What if the Bitcoin bubble bursts?

http://www.economist.com/news/leaders/21722841-latest-frenzy-tulip-mania-gold-rush-or-dotcom-boom-what-if-bitcoin-bubble

by antouank • 9 years ago

78 122 9 years ago

economist.com

smitherfield• 9 years ago

But hasn't it at least 3 times already?

jephir2• 9 years ago

BTC trades like an accelerated stock market. Instead of crashing every few decades, it "crashes" every few months.

DiNovi2• 9 years ago

I can only think of a few the past 4 years. Granted, 2 were in the past 8 months

fudged71• 9 years ago

WHY does it operate like that? Simply because there are no opening hours? It's 24/7?

Retric3• 9 years ago

That assumes it survives with Ethereum's growing market share and better technology Bitcoin could simply die at some point in the next decade.

The problem is once the number of miners drops enough someone,likely with a strong stake in an Altcoin, can simply buy enough hashing power to just take over for a few weeks resulting in an abrupt end.

JohnTHaller• 9 years ago

Some of Ethereum's tech may be better, but their Windows client is lacking in terms of customization. If you don't have enough free space on your C drive, you can't run it... at least without symlinks or manually running geth with command line options first before running the ethereum client, which is very kludgey and doesn't work well with the internal updater. Bitcoin, Litecoin, Dogecoin, etc all let you select the location of your blockchain store so a typical PC configuration of a fast smaller SSD C: and larger D: etc data store can run it without issue. And you can install those clients anywhere you like and keep the data anywhere you like for maximum customization and security.

jron3• 9 years ago

I see comments like this echoed whenever bitcoin is mentioned outside of the usual circles. I always assume that the individual is personally invested in ethereum's success and/or they don't understand the technology.

Currently, ethereum has inherited all of the problems that bitcoin has and and magnified them by a substantial amount. We'll either witness the development team pull off a miracle - or more likely, in my opinion, watch the house of cards come crashing down.

accountyaccount• 9 years ago

The floor keeps going up despite the crashes though, right? They've never dropped down to the pennies they were worth at one point.

NicoJuicy• 9 years ago

I'm not actually sure it's a crash also. Last time it went up like crazy and it had a correction to the mean value.

At least, new kids on the block are warned there is still a risk. Everyone knows that

jlebrech3• 9 years ago

invest when it does. it's gonna keep going up and down.

gr3yh47• 9 years ago

bitcoin has been rising to 400% and then falling to 50% in a pretty solid rhythm for a long time, and i'm kicking myself hard for not buying back when it was at 100 and then crashed to 50

hackcasual2• 9 years ago

Might have lost it all due to an exchange going belly up.

louprado• 9 years ago

and I'm kicking myself hard

Please don't do this. Don't look at two points on a chart, the low and high, and think your the one in a million person who would have traded at those points. That type of thinking fuels bubbles.

With a speculative and volatile investment, you either get out immediately when it starts tanking or you take your 2-3X return and consider yourself smart and disciplined.

jandrese3• 9 years ago

I remember back when it was trading for pennies and you could reasonably mine with an AMD GPU. I thought it was all one big scam and would collapse any time now. I hadn't considered that drug dealers would keep the market going. I did correctly identify that most of the exchanges are incompetent and/or corrupt though.

I wonder how much Satoshi is worth these days in BTC? Didn't he mine up a whole ton of coins back when it was trivial?

monochromatic• 9 years ago

Has the bubble burst when it hits $100? Or has the bubble burst when it hits $1?

jlebrech3• 9 years ago

always keep money in reserve for when the bubble further crashes.

snikeris• 9 years ago

I'd hesitate to call it investing. More like speculating.

the_gastropod2• 9 years ago

Let's call "investing" in currencies what it is: speculating.

balladeer• 9 years ago

Is that not what investing is supposed to be, in most parts; or entirely?

sgspace5• 9 years ago

Anyone who has ever purchased bitcoin and held on to it before this past month is sitting on some amazing gains. If you purchased bitcoin at the top of the bubble in 2013, despite being down for years, today you would be up around 100%.

jlebrech3• 9 years ago

when credible finance media start warning of a bubble, causes a bubble to burst. buy afterwards.

sgspace5• 9 years ago

TLDR: "If there is such a thing as a healthy bubble, this is it. To be sure, regulators should watch out that cryptocurrencies do not become even more of a conduit for criminal activity, such as drug dealing. But they should think twice before coming down hard, particularly on ICOs. Being too spiky would not just prick a bubble, but also prevent a lot of the useful innovation that is likely to come about at the same time."

IanDrake• 9 years ago

The article states that bitcoin transactions take hours. Is that true?

thinkMOAR• 9 years ago

apparently yes, https://blockchain.info/charts/avg-confirmation-time

was a bit surprised myself

sgspace5• 9 years ago

When a bitcoin transaction is created it sits in the transaction backlog until a bitcoin node validates it. Nodes have the economic incentive to pick transactions with the highest fees. If you do not set a high enough fee, you risk your transaction sitting in the backlog for hours or days.

thatcat• 9 years ago

Is there an easy way to see current queue status?

serhei• 9 years ago

You get to decide based on how much transaction fee you're willing to pay to the miners that confirm your transaction.

The simplistic explanation is that the Bitcoin network effectively incorporates a hard upper limit on the number of transactions per unit time. (Every new transaction must be recorded in the blockchain, and the blockchain only grows so fast.) So as the currency becomes more popular and demand for transactions increases, either your waiting time to get the transaction confirmed on the blockchain increases, or your transaction fee has to increase.

DiNovi2• 9 years ago

It is the number one wedge issue in the community right now. It's also why alt coins are doing well - they present solutions

statoshi• 9 years ago

Altcoins present temporary solutions, but are fundamentally limited by the same scaling problems as Bitcoin. Just watch - as altcoins become popular the fees and wait times will similarly rise. Ethereum already had multi-hour backlogs recently as the network was trying to process all of the (rejected) transactions trying to get into the Basic Attention Token ICO.

CydeWeys6• 9 years ago

It's ... very complicated. In most situations, as long as the transaction has a reasonable fee attached to it, you can proceed immediately (this is called a 0-conf transaction), as you can be pretty sure that it will be confirmed eventually. Of course, there are some transaction malleability edge cases that allow double-spends that are fixed with a new feature called segwit that hasn't rolled out yet, so if you are dealing with a potentially malicious party then 0-conf isn't good enough.

In theory, you should wait for a transaction to have at least six confirmations on it before truly trusting it. That has always taken an average of an hour from the transaction first going into a block. It's the "first going into a block" part that takes longer now, unless you attach a higher fee to ensure that it goes in quickly.

annabellish• 9 years ago

as long as the transaction has a reasonable fee attached to it, you can proceed immediately (this is called a 0-conf transaction)

Not true. A 0-conf transaction is a transaction which has not been confirmed at all, which is orthogonal to its fee.

A transaction with a reasonable fee may not even be confirmed at all, as it only takes a few days to fall out of every mempool and average fees are currently unreasonable, so it is not safe to trust 0-conf transactions currently as they may never make it on-chain.

theparanoid• 9 years ago

Not sure why annabellish's comment is dead. It's not wrong. One of the Darknet markets raised their min product price to $3 because of the transaction fee problem.

isubkhankulov• 9 years ago

waiting for 6 was published as part of the original whitepaper. the hash power is a different level now. i would argue waiting for 2-3 is fine.

fmax30• 9 years ago

Doesn't taking an hour or more to confirm a transaction basically make bitcoin useless for any real-time transactions ( buying something at a shopping mall, buying fast food/coffee etc)

This makes bitcoin much less useful in my personal opinion.

xorcist5• 9 years ago

The recommendation with Bitcoin is to wait for six confirmations before considering a transaction secure. That's about an hour, best case. It might be overly secure for most applications, but that's generally what people use.

Other PoW-based systems have similar recommendations. You can have more frequent blocks, but the economic security offered by each confirmation will be lower.

There are other nifty networks called payment networks which promises instantly secure transactions, the most well known being Lightning. They offer that by identifying cheating and offering both parties to get their money out in case the other party does. They are still pretty experimental but the results are promising.

vesak• 9 years ago

Sure, but how long do credit card transactions take?

0x4f3759df• 9 years ago

Won't Bitcoin go to zero when quantum computers can break elliptic curve cryptography?

zitterbewegung• 9 years ago

No, they would probably move to a postquantum cryptography system.

palunon• 9 years ago

If there is no viable alternative to EC for public key cryptography by then, a lot of things will break down, and Bitcoin wouldn't be my main worry.

If there is, I hope Bitcoin will have transitioned.

Cshelton• 9 years ago

There are a few ideas about how to circumvent that, most are pretty early. I think the general consensus is we still have at least 30 years to figure it out as that kind of quantum computer is more than likely, that far off. But of course it can all change pretty quick.

And if we don't have quantum cryptography by then, not just Bitcoin, everything we use today pretty much will be at risk.

canpan• 9 years ago

Actually no.

Long answer: Yes, the outgoing transaction from a ledger to another one is done using crypto that can be broken by quantum computers. But a ledger that has never been used to send money is only visible by it's hash value. So it's security is based on sha256 which is quantum secure (There is Grover's algorithm, but it should be OK for a while). BC would just need to change the signing algorithm. So unless quantum computers pop up just over night everything should be fine.

There are many threats to Bitcoin, IMO QC is one of the smallest.

fooker• 9 years ago

What is the largest threat in your opinion?

Someone capturing >= 50% of the mining computation power?

sgspace5• 9 years ago

I would imagine the security of your traditional bank account would be at risk as well.

SomeStupidPoint• 9 years ago

My bank account can turn off public digital transactions and trade in hard to replicate paper tokens and private network digital transactions.

How does that work with a distributed public ledger?

frgtpsswrdlame• 9 years ago

A bunch of people will learn a very good lesson on gambling. One thing I do enjoy about bitcoin is that it's complicated/technological enough that traditional media doesn't have good language to speak about it. With stocks, there's this huge vocabulary which is used to obscur the fact that most people have no clue why it's moving, they just throw out some jargon. Seeing that stripped bare for altcoins is really refreshing.

problems• 9 years ago

Seriously, some of the altcoins I've seen are launched on such terrible ideas... The Brave browser devs launched one that promises to pay people out for viewing ads. On their open source web browser that anyone can bot. It sold for something like $33M.

I swear I should launch one that's backed by my dog's ability to produce shit, at this point I figure it has a minimum $2M value at launch.

jacquesm2• 9 years ago

Offer fractional ownership in the dog, I'm sure you'll get at least 10 times as much. Suggested currency name: the micropup.

sushid• 9 years ago

The most ridiculous part of it all is the fact that advertisers need to purchase their BAT tokens to place ads in the browser in the first place.

Think about that. You purchase these BAT tokens from trading platforms to place ads that only Brave browser users will be able to view.

To say the least, they'll be having a hard time competing against Google with that premise.

1001101• 9 years ago

Gambling is a 0 sum game, but Bitcoin is creating value. The lesson I've learned is back up the truck. The media doesn't have a good language to talk about it, and even analysts seem a bit perplexed. There are no earnings to discount to, no cash flow, no coupon, no dividends. The value is what the highest bidder at t0 thinks it is. It could be a rational speculative bubble or it could be the Internet of money. I've really liked the work that the analysts at Needham & Co have done, and their research is worth a read.

Twisell2• 9 years ago

See the people catch up with jargon "Bitcoin is creating value" is very trendy righ now.

But I guess I should switch my wallet to micropup as it's creating even more value and it's totally carbon indexed.

RealityVoid3• 9 years ago

What value is that? I don't see it yet. It's promising a whole lot but delivering very little. I guess in this area it's similar with a couple of SF unicorns.

I think the concept is sane, I think the potential is there, I think Satoshi was brilliant, but I don't see BTC adoption for the things it promises.

johnwheeler• 9 years ago

There are no earnings to discount to, no cash flow, no coupon, no dividends.

Same goes for horse shit. Ever though bout that? It too, is just created. Sure, there's a virtually unlimited amount of horse shit, but if you want the supply limited, I've got a single horse to sell you.

midnitewarrior4• 9 years ago

I've heard rumblings of this from some big players who are trying to sell some of their bitcoin, but network transactions are so backlogged that it's an illiquid market for them at the volumes they are looking to trade.

They are worried that they won't be able to move in time if the market drops because they are sitting on such huge sums. Any market panic is only going to compound the transaction volume problem, leading to greater panic like people experience when there's a bank run.

It's kind of a self-fulfilling prophecy until the block size / transaction volume issue is resolved, but the community's inability to address this problem could be the death of it.

xorcist5• 9 years ago

That doesn't make sense. Transactions aren't slower if you move more Bitcoins. In fact, if you move a big stash then the transaction fees probably doesn't matter much and your transaction can be first in line.

Most exchanges still need those six confirmations however, so any bank run would be limited by that. If you need instant sells you have to keep that stash with an exchange at all times. That requires a fair bit of trust in them, which I wouldn't recommend for regular users, but for an institutional investor that's probably how they would do it anyway. Those guys don't exactly walk around with an USB stick carrying their private keys.

KingMob• 9 years ago

You're technically correct, but people trying to sell off millions of dollars worth of bitcoins can almost never do that in a single sale. What happens in a market is, if a large enough bid order hits the market, people freak that a large player is selling off the asset (Do they know something we don't? Maybe we should sell now, too, just in case!). Bitcoin, with its small size (relative to fiat currencies) and slow confirmation rate, exacerbates that.

So to actually sell off a million in BTC, you have to do it in regular, steady small sales that won't spook anyone. This takes time, which is not your friend if you expect the value to go down.

grandalf4• 9 years ago

it's an illiquid market for them at the volumes they are looking to trade

This is the case with any market. Try liquidating a few million shares of any stock.

There are large volume desks already (associated with major financial institutions) who can handle very large transactions. They will take a bit of a margin on the transaction, but that is a function of market dynamics and has nothing do do with cryptocurrency vs fiat currency.

pavel_lishin• 9 years ago

I wonder if anyone trades by having split their bitcoin holdings into multiple wallet, and simply giving up private keys to those wallets.

Of course, there's the issue of the seller super-duper swearing that they won't use the private key until the buyer gets around to moving the new bitcoins to a new wallet...

sayurichick• 9 years ago

if the buyer is going to move the coins anyways, it doesn't bypass the problem of stuck transactions.

plus, if they are in multiple wallets, you're paying fees for each transaction, which is already artificially high.

kentt• 9 years ago

I've heard rumblings of this from some big players who are trying to sell some of their bitcoin, but network transactions are so backlogged that it's an illiquid market for them at the volumes they are looking to trade.

This is false for two reasons.

1. It makes no sense. If a big player wants to move some Bitcoin, getting it in the next block is no problem. For a few bucks in fees you can pretty much guarantee your million bucks will be in the next block. I'm sure that's negligible as compared to moving that money afterwards.

2. If there are numerous big players trying to make huge exits, then the price would reflect that.

Comments like these make it so difficult to read about Bitcoin on hn. It appears that people are blindly and desperately hoping that Bitcoin goes down to the extent they'll abandon their otherwise clear thinking. Is it just frustration that they missed out or don't understand the complexities of money?

TYPE_FASTER• 9 years ago

Is it possible to short BTC?

SimbaOnSteroids• 9 years ago

If you can find someone to take the opposite bet sure, why not?

danmaz74• 9 years ago

Yes, but the counterparty risk - in case of a real crash - is pretty high IMHO.

Anyway, a couple of ways to do so:

You can short BTC using "USDT" on poloniex: https://poloniex.com (USDT is a cryptocurrency theoretically pegged to the USD, but their peg hasn't be very stable lately)

Another way, which could in theory be better (or not) is using options: https://www.deribit.com/

icpmacdo• 9 years ago

How does one currency peg its self to another?

grandalf4• 9 years ago

Of course there will be corrections. There are a small number of people who own a large enough percentage of BTC that when they cash out the market will correct significantly.

There are some forces acting against this:

- The general usefulness of BTC, which reduces the incentive to move wealth out of BTC

- The incentive for these large holders to transact slowly, preventing an abrupt correction.

pdog• 9 years ago

The much more interesting question: what if it doesn't?

bitmapbrother• 9 years ago

I'm hoping it does so that I can buy in.

Entangled• 9 years ago

Not if, but when, and I'd say real soon. It will burst back to $500 and then slowly up to current levels. Rinse, repeat.

awkwarddaturtle• 9 years ago

If it bursts, it bursts. A few get wealthy, a lot get poor. But everyone gets educated for a time. Then another bitcoin bubble or another bubble in another crptocurrency or another asset get blown up. Rinse repeat.

Twisell2• 9 years ago

Just hope than no real retirements funds have invested in this shit gambling with other people saving...

mark_l_watson• 9 years ago

Even at the current high price, I tried to buy more BC a few days ago but my vendor wasn't selling.

I agree with the notion that BC is similar to gold because it is an alternative to fiat currencies.

The author James Richards has the good idea of putting the dollar about 10% on the gold standard to loosely tie the dollar to gold so when money is "printed" at least part would need to be backed by a physical gold purchase.

RealityVoid3• 9 years ago

Gold is inflated in of itself. The industrial value is way smaller than the trading value. Just because you can touch something and it's not a bunch of numbers on a PC, it doesn't mean it has value.

What if the Bitcoin bubble bursts?

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