Breaking news - Bitcoin Is Tanking!!

[ribuck]

My reluctance is summed up by Rick Rule's keen observation at the 3:00 mark in that video: "I don't have any way to express the utility of that labor excecpt in the ascribed value of a market for BC."

How would this be any different for gold or silver? How do you measure their utility except by checking the price on a market? Sure, you can melt your gold and turn it into a necklace, but then how do you measure the utility of that necklace except by pricing it on a market? Even if you just want to wear the necklace yourself for pleasure, you can't measure its utility (what units would you use?).

Utility (of gold, or a necklace, or a bitcoin) can be measured by what you can exchange it for.

I like Rick's video because he actually understands Bitcoin. Then he says (at 0:59) "If you are my age, you want something ... tangible". Fair enough. And if you prefer three ounces of silver to a bitcoin, that's absolutely fine provided you're not one of those who will complain about movements in the BTC-Silver exchange rate.

[Alan C.]

How do you measure their utility except by checking the price on a market?

I can ascertain utility by observing non-monetary use. In The Ethics of Money Production by Guido Hülsmann, he noted that, "...the monetary use of a commodity ultimately depends upon its non-monetary use..." (thx to Nielsio).

What is the non-monetary use of BC?

[Formelyknown]

 

How do you measure their utility except by checking the price on a market?

I can ascertain utility by observing non-monetary use. In The Ethics of Money Production by Guido Hülsmann, he noted that, "...the monetary use of a commodity ultimately depends upon its non-monetary use..." (thx to Nielsio).

What is the non-monetary use of BC?

 

It doesn't answer the question of utility at all. 

[ribuck]

 

How do you measure their utility except by checking the price on a market?

I can ascertain utility by observing non-monetary use.

That observation shows that the thing has some non-monetary utility, but it doesn't measure how much utility it has.

"...the monetary use of a commodity ultimately depends upon its non-monetary use..."

What is the non-monetary use of BC?

Bitcoin does actually have non-monetary use. For example, you can cryptographically sign messages with it, or use it for secure timestamping.

I really don't want to get sidetracked by the Mises Regression Theorem. Just because most forms of money originated as commodities, doesn't mean that they all must. Historically, there is Yap Stone Money as a counterexample. In the modern world, we are sophisticated enough to understand that a new method of payment (if it reduces the friction and insecurity of fiat money) can be useful for that reason alone, without the need to trace it back to gold or salt or coffee beans.

Bitcoin is a distributed, universal ledger of agreed balances. That's something which has never been possible before, and which has massive utility in its own right. I think Ludwig von Mises would have said that Bitcoin is something new and different, outside the scope of what he had previously described, and which isn't going to behave the same as what came before.

[st434u]

If you're certain that Bitcoin will fail, you can make a massive fortune by shorting it. You can be one of the "early adopters" amongst those who predict Bitcoin's failure.

Please do tell where and how one goes about shorting them...

Dude, they invented hyperlinks for a reason.

This is the thread http://board.freedomainradio.com/forums/t/34660.aspx?PageIndex=7

My first post there was on 07 (july) - 03 (3rd) - 2012

[ribuck]

 

If you're certain that Bitcoin will fail, you can make a massive fortune by shorting it. You can be one of the "early adopters" amongst those who predict Bitcoin's failure.

Please do tell where and how one goes about shorting them...

The easiest way to profit from a drop in the value of Bitcoin is to buy positions on the binary market offered by IG Markets.

This is the thread http://board.freedomainradio.com/forums/t/34660.aspx?PageIndex=7

My first post there was on 07 (july) - 03 (3rd) - 2012

Oh, that thread. JackB pretty much summed up my thoughts when he posted the following: "If a new form of money comes into being and is successful in the market
in a manner not predicted by theory, then it's up to the monetary
theorists to adapt to the new evidence."

 

[zg7666]

Just a side-notice, what just happened to precious metals!?  Because Goldman Sachs forecasts??

[Arius]

do you know whats up with those 6mil BC mined by early comers?

Consider this, every hour or so around 1.5 million BTC change hands.  I cannot imagine that anyone who was mining when BTC were under $.01 each is still holding 2 years later.  I also cannot imagine that anyone mining @ $10 each is still holding.  There have been four bubbles in the life of BTC.  By now, every early adopter has had a chance to unload their position and make a huge return.

It's funny.  We only see artificial bubbles in the real economy.  As such, we've grown to think of them as bad things.  Truth is, bubbles clear-out hoarders and free-up stagnant resources.  Natural bubbles are a form of market correction.

I've also read that 1mil BC is in 250 wallets.

The largest 100 wallets are stores and exchanges.  MtGox has around half a million at any given time. 

 

[RestoringGuy]

 

Check out this comparison:

ASIC servers @ $247 for 5 GH/s

GPU performance @ $239 for 900 MH/s

ASICs are, quite literally, a thousand times more productive per dollar of hardware.  Butterfly Labs has already started shipping.  The reviews from the BTC forum are extremely favorable.  GPUs are about to go the way of PS2 mining, lost in the sands of time.

 

 

That only seems 5 or 6 times better (5GH/900MH).  Neglecting setup/operating cost, is it worth the manual effort of setting up on an unused PC?  I could use the space heating anyway.

[Dumitru]

Bitcoin is a huge black swan for the sheeple and the shepherds. 

[Arius]

That only seems 5 or 6 times better (5GH/900MH).

There's more costs associated with hardware than the GPU.  Namely, a PC can only hold three or four of those bad boys.  Believe me when I tell you, the cost of extra mother boards, memory, power supplies, ram, and monitor switches adds-up quickly.  Not to mention the heat.  15 GPUs can raise a sealed 20x20 room's ambient temperature by 75 degrees in less than 5 minutes.  It takes some serious engineering to expel that much heat from an enclosed space.  I thought a plastic fan might work in the window...then the fan melted.  A cluster of GPUs needs an actual exhaust system, and the space to hold all the equipment.  When you cost average non-revenue equipment into the cost of GPU mining, the cost per MH becomes rather prohibitive...  Well, it was prohibitive when BTC were trading at less than $10. However, the difficulty was under 1,000,000.  With the difficulty over 7,000,000 (it's gonna break 8 million at the next difficulty check), it's impossible to make a profit with any number of GPUs.  The power costs alone will eat the miners alive.

This bubble is the last chance for GPU miners to recover their sunk costs and turn a profit.

I pay $.11 per kWh.  With 24 GPUs @ 750,000 difficulty I could make 2-3 BTC per day through pooled mining.  The power costs were $750 per month.  I could break-even while BTC stayed above $10.  I never recovered all my sunk costs.

Assuming power costs are comparable everywhere, a 24 GPU system (which is a big cluster computer) @ 7,500,000 (or 10x difficulty) should be able to produce .2-.3 BTC per day.  I'd say that's, at most, 14 BTC a month.  The price needs to stay above $50 to break even.  I guess fifty is the new zero while there's still GPU mining.

I assume all miners, prior to the current bubble, have been running at a loss for a very long time.

The major source of cost is power.  The ASIC systems use 5 to 10 times less power than GPU systems.  To me, that means the ASIC miners can sell their coins for less than GPU miners' coins.  I would assume the ASICs will drive the price of BTC back down to $20 or so.

The ASIC boxes are quiet, cool, and consume almost no power.  Not to mention the fact that you can hook dozens of them into a network of USB hubs.  One computer, dozens of miners.  To me, that equals very low barriers to entry.  Lots of competition in a zero-sum game.  Thanks anyway.

Neglecting setup/operating cost, is it worth the manual effort of setting up on an unused PC?

It really depends on how saturated the network is with the disruptive technology.  If everyone buys an ASIC box, no one will enjoy any advantage (network difficulty will see to that).  Given the time it took for everyone to convert from CPU to GPU, I'd say there's (at most) a four month opportunity with ASICs.  It really depends on how fast Butterfly Labs fills orders.  It's a big gamble.  I'd recommend just buying BTC.  At least you can sell the coins later if it all goes to hell.  Good luck selling an ASIC box when it becomes obsolete.

Even if you blue-sky the scenario, the market-efficient price for a single bitcoin is exactly equal to the production cost of that bitcoin.  Unless the network is saturated with ASICS, the per-bitcoin production cost will be pretty low.  If the network is saturated with ASICS, good luck handling the difficulty increase.  Like I said, if you think BTC is gonna increase in value, just buy some.  If you think it's gonna decrease in value, why would you want to mine?

Oh, and for god's sake, don't think I'm an expert.  I just spent a few months (and several thousand dollars) trying to make some money at the BTC thing.  I learned a bunch about mining --mostly what not to do-- and the BTC market.

 

[RestoringGuy]

That is great information, thank you.  I thought network speed was not so important, and is it not feasible say at 56k dialup rate?  You cannot run totally offline and sync only when score is made?  As far as electricity, using off-peak (<$0.07/kWh) and only in a rural area where resistive space heating is actually the cheapest option, whether a given kWH produces BTC or not the same money is being spent in winter anyway.

i am also curious if there has been discussion of the government turning supercomputers on it to simply nuke the value once visibility is high enough for them to bother.  That would be good reason not to buy and hold.

[ribuck]

That is great information, thank you.  I thought network speed was not so important, and is it not feasible say at 56k dialup rate?

It's possible to mine on 56k dialup by connecting to a mining pool.

For Bitcoin transactions on 56k dialup, you would need to use a client that doesn't download the whole block chain. It's currently possible to run a full client on 56k dialup, but if transaction volume grows much more it will cease to be practical and you will need to use a client with Simplified Payment Verification (or else an online wallet from a trusted provider).

As far as electricity, using off-peak (<$0.07/kWh)
and only in a rural area where resistive space heating is actually the
cheapest option, whether a given kWH produces BTC or not the same money
is being spent in winter anyway.

That is perfect for Bitcoin mining. If you would otherwise be using resistive space heating, you are effectively getting your Bitcoin mining without any electricity cost. However, the noise from the fans might mean you can't put your mining rig in exactly the same place as you would have had your resistive heater.

i am also curious if there has been discussion of the government
turning supercomputers on it to simply nuke the value once visibility is
high enough for them to bother.  That would be good reason not to buy
and hold.

It's an interesting question that has frequently been discussed, but with no consensus being reached. Firstly, note that the Bitcoin network is already much larger than the biggest supercomputers, so the NSA can't just turn on their big machines and damage Bitcoin. They would probably need to buy lots of ASICs.

Secondly, I doubt they could they do any lasting damage even if they had lots of ASICs. For sure, they could reduce the profitability of existing miners, but that doesn't damage the Bitcoin network as a whole. They could even use their hashing power to double-spend their own transactions, but if they did that people would soon learn to distrust any of their transactions. If they had enough ASICs, and mined so hard that the difficulty factor rose rapidly, then switched off their mining, transactions would take longer to confirm until the difficulty factor decreased again. This would be inconvenient but not devastating. So in my opinion they can't do lasting damage, and therefore won't bother.

Much more likely, in my opinion, is that Bitcoin transactions will be punitively taxed, or that Bitcoin will be regulated to such an extent that only the big corporations can afford to play.

 

 

[RestoringGuy]

 

Secondly, I doubt they could they do any lasting damage even if they had lots of ASICs. For sure, they could reduce the profitability of existing miners, but that doesn't damage the Bitcoin network as a whole. They could even use their hashing power to double-spend their own transactions, but if they did that people would soon learn to distrust any of their transactions. If they had enough ASICs, and mined so hard that the difficulty factor rose rapidly, then switched off their mining, transactions would take longer to confirm until the difficulty factor decreased again. This would be inconvenient but not devastating. So in my opinion they can't do lasting damage, and therefore won't bother.

Much more likely, in my opinion, is that Bitcoin transactions will be punitively taxed, or that Bitcoin will be regulated to such an extent that only the big corporations can afford to play.

 

Thanks.  Do you know what prevents two accounts from moving BTC back-and-forth, or perhaps some complex pathway of BTC distributions so that there is sabotage by explosion of the block chain? Maybe put 2*Pi BTC in account 1, transfer to 2, transfer to 4, etc. Also, is there any competitor to bitcoin, perhaps that shuns big corporations?  I could look this up I suppose, but your answers are easy for me to grasp and perhaps others here are interested.

[ribuck]

Do you know what prevents two accounts from moving BTC back-and-forth, or perhaps some complex pathway of BTC distributions so that there is sabotage by explosion of the block chain?

The relaying policy of the Bitcoin client takes care of this. Each coin is allowed to "turn over" every so often. If a spammer sends "bit dust" back and forth, a fee will be payable to the miner that includes the transaction into a block, so it becomes too expensive to spam. On the other hand, most clients will relay (and most miners will include) larger transactions or those made from mature coins for free or for a very small transaction fee.

Also, is there any competitor to bitcoin

Oh, there are plenty! You can just browse the "Alternate cryptocurrencies" subforum at Bitcointalk.

Most of them aren't doing very well, and many of them failed long ago. But they are all interesting experiments with some kind of variation from Bitcoin. Interesting surviving examples include Litecoin (varies some of Bitcoin's parameters), Namecoin (which ties domain name registration into a block chain), and Ripple (a distributed multi-currency chain for relationships where trust exists).

Technically it's quite easy to set up a competing cryptocurrency. You just need to modify the open-source Bitcoin software. The difficult part is to gain a critical mass of users. As the first blockchain-based cryptocurrency, Bitcoin has capitalised on its "first-mover" advantage. As a result, Bitcoin now has many traders and services, and it will be much harder for new cryptocurrencies to gain critical mass. But without a doubt, new cryptocurrencies will succeed in their own niches and will be exchanged to-and-from Bitcoin.

[Alan C.]

Some other perspectives on Bitcoin:

Bitcoin: Whatever It Is, It's Not Money! by Steve Forbes

Steve Forbes makes the following incorrect statements:

The basic reason: it has no fixed value.

. . .

Money is most optimal when it is fixed in value just as commerce is facilitated when we have fixed weights and measures.

The Bitcoin Money Myth

...Bitcoin is not a new form of money that replaces previous forms, but rather a new way of employing existent money in transactions. Because Bitcoin is not real money but merely a different way of employing existent fiat money, obviously it cannot replace it.

[pretzelogik]

But, wait:  Haven't we already replaced paper currency with virtual currency?  I don't know the actual proportions of the paper to digital ratio, but I imagine it to be rather tilted toward the virtual.

Why is trading one form of digital for another not feasible?  At least in the BTC realm, inflation is not arbitrary and unlimited.

[PreDeadMan]

I'd like to add that I bought 1 bitcoin over a week ago for 77 dollars. The current price of 1 Bitcoin is valued at 152 dollars. I wish i would have purchased a few of them for the 77 dollar price. 

[zg7666]

So is Bitcoin tanking again!?!?

[Wesley]

So is Bitcoin tanking again!?!?

Haha. Bitcoin is still like +80% on the week or something as I am posting this.

 

However, bitcoin tends to get some spikes of attention and interest that drive the price up very fast with trend investors. Eventually someone sells and the short-term bubble pops.

 

Long term, bitcoin still should go a lot higher in my opinion. That is why I have some.

[zg7666]

OK, thank you. I just wanted to draw the attention of those (from FDR) who trade, especially buy And to hear opinion on whether this will be larger correction or just a short break?

[ribuck]

So is Bitcoin tanking again!?!?

 

Notice how every time Bitcoin "tanks" it has done so from a higher price than before?

[FreedomPhilosophy]

Notice how every time Bitcoin "tanks" it has done so from a higher price than before?

it seems more likely than not that btc is still greatly undervalued

[zg7666]

You are watching the Bitcoin!? What a ride, is it not. 

Has anybody traded?

[Ruben Zandstra]

I bought 2 BTC in the past few weeks, and was thinking of making a habit out of it. Right now I'm a bit hesitant to buy another one: I could buy a quarter one, but with these fluctuations going on I'm kind of hanging frozen over the realtime courses.

[TheRobin]

You are watching the Bitcoin!? What a ride, is it not. 

Has anybody traded?

 

Haha, yeah, first time in my life, where I find myself checking the value of something I bought every so often throughout the day Also the first time I invest money into something and I get more out of it in return (I originally just bought some BTC to have savings that aren't fiat money).

 

But since this is the first time I do that kind of thing I'm a bit unsure how to best go about it. I already sold some portion of my bitcoins yesterday and traded some other smaller portion for Litecoins. Now I'm curious to see where BTC is going, as it just about came down from 700$ to like 550$ or so.

 

Btw what is your take on Litecoin? do you think that after the Bitcoin rise people will start using Litecoins more as well (now that one Cryptocurrency has shown what it can do, I mean)? And are you getting some too, now that there still around 5-7$?

[TheRobin]

so, to anyone who knows a bit more about trading and BTC, what is your take on the current falling of price on BTC?

 

(As a total noob in these matters I can only imagine it looking something like this )

 

[Wesley]

so, to anyone who knows a bit more about trading and BTC, what is your take on the current falling of price on BTC?

 

(As a total noob in these matters I can only imagine it looking something like this )

 

I can only speak for myself, but I am actuallly quite excited. It gives me a price where I can increase my position a little.

 

Legitimate increases are amplified by hype, then the day traders divest and things crash. In general, a crash is when I want to buy because I am long-term bullish on Bitcoin.

[Bulbasaur]

I agree with Wesley. There will always be short-term fluctuations as traders try to make the most of the volatility, but the important question is whether or not you think it will become widely accepted in the long term. I think currently it's held up mainly by speculators, opportunists, ideologues, linux users, and people trying to trade in controlled substances. In the last couple weeks it's been getting some 'mainstream' attention which seems to have pulled in a few more people who were on the fence, as well as a lot of attention from China. The Chinese government basically endorsed it on state TV, and the US senate seems to be on board although they'll probably start regulating and taxing bitcoin-accepting businesses. But the important thing is they won't be able to create bitcoins, so they'll hold their value as all the fiat currencies spiral. 

 

So the stage is set for a long-term migration to bitcoin. The big group that's missing from its current capitalization is 'regular people,' particularly older people. It still seems like a scam to people like my parents, and the prospect of sending an international bank transfer to a foreign exchange to buy them or setting up an in-person meeting with a local seller probably doesn't help with that. People without much technical background struggle to see the value in it, or why it's any different from Zynga dollars or Paypal. To use a computer analogy, right now bitcoin is still on a linux-level, and a lot of people aren't going to mess with it until they can get a Mac or Windows version. Its public perception also has to gain more legitimacy, but we can see that it's moving in this direction.

 

What I expect is some combination of the following:

(1) Chinese investments accelerate as more and more see the opportunity and are willing to take the risk

(2) Entrepreneurs and startups like Coinbase make buying bitcoins increasingly easy and less intimidating

(3) A major online retailer like Amazon begins the trend of accepting bitcoins as payment

(4) EU/Euro begins to fall apart, and European interest spikes 

 

I think (1) would keep the bottom from falling out if there's another crash, and (2) would progressively reduce the entry barrier for the less adventurous, while (3) would establish mainstream legitimacy and (4) would be the tipping-point. 

 

But if it were to gain mainstream acceptance, the price would necessarily be driven much, much higher. People compare the amount of bitcoin to the amount of gold and try to extrapolate the eventual stable price to be several thousand times the current price, but keep in mind that price is a function of both supply and demand. Demand for gold is dominated by commercial use (electronics/jewelry) and as an investment vehicle, not as a currency. If bitcoin becomes a standard in the way that the dollar is currently, there will be a lot more demand for bitcoin than for gold. The convenience of instant electronic payments with negligible fees makes bitcoin a lot more potentially useful than gold for most people, and since it can't be printed at the whim of the Fed, there won't be much point to hedging your bitcoin holdings by investing in gold. Again, all this depends on whether it eventually gains widespread acceptance. But as long as it progresses toward that, the demand for bitcoin will continue to grow, while the supply remains limited by the system itself and the increasing cost of mining, and the price will trend upward.

[TheRobin]

Cool, thanks for the replies, guys. And special thanks for the in depth explanation Bulbasaur

[Bulbasaur]

Just my amateur opinion, so of course I encourage everyone to investigate for themselves and come to their own conclusions.

[zg7666]

Sorry, I wasn't able to reply sooner. Thank you for your answers guys.
 

I bought 2 BTC in the past few weeks, and was thinking of making a habit out of it. Right now I'm a bit hesitant to buy another one: I could buy a quarter one, but with these fluctuations going on I'm kind of hanging frozen over the realtime courses.

 

OK, yes, that is kind of strategy when you are long on something and wherein you bay in regular time periods (a month or so) almost independent of the price. Than in average you will be just fine. 
 

Haha, yeah, first time in my life, where I find myself checking the value of something I bought every so often throughout the day Also the first time I invest money into something and I get more out of it in return (I originally just bought some BTC to have savings that aren't fiat money).

 

But since this is the first time I do that kind of thing I'm a bit unsure how to best go about it. I already sold some portion of my bitcoins yesterday and traded some other smaller portion for Litecoins. Now I'm curious to see where BTC is going, as it just about came down from 700$ to like 550$ or so.

 

Btw what is your take on Litecoin? do you think that after the Bitcoin rise people will start using Litecoins more as well (now that one Cryptocurrency has shown what it can do, I mean)? And are you getting some too, now that there still around 5-7$?

same here with me. I tried trading just a very small amount of BTC, it's fun.

I think corrections in past were from 40-70%. Maybe you already know this, you have some sites with speculators in BTC - https://bitcointalk.org/index.php?board=57.0  but don't take them too seriously. And remember that sentence from that prick Buffet, Be Fearful When Others Are Greedy and Greedy When Others Are Fearful' :-D

 

LTC, I was thinking few days ago about buying some too, but I would rather buy them for fiat money, not for BTC. And they are even more volatile.

And I guess Bulbasaur is about right. In a long term I have almost no doubt BTC will be very valuable.
But it is getting quite mainstream. I live in frickin Bosnia and couple weeks ago I visited parents and first thing my father asks me, 'how many of that "electric money" do you have'   ...they were talking about it on a local radio station, in small town in Bosnia.

 

 

 

So the stage is set for a long-term migration to bitcoin. The big group that's missing from its current capitalization is 'regular people,' particularly older people. It still seems like a scam to people like my parents, and the prospect of sending an international bank transfer to a foreign exchange to buy them or setting up an in-person meeting with a local seller probably doesn't help with that. People without much technical background struggle to see the value in it, or why it's any different from Zynga dollars or Paypal. To use a computer analogy, right now bitcoin is still on a linux-level, and a lot of people aren't going to mess with it until they can get a Mac or Windows version. Its public perception also has to gain more legitimacy, but we can see that it's moving in this direction.

 - nice observation, there is opportunity for entrepreneurs here.

[ribuck]

One strategy is to invest 3% of your savings, then don't worry about the price. Come back in a year or two to see whether you've lost 3% or gained a fortune.

[Wesley]

http://www.theguardian.com/technology/2013/oct/29/bitcoin-forgotten-currency-norway-oslo-home

 

Man buys $27 of bitcoin, forgets about them, finds they're now worth $886k

[zg7666]

 

http://www.theguardian.com/technology/2013/oct/29/bitcoin-forgotten-currency-norway-oslo-home

 

Man buys $27 of bitcoin, forgets about them, finds they're now worth $886k

 

 

 well that's the story that was on the radio.