Saturday, March 23, 2013

Bitcoin Bubble or New Virtual Currency Paradigm?

Will speculating on the Bitcoin mania make you rich?
Bitcoins have been making headlines on mainstream news sites, on blogs and even on precious metal forums recently and with good reason given the vertical rise in price per Bitcoin:

Bitcoin: Market Price (USD)
But is this rise part of a bubble or a new paradigm for virtual currencies as their utility increases and becomes more mainstream?

There is a lot of speculation that the Bitcoin mania has been a result of the recent Cyrpus crisis, however much of this speculation was due to an increase in app downloads in a single country where iPhones do not have a large market share:
This was spotted by BGR writer Tero Kuittinen, who noted that three iOS apps -- Bitcoin Gold, Bitcoin Ticker and Bitcoin App -- each jumped up the App Store charts in Spain, all on the same day, as the news broke from Cyprus. Compare their download histories to those from a country like the UK and it's clear that the upward trend is more pronounced in the more at-risk nation. Bitcoin Gold's all-time high ranking of 83 in Spain came on 17 March; for Bitcoin Ticker, 68 on 17 March; Bitcoin App reached a high of 147 on 19 March. The highest rankings for those apps in the UK are lower -- 293, 201 and 48 -- and they were all records set months or even years ago. Indeed, there hasn't been any kind of correlation between the Cyprus news and an uptick in Bitcoin app interest in the UK, going from this.

The huge caveat to this, though, is that the iPhone's market share in Spain is tiny, at roughly four percent of the total smartphone market as of mid-2012. Only a percentage of people who trade Bitcoins will trade or keep up to date with prices on their smartphones, too. A spike in iOS app downloads in one Eurozone country is a terribly small sample from which to draw conclusions about whether the Eurozone crisis is driving more people across the continent to Bitcoins. Wired
It seems more likely to me that the increase in Bitcoin app activity was a result of the surge in Bitcoin price that had recently taken the price to all new highs by the 17th of March, the further rally which took the price to levels above US$50 (which probably sparked even more interest) & the crash that had occurred several days earlier due to a glitch in the blocks/programming.

Click to Enlarge: Timeline of Events, 2 Months
With this number of events all occurring in unison, it's not hard to see there were other reasons for the increase in Bitcoin activity, other than finding a safe haven currency to avoid depositor haircuts as some have speculated was the case.

For those who are not familiar with Bitcoins, they are a virtual currency. First created in 2009, they can be transacted peer to peer and through exchanges such as the most popular Mt.Gox. Their creation is not controlled by a central authority, their supply is expanded with the use of a mathematical algorithm.

The price of a Bitcoin has risen from around US$10 to over US$70 in the space of 4 months. Some might call that a bubble with little more thought given, but scratch under the surface of the price and there could be valid reasons for the increase in price.

One of the reasons for the large rise in price is a combination of a slowing number of them being added to circulation:

Bitcoin: Total Bitcoins in Circulation
Starting from 2009 the number of Bitcoins generated every 10 minutes was roughly 50, every 210,000 generations (approximately 4 years) the creation rate drops in half (50, 25, 12.5, etc), the number of Bitcoins in circulation will never number more than 21 million:

Total Bitcoins Over Time
As is evident from the above charts, the first halving of Bitcoin inflation has taken place toward the end of 2012, near the recent price lows and start of the rally which culminated in the parabolic spike. Plenty of speculation on what would happen (including expectations of a rising price) was taking place last year:
The implications to this are huge and for the most part unknowable.  There are two ways I can see it going;-

    - Mining is a delicate balance of difficulty vs electricity costs, the price of bitcoin depends on the electricity cost to generate those coins so if the cost to generate a bitcoin increases the price of a bitcoin rises to match.
    - People stop mining bitcoin because the cost outweighs the return and the difficulty of generating a bitcoin (currently at 3368767) plummets until it is once again profitable to mine.

I believe that it will be a mix of both, I think the price will rise and the difficulty will drop but that is just me speculating.  The truth is we are in for an interesting time, I don’t even want to factor in the new bitcoin mining hardware (ASIC) that seem to be about to hit the market. MineForeman
Can the halving of creation rate alone justify a 7x rise in the price of Bitcoins? Probably not by itself.

Along with the halving of creation rate, we've also seen the number of transactions and unique addresses used for transactions rise (together these numbers indicate an increasing number of people using Bitcoin rather than increase in number of addresses used per person):

Bitcoin: Number of Transactions Per Day

Bitcoin: Number of Unique Bitcoin Addresses Used
An increased number of people using Bitcoin has resulted in a "network effect" where it's value has risen as demand increases:
In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it.

The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positive externality because a user may purchase a telephone without intending to create value for other users, but does so in any case. Online social networks work in the same way, with sites like Twitter, Facebook, and Google+ becoming more useful as more users join.

The expression "network effect" is applied most commonly to positive network externalities as in the case of the telephone. Negative network externalities can also occur, where more users make a product less valuable, but are more commonly referred to as "congestion" (as in traffic congestion or network congestion).

Over time, positive network effects can create a bandwagon effect as the network becomes more valuable and more people join, in a positive feedback loop. Wikipedia
The network effect can very much apply to currencies, especially so where the Government/central banks can't increase the number of currency units to meet demand, so Gold has also benefited from the network effect over the bull market as an increasing number of people want to own it, but where there is no easy way to increase the amount (while Gold doesn't have a known limit like Bitcoin, there are other reasons we can't dig more up on a whim including declining grades available to mine).

Despite the positives for Bitcoin, there are still risks which have the potential to impact on price.

ASIC(s) - Application Specific Integrated Circuits are essentially specialised computer chips designed for mining Bitcoins in the most efficient way possible. To date much of the Bitcoin mining that occurs has been via powerful computers which also have a high running cost (e.g. gaming rigs with specific graphics cards which lend themselves to the process), but with these new systems comes lower entry& running costs which will result in more competition... how much effect this will have on the price of Bitcoins is yet to be seen as consumer ASICs have only started shipping early this year (read more here). They could have a dampening effect on the price in the short term (lower cost to mine), but then as they become more common the competition will force a reduction in the profits for the early adopters, driving the cost to mine higher again.

Regulation -  Recent news out of the US includes threats of regulation of the BitCoin market:
The U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities.

The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. WU +1.04% They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000.

Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else's behalf would be subject to new scrutiny, said proponents of Internet currencies. Wall Street Journal
As transacting the currency can occur peer to peer, there is little any one Government could do to stamp out use, however if the large exchanges (where currency for Bitcoin swaps take place) were targeted, there is the potential for it to have a negative effect on the ease of use and market for Bitcoins.

Hacking - The most obvious risk to a virtual currency is the risk of storing them. Hold them on your local computer and they are at risk if you accidentally delete them or your hard drive crashes. There is also the potential someone could hack into your computer and transfer them out if you haven't stored them securely enough. The problem is that all transactions are irreversible and difficult to trace, so once they are gone it's unlikely you will see them again. Not only are criminals targeting individuals who hold Bitcoins, but also exchanges and sites offering online stored wallets/Bitcoins. As the value of Bitcoins increases so will the sophistication and efforts of criminals to steal them. It was a hacked exchange which resulted in the 2011 crash in price (from a peak just above US$30):

Click to Enlarge: Bitcoin Chart Showing 2011 Crash and Today's Boom
The Bitcoin community faced another crisis on Sunday afternoon as the price of the currency on the most popular exchange, Mt.Gox, fell from $17 to pennies in a matter of minutes. Trading was quickly suspended and visitors to the home page were redirected to a statement blaming the crash on a compromised user account. Mt.Gox's Mark Karpeles said that the exchange would be taken offline to give administrators time to roll back the suspect transactions.

The extent of the compromise became clear when a copy of Mt.Gox's user database began circulating online. The file included username, email addres, and hashed password for thousands of Mt.Gox users. Karpeles's statement was updated to acknowledge the breach. He warned users who have re-used the Mt.Gox passwords on other sites to change them. Ars Technica
The increase in value of Bitcoins (market capitalisation of all Bitcoins rose from just over $100m to almost $800m with the recent price rise) is likely to paint a larger target on the Bitcoin exchanges and people with a large number of Bitcoins in their virtual wallets. Who knows what sort of exchange hacks or malicious code could end up affecting the Bitcoin market in a negative way.

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So all this said, with rational reasons for an increase in price (although perhaps not to the extent it has) is the Bullion Baron about to run out and purchase some Bitcoins and hope their utility and in turn value continues to increase? Not likely. The main problem I see for the investor/speculator (see this post for my definitions) is that there is no accurate way to value the Bitcoin and while precious metals are much the same, there are several key differences:
  • Precious metals are a physical commodity, Bitcoins are a virtual currency.
  • Precious metals have history spanning thousands of years as money and a store of value, Bitcoins have a few short & volatile years as a virtual currency.
  • Precious metals have utility outside of monetary use (industrial, jewellery, etc), Bitcoins are only useful as a currency used in transactions.
  • Precious metals are more easily purchased (at least that is the case in Australia, from my experience).
  • Precious metals have a history of cycling in value against other assets such as oil, stocks & land, Bitcoins have no such history.
They do also have some similarities:
  • Neither have a governing body/central authority that can produce them in unlimited quantities.  
  • They are both a limited resource (Gold by it's natural occurrence in the earths crust and Bitcoins by the algorithm which controls the number created).
  • Both will be harder and more expensive to mine over time (Gold due to decreasing grades and rising input costs, Bitcoins due to increased competition, technology advances and the reducing number created until peak 21m reached).
  • Precious metals and Bitcoins are both seen as a threat to official currencies and are likely to see action as a result (more regulation).
There is no reason to expect that Bitcoins will act as a store of value over the long term, but then if their popularity continues to increase then likely so will their price over the long term. The number of sites and services that can be used with Bitcoins is increasing regularly, there is quite an extensive list here: Spend Bitcoins and there has even been news of Bitcoin ATMs to make funding your account even easier:
Zach Harvey has an ambitious plan to accelerate adoption of the Internet's favorite alternative currency: installing in thousands of bars, restaurants, and grocery stores ATMs that will let you buy Bitcoins anonymously.

It's the opposite of a traditional automated teller that dispenses currency. Instead, these Bitcoin ATMs will accept dollar bills -- using the same validation mechanism as vending machines -- and instantly convert the amount to Bitcoins and deposit the result in your account. CNET
My gut tells me that at US$70 Bitcoins are probably closer to a short term bubble peak (given the short term nature of the rise) than at the base of an immediate move to $150 or other high price targets I have seen thrown around ($500+), but that doesn't mean they can't head higher (in the short or long term). 

I think to a degree the price in the short term will depend a lot on who is holding Bitcoins and for what purpose. If there are a lot of speculators or people storing large amounts with no reason to transact then a move to sell and take profit could drive the price lower. If there are few of these types though and the price is being driven higher by a genuine need for Bitcoins for use in transactions then the price could keep moving higher.

Personally though even if I thought Bitcoins were undervalued, after rising 700%, their risks and weaknesses would stop me from putting any significant amount of money into them, a couple of thousand dollars maybe for a punt, but nothing serious. Although they have similarities to precious metals, they are far from a replacement.

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22 comments:

  1. Good introductory article. I see demand for Bitcoins (BTC) rising because they are an excellent medium of exchange, rather than a store of value.

    Considering that Cyprus just passed capital controls, BTCs will become more attractive as fiat becomes more risky to hold.

    If BTCs continue to gain popularity then I think it would be a worthwhile addition to an investment portfolio, given the uncorrelated nature of BTCs to other investments. I would expect gold and silver to be more correlated with equities than BTCs.

    That being said I still hold a large amount of precious metals and any BTCs I buy will be exchanged for fiat.

    Interesting topic to analyse going forward. BTCs and precious metals are competing forms of money. If you see fiat as the enemy, then remember that the enemy of my enemy is my friend

    Find me on twitter @ShervinD

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    1. Thanks. To be honest I don't see them as an excellent medium of exchange yet (although potential is definitely there if the number of locations they can be used continues to increase). I think they will have an ongoing struggle in the face of regulation and other similar online services (such as PayPal) who are unlikely help nurture the new medium.

      And agree, both precious metals and fiat are competition to fiat, one in the medium of exchange sense (Bitcoins) and one as a store of value (precious metals), good point.

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  2. Well you know my long standing position on mediums of exchange that act like money, but are merely shadows or ghosts of what money is.

    Bitcon has all the classic hallmarks of yet another Ponzi IMHO and I wouldn't touch it with a 20 foot barge pole.

    Even JP Morgan himself knew what real money was.

    The biggest problem with the concept of money is not the money itself, but those who seek to exploit the concept for gain not based on delivering value, but on ignorance.

    Bitcoin is merely an exercise in social engineering IMHO, cashing in on the sound money 'movement' ideal and merely taking advantage of those looking for change, but still falling for the same trap as the rest of the population does on fiat.

    Comes back to the nature of humanity unfortunately and just another confirmation on why only physical gold and silver have stood the ultimate test of time.

    Humans are liars by nature. Integrity is a learned value and in modern society, is becoming a minority practised standard.

    Oh don't get me wrong, the establishment preaches integrity as an 'ideal', but doesn't practise it.

    If you allow the concept of money - and the value it represents - to be based on the integrity of human values (ie not intrinsic value), rest assured someone, somewhere will corrupt it until it follows the same path all fiat currencies follow.

    Bitcoin is just another scam. I have never touched and never will touch it, regardless of what those who perpetuate it as an 'ideal' will preach.



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    1. "If you allow the concept of money - and the value it represents - to be based on the integrity of human values (ie not intrinsic value), rest assured someone, somewhere will corrupt it until it follows the same path all fiat currencies follow."

      What about the integrity of a mathematical algorithm?

      I think it's unlikely that we see a return to physical Gold and Silver circulating as a medium of exchange, as a store of value yes, but then that leaves a gap for what we will use for transactions. Bitcoin a potential fill in for those who want to purchase online, while avoiding use of the Government fiat.

      Scam? No, but that doesn't mean that it's worth holding for long periods of time. Transactional value only.

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    2. Austacker, you apparently aren't aware of what a Ponzi scheme is. A Ponzi scheme is where some one sets up a false investment plan. Initial investors pay in and are paid out in dividends from the funds they put in. $100 is put into the fund and $10 is paid out leaving $90 in the fund. The fund can only pay 9 more dividend payments if the fund's creator takes nothing out and so, must attract new money. New investors are paid out of the funds they put in as well but eventually, the fund will require more new money than it can attract to keep the dividends flowing and will destabilize. The fund will collapse and that's that.

      Now, in 2011, bitcon went from $32 to $2.14 or thereabouts. Can you tell me how many Ponzi schemes have devalued and then bounced back? Right, none because Ponzi schemes can not possibly bounce back. Bitcoin has bounced back since 2011 from that $2 or so low to about the mid $60 range today.

      If you don't like bitcoin, that's fine. It's quite alright to, for instance, make the case that you're more secure in owning sound money that you can hold in your hands and store in a safe. I can't think of anything wrong with that and as a bitcoin booster, I'm quite in favour of people holding precious metals. When I wasn't sure what bitoin was, I would encourage people to hang on to gold and silver to secure their wealth and still do. however, my understand of why precious metals are sound money also helped me to understand bitcoin and why it's valuable.

      To brush it off as a Ponzi scheme is simply short sighted and kind of a paranoid schizophrenic thing to do if you're also some one who understands the value expressed by precious metals. Beyond that, it's also just a failure to understand the fundamental market mechanics that power bitcoin. Be ignorant if you must and by all means, secure yourself with gold and silver because it's a good move but lashing out at bitcoin boosters like me because you just don't want to understand the new technology that is cryptographic currencies...that's just silly.

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    3. Zac, I am very well educated and understand what a ponzi is buddy, right down to the historic definition and the cryptographic ideology behind it.

      I'm not your average idiot buddy, IT is what I do for a living.

      I also know what a salesman sounds like too.

      If you think what I'm saying is "short sighted paranoid schitzophrenia", I say you've got something to gain out of the outcome and illustrate my point perfectly.

      Discrediting non-believers is a familiar tactic from those who want to protect the ponzi.

      http://www.youtube.com/watch?v=0UKC7iaBKvs

      I'd say wake up, but I've no doubt bitcoin supporters are *very* well aware of the scam, that's the whole point after all.

      I wonder just how much you personally have invested in Bitcoin Zac? Probably a fair bit... you're very aggressive in defending it.

      "What about the integrity of a mathematical algorithm?"

      The same integrity as a bar code or serial number on a fiat currency note?

      Who holds the bulk of 'bitcoin' in the system as it stands?

      Create something with zero intrinsic value, sell it to suckers as something that HAS value and then sell at increased 'value' whilst spinning as much propaganda as possible to protect the scheme.

      Ponzi, Pump and Dump, Pyramid Scheme - you choose the label by all means, but the process is the same.

      We're not debating whether there will be a 'return to a gold or silver standard'

      I'm stating that Bitcoin is just a shell game created by intelligent individuals that have managed to suck in a plethora of disillusioned members of the establishment willing to adopt any 'non government' standard because it's 'non government' endorsed.

      There's PLENTY of people out there who are looking to make a buck off the anti establishment movement by any means possible.

      Ironically, people are so willing to adopt a standard that represents anti-establishment, they forget that non-government entities can be just as manipulative, devious and even criminal as those they protest against.

      Your continual reliance of character assassination instead of logical counter debate is the final nail in the coffin on your arguement Zac.

      All the classic hallmarks of a Ponzi scheme, whether you want to admit or not, or just character assassinate those who question it or not.

      Think about it for a moment.

      You're endorsing the ideal of putting your wealth into electrons that have no physical form at all, with absolutely no backing (not even a government guarantee) headed by a byzantine, opaque individual/group that no one can seem to track the origin of?

      And you're saying I'M the crazy one here?

      Lol!

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    4. You seem to feel attacked and the passion shows seeing as you apparently can't even spell my name. I understand the defensiveness however and sympathize. That you pointed me to a video that has had a massive number of critical comments deleted is rather telling I would say but let's get into your post specifically.

      Firstly, I don't mean to criticize your education, just your lack of understanding. I ask again how many Ponzi schemes you can point to that have bounced back from a 90%+ loss in market value. So far, you've come up with zero. Bitcoin would have to be the first so far as I am able to tell.

      The reason I said that your reasoning was akin to paranoid schizophrenia is because it makes as much sense to me to have this view as it does to love books and hate the internet. Bitcoin is another medium of exchange and that's all it is, just like gold but with some notable differences, none of which make bitcoin a Ponzi scheme. Certainly bitcoin cannot be used to make a necklace and so it lacks that intrinsic value but it has other value and all of it focused on being an effective wealth storage and movement tool.

      You say that I've probably got a lot invested into bitcoin and you're certainly correct. No more than I can lose easily but still "a lot". Bitcoin is still in the innovative phase by any stretch of the imagination and could still fail on the technology side but on the economics side, I think it completely sound. From where I sit, I'm invested into something that could easily be a global monetary revolution and it seems that there are a myriad of people like you who are happy to cast that potential aside because you're afraid of it.

      As for the integrity of the cryptography, it's certainly more than a numerical identifier (serial number) on a bank note and a tad more secure than a bar code. A big tad. I'm not a security expert nor a coding expert but I have friends that are and they've explained to me that if bitcoin is successfully hacked then all the banks on the planet are immediately unsafe. Same goes for precious metals exchanges and really any digitally secured information resource. Does that mean it'll never be broken? Nope. No one can ever tell me that computer security is unhackable over the long term which is why bitcoin can alter the method it uses when better cryptographic security measures are developed.
      Now you're blurring the field a bit. You started off with Ponzi and then switched to pump and dump and then mentioned a pyramyd scam. A few issues I have with these.

      Firstly, it's useful I think to mention again that bitcoin is not a ponzi scheme. If it were, it would have collapsed in 2011 and even if it had somehow survived the massive market devaluation it did as a ponzi scheme, there's no way that it could possibly reach the price point it's at now with the amount of currency volume it’s taken on and the distribution among bitcoin miners and purchasers that has taken place.

      Simply put, bitcoin just does not meet the definition of a Ponzi. New "investors" are not being paid out with the funds of old investors in dividend payments and the books of bitcoin (the blockchain) are completely open source so anyone can check them out at any time.

      Bitcoin may be subject to pump and dump activity. This I won't deny but unlike owners of a company who do such a thing, bitcoin holders can only benefit from this once and the market benefits from it alo by experiencing a spread of bitcoin to a wider base of users. Holders of bitcoin are not able to simply will into existence more "shares" for themselves and while they have profited in the short term, they've also distributed their bitcoins to those who wanted them.

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    5. A pump and dump in the world of bitcoin is simply a supply and demand issue. While it's being pumped, demand increases and when it's dumped, demand decreases and the market continues to function as it should. As bitcoins become further and further divided among many adopters, "pump and dumps" become less and less impactful over wider and wider a base of users. If you hold 10% of a market, you can move the ever living hell out of it and in a maturing market, (the bitcoin market isn't even close to matured yet) this will happen. This also brings into focus a concern about spending surges that increase market volatility but again, this is a maturing market issue and once the market is large enough, it becomes a simple side show at most.
      Pyramyd schemes: I don't know how you can even allude to bitcoin being a pyramid scheme. A pyramid scheme is one in which I tell you for instance that I have some great product to sell and that the people you sell it to can make money too by selling it to others. The more people they sell it to, the more money in commissions they can make and the more people those people sell the product to, the MORE money in commissions you can make! Of course, this becomes massivly unrealistic as the average small city would be entirely recruited within a rather short time. Bitcoin has no similar structure to it. You're interpreting notable returns to bitcoin holders as somehow happening because new people are losing out some how but this makes as much sense as saying that the newest investors in Google lose out because the earliest investors are making out better rather than pondering the reasons for Google's increased level of interest and utility in global markets.

      I'll choose none of these labels and the processes certainly are not the same nor are they akin to bitcoin's state of existence.

      I agree that we're not debating whether or not this is a return to a gold or silver standard.

      You're correct that non-government organizations can be corrupt and devious. I don't think there're many in the bitcoin community that would contest this point. Bitcoin operates with an open standard however which makes the "who" in bitcoin rather irrelevant. Like I said before, all transactions that take place on the bitcoin network can be audited by anyone at any time they please and many do make it a hobby of sorts. In addition to this however, the source code is equally as accessible and changes to that code can be submitted for general market adoption by anyone. This is a "rabbit hole" sort of topic that I truly don't have the skill to properly explain however so I'll leave it at this on this point. No matter who tries to run the show in the world of bitcoin, their every move that affects bitcoin's structure can be observed at any time by any one and no matter what you think of the nature of human beings, this is certainly a sort of accountability that doesn't exist in any sense at COMEX for example.

      I appreciate that you think you're character has suffered some sort of attempted assassination. I mean only to point out that your stance seem inconsistent and your critiques are views from a rather high level and certainly don't justify your dismissal of bitcoin as a legitimate tool for wealth storage and movement. Further, you rely on information sources which deliver erroneous information such as a claim the bitcoin crashed to $0.01 when no such thing occurred.

      You have associated folks like me with criminals, liars, deceivers and scammers. You've pointedly said that I hold the views I do simply because I wish to forward a scam that I clearly know is a scam. Character assassination? Clearly you're not immune from imperfect arguments yourself.

      Again, gold is fantastic as is silver. I would never detract from precious metals. I simply see bitcoin as holding the real potential to provide a global monetary revolution. You've given me no reason to think that this position is flawed.

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    6. "you rely on information sources which deliver erroneous information such as a claim the bitcoin crashed to $0.01 when no such thing occurred"

      Zach, by the admission of Mark Karpeles (Mt.Gox) the price dropped to $0.01:

      "driving the price from $17.50 to $0.01 within the span of 30 minutes"

      https://mtgox.com/press_release_20110630.html

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    7. If COMEX was hacked, that wouldn't crash silver. It would crash the silver market but silver would be just as valuable. If a bank that backs deposits with gold is robbed, it doesn't crash gold. MT GOX is Bitcoin's largest exchange and especially in a maturing market (I've been very steadfast on pointing out that the bitcoin market is far from anything even resembling a matured market) the devastating effect of a hack was far reaching. This had nothing to do with the fundamental mechanics of bitcoin however. Exchanges are the weakest link in the chain that is bitcoin currently but they have become much stronger, the result of suffering major setbacks as were experienced by MT GOX.

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  3. Zach, you're certainly passionate about cause, but you fail to convince.

    You're pushing the ideological benefits of Bitcoin without properly addressing the fundamental reasons on why it is destined to fail.

    Your condescending tone against critique should raise a red flag for anyone capable of critical thinking and employing a healthy amount of skeptisism.

    But I also know there's a lot of deliberate misinformation out there about bitcoin, usually pushed hardest by those with a vested interest in the outcome.

    I've made an (infamous) stand against online against dubious claims in many places and gotten the same response from like minded individuals as yourself.

    But I also know there's a sucker born every minute and once you know and understand the fundamental nature of money and value, it's almost comical to stand back and listen to the passionate pleas of anyone trying to sell you something of no value as if it does.

    Like all ponzi schemes, I've no doubt bitcoin will make a minority of early adopters wealthy and the rest broke.

    If is walks and quacks like a duck my friend...

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    1. You still have yet to identify the qualities that you say bitcoin has that proves it a Ponzi scheme. The only one you've even alluded to without really committing is the fact that early adopters gain significantly which means that every equity like shares in Google are ponzi schemes by your definition. I appreciate that you say I've not really argued anything of substance but conversely, I would posit to you that you've offered nothing of substance for me to specifically target and disprove.

      I can certainly speak to the economic fundamentals but you've expressed no interest in those. You've given me no reason to talk about divisibility, the 21 million whole unit limit, how the network operates, why bitcoin is a payment system or anything else of note. You've simply bandied about with this Ponzi scheme allegation and offered up nothing with which to support your denunciation of bitcoin. Sir, were I able to offer you substance I certainly would but I ask that you do so first since you're the detractor of the topic at hand here!

      That you've found my posts condescending is a disappointment. Certainly after my first attempt at detailing my position, I tried to remain consistent and cool in my tone. That I perhaps started in my first post with more flippant dismissal than was justified and that text doesn't always translate well in conversation may have lead you to believe that I am trying to talk down to you but this is not at all my intention.

      I'm happy to continue with you on this if you'd like to argue specifics but at this point, I suspect you've become tired of the topic. In any case, as I've said repeatedly, kudos to those who hold precious metals or anything that has offered protection against inflation rackets we call government fiat currencies.

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    2. I have explained it actually, you just don't want to see or hear it. It's been explained, you don't accept the reasoning or logic because of personal bias so we're back to square one with 'no proof on the table'

      *shrugs*

      Been around these circles for years. The Baron himself will testify how these circular 'debates' pan out in other arenas we've shared along the way.

      "I suspect you've become tired of the topic."

      I'm tired of circular debates with online shills pumping propaganda for their chosen champion is all.

      Property. Shares. Fiat. Bitcoin. Whatever.

      It's all the same scam based on the same fundamentals, just spun a little differently each time to make it sound legit.

      Been there, done that for years. Like I said, it's comical to me when I hear it now because it's so easy to spot when you know what to look for.

      All I will say is that people need to look at the facts on the fundamentals and make up their own mind on the issue.

      You want to put your wealth into bitcoin? Sure, go ahead - no one is stopping you.

      But it's a wise person that will stop and question when the snake oil salesman tells them his medicine is the cure all they have always needed and should line up to pay for.

      I'll stick with real money thanks. It might not ever be a trading standard again for currency, but when you understand the nature and properties of real money, it doesn't have to be, does it?

      I'll leave you with the final word on this one as you please, I've said all I really needed & wanted to say on this topic.

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    3. Thanks for the interesting debate guys. Indeed these circular arguments can lead to more heated words, but glad you have both kept your cool.

      I don't think Bitcoin is a scam or ponzi scheme as such. I do think it's probably over priced (at least for the short term given the parabolic rise), but it has real world application that other currencies or precious metals don't. I don't see it as a store of value (it's a currency, not money) and those buying it on expectation it will continue to rise in price are speculating (but who knows they could be right if utility and demand for the Bitcoins continues to increase).

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  4. totoo po ba ang mga Bullion Buyer LTD. forms na kumakalat ngaun sa Tanauan city Batangas na pag po daw kami nag fill up ng forms ay magiging beneficiaries kami ng marcos wealtn na nababalitaan nman nmin sa sa mga news!posible po kya kami mabigyan o scam lng ito?ang mga character references po na nsa forms ay taga rito rin sa batangas!sana po nman ay na iannounce ito sa news if kung ito man ay scam!thanks po

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    1. Yes the bullion buyer forms are very likely a scam.

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  5. My 2c, the technical specs and intrinsic characteristics have been gone over (quite well) in the article. I don't see much to gain from going over the quantitative aspects of bitcoin (security/rarity/difficulty) as they are baked in and pretty much impossible to alter. I would only add that the current global macro economic climate will not last forever.

    Instead 1 possible thought experiment. I consider BTC as purpose designed for use on the Internet. Right now I can setup a BTC wallet quite easily, it has lower fees, I can use it from my phone/laptop (even a work browser with appropriate add-ons), it's near real-time processing and I can securely and anonymously perform transactions between myself and any willing party (from a growing list) on the internet.

    In short, it has better 'utility' than comparable currencies on the internet currently. Without major changes in the incumbents to address the issues above, I would expect it's adoption to increase based on those factors alone.

    The current amount of BTC mined is 10,980,875. At $101USD (the current price) it is $1,109,068,375 USD, or the equivalent 0.1% of the total of 1T USD traded in e-Commerce globally in 2012.

    Does it look like a bubble now? yep...but what would the price of a BTC be if it's representation in global e-commerce markets was .2% or .5% or 1%?

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    1. Lower fees peer to peer, but then buying substantial number of Bitcoins safely means going through an exchange like Mt Gox which is not particularly cheap or easy.

      Transactions are anonymous as long as you don't publicly associate yourself with the Bitcoin wallet. I think the biggest risk here is if Mt Gox were served with request for all user information or if they were hacked again, this would probably identify a large number of users and their wallets and in turn those anonymous transactions are not so much...

      Definitely some unique utility, but I am not convinced a market cap of $1 BILLION is reasonable at this point, but do agree the potential is there for prices many times current if it were to achieve permeation in the global market for e-commerce.

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  6. One critique that hasn't been explored is that Bitcoin value may be diluted by competition from other virtual currencies. As it stands, Amazon.com is discussing their own virtual currency which shoppers can use in their online store http://www.theverge.com/2013/2/5/3955202/why-amazon-wants-its-own-currency. Furthermore, if the list of different virtual currencies (like ven, ripple, litecoin, IXcoin, ppcoin etc.) keep expanding then isn't this inflationary and will result in confusion with thousands of virtual currencies for people to choose from? Or perhaps there will be a lead virtual currency which most people will adopt? Or corporations will create their own virtual currencies? Companies like Coles and Woolies and other multi-national corporations may issue their own virtual currencies as part of their branding strategy with incentives for consumers to sign up and shop in their stores thus edging out bitcoin (like flybuys or rewards). Maybe bitcoin is more popular now but if it loses its popularity to the competition in virtual currencies then....you are F**** if most of your money is invested in it? The problem as I see it is that virtual currencies can keep on replicating but under different brand names.

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    1. I forgot to add that perhaps in the future companies can issue their own virtual currencies instead of stocks and shares which people can trade with each other without interference from government/tax dept, high frequency traders, short sellers etc. This may avoid problems of naked short selling. At least these virtual currencies, will be backed by a physical company.

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    2. It's a good point and one I saw in another article a few days ago "While bitcoins cannot be hyperinflated in name, they certainly can be hyperinflated in substance. Already, there are numerous knockoffs such as namecoin, freicoin, and litecoin in place."

      http://bullmarketthinking.com/bitcoin-bubble-2-0-from-a-monetary-standpoint-they-are-on-par-with-the-stuff-you-find-at-chuck-e-cheese/

      An train of thought I might expand on in another post about Bitcoin / Crypto currencies if I find the time.

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  7. Do you want to get 30 bitcoin-related referrals per month, absolutely free?

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    ReplyDelete