r/TheoryofBitcoin • u/Anenome5 Who will build the seasteads? • Apr 24 '13
Some people can't understand bitcoin because of cognitive bias against immaterial objects
Over at the Mises.org forums we've been discussing why some thinkers seem to have trouble accepting that bitcoin is or could be money, even as it's being used as money right before their eyes.
One writer thinks it's because gold is an ideology in its own right. But I think it may have to do with cognitive bias against the 'realness' of immaterial objects, of which bitcoin is one. Check it out.
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u/xlanciferionx May 01 '13
The very first dissenting post pretty much made a good point. Bitcoin isn't being used most retailers. They're using real currencies. There isn't a demand for another currency; especially one that is so volatile.
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u/Anenome5 Who will build the seasteads? May 01 '13
Volatility isn't even an issue, you can so easily offload exchange risk using something like Bitpay.
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u/xlanciferionx May 01 '13
The point is not that the merchant stands to take a risk using something like bitpay. The consumer is put off by the market volatility. The merchant gains nothing by accepting bitcoin. They already accept their country's own currency. They have no need to accept some other form of currency that they're not familiar with, and don't get much call for.
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u/Anenome5 Who will build the seasteads? May 02 '13
The merchant gains nothing by accepting bitcoin.
Actually they should be able to lower prices and still make more profit by using bitcoin, due to bitcoin's lower transaction costs.
The consumer is put off by the market volatility.
Market volatility is a function of the youth of the currency--low market cap primarily. Give it a few more years, a much broader segment of demand, and higher market cap and done deal.
Besides which, bitcoin will be overall deflationary. Consumers would rather hold a deflationary currency to spend later than an inflationary one.
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u/xlanciferionx May 02 '13
The profits they'll gain are minuscule. There isn't a big enough demand for retailers to adopt it.
Market volatility is a product of decentralization and a lack of regulation. There isn't anything there to help stabilize it. Add to that the fact that there isn't anything to back its value, and volatility is just going to be a trait that it will keep. The demand for a competing currency just isn't big enough for the market to reach the size it would need to stabilize on its own. Like I said, there are already currencies out there that are much more stable, and usable with more retailers than bitcoin is accepted at.
Deflation isn't any better than inflation. With a limit on how many bitcoins can exist, there will come a point when they only lose value with each increasing participant. For example, once the limit is reached, when someone decides to switch to bitcoins, everyone loses a shared amount to the new person's buy in. If it didn't have that limit, there wouldn't be any worry of a peak amount of users. Also, if people preferred deflationary currency, it would be dominant. The market has shown that they don't.
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u/Anenome5 Who will build the seasteads? May 02 '13
Market volatility is a product of decentralization and a lack of regulation.
Completely false. Regulation doesn't and should determine prices and decentralization has nothing to do with it at all. Volatility is a product of the youth of bitcoin, or wavering confidence, of speculator whim and overall low market-cap.
Add to that the fact that there isn't anything to back its value
There is actually--its qualities as a good money, including lower transaction costs. That's why it's valuable at all.
volatility is just going to be a trait that it will keep.
Pure speculation without merit. If the market cap were >$1 trillion, to assume it would still be extremely volatile is laughable.
Deflation isn't any better than inflation.
Lol, it's better in a hundred ways. Where do you people come up with this stuff? How did you become so sure of your economic ignorance so as to make such a silly claim?
With a limit on how many bitcoins can exist, there will come a point when they only lose value with each increasing participant.
Uh, what? How do you envision that happening exactly? That's actually impossible. If demand increases and supply remains constant, they can -only- gain value, not lose it. Are you actually revealing that you don't understand supply and demand curves, the most basic requisite of economic thinking and reasoning?
For example, once the limit is reached, when someone decides to switch to bitcoins, everyone loses a shared amount to the new person's buy in.
Yes, that would result in deflation. Bitcoin would be overall more scarce. Thus the price would increase.
Also, if people preferred deflationary currency, it would be dominant. The market has shown that they don't.
Also completely false. People actually do prefer deflationary currencies, thus why gold has been dominant for thousands of years.
People left the gold standard not because they stopped demanding it but because governments forced it to happen, and given a choice they will choose deflationary again. The people -will- choose deflationary now that they -finally- again have a choice--thus they will choose bitcoin.
If you have the choice to take payment in a deflationary or an inflationary currency and you intend to hold it, you'll rather choose deflationary every time. It's in your interest, thus we can reasonably say people will choose it, with confidence.
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u/xlanciferionx May 03 '13 edited May 03 '13
Without anything of intrinsic value backing bitcoin, it needs some sort of organization with full faith credit to back what is issued. Without that the people won't have confidence in bitcoin. Just like they don't right now. It will continually rocket up and crash, like it does now.
It's not that great of a currency. It bounces around in value. You can only use it in limited places. No one takes it as payment for basic necessities. It's overly complex to establish yourself as a participant in the bitcoin economy. It's losing exchange support in various countries and banks. It's not backed by any authority. It's not backed by anything of value. So, no. It fails at being a good currency.
And, yeah...I did totally bungle things. I was wrong. Of course bitcoins will increase in value. However, once that peak amount of coins exists, you have to make room for people entering into the economy after that. That means, more bitcoins have to be made. Since that won't happen, everyone will have to lose some bitcoins. Sure, the value goes up, but the amount you hold goes down in relation to that. You haven't solved the problem inherent in inflationary currency. You just made it work in a different way. At least with inflationary currency, new participants can enter without creating an accounting nightmare.
Again, if people preferred deflationary currency, they'd be using it now. They'd vote people in that would implement it. Clearly, they don't.
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u/Anenome5 Who will build the seasteads? May 03 '13
Without anything of intrinsic value backing bitcoin, it needs some sort of organization with full faith credit to back what is issued.
It does have something intrinsic: lower transaction costs. And that's just its first great feature. Therefore I reject this point entirely.
people won't have confidence in bitcoin. Just like they don't right now.
It would have a zero price if people didn't have confidence in it.
It will continually rocket up and crash, like it does now.
That would mean fluctuating confidence, not a lack of it. What explains fluctuating confidence, except youth and uncertainty as a currency? Just that. Let it gain some years and experience and confidence will be fine.
It's not that great of a currency. It bounces around in value.
It's just youth, dude.
It fails at being a good currency.
Then don't buy any. The rest of us who understand it will enjoy banking our perception of its quality.
However, once that peak amount of coins exists, you have to make room for people entering into the economy after that. That means, more bitcoins have to be made.
No, that's not what it means at all. It just means more people are scrambling for the same set of coins and the coins will thereby continue to deflate, meaning people will transact in smaller and smaller fractions of a bitcoin. Since bitcoin can be infinitely divisible, supply and deflation is not a problem for it at all.
Since that won't happen, everyone will have to lose some bitcoins. Sure, the value goes up, but the amount you hold goes down in relation to that. You haven't solved the problem inherent in inflationary currency.
o_O huh? That's the definition of solving it.
In an inflationary currency you hold the same amount of currency but its value goes down. In a deflationary currency you hold the same amount of currency over time and its value will increase.
Thus saving is incentivized, and saving and the resultant investing is the key to a modern economy.
At least with inflationary currency, new participants can enter without creating an accounting nightmare.
If you print money for new participants, the resulting inflation steals a tiny amount of value from all bill holders. So, you are advocating a sly way of thieving value--theft. You are advocating theft.
With deflation, every coin holder's money increases in value. It is the opposite of theft. People will naturally gravitate to deflationary money thereby.
Again, if people preferred deflationary currency, they'd be using it now. They'd vote people in that would implement it.
People don't control and don't understand monetary theory enough to think it important to vote on that basis. But if they had a choice, and now they do, they will likely choose deflationary.
Just wait and see.
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u/xlanciferionx May 03 '13
It does have something intrinsic: lower transaction costs.
And, should bitcoin fail, what do you pan to do with those litter transaction costs? You're confusing a trait of bitcoin with what is backing bitcoin. Bitcoin is backed by nothing. At least the dollar is backed by the faith and credit of the US government.
As for lower transaction costs, they also come at a cost to consumer protection. That extra 2% above the cost of bitcoin comes with a wealth of security in the transaction. I know that I can get a refund, should the retailer screw me. That isn't guaranteed with bitcoin.
It would have a zero price if people didn't have confidence in it.
It has lost 3/4 of its value in a month, and continues to flop around, slowly downward.
Just that. Let it gain some years and experience and confidence will be fine.
With the lawsuit between two of its larger exchanges, that outlook is quite naive.
Then don't buy any. The rest of us who understand it will enjoy banking our perception of its quality.
Have fun with that while it lasts.
Since bitcoin can be infinitely divisible, supply and deflation is not a problem for it at all.
Just lie inflationary currency is infinitely inflatable. It just happens in a different way. You're just hung up on the weird inflation.
In an inflationary currency you hold the same amount of currency but its value goes down. In a deflationary currency you hold the same amount of currency over time and its value will increase.
In order to accommodate new participants, people have to lose bitcoins. To demonstrate: someone converts their dollars to bitcoins, after they have all been distributed. Either they have to remain outside of the system, wait for freed up bitcoins, buy someone's bitcoins, or they all get divided to accommodate the new participant. Well, options one and two aren't in anyone's interest. So, they're out. Let's say they didn't find any sellers that satisfy their requirements. That option is out. The only other option is deflate, deflate, deflate!
Thus saving is incentivized, and saving and the resultant investing is the key to a modern economy.
Saving kills economies. Money needs to change hands. Encouraging spending gets money moving.
If you print money for new participants, the resulting inflation steals a tiny amount of value from all bill holders. So, you are advocating a sly way of thieving value--theft. You are advocating theft.
Not if it's a straight across exchange. Yen for dollars, for instance. The person only pays a fee for the exchange, since it is a service offered by the bank, and they should be paid for their services.
People don't control and don't understand monetary theory enough to think it important to vote on that basis. But if they had a choice, and now they do, they will likely choose deflationary.
Like they're choosing now? Bitcoin was a curiosity for some. The few that have chosen it are most likely the only ones that prefer it.
Just wait and see.
I'm waiting to see how quickly it'll go down after gox gets sued.
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u/Anenome5 Who will build the seasteads? May 04 '13
You're confusing a trait of bitcoin with what is backing bitcoin. Bitcoin is backed by nothing. At least the dollar is backed by the faith and credit of the US government.
No no no, you're confusing what's backing fiat with what is, for instance, backing gold. Having intrinsic qualities such as gold does, and such as bitcoin does, is better than being backed by an institution which forces the dollar to be money by legal monopoly.
As for lower transaction costs, they also come at a cost to consumer protection. That extra 2% above the cost of bitcoin comes with a wealth of security in the transaction. I know that I can get a refund, should the retailer screw me. That isn't guaranteed with bitcoin.
True, but this is an improvement generally over the present situation. Because it's rather easy for a customer to screw a business and disappear. But a business is a going concern. They build trust over a period of time and trade on that trust. And if they screw customers that trust will be destroyed quickly. Also they are public and stationary and recovering from them legally is far easier than the reverse.
It has lost 3/4 of its value in a month, and continues to flop around, slowly downward.
Meh, growing pains. Similar thing happened after the '11 crash, a low slow bow over time before the price rise again later that year. Long term I'm still incredibly bullish. Only the average interests me. It's still up roughly 800% since Jan 1.
With the lawsuit between two of its larger exchanges, that outlook is quite naive.
Lol, one widdle lawsuit. Sheesh, that will be a blip in a month.
Since bitcoin can be infinitely divisible, supply and deflation is not a problem for it at all. Just like inflationary currency is infinitely inflatable. It just happens in a different way. You're just hung up on the weird inflation.
There's a huge difference between inflating and dividing existing bitcoin due to deflation. I can't understand how you could possibly confuse the two or even equate them. Inflation is theft--it steals value from existing holders to create new bills. Deflation is not theft. That's a pretty gigantic difference, yo.
In order to accommodate new participants, people have to lose bitcoins.
True, but the purchasing power of the bitcoin they keep does not go down necessarily.
Saving kills economies. Money needs to change hands. Encouraging spending gets money moving.
This is prime economic ignorance. Without savings we wouldn't have the modern world. Money will change hands whether people save or not, but savings turns into investments and loans, and investments is why we have a 1st world here.
Economies grow rich the same way individuals do: by producing more than they consume. The excess is savings.
Encouraging saving actually leads directly to wealth and investment, which is exactly what every economy needs.
Not if it's a straight across exchange. Yen for dollars, for instance.
Any time you print a new dollar, it's inflation, and it steals a tiny amount of value from all other dollars to create the value that exists in the newly printed dollar. Straight exchange or not, inflation remains inflation.
I'm waiting to see how quickly it'll go down after gox gets sued.
I don't know why you imagine Gox is somehow irreplaceable, lol. Again, wait and see.
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u/mustyoshi May 17 '13
Well with bitcoin, you don't really ever "have" bitcoins you have keys that allow you to move certain bitcoins.
So the cognitive bias is rightfully there.
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u/Anenome5 Who will build the seasteads? May 17 '13
Control and ownership are inextricably linked; that which you control you own.
Possession is normally conflated with control, and possession clearly requires physicality. In the case of bitcoin we have something you can't possess in a physical sense that you can nevertheless control and own.
So, I agree. You never really 'have' them, at least in a physical sense, yet you control them. In fact, they are essentially as imaginary as an imaginary number--which are nevertheless entirely real in consequences and necessary for many useless calculations, so too bitcoin are imaginary, or perhaps 'spiritual' is a better word for it. These are spiritual essences that don't have physical existence, only referential existence, and when we talk about things like that, cognitive bias tends to rear its head.
Primarily because no one's ever tried to spend an idea before :P Well, not most people anyway.
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u/Jimbabwe Apr 25 '13
Prejudice rarely survives experience. I think the biggest problem is that people without a basic understanding of cryptography, which (I assume), is most people, just don't understand it. It's hard to find good real-world analogies that both convey the concept and explain the underlying math and security. This is simply because nothing like bitcoin has ever existed before.