Author Topic: Why bitcoin will fail as money  (Read 7852 times)

rukawa

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Why bitcoin will fail as money
« on: July 18, 2016, 09:54:36 AM »
The post below explains the situation well. Basically bitcoin will fail if it succeeds. Lets say Bitcoin succeeds. Everybody starts using it. Problem is that bitcoins tend toward a fixed total number which cannot be increased by design. So if it succeeds then people will start hoarding it because as the economy grows and demand for bitcoin as money increases so too will the value of bitcoins. As a result people will hoard them and as they hoard them bitcoins will increase in value still further since there will be less of them. Eventually people will stop using them as money because they won't be able to find them in sufficient quantities for everyday use. At this point the hoarders will have something that has no intrinsic value (unlike gold or silver hoards) and in addition no longer has value as a form of money since no one is will to accept it (try paying with Gold at Amazon). Eventually it will be realized that its worthless. So the correct value for a bitcoin is zero.

https://smilingdavesblog.wordpress.com/2013/10/18/why-greshams-law-means-the-death-of-bitcoin/


rkbabang

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Re: Why bitcoin will fail as money
« Reply #1 on: July 18, 2016, 10:13:09 AM »
So everyone will value it so much that no one will want to part with it, making it worthless and nobody will want it?    I think you are skipping a few steps.   Value isn't like a light switch, today we turn it on and everyone values it and hoards it, tomorrow we turn it off and it is valueless and nobody wants it.     If this incredibly valuable thing starts losing value because it is being hoarded by everyone, people  on the margins will stop hoarding it and liquidity will increase.  An equilibrium will be found (within a trading range anyway).

rkbabang

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Re: Why bitcoin will fail as money
« Reply #2 on: July 18, 2016, 10:25:10 AM »
There is also the possibility that bitcoin will be only used as a long term store of value where other less deflationary currencies will be used as money.    There are already a ton of different cryptocurrencies, Ether for instance has no cap on coin issuance, a certain amount will be mined every year.  This is deflationary long term as well, because the same amount will be mined every year so it will be a smaller and smaller percent increase every year and eventually maybe not even enough to replace lost coins. But it is not nearly as deflationary as bitcoin.  It wouldn't be hard to design a coin that would have an X% inflation rate built in and unchangeable, or  X% for the first Y years then Z% thereafter, or whatever you wanted. I think it is still early in the cryptocurrency game and the one that eventually catches on might not even exist yet.  Bitcoin, Ether, and all the rest might just end up footnotes in the history of decentralised money.

jb85

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Re: Why bitcoin will fail as money
« Reply #3 on: July 18, 2016, 10:53:13 AM »
The post below explains the situation well. Basically bitcoin will fail if it succeeds. Lets say Bitcoin succeeds. Everybody starts using it. Problem is that bitcoins tend toward a fixed total number which cannot be increased by design. So if it succeeds then people will start hoarding it because as the economy grows and demand for bitcoin as money increases so too will the value of bitcoins. As a result people will hoard them and as they hoard them bitcoins will increase in value still further since there will be less of them. Eventually people will stop using them as money because they won't be able to find them in sufficient quantities for everyday use. At this point the hoarders will have something that has no intrinsic value (unlike gold or silver hoards) and in addition no longer has value as a form of money since no one is will to accept it (try paying with Gold at Amazon). Eventually it will be realized that its worthless. So the correct value for a bitcoin is zero.

https://smilingdavesblog.wordpress.com/2013/10/18/why-greshams-law-means-the-death-of-bitcoin/

by this logic, i would never buy a computer because I know that in 18 months a better and cheaper PC will be available.

Theres an equilibrium point where the value to me of goods i purchase NOW with btc exceeds the value of btc's future price gains.   

Take an extreme example to show the flaw in your logic:  Your saying someone wouldn't spend .000001 btc on a house now, simply because he expects the price of bitcoin to rise in the future? 

jb85

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Re: Why bitcoin will fail as money
« Reply #4 on: July 18, 2016, 10:59:20 AM »
There is also the possibility that bitcoin will be only used as a long term store of value where other less deflationary currencies will be used as money.    There are already a ton of different cryptocurrencies, Ether for instance has no cap on coin issuance, a certain amount will be mined every year.  This is deflationary long term as well, because the same amount will be mined every year so it will be a smaller and smaller percent increase every year and eventually maybe not even enough to replace lost coins. But it is not nearly as deflationary as bitcoin.  It wouldn't be hard to design a coin that would have an X% inflation rate built in and unchangeable, or  X% for the first Y years then Z% thereafter, or whatever you wanted. I think it is still early in the cryptocurrency game and the one that eventually catches on might not even exist yet.  Bitcoin, Ether, and all the rest might just end up footnotes in the history of decentralised money.

relevant article  --> http://www.konradsgraf.com/blog1/2013/9/14/bitcoin-as-medium-of-exchange-now-and-unit-of-account-later.html

wachtwoord

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Re: Why bitcoin will fail as money
« Reply #5 on: July 19, 2016, 01:46:43 PM »
The first post by rkbabang is /thread.

However, Bitcoin's best use case isn't even money. At least not for low value transfer of wealth.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

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Aberhound

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Re: Why bitcoin will fail as money
« Reply #6 on: July 19, 2016, 10:21:40 PM »
To extend your argument, which is a good example of Gresham's law, as Bitcoin rises the lira, peso, pound, euro and finally the dollar will sink in value as the bad is spent and the good is hoarded.

To me this is success. Finally a currency that lives up to its definition. It is not a resistor, preventing us from buying what we need, it is an enabler, living up to its name "currency" creating a flow of opportunity. It allows us to be thrifty and become wealthy instead of degenerating into peasants like the poor Mexicans who gave up their silver pesos for paper only to have numerous zeros knocked off. If you have debt but don't hold Bitcoin you will likely receive worthless bank shares for your deposits at the banks which are made irrelevant by the blockchain. Only a few will adapt. Bank with them. Those rendered unable to pay their debts are unlikely to receive gentle treatment. I hope the science fiction novels I read about organ harvesting were inaccurate. Pay off your debt while you can and if you can't hedge with Bitcoin. It may save you a kidney. So if you have debt hoard Bitcoin and spend dollars so you can later pay off the debt as it devalues. But get out as soon as the blockchain shekel or dollar or whatever is introduced by any central bank. Central banks do not allow competition and will only allow Bitcoin to thrive temporarily. Bitcoin will be allowed to rise in value so that the "blockchain" brand is favourably locked in the minds of all so they accept another fiat currency after the debt crash but this time with a fiat currency with full tracking capability with the blockchain allowing all competition to be demolished.

SharperDingaan

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Re: Why bitcoin will fail as money
« Reply #7 on: July 20, 2016, 07:36:04 AM »
Bitcoin is literally just one of thousands of virtual currencies; we know it - because it was one of the first to be popularized. The same way we generally recognize the Motorola 'brick' as being the first 'cell' 'phone.

Central banks already have their own digital currencies, & most are far along their development cycles. For many there is a strong argument to using the digital currency to settle all electronic transactions, & using coinage/cash 'bills' only for everyday purchases. We aren't going to be settling in Bitcoin.

Its more reasonable to think of Bitcoin as collector pieces (not much different to the value of a historic sports car), particularly as there is a finite number of them. However unlike most collector pieces (cars, art, jewels, etc.) you don't have to pay to maintain them, & there is minimal frictional cost to purchase/sale. If you like the idea, but not the concept of 'Bitcoin as the actual store of value' - there are many alternatives.

BitGold is one choice ... but it could just as easily be BitPlatininum, BitSilver, BitIridium, etc...

SD

wachtwoord

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Re: Why bitcoin will fail as money
« Reply #8 on: July 20, 2016, 08:57:40 AM »
Aberhound and SharperDingaan, you both could not be more wrong. Bitcoin is miles ahead of any other digital currency in the only metrics that matter: decentralization and security. The only other currency which offers any sort of competitive advantage is Monero (anonimity) but its probably way to far behind to catch up.

If you believe a government issued cryptocurrency will be anything but a good joke its clear you have no idea what you're talking about. Either educate yourself and profit, or don't.

"If you donít believe me or donít get it, I donít have time to try to convince you, sorry." - Satoshi Nakamoto, July 29, 2010
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

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 SODI - NVTR - ADDC - UPGI - HNFSA - IPO.TO - BONL - BWEL - GNW - NYRT - POE.V

SharperDingaan

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Re: Why bitcoin will fail as money
« Reply #9 on: July 20, 2016, 01:45:12 PM »
Great quote.

Agreed Bitcoin is much closer to the original concept, but I also live in the real world - & the real world is full of competing product.
Sure a central bank crypto/digital currency forces everyone to rely more on the central bank & less on distributed security, but its no different to what we already do every day. Every time we buy a US Treasury, UK Gilt, German Bundt, or a Canada - we are relying on the central bank to make good on the bond at maturity. 

Most of the central bank interest is also in the block chain, & not purist cryptocurrency.
The central bank crypto/digital currencies are basically 'tokens' guaranteed by the central bank, & every hash validation is essentially a central bank confirmation that the payer has the tokens claimed. In this system the distributed ledger is a centralized ledger held & updated by the central bank guaranteeing the token; much faster, & way more transparent. There is an domestic token-cash FX rate, & multiple domestic-foreign central bank token FX rates. It is essentially Bitcoin 'light'.

The first mass produced car (in the US) was one colour & one model - & it changed the world; today we can have whatever we want. Current central bank crypto/digital currencies are at pretty much the same stage as that first Model T.

SD