Vast Bulk of BitCoins Are Hoarded, Not Used 438
another random user writes with this news from Ars Technica:"More than three-quarters of the digital coins in the Bitcoin digital currency scheme aren't circulating because they remain dormant in user accounts that have never participated in outgoing transactions, a recently published study has found. The figure translates to more than 7.019 million BTCs, the term used to denote a single coin under the digital currency, which uses strong cryptography and peer-to-peer networking to enable anonymous payments among parties who don't necessarily know or trust each other. Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million. On May 13, the date the researchers analyzed their data, there were slightly more than 9 million BTCs in existence."
Re:Gridlocked with No Way to Prime the Pump (Score:5, Insightful)
Ultimately, once the maximum bitcoins have been generated, you're pretty much guaranteed a deflationary spiral with no real way to restart the economy as you can't introduce any more money into the system.
Sure, you might think that once you reach that point people will start selling their hoarded BTC to cash in, but that doesn't really help because most people involved aren't going to be dumb enough to buy something that can only really go down in value.
Implied valuation (Score:4, Insightful)
Shocking that people wouldn't be doing transactions with a currency that few people know about or understand and that even fewer people are willing to accept as payment.
Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million.
That is referred to as an inferred value. Same thing happens with companies. Say you buy 5% of a company for $1 million. By doing so you think the entire company is worth $20 million (5% of $20 million is $1 million). That doesn't mean it is actually worth that much, it just means someone paid an amount that implies the value of the company. On a thinly traded commodity inferred values can be wildly misleading because the person doing the transaction might have overpaid compared with the going market rate. If most of the bitcoins are sitting on the sidelines, that $80 million valuation is almost certainly far higher than is realistic.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Insightful)
So why do you have a computer when you can always wait another six months, and buy a better and cheaper one?
The computer industry is a deflationary spiral.
Because today, right now, right this very moment, a computer has a functional, practical use. You can do things with it. You can make things with it. Hell, I'm communicating to you right now with one! And this particular one is well past six months old; it's around four years old! This is far, far more than you can do with BitCoins right now, and, as the deflationary spiral continues, in six months.
There's this difference between a functional tool and a rapidly-deflating unit of pseudocurrency. I admire your trolling efforts to confuse the two to throw the weak-minded of us off of the point, but, well, you're just wrong.
monopoly money (Score:4, Insightful)
Not true. (Score:5, Insightful)
The vast bulk of dollars are NOT hoarded. They are mostly stored in banks, which in turn lend them to others. They should have covered this concept (Fractional Reserve Banking) back in middle school... you need a refresher.
These BitCoins aren't being stored in a lending bank, they are being stored under the metaphorical mattress.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Insightful)
Can't do much with the digital bits of which most modern state currencies are made, either.
So, let's sum up:
With a six-month-old computer, you have a tool that you can use to get work done.
With six-month-old BitCoins, you have a smug, smarmy sense of superiority and a generic the-world-hates-me attitude that you can only use to further extend your smug, smarmy sense of superiority and generic the-world-hates-me attitude. And get drugs. Sometimes. If the market's right. Maybe.
Best part is, you need the computer to do what little you can do with BitCoins anyway. Perhaps a different analogy is in order?
Re:Gridlocked with No Way to Prime the Pump (Score:4, Insightful)
In case you missed it, regular US currency has most of the same issues. It is not backed by anything, its value fluctuates dynamically with perception and it is traded and gains and loses value at others' whims.
If you have $100 you put in the bank ten years ago, its worth a lot less now in exchange for goods, services or other currencies than it was then.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Insightful)
We got off the gold standard because we were fighting a war we could not pay for and were going to default on redemptions otherwise. We were creating more money supply than there was gold to back it up and the rest of the world knew it. That is why we got off the gold standard and no other reason.
Deflation is a symptom not a cause. Its velocity not quantity of money supply that matters, where stimulating an economy is concerned. Deflation driven by delivering and hording are symptomatic of population that does not expect the prospects of wealth production to be bright in the future.
This idea that people don't spend because they will get more for it next week is a farcical, in my opinion. People don't *need* dollars or gold, they need bread to eat, cars to drive, tar for their roofs, boots for their feet, gas for their stoves etc. People stop spending not when they think money is going to gain in value, they stop spending when they question their future prospects for obtaining enough replacement money to accommodate their future needs.
I don't think people would stop spending even in the face appreciable and obvious deflation. Not even on luxuries. Look you don't want a new TV 6 months from now, you want to start enjoying today. If you were sure your job was secure and any pay cuts you might face would be no greater than the general deflationary trend you'd have no special incentive to save.
The mainstream economists are wrong about deflation being a threat. Treating is at best like using a nasal decongestant to fight a cold. It does nothing to attack the underling issues, although it might make some groups more comfortable.
Inflation does not prime the pump either. It forces people into bad decisions. They don't want to buy because they feel their security is threatened. They probably should save, but inflation will destroy their savings if they don't swap cash for assets. So you make them guess at which assets they will need rather than acquire them when they have actual needs. We have been at this experiment for about 50 years now. Do you really think our nation is on a more solid fiscal footing?
Also consider this angle, before the gold standard was dropped we had boom and bust cycles. They were more frequent but shorter dips were shallower, peaks were lower. Before the central bank we had even more rapid cycles. What happens to you now with these longer cycles if the most productive years of your own life span happen to coincide with one of the dips? You are screwed that's what. Shorter cycles are better. Trying to keep the boom times going past ripeness with monetary games means a bigger dip later, and that is really unfair to folks a little younger than you.
Re:Gridlocked with No Way to Prime the Pump (Score:2, Insightful)
The best way to use savings is to grow it
Preferably by investing them in something that actually produces value.
When you just buy a commodity and sit on it expecting it to cash out on rising value, that's not investing, that's speculation.
When the commodity has no inherent worth or use, and the only way the price increases is by persuading more people to buy, that's not even speculation - it's just a pyramid scheme.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Insightful)
Re:Gridlocked with No Way to Prime the Pump (Score:3, Insightful)
What would be the problem if this were to happen across the board? It would reward saving tremendously - you could literally leave your money in the mattress and you would be gaining more value with it each year.
You've answered your own question. If inflation amounts to a tax, then deflation is a subsidy for people who stuff their money in mattresses where it does no one any good. You're paying people with fat mattresses sit and watch their money instead of using it to produce more and create new wealth.
Re:Speaking of computers and bitcoins... (Score:4, Insightful)
1. No. The complexity is dynamic. It adjusts based on the total power of the network so that on average, 1 block is found every 10 minutes. If fewer people are mining, the difficulty will drop to maintain that rate.
2. The mechanism for that is that every 210k blocks, the reward for finding the block (currently 50BTC) is cut in half. This will happen for the first time (dropping from 50 to 25) sometime around the end of November.
3. That depends on what you're using for the calculations. Using a CPU stopped being profitable long ago, unless your power is free, but even then unless you have a company worth of computers, you're not going to get much out of it. A good GPU, like something recent from ATI, is slightly profitable, depending on your electrical rates. FPGA based mining equipment is far more power efficient and should remain profitable for quite some time, but isn't cheap.
4. Mining will always be needed, as that's what makes the whole system run. Without mining, transactions aren't recorded into the blockchain. The difference is that the method of paying the miners for their work shifts from creating coins from whole cloth to being paid by the people sending transactions around.
Re:Gridlocked with No Way to Prime the Pump (Score:4, Insightful)
Another way to formulate this would be to say that you got off the gold standard because you could no longer could afford to support hoarders' (of gold and gold-standard cash) expectations of rent just for sitting on their claims to wealth.