I wouldn't be surprised if in coming years at least some bitcoin users start measuring their wealth in bitcoins, and therefore also evaluating exchange rates, not in terms of how many US dollars, euros, etc. they can buy with a bitcoin, but the other way around: what is the cost, in bitcoins, of a single dollar, euro, etc.?
Looking at exchange rates in this manner changes people's perspective on volatility, which is always a relative measure. For example, since the beginning of this year, the price of a US dollar has declined by more than 98%, from BTC 0.074 to just over BTC 0.001, which makes the dollar look extremely volatile!
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PS. I'm NOT saying the dollar is extremely volatile! I'm also NOT saying that Bitcoin is more stable! What I'm saying is that if and as Bitcoin adopters start measuring their wealth in bitcoins, their perspective on what is and isn't volatile will change, as demonstrated by my example.
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Edits: expanded second and third paragraphs; added PS.
Sorry, that's clearly nonsense given that the dollar wasn't similarly volatile against other currencies.
Would you slam on your breaks in the middle of a road full of fast moving cars and believe that it was actually them all suddenly accelerating?
This kind of volatility is actually really harmful to it being adopted as a primary currency. It's pretty dumb to actually spend bitcoins if you could just hold onto them and sell a week or two later at twice the price, and then spend the USD for twice the goods you would have been able to buy last week with the same number of BTC. It's also pretty dumb to accept BTC as payment, especially when it's at an unsupportable high, because it's likely to crash soon and you'll now have half the value you had earlier. The volatility is valuable for speculators, but could be ruinous if you were trying to run a business based on it. Yes, you could get lucky and it could go in the direction that favors you, but that's speculation, that's not business.
A similar question can be asked about USD: why would you ever save it instead of spending it immediately, since it's only going to lose value over time due to inflation?
Of course, the difference right now is that the deflation rate in bitcoin is much higher than the inflation rate in USD. But clearly, if bitcoin ever becomes a major currency and the deflation levels off, there will be plenty of motivation to spend bitcoins, the same way there is currently plenty of motivation to save USD.
Similarly it's pretty dumb to hold on to dollars if you know you could double them in a week by buying bitcoin. The ideal solution is to spend bitcoin and immediately replenish them by exchanging USD to bitcoin. That way, you still have the same amount of bitcoin and simultaneously more bitcoins are going into the economy.
> The volatility is valuable for speculators, but could be ruinous if you were trying to run a business based on it.
Immediately converting to fiat removes the risk. The beauty is you get to decide what you want to do with them.
Consider the last month:
2013-11-01 212.87 USD = 1 BTC
2013-11-22 733.71 USD = 1 BTC
If you think Bitcoin is a great investment and can sell your BTC to get other assets in at a high point, this is a good thing, though slightly worrying because of the boom and bust pattern and extreme volatility.
If you think Bitcoin is a stable currency, this is a terrible thing. I'm not even sure what the implications would be if buying raw materials one day cost more than selling a finished product the next due to rapid deflation, but it surely wouldn't be much better than rapid inflation which we have seen in other currencies.
Like a loaf of bread which is 1.6 trillion Zimbabwe dollars, one which cost 0.0000000001 Bitcoins would not be desirable either if that figure keeps changing rapidly and the next day becomes 0.00000000001 etc. Any extreme fluctuations in price are really undesirable for a currency, and I do think this mechanism of ratcheting up the difficulty of mining and an ever-increasing value is really damaging for Bitcoin's credibility as a currency, though presumably it was designed to boost adoption by encouraging people to see it as investment first, currency second.
I like the idea of a currency which doesn't allow politicians to introduce inflation, but perhaps we should have one which has a finite set of tokens on setup, and doesn't attempt to also attract people as some sort of investment with mining etc. - is that side of Bitcoin even useful except to turn it into a sort of pyramid scheme where early adopters are rewarded disproportionately?
[EDIT I am aware of the proposed 21m Bitcoin limit, which they're about half way to reaching, that's why I said on setup, which Bitcoin doesn't have]
Bitcoin _does_ have a fixed set of tokens on setup: 21 million of them... but you need a way of giving out those tokens without handing a windfall to a centralized decider that gives them out.
Mining isn't an "investment" thing: It's the @#$@ fundamental consensus process that makes the whole thing possible: Node autonomously validate the rules, but transaction order is not decidable autonomously and so mining produces a hard to rig / cheap to verify 'vote' on the order of transactions.
Bitcoin smarty aligned these two processes by making participation in the consensus also accomplish giving out the original tokens.
>I like the idea of a currency which doesn't allow politicians to introduce inflation, but perhaps we should have one which has a finite set of tokens on setup, and doesn't attempt to also attract people as some sort of investment with mining etc.
I'm sure someone will correct me, but as I understand it this is how Ripple[0] works. From my recollection (I haven't checked in on how Ripple has been progressing over the past 6-8 months or so), Ripple's currency (XRP) are established with a finite supply and all XRP is in reserve, not requiring any "mining" or similar. Also, it looks like Ripple is kind of an exchange as well? It seems to be able to cross-process payments between USD, EUR, BTC, LTC, XRP, and more (I believe most international currencies are supported currently)[1]. It's interesting but, like I said earlier, I'm not sure if I fully understand it.
[0] https://ripple.com/ [1] https://ripple.com/guide-to-currency-trading-on-the-ripple-n...
Bitcoins are limited and when they run out miners will start getting bitcoins from fees.
There are others if you have a more specific interest: http://web.tmxmoney.com/indices.php?locale=EN
Seems no different than if the buyer had sold her Bitcoin and paid Virgin Galactic in cash. The real trick will be when they can accept Bitcoin, keep the Bitcoin, and make any refunds and adjustments in Bitcoin.
I don't see any other way to bootstrap a new currency.
I'm not sure if this differs for six-figure transactions, but transacting fiat currency generally costs a vendor ~3%.
Receiving bitcoins and immediately converting them back to USD/GBP can be done for less than one percent of the amount of the transaction.
1. Bitcoin is no less a fiat currency than the U.S. dollar or Japanese yen.
2. For small retail transactions, yes, 3% seems right. Larger transactions, however, are generally done by wire. These transfers carry a fixed fee and are generally a very small percentage of the transaction value.
You see, if anything the last 5 years has taught us, is that Bitcoin's adoption can continue to dramatically increase despite wild volatility. (Data point: Bitpay signed up 10,000 merchants through a period when 1 BTC was sometimes losing 50% of its value intra-day!)
Volatility is unfortunate, that's for sure, and it is expected to decline over time as trading volume increases. But if you want to measure Bitcoin's success/adoption, look at actual adoption, instead of volatility.
I'd be surprised if corporations would gamble so dangerously by keeping a Bitcoin store. As long as they price against USD and convert immediately, they can only suffer limited losses from price swings.
If that's the case, it's not a currency. I do think this is something Bitcoin needs to address if it is to be taken seriously as a medium of exchange.
> Branson—an early bitcoin investor himself
Notice how none of the tech-giants want to get involved with it. Bitcoin isn't for the technologically advanced who are "being rewarded for being sooooo smart and adopting early", it's a scammer platform.
I heard a suggestion for a gold-backed digital currency once. That makes much more sense to me. Instead of getting into magic bean territory with monstrous gains/losses, just put 100k into gold, design a system with 100k "eGoldcoin" or whatever u wanna call it then just trade the coins. The platform would never tank because people know roughly what it's worth. It would be way less exciting, well... because it's sane.
So what exactly is the worth of one ounce of gold? The current market price? Or another price? What's the difference to Bitcoin in regards to pricing?
Bitcoin may not be backed by anything, but the fact that it can't be counterfeited or inflated gives it very interesting properties.
Yep, and now go look up how that went.
It's not possible to "gold back" a digital currency without centralization which carries a multitude of risk, as has been demonstrated by the many failures along the way.
Chamath Palihapitiya, Kevin Rose, the Winklevii
I think you fell for a joke.
