Do you think Bitcoin is a safe store of value?

[Parsad]

http://money.cnn.com/2013/07/02/investing/winklevoss-bitcoin-etf/index.html

 

Bitcoin ETF

 

The world is so much better with the Winklevii in it.

 

They've become like the Kardashians, but with Harvard degrees!  Cheers!

[Olmsted]

They've become like the Kardashians, but with Harvard degrees!  Cheers!

 

classic

[wachtwoord]

I just wanted to bump this for the people that missed out last time because the exchange rate has exploded upwards once again and I think some who dismissed the notion completely might want to have another look at it.

 

http://bitcoincharts.com/

 

and the SecondMarket trust: http://www.bitcointrust.co/#Historical

[Guest hellsten]

I just wanted to bump this for the people that missed out last time because the exchange rate has exploded upwards once again and I think some who dismissed the notion completely might want to have another look at it.

 

http://bitcoincharts.com/

 

and the SecondMarket trust: http://www.bitcointrust.co/#Historical

 

Returns like these will make everyone want a piece of the cake:

LAST 30 DAYS:

+360.5%

 

SINCE INCEPTION:

+545.0%

 

What's the intrinsic value of a bitcoin? Seems nobody cares.

 

https://en.bitcoin.it/wiki/Myths

 

Early adopters are unfairly rewarded

Early adopters are rewarded for taking the higher risk with their time and money.

 

It's a giant ponzi scheme

In a ponzi scheme, early adopters can only profit at the expense of late adopters, and the late adopters always lose.

 

Bitcoin sounds like a ponzi scheme according to this definition.

 

Bitcoins will be shut down by the government just like Liberty Dollars were

Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head of the company and seizing the offices and the precious metals used as backing. The decentralized Bitcoin, with no leader, no servers, no office, and no tangible asset backing, does not have the same vulnerability.

 

What about Bittorrent sites and Poker?

 

Anyone with enough computing power can take over the network

CONFIRMED, see Weaknesses.

 

What is the intrinsic value of a bitcoin:

 

Bitcoins have no intrinsic value (unlike some other things)

 

It is true that bitcoins have no intrinsic value, in the numismatic sense, in other words, value in any realm outside of being used as a medium of exchange.

 

In other words the value is as high or low as the crowd thinks it should be.

 

What does history say about the price of things that look like this:

http://bitcoincharts.com/charts/mtgoxUSD#rg730ztgSzm1g10zm2g25zv

 

I'm a skeptic, but I want to believe ;)

[wachtwoord]

Your two main questions:

 

1. Intrinsic value: What is intrinsic value? To me, intrinsic value exists when something is scarce and useful. Bitcoin is scarce (21M total supply) and its usefulness lies in it's properties: Divisibility, irreversibility, transportable etcetera. It actually fullfills the properties of money better than gold.

 

Read: http://evoorhees.blogspot.nl/2012/04/bitcoin-libertarian-introduction.html and http://evoorhees.blogspot.nl/2013/05/bitcoin-2013-role-of-bitcoin-as-money.html

 

2. A Ponzi scheme is something completely different. A ponzi scheme has someone or some organization who issues the ponzi to make money and there isn't one here. Also, in the history of Ponzi scheme's I'm not aware of one crashing (multiple times) and subsequently continuing again like nothing has happened.

 

Of course it is possible to run Ponzi scheme's with Bitcoin just the same as with other forms of wealth (primarily fiat currency). In fact, to me, fiat currency is the biggest Ponzi scheme ever devised. Lending money and subsequently printing more money to debase the value and in effect pay negative interest rates (qualified in purchasing power) in an ever continuing spiral does have the characteristics of a Ponzi scheme.

[Guest hellsten]

Your two main questions:

 

1. Intrinsic value: What is intrinsic value? To me, intrinsic value exists when something is scarce and useful. Bitcoin is scarce (21M total supply) and its usefulness lies in it's properties: Divisibility, irreversibility, transportable etcetera. It actually fullfills the properties of money better than gold.

 

Read: http://evoorhees.blogspot.nl/2012/04/bitcoin-libertarian-introduction.html and http://evoorhees.blogspot.nl/2013/05/bitcoin-2013-role-of-bitcoin-as-money.html

 

2. A Ponzi scheme is something completely different. A ponzi scheme has someone or some organization who issues the ponzi to make money and there isn't one here. Also, in the history of Ponzi scheme's I'm not aware of one crashing (multiple times) and subsequently continuing again like nothing has happened.

 

Of course it is possible to run Ponzi scheme's with Bitcoin just the same as with other forms of wealth (primarily fiat currency). In fact, to me, fiat currency is the biggest Ponzi scheme ever devised. Lending money and subsequently printing more money to debase the value and in effect pay negative interest rates (qualified in purchasing power) in an ever continuing spiral does have the characteristics of a Ponzi scheme.

 

1.

It actually fullfills the properties of money better than gold.

 

Yes, technically speaking it's better than gold. The problem though is that it's a small group of people who have decided what Bitcoins are worth; this without there being much real-world use for them. Where can you spend bitcoins?

 

This doesn't help much:

Bitcoins have value because A) they are useful and B) they are scarce.

 

Today I would assign zero value to a bitcoin because I can't use it anywhere. I can exchange it for real money that's the only value it has currently. Who decides what the value is?

 

2.

A ponzi scheme has someone or some organization who issues the ponzi to make money and there isn't one here.

 

Nobody knows who's behind this scheme. Are they making more money than Madoff? Probably. One Norwegian bought bitcoins for $20 and woke up a millionaire one morning. In my eyes bitcoins fulfill many aspects of a pyramid scheme.

[rkbabang]

 

Yes, technically speaking it's better than gold. The problem though is that it's a small group of people who have decided what Bitcoins are worth; this without there being much real-world use for them. Where can you spend bitcoins?

 

 

You can book a flight on an airplane or a spaceship. You pay for a college education or buy a sandwich.

 

I'm sure a year from now you will be able to use them in more places than now.

[wachtwoord]

Nobody knows who's behind this scheme. Are they making more money than Madoff? Probably. One Norwegian bought bitcoins for $20 and woke up a millionaire one morning. In my eyes bitcoins fulfill many aspects of a pyramid scheme.

 

You can buy it and sell it again when it's worth more because more is offered on a free market. Further there is no single person that decides supply but rather the total of computational power behind the system (hashing power) that is used to protect the network from false transactions. You can join in if you like (I have in the past, now it's unprofitable with a video card because of the increase in total  computational power). Furthermore supply is fixed, no matter the total computational power. There will never be more than 21 M BTC.

 

 

Yes, technically speaking it's better than gold. The problem though is that it's a small group of people who have decided what Bitcoins are worth; this without there being much real-world use for them. Where can you spend bitcoins?

 

 

You can book a flight on an airplane or a spaceship. You pay for a college education or buy a sandwich.

 

I'm sure a year from now you will be able to use them in more places than now.

 

You can buy many many more things with them and quite diverse. For instance the biggest online fast food business in the Netherlands. OKCUpid accepts Bitcoin too btw ;). And basically everything with http://all4btc.com/. Further there are many intermediaries who will plug into popular online merchant systems and allow the merchant to either receive the equivalent value in fiat currency, Bitcoin or a mix of the two. These have been quite popular.

[Ian L]

There will never be more than 21 M BTC.

 

There is nothing stopping more electronic currencies coming into being. A successor might take all of the hot money away and leave late stage investors nursing their losses.

 

 

[nkp007]

I don't intend to ever put money into Bitcoin, but it's fun to watch the ride.

[wachtwoord]

There will never be more than 21 M BTC.

 

There is nothing stopping more electronic currencies coming into being. A successor might take all of the hot money away and leave late stage investors nursing their losses.

 

This is a possibility. Thus far none of the (many, many, many) altcoins have offered an improvement over Bitcoin. When there is no improvement Bitcoin is most likely to stay on top because of networking effects.

[rkbabang]

One thing is for sure, it is too late to try to mine bitcoins.  Take a look at this mining facility in Hong Kong owned by a company called ASIC Miner.  It looks like a supercomputer facility with racks and racks of mining ASIC boards submerged in some kind of cooling liquid from 3M which is piped up to giant radiators and fans on the roof.

 

Visit of ASICMINER's Immersion Cooling Mining Facility

 

[Mephistopheles]

One thing is for sure, it is too late to try to mine bitcoins.  Take a look at this mining facility in Hong Kong owned by a company called ASIC Miner.  It looks like a supercomputer facility with racks and racks of mining ASIC boards submerged in some kind of cooling liquid from 3M which is piped up to giant radiators and fans on the roof.

 

Visit of ASICMINER's Immersion Cooling Mining Facility

 

 

Just out of curiosity for the tech savy people: why has mining gotten harder over the last few years?

[rkbabang]

One thing is for sure, it is too late to try to mine bitcoins.  Take a look at this mining facility in Hong Kong owned by a company called ASIC Miner.  It looks like a supercomputer facility with racks and racks of mining ASIC boards submerged in some kind of cooling liquid from 3M which is piped up to giant radiators and fans on the roof.

 

Visit of ASICMINER's Immersion Cooling Mining Facility

 

 

Just out of curiosity for the tech savy people: why has mining gotten harder over the last few years?

 

My understanding is that it is getting more difficult by design.  It was designed to get progressively harder to solve a block the more bitcoins are in circulation and also less bitcoins are issued overtime.  There will never be more than a certain number of bitcoins (21M I think), but there will also never be 21M bitcoins. This is because as the number in circulation gets closer to the maximum, the mining gets harder and the number of bitcoins issued gets smaller.  It will eventually take an enormous amount of processing to earn a tiny fraction of a bitcoin.  At the beginning you could have mined with your PC's CPU and earned bitcoins (but they were only worth pennies each), then you needed a video card, then multiple video cards, then FPGAs, now ASICs, and even if you have an ASIC board you are competing with the facility in the above link which has many times the number of boards and each one running much faster than yours (due to the liquid cooling).    In general the price per bitcoin has gone up as the cost of mining them has gone up.  And the cost of mining them is going to continue to go up, by design.  Basically the more total processing put into mining bitcoins the harder they get to mine.

 

From this paper: Bitcoin: A Peer-to-Peer Electronic Cash System

 

"To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases."

 

 

[tombgrt]

Question: Do miners create any real value by mining and is it equal to their payout in bitcoins or not?

[Liberty]

Question: Do miners create any real value by mining and is it equal to their payout in bitcoins or not?

 

I have no opinion on bitcoin other than it's very cool math and crypto.

 

The miners  validate the bitcoin operation chain, afaik. Their CPUs are necessary to keep the system running.

 

As for the value they received vs what they provide, I don't know, but in that system they're probably closer to the federal reserve than to an average joe working a job.

[rkbabang]

Question: Do miners create any real value by mining and is it equal to their payout in bitcoins or not?

 

My very limited understanding of the mining process is that yes to both.  You can think of the mining as the processing of the transactions. Obviously this processing takes more processing power as the number of transaction grows.  When they successfully process a block they get issued a number of bitcoins.  This is why it is decentralized and no big central data center is needed to process all of the transactions, people all over the world are competing with each other to do it.  And if you take down one or two miners it doesn't effect the system.  If you created a company called e-coin and you started a digital currency where you did all the processing with your own servers and charged a fee per transaction, someone could kill the whole system by shutting you down.  Or the system would just die if your company went bankrupt.  With bitcoin once it was released into the wild no one owns it or controls it and anyone can get in on the competition to process the transactions.

[wachtwoord]

One thing is for sure, it is too late to try to mine bitcoins.  Take a look at this mining facility in Hong Kong owned by a company called ASIC Miner.  It looks like a supercomputer facility with racks and racks of mining ASIC boards submerged in some kind of cooling liquid from 3M which is piped up to giant radiators and fans on the roof.

 

Visit of ASICMINER's Immersion Cooling Mining Facility

 

 

Just out of curiosity for the tech savy people: why has mining gotten harder over the last few years?

 

1. To keep the creation rate of Bitcoins stable. It was designed so that on average every hour 6 blocks (collection of transactions) will be created (mined). If there is more computational power the system auto-corrects the difficulty to make it harder (it also works the other way).

2. To make the total amount of BTC 21M and not infinity the number of coins being created needs to be reduced. Therefore block subsidy (the number of BTC created in every block) is halved every 4 years. The first halving (from 50BTC to 25 BTC) is almost a year ago.

 

Question: Do miners create any real value by mining and is it equal to their payout in bitcoins or not?

 

Miners create real value as they provide the security of the entire system. If you give me more computational power than the entire network I can do all sorts of nasty things such as rewriting history and spending my Bitcoins more than once. As I wrote above the block subsidy is halved every 4 years until it will reach zero at some point. The block subsidy however isn't the only thing miners get they also get the transaction fees of all the transactions they put in a block (this is expected to rise in time, see: https://blockchain.info/charts/transaction-fees?timespan=all&showDataPoints=false&daysAverageString=7&show_header=true&scale=0&address=). Fees are voluntary but miners can refuse to put a transaction in a block if they so choose. There is a convention for this (based on age of coins and size of a transaction in KB) that is currently followed by almost all miners.

 

Long term I think the mining business will turn into a very low margin business as competition ill be quite severe.

[Guest hellsten]

Interesting discussion at https://news.ycombinator.com/item?id=6810543

 

Even at +$1000 bitcoins have zero value to me. Why should I own bitcoins, or accept bitcoins as payment for anything? Nobody, not even Google, seems to have an answer other than "it will increase in value over time".

 

Most people buy bitcoins because they expect the price will go up. When it no longer does so, they will want to cash out. I'm not saying Bitcoins will disappear, unless governments decide so, but the amount of people who assign any value to the currency will be limited to a small or large group of people. Yes, I'm probably wrong because this time it's different and the technology behind bitcoins will make people rational.

 

A stockbroker, cold calling about a penny stock, found a taker. "This one is really going to move," the broker said. "It's only a $1 a share." "Buy me 1000 shares," said the client.

 

The following day, the stock was at $2. Seeing this, the client called the broker and told him to buy him 5000 more shares.

 

The next day the client checked in the newspaper and the stock was now at $4. Running to the phone, he called the broker and told him to get him 10,000 more shares.

 

Checking the paper the following day the client now saw that the stock was at $9. Thinking what a great profit he had made in just a few days, the client raced to the phone and called the broker. "Sell all my shares," he instructed.

 

"To whom?" the broker replied. "You were the only one buying that stock!"

 

http://www.getamused.com/jokes/pennystock.html

 

[wachtwoord]

Even at +$1000 bitcoins have zero value to me. Why should I own bitcoins, or accept bitcoins as payment for anything? Nobody, not even Google, seems to have an answer other than "it will increase in value over time".

 

Because it's properties make it the best form of money to have ever existed.

[Mephistopheles]

Even at +$1000 bitcoins have zero value to me. Why should I own bitcoins, or accept bitcoins as payment for anything? Nobody, not even Google, seems to have an answer other than "it will increase in value over time".

 

Because it's properties make it the best form of money to have ever existed.

 

So it's cheap at $1,000? What if it goes to $2,000? $10,000? At what point is it not a good buy?

[wachtwoord]

Even at +$1000 bitcoins have zero value to me. Why should I own bitcoins, or accept bitcoins as payment for anything? Nobody, not even Google, seems to have an answer other than "it will increase in value over time".

 

Because it's properties make it the best form of money to have ever existed.

 

So it's cheap at $1,000? What if it goes to $2,000? $10,000? At what point is it not a good buy?

 

It's hard to value. Based on the amount of gold that is known to be in curculation, the price of 1 BTC would be >$300k if it completely replaced gold and did nothing else. The potential is even higher as the use of Bitcoin will unlock value that gold doesn't. For one Gold is hardly used as a currency. On the other hand Bitcoin is currently used by only a small portion of the population and therefore this is speculation on future usage.

 

I feel there still is a very wide margin of safety.

[Hielko]

I could start a new cryptocurrency today, and use the same argument to argue that it's cheap. But I bet you wouldn't be buying it from me even if the 'market cap' would be 1/1000 of the BTC 'market cap'. I think this means that your argument is incomplete at best, and that part of the thesis is not only that there is a future for crypto currencies, but also that Bitcoins are that future.

 

But how many first iteration software technologies/products do you know that were so good on the first try that they didn't get replaced by something better after a couple of years? What happened to the first social network, the first search engine, the first operating system? Are bitcoins truly so awesome that people can't develop something better?

[Edward]

Bitcoin is at best an exchange medium. It absolutely cannot be viewed as a store of value. A store of value can only be real stuff and businesses.

[wachtwoord]

I could start a new cryptocurrency today, and use the same argument to argue that it's cheap. But I bet you wouldn't be buying it from me even if the 'market cap' would be 1/1000 of the BTC 'market cap'. I think this means that your argument is incomplete at best, and that part of the thesis is not only that there is a future for crypto currencies, but also that Bitcoins are that future.

 

But how many first iteration software technologies/products do you know that were so good on the first try that they didn't get replaced by something better after a couple of years? What happened to the first social network, the first search engine, the first operating system? Are bitcoins truly so awesome that people can't develop something better?

 

Bitcoin is self-adaptive. The software is open source and is under constant development ('officially' it has never come out of beta either). If the majority of the network accepts a change, Bitcoin has just evolved and this has happened in the past (for example when introducing transactions that need M out N signatures to access the Bitcoins, enabling more use cases). Even if SHA-256 is compromised Bitcoin will evolve and shift to another hashing algorithm.

 

Of course there exist many other cryptocurrencies. Here is a list with their current market caps http://coinmarketcap.com/ . Most of these are carbon-copy clones of Bitcoin however. Some introduce small features which are potentially beneficial: Litecoin uses a different hashing algorithm (Scrypt) and PPC introduced proof of stake architecture next to the proof of work one. However, because of the networking effects, both in usage, in adoption and in development it is unlikely for any altcoin to overcome Bitcoin without making a revolutionary contribution of the magnitude of the initial definition of Bitcoin.

 

Bitcoin is at best an exchange medium. It absolutely cannot be viewed as a store of value. A store of value can only be real stuff and businesses.

 

This is a very limited view at the best and only stating a fact without argumentation. Why do you believe Bitcoin isn't real?