The economics of BitCoin

vivatifosi

Sky is running an interesting piece on bitcoin this morning. They believe that a big part of the growth in value is down to N Korea looking for methods to sanctions bust.

They also interviewed a S Korean banker, who said that N Korea had now switched its hacking activities to trying to hack the currency as it may be short of money, whereas in the past its hacking was more propaganda based.

GreatApe

vivatifosi wrote: »

Sky is running an interesting piece on bitcoin this morning. They believe that a big part of the growth in value is down to N Korea looking for methods to sanctions bust.

They also interviewed a S Korean banker, who said that N Korea had now switched its hacking activities to trying to hack the currency as it may be short of money, whereas in the past its hacking was more propaganda based.

Bitcoin will and probably already has increased hackning and it will increase it many many fold more

The reason is right now if you hack a computer its quite difficult to monetize it.
You either need to hack the details of million of people and sell them to spammers or hack something high value like say military plans and then you have no easy way to sell that. The more creative hackers have been doing things like encrypting computers and asking for payment to decrypt them. Or getting idiots to jerk off on camera and then blackmailing them to pay a ransom or they post the videos on the net.

With but coins you hack them take them and sell them its a lot quicker and easier to monetize
It also makes physical crime potentially lucrative and deadly.
For all the talk of security and how the banks or government can't seize them what about the local drug lord or gangster. They knock on your door you open it and say hello and they give you two choices transfer all your bit coin there and then or get a face full of acid. How secure are the coins in that sinario? Maybe the creator of the bitcoins hid himself for such reasons. If I had any I certainly would tell anyone. Advertising you have 300 bit coins is the same as telling the world you have 5 million dollars of cash in your back pocket.


As for bit coins getting around sanctions it doesn't make sense. Even if you had bitcoin you need to sell it and then buy whatever it is you are trying to import and then move it into the country. Hacking for money makes sense but its no benefit to sanctions.

It can make sense for a small amount of capital controls. If you are Chinese you buy hardware and mine the stuff then move abroad and sell them. The Chinese could stop this simply by making the mining hardware illegal. Its quite specialised equipment not CPUs anymore. Even then the total mined bitcoibs per year at current prices is about £20 billion a year and no one person could mine all if them. So its not a huge capital control problem at most people could move a couple of billion via mined coins. Its easier just to move gold or art or cash etc

Overall I think this is extreme mania.
Even when I think of it I feel silly for not buying a thousand coins at £20 back when I first heard of it. But then I tell myself no way would I have held out to current prices I probably would have sold once it doubled. Pretty much the only reason people are buying it is they think someone else will pay more for it a few days/weeks/months later. No one is using it for anything meaningful except maybe covering black market activities.

I read so much BS about it
From the ultra bulls that say it will replace all currency so the worlds GDP of $100 trillion divided by 20 million bit coins = $5 million a coin maybe divide that by 2-3 for velocity if money. So absurd we have floating currency for a reason no currency digital or otherwise can take over all other currencies.
To the BS that it will take over all black market activities $10 trillion black market over 20 million coins = $500,000 a coin. Again nonsense most the black market isn't drugs and drug Lords aren't going to want to do bitcoin transactions as they will lose out on the transfer to their currency twice they will continue to operate with cash.

Its a really interesting mania
My guess is as soon as it spends a few months at non increasing prices it will fall away.
It won't go to zero as it has some useful properties of hiding transactions.

Also interestingly I can see this 'asset' living on for years and years it won't go to zero. It will boom and bust multiple times. Supposedly it already has boomed and bust 4 times.

Perhaps this will be the new gambling in a few years.
If people are illogical enough to gamble with the certainty that they will on average lose money then why not gamble with bit coins. At leaat with them your loss is someone else's gain almost 1:1 but with a casino or the lotto a large portion goes to the house

Thrugelmir

GreatApe wrote: »

Interesting none the less

Simply shows how foolish people can be.......... also how greedy.

economic

Thrugelmir wrote: »

Simply shows how foolish people can be.......... also how greedy.

What’s wrong with greedy?

If you are investing to obtain a real return you are also greedy.

GreatApe

Crap I think I just had a lightbulb moment

The higher the price for bitcoin the more valuable it gets. The more valuable it gets the more media coverage and users it collects. This is going to potentially become the reserve asset for hidden wealth.

The UK is $15 trillion in wealth times by 100 to get a world of $1,500 trillion in wealth.

Some portion of wealth will be hidden. Be it cash under the mattress or gold in a bank safe or a hole in the garden or money in an offshore account. I don't know what portion of wealth is hidden or wants to be hidden maybe just 3% well 3% of $1,500 trillion is $45 trillion.

If bit coin can take full market share of hidden wealth it would be $2 million per coin.
Of course it can't take full market share nothing can take full market share but even at 10% market share it would be $200k a coin

Does this make sense or am falling into confirmation bias??

As a way to hide wealth it can in theory be better than cash or offshore accounts or gold. You also don't need to launder it as its hidden. It would be transferable/moveable worldwide.

Any views on this ??

As I keep saying its very interesting

economic

just a thought:

you can buy only whole shares in apple or amazon or tesla. prices are quoted per share. you cant buy a tenth of an apple or amazon or tesla share. but for bitcoin you can buy 0.00001 of a BTC yet that still drives the price higher. does that make a difference to how a market behaves i.e. btc vs shares?

economic

GreatApe wrote: »

Crap I think I just had a lightbulb moment

The higher the price for bitcoin the more valuable it gets. The more valuable it gets the more media coverage and users it collects. This is going to potentially become the reserve asset for hidden wealth.

The UK is $15 trillion in wealth times by 100 to get a world of $1,500 trillion in wealth.

Some portion of wealth will be hidden. Be it cash under the mattress or gold in a bank safe or a hole in the garden or money in an offshore account. I don't know what portion of wealth is hidden or wants to be hidden maybe just 3% well 3% of $1,500 trillion is $45 trillion.

If bit coin can take full market share of hidden wealth it would be $2 million per coin.
Of course it can't take full market share nothing can take full market share but even at 10% market share it would be $200k a coin

Does this make sense or am falling into confirmation bias??

As a way to hide wealth it can in theory be better than cash or offshore accounts or gold. You also don't need to launder it as its hidden. It would be transferable/moveable worldwide.

Any views on this ??

As I keep saying its very interesting

- how confident will people be with a lot of wealth to hide to put money in something that can be hacked or taken over / controlled by government?

- how confident would people be in storing wealth in an asset that fluctuates widely, much more then even gold?

Relax

GreatApe wrote: »

Crap I think I just had a lightbulb moment

The higher the price for bitcoin the more valuable it gets. The more valuable it gets the more media coverage and users it collects. This is going to potentially become the reserve asset for hidden wealth.

So if the currency goes up then that is a result

if the currency flattens off ? You might get that result for some people

If the currency starts to fall ~ You get the opposite result

Overall your result positively feeds into itself until it doesn't, then it collapses ~ Sound like a bubble ?

Relax

economic wrote: »

just a thought:

you can buy only whole shares in apple or amazon or tesla. prices are quoted per share. you cant buy a tenth of an apple or amazon or tesla share. but for bitcoin you can buy 0.00001 of a BTC yet that still drives the price higher. does that make a difference to how a market behaves i.e. btc vs shares?

You can buy gold in any weight you wish .

The question originally posed by the bitcoin crowd was what value am I buying when I say that I just bought one bitcoin ?

is it equal to an ounce or kilo ?

GreatApe

economic wrote: »

- how confident will people be with a lot of wealth to hide to put money in something that can be hacked or taken over / controlled by government?

- how confident would people be in storing wealth in an asset that fluctuates widely, much more then even gold?

I recall someone here who worked at a big Bank on anti money laundering saying that the big criminals don't mind paying as much as 50% to launder their money. If they are willing to take an instant 50% haircut they will be willing to accept 50% swings in bitcoin

If I am right about this then it won't be a problem anyway as for the next 10 years the price will just go up

Also imagine an African dictator they could well get their hands on $5 billion his do they steal that? Just buy $5 billion in bitcoin they won't care even if it loses 90% they still male off with $500m

And it won't just be criminals you could even have people going through divorcees who are bitter and just dump all their wealth into bitcoin and do a runner.

At this stage it's uncertain if bit coin will win this race but a crypo is going to become a asset for people to hide wealth. It looks likely it will be bitcoin due to the network effect there maybe be a couple but one will take majority market share

I think this makes sense
I don't think this was the aim I think it was to be a currency and it will become a currency due to it being a atoe of wealth.