Home Forums Hunting & Shooting Hunter's Campfire Why I will invest in crypto currencies

I first heard about Bitcoins last March and I thought they were a complete waste of money with no value. And I still do, but this won't stop me from investing in them. I know they have 0 intrinsic value just like the dollar and every other currency in the world.

I do believe that crypto currencies are in their infancy. Considering the market cap on all crypto currencies is around $12 billion. This figure is a drop in the bucket in grand scheme of things. Good ol' Bernanke prints this up in about a week. A news report came out earlier in the week stating that Wall Street investors are going to invest hundreds of millions of dollars into Bitcoins in the next 3 to 6 months.

Right now it very difficult for someone to just go ahead and buy bitcoins. It would take you the better part of a week before you can receive the bitcoins in a virtual wallet. This is keeping the masses of people from buying bitcoins. Every day people are working on making it easier for this to happen. When this does happen it will be like opening flood gates.

The majority of people who own bitcoins are Libertarians and the Chinese. Libertarians own 44% of the bitcoins and the Chinese can not buy them fast enough. The Indians are also buying them up. In eastern Europe there is some activity but nothing like what is going on in China. There is very little activity in the US in comparison to China. When the masses of American do decide the want to be a part of this game the price will skyrocket because of the newfound demand for these coins as well as the purchasing power of the dollar in comparison to other fiat currencies.

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Sounds like a ponzie scam to me. Think I'll just stick to investing in guns!

I think of it more along the lines of pre-dotcom boom and bust. Did you know the US government runs a Ponzi scheme?

^^^^^^^^^^^^
Yep.

It's not a Ponzi scheme, at least not if you understand how it works; but it's not a particularly good investment either. Sooner or later governments are going to start cracking down on it big-time, and the value it has now will be to the value it has then as the value of machine guns before the 68 GCA is to their value now.

But Bitcoin isn't supposed to be an investment: it's supposed to be a currency. You're not supposed to put retirement funds in it, you're supposed to use it to buy stuff, more or less anonymously.

(Make sure you understand what you're doing, though, because every Bitcoin transaction winds up in the distributed public block chain forever; if any of the identities connected with a particular Bitcoin transaction can ever be traced back to you at some point in the future, it'll be really tough for you to repudiate that transaction. Make a new identity for each transaction, and get rid of every trace of that identity when the transaction's over.)

As a matter of fact, investment value and currency value are pretty much mutually exclusive. In order to be a good investment, its value has to keep changing; but a currency whose value is always changing is really annoying and dangerous. Likewise, a good, dependable, rock-solid currency (like gold) is a supremely lousy investment--which is why gold is where everybody runs for cover when all the other available investments are headed for hell in a handbasket. It's an investment of last resort--but only of last resort.

Invest in relationships with good people.

I've read volumes on bitcoins.



And have no clue what the hell they are.

I fail to see how it can possibly work as a currency with the volatility it has. One day you can buy a house with X bitcoins and the next day you can't buy a car with the same amount.

I haven't read a lot about it, because a lot doesn't seem to be available, but my guess would be that any digital-cash system that comes from JPMorgan Chase is going to be very centralized. Chase is going to issue the cash whenever it feels like increasing the money supply, and every transaction will have to go through Chase, and Chase will hold accounts and identities, and they'll have a complex privacy agreement that swears up and down to protect your information against access from everybody you'd want to have access to it--like your wife--and make sure it's all completely accessible to everybody you'd like to protect it from--like the government.

Bitcoin doesn't have a multibillion-dollar multinational behind it, so it's still a little user-unfriendly, but it's very decentralized. Anybody who wants to (and has the computing horsepower) can issue Bitcoins up to the 21 million maximum, and nobody can issue them thereafter. There are no persistent accounts anywhere; there are only identities, which can be automatically generated at will whenever necessary and discarded just as easily. There's no privacy (or other) agreement at all, but anyone who wants to violate your privacy has to either break some strong encryption or catch you being stupid to do so.

So, yes. If you decide to trust digital cash, you should probably wait until long, long after you're completely comfortable with Bitcoin before you even cast a glance in the direction of JPMorgan. However, because JPMorgan's version will probably be much slicker and easier to use than Bitcoin, my guess is that most folks will do just the opposite.

I say knock yerself out, but you have not convinced me to 'invest' in that stuff.

It's just another fiat currency, i.e., with no actual (non-currency-related) value and backed by nothing. Its only "value" is as a currency, and that's only because it affords one privacy in electronic transactions. Cash gives you privacy, too, but that requires face to face transactions, at least if you wish to have the privacy. So privacy in electronic transactions constitutes its only source of value. Soon as they make it a "terrorist act" to engage in same, its value (measured in dollars) will plummet, and a lot of people will be left holding the bag.

Sounds like a good way for banks to get around printing counerfit money. Some day it will have the same value after the banks get through screwing you again.

Absolutely not, not even close, totally wrong.

Sorry, but you should do a little more reading about it.

Gold is backed by A) the effort required to find and mine it, and B) by the fact that it's a fixed-volume resource: after it's all mined, that's it, there won't be any more, period. Also, as the mined-to-unmined ratio increases, mining becomes more difficult.

Bitcoins are exactly the same--backed by A) the effort required to mine them (which is generally performed by computers rather than guys in hard hats), and B) by the fact that it's a fixed-volume resource, and after all 21 million of them are mined, there can't be any more. Also, as the mined-to-unmined ratio increases, mining becomes more difficult.

At the moment, for example, if you dedicate all the processors of a fairly expensive graphics card, say the nVidia GeForce GTX 680, which has 1536 processors and can make about 120 million Bitcoin mining attempts every second, you can expect to find one block of 25 Bitcoins (that's how they come, in blocks of 25) every 98 years.

A GTX 680 consumes 175W at full grunt. Keeping it there for 98 years is 150 megawatt-hours, which works out to be 6.0 megawatt-hours per Bitcoin. A Bitcoin on the free market is right now worth $875. At 12c/kwH, it costs about $720 to find, just in electricity.

Comparing that to a fiat currency like the dollar, which is backed by nothing at all and which can be created in volumes of 85 billion per month in perpetuity with a single fifteen-minute segment of Ben Bernanke's time...I'm sorry, but it means you haven't spent enough time looking at Bitcoin.



That's not clear to me. I believe there will be a significant discontinuity in its value as each government makes Bitcoin illegal, and that the discontinuity will take awhile to settle out; but once it's illegal everywhere, what would be the mechanism of its devaluing?

It'll become more difficult to use, true, but as governments clamp down harder and harder it will be one of the increasingly few remaining ways to exercise capitalism, especially non-locally, and it will have the additional--increasing--attraction of being tax-free.

There have been a few high-profile government confiscations of Bitcoin, but those won't continue: Bitcoin is digital data that can be encrypted, backed up, and hidden very effectively both digitally and physically (say, on a Micro SD card smaller than your thumbnail, shoved into the edge of an acoustical ceiling tile).

Bitcoin's biggest vulnerability is the public block chain, which has to be widely available for reading and writing in order for Bitcoin to work. But the block chain is specifically designed to be distributed rather than centralized: it's stored on every computer that uses Bitcoin. Destroying every existing copy of it would indeed destroy Bitcoin itself; but how would you go about that, even if you were a government?

Are you going to shut down the Internet entirely to keep people from using Bitcoin? First, what government can shut down the Internet entirely? Second, what government these days is independent enough from the Internet to be able to survive if it were shut down? Third, lots of people still have modems. Are you going to shut down the telephone system to prevent their use? It's ridiculous.

Since the fundamental concept of Bitcoin is obviously subversive to the entire idea of coercive government, my suspicion is that the only reason every government in the world hasn't prohibited it under pain of death already is because it's just as obvious that there's no way they could possibly make it stick.

First of all, gold isn't backed by anything. It is the thing which is available to back a currency, or to serve as currency directly. It needs no backing, since it is the thing of value itself, i.e., it's a valuable commodity that happens also to possess those traits which perfectly serve the role of money in an economy.

Furthermore, you misstate gold's underlying value. Its underlying value isn't at all found in the degree of effort required to put it into usable form. If that gave something value, then the paintings of Irving Lipschitz would be going for millions, because he spends weeks, and sometimes months, on maticulously creating each of his works of "art," yet few are willing to pay him more than a few dollars for them, and then it's usually because they like the frames in which he mounts them, and plan to dispose of his canvases so as to replace them with the finger paintings of their grandchildren.

So effort spent producing a thing adds exactly zero to its market value.

Gold is valued as a commodity because of it's unique properties combined with its rarity.

Barak, how have you gone so wrong? Your economics have reverted to pre-Adam Smith levels of sophistication.

It doesn't mater what you invest in. If the government decides you shouldn't have that investment, they can take it away from you and/or criminalize your use of the investment.

Remember a certain President and gold.

There were lots of holdouts on that, and not a single prosecution. That's because the action would not have withstood Constitutional scrutiny.

The trade value of peoples gold was not adversely effected by that law. That's got to do with the nature of gold, i.e., no counterparty risks, i.e., you don't need a trustworthy government for it to retain its value since it carries its value within itself entirely, i.e., its desirable properties.

Isn't the "miner" in essence the central bank ? I thought I read some where that there are transaction fee's also.

Nope. Salesmen of gold charge premiums, but that's for conversions back and forth between gold and US Federal Reserve Notes. Different issue from trade value. If I buy my neighbor's shotgun for three-quarters of an ounce of gold, there's no transaction fee.

That (practically) no one will accept it as payment of course.