A few thoughts - Monday, September 8, 2014
Posted: Mon Sep 08, 2014 12:27 pm
Good afternoon! A few thoughts for lunch today:
Completed moving thoughts to this forum
While I was going to write yesterday, I instead spent time completing the move of all the previous thoughts posts to this forum. There are now over 100 threads here for everyone to read.
The amount of time that reddit wasted was astronomical here. I estimate that it probably took me over five hours to find, reformat, and insert all these posts in this forum. Not only that, but Chris still has to figure out how to change the date of the posts to be accurate. I could have written several new posts in the time that it took to transfer all these existing posts off of reddit.
This process gives me great hope about the future of bitcoins. If reddit had been an open platform, then this situation would never have happened. I would still be contributing there and even if people in /r/bitcoin didn't want me there, nobody would have been able to suddenly delete posts all across the site. Open platforms and decentralization have proven again and again to be the future. Every industry follows a pattern - first, there is a centralized system, then it gets shut down or people get fed up with it, and eventually the open platform develops to take over. I would imagine that reddit will also see its demise in 5 or 10 years as decentralized discussion forums become available and implement all the features that reddit has.
If for no other reason, decentralized platforms won't have ads to annoy users. The transaction fees to post can both prevent spam and pay for the hosting at the same time.
Strange press release from Newegg
There is a page from Newegg at http://blog.newegg.com/saving-bitcoin-good-idea/ that is difficult to describe in any other way than "odd." In it, Newegg tells people to spend bitcoins rather than saving them. They lay out a list of reasons for doing so. The weird part of the message is that they seem to be trying to drum up interest in bitcoin, but they then mention how bitcoins fell in price from $1k to $500 and are continuing to fall.
More odd than the "advice" to spend bitcoins is the message's existence itself. I can't recall a company ever posting what amounts to a full-page advertisement about a payment method. Sam's Club, which has exclusive contracts with several credit card companies, never published an article imploring people to spend DISCOVER cards and listing the reasons why DISCOVER is better than Visa. Of course, this article comes on the heels of Newegg's deals with bitcoins last weekend, from which they could not possibly have made any money. A lot of those deals went to customers who, like me, likely bought things just to resell them to ignorant people who will only pay cash.
Newegg has obviously decided to go all-in with bitcoin. Whether they hold them or not, there is some part of their future business model that they are basing on bitcoin spending. Perhaps they see an opportunity to upend a place like Amazon, because Amazon has not adopted bitcoins and Newegg's bitcoin model, whatever it is, is superior to traditional retailing. But none of that is possible without more widespread bitcoin adoption, so they are pushing the currency. It will be interesting to see if more information comes out about what Newegg is planning.
Two possible modes of adoption
With some people in /r/bitcoin starting to panic about bitcoin price declines, it struck me that there are two possible modes of bitcoin adoption, at least for this early phase. In one universe, an economic crisis occurs and people start buying up bitcoins to hold them as a store of value, simply because they are a better currency - and merchants don't accept them until after most consumers have them. In another universe, merchants start accepting bitcoins early, and people don't start buying them until most merchants have them available as a spending method. We live in the second universe.
There's no reason to suggest that either of these two universes is more likely to occur than the other, or that either of them will lead to a different outcome. In the interim before bitcoins are widely accepted and spent, however, their value is quite different between the universes. In the consumer-led world, the price of bitcoins skyrockets immediately, and then declines to a lower end level after the money starts moving throughout the new economy. In the merchant-led world, the price of bitcoins crashes immediately, and then rises to the same end level as people start holding bitcoins in their wallets. The key is recognizing that a greater percentage of money moving leads to lower value, while a higher percentage of money being saved leads to a higher value, since there is less money to go around when people need it to buy stuff.
The people who are selling out are missing the connection that there are two ways of the same outcome occurring. If merchant adoption were to start decreasing, then it would be time to sell, but that isn't the case. Since bitcoin adoption has taken the second path, we would expect the price to fall as the economy develops in these initial stages. Stagnant prices, rather than slightly falling prices, could signal more consumers buying, but it could also be a signal that merchant adoption is slowing, which would actually be a bad sign.
Localbitcoins volume skyrocketing
One of the most stunning trends of the past few weeks has been the uptick in sales at localbitcoins. Investigation into this trend reveals that bitcoin transactions are increasing slightly, but that localbitcoins transactions are increasing faster. That indicates that localbitcoins sellers are stealing marketshare from traditional sellers.
It's not a coincidence that the increase in localbitcoins volume is occurring at the exact same time that Coinbase has started to exhibit "big brother" like tactics. Coinbase, with increasing frequency, is performing surveillance on its users and closing accounts of people who violate whatever criteria it has set up (the criteria are not disclosed). They also are now sending some customers questionnaires with probing questions about the usage of their bitcoins. This comes at the same time that, for whatever reason, localbitcoins sellers are cutting back on the ridiculous margins they were earning before (sometimes you would see bitcoins marked up by 10% there). With Circle being unable to launch, Coinbase is starting to see people vote with their feet.
Notice anything? This is another example of a centralized system that tried to exert too much control, and where people are starting to rebel and develop a decentralized system where they can interact directly with each other. There is still a single point of failure in the localbitcoins site, but it is much more direct than going through Coinbase.
A year ago, if anyone had suggested that localbitcoins would be the fastest growing exchange, they would have been laughed out of the room. Of course, there would be professional exchanges in New York run by big-time bankers by now! But maybe everyone was wrong. Perhaps a decentralized currency will lead to decentralized ways of trading becoming prominent.
Late breaking: look at order distribution
I saw this just before posting: look at the order distribution on http://bitcoinity.org/markets. You'll notice the red lines of sell orders rising up high, and the green lines of buy orders almost nonexistent. Orders can be pulled, of course, but if there were any sudden volume, there would be nowhere to go but way down.
Completed moving thoughts to this forum
While I was going to write yesterday, I instead spent time completing the move of all the previous thoughts posts to this forum. There are now over 100 threads here for everyone to read.
The amount of time that reddit wasted was astronomical here. I estimate that it probably took me over five hours to find, reformat, and insert all these posts in this forum. Not only that, but Chris still has to figure out how to change the date of the posts to be accurate. I could have written several new posts in the time that it took to transfer all these existing posts off of reddit.
This process gives me great hope about the future of bitcoins. If reddit had been an open platform, then this situation would never have happened. I would still be contributing there and even if people in /r/bitcoin didn't want me there, nobody would have been able to suddenly delete posts all across the site. Open platforms and decentralization have proven again and again to be the future. Every industry follows a pattern - first, there is a centralized system, then it gets shut down or people get fed up with it, and eventually the open platform develops to take over. I would imagine that reddit will also see its demise in 5 or 10 years as decentralized discussion forums become available and implement all the features that reddit has.
If for no other reason, decentralized platforms won't have ads to annoy users. The transaction fees to post can both prevent spam and pay for the hosting at the same time.
Strange press release from Newegg
There is a page from Newegg at http://blog.newegg.com/saving-bitcoin-good-idea/ that is difficult to describe in any other way than "odd." In it, Newegg tells people to spend bitcoins rather than saving them. They lay out a list of reasons for doing so. The weird part of the message is that they seem to be trying to drum up interest in bitcoin, but they then mention how bitcoins fell in price from $1k to $500 and are continuing to fall.
More odd than the "advice" to spend bitcoins is the message's existence itself. I can't recall a company ever posting what amounts to a full-page advertisement about a payment method. Sam's Club, which has exclusive contracts with several credit card companies, never published an article imploring people to spend DISCOVER cards and listing the reasons why DISCOVER is better than Visa. Of course, this article comes on the heels of Newegg's deals with bitcoins last weekend, from which they could not possibly have made any money. A lot of those deals went to customers who, like me, likely bought things just to resell them to ignorant people who will only pay cash.
Newegg has obviously decided to go all-in with bitcoin. Whether they hold them or not, there is some part of their future business model that they are basing on bitcoin spending. Perhaps they see an opportunity to upend a place like Amazon, because Amazon has not adopted bitcoins and Newegg's bitcoin model, whatever it is, is superior to traditional retailing. But none of that is possible without more widespread bitcoin adoption, so they are pushing the currency. It will be interesting to see if more information comes out about what Newegg is planning.
Two possible modes of adoption
With some people in /r/bitcoin starting to panic about bitcoin price declines, it struck me that there are two possible modes of bitcoin adoption, at least for this early phase. In one universe, an economic crisis occurs and people start buying up bitcoins to hold them as a store of value, simply because they are a better currency - and merchants don't accept them until after most consumers have them. In another universe, merchants start accepting bitcoins early, and people don't start buying them until most merchants have them available as a spending method. We live in the second universe.
There's no reason to suggest that either of these two universes is more likely to occur than the other, or that either of them will lead to a different outcome. In the interim before bitcoins are widely accepted and spent, however, their value is quite different between the universes. In the consumer-led world, the price of bitcoins skyrockets immediately, and then declines to a lower end level after the money starts moving throughout the new economy. In the merchant-led world, the price of bitcoins crashes immediately, and then rises to the same end level as people start holding bitcoins in their wallets. The key is recognizing that a greater percentage of money moving leads to lower value, while a higher percentage of money being saved leads to a higher value, since there is less money to go around when people need it to buy stuff.
The people who are selling out are missing the connection that there are two ways of the same outcome occurring. If merchant adoption were to start decreasing, then it would be time to sell, but that isn't the case. Since bitcoin adoption has taken the second path, we would expect the price to fall as the economy develops in these initial stages. Stagnant prices, rather than slightly falling prices, could signal more consumers buying, but it could also be a signal that merchant adoption is slowing, which would actually be a bad sign.
Localbitcoins volume skyrocketing
One of the most stunning trends of the past few weeks has been the uptick in sales at localbitcoins. Investigation into this trend reveals that bitcoin transactions are increasing slightly, but that localbitcoins transactions are increasing faster. That indicates that localbitcoins sellers are stealing marketshare from traditional sellers.
It's not a coincidence that the increase in localbitcoins volume is occurring at the exact same time that Coinbase has started to exhibit "big brother" like tactics. Coinbase, with increasing frequency, is performing surveillance on its users and closing accounts of people who violate whatever criteria it has set up (the criteria are not disclosed). They also are now sending some customers questionnaires with probing questions about the usage of their bitcoins. This comes at the same time that, for whatever reason, localbitcoins sellers are cutting back on the ridiculous margins they were earning before (sometimes you would see bitcoins marked up by 10% there). With Circle being unable to launch, Coinbase is starting to see people vote with their feet.
Notice anything? This is another example of a centralized system that tried to exert too much control, and where people are starting to rebel and develop a decentralized system where they can interact directly with each other. There is still a single point of failure in the localbitcoins site, but it is much more direct than going through Coinbase.
A year ago, if anyone had suggested that localbitcoins would be the fastest growing exchange, they would have been laughed out of the room. Of course, there would be professional exchanges in New York run by big-time bankers by now! But maybe everyone was wrong. Perhaps a decentralized currency will lead to decentralized ways of trading becoming prominent.
Late breaking: look at order distribution
I saw this just before posting: look at the order distribution on http://bitcoinity.org/markets. You'll notice the red lines of sell orders rising up high, and the green lines of buy orders almost nonexistent. Orders can be pulled, of course, but if there were any sudden volume, there would be nowhere to go but way down.