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Vast Bulk of BitCoins Are Hoarded, Not Used
another random user writes with this news from Ars Technica:"More than three-quarters of the digital coins in the Bitcoin digital currency scheme aren't circulating because they remain dormant in user accounts that have never participated in outgoing transactions, a recently published study has found. The figure translates to more than 7.019 million BTCs, the term used to denote a single coin under the digital currency, which uses strong cryptography and peer-to-peer networking to enable anonymous payments among parties who don't necessarily know or trust each other. Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million. On May 13, the date the researchers analyzed their data, there were slightly more than 9 million BTCs in existence."
So what you're saying is that there is a limited resource which we cannot make more of that people are hording? And the more people horde it, the higher the deflation? And people watch their value rise in USD as this happens? And you're surprised?
What motive is there to spend your BTC? Isn't this how deflationary spirals occur? Wasn't this an effect of The Great Depression and lead to FDR implementing a pump-priming strategy?
Could someone explain how they would escape that spiral? I'm not an economist so I don't know if there are other routes of which I'm unaware.
My work here is dung.
Or there's that many people/computers that grabbed some fraction of bitcoins, and either lost their wallets or never bothered to log in again.
When the foot seeks the place of the head, the line is crossed. Know your place. Keep your place. Be a shoe.
Maybe we need an ETF for BitCoin
I wonder how many of these were generated early on and are being hoarded by the early adopters. The rate at which bitcoins can be created out of thin air is artificially controlled to keep production at a steady pace. What I'm curious about is how many bitcoins were created initially before they gained widespread publicity, and are those being hoarded?
Better known as 318230.
"We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account."
Not to imply that anything wrong was happening but isn't that the definition of money laundering?
Perhaps an individual experimenting with how effectively he can automatically clean BTC with temporary internet accounts being made for transactions leading back to a brand new account? But wouldn't the whole chain of ownership be shown on that final balance? What else could be the purpose of the mentioned exercise?
The researchers started by mining the history for data that identified when two or more addresses belonged to the same owner.
How is this done? I thought that BTC just needed an address and that was it. You could use throwaway accounts if you wanted to, right? From the wikipedia page on it:
Because transactions are broadcast to the entire network, they are inherently public. Unlike regular banking, which preserves customer privacy by keeping transaction records private, loose transactional privacy is accomplished in Bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions. As an example, if Alice sends 123.45 BTC to Bob, the network creates a public record that allows anyone to see that 123.45 has been sent from one address to another. However, unless Alice or Bob make their ownership of these addresses known, it is difficult for anyone else to connect the transaction with them. However, if someone connects an address to a user at any point they could follow back a series of transactions as each participant likely knows who paid them and may disclose that information on request or under duress.
Movement from a known to unknown account in an attempt to "launder" it maybe?
My work here is dung.
There are more $100 bills than all other types of bills put together. The majority aren't even in the United States.
http://www.npr.org/blogs/money/2012/10/09/162568387/all-the-money-the-government-is-printing-this-year-in-one-graphic
As we all know, you don't have to possess a physical dollar bill to spend a dollar. There's no reason the same shouldn't be true of Bitcoins; you shouldn't need to "possess" a "real" Bitcoin in order to spend one.
In the end BTC is like on line poker, it's fun to watch, and maybe even to play, but there is no value creation going on on the bottom of the market.
Fugue for Aaron Swartz
Shocking that people wouldn't be doing transactions with a currency that few people know about or understand and that even fewer people are willing to accept as payment.
Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million.
That is referred to as an inferred value. Same thing happens with companies. Say you buy 5% of a company for $1 million. By doing so you think the entire company is worth $20 million (5% of $20 million is $1 million). That doesn't mean it is actually worth that much, it just means someone paid an amount that implies the value of the company. On a thinly traded commodity inferred values can be wildly misleading because the person doing the transaction might have overpaid compared with the going market rate. If most of the bitcoins are sitting on the sidelines, that $80 million valuation is almost certainly far higher than is realistic.
I'm hoarding my Bitcoins for the coming World economic collapse.
I'LL have the last laugh when all of you are scrambling for food and gas and I'LL have all these BitCoins stocked up!
And people think gold is the thing .....
Is anyone actually exchanging bitcoins for other currency? The summary implies each can be traded for about $11.50 but that seems questionable if there isn't any trading going on.
They're waiting for a safe and simple way to convert them to cash. When that exists, the value will plummet as everyone tries to sell at once.
Worth remembering that some Bitcoins (perhaps many) will have been 'lost'. I had the Bitcoin wallet software on my mobile phone, with perhaps 20BTC in it (this was when the exchange rate was c. $4); my four year old daughter fell into the swimming pool, and I didn't think to remove the phone from my pocket. If anyone knows a way to remove the wallet.dat file from a broken Galaxy Note, I would be interested to hear.
Also, there will be some people who have lost the passwords for their wallets.dat, and are therefore unable to access their funds. Of course, in 20 years time they'll be able to decrypt them, but for now they're out of luck.
--- My dad's political betting
Trickle down economics.
Even the innovators aren't participating in it.
I am Slashdot. Are you Slashdot as well?
Vast bulk of actual dollars are hoarded not used.
AccountKiller
The dwarves delved too greedily and too deep.
You know what they awoke in the darkness of Khazad-dum.
the preceding comment is my own and in no way reflects the opinion of the Joint Chiefs of Staff
I understand the technical aspects of Bitcoin but not the economic ones. I can see how people might be willing to speculate a bit and accept payment in BTC in the hope they will go up in value, but I can't see any reason why anyone would circulate them on a routine basis.
Perhaps hoarding is a consequence of this speculative hope they will go up in value. But that seems self-defeating, since if Bitcoins don't circulate it's hard to see how they will become more widely accepted.
I thought the point of currency was to be perfectly fungible.
So can someone draw me a picture: if I am not yet a Bitcoin user, and you offered to pay me 1 BTC instead of the current equivalent in USD, why should I agree to that?
[Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
If only 1/4 of the coins are in circulation, the value of the BitCoin isn't really that high. If the other 3/4 were to start being used on a regular basis, you'd have 3x more bitcoins available which would mean each one would be worth about 1/3rd of what it is now.
I've bought so much crap off Amazon with them, I wish the difficulty would go back down so I could generate more!
Check the table on page 10 -- it shows the largest holders of Bitcoin. Obviously you have accounts owned by exchange houses there, but there's at least five unidentified people there sitting on over 400K of them, with less than a hundred transactions each.
How much pumping before those five guys dump?
Somehow, I seriously doubt that BitCoins are "hoarded". I would bet actual money that most are simply forgotten about.
I don't respond to AC's.
I think people love the commerative bc's, the special editions, etc...
Python: 'And then suddenly you have a language which says "we're all stuck with whatever the whiniest coder wants".'
Gee, what do you expect? It's a transparently value-holding commodity, not a place-holding commodity; I'm just making up theoretical terms, here, but, so to say, its value comes from exchanging it for value's own sake, not through direct representation of something else. Case in point: when was the last time you bought or sold something in terms of bitcoins? Yet there they are, soaking up processor time, gaining value and losing face. Is that what it's all about? "I dedicated my processor to a hell of a lot of number crunching, now that's just gotsta be worth SOMEthing!" -- (???)
"Stratigraphically the origin of agriculture and thermonuclear destruction will appear essentially simultaneous" -- Lee
correct? Especially in the USA where it is illegal to own more than $10k at a time, its hoarded in accounts.
I have a warehouse full of Monopoly money,valued at $500 USD. I don't spend it either. No one will take it.
Silence is a state of mime.
...alpaca socks that you can buy.
Give me more stuff to buy with bitcoin, and I'll spend more bitcoin.
Palm trees and 8
Definitely not facebook stockholders hoarding these.
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
From Wikipedia: Gresham's Law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."
Set your phasers on "funky"!
With a "normal" currency (i.e. a much-maligned "fiat" currency, like the dollar), in the face of such massive deflationary pressure, the central bank injects additional currency into the market by lowering overnight lending rates, buying govt. bonds, and lowering bank reserve requirements. The ensuing inflation provides incentive for people to spend their money instead of banking it.
BitCoins, by design, have no such mechanism. This, combined with a stupidly-designed expansion curve, means that deflationary currency hoarding was 100% predictable.
Your sig complains of people modding you down due to global warming bias... or maybe it should be because you copy-paste other people's posts up to higher threads hoping to gain karma back through some trickery?
This post is clearly copied from one five minutes earlier here. And this isn't the first one in this thread that you've done that with, there are others further down.
This has been the biggest flaw in BitCoins since day 1, and one which it's backers stubbornly refuse to acknowledge. (Either that, or they believe that a deflationary spiral is a good thing.)
actually.... bitcoins are a commodity not a currency
That's a distinction without a difference in this case. Currencies are a form of commodity - just one used specifically to facilitate exchange. Commodities are undifferentiated and fungible goods and so are currencies. It's accurate to call bitcoin a commodity but its equally accurate to call a dollar or a yen a commodity.
Currency makes a terrible savings instrument in that its value tends to go down via inflation.
Same thing happens with lots of commodities like gold. If all you do is stick it in a warehouse then it will generally lose value due to inflation (as well as storage costs) over time.
I sure hope you have some script for copying comments like this. Because if you are doing this by hand, you are wasting your time and farming karma rather inefficiently.
The vast bulk of dollars are NOT hoarded. They are mostly stored in banks, which in turn lend them to others. They should have covered this concept (Fractional Reserve Banking) back in middle school... you need a refresher.
These BitCoins aren't being stored in a lending bank, they are being stored under the metaphorical mattress.
A transaction is instant so there's no "floating" money. So 100% of bitcoins are "stored." Unless you do transactions are like 10 per second, they'd certainly be considered sitting dormant. If I pay for something somewhere with BTC, it's instantly sitting dormant in the shop's balance instead. In fact, money is never really sent. You actually just send a message to the protocol/network that you're changing the ownership of X amount of BTC and your wallet file is one giant password that authorizes it if you have the balance to cover it.
unfortunately you can't trust anyone to use it.
-- By all means let's be open-minded, but not so open-minded that our brains drop out.
Here's a challenge for you economics wonks.
The idea that "a little inflation is good, a lot is bad, and negative is very bad" is a well known gospel.
Can anyone here explain why this is without telling a story?
There are many ways to prove a point without story telling. For instance:
I'm tired of all this "if inflation were negative, your salary would go down over time and you might never be able to pay back your loans" nonsense. Loans are adjusted for inflation rate all the time, and there's no reason why the adjustment can't work in the borrower's favor.
I don't want to hear "this will happen, and that will cause this other thing" nonsense.
Folk tales are great, but I like some rigor in my economics.
The amount of money in circulation has inversely relationship to it's value. The key concept here is velocity of money.
The fact that so little of it circulates suggests that the value of an individual BC is rather overstated.
One of the functions of currency is to store value. Even in antiquity, you would convert your assets (say, livestock) to coin at some point, like when you had too many animals to take care of. It's not just a matter of trading A for B and using currency as a medium. Sometimes there is no B and you just have too much of A, and instead of sitting on something that has its own costs and risks, you would just exchange A for currency so that at some future point when a B was needed, you would already have some currency to pay for it. Everyone has a savings account, right? Well, maybe not in America.
If those hoarded bitcoins were actively circulated, they'd all be worth less too, since introducing them would be equivalent to inflation.
You can even witness this effect in virtual economies. Most people don't want to keep inventories full of random items that might be used one day, they'd rather keep what they consider to be important and then dump the rest for gold. If it turns out they need the item after all, they'll just buy another one using the gold. Hoarding is just currency working as intended. Indeed, if people are not willing to hoard it, that means there's no faith in it, which means it would be worthless.
Because there is nothing to spend them on.
Of course. That's what real economists, of the Nobel prize winning class, have said already: bitcoin has deflation written all over it, and that's its doom. It won't work as it doesn't encourage use, but hoarding.
I don't have a sig.
The bitcoin protocol was designed to have the per-block mining reward split in 2 (50 BTC to 25BTC) after like 180,000 blocks or something like that and we're a couple weeks away from that. That means the supply will drop but whatever the demand currently is will stay the same. In theory, it will eventually double in price. Nobody will ever "run out" of BTC though since it's divisible by like 8 decimal places or something. So if there's not enough to go around, the price would be $1000 USD per BTC and people would be buying stuff for 0.00001 BTC instead of 1 BTC. The only big thing about that is when you bought them and how long you held them. The major plateau prices that held stable for long times over the last 2 or so years were $7/BTC then $33 then $0.01 during a big hack, then $8 then $11 then another big hack so around $3.50-4 then $12-ish now. So there's money to be made if you're patient enough and buy at the right time!
It is ironic that this post came so close to the slashdot post about a british guy finding a Roman hoard of solidi coins which were buried on private land. In the article the post references these Roman Solidi coins were supposedly not used very often because of their high value. Perhaps many bitcoin users aren't unlike the ancient Romans, only instead of burying their coins to hide them, they instead are buying bitcoin.
After all the difference between buying bitcoin and burying real coin is only the Pirates' "R".
see here: https://gist.github.com/3901921
you recite to no end your religious mantra about the problem of fiat currency. yet you have yet to produce an example of a current functioning non-fiat currency. just because you believe your religion knows better than everyone else, doesn't mean it is true. show an example of how your plan works - simply stating that the current plans don't work is not enough if you want people to take you seriously.
otherwise your entire argument is nothing but recited mantras. you might as well be telling us about a space ship coming in behind a comet.
What is an unused currency? Not a currency at all. While some will say that hoarding is a function of currency but there also has to be widespread use of said currency. I'm sure they are holding, speculating that they will be worth more kind of like you would with precious metals but when the vast majority of the currency is being privately held and never circulated that stunts the growth of a relatively little known outside of a tiny fragment of the population. The catch-22 that there isn't much that can be purchased with them is that until they are seen as a safe and widely used form of currency there won't be more items to spend that currency on.
This paper is based on a misunderstanding of how Bitcoin transactions work. If I receive 10BTC, then send 7BTC to someone using the usual software, then 7BTC will go to them and the other 3 will be sent as "change" to a newly-created Bitcoin address that's added to my wallet. It's also common practice for websites that accept Bitcoins as deposits or payment to generate a new address for every customer to send coins to, so that when they send coins they can tell who sent them using the destination address alone. The authors of the study don't seem to know this, so they completely misinterpret the patterns they're finding in the blockchain. If everyone followed the suggested practices of generating a new address for every incoming transaction, then every address would be either empty, or have never had an outgoing transaction.
And speaking of websites that accept Bitcoins as deposits, the recommended security practice is to divide coins into a "hot wallet", kept on the server and used for day-to-day transactions, and a "cold wallet" that's kept off-line for security. A cold wallet should almost never be involved in transactions - but it backs peoples' deposits which are used in transactions, so it's not like it's out of circulation.
When I read the summary and the article, my first thought was about how the technique used was wrong in its base assumptions. Here's a comment from helopigs on Ars that cuts right to the chase:
"It is recommended (by the creator and current developers) that users only use each address one time, to help increase the difficulty of linking transactions to individuals. The software is written to make this easy, and does it on its own any time a different amount is sent than was received. If someone wants to send you 50 btc, you generally will open the client and create a new address, labeling it perhaps "from ___ for ____". Once received, it will be parked at an address that has never been used to send.
If you then send a third party 25 btc of that 50, the client will automatically create a new address in the background, sending 25 to the party's address (which is likely new), and 25 to a new (yet again, never sent from) address.
So it shouldn't be surprising that the majority of bitcoin is sitting at addresses that haven't been sent from. That's how things are supposed to be.
By the way, when that 50 btc was split up into two 25 btc outputs, it will not be possible for analysis like this to know which address is owned by the owner of the original 50 btc, and which one is the receiving party."
It's those damn coin collectors. They probably have them in proof sets using this.
Your principal mistake is the assumption that economics is a science. It's a "science" in the same way that psychology is a "science": there's no practical way to conduct any controlled real world experiments, and different experts will squint at the aggregate historical data and scream about how everyone else's theory is more wrong than their own. ...because, you know, at the macro econ level there are *no* theories that actually fit the data. So, there's effectively zero predictive power and historical data analysis is mostly about posturing in favor of one's preferred economic theoretical framework (and politics, because economic policy is intrinsically linked).
Modern economics is essentially comprised of a rabble of witchdoctors who rally around different historical cult figureheads and then expect the masses to revere them for their wisdom and power.
That's a LOT of drugs.
...is worthless by design and therefore unused.
Might as well be text files full of Vogon poetry.
I've looked at the little info on the bitcoin and associated sites, but nothing really coherent to read on how to get started from beginning to end.
Anyone know of such a tutorial/site? Links?
Light travels faster than sound. This is why some people appear bright until you hear them speak.........
I'm hoarding mine because their early mint dates will make they collectors items someday. worth a lot more than face value.
Some drink at the fountain of knowledge. Others just gargle.
I can't tell if you are being serious or not. Would you sell this bitcoin ETF using bitcoin?
Some drink at the fountain of knowledge. Others just gargle.
Freenet makes use of the darknet, the bit of the internet that doesn't light up routers when it goes through it....right.
Darknet is a website that isn't on port 80 and google hasn't indexed. in the west, nobody gives a fuck so the kiddies in the west think, YEAH they can't find us! This will work in North-Korea and if you are caught, they can't proof anything because it won't show!!!
In Korea, you don't have a PC. If you do, it is monitored and ANY signal not understood will be cracked by the process of hammer on fingers. There is no darknet.
Some kids have high IQ's but zero sense of reality.
One thing you can use BitCoin for is to buy drugs on Tor. You basically send BitCoins to someone you don't know with your order in an electronic record which includes your address so the drugs can be delivered... its anonymous!
Bitcoing is a good idea only if you are drunk. Lots of ideas are. Pity the rest of the world is sober. And spinning.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
How are these researchers able to access individual accounts to determine the balance and equally how are they able to access the bitcoin servers themselves to the level which allows for such probing? BitCoin sounds like a mechanism for illegal activity much like The Pirate Bay. Maybe this is tacitly approved by politicians seeking new ways to funnel bribes into their own pockets.
This comes from Gresham's law that bad money drives out good. People desire a money that holds it's purchasing power. If there is a money that loses purchasing power and one that holds it the good money will be hoarded and the bad money will be circulated.
http://en.wikipedia.org/wiki/Gresham's_law
I love Jesus, except for his foreign policy.
You see that all the time with BTC types. They love the idea of deflation because in their minds, it means that their money gets worth more over time and that is a good thing. They fail to consider the larger economic implications of it, thinking in the narrow sense of their savings accounts only.
160,000 > 200,000.... so continuing to pay the loan is not logical...
Only on Slashdot would a request to explain economic conditions without using stories result in upmodded reply that uses bad, self-inconsistent mathematical reasoning in stories.
Bitcoin is accepted at an estimated 1500 merchants. A list of the more popular ones (minus drug/porn sites) can be found on the https://en.bitcoin.it/wiki/Trade. These sites started accepting due to the numerous advantages bitcoin has over its competition (or possibly for an ideological or promotional reason). Notice that these are not tiny advantages, but a large number of giant leaps forward.
Decentralised and free from control
Always running 24/7
International
No/low fees
New privacy model
Transparent system
Divisible
Secure
Fast transfers
No chargebacks
Environmentally friendly / efficient
Digital
Worth noting is that I only spend bitcoins instead of fiat when I get a discount for buying with bitcoin, or when fiat will not do what I want to do with it. This is because bitcoin is so superior, I would much rather hold it than USD. I can donate $1 to wikileaks with no fee, instantly deposit/withdraw from poker/sportsbooks, get 5% off on amazon purchases, and do up to $1000 currency conversions for less than any other method. The IRS doesn't know about it, no one can sue me to take it, my wife doesn't get half of it in a divorce, and I don't have to worry about it being inflated away by the government. It increased in value by 1,750% last year, more than any other asset class, and this year it is up over 150%. This is a radically superior money compared to pieces of paper and gold, even if you only count what it can do right now, and this is just the beginning. The future will show the real potential of this disruptive technology.
More detail on these points at: http://bitcoinmedia.com/bulleted-advantages/
everyone holds it because it will be worth more tomorrow. that's why retards who think a modern capitalist economy should be using gold for currency are fools. moderate inflation is part of a growing economy. deal with it, nerds.
Printing money is immensely beneficial to the government, as they can essentially tax people without them knowing it. Far easier to increase the money supply by 10% - where prices might take months or years to adjust - instead of levying a 10% tax on everybody. It also benefits the people who are closest to the government the most, as they receive those printed funds first and get everything at a discount. Yet they have brainwashed people into thinking inflation is good, deflation is horrible, so yes, please continue to steal our money at an acceptable rate.
You have some insight in what you said, but I think there is a slight problem with your logic. When the government 'prints' money, it isn't directly getting more spending power, because budgeting isn't done by printing new money and handing it out directly to government departments to spend. (Although, the revenue generated by distributing the 'money' will eventually get folded back into the budget) In fact, due to the sometimes glacial fashion that money is allocated, it might even hurt government spending power because of the delay between increasing the money supply and buying more widgets for federal usage. I think you are quite correct in your statement that it directly benefits the banks that are at the head of the line when the pallets of new hard currency is shipped out/ the prime rate is changed/ bonds are sold/etc.. It seems to me that this is less of a hidden tax by the government and more of a money distribution cost. (Or graft, should the money be distributed in a way to benefit the friends of whoever is in charge of fed policy, this in my mind would be a much more likely form of abuse)
And as for the moral argument about hidden taxes, we have a representative government where we choose leaders to act on our behalf, so doing things like selecting how much money would be printed is exactly what they should be doing. They (the fed, the mint, etc) have been charged with managing the countries money supply, and your question seems to presuppose that any step that they take to increase the money supply is a deliberate immoral attempt to steal from the citizens. You seem to be asking a loaded question that assumes that there isn't any other reason to increase the money supply.
HA! I just wasted some of your bandwidth with a frivolous sig!
Just a sampling from U.S. history found by Googling "Panic of " plus the obvious reference to the start of the Great Depression since you referenced it first:
* The Great Depression kicked off well before the gold standard was dropped in 1933.
* According to Wikipedia, the Panic of 1893 lasted about 5 years. Unemployment was 4 times higher than it was in 1892.
* Panic of 1873 lasted more than 6 years.
* Panic of 1837, 5 years.
Every example saw massive unemployment. All lasted far longer than any recession we've seen since. All were accompanied by massive suffering due to completely inadequate coping mechanisms for dealing with this kind of economic trauma.
The Federal Reserve (not really a central bank as that term is understood in other countries) was created in 1913 specifically as a way to prevent the periodic shocks to the economy that bank panics created.
Now, are we in financial trouble today? Absolutely. But we're in trouble precisely BECAUSE banking deregulation was passed 20+ years ago and the culprits who took full advantage of it were not only not punished, they were rewarded! IOW, we're in trouble because we failed to continue solid governance of a critical industry, NOT because the central bank exists and was doing its job!
All of your conclusions are faulty, as you need to have a house to live in in any event. The whole 'exiting the market' concept is silly, because this isn't like the stock market where you can simply choose not to play if you dislike the rules. You going to live on the streets and put your rent into hedges like commodities?
HA! I just wasted some of your bandwidth with a frivolous sig!
Folk tales are great, but I like some rigor in my economics.
I find it funny that you ask for rigor in modeling a complex non-linear system that has potentially billions of independent non-quantifiable variables. Just remember that any model is a simplification of reality and therefore by definition, wrong. Good luck with that though.
HA! I just wasted some of your bandwidth with a frivolous sig!
Wow. Just wow.
Banks try to keep as few actual dollars (either electronic or physical) as possible. (I believe such behavior would be considered the opposite of hoarding.) This is why Reserve Requirements are minimums; no bank WANTS to keep dollars on hand; dollars in the "vault" (electronic or physical) are utterly unproductive; they earn the bank nothing. (In fact, dollars on-hand and not lent COST the bank money, as interest must be paid to depositors (or the Fed, if they are borrowed dollars.)) The money the bank lends out is quite real; it's the loan that remains on the books afterwards that is "virtual." (And its value is recorded at a discount to it's face value to account for loss reserves.)
While hoarding deflationary currency works out for the hoarder (that's why all those BitCoins are missing, after all), it doesn't work out so well for the viability of an economy. Hoarded currency is non-productive currency. While deferring spending on consumption is not a horrible thing, deferring spending on investment also IS.
Only physical cash is "dollars"? If a bank wants $1M, they get $1M from the Fed (or a Fed member bank.) It doesn't matter if it's a wire transfer, a truckload of cash, or a pile of coins; the net effect, a $1M debit to their Fed (or Fed member) account is the same.
And only a tiny fraction of a bank's reserves are physical cash. Electronic cash is just as good as physical cash, and it's a lot easier for the bank to handle.
If I were to drop $1B in Benjamins off at my local bank branch this afternoon I can guarantee that that virtually all of that cash is going to be on a truck to the Fed the next day to get it off their hands and converted into the far more convenient electronic form. They won't hold onto any of that cash in cash form as reserves.
I don't have a problem accepting the idea that a BTC can have value; I just wish its proponents would classify BTC properly.
If something of value has to be exchanged to dollars/euros/pounds), then it's not currency, but a commodity - like Oil, Gold, Silver, Wheat, etc.
At this point, Bitcoins are a bartered commodity - while there are some who will accept the barter for other goods and services, I can't use bitcoins to buy groceries using BTC any more than I can buy groceries with a bushel of wheat, or a gram of palladium.
Instead, I have to exchange the commodity for a currency, and only after that can I buy my groceries.
Even the 'bitcoin card' is just another BTC exchange.
Put another way: I could 'mine' bitcoins, or I could grow wheat in my yard. Neither are currency: In both cases, I've only collected a commodity which I must then exchange for currency. There may be a few exceptions where someone is willing to barter my wheat (or BTC) for goods/services, but by and large, all roads lead through a commodity exchange.
-- Sometimes you have to turn the lights off in order to see.
You speak as if the Fed isn't a bank.
It's not. (Yes, I know it's called the "Federal Reserve Bank." But...) Unlike like regular banks, the Fed CAN generate money out of thin air. They have no reserve (or deposit) requirement whatsoever. They do not need $1M in deposits to issue $1M in loans. If a bank wants $1M, the Fed loans them $1M (at interest.) No reserves or cash of any kind at the Fed is required to issue this loan. The dollars lent do not have to consist of printed Federal Reserve notes (although they could); that'd be really cumbersome and stupid. If a Fed branch has too much physical cash than they need, they simply change the bar for when they decide to shred it and/or they reduce their next order with the Bureau of Engraving and Printing. (As a side-note, the Fed purchases paper currency for the cost of physically printing it, but must pay for coins at face value (by issuing a credit to the US Govt's Fed account.) The government could, in theory, pay off the entire national debt by issuing a single coin with a face value equal to that of the national debt. The Fed would be required to treat it as legal tender when deposited and credit the US Govt. accordingly. It'd be a freaking disaster due to the sudden increase in the money supply and would make a mockery of the Federal Reserve System, but it is possible.)
Moving the cash from one bank's vaults to another bank's vaults doesn't really change anything.
Errr... one bank then has less cash, the other has more?
Your local bank still needs physical assets held in their name in someone's vaults as a reserve in order to loan out their virtual money at interest.
No, they don't. It makes no difference if the money is physical cash or electronically transferred! It's still considered "cash." No matter if my employer makes a $10,000 electronic deposit into my checking account or hands me a fistful of cash, my credit union is then free to loan out approx. 90% of that money. They can loan it out electronically, in the form of a check, or, less likely, actual cash. No actual physical cash has to exist anywhere for this to work. No vault is necessary anywhere. You know what is in the big, impressive, walk-in vault at your local bank? Safe deposit boxes. At most branch banks, the cash-on-hand is held in a sturdy, sheet-steel-lined closet instead and the bank's central office is not likely to have a vault at all. (Eliminates the possibility that a customer of the safe deposit box could rob a teller if the teller doesn't go anywhere near the large vault to get cash.)
When it comes to paying their debts, they would much rather hand out claims on virtual money than the physical cash which contributes to their reserves.
Huh? Both electronic and physical cash on-hand counts towards the reserve requirement. Loans (the "virtual" money) don't count as reserves at all... reserves consist of the money the bank hasn't lent! (The reserve can consist of either deposits or funds borrowed from elsewhere; either another bank or the Fed.) Plenty of banks exist with no physical cash, anywhere, at all.
Anyway, the important point was the second one, that saving ("hoarding") is economically equivalent to a loan. Granted, not a fractional-reserve bank loan, since there is no change in the money supply, but those have their own issues.
How is stuffing money under the mattress like a loan? If I loan money to somebody, it's highly likely most of it will be spent, thereby stimulating economic activity and increasing Gross Product. (And this is, in fact, how it works; credit is the lifeblood of every single modern economy.) Money stuffed under the mattress does nothing, and results in zero economic activity.
When you lend someone else (not a fractional-reserve bank) your money, you rent them your share of consumption for a time in exchange for interest. When you "hoard" your money, that same share of consumption becomes available to everyone else. The rema
When you say that every dollar held in reserve must be traceable to a physical dollar in a vault somewhere, you are kind of on the right track, but led astray by your fixation on physical currency.
Every dollar held in reserve must be held in either cash or an account traceable to the Federal Reserve. Small banks have an account with a Federal Reserve "correspondent bank." Larger banks have an account directly with the Federal Reserve. Neither type of account has to correspond to an actual printed Federal Reserve Note held by anyone, anywhere.
Certainly a bank doesn't have to participate in this system, and is more than welcome to hold their entire reserves in physical cash, but no bank actually operates that way, because it's inefficient, expensive, cumbersome, and unnecessary.
When you say Bitcoin will enter into a deflationary spiral by what metric are you measuring the decline. Is it the value as measured in dollars? If so, what rate of growth for the supply of dollars is being used for the purposes of the deflationary projection?
Furthermore, are you basing the projection on the current state of capital controls or a potential future state of capital controls. For example, what if gold can only legally be owned and traded by a central bank as an extreme circumstance. Or maybe other countries see their access to SWIFT cut off in the same way Iran has experienced, or maybe martial law is enacted in a major developed country. What type of system to facilitate capital flight might be implemented?
Finally, if Bitcoin fails, then what is to say that another solution that also solves the double-spend as elegantly, but with a larger fixed supply and less units appropriated to the founder might disintermediate Bitcion.
www.tradewithdave.com
FWIW, I remember CyberCoin. I also remember vacuum tubes which pretty much died out long before CC was created. Interesting to note that, while rare, vacuum tubes still have use in the real world.
what is the point of BitCoin? i cannot buy anything in shops here with bitcoin.....sorry CASH ONLY.
good luck going to my bank and asking for BiTCoin to CDN $$ conversion.....
Not now, not in a hundreds years maybe, but if we adopted a gold standard it would eventually (despite the intent being the opposite) lead to hyperinflation.
Why? It would happen because there is still one enormous untapped reserve of gold left: The oceans.
There is enough gold in the oceans to completely dwarf our current stockpiles of gold, and if we adopted a gold standard, the entire economic system would collapse through hyperinflation as soon as it became economical to extract.
Right now it is possible to extract gold from seawater, but is far and away just not economical enough; given a hundred or more years of technological advancement (not to mention spurred interest due to a gold standard and the value of gold skyrocketing), it would be hard to imagine how it would not at some stage become economical to extract.
Once it does become economical, and the more the technological process is refined, the greater the value of gold will drop as the markets get flooded with it.
So that's pretty much the long-term limit on a goldbugs dream; not only are the societal effects of deflation demonstrably harmful, but a gold standard would lead us directly into the situation it is trying to avoid: hyperinflation.
If you read the article, you would see it didn't help much.
Is this like digital zoom verses analog zoom?
Change is certain; progress is not obligatory.
What's the difference between the Timecube guy and Bitcoin fans?
Gene Ray's funnier.
To have a right to do a thing is not at all the same as to be right in doing it
Only you can read articles on ARPANET
"Privacy" means nothing in the protocol links the coins to my name. Notice that the article author's have no idea who owns the 90k bitcoins that were apparently laundered poorly. "Digital" means I can back up my cash and have several encrypted copies of it so it can't be stolen.
You're confusing privacy with anonymity. They aren't the same thing.
Change is certain; progress is not obligatory.
Saw this on Twitter the other day;
Lottery: a tax on people who don't know math. Bitcoin: a tax on people who do.
Are they the same on ARPANET?
You are correct. My statement should read "New privacy model", not just "privacy". The protocol is indeed not private, but public.
Bitcoins are inherently (there will only ever be so many!) deflationary.
First of all, a deflation is only a problem with debt based money (which is EUR, USD and EVERY other big currency of today's world)
Since Bitcoin is not a debt-based money, a deflation is not a problem, deflation occurs only when a) economy grows and b) people think BTC will get more valuable - it will eventually stabilize, there won't be any "spiral" because there is no debt to pay off to a central bank.
no one i know from the telephone company to the grocer to the bank to the gas pump station, know what bitcoins are. How do i pay for these goods using bitcoins?
simply put....I dont......because its not real cash in hand.
you have made a habit of describing child labor in a positive way, then you say this
The economy is now so terrible that soon enough children will have to go back to work just like they had to in the beginning of 19th century.
so which is it? do you favor or oppose child labor? or are you just opposed to the idea that children might go to work for pay, while you would prefer to be able to take them in as uneducated slaves?