No, what I mean is that if anyone else sets up a cryptocurrency right now, they don’t have to worry about making it exchangeable with dollars, they just need a good way to make it exchangeable with Bitcoins, and that could easily be done using pure programming. Bitcoins is a horrible store of value and an even worse medium of account, but some of the underlying ideas have great potential as a medium of exchange, and Bitcoin can sneeze any previous development of real-world interfaces directly into a new, competing cryptocurrency.
I’m having trouble reconciling the “horrible store of value” part with the rest of your argument. A competing crypto-currency eventually comes into existence, better than dollars, everyone wants to use it instead, and you can’t get it without bitcoins… And we’re supposed to think bitcoins are not particularly likely to go up in value as a result?
Edit: I guess if you only mean “currently horrible” this makes plenty of sense. Also it could maybe lose value once it has played its part in getting everyone used to the new currency.
A competing crypto-currency eventually comes into existence, better than dollars, everyone wants to use it instead, and you can’t get it without bitcoins… And we’re supposed to think bitcoins are not particularly likely to go up in value as a result?
If such a crypto-currency comes out, everyone holding Bitcoin will want this Newcoin, everyone who would have held Bitcoin will instead be demanding Newcoin, and the only reason anyone will be holding Bitcoin will be as part of the float generated by people trading dollars for Newcoins via Bitcoin non-instantaneously. The exchange rate supported by the float could be far less, the same, or far higher than the current exchange rate.
(An example: suppose Bitcoin somehow lost popularity so that the sole use of the current n bitcoins was for Silk Road, and no buyer or seller let more than a day elapse between exchanging their $$$ for Bitcoin (buyers) and exchanging their Bitcoin for $$$ (sellers); if there’s $1m of total turnover on Silk Road per day, then buyers need to turn $1m into Bitcoins and seller need to turn X Bitcoins into dollars, and this need will be spread out over n bitcoins. IIRC, there’s like 5m bitcoins so in this scenario we would each day see 5m bitcoins traded from the sellers to the buyers in exchange for the buyers’ $1m, or an ‘exchange rate’ of $5/btc, which is approximately 1/28th the current exchange rate, and then the buyers move the bitcoins to SR and hand them over to the sellers, who move them back to the exchange to sell to the buyers...)
Are we talking about converting Bitcoins into Newcoin (say by sending them to a fake address as a precondition for minting X many Newcoins) or are we talking about trading them (“you send me X many Bitcoins, I send you Y many Newcoins” transactions)? The former strategy would drive scarcity of Bitcoin up as a direct result of demand for Newcoin.
I thought we were talking about the latter—people would convert dollars into Newcoin via an intermediary Bitcoin stage (perhaps because Newcoins are banned or something).
If we were talking about ‘converting’, such as by some of the suggested verifiable-destruction strategies… I’m not sure. Presumably each Bitcoin would always sell for at least as many dollars as its equivalent in Newcoin would fetch modulo the transaction fees and effort (since otherwise people who want Newcoins would buy up Bitcoins and convert them immediately), but if Newcoins were so much better why would any Bitcoin holder at all not immediately convert all their Bitcoins to Newcoin? Reminds me of the flows between coin and bullion in metallic regimes.
I now see that when I wrote the original post, I probably should not have used the term “trade” as a synonym for “convert”. Someone who did not read my post closely might have thought I was enthusing about incremental improvements that let you reassign ownership like a traditional marketplace, only more efficiently, with automatic bid processing or something. That might be nifty, but it is not the earth-shattering point that makes me want to buy lots of bitcoins. What makes me want to buy more bitcoins is that reassignment of ownership is not the easiest way to do it. Instead it’s easier to make a system that destroys so many bitcoins and creates so many newcoins. It is also something that the current owners of bitcoin have significant financial incentive to make sure happens. Since it’s easier and massively incentivised, I think it carries the bulk of the probability mass.
No, what I mean is that if anyone else sets up a cryptocurrency right now, they don’t have to worry about making it exchangeable with dollars, they just need a good way to make it exchangeable with Bitcoins, and that could easily be done using pure programming. Bitcoins is a horrible store of value and an even worse medium of account, but some of the underlying ideas have great potential as a medium of exchange, and Bitcoin can sneeze any previous development of real-world interfaces directly into a new, competing cryptocurrency.
I’m having trouble reconciling the “horrible store of value” part with the rest of your argument. A competing crypto-currency eventually comes into existence, better than dollars, everyone wants to use it instead, and you can’t get it without bitcoins… And we’re supposed to think bitcoins are not particularly likely to go up in value as a result?
Edit: I guess if you only mean “currently horrible” this makes plenty of sense. Also it could maybe lose value once it has played its part in getting everyone used to the new currency.
If such a crypto-currency comes out, everyone holding Bitcoin will want this Newcoin, everyone who would have held Bitcoin will instead be demanding Newcoin, and the only reason anyone will be holding Bitcoin will be as part of the float generated by people trading dollars for Newcoins via Bitcoin non-instantaneously. The exchange rate supported by the float could be far less, the same, or far higher than the current exchange rate.
(An example: suppose Bitcoin somehow lost popularity so that the sole use of the current n bitcoins was for Silk Road, and no buyer or seller let more than a day elapse between exchanging their $$$ for Bitcoin (buyers) and exchanging their Bitcoin for $$$ (sellers); if there’s $1m of total turnover on Silk Road per day, then buyers need to turn $1m into Bitcoins and seller need to turn X Bitcoins into dollars, and this need will be spread out over n bitcoins. IIRC, there’s like 5m bitcoins so in this scenario we would each day see 5m bitcoins traded from the sellers to the buyers in exchange for the buyers’ $1m, or an ‘exchange rate’ of $5/btc, which is approximately 1/28th the current exchange rate, and then the buyers move the bitcoins to SR and hand them over to the sellers, who move them back to the exchange to sell to the buyers...)
Are we talking about converting Bitcoins into Newcoin (say by sending them to a fake address as a precondition for minting X many Newcoins) or are we talking about trading them (“you send me X many Bitcoins, I send you Y many Newcoins” transactions)? The former strategy would drive scarcity of Bitcoin up as a direct result of demand for Newcoin.
I thought we were talking about the latter—people would convert dollars into Newcoin via an intermediary Bitcoin stage (perhaps because Newcoins are banned or something).
If we were talking about ‘converting’, such as by some of the suggested verifiable-destruction strategies… I’m not sure. Presumably each Bitcoin would always sell for at least as many dollars as its equivalent in Newcoin would fetch modulo the transaction fees and effort (since otherwise people who want Newcoins would buy up Bitcoins and convert them immediately), but if Newcoins were so much better why would any Bitcoin holder at all not immediately convert all their Bitcoins to Newcoin? Reminds me of the flows between coin and bullion in metallic regimes.
I now see that when I wrote the original post, I probably should not have used the term “trade” as a synonym for “convert”. Someone who did not read my post closely might have thought I was enthusing about incremental improvements that let you reassign ownership like a traditional marketplace, only more efficiently, with automatic bid processing or something. That might be nifty, but it is not the earth-shattering point that makes me want to buy lots of bitcoins. What makes me want to buy more bitcoins is that reassignment of ownership is not the easiest way to do it. Instead it’s easier to make a system that destroys so many bitcoins and creates so many newcoins. It is also something that the current owners of bitcoin have significant financial incentive to make sure happens. Since it’s easier and massively incentivised, I think it carries the bulk of the probability mass.