Tuesday, October 19, 2010

A Rally in Bitcoin

By Jon Matonis

Bitcoin has had about a 64% rally recently which is not surprising given that more and more people are learning about its existence and circulation as a new P2P anonymous digital currency. The massive viral effect of a P2P digital currency have now kicked in and it seems as though a new merchant or a new exchanger emerges daily. As of October 19th, 2010, total Bitcoin in existence equalled 4,315,250 with 86,305 Bitcoin blocks generated (source: Bitcoin Exchange).

One such exchanger, Mt. Gox, does an excellent job of tracking and charting the USD:BTC exchange rate on a daily basis:


Trading volume at Mt. Gox set new records during early October 2010 and you can still follow some of the action and comments here.

Bitcoin is an unbacked currency in a traditional commodity-reserve sense but limited in its issuance by CPU cycles and electricity. As their web site states, only 21 million coins will be brought into circulation, but I suspect that may need to be adjusted when unsustainable deflation appears.

Issuing statistics and some of the leading exchangers can be followed at Bitcoin Watch. A relatively new exchanger on the Bitcoin scene is Canadian Nanaimo Gold with a nice user interface. The exchanger Bitcoin 4 Cash bills itself as "the premier Bitcoin dealer that respects anonymity" and the BitCoin/MetalCoin Exchange will trade Bitcoin for gold and silver coins. BitcoinFX provides two-way exchange for Bitcoin into Liberty Reserve. In Alabama, Bitcoin2cash will provide Bitcoin for cash sent in the regular mail and vice versa, which is financial privacy in its rawest form (the bid/ask spread is wide at 25/200, but I respect these guys!). And finally, another interesting exchanger to follow is the Finland-based Bitcoin Exchange, which has an excellent statistics section. Needless to say, Bitcoin deserves serious consideration as we move into The Monetary Future.

If you enjoyed this article, please donate Bitcoin to: 13N81mY1B2Y3KugUQ8dcidhvZKDrhrZmZn

For further reading:
"A Short Introduction to Bitcoin - A Peer to Peer Cryptocurrency", Bluish Coder, October 10, 2010
"Bitcoin Electronic Currency: The Future of Money", Elliott Prechter, Elliott Wave International, September 30, 2010
"Difficulty vs Time Graph", Bitcoin Blogger, September 19, 2010
"Intriguing: Disruptive Technology To Upend All Banks", Bitcoin Blogger, August 8, 2010
"What are Bitcoins?", Quezi, July 22, 2010
"Is It Time For Digital-Only Dollars?", Phil Maymin, Hartford Advocate, July 8, 2010
"BitCoin and the 'Wild West'", Niklas Blanchard, Modeled Behavior, June 30, 2010

This article was also published in Digital Gold Currency Magazine (November 2010).

6 comments:

  1. "when unsustainable deflation appears" You mean the loss of bitcoins and not reducing prices in terms of bitcoins, right? Because it's not a bad thing if bitcoins become more valuable, but if they are lost then we may eventually hit a subdivision limit.

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  2. I agree with the above comment. A subdivision limit is an issue, but deflation is not. That being said, bitcoins can be subdivided to 0.00000001 decimal places meaning 21M bit coins can be subdivided into 210,000,000,000,000 "parts" (equivalent to a single US penny).

    Also, that 21M bitcoin limit is a purposeful technical restriction that can not be surmounted in any way which is what makes them scarce (unlike modern currency). If it were possible to raise that limit all advantages of BitCoins would go out the window because they are no longer scarce and some controlling body could just up the limit when they needed cash flow (as current governments do now).

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  3. Sorry, the above should have been 2,100,000,000,000,000. I forgot a 0 there. That is 2100 Trillion "pennies".

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  4. Micah, I was actually referring to a deflation of the price level which would make transactions increasingly difficult and impractical. Appreciation of the bitcoin unit value is not a negative in itself, but it can have a negative impact on commerce from a psychological standpoint.

    It has been proposed that before the year 2140 (when all 21m bitcoin of this iteration will complete), a fork or parallel bitcoin economy may be desirable for price stability. This would be no different than today where there is a gradual increase in the supply of gold as the world economy expands. Or, are you proposing maintaining the 21 million total as the global population swells to over 20 billion?

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  5. I would also like to remind everyone that the start of the BC hash chain is a completely arbitrary hash.

    A new chain can be started with a new hash at any time, for when we need more BC.

    Also - no one points out that the reason BC are valuable is that they are constrained - that is, we are limited as to how many there are, and not by our good will, but by math.

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