1 vote

Why Bitcoin will fail

History is littered with monetary schemes that were started for altruistic reasons. Bitcoin will be no different. The eventual outcome will be enriching the earlier owners of Bitcoin at the expense of the later owners. If you have studied monetary history at all what comes to mind is the Mississippi Bubble of John Law. In France in the early 1700’s the King had died and left the Thrown to a 12 year old. The Duke of Orleans was left to figure a financial mess for the new 12 year old King. With taxes just enough to cover spending and nothing to repay the massive debt, The King was not the only thing being buried in France, the people could not carry the load any longer. Money was becoming scarce as it was being horded from the threat of the future tax burden, and from the threat of a recall to deprecate the content. Along comes John Law with a scheme to create a paper monetary system called a land bank and almost overnight transformed the economy with this new medium of exchange. The French owned vast amounts of land in the new world west of the Mississippi and a company was formed to take advantage of that. In order to invest in the new company you had to exchange the debt of the King along with new paper money created by John Law, the frenzy was on. Until one day someone asked for a return of their investment and they wanted gold as promised….game over. Study John Law and the Mississippi Bubble….fascinating story.

http://mshistory.k12.ms.us/articles/70/john-law-and-the-miss...

Charles Kindleberger, an economic historian at Yale University, believes Law's intentions were legitimate and that the Mississippi Company was intended to be a real enterprise.

(If you don’t know this author…….please get to know him. His book titled “Manias, Panics and Crashes” has put him as the foremost expert on bubbles and on this topic.)

Here is the relevance to Bitcoin. Almost all (at least the ones I have study) monetary systems start out the same way….the existing system is just becoming too burdensome. But all started out with a common feature…..an anchor. They are all tied some way to something that has some intrinsic value, to the only real thing that has any monetary intrinsic value….species (gold or silver). These are not just shiny metals objects that look good once decorated with a king's features……it represent a real store of value. An ounce of .9999 fine 24 karat gold has a barter exchange equal to other means of production in the economy. The effort it takes to mine, refine and transport an ounce of gold, back in the day would exchange for 400 loafs of bread. An ounce of gold would buy a really nice suit of clothes with all the accessories, believe it or not, but about the same as today. This represents real value……value in other goods and services produced. The gold represents the efforts of the miner to provide a preferred medium of exchange while exchanging it for the goods and services he desires to live a more comfortable life. The baker accepts the medium of exchange because he knows the tailor will accept it for a suit of clothes. All know that the only way for the medium of exchange to expand is if the miner puts in the effort to mine an additional ounce. The same effort to make another 400 more loafs of bread or tailor another suit. This represents a store of value because you could count on it to remain across time and even across continents.

This is the problem I see with Bitcoin,there is no anchor. Here is what I found on Wikipedia for the concept of mining Bitcoin.

The processing of Bitcoin transactions is secured by servers called bitcoin miners. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer filesharing technology. In addition to archiving transactions, each new ledger update creates some newly minted bitcoins. The number of new bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more bitcoins will be added into circulation and the total number of bitcoins will have reached a maximum of 21 million bitcoins. To accommodate this limit, each bitcoin is subdivided down to eight decimal places; forming 100 million smaller units called satoshis per bitcoin.

OK tell me if I am wrong here but the only effort in the mining of more bitcoins is the process of exchange of bitcoins. An analogy of this would be a gold miner’s medium of exchange increases in value every time there is a transaction made in gold. This is not mining…..this is inflating the number of units based on the velocity of exchange, but bitcoins rate of inflation is decreasing by half every 4 years until all are in use…. at an arbitrary number of 21 million in the year 2140.

Just a thought here….if this were to become successful, how many people in 2140 would think it was a conspiracy?

From wikipedia also:

Bitcoin has no central issuing authority. Nodes on the network are programmed to increase the money supply according to a pre-determined schedule until the total number of bitcoins reaches 21 million. Operators of these miner nodes can then hold their new bitcoins, sell them on exchanges or trade them for other goods and services at their discretion. Currently, 25 bitcoins are generated with each block found which occurs every 10 minutes on average. This amount, called the block reward, will be halved to 12.5 bitcoins within the year 2017 and again roughly every 4 years thereafter until a hard-limit of 21 million bitcoins is reached around the year 2140. As of March 2013 over 10.5 million of the total 21 million bitcoins had been created; the current total number created is available online. In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By around 2140, all bitcoins will have been generated with the final years producing only fractional units. To ensure sufficient granularity of the money supply clients can divide each bitcoin down to eight decimal places (providing a total of 2.1 × 1015 or 2.1 quadrillion units

The problem, as I see it, is that bitcoin only value is it’s medium of exchange, without any real effort. It is ripe for fraud and manipulation, but what fiat monetary system isn’t. The automatic systems of growth to a finite number of units along with the division into smaller increments are intended to eliminate the problems of past monetary failures but cannot control human nature. As the medium of exchange and perceived value increases, HORDING will occur. The earlier owners of the bitcoin will have an advantage…….their bitcoins exchange value will represent more economic value then it took to produce them along with the other good produced in the economy. So they will either receive a greater return on investment (which violates the medium of exchange) or they will HORD them and will look for a different lesser medium of exchange. Grasham’s law will take over; bad money will drive the good money out of circulation. Then you will hear the cries that the medium of exchange is INELASTIC ; there are just not enough bitcoins in circulation…….then comes the INFLATION!

And everyone that owns bitcoins will be damaged by the receivers of the additional new bitcoins. The new receivers will be able to purchase the production of the baker and the tailor at the expense of existing bitcoins owners because there is no effort that would require resources being diverted from other production opportunities. A disruption will occur in the pricing mechanism in the market place and the medium of exchange will be destroyed. And the conspiracy theorist will have a another field day!.......those dirty bitcoin bankers!




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Nevermind, I see you did

Nevermind, I see you did indeed answer my question. My apologies.

As for the answer to your

As for the answer to your question, BC gets its value from two sides. The fact that you can sent money to any place in the world with minimal fees. There's no currency that allows you to easily do this like with BC. The other way that it gets its value is through its mathematical properties. These ensure that BC cannot be overinflated like other currencies. Both these aspects give BC value. If there exists anything similar to intrinsic value (which doesn't exist), these aspects would come closest to having such value.

...

...

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

well finally we get to pay dirt

or should i say to some intrinsic value in a answer. I am really interested in why you say there is no such thing as intrinsic value. Like i said i trade stock options. If i own a call and the current price of the stock is above the strike price....it is said to be in the money....it is said to have intrinsic value of the amount above the strike price......it has real value.

as far your answering the value of bitcoin question

send money to any place in the world with minimal fees......this may be a cost advantage but it does not represent value....other then the cost savings....but it does not represent any intrinsic value in bitcoin.

value is through its mathematical properties.

So what you are saying is that the value is derived by solving this math problems......and they even refer to it as mining.....gezz is't that what i said

An ounce of .9999 fine 24 karat gold has a barter exchange equal to other means of production in the economy. The effort it takes to mine, refine and transport an ounce of gold, back in the day would exchange for 400 loafs of bread. An ounce of gold would buy a really nice suit of clothes with all the accessories, believe it or not, but about the same as today. This represents real value……value in other goods and services produced. The gold represents the efforts of the miner to provide a preferred medium of exchange while exchanging it for the goods and services he desires to live a more comfortable life. The baker accepts the medium of exchange because he knows the tailor will accept it for a suit of clothes. All know that the only way for the medium of exchange to expand is if the miner puts in the effort to mine an additional ounce. The same effort to make another 400 more loafs of bread or tailor another suit. This represents a store of value because you could count on it to remain across time and even across continents.

These ensure that BC cannot be overinflated like other currencies.

Then i gave the natural progression of how fiat( money not exchangable into species)currencies evolved ....hording..inelastic....cries for more bitcoins.....inflation.

Jonat....you and i took a long walk for a little bit of water......I am not going to say i enjoyed it......but i think you would have to agree that we finally ended up right were i said we would. I don't fault you for trying it's just i would have perfered to being doing something else.

Please tell me where you read or who is telling you that intrinsic value does not exist.....because it does. I would be then happy to help you muddle through the information.

Certainly, intrinsic value

Certainly, intrinsic value for determining stock options exists. But when most people talk about intrinsic value, people mean it in the economic context, the one I just described for you, the one I see cannot be true. This economic context is a VERY different context from the one for stock options. Two entirely different concepts.

As for the cost advantage, this does indeed represent value. Not in monetary terms, but in utility terms. You can't smuggle dollars or gold without the authorities trying to track you, atleast not easily. BC delivers a service here not possible for other currencies. It's because of this function that BC will always retain some worth even in the event of a market crash. People will want BC just for this function, because it allows them to transfer money all over the world with very few limits. The exchange rate becomes irrelevant in front of this function.

As for BC getting value from mining, actually, this is not my point, but you are correct. This mining ensures that the BC network is protected. You need 50% of the (mining) computing power to hack the network. This network gives SOME manner of value, but this value will only exist as long as BC remains uncracked. It's an unlikely scenario, but it's chances of actually happening are more likely than BC losing the ability of sending money overseas. So it does not give it as much "intrinsic value" like the example above, though it comes close.

My main point with the mathematical properties, was that it ensures that no authority can mess with the currency. From what I've seen, currencies that have failed have always done so, because of money printing. Well guess what, that's impossible with BC.

As for labor being equivalent to value (I'm assuming you were trying to make this point), this is IMO inaccurate. Labor certainly gives value to money, but they cannot be completely equated. The money still has to have some form of utility and labor is a mechanism to ensure scracity of money. It's the scarcity aspect combined with the utility aspect that actually gives money its value. Labor is a mechanism to ensure scarcity. So the relevance of labor is for the sake of scarcity.

Afterall, if it costs energy to produce money, money will be more scarce. The more energy is required to mine the money, the more difficult and costly it is to create money, which will slow down money production. This slowdown of money production ensures the scarcity of money which increases its value.

It might be possible to ensure scarcity without the labour aspect. I haven't quite looked into this, but I'm not convinced labor might actually be a requirement for intrinsic value as long as the scarcity aspect can be ensured.

Now for my main line of reasoning why I say intrinsic value doesn't exist. Intrinsic value is value that cannot be stripped away, because it's inherent in the object. This is simply false. All value is in the eye of the beholder. Only humans can assign value. This is why all value is subjective in nature. Certainly, gold has objective intrinsic PROPERTIES that are unalterable even when humans vanish from the face of the earth. But intrinsic properties are not the same as intrinsic value. If humans vanish, gold ceases to have any value.

You see I can deal with this ….you being sincere, thank you

Just to clarify I did not say labor…..i said human capital, along with natural resources and capital formation which generates wealth……i.e. intrinsic value. The reason I want to make sure that this is clear because Marx states all value is represented by “labor”…..and labor only…..and anyone that knows me know I would never be confused with being a Communist.

What you stated here is not lost on me….I get it

if all people cease to exist……..there nothing anyway…….value cease to exist because people cease to exist.

and here

Now for my main line of reasoning why I say intrinsic value doesn't exist. Intrinsic value is value that cannot be stripped away, because it's inherent in the object. This is simply false. All value is in the eye of the beholder. Only humans can assign value. This is why all value is subjective in nature. Certainly, gold has objective intrinsic PROPERTIES that are unalterable even when humans vanish from the face of the earth. But intrinsic properties are not the same as intrinsic value. If humans vanish, gold ceases to have any value.

And I am not disagreeing with your line of thought here……it’s well stated……but the context of the conversation was about monetary thought……..but the point you wanted to make was not germane to the conversation.

For an Austrian perspective
In the monetary realm “Intrinsic value" depends on the context of contrasting fiat money to gold, one can say that gold has intrinsic value compared to paper money. In that context it means that, stripped of its use as money, paper fiat money would have almost no value, certainly not even close to the number printed on it. Quesnay, the would-be "scientist," rejected subjective value and insisted that the values of goods are "objective" and mystically embedded in various goods irrespective of consumers" subjective valuations. This objective embodiment, according to Quesnay, is the “COST OF PRODUCTION”, which in some way determines the "fundamental price" of EVERY GOOD. As was even true for Cantillon, this "objective" cost of production appears to be somehow determined externally, from outside the system.

But whether its economics or options and the original post in monetary theory, intrinsic value does exist and is given that value by the productive capital that exist…..once an ounce of gold is created it can exist forever ( unless you store it at the Federal Reserve….then somehow it disappears). That doesn’t mean the marginal utility (preference value theory) doesn’t change over time…..marginal utility has changed a great deal over centuries, but what’s the thing that has reminded constant…..the value of gold……the exchange value of 400 loaves of bread……or a nicely tailored suit with all the accessories……….represent real value……….because of the input cost of the productive capital and the opportunities that were foregone to produce the products of choice…..all without government interference …………a functioning free market capitalist system complete with real money…..GOLD AND SILVER……Adam Smith's “invisible hand”.

Jonat i hope we can be friends.....i will answer any question you ever have...as long as it's in the context of the debate.
Good luck and let me know if you have any economic questions in the future.

Intrinsic value
http://mises.org/daily/4939

value is born in the mind...

which is why dogs don't dig for gold (or do they...)

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

dogs have also been known

to eat their own turds!

The reason why bitcoin will never fail is...

because it hasn't failed yet.

If it were going to fail it would have already. There has been plenty of time for everyone to sell-off their bcs if they really thought they were worthless. But there hasn't been a massive sell-off. There were exchanges shut down but this didn't scare anyone off.

The people who got into bitcoin first were a lot smarter on the average than people who didn't. They were/are the early-adapters who understood right away how the encryption worked, why it can't be inflated, etc.

There will invariably be more exchange raids in the future, more negative news coverage, wild price swings, all the things that would normally scare away investors. But none of these will scare away any of the serious bcers.

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

by that logic

"because it hasn't failed yet"......neither should the dollar!

The people who got into bitcoin first were a lot smarter on the average than people who didn't. They were/are the early-adapters who understood right away how the encryption worked, why it can't be inflated, etc.

This is why it will be horded, and then cries of it being inelastic......"we need more bitcoins"......then inflated!

Same old song and dance with all fiat currency.

Let me ask you.....I bet you have some bitcoins( sure cause your smarter then everyone else)......what would it take for you to part with them?

That's a solid argument

for why digital currencies are here to stay. There's obviously a market for digital currencies, and if the flaws and failures of bitcoin haven't been enough to defeat it, that just shows that people are willing to put up with a lot in order to have a digital currency.

What it doesn't show is that bitcoin will be the winning digital currency a few years down the road. Bitcoin does have some serious flaws and weaknesses. Bitcoin was the "first to market" and how often does the first idea, the one that *creates* the market, get everything right?

The problem is that the bitcoin algorithm is hard to change. What it got wrong, will always be wrong with bitcoin but will be fixed by competitors. (It's not entirely impossible to change how bitcoin works. It requires something called a "hard fork" which is a mechanism that could be used to change anything at all about bitcoin, but requires a high degree of consensus from the largest bitcoin holders.)

What that means is that as better algorithms come along, addressing the flaws that have been discovered in bitcoin, bitcoin will have a very hard time remaining competitive.

Bitcoin is to digital currency what geocities is to social networking. Geocities was first to make it big. You could say that geocities created the social networking market. And for a whiel it owned that market. There were others around that were small (one of them was facebook) but geocities was the big gorilla. Geocities did some things in awkward ways, but people were willing to put up with that because it met a (previously unrecognized) demand.

But geocities was too slow to change. It's not clear that it *could* have changed, since the way it did things was built into the infrastructure. Geocities still has users (now mostly in Japan apparently) but obviously it's no longer a large player in the social networking market.

Bitcoin will never go away completely. But it *can't* change to fix the inherent problems, while its competitors most certainly can. Exchanges that let you exchange bitcoin for other digital currencies will make it easy for people to move out of one and into another -- that's not easily done at the moment, but it's inevitable. In fact it would be a very smart business to start, one that takes advantage of the inevitable growth of digital currency, without having to figure out which digital currency(ies) are going to be most popular in the future.

MasterCoin is one example of Layers on-top of Bitcoin

Quote "Bitcoin will never go away completely. But it *can't* change to fix the inherent problems, while its competitors most certainly can."

Bitcoin doesn't need to change because new layers can be build on top of the blockchain, similar to how HTTP runs on top of TCIP... so it seems to me this layers idea is the future, and one ought to would expect more to follow (which will only increase the value of bitoin).

http://unspy.wordpress.com/2013/08/10/mastercoin-proposal-to...

==============
unSpy.info

Have you seen this ruling by a Federal judge on bitcoin?

http://www.dailypaul.com/295221/federal-judge-declares-bitco...

The voting system for changes to the algorithm is a huge positive for me because it is slow and creates gridlock which is a virtue too much lacking in institutions.

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

What about it?

It's another bit of evidence that digital currencies are here to stay. But again, I don't see that this says anything about bitcoin over any other digital currency. The government will want to regulate any digital currency that gets big enough to be noticed.

As for the mechanism for hard forks, it would definitely be worse for bitcoin if changes to it were easier, but the more bitcoins are out there the harder it is to make any changes at all, and I think this is fatal for bitcoin in the longrun. It means that as flaws are identified competitors can address problems that bitcoin users have to live with.

I think two key things will reshape the digital currency market:

(1) The demand for digital currency is getting enough attention that eventually we'll see venture capital backing digital currency startups, of a variety that would be hard to imagine now. Or digital currency efforts backed by someone like Bezos. Putting a lot of cash into publicity, interfaces that are usable by non-geeks, etc., will change things quickly.

(2) Services already exist to let you exchange bitcoins for litecoins and whatever others, but these will become huge as soon as there are several competing digital currencies out there. And *that* will create a fundamental change in the way digital currencies compete for market share.

I keep saying it, but the analogy here is to the era of geocities in social networking. It owned the market until it got big enough to convince people that there was big money to be made, and then the floodgates of competition were opened. One thing that gave geocities a bit of staying power was that it was (and is) difficult to move your content from one social networking site to another. If you've put a lot of time into making a myspace page you can't just change over to facebook with the click of a button. That's where digital currencies will have a different kind of market, one that's much more fluid, once exchanges are in place and convenient to use.

Also, I think there will be some realization at some point that algorithmically-enforced scarcity, while a very cool idea, starts to mean a lot less when you can have an arbitrary number of competing digital currencies, each one individually scarce but collectively unbounded and easily interchangeable.

What about the network effect

What about the network effect (awful name, but whatever)? I assume you've already heard about this particular argument.

Not sure what you mean

With digital currencies I'd expect that once exchanges are in place that let you trade digital currencies easily and at very low cost, the market for digital currencies will get a huge boost. In part because different currencies will address different needs and have different features. So the network effect applies both individual and collectively.

Is that what you meant?

Nah, more like how currencies

Nah, more like how currencies or products compete with each other and that the network effect can cause one victor to emerge, even when the competitors have (slightly) better products.

Peter Surda spoke about this and frankly speaking I like him, because his thought processes are similar to mine. Only, I'm a grunt and this guy would be more like the last boss. I've watched a few of his debates with others and they were simply brutal.

http://www.economicsofbitcoin.com/2013/04/the-mises-institut...

Peter Surda is an Austrian economist, but he's a BC expert, one of the few that actually studied it.

I only skimmed it

but although he talks about bitcoin, the argument applies to digital currencies in general doesn't it?

I think that the chances of one victor emerging in the digital currency marketplace -- once there actually is a marketplace where you can move funds between the competitors easily and cheaply -- are very slim. Sure, at any one time there might be a favorite or a few favorites, but what gives them staying power. Changing from Bitcoin to Litecoin or Opencoin or whatever will be nearly frictionless.

But as a general argument about digital currencies, sure. There's no stopping them. The more they catch on, the stronger they become.

Read this for several network

Read this for several network effect examples. You don't have to read everything, just skim the parts you deem useful:

http://www.gallaugher.com/Network%20Effects%20Chapter.pdf

If you've read a few examples, we can see that network effects can really be applied to ANYTHING. Any product, any service and currencies as well.

Fact of the matter is that BC has the first mover advantage:

https://en.wikipedia.org/wiki/First-mover_advantage

There is currently no second mover advantage present (LC does not qualify). Pay special attention to the part that talks about switching costs (or switching effort) and buyer uncertainty in the wiki link. Because it's that aspect which will become the most relevant in the future.

Frankly speaking, for any product, service or currency that has the first mover advantage, it will be sure to almost obtain a monopoly position. Just look at the ipad. The ipads themselves aren't that special and there's even some clunkyness, because it can't interface with Windows nor does it have a usb port. Competitor tablets have already popped up, but they simply cannot compete. Why? Because Apple has the first mover advantage.

They say that people wants lots of choices, but that's really not true. People get turned off when there's TOO much choice and they start gravitating to only a few alternatives. Brand name plays an important role here. The reason people stick with brands, is because if it's popular, there must be a reason it's popular. They will avoid lesser known brands, because people in general HATE risks. The human mind is built in such a way that if there's equal chance of not losing money or gaining money, they will choose the option of not losing any money: http://en.wikipedia.org/wiki/Risk_aversion

In practice, we also see that people going with the lesser brand burn themselves. There have been more powerful tablets (or similar) than the ipad, but ipad owners are still more happy with their purchase. Why? Because popular brands get more support. Other tablets can't match the itunes store experience.

Which brings us to BC. BC already has the first mover advantage. BC has the largest infrastructure at the moment. Fact of the matter is, that these alternative currencies already exist! Some of them are even better than BC. Why do we not hear anything about them? It's simply because we heard about BC first and people will stay with what they know, as simple as that. Everyone can see that it's BC that has momentum, so why invest in anything else? The scenario you describe, I only deem possible when BC has already become standardized through most of the world. Only then would it be feasible to spend the money to invest in alternatives.

Bottomline, people hate risks. And they have limited amount of funds. They will choose to invest in the currency infrastructure which has the least amount of risk. BC is the only currency at the moment which may gain critical mass (if it isn't already). It makes no sense to split their funds and choose to invest it in a different currency (and it's infrastructure). If all you hear about is BC, who would be crazy enough to invest in an unknown alternative?

The thing is, the only way an alternative can compete with BC, is if it can bring something revolutionary to the table. This is actually a good thing. But this alternative currency would still need the time to overtake BC. BC has a 4-5 year headstart and this headstart won't magically vanish. A hypotethical new currency won't suddenly have a similar size infrastructure as BC has. It needs to build this infrastructure from scratch. People will have enough time to switch should it come to that.

Not to mention that even if this hypotethical currency emerges, BC won't suddenly lose its exchange value. That would be like saying that the dollar will lose value, because the euro got more popular.

I can only see such a scenario emerging far far into the future, where the infrastructure can be build within seconds with the click of a button, when crypto currency has become a mainstream concept. Before that happens, people will have lots of times to convert into a different currency.

This forum thread has first-mover advantage...

Over my thread which is superior:

http://www.dailypaul.com/285123/bitcoin-20-what-it-might-loo...

which is still many times smaller but will eventually equal then overtake this one.

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

Lol :p Let's hope so.

Lol :p

Let's hope so.

Infrastructure

A hypotethical new currency won't suddenly have a similar size infrastructure as BC has. It needs to build this infrastructure from scratch.

What infrastructure do you mean? It's a p2p protocol, so there's no server, and open source. It will take more than one second but you can get the code that implements the network here:
https://github.com/bitcoin/bitcoin

The point is that infrastructure itself is not a huge barrier. Way less, for example, than something like starting up a new social networking site. Orders of magnitude less. Or did you have something else in mind?

People will have enough time to switch should it come to that.

Sure, ignoring the exchange rate between them, you can switch any time you want. Unless you meant that the prices will remain stable during those years, in which case, no.

Check my comment in reply to

Check my comment in reply to cudnoski who was talking about asymetry. Infrastructure is quite more than that.

You make a strong argument against bitcoin

I know you're trying to argue FOR bitcoin, but look at what you've got here. The wiki article describes three ways that the first mover advantage can apply.

First is technological leadership. You mention the ipad, but imagine if apple had come out with the ipad 1.0 and iphone 1.0 and never changed them substantially. They'd be the first mover, but they would have been left *far* behind in the marketplace by now.

Bitcoin doesn't have a first mover advantage in this respect, because bitcoin is and essentially always will be (modulo occasional tweaks and bugfixes) bitcoin 1.0. Apple iphone/ipad/etc. has first mover advantage as a *brand*, bitcoin is like a single product.

Preemption of scarce resources is another way to get first mover advantage, but that clearly doesn't apply with bitcoin.

Switching costs and buyer choice under uncertainty are combined in the third point. Switching costs *currently* are high, but I predict that that's going to change swiftly. Bitcoin only has a barrier due to switching costs if nobody launches a large exchange that allows conversion between multiple digital currencies, but if you're betting that this won't happen I think you're going to lose.

Uncertainty? That's the one thing that does work in bitcoin's favor, but when switching is nearly frictionless that's going to be much less of a factor. If the cost of switching is very, very low it's going to be more like buying and selling stocks in a brokerage account. The digital currencies will have futures, derivatives, etc. You'll get into a taxicab and the driver will want to talk about how XYZCoin is up 30% for the week and his brother-in-law says that it's time to get out of XYZCoin and into ZYXCoin, what do you think?

You might be right. But I look at it and I see geocities. That one had a real first-mover advantage, with both huge switching costs and technological leadership. As the only real power in that market soared (Yahoo paid something like four billion for it) but myspace knocked it out in spite of the first mover advantage. And then facebook has mostly knocked out myspace. They didn't bring anything terribly revolutionary to the table either.

Key point: whatever's going to happen can't happen at the moment because it's not yet easy to trade out of one digital currency and into another, and because digital currencies have *barely* gotten the attention of investors. I saw an article about a VC firm giving out seed money in the $50k range for digital currency projects but that's chump change. It's the late 90's and the geocities [bitcoin] of digital currency is going great and making some people a lot of money and the tripod [litecoin] of digital currency is out there too but you don't hear much about it, the friendster and myspace of digital currency will get some huge VC funding in another year or two, and the inventor of the facebook of digital currency is still in high school.

I guess we'll see. Nothing is

I guess we'll see. Nothing is guaranteed of course. As a matter of fact, if there's a currency out there that can beat BC, it would actually be a good thing, since that would mean progress. It would also probably mean that this new currency has some revolutionary aspects. Because that is what it will take IMO.

Why revolutionary?

Why revolutionary? There are plenty of examples where the first mover failed to take advantage of the first mover advantage. But generally if they get pushed aside it doesn't require that the new leader do something revolutionary. For the first mover to fail to evolve is sufficient. Or something happens to lower the cost of switching. Etc.

You seem to put a lot of weight on the idea of bitcoin having the first-mover advantage, and it is the first mover (in effect, just as geocities was in that space) *but* almost none of the conditions that can give the first mover an advantage apply to bitcoin. It is very hard to change, so it can't be the technology leader. There is (or soon will be) essentially no friction for someone changing bitcoins for Litecoins, or splitting their funds between them. It's not like buying an ipad, it's like allocating funds in a brokerage account.

First move doesn't necessarily have the advantage in, say, chess

http://www.dailypaul.com/277589/asymetry

What you said about infrastructure being built within seconds is key. Isn't it possible now to create new digital currencies faster than ebooks can be churned out? This solves the question of why bitcoin mining itself has no value, otherwise the labor of digging holes would have value whether gold was found in them or not. The gold isn't worth labor times x, or ROEI times y, it is worth what others perceive it to be worth.

So a bc copycat, like a worthless ebook, can be easily produced, but that does not mean anyone else will want it.

It is what it is and it ain't what it ain't. Also there's pandas.

"Anyone who thinks you can't create something out of nothing never dated a drama queen."

-me

Regarding chess, the first

Regarding chess, the first move advantage displayed there is really minimal. The handicap the second player gets is really small, since the second player is immediately allowed to react after the first player. In economic and financial terms, the real world is more slanted, where parties can really gain an almost unfair advantage.

Like stated, BC has a 4-5 year headstart. And nobody can say that it's infrastructure has yet achieved world wide status (though we can see that it's steadily growing). Apparently, building infrastructure takes quite alot of time, making the barrier to entry quite a high hurdle. It's quite different from selling a product, where far less effort is required to set up the infrastructure needed to sell the product. The infrastructure for selling products already exists mostly (supermarkets, online shops, etc.).

A currency infrastructure is more than just implementing BC code on the website (though convincing people to actually make this step is already a monumental task). It's about setting up enough currency exchange websites, bitcoin banking institutions, services that revolve exclusively around bitcoin, arbitrage enablers like bitpay, etc. This cannot be done yet with the click of a button.

So any second mover starts out with a huge handicap, incomparable to the small handicap you receive in chess. You have to convince people to actually built an infrastructure from scratch, while BC already has an intermediate level infrastructure. Only a truly revolutionary concept can beat such a huge handicap, but revolutions cannot be churned out at will. We don't even know all the problems BC will encounter. So before any revolutionary concept pops up, it will first need BC as guineau pig to see what kind of problems may occur and then capitalize on that concept.

There might come a time where the creation of infrastructure will be a simple matter. Coding the currency is the least of our problems. Convincing people to invest time and money to built the infrastructure is the main problem.

I don't know what you mean by infrastructure then

You're not using it in the standard sense when you say:
Like stated, BC has a 4-5 year headstart. And nobody can say that it's infrastructure has yet achieved world wide status (though we can see that it's steadily growing). Apparently, building infrastructure takes quite alot of time, making the barrier to entry quite a high hurdle.

World wide status? That would apply to something that requires dedicated servers for infrastructure. To challenge geocities would-be competitors had huge infrastructure hurdles.

But bitcoin is p2p. There are no servers to install. And the code is open source so you don't even have to reinvent it. Here's what infrastructure means in the case of bitcoin:
https://en.bitcoin.it/wiki/Infrastructure

Someone who understands the code could literally (and I do mean "literally") bring up a competing digital currency as a weekend project. Probably even overnight. Now, to implement distinctive features would obviously take as much time as that takes -- a clone with minor tweaks isn't going to be interesting. But the infrastructure isn't the issue in that case.

By "infrastructure" you seem to mean something like "market penetration." There are p2p nodes nearly worldwide only because there are users nearly worldwide. And that did take years to accomplish. But for competitors bitcoin has done the groundwork, and gotten the idea of digital currency out there, and gotten an audience interested enough to learn how to use wallets and so on. That groundwork won't have to be repeated for any other p2p digital currency.

A currency infrastructure is more than just implementing BC code on the website (though convincing people to actually make this step is already a monumental task). It's about setting up enough currency exchange websites, bitcoin banking institutions, services that revolve exclusively around bitcoin, arbitrage enablers like bitpay, etc. This cannot be done yet with the click of a button.

Yeah, we mean different things. Implementing "BC code on the website"? Not sure what website you mean, since bitcoin is p2p.

Currency exchange websites? Bitcoin banking institutions? This again sounds like you're thinking of market penetration. For any of the things you mentioned, there's nothing special about bitcoin. Give those service providers the incentive to bring up the same code slightly adapted for Jonat3coin, and most of them could probably do that almost overnight.

This is a frustrating thing about talking to bitcoin proponents. Over and over again things that are really not specific to bitcoin in any meaningful way -- that could just as easily be applied to any other digital currency, and usually with minimal effort -- are presented as if they were only about bitcoin.

Bitcoin has the edge in market penetration, hugely. No question. It's blazed a trail that will make things much, much, much easier for competitors. What it has now is popularity, in spite of some unfixable warts, and who knows it might keep that popularity. But it won't be because of any infrastructure barrier.

You have to convince people to actually built an infrastructure from scratch,

Um, yeah, we're definitely not using the word "infrastructure" the same way, since the bitcoin infrastructure is open source and wouldn't have to be rebuilt from scratch if you want a similar ad hoc p2p architecture (which is the only thing that makes sense really). You *could* build something from scratch if you had an idea for a better p2p architecture. I think one of the current competitors did that (with VC funding).

The Dissonance is in VALUING Currency vs. Real Money

If you tend to value things by the human reaction to the natural value added to production from mediums of exchange which STORE wealth //AND// PROVIDE the most LIQUIDITY to market participants then you are valuing Real Money.

Bitcoin does not store wealth but it does provide liquidity to markets because it eases burdens on currency traders from qualitative differences between fiat/currency by government and currency by internet (p2p), the later being less inductive to regulatory climates and more conducive of a freer government/environment.

Fiat by government currency artificially raises quantity of money effecting prices and markets, in contrast bitcoins tend to react specifically to their natural functions as currency which market participants can react to rather than central banks:

Value common assets
Constant utility
Low cost of preservation
Transportability
Divisibility
High market value in relation to volume and weight
Recognisability
Resistance to counterfeiting
(Ease of exchange)/(fungibility)

Bitcoins reflects all these functions, but it is not a store of wealth.

Gold is a store of wealth, it has a functional underlying metal value that holds a separate value from the value of Gold as currency.

This is why Gold failed before Silver as fiat, and it is why The USD will fail before Bitcoin as a fiat.

The best money a market can buy is the best money the market can sell.

Whether you think you can or you can't, you're right. -Henry Ford