If Bitcoin was worth $1 each in 2011, why are they worth $12,000 each now?

tecate

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I claim then that enough people behave without common sense - by buying bitcoins in order to sell them later with a profit and by holding significant amounts in online wallets.
I have no idea whether they do or they don't. I have no problem with working on the assumption right now that you're correct in your claim. However, that's not the fault of bitcoin. Those are the actions of the irresponsible.

Its like the analogy I provided....you wouldn't walk down the street with 100k in your pocket.

If you mean they're shorting, then that may be true - but that's not my world. That said, if we are talking about selling bitcoin - you can have bitcoin in cold storage and move it rapidly - be that to an exchange or elsewhere.

Buying is more precarious - ironically due to the fact that it takes so long by conventional means to move FIAT into your trading account.
 

TheBigShort

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Chainalysis reckon between 2.8 and 3.8M bitcoins have so far been lost forever!

And the first seven words of that article is " Just like bars of gold at sea..."

In truth, no such claim can be made. Just as technological advances assist deep sea treasure hunters, so too will technological tools for searching for lost bitcoin.
 

brianb

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And the first seven words of that article is " Just like bars of gold at sea..."

In truth, no such claim can be made. Just as technological advances assist deep sea treasure hunters, so too will technological tools for searching for lost bitcoin.

That would be an uncomfortable innovation for many. Would the tool (and it's owners) be able to discriminate between lost bitcoins, and those that were just sitting around waiting to be used by their rightful owners? I'm sceptical that such a tool can be made without finding flaws in the bitcoin crypto hashing algorithm that would leave it completely undermined (ahem).
 

fpalb

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That would be an uncomfortable innovation for many. Would the tool (and it's owners) be able to discriminate between lost bitcoins, and those that were just sitting around waiting to be used by their rightful owners? I'm sceptical that such a tool can be made without finding flaws in the bitcoin crypto hashing algorithm that would leave it completely undermined (ahem).
Correct, if the private keys to any bitcoins have been lost completely - i.e. no copy of the data actually exists anywhere, then they are unspendable forever, because if you could find a way to spend them, then it would be a fatal vulnerability in bitcoin. We can't know for sure how many coins are lost though, as there is no way to prove that a private key for any particular address has really been lost.
 

Firefly

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OK (long post warning!)

I've thought about this a bit further and would like to make the following points to argue that I believe Bitcoin to have some value but at the current price it is clearly a bubble


Users of Bitcoin
Bitcoin is synonymous with the Dark Web where drugs, guns and the worst form of trade in materials realting to children take place.
In addition to the Dark Web, there seems to be a few token, trendy coffee shops accepting Bitcoin.

Apart from the Dark Web though, I cannot think of anywhere where payment is demanded in Bitcoin, never mind accepted. I cannot use Bitcoin on Amazon or at my local Tesco for instance.

If it was reported the Bitcoin was going to be accepted in Amazon or Tesco I would expect its price to increase, and if these stores announced that they would ONLY accept Bitcoin for payment, I would obviously expect the price of Bitcoin to surge.

I cannot see any potential for mass take-up of Bitcoin for online transactions in either the near or distant future.

So that leaves us with the Dark Web and a few trendy coffee shops.

Now, I've heard it argued here that the baddies use FIAT money to trade in illicit goods too. But there's a difference......only a tiny portion of the global FIAT currencies are used in this way by a moniority of people. Legitimate uses are the majority, from poeple buying food to cars to everything in between. Whilst I don't have any actual figures (and I doubt anyone has) I would estimate that a much larger portion of trading in Bitcoin is represented by illegal trading compared to illegal transactions with FIAT currency.

During the dot.com bubble, all sorts of stocks went up and nobody really new with any certaintity if the companies behind them were going to be successful. Some were but many weren't. The ones that became successful, by and large, were those whose numbers of users have continued to grow and who have figured out a way to monetise this, such as Google, Facebook and Amazon.

Can anyone point me to a likely case where such numbers of people will use Bitcoin and where Bitcoin (rather than FIAT) will be the only payment accepted?

Store of Value
Here is where I have my biggest problem. It's argued that Bitcoin is a store of value for the following reasons:
It is a safeguard against central banks printing money
It is scarce (So are Lada cars!)

I think Bitcoin could store some value, and I'll get to that, but for the life of me I cannot see how its value has risen to such an extent that 1,000 dollars in Bitcoin 7 years ago is now worth 200 million.

For this kind of price increase to be justified I would expect :

(1) People to be pushing wheel-barrows to Tesco to buy a loaf of bread such would be the scale of QE undertaken by the central banks of this world.
(2) People to think it's the end of the world (in which case an entry on a computer isn't going to be of ANY use!)

The nub of the issue for me though, is that for hundreds of years we have had a comoditity synonymous with storing value called GOLD.

If either (1) or (2) was likely, I would expect that value of Gold to also have risen, but no.....Gold is trading at pretty much what it was trading at in 2010!!!


I think as long as Bitcoing is used by someone to purchase something it has some value, but unless it is the only form of payment accepted or the printing presses are due to go on a bender I can't see this being anything other than a bubble.

Firefly
 

Firefly

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That analogy has been made ad-nauseum - over the past few weeks. It may well be right. A different type of 'investor' has gotten involved in BTC in recent months.

Hi tecate,

You're right there....crazy speculators who will lose their shirts!

There's still enough to go around - but with a finite amount (the maximum 21 million will only be realised by 2040), the price must go up.
Just because something is scarce does not mean it's value must go up to the extent is has. VW has stopped making the original Beetle. They are a store of value, but will their value increase by 10,000% do you think? (At least with a VW you can use it!)

Currently, it's being used as a 'store of value' - to compete with gold and such.
If Bitcoin has risen by over 10000% in recent years, why hasn't gold?

Work is being done by a very talented pool of developers.
And a bunch of even more talented developers who now have an extremely lucrative payload to chase...

Governance is also an issue. Everything in bitcoin is done by consensus.
How? Are there meetings and minutes or something?
 

brianb

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Apart from the Dark Web though, I cannot think of anywhere where payment is demanded in Bitcoin, never mind accepted. I cannot use Bitcoin on Amazon or at my local Tesco for instance.

If it was reported the Bitcoin was going to be accepted in Amazon or Tesco I would expect its price to increase, and if these stores announced that they would ONLY accept Bitcoin for payment, I would obviously expect the price of Bitcoin to surge.

This bit intrigues me - bitcoin was initially posited as a currency. So it was meant to facilitate the exchange of goods and services, just like any other currency. A euro represents a unit of work, or a portion of a good. If I found out by holding onto my euro for a week, I could buy twice as much with it next week, I'd be extremely worried. Thus, bitcoin is clearly not operating as a normal currency, but instead as some kind of appreciating asset of it's own accord. It is appreciating now at a rate that far exceeds what a cautious central banker would be happy with (which we repeatedly hear, is close to but less than 2% per year).

Another clear warning sign is that liquidity appears to be quite shallow. One early adopter seeking to cash in would clear out all the orders for bitcoin in a relatively short period of time. This would spook everyone with a bitcoin who then has to wait longer than normal to cash out. The only trajectory then is a run, and a short one at that. That one or just a few people could cause this makes this a very fragile asset. To give an example, the enigmatic creator of bitcoin was recently judged the 53rd richest person in the world by the current valuation placed on it, and what is known or suspected to be his position from the early days.
 

tecate

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Just because something is scarce does not mean it's value must go up to the extent is has. VW has stopped making the original Beetle. They are a store of value, but will their value increase by 10,000% do you think? (At least with a VW you can use it!)
People determine supply and demand and what the value of something is...at least to a large extent. By the way, since you posted,the euro in your wallet has shed some value. As regards the valuation of bitcoin right now, I have no earthly idea as to what it should be. Equally,the flimsy piece of paper (be that euro or usd) - which is backed by vapourware - I equally have no idea what that should be valued at right now.

If Bitcoin has risen by over 10000% in recent years, why hasn't gold?
Perhaps it isn't BTC that's rising of it's own accord...perhaps the rise in BTC is symptomatic of an effective devalutation (comparitively) of FIAT and Gold.

And a bunch of even more talented developers who now have an extremely lucrative payload to chase...
I'm not sure what you're getting at here - please elaborate.

How? Are there meetings and minutes or something?
Decisions with regard to BTC are carried out by consensus between the various stakeholders. In theory, it's a good system. However, in recent times - due to disagreement betweenv various stakeholder groups, reaching consensual results has been difficult....meaning that the development of the currency is not agile.

brianb said:
This bit intrigues me - bitcoin was initially posited as a currency. So it was meant to facilitate the exchange of goods and services, just like any other currency. A euro represents a unit of work, or a portion of a good. If I found out by holding onto my euro for a week, I could buy twice as much with it next week, I'd be extremely worried. Thus, bitcoin is clearly not operating as a normal currency, but instead as some kind of appreciating asset of it's own accord. It is appreciating now at a rate that far exceeds what a cautious central banker would be happy with (which we repeatedly hear, is close to but less than 2% per year).
When I first got involved in 2013, I was excited about the prospect of it developing as a currency. That has not come to fruition - due to a number of technical issues. However, it doesn't mean that said issues will not and cannot be addressed. I referred to lightening network on a number of occasions - but Im unsure if anyone took the time out to check it out.
With regard to volatility, clearly that's also a problem. I personally don't know how to resolve that but I know there are teams working on resolving same. However, bear in mind that by comparison, this is a young currency. It's normal that it should have growing pains.
 
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Firefly

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When I first got involved in 2013, I was excited about the prospect of it developing as a currency.

Even if Bitcoin was accepted as a method of payment by say Amazon, why on earth would anyone be bothered? They would have to open a Bitcoin account and unless they wanted to risk the volatility in its worth, they would have to constantly purchase Bitcoin with real money, buy whatever they wanted to buy and then go and sell their Bitcoin again for real money. Why would anyone bother?? I'll tell you why....because they want to conceal what they are buying that's why...and that's why it is so popular on the Dark Web. It makes zero sense anywhere else to go through the rigmarole of paying in Bitcoin when you can do so with real money.
 

tecate

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Even if Bitcoin was accepted as a method of payment by say Amazon, why on earth would anyone be bothered?
Firstly, it's been speculated about amazon - but if they do start to accept, it will be a game changer.

They would have to open a Bitcoin account
The establishment has made that a difficulty - yes. However, you have to jump the same hoops to open a bank account do you not? People jumped through the same hoops to open paypal accounts did they not? Furthermore, in the last 2 weeks, services such as Revolut and Square have made it easy to buy bitcoin. Craigslist have added (or are about to add?) the option for sellers to offer the option of bitcoin as an accepted form of payment. You seem to forget that this is a fast moving space. What you are looking at is ongoing technological development. It is not the finished article.


unless they wanted to risk the volatility in its worth, they would have to constantly purchase Bitcoin with real money, buy whatever they wanted to buy and then go and sell their Bitcoin again for real money. Why would anyone bother??
Volatility is an recognised issue. However, work is being done on this. I don't expect that it will be something that will be resolved in the short term - but this is not a short term project. With regard why would they risk that or bother with that, if its not a substantial amount of money, they may be ok with it. Even if it is, volatility can roll in two directions - if it's money they can afford to speculate with, then they may not be bothered.

I'll tell you why....because they want to conceal what they are buying that's why...and that's why it is so popular on the Dark Web. It makes zero sense anywhere else to go through the rigmarole of paying in Bitcoin when you can do so with real money.
You and your bloody dark web! We have been moving towards a cashless society for some years now. Ireland may be a lagard in that regard but there is still evidence of it. Some other countries are almost there already (eg. Scandinavia). Do you want people working in a government to have access to every single transaction you make? Do you place ANY value on your privacy at ALL? Are you happy that a government or government official could cut down your access to your hard earned money in a matter of seconds!? At least with cash, unless they physically confiscate it from you, then you can spend it! With bitcoin, it cannot be confiscated (at least not without your cooperation).
If that's the society that you want to live in - good for you. This has NOTHING to do with the dark web. Power corrupts and corrupts absolutely. Why set up a system where someones privacy can be invaded and where their lives could be turned upside down by a bureaucrat!

Over time, it will become much easier to buy and sell bitcoin. Will that happen tomorrow? No - it will take time. It took 2 hundred years to move from coin to paper. It took 40 years to move from cash to plastic. It will take 20 years to move to crypto or digital currency.


ps. Please also be aware that a few years back - in trying to lodge money to bitcoin exchanges in both the UK and Ireland, there were plenty of reports of the establishment high street banks interfering with that process - sometimes refusing to allow customers to transfer to the accounts of a Bitcoin exchange - switching that access on and off. This happened across a number of high street banks - not just one or two.
 

TheBigShort

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ps. Please also be aware that a few years back - in trying to lodge money to bitcoin exchanges in both the UK and Ireland, there were plenty of reports of the establishment high street banks interfering with that process - sometimes refusing to allow customers to transfer to the accounts of a Bitcoin exchange - switching that access on and off. This happened across a number of high street banks - not just one or two.

In the event that banks resort to such practices again anytime in the future, what can be done about it? What effect on bitcoin?
What effect on the assumption that we live in a free open democratic society?
 

Duke of Marmalade

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Firstly, it's been speculated about amazon - but if they do start to accept, it will be a game changer.
Please, none of the household names are accepting BTC. Some are allowing you to think you are paying with BTC but in fact an intermediary changes your BTC into the fiat currency for passing on to the retailer. (Think about it, they can't quote prices in two currencies or else they would be wide open to being gamed against).

Why would anybody want to incur those intermediation costs unless there are folk out there whose only source of income is BTC? Ooops! I forgot, there are miners whose only source of income might be BTC but the mining community hardly amounts to a game changer.
 
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ant dee

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In the event that banks resort to such practices again anytime in the future, what can be done about it? What effect on bitcoin?
What effect on the assumption that we live in a free open democratic society?
They pretty much interfere all the time. They call it KYC / AML and censor transactions to exchanges.

In their defence, there are on occasions people that get their bank accounts / credit cards stolen, thieves dump the fiat to a bitcoin trader or something bitcoin related, and get to keep the bitcoin as the transaction can't be reversed.
Then the victim shows up to the bank and claims fraud, draining workhours and resources from the bank.
So bank accounts that are associated with crypto are probably too much trouble for the banks and they get shut down.
 

ant dee

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Please, none of the household names are accepting BTC. Some are allowing you to think you are paying with BTC but in fact an intermediary changes your BTC into the fiat currency for passing on to the retailer. (Think about it, they can't quote prices in two currencies or else they would be wide open to being gamed against).

Why would anybody want to incur those intermediation costs unless there are folk out there whose only source of income is BTC? Ooops! I forgot, there are miners whose only source of income might be BTC but the mining community hardly amounts to a game changer.
Duke, since bitcoin transactions are irreversible, some companies can enter the market of some high fraud risk countries.

E.g.
Maybe it is too much of a risk for Netflix / Amazon to accept customers from certain African countries, since the amount of credit card charge-backs will be too high.
Accept bitcoin however, and once a payment is confirmed thats it, the merchant keeps the money.
But, at the moment the high transaction fees to use the bitcoin network prevent all this from even being considered as an option.
 

fpalb

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There was a reasonably big merchant adoption push around the time of the 2013 hype. Bitpay.com are still a company specialising in making it easy for merchants to accept bitcoin, coinbase used to be fairly focused on this too, but ended up focusing more on being an exchange. A lot of companies, even big ones like Microsoft and Dell tried it, as on the face of it there are some really good reasons a merchant should want to accept it, as bitpay say:
Keep more of your money.
Credit cards take up to 3% in processing fees on every transaction. Accept bitcoin with BitPay and get direct bank deposits in your own currency for a simple, flat 1% settlement charge.

Sell to anyone, anywhere.
Connect to the world’s first borderless payment network - Bitcoin. Receive payment in any amount, from anywhere in the world, from any computer or mobile device.

End chargeback fraud and identity theft.
Other payment methods force customers and businesses to shoulder the risks and costs of payment fraud. With bitcoin, customers can pay without handing over sensitive personal information, and refunds are made through the merchant — no chargebacks.

There are three problems though:
1) Volatility, not a big deal really as bitpay can do the currency conversion for you and eliminate it.
2) Not enough customers owned bitcoin (and many of those that did wanted to hold on to it) to make it worthwhile to support the option of accepting it.
3) As the user-base of bitcoin has grown, the transaction capacity issue has come to the fore, meaning transactions without sufficient fees can be delayed a lot (bad for both merchants and customers) and transactions are more expensive (bad for customers).

The issue 2) is currently changing rapidly as we're seeing huge numbers of new people buy cryptocurrency. If/when issue 3) can be addressed sufficiently we might see a second attempt at the retail merchant use-case, but not until then.
 

Duke of Marmalade

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I was challenging the notion that Amazon accepting BTC will be a game changer. I presume they will continue to price in fiat. I hope you are not seriously arguing that routing BTC through an exchange will be cheaper than conventional payment mechanisms. I can't see any anonymity advantage unless the goods are to be delivered to some untraceable PO Box or other. Miners whose only income is BTC and who don't have any conventional payment options will welcome it. But all in all I do not see a game changing demand to have BTC because Amazon will accept it.
 

fpalb

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I agree that I don't think amazon accepting it in and of itself would make anyone go to the trouble of buying BTC just to spend it straight away again on amazon. But there might be other reasons you would choose to spend it at amazon:
1) you already have BTC
2) as ant dee pointed out, amazon would not need to restrict BTC orders from any country based on payment fraud, if you are in such a country it might be the only way you can use amazon.
3) amazon could offer a discount for BTC (or the Ryanair approach, charge a processing fee for other payment methods) and share some of the savings they make on it with the customer. This might be only be useful for the customer for large orders, as it needs to be greater than the btc transaction fee itself that the customer is paying for it to appeal to the customer.
 

fpalb

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OK (long post warning!)
Apart from the Dark Web though, I cannot think of anywhere where payment is demanded in Bitcoin, never mind accepted. I cannot use Bitcoin on Amazon or at my local Tesco for instance.

I guess I could write another of my long comprehensive posts exhaustively listing every possible current and potential future situation where bitcoin is preferable to fiat for someone in some context, but instead I'll make a general statement on why you probably can't think of any and then look at one example, using amazon which you've mentioned.

As a regular poster on a financial advice forum in a first world country, I'm guessing you earn over $30k per anum, maybe everyone posting on this thread does. That's makes us all part of the global 1%. We are the rich, relatively, and we live in a first world country that has one of the most stable (touch wood!) currencies as the legal tender, we also have access to first world financial services. So maybe it's a kind of a "let them eat cake" situation. 40% of the world don't have a bank account. I'm not saying bitcoin solves the problems of the unbanked, I'm saying that there are lots of frictions and problems out there for other people that you or I don't experience.

As an example of just one friction that bitcoin is solving, lets look at the purse.io website. This is at first glance an unusual and somewhat convoluted service. It's a middleman that matches people who want to sell amazon store credit (or a gift gard balance) for bitcoin, and people who want to pay bitcoin and receive goods from amazon. Not only that but the person paying the bitcoin can request that they receive a substantial discount - up to 33%. So it might go like this:
- I want to buy something on amazon that is 60 euro, I use purse and state I want a 33% discount and I add it to my wishlist
- Eventually someone takes me up on it, I pay them 40 euro worth of bitcoin and they pay for the item using their amazon credit and it gets delivered to me by amazon

Purse acts as the escrow, and takes a small cut too.

The site has been running for a few years now, at this point you must be asking, who the hell is using this? why would people effectively pay such a premium for bitcoin with amazon credit. How many people even have a need for this kind of service? Well I was really curious too, so I dug into it.

It turns out amazon credit is almost like its own currency and has its own little economy going on. Amazon will pay affiliates or people doing work such as their mechanical turk service in amazon credit. The purse CEO says 60% of the people using his service to acquire bitcoin are in India, followed by the Philippines and Indonesia. They are earning amazon.com credit, which they can't use directly and isn't liquid for them, effectively trading it at a significant discount for bitcoin, which they are then liquidating into local currency.

The purse CEO estimates (based on amazon financial statements and giftcard research) that amazon has $10-20 billion outstanding store credit liabilities, and issues about $1 billion new credit per year.

(NOTE: I'm not endorsing purse.io, I've never even used it, DYOR).
 

Fella

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Would the people that are bullish on Bitcoin be prepared to do a deal?
Sell some or all your Bitcoin now and give Brendan the cash now.
On 1st January 2019 he will give you back 2 x the amount of bitcoin (or 3/4/5 whatever multiple yous agree)
Everyone's a winner then , if you are truly a Bitcoin believer getting back n* your Bitcoin in a years time is surely a great deal.
Just an idea.
 
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