BitCoin article from Reddit
Hi WSO,
Some of the younger guys here have no doubt heard about "Bitcoins". Recently came across a piece from Reddit: http://www.reddit.com/r/Bitcoin/comments/1poaeb/this_will_all_end_in_teβ¦. If we can avoid all the hipster/conspiracy bullshit. I just have one question:
Do you think Bitcoins will be widely adopted? If so, how does the entire aspect of Monetary Policy comes into play? Because as far as I know, Bitcoin supply is driven by how fast a computer can solve complicated algorithms, nothing at all to do with the US Treasury's printing press.
Just curious,
CDNdude
No, if for no other reason than governments will outlaw them from being exchanged into any form of recognized currency if at any point they threaten normal currency markets.
Agreed.
Virtual currencies like BT bring with them different economics. No government is subscribing to that or allowing it to exist any time soon. Just think of the implications on tax collections.
Possibly, but they don't need to be exchangeable into another currency to have value.
Especially if you like drugs.
How can you possibly say it has value if it can not be exchanged into a real currency. Unless you can buy anything with bitcoin and do so easily it will have zero value. So its theoretically possible that it can always be worth something but the chances are exponentially higher that it will not have any value if it is not exchangeable.
No way, at least long-term; sorry Winklevoss Capital and BitInstant.
http://www.nytimes.com/2013/10/31/technology/bitcoin-pursues-the-mainstβ¦
Up past $420 now.
42k now
Getting ready to liquidate my PA and throw it in some internet money.
More accurately, it's a function of the Bitcoin software that's independent of computer processing power.
Transactions are processed/confirmed when they're included in blocks. The software awards a certain amount of Bitcoin (currently 6.25, but decreasing in pre-set way over time) to the "miner" that creates each block. The miners race each other toΒ create a blockΒ by racing to solveΒ a difficult problem, and the Bitcoin software sets the difficulty of the problem so that a block is created every ten minutes or so. If the price of Bitcoin rises, then the miner's fixed Bitcoin reward becomes more valuable (in terms of other currencies) and more processing power/electricity is thereforeΒ thrown at the problem. This reduces the average time that it takes to create a block...temporarily. Then the Bitcoin software automatically recalibrates the difficulty of the problem so that the time goes back to ten minutes.
A massiveΒ amount of electricity is being consumed by the Bitcoin network (see here). More than 0.5% of all electricity being used on the planet is now being used to mine Bitcoin, and this number will increase as the price of Bitcoin increases,Β for the reason I just described.
TheΒ situation looksΒ even more perverse when you realizeΒ that Bitcoin transaction processing is ridiculously inefficient. The network can process maybe five transactions per second. This is a function of the rate of block production (pegged at one per ten minutes as I just described) and a cap on the size of the block (previously 1MB, now more complicated due to changes in the past several years, but not much larger.) You can watch a stream of individual, unconfirmed transactions here.Β
Since every transaction takes up a certain amount of file space, and there is a limited amountΒ of space per block, there is a cap on how quicklyΒ transactions can be processed. This cap is way, way lower than the capacity of Visa and Mastercard, and it's a software constraint that can't beΒ solved by increasingΒ processing power. Google the "Bitcoin Scaling Debate" for much more on this.
As transaction volume increases, think of transactions as waiting in line to be confirmed (included in a block). There are two ways to handle this: wait a long time, or "bribe" your way up the line via transaction fees. (Miners who create blocks earn Bitcoin from transaction fees as well as from the 6.25 BTC reward, and the person making the transaction can choose how much fee they want to offer. So miners prefer to includeΒ transactions with bigger fees in the blocks they create.) Both the wait times and the fees have increased with transaction volume, intermittently clogging the system and making it too expensive and inefficient for small transactions like Starbucks purchases. This has led to a change in the justification for Bitcoin: its creator described it as digital cash, but it's now justified as a store of value- digital gold that's held in significant quantities and transferred infrequently.
So, if by "widely adopted" you mean used by millions of people for everyday payments, then the answer is no,Β barring some big change in the software design.
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