Author Topic: Bitcoin and other crypto-currencies discussion thread  (Read 15059 times)

bender

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Bitcoin and other crypto-currencies discussion thread
« on: July 13, 2017, 05:21:49 PM »
I have posted in the investor alley official crypto thread, but that thread is more of a discussion for people who are invested in digital currency.  Reading that thread, I'm baffled that people are investing in these coins, sometimes upwards of 5% of an investment portfolio.  Personally, I don't see a difference between investing in a crypto and investing in a penny stock.  It's speculation, and some people make a lot or lose a lot doing that.  I'm not interested - I don't want to discuss investing here - that's what the other thread is for (and about a billion articles on the interwebs).

What I'm trying to understand is what is the usefulness of digital currencies?  (Blockchain technology is different, I understand that has many uses.)  I can't figure out what the currencies themselves are good for.  What problem are they solving?  Where are they being used and why?

Maybe since I'm in the US, I see no use for the currencies here.  Some have suggested they are good in 3rd world countries with failing government.  I can see that, but also why not just use Euro or USD or something else that's physical?  Not everyone has computer/internet access in these places.

Volatility is a huge negative.  A currency whose purchasing power swings wildly is not useful.  I wouldn't want to take part in a transaction where I don't know what I could buy with my money next week or next month.

Competition between various currencies makes it confusing which one to use.  The barrier for entry is relatively low and new currencies continue to pop up.  Will there be some consolidation where several big currencies will merge to form a super-currency and push out the others?

I know Overstock now accepts bitcoin.  That's pretty impressive as they are a huge company.  Is this a sign of acceptance or a PR thing?  I wonder how much revenue they've been collecting in Bitcoin and how long they hold it in that form.  I expect they convert it to USD as part of the transaction so they are never exposed to the volatility (correct me if there's more info out there).  Why would anyone use bitcoin at Overstock instead of anything else though?  I would use my 2% credit card cash back card.

So I've done some basic research and I don't get it.  What am I missing?

UPDATE - On the "OFFICIAL" investing thread, the OP and others have complained that too much negative info is being posted there.  It's true that some were very negative without adding value to the conversation.  It's also true that no one complained when the comments were wildly positive without any basis.  It's very clear they only want cheerleaders there.  I don't like to see that on this forum, but I've deleted all my posts there and retitled this thread to open it to any and all crypto discussion.  Post positive or negative here, just make sure to include some reasoning behind your thoughts. 
« Last Edit: October 09, 2017, 03:04:12 PM by bender »

scottish

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #1 on: July 13, 2017, 06:12:58 PM »
This is a really good question & I'm interested to see others' answers.   As I understand things...

The idea is that crypto currencies aren't directly controlled by any particular government is it not?   For example, the government can't devalue create more of the currency at will to meet some objective.

They're also being used for grey/black market transactions on the internet where the parties involved don't want to be identified.   I'm not sure how good this idea would be in practice though, I think it relies on not being able to connect your bitcoin wallet to your identity.

Like you, I view this as a speculative instrument for those of us in North America and Europe.   I don't own any bitcoin.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #2 on: July 13, 2017, 06:38:26 PM »
With apologies in advance for the wall of text, but you're asking important questions and I wanted to give thought out answers.

Maybe since I'm in the US, I see no use for the currencies here.  Some have suggested they are good in 3rd world countries with failing government.  I can see that, but also why not just use Euro or USD or something else that's physical?  Not everyone has computer/internet access in these places.

Most people (even out in african villages practicing subsistence agriculture) has a cell phone with internet access, so this doesn't appear to be a particularly strong barrier to adoption. It's interesting to see how this is playing out right now in india which is still recovering from "demonetization" that really is forcing even the extremely poor in small villages to consider electronic payment methods instead of saving hard currency (many of them had their live savings savings wiped out by demonetization because it was stored as cash).

The advantages of something non-physical in countries with unstable governments/currencies are:

1) you can pay people without the two of you having to meet up (for example paying your cell phone bill) and all the other logistical benefits that are driving folks in the eurozone and USA towards more and more use of plastic (credit and debt cards) rather than physical currency.
2) non-physical currencies are more resistant to confiscation (or demonetization) than physical currencies
3) it's much easier for folks out of the country to send remittences back to their family in the unstable country without it being stolen somewhere during the transfer process. 

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Volatility is a huge negative.  A currency whose purchasing power swings wildly is not useful.  I wouldn't want to take part in a transaction where I don't know what I could buy with my money next week or next month.

This is a valid concern, but only if you're using the currency as a store of value, rather than a medium to facilitate exchange. Lots of companies that accept payments in bitcoins still have prices in dollars. They convert that price into an instantaneous price in bitcoins, get the bitcoins, and have them converted back to dollars all instantaneously.

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Competition between various currencies makes it confusing which one to use.  The barrier for entry is relatively low and new currencies continue to pop up.  Will there be some consolidation where several big currencies will merge to form a super-currency and push out the others?

Based on the underlying technology I think a merger if multiple currencies is very unlikely. It is likely that (at most) only one or a few of the many currencies out there today will actually get widely adopted as a medium of exchange though.

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I know Overstock now accepts bitcoin.  That's pretty impressive as they are a huge company.  Is this a sign of acceptance or a PR thing?  I wonder how much revenue they've been collecting in Bitcoin and how long they hold it in that form.  I expect they convert it to USD as part of the transaction so they are never exposed to the volatility (correct me if there's more info out there).  Why would anyone use bitcoin at Overstock instead of anything else though?  I would use my 2% credit card cash back card.

Also microsoft, newegg and various other large companies. Yes, as far as I know all the big companies that accept it generally convert to USD right away when they get paid.

The reason your credit card can afford to pay you 2% of each of your purchases is that they're charging overstock/microsoft/newegg more than 2% of your purchase price as a transaction free. So from the company's perspective they'd probably prefer you pay in bitcoin.

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So I've done some basic research and I don't get it.  What am I missing?

I guess that moving money around with conventional approaches (other than handing people a big pile of cash) is currently slow (takes days to weeks to clear), sometimes risky (more on this below), and everyone involved tends to take a slice of the pie. This tends to be shielded from the consumer, but you start to run into it as soon as you try to accept money in any form other than a paycheck from a W-2 employer.

Take a look at this whole thread about the logistics of getting paid for a used car without being defrauded: https://forum.mrmoneymustache.com/ask-a-mustachian/accepting-checks-for-car-sale-prevent-bounced-check/

Or read some of the horror stories about what can happen with paypal when folks reverse charges, or the company decides to freeze your account or sudden decides to keep 35% of every transaction: https://www.reddit.com/r/paypal/comments/6lhxme/what_happens_when_you_pay_paypal_15k_in_fees/

Or about how international charities are running into problems getting funding out to their operations to prevent people from starving or freezing in winter because of banking regulations meant to prevent fraud:
https://www.economist.com/news/international/21724803-charities-and-poor-migrants-are-among-hardest-hit-crackdown-financial-crime-means

Or more pragmatically, consider that every time you swipe your 2% credit card (or order something online) you're giving the person or company on the other side of that transaction all the information they need to steal your account. And you have to trust them not only not to steal your account but to properly secure that information so that no one else does: https://en.wikipedia.org/wiki/List_of_data_breaches

Now that doesn't mean that cryptocurrencies are a good investment. It doesn't even mean that their technology has a better set of tradeoffs than the system we use now. I tend to think the answers to these are "I don't know" and "Yes, way better", but those are opinions, not facts. There there is an awful lot not to like about the way we currently handle moving money around, even in the USA.
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MoonLiteNite

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #3 on: July 13, 2017, 08:17:42 PM »
I use bitcoin to play poker online, government aint stealing my poker money a 2nd time!
Other than that i have used it for buying a drink once. And bought some legal drugs from the silkroad, much cheaper than the stuff at the smokeshops.

Other than that, i really have no use for it right now, but i do plan on keeping my 24.5 coins saved as a lotto ticket. So far i have hit the 2nd prize jackpot....

« Last Edit: July 17, 2017, 10:29:17 AM by MoonLiteNite »

bender

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #4 on: July 13, 2017, 09:11:53 PM »
Maizeman - thanks a ton for the detailed responses.  Great points all around.

On the transaction fees from cc processing, I understand the fees range from 2-5% or so, which is a huge amount. What transaction fees are involved in dealing with crypto currencies?  Say a typical $100 transaction where neither party want to use digital as a store of value due to the volatility.  So the buyer will convert dollars to bitcoin (or other digital), transfer to seller, then the seller converts to dollars.  I'd guess the fees are much less, but there's also some minor dilution from the mining aspect, right?  I still expect crypto to come out far ahead here.  If crypto ever becomes widely adopted enough to take market share from cc companies, everyone can benefit from lower fees.

My understanding from India is they did away with large bills to reduce tax fraud.  I think people moving to digital currency would allow that problem to continue.  I didn't think many lost legitimate money in the exchange as long as they deposited it into a bank, but I didn't follow it that closely.

Some of the linked articles show issues with the current system.  I agree regulations can be a hindrance at times, but with digital totally unregulated it seems the opposite extreme.  I think that any long term viable digital currency will need to enable regulations.  If that doesn't happen, government will find a way to squash it.  It seems US government is sitting back and watching for now.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #5 on: July 13, 2017, 09:55:18 PM »
Just moving bitcoin from one person to another (pretty much regardless of the size of the transaction) cost between $0.03 and $0.30 until the start 2017.

Right now there is a big spike in the cost of transactions for bitcoins specifically (not all cryptocurrencies) because the number of people using the currency has grown a lot and there's a disagreement between two different approaches to how to adapt to the protocol to allow more money transfers to be processed at the same time. Either solution should address this issue and bring the cost of moving back down, or people can use any of the other cryptocurrencies that don't have that particular issue.

But that just moves bitcoin from one person to another. For folks who don't want to hold on to bitcoin but receive USD instead, there are a number of companies that provide bitcoin payment processing so that the end user business doesn't hack to muck around with the underlying cryptocurrency at all. One of these -- bitpay -- charges 1% of the cost of each transaction, so about 1/3 of the cost of what a credit card processor would charge, to pay you in dollars while your customers pay in bitcoins. More competition would likely drive those fees down (a lot of what online stores are paying bitpay for is their software interface for customers to use (like paypal), not the actual transactions).

The issue with demonetization in India is that they announced (with zero notice) that most of the large banknotes would cease to be legal tender. People had from Nov 8th to Nov 25th to deposit them into banks, but the limit on deposits was only 4,000 rupees per day (~60 bucks). And of course this caused huge lines at the banks. So if you could afford to miss work (or abandon your fields) every day during that window, you could save up to about a thousand dollars of your life savings, otherwise even less than that. I agree with you that pushing people into digital currencies isn't going to solve the problem the indian goverment was trying to address, but it may be happening anyway. There's a good episode of the planet money podcast on all the effects all this had on people in India (particularly the poor).
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bender

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #6 on: July 14, 2017, 06:09:54 AM »
Thanks for the info on transaction costs.  Looks like a decent discount over cc if getting going between dollars and bitcoin on both sides of the transaction can be kept low.  Hopefully competition will drive costs well below 1%.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #7 on: July 14, 2017, 06:28:29 AM »
Are crypto-currencies useful? Sure answer...Yes. Actually make that absolutely YES.

Crypto-currencies are volatile right now only because it is new and most people just don't fully understand it at the moment. So some people are just buying into it (just as with any new asset or currency) for the sake of owning something new.

You see as with any peak and drop there is always a growing baseline of capitalization that remains in Bitcoin and that base capitalization continues to grow. This means that there is a huge growing investment base that continues to see more and more value in Bitcoin and it will only grow larger. The ups and downs you see and just the percentage of people who are in it to try and grab a quick return without caring about the true value of Bitcoin.

So what is that true value? There's a ton of it.

The internet at the moment simply does not have a good medium of exchange that is completely secure, decentralized, and 100% computer based. The internet needs a currency of its own and crypto-currencies provide that. In my mind, Bitcoin is less of a gamble because of the fact that there are so many companies (think diversification) that are building their business upon the framework of crypto-currencies. So, by investing in Bitcoin, you're essentially investing in all these groundbreaking companies themselves. All it takes in for one of these companies to become massive for Bitcoin to become a lot more mainstream than it is today.

For example, you could have a decentralize cyber-intelligence sharing agency where all the computers make API requests that all pay themselves automatically in bitcoin without requiring a central organization to handle payments. The possibilities are truly endless and no other payment system has the capability that crypto-currencies provide.

From a security stand-point, there is no other payment method that is as secure as crypto-currencies. I paid for an item online using Bitcoin from Overstock and no matter who was watching that transaction take place and no matter what happens with the security of Overstock's systems, my Bitcoin can't be stolen or compromised. No breach or data compromise will ever compromise the rest of my Bitcoins. New technologies and secure wallets are being invented every day that makes securing, storing, and spending Bitcoin easier and safer for even the common mainstream individual.

From a store of wealth perspective, I feel safer having my spending money and a portion of my savings in Bitcoin than I do the dollar. As I said earlier, there are so many companies that are building their foundation on Bitcoin or other crypto-currencies. In order for Bitcoin's long term value to drop, you'd need to see all of these ground-breaking companies fail as well as a large percentage of the world's governments change their opinion and condemn Bitcoin. I just don't see that happening. I know people are unsure of what Bitcoin is at the moment, but there is just way more upside than there is downside. The limited supply means that as long as investment and sentiment around Bitcoin continues to grow, so will my money.

I currently have a debit card from Shift that will allow me to spend Bitcoin anywhere Visa is accepted without any additional transaction fees on my end, which is pretty awesome too. For my wife and I, I put our limited monthly spending money in a Coinbase account and we use our Shift debit cards for spending each month. All the rest of my Bitcoins that I have for "untouchable" long term investing is in an offline secured wallet. It is like being able to have a separate account for tracking expenses and budgeting, but keeping it liquid so in the event I do need access to a lot of money right away, I can have it in just a few minutes.

In my opinion, Bitcoin is beyond the point at which it can be stopped. It is a world-wide currency that would require sudden world-wide opposition to stop, which is the exact opposite of the support that it is receiving at the moment from most governments. There are so many ways in which the demand can suddenly sky-rocket, Japan's usage is a great example of that. All it takes is just one small influx of a large amount of money and demand for it would jump immensely (ETF approval, remittances, reserve currencies, legalization/regulations, etc). Keep in mind its market capitalization is only around $40 billion. I easily see that going much higher and whatever percentage higher it goes, the value of my Bitcoin will go higher too.

I see a future where numerous government currencies are going to become very unstable (think Venezuela) and when this happens to even just a few fiat currencies, Bitcoin's value will become very apparent to everyone.

The only risk at the moment with Bitcoin doesn't come from any outside force, but from itself. If the coming scaling issues can be resolved without any huge issues, then that will go a long way toward boosting mainstream confidence in it. It will also reduce the currently high fees in the system and return it to being the low fee system it was originally.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #8 on: July 14, 2017, 06:47:51 AM »
The internet at the moment simply does not have a good medium of exchange that is completely secure, decentralized, and 100% computer based. The internet needs a currency of its own and crypto-currencies provide that. In my mind, Bitcoin is less of a gamble because of the fact that there are so many companies (think diversification) that are building their business upon the framework of crypto-currencies. So, by investing in Bitcoin, you're essentially investing in all these groundbreaking companies themselves. All it takes in for one of these companies to become massive for Bitcoin to become a lot more mainstream than it is today.

But isn't there a different between at least one company using at least one cryptocurrency succeeding and bitcoin succeeding? For example Sia could make it big, and that could increase the value of siacoin, but that could happen even if the value of bitcoin dropped precipitously.

To me, the tech behind bitcoin is compelling for the reasons I posted about above, but there are a lot of competing crypocurrencies out there now and a first mover advantage, while significant, isn't a get out of jail free card. To me the worst case outcome for bitcoin itself would be that it turns out to be the MySpace of crypocurrencies.*

*Gets there first, shows there's a lot of demand, gets adopted widely, then other competing networks pop up. At first, everyone assumes the other networks are "me too" companies that cannot compete with the established giant, then as some of those companies start to succeed everyone assumes there will be different social networks for different aspects of life.... then facebook eats the world.
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lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #9 on: July 14, 2017, 07:07:30 AM »
But isn't there a different between at least one company using at least one cryptocurrency succeeding and bitcoin succeeding? For example Sia could make it big, and that could increase the value of siacoin, but that could happen even if the value of bitcoin dropped precipitously.

To me, the tech behind bitcoin is compelling for the reasons I posted about above, but there are a lot of competing crypocurrencies out there now and a first mover advantage, while significant, isn't a get out of jail free card. To me the worst case outcome for bitcoin itself would be that it turns out to be the MySpace of crypocurrencies.*

*Gets there first, shows there's a lot of demand, gets adopted widely, then other competing networks pop up. At first, everyone assumes the other networks are "me too" companies that cannot compete with the established giant, then as some of those companies start to succeed everyone assumes there will be different social networks for different aspects of life.... then facebook eats the world.

I absolutely see a future where there is more than just Bitcoin. There is definitely room for more than one crypto-currency. Most of these smaller crypto-currencies however have very specific uses. Siacoin and also Storj (which is similar) are very specific as to their purpose. They're less of a medium of exchange (which is Bitcoin's main purpose) and more of essentially a stock or holding in the company behind them. So sure, Storj or Siacoin could take off as the next big cloud storage company (which I could absolutely see happening), but I don't see them as replacements for Bitcoin. They might take away some potential from Bitcoin since a company that builds itself off out its own coin versus Bitcoin would mean less money being invested in Bitcoin, but I don't see them as threats to Bitcoin's existence.

I don't think the comparison between social media websites is an accurate enough of a comparison though. MySpace was never a multibillion dollar behemoth that went under from competition. It went under because it failed to compete with Facebook as a social-network. MySpace's approach was more of a music/entertainment portal that failed to boost its social capabilities in an Internet era that was just beginning to become social. It was a missed opportunity for them. Make no mistake, at the time, both MySpace and Facebook were itty bitty companies.

Bitcoin today, by comparison, is bigger than some of America's biggest companies. In fact, it is larger than a majority of companies in the S&P 500. So if there is going to be another coin that overtakes Bitcoin or causes Bitcoin to devalue significantly, I don't think it will be overnight and it would take a lot of money shifting around in order to do so.
« Last Edit: July 14, 2017, 07:16:05 AM by lifeanon269 »

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #10 on: July 14, 2017, 07:32:46 AM »
To elaborate more on my "competing currencies" comment above and why I don't think there will be a currency that overtakes Bitcoin.

Bitcoin does one thing and does that one thing really well. Most other competing currencies seek to build additional functionality into the currency (Ethereum's smart contracts for example) or a company looks to tightly integrate the functionality of the coin into their product itself (Siacoin and Storj). But the more functionality you build into the coin, the more specific its use becomes.

You'll never see someone use Siacoin to send a remittance to a loved one back in their home country. That's not its purpose.

Bitcoin's sole purpose is as a medium of exchange. Its original whitepaper discussed this thoroughly and that is what its main design was intended to accomplish. The fact that it does this and does it well is why I don't see many competitors taking away its market share. If there were a competing coin that were to replace Bitcoin, it would probably look a heck of a lot like what Bitcoin looks like. So I don't see that happening.

Will there be successful coins that have very specific uses? Yes, I see success in Siacoin and Storj's future. But, they're not replacements for Bitcoin. We need a currency who's sole purpose is to exchange value between two parties and that's all it does. That's what Bitcoin does and it does it pretty well.

With all that said however, there could be a coin that is just like Bitcoin but is FASTER. That would have a ton of value. That's why I think Bitcoin's biggest competitor is itself. It is hugely critical that is resolves its scaling issue otherwise another coin that is faster could take its place. I think the next couple months will be very crucial for Bitcoin to prove its worth.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #11 on: July 14, 2017, 09:54:27 AM »
From the perspective of someone who has followed Bitcoin closely for years and jumped into an altcoin (ethereum) with a small amount of money just before this year's run-up, I'm very, very skeptical about the long-term use case for existing individual coins. I dabbled as speculation (bad reason, though decent result) and as an experiment to better understand the tech and how the coins are used in practice (less bad reason) and so far, I'm not at all impressed with the results of the latter.

To me, at least in developed economies, the coins as a medium of exchange are a poor solution in search of an ever-diminishing problem. Venmo, PayPal, Square and a litany of other new fintech transaction services are much more efficient and less costly (or cost-free) to the average user than are cryptocurrencies. Not to mention the ever-increasing friction introduced by solving blocks and the potential risk of loss to the average user through exchange hacking or wallet loss. And having a decent understanding of monetary policy and function, the idea of Bitcoin usurping fiat as a widespread medium of exchange is, IMO, fantasy. Perhaps some future cryptocurrency will have a clever enough protocol to seriously challenge fiat, but it's almost certainly not any of the existing currencies. So I'd recommend against using any current cryptocurrency as a medium of exchange or to gamble any money you're not willing to lose.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #12 on: July 14, 2017, 09:58:30 AM »
Lifeanon, I think you may be confusing two separate points I was trying to make in my previous post (which may be my fault I should have been more explicit about separating them). The first was just that the success of companies based on blockchain technologies doesn't necessarily help the adoption or value of bitcoin unless those companies are using bitcoin specifically (hence the Sia example).

Separately from that point I was saying that bitcoin still has a risk of being overtaken by another cryptocurrency that does what bitcoin does, only better/faster. Sia is clearly not an example of such a currency, but there are a fair number of currencies out there that do try to be a better faster bitcoin: dash (faster transactions), monero (faster transactions and better anonymity), zcash (faster transactions and potentially the best anonymity). I'm sure there are a bunch of others in the same category, but those are the ones I could think of off the top of my head. It doesn't mean any of them will succeed, but they very clearly are going head-to-head with bitcoin for the same market niche.
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lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #13 on: July 14, 2017, 11:11:07 AM »
To me, at least in developed economies, the coins as a medium of exchange are a poor solution in search of an ever-diminishing problem. Venmo, PayPal, Square and a litany of other new fintech transaction services are much more efficient and less costly (or cost-free) to the average user than are cryptocurrencies. Not to mention the ever-increasing friction introduced by solving blocks and the potential risk of loss to the average user through exchange hacking or wallet loss. And having a decent understanding of monetary policy and function, the idea of Bitcoin usurping fiat as a widespread medium of exchange is, IMO, fantasy. Perhaps some future cryptocurrency will have a clever enough protocol to seriously challenge fiat, but it's almost certainly not any of the existing currencies. So I'd recommend against using any current cryptocurrency as a medium of exchange or to gamble any money you're not willing to lose.

I don't think that it Bitcoin is solving an "ever-diminishing" problem. In my opinion, Bitcoin is solving a problem that will only be increasing in the future. I believe that many fiat currencies will become less and less secure as time goes on. I think that there will be a lot of unrest in the future caused by environmental stresses. There will be a great amount of inequality among which countries will be facing these stresses and I believe this will place a great deal of pressure on fiat currencies within these countries. The world is becoming more and more global every day and it calls for a currency that extends beyond borders and is decentralized. Do I think fiat currencies will be replaced completely? No way. But I do think that crypto-currencies will fill the void needed among an ever increasing global world. This is just in its infancy at the moment and any nationalistic pressure within any given country will further justify the need for such a currency.

Crypto-currencies don't even need to be the primary medium unit of exchange in our daily lives for them to have a pivotal role in the world economy (and being valued accordingly because of it).

If you think Paypal or Venmo could ever fill that void or that necessity, then you don't understand the true value in decentralized crypto-currencies.

Lifeanon, I think you may be confusing two separate points I was trying to make in my previous post (which may be my fault I should have been more explicit about separating them). The first was just that the success of companies based on blockchain technologies doesn't necessarily help the adoption or value of bitcoin unless those companies are using bitcoin specifically (hence the Sia example).

I understand that, but there are countless companies that are building their foundation upon Bitcoin itself. With a relatively small market cap (relative to other corporate standards), that means of all these hundreds of companies, only a handful would really need to be successful to push Bitcoin's value a lot higher than it is. That's a relatively easy bet to make in my mind. There is huge upside with relatively low risk because of the diversification of ideas at stake. This is important to consider. There are so many different ideas that could play out that it is almost a given that some of them will really take off. Obviously, this is speculation and I don't think Bitcoin's value is derived based on this speculation alone, but it is impossible not to consider at the same time.

Separately from that point I was saying that bitcoin still has a risk of being overtaken by another cryptocurrency that does what bitcoin does, only better/faster. Sia is clearly not an example of such a currency, but there are a fair number of currencies out there that do try to be a better faster bitcoin: dash (faster transactions), monero (faster transactions and better anonymity), zcash (faster transactions and potentially the best anonymity). I'm sure there are a bunch of others in the same category, but those are the ones I could think of off the top of my head. It doesn't mean any of them will succeed, but they very clearly are going head-to-head with bitcoin for the same market niche.

Understood as well, but with the current markets as they are today, it would really take a massive shift among the currencies that are similar to Bitcoin in order to "dethrone" it. Bitcoin trades over 3-quarters of a billion dollars every day compared to just $25billion for Dash and just $10billion for monero. Their market capitalizations are similarly behind Bitcoin's. It would take a massive shift in the amount of money being used among these currencies that it would take years to accomplish that (IMO). It certainly wouldn't happen overnight which makes it a wise choice to invest in Bitcoin and let the crypto-currency market sort itself out. If you really start to see one of these other currencies over take Bitcoin, it would require a long drawn out downfall on Bitcoin's part (which would give you time to transfer your wealth to whatever crypto-flavor you choose) or it would simply mean another currency is outperforming Bitcoin to take its spot. In the case of the latter, again you could simply take your gains from Bitcoin and move them to the new currency. But I don't see how it would be possible for one of these other crypto-currencies (like monero or Dash) to overtake Bitcoin in a way that would leave you scrambling to recover your investment. That's why I feel like the upside is way higher than any downside risk scenario you could possibly dream up.

seattlecyclone

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #14 on: July 14, 2017, 11:16:23 AM »
I mined a couple of bitcoins when they were worth just a few dollars each. I've since spent fractional bitcoins in a few places online, for video games or ebooks or whatever. I haven't seen the technology adopted nearly enough in mainstream commerce to justify the valuation, in my mind. It does have the potential to be useful, especially for transactions where you don't want any government or other entity to be able to interfere, but I find that conventional banking still works just fine for my day-to-day life.

In other words, it's solving a problem that most of us don't have. The infrastructure to allow crypto payments to be just as convenient and widely accepted as credit cards is a long way off. Until you see places like Walmart and gas stations and restaurants accepting some type of cryptocurrency en masse, it's just going to be a toy for geeks and speculators. At least that's how I see it.
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aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #15 on: July 14, 2017, 11:41:36 AM »
To me, at least in developed economies, the coins as a medium of exchange are a poor solution in search of an ever-diminishing problem. Venmo, PayPal, Square and a litany of other new fintech transaction services are much more efficient and less costly (or cost-free) to the average user than are cryptocurrencies. Not to mention the ever-increasing friction introduced by solving blocks and the potential risk of loss to the average user through exchange hacking or wallet loss. And having a decent understanding of monetary policy and function, the idea of Bitcoin usurping fiat as a widespread medium of exchange is, IMO, fantasy. Perhaps some future cryptocurrency will have a clever enough protocol to seriously challenge fiat, but it's almost certainly not any of the existing currencies. So I'd recommend against using any current cryptocurrency as a medium of exchange or to gamble any money you're not willing to lose.

I don't think that it Bitcoin is solving an "ever-diminishing" problem. In my opinion, Bitcoin is solving a problem that will only be increasing in the future. I believe that many fiat currencies will become less and less secure as time goes on. I think that there will be a lot of unrest in the future caused by environmental stresses. There will be a great amount of inequality among which countries will be facing these stresses and I believe this will place a great deal of pressure on fiat currencies within these countries. The world is becoming more and more global every day and it calls for a currency that extends beyond borders and is decentralized. Do I think fiat currencies will be replaced completely? No way. But I do think that crypto-currencies will fill the void needed among an ever increasing global world. This is just in its infancy at the moment and any nationalistic pressure within any given country will further justify the need for such a currency.

Crypto-currencies don't even need to be the primary medium unit of exchange in our daily lives for them to have a pivotal role in the world economy (and being valued accordingly because of it).

If you think Paypal or Venmo could ever fill that void or that necessity, then you don't understand the true value in decentralized crypto-currencies.

I am more optimistic about the long-term future of humanity than you are, but also think the inevitable environmental stresses we face are unlikely to be relieved to any significant degree by cryptocurrency.

I do agree that cryptocurrencies don't need to be the primary medium of exchange to play some significant role in our economy - you could argue that's happening now. Setting aside speculation for speculation's sake, I think the primary use cases for Bitcoin now and into the foreseeable future are for illegal activity and as a store of value for those in countries where fiat serves as a less stable store of value. Again, that's not insignificant at all, but I don't see it widely adopted as a medium of exchange for legal transactions in advanced economies. I know the protocol's rigidity is a feature and not a bug to people who mistrust fiat, but to me, it's a serious bug. I'm not at all adverse to technological disruption that improve the lot of humankind, and future applications of the blockchain certainly hold some promise, but I'm skeptical that any current coin (that I've seen, anyway) will capture that value.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #16 on: July 14, 2017, 11:50:44 AM »
In other words, it's solving a problem that most of us don't have. The infrastructure to allow crypto payments to be just as convenient and widely accepted as credit cards is a long way off. Until you see places like Walmart and gas stations and restaurants accepting some type of cryptocurrency en masse, it's just going to be a toy for geeks and speculators. At least that's how I see it.

Right, and how likely is that if it takes more than 10 minutes to verify each transaction in the case of Bitcoin? Would need a lot more cashiers to keep lines from going out the door, so I suppose it would generate jobs :)

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #17 on: July 14, 2017, 11:53:28 AM »
...the inevitable environmental stresses we face are unlikely to be relieved to any significant degree by cryptocurrency.

...I think the primary use cases for Bitcoin ... as a store of value for those in countries where fiat serves as a less stable store of value.

I don't understand the conflicting statements you make.

I'm not saying that crypto-currencies will solve our environmental problems. I am saying that as a consequence of our environmental calamities that we face, many countries will have a hard time adapting economically to these stresses. Therefore, there is a higher than not chance that crypto-currency in these countries will be of great value. This means, that even more so than today, crypto-currencies will continue to see greater and greater adoption in the face of fiat currencies.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #18 on: July 14, 2017, 12:02:05 PM »
...the inevitable environmental stresses we face are unlikely to be relieved to any significant degree by cryptocurrency.

...I think the primary use cases for Bitcoin ... as a store of value for those in countries where fiat serves as a less stable store of value.

I don't understand the conflicting statements you make.

I'm not saying that crypto-currencies will solve our environmental problems. I am saying that as a consequence of our environmental calamities that we face, many countries will have a hard time adapting economically to these stresses. Therefore, there is a higher than not chance that crypto-currency in these countries will be of great value. This means, that even more so than today, crypto-currencies will continue to see greater and greater adoption in the face of fiat currencies.

I'd disagree that "environmental calamities => major countries not adapting => fiat weak" is the base case prediction of where we're headed in my lifetime. But we can agree to disagree there.

Maybe worth a small flyer (as I've done) as speculation/insurance (specinsurance?). You're essentially arguing that Bitcoin is now or will be the new gold. I don't necessarily disagree on that, but I've always hated keeping any money in gold too, so it's still a pass for nearly all of my investments and certainly all of my money exchange.

Edited to add "in my lifetime"
« Last Edit: July 14, 2017, 12:04:07 PM by aspiringnomad »

MilesTeg

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #19 on: July 14, 2017, 12:09:34 PM »
Cryptocurrencies suffer from at least two major, looming problems:

1. Most (e.g. Bitcoin) have a severely limited supply, by design. This means that if actually used as a currency, it would suffer from massive deflation. Something like 85% of the total possible Bitcoins (roughly 20 million) have already been "mined" and are already in "circulation" and only a token amount of people in the U.S. (nevermind the world) actually have one of those coins.  In order to be useful to a non token amount of people, those same 20 million bitcoin have to get in the hands of a lot more people (orders of magnitude more), and this means the value represented by an individual bitcoin needs to increase similarly.

This is really great for people that currently have Bitcoins, but does not make for a viable long term currency intended for wide spread use. Bitcoin and any other similar 'currency' with this built in limited supply are at their heart an artificially/arbitrarily limited scarcity con job by the creators and early adopters.

2. Cryptocurrencies rely on the limitations of current computing systems, and it's only a matter of time before they become completely useless as wallets and coins can be 'stolen' trivially.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #20 on: July 14, 2017, 01:33:17 PM »
I'd disagree that "environmental calamities => major countries not adapting => fiat weak" is the base case prediction of where we're headed in my lifetime. But we can agree to disagree there.

Maybe worth a small flyer (as I've done) as speculation/insurance (specinsurance?). You're essentially arguing that Bitcoin is now or will be the new gold. I don't necessarily disagree on that, but I've always hated keeping any money in gold too, so it's still a pass for nearly all of my investments and certainly all of my money exchange.

I'm not saying that environmental calamities will be the sole makeup of the value of Bitcoin in the future. I'm saying that increasing stress on fiat currencies will add to its collective value. "Collective" value being the keyword. Some of Bitcoin's value will be from economic uncertainty with fiat currencies, some will come from increasing use of technologies associated with crypto-currencies, some of it will be from increased use as remittances, some value will possibly come from its use as a reserve currency, etc. The more global the world economy becomes (that's the direction everything continues to head), the more added value a solution that facilitates these needs has. This is what makes Bitcoin's inherent worth less risky to me because there are so many use cases for it in the future that we're headed to, that even if only a handful of those use cases come to fruition, its value will be worth much more than it is today.


Cryptocurrencies suffer from at least two major, looming problems:

1. Most (e.g. Bitcoin) have a severely limited supply, by design.

This is really great for people that currently have Bitcoins, but does not make for a viable long term currency intended for wide spread use. Bitcoin and any other similar 'currency' with this built in limited supply are at their heart an artificially/arbitrarily limited scarcity con job by the creators and early adopters.

2. Cryptocurrencies rely on the limitations of current computing systems, and it's only a matter of time before they become completely useless as wallets and coins can be 'stolen' trivially.

Have you read Bitcoin's original whitepaper? I recommend it.

https://bitcoin.org/bitcoin.pdf

That is by design and it is a good thing. Having a limited supply means that a central power can't diminish the currency's value by suddenly infusing the market with more of it. You can own fractions of a single Bitcoin. You won't get "priced out" of bitcoin even if you aren't an early adopter. It only means that if you do own Bitcoin at some point, you can be sure that its future value will not be arbitrarily diminished. Sure it is volatile right now, but that is only because it is so new and its market cap is still low. Once the market cap grows more, then it will be less prone to rapid fluctuations.

How does Bitcoin rely on current computing systems? Can you elaborate on that. Do you understand the protocol and how it works? There is a built in difficulty to the system so that as more computing power gets added to the network, the amount of hashing "proof of work" increases. How would that put at risk wallets? Even under the threat of quantum computing, Bitcoin's technology relies upon more than just public/private key cryptography. The cryptographic hashing that makes up the blockchain itself is also more resilient to quantum computing and increased computing power itself. Furthermore, the Bitcoin protocol was designed to be upgraded such that if new cryptography methods were necessary, it could accommodate. Finally, in the event that all this happens, our current financial systems would be equally at risk due to their reliance on cryptography for security as well.
« Last Edit: July 14, 2017, 01:35:52 PM by lifeanon269 »

Acastus

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #21 on: July 14, 2017, 01:45:41 PM »
I am sure someone will find a viable use for block chain encryption, but I do not think the current crypto currencies are the killer app. Currency needs to be based on the faith and reliability of some entity. The Cloud does not instill enough faith for me. Also, since the majority of servers wins all votes, someone could buy up 51% of them on a given day, claim all the currency, then sell the servers back. Instant ~ $ 40 billion scam. You would need some serious bank to pull it off, but the payoff is big, too.

I wonder if personal health records on a card or account might be a good use for block chain?  If only doctor's office servers and other health providers could vote, it might provide the needed security. Or would new data get wiped out? I am a chemical engineer, not a programmer, so evaluating the tech is a little out of my wheel house.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #22 on: July 14, 2017, 02:06:43 PM »
I am sure someone will find a viable use for block chain encryption, but I do not think the current crypto currencies are the killer app. Currency needs to be based on the faith and reliability of some entity. The Cloud does not instill enough faith for me. Also, since the majority of servers wins all votes, someone could buy up 51% of them on a given day, claim all the currency, then sell the servers back. Instant ~ $ 40 billion scam. You would need some serious bank to pull it off, but the payoff is big, too.

Just to throw some rough statistics out there, the current computing power in the Bitcoin network is astronomical. It is something like 500 times faster that the top 500 supercomputers in the world combined. The amount of computing power required to try and take over 51% of the network exceedingly unlikely for one single entity especially given the current distribution of mining pools out there and how distributed within those mining pools are:

https://blockchain.info/pools

Furthermore, as the blockchain continues, in order to modify past transactions or blocks on the "honest chain", all that proof of work that the bitcoin network did after that point in time would need to be redone.

It is unlikely that a "51% attack" would be possible because in the event that an attack like that would be suspected (since a large portion of the network would have to be controlled by suspect nodes), it would likely be required that a much higher percentage of the network would need to be controlled to make an attack actually successful.

Finally, and most importantly, an attack like this on the network would be self-defeating. If Bitcoin were compromised for the purpose of seeking monetary gain (which would be necessary given the enormous amount of computing investment needed to do so), then the value of Bitcoin would plummet which would mean that the attackers just killed the very asset they were looking to steal.
« Last Edit: July 14, 2017, 02:10:10 PM by lifeanon269 »

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #23 on: July 14, 2017, 06:15:11 PM »
Currency needs to be based on the faith and reliability of some entity. The Cloud does not instill enough faith for me.

bitcoin is generated and traded according to the original bitcoin whitepaper.  it's easy to see exactly how many exist and how they are created.  much easier in fact than making the same determination with US dollars or any other government currency.  it's much more straightforward and democratic than for example how the federal reserve operates.

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Also, since the majority of servers wins all votes, someone could buy up 51% of them on a given day, claim all the currency, then sell the servers back.

mining computing power can prevent certain transactions from being recorded, but you can't "claim" bitcoins you don't own even with 100% of the servers on the planet.

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I wonder if personal health records on a card or account might be a good use for block chain?

yes blockchain tech is perfect for permanently recording the signatures of documents.  then you can take any document (health record, house title, etc.) and prove it existed at a previous date.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #24 on: July 14, 2017, 08:49:34 PM »
Some of Bitcoin's value will be from economic uncertainty with fiat currencies,

Highly dependent on where you are. I can't speak from the perspective of someone in Venezuela, but hyperinflation in advanced economy fiat is incredibly rare.

some will come from increasing use of technologies associated with crypto-currencies,

Agree that there will be increased use of technologies associated with cryptocurrencies, but think it's likely that most and maybe nearly all of the value generated by those technologies is not captured by any individual coin. For example, why not verify all real estate title transactions with a blockchain but exchange fiat? No reason why not. Companies might be working on it, and beside using fiat, those companies are likely funded by fiat and valued in fiat.

some of it will be from increased use as remittances,

Agree here, but there's increasing competition in this space anyway. See the charts on pages 3 and 4 for the overall trend, and page 12 showing how much cheaper mobile operators are compared to banks:
https://remittanceprices.worldbank.org/sites/default/files/rpw_report_march_2017.pdf

some value will possibly come from its use as a reserve currency, etc.

That's a massive leap, and dependent on it's success not just as a store of value but as a medium of exchange. In my posts above, I've briefly mentioned why the Bitcoin protocol does not facilitate easy, frictionless exchange as compared to already existing technologies.


maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #25 on: July 14, 2017, 11:09:52 PM »
I understand that, but there are countless companies that are building their foundation upon Bitcoin itself.

Okay, I couldn't name a lot of companies using bitcoin itself (rather than general blockchain tech), but I concede I may just be out of the loop on this.

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With a relatively small market cap (relative to other corporate standards), that means of all these hundreds of companies, only a handful would really need to be successful to push Bitcoin's value a lot higher than it is. That's a relatively easy bet to make in my mind.

To put the $47B which thus far represents bitcoin's highest market cap in context, there are only 35 US companies with market caps work $100B or more and only 120 with market caps of $47B or more. Based on that I wouldn't describe the current value of bitcoin as relatively small by corporate standards.

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There is huge upside with relatively low risk because of the diversification of ideas at stake. This is important to consider. There are so many different ideas that could play out that it is almost a given that some of them will really take off. Obviously, this is speculation and I don't think Bitcoin's value is derived based on this speculation alone, but it is impossible not to consider at the same time.

I disagree with this point, but this goes back to me not seeing huge numbers of companies that are build technology right on top of bitcoin itself instead of launching their own dedicated blockchains or building tools that are agnostic about the underlying cryptocurrency being used. So if I'm wrong about how many of these companies there are, I could very well also have a mistaken impression about how diverse their ideas are, and how likely they are to succeed.

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Understood as well, but with the current markets as they are today, it would really take a massive shift among the currencies that are similar to Bitcoin in order to "dethrone" it. Bitcoin trades over 3-quarters of a billion dollars every day compared to just $25billion for Dash and just $10billion for monero.
Assume you meant million not billion for the volume of dash and monero?
Quote
Their market capitalizations are similarly behind Bitcoin's. It would take a massive shift in the amount of money being used among these currencies that it would take years to accomplish that (IMO). It certainly wouldn't happen overnight which makes it a wise choice to invest in Bitcoin and let the crypto-currency market sort itself out. If you really start to see one of these other currencies over take Bitcoin, it would require a long drawn out downfall on Bitcoin's part (which would give you time to transfer your wealth to whatever crypto-flavor you choose) or it would simply mean another currency is outperforming Bitcoin to take its spot. In the case of the latter, again you could simply take your gains from Bitcoin and move them to the new currency. But I don't see how it would be possible for one of these other crypto-currencies (like monero or Dash) to overtake Bitcoin in a way that would leave you scrambling to recover your investment.
Given that the market cap of the smaller cryptocurrencies have shown the ability to change in value 5x in a month and bitcoin can still change 3x in the same timeframe, a switch could theoretically take place in a couple of months. Once positive feedback loops kicked in (folks who plan to leave bitcoin if it starts going down realize it's going down and try to sell their coins, driving the price down more, convincing more folks it's time to sell driving down the price more and so on) a change could happen even faster than that. Note that I'm not saying such a thing will happen or even that it is likely, just that it's not outside the realm of possibility.

I don't disagree that bitcoin (and the tech behind it) have a lot of potential and may pay off handsomely. But there is a significant element of risk there, just like there would be in any stock market investment, or any purchase of real estate as an investment.

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That's why I feel like the upside is way higher than any downside risk scenario you could possibly dream up.

The way you phrased the last line of your post, it sounds like you're taking this discussion as a bit of a personal attack. If that is indeed the case, I sincerely apologize.
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lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #26 on: July 15, 2017, 06:54:38 AM »
...snipped...

aspiringnomad, I wasn't making an exhaustive list of all the possible use cases for Bitcoin. My point was to just list a few of the possible uses as an example that Bitcoin doesn't derive its value from any single one. Even if it takes a small market from a handful of different use cases, then its value will be much higher in the future than it is today. It is in such infancy right now that it isn't even close to reaching the ceiling yet. There could even be use cases that people haven't even thought of yet that have yet to come to light that could add to its value in the future. Time will tell.

To put the $47B which thus far represents bitcoin's highest market cap in context, there are only 35 US companies with market caps work $100B or more and only 120 with market caps of $47B or more. Based on that I wouldn't describe the current value of bitcoin as relatively small by corporate standards.

Sorry, I didn't really mean that Bitcoin was small comparative to corporations themselves (see my comment above about being larger than most S&P 500 companies). I wasn't the clearest in my comment, I apologize. My main point was that, as a currency, its value is relatively small and that even if just a handle of companies become successfully large (large cap), then that alone would effectively double its market cap from what it is today. That's why I greatly feel that Bitcoin is undervalued today. Or, maybe not necessarily undervalued, but valued with so much upside for the very near future. I'm not the only one who feels its market cap will reach $100billion in the next year. That would put its value at roughly $5000-6000. That's a very real possibility, IMO.

Assume you meant million not billion for the volume of dash and monero?

Yes, sorry, I meant to type millions.

Given that the market cap of the smaller cryptocurrencies have shown the ability to change in value 5x in a month and bitcoin can still change 3x in the same timeframe, a switch could theoretically take place in a couple of months. Once positive feedback loops kicked in (folks who plan to leave bitcoin if it starts going down realize it's going down and try to sell their coins, driving the price down more, convincing more folks it's time to sell driving down the price more and so on) a change could happen even faster than that. Note that I'm not saying such a thing will happen or even that it is likely, just that it's not outside the realm of possibility.

I don't quite understand what you mean by Bitcoin changing 3x in a month. It changes in value every day. A "feedback" loop like you describe isn't really realistic in my mind and isn't really how markets operate in reality. There would need to be drivers for such a change beyond just "hey people are selling". The scenario in question was whether or not another coin would overtake Bitcoin. In order to do that there would need to be tangible sentiment that another coin that is similar to Bitcoin is a better alternative. Even if it happens relatively quickly (a few months in your scenario), that would still give you plenty of time to see the writing on the wall. Remember, crypto-currencies are extremely liquid and you can change currencies any given point in time. That's why I don't find much risk coming from other currencies themselves. In order for a shift to happen, it wouldn't be over night. Therefore, it makes sense to invest in Bitcoin since it shows the most wide-spread promise, but if things change you will likely have plenty of time to react without losing much gain. The crypto-currency space is here to stay, that much is true.

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The way you phrased the last line of your post, it sounds like you're taking this discussion as a bit of a personal attack. If that is indeed the case, I sincerely apologize.

No no no. Definitely not. I don't take anything personal. No need to apologize. I enjoy the discussion!


EDIT: Had to fix the quotes I screwed up!!
« Last Edit: July 15, 2017, 12:15:37 PM by lifeanon269 »

Acastus

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #27 on: July 15, 2017, 03:53:39 PM »
Lifeanon,

I was contemplating buying the physical servers, not hacking the bitcoin system from the outside. If you could install corrupt sysops, could they make the needed file changes to commit fraud? I assume they would need to be well coordinated,  regardless.

Purely theoretical, of course.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #28 on: July 15, 2017, 04:28:46 PM »
Thanks lifeanon. And to be clear, I agree with you in that I see an awful lot of potential upside to bitcoin. I was doing some math on the other active bitcoin/crypto thread and came up with the potential for the value of bitcoin to increase 70-95x from where it is now if it really does becoming widely adopted as a medium for exchange on the scale of current national currencies. I'm just also convinced that there's a lot of potential upside to go with the downside.

Graph I was making to prove a point that I now realize we aren't debating, but which looks cool enough I'm still going to post it.



Currencies selected are those which I either know are currently being used to send payments between individuals, or have the goal of capturing that market niche (so no ripple, siacoin, bitshares, steem, etc)
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Cranky

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #29 on: July 15, 2017, 05:00:47 PM »
Bitcoin isn't useful to me, but I think it's useful to people in countries where the government closely controls the movement of the currency, and is none too stable.

I wouldn't mind putting a tiny bit of money into bitcoin, both as speculation and because I'm all about being diversified, but I'm much too lazy to figure it out.

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #30 on: July 16, 2017, 11:34:43 AM »
Lifeanon,

I was contemplating buying the physical servers, not hacking the bitcoin system from the outside. If you could install corrupt sysops, could they make the needed file changes to commit fraud? I assume they would need to be well coordinated,  regardless.

Purely theoretical, of course.

I think the corrupt sysadmins would need to have some way to rewrite the block chain.    This doesn't sound like a very viable attack, unless they can find a flaw in the encryption.   In which case mining would become easy, so why bother with corrupt sysadmins?     Or would this break the whole design of BitCoin?    any experts on here?

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #31 on: July 16, 2017, 12:03:33 PM »
Lifeanon,

I was contemplating buying the physical servers, not hacking the bitcoin system from the outside. If you could install corrupt sysops, could they make the needed file changes to commit fraud? I assume they would need to be well coordinated,  regardless.

Purely theoretical, of course.

I think the corrupt sysadmins would need to have some way to rewrite the block chain.    This doesn't sound like a very viable attack, unless they can find a flaw in the encryption.   In which case mining would become easy, so why bother with corrupt sysadmins?     Or would this break the whole design of BitCoin?    any experts on here?

Rewriting a blockchain rapidly becomes a computationally intractable problem.

The blockchain is divided up into blocks (hence the name). Solving each block requires a mathematical solution to a problem that depends on the  bitcoins which are being sent to different addresses in that block, plus the solution to the different mathematical problem of the previous block. The difficulty of the problems changes based on how much computational power is currently working on trying to solve the problems (mining) so that, on average, each block takes approximately 10 minutes to solve.

So if I wanted to change a transaction that happened one week ago, I would need to come up with a new solution to the block in which the transaction happened, which would mean I'd also need a new solution to the block after the block I'd changed and so on until I've had to re-solve (7*24*60)/10 = 1,008 blocks plus all the extra blocks which would get solved by the main bitcoin network while I was trying to solve the first 1,008.

In order to feasibly do this you would need either significantly more computational power than everyone currently mining for bitcoins all over the world combined, or to gain control of a significant majority of the computational power currently being used to mine for bitcoins which is distributed across organizations and individuals in different countries all over the world. So while it is indeed technically possible, it isn't as simple as paying off a few key sysadmins to change a couple numerical values in a database somewhere.
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phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #32 on: July 16, 2017, 12:36:35 PM »
I was contemplating buying the physical servers, not hacking the bitcoin system from the outside. If you could install corrupt sysops, could they make the needed file changes to commit fraud? I assume they would need to be well coordinated,  regardless.

I think the corrupt sysadmins would need to have some way to rewrite the block chain.    This doesn't sound like a very viable attack, unless they can find a flaw in the encryption.   In which case mining would become easy, so why bother with corrupt sysadmins?     Or would this break the whole design of BitCoin?    any experts on here?

just to add to what maizeman said: if you're spending money to buy tons of mining hardware it's better to either run an honest mining operation or just buy and hold the coins themselves -- because as soon as you attack a crypto the value of that coin would probably crash.  and you would need many millions if not billions of dollars to even attempt an attack at this point.

if you found and exploited a flaw in bitcoin, you'd have to very carefully use the flaw to cheat the system since all transactions are publicly visible.  since cryptocurrencies are all based on consensus, and everything is publicly visible to all participants, it's very hard to imagine a scenario in which anyone could steal a significant amount of money (while also not crashing the price).  bitcoin and ethereum for example have in the past forcibly removed attackers' transactions from their blockchains.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #33 on: July 16, 2017, 12:44:47 PM »
Phill22, that's an important point. Rewriting the blockchain is possible from a technical standpoint given unlimited resources, but doing it secretly is not (putting aside the question of flaws in the underlying code or cryptology).

And, as you said, a public, successful, attack on a cryptocurrency would tank the value at which point what's the benefit to the attacker?
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Gondolin

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #34 on: July 17, 2017, 10:07:15 AM »
Quote
The limited supply means that as long as investment and sentiment around Bitcoin continues to grow, so will my money.

Is this not the same argument for ANY investment?

This statement is my problem with crypto-currency - I've found it quite difficult to gather accurate information that isn't either from someone with a financial interest in the technology's success or coloured by strong opinions about the "need" for this tech in the market.

Bitcoin is growing.... Great. How much of that growth is genuine adoption and how much is FOMO speculative, bandwagon antics that'll vaporize the second there's any alternative/opposition/disruption?

As for attacks, don't forget that not every attack is motivated by financial gain. Depending on the Contours of adoption an attack that "only"  crashes the value of a crypto-currency may be the goal.

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maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #35 on: July 17, 2017, 10:26:02 AM »
As for attacks, don't forget that not every attack is motivated by financial gain. Depending on the Contours of adoption an attack that "only"  crashes the value of a crypto-currency may be the goal.

Absolutely. But as outlined above successfully executing such an attack (assume no underlying flaws in software or cryptology) would be extremely expensive and logistically challenging to the point where a lot of the motivations for doing it just to crash the currency (for fun, short the market or investing in alternatives) start to make less sense. There are motivations that might still make sense (geopolitical weirdness), so yes the risk is there. However, it's also true that nation states could probably get more bang for their buck through other methods (for example devoting the same amount of time/money/expertise to going after retail banks).

Quote
This statement is my problem with crypto-currency - I've found it quite difficult to gather accurate information that isn't either from someone with a financial interest in the technology's success or coloured by strong opinions about the "need" for this tech in the market.

Fair enough. And disregarding or downweighting folks who have a financial interest in the technology's success is probably a good idea. I'm sure lots of folks who owned tulip bulbs couldn't wait to tell all their friends what a wonderful investment they were and how the price was just going to keep going up.

But if your goal is to get detailed descriptions from people who don't at least find the technology behind bitcoin and the other cryptocurrencies interesting, I think that is pretty much dooming you to disappointment. Once you exclude people making money, for any complex and esoteric subject, the folks who understand it the best are going to be people who find it really interesting. That's as true for blockchain tech as it is for rocket science or the details of different approaches to building model trains.
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Gondolin

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #36 on: July 17, 2017, 11:03:13 AM »
Quote
However, it's also true that nation states could probably get more bang for their buck through other methods

Yeah, I agree that it's not likely to be the best attack vector available. Still, I find arguments that bitcoin will become a global ur-currency used by billions of people and yet remain pure from gov't intervention and "above" geopolitics to be rather naive.

Quote
I think that is pretty much dooming you to disappointment.

All I meant is that there's a strong pro-bais among those technologists. I know somewhere there's someone who became technically credible on bitcoin and decided not to investment but, they're not easy to find. Reality is that I should do the work myself but, the I'm daunted by the time investment.
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scottish

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #37 on: July 17, 2017, 04:02:17 PM »
assume no underlying flaws in software or cryptology

Ahem.  Software without underlying flaws?

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #38 on: July 17, 2017, 04:30:52 PM »
assume no underlying flaws in software or cryptology

Ahem.  Software without underlying flaws?

There certainly are going to be flaws/bugs. Whether there is a flaw or bug that allows the specific scenario being described above is something I cannot estimate the probability of, so that was my disclaimer that my discussion was only going to be about the known issues and limitations, not the potential for unknown issues or limitations.
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Christof

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #39 on: July 17, 2017, 04:56:12 PM »
Government might not be able to control the amount or value of cryptocurrencies. They can, however, tax transactions and demand their usage to be taxable, ie. not anonymous. It's a new technology and governments are not likely to be on the bleeding edge. If cryptocurrencies gain popularity, though, it would be surprising if governments around the world would not attempt to control them.

Cash used to be a legal way to exchange value but today has become strictly controlled with upper limits per transaction of less than a week's worth in salary in some countries.

In Germany it is risky to accept bitcoins except for small transactions as they violate a number of accounting rules. In audits our tax agencies can go back more than ten years. Right now things might seem safe and for personal transaction they actually might. But for businesses there's the risk that interpretation of today's rules change as more and more aspects of cryptocurrencies are revealed.

Christof

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #40 on: July 17, 2017, 05:07:26 PM »
One more thing...

People used to bypass the Government all the time. After WWII cigarettes and chocolate became a currency. Most of these activities happen on a black market. One of the key factors of a black market is that transactions are un-traceable. Once payment has been handed over there is no trace of the transaction.

Cryptocurrencies are the exact opposite. All transactions are recorded and are indefinitely available publicly. Even though transactions are anonymous today, there is no guarantee they will be in years from now.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #41 on: July 17, 2017, 05:31:30 PM »
One more thing...

People used to bypass the Government all the time. After WWII cigarettes and chocolate became a currency. Most of these activities happen on a black market. One of the key factors of a black market is that transactions are un-traceable. Once payment has been handed over there is no trace of the transaction.

Cryptocurrencies are the exact opposite. All transactions are recorded and are indefinitely available publicly. Even though transactions are anonymous today, there is no guarantee they will be in years from now.

This is certainly true of bitcoin and ethereum which are -- by design -- pseudonymous not anonymous. It's like this forum. I've never posted my name or address, but you can go through the forum, look at everything my user name has ever posted. Taking all the information together, you might well be able to link my account back to the identity person who is doing the posting (me).

Given current and anticipated advances in computer power it shouldn't be possible to do this for monero or zcash, at least in the lifetime of the folks on this forum. (But as always, if the right type of flaw in the underlying software or cryptographic method turns out to exist, anything is possible.).
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bender

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #42 on: July 17, 2017, 07:59:49 PM »
How are gains and losses from transacting in crypto-currencies taxed (US)? 

For example, you bought 10 bitcoin at $1 each long ago.  Today you go buy a new car with what was your $10 investment.  I assume Uncle Sam will want to tax you on a portion of your digital currency gains.

Same question for those that mine digital currency.  Does some company send you a 1099?

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #43 on: July 17, 2017, 08:47:52 PM »
yes, you are responsible for keeping records and paying capital gains tax when selling cryptocurrencies (either when selling for cash on an exchange or when redeeming at a retailer).  services like https://bitcoin.tax can be helpful.

for coins you mine and then sell, you use a basis price of $0.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #44 on: July 18, 2017, 10:39:47 AM »
Quote
The limited supply means that as long as investment and sentiment around Bitcoin continues to grow, so will my money.

Is this not the same argument for ANY investment?

This statement is my problem with crypto-currency - I've found it quite difficult to gather accurate information that isn't either from someone with a financial interest in the technology's success or coloured by strong opinions about the "need" for this tech in the market.

Bitcoin is growing.... Great. How much of that growth is genuine adoption and how much is FOMO speculative, bandwagon antics that'll vaporize the second there's any alternative/opposition/disruption?

As for attacks, don't forget that not every attack is motivated by financial gain. Depending on the Contours of adoption an attack that "only"  crashes the value of a crypto-currency may be the goal.

No, it isn't true at all actually.

Any investment into any company doesn't drive the true value of that company upward. You could have an entire market invest into a failing company and if that company doesn't return earnings, then those investments will ultimately not provide returns. Since those investments are shares in the company itself, they can't prop up a company without facing the reality about whether that company is successful or not. This is abundantly clear every quarterly earnings report.

For other assets like gold, if the market becomes more interested in it and the price goes up, then that creates more incentive for miners to work to acquire more of it. This increased supply will flood the market and serve to limit the price of gold against its demand.

With Bitcoin, if there is increased interest in it from the market, its price will go up because of its limited supply. No matter how much demand there is for Bitcoin, supply will never be able to adjust to meet it. Any increase in the number of Bitcoin miners will only result in the hashing difficulty being raised. The rate of which new Bitcoins are added to the network will always be the same and reduced at set intervals going forward until the predetermined limit has been reached.

Sure, you could say, but what if Bitcoin "fails" from a "success" standpoint. That is ultimately dependent upon its use-cases which are known from the outset (unlike what determines the success of a corporation). That's why I said "sentiment" in my posting you quoted. Bitcoin is already providing value to those that use it and it has always seen an increasing adoption rate and transaction usage. Furthermore, governments around the world are legalizing and regulating it accordingly which will further increase its adoption. Unless all these trends completely reverse, then I don't see a multi-billion dollar market like this just vanishing overnight.

You posed the question about "how much of the demand is just speculative?" I think all you need to do about that is look at the value graph of Bitcoin overtime. You will always see peaks and valleys and those high peaks and valleys are driven by speculators who are just looking to make a quick buck. But, from a speculation point of view, if you look at it, there is always a core base of support for the currency that has driven its long term demand. These are the people that are continuing to invest in the currency because they see its true future potential. These are the investors that aren't phased by the short term volatility. They're the ones that see that every valley was yesterday's peak.

That's why I feel, from a risk standpoint, the upside is way higher than the downside risk at the moment.

As far as attacks go, certainly an attack doesn't need to be for monetary gain, but that doesn't change what I already stated about the feasibility of such an attack. The currency is based upon already vetted cryptography protocols. You need to remember that if any of those protocols are compromised themselves, the entire financial system relies on those same protocols and would be just as susceptible to attack. Bitcoin has the capability to be upgraded if a critical vulnerability were to arise.  If a situation like that were to arise, I'd trust my money on the Blockchain as opposed to inside a traditional financial institution that would be required to patch a whole mess of servers and work with countless vendors to ensure all systems that are intertwined are all patched and up to date.

bender

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #45 on: July 18, 2017, 11:58:15 AM »
You posed the question about "how much of the demand is just speculative?" I think all you need to do about that is look at the value graph of Bitcoin overtime. You will always see peaks and valleys and those high peaks and valleys are driven by speculators who are just looking to make a quick buck. But, from a speculation point of view, if you look at it, there is always a core base of support for the currency that has driven its long term demand. These are the people that are continuing to invest in the currency because they see its true future potential. These are the investors that aren't phased by the short term volatility. They're the ones that see that every valley was yesterday's peak.

I don't think the value graph says anything about how much people are using it.  100% of transactions could be just trading activity.  If someone can provide a chart showing actual transaction volume for goods and services vs volume that is trading (converting from one currency to another), that may be interesting.  I expect a vast majority of the volume is trading activity, but it would be good to see the real data.

I think the extreme volatility is a massive risk to digital currencies.  If the average user can't count on it as a store of value, it will not catch on outside of the investment/speculation community.
« Last Edit: July 18, 2017, 07:50:00 PM by bender »

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #46 on: July 18, 2017, 02:25:57 PM »
I don't think the value graph doesn't say anything about how much people are using it.  100% of transactions could be just trading activity.  If someone can provide a chart showing actual transaction volume for goods and services vs volume that is trading (converting from one currency to another), that may be interesting.  I expect a vast majority of the volume is trading activity, but it would be good to see the real data.

I think the extreme volatility is a massive risk to digital currencies.  If the average user can't count on it as a store of value, it will not catch on outside of the investment/speculation community.

That's true, you don't know what the actual transactions could truly be. I suspect that a large percentage is trading activity as well. But, with a new currency, that is obviously going to be true anyway as the number of people not yet in the market far exceeds the number of people already in the market. Just the sheer number of people entering the market will drive the transaction numbers related to trading activity higher. The important thing is that, unless you believe 100% of the transactions are for trading (highly unlikely), then the opposite would need to be true. We know that the number of transactions has (for the most part) continued to rise and so then it is more likely than not that the number of transactions related to actual Bitcoin usage has continued to rise as well.

I wouldn't be worried about a drop in Bitcoin usage unless the value of Bitcoin was dropping along with the number of daily transactions dropping. That would more likely indicate that people are not only leaving the Bitcoin market (lower demand) and also the people still in the market are likely not using it much. Nothing has indicated that at any point in Bitcoin's lifetime.

Cranky

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #47 on: July 18, 2017, 03:01:04 PM »
One more thing...

People used to bypass the Government all the time. After WWII cigarettes and chocolate became a currency. Most of these activities happen on a black market. One of the key factors of a black market is that transactions are un-traceable. Once payment has been handed over there is no trace of the transaction.

Cryptocurrencies are the exact opposite. All transactions are recorded and are indefinitely available publicly. Even though transactions are anonymous today, there is no guarantee they will be in years from now.

I was interested to read just how much US currency, in the form of $100 bills, is unaccounted for. That money moves around invisibly, away from official eyes and the tax man.

All the same, moving that money across national borders is pretty tricky, and that's where bitcoin has an advantage.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #48 on: July 18, 2017, 07:29:08 PM »
You posed the question about "how much of the demand is just speculative?" I think all you need to do about that is look at the value graph of Bitcoin overtime. You will always see peaks and valleys and those high peaks and valleys are driven by speculators who are just looking to make a quick buck. But, from a speculation point of view, if you look at it, there is always a core base of support for the currency that has driven its long term demand. These are the people that are continuing to invest in the currency because they see its true future potential. These are the investors that aren't phased by the short term volatility. They're the ones that see that every valley was yesterday's peak.

I don't think the value graph doesn't say anything about how much people are using it.  100% of transactions could be just trading activity.  If someone can provide a chart showing actual transaction volume for goods and services vs volume that is trading (converting from one currency to another), that may be interesting.  I expect a vast majority of the volume is trading activity, but it would be good to see the real data.

I think the extreme volatility is a massive risk to digital currencies.  If the average user can't count on it as a store of value, it will not catch on outside of the investment/speculation community.

I wanted to make a first pass at trying to estimate this, so I thought I'd compare the total volume of bitcoins traded on exchanges to the total volume of bitcoins that actually move from one wallet to another, with the assumption that most bitcoin wallet transactions in excess of the trading on exchanges must represent transactions for goods and services.

So on the 16th of July ~262,000 bitcoins changed hands (this info can be determined from the blockchain itself).* That's about $600M in value. Meanwhile, this site** reports that the total volume of bitcoin traded on exchanges was about $1,450M. It's hard to reconcile these two numbers unless a lot of the bitcoin trades are happening using coins deposited at exchanges that aren't ever actually being moved from one wallet to another or one of the two numbers is way off base.


...yeah I got nothing.

*Source: https://blockchain.info/charts/estimated-transaction-volume

**https://coinmarketcap.com/currencies/
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kenaces

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #49 on: July 18, 2017, 08:19:13 PM »
I have found BTC useful:

- move money on/off online poker sites

- save money on amazon purchase with purse.io

- took some profits on BTC to pay off some of my student loans

Of course in the scheme of things these are only very small and personal things BUT in the big picture I think the better question is how will blockchain tech change the world?  I was thinking about this today as I sold a few ETF planning to move them to another account and there is still a 3 day settlement period on all trades.  I am pretty sure there was a 3 day settlement on trades 25 years ago. There has been zero progress in such a simple but basic issue in finance/banking in 25+ years.  At some point blockchain tech will solve this, and many other things.