BitCoin Value Collapses, Possibly Due To DDoS 605
hydrofix writes "The Bitcoin-to-USD exchange rate had been climbing steadily since January 2013, from around 30 USD to over 250 USD only 24 hours ago. Now, the value bubble seems to have burst, at least partially. The primary trading site MtGox reported a drop in value all the way down to 140 USD today, a loss of almost half in real value. With many sites unreachable or slow, there are also news of a possible DDoS attack on MtGox: 'Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.'"
unregulated (Score:2, Insightful)
so they wanted an unregulated market. this is what they get...
Get your numbers right (Score:5, Informative)
Today's high was $266, the low was $105 and currently it is trading around $180
Re:Get your numbers right (Score:5, Informative)
Today's high was $266, the low was $105 and currently it is trading around $180
Note that final figure. Despite the continued DDoS, the price is already halfway back to the previous high. The drop was just a short-term effect due to the impact of the DDoS on liquidity and a mild amount of panicked selling. Another point to keep in mind is that the price was under $15 at the beginning of January—even at the low of $105 we were still up by 600% YTD, and 200% over the last 30 days (from $35).
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Note that final figure.
I am not sure why I should, since it is now $130.
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It seems that Bitcoin is being treated more like, and reacting more like a company or commodity stock. It's constantly being valued against the USD (which is convenient but not useful in terms of what a Bitcoin can actually do for you), and it's reacting to market pressures, e.g. value dropping on panic selling. In other words, traders see it as just another thing to be manipulated for their own gain. I was considering cranking up a mining client on one of my spare machines, souped up with a decent GPU, but
The value moves like a thinly traded stock (Score:4, Interesting)
One where there's lots of speculation. These kind of shifts are NOT what you want for a currency. When a currency changes value by 10% in a YEAR that is a problem governments try to deal with (2-3% is the normal target), never mind doubling or halving in a day. Even a normal stock or commodity would be having some extreme problem for that kind of movement to happen.
It shows all the signs of sever speculation and a bubble. People playing it to try and make a big short term gain, at the expense of others.
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Today's high was $266, the low was $105 and currently it is trading around $180
If that was directed at the submitter (underwritten), I put [slashdot.org] "over 250 USD" in the scoop, which covers $266. Also, I did not want to put a low value, because the market is very, very unstable right now. All that could be said was that MtGox was reporting 140 USD when the scoop was submitted.
Now the martket seems to be regaining, possibly with news that the fall was connected to a DDoS.
Bank speculators ... (Score:5, Funny)
have found another target. Having bankrupted several major economies they are looking for virgin lands to grab.
Or maybe it was a bubble (Score:5, Insightful)
It's funny how people believe that their imaginary currency would have grown 10x in value in a few months weren't for those evil hackers.
bottleneck (Score:4, Insightful)
Re:bottleneck (Score:4, Interesting)
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Long-term view (Score:5, Insightful)
The solution's the standard one: take the long-term view. If you think Bitcoins are actually going to be worth that much long-term, don't sell. Hold onto them, and buy during the drops. If you think Bitcoins aren't worth their current value long-term, sell before another drop happens and don't buy back in. The speculators (because that's what's driving any manipulation) depend on people dumb enough to do short-term trading while lagging behind the curve. They're professionals with all the tools, so as a non-professional the only way you can win is to not play their game.
Rule of poker: there's always a sucker at the table. If you look around and don't see one, it's you.
Sounds like... (Score:5, Funny)
Either the Spanish Inquisition or Goldman Sachs. Either way, it sure was unexpected.
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Unexpected, hardly. If you look at the graphs and the development of buy/sell orders, it's a bit of a miracle that it took so long.
talk (Score:4, Insightful)
you can talk the shit out of bitcoin you want, but this unregulated market may provide us with data about currencies that we never observed before, we can get real good data from this experiment.
Re:talk (Score:5, Interesting)
we can get real good data from this experiment.
From that perspective, Bitcoin is fascinating. The Bitcoin world, tiny though it is financially, has seen just about every classic scam. Ponzi/HYIP schemes, pump and dump schemes, fake bank schemes, fake exchange schemes, fake stocks, and ordinary theft - it's all there. It makes the penny stock market look legit.
Someday, assuming they haven't lost them, the people who generated Bitcoins in the early days when it was easy will cash out. Most of the early Bitcoins are not being traded. Somewhere there are early adopters with substantial value. They can't exit yet without clobbering the price, though. Not enough suckers putting in real money.
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I think Bitcoins have value, I don't know what it is. Whoever wrote TFS here doesn't understand what 'collapse' is doesn't know anything about economics or mechanics of trading.
The volume is thin and there is no good way to take a short position, this is what MtGox needs to do if they are interested in a more stable current price against most currencies. People have to be able to take a short position, that's part of the balance that's missing. The Bitcoin protocol allows for trades, but it doesn't allow
Just today (Score:4, Informative)
Really, once the general public is aware of 'get rich quick scheme' it is going to collapse.
I am not saying Bitcoins is such a scheme, just that some people interpret it as such. Currency speculation is not a good get rich quick scheme. It seems to best with people who have taxes in 30% range, or otherwise need to launder their money.
This is steady? (Score:4, Insightful)
We might need to have a talk about what "steady" means. [imgur.com]
Vulnerablity of single major channel (Score:4, Interesting)
MtGox owns too much of the Bitcoin conversion market. They need a solid competitor.
Right now, if you can harm MtGox, you harm the entire Bitcoin network. Slow it down and you slow down Bitcoin trades. Manipulate it and you manipulate the entire market. Regulate it and you regulate most of the market. Destroy it, and Bitcoin may completely die, at least in the short term.
I'm not saying any of this is MtGox's fault - they're doing a good job at what they do. But they're the closest thing Bitcoin has to a single point of failure. We need redundancy.
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We need redundancy.
Most of the competing exchanges were scammers, incompetent, or both.
Re:Vulnerablity of single major channel (Score:4, Insightful)
I was speaking of the Bitcoin human network, not the technical one. Wipe MtGox off this plane of existence and people will still be fully able to transfer Bitcoins to each other, but they'll lose a significant amount of the economic reason to do so.
MtGox is the major point for converting Bitcoins into other currencies, and like it or not, the people keeping their money in Bitcoins are speculators right now. Everyone doing actual purchases is converting money to Bitcoins, exchanging the Bitcoins for goods, and then the seller takes those Bitcoins and converts them back. And MtGox is the primary exchange for converting Bitcoins to and from other currencies.
And the reason people are doing so is because Bitcoin is still very unstable, prone to spikes and crashes, today just being a particularly dramatic one. People don't like to keep money in an unstable currency.
So we need more stability in the Bitcoin market, and until we get that stability a large portion of the Bitcoin market is conversion. And thus, we need stability in the conversion market, which only happens when you have significant redundancy.
Real value? Hah (Score:2)
a loss of almost half in real value.
Thus proving (like any currency, ultimately) that they have no value.
DDoS == lots of people scrambling to sell and buy (Score:4, Informative)
AFAIK there hasn't been any evidence of an actual DDoS against any of the market sites. People who were using the biggest market site Mt.Gox reported 25 minute delays in their trade orders, most likely because of people scrambling to cash in on their bitcoins before it's too late and people looking to buy bitcoins at 'bargain' prices. The most popular chart site bitcoincharts.com crumbled completely, most likely under the load of people who were legitimately interested in viewing the data, or in my case semi-legitimately interested in it (it's fun to watch).
Full discosure: I sold my small fraction of a bitcoin back when the price was at $235. I currently hold 0 BTC. I'm treating this like a game and I hope everyone else is too. I feel sorry for anyone who is investing real money now. Don't be stupid.
Re:DDoS == lots of people scrambling to sell and b (Score:4, Informative)
Actually, if you were a user of the sites, you'd notice there is strong evidence that points to a coordinated DDOS. The spurts of traffic aren't continuous, and they "break" at suspicious timings. For example, at the bottom of the curves, the sites work fine, most of the market/chart sites get their feeds, etc. It's only during the drops/raises start, when it would be fortuitous for people to put in trades, and then freak out when they can't, that the connection issues occur.
I'm not entirely ruling out it being sheer volume of people, but if it was it wouldn't "Come and go" as drastically as it's doing. We're talking sites entirely unusable one minute, and suddenly perfectly fine the next, then unusable 30 min later.
Massive surges in trade are expected during a speculative boom-bust cycle. This is how it works: every now and then, for whatever reason, the price either drops or increases significantly into a territory where you enter into a self-reinforcing surge of traders (many of which will be small traders) who are scrambling to sell and/or buy before it's 'too late'. This goes on until the price stabilizes at which point people calm down.
Pumpity Dumpity (Score:3)
Pumpity-dumpity from the Great Wall.
Pumpity-dumpity had a great fall.
All the geek women and all the geek men
Need to configure the routers again.
Problems (Score:3)
1. Not legal tender.
2. Only exchangeable for other goods or currencies at a very small number of markets and merchants.
The Bitcoin system cryptographically and decentrally secures ownership and continued scarcity of the currency. But the real value, as with all currencies including gold, lies in the ability to exchange it. Lose that, and you're pretty much SOL.
(If a small number of actors can destabilize the currency like this, guess how resilient it is against the pressure that national governments can put on it.)
Lemmings (Score:5, Insightful)
I shouldn't have to point out the obvious here, it will clearly fall on deaf ears considering the vast amounts of stupidity revealing themselves in postings on this topic. But hell, if it brings just one person to their senses I'll count it job well done.
First, nobody is forcing anyone to hold their savings in US Dollars. You can hold your savings in whatever form you want, it's called a BROKERAGE ACCOUNT. Buy a commodity-tracking ETF if you desire, and keep just enough dollars around to service your monthly needs. The dollar, after all, is very definitely stable in the short-term. One month isn't going to destroy its value. Realize, though, the price of everything in real terms fluctuates. Someone who bought gold at $1900 is sitting on a 15% loss of value in dollar terms right now, for example. Real commodities generally maintain their value over long periods of time. Are you worried about buy/sell fees? If you are, then you don't have enough savings to even be AFFECTED by inflation in the first place.
Second, Bitcoin isn't a currency. It's a commodity with a limited supply. Not only is it a commodity with a limited supply but it is a VIRTUAL commodity with a fixed supply. It isn't even real. It's not something you can touch. It doesn't even behave like a currency fod gods sakes! It may not be possible to counterfeit, but that doesn't stop anyone from creating their own virtual commodities and competing. In fact, there are MANY virtual currencies already in existance, primarily used in games, which are already far more stable than bitcoin.
Third, Bitcoin's 'value' is fleeting. It's like tulip-mania but worse. It's worse because the market is so shallow it is trivial (and obviously trivial) to manipulate. Heavy manipulation by people selling high slowly, causing a panic, and then buying low. Rinse and repeat.
I'm guessing that a large percentage of the exchange volume is from rinse and repeaters and very little is actual investment purchases or sales. It creates the illusion of decent volume when, in fact, there actually isn't any. Each time it cycles the manipulators are removing more real money from the system, leaving everyone else holding the bag.
Think about what this means, folks. It isn't rocket science. Whatever cash was injected into the system by real investors is being leeched away by the manipulators. There is LESS real original cash remaining, yet all the remaining real investors believe that a Bitcoin is worth at least as much as they originally paid for it, because they see that magic exchange value in $USD 'Oh look, 1BTC is worth $166 BTC!'. What these investors do not understand is that they cannot ALL get that price if they were to sell. They can't get it even if they all paid that price going in because the manipulators have already squeezed out a considerable amount of cash from the system.
The very definition of a Ponzi scheme. This will only end in tears.
-Matt
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US money also technically has a real value of 1/20 of a cent per bill, that doesn't stop us.
If people will trade real goods and services for currency, that is what it is worth.
Re:Well the ultimate value of Bitcoin is (Score:5, Insightful)
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor.
And with High Frequency Trading, you can get rid if your sandwiches before they go bad. Everybody wins!
Re:Well the ultimate value of Bitcoin is (Score:4, Funny)
Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor.
And with High Frequency Trading, you can get rid if your sandwiches before they go bad. Everybody wins!
Yes, but HFT is pointless. They only take a little nibble per each sandwich trade which would have gotten traded anyway without HFTs, so we're essentially feeding them all for no reason, they're just leaches... For what? A little bit more Liquidity? Who Wants a Soggy Sandwich?!
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Whew... stop telling us about it, please. And please, start breathing through your ears!
Re:Well the ultimate value of Bitcoin is (Score:4, Insightful)
Tax payment (Score:3)
Re:Tax payment (Score:5, Insightful)
The thing about Bitcoin is that its exchange rate to the "real" currencies is irrelevant to its usefulness.
I think most users exchange e.g. dollars for Bitcoin, and then spend the latter as quickly as possible on (mostly) illegal goods. As long as Bitcoin can be obtained at all, the price is stable on the timescale of hours to days and secrecy is maintained, Bitcoin will be used.
In short, "currency" does not always need to represent debt (as do modern money and treasury bonds), or even to have the imprimatur of state authority, for it to be useful transactionally. Low-risk savings, of course, is another matter.
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Argument that "paying taxes" gives currencies value is bullshit. It only shows that governments are ubiquitous, and nothing about currencies.
The value of a currency is that you can find someone who will exchange it for something that has value to you. The fact that everyone in the USA (and, in theory, every US company) must pay taxes in US dollars means that there is a large body of people who produce goods and services and want US dollars.
What gives a currency value is people accepting it, being government or not.
What gives a currency value is the belief that people will accept it in the future. This means that I can accept it in payment for my goods or services now and know that I will be able to use it to buy the g
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Isn't there an ongoing debate whether bitcoin is a "commodity" or a "currency" or both?
Neither. It's just a bloody waste of CPU time.
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Isn't there an ongoing debate whether bitcoin is a "commodity" or a "currency" or both?
Neither. It's just a bloody waste of CPU time.
I thought it was a scam to drive up Slashdot page hits.
Re:Well the ultimate value of Bitcoin is (Score:5, Informative)
We really need a corollary for Godwin's Law adapted specifically to Bitcoin discussions: as soon as you say, "The US dollar doesn't have any intrinsic value either!", you lose.
Godwin's Law isn't actually about losing an argument; it simply predicts that the longer an Internet discussion goes on, the higher the probability that someone will bring up Hitler.
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We really need a corollary for Godwin's Law adapted specifically to Bitcoin discussions: as soon as you say, "The US dollar doesn't have any intrinsic value either!", you lose.
Godwin's Law isn't actually about losing an argument; it simply predicts that the longer an Internet discussion goes on, the higher the probability that someone will bring up Hitler.
And in this case, it took exactly three steps to get from "Bitcoin" to "Hitler".
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CheeseWiz!
Re:Well the ultimate value of Bitcoin is (Score:4, Insightful)
"We really need a corollary for Godwin's Law adapted specifically to Bitcoin discussions: as soon as you say, "The US dollar doesn't have any intrinsic value either!", you lose."
Not really. They are correct about the dollar, but people who say Bitcoin has no "intrinsic value" are just wrong. They don't understand Bitcoin. (Demonstrably, neither do most people who have been trading in it. I'll get to that in a moment.)
Bitcoin does have an intrinsic value: the computing time it takes to mine a bitcoin. This is a real, tangible, and strictly-defined value that can be quantified. This value is FIXED. That is to say, it is fixed today. It can vary with time, as Bitcoins are designed to gradually become more valuable per hour of computing time, but that subject can wait for another day.
For the sake of argument, for the rest of this post, let's say a bitcoin is worth 10 hours of (the right kind of) computation time. We will call that value "X". 1 bitcoin is worth X. My numbers are arbitrary for the sake of example but this is easily quantifiable if you want to look up the actual numbers.
So here's the important thing: this value standard, that is to say X, is also quantifiable in dollars, not just Bitcoin. After all, a fixed amount of the right kind of computation time also has a very definite value in $$. So 1 Bitcoin is worth X which is worth Y dollars. This is a solidly pre-defined amount. It is not "floating".
Therefore -- and this is the heart of the matter -- Bitcoin should not fluctuate at all in DOLLAR value, except to the extent that computation time fluctuates in dollar value. And since computation time has not fluctuated much in value, then Bitcoin should also NOT have changed in $$ value.
The upshot of this is: the Bitcoin market has been an utterly irrational "bubble", with the market valuing Bitcoins far higher than their actual intrinsic worth!
And the result is: lots and lots of people taken for a ride, many of whom will eventually lose buckets of money.
It is almost as if, with the gold standard having been gone for decades now, people have somehow forgotten how standards are supposed to work. While I LIKE Bitcoin, I would not touch today's Bitcoin market with a 10-foot pole. If I'd had a warehouse full of money to invest in it 2-3 months ago, though, I would have. Even today, with the market having fallen 40%, Bitcoin is selling for somewhere around 5 times what it is actually worth in dollars. It was (but perhaps is no longer) a good candidate for pump-and-dump. Which just illustrates how stupid the market is today.
Having said all that: the dollar, in contrast, really does have no practical intrinsic value. Ever since 1971, when Nixon threw the last vestiges of any standard away. (And defaulted on U.S. debt in the process, by the way. People who said the "fiscal cliff" would be the first time the U.S. ever defaulted on debt simply don't know their history.)
Re:Well the ultimate value of Bitcoin is (Score:5, Insightful)
Some of your argument is interesting, but the idea that something's value is equal to the effort that it takes to obtain/create the thing is certainly not the case. There are lots of things that are very difficult to create and/or duplicate that have no value. If I have my computer hash random strings until I get a hash that includes my name in it, even though it might take 10 hours to do (and would take another 10 hours to duplicate), it doesn't make that random string valuable.
Value is the benefit I get from having a good or service (http://en.wikipedia.org/wiki/Value_(economics)). While often times it is correlated with the difficulty in obtaining something, they are not equivalent.
That being said, your argument could still (sort of) work like this: there SHOULD be a cap on the value of a bitcoin.... the $ cost in computing power to mine a new coin. Whenever the price rises much above that, there should be an economic incentive to spend the money mining a new coin instead of buying the coin on the market. Of course, this price isn't a HARD cap, since there is still a capital expense in buying the hardware to mine the coin (or the opportunity cost of not using that hardware to do something MORE valuable), but it shouldn't get too high above that cost.
Of course, the fact that the cost to mine a bitcoin increases with each previously mined coin makes this even more complicated..
Re:Well the ultimate value of Bitcoin is (Score:5, Interesting)
Bitcoin does have an intrinsic value: the computing time it takes to mine a bitcoin.
Stop. Bitcoins have an intrinsic COST. The computing time that goes into producing a bitcoin is comparable to the paper and ink used to print a physical US dollar, or the wages and electricity cost of the "creation" of purely electronic dollars. (Which are really debts, rather than currency, but that's an entirely different boneheaded idea that the one you're postulating.)
Once a bitcoin is produced, it cannot be redeemed for an equal amount of computer time. In fact, using a bitcoin requires SOMEONE ELSE to pay for the verification chain that makes this electronic currency at all feasible.
(you're right that it's a bubble, and I'm not here to argue the system's inherent merits or flaws.)
Having said all that: the dollar, in contrast, really does have no practical intrinsic value. Ever since 1971, when Nixon threw the last vestiges of any standard away. (And defaulted on U.S. debt in the process, by the way. People who said the "fiscal cliff" would be the first time the U.S. ever defaulted on debt simply don't know their history.)
The US dollar is backed up by an almost non-intuitive fact of modern society. It's legal tender for payment of debts. As in, if you don't pay your employees or pay for that meal in a restaurant, or if you just wrong someone more generally, the courts will denote whatever judgement is finally ordered against you in US dollars, and if your wealth is denominated in some other currency, you'll be subject to whatever market exchange rate you can manage to produce sufficient dollars to pay the debt.
Or, in short, "people who say the US dollar isn't backed up by anything don't know what they're talking about."
On a different note, though, I'd be interested if you could point to a US debt that was denoted in a weight of precious metal and not redeemed for sufficient value to satisfy the bond-holder. Just because in 1971 the President of the United States stopped offering gold for dollars doesn't mean the US "defaulted" any more than Wal-Mart selling out of ammo means they "defaulted' on that gift card you bought. (The phrase "Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank" was gone from bank notes decades before. And still did not specify the amount of gold.)
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"Or, in short, "people who say the US dollar isn't backed up by anything don't know what they're talking about.""
But that is not something I ever stated. The US dollar *IS* backed up... by the faith of its investors. And that's all well and good.
But that is a very far cry from a value standard. They are not the same things, and they do not work the same way. That is my entire point here.
If you don't understand this, I warn you: do not go investing in the money market.
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To be honest, people can argue till their face is blue if Bitcoin has an intrinsic value or not it all boils down to this :
Anything is worth as much as somebody is willing to pay for it at the moment in time you want to sell. All the rest comes out of the rear end of a bull.
Yesterday people made some nice money speculating on bitcoins (including me).
They peaked at 200 Euro's so i thing this might not only had have something to do with the DDOS but also the psychological barrier, I had an order in to
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
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"That doesn't make sense; it only has a value if you can redeem the bitcoin for processing time. The cost to produce the currency is irrelevant."
And this is the last time I am going to repeat this here: I am not arbitrarily saying that a Bitcoin should be worth that much computation time. What I'm saying is that Bitcoin is DEFINED to have that value. It was both designed and defined to have that value. Look it up.
The current market is dumb because Bitcoin has a standard value, which just happens to also have a dollar value. It is built in to the DEFINITION of Bitcoin. People who are paying more than the DEFINED value of a Bitcoin are making a bad
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Who uses bills? (Score:3, Funny)
My money is a few bits in my bank's private datacenter.
What's the price of a few bits? If it's what Wells Fargo is telling me it is - holy shit. I've got a NAS with several TB of storage sitting here. Do you know how large of a number I can store on that sucker?
I'M RICH! Monocles and top hats for everyone on Slashdot! You get a monocle! And you get a monocle! And you get a monocle!
And I don't even care that Anonymous Cowards are getting back in line for multiple monocles!
Re: Monocles and Top Hats (Score:5, Funny)
Google Glass will be the rich-nerd monocle of the 21st Century
If it works right etc
Wish I had bought some Bitcoins (or mined up a bunch) in January.... They're back up to about $200 now. From about $15/ea in January. Could have been more than a tenfold return if timed right.
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What's the price of a few bits?
Shave and a haircut...
Re:Who uses bills? (Score:5, Insightful)
For every $1000 in deposits, that means they can lend $10,000 at 5% above their costs and payouts, or more, yielding a $500 profit... wow!
1: It's $1,000 in assets. That includes a whole bunch of things beyond deposits, such as certain bonds.
2: That's $500 in revenue, not profit. From that revenue, they need to pay for all of their bills, and their payroll, and account for losses due to uncollectable accounts and outright thievery.
This $500 is spent by them eventually, and helps dilute the value of your original $1000 by inflation... so your "savings" loses value, as they leverage against it in multiple manners....
3: Inflation is a feature, not a bug. The work you did picking tomatoes last year is less valuable to the species than the work you did picking tomatoes today. The species would be better served if you used that same frugality to horde useful items instead of tokens, which is why the market rewards investment over savings.
Re:Who uses bills? (Score:4, Insightful)
3: Inflation is a feature, not a bug. The work you did picking tomatoes last year is less valuable to the species than the work you did picking tomatoes today. The species would be better served if you used that same frugality to horde useful items instead of tokens, which is why the market rewards investment over savings.
Ten thousand times this.
Say everybody uses Bitcoin. I'm a farmer and I need a loan to buy some equipment - thankfully the company takes Bitcoin and there's a bank that's willing to lend Bitcoin. All set, right? The equipment will make me more money than I spend on the equipment plus the interest on the loan, so it makes sense to take out the money. This interest goes towards giving people a return on their investments, which encourages them to put their money in a bank. The bank matches up that money in savings with the money people need in loans, and everybody wins.
My loan is for 100BTC and I will need to give the bank 105BTC in 5 years. Oops. That 105BTC is virtually guaranteed to be worth more - and likely a lot more - in 5 years than it is now, because it's a deflationary currency by design (there is a hard maximum, and it's harder to find more the closer you get). It could very well be much more than all the money I got from using my fancy new machine, depending on how bad the deflation is. Would you take out a loan when there's a real possibility that the loan amount will be worth several times what you borrowed by the time the loan comes due? If that's not concrete enough, imagine borrowing $100 from your friend, then going back 30 years and having to pay back that same $100, worth about $350 today.
Note that this doesn't actually have to happen - it's about risk. And the risk is quite high that you'll end up owing a lot more value than you planned to. In this case, you'd be stupid to take out a loan. And if you had money, why put it in a bank when it'll gain value all on its own if you leave it under your digital mattress? So the first guy probably can't even get a loan in the first place, even if it made sense, which it doesn't.
Multiply all this by a few million. Small, steady inflation is good because it provides an incentive for people to put money in banks, and an assurance that you won't owe much more than you intend to on a loan. Despite all the hatred of banks around here, they are a vital thing in any macro economy because they provide for the ability to finance expensive things now that will make you more money later. This is how economies grow, and between this and the fact that there's an upper cap to begin with, the Bitcoin economy can't grow. Yes I know Bitcoins are divisible, but this is just more deflation since people with whole Bitcoins will suddenly have a lot more money if everybody decides to lower prices because supply has dried up. Or newcomers will be completely cut out of the market, which is already happening.
This is all basic basic introductory macroeconomics at any college in the world, and it blows my mind that so many Bitcoin advocates don't see this as a massive flaw. If you only use Bitcoin like a Paypal, the risk is lower and it makes more sense, but this doesn't make it a currency.
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I am not a economist, but I am related to one...
While it's technically true to say that "Currency is only worth what people think it's worth" and that it's a socailly-constructed value, you are ignoring the underlying economic reasons why people assign greater value to one than the other.
The value of a US dollar is based on the power and stability of the US economy and Federal Government. No matter how bad things may seem right now for the US economy, it is much better than trusting a random internet craze,
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Good luck going to Safeway and buying your Jeno's frozen pizza with gold or silver, but a lot of people would have you believe that those are the only "real" money.
Re:Well the ultimate value of Bitcoin is (Score:4, Insightful)
You can easily buy a local variety of frozen pizza with Euros in the European Union, with Yuan in China, with Yen in Japan. With bitcoins, you can buy the pizza only in Bitcoinland, and at a very few fringe businesses.
Re:Well the ultimate value of Bitcoin is (Score:5, Funny)
Dude, you can buy "pizza" with bitcoins.
And by "pizza" I mean, "drugs and hookers."
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Isn't the point of this story that it'll take more than a minute?
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Re:Well the ultimate value of Bitcoin is (Score:4, Informative)
But then it's no more a currency than chickens - it's a commodity.
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Wanting, needing... as long as there is someone putting value into something, there is a value. By your examples, managers, stock investors and bank directors are absolutely worthless scum compared to nurses, doctors and farmers... well, ok, they are, but look at their "value" in terms of money.
Privacy and untraceable bank transfers do have a value for some people, and as long as it does, there will be value in something that allows just that. Switzerland didn't have such a huge banking sector because they
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China uses its central control of its money supply to create money without attaching debt to it.
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US external debt is quite a bit smaller than it's GDP. Perhaps about 25% of GDP. Total gross government debt is 107% of GDP but a lot if that is debt from one part of the government to another.
Also nobody really knows what the Chinese government debt is because their statistics are completely unreliable. I've seen claims that local government debt is several times what the published government debt is.
http://www.dnaindia.com/money/1392108/comment-china-s-public-debt-a-damocles-sword [dnaindia.com]
http://www.nytimes.com/20 [nytimes.com]
Re:Well the ultimate value of Bitcoin is (Score:5, Informative)
You mean the renminbi. _A_ yuan is the unit of _the_ renmimbi currency in the same way that _a_ dollar is the unit of _the_ dollar currency.
Re:Well the ultimate value of Bitcoin is (Score:5, Informative)
In the United States, people cannot ... trade real goods and services with BC -- because the U.S. gov' ...will enforce the dollar as the sole legal tender
That's not what "legal tender" means.
I could set up shop today in New York State and accept only bitcoins if I wanted to. The government wouldn't stop me, and in fact they'd back up my right to set my prices as whatever my little heart desires, in whatever strange currency I want.
But as soon as I ask the police to force a shoplifter to pay, I'll wind up having to deal with dollars, because that's all the government will force anyone to pay a debt in. And if I am on the other end of that transaction, I might wind up having to convert some bitcoins to dollars at a sub-optimal time when the bill comes due.
(That I'll also have to pay my taxes in dollars and likely pay my vendors and suppliers in the same means I'll have to deal with some local currency regardless. but that's a different issue.)
Re:Well the ultimate value of a dollar is (Score:5, Insightful)
The ultimate value of a dollar is zero ... anything.
The dollar used to be a receipt for a certain amount of gold that you owned in the federal reserve. But starting from 1971, the government defaulted on this commitment and the dollar became just a piece of paper.
Bitcoin is not different in this aspect. There is nothing behind it either. The difference is that there is a limit to the amount of bitcoins that can exist, but there is no limit to the amount of dollars the government can print. The government and the bank cartel known as the federal reserve can and do print insane amount of money every year to finance government spending, at the expense of the value of every other dollar in existence.
To illustrate this, take a dime from 1942, you could buy a gallon of gas with it back then. But you can still buy a gallon of gas with the same dime _because_ it is made out of silver. So it is not that things are more expensive, it is that the money changed, there are a lot more dollars circulating now that the government and the FED printed, which has caused it to lose a lot of value over time. This kind of devaluation by printing money is mathematically impossible with bitcoins.
Re:Well the ultimate value of a dollar is (Score:4, Interesting)
Re:Well the ultimate value of a dollar is (Score:5, Insightful)
Re:Well the ultimate value of a dollar is (Score:5, Insightful)
To illustrate this, take a dime from 1942, you could buy a gallon of gas with it back then. But you can still buy a gallon of gas with the same dime _because_ it is made out of silver.
Do it. Nine times out of 10 or more, I'll bet the attendant will say "Nice try buddy. That's a dime. It's worth 10 cents. Now pay up!"
Fiat currency works both ways. You want to get your $1.99 out of the dime, melt it down and take it to somebody who buys silver. Less fees and commissions. If it's a collectable dime, you might get more selling it to a numismatist, but the "value" of the dime will be in in its collectability, not in its silver content.
Even in 1971 the idea that everything in the world had a gold equivalent was absurd. These days we have computers and big-screen HDTVs that no amount of gold could give you back then. For a little while, these items may be worth hundreds or thousands of dollars, despite being made from inexpensive materials, then their value will plummet as something newer and better comes along. The amount of gold is limited and so, too is the value of the goods and services you can buy with it. If you owned all the gold in the world and spent it, you would still not own most of the world.
Value is what people give to things, not what things inherently have. To a parent of starving children, the only value gold has is if you can convince someone to accept it in exchange for food.
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Why is everyone so hung up about printing money? Money printed is really the least of your concerns when it comes to inflation. For every greenback in circulation, thousands are digits on some bank account.
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Re:Well the ultimate value of a dollar is (Score:5, Informative)
You're understanding of the dollar is laughable, at best.
" but there is no limit to the amount of dollars the government can print."
Not true in in practical way, but common statements from the ignorant masses.
" the bank cartel known as the federal reserve "
the federal reserve is not a bank cartel,. You should probably look up what a 'cartel' is so you understand why the Fed. Reserve isn't one.
Let me know when they eliminate banks, until then Rothbard isn't even worth considering.
"print insane amount of money every "
hardly insane amount.
"year to finance government spending, "
nope.
" take a dime from 1942, "
ok:
type: mercury
weight 2.5 grams (current dime weight 2.268 grams
Content: 90% silver
Silver weight 2.25 grams.
Value(4/10) 1.99 ASSUME 100% purity of the silver.
So, no you couldn't by a gallon of gas.
But Weight!*
in 1942 Cost of a gallon of Gas 15 cents, Coca Cola 5 cents Average Price for a new car $920.00
So no, it wouldn't have bought a gallon of gas, but it wold get 2 bottles of coca cola, unlike today.
you would need 9200 of them to buy a house. If what you said was correct(it isn't) the average house would 18,400 dollars today.
It's nice that you can cherry pick a dime out of all of USE dime history and kinda force it into you incorrect understanding of money, but you are wrong.
*ha!
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The Fed should use created money to help people directly instead of giving it to institutions. Give everyone the choice of a basic income, and hold challenges to stimulate the natural creativity most of us are born with. As long as we keep advancing knowledge and technology, we can create as much money as we want. The focus should be on increasing knowledge, not economics, because greater knowledge increases survival fitness the most, by better enabling us to predict and adapt to sudden catastrophic change.
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The US went from being a bankrupt backwater to a wealthy superpower because it developed the infrastructure necessary to exploit its substantial resource wealth on a large scale (particularly railroads, but also oil), amidst IP laws that mostly looked the other way when American companies infringed upon foreign patents, and large-scale immigration that was an abundant source of cheap domestic labor.
Under those conditions, the US could have declared its currency to be backed by dogshit and gotten away with i
Re:Well the ultimate value of a dollar is (Score:4, Insightful)
The dollar used to be a receipt for a certain amount of gold that you owned in the federal reserve
And gold is only valuable because someone says it is. In a societal collapse, abount the only currency would be ammo, food, shelter, and medicine. "Just a piece of paper" isn't appreciably different than "just a chunk of gold" in that regard.
Re:Well the ultimate value of a dollar is (Score:5, Informative)
The government and the bank cartel known as the Federal Reserve can and do print insane amount of money every year to finance government spending, at the expense of the value of every other dollar in existence.
That is at least as questionable claim. The "insane amount of money" that the Federal Reserve "printed" (actually, just enters a number in a computer, but never mind that) was about $280 billion in 2012. Now, that's obviously not a small chunk of change, but it's not even remotely close to funding the $1,126 billion deficit in federal spending in that same year. Where most of that deficit spending money is actually coming from is private investors happily buying up US Treasury bonds (at very low interest rates to boot), which is probably caused by (a) investors fleeing Europe, and (b) record high profits for businesses and their owners that has to go somewhere.
Also important to think about: Ronald Reagan and George H.W. Bush spent more during their administrations (as a % GDP) than Barack Obama did in 2010-2 (2009 was a year he only had partial control over budget-wise), and is currently projected to go lower. The reason deficits are so high right now is that tax receipts are the lowest they've been (again, as a % GDP) since 1945.
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The ultimate values is the same as everything else: Whatever you can get.
loss of almost half in real value (Score:2)
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things are different this time... (Score:4, Funny)
full disclosure -- I too enjoy slagging on bitcoin with cheap shots.
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When I posted the same 2008 about the stock market crash, I was laughed at. Care to tell me the difference?
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You don't need to understand the maths...
You don't need to do anything that generates a positive return either, but you wouldn't call it an "investment" in that case. "Never invest in something you don't understand" is a great rule to follow.
Re:Most recent Prices (Score:5, Funny)
...and you've just got mtgox DDoS'ed again. Well played, Sir.
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Since a record is made of every transaction, and is kept forever, do you really believe that the anonymity will be preserved?
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Odd... Comparing the group of people I know who do MJ and the group of people I know that have BitCoins, they're quite distinct. Maybe 'cause the average dealer 'round here isn't too high tech either, probably he'll look at you with glossy eyes and go "duuuuuuuude... whatever, just put your bitcoins on the table there."