Bitcoin

[RickStain]

There is also this fun story of a Norwegian man, who bought $27 worth of Bitcoins in '09, forgets about them, then discovers four years later that they're worth $800K+

http://www.uproxx.com/webculture/2013/10/norwegian-man-bought-27-worth-bitcoins-2009-now-800000/

Kicking myself now .... even though I had never heard of it until about 2 months ago.

I'd like to see him actually try to get $800k out of them.

 

[The Big Ragu]

As is Bitcoin's, right? I'm not sure why Ragu thinks that gold has utility but bitcoin does not. Pedigree?

Gold has universal acceptance as currency; bitcoin doesn't.

Basically. I don't love gold just for the sake of loving it. Two things could get me to trade it in for some other form of money.

1) If you can find me a fiat currency that is NOT being intentionally devalued -- which makes it a ****ty way to store your wealth.

2) People lose their faith in gold as a store of wealth. I see no signs of that at all.

It's a currency that offers me the best store of wealth I can find.

I have no confidence that a year from now or 10 years from now that anyone is going to value a bitcoin. To me, it might as well be a cabbage patch doll.

My question to you would be, let's say I offered you $1,000,000 today and told you you can have it in 35 years. Until then, it sits buried in a hole in the ground.

Which would you feel most confidently is going to protect the value of that wealth? 1 million freshly printed one dollar bills. ... 1 million dollars worth of gold bars at today's value in dollars. ... or say, 1 million dollars in Apple stock.

Don't think speculatively. Think purely in terms of trying to preserve your wealth. Which would you choose?

 

[RickStain]

Can you put bitcoins under your mattress?

http://www.networkworld.com/news/2013/112513-bitcoin-robbery-276352.html

Hahahaha. Another one? Seriously?

These are beginning to happen every few months.

"Hey guys, I created this site where you can deposit your completely untraceable, untrackable currency. ... Ooops, we got hacked and it's all gone. Pardon me while I go retire on the millions I earned in a completely unrelated way."

 

[Baron Scicluna]

There is also this fun story of a Norwegian man, who bought $27 worth of Bitcoins in '09, forgets about them, then discovers four years later that they're worth $800K+

http://www.uproxx.com/webculture/2013/10/norwegian-man-bought-27-worth-bitcoins-2009-now-800000/

Kicking myself now .... even though I had never heard of it until about 2 months ago.

I'd like to see him actually try to get $800k out of them.

There was another story about the guy, which I'm too lazy to look up right now, in which he did cash in about half of his bitcoins for $400K or so in real money.

 

[Dick Whitman]

As is Bitcoin's, right? I'm not sure why Ragu thinks that gold has utility but bitcoin does not. Pedigree?

Gold has universal acceptance as currency; bitcoin doesn't.

Basically. I don't love gold just for the sake of loving it. Two things could get me to trade it in for some other form of money.

1) If you can find me a fiat currency that is NOT being intentionally devalued -- which makes it a ****ty way to store your wealth.

2) People lose their faith in gold as a store of wealth. I see no signs of that at all.

It's a currency that offers me the best store of wealth I can find.

I have no confidence that a year from now or 10 years from now that anyone is going to value a bitcoin. To me, it might as well be a cabbage patch doll.

My question to you would be, let's say I offered you $1,000,000 today and told you you can have it in 35 years. Until then, it sits buried in a hole in the ground.

Which would you feel most confidently is going to protect the value of that wealth? 1 million freshly printed one dollar bills. ... 1 million dollars worth of gold bars at today's value in dollars. ... or say, 1 million dollars in Apple stock.

Don't think speculatively. Think purely in terms of trying to preserve your wealth. Which would you choose?

Not this, probably:

http://www.nasdaq.com/markets/gold.aspx?timeframe=1y

 

[The Big Ragu]

As is Bitcoin's, right? I'm not sure why Ragu thinks that gold has utility but bitcoin does not. Pedigree?

Gold has universal acceptance as currency; bitcoin doesn't.

Basically. I don't love gold just for the sake of loving it. Two things could get me to trade it in for some other form of money.

1) If you can find me a fiat currency that is NOT being intentionally devalued -- which makes it a ****ty way to store your wealth.

2) People lose their faith in gold as a store of wealth. I see no signs of that at all.

It's a currency that offers me the best store of wealth I can find.

I have no confidence that a year from now or 10 years from now that anyone is going to value a bitcoin. To me, it might as well be a cabbage patch doll.

My question to you would be, let's say I offered you $1,000,000 today and told you you can have it in 35 years. Until then, it sits buried in a hole in the ground.

Which would you feel most confidently is going to protect the value of that wealth? 1 million freshly printed one dollar bills. ... 1 million dollars worth of gold bars at today's value in dollars. ... or say, 1 million dollars in Apple stock.

Don't think speculatively. Think purely in terms of trying to preserve your wealth. Which would you choose?

Not this, probably:

http://www.nasdaq.com/markets/gold.aspx?timeframe=1y

I think you are really missing the point. I'm not talking about trying to time a market that doesn't always correctly value things.

I am talking about currency patterns over long enough periods of time to understand the value of those currencies. I can't find the same chart into today, but the dollar continues to lose value, even as gold has taken a breather -- and we are talking about a small breather after a huge run up, in which it increased in value every year for 12 years relative to the dollar and basically went from $200 an ounce to where it is now in the last 13 years or so.

Even if you conclude that gold has lost a lot of value in dollar terms in the last 12 months, you'd want to compare it to how much purchasing dollar itself has lost in the last 12 months. Gold looks really good in comparison. Especially if you do things like hedge the gold you own, for example, by buying it in yen instead of dollars.

 

[RickStain]

Can we have a thread about bitcoins and not gold vs. dollars?

 

[User 11148]

Ragu, you have to admit that there's no "real" reason that you and so many others value gold as a store of value. You value it because it's always been valued that way and you have no evidence to suggest that won't continue indefinitely into the future. But there's no law of nature that says gold has to be a good store of value. And, therefore, just because bitcoin doesn't enjoy gold's history doesn't mean that come 2014 (or whenever) it won't.

 

[The Big Ragu]

Can we have a thread about bitcoins and not gold vs. dollars?

Post whatever you want.

I know threads get jacked on here, but that tangent really wasn't a jack. The "story" about the bitcoin has everything to do with story of gold vs. the dollar. It's about storing your wealth in a way that people are not confident the world's fiat currencies are. ... due to runaway central bank devaluations.

The bitcoin is selling a story of a currency that will hold its relative value to those currencies, because of the claim that it can't be manipulated.

 

[User 11148]

Oops, meant 2104 (or is it 2041?) ...

 

[The Big Ragu]

Ragu, you have to admit that there's no "real" reason that you and so many others value gold as a store of value. You value it because it's always been valued that way and you have no evidence to suggest that won't continue indefinitely into the future. But there's no law of nature that says gold has to be a good store of value. And, therefore, just because bitcoin doesn't enjoy gold's history doesn't mean that come 2014 (or whenever) it won't.

Absolutely no law of nature. Just thousands of years of history -- something I think too many people today don't understand (as recently as half a generation ago, people had the right to walk their paper notes into a bank and demand bullion. ... what gave that paper any value to people).

If I ever see evidence that people have lost faith in gold or silver (I own a bit, too), I will NOT be married to them. But when I look at global demand (as the price on the paper markets has fallen, the physical demand from Asia has been insane), I am not seeing that. I also see central bank activity that suggests they know we are on the verge of having to remake the world's financial system (as we did three times last century), and they are hording gold in anticipation, which suggests they see it as having some sort of stability in whatever world the changes bring. There is so much concentrated power within those central banks, and that also gives me confidence.

Yes, I know some of you want this to be about bitcoin. So I'll add I don't view the bitcoin the same way. When the People's Bank of China starts accumulating bitcoins (and maybe it has been -- they can take years to show their hand), maybe my eyes will perk up.

 

[Rusty Shackleford]

I have to imagine that Bitcoin is just a bubble, for the reasons discussed here.

But what if Bitcoin is just a type of beta version of an internet currency? What if it is to online currency what Friendster was to social media - the first to try it, with great potential, some success and a lot of flaws that can be corrected and turned into something huge, like Facebook? What if in 10, 15 years we look at Bitcoin the way we look at Friendster now?

I don't know nearly enough about economics to know how that would work, but I am smart enough to realize that people with that intelligence exist and are probably working on the new, improved version of Bitcoin right now.

 

[RickStain]

I have to imagine that Bitcoin is just a bubble, for the reasons discussed here.

I don't think it's completely impossible that bitcoins have staying power as a store of value. I think there's an extremely remote but non-zero chance they eventually replace gold that way.

But the early adopters are a fascinating look at crazy that are rivaled only by tax protestors and conspiracy theorists.

 

[The Big Ragu]

I have to imagine that Bitcoin is just a bubble, for the reasons discussed here.

But what if Bitcoin is just a type of beta version of an internet currency? What if it is to online currency what Friendster was to social media - the first to try it, with great potential, some success and a lot of flaws that can be corrected and turned into something huge, like Facebook? What if in 10, 15 years we look at Bitcoin the way we look at Friendster now?

I don't know nearly enough about economics to know how that would work, but I am smart enough to realize that people with that intelligence exist and are probably working on the new, improved version of Bitcoin right now.

No, you are thinking about it absolutely correctly. There are other cryptocurrencies already out there. And if you see a spate of competing products, it could hinder the ability of one to become more mainstream. If this form of currency were to ever take off, though, I think competition could only work to its advantage.

Where I would guess it all heads isn't bitcoin or some other cryptocurrency or a group of cryptocurrencies replacing dollars and yen and yuans and euros. I don't think hard currencies are going away (even if we see the realignment I think is coming very soon) -- people will always want the feeling that there is a safe haven to run to. And I can't imagine a cryptocurrency is going to provide that anytime soon.

It's why I think of bitcoin (and maybe some future competitors) having more potential as electronic payment systems than as currencies. They could fulfill that role, but only if that payment can then be converted into a hard currency that inspires more trust. Think of it as more of a Visa or Mastercard competitor, but without the physical plastic.

 

[Dick Whitman]

I don't think hard currencies are going away(.)

OK, I was under the impression you did. Now I'm confused.

Hypothetically - and I get that this is by nature imprecise - let's say I have $5,000 in hard currency. U.S. dollars.

How much will that be worth in today's dollars, say, five years from now? Or 10?

 

[Justin_Rice]

One important piece of currency is trust in its origins.

Presumably if I were to accept gold for transactions, I would be able to establish that the gold you're giving me is actually gold.

I know if you hand me a $20 bill, I can look at it an evaluate in several different ways if this was actually a bill issued by the United States.

But a Bitcoin? How can I be sure you're paying with something real, and nothing something you invented into your own bitcoin account? If it's created digitally, it's only a matter of time before someone can copy it digitally.

 

[User 11148]

I don't think hard currencies are going away(.)

OK, I was under the impression you did. Now I'm confused.

Hypothetically - and I get that this is by nature imprecise - let's say I have $5,000 in hard currency. U.S. dollars.

How much will that be worth in today's dollars, say, five years from now? Or 10?

Let your timeframe (i.e., the number of periods into the future you want to project) be N.

Let your inflation rate be r (and you have to assume that this rate remains constant over your timeframe).

Finally, let the amount of purchasing power you have right now be Pc.

The amount of purchasing power you'll have N periods into the future, Pf, will be:

Pf = Pc/[(1+r)^N]

With Pc = $5,000, r = 0.01 (i.e., 1%), and N = 5, Pf will be $4,757.33.

 

[User 11148]

But a Bitcoin? How can I be sure you're paying with something real, and nothing something you invented into your own bitcoin account? If it's created digitally, it's only a matter of time before someone can copy it digitally.

It's not that a bitcoin has been "created" so much as your account has been credited with a bitcoin, and that crediting of your account has been agreed-upon by some very, very large number of widely distributed and independent auditors. That a given bitcoin is an actual bitcoin isn't the rub; making sure everyone agrees that it's your bitcoin is the trick.

 

[The Big Ragu]

I don't think hard currencies are going away(.)

OK, I was under the impression you did. Now I'm confused.

Hypothetically - and I get that this is by nature imprecise - let's say I have $5,000 in hard currency. U.S. dollars.

How much will that be worth in today's dollars, say, five years from now? Or 10?

If I could answer that question, I could make myself really rich.

All I do know is that when you are talking about the dollar, it is the currency of a country that has been running up unsustainable rates of debt and has a central bank that has been debasing that currency to facilitate it all.

That would suggest to me, at least, that unless something changes, today's dollars are going to be worth less in the future. As they have lost value pretty much since we gave a central planner authority over our currency. A 1913 dollar is worth about 4 cents today in purchasing power.

The problem right now is that we have escalated that whole process over the last decade. At the pace we are going, something is going to have to change relatively soon -- either voluntarily or because of a dollar collapse. You can only devalue your currency so much before others lose faith in it. And you can only devalue it as far as worthless.

The U.S. dollar is sheltered a bit by the fact that it isn't the U.S. acting in a vacuum. We are in the midst of a global currency war, in which the whole world is drowning in debt and everyone is competitively trying to devalue their currencies to import inflation, which reduces their debt in nominal terms.

But just in terms of the dollar and where it is headed? China announced (and it got little attention in the U.S. news cycle) last week that it is no longer interested in accumulating U.S. Reserves. http://www.bloomberg.com/news/2013-11-20/pboc-says-no--in-china-s-favor-to-boost-record-reserves.html

That means that if they are being truthful and follow through (and there are reasons why that will be difficult for them), they are not going to be buying our debt anymore. Either way, they have been complaining for the last few years about how we are destroying the value of the debt they hold by debasing our currency. And their treats to abandon their holdings of dollar reserves have gotten louder. They are already actively trying to create markets that use things other than the dollar as the reserve currency.

My best guess is that like every other game of chicken we have seen, all of the players in the currency wards going on will take it to the brink. It will play out in the dollar, and we'll get a dollar crisis, at which point they will all sit down around a table (pretty much another Bretton Woods kind of thing) and create a band-aid of some sort. That could mean a return to some imperfect version of a gold standard, but that is not necessarily how they will go. The IMF has been pushing SDRs (basically a reserve currency of a bunch of other currencies), which would simply be another form of fiat currency that you can bet on eventually leading to another currency crisis at some point. Just kick the can down the road kind of stuff.

But none of this stuff is new. It's just lost on people today. The global currency system was reset three times last century: 1914, 1939 and 1971. They create sets of rules that don't prevent everyone from cheating in "beggar they neighbor" attempts to run up debt and not have to pay for it by pawning it off on the rest of the world. And when they bring the system they created to crisis levels, everyone sits around a table and comes up with a new scheme that leads to the same outcome.

We are pretty much at that crisis level today.

At the end of the day, the dollar has never fared well (since we went off the gold standard) over any significant amount of time.

 

[amraeder]

This doesn't look like an escalation over the past decade: