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Don't buy Bitcoins (video)

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marten:

That might work nicely in your local village but the problem with sheep, bottled water and cigarettes is you can't send them over the Internet. In fact it would be highly impractical to carry around enough of these if you ever had to travel outside your local village.

The point is not that sheep and cigarettes will conquer the world, but that bitcoin won't even be used locally.

Hmm, what if we didn't call bitcoins money, lets call bitcoin a service that lets you securely pay on line at a competitive price? Thats how they would be perceived by most users. Why wouldn't people use that service?

Because what does the recipient of the bitcoin get that he can use in his home as he drinks his tea in the evening? Nothing.

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Live free:

We can exit the conversation because I fail to get what you are talking about. Whether this because I'm missing something or because your message is flawed, I just don't get it. In either case, I see no point in continuing. Good luck to you.

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marten replied on Sat, Jul 16 2011 10:05 PM

Smiling Dave:
Because what does the recipient of the bitcoin get that he can use in his home as he drinks his tea in the evening? Nothing.

My point is bitcoins are practical, and that in the end is the reason people use one tool rather than another (less practical).

The recipient can use bitcoins. at the very least he can trade them back into his local currency at one of the many exchanges. "So then why bother with bitcoins and not use cash directly?" because you can't use cash on the Internet. Compared to other on line transaction services there's an advantage to bitcoins, you cut out the middle men thus making bigger profit.

I think you have a point that some people will have some psychological aversion to the notion of bitcoins having value, and given a choice they would rather use sheep than bitcoins, but in the end most people don't think about why money has value, they just use it because they can.

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To all of the obviously invested Bitcoiners here that signed up just to post in this thread:

Get back to us when Bitcoin has achieved its evolution beyond dollar proxy for a niche.  No need to worry about some video on youtube stopping its greatness.  In the meantime I'll be putting my money on telomerase activation...

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marten replied on Sun, Jul 17 2011 12:00 AM

I haven't invested in bitcoins, nor am I saying it's a good idea (nor gold for that matter.)

I don't understand why something once used as a transaction medium, that use won't be enough in itself to sustain the demand for it and keep the value stable enough for it to continue to be used as such.

I think bitcoins would be a high-risk investment, and I can think of many other reason why it might not work. But you don't have to invest in them (more than a few minutes at least) in order to use them for transactions. And besides, sometimes risky investments pay of.

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Risk is irrelevent to the debate.

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Well.. that'd probably have something to do with them not pretending to be money..

I would disagree with you on the Entropia Dollar.  The entire concept of the game was built upon the idea of virtual in game currency interfacing with paper currencies.  Entropia was an early pioneer of the in game money concept which has spun off in several different manifestations in several MMORPG's.   If real world socialism and crony capitalism is not enough for you and you want to immerse yourself in a beautiful digital utopia of virtual crony capitaliism and socialism... Entropia is the ticket for all of your gambling needs.

*I apologize for the late reply and missing your response in my earlier reviews of this thread ...*

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John James replied on Mon, Jul 18 2011 10:08 PM

Bitcoin is getting mainstream coverage (CNN):

 

 

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bitbutter replied on Tue, Jul 19 2011 2:56 AM

@Smilingdave

Hmm, what if we didn't call bitcoins money, lets call bitcoin a service that lets you securely pay on line at a competitive price? Thats how they would be perceived by most users. Why wouldn't people use that service?

Because what does the recipient of the bitcoin get that he can use in his home as he drinks his tea in the evening? Nothing.

What does the recipient of the gold coin get that he can use in his home as he drinks his tea in the evening? Nothing.

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Nielsio replied on Thu, Aug 4 2011 8:32 AM

The Lew Rockwell Show - Tulip Mania

 

Added to: http://vforvoluntary.com/bitcoin

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Nielsio replied on Sun, Aug 7 2011 3:45 PM

Bitcoins not doing so well:

 

Running out of the required new influx of buyers to keep the price up?

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Yes the price is low. But BTC is still doing better than the arguments that aim to show why it can't be money ;) A bunch of rebuttals remain unanswered on this thread for instance.

Possibly relevant context wrt to the currently low value: Mybitcoin.com (a popular online wallet management service) recently shut up shop after a bug in their code had allowed attackers to steal an (as yet) unknown amount of BTC from their users accounts. A polish exchange also reported having 'lost' their wallet.

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AJ replied on Sun, Aug 7 2011 6:00 PM

Suede makes an interesting argument, basically that the tiny decorative value gold has might be more than zero, but what difference does it make when gold is selling at $1,600 per ounce? Or, consider if gold became money again and was used for all transactions. The price of gold would be WAYYY higher than it is now. But if people ever stopped using it suddenly, it's price would fall back to decorative value, which would be such a small fraction of its value as money that it would be negligible. That is, if I had a kilo of gold I might be very wealthy, but if it lost 99% of its value because it was no longer being used for money, I'd be broke. Is the difference between losing 99% of its value and losing 100% of its value really so compelling that gold is a clear winner and BTC a clear loser?

http://www.youtube.com/watch?v=znnp8FfPwrs&NR=1

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AJ,

First of all, gold is not being used for money right now anywhere. Every country uses fiat currency. So I'm not sure what you are saying.

Second, are you familiar with Mises' regression theorem? If yes, have you thought out the implications?

Finally, Smiling Dave to the rescue. Here is a quote from my humble blog, just to show you I have understood the argument Suede is presenting:

... just because gold might be worth a few pennies as a trinket doesn't really give it an advantage over bitcoins.

The razor sharp rebuttal is right here: http://smilingdavesblog.blogspot.com/2011/06/bitcoin-takes-beating.html

You might enjoy the other two articles there on bitcoin. And don't forget the comments in all 3 posts, plenty of nuggets that increase understanding.

P.S. A trillion times zero is zero. But a trillion times a really really really small positive number is positive. Doesn't prove or disprove anything about bitcoins. Just saying.

 

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@Smiling dave. In your linked post you say:

if you go back far enough, you get to the day when gold was useful as jewelry only, worth say a dime. Until someone relaized people are happy to take gold coins valued at a dime apiece. What have they got to lose? That's what the gold is worth for jewelry, anyway. And from there, as gold coins became more popular as money, they started becoming worth more than a dime.

And this is where bitcoins achieve their fail. There is no reason for bitcoins to suddenly become worth a dime, or any other price. They are totally useless as jewelry, or anything else. So that there is no reason people should accept them as being worth a dime, much less $17.

Perhaps you'll consider amending your post here because this has been answered in this thread several times over: BitCoin, like gold, does have non-trade related use. Most obviously it has been used as a symbol of 'geek cred' by early adopters.

Secondly, it's not clear why a potential money even requires a non-trade related use in order to get its start. If a significant minority of traders start to buy quantities of a new potential money, because of its qualities that make it especially good as a medium of exchange, and believe it will be adopted by many in the future because of those reasons, why can't this kind of demand work just as well as demand for jewellery in the process of a new potential money gaining value? This process solves the problem Mises describes without requiring that the new potetial money even has a non-trade related use.

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Most obviously it has been used as a symbol of 'geek cred' by early adopters.

That's too small a population. Even all the users of bitcoin right now is too small a population.

If you and your sister decide to use some rag as money, that's obviously not enough, right?

Secondly...

There is no significant minority yet. See above.

Also, you are really just asking why Misessaid what he said. Which means you didn't understand him.

All I can suggest is...

1, Sell all your bitcoins, making yourself a disinterested party. This sometimes remoives obstacles to undersatnding.

2. Read his argument slowly, a few dozen times, till it sinks in. This is common practice among mathematicians when studying an intricate proof.

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Smiling Dave,

first of all, Mises' Regression Theorem does not say anything about significant minorities, or too small a population or other analogies that you guys literally made up. Other Austrians do not claim that either. I read books about money by Menger, Mises, Hayek, Rothbard, Huelsmann, and Bagus. Also books by non-austrians. The core of your argument, "not enough people interested", is simply not there.

Second of all, the (allegedly) Misesian critiques of Bitcoin presented by you and some other people on the forum have consistently failed to define what the terms (significant minorities etc) actually mean in a coherent fashion.

Last but not least, you present an empirical argument as if it was a praxeological one.

You can be skeptical about Bitcoin all you want, even rightfully so, but you present fallacious arguments to support your position. If Baba Vanga predicted the failure of Bitcoin and it really  happened, that would not make her a scientist.

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marten replied on Mon, Aug 8 2011 5:50 AM

@Smiling Dave, Why is the population too small when you can get in contact with it and trade with it within a few seconds? I agree that in the past, if you couldn't use goldcoins in the next village that would be a problem for gold to be widely adopted as money, but the internet solves this problem for bitcoin.

As far as I can tell from your quotes regarding the regression theorem it only tries to explain why money (gold) has the value is has, and the reason is that the use as money creates demand for it. Mises then correctly point out that the regression can't go on for ever, at one point in time it wasn't used as money and in order for someone to use it as money in the very beginning there must have been an initial demand giving it some value. But bitcoins now have value (obviously) and that should enable it to be used as money (it already is to some small extent) which in turn should create more demand for it.

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@ Smiling Dave.

You said (emphasis mine)

And this is where bitcoins achieve their fail. There is no reason for bitcoins to suddenly become worth a dime, or any other price. They are totally useless as jewelry, or anything else.

I remined you that this was not true:

it has been used as a symbol of 'geek cred' by early adopters.

You ignored the correction, didn't retract your false claim (I think you ought to), and instead moved the goalposts:

That's too small a population.

Too small for what? The issue here is not whether or not it is currently money (depending on where you arbitrarily draw the line that delimits 'common use', it may or may not be), It's whether there is some principle that bars the population of bitcoin-accepters from growing until it crosses whatever the threshold is for you to agree that it's commonly accepted. You've yet to offer one.

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first of all, Mises' Regression Theorem does not say anything about significant minorities, or too small a population

 I read books about money by Menger, Mises, Hayek, Rothbard, Huelsmann, and Bagus. Also books by non-austrians.

Have you ever come across the phrase "money"? Mises uses it in his regression theorem over and over. Since it is an advanced book, he expects you to remember, when reading Page 405. what he wrote ten pages earlier on Page 395.

To help those who don't have a copy of the book in front of them, we'll quote it right here:

 A medium of exchange which is commonly used as such is called money.
The notion of money is vague, as its definition refers to the vague term
“commonly used.” There are borderline cases in which it cannot be decided
whether a medium of exchange is or is not “commonly” used and should be
called money.

Our friend Wikipedia also insists that a medium of exchange, to deserve the name, be "widely used".

Since you say you read Rothbard, you will surely have met these words from Man, Economy, and State:

A commodity that comes into general use as a medium of ex-
change is defined as being a money. It is evident that, whereas
the concept of a “medium of exchange” is a precise one, and
indirect exchange can be distinctly separated from direct ex-
change, the concept of “money” is a less precise one. The point

at which a medium of exchange comes into “common” or “gen-
eral” use is not strictly definable, and whether or not a medium
is a money can be decided only by historical inquiry and the
judgment of the historian.

Now, call me suspicious, but I fear that the next ridiculous defense of bitcoin will be that 25 geeks in their mothers' basement who use bitcoin for geek cred, and certainly the number of people using bitcoin right now, constitutes "wide" "general" and "common" use. After all, the term is admittedly vague, and up to the judgement of the historian, meaning anybody at all who wants to. I will not bother to argue about that. You have every right to your opinion, however foolish and misinformed, about the meaning of those words. To me, "wide", "general", and "common" means you can buy most everything for sale in Walmarts or in a Sears catalogue with a bitcoin, which is hardly the case.
 

 

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Why is the population too small when you can get in contact with it and trade with it within a few seconds?

"Large" is not the same as "easily contacted". To understand why large is important, you'll have to read up. I quoted Mises and Rothbard last post. You can do a search for the phrases there, read the chapter in which they appear.

But bitcoins now have value (obviously)

It's not obvious to me at all. If a few fools, which P. T. Barnum assures us are born every minute, are frittering away their hard earned money on it, that does not give it value, certainly not obviously.

BTW, since this thread has begun, bitcoins have lost half their "value".

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It's not obvious to me at all. If a few fools, which P. T. Barnum assures us are born every minute, are frittering away their hard earned money on it, that does not give it value, certainly not obviously.

Value is subjective Smiling Dave, you know that. Whether you think BTC holders are fools or whether a monk somewhere thinks that gold owners are fools is irrelevant to the question of whether either 'has value'. While people anywhere judge that either gold or BTC can be instrumental in achieving their goals, the medium in question has value.

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1. Had I been the one who invented the regression theorem, I might be accused of moving the goal posts. But I was merely explicating what Mises wrote, and he did not move any goal posts. Ten pages before he explained his theorem, he stated that he is talking about something in common use. 

2. Yes, there is some principle that bars it from growing to common use as geek cred. Very few people are geeks, and of the geeks, not all of them are interested in spending $17 on geek cred. And even in that miniscule microscopic population, once they have one bitcoin, that is all the geek cred they need. 

3. We're talking about a simple common sense idea here. Before something will be tradable, it has to be usable. You cannot trade what nobody needs.

Nobody needs bitcoins for anything. Pointing to a few geeks is not a counterexample.

In the form of a syllogism:

1. You cannot trade what nobody needs.

2. Therefore, before something will be tradable, it has to be usable.

3. Nobody needs bitcoins for anything, [because a few geeks is an insignificant group].

4. Therefore, bitcoin is not tradable. Therefore it is not now, and never will be, money. And a few fools speculating in bitcoins doesn't count.

 

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bitbutter:

It's not obvious to me at all. If a few fools, which P. T. Barnum assures us are born every minute, are frittering away their hard earned money on it, that does not give it value, certainly not obviously.

Value is subjective Smiling Dave, you know that. Whether you think BTC holders are fools or whether a monk somewhere thinks that gold owners are fools is irrelevant to the question of whether either 'has value'. While people anywhere judge that either gold or BTC can be instrumental in achieving their goals, the medium in question has value.

The key word was "few". The word "fools" was only to explain why they will forever remain few.

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Smiling Dave,

the quotes you provide only expose the fallacy in your argument. From Bitcoin not being a widely spread medium of exchange, you conclude that according to the Austrian approach, it is not money. So far, this is correct. From this you somehow conclude that it can never become money, and/or that its usability as medium of exchange is doomed. These two points, however, are empirical. You cannot deduce them.

The network effect present with media of exchange does not give any of them an absolute advantage, because their features and the requirements of the users are heterogeneous. It's easy to miss this when you're comparing coins to notes, but once you go digital the distinctions become more apparent.

Furthermore, centrally issued digital currencies cannot benefit from inter-issuer network effects due to, well, being centralised. And I'm even ignoring the government interference.

As a side note, I encountered another example of crappiness of encumbent "money" yesterday. I wanted to order some stuff from China and have it delivered to my mother in law in Malaysia. Paypal would not allow me to send the payment because my paypal account is registered to an Irish address. I asked the shop if they accept Bitcoins, we'll see what they reply. To paraphrase agent Smith: Tell me, Mr. Smiling, what use is money if you cannot pay?

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From this you somehow conclude that it can never become money, and/or that its usability as medium of exchange is doomed.

It seems to me that you wont have masses of people walking around bragging about geek cred, certainly not for an extended period like twenty years, certainly not with many bitcoins when one is enough. So that you won't have it widely regarded as a commodity, meaning useful in and of itself, not just to speculate with or pawn off on the next guy.

Hey, maybe I'm wrong. Maybe great massesof people will, for decades and centuries, have this huge urge to establish geek cred, so much so that they will be willling to forego other pleasures. I'm willing to wait and see. An honest summary of the situation is that so far I am right, nobody cares about such nonsense at all, and I am willing to bet that even those geeks who once cared about geek cred from bitcoin no longer do, because the novelty has worn off.

The rest of your post is irrelevant. Network effects are irrelevant, the paypal story is irrelevant, and no Chinese or Malaysian will accept bitcoins. They have more pressing needs than geek cred, and more stringent demands as to what constitutes payment.. Even if you come back and triumphantly prove that the Chinese guy did accept your bitcoin, it shows nothing.

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Smiling Dave your syllogism is awful.

1. You cannot trade what nobody needs.

Unqualified needs do not exist. Only contingent needs exist. You may need gold in order to manufacture an electonic component, You may need BTC to increase your 'geek cred' or to send a low cost payment to your mother in law in Malaysia. If its true that 'people need gold' it's also true that 'people need bitcoin'.

2. Therefore, before something will be tradable, it has to be usable.

BTC is obviously useable. You can use it to pay your mother in law in Malaysia. Or to increase your geek cred.

3. Nobody needs bitcoins for anything, [because a few geeks is an insignificant group].

I see, so nobody needs X, except for a small group who don't count because they're a small group? This is a very innovative way of using the word 'nobody' in a syllogism!

4. Therefore, bitcoin is not tradable. Therefore it is not now, and never will be, money. And a few fools speculating in bitcoins doesn't count.

Even if the rest of your argument worked--it doesn't--The fact that BTC is currently being traded should tell you that there's something wrong with any argument that ends with the conclusion that this is impossible.

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1. All you wrote, dear bitbutter, does not refute the statement. It remains self evident.

2. What you wrote are examples of trade, not of use.

3. Thank you. It's adapted from physics, where trivial effects are ignored. For example, when sin x is used in calculations only the first few terms of its infinite series expansion are used.

4. I call your attention to the last sentence.

 

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Smiling Dave,

the regression theorem highly related to the network effect: it says that the utility the potential users of money derive from it is a combination of consumption value and the network value. But network effects work even for other media of exchange, especially when there is one present that is heavily manipulated by the government. You erroneously derive value from the number of participants of two networks and compare them directly, however these are heterogenous variables.

Furthermore, my story is exactly relevant, because it shows that there are factors influencing usage other than the number of participants, thereby refuting your claim. We will see if the shop accepts bitcoins. There is an exchange that trades RMB so they have no reason per se to reject it.

Bitcoin has a dual purpose: it is both a currency and a method of payment. You also erroneously assume that the latter cannot influence the former because you are obsessed with an incorrect interpretation of Regression Theorem and ignore all other factors apart from the network size.

You compound errors upon errors.

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Smiling Dave:

This article about bottled water in Iraq is very instructive, and a very good example of what Mises was talking about. It puts the whole bitcoin thing in perspective.

The water in the province was not very drinkable, the villagers lost faith in the paper money, and started doing businees by pricing things in sheep. He continues [emphasis mine]:

The bottled water brought in from the larger cities was one of the most sought-after commodities in the village, and I soon noticed villagers pricing items in not only sheep, but bottles of drinking water as well.

Then there was the standard wartime medium of exchange: cigarettes. The villagers smoked cigarettes every evening with chai tea. They were bought in the cities and brought back by the truck load. As a result they were not as valuable as sheep or bottled water; however they served as small change for the villagers.

That's what we are talking about. That's what is going to be the money. One of the most sought after commodities [=useful in themselves, not to pass on to the next guy], that everyone uses every day. Compare this to the trivial non money use of bitcoin, which a few computer geeks value, [if indeed they still do now the novelty has worn off].

 

In my village, fiat curencies have absolutely zero non-monetary value.  Just because this example illustrates how commodites become mediums of exchange still does not exclude Bitcoin from becoming a widely accepted medium of exchange within it's target market (the Internet)

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bitbutter replied on Mon, Aug 8 2011 10:52 AM

@Smiling Dave

An honest summary of the situation is that so far I am right, nobody cares about such nonsense at all

Ah. You must be using 'nobody' in that special way again: "a minority I find convenient to ignore". It's easier to produce more powerful sounding rhetoric when you ditch intellectual honesty, that's for sure.

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http://blogs.forbes.com/timothylee/2011/08/07/the-bitcoin-crash/

about $7.50 and dropping

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In May the market price of BTC in USD was 5, now it's 7.6. Where's the crash?

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about $7.50 and dropping

Nevermind the fluctuations in price, they're irrelevant to your attempts to shown that bitcoins cannot be money. Focus on that, you have all your work ahead of you.

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No, my work is behind me. All I have to say on the subject is on record.

And it used to be 5, hey?

Would you buy a stock with miserable fundamentals, and a chart that looks like this:

http://bitcoincharts.com/charts/chart.png?width=1055&m=mtgoxUSD&k=&r=&i=&c=0&s=&e=&Prev=&Next=&v=0&cv=0&ps=0&l=0&p=0&t=S&b=&a1=&m1=10&a2=&m2=25&x=0&i1=&i2=&i3=&i4=&SubmitButton=Draw&

Or would you prefer one that looks like this:

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marten replied on Mon, Aug 8 2011 6:52 PM

http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation.jpg

I'm obviously no expert at this, but the end of the gold chart looks a lot like the bitcoin chart up until the beginning of July (and the peak 1980). I don't think I would feel comfortable investing in either right now. If I were to guess, I'd say the inflated gold price as well as the drop in bitcoin demand is due to the current economic crisis. People invest their assets in goods they perceive as safe, like gold, unlike monetary experiments such as bitcoin. Anyway, I think everyone agree there is a lot of speculation with bitcoins and that has driven up the prices, but that is not relevant to the question whether bitcoin can be used as money or not. Bitcoins only need a non zero value in order to be used as a medium of exchange, I still don't understand why they can't be widely used as such. (Although I haven't read up on why money allegedly need a LARGE population of people who find them desirable for other reasons than for use as a transaction medium yet.)

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bitbutter:
Nevermind the fluctuations in price, they're irrelevant to your attempts to shown that bitcoins cannot be money. Focus on that, you have all your work ahead of you.

I'm gonna say this again. Can I buy my stuff from Amazon or Ebay with bitcoins? If the answer is NO, then I have NO interest in it. Nor will the average person. Technophiles will latch on to it for sure, but main street will not. Just sayin'.

"The power of liberty going forward is in decentralization.  Not in leaders, but in decentralized activism.  In a market process." -- liberty student

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marten replied on Mon, Aug 8 2011 7:20 PM

I'm gonna say this again. Can I buy my stuff from Amazon or Ebay with bitcoins? If the answer is NO, then I have NO interest in it. Nor will the average person. Technophiles will latch on to it for sure, but main street will not. Just sayin'.

Right, the question is whether Amazon (an unlikely early adopter though) or other internet based businesses can and will start accepting bitcoins. I can think of several reasons why they would want to (these sites are run by "technophiles" btw) as well as why the average person would want to use them to pay with given the option. Some people claim that will never happen though, but they haven't convincingly explained why yet.

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But here's the flipside. Banks are more convenient than bitcoin right now. You can't easily integrate bitcoin into your credit transactions or your bank account. People who are naive may think this is a boon because of them thar evil banksters, but the reality is that everyone here still gets paid in some fiat currency or barter. That means you use something that is widely accepted which is integrated into both physical and digital infrastructures. So, if say tomorrow banks were allowed to use bitcoins instead of local currencies to exchange between each other electronically, then I would expect bitcoins and bitcoin services to expand and flourish. Right now, that's probably not possible. So, I don't care what the value or money status of bitcoin is just as much as I don't care about the value or money status of the Zimbawe dollar. It's useless to me.

"The power of liberty going forward is in decentralization.  Not in leaders, but in decentralized activism.  In a market process." -- liberty student

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Posts 12
Points 195
marten replied on Mon, Aug 8 2011 8:16 PM

If you have an internet business you might be tempted to accept bitcoin to avoid the difficulties and costs involved in accepting credit cards. The additional investment cost for a shop to start accepting bitcoins is small compared to other alternatives and so are any transaction fees involved. It's not like a shop has to choose a single option, it's fine to accept both credit cards and bitcoin, etc. If enough shops accept bitcoin then they will be useful to you and the average person. I also believe people use what's most convenient but the fact that people take the trouble to use services like paypal or dwolla shows there is demand for alternatives. Bitcoins have the potential of being as convenient as such services, if not more so, without the disadvantages of relying on a central authority.

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