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.'"
Well the ultimate value of Bitcoin is (Score:1, Insightful)
zero dollars...
Re:Well the ultimate value of Bitcoin is (Score:3, Insightful)
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.
unregulated (Score:2, Insightful)
so they wanted an unregulated market. this is what they get...
Re:Well the ultimate value of Bitcoin is (Score:5, Insightful)
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 Bitcoin is (Score:0, Insightful)
...Right. As with most Bitcoin apologists you seem to be significantly detached from reality.
Reality; until I can go to a supermarket and use Bitcoin to buy food, until I can use Bitcoin to pay for a live-saving operation, then its real value compared to "real" money is exactly fucking zero. Bitcoin apologists are so focused upon the issues of supposedly "anonymous" transactions and encryption that they refuse to see the big picture -- the technology amounts to a whole lot of nothing if it can't be used to fill your needs. And yes, eating is a need. Ordering weed from the Silk Road is not a need, that's a "want."
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:Well the ultimate value of Bitcoin is (Score:4, Insightful)
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.
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:Well the ultimate value of a dollar is (Score:5, Insightful)
This is steady? (Score:4, Insightful)
We might need to have a talk about what "steady" means. [imgur.com]
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.
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 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: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.
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:3, Insightful)
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.
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
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: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.
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.
Re:Tax payment (Score:2, Insightful)
Too bad the price isn't stable on the scale of hours to days.