[ljd]

I actually think the decentralized nature of bitcoin is what gives it all it's value. The fact that no bank can control it, inherently holds value. Currency manipulation is a really big problem right now, and knowing that you can buy a currency that won't be artificially controlled by it's issuer is an asset in itself.

Having the currency centrally controlled again isn't special and it doesn't deviate enough from a credit card transaction for anyone to use it.

[wpietri]

That argument doesn't make much sense to me.

If first-world currencies were being drastically manipulated in ways that cost currency-holders lots of wealth, then I'd expect to see currencies decline relative to things that are directly valuable, like commodities. But that's clearly not the case:

http://www.economist.com/news/economic-and-financial-indicat...

The price of gold is down, too:

http://www.bullionvault.com/gold-price-chart.do

Further, I think a government can pretty easily influence the price of bitcoin: the bitcoin market is still relatively small, so somebody with billions of dollars to spend should be able to heavily manipulate the price.

But even you were right about it being proof against government manipulation, I think it would still only be better for people seeking stability if the volatility of bitcoin were lower than government-backed currencies. But bitcoin is insanely volatile compared to first-world currencies.

[sliverstorm]

Honestly, bitcoin is less and less decentralized every day. Nobody runs bitcoin-qt anymore (it's all online wallets and lightweight clients), and mining power is steadily consolidating as the capital-intensive ASICs take over. The more widespread BTC adoption becomes, the more the network will be owned by those with the capital to purchase large quantities of GH/s

[chj]

Exactly. Computational power of a few dominates the rest.

[sanderjd]

Different strokes for different folks. I think its decentralized nature is its least valuable aspect. If the only thing it accomplished were smoother and cheaper internet, small business, and interpersonal commerce, it would be incredibly valuable. The novelty of it (which I think has a lot to do with its decentralization) is currently causing too much volatility to make it useful for actually buying and selling things. A more boring government-backed (or -regulated) variant would be more useful and extremely valuable.

[wmf]

Decentralization is very expensive because it requires mining, so if you don't think that's important you should probably back a more efficient system like Ripple or Open-Transactions.

[gregr401]

Expensive for whom, how exactly do you quantify that? Today we pay fee's to institutions which have massive infrastructure costs (along with their necessary profits). If anything, decentralization offers an incentive for the technically inclined to reap some potential rewards which is far more feasible than today's systems.

[wmf]

If you don't think decentralization is needed then Ripple is just as good as Bitcoin but it requires no mining. So the expense is the wordwide cost of all Bitcoin mining which is estimated at over $100M/year.

[CamperBob2]

The fact that no bank can control it, inherently holds value.

But the fact that anyone can roll their own competing currency inherently kills value, doesn't it?

[tadfisher]

Anyone can roll a Facebook competitor, or a search engine, etc. Market adoption is important.

[waps]

It does not have value. Nobody is denominating services or goods in BTC. They denominate them in USD and BTC is simply a convenient way to spend USD, maybe even make some profit for the short time you're holding it. That's the value of BTC. Hard-to-trace, global (and local), decent-rate, unregulated money transmission. Decentralized and cheaper Western Union.

Makes you wonder if Satoshi isn't simply the NSA.

The more I think about this the more predictable this outcome becomes. BTC is making techies everywhere invest in what effectively amounts to USD.

[CamperBob2]

Makes you wonder if Satoshi isn't simply the NSA.

Yeah, something's weird. BTC went up, not down, when Silk Road was busted. BTC went up, not down, when Congress started holding hearings on the subject.

[XorNot]

Just for fun, plot BTC news relevancy from Google against the BTC value.

The two line up basically perfectly. Conclusion? BTC in the news means some portion of people hear about the great new BTC and how much it's going up in value, and some of them buy in.

[polarix]

"Hard-to-trace" -- hardly: this is the easiest money to trace in the history of money! (Well, ACH transactions are easier if you are backed by an army.)

[nayefc]

A central authority needs to control money supply. This is crucial in all advanced economies. It has to be capped somehow (currently, it's obviously exploited), but a decentralised currency will never work.

[ericb]

Under what definition of won't work. Won't be adopted? Would cause economic calamity? I think this is a crucial distinction.

[XorNot]

With nothing anchoring the value of the currency, it'll fluctuate wildly (and then crater to zero, and that'll be the end of it).

Regular currency is legally enforced by governments as the way to pay taxes, and settle debts in that currency - ergo you always need some or need to buying some, even if you don't want to deal in that currency day-to-day.

BTC does not have these things. The only thing holding it up is irrational speculation. Every person who holds bitcoin needs to sell it to a greater fool for a currency which does extinguish debts/tax obligations locally.

Consider: a population of people in the US dealing solely in BTC, and earning income, have to pay income tax. The IRS can assess income taxes as the relevant fraction of their income (easy enough: assess an approximate USD market wage that they have worked, declare they have to pay USD % of that in taxes). The effect would be BTC craters in North America, because every member of that population would have to somehow sell BTC for USD - only none of them hold USD, so they can't trade amongst each other, which means they need to convince someone else to accept BTC for USD (and I mean, why would you? You can't pay taxes with it which is why they're selling)?

[ericb]

There is generally nothing anchoring the value of any asset trading above the costs of the inputs required to make it.

For example, any real estate with a premium for its "better location," suits by Armani, sunglasses by Gucci carries a similar premium. This applies to gold as well--a huge part of the value is the expectation that others will continue to like shiny things.

Nothing anchors their price, or premium, other than a system of social beliefs and expectations. Specifically, beliefs about how others will perceive them are all crucial in how people value these items.

The same is true for bitcoin. It starts with a belief that others will also prefer to store value in currency with a higher utility--storable with no fees, and instantly transmissible lower fees--lower friction. It isn't so much the greater fool theory as it is the starting of a journey toward a Nash Equilibrium. But first everyone has to come to a belief about how they, and others view the currency. http://en.wikipedia.org/wiki/Nash_equilibrium

Once this has happened and additionally the markets have become more liquid, things can level out. Right now, the world-brain is confused about how it feels about bitcoin.

[nayefc]

Unfortunately, it won't.

Money supply is a function of many things that an authority needs to control as an adjustment lever for the economy. A currency with a scheduled-deflation is not the solution.

There are no problems with our currencies today. This is a solution to a non-existent problem. We have problems in the finance world that Bitcoin does not solve.

For example, regulating how money supply can adjusted, or lending & risk.

How do you expect to operate a modern economy with Bitcoin when the whole concept of lending and credit will never exist (due to the shortage of the money)? What about in 50 years when the population goes up and we'll need more money in the system?

The government will never collect taxes, or issue bonds, in a currency that is not a function of the current state of the economy (but a function of time), and one that is scheduled to stop issuing any more "bills" (coins) at some point.

[ericb]

I guess the reason I don't give this argument any weight is that it is a theoretical argument about money supply and governance when the decisions to use this currency or not are made by average joes who decide whether it is in their self interest. I understand your argument as essentially saying that this currency will cause a tragedy-of-the-commons problem.

The thing is, I think that acknowledges that its popularity is inevitable--tragedy of the commons can only arise when people see something in their interest that is detrimental to society. But as an average joe, given a variety of assets, some deflationary, some not, storing my wealth in the deflationary one is in my interest.

The government never has to use it. I can always convert a small portion of my increasing-value bitcoin holdings into inflationary fiat at the last minute to pay the bill.

[notdrunkatall]

What gives Bitcoin its value right now is speculators, and what speculators are betting on is widespread adoption. If that never materializes because some other currency has taken its place, bitcoin's value will decline.

And it is only a small subset of the population which ascribe value to monetary decentralization. I count myself among them, but I don't delude myself into thinking that the majority feels the same way.