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43

There are two potential ways in which monetary deflation can impact a currency: 1. Usability Most modern currencies have a minimum unit, such as the penny in the United States, or the yen in Japan. If these currencies existed in only finite quantities, then as the economy grew and/or physical money was lost, there might eventually be too few of these ...


34

I think the premise of the question is not correct. The work is not useless, it secures the transactions. The public hash chain ensures that Bitcoins can only be spent once. The mechanism piles computations on top of legitimate transactions so that the recipient knows that an attacker would need at least as much computing ability to "undo" the transaction. ...


24

Colored coins are a method to track the origin of bitcoins, so that a certain set of coins can be set aside and conserved, allowing a party to acknowledge them in various ways. Such coins can be used to represent arbitrary digital tokens, such as stocks, bonds, smart property and so on. The colored coins protocol is decentralized just like Bitcoin, but the ...


22

Assuming Bitcoin is still active at that point in time, mining will continue, because transaction fees will make it worthwhile to do so. This topic has been discussed heavily in other answers, including: What happens once the mining reward gets cut in half? How many bitcoins will there eventually be? How much will transaction fees eventually be? The last ...


17

GDP would accelerate because of less transactional friction.


17

NooShare is an idea for: a decentralised ledger similar to Bitcoin with the novel feature that its proofs of work are iterations of essentially arbitrary Markov-Chain Monte-Carlo (MCMC) chains, the scheduling of which can be purchased using the currency itself. It is a novel economic basis for sharing fallow computational resources. I don't know ...


16

Here are a few ways Bitcoin can be affected by the decisions of a wealthy investor: Value manipulation: A wealthy investor can sell coins or purchase coins in such a rapid pace that the market sinks or rises to an unrecoverable level. In real exchanges, the SEC protects investors from these hostile trades. There is no SEC protection with Bitcoin. Update: ...


15

Bitcoin exchanges, like stock exchanges, act as a middleman for people that want to trade bitcoins. They do not sell/buy their own bitcoins or US Dollars. Suppose that I have 10 bitcoins and I want to sell them at $5 each. In order to do that, I can use a bitcoin exchange and put a sell order at $5 for 10 coins. This is a way of "announcing to the world" ...


14

No. There are many things that could destroy bitcoin, but deflation is not one of them. While deflation is problematic for a currency backed by debt (as most, if not all, national currencies are), it is not an issue for commodity currencies (and bitcoin is most similar to commodity currencies). The deflation argument goes something like this: everyone, ...


14

The problem is that no one has come up with a proof-of-work system based on useful work that also: Generates easily verifiable solutions Can have the difficulty of finding a solution adjusted For example, if the system were searching for prime numbers, the solutions would take a long time to verify as being prime. The difficulty of finding the next prime ...


14

Every block has exactly one "coinbase transaction", the one transaction which doesn't have actual inputs, but gets all the fees and mining subsidy. Every 210000 blocks, this subsidy halves. Right now, each block is allowed (not required!) to bring 50.00000000 BTC into circulation. Very soon, this will become 25.00000000. Four years later, 12.50000000. And ...


13

It depends entirely how much those alternate block-chains get utilized. In the recent examples of ixcoin and i0coin, a small portion of btc miners and users switched over, sold their stash and went right back to bitcoin. It's essentially a case of network effect - whichever block-chain has the most users will be the most attractive to new users, and those ...


12

Today, it primarily serves as a store of value. It is inherently more useful as a medium of exchange, its intended purpose. Perhaps a bit ironically, its expected future usefulness as a medium of exchange is what is driving its present usefulness as a store of value. The thinking is that if you get them now when they're cheap, in the future when they're used ...


11

You can find an extensive list on page Trade at Bitcoin Wiki. A short list of some auction sites that use Bitcoins: Bid Bitcoins Bidding Pond Bitmit If you want to sell digital files per download, go here: http://bitcoinservice.co.uk/ . And as with anything, you can just post on an online classified ad websites, such as craigslist (thanks Thilo for the ...


9

No, for two reasons: First, Bitcoins are very divisible. So it wouldn't create the kinds of problems having a penny be enough to buy a car would create. (How would you buy a candy bar?) Second, while deflation would provide an incentive for people to hoard a currency rather than spend it, it provides an equal incentive for people to try to pry that ...


9

For speculation, you would buy when the price is low in anticipation that the price will rise in the future. There are some signs that the currency is seeing wider use and has greater potential in the future. For instance: - http://blockchain.info/charts/n-transactions Concluding that that growth means that a bitcoin will be worth $4 or $2 or $32 by any ...


8

It is likely that blockchain-based currencies like Bitcoin are a natural monopoly. It is most beneficial for users to own and accept in trade the most popular currency, as they will have the greatest number of opportunities to do business with it. This is referred to as a network effect. There are also additional costs and risks associated with owning and ...


8

Probably both, though the effect may be pretty small. Arguably, the most prudent use of options is reducing risk. For example, a merchant with accounts receivable in Bitcoins would want to protect the value of the fixed amount of BTC he will receive. Options can limit his downside risk. At present the price volatility of Bitcoins hampers its use for ...


8

Some discussions around how to make it more useful https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming https://bitcointalk.org/index.php?topic=11834.0


8

The only way to fix an exchange rate is to constantly trade at this rate. This requires unlimited funds. So assume you want to peg BTC against CHF as in your example. For simplicity, we aim at 1 BTC == 1 CHF. Here's a simple recipe. Have unlimited Bitcoin and unlimited CHF. Find a Bitcoin exchange. Offer to buy an unlimited amount of Bitcoin for 1 CHF/BTC....


8

To participate in a disruptive technology Many of the other answers are covering the investment angle, but also consider that Bitcoin is a disruptive technology. Bitcoin allows an individual the kind of control over their money which has never been available before in all of history. This is a very big deal. It is now possible to send any amount of money, ...


7

If people are worried about deflation they really need to distinguish what kind of deflation they are referring to. Asset deflation or monetary deflation. The real issue with our economy right now is the fact we have asset deflation coupled with monetary inflation which is the worst of both worlds. I believe asset deflation along with monetary deflation ...


7

One thing often overlooked is that bitcoin is most useful in chaotic economies. Bitcoin likely will not replace the Euro, Dollar, Yen, or Yuan for very long time (if ever). However many economies suffer from poor economic planning and gross manipulation by central banks. Take the Zimbabwe hyperinflation scenario. If bitcoin existed and was easily used by ...


7

Assume for a second that we found a proof of work algorithm that had all of the good properties of sha256, but was also useful for SETI and maintaining world peace. Now suppose a group of miners collectively have more than 51% of the hashing power. In which of the following scenarios are they more likely to collude to double spend via a 51% attack: A) When ...


7

If I understand you correctly, the answer is yes. You could use a Bitcoin-like system simply to track the movement of 'shares' or 'units'. All the 'coins' could start out pre-mined, and the system's sole purpose could be to track the movement of those units. However, there would be a lot of reasons why this would be a bad idea. The primary one is this: the ...


7

You could fix the minimal value of Bitcoin if you had some money and you wouldstate: "I have X$, I will buy each and every Bitcoin you offer me at the rate of X/2100000$". The only problem is that people need to trust you and you have to have enough money. So, if you get en established company (for example, Google) to secure the funds you can fix the minimum ...


7

In terms of thwarting P2P currencies, in addition to those mentioned in makerofthings7's answer, I will add: Delaying transactions with only minority Proof-of-work share. Forking the protocol with majority Proof-of-work share. Employing black budgets outside of public view. Selling put options to gain the money to attack with. Using the law to keep the ...


7

Idealists might argue that Bitcoin was developed to forever change the financial landscape, and would be affronted at the suggestion that Satoshi was out for profit. Skeptics might call the whole thing the most elaborate Ponzi scheme ever envisioned. Realists might suggest that Satoshi, emotionally traumatized by the recent unceremonious departure of his ...


6

There are no academic papers on Bitcoin market behavior. If Bitcoin or another peer-to-peer currency ever develops a significant closed economy, then it would be a rich source of information on the behavior of markets and economies, as the transaction timing, value and locations (for both the sender and receiver in a transaction) of Bitcoin transactions is ...


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