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[BurnedToast]

It never will be a currency either - it's deflationary nature is a huge, impossible disadvantage. Why would anyone use a bitcoin to buy bread and milk when (by design) that bitcoin will be worth more tomorrow, and more the day after that, and so on forever?   Unless there's some good you can only buy with bitcoin there's no reason to ever spend them instead of cash money dollars.

You can get the same effect by investing dollars though, each dollar you invest ends up being worth more with interest. You could ask the same question of why would anyone spend dollars now, when if you invested that same dollar, you'd get "more tomorrow, and more the day after that, and so on forever?" So, deflation by itself isn't going to render something useless as a currency, unless that deflation massively outpaces the interest you can get from a dollar-based investment, in which case investors will hoard the coins.

Lack of price stability will the primary deterrent to pricing anything in bitcoins.

The bank is almost certainly paying you less in interest then you're losing due to inflation. You're slowing the loss down, but you're not stopping it. Even US savings bonds will basically only break even with inflation.

Meanwhile, investing dollars in something else that does beat inflation (like the stock market) is risky. Sure, you can take steps to make it a lot safer but the money you make always comes with some risk of loss (ask anyone who lost their retirement funds in the recent economic troubles)

So if you've got both dollars and bitcoins, and you need to buy something (everyone has to eat), which are you going to spend? The dollars, which are slowly losing value and can only be invested with some risk... or the bitcoins which are always gaining value with absolutely no risk? It's going to be the dollars every single time.

As long as dollars exist, it will always be preferable to use them instead of the bitcoin, thus the bitcoin can never become a real currency instead of an investment. Your argument only works in bizzaro world where everyone uses bitcoin and has abandoned dollars.

(and on preview, alway has explained rather well why using bitcoin as the main form of currency would be bad for the country)

[mainiac]

The bank is almost certainly paying you less in interest then you're losing due to inflation. You're slowing the loss down, but you're not stopping it. Even US savings bonds will basically only break even with inflation.

That's only the case because the economy is so depressed.  Under normal economic conditions that wouldn't be the case.

This is not the same thing as deflation however, it's just a steady-state intertemporal equilibrium of savings preference.  It actually create a useful feedback system that is one of the key benefits of a market economy.  However this system does not operate if interest rates fall enough that they are close to zero, as is the current case.  This is one of the reasons some economists advocate for a higher inflation target, which would raise interest rates as well and make the situation we are currently in less likely in the future.

Bitcoins on the other hand are outright deflationary.  If someone borrows from you in bitcoins and pays you back in bitcoins, the increase in value in bitcoins over time adds an additional burden to his borrowing.  This reduces the nominal interest rate that a bitcoin loan can expect: i.e. if dollars inflate 1% and bitcoins deflate 1% then a loan for 3% interest in dollars is the same as a 1% interest in bitcoins*.  But what if the dollar loan would take place at a 1.5% interest rate?  You aren't going to see a bitcoin lender lending at a -.5% interest rate, he'd just sit on the money instead and get a risk free 0% interest rate**.  So this creates a higher hurdle at which the economy breaks down and you get persistant economic performance like today.

This isn't just theoretical either.  The gold standard was deflationary and the period of the gold standard was characterized with economic depressions akin to our current one about once a decade.

*I fudged the math because the decimals aren't important for this point.
**Oddly there are a few rare examples, like short term US T-notes at the current time where lenders will actually accept negative returns on their money but these cases are obviously unusual.

[Sheb]

This isn't just theoretical either.  The gold standard was deflationary and the period of the gold standard was characterized with economic depressions akin to our current one about once a decade.

In before Libertarians.

[Bouchart]

Flexcoin shut down.

http://flexcoin.com/

I don't know much about it so I can't say how relevant this is.

[Bauglir]

Not sure if going to cause further price drop, or just drop in bucket.

EDIT: Prices have been going UP? WTF

[LeoLeonardoIII]

Oh man I remember before Washington Mutual went under I had a savings account with them that returned just short of 5% annually. And an intro offer that if you opened an account with $50 and kept $50 in it all year you would get a bonus of $50 after the year was up - basically, a 105% return on the first $50 in the first year.

Of course it was probably a last-ditch ploy to get customers to fund a sinking ship. I guess they dug their own graves with the subprime mortgage shovel? Not sure, don't really care that much.

I used to bank with Wells Fargo but their savings account offered like 0.001% interest. Not worth the effort of opening one. It seems like if inflation is 2% and you're getting less than a 3% annual return over that, you should probably be doing something better with your money. The only reason I did the WaMu thing was because it offered a return close to that of a CD but you didn't need a minimum investment and there were no limitations on taking the money out.

I still remember going in and taking that $50 and change out just a month or two after setting it up.

EDIT: I stopped banking with Wells Fargo because, after getting my student loans through them, and having a bank account with them for something like 20 years, I finally was unemployed and completely without income and they couldn't figure out a way to let me have a free checking account for any length of time. If I didn't have X money dropping in with direct deposit I would have to pay like $15 a month or something. I flat out told the guy, "Is this something that you can do for me to reward my two decades of customer loyalty" and he said no.

So fuck WF, but fuck banks in general too.

[Leafsnail]

Bitcoin prices are not linked to anything that's happening in reality.  Whether that's due to blind hope or deliberate market manipulation is anyone's guess.

[Bouchart]

CEO of Bitcoin exchange First Meta found dead.

The article is from Zero Hedge, so have fun with the comments.

[mainiac]

So fuck WF, but fuck banks in general too.

Credit Unions are where it's at baby.

[BFEL]

CEO of Bitcoin exchange First Meta found dead.

The article is from Zero Hedge, so have fun with the comments.

DAMMIT, you ninja!

Yeah, but anyway, I really didn't expect the CEO of such a insanely soulless marketing gimmick to be...well...pretty

[alway]

Bitcoin prices are not linked to anything that's happening in reality.  Whether that's due to blind hope or deliberate market manipulation is anyone's guess.

Clearly the latter. The whole speculation game is a giant pit into which completely green DIY "investors" toss money for those with actual trading experience and software to gobble up.

[BurnedToast]

Not worth the effort of opening one. It seems like if inflation is 2% and you're getting less than a 3% annual return over that, you should probably be doing something better with your money.

Especially considering the long-term (100 year) average for inflation is not 2%, but just over 3% (something like 3.12% iirc).

And on top of that, you're paying taxes on that 5% interest. With a 20% tax rate, it becomes more like a 4% interest rate, so you're only beating long term inflation by 0.78% or so. If you pay enough taxes, you're not beating inflation at all.

"Investing" in a savings account will, at best, keep you relatively even with inflation.

Bitcoin prices are not linked to anything that's happening in reality.  Whether that's due to blind hope or deliberate market manipulation is anyone's guess.

IMO it's one part people hording millions of dollars "worth" of bitcoin (remember, ~25% of all coins ever mined are held by ONE GUY and 60% - 70% have never been spent even once) who can't easily turn them into cash money (it would destroy the price and wipe them out if they tried to dump them overnight) desperately doing everything they can to prop it up for as long as they can to milk as much real money out of it as possible.

And one part fools who saw the price jump from $1 to $1000 and think it's the latest, greatest 100% perfect get rich quick with no effort or risk scheme buying them up.

[mainiac]

And on top of that, you're paying taxes on that 5% interest. With a 20% tax rate, it becomes more like a 4% interest rate, so you're only beating long term inflation by 0.78% or so. If you pay enough taxes, you're not beating inflation at all.

While I would agree with the general idea that savings accounts aren't a good long term investment, you might want to learn a bit more about the tax code, specifically with regards to capital gains for typical investors and depreciation tax write-offs.

[BurnedToast]

And on top of that, you're paying taxes on that 5% interest. With a 20% tax rate, it becomes more like a 4% interest rate, so you're only beating long term inflation by 0.78% or so. If you pay enough taxes, you're not beating inflation at all.

While I would agree with the general idea that savings accounts aren't a good long term investment, you might want to learn a bit more about the tax code, specifically with regards to capital gains for typical investors and depreciation tax write-offs.

The internet seems to agree with me (and has the internet ever mislead anyone? ha ha...) - it suggests interest from a savings account is taxable as normal income, not capital gains (capital gains primarily applies to stocks and such).

Meanwhile, depreciation write-offs are mostly for things such as equipment bought for a business. I didn't find anything to suggest you can write losses due to inflation off as depreciation.

But obviously, I'm no expert so maybe there's some sort of loophole to be exploited or perhaps I'm just missing the point you were making.

If I'm wrong feel free to point me in the right direction, I find the financial system interesting to read and think about.

[mainiac]

I don't know what I was thinking.