Is Bitcoin a Legitimate Currency or a Potential Scam?

[Pythagorean]

Maybe they do, but just because the majority believe something doesn't make it true, or even rational.

I don't disagree, I just was curious how Bitcoin differed from USD in the way you were describing it.

 

[AlephZero]

How do you figure? Its the exact opposite. The bitcoin community does not have a faith in humanity.

They may or may not have a faith in humanity, but they have a touching level of faith in individual humans that they never met, and have no recourse against [STRIKE]if[/STRIKE] when they get ripped off. The people running Mt Gox, for example.

They may or may not "trust the math", but they don't seem capable of doing elementary arithmetic and logic. If I buy US dollars with my GB pounds in a regulated forex market, and after the exchange rate has moved I buy back more pounds than I started with, it should be self-evident that somebody else has lost the amount that I gained. And in the last resort, some nice American federal official will print some more dollar bills to pay me.

But if I buy a bitcoin from an exchange for $500, and then sell it back for $1000, who exactly lost the $500 I just gained? Do I have any way to know if they had even $500 to lose? If they do have the money, do I have any way to know they will keep their side of the bargain? No, because everything is anonymous, and untouchable by the law.

Clearly, "not trusting people" doesn't imply "not stupid".

 

[Pythagorean]

They may or may not have a faith in humanity, but they have a touching level of faith in individual humans that they never met, and have no recourse against [STRIKE]if[/STRIKE] when they get ripped off. The people running Mt Gox, for example.

That's not indicative of the whole bitcoin community, just the ones that prefer not to store the bitcoins on their own property.

 

[russ_watters]

I'm not saying that it's zero-sum. Everyone could theoretically be successful, but they can't all be using the same strategy, so no one strategy is going to be successful by the "vast majority".

I'm not clear on if that's really different from what you said before or not, but it is still nonsense. The "correct" and most widely used investment strategy for retirement is to put money into a diversified stock portfolio (like an S&P500 index fund) over a course of your entire adult life and shift money out slowly (into bonds) as you approach retirement. Statistically, (based on analyzing the S&P's value), everyone who has ever done this has been successful.

Yes, one strategy that everyone uses will (has been) successful for everyone who has used it, which is the vast majority of retirement savings stock investors.

I'm not even sure why we are talking about this - what you quoted that I posted didn't mention stocks at all, it was about speculation investing in fads and gold rushes. Were you trying from the beginning to argue that Bitcoin "investing" is no worse than stock market investing? Was that your point here? It is really annoying/in bad taste to make an argument by leading question instead of stating it outright (even if your claim had been right, it would still be in bad taste!).

 

[russ_watters]

That's not indicative of the whole bitcoin community, just the ones that prefer not to store the bitcoins on their own property.

And where they buy them. What fraction of Bitcoin acquiring (when people convert dollars to bitcoins) is done person to person vs in exchanges? I doubt it is much, but I don't see it as being any better:

Why would that be any more secure than using one of those exchanges? In other words, instead of trusting a small company that has only been around for 4 years and was created as a hobby by a guy who had a spare website domain laying around for his now defunct Magic the Gathering trading website, you are trusting a random individual who you met off Craigslist (or anywhere else). How is that better? To me, as bad as the first option was, this one is even worse.

 

[Pythagorean]

I'm not clear on if that's really different from what you said before or not, but it is still nonsense. The "correct" and most widely used investment strategy for retirement is to put money into a diversified stock portfolio (like an S&P500 index fund) over a course of your entire adult life and shift money out slowly (into bonds) as you approach retirement. Statistically, (based on analyzing the S&P's value), everyone who has ever done this has been successful.

Yes, one strategy that everyone uses will (has been) successful for everyone who has used it, which is the vast majority of retirement savings stock investors.

I'm not even sure why we are talking about this - what you quoted that I posted didn't mention stocks at all, it was about speculation investing in fads and gold rushes. Were you trying from the beginning to argue that Bitcoin "investing" is no worse than stock market investing? Was that your point here? It is really annoying/in bad taste to make an argument by leading question instead of stating it outright (even if your claim had been right, it would still be in bad taste!).

It is really annoying/in bad taste to have bad faith in people in a discussion and make accusations, too.

It's also annoying when people move the goal post: you were talking about people who "got rich". Diversificaiton is a defensive strategy and comes at the cost of potential reward: it dilutes your portfolio. And anyway, you don't just diversify randomly... you have to pick a diversification strategy, still. And many investors will not release their diversification strategies because they lose investment power if more people are doing the same thing. Anyway, saving for retirement isn't the same as getting rich.

The whole concept of the advantages of a unique investment strategy is part of the birth of Value investing (see The Intelligent Investor, by Benjamin Graham). Which is another "correct" way to invest.

 

[Pythagorean]

And where they buy them. What fraction of Bitcoin acquiring (when people convert dollars to bitcoins) is done person to person vs in exchanges? I doubt it is much, but I don't see it as being any better:

Why would that be any more secure than using one of those exchanges? In other words, instead of trusting a small company that has only been around for 4 years and was created as a hobby by a guy who had a spare website domain laying around for his now defunct Magic the Gathering trading website, you are trusting a random individual who you met off Craigslist (or anywhere else). How is that better? To me, as bad as the first option was, this one is even worse.

You still do exchanges virtually and you ensure that you know the real identity of the people you are doing business with so they can be held accountable. It really helps to understand networking and encryption... in fact, I don't think anybody that doesn't understand it should mess with bitcoin. There are rating systems just like there are consumer reports magazines. Conicidentally, Mt. Gox had several complaints and low ratings before this ever happened.

 

[russ_watters]

It is really annoying/in bad taste to have bad faith in people in a discussion and make accusations, too.

Bad faith? Did you not respond to my post by asking a question that didn't follow from my post? Did you not do that on purpose? And at the very least, your first response was too short. You should have explained yourself so that I wouldn't have to guess what your point was. Then when you made your point, it was different from what I said and now you're trying to pin that on me!:

It's also annoying when people move the goal post: you were talking about people who "got rich".

I know what I said and that wasn't it. You asked a question that didn't follow from what I posted: you changed the subject/moved the goalposts, not me.

What I said was very simple and I can't imagine how you could have misread it, but I'll say it again another way (the other side of the coin): the vast majority of people who "invest" in Beanie Babies or try their hand in gold rushes lose money. The vast majority of people who "invest" in Beanie Babies and participate in gold rushes do not get rich. The point of saying that very few get rich was the point out that most do not get rich. Indeed, further, most actually lose money.

Reordered to group similar arguments:

Anyway, saving for retirement isn't the same as getting rich.

Agreed, but we're not talking about my post/claim here, we're talking about yours:

The point is that for any investment strategy to be successful, the "vast majority" can't be.

Your claim was not just about people getting rich or about fads, just "successful" investing in "any investment strategy" - which for most people isn't getting rich. You opened this up to be about essentially all investing, not me.

Diversificaiton is a defensive strategy and comes at the cost of potential reward: it dilutes your portfolio.

Indeed. It swaps potential return for safety. Relevance?

And anyway, you don't just diversify randomly... you have to pick a diversification strategy, still.

I gave one of the most popular diversification strategies: the S&P500 index fund. But there are a number of heavily diversified funds out there and they all offer a similar promise. They are essentially foolproof. But this is not really directly related to your claim. Again: Relevance?

And many investors will not release their diversification strategies because they lose investment power if more people are doing the same thing.

So what? This has nothing to do with anything here.

The whole concept of the advantages of a unique investment strategy is part of the birth of Value investing (see The Intelligent Investor, by Benjamin Graham). Which is another "correct" way to invest.

Ok...I disagree that that's good for the majority because the majority don't have the time to actively manage a large fund themselves (but a mutual fund you invest in could have that strategy), but in either case, could you explain why you think that's relevant?

It seems like you are now trying to evade discussion of your own claim. Please be explicit: do you still believe your claim in post #64 was accurate? Were you claiming that all investing including stock market investing is zero sum? Or worse, negative sum? Do you recognize that insofar as almost no one who follows a broadly diversified stock investment strategy such as a mutual fund/index fund loses money (almost all gain a lot of money percentagewise), almost everyone who invests this way is "successful"?

 

[russ_watters]

You still do exchanges virtually and you ensure that you know the real identity of the people you are doing business with so they can be held accountable.

I thought one of the main beauties of Bitcoin was anonymity?

There are rating systems just like there are consumer reports magazines.

Like ebay.

 

[Pythagorean]

Yes, you were talking about people getting rich. You were comparing Bitcoin to Beanie Babies. I quote:

"And yeah, some people got rich off of Beanie Babies an gold rushes, but the vast majority did not."

Benjamin Graham says "To obtain better than average investments over a long pull requires a policy of selection or operation possessing a twofold merit: 1) it must meet objective or rational tests of underlying soundness; and 2) it must be different from the policy followed by most investors or speculators"

The basic "value" principles apply to things like cryptocurrency and Beannie Babies too. In both cases, people that are positioned to understand the advantage that can be had take the advantage, and then once it becomes common knowledge, and everyone starts doing it, the advantage is lost. It's not suprising that the "vast majority" do not "get rich". That doesn't mean that an investor has chosen a poor strategy. People who know what they're doing are still, right now, making money on Bitcoin. It's not even really a fair comparison to Beanie Babies.

 

[Pythagorean]

I thought one of the main beauties of Bitcoin was anonymity

The people who trade bitcoin for money (which is where the money is really being made in bitcoin) do not care about anonymity, and neither do the merchants.

The people that care about anonymity are the gears that run bitcoin. They are the demand for bitcoin that ensures bitcoin's survival. The people trading bitcoin aren't required to do business with the people that want to buy/sell things anonymously.

 

[Pythagorean]

Also, the same people are into trading cryptocurrency in general, note, this is a huge field right now, it's not just bitcoin:

dogecoin:
http://dogecoin.com/
potcoin:
http://potcoin.info/
litecoin:
https://litecoin.org
primecoin:
http://primecoin.org/

Yes, trading cryptocurrency is a thing now. Unlike Beanie Babies, it has a tangible future, a real purpose. Not a purpose that I morally agree with, but I think the demand for it will continue to outweigh any moral concerns about it.

 

[russ_watters]

Yes, you were talking about people getting rich. You were comparing Bitcoin to Beanie Babies. I quote:

"And yeah, some people got rich off of Beanie Babies an gold rushes, but the vast majority did not."

Agreed: but you weren't. We were discussing your claim, not mine. Your claim was different from mine - I pointed out right from the start that your claim (though you didn't even make it in the first response) didn't follow from what I said.

The basic "value" principles apply to things like cryptocurrency and Beannie Babies too. In both cases, people that are positioned to understand the advantage that can be had take the advantage, and then once it becomes common knowledge, and everyone starts doing it, the advantage is lost.

The only advantages here are getting in early and being lucky enough to get out before the crash. Everything else with a fad bubble is luck.

It's not suprising that the "vast majority" do not "get rich". That doesn't mean that an investor has chosen a poor strategy. People who know what they're doing are still, right now, making money on Bitcoin. It's not even really a fair comparison to Beanie Babies.

The comparison is simply in that there is no basis for the value of Bitcoins: they are 100% speculative, which means they are likely to crash to being valueless just like Beanie Babies did. The fact that they haven't yet doesn't imply that they won't. The "poor strategy" is the choice to invest in Beanie Babies at all.

The difference between fad investments and real investments like stocks is that the vast majority of fad investments lose money because fad investments have nothing of value behind them - they are strictly bubbles that eventually crash - whereas stocks do, so when speculative stock bubbles break, you're still left with most of the value. So ultimately most people who invest in fads will lose money whereas virtually everyone who invests in diversified stock funds gains big-time.

 

[russ_watters]

Also, the same people are into trading cryptocurrency in general, note, this is a huge field right now, it's not just bitcoin:

dogecoin:
http://dogecoin.com/
potcoin:
http://potcoin.info/
litecoin:
https://litecoin.org
primecoin:
http://primecoin.org/

Yes, trading cryptocurrency is a thing now. Unlike Beanie Babies, it has a tangible future, a real purpose. Not a purpose that I morally agree with, but I think the demand for it will continue to outweigh any moral concerns about it.

Are you aware that dogecoin was created as a joke? http://motherboard.vice.com/blog/dogecoins-founders-believe-in-the-power-of-meme-currencies

Yeah, it's a "thing" now, just like Beanie Babies were a "thing" in the '90s. I see no reason to think they aren't just an internet meme fad that will burn-out soon.

Worse, I see the alternate currencies as potential all scams. By being the creator, you can get coins easily in the beginning and ride the wave of the fad's increasing value.

I may be wrong about both of those, but the other side of that "coin" is that the lack of any track record, much less a positive track record doesn't prove that they are around to stay. The fact that none of these have stabilized means they really haven't even arrived yet.

 

[nsaspook]

Also, the same people are into trading cryptocurrency in general, note, this is a huge field right now, it's not just bitcoin:

Huge is a understatement for the number of coins.
https://www.cryptocoincharts.info/v2/coins/info
I would buy a http://www.cafepress.com/+sharknado_coin_purse,1192080997.
It's beginning to look like a classic Pareto power law distribution in their little universe.

 

[russ_watters]

Here's an article written in 2004 about Beanie Babies: http://www.pcmag.com/article2/0,2817,1740081,00.asp

It includes tips for identifying fads:

But we did see the Beanie Baby phenomenon. I was semi-fascinated with it because, to me, it seemed stupid. And I don't mean a little stupid. It seemed really stupid. It wasn't that the little bears weren't cute in some cheap way, but it was stupid that people were thinking of these things as investments.

The following are some observations I'd look for:

ARTIFICIALITY...

RELATIVE SUDDENNESS...

REDNECK FACTOR...

POP MEDIA RECOGNITION...

SELF-REALIZATION...

Replace "redneck factor" with "hipster factor" and you have Bitcoins.

Here's an investment magazine article about the comparison:

It's hard for any rational human to look at this chart and not conclude that Bitcoin is on an utterly parabolic rise, fueled by greed, speculation, and fascination, while being completely divorced from any "fundamentals."

We have no idea when the music will stop (it could go to $500 or $1000!) but at some point there will be a moment when it ends in tears, and people will wonder why they paid 40% more for something than it was selling at the day before...

For example, in the early 2000s, there was a legitimate bubble in the stuffed animals called Beanie Babies. It's not clear why suddenly people started paying through the nose through them, and why whole industries were created around them, but it happened, and then they died.

In the 90s there was something of a baseball card bubble.

Bitcoin is somewhere in the middle: A privately created financial instrument.

http://www.businessinsider.com/why-...-bubble-weve-seen-before-2013-4#ixzz2vobwDtAF

"Beanie Babies for Nerds":
http://www.bargaineering.com/articles/should-you-invest-in-bitcoins-beanie-babies.html

 

[russ_watters]

Huge is a understatement.
https://www.cryptocoincharts.info/v2/coins/info
I would buy a http://www.cafepress.com/+sharknado_coin_purse,1192080997.
It's beginning to look like a classic Pareto power law distribution.

No, "huge" is an overstatement. What's that total value - $10 billion? The Vanguard S&P fund alone is $100 billion.

I would buy a sharknadocoin.

Heh - me too.

 

[nsaspook]

No, "huge" is an overstatement. What's that total value - $10 billion? The Vanguard S&P fund alone is $100 billion.

Heh - me too.

I agree, edited my comment to be the number and types of coins and not the value.

 

[russ_watters]

Heh - me too.

For the record, I have considered "investing" in bitcoins or another such cryptocurrency. Since it is my perception that most people who do so are people who buy-in to the fad and I don't, I figure I have a much better chance than most at getting in and out before the crash.

 

[nsaspook]

For the record, I have considered "investing" in bitcoins or another such cryptocurrency. Since it is my perception that most people who do so are people who buy-in to the fad and I don't, I figure I have a much better chance than most at getting in and out before the crash.

Don't, do you really want to be part of the [sic] globalists secret plan (operation bullcoin) to destroy the dollar and replace it with a one world currency.

While looking at the bitcoin rich list I noticed the FBI has a huge amount of coin. So don't think the feds can't get your money if it's in Bitcoin.
http://bitcoinrichlist.com/address/1FfmbHfnpaZjKFvyi1okTjJJusN455paPH?charttype=balance

In fact, the 174,000 or so bitcoins that the FBI controls now account for about 1.5% of all bitcoins in circulation.

 

[Pythagorean]

Agreed: but you weren't. We were discussing your claim, not mine. Your claim was different from mine - I pointed out right from the start that your claim (though you didn't even make it in the first response) didn't follow from what I said.

The only advantages here are getting in early and being lucky enough to get out before the crash. Everything else with a fad bubble is luck.

The comparison is simply in that there is no basis for the value of Bitcoins: they are 100% speculative, which means they are likely to crash to being valueless just like Beanie Babies did. The fact that they haven't yet doesn't imply that they won't. The "poor strategy" is the choice to invest in Beanie Babies at all.

The difference between fad investments and real investments like stocks is that the vast majority of fad investments lose money because fad investments have nothing of value behind them - they are strictly bubbles that eventually crash - whereas stocks do, so when speculative stock bubbles break, you're still left with most of the value. So ultimately most people who invest in fads will lose money whereas virtually everyone who invests in diversified stock funds gains big-time.

We are talking about both claims: a unique investment strategy can't be carried by the majority of others at the same time. If everyone wants to sell at the same time, there's no one to buy. If everybody is buying beanie babies just to sell them, no one is going to make money off of them! This is not zero-sum, it really comes down to supply and demand networks and market saturation.

I don't disagree that there is a bubble in bitcoin and that it is currently overvalued. What I disagree with is the claim that, like beaniebabies, it's only value is in trading it. The value of crytpocurrency is anonymous transactions.

The only advantages here are getting in early and being lucky enough to get out before the crash. Everything else with a fad bubble is luck.

Graham explicitly differentiates getting in early from value-based investing. You don't need to get in early, you just need to get in when the stock is under-valued, due (largely) to the practices of other investors. If you want to be more speculative, then you do as you yourself suggested, and try to ride the fad wave and get out early... but note, again, if everyone else decides to do that too, then your chances of getting out while it's still overvalued become much lower because everyone will be selling it and driving the price down right when you wanted to sell it. You have to have a strategy that differs from the majority!

 

[nsaspook]

I don't disagree that there is a bubble in bitcoin and that it is currently overvalued. What I disagree with is the claim that, like beaniebabies, it's only value is in trading it. The value of crytpocurrency is anonymous transactions.

Just to be clear , the cryptographic functions of Bitcoin are not used to mask content, channel operation or directly protect user identity. They are used in a authentication method to prove transaction trust by generating an authenticator. The addresses/IDs are mainly just a hash of the much larger public key of that authenticator.
It can be weakly anonymous instead of weakly pseudo-anonymous only by using various slight of hand mixing/masking tricks (never reusing a private key,etc...) that most honest people won't bother with unless they use a service for a fee like bitcoinfog. The Bitcoin transaction system is a god send for tracking the movement of money if you have a insider hacking a exchange (that requires information similar to applying for a credit card) , work with a compromised local trader or have legal access to a global system that can monitor the internet like the NSA/FBI. Even a possible vending machine/ATM system will have surveillance cameras. A single deposit transaction is almost impossible to track to an entity but because all future transaction ID functions that use bitcoin from your past transactions are required to be linked in the protocol you very soon begin to be able to use classic cryptographic Traffic analysis to generate a mosaic from the noise that can be used with external information like the IP addresses, GPS locations from smartphones and other means to find the true identity of the address.
http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html
http://motherboard.vice.com/blog/if-youre-not-careful-bitcoins-arent-as-anonymous-as-you-think

 

[Pythagorean]

It can be weakly anonymous instead of weakly pseudo-anonymous only by using various slight of hand mixing/masking tricks (never reusing a private key,etc...) that most honest people won't bother with unless they use a service for a fee like bitcoinfog. The Bitcoin transaction system is a god send for tracking the movement of money if you have a insider hacking a exchange (that requires information similar to applying for a credit card) , work with a compromised local trader or have legal access to a global system that can monitor the internet like the NSA/FBI. Even a possible vending machine/ATM system will have surveillance cameras. A single deposit transaction is almost impossible to track to an entity but because all future transaction ID functions that use bitcoin from your past transactions are required to be linked in the protocol you very soon begin to be able to use classic cryptographic Traffic analysis to generate a mosaic from the noise that can be used with external information like the IP addresses, GPS locations from smartphones and other means to find the true identity of the address.
http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html
http://motherboard.vice.com/blog/if-youre-not-careful-bitcoins-arent-as-anonymous-as-you-think

Yes, it's a matter of cost/benefit for enforcement/snoops. You get a reasonable amount of anonymity. If nobody is looking for you and you haven't raised any red flags, you are essentially anonymous. Most people dealing drugs through bitcoin, for instance, aren't going to get caught because it's not worth the cost to reveal their identity. Steve Sadler got caught because he used his personal email and was being careless on social media AND he was one of the top drug dealers on Silk Road.

I.e. the cost/benefit goes both ways. If you really value anonymity in bitcoin, you can take the extra steps to have it through secure internet practices, including identity dissociation.

 

[russ_watters]

We are talking about both claims...

Ok...well, then let's back up because I don't see that you've addressed what I said at all, unless you misread it, which is what I initially suggested. I said:

...some people got rich off of Beanie Babies an gold rushes, but the vast majority did not.

Then you said:

What do the vast majority get rich off of?

It appears you read my claim to be saying that the majority got rich off of something else. That isn't what I said, nor did I intend to imply it, nor do I think there is much ambiguity in my statement that could enable such an interpretation (I don't think I worded it in a way that would imply that). Still, it would have been better for me to say that the vast majority lost money in these fads.

In either case, since your question is based on a premise I didn't say/intend, your question had no relevance. I hope by now you understand that.

Then you said:

The point is that for any investment strategy to be successful, the "vast majority" can't be.

So as per above, that claim is only barely related to what I was saying:

1. I was saying that most people lose money in fad investments.
2. You are saying that most people lose money in all types of investments. The subtext perhaps is that we shouldn't be concerned about this feature from Bitcoin investing.

Your claim remains wrong and your additional development hasn't changed that - and has mostly been unrelated to your claim. So:

...a unique investment strategy can't be carried by the majority of others at the same time.

This appears to be an attempt to restate your claim in a different way. The above sentence is basically empty and false, but it doesn't relate to your previous claim. Your explanation is poor and shows the flaw:

If everyone wants to sell at the same time, there's no one to buy. If everybody is buying beanie babies just to sell them, no one is going to make money off of them!

Having the same strategy does not mean they are all buying and selling at the same time because the buying and selling is determined by the minutiae of judgement of current conditions, not by the general strategy.

It is also not true that "no one is going to make money off them" because some people did. Perhaps you are just using exaggeration for emphasis there though.

In short, almost everyone lost money investing in Beanie Babies. The few who made money mostly did so by luck. But almost all had essentially the same strategy: Beanie Babies are going to keep growing in value, so I'll just keep buying them one day and selling them the next.

This is not zero-sum, it really comes down to supply and demand networks and market saturation.

Well, in point of fact, the Beanie Baby market was negative sum since the Beanie Babies entered the market by being purchased from a manufacturer. But that value is so low that it is for practical purposes almost zero sum.

I don't disagree that there is a bubble in bitcoin and that it is currently overvalued. What I disagree with is the claim that, like beaniebabies, it's only value is in trading it. The value of crytpocurrency is anonymous transactions.

How much is the ability to do anonymous transactions worth? Clearly, for black markets there is much value in that, but for the regular economy there is almost nothing.

But again, if Bitcoin is to be valued as a currency, then all this talk about it as an investment is void: it shouldn't be expected to appreciate. And the fact that the value is not stable makes it a very poor currency.

Graham explicitly differentiates getting in early from value-based investing. You don't need to get in early, you just need to get in when the stock is under-valued, due (largely) to the practices of other investors. If you want to be more speculative, then you do as you yourself suggested, and try to ride the fad wave and get out early... but note, again, if everyone else decides to do that too, then your chances of getting out while it's still overvalued become much lower because everyone will be selling it and driving the price down right when you wanted to sell it. You have to have a strategy that differs from the majority!

No, you have to have knowledge different from the majority. The strategy is "ride the fad wave and get out early". The knowledge is when the fad is ending. That's true of any competitive type trading, but that isn't what is typically defined as "investing". Real investing is not about following fads, it is about stable, long-term growth. So:

...you just need to get in when the stock is under-valued...

Agreed. So when dealing with something that has zero value, such as a Bitcoin or a Beanie Baby, the time to get in is never.

 

[nsaspook]

Yes, it's a matter of cost/benefit for enforcement/snoops. You get a reasonable amount of anonymity. If nobody is looking for you and you haven't raised any red flags, you are essentially anonymous.

You get the same reasonable amount of anonymity by using pre-paid cards or cash in suitcases until you get stupid.
http://www.hondurasnews.com/wp-content/uploads/2014/01/cash-found-in-hondurans-suitcases.jpg

Even if total anonymity was possible 'tracking' every movement in Bitcoin is inherent to the system.

 

[Pythagorean]

...

Obviously, I am talking about specific strategies, including market cues and commodity selection, not general strategies. It's not knowledge... it's informed speculation! You don't know the wave is coming and you don't know what "early" is. To have a sound basis for investing, you have to have some idea of human behavior and some cues defined for when you should buy and sell. That is part of your specific investing strategy.

I was trying to highlight this point earlier when I brought up diversification strategies: diversification itself is labeled as a strategy, but there are several diversification strategies that consider different rules for commodity selection. The best example of market-timing strategies (cues) are implemented in algorithmic trading. Often, specific cue-based and commodity-selection strategies are kept private explicitly for the reason that if you share the strategy, you share the profit potential.

You get the same reasonable amount of anonymity by using pre-paid cards or cash in suitcases until you get stupid.

Cash is a pretty severe limitation to long-distance exchange and pre-paid cards aren't anonymous for the one receiving the funds, so drug-dealers would probably still prefer cryptocurrency to those choices.

 

[nsaspook]

Cash is a pretty severe limitation to long-distance exchange and pre-paid cards aren't anonymous for the one receiving the funds, so drug-dealers would probably still prefer cryptocurrency to those choices.

It's well known that drug-dealers prefer Tide Tide.

Tide bottles have become ad hoc street currency, with a 150-ounce bottle going for either $5 cash or $10 worth of weed or crack cocaine. On certain corners, the detergent has earned a new nickname: “Liquid gold.” The Tide people would never sanction that tag line, of course. But this unlikely black market would not have formed if they weren’t so good at pushing their product.

Bitcoin

 

[ModusPwnd]

I'm not going to get into an argument over what the word "intrinsic" means. The value of a Beanie Baby consists of two things:
1. The value of the materials and labor used to make it (perhaps $1).
2. The speculation fad.

The value of a beanie baby is based off of what somebody will pay for it. Thats it. It doesn't matter how much it cost to make, it doenst matter what you think is a fad or speculation. If somebody is willing to pay, it has that value. If nobody is willing to pay then it is valueless. Intrinsic has a specific meaning, no debate is required. A particle's spin is intrinsic angular momentum, the Earth's rotation is not. You have not been using the word correctly and it confuses the discussion. And then when I call you out on your improper usage of the word, you don't want to argue what it means... Ha!

For a Bitcoin or Beanie Baby, in order for one person to win another has to lose. For a share of Boeing stock, no one need lose.

Nope. As you mentioned before, wealth is not a zero sum game. When trade is facilitated through new economic means then both parties in the trade can win.

Successful at what? I see nothing successful about it as a currency, investment, storage media, etc.

Successful as a proof of concept for cryptocurrency. I am sure you know what that means even though you ignored it in your reply. A proof of concept doesn't need to be successful in the market to be a success, that is not how proof of concepts work. Regardless, BitCoin has been successful at getting wider adoption. The amount of stores and people using BitCoin to facilitate trade has gone up, not down. BitCoin is already a success.

What is "Bitcoin itself"? Yes, I think speculating on Bitcoin as an investment is a bad idea, but I also think using it as currency is a bad idea and I also think using Bitcoin trading companies as banks is an even worse idea.

So what? I think using PayPal is a bad idea. Still, there is a market need for PayPal and it does get used. I use it sometimes when I have too.

[edit] Also - how do you know why Bitcoin was invented? The inventor is anonymous. Perhaps he invented it so that he could be the first to hold Bitcoins and make himself rich? Maybe he's sitting on a beach somewhere laughing about all of this?

I read the original paper. Take a look;
https://bitcoin.org/bitcoin.pdf

Just read the first two paragraphs in the introduction and you can see why BitCoin was invented. You need not agree to understand.

How do YOU know why BitCoin was invented? Why do you keep insisting its an investment? Where did you get this idea?

I hope the inventor is rich. He created a new innovative technology that has facilitated free trade and empowered individuals.

Uh, what? Even if it collapse it is a successful concept? How does that follow?

Quite easily. I already explained to you what a proof of concept is. When/if bitcoin fails the lessons learned from that will be implemented in the new protocols.

What is your measure of success? I see success as a currency being measured by longevity and stability.

As I mentioned in my previous post... I measure its success as a proof of concept. Its like the wright brothers flight at kitty hawk. It was short, expensive, transported no cargo and only carried a person a small distance. By your metric here that flight was a failure. By my (and others) metric, it was a success. A success as a proof of concept.

Grandpa's money is safe in a bank and an index fund. The grandkids just lost their life savings by giving it to a guy who made his name trading Magic the Gathering cards (flat Beanie Babies). Please explain what this "better idea" is and what it does for them?

My grandpa lost a lot in 99 and 08. Not that its relevant though, because BitCoin is not and was never designed to be an investment vehicle. Furthermore it is not and was never designed to be a toy. Your comparisons to mutual funds, beanie babies and magic cards are not relevant at all... The better comparison would be to gift cards, paypal, western union and RPG ingame currencies. But of course its new and innovative so no comparison is complete accurate - BitCoin is the first of its kind.

 

[nsaspook]

I think a major problem for people who have looked deeply into Bitcoins guts is you could easily say it's the equivalent of giving the NSA/FBI/Law Enforcement open access to the metadata of finance without warrant/subpoena if it becomes truly widespread. Similar to the phone metadata database the identities of people are not content in theory but that hasn't stopped the 'data' being used in warrantless searches that various groups are up in arms about.

Bitcoin will be the most traceable form of 'currency' on the planet.

 

[AlephZero]

I read the original paper. Take a look;
https://bitcoin.org/bitcoin.pdf

Just read the first two paragraphs in the introduction and you can see why BitCoin was invented. You need not agree to understand.

I think your argument is based on your belief that whoever wrote that document is an honest guy.

I go with Bertrand Russell's definition: "belief" is "that for which there is no evidence". Since we don't know anything about the author except for a name, the evidence either way is not exactly obvious.

Let's rewrite what the start of the second paragrapgh of the introduction:

What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any crook to irreversibly steal money from naive fools without the need for any third party to be a witness to the theft...

I don't expect you to agree with that interpretation, of course.

 

[russ_watters]

[Re-arranging for better flow:]

Why do you keep insisting its an investment? Where did you get this idea?

As I said, Bitcoin is different things to different people - which I think is one of its biggest problems right now. The idea of using it as an investment is all over the popular media coverage and is discussed in a lot of internet discussions of it, including this one. So I'm not sure why would would need to ask where I got the idea.

More generally though, even if it is just a currency, people invest in currencies - some on purpose and everyone else just by the mere fact that they use them. Knowing what your currency is going to be worth tomorrow or a year from now is critical in your decision-making on how to use a currency. People don't tend to think about it that much for dollars or euros precisely because these currencies are stable. Wtih Bitcoin being wildly unstable, it is critical for any user to seriously consider its future value.

The value of a beanie baby is based off of what somebody will pay for it. Thats it. It doesn't matter how much it cost to make, it doenst matter what you think is a fad or speculation. If somebody is willing to pay, it has that value. If nobody is willing to pay then it is valueless. Intrinsic has a specific meaning, no debate is required. A particle's spin is intrinsic angular momentum, the Earth's rotation is not. You have not been using the word correctly and it confuses the discussion. And then when I call you out on your improper usage of the word, you don't want to argue what it means... Ha!

You misunderstand my reason for saying that. I'm quite content that I'm correct given that one of the sources I already cited uses the word the way I did and another discusses the issue without using the word (and googling key words from it leads you right to "intrinsic value"). But I've seen discussions of this get sidetracked by people wanting to argue over the word instead of discussing the issue. It's a red herring that I don't want to waste time on.

The idea that something - anything - is worth whatever someone is willing to pay for it is true at a basic level, but it is so vague as to be useless here. What we need to be discussing is why someone is willing to pay a certain value for it. What measures and methodology do they use to decide what they are willing to pay?

-With a Beanie Baby or a Bitcoin, guessing at what the next person might pay is all there is - and there is really no basis at all for the guess beyond their confidence in the value.
-With a share of Boeing stock, the earnings of the company (current and projected future) pay a large part in determining what people will pay (P/E ratio, for example).
-With a house, the fact that you can live in it, its size and location pay a large part in determining what people will pay for it.

For a share of Boeing stock or a house, there are real, physical, tangeable things that impact its value. Beanie Babies and Bitcoins don't have that.

My grandpa lost a lot in 99 and 08.

But probably a lot less than he gained in the 1990s and 2000s and when he lost, he only lost a fraction of the total value and then only temporarily. That's the point here: Becaue the value of stocks are based on something tangible, they almost never lose all of their value. Beanie Babies did because their value was based only on what the next person was willing to pay and when the next person realized he wasn't willing to pay anything, they crashed completely.

Quite easily. I already explained to you what a proof of concept is. When/if bitcoin fails the lessons learned from that will be implemented in the new protocols.

As I mentioned in my previous post... I measure its success as a proof of concept. Its like the wright brothers flight at kitty hawk. It was short, expensive, transported no cargo and only carried a person a small distance. By your metric here that flight was a failure. By my (and others) metric, it was a success. A success as a proof of concept. [emphasis added]

I absolutely agree that the Wright Brothers' flight was a successful proof of concept. But you just highlighted critical differences between it and the Bitcoin launch that make Bitcoin wildly - possibly even criminally - irresponsible. Yes, the Wright Brothers took no passengers on the first flight? Why? Because it was dangerous and they didn't want to hurt anyone if it didn't work! But Bitcoin was released on the public with no (as far as we know) testing, using the general public as the guniea pigs to work out the bugs. And guess what: real people have gotten hurt.

If the makers wanted it to be a proof of concept, they should have run the code on an isolated network somewhere, not released it to the public.

I hope the inventor is rich. He created a new innovative technology that has facilitated free trade and empowered individuals.

Er, well, no - you just said it was just a proof of concept and you stated correctly that a proof of concept costs money, it doesn't make money. I'm not sure the users of Bitcoin really recognize that they are paying the inventor to be his crash test dummies!

Successful as a proof of concept for cryptocurrency. A proof of concept doesn't need to be successful in the market to be a success, that is not how proof of concepts work.

Well, we certainly agree on the second part except of course that a proof of concept should never, ever be sent to a market. Still, based on the paper and comments from users it appears that Bitcoin isn't just a piece of technology, it is an attempt at creating a new economic system. Perhaps that's why it wasn't just tested in a lab - they needed it to be released to the public to see if the market would work. And in my opinion, the success of the piece of technology is much less important than the failure of the economic system.

Nope. As you mentioned before, wealth is not a zero sum game. When trade is facilitated through new economic means then both parties in the trade can win.

We're not talking about "wealth", we're talking about Bitcoins. Some markets/transactions/vehicles are zero sum and others aren't. Currency exchanging is zero sum because the purpose of a currency is to be a carrier vehicle for the value of something else, not to have a growing value itself. The thing you do with the Bitcoin may be a positive sum activity, but the Bitcoin (or dollar) you use to facilitate it is not.

Worse, Bitcoin has two things dragging its value to negative sum:
1. As in the case of Beanie Babies, the maker of Bitcoin has pulled a considerable amount of value out of the market while starting it.
2. Bitcoin mining requires a huge amount of energy, which makes the real value added to the market of each new Bitcoin created much, much smaller than the current market price. Also, FYI, the end of mining (probably in around 2017) is a good place to put a bet on the demise of Bitcoin, if it doesn't happen sooner. Since the value is propped-up by excitement and much of it is due to mining, people will pay a lot less attention to it when the mining stops. And lack of attention is what kills fads.

Regardless, BitCoin has been successful at getting wider adoption. The amount of stores and people using BitCoin to facilitate trade has gone up, not down. BitCoin is already a success.

Setting the bar a bit low, aren't we? Of course any number greater than zero is an increase!

So what? I think using PayPal is a bad idea. Still, there is a market need for PayPal and it does get used. I use it sometimes when I have too.

Um...ok. So you think PayPal is a bad idea, but not bad enough to keep you from using it? Aren't you arguing against your own success criteria for Bitcoin? Anyway, well, I think that Bitcoin is a bad idea and as a result, no later than 2017, no one will use it.

How do YOU know why BitCoin was invented?

I read the original paper. Take a look;
https://bitcoin.org/bitcoin.pdf

Just read the first two paragraphs in the introduction and you can see why BitCoin was invented. You need not agree to understand.

I don't know why it was invented, but I know never to trust someone who is hiding something - you never know what else they are hiding.

Not that its relevant though, because BitCoin is not and was never designed to be an investment vehicle.

Perhsps not, but there an awful lot of people who stand to lose an awful lot of money because they are treating it like one.

Your comparisons to mutual funds, beanie babies and magic cards are not relevant at all...

You are aware of where the comparison to Magic cards comes from, aren't you...?

The better comparison would be to gift cards, paypal, western union and RPG ingame currencies. But of course its new and innovative so no comparison is complete accurate - BitCoin is the first of its kind.

I agree there are some comparisons to be made there and I agree that because it is somewhat unique it takes bits and pieces of comparisons from many things and none are necessarily perfect. I never claimed any were. But clearly, an investment collectible is one of the things it is like...

...and btw, RPG ingame currencies and objects are traded in the real-world. What do you think happens to their value when the games become obsolete and lose popularity and/or the plug is pulled on their universes? They revert back to their intrinsic value: zero.

 

[Adderall]

I think Pythagorean, you're talking about the best way to extract wealth from short-term fluctuations in stock prices? And russ_watters, you're talking about the best way to extract wealth from the aggregate growth of companies, right? Since bitcoin doesn't change, I don't see it as being capable of growth as such.

Personally, I think making money off bitcoin is as immoral as making money from poker; it requires the eventual misery of another.

 

[Pythagorean]

I think Pythagorean, you're talking about the best way to extract wealth from short-term fluctuations in stock prices?

That's one way people are going about it. Arbitrage was the more successful strategy when I was living near a friend who had been successful with bitcoin, but that was about a year ago.

 

[Adderall]

That's one way people are going about it. Arbitrage was the more successful strategy when I was living near a friend who had been successful with bitcoin, but that was about a year ago.

Ah, so that's called arbitrage. But how else one would extract wealth from bitcoin trading other than arbitrage, though?

 

[Pythagorean]

As you said, short-term fluctuations; day-trading. People jump in when it takes a hit for obvious social reasons, too, hoping long-term enthusiasm will drive it back up. Of course, you really have to know the bitcoin culture well to be able to justify such speculation.