Bitcoin drops 23% in one day:
http://arstechnica.com/business/2013/03/major-glitch-in-bitcoin-network-sparks-sell-off-price-temporarily-falls-23/
Just like it did in the past, when it dropped from $33 to a dime in a few hours.
But why? What happened to all its marvelous features? Isn't it supposed to be a sure thing? Isn't it the wave of the future?
Surely there must be something about it that will prevent it ever dropping in price. I don't understand.
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It's easy to refute an argument if you first misrepresent it. William Keizer
It's currently ~$3 off today's high and you have the gall to declare this a drop 'just like in the past'? lol. Bleeding credibility, bud.
The value went from 48, to 37, and then back up to 44 (on MtGox). Get your hyperbolic statements under control.
I think it's a testament to Bitcoin's reliability that as it becomes more established and spread out it also becomes more stable and resilient.
The problem was that the recent update of the most popular Bitcoin client created "blocks" that were too large for the older software, causing it to reject them. The system has since been moved back to the previous version while the programmers create an intermediate update so that they can get a majority of the systems to support the planned larger blocks instead of switching cold turkey like they did this last week.
Just to point out, the 2011 incident was not caused by a problem in the "code", it was caused by good old fashioned theft. Basically what amounts to a Bitcoin bank was hacked into and the resulting uncertainty in the bitcoin marketplace caused a massive sell-off. Two completely separate and unrelated problems. The problem that happened this week was also not really a problem with Bitcoin fundamentals.
I thought those rules where mathematically determined beforehand? Why would there be any need to change them?
Maybe Peter Surda could give us a rundown.
Did you even read the link?
I think they're just trying to change the size of files that get moved around a lot.
The core Bitcoin algorithm is safe and unchanging, but other things get updated to make the network run more smoothly and securely.
It's like changing the size of the crates used to transport gold coins between banks - the coins remain the same, though some trucks may be unable to transport the new, bigger crates.
Yeah, I checked out the reddit thread and it looks like it's a problem with the database updates they implemented in the latest patch.
Why not say the US Dollar increased 23% in value against the bitcoin. Is that equally less plausible? Why is the US Dollar being created at a rate of $85 billion per month increasing in value relative to the bitcoin?
The point is that any electronic asset that can be traded rapidly is going to have huge moves against a fiat currency decreasing in value.
Or equally as plausible: Asset prices take the stairs up and the elevator down. Bitcoin has been on a huge run here and maybe, just maybe some of the owners are trying to turn their bitcoins into the more usable US Dollar.
...any electronic asset that can be traded rapidly is going to have huge moves...
Asset prices take the stairs up and the elevator down.
Which is precisely why bitcoin is not suitable to function as money. People take money in payment because they know, based on its most recent purchasing power, what they will be able to buy with it when they next go shopping. But they won't accept payment in something they assume will have huge moves and take the elevator down.
What about those who use it now? They are not the average person; they are speculators and gamblers. They are willing to risk a huge move on the down elevator because they think they are smarter and more knowing than everyone else and that "it won't happen to me".
Until Bitcoin is 100% convertible in hard assets (gold, silver, rice, lead etc) it's bound to suffer the same wild fluctuations as all other speculative assets.
Please note I am stressing "convertible" over "backed". It means I can go to Bitcoin HQ, hand over my "digits" and get something physical in return, be it a silver coin or a sack of rice. That would set Bitcoin apart from everything else but it's also an extremely expensive undertaking. Until that happens is halfway between another cheap credit-fed bubble and wishful thinking.
Smiling Dave, you're so down on Bitcoin, but the same could happen with gold; a new block could be accepted by half of the people, but not the other, and require us to revert all gold transactions back to the previous version. Gold software is just as vulnerable to technical glitches!
(oh well, I thought my sarcasm above would be evident)
Gold is a tangible object. Glitches may happen in the software used to trade it, but if someone is offered a twenty dollar gold piece, say, in the palm of his hand, he knows what he can buy with it. He won't stop trusting gold. He might stop trusting some software used to trade gold, and dump the software. But he won't dump the gold itself.
With bitcoin, the software is an essential part of the transaction. If the software is causing problems, where will you turn? That's why if people are scared by glitches in the software, they dump their bitcoins, as we saw yesterday.
Kakugo,
I would add that people have to believe very strongly that they will actually get that full bag of rice, and not worry that they will be told, "Sorry today it's only half a bag."
My views on Bitcoin remain the same since a year ago. Here's some more thoughts:
Bitcoin can be money for the same reasons USD can be money. Unlike a traditional fiat money, however, Bitcoin has managed to bootstrap itself without the direct backing of government force. Nevertheless, this does not mean that Gresham's law will not apply to Bitcoins should they become money as they have no commodity use whatsoever. And while BTC does not have direct backing of government force, as I explain above, its existence is parasitic on the current fiat monetary order - people want BTC in order to escape fiat paper without the storage, seizure, theft, transport and transaction risks associated with cash or gold. It is those risks, in combination with the rapid devaluation of fiat currencies that makes BTC able to act as a medium of exchange and, potentially, money. If either or both of those conditions are weakened or eliminated, the value of BTC could crash overnight. This makes the BTC market unstable and speculative - we will continue to see these crashes going forward. In addition, the true causes of these crashes will become more and more difficult to understand as the market cap of BTC increases in scale.
As Dave said:
Dave and I word it differently but I think we're on the same page.
Clayton -
"....BTC does not have direct backing of government force.....people want BTC in order to escape fiat paper without the storage, seizure, theft, transport and transaction risks associated with cash or gold."
Of course these are excellent qualities from a libertarian point of view. Other qualities include:
From the point of view of the merchant in commerce, Bitcoin has two significant advantages over the current electronic payment systems. First, it eliminates third-party processing fees, which for small merchants are usually 2% to 3%. For example, a merchant who has monthly sales of $40,000 can pay third-party processing fees (Visa, MC, Amex. Paypal, etc.) in the range of $800 to $1200 a month (around $12,000 per year). Bitcoin as a payment system eliminates these large fees.
Second, third-party payment processors generally do not honor private contracts. For example, if the merchant and customer agree among themselves that a particular transaction is a "final sale" with no possibility of refund, current third-party processors are not bound by this private contract and may reverse the transaction (force the merchant to accept a return). Bitcoin enables the buyer and seller to enter into and to keep in effect a private contract that cannot be reversed by the administrator (central authority) of the payment system.
From the point of view of libertarianism, Bitcoin has advantages other than those quoted above. It appears that the monetization of Bitcoin will or would not require any action or any change in philosophy on the part of those who are hostile toward it. For Bitcoin to grow, all that is necessary is that people who wish to utilize it do so. Bitcoin does not require adversarial confrontation in which one group of people tries to make another group of people take steps in the political arena to monetize it. It does not require a change in the current political system or a change in the ideology of any adversary. It's benefits may be enjoyed simply by utilizing it with no political confrontations required.
Also, there is the question of the difficulty in preventing people from changing over to and using this kind of decentralized peer-to-peer system. Bitcoin (or perhaps some future system similar to it) demonstrates how a system of interpersonal exchange may emerge that is difficult to control by political means.
Bitcoin does not require the permission or assent of its adversaries and at the same time may be difficult for them to control or prevent.
It is a voluntary system that does not require the abolishment or alteration of anyone else's payment or monetary system, including the State-administered monetary system. It is thus eminently peaceful. It is not constrained by arbitrary geographical or territorial borders and not constrained by legacy political systems or legacy ideologies. It was privately created and enables private exchange that is not centrally controlled.
These features may partly explain why many Bitcoin users are libertarians.
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
48 to 37 is not 23% down? Oh, sorry, I did provide a link that was full of hyperbole calling it a drop of 23%. 48 to 37 is only 22.9167%, not 23%.
Maybe the hyperbole was saying it happened in a day, when it really happened in the course of a few hours. Down 23% in a few hours, didn't take a full day.
...the 2011 incident was not caused by a problem in the "code", it was caused by good old fashioned theft.
How very reassuring for the future of bitcoin. Thank you for that.
The problem that happened this week was also not really a problem with Bitcoin fundamentals.
Oh, the deep, unfixable problems with its fundamentals has been beaten to death here.
This little link was just a side show, to ensure all those gamblers in bitcoin that they can sleep safely at night, knowing their money can never be subject to good old fashioned theft, nor disappear by some ineptness of a programmer they will never see, and yet has the power to make them lose 23% of their stash in a few minutes.
I mean bitcoin's value depends on computers they have absolutely no control over, and messed up twice already. What could possibly go wrong?
One day, Dave, you will buy bitcoins in order to purchase something online cheaper than you could for dollars or w/e. And on that day, you will know for sure that you were wrong.
Anenome: One day, Dave, you will buy bitcoins in order to purchase something online cheaper than you could for dollars or w/e. And on that day, you will know for sure that you were wrong.
I rather think that he'll refuse to buy anything with Bitcoin, rather he'll starve, hoping to prove that Bitcoin is not a medium of exchange because he does not use it in indirect exchange.
I do something like that when I buy things on eBay. PayPal charges my debit card to put money into my wallet, then I pay on eBay, then it goes into the seller's PayPal wallet, and then if they want they can convert it back to USD in their bank. Many sellers on eBay won't accept anything other than PayPal. Sure, PayPal calls them dollars in your wallet, but they are merely digital tokens that PayPal manages for you which they will convert to USD on demand.
The Austrian definition of commodity money: Money that has value as a commodity during a zombie apocalypse.
Good example of the mood around bitcoin: Here's Why Bitcoin Speculators Are Just Laughing At Anyone Who Calls It A Bubble
Blargg, was the purpose of that article to point out the obvious or was there some other meaning behind it? It read exactly how the mood and thought process was behind real estate before it came crashing down.