BitPay reported that they processed payments worth 158 million USD in the whole of 2014.  Guessing that they make 2% on each payment, from fees and/or exchange spread, that is less than 10'000 USD/day. 

So that 'social engineering' attack may have cost them 6 months worth of their revenue (not just of their profit) in 2014.

That is nonsense.  There are many things that are scarce and required nontrivial labour and capital to build, and yet are worthless (or have negative worth).  Worn-out tires, the Soviet-era Trabant cars, exhausted coal mines, the Maginot line, land mines lost in Vietnam, ...

For whatever it is worth:  Blockchain Scalability Survey by BraveNewCoin

http://bravenewcoin.com/news/the-blockchain-scalability-survey/

Well, yes, but depends on what "used more" is supposed to mean.

The money velocity equation is  P = V × T / N  where P is the unit price (USD/BTC), V is the volume of payments using that currency (USD/day), T is the mean time between two payments with the same unit (days), and N is the number of units in circulation (BTC).  It is not even economics, but just basic algebra, from the definitions of those quantities.

If there was no hoarding, N would be 14 million (all coins in existence), and T may be perhaps 14 days (wild guess).  Hoarding requires changes those numbers. 

One may (1) exclude from consideration the coins that are being hoarded.  Then T is still 14 days, but N is only a fraction of 14 million.

Or one may (2) include the hoarded coins. Then N is 14 million, but T would be 1000 days or more (since most coins have been held for years without use).

The expression "bitcoin gets used more" could mean that more people are using bitcoin and/or are spending more; that is, a bigger V.  Then the price would go up.

Or it could mean that some of the hoarded coins are put back in circulation; that is, N gets bigger (approach 1) or T gets smaller (approach 2).  Then the price will go down.

As I wrote already, I was referring to Gresham's Law (aka Copernicus's Law).  It is stated in terms of face value vs intrinsic value, but the phenomenon applies to bitcoin vs national money: if a currency is  [ perceived as being ] more solid than another, people will hoard one and spend the other.

Alchemists were desperately trying to make sense out of the data that they got out of experimental chemistry.  There were crackpots and scammers, and some who intentionally obfuscated their writing to preserve their trade secrets.  But there were also many who simply inventing their own names for substances and processes, and trying to make general theories out of experiments.  They rightly sensed that there must be *some* laws, but they did not imagine how complicated they would turn out to be.  They were like biologists before biochemistry, or astronomers before gravitation...

Only a few years ago I learned that the real father of chemistry was a guy called Jabir ibn Hayyan (westernized as Geber) who lived around 800 CE.  He perfected the still and discovered the sulphuric, hydrochloric, and nitric acids by distilling vitriol, alone and with salt and saltpeter.  Aqua regia, a mix of HCl and HNO₃, was found to dissolve gold.  

But, besides his genuine experimental contributions, he also "perfected" the four-element theory of Aristotle by "explaining" the differences into various metals as "rearrangements" of two basic qualities that all metals had. Five centuries later, when his works were translated to Latin and spread in Europe, that discovery and that theory spawned an epidemic of stereotypical alchemists, obsessed with turning lead into gold.  

Around 1600, Emperor Rudolf II of Bohemia (today's Czech Republic) thought that alchemy could be the solution to his financial difficulties, and built a "research center" -- an alley in the Prague Castle, lined with labs for alchemical "startups" attracted from all Europe. Many of them were scammers, and of course it did not work.

You see, those scammers had to work with gold, because bitcoin had not been invented yet.  

If you check this thread back in late 2013, I never boasted of being a professor; someone else found out eventually, by googling my name.  Although I am a prof of computer science, that of course does not make me an authority on bitcoin, and I don't recall ever having appealed to my title.


I am paid to research computer science.  No one tells me what exactly I should research, not even that it has to be strictly computer science; except that I have to satisfy grant committees once a while, and advise students on their thesis topics (and that freedom of research is one of the few advantages of being a university professor).   

But frankly bitcoin is more an hobby than work, like my previous net-obsessions with space exploration, cold fusion, the Voynich Manuscript, the Fukushima disaster, Wikipedia, Wikimapia...  On the other hand Bitcoin is clearly computer science, so if perchance someone were to complain that I am spending too much time in my hobby, my ass is reasonably covered.  And it is also something that I am expected to advise the public about, like electronic voting and other computers-and-society issues.

You still don't get it?  The purpose of a currency is not to be an investment. 

If someone has to make some payment for which XCoin would be the best choice, he should buy as much XCoin as he needs and spend it.  If some merchant thinks that accepting XCoin would give him 1% more profit, he can accumulate the XCoins that he gets for a couple of weeks (a 2% per year loss will not be significant) and then either sell them, or use them to pay other XCoin-accepting entities.  If someone earns a substantial amount of XCoin that he does not intend to spend in a couple of months, he should use it to buy some more profitable investment.  That is how a currency is supposed to be used.

I know that quote, but it does not deny what I wrote.  He knew that the protocol would not work if a majority of the mining power were to collude.  If he ever became convinced that mining would become concentrated as much as it is now, he would have given up on bitcoin and ... wait ...   

Here is what he wrote a few months earlier:

https://bitcointalk.org/index.php?topic=12.msg54#msg54

No I am not invested in it, or in any crypto.  I may have read about Freicoin before, but did not know (or forgot) that it has demurrage.  If it does, it would be silly to invest in it, no?  That is the whole point...

So it works! 

You have my permission to capitalize the word any way you like it. 

Great, let's all do that then. 

Imagine if only we could give 0.003 bitcoins to every person on the planet. Once 1 bitcoin becomes worth a billion dollars, no one will have to work anymore.  Bitcoin cannot just put an end to hunger and corruption in the world, it can also abolish work!

Because a tool that was carefully designed for one purpose is usually inadequate for other purposes, even if it happen to be the best tool available for them.

Bitcoin was designed from top to bottom with the assumption that it would be used as a currency that did not require trusted third parties.  For example, that is why it has blocks every 10 minutes (it should have been much less, but technical constraints prevented it). 

Satoshi did not expect mining to be industrialized and concentrated in half a dozen companies; not at this stage of adoption at least.  Had he known that the price today would be 230 USD/BTC, he might have scheduled the block reward to be 0.001 BTC/block today, so the mining industry would earn 0.144 BTC per day --  not enough for 1 guy doing GPU mining.  But that low reward might have made bitcoin more attractive to speculators... Frankly, I don't see how the mining centralization problem could have been avoided without demurrage...

I was thinking of Gresham's Law (aka Copernicus's Law).  Sorry if I got the date wrong by a century or so; my childhood memories are beginning to fade. 

I don't know enough about Keynes (or Economics) to tell whether I am a Keynesian.  But I certainly do not "hate people saving their money", quite the opposite:  I wish people (and my compatriots especially) would consume less and invest more.  But I would like to see them choose productive investments; and hoarding currency (or gold) is not productive.

Hoarding currency is bad for the individual, because all currency will lose value eventually. (As you well know, I am sure that will happen to bitcoin, too, even if there may be another bubble or two.)  Hoarding currency is also bad for society because it harms the currency, by destabilizing its value.


As any bitcoiner will tell you, that 12% inflation does not discourage hoarders because they know it is temporary.  Besides, even in the short and medium term it is (hopefully) offset by the increase in demand. (That is what happened until 2013, in fits and starts; but may not be the case anymore.)

Let me reming people that this discussion started when someone asked for my idea of a good cryptocurrency.  Well, among other things, a good cryptocurrency should be designed so that no one will be tempted to hoard it.

There will not be any dumping if there was no hoarding in the first place.

(And, as I wrote, that is one of the problems that bitcoin has: so much of bitcoin's mass is hoarded, that the price could crash in a blink if even only 10% of the hoards were to be dumped.)

"Saver" i a very general term.  In the context of this discussion a "hoarder" is one who saves by colelcting a currency. Not meant to be disparaging -- although that is usually not a wise way to save.

You cant use a wallet every time you want to think about the price of something.  "Is 0.00023 Foocoins too much for a cup of coffee?" "Is 0.03 milliFoocoins more or less than 3200 Footoshis?"  

The smallest unit of the currency should be worth maybe 1/10 of the smallest thing that is worth buying separately.  Since it takes at least one minute to make an independent purchase, including the decision to purchase, there is no point having means of payments with a much smaller granularity than the value of a minute of one's time.  (That must be why true micropayments have still to find their use, in spite of 30 years of attempts to make them work.)


Not bitcoin; any cryptocurrency.  I explained why: because a currency that attracts hoarders and speculators is a terrible currency.


It is insanity only if you start from the axiom that a cryptocurrency's goal is to rise in price so as to make investors rich.  If you start from the assumption that the goal is to serve as a currency, then insanity is what happened to bitcoin.

Bitcoin's transaction fees are too small to destroy the illusion of fabulous gains, and the 12% inflation of the currency base does not directly act on hoarders' holdings, because it is not paid by them but by the new investors.  So much so that the price (and therefore the hoarders' paper fortunes) grew by 1000% per year while that inflation was even higher than now.

A cryptocurrency with demurrage tax would fall directly on holders, and therefore hopefully discourage hoarding.  

Since you are a holder and speculator, of course we disagree on that.  In my view, you are one of bitcoin's problems.  



Bitcoin was created to be a currency, not another speculative asset- and dividend-free investment fund (or pyramid scheme, its more honest name).  There is no shortage of the latter, and (as I wrote earlier) that use of bitcoin will not make the world better, create new wealth, or render some useful service; it will just move wealth from some people to other people.

Economists have know for 500 years that a currency must have some inflation, otherwise people will hoard it and it will not be available for use as a currency.  

The use of bitcoin for investment and speculation had two other bad consequences.  First, it lifted the price to 100 times what it should have been, given its current level of usage.  The price is floating in the air, high up, anchored to itself through the hopes of traders and holders.  It could crash from there at any moment.  No company in its right mind would want to hold it, even temporarily.  Imagine a manager accepting a payment of 1000 BTC today, and the price crashing tomorrow, before he can spend or sell those coins.  How could he explain that to the company owners? (You can find out there an audio of Overstock's CEO trying to explain something like that to the other shareholders; but AFAIK he is the majority holder, so he won't get fired for that...)

Second, but tied to the first: bitcoin's use as instrument of speculative trade made its price extremely volatile.  Even in times of "stability", like the past 7 months, the price has changed by ±10% in a few hours, several times.  Volatility is bad for a currency: the user who buys BTC to pay for something will lose money if the BTC price drops between the two actions, and will not really win if it goes up -- because he will be left with a small amount of BTC that he may not find a good use for.

That is why a good cryptocurrency must be designed to NOT be a good investment.


Not really. The money velocity equation (which I too learned thanks to bitcoin) is P = V × T / N, where P is the value of one unit of the currency (say, USD/BTC), V is the volume of payments using it (USD/day), T is the average time between two payments using the same coin (days), and N is the number of units of the currency in circulation (BTC).

My best optimistic guess for V is 5 million USD/day, and T = 14 days seems a reasonable guess to me.  If there was no hoarding and speculative trading, N would be about 14 million BTC.  That gives P = 5 USD/BTC.  

The 46-fold contrast between that and the price now (230 USD/BTC) is due to hoarding and speculative


From what I have read, I am satisfied that  Satoshi intended bitcoin to be what he wrote in the whitepaper: a system for peer to peer payments through the internet that did not require a trusted third party.  He believed that the world needed such a thing, but no one knew how to build it, and thought that he had found a way.    That seems to have been his motivation to design the bitcoin protocol; and he then implemented it to see whether the idea worked out in practice.

But Satoshi was a computer scientist, not an economist.  He thought that it would be nice if the currency had no inflation.  For "everybody" knows that inflation is bad, right? I thought so too.

His he pleased about what bitcoin turned out to be?  Well, on one hand it is always satisfying to do something big, even if it is a big nuclear accident or the sinking of the Titanic.  But I doubt that he is happy about what his creature has become...