Bitcoin revisited – bubble?

How to read a price chart (hint: logarithmic scale)

Ok, first of all, ‘journalists’ should stop showing the price of bitcoins in a linear scale. You should never-EVER look a price/time graph in a linear scale, because what is interesting here is the movement in terms of percentage. For example, if the price of bitcoins goes from 10$ to 20$, that’s a 10$ increase, but also a 200% increase. However, if the price goes from 100$ to 110$, it still is a 10$ increase, but a less impressive 10% in terms of proportions.

Let’s look at the chart most ‘journalists’ use:

http://frozenlock.files.wordpress.com/2013/03/wpid-bitcoin-linear.png?w=490

OMG!!! It’s skyrocketing! It’s a bubble!

Now let’s use a decent logarithmic scale, shall we?

http://frozenlock.files.wordpress.com/2013/03/wpid-bitcoin-logarithmic.png?w=490

Boring!

A boring upward trend. And yet, this is much more helpful to anyone wanting to analyse the price movement. Notice how the last few months were in fact slow compared to previous years? But NOW it’s a bubble because NOW the mainstream media look at it. Yeah right…

Oh and they do a terrible job at it. They are completely and utterly clueless.

I cringed so hard watching this that my face hurts…

Bitcoin is more than a currency

Even those who get Bitcoin don’t seem to realize that it’s much more than just a currency. It’s a distributed public ledger. It’s an environment onto which you can bootstrap more financial tools. This is so important. I don’t know how to stretch this enough.

Smart properties

You can use Bitcoin as smart property. I’ve written on this subject in the past, and a there’s a bunch of more advanced theory available with a simple Google search. As a brief summary, imagine you could somehow attach a property/stock to a bitcoin. You could transfer the ownership to anyone, anywhere in the world.

Skipping a technological step

Most people don’t immediately grasp what it means to jump a step in technological evolution. Take the cellphones for example. For most occidental countries, there was the telegram and then the first phone lines. Operators needed to manually connect two wires together when people wanted to talk to each other. Eventually the system evolved and everyone had a phone in their home. This required physical phone lines to be installed almost everywhere and represented a huge capital investment.

Then came the cellphone. Slowly, people started to develop the technology and to use it, driving the price down. What did it mean for poorer countries? They could go, in their economic development, directly from harvesting crops to using cellphones without having to invest the huge capital necessary to install phone lines! They jumped a technological step and saved a fortune by doing so.

Now, imagine you could do the same thing, but for the whole property and stock market scheme. No need to erect a huge government adjacency to overlook every transactions. For virtual goods, you don’t even need to have a reliable court system in place! (Some don’t realize how developing a legal system in a country is a bewildering adventure. It takes an appropriate culture, a restrained government, peace…). And now the final touch: It’s also incredibly secure, because you have the security of the blockchain with you!

In summary, you have access to a market without borders, with low fees, with an incredible security, that cannot be frozen and that works 24h/24h.

Wealth is now force proof

For the first time in the history of mankind, force can’t be used to take wealth. How is that not the single most important evolution in all history?

Even if some people know you have 10 000 BTC, they can’t do anything about it. Sure they can torture you, but unless you give in, they have no way of getting to your wealth. Imagine that a government decides to take money directly from its citizens bank account (that would never happen, of course…). With Bitcoin, for the first time ever, they can’t.

You can transfer your bitcoins to anyone, anywhere in the world, without any 3rd party being able to stop or steal from you. Your wealth is now in your control.

“But I don’t like that it enables drugs, sex, and Rock ‘n’ Roll!”

Who cares? Bitcoin is here, it exists, it works and its resilient. Does it have all the necessary qualities to be a useful tool? Is it interesting for the wealth creators of this world? If so, your opinion really doesn’t matter. And that’s the beauty of it!

Oh, but of course, it’s a bubble!


6 responses to “Bitcoin revisited – bubble?

  • Wouter Drucker

    Excellent article. I’m really looking forward to all the extra options, and to learn more about how they’ll work. It would be great if we could finally make government obsolete.

  • Mike

    So on point! Thanks!

  • Robert Nielsen

    Your absolutely right, increasing from $30 to $150 in price in a month is completely sustainable. Not. Sure it involves new technology, but so did the dot com bubble. In fact most bubbles are caused by technology making people think that the old rules didn’t apply.

    Wealth being force proof as you call it, is a big deal for anarchists and extreme libertarians, but not for most people. Most people don’t see the government as a big bad monster out to steal their money. It is still possible to impose wealth taxes, sales taxes, income taxes etc. You may choose not to pay it and go to jail, but you can do that under the current system. Just bury your money in a hole and it’s just as safe from the government.

    • Frozenlock

      “Your absolutely right, increasing from $30 to $150 in price in a month is completely sustainable. ” If by sustainable you mean that it can keep the current price, absolutely.

      ” It is still possible to impose wealth taxes, sales taxes, income taxes etc.”
      Sure it’s still possible to impose sale taxes. If Bitcoin (or another cryptocurrency) is ever really successful, that’s surely one of the path governments will be tempted to use. They might also tax more your house, or add payment checkpoints between cities. When it comes to taxation, they can be pretty creative.

      Wealth being force proof is a big deal to anyone with integrity! You have here something to empower everyone, but discard it as unnecessary for most people. Sounds like a critics of the printing press… “Oh but most people can’t read, who needs books anyway.” Don’t try to guess what people need. At least they now have a choice. They may choose to use it, or not. I find it interesting that you immediately jumped to the conclusion that ‘force proof’ was synonymous to ‘government proof’. Doesn’t that tell you something? Why didn’t you jumped to the conclusion it was ‘corner store proof’? Perhaps ‘comic store proof’? Well no… the elephant in the room is that there’s one organization that doesn’t try to fund itself by convincing everyone of its good actions. And you guessed it immediately. Kudos.

      When 50% of worldwide enterprises are illegal (as in outside of their local laws, mostly because they are too costly), don’t you think there’s a problem? Oh but… yeah they must all be bad people. Every historian knows that all governments have always been good for their people.

      When you have wars powered by tax dollars… oh but yeah, every war is always inevitable. And OF COURSE, your tax dollars are always powering the good side isn’t it? Not a single occidental country would dare invade another jurisdiction.

      I’m fully aware that I’m not going to change your mind. Still, I would hope you can at least see that being force proof is a good thing. Think it’s bad for your government? Find new ways to tax people! I’m sure you can be creative.

      • Robert Nielsen

        Listen your point was that people will continue to buy bitcoins as they are “force proof”. However, if people do not value “force proof” items they will not buy them, hence their value will not hold. I am arguing that few people are so anti-government that a currency beyond the control of government is considered a good thing.

        The point is not which is a better system. The point is not should the government regulate currency. The point is what people think. I don’t believe there are enough anarchists to buy bitcoins and support its price, hence it will drop in value. Whether this is a good or bad thing is another issue, all I’m talking about is what will happen.

      • Frozenlock

        Interesting.
        It is my opinion that being force proof is what’s truly revolutionary about Bitcoin.

        Yet it’s not the only appealing feature. Many ‘socialists’ [everyone is a socialist in my eyes ;-) ] might be appealed by the quasi-instantaneous money transfer. It’s simpler for a programmer to deal with Bitcoin than with banks. It’s safer for the merchant to deal non-reversible transactions. You can also bootstrap stock markets on top of the blockchain.

        Even if I was the only fool who likes the ‘force proof’ aspect of Bitcoin, there’s many more interesting features.

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