Re: The Next Step for Bitcoin: From Mining to Transaction Economy
This is one of the finest posts I've read on this forum. I'm not joking. The confused view of Bitcoins as something of intrinsic value (deflationary and capped in amount) versus its infinite divisibility (representing a view of Bitcoins as currency) are directly in competition with each other. This is why people circlejerk each other with the idea that soon "all businesses will accept Bitcoin" while they sit there hoarding bitcoins in hopes of some future cash-out because of its deflationary worth (implicitly admitting to the fact that it will come from downstream late adopters who buy into the pyramid). It can't be both, folks. Either its a proxy for value, or of intrinsic value. Perhaps someone will create a currency to serve as the trading proxy for ever-so-precious bitcoins, and add another layer to the mix? 
I understand how bartering works, and bitcoin's intention and necessity to be barter fodder, and I also understand what it will take bitcoins to become a transaction currency. What I don't understand is whether satoshi realized he was overcompensating the bitcoin or not. It's not a revolution of the currency system, but moving complexity to another part of the system. The revolution is in the p2p / electronic transactions. Why go through all this trouble and not design it so trading was inevitable? To me, that's a fundamental flaw. Would the best currency not be immediately apparent even to average Joe? Would it not automatically assume control of all businesses because it just does what its supposed to? Bitcoins are slowed down by the nature of their existence; prospecting.
Most people don't hoard US dollars because the money supply inflation rewards "double debt now pay back later"...they hoard ownership and deeds instead. That's why I said that people will spend everything else, before bitcoins, then obviously use bitcoins and other precious things like gold when they have nothing else but need to pay for something. This is all assuming negative cashflow, of course, as that's the only reason to ever really dip into savings.
Gold has a value over bitcoins simply because there is intrinsic value: "If I can't find a buyer for this in the future, I'll just let my wife wear it, or use it in electronics etc." But the governments have decided to hoard it, and it's a pain in the ass to melt down and split all the time. Bitcoins are easy in that way, but do not have intrinsic value, so thus must get 100% of their value from being that trade token. How much would you pay for the the ability to not have to buy a whole pig? In the fiat system, you pay the banks an interest rate for the creation of their IOU barter notes, and that is the premium. With bitcoins, the premium is the mining and network hashing involved, but current prices are ruined by speculators of the "bitcoins are valuable in 20 years" school - enough to destroy their use as a trade token (the premium is too high).
Satoshi has achieved ability to trade and difficulty in forgery. However, by making it like gold, but not gold, there is no "fall back" if it no one will trade it. Fiat currency *has* to be guarenteed by the government issuing it, essentially saying they'll tax the crap out of everyone to make sure it holds its value, and they do. Gold is guarenteed by the fact that it is a great heavy inert metal and looks good. Bitcoins are backed by nothing, and that's the experiment; to see if people will accept it just because it is, and they will not if the premium to use it is too high (hence this thread, but add cost of speculation). Businesses don't care how they get paid. People care about how they pay. I don't see other currencies vanishing anything time soon, and thus, bitcoins only value is in value storage due to scarcity.
What I don't understand, then, is why Satoshi decided to allow the creation of bitcoins via competitive mining (which has its own merits if you want to create a store of value), when its to be used as a currency (which is simply an IOU). Gold is not an IOU...gold is...jewelery and happy wives. Fiat currency used to be a paper version of gold, since they could be exchanged, and since that stopped...it has been narrowing down to essentially it's real worth; nothing but the paper its printed on. Why not simply design bitcoins to be a record of a transaction in a community? In a way it supposedly is, but there's a subtle difference.
If the idea is to use bitcoins as "a valuable thing" to trade for a "valuable thing", as opposed to an IOU for "a valuable thing", then there's nothing wrong with what's going on now. The market will take its course, in 100 years all the coins will have been mined and its established that they're safe, and at some point close to that time bitcoins would have built a working trade economy around the bitcoins. However, because bitcoins are NOT a commodity that can be consumed (essentially a fiat currency), they are not an inherently valuable thing, and so must be used as an IOU, which is again unlikely when they're so expensive.
Most people don't hoard US dollars because the money supply inflation rewards "double debt now pay back later"...they hoard ownership and deeds instead. That's why I said that people will spend everything else, before bitcoins, then obviously use bitcoins and other precious things like gold when they have nothing else but need to pay for something. This is all assuming negative cashflow, of course, as that's the only reason to ever really dip into savings.
Gold has a value over bitcoins simply because there is intrinsic value: "If I can't find a buyer for this in the future, I'll just let my wife wear it, or use it in electronics etc." But the governments have decided to hoard it, and it's a pain in the ass to melt down and split all the time. Bitcoins are easy in that way, but do not have intrinsic value, so thus must get 100% of their value from being that trade token. How much would you pay for the the ability to not have to buy a whole pig? In the fiat system, you pay the banks an interest rate for the creation of their IOU barter notes, and that is the premium. With bitcoins, the premium is the mining and network hashing involved, but current prices are ruined by speculators of the "bitcoins are valuable in 20 years" school - enough to destroy their use as a trade token (the premium is too high).
Satoshi has achieved ability to trade and difficulty in forgery. However, by making it like gold, but not gold, there is no "fall back" if it no one will trade it. Fiat currency *has* to be guarenteed by the government issuing it, essentially saying they'll tax the crap out of everyone to make sure it holds its value, and they do. Gold is guarenteed by the fact that it is a great heavy inert metal and looks good. Bitcoins are backed by nothing, and that's the experiment; to see if people will accept it just because it is, and they will not if the premium to use it is too high (hence this thread, but add cost of speculation). Businesses don't care how they get paid. People care about how they pay. I don't see other currencies vanishing anything time soon, and thus, bitcoins only value is in value storage due to scarcity.
What I don't understand, then, is why Satoshi decided to allow the creation of bitcoins via competitive mining (which has its own merits if you want to create a store of value), when its to be used as a currency (which is simply an IOU). Gold is not an IOU...gold is...jewelery and happy wives. Fiat currency used to be a paper version of gold, since they could be exchanged, and since that stopped...it has been narrowing down to essentially it's real worth; nothing but the paper its printed on. Why not simply design bitcoins to be a record of a transaction in a community? In a way it supposedly is, but there's a subtle difference.
If the idea is to use bitcoins as "a valuable thing" to trade for a "valuable thing", as opposed to an IOU for "a valuable thing", then there's nothing wrong with what's going on now. The market will take its course, in 100 years all the coins will have been mined and its established that they're safe, and at some point close to that time bitcoins would have built a working trade economy around the bitcoins. However, because bitcoins are NOT a commodity that can be consumed (essentially a fiat currency), they are not an inherently valuable thing, and so must be used as an IOU, which is again unlikely when they're so expensive.