3600 bitcoins daily * $1200 = $4.32 mio. Electricity costs around $11 mio.Means that someone is losing money fast, and I don't buy into the theory that costs drive prices...

The total supply of bitcoins is capped at 21 million or something, right? What if someone comes along with equal credibility, with some item whose supply he promises to cap at 20 million? My hard drive might only ever hold 20,000 songs. Maybe I could issue "farmer's hard drive song certificates."The key with bitcoins is the mining. Some scammers were arrested the other week in Miami. They place radio ads that said the first person who calls in with the answer to a simple trivia question gets a free ticket to Disney World or something. So people would call up and say "the first Beatle to die" was John Lennon, or something. The scammers would say you won, you have to pay a tax and a fee first, and then you will get your free item. So the people paid.You see banner ads like this all over the Internet. What celebrity's legs are in this picture? Who is the world's most famous mouse? People who answer some stupid question, find it highly plausible when they are told they now have obtained something valuable like a free ipad. But nobody would believe a banner ad that just said here, take a free ipad.If they just handed out the bitcoins, and said there are only 21 million like this, nobody would imagine they had any value. If their supply is truly capped, then it must reach a point where the "mining" is a distant memory. At this point, people will wonder what sort of collectible this is which there are millions of, and millions like.

I found the news story:QuoteA couple of weeks ago, 21-year-old Juan Rivera was listening to his favorite station, New York's 97.9 La Mega, when an excited voice announced a contest: "Answer this trivia question first, and you'll win a four-day trip to Orlando!"Rivera was engaged to marry in July and on the hunt for a honeymoon spot, so he perked up. "What animal that is not a bird lays eggs?" the announcer asked. Rivera grabbed his phone, dialed an 800 number, and blurted out, "Snakes!"He was headed to Disney World, an excited phone operator told him. All he had to do was pay a few hundred dollars in taxes. Not until weeks passed and the tickets never arrived did Rivera realize the truth: "I've been scammed."He's not alone. Hundreds of other Spanish-language radio and TV fans across the nation were suckered by the faux-trivia contests. Prosecutors last week sued the two Doral-based companies they say are responsible: All Dream Vacations and VGC Corporation.More than 400 victims lost hundreds of dollars each in the scam, says Jennifer Davis, a spokeswoman for Florida Attorney General Pam Bondi, who, along with the Federal Trade Commission, sued the firms.This trick for creating perceived value is so widespread on the Internet, Google's stock price fluctuates with the degree to which they permit ads which even remotely resemble it. I began mentioning this gig three years ago.QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: farmerI know a guy who makes millions telling people they have won something. All the people closest to him are a wreck, because he is constantly talking them up and letting them down. But here is something interesting: He had been using an ad on Google that asks people to answer a simple question. You have seen this type of ad: what celebrity is this, who is the most famous cartoon mouse, who is the President of the United States, whatever. When people click the answer, you tell them they have won something. The people will then empty their bank accounts or do whatever you tell them on the trail of collecting the prize.When you take out this critical step of having them answer a question, the ad stops working, and so he has to advertise elsewhere. I find it interesting that his entire interpersonal style is succinctly summarized by this simple banner ad.Actually, he's not making money by "telling people they have won something" but by "convincing people they have earned something."Create a sense of entitlement and people will do all kinds of crazy stuff ("on principle!") to get what they think they deserve.

I doubt a bitcoin-based financial system would be any better than a government run fiat system.The use of bitcoins would not eliminate the ability of central bankers or politicians to influence the amount of money supply sloshing around the economy. Although the bitcoin process fixes the quantity of bitcoins (essentially the M0 money supply), it does not prevent the creation of bitcoin-like money-equivalents (M1, M2, etc, money supply). If a country (or depositors) allow banks to to lend their deposits (i.e., they permit fractional reserve banking), then the amount of money and money-like instruments in the system can be: 1) much higher than the number of bitcoins and 2) be extremely sensitive to central bank intervention via changes in reserve ratios. Depending on the reserve ratio, the money supply might be 5 to 30 times larger than the bitcoin supply and fluctuate on the whims of governments even as BTC supplies remain stable.Nor do bitcoins prevent bank bailouts. Whether bank deposits are denominated in USD or BTC, banking system regulators and politicians can promulgate government-backed deposit insurance schemes and a de jure bailout backstop to that banking system. Moral hazard arises from the promises different groups make to each other and those promises are currency agnostic.If anything Bitcoin's ability to support anonymous transactions would probably create a less transparent financial system and thus less-stable financial system.

QuoteOriginally posted by: Traden4AlphaI doubt a bitcoin-based financial system would be any better than a government run fiat system. The use of bitcoins would not eliminate the ability of central bankers or politicians to influence the amount of money supply sloshing around the economy. Although the bitcoin process fixes the quantity of bitcoins (essentially the M0 money supply), it does not prevent the creation of bitcoin-like money-equivalents (M1, M2, etc, money supply). If a country (or depositors) allow banks to to lend their deposits (i.e., they permit fractional reserve banking), then the amount of money and money-like instruments in the system can be: 1) much higher than the number of bitcoins and 2) be extremely sensitive to central bank intervention via changes in reserve ratios. Depending on the reserve ratio, the money supply might be 5 to 30 times larger than the bitcoin supply and fluctuate on the whims of governments even as BTC supplies remain stable.[/q/]Valid points. Thank you.QuoteOriginally posted by: Traden4AlphaNor do bitcoins prevent bank bailouts. Whether bank deposits are denominated in USD or BTC, banking system regulators and politicians can promulgate government-backed deposit insurance schemes and a de jure bailout backstop to that banking system. Moral hazard arises from the promises different groups make to each other and those promises are currency agnostic.But it would mean that any bailouts would have to be properly funded via government borrowing and eventually tax collection, rather than through base money creation. In the absence of any possibility of inflating away the debt problem, would this not give greater assurance that the real purchasing power value of your bitcoin is likely to maintained over time? This seems like the ultimate currency board, with the order of increasing credibility of different regimes being; 1) pegging to a hard currency (peg can change), 2) dollarization (reversable), 3) bitcoinization.QuoteOriginally posted by: Traden4AlphaIf anything Bitcoin's ability to support anonymous transactions would probably create a less transparent financial system and thus less-stable financial system.Cash also provides anonymous transactions. Because bitcoin is electronic, perhaps there is potentially scope for some system of verifyable account registration, though admittedly this would then be bitcoin without anonymity.

It would be interesting if bitcoin futures popped up... I'd be very curious to see how the time structure of this thing will evolve.

What is bitcoins revenue model? The Fed has such economies of scale, it is totally cost-justified to deliver endless speeches convincing people of the precise scarcity of dollars. But doing things to describe and illustrate the scarcity of bitcoins is not free. Especially after the tangible sense/proof of scarcity arising from the mining becomes uncommon. And in the face of many collectibles that are more similar to bitcoins than any country is to the USA. How will they cover the costs of convincing people of the scarcity, fighting rumors of non-scarcity, and so on, on a daily basis?All it takes is one monstrous self-perpetuating washout, and bitcoins will be done. This can even be triggered by a washout in a substantially similar collectible. They cannot raise interest rates like the Fed, because all bitcoins are not ultimately owed back to bitcoin central, under penalty of civil law. Nobody will have his property confiscated, if he does not obtain bitcoins to pay a debt.As more bitcoins are offered as currency for transactions relative to by mining, and by shadier characters, people might feel less assured of their scarcity. Inflation expectations emerge naturally even in currencies run by scarce national central banks. What is to stop people developing the theory they can sell their bitcoins for something else, and buy them back cheaper tomorrow?

QuoteOriginally posted by: yugmorf2QuoteOriginally posted by: Traden4AlphaI doubt a bitcoin-based financial system would be any better than a government run fiat system. The use of bitcoins would not eliminate the ability of central bankers or politicians to influence the amount of money supply sloshing around the economy. Although the bitcoin process fixes the quantity of bitcoins (essentially the M0 money supply), it does not prevent the creation of bitcoin-like money-equivalents (M1, M2, etc, money supply). If a country (or depositors) allow banks to to lend their deposits (i.e., they permit fractional reserve banking), then the amount of money and money-like instruments in the system can be: 1) much higher than the number of bitcoins and 2) be extremely sensitive to central bank intervention via changes in reserve ratios. Depending on the reserve ratio, the money supply might be 5 to 30 times larger than the bitcoin supply and fluctuate on the whims of governments even as BTC supplies remain stable.Valid points. Thank you.QuoteOriginally posted by: Traden4AlphaNor do bitcoins prevent bank bailouts. Whether bank deposits are denominated in USD or BTC, banking system regulators and politicians can promulgate government-backed deposit insurance schemes and a de jure bailout backstop to that banking system. Moral hazard arises from the promises different groups make to each other and those promises are currency agnostic.But it would mean that any bailouts would have to be properly funded via government borrowing and eventually tax collection, rather than through base money creation. In the absence of any possibility of inflating away the debt problem, would this not give greater assurance that the real purchasing power value of your bitcoin is likely to maintained over time? This seems like the ultimate currency board, with the order of increasing credibility of different regimes being; 1) pegging to a hard currency (peg can change), 2) dollarization (reversable), 3) bitcoinization.Excellent point. You are right that with bitcoins, the central bank can't simply print money so M0 is fixed by the bitcoin mining protocol. But a government can still flood the market with money-like instruments in the form of notes and bills linked to government debt (i.e., a future payments involving the pool of bitcoins) or bearer certificates (not unlike paper currency notes promising certain amounts of gold or silver). To the extent that banks and large entities trust the government, they will use these instruments in everyday transactions and the higher levels of the money supply (e.g., M1, M2, etc.) will dominate the economy. Although governments cannot print bitcoins, they can print these certificates, notes, bills, etc.The larger issue it that amount of money available for near-term purchases (including money "created" by personal, corporate, and sovereign debt) can be much much higher than the amount of bitcoins in circulation. Thus, goods prices (and wage rates) can inflate due to the flood of debt-created money that just happens to be denominated in bitcoins. Although the bitcoins themselves might be trustworthy, most people will find that their "money" is actually linked to other money-like instruments rather than backed 1:1 with actual bitcoins. In a fractional reserve banking system, the total amount of "cash" in checking accounts and savings accounts could be much larger than the total number of bitcoins.QuoteOriginally posted by: yugmorf2QuoteOriginally posted by: Traden4AlphaIf anything Bitcoin's ability to support anonymous transactions would probably create a less transparent financial system and thus less-stable financial system.Cash also provides anonymous transactions. Because bitcoin is electronic, perhaps there is potentially scope for some system of verifyable account registration, though admittedly this would then be bitcoin without anonymity.Indeed! It's not that hard for governments to mandate non-anonymity using banking regulations (e.g., all transactions >X get reported) and tax code regulations (e.g., you can't deduct a large business expense without having first notified the government of the transaction). And if one is caught with too large a cache of bitcoins, then the government might well confiscate them on the presumption they are linked to illegal activities (yes, this does happen right now in the case of paper currency).

I don't think there is anything that will cure the cycle of volatility, and reduced value resulting from volatility, at this point.

QuoteOriginally posted by: farmerI don't think there is anything that will cure the cycle of volatility, and reduced value resulting from volatility, at this point.What will cure volatility is when more people post near-static prices in bitcoins a great many different goods. If I know I can buy a motorcycle for 4 BTC, a hamburger for 0.004 BTC, a gallon of gas for 0.003 BTC, any day of the week, then the exchange rate between BTC and USD becomes less important. That said, as long as the volatility is there, no one will post static prices denominated in BTC.

QuoteOriginally posted by: Traden4AlphaIf I know I can buy a motorcycle for 4 BTC, a hamburger for 0.004 BTC, a gallon of gas for 0.003 BTC, any day of the week, then the exchange rate between BTC and USD becomes less important.Maduro in Venezuela is thinking something like that.I skimmed part of the wikipedia entry on bitcoins, and supposedly it is based on some paper. I can guess the paper was based on security or programming or something, not on price stability.

I would like to diversify some money somewhere, even if only a few dollars. So I can look at bitcoins rationally, as an easy-to-store alternative to collectible wine, or old paintings or something. I would be just too scared of the uncertainty of the future value of my bitcoins. There is a very real possibility of a 75% or 100% loss.So this leaves bitcoins' main value (I am guessing, since I don't know much about them) as a medium of exchange for people who wish to engage in some sort of black-market transactions. In other words, nobody wants to hold bitcoins, or bitcoin-denominated debts or contracts or anything. If this is true, then the main value of bitcoins might find itself under heavy attack from all governments.

OK, I understand that MtGox is dead. But it seems they have made mistakes which others are not doing. Can somebody tell me where are safe and large exchanges for trading in Bitcoins left. Where has all the mtGox flow gone to?Thank you.

Fortress Investment Group reports a USD3.7 million loss on Bitcoin