Post
Topic
Board Economics
Re: Bitcoin capitalization eventually hit 0?
by
JoelKatz
on 02/07/2011, 23:19:33 UTC
However, that isn't so bad, since everything is relative. But assume there are a few other currencies as well, and real wealth, which many don't have. Then those who did have most of their wealth tied up into Bitcoins would be wiped out.
This is not hard to fix, just don't tie your wealth into a fixed number of Bitcoins. For example, if you put 5,000 bitcoins in a bank, make sure the bank agrees to provide your wealth in an alternate form should the Bitcoin market crash.

We have the same fear with fiat currencies. A troubled government might print a large amount of currency, thus causing that currency to crash. As an example of one form of protection, look at this:
http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm

Then if someone discovers 10,000 bitcoins, bitcoins become worthless, they dump the 10,000, and then the market recovers at new higher rate. Everyone who held wealth in the form of bitcoins still has that wealth, they just enforce the 'market crash' provisions of their agreements with whoever is holding their bitcoins.

Some wealth would be lost to the lucky discovered before the market can react. But if you believe currency shortage is a problem, then that's fair. They've helped alleviate a problem and so are entitled to profit from that. (As happened when it was discovered that aluminum, believed to be rarer than gold, was actually almost literally everywhere.)