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General Discussion / Re: The bitcoin death spiral has begun?
« on: January 15, 2015, 09:05:40 am »Sorry, but I don't see any new issue apart from a very deep bear market raising every band-wagon criticism possible as the herd gets very emotional. I'm not defending bitcoin here, just rationality.
From the perspective of establishing a global digital money, I don't see any problem with the following:
Volatility. Volatility is an unavoidable phenomenon in the early growth stages of any coin established by the free market that is vying for use as a global money. That is because it is not backed by any other form of existing money, and needs to establish its own value through use in exchange, with all the future uncertainty surrounding that. Any PoS, DPoS, or other coin with a similar aim would (and does) experience similar volatility. The only potential exception to this I can think of is if a coin is backed by a commoditised digital service, allowing initial stability till it finds greater use in exchange. Can anybody show another way that a free market digital money could be established without volatility, and without merely being a derivative of established money like fiat? The only argument I can see here is that it is just not possible for the free market to establish its own digital money, and I hope that's wrong.
Miners losing money. Gold was the best money standard for thousands of years. When the gold price rose relative to other commodities, it sent a profit signal to the market to explore/mine/extract more of it, thus bringing the price back into line with other goods in the economy. When the gold price fell relative to other commodities, it created losses for miners (e.g. if gold falls relative to energy costs of extraction). This incentivises miners to curtail supply in line with the reduced demand. Some might even stop operations, and dump any pre-mined gold on the market. Unfortunately business intentions are only implemented with a lag to market prices, so it takes time for supply and demand to smooth out. None of this has meant the gold mining industry has collapsed gold as a result. With Bitcoin there will be a similar dynamic. Too much mining capacity was put in place - now it is being necessarily consolidated. This also means many miners are dumping their BTC. But this is just part of a natural business cycle to be expected for mining - what's new in this situation?
Network security costs greater than adoption. All networks have a security cost (even DPoS), and whenever there is a bear market in currency price, the value attributed to the network by new adopters is by definition not covering this cost. Again this is unavoidable during bear cycles (which are themselves unavoidable - see volatility above). If Bitcoin is adopted by the mainstream, its network security costs will fall dramatically over time as a percentage of the network value. The real issue right now is the rate of adoption, not the network security costs (e.g. inflation to cover network costs only explains 10% of the fall in a year).
Merchants dumping bitcoin. Merchants never could hold the bitcoin! - they always keep limited funds on hand and need to recycle their revenues into new supplies. One could argue that merchants "dump" USD when they take their sales proceeds and buy new supplies. Besides that, they only sustain earning revenues in bitcoin if people buy bitcoin to use for this purpose.
On the other hand, possible valid criticisms are:
Network integrity can be maintained at much lower cost.
Transaction times are too long.
Centralisation of mining can affect the integrity of the network.
Scalability problems.
Other?
But note that these are NOT the current criticisms doing the rounds on the blogs and in the media - which leads me to think this is nothing more than a bear market, albeit deep, and with many emotions attached.
1. Volatiliy - The free market can establish a large digital money by building one off the back of BitAssets.
2. Mining - Bitcoin is gold mining with a pan in a river. Those miners have largely been replaced by far more efficient forms of mining as technology improved. That's what will happen here, if Bitcoin is an inefficient and wasteful form of mining by comparison to alternatives, which it is, there's a good chance it will be replaced.
3. No inflation of 10% doesn't just cost you 10% imo. New coins are sold onto the market and eat into the buy wall. In a bear market with no buying demand that inflation rate can have a much larger depressing effect on the price.
4. In the beginning the merchants and purchases made in Bitcoin was neglible that's why it was less noticeable. Now there are 100 000 businesses+ with annual sales probably in the hundreds of millions of dollars.
Businesses don't 'dump' dollars when they spend it on supplies imo. In that example those dollars are re-circulating in the economy in the Bitcoin analogy the Dollars are being dumped for Yen as soon as businesses get them.
