Quote from: willsterling on July 10, 2011, 03:51:34 AM

I hope I'm right. If you look at the numbers on Bitcoin Watch www.bitcoinwatch.com there are 6.7 million bitcoins in existence, and 2 million of them traded hands in the last 24 hours... that seems like a very vibrant economy with a very high velocity of money, no? Then again, it's hardly been a deflationary last 30 days. So the jury is still out.

Hold your horses!! The overwhelming fraction of those 2 million bitcoins are people sending money to themselves. The way the Bitcoin client works, if you want to send 42.53 BTC to someone, and all you have is an address with 41689.32 BTC, then you have to send *all* the 41689.32 BTC out, then split it into 42.53 BTC for your recipient and 41646.79 BTC back to yourself:

http://blockexplorer.com/tx/8659d60ef083113240772fa4246c60b5daa4356fde50dc58184a497c2d65280a

Try examining the blocks in block explorer. It's pretty easy in most transactions to pick out what's actual trading and what's "change" being sent back to the sender (hint #1: if there's an output that's 100 times bigger than the rest, that's usually change; hint #2: people like to send nice rounds numbers of bitcoins to each other, but their wallets usually have ridiculously unround numbers in them due to transaction fees or pooled mining; hint #3: the "change" output is smaller than all of the "inputs" to any transaction). An OVERWHELMING fraction of volume is change. If I had to guess, I'd peg the volume of actual trade around 20,000 - 50,000 BTC (and someone with enough patience to sort out change from trade in the block chain can in principle give you a very accurate estimate). An overwhelming majority of *that* is going into speculation at the exchanges, which creates no real economic activity (look at the volume exchanged at MtGox, and realize that that's not the only exchange site in operation). The amount of Bitcoins that are actually facilitating trade is paltry, and the economics of the system is sufficiently crazy to ensure that this remains the case.