create value. How ownership of the network's assets and revenues are distributed among banks, governments, companies and individuals remains to be seen.
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I think this is missing the point. It sounds like the bitcoin network can't process 400 million transactions per day, at any cost. The article quoted suggests a historical max of seven transactions per second.
Saying that because the Bitcoin network today can't process 400 million transactions so therefore it won't ever be able to process 400 million transactions is an extremely close-minded outlook to have on a technology.
We send extremely high definition video over the internet today and we didn't solve that problem by simply throwing massive amounts of bandwidth at the problem. We solved that from a technical standpoint by implementing new innovations such as complex codecs that can compress large amounts of video and audio data to allow it to be streamed as efficiently and quickly as possible.
The on-chain transaction layer of bitcoin is just one layer of this new technology and there will be many many layers to come that will all serve different purposes. Some of those layers will serve the purpose of allowing the Bitcoin network to scale to the level of millions of transactions per second without requiring the constant involvement of the base on-chain layer.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Mining and validating are investments because, yes, they do make a return. If I understand it correctly, the currency itself is NOT an investment, though, because it itself isn't making any return if it just sits there.
And people get confused with stocks because some of the return comes from capital gains due to reinvested earnings improving the company. That's different than just getting more money because somebody is willing to pay more for the exact same thing that hasn't been improved in any way.
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https://www.bloomberg.com/news/articles/2018-01-02/criminal-underworld-is-dropping-bitcoin-for-another-currency
lol
So, there goes the only real use case for bitcoin. Bail, bail, bail!
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Mining and validating are investments because, yes, they do make a return. If I understand it correctly, the currency itself is NOT an investment, though, because it itself isn't making any return if it just sits there.
And people get confused with stocks because some of the return comes from capital gains due to reinvested earnings improving the company. That's different than just getting more money because somebody is willing to pay more for the exact same thing that hasn't been improved in any way.
I understand where you're both coming from, but what about resources? Can resources be considered investable? Resources provide no returns themselves. Whether or not a resource provides a return on investment later in the future becomes a question about whether or not its future scarcity and demand will contend with each other.
For example, gold is a resource. Is gold considered an investment above and beyond its industrial uses? What about water? Water may not provide a large return over the short-term, but long term it may be extremely scarce and therefore the work required to acquire water may be extensive. Due to the work required to obtain it and its future demand likely to rise, it will be exponentially more valuable in the future.
I think this is where the crux of the question lies. Resources themselves have value due to their scarcity and the work required to acquire them. They also have value and demand because of the utility they provide.
So if these same properties are taken into the context of bitcoin, then bitcoin requires work to acquire and process them. This work is extensive and bitcoin is also a scarce resource in the sense that they will only exist in limited quantity on the Bitcoin network itself. The Bitcoin network is not something that can simply be duplicated, so the idea that an infinite number of crypto-currencies can be created with the same value is false. Also the Bitcoin network, where these tokens are utilized, is where the value resides. So in order to utilize the value of the Bitcoin network, these tokens must be used. Therefore the value of the Bitcoin network is passed onto the tokens themselves as well. Even though the tokens have no inherent value on their own (since they're virtual), they still acquire the value of the Bitcoin network due to the fact that they can't be decoupled from each other. This means a network effect begins to take hold. The more people that are using this network, the more value it has. So the question then comes down to whether or not you feel that the Bitcoin network will have value to a larger number of people in the future than it does today. If so, then I feel that the "investability" of Bitcoin today is no different than that of other resources that are both scarce and in demand.
The question then comes down to the same question we have for gold, water, or any other resource. Do you feel that the future value of this resource (the Bitcoin network) will be in demand in the future? There is the debate.
Otherwise arguing over whether or not you feel Bitcoin can be categorized as an "investment" is rather pointless. I think people like to pigeon hole the term of what is "investable" down to very specific properties, but in my opinion that is very limiting in scope of where true value is found in this world.
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So if these same properties are taken into the context of bitcoin, then bitcoin requires work to acquire and process them. This work is extensive and bitcoin is also a scarce resource in the sense that they will only exist in limited quantity on the Bitcoin network itself. The Bitcoin network is not something that can simply be duplicated, so the idea that an infinite number of crypto-currencies can be created with the same value is false. Also the Bitcoin network, where these tokens are utilized, is where the value resides. So in order to utilize the value of the Bitcoin network, these tokens must be used. Therefore the value of the Bitcoin network is passed onto the tokens themselves as well. Even though the tokens have no inherent value on their own (since they're virtual), they still acquire the value of the Bitcoin network due to the fact that they can't be decoupled from each other. This means a network effect begins to take hold. The more people that are using this network, the more value it has. So the question then comes down to whether or not you feel that the Bitcoin network will have value to a larger number of people in the future than it does today. If so, then I feel that the "investability" of Bitcoin today is no different than that of other resources that are both scarce and in demand.
This argument seems to ignore the nearly-limitless list of alternative digital coins currently multiplying on the internet. Arguing that bitcoins can't be duplicated seems a little like arguing that Toyota Tercels can't be duplicated. They absolutely can be duplicated, functionally in every way except name, or better alternatives can be introduced to supplant it.
If the value in bitcoins is in the network, I think we need to identify why THIS network is better than the alternatives. Where is the Buffet moat? What is the added value, or the market incentive for adoption? In what use case is bitcoin better than existing alternatives? What is the track record of the person managing the growth and build-out strategy, and are their financial incentives aligned with yours? These are the basic questions we ask of ANY investment before deciding if it is worthwhile.
Frankly I don't see it yet. Bitcoin necessarily uses instantaneous irreversible transactions, which seem like a terrible idea from a consumer's perspective. I'd much rather get 3% cash back and fraud protection with my credit card, which is more widely accepted, more convenient to manage online, faster and easier to use for purchases, and has an established dispute resolution process already in place. I will use cash if I want to be anonymous or avoid government oversight. I will trade pounds for remninbi if I want to speculate in currencies. I will invest in the NASDAQ if I believe in the power of future technologies.
The only benefit I can identify in bitcoin is that it is super volatile, and currently getting outsized media hype, which together mean crazy short term gains. I am not tempted by get-rich-quick schemes, though, because I've seen how those play out before. Hard pass, thanks.
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So if these same properties are taken into the context of bitcoin, then bitcoin requires work to acquire and process them. This work is extensive and bitcoin is also a scarce resource in the sense that they will only exist in limited quantity on the Bitcoin network itself. The Bitcoin network is not something that can simply be duplicated, so the idea that an infinite number of crypto-currencies can be created with the same value is false. Also the Bitcoin network, where these tokens are utilized, is where the value resides. So in order to utilize the value of the Bitcoin network, these tokens must be used. Therefore the value of the Bitcoin network is passed onto the tokens themselves as well. Even though the tokens have no inherent value on their own (since they're virtual), they still acquire the value of the Bitcoin network due to the fact that they can't be decoupled from each other. This means a network effect begins to take hold. The more people that are using this network, the more value it has. So the question then comes down to whether or not you feel that the Bitcoin network will have value to a larger number of people in the future than it does today. If so, then I feel that the "investability" of Bitcoin today is no different than that of other resources that are both scarce and in demand.
This argument seems to ignore the nearly-limitless list of alternative digital coins currently multiplying on the internet. Arguing that bitcoins can't be duplicated seems a little like arguing that Toyota Tercels can't be duplicated. They absolutely can be duplicated, functionally in every way except name, or better alternatives can be introduced to supplant it.
I absolutely addressed it, perhaps you didn't catch it. I bolded it above. If you don't understand why that is true and can't extrapolate that statement to understand the actual reasons why it can't be duplicated, then I can certainly elaborate on that for you if you'd like.
Proof to the above statement is the fact that Bitcoin has been forked or attempted to be forked and all of those attempts have been valued differently than the actual Bitcoin network's token. BCash, which was a fork of Bitcoin, has a different value in the market than Bitcoin. If their networks provided the same inherent value to the market, then their prices would be the same. The same can be said of any other crypto-currency.
Bitcoin has more computing power than any other payment network in the world. There are tens of thousands of nodes around the world validating and storing copies of the Bitcoin blockchain. There is massive amounts of economic infrastructure built up around this network providing value-add use cases and economic activity. The market understand this and this is the very reason why it isn't something that can be simply duplicated. That's like suggesting that the talent of a particular artist doesn't yield demand of their work because there are many people in the world that could probably replicate their work extremely similarly.
I am not here trying to convince you that Bitcoin is the right investment for you. What I am trying to do is to get you to stop thinking from merely your own perspective and realize that Bitcoin is an option that can provide value to many people in this world that no other financial instrument can provide. All of your examples you've provided are strictly speaking from your own perspective. You may prefer the consumer protection that VISA provides, but someone else might prefer the consumer protection that Bitcoin provides, especially if VISA isn't an option for them. You might prefer using cash to remain anonymous, but someone else either might not have a stable currency available to them for use or the localized requirement of cash might not be suitable for someone looking to participate in the global market. You may look to other investments that meet your needs and risk appetite while someone else might prefer the benefits that Bitcoin provides (I've listed numerous benefits in another thread that you can find in this forum). It isn't enough that some other financial instruments can provide some of the benefits of Bitcoin, because Bitcoin provides all of those benefits all of the time. So it is only natural for it to provide a unique value proposition beyond what our traditional financial system can provide to many people all around the world.
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Hold on. Last week it was Bitcoin, then yesterday Ripple. Now its Stellar.
https://www.cnbc.com/2018/01/02/theres-a-new-hottest-coin-of-2018-so-far-stellar.html
Peeps jumping over each other to get in on a crypto before 'it explodes'. I can't sell help but laugh at the insanity. Just check out all the cryptos that are out there, and realize than just about all of these cannot be used as payment to the vast majority of the millions and millions of businesses on the planet.
https://coinmarketcap.com/all/views/all/
But I guess this just means that I 'dont understand the technology'. Lets check back at the end of 2018 and see how many new cryptos there are. If there are fools willing to buy these, then people are going to bend over backwards creating more.
We might as well create a MMMCoin. Announce it to the world that is uses BLOCKCHAIN!!! and the money will come pouring in.
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I can't wait to see some idiot on CNBC talking about a diversified crypto portfolio. Maybe its already happened.
"What you want if you want to play aggressive to put 30% in Bitcoin, 20% in Ripple, Stellar, and Monero each, and then 5% in Ethereum, which will leave you 5% to invest in a wildcard like Wild Beast Block or PonziCoin."
I can just hear it out of the mouths of one of the morons on Fast Money.
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Did we figure out if it's too late yet?
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To be fair KTG, many currencies aren't looking to become the next payment network. Many of these currencies are proposing new alternatives to a vast array of ideas out there such as identity management, advertising, secure messaging, storage, voting, public ownership, notarization, marketplaces/exchanges, AI communication, etc. Certainly there is probably more money flowing into these ideas than is warranted which will only result in pain for those that over-extended. But the idea that there are "too many" crypto-currencies out there is like saying there is too much innovation taking place. I can absolutely guarantee you that next year there will be way more crypto-currencies in existence than there are today. That doesn't necessarily mean that is a bad thing. In my opinion, in a world where the only currency that was ever in existence were those that only the elite and sovereign nations of the world sanctioned, it is refreshing to see that anyone with an idea can create something that the world can then freely decide upon.
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Anyone that says cryptocurrencies aren’t investments because they don’t provide a return, well, you’re wrong.
In 2018, ETH is moving from Proof of work to proof of stake. By staking your currencies and validating payments, you will receive a return on your investment similar to dividends.
So, move on from that criticism because it is flat out objectively wrong.
And if anyone is geared up to say it’s not an investment yet because they’re not doing that now, we’ll, that’s wrong too. A stock, for example, is an investment based on future returns; it doesn’t matter if they’re paying dividends today.
Mining and validating are investments because, yes, they do make a return. If I understand it correctly, the currency itself is NOT an investment, though, because it itself isn't making any return if it just sits there.
And people get confused with stocks because some of the return comes from capital gains due to reinvested earnings improving the company. That's different than just getting more money because somebody is willing to pay more for the exact same thing that hasn't been improved in any way.
I understand where you're both coming from, but what about resources? Can resources be considered investable? Resources provide no returns themselves. Whether or not a resource provides a return on investment later in the future becomes a question about whether or not its future scarcity and demand will contend with each other.
For example, gold is a resource. Is gold considered an investment above and beyond its industrial uses? What about water? Water may not provide a large return over the short-term, but long term it may be extremely scarce and therefore the work required to acquire water may be extensive. Due to the work required to obtain it and its future demand likely to rise, it will be exponentially more valuable in the future.
I think this is where the crux of the question lies. Resources themselves have value due to their scarcity and the work required to acquire them. They also have value and demand because of the utility they provide.
So if these same properties are taken into the context of bitcoin, then bitcoin requires work to acquire and process them. This work is extensive and bitcoin is also a scarce resource in the sense that they will only exist in limited quantity on the Bitcoin network itself. The Bitcoin network is not something that can simply be duplicated, so the idea that an infinite number of crypto-currencies can be created with the same value is false. Also the Bitcoin network, where these tokens are utilized, is where the value resides. So in order to utilize the value of the Bitcoin network, these tokens must be used. Therefore the value of the Bitcoin network is passed onto the tokens themselves as well. Even though the tokens have no inherent value on their own (since they're virtual), they still acquire the value of the Bitcoin network due to the fact that they can't be decoupled from each other. This means a network effect begins to take hold. The more people that are using this network, the more value it has. So the question then comes down to whether or not you feel that the Bitcoin network will have value to a larger number of people in the future than it does today. If so, then I feel that the "investability" of Bitcoin today is no different than that of other resources that are both scarce and in demand.
The question then comes down to the same question we have for gold, water, or any other resource. Do you feel that the future value of this resource (the Bitcoin network) will be in demand in the future? There is the debate.
Otherwise arguing over whether or not you feel Bitcoin can be categorized as an "investment" is rather pointless. I think people like to pigeon hole the term of what is "investable" down to very specific properties, but in my opinion that is very limiting in scope of where true value is found in this world.
Resources aren't investments in and of themselves. The thing that produces the resources is an investment. If you're just betting on the value going up, it's speculation.
Gold is not actually an investment either. It's a store of value. Gold might be useful to have alongside investments, but it doesn't actually produce anything. An actual investment in gold would be buying a gold mine, or just stock in a company that has one. Gold and Bitcoin are similar in some ways. Bitcoin is not an investment, but mining it is.
Other resources like water aren't investments. It's the thing that produces the resources that's an investment. Water isn't an investment, but a well and a pump are.
I don't know if Bitcoin will be important in the future, but I also strongly believe nobody else does either. You can speculate on it, but high reward = high risk.
Usually I'd say semantic arguments about what "investment" means are pointless, but here I think it's really important. The difference between using the word "investing" and the word "speculating" has a big impact on how people treat trying to make dollars off of cryptocurrencies.
To be fair KTG, many currencies aren't looking to become the next payment network. Many of these currencies are proposing new alternatives to a vast array of ideas out there such as identity management, advertising, secure messaging, storage, voting, public ownership, notarization, marketplaces/exchanges, AI communication, etc. Certainly there is probably more money flowing into these ideas than is warranted which will only result in pain for those that over-extended. But the idea that there are "too many" crypto-currencies out there is like saying there is too much innovation taking place. I can absolutely guarantee you that next year there will be way more crypto-currencies in existence than there are today. That doesn't necessarily mean that is a bad thing. In my opinion, in a world where the only currency that was ever in existence were those that only the elite and sovereign nations of the world sanctioned, it is refreshing to see that anyone with an idea can create something that the world can then freely decide upon.
True, but if you're looking to speculate on one of them specifically, eg bitcoin, then the wide diversity is a bad thing for you.
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I agree that both resources (commodities) and currencies (conventional or crypto) are in a different basket from stocks and bonds. Stocks and bonds inherently are expected to increase in value over time (although obviously in some cases individual ones go to zero).
If we think about the value of a ton of zinc, or the value of polish 100 złoty note in dollars, the value might go up in ten years, it might go down in ten years, but there's no inherent reason that its more likely to go in one direction than the other (although you can certainly do lots of analysis and make your best guess about which direction either is going to move).
That's why you see so many stock index funds, and bond index funds, but you don't see a lot of commodity index funds or currency index funds. The former has an inherent upward trend, the latter only really provides a positive return if you're fortunate enough to pick winners.
I can't wait to see some idiot on CNBC talking about a diversified crypto portfolio. Maybe its already happened.
"What you want if you want to play aggressive to put 30% in Bitcoin, 20% in Ripple, Stellar, and Monero each, and then 5% in Ethereum, which will leave you 5% to invest in a wildcard like Wild Beast Block or PonziCoin."
I can just hear it out of the mouths of one of the morons on Fast Money.
From all the way back in August. I agree, it's ridiculous:
https://www.cnbc.com/video/2017/08/16/heres-how-to-build-your-cryptocurrency-portfolio.html
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True, but if you're looking to speculate on one of them specifically, eg bitcoin, then the wide diversity is a bad thing for you.
That's like saying that competition to Apple is bad for the consumer. In my opinion, I'd much rather see new ideas and innovations tried and tested out in markets that are only a few million dollars in size as opposed to seeing those ideas tested out in a 300+ billion dollar market. If those ideas prove to be truly innovative, then they can always be adopted much like Apple can adopt new innovations that Samsung releases.
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http://www.mrmoneymustache.com/2018/01/02/why-bitcoin-is-stupid/
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http://www.mrmoneymustache.com/2018/01/02/why-bitcoin-is-stupid/
Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
But hey, he and I could both be wrong!
I genuinely want you all to get rich. I think bitcoin is a bad way to do that, but if you can make it work for you I won't hold it against you. Good luck, bitcoiners.
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
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Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
You could stop being all "logical" and "correct" and just let me indulge my petty meanness for a moment, you know.
"Na Na Na, I told you so... pbbbttttt."
Okay, I think I have that out of my system.
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http://www.mrmoneymustache.com/2018/01/02/why-bitcoin-is-stupid/
perhaps the price bubble formed from speculators is "stupid", but bitcoin itself is not stupid. that title is just meant as clickbait. on the other hand this article is substandard for MMM, is shallow and close-minded, and is silly. (his fingernails are not $70k per bag because no one has paid that.)
i fully agree with MMM and all the posters here saying speculators should NOT "invest" in bitcoin or any other cryptocurrency chasing profits. i'm surprised MMM didn't directly mention the energy usage of bitcoin mining, since he's environmentally-focused and i think that may kill bitcoin if nothing else does.
that said, this article and all discussion i've seen here says "blockchain not bitcoin" is a good invention. this may be true, but without a valuable token paid out to honest participants in securing a blockchain, that blockchain will be insecure and useless. it's a positive feedback loop of incentives. without a valuable token incentivizing participation you'd have to keep it private, trusted, and centralized, and at that point you may as well use a regular database like we've been using all along.
in 20 years when a cryptocurrency, whichever one, is still around, this article will look pretty silly.
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
put me on the list for never advocating "investing" in any cryptocurrencies. if you want to blow your beer money on a fraction of a coin one week then fine but you better learn how to manage your private keys yourself first because of forks and blah blah blah.
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http://www.mrmoneymustache.com/2018/01/02/why-bitcoin-is-stupid/
Really glad he weighed in.
This nonsense has no place in the mustachian philosophy. It's greed, scams and idiocy all the way through.
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i'm surprised MMM didn't directly mention the energy usage of bitcoin mining, since he's environmentally-focused and i think that may kill bitcoin if nothing else does.
I believe Pete's post does specifically mention the environmental concerns (or maybe he added this later?):
This Vice article explains yet another ridiculous aspect of Cryptocurrency: running the transaction network (called “Mining”) involves a deliberate computer-intensive crypto challenge syetem called “proof of work”. This inefficient design is now wasting more electricity than many entire countries. Doing one transaction burns 215 kilowatt-hours of electricity, enough to run the entire MMM household for more than a full month, or to power an electric car for more than 800 miles of driving.
perhaps the price bubble formed from speculators is "stupid", but bitcoin itself is not stupid. that title is just meant as clickbait.
I agree that the title is slightly clickbait-ish. On the other hand, I don't see any value in "investing" in Bitcoin right now, because it doesn't serve me any purpose. In that sense, buying Bitcoin does seem stupid to me.
If and when a cryptocurrency becomes a practical medium of exchange and a store of value, though, I'll be happy to use it as appropriate.
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From all the way back in August. I agree, it's ridiculous:
https://www.cnbc.com/video/2017/08/16/heres-how-to-build-your-cryptocurrency-portfolio.html
Wow. So I did the math on what a $1k investment would return and his portfolio would be worth $5k at yesterday's prices. I just do not see the justification for this. I cannot spend the vast majority of these currencies ANYWHERE. I would literally be purchasing 1s and 0s here. I just can't do it no matter what the returns are.
These cryptos are literally like their own market, with peeps buying and selling on speculation. I guess the cheap entry price is easy for some, but once you get out of 10s of dollars range, I just can't believe people are doing this. There is no doubt this is going to end very, very badly.
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My cousin and I were talking (before the blog post came out), and he said that he thinks about a country called Bitcoinia. When he wants to go to Iceland, he knows that travel there will involve buying goods and services in Iceland. But right now, there aren't goods/services available in Bitcoinia that he wants to buy (he did want to buy a book from Iceland recently).
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i'm surprised MMM didn't directly mention the energy usage of bitcoin mining, since he's environmentally-focused and i think that may kill bitcoin if nothing else does.
I believe Pete's post does specifically mention the environmental concerns (or maybe he added this later?):
This Vice article explains yet another ridiculous aspect of Cryptocurrency: running the transaction network (called “Mining”) involves a deliberate computer-intensive crypto challenge syetem called “proof of work”. This inefficient design is now wasting more electricity than many entire countries. Doing one transaction burns 215 kilowatt-hours of electricity, enough to run the entire MMM household for more than a full month, or to power an electric car for more than 800 miles of driving.
thanks, i may have missed that.
as i said above, the energy consumption is a big problem and it may kill bitcoin. but Pete is repeating the same ignorant inaccurately reported crap about "electricity use per transaction" we've seen mentioned time and again. it's all about the cumulative proof of work from 9 years ago today that keeps all past transactions secure.
perhaps the price bubble formed from speculators is "stupid", but bitcoin itself is not stupid. that title is just meant as clickbait.
I agree that the title is slightly clickbait-ish. On the other hand, I don't see any value in "investing" in Bitcoin right now, because it doesn't serve me any purpose. In that sense, buying Bitcoin does seem stupid to me.
agreed
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
put me on the list for never advocating "investing" in any cryptocurrencies. if you want to blow your beer money on a fraction of a coin one week then fine but you better learn how to manage your private keys yourself first because of forks and blah blah blah.
Please accept my apologies for the mischaracterization of your views, Phill22.
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Long time reader of Bitcoin, but never bought any or any other Cryptos... Below is from the WSO forum and best reflects my thoughts on Bitcoin.
As a former currency trader who now invests in technology businesses, I feel compelled to comment--this shit is nuts. The vast majority of these ICOs are going to 0. The vast majority of so-called 'blockchain' businesses are going to 0. I'm old enough to remember the dot.com bubble.
In 1997, any internet company was well bid precisely because the people investing in it did not understand what they were buying. I got asked by a waitress at a cocktail bar recently about whether she should invest in bitcoin. She has NO other investments and knows nothing about finance or the underlying technology. And while that anecdote doesn't implicitly scale to the larger market, I think it's an indication of it.
I had a friend in high school who went to jail for dealing drugs that killed one of our other friends. He's out of jail now, can barely spell, and has $1M worth of cryptocurrencies. While there are a few respectable TRADERS who are into this at the moment, there are few respectable INVESTORS who have jumped into the deep end of the pool as of yet.
Traders can make a lot of money in a bubble so long as they get out before the collapse, but as a former trader, I warn those of you who aren't professionals that it's exceedingly difficult to pick tops and bottoms. That's not how any trader makes money. And for those of you who don't understand A LOT of the underlying technology and the corresponding policy drivers that will invariably poke a hole in the sidewall of this over-inflated nonsense, I have another anecdote: I have never known a successful tech investor who doesn't understand the tech in which they invest.
Now, there is a chance that I'm simply too old, too dumb or too myopic to understand this newfangled technology, but I think not. One or two of these will work out. For ICOs that are ostensibly replacements for shares, I think they're almost all going to 0. For 'crypto' companies that change their name to 'reflect the new reality of what their companies do', they're almost surely going to 0. For people who think they're buying a currency with their investments in the space, they're likely to be disappointed. Most of these 'assets' will never become currencies. They will mostly become valueless commodities. For those of you who think you have the chops to pick the handful of winners out of hundreds of options, I say to you, "Good luck." For those of you who just want to make some money trading, keep it light and take profits when you can. For every person who made a fortune in the dot.com bubble, there were dozens of people who lost their shirts, their shoes and most importantly, their chance to take risk in their careers.
If you're not risking much, knock yourself out. But view this as a gamble, not an investment. And if you get lucky, and happen to pick the winner in this chariot race, congratulations. But try not to pretend ex post that you were some sort of genius, and saw the whole thing playing out precisely as it did. I know far too many dicks in the VC world who got lucky or were in the right place at the only moment someone like them could ever have made any real money. They concoct some narrative after-the-fact that paints themselves as some sort of sagacious prognosticator. Don't be that guy.
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IF it is so great, then why haven't other more useful use-cases been implemented by now? When a great new technological innovation hits, all of the large competitors usually race to implement it. With block chain, no one can figure out what to do with it.
In 20 years, blockchain will be in the dustbin of unadopted worthless technology.
I don't know about blockchain in particular, but there are certainly very successful technologies that have had long gestation times. RSA public-key cryptography, for instance, was first published in 1976. It took until 1994 before HTTPS (arguably its break-out usage) was even invented.
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So noted, and apologies to you as well shadow for misrepresenting your position.
This has been part of what has been so frustrating for me about reading crypto threads in recent weeks. People keep coming in and making dramatic arguments against the position that people should invest their life savings in cryptocurrencies like they are saying something amazingly controversial, when almost no one (on this board) is actually advocating that position.
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Is anyone willing to come forward and publicly recommend an investment in bitcoin at today's prices?
This thread is about to get a whole lot less interesting if we're 100% in agreement that holding bitcoin now is stupid.
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Is anyone willing to come forward and publicly recommend an investment in bitcoin at today's prices?
This thread is about to get a whole lot less interesting of we're 100% in agreement that holding bitcoin now is stupid.
I see no problem with someone who wants to allocate something like 1% of their portfolio in Bitcoin. After all, just about everything out there is overpriced at the moment by most measures. The price of a bitcoin is just a proxy for the market size. So suggesting that the price of a bitcoin today is over or under valued means that one is suggesting that the market size is either to big or too small. I believe in Bitcoin from a technological perspective and personally spend time programming with it and believe there are a lot of use cases that will drive future outside money into Bitcoin. So it is my opinion that the market size will continue to grow into the foreseeable future.
I've said this numerous times before though. Don't mistake my opinions of Bitcoin or any other crypto-currency as investment advice for the individual. To give investment advice to an individual, you need to understand that individuals financial situation and risk tolerance. Because I don't know anyone's personal financial situation or risk tolerance, I cannot, with good intention, give any sort of investment advice. So while I stand by my position on the above about Bitcoin, that is not me giving an endorsement for any given individual to invest in bitcoin. Hopefully that distinction makes sense.
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Is anyone willing to come forward and publicly recommend an investment in bitcoin at today's prices?
This thread is about to get a whole lot less interesting if we're 100% in agreement that holding bitcoin now is stupid.
I'm happy to play John Cleese to your Michael Palin (https://www.youtube.com/watch?v=XNkjDuSVXiE), if you think it would help.
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Is anyone willing to come forward and publicly recommend an investment in bitcoin at today's prices?
This thread is about to get a whole lot less interesting if we're 100% in agreement that holding bitcoin now is stupid.
Rating Bitcoin as a "hold" is different than rating it as a "buy". If someone admitted to me that she had it today, I'd encourage her to liquidate 4% of it, i.e. mark the current price and begin withdrawing it on some type of schedule resembline the 4% rule.
The goal when you've gotten lucky is to cash out some gains, and I think there'd be little psychological hangup for anyone cashing out 4% at today's appreciation.
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Is anyone willing to come forward and publicly recommend an investment in bitcoin at today's prices?
This thread is about to get a whole lot less interesting if we're 100% in agreement that holding bitcoin now is stupid.
Rating Bitcoin as a "hold" is different than rating it as a "buy". If someone admitted to me that she had it today, I'd encourage her to liquidate 4% of it, i.e. mark the current price and begin withdrawing it on some type of schedule resembline the 4% rule.
The goal when you've gotten lucky is to cash out some gains, and I think there'd be little psychological hangup for anyone cashing out 4% at today's appreciation.
If You Wouldn't Buy it, You Should Probably Sell it (http://www.mrmoneymustache.com/2015/07/02/if-you-wouldnt-buy-it-you-should-probably-sell-it/)
Does this not apply to "investments?"
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If You Wouldn't Buy it, You Should Probably Sell it (http://www.mrmoneymustache.com/2015/07/02/if-you-wouldnt-buy-it-you-should-probably-sell-it/)
Does this not apply to "investments?"
Of course it does. When it comes to evaluating investments, the only relevant decision is between "should own" and "should not own" and in this context hold and buy are identical decisions. I thought that was obvious in the original post.
When evaluating relative allocation between assets that you have already decided to own, and which have changed in relative value, you can differentiate some. But only after you've decided to own, rather than not own. In my mind, bitcoin is definitely a "should not own" in any proportion.
I wouldn't buy one for a 90% discount against current prices if I had to own it for ten years. If I was holding any bitcoin today, I'd be cashing out tomorrow regardless of what I paid for it.
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
Just to make my position known since my name was mentioned. I'm not a fan of Bitcoin; it's the AOL of cryptocurrencies.
As for the idea that blockchain tech is useless because it's been around for 9 whole years, the internet began development in the 1960s.
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
Just to make my position known since my name was mentioned. I'm not a fan of Bitcoin; it's the AOL of cryptocurrencies.
As for the idea that blockchain tech is useless because it's been around for 9 whole years, the internet began development in the 1960s.
I understand. And apologies to you (like with shadow and phil) for misrepresenting your position.
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Just for the record, I'd like to state that our site founder agrees with me and not with 90% of the people in this thread.
Sol, by my count there are at most five active accounts potentially arguing that it makes sense to invest in some kind of cryptocurrency* sometimes (shadow, phil22, lifeanon269, thenextguy, and Tonyahu), and at least fifteen accounts (myself included) who have posted that it does not make sense to purchase cryptocurrencies as investments in the two most recent pages of posts alone.
*And I think at least several of them also have agreed that the current price of bitcoin represents a bubble.
Just to make my position known since my name was mentioned. I'm not a fan of Bitcoin; it's the AOL of cryptocurrencies.
As for the idea that blockchain tech is useless because it's been around for 9 whole years, the internet began development in the 1960s.
I understand. And apologies to you (like with shadow and phil) for misrepresenting your position.
Oh no, not at all. I didn't mean to imply you did anything wrong. Just going on record :) I am invested in cryptocurrencies, just not Bitcoin.
I believe that within 5 years, cryptocurrencies will be a big part of our lives. If I'm wrong, I'll gladly admit it.
Earlier someone implied that big companies aren't developing the tech and that is just not true. See: https://entethalliance.org/members/
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I rightly deserved Sol's criticism for my position. When I make recommendations to other people, I try to consider the highest degree to which I can persuade them to make a move that will be beneficial. If I think owning no Bitcoin is the best, then I think owning less bitcoin is better than the current state. the sell 4% immediately suggestion seems like it should be a no-brainer even for someone who is quite bullish.
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I find it interesting how some people are offering advice to put 1% or whatever of one's portfolio in cryptocurrencies. Does this reflect 1% of uncertainty about whether cryptocurrencies are a bubble or is it just an attempt to sound (or be) reasonable, like the people proposing we put X% of our portfolio in commodities to diversify?
I ask this because if cryptocurrencies have no value and are a bubble destined to burst, then only a zero allocation makes sense.
It would be like saying one should allocate 1% of one's portfolio to companies that look a lot like pyramid schemes, another 1% to gold coins advertized on fox news, another 1% to penny stocks that faxes received at work says are going to soar, another 1% to companies working on cold fusion, etc... As you can see, eventually this incremental "what if" mindset allocates a decent chunk of change to ideas with a " what-if" chance of paying off and a very high chance of going to zero. It also feeds well-known scams that feed upon FOMO (fear of missing out).
Diversification makes sense within a certain set of investments, but we must be careful not to extend this thinking into the various quasi-legit and somewhat suspicious-looking financial products sold around the periphery of real markets. Beyond some line of legitimacy, one has to switch from diversification thinking to binary "nope, that's bullshit" kind of thinking.
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ML bans bitcoin: https://www.ccn.com/bank-americas-merrill-lynch-bans-clients-bitcoin-fund/
Don't worry, I'm sure it's totally fine! What could possibly go wrong?
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I find it interesting how some people are offering advice to put 1% or whatever of one's portfolio in cryptocurrencies. Does this reflect 1% of uncertainty about whether cryptocurrencies are a bubble or is it just an attempt to sound (or be) reasonable, like the people proposing we put X% of our portfolio in commodities to diversify?
I ask this because if cryptocurrencies have no value and are a bubble destined to burst, then only a zero allocation makes sense.
It would be like saying one should allocate 1% of one's portfolio to companies that look a lot like pyramid schemes, another 1% to gold coins advertized on fox news, another 1% to penny stocks that faxes received at work says are going to soar, another 1% to companies working on cold fusion, etc... As you can see, eventually this incremental "what if" mindset allocates a decent chunk of change to ideas with a " what-if" chance of paying off and a very high chance of going to zero. It also feeds well-known scams that feed upon FOMO (fear of missing out).
Diversification makes sense within a certain set of investments, but we must be careful not to extend this thinking into the various quasi-legit and somewhat suspicious-looking financial products sold around the periphery of real markets. Beyond some line of legitimacy, one has to switch from diversification thinking to binary "nope, that's bullshit" kind of thinking.
Obviously if your mindset is that Bitcoin will cease to exist in 2 years then that is a perfectly fine standpoint to have and makes sense. However, for those that feel that Bitcoin does have future use-cases as a legitimate technology, then the idea of holding 1% of your portfolio into a non-correlative asset would actually be worthwhile, especially given the fact that most other investment classes themselves are significantly overpriced.
But going down the rabbit hole of 1% here and 1% there isn't what was implied, so extrapolating that out in the way that you did is misrepresentative of the advice at hand.
I do agree about the diversification though which is why in my post I didn't say "crypto-currencies", but bitcoin specifically. So far there has been no sign that the correlation in price movements between bitcoin and the rest of the crypto field will ever diverge. So diversifying beyond bitcoin doesn't really make sense. I'm firmly of the belief that a vast majority of the crypto-currencies today will not be around for the long term.
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I find it interesting how some people are offering advice to put 1% or whatever of one's portfolio in cryptocurrencies. Does this reflect 1% of uncertainty about whether cryptocurrencies are a bubble or is it just an attempt to sound (or be) reasonable, like the people proposing we put X% of our portfolio in commodities to diversify?
I ask this because if cryptocurrencies have no value and are a bubble destined to burst, then only a zero allocation makes sense.
Those are good questions. For sake of argument, let's say Bitcoin is NOT a bubble. Let's say it is a real currency.
Are those same people advising to put 1% or whatever of their portfolios in other currencies? Like say, the Euro or Norwegian Kroner? If not, why not? Why is Bitcoin a better hedge against the USD than any other currency?
The answer is they don't really expect it to behave like a currency .
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...the idea of holding 1% of your portfolio into a non-correlative asset would actually be worthwhile...
This is an interesting point. However, I would argue that until we've been through at least once major recession, we don't yet have enough data to say whether either bitcoin specifically or cryptocurrencies generally are going to be correlated with other asset classes or not.
One of these days we should have another major stock market pullback, and I'm fascinated to see what that does to cryptocurrencies.
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So far there has been no sign that the correlation in price movements between bitcoin and the rest of the crypto field will ever diverge. So diversifying beyond bitcoin doesn't really make sense.
This is misinformation. Anyone can look at cmc, cryptocompare, cryptowat, worldcoindex, etc and see the charts that empirically show otherwise.
In the same timeframe, from last month, that btc moved 30%, some coins moved 30,000 - 110,000%.
Most of us have at least 30 year investment horizons--and probably much more. Is one month of data meaningful over those time frames?
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This is an interesting point. However, I would argue that until we've been through at least once major recession, we don't yet have enough data to say whether either bitcoin specifically or cryptocurrencies generally are going to be correlated with other asset classes or not.
True, so far we've only really had snippets of how the markets would react such as when North Korean threats escalated a while back. We won't know for until an actual recession hits the economy and the availability of money dries up.
This is misinformation. Anyone can look at cmc, cryptocompare, cryptowat, worldcoindex, etc and see the charts that empirically show otherwise.
In the same timeframe, from last month, that btc moved 30%, some coins moved 30,000 - 110,000%.
It isn't misinformation. The key point in your rebuttal to my point is that some coins have diverged from Bitcoin. So what you're saying is that diversifying outside of bitcoin is essentially taking a gamble that you're going to pick the winners and losers correctly. The truth of the matter is that almost all of these alt-coins only have trade pairs in Bitcoin or possibly Ethereum. As has been shown time and time again, whenever Bitcoin goes down by a significant amount, all the other alt-coins do as well because panic ensues that if Bitcoin vanished, then your exit from your alt-coin position would vanish as well. So if your main concern is that Bitcoin won't be around in 5 years, then how would diversifying from Bitcoin into other alt-coins help hedge that? Until this situation changes, diversifying in other crypto-currencies makes no sense.
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The truth of the matter is that almost all of these alt-coins only have trade pairs in Bitcoin or possibly Ethereum. As has been shown time and time again, whenever Bitcoin goes down by a significant amount, all the other alt-coins do as well because panic ensues that if Bitcoin vanished, then your exit from your alt-coin position would vanish as well. So if your main concern is that Bitcoin won't be around in 5 years, then how would diversifying from Bitcoin into other alt-coins help hedge that? Until this situation changes, diversifying in other crypto-currencies makes no sense.
Well it really depends on why a particular person is thinking bitcoin may have reduced value or disappear entirely in five years.
If they take the position that cryptocurrencies are a solution in search of a problem, and one day people will wake up and realize the ones and zeros they bought aren't actually worth anything, then yes, if bitcoin vanishes, the ability to convert most altcoins to dollars vanishes at the same time. <-- the "bitcoin is a ponzi scheme" argument
If they take the position that cryptocurrencies address real needs and are going to be with us for the foreseeable future, but that bitcoin's present position as the most highly valued/widely traded currency is a result of first mover advantage and network effects which can be overcome by other currencies with different (potentially better designs), then if bitcoin vanishes, it will be because its role has been replaced by some other cryptocurrency, and to the ability to convert between altcoins and dollars wouldn't be effected. <-- the "bitcoin is myspace" argument.
The people who argue bitcoin-is-a-ponzi scheme probably aren't any more excited about any other cryptocurrencies, so most of the people who think bitcoin might not be a going concern in 5 years but are interested in buying other cryptocurrencies probably fall into bitcoin-is-myspace camp.
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It will become increasingly harder and harder for larger marketcaps to make increases, but the newer, promising crypto should have larger returns in the same timesets.
Also, other trading-pairs have emerged and are on the rise. Btc's position and reliance as a trading pair is decreasing, especially when coinbase/gdax starts offering more crypto and more exchanges start offering different trading-pairs.
I mentioned in the other crypto thread how market cap doesn't mean anything and I'll state it again here. Market cap means nothing in the crypto space. That is especially true with crypto-currencies that are pre-mined. I can create a cryptocurrency with 1 trillion tokens and sell one for $1 and suddenly the market cap for my cryptocurrency is $1 trillion. Pre-mined currencies are essentially printed money.
The reason why they're going up in price so quickly has nothing to do with market cap size and everything to do with the fact that there is absolutely no liquidity in these markets. It only takes a few thousand/million dollars to move the prices of these currencies massive percentages in price. If you look at the 30 day volume trend for any of these alt-coins over the last 30 days, you'll see that 30 days ago they likely had non-existent trading volume.
I agree there are a few instances where trading pairs are opening up in USD for other alt-coins, but again, liquidity matters. These trading pairs are still low volume and not common. If you expect those few trading pairs to pick up the slack in the event of a bitcoin crash, you're being naive.
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I rightly deserved Sol's criticism for my position. When I make recommendations to other people, I try to consider the highest degree to which I can persuade them to make a move that will be beneficial. If I think owning no Bitcoin is the best, then I think owning less bitcoin is better than the current state. the sell 4% immediately suggestion seems like it should be a no-brainer even for someone who is quite bullish.
One other factor to consider is transaction costs/friction. The "if you wouldn't buy it sell it" logic works best when transactions are easy and low cost, for example with stock positions one purchased before deciding to switch over to index investing. As we've seen, people who have cryptocurrency for some reason other than recently purchasing it on an exchange (for example seattlecyclone's experience trying to sell their ripple) often don't have a straightforward way to convert it to US dollars,** and the costs of setting up a way to cash out their positions* may exceed the value of their current cryptocurrency holdings.
I still have a bit of bitcoin although I wouldn't buy bitcoin, and the primary reason I haven't sold it is that for exactly the reasoning above.
*Time spent learning how to use exchanges, time spent finding and filling paperwork to get properly authorized accounts at exchanges which is generally more onerous for people pulling USD out than people putting USD in, the risk that now an awful lot of their personal information is held at an exchange and they are at risk of being swept up in things like the recent attempt by the IRS to subpoena the identities and financial information of everyone with a coinbase account as potential tax cheats.
**People who wish to do a celebratory dance about how the preceding phrase proves cryptocurrencies are not really currencies can feel free to do so at this point. I disagree, but here's a nice GIF you can use (http://gifimage.net/wp-content/uploads/2017/08/snoopy-dance-gif.gif).
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This is where risk analysis comes into play, and crypto enthusiasts need to understand what they are buying, what has fundamentals, what has strongest chance to survive crashes, how to decrease risk, etc.
I'm pretty sure all of this techno-speak about cryptocurrencies is going to sound pretty ridiculous in a year or two. Imagine making these same arguments about tulip bulbs and you'll get some idea of why I think so. Fundamentals? Risk mitigation of diversification? Underlying technologies? Um, none of that actually exists in any relevant way.
We're taking about a runaway market bubble in theoretical abstractions. Price is totally decoupled from anything you might call a fundamental. The only way to make money here is for someone else to lose money. We're speculating on future demand, for something with no known use, so the only demand out there is driven by the growing demand. It's the classic definition of a bubble, only made more obvious by the lack of any underlying value stream. At least tulip bulbs could be used to make your garden prettier.
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the "bitcoin is myspace" argument.
I just wanted to clarify my position a little deeper on why diversifying with alt-coins doesn't make much sense at the moment.
The entire point of diversifying is to reduce risk. But, if you take the market position where your funds are diversified equally across a variety of crypto-currencies, then you've increased your risk in the short-term because of the fact that the liquidity in the diversified portion is either negligible or is directly dependent upon another currency that you're supposedly diversifying from (Bitcoin).
What I wasn't saying was that that will always be the case. Maybe 10 years from now another currency overtakes Bitcoin and has massive liquidity in every trading pair imaginable. Even knowing that in the long term doesn't reduce the risk of the marketplace reality in the short term.
Anyone is free to put money into any alt-coin they please, but don't do it because you feel you're diversifying and reducing risk. What you're really doing is taking on short-term risk in hopes of long term fortune...another name for that is gambling.
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some of the crypto that people are speculating on have the premise of solving problems like financial coordination, remittance, providing financial services to those without banking access or credit system, reducing cost of financial transactions, etc; and all this done on an underlying decentralized tech. All these transactions will have fees, which are rewarded to stakers. These types of crypto, created to address social problems, have a strong probability of being around one or two years from now.
These hypothetical applications of blockchain will never work until the associated currency is stable. Like if the US government were to issue a coin worth one dollar, and offer to always buy one or sell one for one dollar, then it could be used for money transfers. But when the price fluctuates 25% in a matter of hours, the currency is pretty useless for this purpose.
And just to put a finer point on it, it is the speculators who are driving the price fluctuations, and thus preventing the widespread adoption of a coin. Cryptocurencies are doomed as long as everyone continues to speculate in cryptocurrencies.
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What if banks or governments start to issue a crypto version of their currency on top of these blockchains?
This one is the only valid use case I can possibly see. Basically, the blockchain becomes the serial number of a specific dollar bill. It just has to be worth exactly one dollar, at all times, for this to work.
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I'm aware of how volume, liquidity, and marketcap works. You're taking my generalization and narrowing it into a specific narrative about market liquidity.
Also, the assumption you're making is that btc is responsible for how the entire crypto will perform, when it could very well be these crypto outperform btc or eats into its market share.
Apologies, my intention wasn't to imply that you didn't know how markets worked, but merely to explain my personal opinion and take on the current state of the markets and why diversifying into other alts doesn't reduce your short term risk.
I also am not implying that there aren't some amazing crypto-currencies out there beyond bitcoin that have viable use-cases. Decentralized storage solutions are of particular interest to me as I think there is a great need for something like that to compete against their centralized alternatives (especially considering the recent CPU vulnerabilities).
So my opinion against diversifying isn't an argument against alt-coins or their legitimacy in particular, but more an argument with regards to the current state of the markets and their immaturity that makes reducing risk via diversification rather pointless until that changes.
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https://www.cnbc.com/2018/01/05/visa-bans-cryptocurrency-backed-cards.html
Doh!
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https://www.cnbc.com/2018/01/05/visa-bans-cryptocurrency-backed-cards.html
Doh!
Indeed, that is not good news. I will be interested to hear their reasoning (if they ever release a public statement beyond "we're not doing this anymore"). Lifeanon, was the card you use impacted by this?
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And yet Bitcoin spent the day going up. It's almost as though its price is unrelated to the real world...
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Or is related to the amount of media coverage it gets, positive or negative.
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Indeed, that is not good news. I will be interested to hear their reasoning (if they ever release a public statement beyond "we're not doing this anymore"). Lifeanon, was the card you use impacted by this?
No, the headline is extremely click-baity. VISA is not banning crypto-backed credit cards. They shutdown one single issuer (Wavecrest) that a lot of crypto-currency payment providers happened to use in Europe for not being compliant and violating license agreements. It does not impact any US residents and the bitcoin debit card I use (Shift card) is still completely functional as are many others. That's pretty crappy of VISA to at least not give customers a 30 day notice though as I'm sure it left a lot of people high and dry. Or perhaps the blame is on Wavecrest if VISA gave them plenty of time to become complaint (which could certainly be true).
Either way, if anything this goes to show why a permission-less payment network is desperately needed.
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That does put a different spin on it, thanks!
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Why is this "not good news"?
I agree that it is a strike against mainstream adoption of cryptos. But, perhaps that is as it should be.
I think it is a totally appropriate response given that cryptos are fake money currently held aloft by popular delusion.
Doesn't this start to get a little circular?
One of the oft repeated arguments on this thread is that cryptocurrencies aren't real money because you cannot buy things with them.
It sounds like your view is that people shouldn't be allowed to buy things with cryptocurrencies because they aren't real money.
Note that neither of those positions have much to do with the price of cryptocurrency, or the people currently trying to buy them up as a get rich quick scheme. But anyway, yes, if we start with the assumption that people being able to spend cryptocurrencies is bad, then visa cutting off this payment processor is good news rather than bad news.
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L.A.S.,
Would you be okay with silver backed debit cards?
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What I really want to know is if it's too late to invest in MMM's fingernail clippings. I'm worried that I missed my chance with that.
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Yes, but you are saying that it's a good thing that people not be able to purchase things in a local currency (say USD) with a visa card when their payment to their credit card provider is settled in bitcoin.
I presume you're okay with people being able to purchase things in a local currency with a visa card when their payment to their provider is settled in a non-local currency (say Euros)?
If so, then the difference between the two scenarios is that you're saying cryptocurrencies are fake money, and euros are real money, and we're back to the circularity issue of cryptocurrencies being fake money because you cannot spend them, and you shouldn't be able to spend them because they're fake money.
If I'm wrong and you're instead saying you don't think I should be allowed to buy things in USD with a visa card if I'm paying my bill in euros, then I guess all I can say is that I don't really understand the basis for that position at all, but I'd be curious to hear your reasoning.
L.A.S.,
Would you be okay with silver backed debit cards?
No, silver is to volatile and has a lot of the same problems as gold when it comes to use as a currency.
Maybe we should clarify whether we're talking about what people should be allowed to do, and what actually makes business sense to do. I certainly wouldn't want to start a company issuing visa cards that let people buy things in USD and settle their bills to be in either silver or bitcoin (or Turkish Lira for that matter, sorry Turkey). The volatility is such that I imagine sooner or later I'd lose my shirt. But if someone else wants to run that risk, I don't see any societal reason we shouldn't allow them to do so.
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L.A.S.,
Would you be okay with silver backed debit cards?
No, silver is to volatile and has a lot of the same problems as gold when it comes to use as a currency.
Note: if you are trying to drag in another thread I started about silver.... Ain't gonna work. That was a thread I started because I was curious about what people thought about it as an asset class for investing purposes. I don't believe I was suggesting it should be used to replace fiat currency.
Sure, but you are basically arguing against liquidity in an asset class that you hold. You are fine with me buying and selling silver, but you aren't fine with me making it easier for others to buy and sell silver? Isn't more liquidity always better for almost anyone in an asset class? I would certainly rather invest in a more, rather than less liquid asset.
PS - Obviously, silver != BTC != cryptocurrency, but for the sake of commodity backed VISAs, they all seem the same to me. If I want a corn futures backed VISA, who are you to stop me?
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This is where risk analysis comes into play, and crypto enthusiasts need to understand what they are buying, what has fundamentals, what has strongest chance to survive crashes, how to decrease risk, etc.
I'm pretty sure all of this techno-speak about cryptocurrencies is going to sound pretty ridiculous in a year or two. Imagine making these same arguments about tulip bulbs and you'll get some idea of why I think so. Fundamentals? Risk mitigation of diversification? Underlying technologies? Um, none of that actually exists in any relevant way.
We're taking about a runaway market bubble in theoretical abstractions. Price is totally decoupled from anything you might call a fundamental. The only way to make money here is for someone else to lose money. We're speculating on future demand, for something with no known use, so the only demand out there is driven by the growing demand. It's the classic definition of a bubble, only made more obvious by the lack of any underlying value stream. At least tulip bulbs could be used to make your garden prettier.
I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general. We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.
So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?
Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
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These hypothetical applications of blockchain will never work until the associated currency is stable. Like if the US government were to issue a coin worth one dollar, and offer to always buy one or sell one for one dollar, then it could be used for money transfers. But when the price fluctuates 25% in a matter of hours, the currency is pretty useless for this purpose.
And just to put a finer point on it, it is the speculators who are driving the price fluctuations, and thus preventing the widespread adoption of a coin. Cryptocurencies are doomed as long as everyone continues to speculate in cryptocurrencies.
What if the crypto is not used as a medium-of-exchange? What if the blockchain allows anyone to transact in their token or currency of choice? What if banks or governments start to issue a crypto version of their currency on top of these blockchains? What if the crypto is not merely a currency, but represents a unit of accounting particular to a service?
Most of the questions have already been redressed, and banks like mitsubishi are conducting blockchain experiments:
https://news.bitcoin.com/mitsubishi-testing-cryptocurrency/
So why do I need a cryptocoin when I can have IBM implement a blockchain for my needs?
https://www.ibm.com/blockchain/use-cases/
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I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general. We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.
So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?
Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
Different markets. The stock market is made up of professionals, many with advanced degrees and certifications, all trying to outsmart each other. The best of the best are determining prices. Yes, we have still had bubbles. Yes, we have still had periods where the prices seem overvalued. You can read endless research papers arguing that prices are too high or too low. There will be news articles tomorrow on financial websites arguing the price is too high and others arguing it is too low. All of that back and forth is what makes the stock market efficient. It isn't perfect, people can still make impulsive decisions. Also, at the end of the day stocks have intrinsic value. They are worth something to the owner even if they can't sell it.
Bitcoin's price isn't determined by professionals who have been debating with each other going back decades. It's determined solely on speculation. I'd wager the vast majority of the people trading it have no idea what they are trading. The only people I've heard make educated arguments for it are in this thread. Bitcoin's value if no one wants to buy it from you equals zero. There is no intrinsic value from holding onto it. IMO people are trading worthless pieces of code as if they are worth something. The whole market is completely irrational.
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Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
Of course it does. I'm also smarter than my local craigslist market, but not the global stock market. Know your competition.
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I don't care about bitcoin, but I wonder about this reasoning as applied to investing in the market in general. We know that people tend to buy high and sell low, and more "irrational" people will pile into the market as they see the price peaking.
So why should we trust the stock market and congratulate ourselves on not worrying about irrational highs (see top is in thread), but in the bitcoin world we can "clearly" see that the market is overvalued and pride ourselves on staying out?
Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
This is a very smart point.
How do we know cryptocurrencies didn't actually increase in value/utility by thousands of percent in the past year or so? Market prices might simply reflect that change, right? The fact that it went up fast doesn't mean it didn't deserve to go up fast. For example, a company that puts in a couple quarters of 100% revenue gains, or locks in exclusive rights to a lucrative market like drug companies or commodities producers do, might see its stock skyrocket. We would observe these circumstances and say efficient markets were at work. Hence the crypto-thusiasts explaining to the naysayers that they just don't get the underlying rationale.
You can count me among the crypto-naysayers, but I do cringe a bit when past stock returns are used to extrapolate future portfolio performance or justify an AA. That is just as irrational as the people investing their life savings in cryptocurrencies because it's already gone up 5,000% and they just want the next 20%.
I've argued with folks who have the "never sell your stocks" perspective by asking them if there could ever be a price so outrageously high that they'd sell out. E.g. If the S&P rises 200% next year and P/Es were at like 100 would you sell? The response is often "that could never happen, markets are too efficient" but crypto-mania, like the dot-com mania before it, proves that defense false. It could happen. People are willing to chase past returns to the moon. If you don't have a plan to get out at a certain over-valuation, you'll be the one to lose at musical chairs.
To be clear, with stocks you are buying the expectation of owning future cash flows. Companies that quickly grew their cash flows in the past are expected to offer bigger cash flows in the future because they are doing something right. Oftentimes this assessment is correct. Bets on fast-rising but expensive companies like Microsoft, Intel, Facebook, Google, Apple, etc. have paid off handsomely. New investors look at the growing streams of cash flow and find a rational reason to buy shares from the old investors. The supply of investors interested in purchasing cash flows has always been vast.
With cryptocurrencies, you are buying the expectation that other people will pay you more for your coins than you paid, for whatever reason. Cryptocurrencies that have skyrocketed in the past couple years are expected to attract ever more speculators because speculators chase performance. However, since cryptocurrencies produce no cash flows, this game must end at the point when the supply of new speculators dries up. In theory, when "x" coin becomes the new standard world currency or whatever, demand will increase and each coin will be worth millions of dollars. This theory closely mirrors the rationale of goldbugs ("when the US dollar finally collapses, the price of gold is USD will skyrocket").
Both the goldbugs and the cryptothusiasts are betting on a specific scenario playing out that would make them comparatively wealthier. Stock investors are simply betting, for example, that the company's factories will continue producing X tons of product next year, which will be sold for about Y at a profit of about Z. Stocks, because they are priced based on expected cash flows, have a built in pressure release. If prices get too high, alternative sources of cash flow such as bonds become more attractive, which usually, but not always, pushes the price of stocks down. Greater-fool theory investing has no such pressure release, except in the case of gold the consumption of jewelry might be elastic with the price.
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Doesn't the former celebrate the idea that we're not smarter than the market, whereas the latter celebrates the idea that we are smarter than the market?
Of course it does. I'm also smarter than my local craigslist market, but not the global stock market. Know your competition.
This is a facile response. I expect better.
What is your information advantage with respect to the crypto market? What do you know that makes you smarter than the market?
Who exactly are the irrational people buying up cryptos enough to drive the market price? Do you know who the market is? Surely, you've got something better than I heard from my uncle that his friend bought $20 worth kind of analysis.
I have all my money in VTSAX and the I fund (international index). I believe those are smart investments. But I don't know what 80% of the companies are, what they do, how they make money, or what their competitive advantage is. I'm guessing you don't either. And yet we take pride in making those investments automatically and regularly because we're "not smarter than the market."
So what do we know that the crypto market does not? What is our information advantage? It doesn't bother you when Bob at the sandwich shop buys stocks because he heard that just hit an all-time high, but it does when you read an article about someone buying crypto? Of course, the increase in perceived crypto value seems ridiculous, but is it that much more ridiculous than the 30-40% increase in the stock market we've seen since Trump was elected, especially considering that the SP500 futures were down like 5% on election night when it looked like Trump might win?
Again, I don't have any crypto investments and I'm solidly MMM-certified with my all index fund portfolio (although I did pay off my house), but I think it's a fair question worth considering why we think we're smarter than some markets when one of the fundamental tenants of this board is that, generally, we (and everyone else) is not smarter than the market.
To be clear, I'm not looking for a rehash of the arguments against crypto. I'm asking what our informational advantage is with respect to the crypto market that does not also apply to the stock market.
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This is a facile response.
Yay!
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I think it's because there's an inherent difference between things with inherent value (ownership of a company or bond or commodity, or even a beanie baby) and things that have no inherent value and only a theoretical use right now.
I mean, dollars have a use case, are widely accepted and established, backed by the most powerful nation/military on earth - and I don't want them either! I only want enough to use to buy and sell things. Otherwise, I want to own stuff that has inherent value.
You can certainly overpay for a stock, and any given stock can go to zero. If you buy the whole market, though, you aren't worried about that because the entire market going to zero would probably coincide with some incredible catastrophe. Crypto currencies could drop to zero and a bunch of people would be angry - but the fallout would be pretty limited otherwise. So while I don't care about the possibility of VTSAX dropping to nothing when I make investment decisions, it's a huge concern if I'm going to buy crypto (or stock in a single company).
Stocks and bonds also have a long history. Crypto has essentially none. At some point there will probably be companies doing work with crypto and doing it well, and THOSE would be worth investing in, just like you can invest in a big banking corporation or a payment processor or any other financial firm.
-W
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This is a facile response.
Yay!
I think we may have just had a Princess Bride moment. I don't think that means what you think it means.
I think it's because there's an inherent difference between things with inherent value (ownership of a company or bond or commodity, or even a beanie baby) and things that have no inherent value and only a theoretical use right now.
I mean, dollars have a use case, are widely accepted and established, backed by the most powerful nation/military on earth - and I don't want them either! I only want enough to use to buy and sell things. Otherwise, I want to own stuff that has inherent value.
Again, I'd like to focus on what our informational advantage is, not what the pros and cons might be. You might not hold dollars or gold (which arguably could work like crypto currency), but you would expect to receive whatever the market value is for them. You don't pay $10,000 for an apple because dollars don't have inherent value. You (probably) don't scoff at people who hold gold as 10% of their portfolio because there is some history to support it as a reasonable allocation, even though gold has no inherent value.
So why do we not mock the people who buy gold as 5-10% of their portfolio (even if we don't own it)? Is it just because there's a history to support the valuation? If so, then that's just one factor in setting the price, not a reason that it's really worthless.
I don't own crypto and I don't plan on owning crypto. But there's a certain smugness of tone in the dismissive nature of a lot of these posts that caused me to wonder how good our analysis really is and why we think we know better than the market. It mirrors almost exactly the dismissiveness in the "Top Is In" thread (and in which I've shared), but there celebrating that we're not smarter than the market.
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I think there's a very big difference between "I'm not smarter than the market" and "I can beat the market". We index not because we believe the first, but because we believe the second.
An iced tea company trebled its stock price overnight by changing its name to include the word Blockchain and making vague noises about moving into blockchain tech. Am I smarter than the morons who bought at treble the company's earlier share price? Quite possibly. Can I beat the market? No.
There are plenty of things I'm happy to say I think the market has wrong. Uber is a catastrophic money bonfire that loses a billion dollars a year and collects lawsuits like Eddy Merckx collected victories, and it's valued at nearly fifty billion dollars. I'm pretty sure that's a disaster in the making and that it's going to collapse completely, but I'm not going to try to make money off that because I remember the most important rule: the market can remain irrational longer than I can remain solvent.
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This is a facile response.
Yay!
I think we may have just had a Princess Bride moment. I don't think that means what you think it means.
Nay!
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Again, I'd like to focus on what our informational advantage is, not what the pros and cons might be. You might not hold dollars or gold (which arguably could work like crypto currency), but you would expect to receive whatever the market value is for them. You don't pay $10,000 for an apple because dollars don't have inherent value. You (probably) don't scoff at people who hold gold as 10% of their portfolio because there is some history to support it as a reasonable allocation, even though gold has no inherent value.
So why do we not mock the people who buy gold as 5-10% of their portfolio (even if we don't own it)? Is it just because there's a history to support the valuation? If so, then that's just one factor in setting the price, not a reason that it's really worthless.
I don't own crypto and I don't plan on owning crypto. But there's a certain smugness of tone in the dismissive nature of a lot of these posts that caused me to wonder how good our analysis really is and why we think we know better than the market. It mirrors almost exactly the dismissiveness in the "Top Is In" thread (and in which I've shared), but there celebrating that we're not smarter than the market.
I'd happily pay $10k for an apple if that was the going price for apples (and such hyperinflation had also increased the value of my holdings commensurately). Dollars are just tokens. Who cares about dollars? If I need a hammer, I care about having a hammer. I don't stockpile any more than I plan to use. If bitcoins, or whatever, become widely used for exchange, then I'll happily use those if they work better than dollars - and I'll still hold onto as few as possible.
My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.
We are judging the whole *universe* of crypto as (currently) inherently useless and valueless. We have lots of evidence that the "currencies" aren't being used as such in any meaningful way, and that lots of low-information people are buying the tokens not because they understand or plan to *use* the tokens, but because they want to sell them for more money later.
There's lots of history on these kinds of speculative manias. It's not hard to make that call.
-W
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My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.
VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
Why? Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is.
If bitcoin was traded by 12 people, each putting in $10, I'd agree with you. That's an insufficient market. But you haven't offered any evidence that bitcoin is currently an insufficient market. Just that you don't think bitcoin makes sense.
So what is the difference in your analysis between bitcoin and the 2,800th biggest company in VTSAX? That we have independently worked out that the bitcoin market got it all wrong, but that the market for the 2,800th biggest company in VTSAX is just right even though we know nothing about its business or anything else about it?
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My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.
VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
Why? Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is.
If bitcoin was traded by 12 people, each putting in $10, I'd agree with you. That's an insufficient market. But you haven't offered any evidence that bitcoin is currently an insufficient market. Just that you don't think bitcoin makes sense.
So what is the difference in your analysis between bitcoin and the 2,800th biggest company in VTSAX? That we have independently worked out that the bitcoin market got it all wrong, but that the market for the 2,800th biggest company in VTSAX is just right even though we know nothing about its business or anything else about it?
The 2800th biggest company in VTSAX is either making an actual profit or is expected to at some point. Bitcoin makes nothing. There is no profit and never will be.
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My point is this: it's doesn't require a special information advantage to say that MMM's newly created market for fingernail clippings is crazy, and that nobody should buy said clippings. The existence of a "market" for something doesn't inherently mean anything about whether putting money in is worthwhile.
VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
Why? Because enough money has gone into the market for that company's shares to set a price for them, and you trust that market price even though you have no idea what that company is, what it does, or why it should be valued at whatever price it is.
You need to explain why this doesn't apply to the 90's Beanie Baby "market", or the Dutch tulip "market". Would you invest in those, on the theory that you're not smarter than the "market"?
VTSAX (or the global world of stocks generally) has a HUGE diversity of companies, most of which are profitable, listing their shares under government (SEC) oversight. They can't lie/cheat/steal from their shareholders (usually) without severe consequences. It's *many* orders of magnitude larger than the BTC market, and it is connected to basically everything every human on earth does daily. Knowing what the 2800th largest company does is irrelevant unless you're trying to pick individual stocks. There's a long, long history to look at when deciding to invest (or not).
Moreover, there's tons of statistical evidence to show us that it's almost impossible to beat the stock market. It might be that in some number of years the same is true of the crypto world, but as of right now, it's certainly not.
They're not even vaguely comparable.
-W
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Well this gets a bit into the natural of probability.
Let's say that there is a 1% chance that an apple might be worth $1M on February 1st. That would give it an expected value of $10,000 today ($1M * 0.01). Even if that were that case, I wouldn't be running around trying to snap up apples for six or seven thousand dollars, because I'm comfortable with my FIRE plan and don't feel the need to indulge super high risk investments where I'm not sure if the expected value is more or less than the current asking price.
Now let's say on February 2nd, the sun comes up, and apples are still worth what they've always been ($0.30-$1 or roughly $1-$3/lb). Does that make people who decided they were willing to make the extremely high risk gamble and pay $5k for an apple because it had an expected value of $10k irrational? As long as they realized it was an extremely high risk gamble, no, I would argue it doesn't necessarily make them irrational.
I think I am not smarter than the crypocurrency market to the extent that, while I have absolutely no desire to buy into it as a high stakes lottery ticket where I have no way of confidently knowing if the expected value is more or less than the current selling price, I also wouldn't want to be in the position having shorted the market (which is what a lot of folks are trying to figure out how to do over in the "how to profit off of the bubble" thread). I would even argue it is much easier for mostly intelligent rational people to get burned on investments where 99% of the time you make a modest profit and 1% of the time* you lose your shirt (shorting cypto) than the opposite (buying crypto which in an ideal world everyone would understand is an extremely high risk gamble).
I also would not have felt comfortable short selling tulips or beanie babies without the benefit of future knowledge.
*I'm using one percent because it's simple to type. Please feel free to substitute any probability between 10% and 0.0000000000000001% depending on your own assessments of the probability a given crypocurrency actually becomes widely used as a payment network.
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VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
For starters I agree with everything waltworks and dougules have said. Comparing bitcoin to the 2800th largest doesn't make any sense.
That said, the holdings of VTSAX are available online. The 2800th largest holding as of 11/30/2017 was Universal Stainless & Alloy Products Inc(USAP). Their market cap is 159 million. Here is a link to their annual report: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_USAP_2016.pdf
That company has assets, 2016 revenues were 154 million, and it's been around since 1994. That company could fail. Luckily, it's lumped together with over 3600 different stocks.
Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Yes, I can say a market trading something with zero intrinsic value is irrational, and I'm not going to participate in that market.
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VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
For starters I agree with everything waltworks and dougules have said. Comparing bitcoin to the 2800th largest doesn't make any sense.
That said, the holdings of VTSAX are available online. The 2800th largest holding as of 11/30/2017 was Universal Stainless & Alloy Products Inc(USAP). Their market cap is 159 million. Here is a link to their annual report: http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_USAP_2016.pdf
That company has assets, 2016 revenues were 154 million, and it's been around since 1994. That company could fail. Luckily, it's lumped together with over 3600 different stocks.
Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Yes, I can say a market trading something with zero intrinsic value is irrational, and I'm not going to participate in that market.
there are thousands if not millions of cryptocurrencies that actually are just code. you haven't heard of 99.99% of them, nobody uses them or cares about them, and therefore they are worthless.
bitcoin is not just code. there are millions of bitcoin users and owners around the world, and the most powerful network of computers ever assembled running 24/7 keeping bitcoin transactions running and keeping them secure. it's a global community of people with a shared belief physically doing things to keep bitcoin running.
you may not agree with them or think bitcoin is going to 0 quicker than they do, and that's fine, but bitcoin is not just code.
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We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.
Currency exchange rates (which is what bitcoin and other crypocurrencies are trying to be) are subject to the efficient market hypothesis. Modern currencies have no intrinsic value. They provide no direct return. The fact that currency exchange rates are governed by efficient markets does not mean that there is an economic argument for you to buy a cap weighted index funds of the world's biggest currencies. Yet despite all of those statements, still the markets are efficient.
Now maybe you reject the idea that bitcoin is a currency. The next best analogy still isn't a stock, it's a commodity. This is a less perfect analogy, since most (though I'm not sure all) commodities do have some intrinsic value/use. Still porkbelly markets are subject to the efficient market hypothesis. Frozen orange juice futures are subject to the efficient market hypothesis. If I saw that the price of porkbellies had gone up 1,600% in one year, I'd be shocked. But I won't go out and short sell porkbellies.
A good test for whether or not markets are efficient is to ask the question "Is there a risk free way to make free money?" If the answer is yes, the market is inefficient (but if you take advantage of that opportunity you'll bring it closer to efficiency). If the answer is no, you've failed to disprove the hypothesis that the market is inefficient. And repeatedly failing to disprove a hypothesis is the closest anyone can come to proving something.
Now let's say you think the bitcoin market isn't efficient and the price of a bitcoin today is a lot higher than the "real" expected value of a bitcoin. There's a wonderful mechanism in place to take advantage of that fact. The rational response to being absolutely sure that bitcoin prices are above their real expected value is to go out and sell bitcoin futures, get paid about what people are willing to pay for the coin today, and then when the price crashes, given them back a worthless string of ones and zeros. If you and enough people like you come to the same conclusion, and are willing to sell enough futures at low enough prices, eventually the price will drop to whatever the "real" value of a bitcoin is, even if that value is zero and the market will have become efficient. Markets are fun like that.
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We started out with the interesting question of whether cryptocurrency prices are subject to the efficient market hypothesis. Somehow this degenerated into the rehashed to death argument over whether or not cryptocurrencies are stocks. Bitcoin is not a stock. Monero is not a stock. PizzaCoin is not a stock. However, this observation doesn't help us get at the answer to the original question, because stocks are not the only things which have efficient markets.
I think the question is: are peoples' perceptions of the marginal utility of cryptos rational?
No, that's a different question from the one we were talking about.
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VTSAX owns stock in 3,606 companies. Do you know what the 2,800th biggest company is? Do you know what they do? Do you know what use there is for that company? I couldn't even find a list of all the companies in VTSAX. But I own stock in that 2,800th biggest company, and you probably do too.
Thank you Cycling Stache. You've made some excellent points. You bring up a lot of good counter points to those that espouse the benefits of index stock investing while condemning investing of any kind into crypto-currencies.
Earlier in another post I mentioned that it isn't a bad idea to put just 1% of your portfolio into bitcoin since, for the most part, it is a non-correlated asset. I am a big advocate of index investing, but while I suggested a 1% allocation for Bitcoin, it was criticized by those who say that index investing is the only viable investment choice.
It is often the argument, that being profit driven businesses, they provide dividends and grow as a business becoming more valuable in the future. The criticism against Bitcoin is that it has no "intrinsic" value (which I disagree with) and does not generate revenue of any kind. However, businesses only generate profit if the business that they are in is a demanded business. If a business does not generate profit, then there are no dividends given to investors. Furthermore, obviously not every business succeeds. Given a lack of demand for a company's product, the company can decline dramatically, go bankrupt, etc. Many companies have come and gone within the S&P 500 index. Everyone that promotes index investing has no idea of the actual valuations, earnings, future productivity, competition, debt, assets, etc of all of the companies within the index.
If the critique against Bitcoin is the fact that it isn't a revenue generating company, and the main path promoted for investing in revenue generating companies is to do so through index investing, then to take that logic further, one must be willing to advocate for investing in railroads, luxury goods, retail, software, airlines, publishing, insurance, aerospace, apparel, semiconductors, banking, restaurants, and all manner of markets that exist within the index. Much of these markets themselves have no "intrinsic" value to the human race as well. If you can't make a case for investing in the future of each one of those markets individually, then the argument for indexing becomes less about the fact that you're investing in revenue producing companies in those markets and more about the fact that you're divesifying your investment across a large number of those markets such that your exposure to each one is limited.
So if you can't make the case for specifically investing in the future of railroads or any other individual market that exists in the S&P 500, but you do advocate for investing in it at a miniscule amount (say 1% or less), then how can one criticize the choice to put 1% in a crypto-currency? As I said, this isn't about the revenue producing aspects of a company as, absent profits, there are no dividends for investors. It then comes down to whether or not you feel that the future railroads market has a brighter future than the Bitcoin market. Insert whatever S&P 500 market you'd like in for railroads and I'm sure you could come across something that you don't fully understand or something that would likely have a questionable future. Yet, buy index investing, you're buying into that. Combine this with the fact that you could potentially be investing in some very questionable markets during times where their valuations are extremely high, and you'd probably find yourself some very risky investments being made (albeit at small percentages <1%) within your index. Yet we're OK with that simply because of the fact that it only makes up a small percentage of our portfolio.
The point about not being smarter than the market or not trying to beat the market simply comes from the diversification that indexing provides. It isn't that indexing provides us deep insight to the stock market that allows us to feel like expert investors.
So again, promoting investing into potentially declining markets through indexing (even though diversified) allows one to criticize someone who chooses to invest an equally diversified portion of their portfolio (1% or less) into cryptocurrencies? The Bitcoin market is larger than most S&P 500 companies. If we can't individually make the case for investing directly into each and every one of the companies within the S&P 500 index, then how can you make the case for or against investing in a market the size of Bitcoin, especially if you don't fully understand that market? The argument seems pretty arbitrary otherwise as to what we're OK with investing via an index.
Personally, I know more about the crypto-currency market and the technologies within it than I do about any given market that exists within the S&P 500 index. I am a big proponent of index investing, but I allow myself to extend my diversification beyond what the S&P 500 index provides because of how closely I follow what is going on in the Bitcoin space and the fact that I actively participate in the technology of it. Bitcoin may not replace fiat currencies in our lifetime, but I believe that there is a large enough following and large enough demand for it that it will not go to $0 any time soon. Much to the same extent that open-source Linux is not a common desktop choice for every day users in their home, there is still a large enough niche market for it to continue to exist and evolve for personal desktops.
Cycling Stache, I know this is one step further than the argument you're making, but I thought I'd add in and go a little bit further with the points you were making. Good discussion none-the-less.
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You can have efficient markets for items with no intrinsic value.
You can have non-efficient markets for items with intrinsic value.
So whether or not something has intrinsic value doesn't tell you whether the market for it is efficient, and whether or not the market for something is efficient doesn't tell you whether or not it has intrinsic value.
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Because it was interesting to think of examples of all four pairwise combinations:
Inherent value, efficient market: US stock market.
No inherent value, efficient market: Euro denominated price for dollars.
Inherent value, non-efficient market: Used textbooks. (Source: https://www.npr.org/sections/money/2014/11/10/363103753/textbook-arbitrage-making-money-off-used-books)
No* inherent value, non-efficient market: diamond engagement rings.
*Well negligible compared to sale prices.
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
Intrinsic value = what's left over if no one is willing to buy it from you. In the case of Windows the ability to use it would be it's intrinsic value. Stocks have dividends and voting power. Bonds have income. Your home providers shelter. Tulips can be eaten. What is a bitcoin worth if no one wanted to buy it from you? What can you do with it that makes it valuable even if the market decided it wasn't valuable? Zero, right?
Currency exchange rates (which is what bitcoin and other crypocurrencies are trying to be) are subject to the efficient market hypothesis. Modern currencies have no intrinsic value. They provide no direct return.
Do modern currencies have intrinsic value? What is a dollar worth if no one wants to trade it with you? Zero right? Hmm... Dollars are legal tender for all debts, public and private. I have a mortgage and the bank is legally required to accept dollars. For me, dollars have an intrinsic value related to keeping my home. This logic applies to anyone with dollar denominated debt. Yes, that value will be different for each entity, but it creates long lasting demand for dollars.
bitcoin is not just code.
I didn't say it was just code. I said, "It's a piece of code. It's intrinsic value is zero." The second sentence is the important one. The fact that people mine it doesn't give it value. It's utility should give it value and that value should justify mining it. Right? How much is it actually being used to buy things? That would be it's utility, correct? Right now it's all speculation, just like the tulips.
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Currency exchange rates (which is what bitcoin and other crypocurrencies are trying to be) are subject to the efficient market hypothesis. Modern currencies have no intrinsic value. They provide no direct return.
Do modern currencies have intrinsic value? What is a dollar worth if no one wants to trade it with you? Zero right? Hmm... Dollars are legal tender for all debts, public and private. I have a mortgage and the bank is legally required to accept dollars. For me, dollars have an intrinsic value related to keeping my home. This logic applies to anyone with dollar denominated debt. Yes, that value will be different for each entity, but it creates long lasting demand for dollars.
What you're describing, the dollar having value specifically because you can use it to pay your mortgage/property tax bill, is a great example of extrinsic value, in that its value is entirely dependent on other people being willing to accept it in return for goods and services (such as accepting it in return for not evicting you from your home). Whether they're now locked into a contract which requires them to continue to accept dollars until the end of a mortgage is essentially just a way of time shifting that willingness to accept dollars from when you signed your mortgage payment to a bunch of time points over the next 15 or 30 years. Note, I'm not disagreeing with the observation that the fact that lots of people has USD denominated mortgages means that there will be demand for USD for some time to come, only that this is not what intrinsic value means.
But if we're talking about the basket of things called "modern currencies" we shouldn't just talk about the dollar. The dollar is one of the most successful, most stable currencies in the world today, and also happens to be the native currency for either a majority or plurality of forum members. Perhaps the most striking example of how the value of modern currencies is extrinsic rather than intrinsic comes from the 2016 demonetization in india, where their prime minister announced that, overnight, all existing 500 and 1,000 rupee notes were no longer legal tender for all debts public and private (link (https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation)). When that external source of value was removed, the old currency rapidly became worthless.
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
Intrinsic value = what's left over if no one is willing to buy it from you. In the case of Windows the ability to use it would be it's intrinsic value. Stocks have dividends and voting power. Bonds have income. Your home providers shelter. Tulips can be eaten. What is a bitcoin worth if no one wanted to buy it from you? What can you do with it that makes it valuable even if the market decided it wasn't valuable? Zero, right?
I think that the intrinsic value of a BTC is that it lets you make a cryptographically secure yet public transaction across geographic and political boundaries in the block-chain with a network of thousands of nodes. So yes, if no one else is using it, it has no intrinsic value. But that is also true of say, the internet. What's the intrinsic value of the internet if tomorrow everyone except for you stopped using it? It would cease to exist in the way that we understand it today, and lose all value.
I'm fascinated with this whole train of thought. For example, Linux is free, but it is estimated that it would have taken $19B in 2012 to recreate just one distro (https://blog.james.rcpt.to/2012/02/13/debian-wheezy-us19-billion-your-price-free/). What is the monetary value of Windows if Linux (and FreeBSD, and OpenBSD, etc) are free? Whatever someone will pay for it.
Additionally, I would add that BTC may become the AmigaOS of cryptocurrencies. AmigaOS used to have a lot of value, but as people have transitioned to other (newer, better) hardware and software, its value is almost zero.
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What you're describing, the dollar having value specifically because you can use it to pay your mortgage/property tax bill, is a great example of extrinsic value, in that its value is entirely dependent on other people being willing to accept it in return for goods and services (such as accepting it in return for not evicting you from your home).
It's worth noting that many items with ostensible intrinsic value are entirely dependent on other people's willingness to recognize human-created fictions. A share of stock, which you've classified as having intrinsic value (correctly, according to the generally accepted meaning of "intrinsic value" in this context), is, after all, nothing more than fractional ownership of a corporation, which is a legal fiction that does not actually exist. Its value (and the value of many of the underlying components from which its value derives) is entirely dependent on other people's willingness to recognize and uphold such fictions (unlike some of the other items you cited as having intrinsic value, such as pork bellies and frozen orange juice, which can both be consumed and therefore provide utility in objective reality whether or not anyone else believes in their existence).
Note that I'm not disagreeing with anything you've stated regarding intrinsic/extrinsic value or efficient markets (all of which I do agree with). I'm just noting that it's possible to drill down even further on the "inherentness" of something's value than what you've described (which aligns with the generally accepted meaning of "intrinsic value" in this context).
You could argue that a pork belly has more inherent value than a share of stock in a corporation that owns nothing but pork bellies, which in turn has more inherent value than a share of stock in a corporation that owns nothing but pork belly futures.
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What you're describing, the dollar having value specifically because you can use it to pay your mortgage/property tax bill, is a great example of extrinsic value, in that its value is entirely dependent on other people being willing to accept it in return for goods and services (such as accepting it in return for not evicting you from your home).
It's worth noting that many items with ostensible intrinsic value are entirely dependent on other people's willingness to recognize human-created fictions. A share of stock, which you've classified as having intrinsic value (correctly, according to the generally accepted meaning of "intrinsic value" in this context), is, after all, nothing more than fractional ownership of a corporation, which is a legal fiction that does not actually exist. Its value (and the value of many of the underlying components from which its value derives) is entirely dependent on other people's willingness to recognize and uphold such fictions (unlike some of the other items you cited as having intrinsic value, such as pork bellies and frozen orange juice, which can both be consumed and therefore provide utility in objective reality whether or not anyone else believes in their existence).
Note that I'm not disagreeing with anything you've stated regarding intrinsic/extrinsic value or efficient markets (all of which I do agree with). I'm just noting that it's possible to drill down even further on the "inherentness" of something's value than what you've described (which aligns with the generally accepted meaning of "intrinsic value" in this context).
You could argue that a pork belly has more inherent value than a share of stock in a corporation that owns nothing but pork bellies, which in turn has more inherent value than a share of stock in a corporation that owns nothing but pork belly futures.
That's a very good point that there isn't a bright line between having inherent/intrinsic value and not. While the line I was using between intrinsic/extrinsic value is: "If no one wanted to buy/trade for the item, is there still a benefit to having it" it is important to also think about all the other aspects of "value", like a share of stock representing ownership in a corporation, or the existence of corporations themselves which also exist only because we've all agreed as a society to act like they exist.
That's part of what's been fascinating for me to watch in the discussions about crypocurrency on these different threads. A lot of the terrible qualitative* flaws/weaknesses people bring up with cryptocurrencies also apply to lots of other things we take for granted in the modern world, but it seems like a lot of people are really don't like the idea of how much of our day to day lives are based on useful fictions... on both sides of the debate, since I see both people arguing that bitcoins or ether or whatever have intrinsic value and people arguing that all nationally backed currencies have value, while non-nationally backed currencies do not.
*I want to make sure I acknowledge that are also lots of quantitative flaws in current cryptocurrencies (like volatility, number of places that accept them as payment (small), cost of using them as payment (unworkably expensive at the moment, at least for bitcoin), inflation/deflation trends, etc) that set them apart from most of the other useful fictions we employ in our day to day lives.
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Did we just hit peak cryptomania? Wonder how many Kodak insiders will be selling now that the stock doubled?
https://finance.yahoo.com/news/kodak-creating-kodakcoin-own-cryptocurrency-181422100.html
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Did we just hit peak cryptomania? Wonder how many Kodak insiders will be selling now that the stock doubled?
https://finance.yahoo.com/news/kodak-creating-kodakcoin-own-cryptocurrency-181422100.html
I would be interested in hearing from those who say stock markets are efficient.
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Did we just hit peak cryptomania? Wonder how many Kodak insiders will be selling now that the stock doubled?
https://finance.yahoo.com/news/kodak-creating-kodakcoin-own-cryptocurrency-181422100.html
http://www.zdnet.com/article/kodak-announces-the-kodakcoin-blockchain-cryptocurrency/
I have no idea how this will affect Kodak's profitability, but it is an interesting use of blockchain technology.
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
Windows is not open-source. It is a copyrighted piece of software that can produce an income if used for certain functions. What can you do with a bitcoin other than trade or spend it? I don't own blockchain tech by buying a bitcoin, what can I do with a bitcoin that creates anything or performs a function worth anything?
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
Windows is not open-source. It is a copyrighted piece of software that can produce an income if used for certain functions. What can you do with a bitcoin other than trade or spend it? I don't own blockchain tech by buying a bitcoin, what can I do with a bitcoin that creates anything or performs a function worth anything?
Well, you can "produce an income if used for certain functions," for example, trade. Saying that the bitcoin network has no intrinsic value is like saying that PayPal or VISA have no intrinsic value.*
* - note: I purchased exactly 1.0 BTC in order to facilitate online commerce from the UK and Australia with businesses that either offered large discounts for orders in BTC or refused to take anything except BTC.
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Bitcoin doesn't make anything. There are no revenues or assets. It's a piece of code. It's intrinsic value is zero. It has far more in common with tulips than any stock, including USAP.
Windows is just code, does that mean that it has no intrinsic value?*
Do cryptographic primitives have intrinsic value when they are used to secure your credit card number during online transactions? Because cryptographic primates are just code.
* - I'm fine if you say yes, I hate Windows, but a bunch of MSFT shareholders would disagree.
EDIT - I have no idea how to correctly value BTC or ETH, but that doesn't mean that it has no intrinsic value, it just means that I don't know how to measure it.
Windows is not open-source. It is a copyrighted piece of software that can produce an income if used for certain functions. What can you do with a bitcoin other than trade or spend it? I don't own blockchain tech by buying a bitcoin, what can I do with a bitcoin that creates anything or performs a function worth anything?
Well, you can "produce an income if used for certain functions," for example, trade. Saying that the bitcoin network has no intrinsic value is like saying that PayPal or VISA have no intrinsic value.*
* - note: I purchased exactly 1.0 BTC in order to facilitate online commerce from the UK and Australia with businesses that either offered large discounts for orders in BTC or refused to take anything except BTC.
I'm saying other than trade, Bitcoin and the Blockchain can't be used to produce anything. Obviously anyone can buy and sell literally anything, tangible or intangible, physical or virtual and "make money" as long as you sell it at a higher price, as MMM highlighted by offering his fingernail clippings at bargain prices. We could even buy and sell digital fingernail futures and "make money". But if i buy Windows, I can make a profit using it (to do correspondence, build a website, write an app, create graphic art, produce advertising, or even mine bitcoin) without selling it. I don't use up my Windows in the process of making a profit, so its not comparable to an open source piece of software that facilitates trade in a currency.
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Kodak is going to make bitcoin miners and create it's own alt coin. Kodak has nothing to do with Bitcoin, and it's stock soared. I'd say it's too late for Bitcoin.
http://www.bbc.com/news/technology-42630136
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Visa and Paypal do more than just transfer value from buyer to seller. They can reverse the payment, too. ...
Sorta makes you wonder why the foreign merchants offered such large discounts for BTC or refused to except anything else...
I mean based solely on the information in your post, I'm going to go out on a limb and guess: Because it cut down on their losses from chargeback fraud?
If we go outside of information in your post, I'd guess the actual reason is that dealing with US credit cards can be a pain for small companies in other countries and because of horror stories about what can go wrong with paypal merchant accounts, particularly if you have a sudden uptick in business, which tend to scare off people who are just starting out in new business ventures.
https://www.reddit.com/r/paypal/comments/6lhxme/what_happens_when_you_pay_paypal_15k_in_fees/
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Visa and Paypal do more than just transfer value from buyer to seller. They can reverse the payment, too.
What is your recourse if merchants in UK and Australia don't deliver as promised?
Sorta makes you wonder why the foreign merchants offered such large discounts for BTC or refused to except anything else...
Very true. I'll give you a hint: there are products (including some microscopic organisms such as Necator Americanus) that are legal in most countries but are a violation of the terms of service of PayPal and/or VISA. If you deal in these legal products, how are you supposed to take payments from foreign soil? Have you ever dealt with cross border checks?
Also, there are web hosting companies that are willing to accept cryptocurrency for payment. Imagine if you are a political dissident in a hostile country that can now pay for overseas hosting (and VPN services) with an anonymous cryptocurrency like Monero. In fact, here is the list of providers that accept Monero (https://getmonero.org/community/merchants/).
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Visa and Paypal do more than just transfer value from buyer to seller. They can reverse the payment, too.
What is your recourse if merchants in UK and Australia don't deliver as promised?
Sorta makes you wonder why the foreign merchants offered such large discounts for BTC or refused to except anything else...
Very true. I'll give you a hint: there are products (including some microscopic organisms such as Necator Americanus) that are legal in most countries but are a violation of the terms of service of PayPal and/or VISA. If you deal in these legal products, how are you supposed to take payments from foreign soil? Have you ever dealt with cross border checks?
Also, there are web hosting companies that are willing to accept cryptocurrency for payment. Imagine if you are a political dissident in a hostile country that can now pay for overseas hosting (and VPN services) with an anonymous cryptocurrency like Monero. In fact, here are the list of providers that accept Monero (https://getmonero.org/community/merchants/).
This is all very true, but the problem is, such use cases are such a microscopically, small percentage of global trade. So sure lots of people will find this useful, but if even part of your coin valuation is based on BTC putting a dent in global trade in the medium term, than I'd be personally cautious of this. Even if the whole of africa based their entire GDP on crypto, that would be barely 1%. Countries such as USA and China have valuable economies and it will be relatively hard to (legally) play in those economies if you don't play along with their currency and tax preferences.
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Visa and Paypal do more than just transfer value from buyer to seller. They can reverse the payment, too.
What is your recourse if merchants in UK and Australia don't deliver as promised?
Sorta makes you wonder why the foreign merchants offered such large discounts for BTC or refused to except anything else...
Very true. I'll give you a hint: there are products (including some microscopic organisms such as Necator Americanus) that are legal in most countries but are a violation of the terms of service of PayPal and/or VISA. If you deal in these legal products, how are you supposed to take payments from foreign soil? Have you ever dealt with cross border checks?
Also, there are web hosting companies that are willing to accept cryptocurrency for payment. Imagine if you are a political dissident in a hostile country that can now pay for overseas hosting (and VPN services) with an anonymous cryptocurrency like Monero. In fact, here are the list of providers that accept Monero (https://getmonero.org/community/merchants/).
This is all very true, but the problem is, such use cases are such a microscopically, small percentage of global trade. So sure lots of people will find this useful, but if even part of your coin valuation is based on BTC putting a dent in global trade in the medium term, than I'd be personally cautious of this. Even if the whole of africa based their entire GDP on crypto, that would be barely 1%. Countries such as USA and China have valuable economies and it will be relatively hard to (legally) play in those economies if you don't play along with their currency and tax preferences.
I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people. We who don't run VPN services in oppressive regimes I mean...
Even if BTC was used by 100% off dissident bloggers in every regime in the world, and everyone sending money to countries where bank/paypal transfer is unavailable, how much of global trade is that?? 0.0001%?
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I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people. We who don't run VPN services in oppressive regimes I mean...
Even if BTC was used by 100% off dissident bloggers in every regime in the world, and everyone sending money to countries where bank/paypal transfer is unavailable, how much of global trade is that?? 0.0001%?
Again, I'm not investing in BTC, but all of these arguments remind me of the 1990s when everyone thought that open source software could never work. Just because we lack the imagination to see the success of cryptocurrency doesn't mean that it won't be successful. Satoshi Nakamoto didn't invent BTC to get rich, Nakamoto invented BTC to solve a problem in global finance during the biggest financial calamity in 78 year. Similarly Bell Labs, AT&T, and Berkeley didn't invent Unix to get rich, but its descendants (OS X, Darwin, Linux, Android, FreeBSD, etc) run on a ton of IoT, phone, and server platforms. No one could see how Unix was going to stick around for the long haul, no one could describe the path that it would take, and yet it is still with us. That's my prediction for cryptocurrency, not that I can pick the winners and losers, not that I can tell you what will happen, but that much like C or Unix, 47 years from initial conception it will be doing just fine.
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I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people. We who don't run VPN services in oppressive regimes I mean...
Even if BTC was used by 100% off dissident bloggers in every regime in the world, and everyone sending money to countries where bank/paypal transfer is unavailable, how much of global trade is that?? 0.0001%?
Again, I'm not investing in BTC, but all of these arguments remind me of the 1990s when everyone thought that open source software could never work. Just because we lack the imagination to see the success of cryptocurrency doesn't mean that it won't be successful. Satoshi Nakamoto didn't invent BTC to get rich, Nakamoto invented BTC to solve a problem in global finance during the biggest financial calamity in 78 year. Similarly Bell Labs, AT&T, and Berkeley didn't invent Unix to get rich, but its descendants (OS X, Darwin, Linux, Android, FreeBSD, etc) run on a ton of IoT, phone, and server platforms. No one could see how Unix was going to stick around for the long haul, no one could describe the path that it would take, and yet it is still with us. That's my prediction for cryptocurrency, not that I can pick the winners and losers, not that I can tell you what will happen, but that much like C or Unix, 47 years from initial conception it will be doing just fine.
Again, that's the blockchain technology, which yes might have some use. But BTC is almost irrelevant to that. (ironically) financial firms are experimenting with it for their use. But why should the specific one-of-many crytocoin BTC be worth $20k? If Visa, or whatever else, is replaced with a blockchain tech it's almost certain it won't be BTC, or ETH, or dogecoin.. So what is the reason people are willing to pay $1k-20k for each one of those?
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Again, that's the blockchain technology, which yes might have some use. But BTC is almost irrelevant to that. (ironically) financial firms are experimenting with it for their use. But why should the specific one-of-many crytocoin BTC be worth $20k? If Visa, or whatever else, is replaced with a blockchain tech it's almost certain it won't be BTC, or ETH, or dogecoin.. So what is the reason people are willing to pay $1k-20k for each one of those?
I can't really answer that question, because I am unwilling to pay $20K for a BTC except as a means to buy goods.
With that said, I would say that in the software world it is normal to pick something that works, and iterate later. That's how programming languages and frameworks often work:
sh&sed&awk --> perl --> python2 --> python3
Netscape JavaScript --> es3 --> es5 --> es6 (and separately TypeScript) --> es7
I'm sure that you could draw a similar timeline for all the JavaScript frameworks that the world has seen (note: a lot of them are now dead).
But if you need to ship a product that works soon, you pick a technology that works today. BTC "works" today.
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Again, that's the blockchain technology, which yes might have some use. But BTC is almost irrelevant to that. (ironically) financial firms are experimenting with it for their use. But why should the specific one-of-many crytocoin BTC be worth $20k? If Visa, or whatever else, is replaced with a blockchain tech it's almost certain it won't be BTC, or ETH, or dogecoin.. So what is the reason people are willing to pay $1k-20k for each one of those?
Perhaps you should first find someone who is actually paying $20k (or even the current price of $14,600) for bitcoin that they are not immediately going to spend?
If you cannot find such a person, it may not be worth getting worked up arguing about how it doesn't make sense to buy bitcoins (specifically) at current price, since, at least in this thread, I don't think anyone is currently buying bitcoins or suggesting that others should.
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Again, that's the blockchain technology, which yes might have some use. But BTC is almost irrelevant to that. (ironically) financial firms are experimenting with it for their use. But why should the specific one-of-many crytocoin BTC be worth $20k? If Visa, or whatever else, is replaced with a blockchain tech it's almost certain it won't be BTC, or ETH, or dogecoin.. So what is the reason people are willing to pay $1k-20k for each one of those?
Perhaps you should first find someone who is actually paying $20k (or even the current price of $14,600) for bitcoin that they are not immediately going to spend?
If you cannot find such a person, it may not be worth getting worked up arguing about how it doesn't make sense to buy bitcoins (specifically) at current price, since, at least in this thread, I don't think anyone is currently buying bitcoins or suggesting that others should.
well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
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well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
The probable answer in the case of most buyers is that they are (wittingly or unwittingly) hoping for a greater fool to come along who is willing to pay even more.
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BTC should go much lower this week. I would wait, and also buy another coin to balance the investment. I'd go with NEO or XMR.
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I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people.
You know that huge fee you pay when you buy a house... I think they call it escrow... Something like ETH can change that expense from 100's (or thousands) of dollars down to pennies. This is just one use case, and there are many like this.
What about the massive fee's charged to move money between countries? I work with a lot of foreigners that send a lot of money home, they are saving a ton of money not paying those fees.
Have you tried to move large sums of money around in our banking system? Just the other day I deposited my normal paycheck for a side hustle and the bank said they had to put a 10 day hold on it before it clears because it's a large amount. I do not have this problem with crytpo to crypto exchanges, there is no banks forcing me to wait.
There has never been before a way to share a piece of data that can be only in one place at a time. In time you will be able to secure your private data and other communication so companies cannot share it like equifax just did. Even if you do not know it yet, you will be using this technology all the time in your daily life.
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You know that huge fee you pay when you buy a house... I think they call it escrow... Something like ETH can change that expense from 100's (or thousands) of dollars down to pennies. This is just one use case, and there are many like this.
Uh, what? I could see a future where a crypo-contract of some kind functions as the escrow entity (maybe), but fat chance of being able to actually buy a house using BTC right now.
If you haven't bought/sold real estate lately, your big expenses are commissions, title insurance/fees, and (potentially) taxes. None of those is something that a cryptocurrency would really help with.
As of right now, it's a lot MORE hassle and expense to use BTC (and for a large transaction, it would be an insane risk for both parties) than traditional transactions. If BTC is stable over a period of, say, decades, then you might see people start to use it for actual commerce. But it seems purposely designed to prevent that outcome...
-W
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If you haven't bought/sold real estate lately, your big expenses are commissions, title insurance/fees, and (potentially) taxes. None of those is something that a cryptocurrency would really help with.
My last 3 properties were all over $1000 in escrow. That is still a very significant chunk of money a smart contract could facilitate automation. Let's just say the average US home price is around 200k, that is still $200 in escrow. Multiple that by homes sold a year and that is still a BILLION dollars. That is a very valuable network. This is just a single use case, there are many other potential markets.
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There are countless comparable examples. Linux saves billions of dollars a year vs Windows. But it's peanuts really in the big scheme of things.
The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat. Not just dancing around the edges.
The reason Warren Buffet opted out of tech wasn't because he was certain it would fail.... he didn't invest because he didn't know enough to understand WHICH tech firms would fail. He has said on record he is quite certain BTC will fail.
What makes BTC investors think they have such an edge to think 15k is undervalued?
The problem as I see it is there will be a whole lot of pain caused before any future benefits. It's hard to imagine any alternative history where the internet crash or the property crash was circumvented. The idea that Crypto is going to have a soft correction without hurting millions, is unlikely.
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Let's just say the average US home price is around 200k, that is still $200 in escrow. Multiple that by homes sold a year and that is still a BILLION dollars. That is a very valuable network. This is just a single use case, there are many other potential markets.
Yes, and that's indeed what I said - it's a TINY part of your overall transaction costs. No way in hell would I try to save 1/10 of 1% on buying a house while simultaneously risking paying plus/minus 20% for it when I go to close!
There's way more potential for killing off Visa and the other payment processing vampires. But again, BTC seems deliberately designed to be useless for that purpose. Eventually someone will get it right but my bet is on the banks (or a big tech company) doing their own crypto thing that wins the day.
-W
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There's way more potential for killing off Visa and the other payment processing vampires. But again, BTC seems deliberately designed to be useless for that purpose. Eventually someone will get it right but my bet is on the banks (or a big tech company) doing their own crypto thing that wins the day.
I tend to be less optimistic about bank-based crypto. By definition, the switch to cryptocurrencies to transmit money overseas or replace credit cards are going to cannibalize a lot of sources of fees which currently are major profit centers for existing retail banks.
You've heard the story about how Kodak invented digital cameras in 1975? They didn't do anything with the technology, because they didn't want to cut into the current market for film and photography reagents. By the time they finally did make the jump to digital in the 1990s they were dreadfully behind their competition, and ended up going bankrupt in 2012.
(The Kodak that just managed to spike it's price with random blockchain buzzwords is what was left over after almost all the assets of value were sold off in Chapter 11, and now sells smartphones and tablets using the kodak brandname).
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MMM says no. Warren Buffet says no. Computer says...no.
https://www.cnbc.com/2018/01/10/buffett-says-cyrptocurrencies-will-almost-certainly-end-badly.html
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There's way more potential for killing off Visa and the other payment processing vampires. But again, BTC seems deliberately designed to be useless for that purpose. Eventually someone will get it right but my bet is on the banks (or a big tech company) doing their own crypto thing that wins the day.
I tend to be less optimistic about bank-based crypto. By definition, the switch to cryptocurrencies to transmit money overseas or replace credit cards are going to cannibalize a lot of sources of fees which currently are major profit centers for existing retail banks.
You've heard the story about how Kodak invented digital cameras in 1975? They didn't do anything with the technology, because they didn't want to cut into the current market for film and photography reagents. By the time they finally did make the jump to digital in the 1990s they were dreadfully behind their competition, and ended up going bankrupt in 2012.
(The Kodak that just managed to spike it's price with random blockchain buzzwords is what was left over after almost all the assets of value were sold off in Chapter 11, and now sells smartphones and tablets using the kodak brandname).
Do you have any clear data on on what percentage of retail banking income is comprised of FX fees and credit card non-interest charges? Non-interest income in banks comprises an extremely broad range of options (such as investment charges, for one), and the fees you're describing could actually be a very small part of the total.
It should also be noted that in retail banking, there's a clear correlation between non-interest income and stability: retail banks with substantial non-interest income streams are more resilient to economic shocks.
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Over $100 billion wiped off global cryptocurrency market following talk of South Korea trading ban https://www.cnbc.com/2018/01/11/bitcoin-ripple-ethereum-prices-fall-after-south-korea-trading-ban-talk.html
Uh-oh.
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Over $100 billion wiped off global cryptocurrency market following talk of South Korea trading ban https://www.cnbc.com/2018/01/11/bitcoin-ripple-ethereum-prices-fall-after-south-korea-trading-ban-talk.html
Uh-oh.
"South Korea Is Not Banning Bitcoin Trade, Financial Regulators Clarify"
https://www.forbes.com/sites/pamelaambler/2017/12/12/south-korea-is-not-banning-bitcoin-trade-financial-regulators-clarify/amp/ (https://www.forbes.com/sites/pamelaambler/2017/12/12/south-korea-is-not-banning-bitcoin-trade-financial-regulators-clarify/amp/)
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.
This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?
Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.
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well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
The probable answer in the case of most buyers is that they are (wittingly or unwittingly) hoping for a greater fool to come along who is willing to pay even more.
How do you know this?
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well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
Alot of people that buy into bitcoin or any crypto don't really understand the tech behind it. Perhaps they're mistaken in how they evaluate its value, believing it's scarce currency, believing it will somehow find mainstream use. Whatever the reason, they believe there is some value that will drive demand. Someone will buy it from them at a higher price than they bought it. Or maybe alot of them understand there is no value and shill and hype it for the less sophisticated speculator to dump into.
There are undeniably elements of the greater fool.
How do you know this?
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well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
The probable answer in the case of most buyers is that they are (wittingly or unwittingly) hoping for a greater fool to come along who is willing to pay even more.
How do you know this?
If you have a better explanation for how Bitcoin was worth about three thousand dollars in October, nineteen thousand dollars in mid-December, and thirteen thousand dollars today, I'm all ears. Bitcoin's price moves don't make any sense whatsoever unless you assume they're driven by speculation.
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.
This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?
Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.
Yes I can see how governments might decide to go after cryptocurrencies because they make it easier to do things like circumvent currency controls or anti-money laundering regulations.
I don't see how a currency not issued by a particular government is an attack on a nation's sovereignty.
Clearly a currency issued by nation B isn't an attack on nation A's sovereignty, right? What about the thousands of currencies in the world today issued by non-governmental organizations. Are these an attack on the sovereignty of individual nations? For an example from the ridiculous end of the spectrum, what about Ithaca Hours (https://en.wikipedia.org/wiki/Ithaca_Hours)?
In before the 1860s, banks and private businesses all over the US used to issue their own currencies, which were only backed by the assets of that company. While a piece of paper might say "one dollar" its actual value would fluctuate based on how far away you were from a branch of the issuing bank/corporation which might redeem it, as well as rumors about how well or poorly the issuing company was doing financially (podcast on the subject (https://www.npr.org/sections/money/2012/12/07/166747693/episode-421-the-birth-of-the-dollar-bill)). Obviously, logistically we're way off with a single unified currency where I can withdraw dollars in San Francisco and spend them in Kalamazoo without having to worry about exchange rates. However, I don't think the United States was any less sovereign in the 1850s than today.
(https://upload.wikimedia.org/wikipedia/commons/d/d5/Delaware_Bridge_Company_Dollar.jpg)
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However, I don't think the United States was any less sovereign in the 1850s than today.
In terms of control of the economy, it most certainly was!
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On a philosophical level, though, what is the difference?
The difference is that one is pretending to be a currency that it is not, while the other is trying to be something entirely new. The reason why this is a big difference is because merchant A who accepts US dollar bills has no way to detect a counterfeit US dollar bill that is of extreme high quality like that. So a merchant has no way of protecting itself from the risk of that fake currency which is why Nation B can attack Nation A with a counterfeit currency in such a way.
Bitcoin is not trying to be US dollar bills. Merchants can choose to accept it or not. Since there is no way to counterfeit Bitcoin, if Bitcoin is the only crypto-currency that the Merchant accepts, no additional new crypto-currencies that are created are a threat to the Bitcoin that Merchant A accepts. Likewise, Merchant A's acceptance of Bitcoin in no way threatens the legitimacy of the US dollar bills it receives.
What you're essentially saying is that because a counterfeit Mona Lisa being created is an attack on the original Mona Lisa, then all new art work is also an attack on the original Mona Lisa. ...that doesn't really make sense.
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Yup, I'm with lifeanon on this one. The distinction is between an exchanging goods and services for some unit of exchange, with both ends of the transaction knowing what they are giving up and what they are receiving, and exchanging goods and services for some unit of exchange where one side of the transaction thinks they are getting X in exchange for Y but they actually receive Z in exchange for Y.
L.A.S., no one will ever trick you into thinking you are receiving US dollars, but after they walk out of the store you look more closely and realize they actually handed you a bitcoin.
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The difference is that one is pretending to be a currency that it is not
Even more importantly (insofar as the sovereignty question is concerned), counterfeit money is pretending to be the specific currency that has been sanctioned by the state as its jurisdiction's legal tender (the medium of payment recognized by the legal system as necessarily valid for satisfying financial obligations), the exclusive authority to designate which is an important component of a state's monetary sovereignty (https://en.wikipedia.org/wiki/Monetary_sovereignty).
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I don't see how a currency not issued by a particular government is an attack on a nation's sovereignty. ....
All good points and I think sovereignty was the wrong word to use.
You mentioned that there were lots of currencies in the 19th century. Now they we've moved away from that model, what makes you think governments (especially repressive ones) will be willing to go back?
At this time the primary argument for cryptocurrency I've seen is that you can dodge governments and transact anonymously. However, for mass adoption, crypto would need to become as regulated as fait (if not more so).
So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?
I mean, we've all heard the argument that a way that governments are evil and you'll be glad you have a global currency when your government inevitably collapses but, the source of such declarations are usually less than credible.
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I mean, a way that DOESN'T involve a libertarian screed about how governments are evil and you'll be glad you have a global currency when your government inevitably collapses. We've all heard that line before and while it's fun thought experiment in the US, in China that attitude gets your bitcoin mining operation nationalized while you "commit suicide in prison".
@Gondolin, have I at any point posted anything that resembles a libertarian screed about how governments are evil?
I'd be happy to discuss your other questions if you like, but not if you're going to insult me by ascribing positions to me that I have never asserted.
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Oh no no, not you specifically! You've never said anything like that.
I just meant that I've not seen an answer to the contradiction I mentioned above that didn't involve condemnation of government as a given. When I said, "we've all heard..." I meant generally, people following these discussions have heard that line of argument.
I'm sorry. I'll edit my original post - I was thinking to myself while typing and can see that I was not being coherent.
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Oh gotcha, thanks for the clarification Gondolin! I to try to maintain a rational discussion, so it was quite upsetting to think I might be coming across like that.
You mentioned that there were lots of currencies in the 19th century. Now they we've moved away from that model, what makes you think governments (especially repressive ones) will be willing to go back?
I think most governments would prefer all transactions occur in currencies they issue. The question is how much work is it to prevent people from using other media of exchange vs how big is the benefit from doing so. At one extreme, I'm sure the IRS would prefer that people refrain from barter, and technically I believe you're supposed to report barter income on your taxes. But the amount of repression it would take to track and/or eliminate every last barter transaction in the country is a lot more work (and would use up a lot more political capital) than the benefits to the government of doing so.
Similarly, while there are things governments can do to discourage people from using cryptocurrencies, at this point I think it would be difficult to eliminate their use entirely, particularly in ineffective repressive regimes like Venezuela.
At this time the primary argument for cryptocurrency I've seen is that you can dodge governments and transact anonymously. However, for mass adoption, crypto would need to become as regulated as fait (if not more so).
The other primary argument is that you can dodge using credit card processors or paypal when paying people when you're not in the same room as them. Until recently that meant saving money (and it may again if some of the 2nd or 3rd iteration cryptocurrencies live up to their current promises, but we'll have to wait and see). It also means not being constrained for legal transactions where it is difficult to secure the business of a payment processor (either because of terms of use which are more stringent than "nothing illegal") or because you're in a business with high levels of chargeback fraud (which is a quick way to get blacklisted from credit card processors).
So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?
Well it depends on whether you're excited about the potential of cryptocurrency to replace gold -- I'm not, but then I wasn't excited about gold itself either -- to to replace credit card payment processors.
For me, the exciting part of cryptocurrencies isn't their use as a store of value -- maybe that'll come someday if actual payment volumes go up enough for volatility to go down -- but as a medium of exchange that lets me pay someone anywhere in the world without us having to rely on a mutually trusted 3rd party, who will take a significant cut of our transaction, may take several days to give the money to that other person after I give it to them, and can always decide that they don't approve of why I'm sending a payment, even if the reason for that payment is completely legal.
None of the above is an argument to buy cryptocurrencies as an investment.
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Wow so much selling off today. Ripple down 40%!!! God can you imagine if that was a stock that you owned?!?!
Or the $100 bill in your pocket was now worth $60 today?
This is madness. I don't care about the technology, or the fact that it could bounce back tomorrow. This is insane. Anything related to money should not be this volatile unless there are real economic meltdowns going down.
Anyone who might have *sold* something yesterday and was paid in Ripple, has to be like WTF. Then again, not a lot you can buy with Ripple anyway.
I cannot understand how supporters of this nonsense can still think these are worthwhile investments or alternatives to $$$. Unless you are in Venezuela or North Korea.
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.
This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?
Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.
Unlikely. Here's why: By law, in the US taxes AND wages must be paid in USD.
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.
This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?
Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.
Unlikely. Here's why: By law, in the US taxes AND wages must be paid in USD.
I'm not saying you're wrong. Just posting a related article.
https://www.coindesk.com/arizona-lawmakers-want-let-people-pay-taxes-bitcoin/
According to the text, the measure would allow for the use of "a payment gateway, such as bitcoin or other cryptocurrency, using peer-to-peer systems" in order to pay "tax and any interest and penalties" owed to the state government.
The bill goes on to state:
"The Department [of Revenue] shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer's account with the converted dollar amount."
Whether the measure gains traction in the Arizona legislature remains to be seen. A similar effort was undertaken in New Hampshire in 2016, but concerns expressed by some state lawmakers – primarily around bitcoin's volatile price – ultimately led to the bill being scuttled.
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The whole crypo narrative and valuation is built on BTC putting a meaninful dent in fiat.
This is the crux of the issue for me. How is the creation of a non-government backed currency not a fundamental attack on the very definition of a nation state? Governments have been trying to regulate the economy and tax transaction since the first coins were minted. Is there any chance that the powerful governments of the world just shrug their shoulders at the loss of such a core part of their sovereignty?
Currently the technology is ahead of the law but, as soon as the wished-for adoption of any crypto starts to happen, that crypto will be globally criminalized in an instant.
Unlikely. Here's why: By law, in the US taxes AND wages must be paid in USD.
I'm not saying your wrong. Just posting a related article.
https://www.coindesk.com/arizona-lawmakers-want-let-people-pay-taxes-bitcoin/
According to the text, the measure would allow for the use of "a payment gateway, such as bitcoin or other cryptocurrency, using peer-to-peer systems" in order to pay "tax and any interest and penalties" owed to the state government.
The bill goes on to state:
"The Department [of Revenue] shall convert cryptocurrency payments to United States dollars at the prevailing rate within twenty-four hours after receipt and shall credit the taxpayer's account with the converted dollar amount."
Whether the measure gains traction in the Arizona legislature remains to be seen. A similar effort was undertaken in New Hampshire in 2016, but concerns expressed by some state lawmakers – primarily around bitcoin's volatile price – ultimately led to the bill being scuttled.
It's worth noting this is for Arizona state taxes. There may be different regulations for federal taxes.
But still, very interesting!
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I don't see how a currency not issued by a particular government is an attack on a nation's sovereignty. ....
All good points and I think sovereignty was the wrong word to use.
You mentioned that there were lots of currencies in the 19th century. Now they we've moved away from that model, what makes you think governments (especially repressive ones) will be willing to go back?
At this time the primary argument for cryptocurrency I've seen is that you can dodge governments and transact anonymously. However, for mass adoption, crypto would need to become as regulated as fait (if not more so).
governments may not "enjoy" having currencies they don't control, but there's nothing they can do aside from making those currencies illegal and going after the participants. but that hasn't stopped the pirate bay or drugs or human trafficking or whatever else. governments don't have ultimate control and many governments are corrupt and perhaps even profit from enabling all kinds of "illegal" activities -- cryptocurrencies would be no different.
So crypto is the future because it's not like fait but, to be widely adopted, it has to become like fait, which removes the impetus for its adoption. Is there a way out of this contradiction?
I mean, we've all heard the argument that a way that governments are evil and you'll be glad you have a global currency when your government inevitably collapses but, the source of such declarations are usually less than credible.
if a government of a country (Japan may be closest currently, or perhaps North Korea or Venezuela or somewhere) does allow bitcoin to be used as a national currency, i don't think that would make bitcoin "like fiat" in any way. the "rules" governing the currency itself would still be set by the consensus of the global bitcoin community, not by that government. i don't see a contradiction there.
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I've seen variations on both on this form and elsewhere of an argument that can be summarised as "even if crypto is in a bubble right now, putting my money in a crypto index means I'll hold the winning currency when it all shakes out, and my profits will easily cover my losses on the others".
I happen to think this is a very poor argument already, because there's no guarantee that any rise will follow on from a crash, no matter how many times people compare the current situation to 1999 dot-com valuations. But that comparison has me thinking: if you had followed a broadly similar approach in 1999, assuming the winners would cover the losers, would you have done well?
In a word: no. In two words: fuck no. Going back in time and investing in a basket of dot-com stocks would be a catastrophic money bonfire for years to come.
Let's leave off the losers entirely: the likes of boo.com, which simply burned down. Let's assume our internet index investor was lucky enough only to invest in companies which still exist.
Their stake in AOL Time Warner has never recovered from the crash: it remains well below its peak price. Every dollar put into it is about a 35 cent drag on the rest of the portfolio.
Their Microsoft stake was conservative, and passed its 2000-peak valuation in...late 2016. Factor in inflation, and it's joining AOL in the "bust" column.
Our investor's stake in Amazon and Apple was smart, but looked pretty dumb until 2005 for Apple and 2009 for Amazon, when each stock finally returned to its 2000 peak (again, not factoring in inflation).
Google did not go public for several more years, and Facebook wouldn't exist for several years yet.
Investing in an index of cryptocurrencies, based on the example of the dot-com crash, therefore appears to be an idea without any real-world backing, and indeed circumstantial evidence that it may be an objectively bad idea. I think it's because, for FIRE advocates, the idea that "the index recovers speedily" is so heavily ingrained. That only appears to hold true for the index as a whole: there's no reason an index focused on a subset of the market can't suffer for an extended period.
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well some is buying them for $14k. But I'm equally curious why anyone would pay $2k for them..
Alot of people that buy into bitcoin or any crypto don't really understand the tech behind it. Perhaps they're mistaken in how they evaluate its value, believing it's scarce currency, believing it will somehow find mainstream use. Whatever the reason, they believe there is some value that will drive demand. Someone will buy it from them at a higher price than they bought it. Or maybe alot of them understand there is no value and shill and hype it for the less sophisticated speculator to dump into.
There are undeniably elements of the greater fool.
How do you know this?
Empirically seeing alot of forum comments, outside of mmm forums. Noncyber discussions with others where they believe bitcoin has a very high probability of being a global currency for the masses (this belief was as recent as two months ago). "It has brand name recognition. I'll get in now while everyone is doing it, and then sell when I double or triple, etc".
Many don't understand how wallets and addresses work. Many don't fully grasp the tech. Mark Cuban himself saying people should get in on it with no more than 10% of your financial worth, but offered no reason why it will continue to go up other than "something is worth what someone else is willing to pay for it" (https://youtu.be/vYdrMXkYQfM?t=62).
The point I hoped to elicit is what is your informational advantage with respect to bitcoin that the market doesn't know and hasn't priced in?
Do you know how many people bought Ford today and for what reasons? Do you know which stocks in the 3,606 companies in VTSAX have gone up more than 50% in the last year? Do you care? Are you basing your investments decisions whatsoever on that information, or the lack thereof?
When a cabbie tells you he saw that the stock market went up and might invest, do you sell?
It's interesting how very, very little we know about our investments in index funds, and yet (if we're smart) we don't question them because we have confidence in an efficient market, at least over the long term.
Yet we see something like bitcoin and we're sure it has to be a bubble because . . . why?
We know something that nobody else does?
We see something that is absolutely clear but the $224 billion market for bitcoin hasn't figured out how to price in?
We saw a post by someone in a forum who claimed to like bitcoin but didn't really understand it, and we conclude that poster could skew the entire market? How many people do we think are completely uneducated and betting money large enough to skew a $224 billion market? What is the data based on? How many forum posts do we have to see to conclude that a significant number of investors investing enough money to matter must be making idiotic decisions just hoping for other suckers?
Stock prices are a gamble on the uncertainty associated with the future projected earnings or value of a company. Generally, the companies that we're familiar with don't move by large amounts because their markets are well understood and there is a track record of data. When Coca Cola has a good quarter, its price may increase by a few percent. A company like Apple can increase significantly over a 10-year period based on a couple of big plays that turn out to be incredibly successful. The stock price is not a reward for that behavior. Rather, it's a prediction about how much Coca Cola or Apple will earn or be worth going forward.
Bitcoin is harder because its much more difficult to assess the potential success, and difficult to assess the worth if it explodes. There might be a 99% chance that bitcoin goes to zero, and 1% chance that it becomes worth gazillions. We might intuitively want to treat 99% as the same as 100% and conclude therefore that bitcoin is worthless, but a $224 billion market right now is betting differently. While markets can certainly be inefficient in the short-term, the real question is what is our special ability--our informational advantage--to know that it's an inefficient market.
I have no idea whether bitcoin will be a success or what it could be worth. But I also realize that I don't have information better than the market, and therefore--like Warren Buffett--I would never short it, or conclude that it must be worthless based on something I believe I know that a market of that size doesn't.
I've seen variations on both on this form and elsewhere of an argument that can be summarised as "even if crypto is in a bubble right now, putting my money in a crypto index means I'll hold the winning currency when it all shakes out, and my profits will easily cover my losses on the others".
I happen to think this is a very poor argument already, because there's no guarantee that any rise will follow on from a crash, no matter how many times people compare the current situation to 1999 dot-com valuations. But that comparison has me thinking: if you had followed a broadly similar approach in 1999, assuming the winners would cover the losers, would you have done well?
In a word: no. In two words: fuck no. Going back in time and investing in a basket of dot-com stocks would be a catastrophic money bonfire for years to come.
This is a tempting argument, but it follows a typical behavioral economics error--the belief that a person would have seen patterns at the time once he/she knows the pattern after the fact.
Bubbles always seem "clear" after the fact. Of course the dot com bubble seems ridiculous now. But a trillion dollars or more at the time disagreed with that assessment. In retrospect it was wrong, but that was not the best estimate at the time. Everyone can see now that the housing market was absurd in 2007 before prices plummeted, yet that was not the perception in 2007 (at least any more than it was in 2000 when prices were already on their way up), and interestingly, I think housing prices in most major markets are already back and past those "absurd" prices again now.
It is entirely possible that bitcoin is going to be worthless. Indeed, it might be the most likely outcome. But given the amount of money that has been invested in that market, I'm skeptical of any individual's claim that it is "obvious" to them that bitcoin is worthless for reasons that a $224 billion market couldn't figure out. I'm also skeptical of claims that it must be because of a bunch of uninformed people investing, because really, how many people investing in index funds understand the fundamentals of Ford's business, much less the fundamentals of the 3,605 other companies in VTSAX.
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Yet we see something like bitcoin and we're sure it has to be a bubble because . . . why?
We know something that nobody else does?
We see something that is absolutely clear but the $224 billion market for bitcoin hasn't figured out how to price in?
Again, as maizemain pointed out, the efficiency of a market itself tells you nothing about the suitability of the underlying asset as an investment. And bitcoin has no intrinsic value, so the bitcoin market can be efficient in the sense that it quickly incorporates all available material information about itself into itself (which does not imply that the price established by the market reflects any sort of intrinsic value (which, again, doesn't exist in the case of bitcoin)). Like the stock market, the bitcoin market can be thought of as a Keynesian beauty contest (https://en.wikipedia.org/wiki/Keynesian_beauty_contest) in which traders are setting prices not necessarily based on what they believe the inherent value to be, but based on what they believe everyone else believes the inherent value to be, or even based on what they believe everyone else believes everyone else to believe the inherent asset value to be, and so on (ad infinitum, if you wish), which can explain the rise of bubbles without resorting to any challenge to the efficiency of the market. The material information being incorporated into the market includes the very fact that a mania around the market appears to have developed, creating a self-reinforcing feedback loop that drives the market price higher and higher.
In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term. In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.
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In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term. In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.
But see gold. It doesn't have an intrinsic value and nobody is holding it to do stuff with (for the most part), yet it has a market for it that is highly developed and efficient. Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.
The error is in thinking that because of the extent of the uncertainty about bitcoin's ultimate price, that it must therefore necessarily be a bubble. It could be, in the same way that many companies that start off hot may ultimately crash. The bet is on the potential price, and even if there's one chance in a hundred that it's worth gazillions, that bet can be worth it. That doesn't mean that bitcoin is necessarily a good investment. But it does mean that bitcoin may not be worthless, and enough money is being put in to consider that possibility.
Here's an easy example. If I charged you a penny for a 1-in-100 chance of winning $2, you would and should play that game as long as I let you (assuming it doesn't take you any time!), even though 99 times out of 100 you'll lose. The bitcoin market--like any market--is trying to figure out both the likelihood of success and the value if it hits. Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.
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Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.
If they are purchasing gold with the hope/expectation that its market price will increase, that's exactly what they're doing. See any of Warren Buffett's writings on the subject for excellent discussion of exactly this point.
Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.
I didn't say bitcoin is worthless. Nothing that has a market of ready and willing buyers can ever be worthless, because it will always be worth at least as much as what a ready and willing buyer will pay for it. But bitcoin has no intrinsic value. Maybe tomorrow buyers will stand ready and willing to purchase bitcoins for 200% of today's market price, or maybe 0%. Because there's no intrinsic value, your return is entirely dependent on what other people are willing to pay in the future. Same story with MMM's fingernail clippings. That's speculation, not investment.
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Gold buyers are not all betting that a greater sucker will come along some day, but rather that because gold has been used as a basis for trade in the past and can be so used today and in the future (although nobody has to), that it's worth holding.
If they are purchasing gold with the hope/expectation that its market price will increase, that's exactly what they're doing. See any of Warren Buffett's writings on the subject for excellent discussion of exactly this point.
Those factors are incredibly uncertain, and the price movements reflect that, but that's different from saying that it's worthless.
I didn't say bitcoin is worthless. Nothing that has a market of ready and willing buyers can ever be worthless, because it will always be worth at least as much as what a ready and willing buyer will pay for it. But bitcoin has no intrinsic value. Maybe tomorrow buyers will stand ready and willing to purchase bitcoins for 200% of today's market price, or maybe 0%. Because there's no intrinsic value, your return is entirely dependent on what other people are willing to pay in the future. Same story with MMM's fingernail clippings. That's speculation, not investment.
I understand the point you're trying to make, but it all feels a little circular.
I'm buying index funds in large part with the hope that I'll be able to sell those funds to someone later at a higher price. Sure, they pay me a dividend along the way, but I'm not buying them for their dividend payments.
What about the 80 companies in the S&P 500 that don't pay dividends? Why am I buying them? They don't pay me anything, and they're not about to go into forced liquidation, so why do I buy them? Because I'm hoping the price will go up in the future.
The problem with the term speculation is that it's ambiguous as used. We typically think of it as taking a flyer on something that is risky, but technically, it applies to the purchase of almost every investment where you're buying with the hope that the price will increase in the future. Indeed, here's the applicable OED definition for what it's worth:
Speculation -- "Investment in stocks, property, etc. in the hope of gain but with the risk of loss."
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What about the 80 companies in the S&P 500 that don't pay dividends? Why am I buying them? They don't pay me anything, and they're not about to go into forced liquidation, so why do I buy them? Because I'm hoping the price will go up in the future.
They are productive assets. Even in the total absence of any ability to ever sell them, they will produce value for you (by generating profits that could ultimately be paid out as dividends, whether or not those companies are currently choosing to pay out dividends). Their ability to generate profits in the future is being taking into account by the market in setting the price at which you could sell your ownership stake into the market today, but there is no need to ever sell them in order to realize value from them. So, unlike assets without intrinsic value, they are not being priced solely on the basis of expectations about what others are or will be willing to pay for them; they have actual intrinsic, fundamental value (which gets factored into the price that others are willing to pay for them).
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Cycling Stache: my point wasn't based on recognition that the dot-com bubble was a bubble. What I was pointing out was that a rationale I've seen a number of times from crypto indexers - that even if the market is in a bubble, buying coins across the board will leave you holding the eventual winners and turning a good profit - isn't supported by the evidence, and in fact is strongly contradicted by the evidence of the 2008 collapse. Even if someone had correctly called the bubble in 2000, indexing dot-com stocks would not have been a good plan.
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But see gold.
I think gold is a GREAT example, but for the opposite reason that you do.
Gold used to be money. It was physically mined and then used as an anonymous medium of exchange. Prices were mostly stable as long as it was ubiquitous, but hoarding sometimes caused deflation (think kingdoms with every cent stored in the castle vault, leaving the citizens destitute).
The global economy abandoned gold for a reason. There wasn't enough of it to be a useful medium of exchange. Libertarians who pine for the days of the gold standard because they oppose the entire concept of fiat currency have an unsurprisingly large amount of overlap with libertarians who pine for a future ruled by bitcoin because they oppose the concept of fiat currency. Both groups misunderstands how money works in our economy. Both groups can prop up an otherwise inadequate asset by selling it back and forth to each other, and convincing new buyers to play along. Bitcoin enthusiasts are just modern day gold bugs.
Gold still has industrial uses, and some companies are absolutely dependent on buying and consuming a steady supply. They do not set the price, though, because of all the speculators. I imagine that in the future we may discover new industries that are dependent on blockchain (not bitcoin), and which buy and consume a steady supply. Just like with gold, the value of the asset to them is unlikely to be related to the market price set by speculators.
The price of bitcoin and the price of gold are both controlled primary by media coverage, not utility. The price is denominated in dollars, which are money, because gold/bitcoin is not money.
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I love the increasingly obscure justifications why BTC et al is useful. But no good explanation why it useful to the rest of us 99.99% of people.
You know that huge fee you pay when you buy a house... I think they call it escrow... Something like ETH can change that expense from 100's (or thousands) of dollars down to pennies. This is just one use case, and there are many like this.
What about the massive fee's charged to move money between countries? I work with a lot of foreigners that send a lot of money home, they are saving a ton of money not paying those fees.
Have you tried to move large sums of money around in our banking system? Just the other day I deposited my normal paycheck for a side hustle and the bank said they had to put a 10 day hold on it before it clears because it's a large amount. I do not have this problem with crytpo to crypto exchanges, there is no banks forcing me to wait.
There has never been before a way to share a piece of data that can be only in one place at a time. In time you will be able to secure your private data and other communication so companies cannot share it like equifax just did. Even if you do not know it yet, you will be using this technology all the time in your daily life.
Massive fees moving money between countries? It's $4.99 with XOOM to send money to most countries, and most of the exceptions to that rule still cost less than $10.00. Bitcoin transactions on average costs $28 right now.
Your problem at the bank is because you were using a check. You are comparing 1900 technology to 2017 technology and surprised it doesn't work as well. My direct deposit is available same day. I can move tens or hundreds of thousands of dollars between accounts for free if I can wait 2-3 days, or for $15 same day. Bitcoin would be $28... again, not helpful.
Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.
Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.
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In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term. In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.
i agree with Cycling Stache. the difference between the stock market and say the bitcoin market is just the long history of the stock market. that's it.
the stock market has apparently not run out of "greater fools". the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation. you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day. the stock market is not converging on the book value of your stocks.
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Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.
blockchains are useless without a built-in valuable token to incentivize participation. you can't have a valuable blockchain without a valuable token, and you can't have a valuable token without a valuable blockchain.
Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.
bitcoin stands on its own. it's a self-contained secure system. no one needs to justify its existence, it just exists. no one needs to justify the market price of bitcoin either. if you personally think the market price is too high, don't buy any.
there are literally billions of people around the world without access to modern banking or non-corrupt fiat currencies. is bitcoin the solution? maybe, maybe not.
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Massive fees moving money between countries? It's $4.99 with XOOM to send money to most countries, and most of the exceptions to that rule still cost less than $10.00. Bitcoin transactions on average costs $28 right now.
Your problem at the bank is because you were using a check. You are comparing 1900 technology to 2017 technology and surprised it doesn't work as well. My direct deposit is available same day. I can move tens or hundreds of thousands of dollars between accounts for free if I can wait 2-3 days, or for $15 same day. Bitcoin would be $28... again, not helpful.
Sharing information= that's blockchain. Not bitcoin. Most people agree that blockchain will have uses. That doesn't mean squat for bitcoin.
Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.
I just want to dispute the idea that fees are $28 for a transaction on the Bitcoin network at the moment. That's just a myth that is often spewed by media when talking about the fees with Bitcoin. The truth is that 140 satoshis/byte transactions are routinely confirmed everyday. Furthermore, transactions with a fee of about 200 satoshis/byte will generally get you confirmed within an hour or two. If you're using a SegWit wallet, your typical transaction (1 input>2 outputs) will be about 166 bytes in size. That means that for a transaction with a fee rate of 140 s/byte, it will cost you about ~$3.25 depending the price of BTC at the time. If your transaction is slightly higher priority, you can bump your fee rate up to 200-300 s/byte and have it confirmed within an hour and that will cost you about ~$5.80. You can do this at any time of day, any day of the week, which isn't something your traditional bank will be able to accomodate.
This is why averages don't mean anything because many people are way overpaying their fees when sending their transactions to be included in a block. That's like going to a bank and having the bank teller ask you what fee you'd like to pay and the teller tells you can pay as little as $3.25, but everyone else is paying $20 on average...what fee do you think you'll choose to pay? The average doesn't mean anything, what does matter is the minimum fee you can personally get away with and still have a transaction confirmed.
For current fee rates that are being confirmed, you can use these charts:
https://dedi.jochen-hoenicke.de/queue/#24h (https://dedi.jochen-hoenicke.de/queue/#24h)
http://bitcoinfees.earn.com/ (http://bitcoinfees.earn.com/)
As far as additional use cases with Bitcoin go, The Republic of Georgia and Sweden are currently using the Bitcoin blockchain to register public land titles and make them publicly verifiable. There is a very high level of trust in the Bitcoin network which is why these countries are able to do this and why this use case isn't found being actively pursued on other blockchains. We'll begin to see more and more use cases like this as time goes as due to the fact that the Bitcoin network itself has established itself as an extremely trustworthy network that is very anti-fragile. Add in the fact that second layers are actively being developed and deployed on the network and you'll see some real innovation begin to take place.
This is something that traditional centralized institution simply can't compete against and it is the focal point for the benefit that the Bitcoin blockchain will provide society; an immutable and publicly verifiable ledger that can extend to many use cases. Time is on Bitcoin's side. The longer it exists and continues to function securely, the more the public's trust in it grows. Any new crypto-currency that is invented from here on out will need to compete against a growing public trust in a network that has long stood against time and all its obstacles. This is why an open decentralized internet won out against centrally controlled corporate intranets. So no, I don't think Bitcoin is trying to solve problems that don't exist. I think there is a void in our society that can be filled with decentralized solutions that Bitcoin is prepared to fill.
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i agree with Cycling Stache. the difference between the stock market and say the bitcoin market is just the long history of the stock market. that's it.
So you disagree with the distinction that stocks, unlike bitcoins, have an intrinsic value apart from the price that others are willing to pay for them? Apparently not, based on the next paragraph of your post (which seems to concede that stocks do have a fundamental value apart from their market price, but questions whether, in practice, their market price generally reflects that fundamental value):
the stock market has apparently not run out of "greater fools". the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation. you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day. the stock market is not converging on the book value of your stocks.
For most publicly traded companies book value is a poor yardstick for measuring fundamental value, because balance-sheet-based book value does not necessarily reflect ability to generate profits (or even the actual value that would be realized in an immediate liquidation of the company, given that asset value on the balance sheet is generally locked in at cost (as adjusted for paper depreciation and the like) without being marked-to-market to reflect real-world appreciation).
But that’s all beside the real point, which is simply that stocks do have fundamental/intrinsic value, while bitcoin does not.
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In the case of assets that do have intrinsic value (and that are traded in efficient markets) (like stocks), in the long-run, the market runs out of greater fools (and investors who believe in the existence of greater fools), so the "weighing machine" that is the market in the long-term corrects the overvaluation created by the "voting machine" that is the market in the short-term. In the case of assets that do not have any intrinsic value (like bitcoins, or MMM's fingernail clippings), there is no fundamental value that the market can converge towards in the long-run, and purchasing those assets in the hope that their market value will rise in the future is not investment but speculation.
In the case of cryptocurrencies, I would argue that the value the market will converge upon for a given cryptocurrency once the speculation runs its course is likely dictated by the money supply equation M*V = T where M is the size of the money supply, V is the velocity of money and T is the number of real economic transactions conducted using the currency per unit time (using the same time units for T and V so they cancel out).
We can expand the equation since M = (U * P) where U is the number of units of the currency, and P is the price per unit of currency and get U * P * V = T, and then solve for P: P = T/(U*V).
For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.
The problem, of course, is that different people have very different ideas about that the distribution of potential outcomes for T is, and that no one really knows what an appropriate assumption is for a cryptocurrency's velocity of money.
FWIW, the best estimates I've seen today using the variables in this equation put the price of bitcoin justified by the amount of activity conducted using the currency in the dozens to hundreds of dollars per bitcoin (and that was before transaction fees spiked and major merchants started either dropping bitcoin support or switching to other cryptocurrencies), implying the vast majority of the USD price of bitcoin at the moment is driven by either informed speculation that there is a small chance T will increase by a fair number of orders of magnitude in the future or uninformed speculation that things which have gone up in price will continue to go up in price.
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i agree with Cycling Stache. the difference between the stock market and say the bitcoin market is just the long history of the stock market. that's it.
So you disagree with the distinction that stocks, unlike bitcoins, have an intrinsic value apart from the price that others are willing to pay for them? Apparently not, based on the next paragraph of your post (which seems to concede that stocks do have a fundamental value apart from their market price, but questions whether, in practice, their market price generally reflects that fundamental value):
the stock market has apparently not run out of "greater fools". the average stock is priced 3x its book value, meaning 2/3 of the market price of your stocks is pure speculation. you are absolutely hoping a "greater fool" comes along to buy your shares of stock/VTSAX/whatever some day. the stock market is not converging on the book value of your stocks.
For most publicly traded companies book value is a poor yardstick for measuring fundamental value, because balance-sheet-based book value does not necessarily reflect ability to generate profits (or even the actual value that would be realized in an immediate liquidation of the company, given that asset value on the balance sheet is generally locked in at cost (as adjusted for paper depreciation and the like) without being marked-to-market to reflect real-world appreciation).
But that’s all beside the real point, which is simply that stocks do have fundamental/intrinsic value, while bitcoin does not.
i agree that stocks do have a fundamental value and bitcoins do not.
the "intrinsic value" of your stocks is, the book value, is on average 1/3 the price of a share. it's a slice of the company's net value (assets-debt). the "ability to generate future profits" is speculation -- an educated guess.
my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.
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my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.
You've misunderstood how stocks are priced. You're not buying the book value, you're buying a share of future earnings. You're buying passive income from ongoing corporate profits, not a share of the company's assets.
If the future earnings are expected go up, the stock price goes up regardless of book value. The book value is merely the backstop, the absolutely minimum future value you can expect if the company is never profitable again and just has to liquidate all of its holdings. If the price ever falls all the way down to the book value, that means the company is having a fire sale and is doomed to immediate failure. So the difference between market cap and book value is not due to speculation that a greater fool will come along to buy your share, it's due to how much you are willing to pay today in order to get paid back quarterly in the future.
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sol and phil22,
I think that you are both right, and both wrong. A stock's value is primary speculative, in that you are betting that the company is going to do better in the future than it is today. If you buy BP the day before the deepwater horizon disaster, you were speculating that the deepwater horizon disaster would not occur. Similarly, if you buy a broad based US mutual fund you are speculating that tomorrow the US won't hamstring itself while some other country such as Japan or Germany does really well. Likewise, there is speculation built into all stock values that the world economy is going to keep growing (which actually, with worst case global warming may not be the case 80 yeas from now).
However, while you are speculating on future returns, business decisions, and the global economy, you are not betting that a greater fool will come around and save you from your purchase.
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sol and phil22,
A stock's value is primary speculative, in that you are betting that the company is going to do better in the future than it is today.
Not necessarily true. If you're long, you're just betting that your more bullish (or less bearish) analysis of the company is more correct than the broader market's less bullish (or more bearish) analysis. But the broader market is also forward looking, so you taking a long position may or may not be a bet that the company is going to do better in the future than it is today - that's almost irrelevant.
Sol mostly has it right, except that lots of companies have traded below book without being doomed to immediate failure. Some of the largest banks, even those that had already clearly stabilized post-crisis, for example. The market valued these banks below their book value because it didn't believe that their reported book value was accurate (i.e., assets were not properly marked to market). BAC, for example, just crossed a P/BV ratio of 1.00 last August after spending most of the previous decade below that.
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(http://goo.gl/gqqjFD) No it not to late
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Bitcoin is trying to solve problems that don't exist. Let me rephrase... people are trying to justify Bitcoin's existence by making up problems that it could hypothetically solve if those problems existed. You can transfer money electronically really easily. That isn't a problem that needs to be solved. Bitcoin let's you do it with a numbered account which is great for illegal transactions, but other crypto currencies are doing that better now.
bitcoin stands on its own. it's a self-contained secure system. no one needs to justify its existence, it just exists. no one needs to justify the market price of bitcoin either. if you personally think the market price is too high, don't buy any.
Oh, I won't by buying any. For it to have a value it has to actually do something, preferably something legal. The post I replied to was someone stating several uses for bitcoin. I merely pointed out that our current means of transferring money electronically worked better in every case.
On the topic of intrinsic value and stocks. Yes, part of a stock's price is speculative(what you think will happen in the future), and part is intrinsic(what is it worth based on information today). There are a few means of calculating this, the oldest probably being the dividend discount model. Intrinsic value really comes up with stock options. Their intrinsic value is known. On the day the option expires the value of the option = it's intrinsic value. If the market value is different from the intrinsic value leading up to the expiration date we call that difference the time value(the speculative piece). High quality bonds also have an easy to measure intrinsic value.
Whether most of a stock's value is speculative is debatable. If you look at stable stocks paying high dividends, utilities will be a good example, they are likely primarily intrinsic value. On the other end of the spectrum, stocks for tech companies who don't pay dividends are likely primarily speculative.
What we can agree on is that stocks have an intrinsic value. The market price doesn't equal the intrinsic value, but they are related.
A consequence of bubbles is that the market value becomes unhinged from the intrinsic value. Tech stocks were not worth their market prices back in 1999. Most of those companies had an intrinsic value near zero. Bitcoin, from what I can see, has an intrinsic value of $0. The market value of bitcoin is therefore 100% speculation.
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FWIW, the best estimates I've seen today using the variables in this equation put the price of bitcoin justified by the amount of activity conducted using the currency in the dozens to hundreds of dollars per bitcoin (and that was before transaction fees spiked and major merchants started either dropping bitcoin support or switching to other cryptocurrencies), implying the vast majority of the USD price of bitcoin at the moment is driven by either informed speculation that there is a small chance T will increase by a fair number of orders of magnitude in the future or uninformed speculation that things which have gone up in price will continue to go up in price.
It's too bad nobody was interested in this post, Maizeman, because it's really the same way I've been thinking about it - if the currency has to handle the needs of being used as such, how much do you need, and how much does it need to be worth?
The problem, as you pointed out, is that some of the inputs are pretty much hand-waving guesses at this point.
-W
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It's too bad nobody was interested in this post, Maizeman
I wouldn’t interpret the lack of response as a lack of interest. I, for one, was very interested in that post because I found it, like almost all of maizeman’s content, very interesting, but I didn’t respond to it because I had nothing relevant to add.
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It's too bad nobody was interested in this post, Maizeman
I wouldn’t interpret the lack of response as a lack of interest. I, for one, was very interested in that post because I found it, like almost all of maizeman’s content, very interesting, but I didn’t respond to it because I had nothing relevant to add.
Same.
I'll third that - most interesting post in this thread, IMO.
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Well, I thought *someone* would respond to the "bitcoin's value less speculation is in the dozens of dollars" bit!
-W
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Well, I thought *someone* would respond to the "bitcoin's value less speculation is in the dozens of dollars" bit!
-W
What's to say? It's as reasonable of a valuation as any other, at this point. At least it was predicated on some attempt to find a real answer, unlike most of the promo media pieces that are pushing for BTC 100k by the end of the year. Those folks don't even pretend to have reasons.
If crypto currencies are ever going to be a viable mechanism for exchanging money between countries without banks (which seems to be the primary if not the only use case people are talking about), then the actual cost of one unit of currency won't really matter. You trade dollars in the US into dogecoins into dollars in Thailand, and all that matters is that you get the same number of dollars out that you put in. The individual bitcoins could be worth a penny each, and all it would mean is that there was a theoretical maximum dollar amount that could be transferred at once this way. The value of one bitcoin seems irrelevant in this case. Liquidity matters way more than price, if it's going to get used in this way.
Maizeman's attempt to value one bitcoin based on the number of transactions and the money supply suggests that bitcoins are stupidly overpriced atm. Does this really surprise anyone? With all of the media hype, the youtube fanboys, the celebrity promoters, and the lure of get-rich-quick schemes in an unregulated modern day penny stock market? Of COURSE it's overvalued. That's the whole point of scooping up ignorant retail investors to buy buy buy.
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This is the funniest thing I've read all day: https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html
Headline: Everyone Is Getting Hilariously Rich and You’re Not
I'm laughing my ass off, but my wife is furious. There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each. They think they're changing the world order. They are obsessively paranoid. Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me.
I am SO looking forward to watching this all play out.
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This is the funniest thing I've read all day: https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html
Headline: Everyone Is Getting Hilariously Rich and You’re Not
I'm laughing my ass off, but my wife is furious. There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each. They think they're changing the world order. They are obsessively paranoid. Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me.
I am SO looking forward to watching this all play out.
"Data suggests that 94% of bitcoin wealth is held by men".
SJWs have been too busy bashing Trump and trying to censor social networks and completely missed this horrible example of cis white (actually mostly Asian) man privilege. Get to work, people! This can't continue.
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This is the funniest thing I've read all day: https://www.nytimes.com/2018/01/13/style/bitcoin-millionaires.html
Headline: Everyone Is Getting Hilariously Rich and You’re Not
I'm laughing my ass off, but my wife is furious. There are apparently a few hundred 20-something bro-chatchos out there, mostly with modest trust funds from their parents and addictions to 4chan, who have invested tens or hundreds of thousands of dollars in various cryptocurrencies and are now "worth" hundreds of millions of dollars each. They think they're changing the world order. They are obsessively paranoid. Some of them recognize they are running criminal enterprises, but most of them just seem blissfully naive to me.
I am SO looking forward to watching this all play out.
"Data suggests that 94% of bitcoin wealth is held by men".
SJWs have been too busy bashing Trump and trying to censor social networks and completely missed this horrible example of cis white (actually mostly Asian) man privilege. Get to work, people! This can't continue.
I don't think you're right.
It doesn't take much work at all to bash Trump, he does most of the job for you. You can just repeat things that he says, does, or posts on twitter and . . . bashing complete.
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For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.
would you count bitcoins in cold storage as part of the "number of units" or not? i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with. as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:
http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/
i believe based on your equation if you for example halve the value of U then you'd double the value of P.
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For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.
would you count bitcoins in cold storage as part of the "number of units" or not? i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with. as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:
http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/
i believe based on your equation if you for example halve the value of U then you'd double the value of P.
This is a good question. It turns out the answer doesn't matter as long as you use the same answer consistently for estimating all the variables in the equation, but if you don't realize you need to pick one answer and stick with it, you can certainly get yourself into trouble.
Consider a currency with 10 units, 5 in "cold storage" and 5 which are used for 1 transaction each week. If in one week $100,000 of business needs to be conducted, I can either consider all the coins together, which doubles the size of U, but also halves the size of V (velocity of money) since I'm averaging five active coins with five coins which weren't spent at all during the period in question, or I can subtract out the cold storage coins, which cuts U in half, but makes V twice as fast. In both cases the value for P remains the same.
Now that said, you're right that for most major cryptocurrencies, including bitcoin, there is certainly the potential for units of currency to be irretrievably lost, either when someone loses a private key, or when the coins are sent to an address with no known private key in the first place. In fact, we know many coins have been lost in both ways already. Which answer you pick to the question above just determines whether the growing amount of no longer spendable currency units shows up in your equation as a decrease in the average velocity of money (V), or a decrease in the number of currency units (U). Either way this means that the price per unit would have to increase over time, if we assume the value of actual commercial transactions conducted in the currency remains constant.
It's too bad nobody was interested in this post, Maizeman
I wouldn’t interpret the lack of response as a lack of interest. I, for one, was very interested in that post because I found it, like almost all of maizeman’s content, very interesting, but I didn’t respond to it because I had nothing relevant to add.
Same.
I'll third that - most interesting post in this thread, IMO.
Thanks, all! Particularly for longer posts it's really nice to hear whether they are being read with interest by someone, or being skipped over in the discussion as dreaded walls-of-text that are just inconveniencing the people trying to debate back and forth.
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my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.
You've misunderstood how stocks are priced. You're not buying the book value, you're buying a share of future earnings. You're buying passive income from ongoing corporate profits, not a share of the company's assets.
unless you're a time traveler or have a functioning crystal ball, future earnings are unknown. therefore you're speculating.
If the future earnings are expected go up, the stock price goes up regardless of book value. The book value is merely the backstop, the absolutely minimum future value you can expect if the company is never profitable again and just has to liquidate all of its holdings. If the price ever falls all the way down to the book value, that means the company is having a fire sale and is doomed to immediate failure. So the difference between market cap and book value is not due to speculation that a greater fool will come along to buy your share, it's due to how much you are willing to pay today in order to get paid back quarterly in the future.
the dividend yield for a share of VTSAX for example is 1.75% annualized. are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return? no. that wouldn't even beat inflation. we are banking on the fact that someone else will come along to buy our shares at a higher price, at something more like 7% annual returns.
not only are we expecting the market price to outstrip the actual profits/dividends paid to shareholders, but the price/book ratio has been climbing since 2009. if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid. this is speculation -- the "intrinsic value" is becoming less and less important over time and "profits" are barely above the inflation rate.
https://www.quandl.com/data/MULTPL/SP500_PBV_RATIO_QUARTER-S-P-500-Price-to-Book-Value-by-Quarter
https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=pct_12mths
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For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.
would you count bitcoins in cold storage as part of the "number of units" or not? i would think not, since if they're locked away in cold storage for years at a time (for speculating or whatever) then those bitcoins are not available for creating transactions with. as of a few years ago the percentage of bitcoin not touched for months/years is very high -- something like 70%:
http://www.ofnumbers.com/2014/11/22/approximately-70-of-all-bitcoins-have-not-moved-in-6-or-more-months/
i believe based on your equation if you for example halve the value of U then you'd double the value of P.
This is a good question. It turns out the answer doesn't matter as long as you use the same answer consistently for estimating all the variables in the equation, but if you don't realize you need to pick one answer and stick with it, you can certainly get yourself into trouble.
Consider a currency with 10 units, 5 in "cold storage" and 5 which are used for 1 transaction each week. If in one week $100,000 of business needs to be conducted, I can either consider all the coins together, which doubles the size of U, but also halves the size of V (velocity of money) since I'm averaging five active coins with five coins which weren't spent at all during the period in question, or I can subtract out the cold storage coins, which cuts U in half, but makes V twice as fast. In both cases the value for P remains the same.
i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that. the value of V is related to the popularity of the currency (number of users/merchants) and is independent of U.
if you're saying V is "$100k / week" then that is the final value for that. halving U doesn't then mean V must become "$200k / week". users would be using half the units of the currency to make the same total dollar amount of transactions, which means the price must be doubled.
Now that said, you're right that for most major cryptocurrencies, including bitcoin, there is certainly the potential for units of currency to be irretrievably lost, either when someone loses a private key, or when the coins are sent to an address with no known private key in the first place. In fact, we know many coins have been lost in both ways already. Which answer you pick to the question above just determines whether the growing amount of no longer spendable currency units shows up in your equation as a decrease in the average velocity of money (V), or a decrease in the number of currency units (U). Either way this means that the price per unit would have to increase over time, if we assume the value of actual commercial transactions conducted in the currency remains constant.
yes i'd expect in "eventually deflationary" currencies like bitcoin the price would be expected to increase over time, all things being equal.
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i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that. the value of V is related to the popularity of the currency (number of users/merchants) and independent of U.
if you're saying V is "$100k / week" then that is the final value for that. halving U doesn't then mean V must become "$200k / week".
$100k/week is the amount of economic activity being conducted. Velocity of money is measured in the number of times the average unit of money changes hands in a given amount of time of time. So, for example, $100k of economic activity in a week could be satisfied with 5 units on currency changing hands an average 10 times a week, at an exchange rate of $2,000/unit. Or it could be satisfied by 10 units on currency changing hands an average 5 times a week (5 at 10 times a week and 5 at 0 times a week), at an exchange rate of $2,000/unit.
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i don't agree that if you're considering a smaller value of U then the value of V would be adjusted to counteract that. the value of V is related to the popularity of the currency (number of users/merchants) and independent of U.
if you're saying V is "$100k / week" then that is the final value for that. halving U doesn't then mean V must become "$200k / week".
$100k/week is the amount of economic activity being conducted. Velocity of money is measured in the number of times the average unit of money changes hands in a given amount of time of time. So, for example, $100k of economic activity in a week could be satisfied with 5 units on currency changing hands an average 10 times a week, at an exchange rate of $2,000/unit. Or it could be satisfied by 10 units on currency changing hands an average 5 times a week (5 at 10 times a week and 5 at 0 times a week), at an exchange rate of $2,000/unit.
that's my point. the value of V, the dollar value of the economic activity in a unit of time, is related to the popularity of the currency, not how many units of the currency are being used. why would the number of times the currency changes hands change (10 becomes 5)?
you may have missed my edit above: if you're saying V is "$100k / week" then that is the final value for that. halving U doesn't then mean V must become "$200k / week". users would be using half the units of the currency to make the same total dollar amount of transactions, which means the price must be doubled.
unless you're saying the number of units of a currency affects the velocity, which makes no sense to me.
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are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return? no.
Yes, we really are. That's the point. Have you read a single book about investing? I recommend "The Four Pillars of Investing" as a good primer. It will explain to you how the price of a share representing future profits is bid down by open market competition until nobody is left to bid it down any further. If you can do better than the current dividend yield somewhere else, then you should go somewhere else. That's how markets work, willing buyers meet willing sellers and everyone goes home happy. Prices are determined by the ratio of those two groups. Yields are determined by prices.
the price/book ratio has been climbing since 2009. if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid.
Sounds like bitcoin.
But no, I'm not expecting anyone to come along and pay a higher price/book than today's. And this is the key part so read slowly: I expect book value to increase, and thus for prices to increase, and the ratio to stay the same or even to decrease. Value in the stock market is created when companies become more profitable, not when speculators bid up the stock price. See the difference yet?
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https://techcrunch.com/2018/01/15/researchers-finds-that-one-person-likely-drove-bitcoin-from-150-to-1000/ (https://techcrunch.com/2018/01/15/researchers-finds-that-one-person-likely-drove-bitcoin-from-150-to-1000/)
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are we really putting 60% or 75% or 85% of our retirement assets into something with an expected 1.75% return? no.
Yes, we really are. That's the point. Have you read a single book about investing? I recommend "The Four Pillars of Investing" as a good primer. It will explain to you how the price of a share representing future profits is bid down by open market competition until nobody is left to bid it down any further. If you can do better than the current dividend yield somewhere else, then you should go somewhere else. That's how markets work, willing buyers meet willing sellers and everyone goes home happy. Prices are determined by the ratio of those two groups. Yields are determined by prices.
have you read the MMM blog? perhaps you don't understand index investing and what this board preaches. index investing is pure speculation. we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.
i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks. we literally pick an asset allocation out of thin air (say 75% stocks) and go with that. period. that's pure speculation. we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.
the price/book ratio has been climbing since 2009. if things continue like this it means we will be expecting someone else to come along and buy our shares at an even higher price/book ratio than we paid.
Sounds like bitcoin.
But no, I'm not expecting anyone to come along and pay a higher price/book than today's. And this is the key part so read slowly: I expect book value to increase, and thus for prices to increase, and the ratio to stay the same or even to decrease. Value in the stock market is created when companies become more profitable, not when speculators bid up the stock price. See the difference yet?
no i don't see the difference. i don't get it. do you divide your stock holdings by 3 when determining your net worth?
the price/book ratio IS going up. when do you expect it to decrease?
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index investing is pure speculation. we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.
You didn't read slowly enough so I'll repeat myself.
Price is what you pay, value is what you get. The stock price is a dollar figure paid by the most recent buyer. The value is the share of corporate earnings you get in return. VALUE is not created when the market spikes. VALUE has nothing to do with stock prices. VALUE is created when corporations become more profitable, by expanding their markets, developing new technologies, reducing their overhead costs, or otherwise generating more profits that they then pass on to shareholders.
Price is what you pay in order to get value. The price fluctuates minute by minute, in response to speculators, while the value only changes slowly, as corporations evolve over time. Wealthy people have valuable assets. Bitcoin millionaires have expensive assets. There is a difference.
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that's my point. the value of V, the dollar value of the economic activity in a unit of time, is related to the popularity of the currency, not how many units of the currency are being used. why would the number of times the currency changes hands change (10 becomes 5)?
Okay, this is the disconnect. The velocity of money (V) is NOT a measure of the economic activity in a unit of time. It's a measure of how often the average unit of currency changes hands in a given unit of time. In the equation I wrote above -- U * P * V = T -- the $100k of economic activity would be the value of "T" not of "V."
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If it helps to see the units:
U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)
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my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.
You've misunderstood how stocks are priced. You're not buying the book value, you're buying a share of future earnings. You're buying passive income from ongoing corporate profits, not a share of the company's assets.
unless you're a time traveler or have a functioning crystal ball, future earnings are unknown. therefore you're speculating.
have you read the MMM blog? perhaps you don't understand index investing and what this board preaches. index investing is pure speculation. we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.
You are taking this line of thought way too far. Assuming human civilization will continue past tomorrow is speculation if you want to take it to the extreme. There are rational expectations we can make about the future for planning purposes.
If I buy a US government bond do I know I'm going to get the next interest payment? Not with 100% certainty. The world could end tomorrow. However, short of a highly unlikely event, I will get my next interest payment. No rational investor would consider t-bills a speculative investment. You can calculate their intrinsic value based on the value of the cash flows, and the market price will be very close to the intrinsic value. Very little of the price is attributed to speculation.
If I buy VTSAX I know that, short of a highly unlikely event, I will see continued dividend payments. There is also a high probability that those dividend payments will increase over the long term. As I pointed out in my previous post, some stocks do trade more on speculation than intrinsic value. Tesla would be an example. However, most stable dividend paying companies tend to trade more on their intrinsic value. Their cash flows are reliable.
As I pointed out in my previous post, stocks and bonds have intrinsic value. Even if that intrinsic value is less than the market price the value exists and the market price is related to the fundamental intrinsic value. Cryptocurrencies don't have an intrinsic value. Their value is 100% speculation.
i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks. we literally pick an asset allocation out of thin air (say 75% stocks) and go with that. period. that's pure speculation. we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.
The reason most people on this board act in this manner is that they know they can't outsmart the market, which is already very efficient. Have a better model? Try it out.
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index investing is pure speculation. we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.
You didn't read slowly enough so I'll repeat myself.
Price is what you pay, value is what you get. The stock price is a dollar figure paid by the most recent buyer. The value is the share of corporate earnings you get in return. VALUE is not created when the market spikes. VALUE has nothing to do with stock prices. VALUE is created when corporations become more profitable, by expanding their markets, developing new technologies, reducing their overhead costs, or otherwise generating more profits that they then pass on to shareholders.
Price is what you pay in order to get value. The price fluctuates minute by minute, in response to speculators, while the value only changes slowly, as corporations evolve over time. Wealthy people have valuable assets. Bitcoin millionaires have expensive assets. There is a difference.
you seem to be trying to comfort yourself with use of terminology. when you go to put the 4% rule into practice, all you care about is the current market price. your perceived notion of "value" is meaningless since you are an index investor. or perhaps you insist on taking a 66% loss on your stocks and you only sell your stocks for book value?
the point is, the stock market is currently 2/3 speculation, and for a FIRE-focused index investor, is pure speculation. comforting yourself with the notion of "value" doesn't change that because we are FI when we reach a spending level of 4% of the market price of our portfolios, not 4% of the book value of our stocks.
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If it helps to see the units:
U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)
yes that does help.
if U and V are not independent, and in fact are strictly inversely proportional, then they should they not be separate variables?
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some stocks do trade more on speculation than intrinsic value. Tesla would be an example.
Even Tesla, the quintessential example of a speculative stock, is expensive solely because people speculate that it will be hugely profitable. They are speculating on its future VALUE, not on its price.
Price is what you pay, value is what you get. Repeat it with me and Warren together. Price is what you pay, value is what you get.
If you're buying a stock (or a bitcoin) because you think the price will go up, without any expectation of future earnings or profitability or acquisitions or book value (the value), then you are speculating on price. This is not the same as what people have done with Tesla. Tesla's price went up because people expected Tesla to make gobs of money.
Bitcoin does not make anyone money! Bitcoins have no revenue stream!
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my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.
You've misunderstood how stocks are priced. You're not buying the book value, you're buying a share of future earnings. You're buying passive income from ongoing corporate profits, not a share of the company's assets.
unless you're a time traveler or have a functioning crystal ball, future earnings are unknown. therefore you're speculating.
have you read the MMM blog? perhaps you don't understand index investing and what this board preaches. index investing is pure speculation. we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.
You are taking this line of thought way too far. Assuming human civilization will continue past tomorrow is speculation if you want to take it to the extreme. There are rational expectations we can make about the future for planning purposes.
If I buy a US government bond do I know I'm going to get the next interest payment? Not with 100% certainty. The world could end tomorrow. However, short of a highly unlikely event, I will get my next interest payment. No rational investor would consider t-bills a speculative investment. You can calculate their intrinsic value based on the value of the cash flows, and the market price will be very close to the intrinsic value. Very little of the price is attributed to speculation.
If I buy VTSAX I know that, short of a highly unlikely event, I will see continued dividend payments. There is also a high probability that those dividend payments will increase over the long term. As I pointed out in my previous post, some stocks do trade more on speculation than intrinsic value. Tesla would be an example. However, most stable dividend paying companies tend to trade more on their intrinsic value. Their cash flows are reliable.
the US government literally prints money out of thin air, which is why treasury bonds aren't speculation.
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event. we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.
As I pointed out in my previous post, stocks and bonds have intrinsic value. Even if that intrinsic value is less than the market price the value exists and the market price is related to the fundamental intrinsic value. Cryptocurrencies don't have an intrinsic value. Their value is 100% speculation.
i agree cryptocurrencies don't have intrinsic value, but my point is that's irrelevant and is comparable to the stock market.
we can reach FIRE when we can live on 4% of the market value of our portfolios, not 4% of the book value. the intrinsic/book value doesn't matter because it's not high enough (33%) to be meaningful BECAUSE we are all FIRE-focused index investors and we buy both solid blue chip stocks and crazy speculative stocks.
i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks. we literally pick an asset allocation out of thin air (say 75% stocks) and go with that. period. that's pure speculation. we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.
The reason most people on this board act in this manner is that they know they can't outsmart the market, which is already very efficient. Have a better model? Try it out.
i'm not disagreeing with the strategy, and i don't think there is a better one. i'm just saying it's speculation and hoping that past performance indicates future results.
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I disagree with almost every instance of your use of the word "speculation" in that post. You seem to think that any investment that is not FDIC insured is speculation. Just allow me to posit that most people don't agree with your definition, and we can move on.
i agree cryptocurrencies don't have intrinsic value, but my point is that's irrelevant and is comparable to the stock market.
At this point I'm no longer sure if you're defending bitcoin as if it were as good as the stock market, or trashing the stock market for being as bad as bitcoin.
And you know what? It doesn't really matter. You get to decide what to do with your money. You're clearly excited about cryptocurrencies, and you are just as free to buy them as you are to buy any other asset class.
But if you keep showing up trying to convince other people to play the part of the greater fool for you, some of us might keep showing up to argue with you. Just sayin'. Purely as a public service on behalf of the forum, I will personally voice my disagreement. I stand to make no money by convincing anyone to agree with me.
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I disagree with almost every instance of your use of the word "speculation" in that post. You seem to think that any investment that is not FDIC insured is speculation. Just allow me to posit that most people don't agree with your definition, and we can move on.
+1
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event. we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.
OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!
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Wow, just wow. I've never heard such ignorance when it comes to stock market investing, fundamental stock valuation and pricing, and index investing. Index and stock market investing is speculation now and basically a Ponzi scheme? I would expect better in the investing section but apparently not in a crypto thread. I mean this is kindergarden level very basic investing knowledge.
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If it helps to see the units:
U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)
yes that does help.
if U and V are not independent, and in fact are strictly inversely proportional, then they should they not be separate variables?
Happy that helped to clarify things. To answer your question, U and V are strictly inversely proportional only in the special case that you're removing or adding a subset coins with zero transactions per unit of time from U.
If you're removing coins which would otherwise have been used in transactions and holding T constant, either P and/or V could increase.
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If it helps to see the units:
U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)
...
If you're removing coins which would otherwise have been used in transactions and holding T constant, either P and/or V could increase.
That has been a big part of my reasoning behind the speculation, Bitcoin has a fixed limit and get's exponentially harder to create. The hard fact is that more 'real' resources are being consumed to create the next coin, so either it is worth the expenditure or else the system will tailor / truncate itself. The fact that nominal resources are cheap enough to perpetuate the system should be an indication as to what Bitcoin is worth to the general population that exchange it.
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Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.
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No, it is not too late to lose everything by "investing" in Bitcoin.
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I tried looking up the quantity theory of money equation and everywhere else presents it as:
MV = PT which is different than your equation of MV = T
https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/
Perhaps you dropped the P?
I'm not sure where M = U*P comes from, but if you were to substitute it into MV = PT, you would get U * P * V = P * T
In this case, P would cancel and you would have units of currency multiplied by velocity is equal to transactions per unit time.
It's useful to list the definitions of variables, not just the letter used to represent them. Otherwise you run into the problem that different people use the same letters to represent different things in different equations. It looks like there are two cases of this in the example you gave.
The first example is T:
MV = total economic value of all transactions.
I wrote that as a single variable (T). In the link you found they're defining the total economic value of all transactions as the product of the total number of transactions (which they're also calling T), and the average dollar value of those economic transactions or the price index (P).* If you multiple the total number of something by the average value of that thing you get the total value of all the things put together. So (total value) = (average value) * (total number).
The second example is P. I define the money supply (M, both our sources agree on that abbreviation) as the number of currency units (U) * the price of each of those currency units in dollars (P). The reason to include this is that we were discussing economic activity (T or T * P depending on which equation you use) in dollars, but the units (U) were some other currency. If the units were dollars and the economic activity was in dollars than the price of dollars per dollar would always be 1, so the term can be safely omitted.
I don't know that it would be proper to just throw V on the right side of the equation and solve for a P as you've done, since V itself is apparently dependent on price which would be measured. However if one assumes a value for V and it is wrong, then it would produce incorrect results when one "plugs-and-chugs" through the equations. GIGO.
Yup. Measuring financial velocities is hard. That's part of why people can come up with such a wide range of estimates for what the price of bitcoin would need to be today to facilitate the amount of actual economic activity conducted using the currency. (The other half being that measuring total economic activity conducted in a given currency is also hard). Add in the third source of uncertainty (guessing the distribution of likely outcomes for both the velocity of money for bitcoin and the total economic activity for bitcoin years in the future), and you can see why people have so much trouble agreeing on what a reasonable price for it today is.
All in all, I'm very happy I don't have to try to outguess the market.
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Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.
I think the bitcoin community will rejoice if their losses are only 40% from the peak.
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Yup. If you are using only one currency in the equation, there is no need to separate the money supply until units and price per unit, since if your economic activity is measured in dollars per unit time, and your money supply is measured in dollars, the price per dollar of a dollar is always 1. Did I forgot to write that above? If so, I apologies as I am writing this from a smartphone.
If you disagree with the above way of describing the bitcoin money supply in dollar terms, do you have an alternative measure of the bitcoin money supply you’d like to propose? Or even if you don’t have an alternative, would your mind describing in a little more detail what your specific ideas are for when this approach might produce an incorrect result?
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To simply a bit more. There are essentially three points:
1) Whether the velocity of money equation as writing on the investopedia website you linked to is correct.
2) The idea that total economic activity is the product of the number of economic transactions * the average value of each transaction.
3) The idea that if we're looking at the money supply for a non-dollar currency in dollar terms, we need to correct for the price/exchange rate between that currency and the US dollar.
Feel free to disagree with any one, two, or all three, or point out some other assertion from my previous post which I didn't realize I was making. Either way, I'd appreciate it as it'll make it a lot easier for me to understand where our point of disagreement is.
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Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.
I think the bitcoin community will rejoice if their losses are only 40% from the peak.
For all the insightful philosophy of money talk on this thread, it would appear the answer was explainable in one word: bubble.
I wonder... when cryptocoin losses exceed the losses suffered by dot-com speculators in 2000 or housing speculators in 2007, will fans admit there once was a bubble? I know arguing on the internet means never having to admit you're wrong, but part of me wonders...
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Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.
I think the bitcoin community will rejoice if their losses are only 40% from the peak.
For all the insightful philosophy of money talk on this thread, it would appear the answer was explainable in one word: bubble.
I doubt it. It's always been super volatile. I suspect this is not the first 40% price drop for bitcoin, and so far it has always recovered.
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It’s interesting to see this thread is so quiet today.
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It’s interesting to see this thread is so quiet today.
Sent from my iPhone using Tapatalk
It's not even noon on the west coast and there are over a dozen posts
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It’s interesting to see this thread is so quiet today.
Did you expect some informed commentary about how to best play today's volatility? This kind of thing makes for great books and movies (a.k.a. The Big Short) after the house of cards falls or goes up a few more levels after faltering, but no-one really knows where Bitcoin is going to go day to day. Pete predicted lots of things (here (http://www.mrmoneymustache.com/2017/06/20/next-recession/), here (http://www.mrmoneymustache.com/2016/02/29/what-to-do-about-this-scary-stock-market/)), and here (http://www.mrmoneymustache.com/2013/03/07/how-about-that-stock-market/)), recommended Betterment and LendingClub (http://www.mrmoneymustache.com/2012/09/24/the-lending-club-experiment/), and suggested that Bitcoin was overvalued - looks like he might've been right for once :).
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It’s interesting to see this thread is so quiet today.
Sent from my iPhone using Tapatalk
It's not even noon on the west coast and there are over a dozen posts
I guess I was anticipating a flood of "I told you so" and arguments to the contrary.
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GUYS! BITCOIN IS DOWN TO 11733 AT THE MOMENT! WHAT IS THE PROBLEM?!?!
PEOPLE DON'T UNDERSTAND THE TECHNOLOGY!
I love hearing that argument. Apparently all the peeps dumping bitcoin don't get it either.
From 19k to 11k in one month and we're still arguing over whether this is a good place to put your money. Its unreal.
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I think you have been given a fair opportunity to provide some sources... If you would rather not provide them, or can't provide them, then that is okay. I will simply assume that your formulas are not mainstream, established economic formulas (like the Fisher equation, which is discussed on sites like Investopedia), that one could comfortably derive from.
*shrug* I though I was very explicit about describing what was the original equation, what were my assertions, and what was just basic algebra so that people can decide for themselves if the ideas make sense or not.
If you or other people on this thread felt that my post came across as trying to make an argument from authority not open to intelligent debate, rather than describing ideas and the reasoning behind those ideas which they are free to evaluate and point out flaws with, I apologize for creating that impression and if you can point out what I said which created that impression I will endeavor to avoid doing so in the future. I completely agree with you that, in the absence of links to either reviews or the primary literature, you should actually think critically about any ideas I present and given references to "data not shown" no more weight than the electrons needed to display those words on the screen. Heck, honestly even if I did pepper my post with links to published papers, you should still think critically about the ideas and ask questions, raise concerns, and propose counter examples or tests.
....try to put the burden of proof on others...
I take concerns about shifting the burden of proof quite seriously. So in this case I want to point out I wasn't asking you to prove or disprove anything. I was simply asking you to explain what your views were -- not why you held them -- so we could have a more efficient discussion about where and why we actually disagreed. At this point I've asked you multiple times to point out which ideas or assertions you actually disagree with or have any thoughts of any kind about beyond "who says?"
Would it be fair to conclude you don't actually have any specific concerns you'd like to discuss beyond your feeling that I was trying to use a cloak of scientific authority to keep people from thinking and discussing ideas critically?* If so, I hope my first paragraph alleviates those concerns. If not, I usually like discussing people's concerns or different ideas. I've learned a lot from such discussions, both on this thread and elsewhere on the forum, and I'm happy to change my own views when presented with convincing new ideas/theories/datasets...
... but in this particular case, I think our frames of reference for how to actually have a conversation are so far apart that further discussion is likely to just be frustrating for both of us. Good luck to ya.
*While freely acknowledging that I am not able to provide an argument from authority for whether it is an accepted algebraic practice to substitute in Z for (X*Y) in an equation when X * Y = Z, nor am I able to cite any mathematician, economist or other source of authority for the idea that if one person represents a variable with Q and another people uses R, you don't actually need a citation for them being the same equation as long you make sure that Q and R are defined to mean the same thing.
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*shrug* I though I was very explicit about describing what was the original equation, what were my assertions, and what was just basic algebra so that people can decide for themselves if the ideas make sense or not.
Don't take it personally, mm. Most people are unaccustomed to dealing with principal investigators. There is a common perception that original ideas cannot have merit, and all discussions should be based on references to external sources.
Critical evaluation of new ideas is hard, and the tiny little text entry box on the forum is not the easiest place to practice.
I welcome your contributions as some of the most cogent and relevant on the forum, even in cases where I have nothing meaningful to contribute in return. You keep doing you.
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I disagree with almost every instance of your use of the word "speculation" in that post. You seem to think that any investment that is not FDIC insured is speculation. Just allow me to posit that most people don't agree with your definition, and we can move on.
+1
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event. we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.
OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!
phill22, you do not seem to have a clear understanding of what intrinsic value and speculation mean. You seem to be using the terms wrong in your analysis.
sol and Indexer are right, here. Price is what you pay, value is what you get. Price, in an ordinary market is often known to 2 or 3 decimal places since the exact agreed price is usually published to other market participants. Whereas intrinsic value, when it exists, is always approximate.
"value is what you get" can someone clarify what that actually means beyond giving you the warm fuzzies? please explain this from the perspective of someone that for stocks owns only VTSAX with a set-in-stone asset allocation.
so and Indexer have clearly read some Ben Graham or other value investors and are using the terms intrinsic value and speculation in the value investing context. I highly recommend picking up some literature by true value investors. Even if you don't end up subscribing to the value investing philosophy it can be helpful to fully understand it, especially when trying to debate with a value investor. "The Intelligent Investor" by Benjamin Graham comes to mind. However, I personally got more out of "Security Analysis" by Benjamin Graham and David Dodd, since SA goes into much more detail and helped things click for me a bit more.
who that has replied to these comments is a "value investor"? i thought we all own VTSAX or similar?
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I disagree with almost every instance of your use of the word "speculation" in that post. You seem to think that any investment that is not FDIC insured is speculation. Just allow me to posit that most people don't agree with your definition, and we can move on.
+1
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event. we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.
OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!
phill22, you do not seem to have a clear understanding of what intrinsic value and speculation mean. You seem to be using the terms wrong in your analysis.
sol and Indexer are right, here. Price is what you pay, value is what you get. Price, in an ordinary market is often known to 2 or 3 decimal places since the exact agreed price is usually published to other market participants. Whereas intrinsic value, when it exists, is always approximate.
"value is what you get" can someone clarify what that actually means beyond giving you the warm fuzzies? please explain this from the perspective of someone that for stocks owns only VTSAX with a set-in-stone asset allocation.
so and Indexer have clearly read some Ben Graham or other value investors and are using the terms intrinsic value and speculation in the value investing context. I highly recommend picking up some literature by true value investors. Even if you don't end up subscribing to the value investing philosophy it can be helpful to fully understand it, especially when trying to debate with a value investor. "The Intelligent Investor" by Benjamin Graham comes to mind. However, I personally got more out of "Security Analysis" by Benjamin Graham and David Dodd, since SA goes into much more detail and helped things click for me a bit more.
who that has replied to these comments is a "value investor"? i thought we all own VTSAX or similar?
I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.
I don't own VTSAX because I expect it to double in value. That would be nice... I own it because I want to own all of those companies. I want the earnings they represent. Those earnings come to me in the form of dividends or stock buy backs. I don't think owning every publicly traded stock in the world(I also own VTIAX) makes me a speculator. I own businesses. Those businesses share their profits with me. When I buy those index funds my expected holding period = forever.
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I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.
first off, i agree that owning VTSAX is a good strategy and it's the majority of my portfolio as well. but it own VTSAX because i am speculating that the market price to continue to rise over the long term, not because i've researched 3,000+ companies and want a share of their profits.
that being said, the above doesn't make any sense. you own shares of all publicly-traded companies. or do you mean VTSAX itself? VTSAX itself has a yield of 1.75%, which doesn't even beat inflation. if you're looking at getting a share of profits then VTSAX is a bad investment. if you're mainly concerned with market price, then VTSAX is a good investment but you can't claim you like it because of dividends yields rather than market price.
also, as the price/book ratio keeps increasing, that yield figure will keep dropping.
I don't own VTSAX because I expect it to double in value. That would be nice... I own it because I want to own all of those companies. I want the earnings they represent. Those earnings come to me in the form of dividends or stock buy backs.
so if the market price goes up 100% that's great but you actually own it for the 1.75% in returns? that's cognitive dissonance.
as i've said before, VTSAX has a dividend yield of 1.75%. based on historic data it perhaps had a yield of double that at the bottom of the crash in 2008. i agree that you could feel fine with your stocks while they are in free fall, losing 60% of their market price. but you'd be lying if you said that was because of the 3-4% dividend yields. you can't be comfortable with even 4% yields after losing 50%+ in market price because your SWR is toast at that point.
you'd be fine with your stocks because you're confident buyers will soon return to bid the market price back up. again, that's speculation on future market price, not investing for profits.
I don't think owning every publicly traded stock in the world(I also own VTIAX) makes me a speculator. I own businesses. Those businesses share their profits with me. When I buy those index funds my expected holding period = forever.
since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies. you only care about the future market price.
hypothetically, if you only bought stocks with a high dividend yield, or VDIGX or similar, then fine. you would then be an investor buying stocks for the share of profits. but you don't own VDIGX. you own VTSAX.
it's just interesting to me that none of the "value is what you get" posters here can admit that you own stock index funds purely for the speculative market value they will have in the future. again, if VTSAX starts to crash down toward book value, then you are in deep trouble WRT the 4% rule and you'd be waiting hoping the market price bounces back after a year or two.
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as i've said before, VTSAX has a dividend yield of 1.75%.
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Dividend yield, sure. But as several other people have already explained to you, that is only one way that shares increase in value. Another is that companies might buy back shares, reducing the total amount in the market and therefore making each one a more valuable slice of the company. Another is that the company itself increases in value. None of those three are "speculation" on future market price, they are all three rooted in rational and fiscally sound mathematics.
Is there speculation in the stock market on top of that? Sure. But you seem to be very obstinately refusing to understand what everyone else is telling you in order to vastly overstate the situation.
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as i've said before, VTSAX has a dividend yield of 1.75%.
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Dividend yield, sure. But as several other people have already explained to you, that is only one way that shares increase in value. Another is that companies might buy back shares, reducing the total amount in the market and therefore making each one a more valuable slice of the company. Another is that the company itself increases in value. None of those three are "speculation" on future market price, they are all three rooted in rational and fiscally sound mathematics.
Is there speculation in the stock market on top of that? Sure. But you seem to be very obstinately refusing to understand what everyone else is telling you in order to vastly overstate the situation.
sorry but that's not true. i am not overstating anything. i'm using data in my responses, and i find it telling that none of the responses on this topic have included numbers.
buybacks are yes another way to share profits, but that doesn't change the fact that the average price/book ratio has been going UP since 2009*. all the stock buybacks that have occurred since 2009 therefore have had much less of an impact than speculators driving up the market price.
* https://www.quandl.com/data/MULTPL/SP500_PBV_RATIO_QUARTER-S-P-500-Price-to-Book-Value-by-Quarter
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also, as the price/book ratio keeps increasing, that yield figure will keep dropping.
You keep saying this over and over again, and we keep correcting you over and over again, and you're just not listening.
Yield is determined by profits and sale prices. Book value does not appear in the equation Price/book ratio doesn't matter, except as one tool that some investors use to determine their price points. Usually, a less significant tool than price/earnings.
Price/book can go up or down totally independently from dividends. Dividends are profits. Profits are not a function of book value, or of the stock price.
Price/book can increase while prices drop, if book value drops more. Book value is kind of irrelevant in many modern industries, though. Investors are buying earnings, not book value. I feel like I might have said that before.
I understand what you're trying to say. You are counting on future stock market appreciation. That's all well and good, but it does not mean the stock market is speculation. Unfortunately, you are using these terms in very confusing ways that suggests you're not really up to speed on the way the rest of this forum discusses these topics.
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Phil22:
No where did I say I bought VTSAX and VTIAX just because I wanted the current low dividend. I have been consistent that I want to share in the earnings.
Here are my thoughts on earnings...
Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends).
since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies. you only care about the future market price.
Please reread what you said... slowly. If I never sell the holding, ever, then how would I benefit from the future market price?
Let's compare value to speculation.
Intrinsic value= what something is worth even if no one wanted to buy it from you. What's it worth for you to hold it forever(or until maturity)?
Speculation= buying something with the intention of selling it at a higher value(or lower value when shorting) in the future.
Note the difference.
Edit: fixing a typo.
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Just adding a few facts about what we are seeing here:
1. Blockchain tech has not been adopted by a single large product.
2. None of the major crypto can compete with existing tech on speed of transaction, fees or reliability.
3. If Bitcoin and Eth are ver 1.0, would not it be wise to speculate on a newer crypto product since the improvements would more likely allow those to be adopted?
Carry on the speculating. :)
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also, as the price/book ratio keeps increasing, that yield figure will keep dropping.
You keep saying this over and over again, and we keep correcting you over and over again, and you're just not listening.
Yield is determined by profits and sale prices. Book value does not appear in the equation Price/book ratio doesn't matter, except as one tool that some investors use to determine their price points. Usually, a less significant tool than price/earnings.
Price/book can go up or down totally independently from dividends. Dividends are profits. Profits are not a function of book value, or of the stock price.
Price/book can increase while prices drop, if book value drops more. Book value is kind of irrelevant in many modern industries, though. Investors are buying earnings, not book value. I feel like I might have said that before.
saying that profits are not related book value proves my point! if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating. what happened to repeating over and over again about "intrinsic value"?
again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company. that shows you're speculating on future profits without regard for the assets and debts the company is accumulating. this is especially troubling considering the low (1.75% annualized) actual profits you are getting. if you would just admit you are speculating on future market price, then it would all make sense.
I understand what you're trying to say. You are counting on future stock market appreciation. That's all well and good, but it does not mean the stock market is speculation. Unfortunately, you are using these terms in very confusing ways that suggests you're not really up to speed on the way the rest of this forum discusses these topics.
funny you say "you" there, and not "we." yes i am hoping the market price keeps soaring higher and higher, and so are you. if stocks fell toward a 1.0 price/book ratio your SWR would be toast and you won't admit that. if stocks fell 66% and you suddenly were getting nice 4% yields, your SWR would still be toast and you won't admit that.
you are speculating that the market price will increase at 7%+ returns, not that your yields will be 7%+, and you won't admit that.
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Phil22:
No where did I say I bought VTSAX and VTIAX just because I wanted the current low dividend. I have been consistent that I want to share in the earnings.
explain to me the difference in "dividend" and "earnings" as you used them there.
Here are my thoughts on earnings...
Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends).
with all dividends and buybacks and everything else factored in, the market price has increased faster than the intrinsic value of the companies. that means over time you will NEED the market price to stay up in order to maintain your SWR. you may WANT the earnings, but the earnings won't allow you to maintain your SWR. you NEED the market price to stay pushed upwards from speculation.
since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies. you only care about the future market price.
Please reread what you said... slowly. If I never sell the holding, ever, then how would I benefit from the future market price?
you said "When I buy those index funds my expected holding period = forever. " i assume "forever" actually means "until i decide to sell to replenish my checking account at my SWR". note that selling a share of VTSAX doesn't mean you are selling the poorly-performing companies. when you sell a share of VTSAX you're heavily weighted toward selling companies performing well.
Let's compare value to speculation.
Intrinsic value= what something is worth even if no one wanted to buy it from you. What's it worth for you to hold it forever(or until maturity)?
Speculation= buying something with the intention of selling it at a higher value(or lower value when shorting) in the future.
Note the difference.
Edit: fixing a typo.
again going to back to SWR from a FIRE perspective, if no one wants to buy your shares then your SWR is toast and you have to go back to work.
you absolutely do intend to sell your shares of VTSAX to someone else at a later date for a higher price (avg 7% higher per year) in order to fund your lifestyle via your SWR. do absolutely do not intend for your shares to appreciate at 7% on yields alone.
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by the way i want to say thank you all for challenging my beliefs and making me think.
obviously speculating on the entire US/Earth is safer than speculating on a handful of cryptos, which is why i've cashed out a good chuck of my cryptos... but i haven't been convinced FIRE-focused index investing isn't speculation yet though.
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saying that profits are not related book value proves my point! if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating. what happened to repeating over and over again about "intrinsic value"?
You're still not using these terms correctly. Intrinsic value includes revenue streams. Future revenue (usually discounted for time) is an intrinsic value. The value of the company is (almost entirely) based on it's future profitability, not its book value.
And more to the point at hand, and the reason we are here, bitcoins do not have a revenue stream.
again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company. that shows you're speculating on future profits
I'm just shaking my head now.
Allow me to give you an analogy. Bitcoin is worthless. The reason bitcoin is worthless is that the blockchain implementation is too centralized on the hash network. Private keys will never be competitive with p2p permission ledgers as long as block rewards underperfom fiat currency. It's so obvious I can't believe you don't see it! When EVM finally hardforks your wallet will be stored in the cloud anyway, so your concerns about 51% attacks are moot. HODL or die!
See? Nonsense. You can't argue with it because the words don't mean what the words mean.
This conversation is not going to be fruitful. You've apparently abandoned all discussion of bitcoin and are not just randomly attacking the concept of investing.
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saying that profits are not related book value proves my point! if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating. what happened to repeating over and over again about "intrinsic value"?
You're still not using these terms correctly. Intrinsic value includes revenue streams. Future revenue (usually discounted for time) is an intrinsic value. The value of the company is (almost entirely) based on it's future profitability, not its book value.
yes, this is what i'm arguing. that's the whole point of my argument. my entire argument is that FIRE-focused index investors on this board have been misusing these terms in an attempt to comfort themselves into thinking that they are not "speculating."
my point is that yes in traditional stock investing theory, "intrinsic value" includes future earnings. but you're not a traditional stock investor. you're an index investor. you have no idea what the future profits for all companies are, yet you buy them anyway, pushing up their price regardless of their performance. if you actually cared about "intrinsic value" you wouldn't be buying VTSAX, which is way overpriced by any metric. but you buy it anyway because you are speculating that the future market price of VTSAX will be higher in the future when you go to sell your shares according to your SWR.
you (rightly so) agree that traditional stock picking, which includes calculating "intrinsic value" and "price to earnings" and whatever else is a foolish way to invest! instead of applying these precious investing principals you refer to, you throw them all out the window and just buy the whole damn stock market. and rightly so because for that last 100+ years that's been the best strategy. but that doesn't mean it's not speculating.
And more to the point at hand, and the reason we are here, bitcoins do not have a revenue stream.
fully agreed
again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company. that shows you're speculating on future profits
I'm just shaking my head now.
Allow me to give you an analogy. Bitcoin is worthless. The reason bitcoin is worthless is that the blockchain implementation is too centralized on the hash network. Private keys will never be competitive with p2p permission ledgers as long as block rewards underperfom fiat currency. It's so obvious I can't believe you don't see it! When EVM finally hardforks your wallet will be stored in the cloud anyway, so your concerns about 51% attacks are moot. HODL or die!
See? Nonsense. You can't argue with it because the words don't mean what the words mean.
This conversation is not going to be fruitful. You've apparently abandoned all discussion of bitcoin and are not just randomly attacking the concept of investing.
again i'm not arguing against investing or the mustachian/FIRE investing principals. i'm just admitting it's speculating on future market price, whereas you are not able to admit this. i'll move my arguments to a separate thread so i don't keep derailing this thread.
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explain to me the difference in "dividend" and "earnings" as you used them there.
I'm using the words as they are defined. How else would I be using them?
Earnings = corporate earnings. After tax net income. Also referred to as profits. https://www.investopedia.com/terms/e/earnings.asp
Dividends= earnings that have been passed on to shareholders. https://www.investopedia.com/terms/d/dividend.asp
saying that profits are not related book value proves my point! if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating. what happened to repeating over and over again about "intrinsic value"?
Go back to my definitions for speculation and intrinsic value. Intrinsic value is what you get if you never sold the holding. With a stock what you get is your share of earnings. If the company has earnings that is what you are going to look at. You would only look at book value if you thought the company was going to go bankrupt.
Calculating stock intrinsic value: https://www.investopedia.com/articles/basics/12/intrinsic-value.asp
Notice the models focus on dividends and cash flows.
again going to back to SWR from a FIRE perspective, if no one wants to buy your shares then your SWR is toast and you have to go back to work.
you absolutely do intend to sell your shares of VTSAX to someone else at a later date for a higher price (avg 7% higher per year) in order to fund your lifestyle via your SWR. do absolutely do not intend for your shares to appreciate at 7% on yields alone.
Now that we have covered book value, dividends, and intrinsic value this should be easier to understand. If a company has earnings those earnings have to go somewhere. 1. Dividends. 2. buy backs, which decreases the number of shares so your ownership rights increase. 3. reinvest back into the company which should increase future earnings. If intrinsic value is determined from earnings and if 2&3 both increase earnings per share then 2&3 increase the intrinsic value of the stock. A profitable company's intrinsic value will likely increase over time without the need for speculation.
You are correct that speculation could drive the price higher than the intrinsic value. That brings us to the SWR. The 4% SWR assumes poor market performance. If you bought stocks that were inflated due to speculation and then had to sell them in retirement, that is the type of scenario the 4% rule was based on.
my point is that yes in traditional stock investing theory, "intrinsic value" includes future earnings. but you're not a traditional stock investor. you're an index investor. you have no idea what the future profits for all companies are, yet you buy them anyway, pushing up their price regardless of their performance. if you actually cared about "intrinsic value" you wouldn't be buying VTSAX, which is way overpriced by any metric. but you buy it anyway because you are speculating that the future market price of VTSAX will be higher in the future when you go to sell your shares according to your SWR.
How do you think the prices of the stocks within VTSAX were determined? They were determined by the markets. Investors, from novice investors to hedge fund managers, are buying and selling individual securities. They determined the prices of the stocks within VTSAX. Buying VTSAX is what you do if you assume you aren't smarter than the markets. Who are you to say what the intrinsic value of VTSAX is? I actually agree that it's on the pricey side, but so far your argument has been that its price to book value is too high, which doesn't build a lot of confidence in your assessment.
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I wonder anyone knows what BlockChain tech will be good for.
Block Chain is a specified set of data, that is hashed and confirmed to the block before it, making it an integrity model. Which really limits it's use since most data models are based off speed and structure, which is why SQL is so prevalent.
So you really cant use this as a public banking transaction platform, if people can openly view your bank account and who you sent money to, thats not legal or smart. You cant use it for most data like Social media, as integrity would not be one of that type of data's primary concerns. Nor is it good for storage of data like files, as retrieval through blocks would be slow compared to a structured data system.
The only uses for the tech would be what? Online gambling where the token is used to hide cash flow? Of course all the illegal online purchases. maybe a use for currency in countries of destabilization, venezuela and some small asian island countries comes to mind. But how would anyone cash out if the government bans exchange transactions with their banks.
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Bitcoin now down almost 50%, under $10,000.
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This thread has gotten so weird with the battle over terminology happening at the same time as the math formulas and the occasional updates on bitcoin price sprinkled in.
There seems to be a disconnect between @sol and @Indexer and @phil22 that I think matters, and this quote seemed as good as any to try to capture it.
I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.
I still don't understand what informational advantage anyone here has over the bitcoin market. I say that not to advocate for bitcoin investing, but to understand how we claim to have an informational advantage or to "know" that bitcoin is incorrectly priced.
I don't understand a "value" investor and an index investor to be the same. Indeed, I think they are often functionally the opposite. My understanding of a value investor is one who believes that a company's value (as measured by future earnings stream, etc.) has been incorrectly assessed by the market, and thus the current market price is too low. That presupposes that someone "knows" more than the market, and can act on that information.
Generally, an index investor is one who claims not to know more than the market, and thus is confident to let the market follow its general upward trend. Sure, the market price is set in the way that @sol and @Indexer describe, but the more important point is that the index investor believes he/she does not have any additional information or advantage over the market to determine whether the price is correct, and therefore just buys the market. Thus the top-is-in thread, where everyone points out the fallacy of trying to call out the over-valued nature of the market, and by extension, the companies that make it up.
I included a quote from the OED earlier in this thread about speculation that defines it as pretty much any investment where there is hope of gain and risk of loss, contrary to the common use of the term to suggest high-stakes gambles, and that might be adding to the confusion.
At a basic level, do people here believe that: (1) bitcoin has no value, and therefore any market price for it is too high; or (2) they have information that allows them to know that bitcoin's value is something different than the market price?
I know @sol provided an explanation above of why he believes gold has no value (other than industrial uses), but I think the fact that there's a consistent, developed market for it contradicts that position. Gold might have no inherent value (other than industrial uses, etc.) but in the long run assuming an efficient market, shouldn't value and price converge?
Also, someone else mentioned the tech bubble and how price greatly outstripped the value of the companies, thus creating a bubble. That is true, but the one more step in the analysis is that the prices were determined by the future prospects of the companies, and there was a chance that the companies would be worth gazillions of dollars. It turned out not to be true (mostly), but the money being bet on it wasn't entirely "speculation" (in the take-a-flyer sense of the word) insofar as there was a possible outcome that tech would completely displace retail as we knew it, and those companies would capture the retail market.
All of which is to say that bitcoin certainly looks like a bubble, but I'm not sure what information I have or anyone here has to say that definitively in a way that we cannot say about other markets. @maizeman provided what appears to be a fantastic mathematical analysis of bitcoin's value (although I didn't understand any of it!), but are we suggesting that if the Winkelvoss twins just joined an MMM forum and applied @maizeman's math, they would immediately pull out and the market would move towards an efficient price?
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again i'm not arguing against investing or the mustachian/FIRE investing principals. i'm just admitting it's speculating on future market price, whereas you are not able to admit this. i'll move my arguments to a separate thread so i don't keep derailing this thread.
You're not derailing the thread. The topic of investment (as distinguished from speculation) is the road on which the rails of the thread's nominal topic travel, so this discussion couldn't be more on point.
As Indexer has noted several times above, you are correct that stock trading could in theory (and often does in practice) involve an element of speculation. Stock traders could (and often do) buy and sell shares of stock (and thereby contribute to the establishment of the market price of those shares) solely on the basis of their speculation about what price others will be willing to transact in the future. But, as you have already conceded, stock traders also could (and often do) buy and sell shares of stock (and thereby contribute to the establishment of the market price of those shares) on the basis of their evaluation of the intrinsic value of those shares. In my view, you are grossly overstating the extent to which stock traders (including, indirectly, index investors, who are relying entirely on active traders to set the relative market prices of the constituent stocks that make up the index) do the former rather than the latter, but let's assume for the sake of argument that that doesn't matter. The real point is that because bitcoin has no intrinsic value the trading of bitcoins for the purpose of making money is, unlike stock trading, necessarily and entirely an enterprise in speculation and not investment.
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I know @sol provided an explanation above of why he believes gold has no value (other than industrial uses), but I think the fact that there's a consistent, developed market for it contradicts that position. Gold might have no inherent value (other than industrial uses, etc.) but in the long run assuming an efficient market, shouldn't value and price converge?
We're going back in circles. Neither bitcoin nor gold (putting aside its limited physical uses) has any intrinsic value towards which their market price can converge. The same is true of U.S. dollars. That's why none of those assets are suitable vehicles for investment. You can trade them on the expectation that their market price will fluctuate in a favorable direction, but that would be speculation, precisely because they trade in efficient markets and you therefore have no information advantage regarding their future price movements. But if inefficiencies in any of these markets do exist--say, you were able to find a seller willing to sell a bitcoin, an ounce of gold, or a U.S. banknote, for a small fraction of its current market price--then you could exploit that information advantage to turn a profit without needing to speculate about future price movements.
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All of which is to say that bitcoin certainly looks like a bubble, but I'm not sure what information I have or anyone here has to say that definitively in a way that we cannot say about other markets.
You're right, in the sense that if you buy a stock, you are betting the price will be higher in the future, and you don't really know if that will be true or not. But let's look at just buying one, private company for a moment. There are lots of ways to value a company, but they all boil down to assetts - liabilities * some multiplier for future profits. Of course, there might not be be future profits, but one hopes. That's really no different than buying an index. Those companies all have physical assets (some more than others), liabilities, and hope of future profits. The market typically assigns a value of 15 times earnings as an average price of the index. The market can go whacky in either direction for long periods of time, but hope of future earnings seems to be the way stocks are valued. That's the way bonds are valued too. And you're right in that you are sort of hoping that things will be valued the same way in the future.
In the case of Bitcoin, there are no future earnings. Like gold, the price is set by supply and demand. With gold, the demand has a minimum floor, which is the amount consumed by industry as well as cosmetic uses balanced by the cost to mine it. Any demand above that is gold bought on speculation. And we know for recent years there is lots of speculation in gold. But there definitely is some minimum value and after the speculators get bored, the price begins to drop down towards that floor. I'm not sure what the floor is, but I'm guessing it is around $275/oz based simply because it traded around that value for a long time.
Bitcoin demand also has a minimum floor. There needs to be enough BTC in circulation to satisfy all the people who want or need to make transactions in BTC. If there aren't enough, the value will get bid up. However, we've seen that, relatively speaking, almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
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almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
Down approximately 50% in the past month. I hope that doesn't translate to an annualized return.
Is anyone here willing to admit they bought bitcoin above $9500?
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almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
Down approximately 50% in the past month. I hope that doesn't translate to an annualized return.
Is anyone here willing to admit they bought bitcoin above $9500?
I’m hoping it goes back to $1, then I can buy some and it won’t be too late finally! ;-)
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How many times has Bitcoin lost 50% of it's value in the past?
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How many times has Bitcoin lost 50% of it's value in the past?
It is different this time. This time the chart patterns exhibit the classic "GG no re" after each and every burst in the past.
Yes I said charts, what else can you use to gauge the price of something that has no fundamentals (intrinsic)?
H
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I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.
I still don't understand what informational advantage anyone here has over the bitcoin market. I say that not to advocate for bitcoin investing, but to understand how we claim to have an informational advantage or to "know" that bitcoin is incorrectly priced.
Stocks have intrinsic value.
Bitcoin doesn't have an intrinsic value.
I don't care what the market price is. If the intrinsic value is zero then I consider any market that gives it significant value to be irrational.
I don't understand a "value" investor and an index investor to be the same. Indeed, I think they are often functionally the opposite. My understanding of a value investor is one who believes that a company's value (as measured by future earnings stream, etc.) has been incorrectly assessed by the market, and thus the current market price is too low. That presupposes that someone "knows" more than the market, and can act on that information.
Value investing in this topic first came up in reference to the teachings of Benjamin Graham(many would consider the father of value investing and he was Warren Buffet's mentor) regarding value VS speculation. There are degrees to anything. Benjamin Graham talks about this in his book, Intelligent Investor. There are enterprising investors who will go through the process to try and pick out the best value stocks. This is very time intensive. There are also defensive passive investors who will hold passive diversified portfolios of stocks and bonds and rebalance over time. Both of these groups of investors would be following Graham's advice concerning investing VS speculating, just at different levels of intensity.
In the updated copy of Intelligent Investor Jason Zweig adds commentary about how a defensive investor could follow Graham's advice using index funds.
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almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
Down approximately 50% in the past month. I hope that doesn't translate to an annualized return.
Is anyone here willing to admit they bought bitcoin above $9500?
I bought 20% of one bitcoin at that price but I also sold it around $13k*20%. Plus I was way net positive in other cryptos for the year so it's all good in the hood.
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almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
Down approximately 50% in the past month. I hope that doesn't translate to an annualized return.
Is anyone here willing to admit they bought bitcoin above $9500?
I bought 20% of one bitcoin at that price but I also sold it around $13k*20%. Plus I was way net positive in other cryptos for the year so it's all good in the hood.
Are you still holding bitcoin? Would you buy in today?
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For those of you that don’t fully comprehend the depths of market manipulation going on over at Bits & Co, I present to you the Tether printer.
https://mobile.twitter.com/tetherprinter?lang=en
This twitter account is keeping track of every time the company Tether, sister company to Bitfinex (same owners), ‘prints’ (ie creates out of thin air) more of the crypto currency Tether, which is ‘pegged’ to the US dollar (it actually floats around a little bit +/- 10 cents). These Tethers are then injected immediately into the market over at Bitfinex where they are used to buy/sell Bitcoin as if they represented actual US dollars.
There is a fairly complicated history as to their origin but it’s not entirely necessary to know to understand how Tethers now function (although it’s hilarious and I recommend reading up on it). They are used to prop up the price when Bitcoin is crashing. There is, so far, 1.8 Billion Tethers, with zero evidence that they are backed by actual dollars (and in fact a whole lot of circumstantial evidence that they most definitely are not).
They’ve printed 200 million in the past day alone.
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They’ve printed 200 million in the past day alone.
That might help explain the 20% price increase over the past seven hours, after the huge slide over the first part of the day. When liquidity is low, manipulation is easy.
This is literally the craziest stupidest market I have ever seen. Does anyone really believe bitcoin created 40 billion dollars worth of value since the workday started this morning? Because that's how much the market cap has increased since I showed up at work today. It's insanity.
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I don't understand a "value" investor and an index investor to be the same. Indeed, I think they are often functionally the opposite. My understanding of a value investor is one who believes that a company's value (as measured by future earnings stream, etc.) has been incorrectly assessed by the market, and thus the current market price is too low. That presupposes that someone "knows" more than the market, and can act on that information.
Value investing in this topic first came up in reference to the teachings of Benjamin Graham(many would consider the father of value investing and he was Warren Buffet's mentor) regarding value VS speculation. There are degrees to anything. Benjamin Graham talks about this in his book, Intelligent Investor. There are enterprising investors who will go through the process to try and pick out the best value stocks. This is very time intensive. There are also defensive passive investors who will hold passive diversified portfolios of stocks and bonds and rebalance over time. Both of these groups of investors would be following Graham's advice concerning investing VS speculating, just at different levels of intensity.
In the updated copy of Intelligent Investor Jason Zweig adds commentary about how a defensive investor could follow Graham's advice using index funds.
so you're willing to bend the definitions of some investing terms but not others? defining an investment strategy and actually following it are two different things. here, i'll define it (and note i do not follow it, since i too am index investor):
Value investing is an investment strategy where stocks are selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued.
Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis.
Value investing is about finding diamonds in the rough -- companies whose stock prices don’t necessarily reflect their fundamental worth. Value investors seek businesses trading at a share price that’s considered a bargain, and as time goes on the market will properly recognize the company’s value and the price will rise.
you are not a value investor. you are an index investor. if you gave a percentage weight to the "level of intensity" at which you follow the value investing strategy vs other strategies, that weight would be 0%. you do not consider a stock's value before buying it because you buy every stock regardless of value. you buy stocks proportionally according to how non-index investors (you are not among this group) value stocks relative to each other in the index you're tracking.
when you sell stocks as part of rebalancing or for SWR withdrawals, again you do not sell the most overvalued companies. you sell all stocks proportionally according to how non-index investors have priced all stocks relative to each other.
the very fact of being an index investor means you have REJECTED the idea of value investing. you (and most/all of the rest of us) have decided to be an index investor, not a value investor.
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Phil22:
Have you read any of Graham's books? I'm using the exact definitions from his book. I think you are limiting a value investor to someone who picks out individual value stocks. The way Benjamin Graham, the father of value investing, saw it was that value investing was investing in things that had value as opposed to speculating.
His books do include instructions for picking individual value stocks. This is the strategy you follow if you want to be an enterprising investor(term from his book). If you want to be a defensive investor(term from his book) you would build a balanced portfolio of stocks and bonds and rebalance. When you rebalance you are selling the thing that has performed very well to buy the thing that is currently out of favor. It isn't about chasing returns. It's about buying things with an underlying value preferably when they are out of favor. This strategy is taken from The Intelligent Investor, The Definitive Book on Value Investing, written by Bejamin Graham. The preface is written by Warren Buffet and commentary is added by Jason Zweig. I'm following a strategy outlined by the father of value investing. I consider that to be value investing. Yes, I'm following the defensive approach to value investing instead of the enterprising approach, but it's still a value based strategy.
The very fact that I'm avoiding bitcoin because it has no value is why L.A.S described me as a value investor. I only invest in things that have an underlying value.
Here is a quote from chapter 9, Investing in investment funds, page 249. "Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outperform the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett."
EDIT: Back to the topic. Phil22, I assume you want to be able to label all stock investors as speculators so that you can compare it to bitcoin speculation. Whether you want to call it value investing or something else, the point is that I am not speculating. I'm buying businesses because I want to share their profits. I don't need the market to act exuberant to achieve my goals. Actually, I would prefer the market act more rationally. If stocks drop 50% I will rebalance... I will buy more since they are cheap.
We can debate how much of a stock's price is based on it's fundamental value VS speculation, but we can agree there is a fundamental intrinsic value there. That is what I want when I buy a stock. Yes, there will be periods where I have to pay extra for that. What's the alternative, sit in cash earning nothing? I imagine stocks will average less than 10% over the coming decade, but I still expect them to earn more than cash. Since I expect lower returns I save more.
Bitcoin on the other hand doesn't have any value. It's pure speculation. I won't touch it.
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For those of you that don’t fully comprehend the depths of market manipulation going on over at Bits & Co, I present to you the Tether printer.
https://mobile.twitter.com/tetherprinter?lang=en
This twitter account is keeping track of every time the company Tether, sister company to Bitfinex (same owners), ‘prints’ (ie creates out of thin air) more of the crypto currency Tether, which is ‘pegged’ to the US dollar (it actually floats around a little bit +/- 10 cents). These Tethers are then injected immediately into the market over at Bitfinex where they are used to buy/sell Bitcoin as if they represented actual US dollars.
There is a fairly complicated history as to their origin but it’s not entirely necessary to know to understand how Tethers now function (although it’s hilarious and I recommend reading up on it). They are used to prop up the price when Bitcoin is crashing. There is, so far, 1.8 Billion Tethers, with zero evidence that they are backed by actual dollars (and in fact a whole lot of circumstantial evidence that they most definitely are not).
They’ve printed 200 million in the past day alone.
Could you explain a little more? This is what I think you are saying:
1. Company prints Tether, which is "pegged" to USD.
2. Tether is sold/converted into USD (to whom??)
or
2. Tether is converted into BTC?? (but who would trade BTC for Tether?)
Do you mean they are buying their own BTC with the Tether they print?
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Do you mean they are buying their own BTC with the Tether they print?
Yes. They are printing tether, then using tether to buy bitcoins (thus lowering the supply, and increasing the price of bitcoins).
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But who were they buying from? I find it hard to believe someone would give them BTC for tether.
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Phil22:
Have you read any of Graham's books? I'm using the exact definitions from his book. I think you are limiting a value investor to someone who picks out individual value stocks. The way Benjamin Graham, the father of value investing, saw it was that value investing was investing in things that had value as opposed to speculating.
have you ever read a single definition of "value investing?" perhaps the ones i copied above? do you disagree with those above standard definitions of "value investing?" if hypothetically you were to read another book that agreed with the standard definition of value investing, would you disregard that book?
i've placed a hold on this book at my library, but i strongly suspect you are misinterpreting the book and applying the label of "value investing" as described in the book to the concept of "index investing" which is also apparently described in the book. i'm not going to ask you to copy the exact definition from the book so i'll wait and do that myself.
His books do include instructions for picking individual value stocks. This is the strategy you follow if you want to be an enterprising investor(term from his book). If you want to be a defensive investor(term from his book) you would build a balanced portfolio of stocks and bonds and rebalance. When you rebalance you are selling the thing that has performed very well to buy the thing that is currently out of favor. It isn't about chasing returns. It's about buying things with an underlying value preferably when they are out of favor. This strategy is taken from The Intelligent Investor, The Definitive Book on Value Investing, written by Bejamin Graham. The preface is written by Warren Buffet and commentary is added by Jason Zweig. I'm following a strategy outlined by the father of value investing. I consider that to be value investing. Yes, I'm following the defensive approach to value investing instead of the enterprising approach, but it's still a value based strategy.
ah, there we go. no, you are following the strategy you describe there, and it's called "asset allocation." the strategy called "value investing" is not that same strategy. this is basic stuff.
i fully appreciate that many big names advocate for index investing. and i agree with them and that's why i also am an index investor. but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.
The very fact that I'm avoiding bitcoin because it has no value is why L.A.S described me as a value investor. I only invest in things that have an underlying value.
ok, in that case i am disagreeing with both you and L.A.S.. you're both using the term "value investor" wrong in applying it to yourself. again, i say you are not using the standard definition of "value investor."
Here is a quote from chapter 9, Investing in investment funds, page 249. "Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outperform the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett."
i fully agree with that passage, but it describes "index investing," not "value investing."
EDIT: Back to the topic. Phil22, I assume you want to be able to label all stock investors as speculators so that you can compare it to bitcoin speculation. Whether you want to call it value investing or something else, the point is that I am not speculating. I'm buying businesses because I want to share their profits. I don't need the market to act exuberant to achieve my goals. Actually, I would prefer the market act more rationally. If stocks drop 50% I will rebalance... I will buy more since they are cheap.
again you are exhibiting cognitive dissonance. you are fine with a 50% crash because you'll get a few percent return in profits? no! you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.
We can debate how much of a stock's price is based on it's fundamental value VS speculation, but we can agree there is a fundamental intrinsic value there. That is what I want when I buy a stock. Yes, there will be periods where I have to pay extra for that. What's the alternative, sit in cash earning nothing? I imagine stocks will average less than 10% over the coming decade, but I still expect them to earn more than cash. Since I expect lower returns I save more.
you make zero decisions about whether to buy an individual stock. you buy both poorly-performing stocks and well-performing stocks. you always buy every stock, and you even buy them in proportion to their market cap so that you don't even favor undervalued stocks. similarly, when you sell to rebalance or for SWR withdrawals you sell both poorly-performing stocks but also well-performing stocks, and again when you sell you don't even lean toward selling overvalued stocks more because you sell in the exact proportion to their weight in the index.
i fully agree that stock market returns look to be the best long-term investment. there aren't better options out there for investing large amounts of capital. that's why i own lots of VTSAX. but i'm not going to pretend to myself that i own it for the future earnings of the companies that i know nothing about. i buy VTSAX because i'm speculating that many people will also be looking to safely invest large amounts of money, mainly by buying VTSAX and other index funds, and driving up the market price at around 7%+ per year on average, 10% ignoring inflation.
Bitcoin on the other hand doesn't have any value. It's pure speculation. I won't touch it.
agreed. if in your analysis you don't see any "value" in bitcoin, then you shouldn't buy any.
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But who were they buying from? I find it hard to believe someone would give them BTC for tether.
All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.
Yes, it's insane.
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have you ever read a single definition of "value investing?" perhaps the ones i copied above?
Yes I have read those definitions. And... your point? Your arguing over the word 'value' and ignoring the point. I consider following the defensive investing style described by Graham to be a form of value investing. If you don't think that meets the definition of value investing it doesn't matter at all in the context of this discussion.
again you are exhibiting cognitive dissonance. you are fine with a 50% crash because you'll get a few percent return in profits? no! you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.
I can't do this anymore. We are going in circles. You are a speculator so that's all you see. You are focused on the market price and ignoring the underlying intrinsic value. If the market price drops 50% I can buy stocks for half the price. That's a GOOD THING!!!! I can buy the same businesses with the same earnings at HALF the price. Holy cow, that's amazing! If you don't see that as a good thing it's because you are speculating. You need the future price to keep going higher than the intrinsic value because you are speculating. I'm not buying stocks with the intention of selling them at a price higher than their intrinsic value(which again, is NOT the book value). I am buying them with the intention of holding them and sharing in the earnings. Again, those earnings could come as dividends or they could be reinvested increasing the intrinsic value of the company over time. Either way, I get to share in the earnings. Anyone who follows Graham and Buffett, whether they call themselves value investors or not, would agree that stocks dropping in price is a great thing. Graham nicknamed the markets, Mr. Market, and Mr. Market is bipolar. If Mr. Market is depressed and says your business is now worth half you laugh at him. Clearly Mr. Market is an irrational idiot and you aren't going to sell your businesses to him at half the price. However, if he is willing to sell his businesses to you at half the price then you will gladly buy from him.
Please read Intelligent Investor, especially Chapter 8. Warning: in that chapter the word "speculator" would be an insult. Buy it right now. It will be worth the price. I'm sure you will lose all interest in bitcoin after reading it and it will make you a far more disciplined investor.
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But who were they buying from? I find it hard to believe someone would give them BTC for tether.
All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.
Yes, it's insane.
WTF?? Then wtf are we doing here? why are we sitting here talking about this?? We should make it a priority to come up with a similar service/exchange and rake in the cash. I would have called it mustachforumfinex but we should probably cut MMM out of the profit train.
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i fully appreciate that many big names advocate for index investing. and i agree with them and that's why i also am an index investor. but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.
I don't honestly expect to sway any opinions here, but value investing and index investing need not be considered mutually exclusive terms.
Here's the summary description of Schwab's U.S. Large-Cap Value ETF; SCHV:
Fund Strategy
The investment seeks to track as closely as possible- before fees and expenses- the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. To pursue its goal- the fund generally invests in stocks that are included in the Dow Jones U.S. Large-Cap Value Total Stock Market Index. The index includes the large-cap value portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Large-Cap Value Total Stock Market Index includes the components ranked 1-750 by full market capitalization and that are classified as "value" based on a number of factors
If you prefer a growth strategy over a value strategy, Schwab has an ETF for that, too; SCHG.
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have you ever read a single definition of "value investing?" perhaps the ones i copied above?
Yes I have read those definitions. And... your point? Your arguing over the word 'value' and ignoring the point. I consider following the defensive investing style described by Graham to be a form of value investing. If you don't think that meets the definition of value investing it doesn't matter at all in the context of this discussion.
you still didn't answer the question. you either agree with those definitions or you don't.
my point is that are you hyper vigilant about sticking to one definition of "speculation" yet you are very willy nilly in things you eagerly label "value investing" because it makes you feel better about your investments. we can't have a discussion if you insist on using terms incorrectly.
again you are exhibiting cognitive dissonance. you are fine with a 50% crash because you'll get a few percent return in profits? no! you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.
I can't do this anymore. We are going in circles. You are a speculator so that's all you see. You are focused on the market price and ignoring the underlying intrinsic value. If the market price drops 50% I can buy stocks for half the price. That's a GOOD THING!!!! I can buy the same businesses with the same earnings at HALF the price. Holy cow, that's amazing! If you don't see that as a good thing it's because you are speculating.
again, if your stocks crash 50% in value, and you're comforted by your newfound 3-4% yields, then good for you. that's cognitive dissonance. you are refusing to admit that you are actually comforted by the fact that the market price has historically come roaring back after only a few years. you can't admit this so perhaps this is as far as we can go on this topic.
You need the future price to keep going higher than the intrinsic value because you are speculating.
correct. you and i both need the market price to be higher than we bought in order to maintain our SWR. that's it.
I'm not buying stocks with the intention of selling them at a price higher than their intrinsic value(which again, is NOT the book value). I am buying them with the intention of holding them and sharing in the earnings.
sure, you don't intend to sell at any particular price/earnings ratio or price/book ratio or anything. you will sell IF AND ONLY IF the market price is higher than you bought it. if the market price is lower, then you will not sell. you will buy more because that's how an asset allocation works.
Again, those earnings could come as dividends or they could be reinvested increasing the intrinsic value of the company over time. Either way, I get to share in the earnings. Anyone who follows Graham and Buffett, whether they call themselves value investors or not, would agree that stocks dropping in price is a great thing.
we actually have discussions on this board about "sequence of returns risk" and "glide paths" and "bond tents" and such. stocks dropping in price is not a good thing. you are taking a little healthy cognitive dissonance too far. it's a self-defense measure you're practicing to make yourself feel better about your stock investments, which may crash at any time.
price/earnings ratio and price/book ratios are both going up. this is a challenge to your personal illusions but this is a good thing in terms of the market value of your VTSAX shares. that means you're getting richer, and your SWR is intact and you can stay FI. if stock prices crash, returning price/earnings ratio and price/book ratios back down, that's actually a bad thing for you. that means you've lost money. at that point you're buying more VTSAX speculating that the market price will soon bounce back. if you're hemorrhaging multiple 10s of percent of market value in a year that means you are losing money despite the earnings. earnings are pissing into the wind at that point. and if the market price doesn't bounce back as it always has, your SWR is toast and you're potentially no longer FI. this is a bad thing for you.
Graham nicknamed the markets, Mr. Market, and Mr. Market is bipolar. If Mr. Market is depressed and says your business is now worth half you laugh at him. Clearly Mr. Market is an irrational idiot and you aren't going to sell your businesses to him at half the price. However, if he is willing to sell his businesses to you at half the price then you will gladly buy from him. On the other hand, if Mr. Market turns manic and is willing to pay more for your businesses, that's when you sell to him. A defensive investor, per Graham's definition, would achieve this buying low and selling high via rebalancing.
Please read Intelligent Investor, especially Chapter 8. Warning: in that chapter the word "speculator" would be an insult. Buy it right now. It will be worth the price. I'm sure you will lose all interest in bitcoin after reading it and it will make you a far more disciplined investor.
again, i am fully on board with the concept of an asset allocation and index investing. i will not buy a book that explains asset allocations and index investing to me, but i will check it out from the library.
i don't need to become a more disciplined investor. i plan on sticking to my IPS and i have never sold stocks or bonds to buy cryptocurrencies. but that doesn't mean i don't also see value in new technologies.
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i fully appreciate that many big names advocate for index investing. and i agree with them and that's why i also am an index investor. but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.
I don't honestly expect to sway any opinions here, but value investing and index investing need not be considered mutually exclusive terms.
Here's the summary description of Schwab's U.S. Large-Cap Value ETF; SCHV:
Fund Strategy
The investment seeks to track as closely as possible- before fees and expenses- the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. To pursue its goal- the fund generally invests in stocks that are included in the Dow Jones U.S. Large-Cap Value Total Stock Market Index. The index includes the large-cap value portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Large-Cap Value Total Stock Market Index includes the components ranked 1-750 by full market capitalization and that are classified as "value" based on a number of factors
If you prefer a growth strategy over a value strategy, Schwab has an ETF for that, too; SCHG.
an index that selectively picks stocks that it deems "value" stocks "based on a number of factors" is a completely different thing than a total stock market index.
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Phil22:
I typed up a response and realized that everything I was saying, I had already said in previous posts. There is nothing to gain by repeating myself yet again. Let me just put in one more plug for Intelligent Investor. I think reading that will help you understand what I haven't been able to get across.
again, i am fully on board with the concept of an asset allocation and index investing. i will not buy a book that explains asset allocations and index investing to me, but i will check it out from the library.
It doesn't explain index investing. The original book actually predates Vanguard and the first index fund by decades. The notes about indexing were added in the 4th edition. The book explains how to be an intelligent investor. It's not a short book... It changes how you think about investments. You stop thinking of them as these little numbers that go up and down, and you think of them as businesses you are purchasing. After reading it you will look at a 50% drop and think, "Oh goodie, Mr. Market is being stupid again, and everything is on sale!"
If that thought seems strange to you, then read the book. The 4th edition starts with a preface from Warren Buffet about how he read the book in 1950 when he was a teenager, and how it changed his life. If this books helps you make one better decision in your entire life, it will pay for itself many times over again.
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But who were they buying from? I find it hard to believe someone would give them BTC for tether.
All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.
Yes, it's insane.
WTF?? Then wtf are we doing here? why are we sitting here talking about this?? We should make it a priority to come up with a similar service/exchange and rake in the cash. I would have called it mustachforumfinex but we should probably cut MMM out of the profit train.
Except that you can't print Tether, only the owners of the Tether company can. That's where the free money is, so you'd have to invent your own Tether replacement and get other exchanges to accept it for the plan to work. Oh, and also it's fraud.
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almost no one uses BTC for anything other than buying or selling to other speculators. At some point, the speculators are going to get bored, and the price will start to drop towards that floor.
Down approximately 50% in the past month. I hope that doesn't translate to an annualized return.
Is anyone here willing to admit they bought bitcoin above $9500?
I bought 20% of one bitcoin at that price but I also sold it around $13k*20%. Plus I was way net positive in other cryptos for the year so it's all good in the hood.
Are you still holding bitcoin? Would you buy in today?
No I’m not holding anything significant anymore. I sold all positions a few weeks ago and mentioned it in another thread that I started about being “embarrassed” by crypto gains on this forum. I made a decent amount of money IMO. I left $1000 in an exchange just to toy around with but pulled out enough to buy a nice brand new car if I wanted to. Of course I wouldn’t because I’m mustachian. Haha
To answer your other question about whether I would buy again... maybe but with the caveat that what I would invest is an insignificant amount of my NW. also, it wouldn’t necessarily be bitcoin that I would get back into. My biggest $ gains were ether, litecoin, and ripple. I got out because when I zoomed out on the crypto charts and saw straight lines up it didn’t take a genius to realize it’s not rational. I’ll wait for a crash and then see if there is any good tech that survives. If I miss the boat and people still make a ton of money then oh well. I made tens of thousands with a small risk and it was fun.
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I feel like Bitcoin is a lot like those coins you get from gaming machines at places like Dave and Busters. There is only a limited supply, and you can get more by playing, and the only place they have any value is the place you bought them from. Sure you can buy a few useless trinkets with them, which is nice I guess, but you wont be using them at the grocery store or gas station.
And that is how I look at all this. Maybe one day if the world can agree on 'A' cryto to use, and everyone accepts it as payment, then fine, I might use it. But until then I just think this is all ridiculous. And I bet if there is ever a single one peeps agree to, it wont be any of the ones we see now.
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From looking at the Tether printer, it appears as though 400m has been issued in four days. Four. Hundred. Million. Dollars. In a cryptocurrency tethered to the US dollar, except with no evidence that it's backed by any money at all, which is immediately transferred to the exchange owned by the same people and used to purchase and bid up Bitcoins right as it's losing almost half its value. On an exchange which has no banking facilities and will implode spectacularly if there's a rush for the exit from the cryptocurrency market, and therefore would be extremely motivated to keep the market afloat, for example by inventing four hundred million dollars out of thin air when Bitcoin's price is dropping in order to reinflate the bubble and keep the wolves from the door.
If it is the case that Bitfinex's owners are creating Tethers out of nothing, claiming they're backed by dollars, and using them to bid up Bitcoin...well, that's Nick Leeson territory. That implies that prices at the moment are even more fragile than people may have imagined - what we're seeing isn't the result of a speculative bubble alone, but one repeatedly manipulated into continued inflation by the people who conduct a full third of all Bitcoin transactions. If this is the case, it would take even less to collapse the bubble (a leak of financial statements showing that Bitfinex and Tether aren't actually flush with dollars might be enough by itself) and the collapse would be even more vicious, as a third of the market place vanishes, people stampede for the exits, and the fall in prices, instead of being arrested by hundreds of millions of dollars of possibly fictional money, simply keeps going.
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From looking at the Tether printer, it appears as though 400m has been issued in four days. Four. Hundred. Million. Dollars. In a cryptocurrency tethered to the US dollar, except with no evidence that it's backed by any money at all, which is immediately transferred to the exchange owned by the same people and used to purchase and bid up Bitcoins right as it's losing almost half its value. On an exchange which has no banking facilities and will implode spectacularly if there's a rush for the exit from the cryptocurrency market, and therefore would be extremely motivated to keep the market afloat, for example by inventing four hundred million dollars out of thin air when Bitcoin's price is dropping in order to reinflate the bubble and keep the wolves from the door.
If it is the case that Bitfinex's owners are creating Tethers out of nothing, claiming they're backed by dollars, and using them to bid up Bitcoin...well, that's Nick Leeson territory. That implies that prices at the moment are even more fragile than people may have imagined - what we're seeing isn't the result of a speculative bubble alone, but one repeatedly manipulated into continued inflation by the people who conduct a full third of all Bitcoin transactions. If this is the case, it would take even less to collapse the bubble (a leak of financial statements showing that Bitfinex and Tether aren't actually flush with dollars might be enough by itself) and the collapse would be even more vicious, as a third of the market place vanishes, people stampede for the exits, and the fall in prices, instead of being arrested by hundreds of millions of dollars of possibly fictional money, simply keeps going.
sort of like this situation...
https://cointelegraph.com/news/just-one-person-found-to-have-caused-bitcoins-jump-from-150-to-1000-in-2013
That's an interesting read from the last time bitcoin went up quickly and then crashed 5 years ago.
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Phil22:
I typed up a response and realized that everything I was saying, I had already said in previous posts. There is nothing to gain by repeating myself yet again. Let me just put in one more plug for Intelligent Investor. I think reading that will help you understand what I haven't been able to get across.
again, i am fully on board with the concept of an asset allocation and index investing. i will not buy a book that explains asset allocations and index investing to me, but i will check it out from the library.
It doesn't explain index investing. The original book actually predates Vanguard and the first index fund by decades. The notes about indexing were added in the 4th edition. The book explains how to be an intelligent investor. It's not a short book... It changes how you think about investments. You stop thinking of them as these little numbers that go up and down, and you think of them as businesses you are purchasing. After reading it you will look at a 50% drop and think, "Oh goodie, Mr. Market is being stupid again, and everything is on sale!"
If that thought seems strange to you, then read the book. The 4th edition starts with a preface from Warren Buffet about how he read the book in 1950 when he was a teenager, and how it changed his life. If this books helps you make one better decision in your entire life, it will pay for itself many times over again.
ah there's our problem. you're not even reading my posts. perhaps you're skimming them. i said before and i'll say it again i am getting that glorious book from the library. you can stop plugging the book now.
since you won't even spend the time to actually read my posts and respond to them point by point, as i have yours, then yes we are done here on this subject.
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Phil22:
I read your posts including the part that you would read the book. I don't think you read mine, that's why I stopped bothering.
You keep talking about dividend yields after I explained over and over that I was looking at earnings, not dividends.
You keep talking about how your 4% SWR would be ruined if the market dropped 50%, even after I pointed out that the trinity study assumed you retired in the worst market and that is where the 4% rule came from.
You keep telling me that I'm speculating after explaining ad nauseum the rational behind investing based on intrinsic value, not speculation.
You are throwing around insults based on your own lack of understanding. Saying that I have cognitive dissonance because I see a market drop as an opportunity? I'm still in the accumulation phase, I'm not FIRE yet. Mathematically a market drop is an opportunity to me. If prices drop 50% I can buy twice as manner shares with the same contribution. Regardless of what prices are in 10 or 20 years, being able to buy at half the price would be a benefit to me now. Companies have profits, whether I get those profits through dividends, buy backs, or reinvestment I believe over a 20... or 50 year time horizon it will be beneficial to me. If I can buy at an even cheaper price today that's a good thing.
I came to the conclusion that saying the same thing over and over is a complete waste of my time.
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I came to the conclusion that saying the same thing over and over is a complete waste of my time.
Don't feel bad, we don't all learn these things at the same speed. That's okay.
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I came to the conclusion that saying the same thing over and over is a complete waste of my time.
sorry you feel that way. this back-and-forth is helping to refine exactly what my point is. it seems to me now that as an "index investor with an asset allocation" that it's about your current investing GOAL:
- if your goal is to NOT maintain an SWR but instead accumulate, and become more and more wealthy, then perhaps you are not speculating and can appreciate the earnings of your stocks and the economy as a whole
- if your goal IS to maintain an SWR, then are you speculating because following a stock crash you need very high market price returns over the short term. rebalancing is used to create more dependable market price returns over the long term via an assumed pattern of short-term market price volatility.
we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term. my point is that's speculating on market price and that's OK, because we agree that's the best investing strategy to achieve FIRE.
Phil22:
I read your posts including the part that you would read the book. I don't think you read mine, that's why I stopped bothering.
i replied to individual sentences/paragraphs in many cases. i am reading and considering your posts carefully.
You keep talking about dividend yields after I explained over and over that I was looking at earnings, not dividends.
as an index fund owner, you get returns in two ways: dividends, and market price. you're either reinvesting dividends or spending them to put your SWR into practice. either way, my point is that for an SWR it boils down to market price.
You keep talking about how your 4% SWR would be ruined if the market dropped 50%, even after I pointed out that the trinity study assumed you retired in the worst market and that is where the 4% rule came from.
assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three. after a crash, earnings/intrinsic value are a separate concern from your SWR goal.
and how do i know you are "expecting" big returns after a crash? that's the whole idea behind the 4% rule and rebalancing stock-heavy asset allocations .
You are throwing around insults based on your own lack of understanding. Saying that I have cognitive dissonance because I see a market drop as an opportunity? I'm still in the accumulation phase, I'm not FIRE yet. Mathematically a market drop is an opportunity to me. If prices drop 50% I can buy twice as manner shares for the same price.
i concede that during the accumulation phase your goal is not to maintain an SWR, but to accumulate. i agree with you there.
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Phil22:
we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term.
We on this board? What are you talking about? We on this board haven't concluded anything. The 4% SWR and index investing were both established ideas before Pete retired at 30.
as an index fund owner, you get returns in two ways: dividends, and market price.
Yes, and dividends tend to increase over time. Future dividends are likely to be higher than current dividends. Earnings can go to dividends, buy backs, or reinvestment. Both buy backs and reinvestment drive future earnings per share which could be used for higher future dividends. They also both increase the intrinsic value of the company. Now, due to speculation, the market price could be higher or lower than the intrinsic value. If you are betting on speculation to achieve your goals you are essentially gambling. I'm not betting on speculation to keep prices high. I don't assume PE ratios will remain where they are, yet alone imagine they will continue to increase. Speculation could disappear, PE rations could fall back down to 15 or lower and they could remain there for decades. If that happens my returns would be lower. My FIRE plans assume a lower future rate of return specifically because current valuations are high. However, those returns are still higher than the returns on cash so my AA is still stock heavy. (I look at more metrics than just PE ratios. I'm trying to keep it simple.)
assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three. after a crash, earnings/intrinsic value are a separate concern from your SWR goal.
Here is an example that PERFECTLY fits the definition of you ignoring what I said. I just said the trinity study's conclusion was that a 4% SWR would survive the worst markets. Where do you get the idea that markets always recover in a few years? From peak to recovery it took about 5 years to get back to 2007 numbers. The bottom of the market in 2009 was lower than markets in 1999(tech bubble), giving us negative returns over 10 year. Those were less than ideal markets. The worst would have been the crash in 1929.
After the crash in 1929 it took 26 years for markets to recover! How did someone with a 4% SWR survive? It sure wasn't by selling appreciated stocks! They would generate income from dividends, bond income, and selling bonds. Let's talk about those dividends, because this was a real life example of what I've been getting at with earnings. In 1929 prices were driven up by speculation. By 1931 prices had dropped significantly, the speculation was gone, but dividend yields doubled! You see, companies with earnings continued to pay their dividends. If dividend payments remain the same and prices drop by 50%, then the dividend yield doubles.
I'll agree, assuming markets will quickly recover after a crash is speculation. You assume it will occur so you are speculating. I'm not assuming it will occur so I'm not speculating.
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Phil22:
we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term.
We on this board? What are you talking about? We on this board haven't concluded anything. The 4% SWR and index investing were both established ideas before Pete retired at 30.
when you pick an investing strategy, you look at the options and eventually come to some conclusion. i didn't say this board invented the strategy. jesus christ.
as an index fund owner, you get returns in two ways: dividends, and market price.
Yes, and dividends tend to increase over time. Future dividends are likely to be higher than current dividends. Earnings can go to dividends, buy backs, or reinvestment. Both buy backs and reinvestment drive future earnings per share which could be used for higher future dividends. They also both increase the intrinsic value of the company. Now, due to speculation, the market price could be higher or lower than the intrinsic value. If you are betting on speculation to achieve your goals you are essentially gambling. I'm not betting on speculation to keep prices high.
i agree that during the accumulation phase you are not speculating on market price. if you are also saying that after the accumulation phase, when your goal is to maintain your initial SWR, that you don't need the stock market price to follow an assumed pattern of short-term (<5 years) changes, then i don't believe you.
I don't assume PE ratios will remain where they are, yet alone imagine they will continue to increase. Speculation could disappear, PE rations could fall back down to 15 or lower and they could remain there for decades. If that happens my returns would be lower. My FIRE plans assume a lower future rate of return specifically because current valuations are high. However, those returns are still higher than the returns on cash so my AA is still stock heavy. (I look at more metrics than just PE ratios. I'm trying to keep it simple.)
ah. is your target SWR lower than 4%?
assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three. after a crash, earnings/intrinsic value are a separate concern from your SWR goal.
Here is an example that PERFECTLY fits the definition of you ignoring what I said. I just said the trinity study's conclusion was that a 4% SWR would survive the worst markets. Where do you get the idea that markets always recover in a few years?
obviously they don't always recover in a few years. as a FIRE investor with an SWR you are speculating that it WILL recover. risk of failure is part of the definition of speculation.
From peak to recovery it took about 5 years to get back to 2007 numbers. The bottom of the market in 2009 was lower than markets in 1999(tech bubble), giving us negative returns over 10 year. Those were less than ideal markets.
since you're rebalancing into stocks during a crash, recovery to exactly market peak levels doesn't need to occur. again, rebalancing assumes short-term price patterns, or else you wouldn't be selling winners to buy losers. the current huge, long bull run that started in 2009 immediately following the crash. you're arguing for my point.
The worst would have been the crash in 1929.
After the crash in 1929 it took 26 years for markets to recover! How did someone with a 4% SWR survive? It sure wasn't by selling appreciated stocks!
there was a huge bull run from 1932-1937. that's how the a hypothetical 1929 investor with 4% SWR survived. no, it didn't reach 1929 levels but 1929 was a bubble and after rebalancing from 1929-1932 they would have been well on their way toward recovery. again, these are all short-term price movements that an SWR/rebalancing assumes happens, and it did in that case.
buying an asset, where you risk losing principal, and where you're hoping for a short-term return, is speculating. that's what an SWR and rebalancing is.
They would generate income from dividends, bond income, and selling bonds. Let's talk about those dividends, because this was a real life example of what I've been getting at with earnings. In 1929 prices were driven up by speculation. By 1931 prices had dropped significantly, the speculation was gone, but dividend yields doubled! You see, companies with earnings continued to pay their dividends. If dividend payments remain the same and prices drop by 50%, then the dividend yield doubles.
higher dividend yields don't mean higher dividends. of course the dividend yields were higher -- the market price was much lower. a FIRE investor with an SWR around 4% cannot survive on dividends.
(according to this article, dividend yield reached 14% at the market low in 1932: http://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html)
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as a FIRE investor with an SWR you are speculating that it WILL recover.
If my previous posts about intrinsic value haven't covered this then there isn't anything new I can say.
if you are also saying that after the accumulation phase, when your goal is to maintain your initial SWR, that you don't need the stock market price to follow an assumed pattern of short-term (<5 years) changes, then i don't believe you.
I don't need the stock market price to follow an assumed pattern of short term changes during FIRE. You don't believe me. At this point continuing this conversation really seems like a waste of time.
EDIT: Decided to add more detail to this. Phil22, I have no clue where you are going with this but it feels like we are just going in the same circles. Some of your thoughts seem contradictory. In the same post you said I am speculating because I need markets to recover after a crash and then you agreed that a portfolio could survive a 1929 style crash where prices took decades to recover and then you even said, "recovery to exactly market peak levels doesn't need to occur." Yes, you would be rebalancing, but that is not the same thing as saying prices WILL recover. You are admitting prices don't have to recover at the same time you are telling me I need them to recover.
On the topic of speculation, technically making any guess or assumption about the future is speculation. Assuming the world won't end tomorrow is speculation. I believe that is how you are using the definition. However, "speculation in regards to investing is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest."
source: https://en.wikipedia.org/wiki/Speculation
I'm not investing in VTSAX because I expect to profit off price increases. Actually, I wouldn't be surprised if US stocks had negative returns over the next 10 years... I'm investing because I want the future earnings. Speculation driving up prices just means I have to pay more today for those future earnings. Like Sol said, price is what you pay, value is what you get. I don't know how many ways I can say that.
BTW, yes you could sustain a SWR of 4% on dividends and/or bond income, especially in any period where the yield was greater than 4%. I assume that is self explanatory. In addition, a 4% SWR doesn't require 4% returns. It requires returns sufficient to keep the portfolio positive over the given time horizon. The Trinity study was only looking at 30 years, and you would only need 1.219% real returns to achieve a 4% SWR over 30 years.
ah. is your target SWR lower than 4%?
Yes, given higher valuations and a longer time horizon, I am aiming for 3.75%. If valuations are lower by the time I FIRE then I would go back to 4%. In addition, I am assuming lower market returns on my way to FIRE. If we keep experiencing pleasant returns I will be pleasantly surprised, but my spreadsheets don't assume that.
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as a FIRE investor with an SWR you are speculating that it WILL recover.
If my previous posts about intrinsic value haven't covered this then there isn't anything new I can say.
i see your points on intrinsic value. i agree that during the accumulation phase market price doesn't matter so you're not speculating.
(sorry, i keep saying "you." i don't mean you personally.) my caveat is that once you are no longer in the accumulation phase, if you have a 4% SWR (by historic and current market metrics) then any year there's a bear market, or a crash, a flat year, or even only modest returns, you'll have to lose principal (sell mutual fund shares) to maintain your SWR. if there's a long-term bear market and you keep rebalancing into stocks, you accelerate your principal loss because your withdrawal rate stays the same. you are taking the risk that a bull market, not even a gradual recovery, won't occur before you lose too much principal.
Some of your thoughts seem contradictory. In the same post you said I am speculating because I need markets to recover after a crash and then you agreed that a portfolio could survive a 1929 style crash where prices took decades to recover and then you even said, "recovery to exactly market peak levels doesn't need to occur."
you're right -- i should have said "strong bull market" not "recovery." rebalancing into stocks following the crash, and then the '32-'37 bull market, would have helped investors through that crash. i don't see a contradiction in the semantics there. i'm saying a bull market is not guaranteed to happen shortly after a crash, but it did in that case.
On the topic of speculation, technically making any guess or assumption about the future is speculation. Assuming the world won't end tomorrow is speculation. I believe that is how you are using the definition.
nope, i'm talking about that accepted investment-world definition of "speculation."
using the quoted definition of "speculation," let's step through how a 4% SWR index investor with a stock-heavy asset allocation fits that description:
(again, you personally are accumulating, and not even planning for a 4% SWR, do don't be offended by the below)
"... In finance, speculation is also the practice of engaging in risky financial transactions ..."
having the majority of your portfolio in stock index funds, where you can't live off the dividends (4% SWR), where you gradually own fewer and fewer fund shares, is taking the risk that there won't be a long period of bear/crash/flat/modest markets without a subsequent bull market. it's a calculated risk with 100+ years of history to look at. no sensible investor would argue stocks aren't a "risk." look at Japan, for example, or the history of US stock market crashes.
"... in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument ..."
rebalancing is considered a sound strategy to take advantage of "short-term fluctuations." sell winners and buy losers. if we all agreed that losers tend to stay losers for a few years, then annual (or more often) rebalancing wouldn't be recommended.
rebalancers are literally attempting to "profit from short-term fluctuations."
"... rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest."
again, 4% SWR index investors get dividends and market price returns. they can't even survive, let alone "profit from," dividends: the 4% SWR was arrived at INCLUDING earnings/dividends/buybacks/etc AND market price. if you don't get the market price returns you are expecting, your SWR has to be below 4%. many people on this forum, including yourself, are shooting for a less than 4% SWR because you are not expecting the market price returns.
BTW, yes you could sustain a SWR of 4% on dividends and/or bond income, especially in any period where the yield was greater than 4%. I assume that is self explanatory.
i fully agree that if you get great returns, your SWR is fine.... i think we're on the same page there. but again the 4% rule was arrived at by the trinity study by including both dividends and market price.
In addition, a 4% SWR doesn't require 4% returns. It requires returns sufficient to keep the portfolio positive over the given time horizon. The Trinity study was only looking at 30 years, and you would only need 1.219% real returns to achieve a 4% SWR over 30 years.
agreed. yet there is nonzero risk that you will run out of principal too soon, or you wouldn't be able to afford a large medical bill, or whatever, which is why you're not even targeting a 4% SWR.
a FI non-speculator, who remains in the accumulation phase perhaps with part-time work or a side hustle, would almost never run out of principal and would be more likely to afford large unexpected purchases.
Yes, given higher valuations and a longer time horizon, I am aiming for 3.75%. If valuations are lower by the time I FIRE then I would go back to 4%. In addition, I am assuming lower market returns on my way to FIRE. If we keep experiencing pleasant returns I will be pleasantly surprised, but my spreadsheets don't assume that.
i think the exact number is debatable but i think we both agree, by current metrics, that once you are somewhere below a 4% SWR, you are no longer speculating because in any given year, no matter what the markets do, you will most likely not have to lose much principal (sell mutual fund shares) if any, to maintain your SWR.
speculators look at the risk of losing principal, look at the chance of getting returns, and pull the trigger. if you're happy to take that chance and go back to work if you lose your principal, you're still speculating. if you're shooting for a very low SWR or a short retirement period, and don't care about market price returns, then you're not speculating. most posters i've seen on this forum are in the former category.
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Phil22: Seems like we agree on most now. Glad to see it.
I would like to add context to rebalancing. Why is the person rebalancing? Rebalancing can improve returns during a market with a lot of back and forth, but not rebalancing would be better if stock prices kept trending up for a long time. If you are doing it, or not doing, because you think it will improve returns then that is likely a form of speculation.
However, many people, especially retirees, rebalance for the sake of lowering risk. Someone who is comfortable with a 60/40 might not be comfortable with an 80/20. If they were in an 80/20 during a major crash they might make impulsive decisions. Rebalancing to the 60/40 helps them check their emotions.
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Yes, still feels too late, no movement at all to buy bitcoin. So far only Vanguard makes sense to me.
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Looks like bitconnect has gone from $425 to $7 in the last three weeks. Ouch. It's not 100% losses, but it's close.
Maybe other cryptocurrencies will have a softer landing?
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I will out myself as having bought Bitcoin at around $14,700 (and ethereum at $970) the first week of this year.
I've followed the exchange rate between the two, which has swung favorably toward the ethereum stake. I was expecting Bitcoin to hold up better on those days when all crypto- is down, but that hasn't played out during this month.
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Looks like bitconnect has gone from $425 to $7 in the last three weeks. Ouch. It's not 100% losses, but it's close.
Maybe other cryptocurrencies will have a softer landing?
Sol, The trick is knowing which beenie babies to pick (you want the rare ones and the ones with errors) and making sure to keep the original tags.
Oops, sorry, wrong bubble...
https://www.psychologytoday.com/blog/the-decision-tree/201107/psychology-not-economics-is-behind-market-bubbles (https://www.psychologytoday.com/blog/the-decision-tree/201107/psychology-not-economics-is-behind-market-bubbles)
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And being sued for a ponzi scheme! I mean, who wouldn't trust a guy like Carlos Matos?!?!?
Bitconekkkkkkkttttt!!!!!!!!!!
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https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc
I think it's officially too late, folks.
-W
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surely you remember when bitcoin hit $2 following the dramatic crash from $32... those were uncertain times. it was too late then too i gather.
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surely you remember when bitcoin hit $2 following the dramatic crash from $32... those were uncertain times. it was too late then too i gather.
I guess it depends - as with any bubble (or even a pure ponzi scheme) it's possible to make a lot of money if you get in and out at the right time. The problem is timing the market. Traditionally, as the bubble inflates or the Ponzi runs, people get greedy & instead double and triple down, and have great reluctance to sell. The fact that bitcoin has had such huge volatility in the past as you point out (ie dropping over 90% over a short time period) is hardly a vote of confidence in it's future stability.
A lot of the pro comments on bitcoin as an "investment" and the criticisms directed at people who call it a bubble/scam strike me as almost of a religious nature. Any currency is based on collective faith, and when anyone's faith is challenged people respond by defending the attack in myriad (and often bizarre) ways. Ad hominem attacks on anti-crypto commentators, even ones with Nobel prizes, are pretty common (they don't get it, they're old, they're just a shill for the corrupt fiat system, their business model is threatened by bitcoin, they are too stupid to understand how blockchain will rule the world, etc etc). If people do not have faith in the value of bitcoin (and I'll here ascribe 'value' as the amount of physically useful things it can be exchanged for, such as food, utilities, shelter, healthcare, transportation, etc) it will be confined to the past as a weird fad where people actually exchanged things of real value for a few 1s and 0s in an unregulated Asian computer programme.
The oft cited criticism of the above might be something along the lines of "Well, your 'investments' in the SP500 and US fiat have also been historically volatile, and are also just as much an act of faith! Aren't US equities and bonds also a bubble?" which indeed, is sort-of true. But there are significant differences.
The fiat of the US is founded on the US Government's ability to tax the income and assets of 330 million people in the world's larget economy and that of most of the largest businesses in the world. And despite the dollar losing over 94% of its value over the past 80 years it still remains the world's reserve currency and the benchmark of value for any traded commodity. I can use them at any time to pay my taxes to that Government and to obtain all the material needs I might have, 24/7, often delivered to my home effortlessly.
The US equity market is also underpinned by the rule of law which therefore allows me to own a piece of every traded company registered in the world's largest economy, and to take a slice of the earnings generated by those companies across the USA and the world. That market has existed for over 120 years, is highly regulated, and has systematically continued to increase in value, albeit with periods of decline that have always proved ephemeral - and perhaps more importantly the fundamental economics of earnings and dividends from businesses in a growing economy explain very well why the periods of declining equity values eventually recover.
So while hindsight is a great way to trade anything, I'll avoid relying on the greater fool theory to invest my fiat US$. Instead I'll own pieces of all the publicly traded companies in the world, take my share of the continued growth of the US and global economy, claim ownership of land and buildings for which people will pay me rent, and even lend some of my money to the US government and some large companies.
While it's been a facinating discussion to observe, I don't believe it belongs on an 'early retirement through badassity' forum except as a means to educate savers on what a crazy and unreliable place the cult of crypto would be to send your hard earned green soldiers.
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@Mr Mark, that was quite a good post.
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How many times has Bitcoin lost 50% of it's value in the past?
Bitcoin went from ~1000 to ~250 a couple years ago.
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@Mr Mark, that was quite a good post.
+1
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@Mr Mark, that was quite a good post.
Agreed, great post Mr Mark
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A lot of people are freaking out and selling everything. Hopefully they didn't invest more than they were okay with losing. Sure doesn't feel like it though.
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surely you remember when bitcoin hit $2 following the dramatic crash from $32... those were uncertain times. it was too late then too i gather.
Wake me up when it gets back to $2. I'll throw a few coins at it then just for the lols.
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How many times has Bitcoin lost 50% of it's value in the past?
Bitcoin went from ~1000 to ~250 a couple years ago.
Yeah, it was more of a rhetorical question. Lots of people seem to be willing to dance on Bitcoin's grave and laugh about the price drops. I'm not quite as confident that this is over.
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Puerto Rico's governor is bullish on blockchain as part of island's comeback
https://www.cnbc.com/2018/02/16/puerto-ricos-governor-is-bullish-on-blockchain-as-part-of-islands-comeback.html
Love it.
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Puerto Rico's governor is bullish on blockchain as part of island's comeback
https://www.cnbc.com/2018/02/16/puerto-ricos-governor-is-bullish-on-blockchain-as-part-of-islands-comeback.html
Love it.
I was so sure that was going to be satire. But alas, no.
I was expecting something like "infrastructure efforts are ongoing to restore power to 80% of the island, but we're confident that blockchain's disruptive and transformative effects on the economy are more important than putting roofs back on buildings after the hurricane."
Or maybe "cryptocurrency is going to save our ravaged country because a distributed immutable ledger is immune to the corrupt interference of central bankers and their imaginary fiat currency manipulations, a feature we desperately need as we continue to ask the international community for financial aid to rebuild our roads and sewer systems."