Chinese central bank questions the value of Bitcoin. Prices drops $400

[Albino Boo]

Today the Chinese central bank says that Bitcoin isn't a proper investment vehicle and isn't a real currency. The Bank of France also questioned the coins by saying there is no underlying asset. 10 min later the price of Bitcoins drops to $800 from $1200 and slides down the current price of $700.

Yes folks its that time a again a Bitcoin crash. This time I think it will do permanent damage because more people hold them now. The previous crashes have only hit the techo libertarians and the stoners. This time ordinary people have been caught up in the bubble and got their fingers burnt

 

[tippy2k2]

Eh...it was bound to happen. It's the main reason I've completely ignored BitCoins since they started showing up.

They literally have no worth besides what people say they are worth. It was only a matter of time before people started saying that this isn't worth anything and cause it to crash down to Earth.

 

[Mr.BadExample]

If I held bitcoins I'd probably rid myself of them too. I won't be surprised when governments start passing laws to severely restrict or halt the use of crypto currencies. They aren't REAL currency after all, and only terrorists, druggies, pedophiles, hitmen, libertarians and the like use them.

 

[Dirty Hipsters]

They literally have no worth besides what people say they are worth. It was only a matter of time before people started saying that this isn't worth anything and cause it to crash down to Earth.

But that's the majority of money nowadays. It's all fiat money, it only has value because the government says it does. The dollar, the euro they aren't on any kind of fixed standard.

 

[tippy2k2]

But that's the majority of money nowadays. It's all fiat money, it only has value because the government says it does. The dollar, the euro they aren't on any kind of fixed standard.

That's true but at least government money has something backing it. For example, if the US had to pay out for all the dollar bills we have floating around, it would kill the country (tender was backed by gold but to my knowledge, that hasn't been the case in a long time). However, the perception of the government backing it is enough to keep the dollar strong(well...strongish).

Bitcoins on the other hand have absolutely nothing. I know someone told me that because Bitcoins have no central authority, THAT will protect it but I think it's the exact opposite. By not having a central authority (like the US Dollar's authority is the US Government), Bitcoins will live and die by perception and eventually, people will start questioning why these Bitcoin things have value. I believe that is what we're seeing now and will continue to see until Bitcoins are forgotten.

Now in fairness, I have a very basic understanding of Bitcoins so I'm sure there are far more involving factors than I'm giving them credit for. I'm basing my stuff of my knowledge, which admittedly is not a lot

 

[Albino Boo]

They literally have no worth besides what people say they are worth. It was only a matter of time before people started saying that this isn't worth anything and cause it to crash down to Earth.

But that's the majority of money nowadays. It's all fiat money, it only has value because the government says it does. The dollar, the euro they aren't on any kind of fixed standard.

Real currencies are backed by a central bank which in turn holds assets in the form of other currencies, gold, other government debt (usually t-bills). So while not convertible into gold or silver, fiat currencies are backed by assets which allows central banks to intervene to maintain currencies relative value. The fundamental difference with bitcoin is that there is no central bank with assets to intervene.

Edit: Bah Ninjaed

 

[Albino Boo]

That's true but at least government money has something backing it. For example, if the US had to pay out for all the dollar bills we have floating around, it would kill the country (tender was backed by gold but to my knowledge, that hasn't been the case in a long time). However, the perception of the government backing it is enough to keep the dollar strong(well...strongish).

Bitcoins on the other hand have absolutely nothing. I know someone told me that because Bitcoins have no central authority, THAT will protect it but I think it's the exact opposite. By not having a central authority (like the US Dollar's authority is the US Government), Bitcoins will live and die by perception and eventually, people will start questioning why these Bitcoin things have value. I believe that is what we're seeing now and will continue to see until Bitcoins are forgotten.

Now in fairness, I have a very basic understanding of Bitcoins so I'm sure there are far more involving factors than I'm giving them credit for. I'm basing my stuff of my knowledge, which admittedly is not a lot

The big problem with convertible currencies is that they impede growth. Every time a bank makes a loan, it does not debit money from one account and credits it into another but creates a credit in the account which received the loan. Each loan effectively represents newly created money. If the currency has to be backed by gold this limits the amount credit in the economy.As we have just experienced a lack credit in is very damaging to growth.

 

[Foolery]

But that's the majority of money nowadays. It's all fiat money, it only has value because the government says it does. The dollar, the euro they aren't on any kind of fixed standard.

That's true but at least government money has something backing it. For example, if the US had to pay out for all the dollar bills we have floating around, it would kill the country (tender was backed by gold but to my knowledge, that hasn't been the case in a long time). However, the perception of the government backing it is enough to keep the dollar strong(well...strongish).

Bitcoins on the other hand have absolutely nothing. I know someone told me that because Bitcoins have no central authority, THAT will protect it but I think it's the exact opposite. By not having a central authority (like the US Dollar's authority is the US Government), Bitcoins will live and die by perception and eventually, people will start questioning why these Bitcoin things have value. I believe that is what we're seeing now and will continue to see until Bitcoins are forgotten.

Now in fairness, I have a very basic understanding of Bitcoins so I'm sure there are far more involving factors than I'm giving them credit for. I'm basing my stuff of my knowledge, which admittedly is not a lot

Yeah, about that. The gold standard was abolished long ago. Either the Federal Reserve bankers create it, or individual bankers create it through the mechanism of fractional reserve banking. The U.S. government cannot print money. The Federal Reserve is actually a privately-owned central bank that has been given authority by the U.S. Congress to issue currency, and set interest rates.

Usually the money isn't even printed up - most of the time it is just electronically credited to the government. The Federal Reserve creates these "Federal Reserve notes" out of thin air. These notes are backed by nothing and have no intrinsic value of their own.

 

[Xeorm]

Yeah, about that. The gold standard was abolished long ago. Either the Federal Reserve bankers create it, or individual bankers create it through the mechanism of fractional reserve banking. The U.S. government cannot print money. The Federal Reserve is actually a privately-owned central bank that has been given authority by the U.S. Congress to issue currency, and set interest rates.

Usually the money isn't even printed up - most of the time it is just electronically credited to the government. The Federal Reserve creates these "Federal Reserve notes" out of thin air. These notes are backed by nothing and have no intrinsic value of their own.

Well, the major issue with bitcoins has been that it's not backed by any other organization, leading to potentially large fluctuations in price. while the dollar, to give an example and which is purely fiat money and I know has absolutely no inherent worth, is still worth something to me because I know that the value of a dollar will not noticeably change anytime soon. Given good monetary policy, the dollar will only change due to inflation (And inflation itself is relatively static barring major circumstance), and thusly I can make future predictions of worth because of that.

With dollars, I can make some some long-term plan like "I'll pay you 1000 dollars now, and 10 years late you'll pay me back 1100 dollars" and roughly know how much those 1100 dollars will be worth to me in trading for actual "stuff" that I may want in 10 years. With bitcoins, I have no clue on what they'll be worth from day to day. Their value dropping so quickly is a clear example of just how worthless they are as an actual currency.

 

[Glademaster_v1legacy]

Money is only money as long as people recognise it has value. I could go into business and refuse to accept Euro coins and insist to be paid in sea shells. This is obviously a bad idea and an extreme example but it is relevant. Money needs to be somewhat fixed in supply, hard to get and have recognised value among other things. So it makes sense that the the currency will devalue with nothing strong backing it(gold standard or otherwise) when big organisations like Central Banks question it.

 

[Phrozenflame500]

Another day, another massive Bitcoin price fluctuation.

Nothing really out of the ordinary here, and I applaud the Chinese Central Bank for all the sweet, sweet Libertarian tears this brings.

 

[Albino Boo]

Yeah, about that. The gold standard was abolished long ago. Either the Federal Reserve bankers create it, or individual bankers create it through the mechanism of fractional reserve banking. The U.S. government cannot print money. The Federal Reserve is actually a privately-owned central bank that has been given authority by the U.S. Congress to issue currency, and set interest rates.

Usually the money isn't even printed up - most of the time it is just electronically credited to the government. The Federal Reserve creates these "Federal Reserve notes" out of thin air. These notes are backed by nothing and have no intrinsic value of their own.

The Fed is not a privately owned bank. The only element of private ownership is caused by the fact the thant any holder of of a banking license is required by law to by shares in the Feds regional boards. This is in reality a forced loan with a fixed coupon of 6%. The ownership of shares only entitles the owners to votes for election to regional boards. All the key decisions about money supply and interest rates are taken by presidential appointees, who are also approved by congress. Furthermore, any and all profits are transferred to the US treasury and in this era of QE that amounts to $80 billion a year.

 

[kongajinken]

Currency that is backed by government has laws protecting that currency though. For example if I tried paying for something with dollars and the person refused, legally I don't owe them anything anymore.

 

[Zhukov]

I don't understand bitcoins.

I looked it up after that thing with the guy losing millions in bitcoin on a junked hard drive and it made no sense to me at all.

Can some explain, in layman's terms, what the hell a bitcoin is?

 

[Terminal Blue]

But that's the majority of money nowadays. It's all fiat money, it only has value because the government says it does.

Whereas Bitcoins are not money at all. No more so than gold or bauxite is money.

They only have value because people (in the here and now) are willing to pay for them. Without that, they are useless streams of numbers.

 

[Albino Boo]

I don't understand bitcoins.

I looked it up after that thing with the guy losing millions in bitcoin on a junked hard drive and it made no sense to me at all.

Can some explain, in layman's terms, what the hell a bitcoin is?

A bitcoin is essentially a number. This number comes from an equation that cannot by solved algebraically but by an iterative process but has a finite number of answers. In plain terms there is an equation which you can only work out what the answer is by plugging numbers in to see they are right but there can only be 1 billion or so right answers. Each right answer gets further away from previous answer and so you have to do more and more calculations to find the next answer as the total number answers found goes up. Its much easier find the 1000th answer than the 10000th answer. Once the answer has been found they are verified against a number servers to make sure that number is not already in use. This is done to stop copypasting and creating 1000s of duplicates of the same number. People buy and sell these numbers for real currency in exchanges. When you buy something with a bitcoin you are transferring your number to someone else.

 

[Heronblade]

I don't understand bitcoins.

I looked it up after that thing with the guy losing millions in bitcoin on a junked hard drive and it made no sense to me at all.

Can some explain, in layman's terms, what the hell a bitcoin is?

Its just another form of virtual currency. In reality, the only real difference between it and the virtual cash you have in your bank account is that bit-coins are not backed up by a government.

In theory, it can have advantages in circumventing inflation, taxes, and international sanctions. Some people also like using it in a bit of a "f*** you" to their local government.

It also hold advantages in purchases of an illegal nature, such as drug trades, money laundering, and gun purchases without background checks. Some groups claim that the majority of bitcoin transactions are less than legal, but that is an obvious exaggeration.

The main disadvantage is that there is even less backing up its value than normal cash gets, the worth of a particular bitcoin is determined solely by public perception. People can lose huge amounts of money whenever that perceived value goes down.

Frankly, its the kind of thing that a shrewd investor could make quite a bit of money on at the expense of everyone else foolish enough to use it as a principle currency. Over the past few years, the value of a bitcoin compared to a dollar fluctuated wildly, ranging from about thirty cents in 2011 to over $900 last month. I'm actually wishing that I had bought fifty dollars or so worth of bitcoins back towards the beginning of this event, I could have made six figures by selling them at this point. Cash that I sorely need right about now.

 

[Kilo24]

I don't understand bitcoins.

I looked it up after that thing with the guy losing millions in bitcoin on a junked hard drive and it made no sense to me at all.
Can some explain, in layman's terms, what the hell a bitcoin is?

Bitcoins are a currency backed not by a government, but by complex algorithms designed to enforce security. These algorithms are example of public key cryptography. They pair a public key and a private key together, and you can encrypt data using either key; but to decrypt data you need the other key.

Each person's Bitcoin wallet is represented by the pair and the public key is, well, public. People who want to send money to the wallet encrypt the transmission using the wallet's public key and the owner of the wallet (who should be the only one to know the private key) decrypts it. The sender also needs to use their own wallet's private key to encrypt the message so that it's confirmed that they're the sender. There's a number of other parts to the whole deal (a bunch of servers must each independently mathematically validate the transaction and agree for it to occur, new bitcoins are made by doing effectively useless but very computationally expensive work) but that's the basics of how Bitcoins work.

The millions of dollars lost on the hard drive was because he had his private key on there; without that, there's no way to access his wallet.

It also hold advantages in purchases of an illegal nature, such as drug trades, money laundering, and gun purchases without background checks. Some groups claim that the majority of bitcoin transactions are less than legal, but that is an obvious exaggeration.

The main disadvantage is that there is even less backing up its value than normal cash gets, the worth of a particular bitcoin is determined solely by public perception. People can lose huge amounts of money whenever that perceived value goes down.

One major issue with using Bitcoins for illegal purposes is that the transaction history is public. No names or anything are directly attached to the purchases, but it does still leave a trail that can be followed. It's not quite the criminal haven that it is sometimes purported to be.

Every currency is backed up by public perception. Traditional ones have a government behind them, but that is just another assurance which affects public perception. Not an insubstantial number of people actually view that as a liability to the currency's stability instead of a benefit (given the amount of control the government has over their currency), and many of those people are interested in Bitcoins for that reason. A currency that is backed by mathematical proofs instead of a politician's respect for and understanding of economics may be a hell of a lot more stable in the long run than any other modern currency.

It's still a relatively small market and, as such, is relatively vulnerable to big shifts in value; that would be true of any currency this small. As with any investment, you're being paid for the risk you take.

Frankly, its the kind of thing that a shrewd investor could make quite a bit of money on at the expense of everyone else foolish enough to use it as a principle currency. Over the past few years, the value of a bitcoin compared to a dollar fluctuated wildly, ranging from about thirty cents in 2011 to over $900 last month. I'm actually wishing that I had bought fifty dollars or so worth of bitcoins back towards the beginning of this event, I could have made six figures by selling them at this point. Cash that I sorely need right about now.

I'm pretty sure everyone is wishing for something similar. Unfortunately, that's how pretty much any uncertain investment works. I could complain about Apple's stock in the same tone for the same reasons. Hindsight has its very strong biases, though, and it doesn't change the information you had at the original decision. It may have still been a bad choice early on.

It pretty much boils down to if enough people think that it will be a good investment, it becomes a good investment. If enough people don't think it'll be a good investment, it won't.

 

[Heronblade]

One major issue with using Bitcoins for illegal purposes is that the transaction history is public. No names or anything are directly attached to the purchases, but it does still leave a trail that can be followed. It's not quite the criminal haven that it is sometimes purported to be.

Transaction history being public only helps if you can both link bit-coin accounts to their user and link a particular transaction to the illegal activity in question. Both of which are much tougher to do than with standard bank accounts.

Its a bit like obtaining video footage of two masked and cloaked individuals of uncertain body profile exchanging briefcases in a park, one of which is opened to reveal a large amount of cash. Any particular transaction or group of transactions may look quite suspicious, but they provide no proof on their own that something illegal actually took place, nor who was involved.

Every currency is backed up by public perception. Traditional ones have a government behind them, but that is just another assurance which affects public perception. Not an insubstantial number of people actually view that as a liability to the currency's stability instead of a benefit (given the amount of control the government has over their currency), and many of those people are interested in Bitcoins for that reason. A currency that is backed by mathematical proofs instead of a politician's respect for and understanding of economics may be a hell of a lot more stable in the long run than any other modern currency.

It is a major assurance, the perception that a particular currency is backed up by a major governmental body goes a long way towards securing its stability. This is not to say that things can't go wrong, just that a lot of people in power have far too much to lose if things go bad.

In the meantime, until/unless a virtual currency like bit-coins becomes commonplace enough that its worth can more directly be estimated against everything else, it will remain a risky and wildly fluctuating currency, and investing in it is more comparable to buying lottery tickets. Its long term stability is far from assured.