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I was careful with how I chose my words. I said that a "non-trivial amount of volatility" with Bitcoin could be due to changes with the domestic currency (such as QE).
Alright. Apologies in order.
I simply mistook when you said "non-trivial" to be implying that the forex markets were responsible for the vast majority of the volatility when in fact you were implying the opposite. This was the linchpin of my misunderstanding.
Now I understand you were arguing for something that I would consider trivial, relative to the conversation as it had existed before you came in. Thus, I totally misunderstood.
Sorry if I offended you. I assumed you were an Austrian ideologue and treated you as such (not a huge assumption considering we are in the Economics portion of the Bitcoin forums
).So again. Sorry if I offended you. I does seem that you were honestly trying to contribute to the discussion with mainstream economic theory. I appreciate that.
I would bet heavy money that my background and education in economics is much more in depth than your own.
I don't care what letters are next to your name, but if you have as much education in economics as you suggest, then your argument is extremely odd to me.
The fact is that if all the currencies are moving up and down in value together as you suggest, thus causing the volatility in BitCoin, then commodities should move up and down in value relative to these currencies together. They may move in different proportions, but they should move generally in the same direction at the same time. Furthermore, it seems odd that if it is the currencies that are so volatile and not BitCoin that prices in countries like the US are relatively stable compared to the price of BitCoin relative to strong currencies.
It seems strange to me that someone with a degree in mainstream economics would suggest otherwise, so you will forgive me if I doubt your credentials. If there is something I am truly not getting in your argument that links it to mainstream economic theory, please enlighten me.
I would think a non-trivial amount of the Bitcoin exchange rate volatility is not in relation to the burgeoning currency itself, and may actually be more dollar-related (or domestic currency-related). Remember, Bitcoin's supply is fixed.
If argument this were correct, then gold and BitCoin would move more-or-less in lockstep relative to the dollar. But they don't. Because this is flawed economic thinking. Because you need to learn some basic econ, much of which can be learned for free on Khan Academy.
We have seen a 94% devaluation in the US dollar.
Why can't it just be a gold bubble? I really think there is a better argument for a gold bubble.
Money is supposed to be a store of value
No, money is supposed to be what it is: a liquid medium of exchange. That is its primary purpose.
the CPI leaves out fuel and food so much of the inflation is missing.
"The widely repeated idea that [the CPI is] updated by an index that does not include food and energy is simply not true" (http://www.bls.gov/opub/mlr/2008/08/art1full.pdf page 11).
also check out shadowstats.org the calculate the CPI and unemployment the way the did up until clinton.
You are not the first person to mention this site to me. There is gobs of info on the internet saying that the site is full of crap.
http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-i.html
http://rationalwiki.org/wiki/Shadow_Government_Statistics
Google "shadow stats" and you'll find a lot more.
A little bit of deflation can be a good thing, in an economy that doesn't wildly print money,and fuel a highly leveraged fractional reserve banking system.
Even Hayek thought deflation was bad. Deflation is bad (http://en.wikipedia.org/wiki/Deflation#Effects).
Central bankers are part of the government, and thus they will always have political pressures and motivations, leading to, say holding interest rates down at 1% after 9/11 way too long and creating a huge bubble.
If you read the highly influential book that predicted both the .com crash and the housing bubble burst, Irrational Exuberance (http://en.wikipedia.org/wiki/Irrational_exuberance), you will see that the bubble was born far before 9/11. The data is clear as day on this point.
I paid for college off those trades.
I met quite a few people with stories like yours when I lived in middle-of-nowhere Thailand for two years. One of them told everyone of the several BMW's that he had had. And then lost. People who have a poor grasp of mainstream economic theory who shirk diversification and put all their money into a few things may win once in a while but eventually they will lose big. You got good luck; someday you will have bad luck. It is evidence of nothing.
nd the reason we aren't seeing crazy massive sick nasty inflation from the money the banks are printing is because it's being hoarded by the banks, then lent back to the government through treasury buys so the banks can heal and make money on the intereest rate spread from the fed to treasuries.
This argument requires fundamental misunderstanding of how our money and banking system works.
Instead of me regurgitating a couple hours worth of macro lectures, I highly recommend to brush up on basic Economic theory, especially Macroeconomic theory. I further recommend it for anyone else who is confused why the poster was wrong on any of these points. Khan Academy is awesome for stuff like that.
https://www.khanacademy.org/economics-finance-domain/macroeconomics
There are people that sometimes say that they know mainstream macro well enough already, but what often happens is that when I quiz them about basic macro, they really don't know it. It is VERY important to know the mainstream viewpoint if yours is not the mainstream one because you must be secure that you are not arguing against a straw man (http://en.wikipedia.org/wiki/Straw_man) and that you are following the Principle of Charity (http://en.wikipedia.org/wiki/Principle_of_charity).
The users of SophyphreakCoin have to trust that the intervention in the issuance rate won't be manipulated by the markets. The miners would be in prime position to do so, seeing as they would be privileged to receive all additions to the money supply. This can happen now, but the rate of issuance cannot be affected by price manipulation (or at all).
Unlikely if the mechanism works like a normal pegging: you affect things slowly. It doesn't snap back like a rubber band.
Yes, the Satoshi model has price instability, but so do other small currencies.
This is untrue. Small currencies (as far as I know) almost always peg their value to avoid price instability.
Don't forget that there is a real possibility that the incumbent fiat currency system will not be in a stable condition by the time bitcoin volatility is tamed.
There is no good data to support this point that I am aware of.
The closest example to this I'm aware of is Ripple.
Awesome. I'll research this. Update: Ripple currency does not peg it's value and it is not P2P.
A volatile price means greater risk on the part of the user. So he thinks maybe this is not such a good thing to use. Maybe I should use something that does not carry that risk.
Exactly!
It is impossible.
Coins that do this are centralized and their "P2P"ness is just an implementation detail.
Any interaction with the real world, or real world information is centralization. You might then as well keep balances in a text document with notepad. Securing virtual tokens with cryptography is a waste of time when their actual value depends on a central entity.
Coins that do this are centralized and their "P2P"ness is just an implementation detail.
Any interaction with the real world, or real world information is centralization. You might then as well keep balances in a text document with notepad. Securing virtual tokens with cryptography is a waste of time when their actual value depends on a central entity.
Interesting point. I would argue that such a concept would be more centralized than BitCoin but less centralized that Ripple (though I haven't researched Ripple enough yet...).
Update, 2-12-2014:
I realized that all my links have been replaced by the message "Suspicious link removed" because they were all shortlinks (for aesthetic purposes). I have sense changed them all to long links.
That is the core point that I wanted to float. Now for your specific points:
I think it might be illegal to have a pegged P2P currency, however, I believe it is far from technically impossible. Other posters talk about services that currently fix the value of their online currencies.
I checked out Auroracoin, and it looks interesting. Though it seems to be unrelated to the original subject at hand.
Thank you for this helpful list of online currencies. But as you say they aren't P2P and thus kind of defeat the purpose. Furthermore, their fees also leave their currencies with something to be desired.
However, I disagree that the only way to peg the value of an online currency is a big stockpile of money. See my proposition at the beginning of this post.
Just to be upfront about this now: I am absolutely a Keynesian; it's absolutely not dead (http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1&em), a discussion for another time.
It is unlikely that bullion appreciation is a sign of fiat currency inflation. If you look at any measure of inflation outside of bullion alone there is no sign of inflation that bullion appreciation might suggest. Consider CPA, cost of living increase, median or mean wage increases. Consider numbers collected by the government or by non-governmental organizations. By any reasonable data-driven analysis bullion's massive appreciation is not a result of fiat currency inflation. It is far more likely that the price of bullion has simply risen a lot, as many financial things do from time to time. It could even be a bullion bubble, after all there was a bullion bubble that grew and burst already (http://www.google.com/imgres?safe=off&sa=X&hl=en&biw=1366&bih=679&tbm=isch&tbnid=QEM9gqyYdTKlaM:&imgrefurl=http://seekingalpha.com/article/256917-riding-the-second-gold-bubble&docid=3yb2AlBObawVxM&imgurl=http://static.seekingalpha.com/uploads/2011/3/7/520519-129951866516192-UltraLong_origin.jpg&w=933&h=586&ei=xuv5Ut68Mcnj2wW0wYGgAg&zoom=1).
The more moving parts in a business, the more cost of doing business, the higher the entry cost into the market, the higher the prices for the consumer. I see no reason why instability in the value of a currency could be considered not a bad thing.
Furthermore, is see no reason why the Mt Gox panic and recovery should be considered evidence that BitCoin is "robust." The 2010 Flash Crash (http://en.wikipedia.org/wiki/2010_Flash_Crash) wasn't evidence of the "robustness" of the US system, and the Mt Gox story isn't evidence of BitCoin being "robust."
Finally, there is no reason that wall street will make the currency a better currency. More investors (aka speculators) is bad for stability and bad for BitCoin as a medium of exchange. Speculators increase instability. There is no reason to look forward to wall street investment.
As stated before, stability of value of a currency is highly important for the viability of that currency. Pegging the value of the currency creates stability of value. Without reasonable stability of value, BitCoin cannot function as a viable currency (see http://www.theatlantic.com/business/archive/2013/12/why-bitcoin-will-never-be-a-currency-in-2-charts/282364/ for another argument on similar grounds).
Fiat currency is not "inflated away." Inflation is not at a high level, and a low level of inflation is good because it prevents deflation and it gives people motivation to spend their money and thus help the economy.
Not sure yet if MintChip answers my question, but it is definitely interesting and worth looking at closer. Thanks for the heads-up!
Of course the dollar fluctuates in value. That's the point of a floating currency. But consider this, on Jan 1, 2014 the USD changed 0.15% of its value against the Euro with no big intra-day fluctuation while BitCoin lost 4.2% of its value in three hours. That's not even a remarkable single-day price change for BitCoin. A tiny blip of a day on the radar that I chose purely because it was a day of non-significance for BitCoin as a financial instrument.
The reason a pegged currency would not be the same as paypal is because the value would still fluctuate, but the system would gravitate toward a pegged exchange rate (or relative exchange rate against a basket of currencies).
Finally, the biggest point being brought up is the biggest point that I have a problem with.
There is a belief in the BitCoin community that a large market cap or widespread adoption and becoming more like gold will magically bring stability to the value of the currency, but there is no data to support this. After reading these responses I realized that I should have linked the first post to the original forum (https://bitcointalk.org/index.php?topic=458083.new#new). Here is the jist of why a larger market cap/wider adoption probably won't bring stability:
Let us assume that gold is a currency in the world, similar to BitCoin, only with much wider adoption and a much longer history. The gold market cap according to the guy on the previous forum's source...
...is $8.5 trillion. To better understand the enormity of this number, the market cap of US dollars in circulation is $1.2 trillion (http://www.federalreserve.gov/faqs/currency_12773.htm). Thus, the current value of all the gold in the world (aka market cap) is about 7x the value of all the US dollars in the world.
This being said, the value of gold has had an annual inflation rate of 8% per annum over the past 5 years while it has simultaneously had a deflation rate of 23% over the past year (http://goldprice.org/gold-price-history.html). And this does not begin to amount to the historical instability of the price of gold since it was untied from currencies during the Great Depression.
Compare this to the US dollar (http://www.usinflationcalculator.com/inflation/historical-inflation-rates/). Its worst years of inflation were when it was tied to gold, as were its worst years of deflation. Since the end WWII there have been exactly 5 years of 10% inflation or more, and in the current era of post-Stagflation American Macroeconomics we have seen zero years of inflation breaking 6%. Furthermore, we have seen one deflationary year since 1950 when deflation reached 0.4% in 2009.
The dollar is far more stable than gold while gold is more widely used and gold's market cap is far larger.
There is no reason to believe that wide BitCoin use or a large BitCoin market cap will make it more stable.
Thanks for reading.
I realized that all my links have been replaced by the message "Suspicious link removed" because they were all shortlinks (for aesthetic purposes). I have sense changed them all to long links.
That is the core point that I wanted to float. Now for your specific points:
I think that the only way to peg a currency to another one is through a legal framework. Since cryptocurrencies don't fall under any one country's control it is impossible to peg them to anything else.
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I suggest that you look into the new Auroracoin. That is a good effort at making crypto more widespread.
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I suggest that you look into the new Auroracoin. That is a good effort at making crypto more widespread.
I think it might be illegal to have a pegged P2P currency, however, I believe it is far from technically impossible. Other posters talk about services that currently fix the value of their online currencies.
I checked out Auroracoin, and it looks interesting. Though it seems to be unrelated to the original subject at hand.
The closest we have at the moment is stuff like Payeer, PerfectMoney, EgoPay, OKpay, that kind of stuff. Their fees are high and it's not P2P. The problem with pegging is that someone has to back it up.
...
This is why PerfectMoney and the like charge fees, because they pretty much have to keep all dollars from currency exchange in a big stockpile.
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This is why PerfectMoney and the like charge fees, because they pretty much have to keep all dollars from currency exchange in a big stockpile.
Thank you for this helpful list of online currencies. But as you say they aren't P2P and thus kind of defeat the purpose. Furthermore, their fees also leave their currencies with something to be desired.
However, I disagree that the only way to peg the value of an online currency is a big stockpile of money. See my proposition at the beginning of this post.
On the other hand I think it would be safe to assume that current fiat inflation brings about an upward trend for bullion in general; that being said, we often forget that the rate of appreciation a particular thing is not a function of economics !!!! Supply and demand is only an effect and not a cause ... Everyone should get the fact that Kensian[sic] economics is dead
Just to be upfront about this now: I am absolutely a Keynesian; it's absolutely not dead (http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1&em), a discussion for another time.
It is unlikely that bullion appreciation is a sign of fiat currency inflation. If you look at any measure of inflation outside of bullion alone there is no sign of inflation that bullion appreciation might suggest. Consider CPA, cost of living increase, median or mean wage increases. Consider numbers collected by the government or by non-governmental organizations. By any reasonable data-driven analysis bullion's massive appreciation is not a result of fiat currency inflation. It is far more likely that the price of bullion has simply risen a lot, as many financial things do from time to time. It could even be a bullion bubble, after all there was a bullion bubble that grew and burst already (http://www.google.com/imgres?safe=off&sa=X&hl=en&biw=1366&bih=679&tbm=isch&tbnid=QEM9gqyYdTKlaM:&imgrefurl=http://seekingalpha.com/article/256917-riding-the-second-gold-bubble&docid=3yb2AlBObawVxM&imgurl=http://static.seekingalpha.com/uploads/2011/3/7/520519-129951866516192-UltraLong_origin.jpg&w=933&h=586&ei=xuv5Ut68Mcnj2wW0wYGgAg&zoom=1).
In my opinion bitcoin IS the ideal currency, all currencies float, all corporations that do deals internationally have hedging departments to deal with currency exchange risk, so movement isn't a deal breaker by any means. Bitcoin is truly revolutionary, and new, and while volatile it is INCREDIBLY robust, look how it handled the panic today, the moment the market learned the Mt Gox was lying when they said the protocol was flawed buyers rushed right back in. Once bitcoin has a few more years to ... finish with large investors coming in. I mean when wall street gets involved (Winklevoss ETF among others) the buying pressure is going to be enormous.
The more moving parts in a business, the more cost of doing business, the higher the entry cost into the market, the higher the prices for the consumer. I see no reason why instability in the value of a currency could be considered not a bad thing.
Furthermore, is see no reason why the Mt Gox panic and recovery should be considered evidence that BitCoin is "robust." The 2010 Flash Crash (http://en.wikipedia.org/wiki/2010_Flash_Crash) wasn't evidence of the "robustness" of the US system, and the Mt Gox story isn't evidence of BitCoin being "robust."
Finally, there is no reason that wall street will make the currency a better currency. More investors (aka speculators) is bad for stability and bad for BitCoin as a medium of exchange. Speculators increase instability. There is no reason to look forward to wall street investment.
What's with all the desire to PEG to the dollar? ...
When placed against the USD or other fiats, BTC is also better in terms of transactions, better in terms of inability to counterfeit. USD is inflated away just like all fiats, so bitcoin wins again. ...
When placed against the USD or other fiats, BTC is also better in terms of transactions, better in terms of inability to counterfeit. USD is inflated away just like all fiats, so bitcoin wins again. ...
As stated before, stability of value of a currency is highly important for the viability of that currency. Pegging the value of the currency creates stability of value. Without reasonable stability of value, BitCoin cannot function as a viable currency (see http://www.theatlantic.com/business/archive/2013/12/why-bitcoin-will-never-be-a-currency-in-2-charts/282364/ for another argument on similar grounds).
Fiat currency is not "inflated away." Inflation is not at a high level, and a low level of inflation is good because it prevents deflation and it gives people motivation to spend their money and thus help the economy.
It's being worked on: https://en.wikipedia.org/wiki/MintChip
Not sure yet if MintChip answers my question, but it is definitely interesting and worth looking at closer. Thanks for the heads-up!
the intrinsic value of a US dollar fluctuates vs. all the other world's currencies by the day/hour/minute. So even if it was pegged to the dollar, it still would fluctuate in value. There isn't really a feasible way to peg it to an exact dollar value, otherwise it would just be sending money...or pretty much paypal..
Of course the dollar fluctuates in value. That's the point of a floating currency. But consider this, on Jan 1, 2014 the USD changed 0.15% of its value against the Euro with no big intra-day fluctuation while BitCoin lost 4.2% of its value in three hours. That's not even a remarkable single-day price change for BitCoin. A tiny blip of a day on the radar that I chose purely because it was a day of non-significance for BitCoin as a financial instrument.
The reason a pegged currency would not be the same as paypal is because the value would still fluctuate, but the system would gravitate toward a pegged exchange rate (or relative exchange rate against a basket of currencies).
Finally, the biggest point being brought up is the biggest point that I have a problem with.
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Prices will only stabilize once adoption is more widespread.
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gold is an unregulated comodity[sic] too ... so could the BTC be in a different form
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Once bitcoin has a few more years to gain wider adoption, a longer track record, and finish with large investors coming in.
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BTc will become more stable once it is more openly traded ....
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It will be more stable when the market cap altogether is much bigger, and then news positive or negative will have a smaller effect on the overall value of 1 btc.
There is a belief in the BitCoin community that a large market cap or widespread adoption and becoming more like gold will magically bring stability to the value of the currency, but there is no data to support this. After reading these responses I realized that I should have linked the first post to the original forum (https://bitcointalk.org/index.php?topic=458083.new#new). Here is the jist of why a larger market cap/wider adoption probably won't bring stability:
Let us assume that gold is a currency in the world, similar to BitCoin, only with much wider adoption and a much longer history. The gold market cap according to the guy on the previous forum's source...
...is $8.5 trillion. To better understand the enormity of this number, the market cap of US dollars in circulation is $1.2 trillion (http://www.federalreserve.gov/faqs/currency_12773.htm). Thus, the current value of all the gold in the world (aka market cap) is about 7x the value of all the US dollars in the world.
This being said, the value of gold has had an annual inflation rate of 8% per annum over the past 5 years while it has simultaneously had a deflation rate of 23% over the past year (http://goldprice.org/gold-price-history.html). And this does not begin to amount to the historical instability of the price of gold since it was untied from currencies during the Great Depression.
Compare this to the US dollar (http://www.usinflationcalculator.com/inflation/historical-inflation-rates/). Its worst years of inflation were when it was tied to gold, as were its worst years of deflation. Since the end WWII there have been exactly 5 years of 10% inflation or more, and in the current era of post-Stagflation American Macroeconomics we have seen zero years of inflation breaking 6%. Furthermore, we have seen one deflationary year since 1950 when deflation reached 0.4% in 2009.
The dollar is far more stable than gold while gold is more widely used and gold's market cap is far larger.
There is no reason to believe that wide BitCoin use or a large BitCoin market cap will make it more stable.
Thanks for reading.
I will address the numerous good points made here because they are worthy of being addressed; however, first I have a proposition.
BitCoin has proved that an P2P currency-like thing can exist and work; however, chronic instability is an ongoing problem.
I'm not a programmer, but consider a P2P cryptocurrency with an initial centralized online exchange that the P2P program runs. The program gives more Coins to miners when the price of the cryptocurrency is deemed too high and gives fewer coins to miners when the price is too low similarly to how a government might do so. Thus, the program is able to peg the currency value and maintain long term and short term price stability.
BitCoin has proved that an P2P currency-like thing can exist and work; however, chronic instability is an ongoing problem.
I'm not a programmer, but consider a P2P cryptocurrency with an initial centralized online exchange that the P2P program runs. The program gives more Coins to miners when the price of the cryptocurrency is deemed too high and gives fewer coins to miners when the price is too low similarly to how a government might do so. Thus, the program is able to peg the currency value and maintain long term and short term price stability.
(Originally posted in Alternate Cryptocurrencies forum)
I would love to see a P2P currency work, but I have serious doubts about current-day P2P currencies.
The most important thing any currency needs is (at the very least) day-to-day stability of value, and no P2P currency that I know about has that yet.
The best way to create day-to-day stability would be to peg the value of the currency to a big currency or a basket of currencies, which is what most developing and/or small countries do--at least until the currency is stable enough to be allowed to float.
I don't think it would be technically simple to create a P2P currency that works that way.
That being said, does anyone know of a P2P currency that pegs its value right now?
I would love to see a P2P currency work, but I have serious doubts about current-day P2P currencies.
The most important thing any currency needs is (at the very least) day-to-day stability of value, and no P2P currency that I know about has that yet.
The best way to create day-to-day stability would be to peg the value of the currency to a big currency or a basket of currencies, which is what most developing and/or small countries do--at least until the currency is stable enough to be allowed to float.
I don't think it would be technically simple to create a P2P currency that works that way.
That being said, does anyone know of a P2P currency that pegs its value right now?
I'm sorry to break it to you, but stability does not a large market cap alone make. You sent me this link: http://www.numbersleuth.org/worlds-gold/ . It says the market cap for gold is $8.5 trillion, 7x that of USD in circulation. The USD is stable right now and has been since the end of stagflation.
A large market cap does not make gold stable; the gold market cap is much bigger than USD in circulation; thus, there is no reason to believe that a large market cap would make BTC stable.
A large market cap does not make gold stable; the gold market cap is much bigger than USD in circulation; thus, there is no reason to believe that a large market cap would make BTC stable.
I am still looking for an answer to my original question; however, gold itself is not stable enough to be a good currency. In the past year I believe gold's inflation rate is 25% while its deflation rate over the past 5 years is 9% per year. This is to say that gold is too volatile to act as a viably currency. Generally accepted economics today aims for an inflation rate of between 1 and 3 percent per year in order to keep away volatility, hyperinflation, and deflation.
Gold isn't stable, thus it is difficult to see how a Bitcoin market cap that is similar to a gold market cap would cause Bitcoin to have a stable price.
Gold isn't stable, thus it is difficult to see how a Bitcoin market cap that is similar to a gold market cap would cause Bitcoin to have a stable price.
I would love to see a P2P currency work, but I have serious doubts about current-day P2P currencies.
The most important thing any currency needs is (at the very least) day-to-day stability of value, and no P2P currency that I know about has that yet.
The best way to create day-to-day stability would be to peg the value of the currency to a big currency or a basket of currencies, which is what most developing and/or small countries do--at least until the currency is stable enough to be allowed to float.
I don't think it would be technically simple to create a P2P currency that works that way.
That being said, does anyone know of a P2P currency that pegs its value right now?
The most important thing any currency needs is (at the very least) day-to-day stability of value, and no P2P currency that I know about has that yet.
The best way to create day-to-day stability would be to peg the value of the currency to a big currency or a basket of currencies, which is what most developing and/or small countries do--at least until the currency is stable enough to be allowed to float.
I don't think it would be technically simple to create a P2P currency that works that way.
That being said, does anyone know of a P2P currency that pegs its value right now?