[tabsa]

Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years. Let's forget all about those calls for entrepreneurs to focus on something more world changing than iphone widgets.

If Bitcoin isn't just a definition of a word "hack", and the most ingenious hack i have ever seen in financial sector which is in serious need of disruption.

Lets better read and talk about Steve Jobs'es new book and the how new ipad is better than older and Ipad.

Why tumblr is the new wordpress...

[kwis]

> Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years.

Off the top of my head, I would state that the following are unquestionably larger financial innovations in the past 20 years: SPDRs, HOLDRs, ETFs, ETNs, dark pools, target-date funds, target risk funds, auction-rate securities, online b2b markets, online b2c markets, online banking, automated market-making, new insurance products, improvements in risk analysis (credit scoring), removal of information asymmetries, just... so much innovation

The bitcoin market is less than a blip on the radar screen. It's so small that if somebody were to sell 100,000BCN right now, they'd crash the price down to pennies. And if somebody were to buy 100,000USD of BCN right now, the exchange rate would skyrocket. It's a small, illiquid market of people who have, mostly for political reasons, decided that they will convert electricity into a private virtual currency.

I know that right now there are a lot of bitcoin miners, dreaming of how wealthy they'll be once their deflationary-by-design virtual currency takes over the world, but I can't envision any realistic scenario whereby that could happen. Heck, the political risk alone makes it untenable as a serious store of value as it would be trivial for a nation to outlaw it's use, thus destroying the utility.

If you don't want to store your wealth in government-issued currency, that's great. But I'd suggest converting wealth to productive assets (e.g. shares of companies, loans to companies, land and other hard assets) rather than a virtual currency that lacks both the inherent value of productive assets and the transactional ease of government-issued currency.

[spenvo]

Excellent points.  I'll confirm your assumption about BTC's volatility: a single sell-off of ~10k last week took 25% of BTC's value with it.  The limited purchasing power of the BTC economy has hindered economic development, but that is to be expected with any new currency. 

However, Bitcoin as a medium of exchange is quite extraordinary and has recently caught the attention of Anonymous because of its "untraceable" (term used loosely) characteristics.  There is the potential for Bitcoin to cater to a community outside of sovereign banks. In other words, there are interesting possibilities that exist beyond what goldbugs have in mind.

[kwis]

> but that is to be expected with any new currency.

I think the problem is somewhat unique to unbacked currencies. BTC has value solely because some people agree that BTC has value. It can go to zero (and stay there) for any reason.

The value has no minimum that can be defined by looking at the industrial value of a commodity (as with commodity monies). Nor is there a minimum that can be determined by comparing the money supply to the underlying productivity of a nation whose residents are required, by law, to use the money (as with fiat monies).

As an aside, if I wanted to setup competing currencies, I'd create a brokerage that allows the cheap, easy, instant transfer of ownership of fractional securities from one member to another. Then we'd have tens of thousands of competing currencies, all of which are backed by a combination of assets and productive capacity. Entrepreneurs could even setup companies designed solely to work as currencies.

I know that wouldn't appeal to those who care primarily about traceability, but frankly, I don't foresee any government allowing the widespread adoption of any mechanism that allows for untraceable transfers of large sums of money.

[tabsa]

By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?

What you failed to mention is that Bitcoin actually allows virtual currency without a central authority, and the main value is not storage, but in value transfers and lowering barriers of entry. It's actually cheaper and faster(3 days vs 15 mins) already for me to use bitcoin to transfer value inside EU, even with high currency/bitcoin exchange rates.

Did political risk stop torrents from being usefull and disrupting?

[kwis]

> By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?

I made a list of a dozen or so recent, top-level financial innovations (each of which has created many billions of dollars of value), and instead of recognizing that they had massive impact, you ignore all but one of them, redefine the remaining one from 'insurance product' to a credit derivative, and then attack it because of recent, well-known issues with mispriced credit and failures to account for counterparty risk when dealing with mortgage-backed products.

That's beyond disingenuous.

Have a nice day.

[tabsa]

You didn't recognize how you did just the same with bitcoin - taking out one of the value points and creating strawman out of it?

1. CDS is basically an insurance product: http://en.wikipedia.org/wiki/Credit_default_swap

2. I mentioned CDO just as an example of "risk analysis" failure by credit rating agencies.

I did this to point what kind of innovation you are talking about in your impressive list of acronyms that you mentioned in your first post.