Cyan comments on Making money with Bitcoin? - Less Wrong

18 Post author: Clippy 16 February 2011 07:17PM

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Comment author: gwern 21 April 2011 11:36:29PM 2 points [-]

Mencius Moldbug weighs in with his version of this argument:

"If Bitcoin becomes the new global monetary system, one bitcoin purchased today (for 90 cents, last time I checked) will make you a very wealthy individual. You are essentially buying Manhattan for a quarter. There are only 21 million bitcoins (including those not yet minted). (In my design, this was a far more elegant 2^64, with quantities in exponential notation. Just sayin'.) Mapped to $100 trillion of global money, to pull a random number out of the air, you become a millionaire. Wow!

So even if the probability of Bitcoin succeeding is epsilon, a million to one, it's still worthwhile for anyone to buy at least a few bitcoins now. The currency thus derives an initial value from this probability, and boots itself into existence from pure worthlessness - becoming a viable repository of savings. If a very strange, dangerous and unstable one.

I think the probability of Bitcoin succeeding is very low. I would not put it at a million to one, though, so I recommend that you go out and buy a few bitcoins if you have the technical chops. My financial advice is to not buy more than ten, which should be F-U money if Bitcoin wins."

Comment author: Cyan 22 April 2011 01:31:02AM 1 point [-]

Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes? If e-money in general is a winner, then the fact that there can only be 21 million Bitcoins in particular is no longer relevant.

Comment author: gwern 11 June 2011 03:30:32AM 1 point [-]

Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes?

Having learned more, I can point out that Bitcoin can co-exist, but those other e-moneys must have some trait Bitcoin doesn't. It's like evolutionary niches. My current example is an interesting little system I'm GPU mining for right now, Namecoin (homepage). The scarce things that Namecoin is decentralizedly allocating are domain names (.bit), rather than tokens used as money - not direct competition.

Comment author: gwern 22 April 2011 01:37:23AM 0 points [-]

The success of one e-money makes life more difficult for the others; there are incentives to standardize (witness the EU, or how some countries peg their currency to the dollar - or just use the dollar).

Comment author: Cyan 22 April 2011 01:43:28AM 0 points [-]

how some countries peg their currency to the dollar

But that's what I thought I was talking about... (well, actually, I have no idea what I'm talking about, but you've enlightened me on money issues before). What if someone comes along soon and creates another e-currency with some credible generation mechanism but without the hard cap that Bitcoin has and pegs it to Bitcoin at some appropriate time?

Comment author: gwern 22 April 2011 01:57:05AM 0 points [-]

By definition, if there is no hard cap and people are generating, then a peg can't be maintained to another currency with a hard cap - basic Pigeonhole Principle. Can't uniquely match n+m items to just n slots. I'm not really seeing what you're asking after.

Comment author: Cyan 22 April 2011 04:45:22AM 0 points [-]

Ah yes, I see. I didn't think carefully about how a peg would actually be maintained.

Suppose the new currency does have a hard cap -- suppose I copy the Bitcoin scheme and create Cyan-coin, of which there will eventually be 21 million. Even if I don't personally maintain reserves of the two currencies to keep the exchange rate pegged, didn't I just double the supply of e-money, thereby halving the purchasing power of an e-coin?

Comment author: gwern 22 April 2011 01:35:48PM 1 point [-]

Only if people use it and make plans on it. You could make a trillion different Cyan-coin currencies, and if they never left your computer, would they affect anything at all? Of course not.

The purchasing power of a random bitcoin only halves if people run out and start using Cyan-coin in exactly the same quantities as Bitcoin. Otherwise, the actual purchasing power is much less, set by the exchange rate - obviously Cyan-coin is not equal to a Bitcoin in PPP if the exchange rate is 100:1.

Comment author: Cyan 22 April 2011 02:22:52PM 0 points [-]

I imagine that early uptake of a Bitcoin clone would be facilitated if people thought that the hard cap on Bitcoins proper would cause the scheme to have undesirable properties as a currency.

Comment author: gwern 23 April 2011 06:48:29PM 1 point [-]

Surely. But that's not the case, as people think the presence of a hard cap is one of the valuable traits of Bitcoin.

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