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."
Speculators (Score:5, Interesting)
I wonder how many of these were generated early on and are being hoarded by the early adopters. The rate at which bitcoins can be created out of thin air is artificially controlled to keep production at a steady pace. What I'm curious about is how many bitcoins were created initially before they gained widespread publicity, and are those being hoarded?
Money Laundering? (Score:5, Interesting)
"We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account."
Not to imply that anything wrong was happening but isn't that the definition of money laundering?
Perhaps an individual experimenting with how effectively he can automatically clean BTC with temporary internet accounts being made for transactions leading back to a brand new account? But wouldn't the whole chain of ownership be shown on that final balance? What else could be the purpose of the mentioned exercise?
The researchers started by mining the history for data that identified when two or more addresses belonged to the same owner.
How is this done? I thought that BTC just needed an address and that was it. You could use throwaway accounts if you wanted to, right? From the wikipedia page [wikipedia.org] on it:
Because transactions are broadcast to the entire network, they are inherently public. Unlike regular banking, which preserves customer privacy by keeping transaction records private, loose transactional privacy is accomplished in Bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions. As an example, if Alice sends 123.45 BTC to Bob, the network creates a public record that allows anyone to see that 123.45 has been sent from one address to another. However, unless Alice or Bob make their ownership of these addresses known, it is difficult for anyone else to connect the transaction with them. However, if someone connects an address to a user at any point they could follow back a series of transactions as each participant likely knows who paid them and may disclose that information on request or under duress.
Movement from a known to unknown account in an attempt to "launder" it maybe?
Re:Gridlocked with No Way to Prime the Pump (Score:3, Interesting)
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.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Interesting)
I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals?
That is certainly a goal of currency, but I think it is indirect in the sense that avoiding deflationary spirals is necessary to satisfy other, more immediate goals of currency. The purpose of currency is to facilitate trade of some kind -- it is not useful if it cannot be spent, and the most useful currency would be one that can only be used for this purpose (there are other views, of course). Thus hoarding (and deflationary spirals) make money less useful, or in the worst case, totally worthless.
I have argued in the past that Bitcoin is actually not useful as currency, and that it will ultimately fail for economic reasons before it fails for technical reasons.
Re:More like gold by the day (Score:4, Interesting)
If you're interested in a long dry read, I wrote an article about Bitcoins while studying a different virtual economy [pamelabowman.org]. The perspectives in this thread couldn't have come at a better time. I'll probably integrate them into my article.
Re:Gridlocked with No Way to Prime the Pump (Score:5, Interesting)
This is poor economic reasoning at best.
The amount of money in circulation has nothing to do with how much wealth there is in the economy. Printing a trillion dollars right now won't magically generate a trillion dollars in wealth (e.g. physical goods) - rather it will make everybody who currently holds USD collectively one trillion dollars poorer, as you'll have the same amount of goods being chased by a larger amount of 'money'.
The trick is that the wealth of an economy is not best measured by spending, but rather, by what is actually produced. Spending is epiphenomenal. You can notice that rich families tend to spend more dollars per year, so there is certainly a correlation between how much a family spends and how wealthy they are, but if a poor family starts borrowing money and sending as much as a rich family, they don't magically become a rich family. However, if you only look at spending, then that poor family will seem just as rich as the family that is actually wealthy.
When the government prints money, spending certainly increases. This is because it's impossible for prices to adjust instantaneously. For example, if there were $1 million in the economy and the government printed another $1 million, with all else being equal, all the prices should double. It takes a while for that to happen, though, so the first people to receive the printed money get a huge discount, as they're essentially paying half of what things are now worth. The people who are way down the line in terms of receiving that inflated money (e.g. after many many transactions have been made) receive less of a benefit as the prices have already begun to adjust. And the people who are attempting to do the rational thing - save money - are completely boned, because now all the money they have accumulated is suddenly worth half of what it is.
Printing money is immensely beneficial to the government, as they can essentially tax people without them knowing it. Far easier to increase the money supply by 10% - where prices might take months or years to adjust - instead of levying a 10% tax on everybody. It also benefits the people who are closest to the government the most, as they receive those printed funds first and get everything at a discount. Yet they have brainwashed people into thinking inflation is good, deflation is horrible, so yes, please continue to steal our money at an acceptable rate.
Why is it such a bad thing for prices to go down? Prices go down every year in computer goods - hard drives, video cards, RAM, processors, etc., are all cheaper and higher quality. 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. Compare this to today's economy where if you were to do that it would slowly be taken away from you by the massive amount of money printing going on.
The argument, of course, is that if you would accumulate wealth by leaving your money in a mattress, everyone will do that, no one will spend, and the economy will tank. This is specious at best and intentionally deceptive at worst.
First of all, there's the moral argument - why is it okay for the government to steal your money without your knowledge or consent to promote the economy elsewhere? At least a tax is up front and explicit.
Secondly, people like to have shiny things. There will always be demand - how could there not be? What's preventing you from buying a jetski and an apartment with a swimming pool in it and expensive clothing and whatnot? Just a lack of the economic resources to do so. You can argue, given limited resources, everyone will decide to just wait a little more so they have more wealth before finally spending it. And, indeed, some people will do so. But not everybody is a miser who will hoard their wealth without spending a penny of it. That is an extreme, but the reasoning stands: that activity defeats the purpose of money, which is to allow you
Re:Speaking of computers and bitcoins... (Score:4, Interesting)
Mining is yet another flaw of this currency. It turns real value, electricity and your time into something currently worthless. You could do a lottery to assign bitcoins, have the same outcome and save everyone a ton of real money and time.