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Vast Bulk of BitCoins Are Hoarded, Not Used

timothy posted about 2 years ago | from the just-sift-them-through-your-fingers-wait dept.

Bitcoin 438

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."

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Gridlocked with No Way to Prime the Pump (5, Informative)

eldavojohn (898314) | about 2 years ago | (#41692759)

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 [wikipedia.org] occur? Wasn't this an effect of The Great Depression and lead to FDR implementing a pump-priming strategy [wikipedia.org] ?

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.

Re:Gridlocked with No Way to Prime the Pump (4, Insightful)

Spad (470073) | about 2 years ago | (#41692825)

Ultimately, once the maximum bitcoins have been generated, you're pretty much guaranteed a deflationary spiral with no real way to restart the economy as you can't introduce any more money into the system.

Sure, you might think that once you reach that point people will start selling their hoarded BTC to cash in, but that doesn't really help because most people involved aren't going to be dumb enough to buy something that can only really go down in value.

Re:Gridlocked with No Way to Prime the Pump (3, Interesting)

Voogru (2503382) | about 2 years ago | (#41692973)

So why do you have a computer when you can always wait another six months, and buy a better and cheaper one?

The computer industry is a deflationary spiral.

Re:Gridlocked with No Way to Prime the Pump (-1, Redundant)

binarylarry (1338699) | about 2 years ago | (#41693029)

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.

Mod Down, Copy-Pasted from another post (5, Informative)

Anonymous Coward | about 2 years ago | (#41693559)

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 [slashdot.org] . And this isn't the first one in this thread that you've done that with, there are others further down.

Re:Gridlocked with No Way to Prime the Pump (5, Insightful)

Anonymous Coward | about 2 years ago | (#41693183)

So why do you have a computer when you can always wait another six months, and buy a better and cheaper one?

The computer industry is a deflationary spiral.

Because today, right now, right this very moment, a computer has a functional, practical use. You can do things with it. You can make things with it. Hell, I'm communicating to you right now with one! And this particular one is well past six months old; it's around four years old! This is far, far more than you can do with BitCoins right now, and, as the deflationary spiral continues, in six months.

There's this difference between a functional tool and a rapidly-deflating unit of pseudocurrency. I admire your trolling efforts to confuse the two to throw the weak-minded of us off of the point, but, well, you're just wrong.

Re:Gridlocked with No Way to Prime the Pump (0)

khallow (566160) | about 2 years ago | (#41693333)

This is far, far more than you can do with BitCoins right now, and, as the deflationary spiral continues, in six months.

Well, if you're correct, then there will come a point when it is worthwhile to spend bitcoins. Then it will become exactly like the computer example. I think the real problem is simply that the bitcoins aren't being used even as a hording of value. Someone probably generated them and forgot about them.

Re:Gridlocked with No Way to Prime the Pump (2)

Joehonkie (665142) | about 2 years ago | (#41693407)

It will never be anything like the computer example. Even on its last legs, the computer can be mined for usable metal. I don't think I can break a bitcoin down into 1s and 0s and reuse them.

Re:Gridlocked with No Way to Prime the Pump (1)

operagost (62405) | about 2 years ago | (#41693671)

Can't do much with the digital bits of which most modern state currencies are made, either.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693451)

Well, if you're correct, then there will come a point when it is worthwhile to spend bitcoins. Then it will become exactly like the computer example.

Yes, exactly. And in 15 years when that happens it will be just like using a 15 year old Pentium 2 PC today.

You're not really helping your case here...

Re:Gridlocked with No Way to Prime the Pump (1)

Stirling Newberry (848268) | about 2 years ago | (#41693541)

No because the bit coins have no utility unless you can get a loan against them, unlike the computer, they aren't capital stock, they are currency. And a poor one, since one can't buy much with them, and there is intense future discounting.

Re:Gridlocked with No Way to Prime the Pump (1)

Stirling Newberry (848268) | about 2 years ago | (#41693509)

Arms race. The value of a computer is not the raw processing power, but its output relative to competitors and the rent of porting existing applications and data away from it.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693257)

Couldn't you take this to the extreme to deduce a future where men are living in boxes under bridges, filthy, hungry, ill, nearing death, and desperately working every hour of every day to get every last micro-bitcoin they can?

Can someone who believes in the whole deflationary spiral thing counter this for me please. Why has this not happened to gold?

Re:Gridlocked with No Way to Prime the Pump (1)

Anonymous Coward | about 2 years ago | (#41693311)

It did. There was this thing in the 1930s, it led to a big war, you might want to look into it.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693437)

This has happened to gold to some extent. A larger portion of gold is purchased by investors, and the large majority of that gold purchased by investors for the last century or more is still around. One potential risk for investing in gold, is you don't know exactly who or where that gold is being hoarded, as the amount being traded is a fraction of what should be around. If someone(s) with a decent size of stored gold decides to start selling it, the the available supply could jump quite a bit and prices drop.

So even though gold has industrial uses, it is pretty parallel in terms of there being people sitting on large amounts of it. Although the industrial uses and the fresh flux of people wanting to invest in gold means there is quite a bit of demand, and people (at least miners) are willing to sell it. Bitcoins might have more trouble with that aspect though depending on how much it ends up being used.

Re:Gridlocked with No Way to Prime the Pump (4, Informative)

jythie (914043) | about 2 years ago | (#41693667)

Actually, this effect is one of the reasons we got off the gold standard.

Re:Gridlocked with No Way to Prime the Pump (1)

Anonymous Coward | about 2 years ago | (#41693411)

Errrr... econ 101 - that's not how deflationary spirals work. And you can't talk about deflation without including about commodities and relative value.

You don't need to increase the NUMBER of BTC's in circulation, you only need to increase the relative value. You don't need to buy 1 BTC, you can buy 0.000001 which may have the same relative value in the future. Deflation isn't about money supply per se.

If the BTC are truly gone, it will simply drive the relative value of the remainder up. If they are being hoarded, they will be sold as the value increases.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693481)

If your argument holds up, it would also apply to gold, since just like bitcoins, it is limited in supply, new gold isn't being generated, and just like bitcoins, there's always one more since just like bitcoins, it gets harder and harder to mine gold as time goes on.

Why no deflationary spiral for gold? Are you predicting one?

Definitely not facebook stockholders (1)

Dareth (47614) | about 2 years ago | (#41693489)

Definitely not facebook stockholders hoarding these.

Re:Gridlocked with No Way to Prime the Pump (1)

Anonymous Coward | about 2 years ago | (#41693629)

bitcoin isn't deflating, it's fiat that is inflating.

as long as governments/central banks are willing to pour one type of fake asset, namely fiat, into the market, than people will generally hold on to their most valuable assets.

you want people to trade their firmer assets, than quit sabbotaging their saving efforts, and the problem will solve itself.

you create the very thing you try and avoid.

you don't allow people to save cash, because you keep robbing them of their savings purchasing power, well fuck, they'll just save something else.

keysians are fucking retards, when their system continues to fail globally, they'll need fascist governments pointing guns at people's heads, or threaten to imprison them to force the behavior they want.

fuck you, fuck you to hell.

Re:Gridlocked with No Way to Prime the Pump (1)

jythie (914043) | about 2 years ago | (#41693673)

Might not be perfect, but still a hell of a lot more stable then the gold standard was....

Re:Gridlocked with No Way to Prime the Pump (2)

jeffmeden (135043) | about 2 years ago | (#41692899)

I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals? The BTC deflation is magnified because it's comparative worth is ONLY pinned to USD or some other major currency, and perhaps a few types of illicit drugs. The problems it faces are not really in line with even a small real-world economy.

Re:Gridlocked with No Way to Prime the Pump (4, Interesting)

betterunixthanunix (980855) | about 2 years ago | (#41693305)

I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals?

That is certainly a goal of currency, but I think it is indirect in the sense that avoiding deflationary spirals is necessary to satisfy other, more immediate goals of currency. The purpose of currency is to facilitate trade of some kind -- it is not useful if it cannot be spent, and the most useful currency would be one that can only be used for this purpose (there are other views, of course). Thus hoarding (and deflationary spirals) make money less useful, or in the worst case, totally worthless.

I have argued in the past that Bitcoin is actually not useful as currency, and that it will ultimately fail for economic reasons before it fails for technical reasons.

Re:Gridlocked with No Way to Prime the Pump (1)

Stirling Newberry (848268) | about 2 years ago | (#41693589)

The goal of a currency is to neutralize forward expectations. People, on net, should neither be moving purchases up to avoid macro-inflation, or holding them off to take advantage of macro-deflation. When a general expectation of either sets in, it becomes a spiral. Engineering is filled with people who think that dollars should be like inches, and never vary, which is why it is particularly prone to deflationism.

Re:Gridlocked with No Way to Prime the Pump (0)

binarylarry (1338699) | about 2 years ago | (#41692913)

It is no different to a normal currency.

Things like Tems and other local currencies have a built-in maximum currency value so that it prevents people from hoarding things.

Building something like that in to a generic currency is a little bit harder though, but it would have likely led to it becoming more useful overall.
Perhaps Bitcoins trying to replicate common currencies is a mistake. Who knows.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41692961)

Stealing comments [slashdot.org] , Binary Larry?

Re:Gridlocked with No Way to Prime the Pump (0)

binarylarry (1338699) | about 2 years ago | (#41692977)

Everyone knows they're being hoarded, this isn't news. There just aren't that many people that do regular business with places like Silk Road, and need them.

Another stolen comment, check timestamps (0)

Anonymous Coward | about 2 years ago | (#41693615)

I sure hope you have some script for copying comments like this [slashdot.org] . Because if you are doing this by hand, you are wasting your time and farming karma rather inefficiently.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693337)

Everything he posts is copypasta. Ctrl-f the first few words of any post he makes, and you'll find it elsewhere in the thread.

Re:Gridlocked with No Way to Prime the Pump (1)

TheCarp (96830) | about 2 years ago | (#41693161)

actually.... bitcoins are a commodity not a currency. They are fast enough and easy enough to transport that they can act as a currency.

They really make more sense as a commodity than currency which, isn't a bad thing, savings in terms of commodities makes sense. Currency makes a terrible savings instrument in that its value tends to go down via inflation. This is a good thing, basically for the reasons stated in above posts... because you don't want hoarding of currency, it slows the economy.

Frankly, I like bitcoins but, not as a be all and end all of currency. They make sense in a larger economy of financial instruments.

Distinction without a difference (1)

sjbe (173966) | about 2 years ago | (#41693577)

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.

Re:Gridlocked with No Way to Prime the Pump (4, Informative)

arth1 (260657) | about 2 years ago | (#41693205)

It is no different to a normal currency.

I think you just fell into his trap. That's obviously what the post was fishing for.

And no, it isn't. Nothing backs the bitcoin, nor regulates circulation, nor is it legal tender.
It's as much a normal currency as old baseball cards are. That they hold a perceived value, are a finite stock, and that some people are willing to trade them (even for real currencies) does not make them a currency. At least with the old baseball cards you get a picture to look at.

It is very different from a normal currency (3, Informative)

sirwired (27582) | about 2 years ago | (#41693543)

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.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693087)

Where old and defective government backed currencies rely on an obsolete system known as "trade" to shuffle money around, bitcoin instead uses a revolutionary new distribution scheme based on pyramid schemes.

The "investor", corresponding to a "buyer" in the trade system, simply invest their money in a high investment fund promising 1% or more in weekly returns. The "fund operator", corresponding to a "seller", then takes the money and runs.

This allows for an active and healthy economy while eliminating the need for transfer of actual goods that the "trade" system requires.

Re:Gridlocked with No Way to Prime the Pump (1)

jythie (914043) | about 2 years ago | (#41693711)

Maybe they should just go play EvE instead?

Re:Gridlocked with No Way to Prime the Pump (1)

khallow (566160) | about 2 years ago | (#41693229)

Could someone explain how they would escape that spiral?

Eventually you'll want to do something with your bitcoins. Then you spend them.

Re:Gridlocked with No Way to Prime the Pump (2)

SuperMooCow (2739821) | about 2 years ago | (#41693373)

I can't buy an iMac, a Kindle Paperwhite, a Nintendo Wii U, groceries, pay monthly bills or rent with bitcoins. They're a fictional currency.

I bet my gold in World of Warcraft has a higher value than bitcoins.

Re:Gridlocked with No Way to Prime the Pump (1)

DNS-and-BIND (461968) | about 2 years ago | (#41693323)

Hoard, not horde. Get it right. [flickr.com] Sorry, I can't take anyone seriously who misuses homophones.

Re:Gridlocked with No Way to Prime the Pump (1)

Vekseid (1528215) | about 2 years ago | (#41693329)

> 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.

Start a rival chain, don't make it crazy deflationary, possibly patch up a few of Bitcoin's technical flaws.

Ironically it might spur even more Bitcoin transactions as people move to the new chain.

Re:Gridlocked with No Way to Prime the Pump (1)

Stirling Newberry (848268) | about 2 years ago | (#41693663)

BTC have network rent: the people who have them represent a large base of the people who want them.

But you can do what health insurance companies, banks, and patents do: bribe some legislators to force people to buy your crappy product.

Re:Gridlocked with No Way to Prime the Pump (1)

OverlordQ (264228) | about 2 years ago | (#41693375)

The proponents of BitCoins claim that they can effectively do a bitcoin stock split. IE everything moves the decimal over one, so things costing 1 BTC now cost .1 BTC, and 'OH look, 10x more bitcoins in the universe!'

Re:Gridlocked with No Way to Prime the Pump (1)

aaarrrgggh (9205) | about 2 years ago | (#41693417)

In my extremely limited understanding of the matter, if the transaction volume of bitcoins increases then the exchange rate becomes less artificial, and faith in the currency is established. Right now, it trades more as a penny stock from what I can tell. As long as you can exchange bitcoins for goods and services, they have value; if the price you pay in bitcoins is more favorable than the price you would pay in another currency, you are incentivized to spend bitcoins.

Unfortunately, the barrier seems to be that enough people need to have and use bitcoins to keep the economy moving, which doesn't seem to happen.

Re:Gridlocked with No Way to Prime the Pump (0)

Anonymous Coward | about 2 years ago | (#41693435)

>> Could someone explain how they would escape that spiral?

Why would you want to?

The real world economy is not based on bitcoins and is not slowed by bitcoin deflation.

One could think of bitcoin deflation as similar to gold deflation. While gold does have some industrial uses, it is largely used as a storehouse of value. As gold prices relative to the USD climb (gold deflation, USD inflation), the economy is largely unaffected.

Re:Gridlocked with No Way to Prime the Pump (2)

udachny (2454394) | about 2 years ago | (#41693533)

What you are observing is an inflation hedge. How do you actually propose for the BitCoin users to use them?

The best way to use savings is to grow it (that's if your day to day expenses are covered). With governments of the world printing all fiat currencies, with gold going higher for a decade and with more and more inflation in sight, the investors are fighting for inflation hedge providing assets.

What do you think the savers should do, buy government bonds? :)

With real rate of inflation being in double digits (11 to 15% easy, but even by CPI it's 8% after it's annualized and compounded) the investors need to have a way to ensure nominal return of 14 to 21% to stay afloat and make around 6% real interest.

If you are not making 6% interest, don't bother with investment, just keep your money in an inflation hedge. 6% interest is necessary to cover at least some of your investment risks. But that's real rate of return, the nominal rate of return has to be above 14% at least to ensure that today by CPI figures, and I believe it has to be over 20% by real numbers. That's a hard thing to do, to get a 20% annualized return in nominal terms today.

Deflationary spiral is a made up problem, it's only a problem from the point of view of largest debtors and mal-invested money. So the real problem is for the government not for people.

People see inflation as the problem, not deflation, and they are right. [slashdot.org] USA had slight deflation in 19th century up until the beginning of 20th century, when in 1913 the Fed was established and really up until 1917, when the Fed turned into a debt monetizing instrument for the government.

Great Depression was caused by the Federal reserve in the first place, when the Fed monetized bad UK debt, this lead to the recession caused by the Fed inflating the stock market bubble in agriculture mostly. Hoover and FDR turned the recession into the Great Depression with all the bail out and stimulus policies and more money printing [slashdot.org] to be spent by governments and by the well connected largest institutions - the banks. Great Depression only ended as the WWII ended and the gov't cut spending by 64% and taxes by 32%.

--

To answer your question: what should be done is government must be forced to stop with its inflationary policies, the government must be forced to quit setting up fake interest rates, controlling the monetary supply, actually it must be forced to quit telling the people what money is.

Of-course that's part of the problem, the other part is the size of government and thus all the regulations and taxes and everything that goes with it - destruction of individual rights and private property rights.

This. (3, Informative)

sirwired (27582) | about 2 years ago | (#41693563)

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.)

Re:Gridlocked with No Way to Prime the Pump (2)

geekoid (135745) | about 2 years ago | (#41693623)

Tax the money being held. You can not have a healthy economy id money doesn't keep flowing.
When people who are basically buying everything they they need keep hording money about that, it hurts the economy.
Now when you are talking about a tiny percentage of the money, it doesn't matter much, but when a significant amount is held buy relativily. few, you have economic issues. The kind of economic issues that destroys class structures and lead to internal strife

This is why I am a fan of remove all not for profit deductions, remove most business deduction for companies worth over 10 million, and a 100% tax on money over a billion dollars; with the only deduction being RnD.
The the choice becomes:
Spend money over a billion on RnD, Higher more people to bring the money below a billion, or loose it in taxes.
Social motivators for corporations to pay better, higher more, and develop new technologies.

Re:Gridlocked with No Way to Prime the Pump (1)

operagost (62405) | about 2 years ago | (#41693653)

Like, maybe as BTC exchange rates become very favorable, patient investors will unload them and cause their value to drop back to parity due to increased supply? Who the heck are you, Paul Krugman?

I'm not an economist

Yup.

Hoarding, or... (2)

alphatel (1450715) | about 2 years ago | (#41692787)

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.

Re:Hoarding, or... (1)

Anonymous Coward | about 2 years ago | (#41692813)

Everyone knows they're being hoarded, this isn't news. There just aren't that many people that do regular business with places like Silk Road, and need them.

Re:Hoarding, or... (3, Funny)

Anonymous Coward | about 2 years ago | (#41692959)

I suspect coin collectors snapped up all the bitcoins with the low serial numbers, and are holding them hoping they become collectible. If the bitcoin folks were smart, they'd release a series of bitcoins for each State.

Re:Hoarding, or... (1)

ka9dgx (72702) | about 2 years ago | (#41692861)

I have 5BTC, somewhere.... I think....

Re:Hoarding, or... (1)

Anne_Nonymous (313852) | about 2 years ago | (#41693055)

Check between the couch cushions.

Re:Hoarding, or... (1)

NoisySplatter (847631) | about 2 years ago | (#41692877)

This would be me. I am personally responsible for the destruction of .15 BTC.

Re:Hoarding, or... (1)

bastion_xx (233612) | about 2 years ago | (#41693263)

Approximately 100-200 BTC lost here due to wallet being lost. That was way back in the early days before the GPU computations started.

Re:Hoarding, or... (0)

Anonymous Coward | about 2 years ago | (#41692929)

I am one of these, lost my wallet in a hard drive crash.

Re:Hoarding, or... (0)

Anonymous Coward | about 2 years ago | (#41692955)

That would be me, for sure.

I tried it for a brief period, when a home computer could still make them, and deleted the HDD for some reason.

How many? Don't know. Don't care. No interest or use for them.

Re:Hoarding, or... (1)

adjustable_pliers (1409219) | about 2 years ago | (#41693081)

That's me—and not by choice. I wanted to participate in being a regular BTC user, but a power outage (I know, foolish of me not to use a UPS) while updating my local block chain somehow broke my wallet, leaving an unusable balance of 1.61 Bitcoins. I could try to fix it, but I honestly haven't found the time. I could start over, but that doesn't seem right leaving something unfinished.

More like gold by the day (2)

hawks5999 (588198) | about 2 years ago | (#41692839)

Maybe we need an ETF for BitCoin

Re:More like gold by the day (3, Interesting)

sarysa (1089739) | about 2 years ago | (#41693347)

Gold, not so much. Bitcoins had a distribution method that was vastly different to the discovery of gold. The distribution favoing early adopters and being limited to a select few IN AN EDUCATED WORLD (coupled with natural human greed tendencies) is why the masses will never accept it. (But we'll have bubble cycles while people try to figure out whether or not bitcoins have value)

If you're interested in a long dry read, I wrote an article about Bitcoins while studying a different virtual economy [pamelabowman.org] . The perspectives in this thread couldn't have come at a better time. I'll probably integrate them into my article. ;)

Re:More like gold by the day (1)

Stirling Newberry (848268) | about 2 years ago | (#41693699)

The irony is that when adopted, the classical international gold standard was an inflationary move, because bad gold coinage had driven out silver, and silver was being hoarded

One step closer to failure each day (1)

betterunixthanunix (980855) | about 2 years ago | (#41693475)

What we need is digital cash that reflects the realities of currency, which includes having a central authority. The economic and technical problems that Bitcoin has stem primarily from the lack of an issuing authority. I have argued this point in the past; the summary is this:
  1. On the technical side, digital cash without an authority that can issue fresh tokens will be unable to support offline transactions securely or will be forced to have tokens that grow at least linearly in the number of transactions they are used in (that is a logical "or").
  2. On the economic side, central authorities create (by fiat) the demand for currency. That is why you only see US dollars being used in the United States, and why you don't need to go further than Toronto to find stores that won't accept US dollars and will only accept Canadian currency. Ultimately, it is the legal system that creates the demand for a nation's currency: tax law, torts, bankruptcy and debt laws, civil fines, etc. Bitcoin is left trying to play up the demand for secure, anonymous electronic payments (but its technical issues severely weaken its ability to satisfy that demand) and the demand for anarchy (which scales poorly).

Speculators (4, Interesting)

Dan East (318230) | about 2 years ago | (#41692855)

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?

Re:Speculators (1)

Wesley Felter (138342) | about 2 years ago | (#41693089)

A different analysis showed that around 2M BTC have never been spent even once after being mined. Many of these unspent block rewards are from the early days so it's not clear whether they're lost or hoarded. Given the very low exchange rate at the time, it wouldn't be surprising if they were simply discarded.

Re:Speculators (0)

Anonymous Coward | about 2 years ago | (#41693221)

I wonder how many of these were generated early on and are being hoarded by the early adopters.

I wonder how many have been generated early on, and then subsequently forgotten about or had the private key lost (hard drive crashes, person dies and the computers are tossed, etc.).

It's not like there's some banker which can look up their records and verify to the next of kin that Mr. X is actually the owner of account #123456789. Once the private key to a main bitcoin account (i.e. not a sub-account at some exchange) is lost, any bitcoins in there are locked away and out of circulation permanently*.

*) Unless some third party accidentally stumbles upon or reverse engineers the private key for the account - but if that's at all likely to happen, it means that Bitcoins are worthless, as it could also happen to non-abandoned accounts.

Re:Speculators (4, Informative)

Animats (122034) | about 2 years ago | (#41693457)

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. [bitcoin.it] 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.)

Re:Speculators (0)

Anonymous Coward | about 2 years ago | (#41693519)

Many of the coins that have never been spent are from the early days. This is to be expected for two reasons:
0) At the beginning, it would be easy to mine and accidentally lose the keys to a few thousand BTC.
1) Those involved with the project early on with the skill to take care of their coins likely believe in the project more than most new users.

In the long term, the currency is produced at an approximately exponentially decaying rate (production rate suddenly halving once every 4 years; the first drop is due next month).

This is why it is broken (-1)

Anonymous Coward | about 2 years ago | (#41692867)

It is no different to a normal currency.

Things like Tems and other local currencies have a built-in maximum currency value so that it prevents people from hoarding things.

Building something like that in to a generic currency is a little bit harder though, but it would have likely led to it becoming more useful overall.
Perhaps Bitcoins trying to replicate common currencies is a mistake. Who knows.

Money Laundering? (4, Interesting)

eldavojohn (898314) | about 2 years ago | (#41692897)

"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 [wikipedia.org] 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?

Found this more interesting (0)

Anonymous Coward | about 2 years ago | (#41693225)

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?

The same is true of the US dollar (1, Informative)

rebrane (17961) | about 2 years ago | (#41692923)

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 [npr.org]

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.

Re:The same is true of the US dollar (1)

wonkey_monkey (2592601) | about 2 years ago | (#41693233)

I'm having trouble visualising the point you're trying to make. When you say:

you don't have to possess a physical dollar bill to spend a dollar.

I assume you're talking about dollars in bank accounts, charged on credit cards, etc. If so, then isn't it different with bitcoins because bitcoins are already virtual?

I've always had a bit of a blind spot with money, to be honest - the fact that it's just a convenient fiction that the vast majority of people buy into makes it hard for me to grasp.

Re:The same is true of the US dollar (1)

rebrane (17961) | about 2 years ago | (#41693491)

The analogy isn't perfect because the Federal Reserve "creates" more money than is actually printed, so the dollar is really a "virtual" currency as well. But the point stands that the total amount of _commitments_ made in dollars exceeds the amount of dollars that "exist" by any central measure.

The physical (virtual?) Bitcoin example would be: if you have an account with a Bitcoin bank and you make a transfer to someone else who's using the same Bitcoin bank, they don't have to generate a Bitcoin transaction to honor that transaction.

The virtue of Bitcoin is that it allows anyone to perform transactions in a way that only banks can do with dollars, but this is not the only way to perform transactions with Bitcoins any more than it is with dollars.

Re:The same is true of the US dollar (1)

jeffmeden (135043) | about 2 years ago | (#41693501)

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 [npr.org]

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.

To be true, there doesn't need to be a physical dollar in possession *anywhere* in order for you to earn/spend it. Printing electronic money is WAY easier than printing real money. However, this raises the question; is there an advantage to letting a BTC "bank" keep your coin in their account while you go around earning/spending them? If it's all electronic anyway why not keep the BTC in your own possession (or at least locked by your private key). Until private key "vaults" become necessary due to advanced hacking techniques, I can't think of a good reason. More BTC has been lost due to big "banks" being hacked than due to little individuals being hacked (at least based on recent news).

Re:The same is true of the US dollar (1)

Wesley Felter (138342) | about 2 years ago | (#41693591)

you shouldn't need to "possess" a "real" Bitcoin in order to spend one.

Bitcoin is for crypto-goldbugs who don't believe in fractional reserve, so yeah, you need to have BTC before you can spend it. There's also no point in putting BTC in a bank since the "banks" aren't insured and don't pay interest (the ones that claim to pay interest are scams).

A bubble (1)

Stirling Newberry (848268) | about 2 years ago | (#41692933)

is defined when an increase in price leads to a decrease in supply. Since many of the people who have BTC paid little or nothing for them, they have no reason to cash in until there is a rapid decline in value, which leads to one of the periodic BTC crashes. Since the desire for hard money is like the desire for any other form of perversion, it will keep coming back, booming in value until all the limited money perverts are stocked up, and then will be bleed dry by the echo system of people who, in their turn, prey up a moderate bandwidth of suckers. It's very similar to the market for Ponzi schemes: there is at any time a finite number of suckers, and every so often a Ponzi scheme offering claimed safe above market returns burns through a well connected group of them.

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.

Implied valuation (3, Insightful)

sjbe (173966) | about 2 years ago | (#41692935)

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 saving mine. (1)

Anonymous Coward | about 2 years ago | (#41692937)

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 .....

Bitcoin exchange? (1)

tomhath (637240) | about 2 years ago | (#41692953)

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.

Duh. (1)

jtownatpunk.net (245670) | about 2 years ago | (#41692971)

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.

Some are also destroyed/lost (5, Informative)

rcs1000 (462363) | about 2 years ago | (#41692987)

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.

Uhhhhhhhwhat? (-1)

Anonymous Coward | about 2 years ago | (#41692999)

Who the fuck do you think I am, some sort of underworld encomistic terrorist? How am I to make heads or tails of this? Dumb it down a little. We are mostly windowsers here, you know. Bitcoin. Some sort of (non-legal) tender. Check. The rest is gooblediegoop.

So much for (1)

OzPeter (195038) | about 2 years ago | (#41693033)

Trickle down economics.

Even the innovators aren't participating in it.

Re:So much for (1)

arth1 (260657) | about 2 years ago | (#41693313)

Trickle down economics.

In this case, I think the term is "trinkle down economics".

Even the innovators aren't participating in it.

Except by hoarding the disproportionate amount of bitcoins they got at the start, and working hard to create an artificial interest?
Once they dump their coins, the bubble will burst.

In other news... (1, Informative)

Galestar (1473827) | about 2 years ago | (#41693053)

Vast bulk of actual dollars are hoarded not used.

Not true. (4, Insightful)

sirwired (27582) | about 2 years ago | (#41693627)

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.

my preciouuuusssssss (3, Funny)

Thud457 (234763) | about 2 years ago | (#41693093)

The dwarves delved too greedily and too deep.
You know what they awoke in the darkness of Khazad-dum.

I never understood bitcoin (1)

SirGarlon (845873) | about 2 years ago | (#41693099)

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?

Re:I never understood bitcoin (2)

IndustrialComplex (975015) | about 2 years ago | (#41693429)

If you were not in my same location, I couldn't give you cash.

Cash transmission via mail takes days.

Paper transmission via mail takes days plus the amount of time you sit on the check to ensure it clears.

Western Union requires you to go to them and charges a fee

Credit cards charge a fee (if they provide the service).

Bitcoins can be transferred to you with nothing more than an internet connection and an address.

Re:I never understood bitcoin (4, Informative)

TheSpoom (715771) | about 2 years ago | (#41693553)

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.

bad econ (1)

Laxori666 (748529) | about 2 years ago | (#41693211)

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.

It's not me! (1)

bogidu (300637) | about 2 years ago | (#41693217)

I've bought so much crap off Amazon with them, I wish the difficulty would go back down so I could generate more!

Bad choice of words (1)

DogDude (805747) | about 2 years ago | (#41693235)

Somehow, I seriously doubt that BitCoins are "hoarded". I would bet actual money that most are simply forgotten about.

Collect them all! (3, Funny)

interval1066 (668936) | about 2 years ago | (#41693255)

I think people love the commerative bc's, the special editions, etc...

What was it all about anyway? (1)

eyenot (102141) | about 2 years ago | (#41693279)

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!" -- (???)

Same with all money (0)

Anonymous Coward | about 2 years ago | (#41693289)

correct? Especially in the USA where it is illegal to own more than $10k at a time, its hoarded in accounts.

monopoly money (3, Insightful)

wbr1 (2538558) | about 2 years ago | (#41693355)

I have a warehouse full of Monopoly money,valued at $500 USD. I don't spend it either. No one will take it.

Re:monopoly money (0)

Anonymous Coward | about 2 years ago | (#41693655)

Difference between I can't spend it and I don't want even I can.

There are only so many... (0)

Anonymous Coward | about 2 years ago | (#41693443)

...alpaca socks that you can buy.

Give me more stuff to buy with bitcoin, and I'll spend more bitcoin.

BitCoins are undervalued (1)

srussia (884021) | about 2 years ago | (#41693521)

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."
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