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The bitcoin bubble

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Bitcoin is an innovation. For the first time you can have a distributed system that maintains its integrity without trust among its users. It solved the double spend problem, so till Bitcoin implementation there could be no digital money without a centralized third party like Visa or Mastercard.

Technologically speaking, it is a breakthrough. Maybe like the internet or the steam machine, it allows people to do things that were not possible before. In this case, it is to have an asset that will not be negatively affected by inflation, that is out of control of any government and that can be easily exchanged peer-to-peer.

It is comparable to gold, as it is a reserve of value that do not have a lot of intrinsic value. Like gold, it's value is the value people attribute to it rightly because they think it is a reserve of value. But it can be much easily exchanged for goods or money, what makes it more functional than gold.

I agree that while it's price is so volatile it is difficult to conceive that Bitcoin can become a true medium of account and exchange. And that may be the future of Bitcoin, an asset, a kind of substitute to gold, not a new currency. But it is still early days. It's adoption as a medium of exchange can become more popular (more than 140 thousand places only in Japan already accept is as payment method) as it appreciates, and this seems to be already happening, despite being counterintuitive.

Sure, it can be a big bubble. But we must think about the necessities it is well positioned to answer to. When technology advances, this is the most relevant variable to determine adoption. And as I tried to briefly explain above, it also can be Bitcoin is an important technology improvement that has a lot of social meaning, as it enables people to do things that were not possible before.

Even without considering Bitcoin specifically, don't you think the idea of a digital currency is very practical? Have you seen the increase in digital financial transactions in China in recent years? Wouldn't it be very interesting if we could have make transactions easily, have no intermediaries, being responsible for our own assets, paying less for each transaction, and get a little more independent from governments, that is ultimately controlled by the 0,1% when not outrightly corrupt?

It is very hard to see Bitcoin as a mere bubble using this lenses.

mullah_assassin in reply to sikko6

Err no it won't.
Did Alcohol vanish after prohibition? No. Did Weed vanish after the dismal war on drugs and laughable Schedule I classification? Nope. And neither will blockchain. As for Bitcoin, - who knows where this will go.
You obviously don't understand P2P networks, consensus algorithms or cryptography very well to assign this technology a valuation of zero.

mullah_assassin in reply to sikko6

Digital currencies just can't touch them, just like you can't touch the 97% of fiat money, which are digital claims on the remaining 3% of cash and coins. The only difference is that the network is decentralized and out of the hands of central planners.

Paper has no intrinsic value either. It's backed by the government's ability to screw over the Middle Class. Bitcoin is backed by cooperative computational power, a little more chaotic and volatile than fiat, but that's the price to pay for not having it hijacked for any particular minority cabal.


Luckily you can now leverage to buy more bitcoin with the same amount of money, and nothing bad ever happened with leverage.


I am in "hot water" with my young relatives for advising them not to by BITCOIN last year. Then again, people were also annoyed with me in 1999 when I advised getting out of the Tech Stock bubble. I got out in summer 1998 and missed the last year of the run. However, I was unaffected by the Y2K crash that wiped out 80% of the nasdaq.
My concern about Bitcoin is that besides being a bubble, it is a private currency. Governments are never going to tolerate their citizens using it as a medium of exchange to avoid settling their business in taxable currencies. Bitcoin will be declared illegal at some point.

guest-llnomlw in reply to guest-ajmjmmae

You don't need to identify yourself to make Bitcoin transactions, just to reveal your public key. And you can have a lot of public keys.

Sure, this could be a problem. But it is not like if there was no way around it as you stated. You might be interested in learning about BIP 32, for example.


I think what everyone has to realize about the long term value of a bit coin is kind of a binary amount (either it is worth millions eventually or zero). This is built into the mathematical construct that defines the system:
1. It continually offers less and less bitcoins to miners to update the block chain
2. The mathematical/data storage work gets more and more onerous.
Eventually, it might take entire data centres running full time to process a blockchain update for 1/100th of a bitcoin. At that point the currency would have to be worth tens of millions of dollars (option A) in order to make it worthwhile (exceed marginal cost) to process a block, or no one will process payments (option B). In option A those people holding one bitcoin today will probably be billionaires.
For it to become stable, bitcoin would have to change, so that participants are willing to process blocks in exchange for no bitcoins, and the difficulty of 'solving' a block become easier and easier, and the absolute limit on the number of coins would have to be removed, or allowed to increase from time to time so miners can be compensated.


The Bitcoin bubble is vastly entertaining. It's certainly not a store of value so what is it? Easy. As this piece makes clear it's vehicle for speculation most of which seems to centered in Asia and a means of conducting covert transactions which by definition are invariably criminal. China has started shutting down exchanges because of concern about the high level of gambling by their citizens and most of them seem to have migrated to Japan which is providing a sort of quasi recognition. At some point it's going to unravel. What is just as amazing is the attitude of the US regulatory bodies like the SEC to the proliferation of these tokens for startups which are not equity. They have now apparently started issuing warnings to celebrities to stop promoting them but seem unwilling to pull the plug on the whole scam despite the fact several of these enterprises are in the process of going belly up.


A correction should come and shake off the dumb money.

Otherwise, the technology is here to stay...and empower the little guy over the monopoly men.

guest-wooomeo in reply to MrR.Fox

A reductio ad absurdum proposition. The entire supply of money is never going to be replaced by 21 million bitcoins. Some event or other is going demonstrate that Bitcoin won't gain ever increasing acceptance. Pop.


Simple (?) math question - if the entire money-supply of the whole world were replaced by 21-million BitCoins, how much would each BitCoin be worth?
The answer is - a lot more than $7,000.
Until it is demonstrated that BitCoin won't continue to gain an ever-increasing acceptance and usage ... there's no fundamental reason for its price to stop rising.

Center Jack in reply to Langosta

The entire reason bitcoin is such a big deal is that it can't be banned. It's entirely decentralized just like the internet, "The Internet of Money" if you will. Just like no government entity could universally shut down the internet, the same goes for bitcoin. They may be able to shut down centralized exchanges but those won't necessarily last if governments do start going after them. They are only the transition to decentralized exchanges. Bitcoin is a next generation technology running on current generation infrastructure. People thought the internet would never work when we were trying to send large packets of data over telephone lines. People thought cars were a dumb idea when they could barely drive on muddy roads made for horses. I suggest you look a little deeper into why there is so much hype around it. None of this is to say that it's not bubbly right now, it could crash 80% tomorrow for all anyone knows. But just like the internet went on to revolutionize the world after the dotcom crash, bitcoin will do the same.

Joseph Mohen

The main reason that bitcoin keeps going up is that there is a fixed supply of bitcoins, and there will never be any more. Unlike traditional fiat currencies like the dollar or pound, no central bank can print any more of them. Companies such as Microsoft, Expedia, and Overstock already accept bitcoin, and more and more people will be doing so. As the demand increases and the supply is constant, the value of bitcoin must keep going up.

Bitcoin provides de facto access to the financial system for large swaths of the world that are unbanked: 40% of Asians, and even 7% of the United States, as well as countries facing currency or banking crisis, like Zimbabwe, Venezuela, and from time to time even Argentia or Cyprus. Bitcoin transactions can settle in minutes as opposed to days, and provide efficiencies that fiat currencies cannot. Bitcoin is not going away, and there are those that believe it will become eventually displace the dollar as the world's reserve currency.


J. Mohen
New York


Can you imagine doing financial transaction or negotiation where one transaction can expose your whole net worth?! Well, that's Bitcoin tech! There is no way around it. Bitcoin blockchain has all your transactions and total net worth out in open for everyone to see. It is a huge practical concern that's unavoidable with Bitcoin.

MIT Tech Review recently had nice analysis of this -

minfjord in reply to sikko6

No, you cannot make as much Bitcoin as you want. There can only be 21 million, and each one is harder than the next. Currently, it takes as much power as an American household uses in a week to generate each new Bitcoin. It will become so hard that it's now requiring breakthroughs in chip design to keep going. The final Bitcoin won't be achievable until 2300AD with current trends.

Bitcoin has been a bubble for 9 years. It has crashed many times. Each time it comes back stronger. The finite supply, total lack of any central control, and the fact that it seems more or less eternal (once you have one, it's yours forever until you give it away) seems to make it behave like gold. What is the reason for buying gold? Gold often has manias and bubbles, then it crashes, then it comes back. If countries banned it, would it loose value? Yes, but sooner or later, it would bounce back. I don't know why it's worth anything at all. In fact, I don't even know why gold is worth as much as it is. All people do is buy it and hang on to it. Jewelry yes, but shiny plastic looks better in my opinion. Gold has been a bubble for 10,000 years. It's going to crash big one day. Bitcoin will have a final crash that day as well.

Maybe money itself is the actual bubble, with so many people ruining their relationships and lives over it. One should focus on a spiritual and simple life.


I think you are dismissing the potential of Bitcoin as a replacement for gold. Gold has value only because we believe it does. It has very little value to meet the needs of our daily lives. Over thousands of years it has gained value because people chose it as a "token of value" due to its durability and relative trade ability, compared to grains or other necessary resources.

Bitcoin has the potential to be a replacement "token of value". It is much easier to store and trade than gold. It is only starting to gain the "belief" in its value. If it continues to build on this belief while maintaining security and stability, it has the potential to grow, in decades, to what gold took thousands of years to attain.

Other cryptocurrencies/ICO's do not yet show this potential. Bitcoin will have to demonstrate a significant fault(not just a theoretical fault), or another crypto will have to demonstrate a true large benefit, before Bitcoin drops off.

I am not saying by any stretch that my theory is a guarantee, but simply showing that until all of the Bitcoins are mined or Bitcoin has a major structural problem, there is reason to buy them; other than "because the price is rising". There is potential for it to be like buying gold with 2017 money at a 2000 BCE price.