Bitcoins!

[Amer]

We've talked about bitcoins before, right? I know Tulley loves them.

They're up to almost $500 now. They've doubled in the last the month due to the story that's going around about the guy who paid $25 for 5,000 bitcoins in 2009, forgot he had them, and recently discovered they're worth almost $900k. Actually, that was before the story broke, so they're worth almost $2M now.

They're a very interesting currency because they have an absolutely finite supply. As demand increases, supply cannot increase, so the price must go up … and up and up. It's still a completely digital product, though. There is no tangible product; just a number.

[Evan]

I follow bitcoins pessimistically. The main problem right now that I read about is that there are no high volume buyers. So, while I might have 5,000 bitcoins worth $500 each, I can only sell them a few at a time because no one wants to buy more than a few thousand dollars worth of bitcoins.

[Amer]

Well, the article says that the guy found his 5,000 Bitcoins in April, and sold 1,000 to buy a house, and the article was written in October. So that doesn't seem to be too much of a problem. I think you just put them up on a Bitcoin exchange and trade them like securities. Volume seems to be over $1M per day over the past few months, and several times higher over the last month. In the last 24 hours, there has been volume of ~$30M in US markets.

Some other interesting Bitcoin tidbits:

Bitcoins were created under the pseudonym Satoshi Nakamoto. No one knows who he really is. He wrote the paper defining Bitcoins and mined the first 50 coins.

One of the first transactions of Bitcoins was 10,000 Bitcoins for a pizza. Those 10,000 coins would be worth over $4M now.

[Evan]

Nov 15, 2013 12:56:10 GMT -8 Amer said:

Well, the article says that the guy found his 5,000 Bitcoins in April, and sold 1,000 to buy a house, and the article was written in October. So that doesn't seem to be too much of a problem. I think you just put them up on a Bitcoin exchange and trade them like securities. Volume seems to be over $1M per day over the past few months, and several times higher over the last month. In the last 24 hours, there has been volume of ~$30M in US markets.

He technically didn't sell them and buy a house, he exchanged them for a house. On mtgox they're going for about $300. According to the charts I'm seeing, the volume per day is only about 200,000, roughly. So that guy's house was responsible for a ~4.5x spike in the daily volume.

I'm no economist, but I still haven't seen anything to convince me this isn't a digital version of the Dutch Tulip Craze

[Amer]

It can't be like Tulip Mania. There's a finite supply of Bitcoins, with a very controlled method for production. Also, it stands to reason that, as time goes on, more people will learn about them, trust them, and use them. Realistically speaking, the price must go up.

[Stinky Pete]

Yeah, but at any given moment, now that they've been aired out so much and everyone knows about them, the volatility is no longer worth it. It would have been nice to have bought some back when they were 5 bucks each, but given the information available to me at the time, I'm content with my decision to stay out of it.

[Amer]

On the contrary, they've proven long, stable growth over several years. Spikes come with each news cycle, but the overall trend is clearly up.

[Mike Lenin]

If you were to own bitcoins Amer, how many would you own?

Also, have you seen this?
priceonomics.com/jobs/puzzle/

[Mike Lenin]

Nov 17, 2013 4:02:29 GMT -8 Mike Lenin said:

If you were to own bitcoins Amer, how many would you own?

Also, have you seen this?
priceonomics.com/jobs/puzzle/

Has anyone ever read my practical guide to making 5,000 dollars by next week?

[Amer]

I don't imagine arbitrage will work well on a currency that has such a low trading volume.

[Amer]

Bitcoins hit the $1,000 mark today.

[Neutrino Esquire]

I feel sorry for the guy who tossed out a hard drive which contains 7,500 bitcoins.
Basically, there's $7,500,000 somewhere buried deep within a landfill.

www.forbes.com/sites/kellyphillipserb/2013/11/30/from-treasure-to-trash-man-tosses-out-bitcoin-wallet-on-hard-drive-worth-9-million/

[Amer]

And that's one of the huge problems with Bitcoin. It has a finite number of coins (21 million). This means that, as demand rises, supply cannot rise, so price must rise. In a security, that's good, but in a currency, it's called deflation. Deflation is bad because people would rather hold on to the currency than spend it, which makes for a shitty currency. Add to that the fact that people will constantly be losing Bitcoins, like that guy, and it makes the deflation even worse.

Ultimately, I think Bitcoin is just a speculative bubble that will have to burst, but I wonder how long it will go on for.

[Tulley Kennedy]

Here is a good primer on how bitcoins work at a fundamental level: www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/

[Son Anheuser]

Interesting topic. My concern is more around how the things seem to be stolen by hackers on a regular basis. Is there insurance for this kind of theft. Also thinking about mining for hashes or whatever they are called makes my brain bleed.

[Amer]

I just read about a $100M Bitcoin heist. threatpost.com/thieves-covering-tracks-following-100m-bitcoin-heist/103088

There's a public transaction history for every coin, so it will be difficult for the thieves to convert the coins into something tangible without some sort of trail. It will be interesting to see how this story plays out.

Interestingly, this happened at a website that was created to fill the gap left when Silk Road was shut down by the government. Apparently, the entire website was a scam and the guy who created it just stole all the coins. The website was called Sheep Marketplace (you would think people could see that one coming).

[Son Anheuser]

So many unknowns with this. Also I read about whatit takes to buy and then convert them back to US currency and it does not seem to be an easy process.

[Amer]

I've heard it's as easy as any security. You should be able to just go to an exchange, like mtgox, and buy and sell on the exchange.

support.mtgox.com/entries/21649594-Withdrawals-and-Deposits

[Tulley Kennedy]

This guy hates bitcoins www.antipope.org/charlie/blog-static/2013/12/why-i-want-bitcoin-to-die-in-a.html

[Amer]

Anyone who hates something as benign and non-intrusive in their lives as Bitcoin, is a moron.

This is certainly not the end of Bitcoin. It's just another dip. It will bounce back, as it has so many other times before. They lost a huge number of users in China, so there was an appropriately huge drop. The Chinese don't allow people to trade out of their currency, so people were using Bitcoin. This is also the reason why Macau has such a huge gambling business. It's one of the few ways to get money out of the country.

He is right about the deflationary aspect of Bitcoin. It's not a very good currency. It is an interesting security, though. It's value is based entirely on what the market thinks it is worth, but people also use it for getting around existing roadblocks in currency. How long can that go on? Decades? It will be interesting to see.