Why I’m Putting All My Savings Into Bitcoin

http://falkvinge.net/2011/05/29/why-im-putting-all-my-savings-into-bitcoin/

by mazsa • 15 years ago

116 190 15 years ago

Someone• 15 years ago

Take away the interesting technical aspects, and BitCoin, to me, looks like a pyramid scheme.

The BitCoin economy is like a small country with a novel monetary system. Now, a big country, say the USA, wants to join because it sees benefits in that system. Normally, such a transition would have the USA print new money. In this case, the answer to "OK, sounds useful, how do we introduce this kind of money into our economy?" is not "together, we pick an exchange rate, then you can 'print' a BitCoin for every X dollars you destroy", but "you buy it from us, who got there earlier".

There also are huge problems integrating this "nobody can check where money flows" scheme into current economies. Income tax? Forget it. Indirect government control over inflation and interet rates?. Forget it.

In the end, I think some of the ideas of BitCoin may live on, but I do not see it live for more than a couple of years. Meanwhile, it will make quite a few people rich.

scotty793• 15 years ago

> Take away the interesting technical aspects

BitCoin consists only of technical aspects. The rest is just noise that people do around them.

eropple• 15 years ago

All human-created phenomena are social phenomena. "It's just tech" is said only by those who fundamentally don't understand this or want you to ignore those social aspects for their own gains.

Contrary to what lots of the Bitcoin aficionados might like people to think, the social aspects of it are the only part that really matters outside of a crypto mailing list. And they're also the reasons it's insane to expect people to actually use it.

dstein• 15 years ago

Yeah but it's a pyramid scheme that makes you tons of money! /s

DennisP2• 15 years ago

> nobody can check where money flows

The government actually provides a system with exactly that property.

> Indirect government control over inflation and interet rates? Forget it.

A lot of people see that as a benefit.

luigi• 15 years ago

This violates two simple, and obvious, tenets of investing:

1. Don't put all your eggs in one basket.

2. If it sounds too good to be true, it probably is.

kiba2• 15 years ago

They are only heuristics, not iron law of investment. Even so, don't put all your eggs in one basket pretty much apply to all situations.

splat• 15 years ago

Andrew Carnegie would respectfully disagree with your first tenant:

"Put all of your eggs in one basket -- and watch that basket!"

diego• 15 years ago

For every Andrew Carnegie, there are lots of others who watched their basket and saw it destroyed. They just don't go around giving advice.

knowtheory6• 15 years ago

Actually Luigi, you're missing the best and most fundamental rule:

3. Past performance is no guarantee of future returns

hugh318• 15 years ago

Personally, my most fundamental rule is this:

4. Invest in stuff that has value.

richardw2• 15 years ago

The basket many people are holding all their eggs in, is the USD. That has depreciated significantly in the last few years, with a very good chance that it'll continue to do so.

My home currency isn't the dollar but my app is priced in dollars and that sucks. I'd far prefer to have Euro earnings and earn a few bitcoins a month as a speculative investment.

tectonic• 15 years ago

Does investing in foreign stocks hedge against this?

hugh318• 15 years ago

The basket many people are holding all their eggs in, is the USD

Not many people, or at least not many people with nontrivial amounts of money, have all their assets in US dollars. Most folks own shares and/or property. As you say, US-dollar cash assets are a poor investment right now since interest rates are lower than inflation.

Still, keeping all your money in US dollars (in a big brown bag inside a zoo, perhaps) is a lot less nutty than keeping all your money in bitcoins. Even if nothing else, the US dollar has a history of relatively low volatility over the past couple of hundred years, whereas bitcoins have a history of insanely high volatility and dates back to (uhh, goes and checks) 2009.

nradov2• 15 years ago

That depends on what you mean by "few". Here is a chart of the US Dollar index since 2002. http://futures.tradingcharts.com/chart/US/M?1306686035 The major depreciation trend stopped in 2004 and since then has bounced around in a trading range.

rdtsc• 15 years ago

Would you have preferred your app to be priced in bitcoin instead?

cma• 15 years ago

"with a very good chance that it'll continue to do so."

That's not what extraordinarily low interest rates in the bond market say.

zitterbewegung• 15 years ago

Due to the volatility of the bitcoin market I'm betting we are going to see a next blog post by the author "How I lost all my savings using bitcoin"

stevenj3• 15 years ago

Re: 1

Perhaps. But if you know what you're doing, wide diversification may not be wise.

"How many insights do you need? Well, I'd argue: that you don't need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that's with a very brilliant man—Warren's a lot more able than I am and very disciplined—devoting his lifetime to it. I don't mean to say that he's only had ten insights. I'm just saying, that most of the money came from ten insights.

So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of craziness with an occasional mispriced something or other. And you're probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It's just that simple."

-Charlie Munger

http://ycombinator.com/munger.html

Re: 2

"Too much of a good thing can be wonderful."

-Mae West

sorbus2• 15 years ago

The purpose of diversification is in case your insight is wrong. In case bitcoin crashes faster than he's able to pull his money out, or in case demand slackens and prevents him from pulling his money out (being able to transform money from bitcoins to dollars is necessary until all the places he would spend money accept bitcoins too), being diversified would prevent him from losing everything.

hnsmurf3• 15 years ago

The Berkshire Hathaway quote illustrates the diversity point here. Berkshire made a lot more than 10 investments, just those 10 returned most of the money. If they knew in advance what those 10 would be they would have only made those 10 investments, but they didn't so they diversified.

inoop• 15 years ago

2a. If there's money involved, it's probably a scam.

hnsmurf3• 15 years ago

In my experience people who write blog posts like this don't have enough eggs to really worry what happens to the basket. It's either someone with very little life savings or a pump and dumper.

mcantelon2• 15 years ago

Falkvinge is the founder of the Swedish Pirate Party, so my guess he's willing to personally risk to promote the world's first viable decentralized currency.

vaksel• 15 years ago

I recommend reading up on the MMM company.

http://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29

there is also a Russian movie called PiraMMMida that came out a few months ago, which is the fictionized version of history. Now that movie, is pretty much exactly how bitcoin tends to be covered by the fanboys.

And as the movie points out, it comes down to pure greed, people give up real money in order to buy worthless paper, which they are hoping to unload before it depreciates...but they never do, because they keep seeing big returns...until the point when the whole "economy" crashes and you are left with nothing. An important point, is that these people knew that the currency was worthless, but because of their greed they continued buying it up and promoting it to others.

kiba2• 15 years ago

Bitcoin is not a company. It is a currency. It doesn't promise anything.

The fact that it is an ingenuous social engineering hack is merely an effect of the money supply.

scotty793• 15 years ago

If such silly thing as gold became money and paper printed by governments became money then a tool possessing qualities that bitcoin possess is bound to become money eventually.

Only two real risks. Crypto weakness or Bitcoin 2.0

Gold is intrinsically similarly useless as bitcoin. We used it as money only because it was durable and rare. We used paper as money because strong, trustworthy entity declared that its supply will be limited and controlled. Bitcoin has this basic necessary quality but also much much more.

thecabinet• 15 years ago

We use paper as money because a strong entity said they would accept those pieces of paper for tax payments. Rather than going to jail.

woodall6• 15 years ago

>Gold is intrinsically similarly useless as bitcoin.

That is incorrect on many levels. Gold has applications in MANY things. I bet the device you used to type out that comment has a bit of gold in it.

The comparison to BitCoin and paper money makes more sense, but it doesn't. This is because BitCoin has no one backing it. If the dollar drops, well the US is backing it; and they will be forced to deal with the consequences. If someone pulls the rug out on BitCoin- might never happen, but who knows- then no one is responsible. BitCoin is a fun game, and that is all it should be. Such rapid deflation will not go on forever.

sorbus2• 15 years ago

There's another risk, actually: government legislation/intervention.

adrianwaj3• 15 years ago

This is just FUD. Why don't you go trash sub-prime lenders before you trash bitcoin? Don't buy bitcoin. Buy Euro instead!

Tichy4• 15 years ago

BitCoin doesn't promise any returns, and doesn't distribute anything to new people who sign up. It is only a Ponzi scheme if the real world's economy is a Ponzi scheme. I don't know if it is.

premchai212• 15 years ago

Actually, while the Bitcoin system itself does not arbitrarily distribute any money to new clients, there does exist a Bitcoin Faucet[1] to help newcomers try the system out, allowing various people to acquire a few free cBTC once.

[1] http://freebitcoins.appspot.com/

hugh318• 15 years ago

You're right. While bitcoin has certain similarities to Ponzi schemes (i.e. the fact that the people who start the scheme get rich while the folks who come later lose their money) I think it's really more accurately described simply as an asset bubble.

Except, y'know, without any actual underlying asset. I don't think I've ever seen an asset bubble in something that was literally worthless before. Even the tulip bulbs of the Dutch tulip mania (http://en.wikipedia.org/wiki/Tulip_mania) could be planted in your garden and would look quite pretty, even if not ten years' salary worth of pretty.

hasenj• 15 years ago

Real world economy is a kind of a ponzi scheme, in my opinion. With the central bank being at the top, and other banks below it, followed by the financial sector, and all the people who become rich by "speculating" on money instead of actually producing something useful

EDIT:

Please read this in context before you downvote. We're talking about bitcoin. If bitcoin is a kind of a Ponzi scheme, then it's no different from the "scheme" present in the current monetary system.

raganwald2• 15 years ago

A few points:

1. There is a difference between "This is useful, I will use it," "This is useful, many people will use it, I think it is going to succeed," and "This is useful, I will invest in it." I have recently started using a text editor called Byword. I quite like it. But I am not rushing out to invest in it.

2. There is also a difference between "I will invest some of my money in it," I will invest all of my money in it," and "I will invest all of my money and all of the money I can borrow in it."

If we take a thousand people and instruct each of them to invest their life savings and everything they can borrow into a single, randomly chosen investment, some will get very rich, richer than anybody who avoids borrowing money for speculative investments, and much richer than people who take a balanced portfolio approach to investing.

But that doesn't mean it's a good strategy.

palish2• 15 years ago

Does anyone know of any balls-out investments that paid off (or didn't)?

(I'm referring to "if this investment doesn't pay off, I'm jumping out a window" risk.)

I'm just looking for interesting stories, and that sounds promising.

carbocation2• 15 years ago

Those stories could be made any day. Take any volatile stock and stake out an extremely leveraged position on it for a day (or a few hours). If the stock moves in the direction you've bet, then congratulations, you've just made a bunch of money on a gamble. If not, you've lost everything.

rsheridan6• 15 years ago

Bob Parsons had already made tens of millions from an earlier startup, and he put all of his money into starting up GoDaddy, to the point where he would have been broke if it had been failed and he was almost out of funds to keep it going, before it turned profitable.

He wrote an article about it but I can't find it right now.

adrianwaj3• 15 years ago

Seems to happen a lot with bigwigs.

Soros shorting the pound. Buffett investing in Visa.

Bitcoin is going to go through the roof, speculators or not. The guy in the article is taking a calculated bet that will pay off.

davidmathers• 15 years ago

George Soros shorted $10 billion worth of British Pound and then made $1 billion in a single day. I don't know what would have happened if things had gone the other way but I think he was mostly-in, if not all-in.

base• 15 years ago

Here you have: Betting $136k on one roulette spin http://www.youtube.com/watch?v=1jBbE7neKT8

raganwald2• 15 years ago

Here's one that went the other way: Nick Leeson had been accumulating losses from unauthorized bad trades. He attempted to cover his losses with a massive wager that the Tokyo stock market would not move overnight. Alas, the Kobe earthquake hit him!

The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore and Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a Long-Long Future Arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialize.

http://en.wikipedia.org/wiki/Nick_Leeson

hugh318• 15 years ago

Here's the thing: due to the nonlinear value of money, if you're betting that something is going up massively then you're pretty much just as well off betting some of your money as you are betting all of it.

If I have ten million dollars, and I really think that tulip bulbs are going to go up by a factor of a thousand, it's still dumb to invest all my money in it hoping to get ten billion dollars. Instead, I invest half my money in it, because the difference between having five billion dollars and ten billion dollars is (in practical terms) small, whereas on the losing side the difference between having five million dollars and being completely broke is very large.

There's one exception to this: entrepreneurs frequently put all their money into their own company. Why? Because nobody else will, and because if the company doesn't get that money then the company will collapse. Wise? Maybe, maybe not, but it's wiser than sticking all your money in some random asset which, if not bought by you, would be bought by somebody else.

bcl• 15 years ago

bitcoin is somewhat interesting, I've been experimenting with it recently. One thing to note is that transfers aren't instant until your client catches up with the network -- when you first connect you currently have about 127k blocks to download before you are current.

At first I had some trouble understanding why you couldn't just had a client and create easier coins. The thing is, you can, but the network won't recognize them. The key to the system's security is that as long as 50% of the bitcoin nodes agree on that the current difficulty level is you can't inject 'fake' money into the system.

Right now moving money into and out of the system is a bit difficult. Mining is not worth the electricity it costs you, unless you have a GPU and join a mining pool. The 'value' of a bitcoin is very volatile, as tracked on the http://bitcoincharts.com site.

FooBarWidget• 15 years ago

> The key to the system's security is that as long as 50% of the bitcoin nodes agree on that the current difficulty level is you can't inject 'fake' money into the system.

Isn't it quite easy to spawn a few million malicious nodes?

njs12345• 15 years ago

You have to have the computing power to beat 50% of the network - given the current size of the bitcoin network that's certainly not trivial.

zhoutong• 15 years ago

"There is currently about USD 50 million in the bitcoin system, and just over six million coins in circulation, valued at $8 each. Up until now, demand has largely been driven by enthusiasts. The value of a bitcoin can’t be held constant — if 12 more million dollars is exchanged into bitcoin, the value of a coin will rise to $10. The more people who want to use the system, the more people will need to exchange a portion of national currency for bitcoin, and the more money will go into the system. The more money there is in the system, the more a particular bitcoin will be worth."

This statement lacks economic sense. The total market capitalization of bitcoin ecosystem is $50m doesn't mean that $50m has been transacted. If I accept your offer of $800 per bitcoin, the market cap based on this transaction will become $5 billion instead.

Therefore, the author has severely over-estimated how much money that people have put in to the market. He is probably thinking "So there are $50 million investment here, my savings are so insignificant that I don't have to count the risk."

nasmorn• 15 years ago

Thanks I didn't catch that myself. Sounds awfully much like real estate where suddenly everyone was feeling rich because some idiot bought a house for too much money. (in this case aggravated by the fact that the idiot put zero money down.)

synctext2• 15 years ago

"I predict that it has at least another thousandfold increase to go in the coming few years"

Clearly a 'Bernard Madoff 2.0' pyramid scam. Only profitable for the early adopters, pay by the last suckers whom enter.

weavejester3• 15 years ago

Bernard Madoff ran a Ponzi scheme, not a pyramid scheme, and Bitcoin cannot be classed as either.

gamble• 15 years ago

You're right, Bitcoin is actually more like a penny stock pump-and-dump scheme.

Tichy4• 15 years ago

I predict that the dollar has at least a thousandfold increase to go in the coming few years. Therefore I have shown that the dollar is a Ponzi scheme?

rheide• 15 years ago

This person lost all credibility to me when he said that he borrowed money to invest. I'm a huge admirer of Bitcoin's technical aspects, but I would never even think of borrowing money to invest in anything, let alone bitcoins.

carbocation2• 15 years ago

Leveraged positions are common, but leveraging yourself to the maximum possible and not leaving yourself a safety net, as is implied by the article, is crazy. I assume the author is speaking hyperbolically.

henrikschroder• 15 years ago

Knowing Rick, this is exactly the kind of thing he would do. You gotta give him credit for putting money where his mouth is, though. He previously took all his savings, and a bank loan to start the Pirate Party, and that worked out pretty well.

amalcon• 15 years ago

Leveraged positions are common, yes. They are also behind nearly every market bubble (and subsequent crash) in history.

tobias32• 15 years ago

"[Bitcoin is] an entirely new kind of currency that can’t be seized or frozen by governments" Simply not true. At the end of the day you need to change Bitcoins back to real money. The money that actually has some value because it (is supposed to) represents goods. The stuff you need in order to survive and live (food, clothes, ...). Goverments can declare these "banks" that change bitcoins back to real money illegal - mabe because bitcoins can be used to launder money (because it's advantage is, that "you can transfer any amount anywhere instantly without any authority knowing or interfering"). In this case all your money is worthless. But you can still write nice blog entries and get other people to buy the stuff from you ;)

mdonahoe• 15 years ago

People accept bitcoin as direct payment for things already, removing the need to switch back to dollars. Granted it's not a big selection

tobias32• 15 years ago

But can you pay your rent in BTC or at the grocery store... As long as the essential things are not available via Bitcoins it is not an independent system and thus successible to goverment intervention. And even then. People tend to trust currencies issued by the government more and money is just an artificial thing based on trust.

tzs• 15 years ago

You still need to switch some back to dollars, to pay sales taxes or VAT on the sales, and eventually to pay income taxes.

weavejester3• 15 years ago

Investing in Bitcoin is akin to investing in a startup. There's a chance the startup will become wildly successful and you'll make a tonne of money from it. But you also have to be prepared for the more likely chance that you will lose everything you put in.

Investing all your savings in anything is a risk. Investing everything in a risky startup seems the height of madness... unless you don't have a lot of savings, I guess.

tobylane• 15 years ago

The history of bitcoin is 14 months. How stable has it been over that time? It's only been in the news 2-3 weeks. I see the three bc/$ figures given, but it says nothing of stability. Other than that, it's fairly sensible. I'll stick with my 4.2%+ tax free isas.

motters• 15 years ago

This is probably a very bad idea. It's too early to tell where Bitcoin will go, and whether it will achieve widespread acceptance as a currency. Putting all of your savings into something highly speculative isn't very wise, unless you can afford to lose them.

leon_• 15 years ago

> Please make it possible to use milli- and microbitcoins as soon as possible

Bitcoin supports transactions as small as 0.00000001 (1e-8).

bluedanieru2• 15 years ago

What shall we call those? Micro-cents?

gulbrandr2• 15 years ago

nanocents I guess

ashconnor• 15 years ago

The GUI doesn't support transactions of that size.

ZeroMinx• 15 years ago

Let's be clear that this is Rick Falkvinge, founder of the first Pirate Party. His title is now "political evangelist". It's not surprising that he's in favour of a currency that is free from government control.

(Not that I disagree with him in general, I just thought this is something to take into account reading this article)

puredemo• 15 years ago

Not to mention that he probably already owns a lot of bitcoins and has a massive vested interest in seeing them become worth more.

Duff2• 15 years ago

"They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men. On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed. Except for one man armed with an AK-47, and a Honda full of silver"

safeaim• 15 years ago

Where's that quote from?

hugh318• 15 years ago

I have no idea, but you'd be surprised how little silver a Honda can actually carry.

nazgulnarsil4• 15 years ago

what else? The Road Warrior.

Duff2• 15 years ago

Its a Mad Max quote adopted by the Fuckedcompany.com BBS.

littleidea• 15 years ago

Summary question for the author: http://bit.ly/aorWMz

igrekel2• 15 years ago

Its hard to accept the author dismissing the threat of bitcoin being banned and then admitting it is difficult to buy bitcoins. If it is difficult to buy bitcoins, its most likely hard to get useable currency from bitcoins. Until you can buy groceries or other real life things in bitcoins, I'd say it is a a very real threat.

stuhood• 15 years ago

You can buy groceries with Bitcoin: http://bitmunchies.com/

igrekel2• 15 years ago

Bitmunchies probably pays its suppliers using usual currency. I'd guess its is just a way to trade money for bitcoins and that they don't really convert those bitcoins to dollars to pay their suppliers. Just a guess.

jpadvo• 15 years ago

"The secondary uptake wave after enthusiasts is not going to come from those who use legacy banking daily and are comfortable with it. It is going to be people who don’t want or are not allowed to use the legacy banking system for their everyday transactions."

This is also the point when governments will start aggressively working to shut it down.

hugh318• 15 years ago

This article is crazy, and actually fills me with a little bit of schadenfreude.

Asset bubbles run on the bigger fool principle, and they end when you run out of bigger fools to sell to. If folks have really started cleaning out their bank accounts and borrowing money to buy bitcoins (an amount of bitcoins which, incidentally, you probably could have picked up for twenty bucks just six months ago) then it seems to me that the world is about to run out of bigger fools.

dualogy2• 15 years ago

Far from it because right now this is only being discussed in Hacker News... not in USA Today or FarmVille. However one defines "fools", I don't see a shortage. That said, I'm not invested, only observing here.

hugh318• 15 years ago

However one defines "fools", I don't see a shortage.

In this particular case, foolishness is denoted merely by their willingness to pay high prices for bitcoins. While there may be out there in the general population plenty of people objectively more foolish than this guy, they're less likely to fall for this.

This is the other big problem I have with bitcoin: it seems to exist in a very insular, very geeky world filled with people who don't really understand the non-geek world out there. Bitcoin will never really jump from the geek world to the real world, because the general population won't even understand its supposed benefits, much less give a damn about them. A few geeks may be able to talk their poor grandmas into buying some, but that's about it for general market penetration.

cletus• 15 years ago

> In the past three months, the value has hundredfolded

If this trend continues, my $8 invested for 1 bitcoin will be worth $800 million in a year!

Seriously?

limmeau2• 15 years ago

$800 millions should be enough to live comfortably by for a lifetime; no need to go all-in on bitcoins.

pbreynolds• 15 years ago

It seems to me that a key move to stabilizing bitcoin would be finding a high demand product that can only be purchased with bitcoin. That along with offering retailers incentives (aside from the "no fees" aspect). A group of heavily invested bitcoin owners would be wise to organize such efforts.

limmeau2• 15 years ago

That would have to be something that cannot be resold. Still, a company which sells its product (which would have to be unique within its market segment) for "real" money today would have to say goodbye to all those dollar-wielding one-dot-oh customers and hope they come back tomorrow with bitcoins.

Why would a company do that?

adrianwaj3• 15 years ago

I feel I have that product, but cannot reveal what it is yet, because I have to add it on to my site, which isn't public.

nazgulnarsil4• 15 years ago

Bitcoin has aggravated the "layman talks out his ass about economics" problem again.

1. Gold is a proof of work system just like bitcoin. When someone accepts gold as payment for some other commodity or service they are doing so under the assumption that the value will be stable because it takes at least X amount of time/labor/ingenuity/money to "create" more gold by mining it. This is what backs non-consumption commodities.

2. Fiat currencies ARE backed. They are just usually backed by a service and not a commodity. The USD for example is backed by several things: the fact that it is the reserve currency for buying oil (all oil is sold in US dollars), the fact that dollars are avoid-prison coupons for tax burdens (how most fiat currencies have been backed), confidence that the US will inflate less than other regimes and meet its obligations, confidence that the US will enforce debt obligations denominated in USD with their military if necessary.

I'm getting pretty tired of ALL CAPS hyperbole about gold and fiat currency.

javert4• 15 years ago

I don't know much about economics, but...

Gold isn't really a non-consumption commodity. It's used in things like jewelry and compter circuits.

In other words, it doesn't just work because everybody agreed that it's a good mechanism for trade. It works because it actually has underlying value. Or, at least, I can't rule out that possibility, because it DOES have underlying value.

adrianN2• 15 years ago

But it has much less underlying value than other consumption commodities. Copper is more more useful than gold, for example.

vrotaru3• 15 years ago

Gold isn't really a non-consumption commodity. It's used in things like jewelry and compter circuits.

Yes, but... (you know the drill) World gold reserves are 60 times its annual production, which means that gold is mostly a non-consumption commodity.

hnsmurf3• 15 years ago

That flares up every few months. It's pseudo-intellectual herpes.

jtolle• 15 years ago

But surely the condition that it's hard to make more of something is necessary but not sufficient to make that something a good "money" candidate. People expect e.g. gold to continue to be money-like mostly because of its multi-thousand year history as money. So in that very large respect, gold is quite different from bitcoin.

I am interested in bitcoin, though, because of the obvious fact that it has something that neither gold nor dollars, euros, etc. have - it can be used anonymously over the internet. So it's possible to see it becoming popular enough to be "money", which is something important you can't say about something that is merely scarce. (I have to admit that I don't think it's likely, though, and I think investing all of your savings in it is a terrible idea.)

fexl2• 15 years ago

... can be used anonymously over the internet

Bitcoin transactions are easily traceable, so to achieve anonymity you must take care to avoid associating your IP address with spend locations.

You can use gold over the internet as well, using a system such as https://loom.cc to handle the accounting. But again, to achieve anonymity you must take care to avoid associating your IP address with spend locations.

gojomo• 15 years ago

Thank you, sir, for the coinage 'avoid-prison coupons'. (Your comment is currently the only source Google finds for that particular phrase.)

rphlx• 15 years ago

Several countries are trading oil directly with each other in non-USD currencies now.

tpatke• 15 years ago

Bitcoin is a market which has buyers and sellers. Just because one more idiot is willing to buy $10, or $1000 for a coin does not mean there is a market to SELL $50M worth.

This market sounds easy to get into and hard to get out of - especially in a hurry.

...saying that. I think the value of a bitcoin is probably going to go up. Everyone loves a bubble.

netcan2• 15 years ago

Interesting side effect of these bitcoin discussions is the back & forward of "this is a scam" --> "This is insane social engineering hack" --> "This is no different from any other money" :

Makes you think about what money is. We're so used to it that it seems trivial but if someone explained to you about their idea for this new thing called money you would probably think it was stupid, pointless and a way of scamming a goat for some stupid round things.

So much of our world wouldn't exist without money.

Serious question: Is there currently some easy way of buying and holding bitcoin without having to know anything about it, install anything, compile anything or be able to justify it or explain why to your wife? Perhaps some relaible online wallet?

maxwell• 15 years ago

MyBitcoin and Mt. Gox are OK, but are only for exchange. As far as I know, there isn't a web app for trading and mining yet. With browsers moving toward supporting hardware acceleration, it won't be long. The desktop client is pretty unfriendly to normal people; the whole scene reminds me of BitTorrent a few years back.

netcan2• 15 years ago

I don't want to mine. I want to buy $100 of bitcoin, without having to do much more than put $100 in paypal and forget about it.

Just an incentive to learn a bit more about it.

eli• 15 years ago

These endless bitcoin articles seem to have less and less to do with hacking or startups. I suspect there are more appropriate forums for debating economics.

orijing2• 15 years ago

This reminds me of those penny-stock pump-and-dump articles/spam emails I used to receive.

"Why I'm Putting All My Savings Into BITC". As soon as the pump scheme drives up the stock, you dump it and move onto the next thing.

I'm not saying mazsa is doing this, just that it could serve the same purpose. "Now that I'm fully invested in bitcoins, please buy it up so I can sell it later at a better price."

dspeyer• 15 years ago

He seems very impressed with the privacy: "In fact, nobody knows that he got it except me and him", "nobody can ... look at your account balance".

But every transaction is public. Is there anything stopping the NSA (or Amazon, or me) from subscribing and adding up his current balance? Sure, it'll be linked to his bitcoin address, not his name, but that can't be all that hard to map, can it?

_cbsz2• 15 years ago

You create a new bitcoin address for every transaction. Some money goes to the actual recipient, and the "change" goes back to your new address. In addition, you can attempt to "launder" bitcoins by executing bogus transactions from yourself to yourself.

Posting a static bitcoin address on your website and saying "send money here" is not considered best practice.

gulbrandr2• 15 years ago

> "Posting a static bitcoin address on your website and saying "send money here" is not considered best practice."

Can you explain why?

scottkrager• 15 years ago

Can I short bitcoins? If this guy is buying, I'll take the other side of that deal.

synnik• 15 years ago

Even if this were an otherwise good investment, I want know know: What stops the guys who run bitcoin from simply shutting it off?

EDIT: And before people reply, "it is P2P", someone runs the web site. Someone owns the code repository. Or some group. There will always be a small group with power to muck with the system. What stops abuse?

cobri• 15 years ago

My primary worry would be liquidity.

-Because the demand to buy bitcoin is low, the likelihood being able to sell the bitcoin whenever he wants (ideally at height of bitcoins worth) is also low. This is the same reason that penny stocks are difficult to make a profit it. While the value may go up significantly, you can't realize this profit until you find someone to sell it to (and in order for them to buy it, they have to think it's going to go up even further).

-Currently there aren't too many companies that accept bitcoin for products or services.

-Any currency is only as valuable as the people using it believe it is (ie. the dollar is only a piece of paper, but because the seller believes that its worth is equivalent to a candybar, he will trade it).

-Once people realize that they cannot use bitcoin for goods or services, the likelihood is that there will be a mass exodus, and the price will fall rapidly as people want to sell their un-useable bitcoin for a currency that still has value. With so few buyers, the discount will likely have to be pretty hefty in order to attract other buyers into a falling investment.

ecounysis• 15 years ago

The fundamental question is whether enough merchants will accept it in exchange for valuable goods and services that people want. A currency is as valuable as the tangible benefits you can trade it for. It seems unlikely that it will replace the major systems of exchange, nonetheless, I still hold a small amount of my portfolio in bitcoin denominated assets because you never know. Twenty years ago no one could have predicted the impact of the internet on the banking system. Hell, ten years ago most people were still reluctant to use the online banking services offered by their financial institutions. And now we are at a point where a cryptography based ecurrency is the content of this discussion, which seems to be evidence of the validity of the concept. It's just a matter of whether it will catch on.

Why I’m Putting All My Savings Into Bitcoin

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