Bitcoin: An Interesting Case of a Classic Bubble?

[NumberCruncher]

$92.50  now! I just listened to the NPR Planet Money podcast about bitcoins this morning talking about them being $215 and how this is likely a bubble. That was released two days ago!

[Cecil]

More like $55. http://www.bitcoinity.org/markets/bitfloor/USD

[Daley]

More like $55. http://www.bitcoinity.org/markets/bitfloor/USD

Indeed... funny how Mt.Gox suspended service for "upgrades" just before it went even further south, too.

I needed a good, cathartic laugh (even if I shouldn't laugh, but old schadenfreude habits die hard)! Good times, good times.


Kudy, I Love Cake, unitsinc... if you'll be patient with me, I'll try to put something together in Off Topic in a couple days. When I post stuff like this and detail is asked, I like to cite research and sources instead of just half-arseing it, especially if the topic at hand potentially deals with science and theology in its presentation (two topics I feel can, and do, co-exist and reinforce one another). I'd like to do it right, and do it justice if you don't mind, and I'll need to collect and organize my notes to do so... but I've got a couple more pressing things that need my attention first. Thanks!

[I Love Cake]

More like $55. http://www.bitcoinity.org/markets/bitfloor/USD

Indeed... funny how Mt.Gox suspended service for "upgrades" just before it went even further south, too.

I needed a good, cathartic laugh (even if I shouldn't laugh, but old schadenfreude habits die hard)! Good times, good times.


Kudy, I Love Cake, unitsinc... if you'll be patient with me, I'll try to put something together in Off Topic in a couple days. When I post stuff like this and detail is asked, I like to cite research and sources instead of just half-arseing it, especially if the topic at hand potentially deals with science and theology in its presentation (two topics I feel can, and do, co-exist and reinforce one another). I'd like to do it right, and do it justice if you don't mind, and I'll need to collect and organize my notes to do so... but I've got a couple more pressing things that need my attention first. Thanks!

I hear you. Looking forward to this topic when you have a chance
cheers

[kudy]

Kudy, I Love Cake, unitsinc... if you'll be patient with me, I'll try to put something together in Off Topic in a couple days. When I post stuff like this and detail is asked, I like to cite research and sources instead of just half-arseing it, especially if the topic at hand potentially deals with science and theology in its presentation (two topics I feel can, and do, co-exist and reinforce one another). I'd like to do it right, and do it justice if you don't mind, and I'll need to collect and organize my notes to do so... but I've got a couple more pressing things that need my attention first. Thanks!

You're awesome, thanks. Maybe you should post it to your blog :)?

[chucklesmcgee]

I needed a good, cathartic laugh (even if I shouldn't laugh, but old schadenfreude habits die hard)! Good times, good times.

It is pretty amusing watching the hysteria build and fall. Bitcoin's a very curious thing and it's fun to follow even if you aren't planning on investing in it.

[Bigote]

Down even more.

http://www.businessinsider.com/bitcoin-loses-77-of-value-from-high-2013-4

[mobilisinmobili]

Here's an interesting article.. apparently you can make more money writing about bitcoins than mining them.

http://boingboing.net/2013/04/18/which-makes-more-money-mining.html

[cgmorton]

Bitcoin is incredibly fascinating.

If it ends up as an actual world currency, then the price would have to expand so that the total sum of bitcoins can represent the total sum of wealth in the world.  That means the price is still incredibly low - it could go as high as $10MM per bitcoin if BTC became the new de facto world currency (replacing the dollar).  In which case, hell yes buy now.

That's not very likely though.  Not because BTC is a bad currency, but because our current financial systems are extremely resilient.

According to this blog post, legislation is already underway to make exchanges illegal:
http://unqualified-reservations.blogspot.ru/2013/03/rip-bitcoin-i-think.html
I'd take it with a grain of salt though.

[smedleyb]

Bitcoin is incredibly fascinating.

I second this.  A conversation with a close and trusted friend over the weekend has opened my eyes to the real value of Bitcoin as an anonymous currency.  He's got 15 mined but has little desire to sell given their usefulness for under the radar transactions.  Let's just say I'm more open minded than I was.   

[smedleyb]

Bubble bump.

Bitcoin breaking out to new all time highs.

Henry Blodget over at Business Insider sees potential for one million dollar valuation:

Having said that, I want to be clear about something:

In the months and years before we know the ultimate fate of Bitcoin, the price could do absolutely anything.

There is no limit to the price that Bitcoin could attain.

There is no theoretical difference between a price of $1 per Bitcoin and $1 million per Bitcoin. The only thing that will determine Bitcoin prices is what people are willing to pay them. And if enthusiasm about Bitcoin continues to move beyond a small group of digerati, cryptologists, and hard-money fanatics, Bitcoin's price could go vastly higher.

How high?

It is perfectly reasonable to think that Bitcoin's price could go to $1 million.

That's not a prediction. It's just a fact.

Read more: http://www.businessinsider.com/bitcoin-price-2013-11#ixzz2k5sToT3v

[yanmp]

I have heard of some people using bitcoins in a self-directed IRA to avoid tax on earnings when they sell, but as far as i can tell it's a very vague grey area.  It depends on how it is defined as a currency/coin/collectable/etc.

(I've also heard of some people writing off the cost of mining equipment, maybe even classifying it as a business?  But again, grey areas abound)

[wakkowarner]

And now Mt. Gox has it at over $700 per Bitcoin.  So if you got in early is now the time to sell with guaranteed profits?  Or do you roll the dice (cause let's face it, it's basically gambling) and see if it starts to get closer to that $1M mark?

[Mr.Macinstache]

I remember Bitcoin when some guys on a Ron Paul forum were bragging they bought a bunch for $1 each. I'm pretty sure their houses are paid off by now. Wish I wasn't such a skeptic back then!

BTC is truly amazing, however there is a serious flaw, it CAN be manipulated by central banking. If you have the power to create fiat money, there's nothing stopping you from pumping up BTC and dumping it to create price bubbles. Also, the unFederal reserve has officially recognized it as a legitimate currency and they have no plans to try and regulate it. Ha, as if they could anyway. lol.

It's here to stay and those who control other currencies are really powerless against it, I see wild price swings in its future though. But it's still a fabulous system.

[wakkowarner]

I hadn't heard of Bitcoin till I had a class that covered as a topic back in March.  It was worth a little under $100 then.  I considered getting into it, but it seemed rather expensive.  I looked at the history and had seen how $30 was viewed as a "high" when compared to when the things were only $1.

Another big concern is the hundreds (or was it thousands?) of Bitcoins that were mined by some unknown person when it first started.  Most likely this was the developer, but it seems interesting that there is someone out there that could really flood the market.  Guess that's another way to get rich, develop your own currency, hoard some of the initial amount, make it popular, and then PROFIT.  Of course you don't know if it will become popular.  Sounds a bit like pumping penny stocks to me.  But there are some people (usually the ones that pump then dump) that make money that way.

[Mr.Macinstache]

There are clones, like Litecoin and so on. I have not checked their value, but look for those to gain clout too, depending on the fate of BTC. I'm still VERY suspicious when helicopter Ben gives BTC his blessing. They're going to distort and manipulate the hell out of it. It's what the central planners do best, even to precious metals.

[brandino29]

I'm absolutely riveted as of today by this whole thing.  I first learned about it back in May thinking it was some sort of video game currency at first and then discovered it was a "real" currency.  I tossed around the idea of buying one then but thought $100 was crazy!  Now I'm actually thinking about putting a little money in but can't bring myself to do it because at $586 it seems even crazier. 

But who knows?  Maybe $1,000 or even $5,000 is just around the corner and we were crazy for not investingspeculating now?

[Mr.Macinstache]

I think they took down the Silk road as a stress test. When the price failed to drop below $100 and then actually gained value, that proved itself legit to the Feds and users. Only then did it mushroom after the US govt officially blessed it as a legitimate form of currency and said they would not be regulating it. Bam, through the roof! China is into it heavily too. There's a lot of risk but knowing what I know, it probably wont ever go below $400 again. It will see $1000 gradually. Mathematically one BTC can be worth 1 million USD too. It's a bargain right now. :)

[Spork]

I think they took down the Silk road as a stress test. When the price failed to drop below $100 and then actually gained value, that proved itself legit to the Feds and users. Only then did it mushroom after the US govt officially blessed it as a legitimate form of currency and said they would not be regulating it. Bam, through the roof! China is into it heavily too. There's a lot of risk but knowing what I know, it probably wont ever go below $400 again. It will see $1000 gradually. Mathematically one BTC can be worth 1 million USD too. It's a bargain right now. :)

btw... Silk Road came back a week or two after the bust.  And it has lots of underworld friends. 

There's also a current campaign with a group of miners to get a majority claim on the blockchain.  If they win -- all bets are off on this currency.

the bug:  http://www.businessinsider.com/this-is-why-bitcoin-is-broken-2013-11

[Mr.Macinstache]

I think they took down the Silk road as a stress test. When the price failed to drop below $100 and then actually gained value, that proved itself legit to the Feds and users. Only then did it mushroom after the US govt officially blessed it as a legitimate form of currency and said they would not be regulating it. Bam, through the roof! China is into it heavily too. There's a lot of risk but knowing what I know, it probably wont ever go below $400 again. It will see $1000 gradually. Mathematically one BTC can be worth 1 million USD too. It's a bargain right now. :)

btw... Silk Road came back a week or two after the bust.  And it has lots of underworld friends. 

There's also a current campaign with a group of miners to get a majority claim on the blockchain.  If they win -- all bets are off on this currency.

the bug:  http://www.businessinsider.com/this-is-why-bitcoin-is-broken-2013-11

Interesting. A lot of that is above my pay grade, but from what I understand, it would take a monumental effort of collaboration to centralize and dominate the system... I guess we would have to ask if that would be advantageous at some point?

[Spork]

I think they took down the Silk road as a stress test. When the price failed to drop below $100 and then actually gained value, that proved itself legit to the Feds and users. Only then did it mushroom after the US govt officially blessed it as a legitimate form of currency and said they would not be regulating it. Bam, through the roof! China is into it heavily too. There's a lot of risk but knowing what I know, it probably wont ever go below $400 again. It will see $1000 gradually. Mathematically one BTC can be worth 1 million USD too. It's a bargain right now. :)

btw... Silk Road came back a week or two after the bust.  And it has lots of underworld friends. 

There's also a current campaign with a group of miners to get a majority claim on the blockchain.  If they win -- all bets are off on this currency.

the bug:  http://www.businessinsider.com/this-is-why-bitcoin-is-broken-2013-11

Interesting. A lot of that is above my pay grade, but from what I understand, it would take a monumental effort of collaboration to centralize and dominate the system... I guess we would have to ask if that would be advantageous at some point?

I think you might be surprised.  Amazon EC2 servers can be amazingly cheap and scalable... especially if world domination was the target.  ;)

There are already password cracking services on EC2 that can do MASSIVE amounts of cracking for very little money.  For example, researchers have been able to crack any WPA-PSK password in about 6 minutes at a cost of $1.68. 

[arebelspy]

That particular flaw isn't likely to be explotable in the real world.

http://slashdot.org/story/13/11/09/229220/bitcoin-probably-isnt-broken

Bitcoin could soar some day, but it's straight up gambling at this point.

I'd say it's much more likely a successor of BC has staying power.  BC is just version 1 of the idea.

[Spork]

That particular flaw isn't likely to be explotable in the real world.

http://slashdot.org/story/13/11/09/229220/bitcoin-probably-isnt-broken

Bitcoin could soar some day, but it's straight up gambling at this point.

I'd say it's much more likely a successor of BC has staying power.  BC is just version 1 of the idea.

Let's see... random guy on slashdot vs multiple security researchers with known reputaions....  not sure that's a real argument.

Yes, it's theoretical.  But not sure that the "no it isn't" from a random guy is a real argument.

[arebelspy]

I'm not sure if you read it, but the critique of the technique was by "Ed Felten, a professor of computer science and public affairs at Princeton University and director of the Center for Information Technology Policy, [who] wrote .. an analysis of the paper."

That's a decent credential enough for me to not call him a "random guy on slashdot" and to consider his argument, but maybe your standards are higher than mine.

[MoneyCat]

This whole situation reminds me of beany babies 20 years ago and we all know how that turned out.

[Spork]

The issue is this:  One side has an "is it technically possible" argument.  He doesn't answer that with a no.  He doesn't address the theoretical side at all.  All he addresses is the social side of "bad guys won't cooperate that well."

He could be right.  But he's countering a computer science/mathematical argument with a psychology/sociology answer.  The problem is that enough computing power wins.  That just requires time and/or money. 

[Albert]

Let's put aside computing issues for a moment and ask another question: why would someone use bit coins for actually buying anything instead of using them purely as an investment? With a strictly limited total number of coins and assuming they stay popular the real world value is bound to increase in perpetuity. That's a very strong deflationary pressure to do nothing except hoard money. Savings is not the only role money needs to play in an advanced economy...

[arebelspy]

The issue is this:  One side has an "is it technically possible" argument.  He doesn't answer that with a no.  He doesn't address the theoretical side at all.  All he addresses is the social side of "bad guys won't cooperate that well."

He could be right.  But he's countering a computer science/mathematical argument with a psychology/sociology answer.  The problem is that enough computing power wins.  That just requires time and/or money.

Sure, I agree with that.  That's exactly his argument, and no, he doesn't say it's not technically possible - he even says it is.  But he's arguing that it won't actually happen.

Will it?  Maybe.  He could be wrong, of course.  It's just an argument to think about and consider.

That doesn't just make him a random guy, though.  (And even if he was, that too doesn't make his argument invalid.)

Though maybe, idk, I should just dismiss your posts as from some random guy (and vice versa, of course).  ;)

[Spork]

The issue is this:  One side has an "is it technically possible" argument.  He doesn't answer that with a no.  He doesn't address the theoretical side at all.  All he addresses is the social side of "bad guys won't cooperate that well."

He could be right.  But he's countering a computer science/mathematical argument with a psychology/sociology answer.  The problem is that enough computing power wins.  That just requires time and/or money.

Sure, I agree with that.  That's exactly his argument, and no, he doesn't say it's not technically possible - he even says it is.  But he's arguing that it won't actually happen.

Will it?  Maybe.  He could be wrong, of course.  It's just an argument to think about and consider.

That doesn't just make him a random guy, though.  (And even if he was, that too doesn't make his argument invalid.)

Though maybe, idk, I should just dismiss your posts as from some random guy (and vice versa, of course).  ;)

well, I am just some random guy.  ;)

I'm not a computer security researcher, but I've been in the computer security field > 20 years.  Pretty much every theoretical attack I've seen has become reality at some point.  Some of them would have been considered ridiculous and far fetched (particularly some of the ones that are coming out of the Snowden documents right now). 

But the guy's argument is a sidestep.  It doesn't address the actual argument at all.  I'd say there are plenty of large computer resources (some state owned) that could have a go at this.

[arebelspy]

I think you're missing my point.

Sorry I am not explaining myself clear enough.

I will try again.

But the guy's argument is a sidestep.  It doesn't address the actual argument at all.  I'd say there are plenty of large computer resources (some state owned) that could have a go at this.

I agree with this.

However:

well, I am just some random guy.  ;)

This doesn't matter.  If an argument has merit, consider it.  Dismissing it because it's from some "random" guy is quite narrow-minded and unhelpful.

[projekt]

Let's put aside computing issues for a moment and ask another question: why would someone use bit coins for actually buying anything instead of using them purely as an investment? With a strictly limited total number of coins and assuming they stay popular the real world value is bound to increase in perpetuity. That's a very strong deflationary pressure to do nothing except hoard money. Savings is not the only role money needs to play in an advanced economy...

This is exactly the problem. I have been trying to come up with a good phrasing like this. BTC conceptually makes sense as an exchange currency but the incentive to hoard is too great. Perhaps it will stabilize at some point, but if enough people try to cash out it will collapse very fast.

Using BTC as an exchange currency is very risky too. If BTC can double in 2 days, why would you use it over cash? If you receive BTC for services and the price drops 50% before you can pull out your money, you've lost a ton. It can't be a good exchange currency until it has some stability.

[Spork]

Using BTC as an exchange currency is very risky too. If BTC can double in 2 days, why would you use it over cash? If you receive BTC for services and the price drops 50% before you can pull out your money, you've lost a ton. It can't be a good exchange currency until it has some stability.

Totally agree.

My issues with it: I am not really a fan of fiat currencies (and I'm smart enough to know they're here to stay and things are not going to change in that regard).  I like the idea of currencies backed with *something* of value.  It's true that gold (for example) can go down fast.... but... it's still gold.  It will still have some utilitarian and non-utilitarian use forever.

BTC is like the worst kind of fiat currency.  The US dollar at least has the fate of the country sitting behind it.  Yeah, it will go up and down and you can argue the guys in charge are incompetent or out of touch or incapable or awesome or whatever.... but the consequences are HUGE if there is a massive failure and come hell or high water: the collapse will be contained or countered with utmost force.

...but, not so much with BTC.  Sure some folks would lose something... and a few would lose a lot... but if it fell over and Namecoin or Litecoin pushed into its place: I'm not sure it would make top billing in the news.  It's a penny stock.  One in many will make a boatload of money... but mostly they're not worth much.

[Khan]

Since Arebelspy locked the other topic as I was about to post...

Do your research. Maybe you can come up with a reasoned thesis that bitcoin is likely to be either 5x or 0 in two years. In that case, it might be a nice bet. If you find a compelling case about valuation probabilities one way or the other, please share.

The general consensus is "who the hell knows."  I was mostly curious about the run-up this year, and nobody's talking about their gambles.  I was curious about Mustachians, like Khao, that took a little chance and did well.  Obviously I don't think this is a great idea.  I did describe it as "volatile" and "lunacy".

Yes, and in the interest of "who the hell knows", I refuse to participate in the market. Let alone the fact that every transaction that's ever happened in bitcoins is recorded in the permanent ledger(it's not as anonymous as the libertarian hype for it would make you think), or the main profiteers off of Bitcoin are the middlemen, the exchanges, the ASIC mining rig manufacturers, and that I'm a technicially inclined person, and even I said **** it to buying bitcoins(I got as far as installing a wallet and making an account at an exchange, found they wanted ID and stuff and dropped out.)

Who the hell knows. My respect for bitcoin speculation is lower then gold, at least gold bugs have doom, gloom, and the permanence of that asset on their side. If you made money in bitcoins, good on you. If you are speculating, good luck. Remember the tulips.

Bitcoin transaction permanence:
http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/23/heres-who-probably-did-that-massive-150000000-bitcoin-transaction/

[arebelspy]

(it's not as anonymous as the libertarian hype for it would make you think)

It's not anonymous at all; every single transactions is stored in the blockchain.

I do think it will go higher.  I'm not willing to gamble on it doing so.  I could make a few grand, or risk a lot of money and make hundreds of thousands.   To what end?

There are better gambles with lower risk.

[Rich M]

More comments on bitcoins, bubbles and speculation.

I will use netflix as a personal example of such.

In late 2008, I bought a few hundred shares of Netflix Stock (NFLX) for $23/share.  Over the next three months, it grew and eventually hit $43, where I thought it was overvalued. So I sold it.  It proceeded to go to about $47, then dropped to the mid $30's.  I thought I was a genius in my timing.

Then it went through the roof....all the way to $300.  I was stunned!

Of course right after that, the apparent bubble popped and the stock landed at ~$75.  Even here I thought it was overvalued.

Somehow it recovered and it now near an all time high of  $362 as of this post.  WOW! 

Here is the moral and why it's related to bitcoin:  I sold netflix at $43, after a huge profit thinking it was overvalued.  So extending that logic, say I forgot about it till it was $80.  I would have immediately sold it.  For me to realize a super crazy profit, I would have had to forget completely about it for either 2 years or till today because any other time, I would have sold it thinking I did the perfect move.

If I apply this to bitcoin, say I bought it at a nickel.  At the time I would not have the foresight to ever think it would reach $1000.  If it reached any factor of two or more, I would have bailed.  Unless I forgot about it.

So it might be too late but if you have the balls to buy bitcoin, or another cyber currency, then buy it and forget about it--and come back in a few years.  You will probably be surprised from it being worth nothing or a crazy amount.  I'm betting the the former. 

Just like tulips did with the Dutch in the 17th century, this could go all the way to the price of a house before it pops.  But I'm willing to bet it pops at some point.  All the media hype and forum mania seems to be a strong indicator of this.  I think when it doesn't feel right and it seems people are getting rich so easy, and I feel like I'm missing the ride, then I know to stay away.  The urge to get involved like I' missing out is a big message to stay away.  The herd mentality is a disaster in investing.  It's only good for a single primal prey for our ancestors, not  for a modern social group!

There are so many unknowns about this a a currency of the future.  Just like Netflix, it could be scooped by some other technology in the near future that we never foresaw.  Warren Buffet is noted in saying something like he won't invest in a company that he doesn't know where it will be in ten year or a company he doesn't understand.  I barely understand bitcoin and I certainly don't know where it will be in ten years....

.....Just like Netflix.  But I like my subscription in the present. ;)

This post could go either way of being wrong and missing out or wow, he was right (interesting read in 2 years).  I rather have that feeling of "Darn, I don't believe it and I missed out" rather than the feeling of "I got greedy and lost it all on a stupid fad for not thinking straight."  But then, I'm going the mustachian way, being frugal and enjoying life.

Bubble model


Current bitcoin chart

[Spork]

More comments on bitcoins, bubbles and speculation.

I will use netflix as a personal example of such.

[edited for brevity]

Netflix may compare here in the sense of "I don't know where the top is."   But on the whole, I think it is really a bad comparison.  Why?  Well, Netflix is a hugely successful business with millions of customers.  There is always a chance there will be a game changer here.  They might have a huge public technical breakdown... or maybe there is a game changing breakthrough (like what Netflix was to Blockbuster).  But on the whole:  The likelihood that Netflix is going to be worth SOMETHING tomorrow is huge.  The likelihood that it will be worth roughly what it was today is huge.  It's relatively stable.

Bitcoin is such a totally different animal that they don't compare.  It isn't a company.  It is a currency.  It isn't overly successful (or at least not yet).  It is challenging to actually use them in the mainstream world.  It doesn't have anything behind it: no government, no rare metal, no anything.  It is "backed" by cpu cycles.  If you must compare it to something, compare it to a currency in an emerging country with lots of unrest.  (Yes, people really do speculate on those currencies.)  There are chances that it will become a shining star of the new world.  But those chances are slim.  The likelihood that it will drop to nothing is actually in the "quite possible" range.  The likelihood that it will double before it drops to nothing: again "quite possible".  It's hugely volatile.

Netflix isn't really "speculation" in the true sense of the word.  No-name penny stocks are speculation.  They have huge upsides.  And huge downsides. The risk-reward differences here are vastly different.

[arebelspy]

So it might be too late but if you have the balls to buy bitcoin, or another cyber currency, then buy it and forget about it--and come back in a few years.  You will probably be surprised from it being worth nothing or a crazy amount.  I'm betting the the former. 

This, I think, is key.

If one is buying bitcoin right now you're either:
1) Speculating, or
2) Believe it will be the new currency of the future.

I just can't see #1 happening.  I could see a digital currency taking off at some point, but it seems to me much likely that it will be one more stable after kinks have been worked out.  The odds that to first one got it right and has staying power?  Quite low, IMO, meaning you're back to number 1 above, speculating.

You are investing gambling on the hope that it will go up.  Would you buy bitcoins at $1000 apiece and feel good about walking away from them for 5 or 10 years?   Think about Buffett's "only invest in it if you'd be fine if the market shut down tomorrow" idea.

Digital currency may have a future.  But this specific implementation lasting as a long term investment?  Seems unlikely.

And I have better places to gamble my money.  It may not be as fast and easy, but a whole lot less potential downside.

And yes, it wouldn't surprise me if the price of a bitcoin got to the price of a cheap house or a car (40k?) before it crashed, but who the hell knows? Certainly not the people investing in BitCoin (besides maybe some major players big enough to be able to cause a crash).

[Mr.Macinstache]

So far that guy's theory has not played out. It would have happened long ago already.

Bitcoin biggest weakness is that it competes with another fiat currency, that can create money out of thin air, which is backed by the state. Bitcoin itself is not the problem, its being swallowed by the bigger fish that's the problem.

[Rich M]

I keep seeing a theme over and over again on the interwebs comments basically calling bitcoin a solution to FIAT currency.

Here is a little bit about what money really is.

From Wikipedia and most economics texts is:

"Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context or country. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment. Any kind of object or secure verifiable record that fulfills these functions can be considered money."

The key parts here are "medium of exchange" and "unit of account"   Money is a transform of the work you did or the piece of company you own to another party without forcing them to get some plumbing done if you are a plumber or accept a share of AAPL stock for that widget you need.

It seems the people hung up on the dark side of money are focused on "Store of value" and it's understandable.  Inflation of the money supply destroys the store of value over time.

But if you are a good mustachian, you ignore the store of value over a longer frame. You don't store or invest your wealth in money, you invest them in companies that produce.   And you use the money "Unit of account", to track that wealth.  If you need something, you convert your stock into money and make your purchase using it as a "medium of exchange."  The beauty of this is that if the money supply inflates, in general it doesn't matter, because your company stock value inflates along with it.  This money could be dollars, yen or even bitcoin.  Does it matter?  It does.  A currency should have a stable price to avoid behavior that affects the transaction by the value of the money.

So lets say I accept bitcoin as a currency at the present and I need to buy a bike.  I sell some stock and get bitcoin?  Maybe.  Or maybe I have to convert it to dollars then buy bitcoin by some complex process.  But wow, now I have .5 bitcoin and the price is rising in terms of dollars.  Maybe I should wait to buy the bike since I can sell my bitcoin for dollars and get a better bike that way?

This is called deflation!  Most economists consider this worse than inflation.  If our whole economy was using bitcoin with a limit to the money supply and increasing demand, everything would just stop.  This is currently why I think bitcoin is a bad currency. 

Plus, the other side of the "bitcoin"  I'm betting that I will have a hard time to find a bike shop who will take it.  This takes us back to "generally accepted"...It's not.  In fact, most of the places that seem to currently take is are antimustachian...https://www.spendbitcoins.com/places/.  So why do I want to convert my stock to bitcoin so I can not find a bike shop? 

I know the dollar is stable enough that if I convert my stock into dollars, I can be confident that when I go to the bike shop, I can get the price I expected.

But if I want to participate in illegal activities, Bitcoin seems a great choice.

[Mr.Macinstache]

Bitcoin is fiat, no doubt. Just like our dollar and really just like Gold. Gold is backed by what? Nothing except demand. Intrinsic value can be debated there.

The beauty of it is that it's peer to peer. User don't need a bank to conduct transactions. So no bank 'holding' their funds, and no state taxing them. It puts the power in the individual. Like a said, the big danger are outside forces screwing it up, like the Fed and the state. However, they both gave their official blessing to BTC then it proceeded to explode in value.

Deflationary hysteria aside, people have no clue how prosperous they could be if our dollars were not devalued, inflated and taxed away. Bitcoin solved that problem.

[medinaj2160]

^ are you buying Bitcoins?

[Left]

hm... how is bitcoin not "held" by any company? It's held by the bitcoin exchangs and if they close shop, no one's going to give you money for it... pretty much like a bank to me...
Same with using it peer to peer... use a credit card/paypal/etc.

bitcoin is just paypal/itunes credit/arcade coins to me. Give some company dollar currency, then they give you "ones and zeros" and you spend that or convert it back to dollars.

[Daley]

hm... how is bitcoin not "held" by any company? It's held by the bitcoin exchangs and if they close shop, no one's going to give you money for it... pretty much like a bank to me...
Same with using it peer to peer... use a credit card/paypal/etc.

There is an important difference there between your examples... bitcoin isn't regulated or insured. At least when someone steals from your bank account or credit card, you can recover your money. Even if PayPal and P2P lenders aren't nearly as stringently regulated, they're still tied to accounts that are.

[Left]

That's why I added the example of the old arcade tokens... I see bitcoin as virtual "tokens" more than a currency

[chucklesmcgee]

hm... how is bitcoin not "held" by any company? It's held by the bitcoin exchangs and if they close shop, no one's going to give you money for it... pretty much like a bank to me...

No, Bitcoin is not exclusively held by bitcoin exchanges. Yes, bitcoin exchanges exist, and many people use them to exchange funds, but bitcoins are held by individual users and are transferred independently of any central exchange. If Bitcoin exchanges close, people can and will exchange Bitcoins on their own.

[chucklesmcgee]

There is an important difference there between your examples... bitcoin isn't regulated or insured. At least when someone steals from your bank account or credit card, you can recover your money. Even if PayPal and P2P lenders aren't nearly as stringently regulated, they're still tied to accounts that are.

You're not making an apples to apples comparison. If people steal a pile of dollars in your house, you can't recover that money. Other institutions can protect and insure said dollars and there's no reason why private companies won't do the same with bitcoin.

[chucklesmcgee]

Bitcoin is fiat, no doubt. Just like our dollar and really just like Gold. Gold is backed by what? Nothing except demand. Intrinsic value can be debated there.

No one's definition of a fiat currency includes gold. Bitcoin's supply cannot be manipulated by the whims of a central entity or anyone really. Whether or not you include Bitcoin as fiat currency list is certainly possible, but you have to agree that it's a distinguishing trait between Bitcoin and other fiat currencies.

[Khan]

I almost feel bad for people that got swept into it... but unfortunately, tulips. Always, tulips.

Current price is somewhere between 550 and 650 depending on the exchange. Absolute breakdown. If only I could short them....

[Daley]

I almost feel bad for people that got swept into it... but unfortunately, tulips. Always, tulips.

Current price is somewhere between 550 and 650 depending on the exchange. Absolute breakdown. If only I could short them....

And the collapse is on, again! This seems hilariously appropriate: http://youtu.be/1ytCEuuW2_A

[arebelspy]

If I was more of a gambler (as I used to be), I'd bet on it having at least one more run up, and consider buying on a dip like this.

Alas, my FIRE plan is so solid right now, there's no need to risk anything.

If I were 10+ years out though, I'd consider it though.

I wouldn't bet long term, but a short term gamble could make money.

/shrug