Value of Bitcoin "Crashes" 709
souravzzz writes with an update on the state of Bitcoin. Quoting the Ars Technica article: "Bitcoin, the world's first peer-to-peer digital currency, fell below $3 on Monday. That represents a 90 percent fall since the currency hit its peak in early June."
That's still three times its value in April 2011.
A small Bitcoin success (Score:5, Interesting)
When we started Dragon's Tale, Bitcoins were worth 5 cents, and people played for 100's at a time. When Bitcoins were $30, people played for fractions of a coin. Now that Bitcoins are $2.00 or whatever, they may spend a Bitcoin or two on a play session.
The point is that the exchange rate to dollars is irrelevant - players play at the level they're comfortable with, and our revenue (viewed in dollars) has been increasing steadily.
Re:Bitcoin (Score:5, Interesting)
Speculators are a capacitor. Storing charge when the voltage is above the mean level, dumping charge when below.
Market manipulators are an external power supply, forcing the mean level up then down.
If speculators have more resources than the manipulators, the manipulation will fail, otherwise it succeeds.
-nB
Re:Crash? More like correction. (Score:2, Interesting)
ftp://www.hacktic.nl/pub/mirrors/Advances%20in%20Cryptology/HTML/PDF/E92/390.PDF [hacktic.nl]
Re:Bitcoin (Score:2, Interesting)
"Saving for a rainy day is why insurance exists and saving through investment doesn't really require any notable amount of money."
"Saving for a rainy day" is NOT why insurance exists. Insurance is, by definition, a hedge against disasters. Two different things. Further, insurance does not pay out as much as it takes in (simple elementary-school math), so it doesn't even come close to meeting the definition of "savings". Nor does it address inflation.
"Saving through investment" is a contradiction in terms. Investment, by definition, does require available money, whether that money is surplus or borrowed. In neither case does it, either, meet the definition of "savings". Savings represent a pool of capital that can be invested, but they are two different things.
"Talking about inflation as if it was horrible is hard when economists consider it a non-issue unless it goes hyper."
You completely missed two of my points: (1) that only Keynesian economists (well, Chartalists, too, but nobody takes them seriously) consider inflation to be a good thing; other schools of economics disagree, and (2) despite Keynesian theory, history does not show inflation to be a good thing.
"What exactly is the benefit of allowing people to bury money in their backyard and have it retain their value?"
This is the third point you missed (as I already mentioned above): inflation erodes the value of savings. Even Keynesian economists admit this. If you don't understand why erosion of savings is a bad thing, try being a retired person on a fixed income for a while. It will become very clear to you.
"Having people physically remove value from the economy is objectively bad, it's much healthier to have them invest it in a index fund and leave it there for 100 years instead."
Savings does not "remove money from the economy"! It represents accumulation of capital that can be invested. The alternative is investing only borrowed money. Again, even Keynesians admit that the amount of savings in an economy is a valid indicator of health, as a pool of interest-free, investable capita. But Keynesians tend to give it less weight than other economists do.
As for investing in an index fund: as we clearly saw in 2008, with a fiat currency system, money invested in the market can literally disappear overnight. Hardly what I would consider to be a "secure" investment to leave around for posterity.
Re:Bitcoin (Score:2, Interesting)
"But the purchasing power of wages has been steadily increasing or remaining constant."
No, it hasn't. Not even close. Get yourself a copy of "How Much Is That In Real Money?", by John McClusker. It has hard figures about purchasing power of the dollar over about 300 years. It ends in the late 1990s, but you can easily find figures for more recent years.
Chart that against wages. You will find that in recent decades, ever since the boom after WWII in fact, wages have not kept pace with real inflation.
Keep in mind that many economists will tell you that the government's official numbers for inflation are not realistic.
As far as I am concerned, anybody who takes Krugman seriously hasn't read their history. For years, Krugman has been tossing around economic theory that even very RECENT history (2008) proves wrong. Just one example: historian Thomas Woods easily refutes Krugman's statements from back around 2001 [lewrockwell.com].
The fact is that Krugman, over the years, has ended up with egg all over his face time, and time, and time again. If the Times weren't constantly printing him, I doubt many people would take him seriously.
The whole worth of a theory is its ability to predict. The whole worth of a prognosticator is HIS ability to predict. Which means that Keynesian economics and Paul Krugman are both failures.
Re:Speculation (Score:2, Interesting)
As to your assertion that widespread adoption necessarily creates unbounded riches for the founders, or even the early adopter, I don't see that as a supportable premise. It's a matter of scale. I can think of several titans of information industry who have benefited disproportionately by virtue of their early positioning.
"Satoshi" (I read he may actually be a guy called Mike, but anyway) owns not just half of the bitcoins there currently are, but half of all the bitcoins that can ever be created (less the ones he's already sold, I guess). No-one else has that disproportionate an advantage; Google might have more than half today's search market, but they don't have anything that guarantees they'll always have it. (Myspace had over half the social networking-fu at one point, but facebook was able to outgrow them).
Re:Bitcoin (Score:4, Interesting)
Too bad you never took any economics courses. You'd almost be spot-on if not for a few tiny oversights.
Too bad you never took any economics courses.
Speaking as part of the 1%, just FYI.
Sigh.
I am part of the 1%. I also did complete economics (Money, Banking and Financial Markets). I also know that because money is used a measure of value in barter, the market sets the value for any form of money. The bitcoinites seem to miss a very important point - there is no value in electricity already spent unless value has been added. The only value of a currency is to represent the value added by the next link in the chain of production.
Farmer grows sunflower crop (adds value by expending work to make something that the next person wants)
Vegetable oil refinery uses sunflower seeds to make vegetable oil (added value is something that people can cook with)
Supermarket makes oil available to shoppers (added value is to the shopper that purchases all groceries at the same place)
All that is value being added!
How about normal currency?
State takes worthless paper and, using electricity and effort and time, makes legal tender (the value added to the paper is the promise that all vendors within that jurisdiction will accept that paper as payment, and they can always redeem it for actual value with the state)
The secondary value added by dealing with the paper (or any other similar state-backed currency) is the secure knowledge that it can be used to measure value in any amount of arbitrary products - it's the base of reference for value.
Now, bitcoins?
Miner takes electricity and produces unique combination of numbers (No added value, as those numbers have no legal status as a measure of value in any nation)
Those numbers can be exchanged for items of value, but said items value is not measured in those numbers, it is measured in the currency described above
Those numbers are accepted by an insignificant minority of vendors, rendering them even more worthless.
At this point, bitcoins aren't a currency because a currency has to be universally recognised as a measure of wealth in that jurisdiction. Bitcoins are simply an item of value to barter with, much like swapping a pocket of potatoes for a crate of tomatoes. Unfortunately, the value bitcoins possess differs from person to person in the same jurisdiction (some value it close to nothing, others hoard it in anticipation of future payoff) so the bartering is unpredictable and thus it even fails as an item of barter. Even worse, the only way to measure it's value (from zero to infinite) is by using the existing ruler - namely the actual currency of that jurisdiction.
Bitcoins are a lovely idea, but the idea has no grounding in reality. Posts below mine explain all this very well for non-economics people; I'll just add that a real currency has a measure of worth that is independent of other currencies. For example, a single ZAR is backed by the South African Government. The country as a whole has value that is expressed by the GDP (irrespective of actual units of measure, the GDP is still a statement of value!). That single ZAR is a slice of that value. A bitcoin, OTOH, has no value that can be expressed as the product of a jurisdiction. This is because it does not represent any sort of value.