Bitcoin adoption

Mike Novack · **#41**

Sorry -- I suggest you take a look at pictures of Yapese money before believing that they were valued for their aesthetic properties.

I picked that example precisely becau
se not only strange in appearance and how used but "artifact money" (a difficult to construct artifact, difficult even to obtain the raw material -- value because could not be faked/forged and this discussion did begin about artifact money of that sort)

jts · **#42**

speedchase wrote:

The value of the USD is not based off its use for paying taxes, because if it were, then the value of the USD would fall, which would cause the exchange rates to fall, which would mean that you would need more USDs to pay of the same amount of tax on another currency, which would in turn cause the value of the USD to fall, perpetuating the cycle so that the value of the USD would become 0.

Thank you for trying a little harder. I'm sure you understand that it's frustrating when some people are putting a lot of effort into having a discussion, and someone slaps together an contribution with no logic and little grammar. I still don't understand what you're trying to say, but we're getting a little closer to mutual understanding.

Prices of things are set by supply and demand. For example, people want swimming pools for lots of reasons - for pool parties, pool boys, social status, sometimes even in order to swim. The cost of getting a swimming pool is determined largely by the cost of building all the swimming pools that everyone in America wants at a given point in time. If suddenly no one wanted to swim anymore, none of those swimmers would be hiring contractors to build new swimming pools, and all of a sudden the contractors would be desperate for work and would happily build you a new swimming pool, dirt cheap.

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Currently, the governments of the United States takes in something like 1/3 of the income of the United States in taxes. Under normal circumstances, if the states and the feds changed their policy to demand only 1/6 of this income in taxes, then (all else equal) with the demand for dollars dropping, there would be too many dollars and the value of dollars would fall. This is called "inflation". Likewise, if the states an the feds suddenly demand 2/3 of the income of the United States in taxes, the demand for dollars would surge and the value of dollars would rise. This is called "deflation."

The exchange rate has very little to do with it. Relative to our discussion, the USD/RMB exchange rate is kind of like the relative price of swimming pools and ornamental gardens. It's true that these are, to some degree, complements. When the price of swimming pools goes up, some people will decide that they would actually rather buy an ornamental garden instead. When the price of USD goes up, some people decide they would rather convert their money into RMB and buy goods in China instead. But you can't swim in an ornamental garden, and you can't pay US taxes in RMB.

(There are lots of other things you can't pay in RMB, as well. Dollars are legal tender for all debts, public and private. I have an obligation to pay taxes, but I'm also obliged to pay my landlord, and we've already stipulated that the payment will be in USD. If next year I sign a lease denominated in eggs, that will lower the demand for dollars and raise the demand for eggs.)

Bill Spight · **#43**

jts wrote:

Prices of things are set by supply and demand. For example, people want swimming pools for lots of reasons - for pool parties, pool boys, social status, sometimes even in order to swim. The cost of getting a swimming pool is determined largely by the cost of building all the swimming pools that everyone in America wants at a given point in time. If suddenly no one wanted to swim anymore, none of those swimmers would be hiring contractors to build new swimming pools, and all of a sudden the contractors would be desperate for work and would happily build you a new swimming pool, dirt cheap.

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Demand is not simply desire. It includes the ability to pay. (Your island story illustrated that aspect of demand.

)

jts · **#44**

Bill Spight wrote:

jts wrote:

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Demand is not simply desire. It includes the ability to pay. (Your island story illustrated that aspect of demand.

)

Quite! Or at least we should say, desire is quantified by the willingness to pay, for our present purposes. An important point, especially when we're thinking about money. But I worry that I already sound a bit too much like Chesteron's parody of Shaw:

Quote:

"The element of religion, as I explain religion, in the Puritan rebellion (which you wholly misunderstand) if hostile to art—that is what I mean by art—may have saved it from some evils (remember my definition of evil) in which the French Revolution—of which I have my own opinion—involved morality, which I will define for you in a minute."

palapiku · **#45**

Mike Novack wrote:

Sorry -- I suggest you take a look at pictures of Yapese money before believing that they were valued for their aesthetic properties.

Wikipedia says they're made of a shiny material, and shiny materials are universally valuable, so I see no issues there. Note that you can't easily tell that from pictures, which focus on the overall shape and size instead.

jts · **#46**

Yap is an interesting case. But even if Mike's version were completely true, I'm not sure what it would signify. No matter what sort of claim you make about human society, you can find a village in Melanesia where things are different. It's important to study these cases to temper our prejudices and dissolve preconceptions, but "anthropological explosion" isn't really a valid mode of argument. Any way, some totally tangential thoughts on Yap:

badukJr · **#47**

Kaya.gs wrote:

I think a lot of the "analysis" done on bitcoin here is used or thought from a conventional economics standpoint, which is not applicable.

Bitcoin is not a currency like any other that is used in a country, were people are basically forced to use exclusively. No-one that uses bitcoins lives with their bitcoins, or is forced to have them. So applying the theory that works on the former to the latter is just too frail. Inflation and deflation are very related to the goods your purchase that are at your reach. Argentina has 25% inflation rate, US what, less than 4% in average in the last 10 years?
Of course inflation has a direct impact when we talk about the currency im forced to use to pay rent, but what does it mean to have internet-inflation?

This is a really difficult economical-theoretical problem that im absolutely sure not even top-notch economists are sure about (which one could argue they are never sure of anything at all to begin with).

What is concrete is that it has a very practical use. Paypal has a very high comission for such a virtual transaction, either for profit or to cover legal costs or whatever, almost 5% is really a lot for money transfers. It means that out of 20 websites, paypal cashes in all the money one of those makes, even if all crash and burn.

Bitcoin, or other virtual currency, could reduce that commission to pennies and that alone is worth considering. If Bitcoin replaced online payments it could absolutely destroy really large online banking companies, so there is definite economical stakes in it.

Also i notice a lot of the arguments against bitcoin are really just as valid for any currency. That its purely fiat (all non-gold standard currencies are purely fiat, what else is there?). Goverment backing could be good or bad: the debt US got to bail out banks was really huge which in turn means people payed for it, which in turn probably hit the currency really hard.
And currency speculation happens in all currencies. Even US, Euro, etc. There is an entire stock-like market for it, and the players are really huge.

It seems to me that the issue is how safe is as a currency, and that will change on how widely adopted it is. It is not more stable than it was 2 years ago. If in 2 more yerars, it grows 5-fold, then it will be used more and more to purchase goods and it could become very reliable, and stable across world economies , which is another interesting thing.

Bitcoin isn't fiat because it isn't backed by a central bank, for one.
Second, the number of bitcoins that can ever be released has a hard cap. This means that bitcoins is deflationary. That isn't good. There is no motivation to release your bitcoins then, and it would slowly die.

daniel_the_smith · **#48**

So Wikipedia (on gold) says both, "The consumption of gold produced in the world is about 50% in jewelry, 40% in investments, and 10% in industry," and, "Since April 2001 the gold price has more than quintupled in value against the US dollar, hitting a new all-time high of $1,913.50 on August 23, 2011..."

I'm not sure how both can be true at the same time. I had thought that most of gold's value was from investment/speculation; the first quote would seem to say I'm wrong, and the latter one seems to imply I'm not... Thoughts from the economists?

(I haven't done the math, but I think that if even as little as 10% of those inclined to invest in gold switch to bitcoin, the bitcoin market could still be quite a bit larger than it currently is.)

jts · **#49**

daniel_the_smith wrote:

So Wikipedia (on gold) says both, "The consumption of gold produced in the world is about 50% in jewelry, 40% in investments, and 10% in industry," and, "Since April 2001 the gold price has more than quintupled in value against the US dollar, hitting a new all-time high of $1,913.50 on August 23, 2011..."

I'm not sure how both can be true at the same time. I had thought that most of gold's value was from investment/speculation; the first quote would seem to say I'm wrong, and the latter one seems to imply I'm not... Thoughts from the economists?

(I haven't done the math, but I think that if even as little as 10% of those inclined to invest in gold switch to bitcoin, the bitcoin market could still be quite a bit larger than it currently is.)

So there are three things to consider, and I don't know how much each has changed over time. First, gold moves from jewelry to investments when the price of gold rises. My mother runs the sale of donated jewelry for our church, and as of a few years ago, she started just taking it to be sold to a gold dealer. If ten years ago 80% was in jewelry and industry and 20% was in investments, that 20% shift could only be accomplished by a huge hike in the price investors were willing to pay for gold.

Second, gold has always been an extremely volatile asset purely due to cycles in the mining industry, never mind speculative bubbles. (More volatile than the stock market, iirc.) During a gold rush the price of gold plummets, but eventually the vein gets mined out completely and if no new gold has been located in the meantime, demand starts to outstrip supply and prices rise. Currently, there aren't any big new gold deposits waiting to be mined.

Third, the steady development of China and India has been putting huge pressure on all commodity prices, both for their growing industries and for their growing middle classes. Currently most of the gold shipments in the world go to China and India. (54% in the last quarter.)

Tryss · **#50**

daniel_the_smith wrote:

(I haven't done the math, but I think that if even as little as 10% of those inclined to invest in gold switch to bitcoin, the bitcoin market could still be quite a bit larger than it currently is.)

Bitcoin market is ridiculously small... 9 millions of bitcoin, 5$ each => A total capitalisation of only 45 millions dollars.

speedchase · **#51**

jts wrote:

Thank you for trying a little harder. I'm sure you understand that it's frustrating when some people are putting a lot of effort into having a discussion, and someone slaps together an contribution with no logic and little grammar. I still don't understand what you're trying to say, but we're getting a little closer to mutual understanding.

that thought process of course explains this argument... :grumpy:

jts wrote:

But what if the value that it was valued at was valued at the value for which the value was valued? Would that be relevant?

Basically I've tried (and apparently failed) twice to explain to you how the inherent value of being able to pay US taxes with USD is zero. I'm not really that bothered by the fact that you don't agree with me, but your attitude of I don't understand so therefore he must have not logic" is kind of aggravating (especially since you criticized my grammar, which while I admit not easy to understand was I cannot find any technical issues with it besides the missing colon at the beginning).

jts · **#52**

You haven't explained anything. You've stated your position twice, though, which was very patient of you. The second time you added that if you were wrong, the value of the dollar would fall. This clarified little.

When the subject of your sentence is "it" and you're using a symbol as a verb, a little colon can go a long way.

illluck · **#53**

I don't understand why speedchase's comments are hard to understand. As far as I know fiat money (e.g. US dollar) is considered to have little to no intrinsic value. http://en.wikipedia.org/wiki/Fiat_money#cite_note-5

Edit: ok, just tried to read again, it is a bit hard to understand XD I mentally filled in the argument without actually reading the words...

hyperpape · **#54**

Jts explained it pretty clearly, but since the government taxes 300 million people, that creates 300 million people who need dollars. Many of these people are productive: they do things like write go books and design iPads. Therefore, other people want those things, and would love a way to pay those 300 million people for the things they do. Since those people need to pay taxes, they need at least a goodly amount of dollars, and for convenience's sake, they tend to only accept dollars for payment.

Whether you want to call that "intrinsic value" doesn't have any obvious significance. However, jts is explaining a coherent position about the value of the dollar, that so long as it's required to pay taxes, it has value. In contrast, I can't even figure out why speedchase thinks that can only sustain a zero value.

speedchase · **#55**

or you could say wrote:

speedchase explained it pretty clearly(the analogy fails here but the rest is sound), but since the 300 million people want to buy stuff using the internet, that creates 300 million people who need bitcoins. Many of these people are productive: they do things like write go books and design iPads. Therefore, other people want those things, and would love a way to pay those 300 million people for the things they do. Since those people need to buy stuff from the internet, they need at least a goodly amount of bitcoins, and for convenience's sake, they tend to only accept bitcoins for payment.

I don't see the difference between dollars and bitcoins in this regard.

badukJr · **#56**

speedchase wrote:

or you could say wrote:

speedchase explained it pretty clearly(the analogy fails here but the rest is sound), but since the 300 million people want to buy stuff using the internet, that creates 300 million people who need bitcoins. Many of these people are productive: they do things like write go books and design iPads. Therefore, other people want those things, and would love a way to pay those 300 million people for the things they do. Since those people need to buy stuff from the internet, they need at least a goodly amount of bitcoins, and for convenience's sake, they tend to only accept bitcoins for payment.

I don't see the difference between dollars and bitcoins in this regard.

Your analogy fails because people don't need to buy things from the internet. If they don't pay taxes, they go to jail.

If you provide goods or services, bitcoin is not convenient because you must change it out to pay the tax on these items.

Additionally if the amount of bitcoins that will ever exist is distributed evenly to 300 million people, each person will have less than 1/12 th of a bitcoin.

gogameguru · **#57**

speedchase wrote:

or you could say wrote:

speedchase explained it pretty clearly(the analogy fails here but the rest is sound), but since the 300 million people want to buy stuff using the internet, that creates 300 million people who need bitcoins. Many of these people are productive: they do things like write go books and design iPads. Therefore, other people want those things, and would love a way to pay those 300 million people for the things they do. Since those people need to buy stuff from the internet, they need at least a goodly amount of bitcoins, and for convenience's sake, they tend to only accept bitcoins for payment.

I don't see the difference between dollars and bitcoins in this regard.

Well that argument is valid in both cases, but you also have to think about whether your implied premises are as 'true' when it's put that way. In other words, you're assuming things, jts is assuming things too. Whose assumptions are closer to the actual reality in this case?

The status quo is that most people use the US dollar, not bitcoin. You might not like it, you might even think it's stupid, but even if bitcoin is (for argument's sake) an unbelievably brilliant idea, that doesn't guarantee that change will happen quickly (or at all).

The US dollar has inertia, powerful vested interests (e.g. banks) and market share on its side. Some people in the US might not realise this, but a lot of businesses around the world that trade predominantly online (like Go Game Guru) use USD as a de facto standard to simplify things (as do various banana republics for that matter) - while businesses that don't trade online use their national currency and couldn't give a damn about this. Most currencies can be converted to USD pretty easily and most people know (or can easily find out) roughly what their currency is worth against USD at any given time. And, it's a relatively stable currency, so people aren't worried about holding it for awhile even if it's not their national currency.

That's a unique position held by the US dollar, and to some extent the Euro, but not by bitcoin at this time. And as someone commented earlier (sorry I can't remember who) it's hard to conceive of a catastrophe that would take down both those currencies, while leaving bitcoin unscathed.

This isn't an argument against bitcoin. As someone who has to do bookkeeping in three different currencies :sad:

, nobody needs to convince me of the advantages of a global currency. My point is just that, as history shows, change always happens much more slowly than intelligent and passionate people would like, and many people resist it at every step. That's simply the reality of the world we live in.

That being said, the idea is still interesting, as is this discussion.

hyperpape · **#58**

People can currently buy on the Internet using a lot of different currencies without too much trouble. And bitcoins aren't the unique currency for buying on the Internet. Dollars, on the other hand, are the unique currency for paying taxes in the US.

jts · **#59**

Intrinsic and extrinsic are actually irritating words, and I was originally going to reply to Mike's list of five points by saying "These are all great, but #1 is going to confuse people." However, let's consider some different properties of goods.

Here are some properties:

Analysis:

So, which of these categories are intrinsic and which are extrinsic? I think the plain sense of the words requires us to say that (1) is intrinsic and (2)-(4) are extrinsic properties. It seems strange to say that the fact that my building's frame is made out of steel is an intrinsic property of steel.

Nonetheless, when we're talking about why goods that are used for money have value, distinguishing between (1) and (2) isn't very useful, is it? The purpose of ruling out "extrinsic" qualities of things is to distinguish between things like (1), on the one hand, and mere expectations about what we can exchange something for, on the other. When we buy a good purely as an asset, as an investment, it's the extrinsic qualities of the goods we're interested in - what we can exchange it for later - rather than the good itself.

I think it's clear that (2) belongs with (1) rather than (4), for this purpose. If someone denies that, we can debate it further. The key question, then, is: do we have a reason for grouping Category 3 with Category 2 rather than Category 4? In other words, is Category 3 merely information about our expectations concerning the price for which we can exchange an asset, or is it information about the good itself?

I think the answer is that it's awfully hard to separate information about what something is good for, "intrinsically", from who wants it. It doesn't make a huge amount of sense to say "pools are great for swimming, but no one wants to swim in them," for example. Information about (1), (2), and (3) may be helpful for establishing the expectations in (4) - but, of course, sometimes these expectations in (4) are completely unmoored from (1), (2), and (3). Dollars are good for all debts, public and private; that's one property of the dollar. Also, the US government demands 500 billion dollars from its citizens every year; another property of the dollar. These are not so intrinsic to the dollar as the dollar's color and dimensions, but they're rather more intrinsic than, say, a foreign exchange trader's expectations about the value of the dollar relative to the yen in 2013q3.

The reason why it's important to think all of these things through is that people often have trouble understanding that (1) and (2) are not the only determinants of the value of a thing; (3) is important, too. But then they move to the opposite opinion that prices are never supported by anything more than what other people are willing to pay for them, and it's all a shell game; and this is equally simplistic and misleading.

(Anyway, the intrinsic/extrinsic distinction has no relevance to our good friend speedchase. His claim is not that the value of USD derives from taxation, and this is an extrinsic quality of the USD; but rather, that if the USD derived its value from taxation, the USD would have no value.)

SpongeBob · **#60**

Besides those rather philosophical considerations, there are also some practical questions still open:

When mining gets less and less profitable, transaction fees will need to get introduced.
When transactional volume increases, there will be the need for lightweight servers that do not host the complete chain of transactions.

Who is responsible and decides about how those enhancements will be done?

Bitcoin adoption

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