Value of Bitcoin "Crashes"

souravzzz writes with an update on the state of Bitcoin. Quoting the Ars Technica article: "Bitcoin, the world's first peer-to-peer digital currency, fell below $3 on Monday. That represents a 90 percent fall since the currency hit its peak in early June." That's still three times its value in April 2011.

Comments

Bitcoin

[TechLA]

People keep saying that BitCoin will have it's value as long as people keep using it and that you're not supposed to get rich by mining. But that isn't even the problem. I transferred some cash to BitCoins and back on Friday and it was paid out to me on Sunday. By the time I got the transfer, it had lost almost half of its value. Now imagine if that would constantly happen with your real money. It wasn't much, but I sure as hell aren't going to use it again. This is why PayPal and other ecurrencies are fixed to real world value - they are stable (as far as it can be), and BitCoin can't ever get as stable as real world currencies (yes I know they aren't that stable, but that just means even bigger problems with BitCoin)

Re:Bitcoin

[Smallpond]

You may have lost money on it, but somebody gained. Currency speculation has been around a long time. Most currencies aren't as volatile because there is a government making a monetary policy to control it. Bitcoin is a real opportunity for speculators.

Re:Bitcoin

[Goaway]

Oh, that's nice. I can give my money to speculators! Let me get right on that.

Re:Bitcoin

[TechLA]

To be honest, it's really a paradise for those who want to short sell and gain money on crashing the market. Bitcoinica seems to be one such platform which allows short selling with 1:50 or higher leverage. I guess it's a good opportunity to make some quick cash, but along the way actual Bitcoin users will get fucked over and Bitcoin's value just keeps going lower and lower. I guess the developers didn't really plan for that.

Re:Bitcoin

[MareLooke]

You are most likely already doing that already anyway. What do you think your bank does with your money?

Re:Bitcoin

[cyn1c77]

People keep saying that BitCoin will have it's value as long as people keep using it and that you're not supposed to get rich by mining. But that isn't even the problem. I transferred some cash to BitCoins and back on Friday and it was paid out to me on Sunday. By the time I got the transfer, it had lost almost half of its value. Now imagine if that would constantly happen with your real money.

Ummm, that does happen with your real money. Have you looked at the stock markets and the international exchange rates lately?!

Re:Bitcoin

[LordLimecat]

Gives me a return and guarentees my money will be available?

Re:Bitcoin

[slim]

That only applies for current / savings accounts, who's interest rates barely keep up with inflation. If your balance stays still, you're losing money.

Re:Bitcoin

[mmcuh]

You get back what it says on your balance with Bitcoin as well. It's a currency, not a banking system.

Re:Bitcoin

[TheRaven64]

No, the real problem is that bitcoin is not backed by anything. Old currencies were backed by a precious metal. If you had one Pound Sterling, then the Bank of England would give you one pound of sterling silver. Modern fiat currencies are backed by a promise from the government that they will accept them in payment of taxes. Bitcoin was backed by some pointless computation.

If a bitcoin had been a promise to do some computation work in the future, then it may have had some value, because people need computational work done. For example, something like Amazon's compute cloud could potentially back a currency, because the service of running a VM for some number of CPU seconds is fungible and - importantly - people actually want it. No one wants the work that is done to generate a bitcoin, so the coin itself is worthless. Its value is based entirely on the premise that other people will want it in the future, but that's just a pyramid scheme.

Re:Bitcoin

[operagost]

On September 16, 1992, Black Wednesday, Soros's fund sold short more than $10 billion in pounds,[20] profiting from the UK government's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency.

Finally, the UK withdrew from the European Exchange Rate Mechanism, devaluing the pound, earning Soros an estimated $1.1 billion. He was dubbed "the man who broke the Bank of England".[25] In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion.

Re:Bitcoin

[LoyalOpposition]

They can do what they want as long as I can get back what it says on my balance. Are you seriously this [redacted]ing stupid?

Hmmm, how to put this...let's say TechLA put 1000 BitCoin into the BitCoin bank on Friday. Then on Sunday he withdrew 1000 BitCoin from the BitCoin bank. In other words, the BitCoin bank payed out what it said on the balance. TechLA's complaint is that he could only buy about half the stuff with that 1000 BitCoins on Sunday as he could on Friday. A similar thing can happen with other currencies. Take the United States dollar as example. One of the highest recent inflations occurred in the late 70's and early-to-mid 80's. So, suppose you put 1000 USD into a checking account in 1977. Let's ignore the Negotiable Order of Withdrawal stuff for a bit, and any service charges. Then in 1987 you could withdraw 1000 USD. However, in 1987 you could only buy about half of the stuff (actually about 0.518) with 1000 USD as you could with 1000 USD in 1977. According to some theories of economics, that change was partially caused by the change in the amount of money; and, in the United States, the amount of money is controlled by the Federal Reserve System in coordination with the various banks in the country.

So I would have to say, no, MareLooke isn't quite as stupid as you might have thought.

~Loyal

Re:Bitcoin

[fridaynightsmoke]

Oh, that's nice. I can give my money to speculators! Let me get right on that.

Can anyone explain the purpose of "speculators"? When I ask "What do speculators produce?" the answer seems to always be, "Speculators produce liquidity in the market."

That sounds suspiciously like when my mom used to say "Because I said so."

When speculators are right, they even out price fluctuations by buying when they believe a commodity is unreasonably cheap, and selling when it's expensive. The act of buying makes the 'cheap' price more expensive by taking some of the commodity off the market, and conversely selling when expensive makes the commodity cheaper at that time. In non-price terms, speculators soak up surpluses when they exist, and add extra supply in times of shortage.

When speculators are wrong or generally stupid, all hell breaks loose. Careless/stupid speculators buy in a rising market, driving the price up faster, then all sell at the same time when they realise that prices can go down as well as up, causing and then bursting a classic bubble.

Re:Bitcoin

[Bob the Super Hamste]

Rolling around naked in it laughing like maniacs...

And this is why I no longer use cash.

Re:Bitcoin

[John Hasler]

Its value is based entirely on the premise that other people will want it in the future

That's true of all money (including gold).

Re:Bitcoin

[egamma]

They don't actually guarantee that your money will be available. And neither does the FDIC. The FDIC sort of promises you can get some of your money back, eventually, but how long eventually is, and whether or not your money has any worth if they have to go on a printing spree ...

The FDIC can't go on a printing spree. I'm not sure if you're not familiar with the FDIC, or if you simply didn't provide the subject for your "they". It should read:

"The FDIC guarantees your bank deposits, but does not guarantee that the Federal Government that the FDIC is not a part of won't print money"

Re:Bitcoin

[shentino]

It's not just stupid speculators that cause bubbles.

People trying to manipulate the market can do the same thing.

The difference is that they know damn well what they are doing.

Re:Bitcoin

[DrXym]

So it's directly comparable except in the sense that Bitcoin lost half its value in 2 days versus 10 years in your handpicked scenario.

Re:Bitcoin

[webnut77]

Exactly how is this different than taking my money to the riverboat and laying it down on blackjack?

With blackjack you could win.

Re:Bitcoin

[Asic Eng]

I don't understand why people feel so strongly that a currency needs to be a commodity first.

Not the point which was made. Currency being a commodity is *one* way to back it. Bitcoin doesn't have that. Another way would be lots of people using it for trading goods, by having a significant power structure (like a country) standing for it etc. As far as I can tell Bitcoin doesn't have backing in the form of the named examples, or in any other form.

its value cannot be manipulated by a central group of people in the same way as fiat.

Unfortunately that's not correct, a small number of people who got in early own most bitcoins. That's not technical problem of currencies like Bitcoin - but it is one Bitcoin has, specifically.

Even worse - the Bitcoin supply itself is finite and very small (compared with economies of entire countries). So it has no chance to ever become stable, and even if it did it would suffer the same problem the gold standard had, i.e. being inherently deflationary.

Bitcoin is interesting because it makes you think about how currencies work, but unfortunately it's not set up to become a viable currency. Either because someone didn't think enough about how currencies work, or because becoming a viable currency wasn't actually the goal.

Re:Bitcoin

[iamthelaw]

Let's be clear here -- no currency is backed by anything, ever. Sure, "old currencies" were backed by a precious metal. What was that backed by? The answer to "why do currencies have value" is that _nobody knows_. The different schools of economics all have different theories, but macroeconomics is not, despite what people say, a science.

The theory backing bitcoins is largely based on the (non-mainstream) ideas of Austrian economics; which claim that currencies have value almost entirely because they are scarce, fungible, and useless. That is, their value as an exchange medium far exceeds their value as physical objects. Incidentally, Austrian economics is pretty much the only school of economics to openly acknowledge that it is not a scientific theory.

Fiat money qualifies easily -- nobody is burning dollars for heat or using them for wallpaper, and the scarcity is guaranteed by the issuing government (although easily abused, and sometimes catastrophically, which is why Austrian's tend not to like fiat currencies).

Gold qualifies with caveats; it's clearly "money", but it suffers from portability and verifiability problems unless it's minted into a form that is hard to reproduce (the old-old-school approach) or vouchers are issued that can be redeemed for stored gold (the newer-old-school approach). The vouchers then become money in their own right, since their scarcity is tied to the scarcity of the underlying metal, and they're just as fungible and useless. But almost universally, governments (and unscrupulous banks, and sometimes even scrupulous banks) abuse the fact that the holder of a voucher can't see the gold to steal the gold; effectively disconnecting the scarcity of the two. Same goes for silver, though less dramatic.

It's surprisingly hard to come up with examples of things that are scarce, fungible, and useless that are have not been used as currencies. Even things that violate one of these things is often used as money in a barter sense or in the short term (i.e. cigarettes in prison, wampum among east-coast Native Americans, Facebook game fun-dollars, baseball cards, or the Iraqi Swiss Dinar).

So this is what Bitcoins are -- they are nothing but pure scarcity, fungibility, and uselessness. The portability is nice, except that transactions are tricky (since there's no real "receipt" mechanism -- verifying that a customer has paid his bill requires funky gymnastics), all use of it is dependent on the accessibility of the internet, and the scarcity is conditional on there being sufficient computing power applied to the problem. But aside from those, it really should work. And the fact that they are worth anything at all (that people are willing to buy them at any non-zero price) is a big deal.

In terms of price stability, this is a complicated phenomenon; Austrian's generally do not consider price increases to be the same as inflation (a purely semantic distinction). What causes price changes are complicated, and can not be reduced to a simple rule, because at any moment, technological progress and other myriad phenomenon are messing with prices that affect, to a small extent, everyone in the supply chain of every business in the world, and that effect get compounded over time. The most visible form of this is the supply chain of money itself, through the mechanisms of banking and credit.

So why is the Bitcoin value so volatile? (Now we're in the realm of pure speculation on my part) Because there's no supply chain to keep prices stable. No supply chain of any sort; a restaurant that accepts bitcoins can not buy silverware, or food, or paper cups, or cash register tape, or POS systems, or pay rent in Bitcoins. There are no mechanisms for loaning bitcoins; in either direction -- there are no banks that will pay you to lend them your bitcoins, and no banks that will assess your trustworthiness and income and lend you the money lent to them. So the price floats, while people try to figure out how to provide baseline services (like web hosting), s

Re:Bitcoin

[networkBoy]

Speculators are a capacitor. Storing charge when the voltage is above the mean level, dumping charge when below.
Market manipulators are an external power supply, forcing the mean level up then down.
If speculators have more resources than the manipulators, the manipulation will fail, otherwise it succeeds.
-nB

Re:Bitcoin

[murdocj]

In other news, there are no "sure things" in this world. If Vladimir Putin goes nuts and unleashes Russia's nukes, clean water and non-radioactive food is going to be a worth a whole lot more than dollars, bitcoins, or gold. In the meantime, comparing Bitcoin losing half it's value in 2 days to the chance that you won't get your federally insured deposit money back is absurd.

Re:Bitcoin

[a_nonamiss]

In Zimbabwe a few years ago, their national currency lost its value at a rate much higher than Bitcoin over the 2 day example provided above. And I'm pretty sure that's even a real country with a president and an army and everything. Currency changes value over time. The amount of time varies based on the stability of whatever is backing the currency.

So to answer your question, yes, it's directly comparable.

Re:Bitcoin

[cjcela]

Right. And my guess would be that one will think twice before investing in Zimbabwe's currency. Which seems to be the same point that one could make with Bitcoin. It is sort of sad, because I like the idea of a digital currency, but since it is volatile and not widely accepted, its only value right know is in terms of an instrument to speculate with future gains. So as far as I can tell, bitcoin is as good as 'investing' money in a Las Vegas casino.. or maybe worse, since casinos are somewhat regulated by the government.

Re:Bitcoin

[Chris Burke]

You mean Bitcoin is directly comparable to the currency of an unstable currency like Zimbabwe's that I also would never dream of transferring any of my comparatively rock-stable $US to.

I do believe you are completely correct in that.

Re:Bitcoin

[Lumpy]

There is.

Coca Cola in the USA on average costs $1.25US a can from a vending machine or singles from a store, my experience.

A superior Coca Cola made with sugar instead of corn syrup on average costs $0.75 a glass bottle from the stores I went to when I was in Mexico City for 2 months, one small store had them for 9 pesos instead of the common 10 peso price I was seeing. When I was there 10 pesos was about $0.75US

In china I have heard it's even cheaper but in the smaller cool cans.

Re:Bitcoin

[Rockoon]

The federal government, in the case of America, cannot print money. It can borrow money, even from those with the power to print it, but it cannot print money itself nor can it order the printing of money. Period.

Come back when you know whats actually going on in the world.

Re:Bitcoin

[Jane Q. Public]

That's their theory. Shared by nobody else. And there's good reason for that: history proves it false. (Actually it's pretty amazing to most people when they learn just how often Keynesian economic theory contradicts the actual history of events.)

It's also skewed, because even if it is true that inflation promotes investment (debatable), it erodes the savings (irrefutable) that are necessary for a robust economy. So the relatively affluent (who have money to invest) benefit, the relatively poor (who are merely trying to put away some money for a rainy day) suffer.

As I mentioned before, there are horror stories about the "swings" in U.S. (and colony) economies in the past. But those swings were fundamentally different than the booms and busts we see today, because the money supply remained virtually constant over time, and purchasing power always returned to its former value after any inflationary bubble (which primarily occurred when government borrowed money to finance wars). You could bury money in your back yard, and your great-great-great-grandson could dig it up 100 years later and buy as much flour with it as you could.

Whereas for the last 80 years (it's true, you can chart it... it makes for a very alarming chart), the purchasing power of our money has been on a steady decline. It has never, even once, gone back to its former value.

The graph of purchasing power over the last 300+ years has three major kinks in it, each one representing an acceleration of inflation. They correspond EXACTLY to three events in our economic history, down to the precise year: (1) the creation of the Fed, (2) the removal of the gold standard, (3) the abolition of the last vestiges of a monetary standard by Nixon, in 1971.

Re:Bitcoin

[Yunzil]

Great marketing campaign. "Bitcoins: Hey, it's not as bad as Zimbabwe!"

So to answer your question, yes, it's directly comparable.

No, it isn't.

Re:Bitcoin

[Yunzil]

You have heard of the FDIC, right?

Re:Bitcoin

[History's Coming To]

1: That's just the US (although I agree there are similar things worldwide), in the UK we've now got several banks effectively owned by the taxpayer because their losses were too big for their insurance to cover, and the government had to buy them out to provide the capital to cover the banks losses and/or customer's money.

2: That only protects the first $250,000 per individual, per bank.

3: Insurance companies, even federal level ones, can also go bust.

Yes, the FDIC or equivalent helps, but it's very far from a guarantee that your money is safe.

Re:Bitcoin

[reverseengineer]

The issue with that example is that there wasn't continuity of currency throughout that whole period. The infamous "papiermark" of 1923 was converted into the rentenmark of 1924 -at an exchange rate of a trillion to one, and then into the Reichsmark. After WWII, the Reichsmark was exchanged for the Deutsche Mark (in W. Germany at least) and that was your stable currency. The DM can even today be exchanged for euros, though I'd imagine most DM are out of circulation. The point is that other than the DM/ euro changeover, the transitions have been limited time arrangements, in one case backed with a military occupation. What came out of each was basically a new currency. You can turn in that shoebox of DM from 1994 and get crisp new euros at a rate of about 0.5 euro for each, but you can't exchange a quadrillion 1923 papiermarks for 500 trillion euro. Different money.

Re:Bitcoin

[suomynonAyletamitlU]

So why is the Bitcoin value so volatile? (Now we're in the realm of pure speculation on my part) Because there's no supply chain to keep prices stable. No supply chain of any sort; a restaurant that accepts bitcoins can not buy silverware, or food, or paper cups, or cash register tape, or POS systems, or pay rent in Bitcoins.

Also, there is no critically necessary good which can only be purchased by bitcoins. If it bought you protection from, say, hackers, in a way that no other currency could, it would have a standard amount of value.

Imagine in the ancient past, before currency was quite standardized, but feudal governments are willing to trade your loyalty for protection from wild animals, bandits, and the like. Part of "your loyalty", naturally, is taxes, which must be of standardized value. If you don't pay a given amount, you don't get let into the castle when an army sieges, and get to watch your family raped and murdered as you breathe your last breath. You could try to offer them cows and sheep in lieu of coins for tax, but cows and sheep have upkeep; unless they're going to be slaughtered for meat right away, they're as much a burden as a gift. They'd prefer you kept providing milk and wool, so they can tax you later. So you trade milk and wool for coins, and with coins buy protection; the tax coins then are used to buy and trade other goods.

Stepping out of the analogy, if there was a nasty protection racket where your ISP had to pay off foreign hackers to not be obliterated, and this payment had to be in bitcoins, it might become viable to pay your ISP for service with bitcoins. Then, when you the consumer can buy ISP service in bitcoins, you could use that as a value standard for trading bitcoins for other things.

Re:Bitcoin

[LoyalOpposition]

Are you honestly comparing 2 days with 10 years of handpicked "highest recent inflations"?

Yes. It's a talent of mine. Why, in recent days I've compared Bush to Hitler, a mountain to a molehill, Tea Party Activists to Holocaust victims, apples to oranges, and Milla Jovovitch to Christina Hendricks.

~Loyal

Answer Key: greater, greater, greater, greater, lesser.

Re:Bitcoin

[goose-incarnated]

Too bad you never took any economics courses. You'd almost be spot-on if not for a few tiny oversights.

Too bad you never took any economics courses.

Speaking as part of the 1%, just FYI.

Sigh.

I am part of the 1%. I also did complete economics (Money, Banking and Financial Markets). I also know that because money is used a measure of value in barter, the market sets the value for any form of money. The bitcoinites seem to miss a very important point - there is no value in electricity already spent unless value has been added. The only value of a currency is to represent the value added by the next link in the chain of production.

Farmer grows sunflower crop (adds value by expending work to make something that the next person wants)

Vegetable oil refinery uses sunflower seeds to make vegetable oil (added value is something that people can cook with)

Supermarket makes oil available to shoppers (added value is to the shopper that purchases all groceries at the same place)

All that is value being added!

How about normal currency?

State takes worthless paper and, using electricity and effort and time, makes legal tender (the value added to the paper is the promise that all vendors within that jurisdiction will accept that paper as payment, and they can always redeem it for actual value with the state)

The secondary value added by dealing with the paper (or any other similar state-backed currency) is the secure knowledge that it can be used to measure value in any amount of arbitrary products - it's the base of reference for value.

Now, bitcoins?

Miner takes electricity and produces unique combination of numbers (No added value, as those numbers have no legal status as a measure of value in any nation)

Those numbers can be exchanged for items of value, but said items value is not measured in those numbers, it is measured in the currency described above

Those numbers are accepted by an insignificant minority of vendors, rendering them even more worthless.

At this point, bitcoins aren't a currency because a currency has to be universally recognised as a measure of wealth in that jurisdiction. Bitcoins are simply an item of value to barter with, much like swapping a pocket of potatoes for a crate of tomatoes. Unfortunately, the value bitcoins possess differs from person to person in the same jurisdiction (some value it close to nothing, others hoard it in anticipation of future payoff) so the bartering is unpredictable and thus it even fails as an item of barter. Even worse, the only way to measure it's value (from zero to infinite) is by using the existing ruler - namely the actual currency of that jurisdiction.

Bitcoins are a lovely idea, but the idea has no grounding in reality. Posts below mine explain all this very well for non-economics people; I'll just add that a real currency has a measure of worth that is independent of other currencies. For example, a single ZAR is backed by the South African Government. The country as a whole has value that is expressed by the GDP (irrespective of actual units of measure, the GDP is still a statement of value!). That single ZAR is a slice of that value. A bitcoin, OTOH, has no value that can be expressed as the product of a jurisdiction. This is because it does not represent any sort of value.

Re:Bitcoin

[swalve]

The point of the FDIC is to stop bank runs. They do this by stepping in before the bank goes tits up, before anyone even knows the bank is in trouble, and cleaning shit up. This is why they do it on Friday afternoons. The come in, clean house, and then on Monday they say "don't worry everyone, your money is here, don't panic". If memory serves, they have never had to pay a claim. They spend their money preventing claims from being necessary.

Speculation

[Hentes]

The majority of bitcoins is in the hands of a handful who cash in large quantities from time to time thus crashing the market.

Re:Speculation

[timholman]

The majority of bitcoins is in the hands of a handful who cash in large quantities from time to time thus crashing the market.

Excellent point, and in fact Bitcoin may be one of the cleverest moneymaking scams in recent memory.

No one knows who Satoshi Nakamoto, the purported creator of the Bitcoin protocol, really is. Assuming Bitcoin ever achieved widespread adoption, he and a handful of early adopters would become the richest people on earth by default. When I pointed this out to a Bitcoin "true believer", his response was along the lines of "Well, he's a genius and deserves it." Yes, but if in fact "Mr. Nakamoto" is simply a syndicate of very clever scammers, then we would effectively be turning over a huge portion of the world's wealth to a criminal enterprise. No government is EVER going to allow that to happen.

No cryptographic currency is ever going to gain any traction if it makes early adopters obscenely wealthy just by default. Consequently, the only way anyone will ever make money from Bitcoin is via speculation. The people pushing Bitcoin are appealing to the same mentality (and lack of logic) you see with believers in gold currency. Given the long history of scams involving precious metals, there is clearly no lack of potential victims willing to throw away their money.

I assume the early Bitcoin adopters are cashing in before the entire house of cards collapses. If that was Satoshi Nakamoto's intent from the start, then my hat is off to him for committing what is essentially the perfect crime.

Re:Speculation

[m50d]

As to your assertion that widespread adoption necessarily creates unbounded riches for the founders, or even the early adopter, I don't see that as a supportable premise. It's a matter of scale. I can think of several titans of information industry who have benefited disproportionately by virtue of their early positioning.

"Satoshi" (I read he may actually be a guy called Mike, but anyway) owns not just half of the bitcoins there currently are, but half of all the bitcoins that can ever be created (less the ones he's already sold, I guess). No-one else has that disproportionate an advantage; Google might have more than half today's search market, but they don't have anything that guarantees they'll always have it. (Myspace had over half the social networking-fu at one point, but facebook was able to outgrow them).

Re:Speculation

[jdavidb]

To correct this, I think the next generation of digital currency should reward miners with only transaction fees. Or else have a much sharper dropoff in the reward.

It would be simple now to recompile bitcoin to give no payoff in transactions other than transaction fees, or to make the dropoff much sharper, and start a new block chain. I am betting that someone will attempt this at some point.

The initial problem that "mining" was attempting to solve was proliferation of currency: how do you get bitcoins into people's possession so that they can use them? IMO, they went way overboard with this, and became enamored with the resemblance to "mining" and all the other "really neat" facts about this approach, losing sight of the basic problem they were intending to solve. Creation of new bitcoins could've ceased much, much sooner and the problem still would've been solved. Or the problem could've been solved in other ways.

The initial bitcoin block could award a large amount of bitcoins to one or more issuing authorities. Or the protocol could be modified to allow any arbitrary issuing authority to issue coins in the new chain with a promise to redeem for some commodity, and the protocol could be modified to track the issuing authority along with each unit of currency so that coins can be redeemed. In such a scheme issuing authorities could compete on reliability, convenience, and other factors, and the value of a coin from one authority would not necessarily be the same as the value of a coin from another authority. This would essentially allow bitcoin to track any number of competing currencies with new ones arising at any time, and only dependable issuing authorities would be able to get much traction, if at all.

Re:Speculation

[JesseMcDonald]

"Satoshi" ... owns not just half of the bitcoins there currently are, but half of all the bitcoins that can ever be created....

Please stop spreading lies. The limit on the maximum number of bitcoins is 21,000,000. There are currently 150,028 blocks in the chain, each of which awarded 50 new bitcoins to the miner which found it, meaning that there are at most 7,501,400 bitcoins in circulation, less however many have been lost permanently through data corruption, system crashes, deletion, etc.

Satoshi obviously can't hold "half of all the bitcoins that will ever be created" when only ~36% of them have even been mined. As for the fraction of that ~36% which he holds, that's just guesswork--no one can possibly know for sure. As one of the earliest adopters and developers, he's probably lost more bitcoins than most users have seen in one place. Whatever his share is, it will decrease over time due to new mining, or even more so if he chooses to spend those reserves.

Winner: ATI

[bengoerz]

And the winner of this whole experiment ends up being ATI, who sold a bunch of GPUs to doe-eyed bitcoin miners.

Re:Winner: ATI

[Hazel Bergeron]

During a gold rush, sell shovels.

Bitcoin Crashes,,,

[Oswald McWeany]

Bitcoin crashes after CmdrTaco leaves Slashdot.

I don't think that is just a coincidence.

Re:Bitcoin Crashes,,,

[mwvdlee]

Bitcoin crashes after CmdrTaco leaves Slashdot.

I don't think that is just a coincidence.

Not a complete coincidence perhaps, but at the very least a bitcoincidence!

I'll be here all week!...Try the veal!

Re:Bitcoin Crashes,,,

[Chewbacon]

No, just a coin incident.

Crash? More like correction.

[Cainam]

It seems more like a correction to me. The idea that a BTC was worth $20 or more seemed too good to be true, probably because it was.

I think BitCoin is a great concept, but it needs more of a real economy and less currency speculation. I suspect that will come once the hype dies down. Maybe now that the value has gone down, that'll happen soon.

Re:Crash? More like correction.

[Anonymous Coward]

Sorry, but Bitcoin is only good for speculators.

A real currency needs to be widely used, and largely stable. High volatility is going to chase away anyone who intends to use them for actual currency.

Re:Crash? More like correction.

[betterunixthanunix]

I think BitCoin is a great concept

Except that decentralized digital cash is inherently flawed, since the tokens will always grow linearly in the number of transactions they are used for. In other digital cash systems, this problem is solved by having an issuing authority (bank, government, etc.) that accepts old tokens and issues fresh tokens. In the case of Bitcoin, no such authority exists, so the tokens are just going to keep getting bigger, and eventually they will be too large to be useful.

Not that the technical problems are going to be what kills Bitcoin. In terms of economics, Bitcoin has a shaky basis to begin with: people only accept Bitcoin because they believe that they can exchange their Bitcoin tokens for some other currency. Eventually people need to make that exchange, in order to pay their taxes, but there is no similar need to obtain Bitcoin tokens. The gap in demand is not really filled by Bitcoin's utility as a digital cash system, which is questionable to begin with because of the technical limitations on Bitcoin.

Even if somehow that did not become a problem, there is the fact that Bitcoin is an inherently deflationary currency. This creates problems with hoarding (which we are already seeing), and makes it harder to repay loans (loans are crucial to a functioning economy, despite what those "occupy" protesters tell you).

In short, the odds are against Bitcoin being successful. Really, more traditional cryptocurrency is needed, where a bank issues tokens but the tokens can still be transferred anonymously. Sadly, Bitcoin's failure will make it even harder to start a digital cash bank, since everyone will associate digital cash with Bitcoin and think that all digital cash systems suffer the same problems.

Re:Crash? More like correction.

[Zibbo]

I think BitCoin is a great concept

Except that decentralized digital cash is inherently flawed, since the tokens will always grow linearly in the number of transactions they are used for. In other digital cash systems, this problem is solved by having an issuing authority (bank, government, etc.) that accepts old tokens and issues fresh tokens. In the case of Bitcoin, no such authority exists, so the tokens are just going to keep getting bigger, and eventually they will be too large to be useful.

What? I think you may have misunderstood some aspects of Bitcoin. You can easily divide and combine bitcoins in any way you want. You can combine one thousand 0.001 bitcoins to a single bitcoin, or do the same in reverse and divide. The smallest possible unit is 0.00000001 BTC.

Bitcoin is not perfect, but this is NOT one of it's problems.

Time to invest in tulip bulbs...

[Layzej]

I'm moving all of my cash to tulip bulbs. They're due for a comeback ;)

Re:Time to invest in tulip bulbs...

[Oswald McWeany]

Daffodils are a better investment.

Unless you take the time to dig up your tulip bulbs each year- the number of tulips each consecutive year goes down.

Daffodils on the other hand increase the size of their investment- you plant 10 this year- you'll have 15 next year.

Muscari bulbs would be better yet. You plant one this year- you'll have 12 trillion of them next year... they're like the tribbles of the bulb-world.

Re:Time to invest in tulip bulbs...

[drfishy]

Woosh! http://en.wikipedia.org/wiki/Tulip_mania

Valuable lesson in currency...

[RyuuzakiTetsuya]

All currencies are fiat. No matter what they're backed by. Currencies have to exist inside of a strong ecosystem that encourages their trading rather than hoarding.

Re:Valuable lesson in currency...

[laron]

Gold was already valuable before it was actually useful. If a large fraction of the value of gold was based on it's technical uses, the gold price should be more stable IMHO. The gold price is more based on a circular logic: It's valuable because everyone thinks so.

Re:Valuable lesson in currency...

[websoongi]

Hear, hear. If anyone doubts the real value of gold compared with paper money, consider this: One thousand years from now you find a vault filled with ancient American, paper money. The value of that paper is worthless. It may have worth as an historical artifact. But now consider this: One month later a colleague discovers two vaults filled with ancient American money. The value of your money has now gone down. Having more paper money in this world decreases its value because the paper itself is not wealth. Compare this with gold: (and you can imagine it now, because it works at any time) You find a vault filled with gold. You're rich. Your colleague finds a vault with gold. He's rich. You're both rich because finding more gold just means that there's more (actual) wealth in the world. You're rich if you find such a vault now. You're rich if you find it one thousand years from now. That's because gold has intrinsic worth. It shouldn't, I believe, because I personally don't care about gold. But that doesn't change the fact that others always will. Even if gold didn't have uses other than money, people have, and always will, covet it. If you had a trunk full, you'd line your walls with it. If you had more, you'd have a solid gold swimming pool out back. There's never enough gold.

Re:Valuable lesson in currency...

[SpeZek]

You're assuming gold is worth more than other matter in the future. But it could easily be replicated. Gold-pressed latinum, on the other hand...

Re:Valuable lesson in currency...

[thelexx]

"The gold price is more based on a circular logic: It's valuable because everyone thinks so."

Incorrect. It's called intrinsic value and gold has it. It's hard to dig up and there's not much of it. It never deteriorates (silver does) and is easy to work/subdivide (platinum isn't). It is also highly portable and easily storable (vs oil, wheat, etc). Aristotle laid it out pretty well when he wrote that something used as money should have the following properties: Durable, Portable, Divisible, Intrinsic Value

Those are the reasons gold has retained it's status for thousands of years, and continues to do so today. See my sig for confirmation even from one of our modern economic 'masterminds'. I would suggest that somewhere around nothing has changed concerning the status of gold since he said that. The fact that it looks nice and can be worn is just a bonus that influences the weak minded.

Re:Valuable lesson in currency...

[inviolet]

My understanding is that the opposite is actually true. Silver for example has a lot more industrial uses than gold but the market is much more volatile. Admittedly part of the reason is that the silver market is much smaller than the gold market, but another major part has to do with the business cycle.

Your data about the silver market has been corrupted by JPMorgan and HSBC, acting in league with the Federal Reserve. Backstory here and many other places. Only recently, after their activities were exposed, is the silver market calming down and returning to the historical 15:1 price parity (arising from the metals' 15:1 geologic ratio) with gold.

Missing the point of currency

[Evro]

The point of currency in general isn't as a store of value, but as a way to facilitate transactions. Currencies are traded as a proxy for trading "stock" in a particular country's economy. When Japan does well and the USA does poorly, the dollar gets weaker against the yen. Bitcoin doesn't represent any country, so trading it seems even stranger. But until and unless there are merchants who accept Bitcoin for purchases, it doesn't seem like the system itself has much value, since as I said, the reason for the existence of currency is as a way to facilitate trade.

Re:Missing the point of currency

[wisnoskij]

And it cannot do that if from day to day it is worth large amounts different.
Currency only works if people have faith in it and no one with any sense would have faith in a currency that has no solid value.

Re:STOP WITH THE SLASHVERTISEMENTS FOR BITCOIN

[TarMil]

Stop with the whining already. It's been at least a month since I saw a bitcoin article on slashdot. Btw "bitcoin crashed 90%" is hardly advertisement.

Probably "Occupy Wallstreet"

[Greyfox]

Those guys take bitcoins. Probably one of them bought a twinkie, or something.

Time to burn down some forests

[Quila]

Get the value back up, you know.

bitcoin is not money, its payment method

[notany]

Classical properties of money are: medium of exchange, unit of account and store of value.

Very few, if any, goods in bitcoin economy are sold using bitcoins as unit of account. Paying with bitcoin may be option, but goods are priced in other currency. Bitcoin prices are periodically adjusted to match price in other currency. Bitcoin clearly is not way to store value. Most people use it to speculate. Apart from limited use in paying small amounts of drugs for personal use etc. in local settings, bitcoin is not preferred medium of exchange. Because bitcoin is not used like money, it is not money. Currently bitcoin is just way to make payments (similar to debit or credit card) and speculative hobby for some.

Even very shaky third world currencies have some stability because people constantly need to buy them to pay taxes and fees. Only way I can see bitcoins becoming viable currency if some network communities or services would only accept bitcoins as payment. That would tie the value of bitcoin into something that has tangible value.

Re:bitcoin is not money, its payment method

[Zironic]

Though there is no reason for services to do that. Locking your livelihood to something that can lose 9/10ths of its value in a few months is a guaranteed way to go bankrupt.

And in the end you have to transfer your money from coins to legal tender to pay taxes.

Economic Experiment

[DaMattster]

Bitcoin is kind of an interesting experiment in economics. Its founders started out with a relatively simple premise by asking the quintessential question: Why is a central clearing house or central regulation is necessary? Unfortunately, they ended up (re-)learning a valuable reason as to why our forefathers realized a need for some centralization and regulation. Our forefathers realized that monetary centralization provides currency stabilization. When the United States was young with newly won independence from Britain, each state minted its own currency and this was a debacle. How would one determine how much New Jersey dollars would one get in trade for, say, Connecticut dollars? Bitcoin's founders also re-learned the difficult concept of valuation. Last summer, Bitcoin essentially bubbled because, for a short time, its followers had a strong, collective emotional belief that bitcoins have real value. The moment this emotional belief foundation is placed into doubt or shattered, the value comes down. With the storm of server, desktop, and web application intrusions resulting in the theft of Bitcoins, the latent problems with the currency model were suddenly propelled into the main stream. Its users became frightened and distrustful. It is more than just supply and demand economics but believing that the medium that you are using for trade is intrinsically worth something (when, in actuality it has no real value.) Finally, centralization helps mitigate criminality and makes it easier for a victim to recover stolen funds.

...And nothing of value was lost.

[Kaenneth]

Seriously, what did you expect?

A small Bitcoin success

[Teppy]

Our new game, "Dragon's Tale," functions exclusively in Bitcoins. It's a gambling MMORPG based on the same technology as our previous game, "A Tale in the Desert." Choosing Bitcoins means that I never have to worry about PayPal freezing my account, or about $25 chargeback fees, or making Mastercard a 2.5% partner in my business.

When we started Dragon's Tale, Bitcoins were worth 5 cents, and people played for 100's at a time. When Bitcoins were $30, people played for fractions of a coin. Now that Bitcoins are $2.00 or whatever, they may spend a Bitcoin or two on a play session.

The point is that the exchange rate to dollars is irrelevant - players play at the level they're comfortable with, and our revenue (viewed in dollars) has been increasing steadily.

Re:A small Bitcoin success

[Anonymous Coward]

So in other words, you run an illegal online casino hidden under the guise of a game.

Interesting.

There are better investment options

[e-banker]

Thank goodness I have my 401k in the Linden.

Occupy Bit Street!

[Anne_Nonymous]

What do we want?

We're not sure!!!

When do we want it?

Right now!!!

Ah, Slashdot

[Siberwulf]

Come for the tech, stay for the fiscal policy lectures.

So invest in the new Quantum money - QuantumCoin!

[tomhudson]

Sooooo boring having your money always be where you left it. And federally insured? Ugh.

With QuantumCoin, your money can both be there and not be there at the same time. So, even if the balance says you're broke one day, just come back tomorrow ...

Unlike BitCoin, QuantumCoins have (at least) two sides. And if you DO lose a QuantumCoin, just check in the cracks in the couch - even if you lost it outside, because QuantumCoins can still re-appear in places other than where they were lost (they're the reverse of the sock-eating clothes dryer, thanks to QuantumPower!)

So, send me your ordinary money, and I'll send you back QuantumCoins! (which if you don't see them when you look in your mailbox, just look again until you get it right!* Or check your mailbox BEFORE you send in the order to see if they've arrived BEFORE we shipped them or even before you place your order, by using our custom two slit QuantumCoin detector - please order separately ... or at the same time ... it may or may not make a difference, depending ...)

*Some restrictions apply. Due to temporal probability factors, the time required for "just look again" may exceed the heat death of the universe. If you suspect your shipment was "eaten" by such effects, you can "double down" on another order of QuantumCoins - after all, if you do it enough, they eventually ALL have to appear (for different values of "ALL have to").