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Ahigh
Ahigh
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April 5th, 2013 at 7:19:32 AM permalink
Quote: AlanMendelson

Who or what guarantees my bitcoin account/stash/balance?



The same thing that guarantees you will wake up tomorrow: nothing.

The goal of bitcoin was to circumvent the controls on all other forms of money that make it suck:

* Transaction fees
* Quantitative easing and/or government controls
* Centralized control by a singular business entity of unit

The currency is only enabled by use of network protocols over the internet, and the price is defined by how much people are willing to trade other stuff for it.

Unlike other forms of digital currency, the value in units of bitcoins is defined by the state and configurations of on/off bits.

Digital wallets store these bits and the value, if unencrypted, can be copied and used by ANYBODY who gets control of that data.

If the data is lost, lost so is the value associated with that data until/unless another unit is created.

And the point above about fractional values is relevant. This is not an integral currency system. The unit is only important to establish the value as a ratio of other currencies.

Most people are only familiar with rounding up/down to the nearest integer unit for a currency.

I'm not sure what the smallest allowable fraction is on a bitcoin value, but that would define the integer unit of the currency if it in fact exists.
dwheatley
dwheatley
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April 5th, 2013 at 7:47:56 AM permalink
Why invest in bitcoins when you can invest in tulip bulbs?
Wisdom is the quality that keeps you out of situations where you would otherwise need it
vendman1
vendman1
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April 5th, 2013 at 7:56:17 AM permalink
Most definitely a bubble. See, tulips, internet stocks circa 1999, Real Estate circa 2006-7, and a million other examples if you care to do the research. They will be a laughing stock sooner or later...probably sooner.
pacomartin
pacomartin
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April 5th, 2013 at 8:03:40 AM permalink
Quote: AlanMendelson

Who or what guarantees my bitcoin account/stash/balance?



The wikipedia article explains it fairly well. Bitcoins are not guaranteed by anyone. The peer to peer network is responsible for preventing counterfeits. The money supply cannot be increased or decreased by a government. Although a bitcoin is divisible to an arbitrary degree, it will be the public that makes the value of a single bitcoin increase large enough relative to other currencies, that an increasing order of division is necessary.

You cannot pay taxes with bitcoins. This ability to accept currency for taxes is one of the principal means that a governments give value to their currency.

The Fed controls money supply using the dual mandate of maximum employment and stable prices . Bitcoins have no such mandate and their value is likely to fluctuate wildly. Or they may become a significant way to "hold value".

The money supply of a country consists of currency (banknotes and coins) and bank money (the balance held in checking accounts and savings accounts). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of the money supply in developed nations.
Ahigh
Ahigh
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April 5th, 2013 at 8:24:40 AM permalink
Quote: vendman1

Most definitely a bubble. See, tulips, internet stocks circa 1999, Real Estate circa 2006-7, and a million other examples if you care to do the research. They will be a laughing stock sooner or later...probably sooner.



Very interesting. There is a club forming with similar opinions. I have two BitCoins invested into the notion that you're wrong, but I'm okay with losing that bet.

Right now the total amount of bitcoins available is worth less than two billion dollars.

I think the total value (market cap) of US currency is 825 billion.

http://visualeconomics.creditloan.com/the-value-of-united-states-currency-in-circulation

So BitCoin is still just a quarter of a percent the size of US currency in terms of share of stuff.

If BitCoins were worth about $50,000 each, parity with the US dollar would be about equal today.

So if you take your total net worth, and divide by $50,000 and buy that many BitCoins, you would be getting insurance over BitCoins overtaking the US dollar in the future.

Sounds cheap to me. I'm willing to lose it all to buy a couple of coins. Best longshot bet I ever took, and I only need a couple more coins.
pacomartin
pacomartin
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April 5th, 2013 at 10:12:59 AM permalink
Quote: Ahigh

I think the total value (market cap) of US currency is 825 billion.



Currency in circulation is $1177.75 Billions of dollars at this time. The figure of $825 billion is a reasonable estimate of the value of the $100 banknotes circulating.

The $50 banknote has relatively small circulation and can be largely discounted. The banknotes worth $20 or less and coins are primarily used to make the basic parts of the economy operate. The $100 banknotes primary purpose is store of value, and roughly 75% of them circulate overseas. The roles are not hard and fast, as some people have boxes of $20 bills stashed away (including drug dealers) and some people use $100 banknotes for purchases (especially used cars or similar items).

While bitcoins can be used to make purchases, their primary role as money is "store of value".

Naturally people are going to scream "bubble" and "tulip bulb" as bitcoins have gone up 1000% since the beginning of 2013. Just because the "emperor has no clothes" doesn't mean that you can't profit from them. The currency may stay with us for a century although it will probably soar and crash once in a while.




One thing is very clear. There is a strong desire for a "currency" that combines the ease of electronic transfers with the anonymity of banknotes and without concerns about government interference in the money supply.
Ahigh
Ahigh
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April 5th, 2013 at 10:28:14 AM permalink
I've learned a lot quickly, and I don't have the fear of BitCoin that most have had since Sept 2012. I will buy more.
pacomartin
pacomartin
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April 5th, 2013 at 10:39:58 AM permalink
I still think a government central bank can easily outdo the bitcoin. Instead of 10 million bitcoins, Switzerland can issue 10 million SWISSCOINS. The government can use their vast gold supply to initially guarantee the value of the electronic currency. They will initially be issued at one SWISSCOIN=1 Swiss Franc, and the government will gaurantee that they be exchangeable for the equivalent value in gold or 100 Swiss Francs whichever is smaller. The only catch is they have to be in circulation for a year.

After a year, they will undoubtedly increase in value so that they are worth far more than 100 Swiss Francs, so no one will actually try and turn them in. In the meantime, the central bank will control a modest fee (as a percentage) for buying and selling SWISSCOINS so that they make a huge profit. They will also be responsible for preventing counterfeits. The limit of 10 million SWISSCOINS won't matter because if they become worth enough, they can change the law so that increasingly smaller fractions can be bought and sold, i.e. the SWISSPENNY.

Switzerland already issue a huge amount of money per person than any other country. The prestige of the country as an investment center, and the initial backing by their massive gold stores will give it a big head start.

Of course, politicians from other countries will give populist speeches about how Switzerland is unfairly catering to drug dealers and dictators. It won't matter. I always figured Switzerland fulfills a fundamental need in worldwide economics. If it didn't exist, personal interests would create another one.

Let me be clear, that I am not talking about replacing the Swiss franc with an electronic currency. The country needs the currency to run day to day economics of tourism and manufacturing export. It can't have it's currency increase by a factor of 10 in less than 15 weeks.
bigfoot66
bigfoot66
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April 5th, 2013 at 11:21:34 AM permalink
Quote: Asswhoopermcdaddy

But here's the problem. There's so real monetary institution that is backing the exchange of bitcoins. At least with the Euro, you have the ECB. And while it may be easier to counterfeit a dollar bill than it is to hack a computer code, the reality is some smart ass will be able to write a program that gives him a billion bitcoins (which is more than actually exists).



I am not great on the math or the technical side but I am surrounded by libertarians who are really into bitcoin: the (libertarian) porcupine freedom festival in NH is where the bitcoin ATM was unveiled and it is believed to be the place where more bitcoin transactions have taken place in a short period of time. My understanding is that the 256 bit encryption would require billions of years of an average PC's computing power to crack the private code for just one bitcoin wallet. In the future as PC's get more powerful they can move to 512 bit encryption if necessary. As far as changing the code itself, it is possible (indeed, it happens regularly) but requires that everybody accept and run the new code.

Quote: Asswhoopermcdaddy


There was some chatter about bitcoins being pegged to a gold standard, but this is just as restrictive. I'm surprised at how quickly bitcoins are gaining adoption. However, the run-up is supply and demand driven. There's a lot of demand that will be released over time until you hit the max number of bit coins allowed.



Gold standard is not necessary here. There are 21 million bitcoins that will be created and no more, unless everyone agrees to change the code down the line.
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bigfoot66
bigfoot66
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April 5th, 2013 at 11:31:26 AM permalink
Quote: EvenBob

Bitcoins are like collector Elvis plates. There's a limited
number made and they go up in value till they hit a
plateau. They're only worth the price because the
demand sets the price. If collectors lose interest,
prices plummet.

Just think Beanie Babies. Remember those?



Can you safely buy illegal drugs online with beanie babies? http://en.wikipedia.org/wiki/Silk_Road_(marketplace)
Can you play online banked games and live poker with elvis collector plates or star wars dolls? www.sealswithclubs.eu
Can you think of a better way to transfer $250,000 instantly out of a country like Cyprus, Saudia Arabia, China, etc despite currency controls? Oh, and without paying one cent in fees or taxes?


There is a lot more going on here than meets the eye folks. Bitcoin may be in a bubble at the moment, I would not at all be suprised to see it fall even back to $30 a bitcoin....temporarily. But I think it is wise to put a very small amount of your wealth here, maybe 200 or 300 bucks. Understand that you may well lose it all but the payout is so big if this thing catches on...Bitcoins could easily be worth 5 and even 6 figures.
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