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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.
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.
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
Vast bulk of actual dollars are hoarded not used.
AccountKiller
Yes, trading is going on. http://bitcoincharts.com/markets/mtgoxUSD.html
I wonder how many of these were generated early on and are being hoarded by the early adopters.
Probably most of them. In the early days of Bitcoin, the amount of computation needed to generate a Bitcoin was orders of magnitude less than it is now, and the number of Bitcoins that could be generated per unit time was higher. More than half of the Bitcoins in existence were generated prior to the end of 2009. The system has a huge early-adopter bias built into it.
Bitcoin generation is competitive; the compute load required to generate a Bitcoin is automatically adjusted about once a month based on the number of Bitcoins generated in the last time period. The originator of Bitcoin is still anonymous, and being the first adopter, generating coins with no competition, probably holds many of those cheap-to-generate Bitcoins.
But they can't cash out without crashing the market. The total daily transaction volume in Bitcoins is roughly that of a big supermarket or two. Most of that volume is between traders; actual goods and services sales are tiny.
That's the real problem with Bitcoin. As a currency, it went nowhere. It was supposed to compete with PayPal. Instead, it's mostly a speculative vehicle. By now, one would think that there would be games, music stores, and app stores using Bitcoins, just as a convenience for small transactions. Didn't happen.
(Anyone remember CyberCoin? DigiCash? Beenz? Didn't think so.)
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.
This is why I never bought into BitCoin: It's a vastly overwrought solution to a small problem in a largely functional currency system. It's saying, because nobody has set up easy internet money transfers, let's dump the entire currency system and start a new one.
It's reinventing the wheel because a spoke is broken.
It's better to vote for what you want and not get it than to vote for what you don't want and get it.
- E. Debs
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.)
Not really that easy.
As a consumer In order for me to actually acquire a Bitcoin and then spend it I have to do the following:
1. Go to my Bank and transfer CAD to my local BitCoin Exchange - $3.00 fee .001 BTC or something like that)
2. Covert the CAD balance transferred to the BitCoin Exchange into BTC (3% fee)
3. Send the BTC to my Wallet
4. Transfer money from by Wallet to the seller (there is a small fee applied to that
5. The Seller then also incurs a fee if they are using BitPay or some other third-party to handle the transaction which is typical of a legitimate purchase
6. Furthermore if I don't want to lose my wallet I need to use a Hosted Wallet which costs me even more!!
7. Then when I want to cash out my remaining balance (which is always a strange amount) I have to pay even more fees through the Exchange (this is why there seems to be a lot of hoarding).
This whole process takes days and is not really worth the time and effort for small items.
Finally using the Default Bitcoin client (which they still recommend on the Bitcoin website) takes almost a DAY or more to download the Block Chain. You can't even begin to do any of that until you have the Block Chain download. There are other clients that don't need to do this but for the average newbie the Bitcoin website recommends Bitcoin-QT which requires a full download.
At this point it is a currency for people who can't use Credit Card or Interac or PayPal really. But the fees are just about the same when you look at the big picture and time-to-spend is really high.
Because there is nothing to spend them on.
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.
If you bought your house for $100,000 and currently owe $80,000...
Inflation = 4%... Next year your house is worth $104,000 and the Present Value owed to the bank is $81,000k
81,000 < 100,000.... so continuing to pay the loan is logical.
Inflation = 100%... Next year your house is worth $200,000 and the Present Value owed to the bank is $160,000k
160,000 > 200,000.... so continuing to pay the loan is not logical... because waiting for the crash is logical.
Inflation = -10%... Next year your house is worth $90,000 and the Present Value owed to the bank is $72,000k
72,000 < 80,000.... so continuing to pay the loan is not logical.... because exiting the market and waiting for the rebound in logical.
If you want charts, graphs, etc. see
A Monetary History of the United States by Milton Friedman and Anna J. Schwartz
This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff
Either one will cover your first 3 points.
But in short:
Moderate Inflation has been associated with economic growth: See past 50 years. Abundant historical examples.
Deflation increases the value of money – thus it transfers wealth from those who have money or are creditors – thus encouraging wealth people to invest in government bonds instead of real economic activity. See Great Depression or Japan over the past 15 years.
High inflation destroys savings and discourages poor people from investing (including education, homes, etc). See America during the 70s. See great britain having to break with the European monetary board.
These effects are all quantifiable. i.e. there are formulas out there. However, those formulas are highly tinged by psychological factors (people’s perceived need for money and stability), growth in productivity, availability of alternative currencies (bit coin, HELOCs on overinflated homes, tulips, etc.)