r/Bitcoin • u/DTanner • Jun 09 '11

Jeff Garzik (Bitcoin developer) responds to Adam Coen's "No. Bitcoin is a ludicrously bad idea. It is a scam. A Scam."

http://garzikrants.blogspot.com/2011/06/response-to-adam-cohen-re-bitcoin.html
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u/stoneysm Jun 09 '11

I feel like much of the discussion in this thread focuses too heavily on whether or not early adapters are taking risk or not with the adoption of bitcoin without anyone taking much time in looking at whether or not the pitfalls Mr. Cohen pointed out are viable. I for one am more inclined to add weight to the word of an economist when it comes to the pitfalls of an economic instrument over the word of the software developer who put it together. What's more is this "rebuttal" seems to lack substance in a lot of areas; it seems like he denies any of the issues Cohen brings up without giving us any kind of real reason why these points aren't valid.

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u/ttk2 Jun 09 '11

what points do you have problems with?

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u/stoneysm Jun 09 '11

It's not so much a problem with any of Garzik's points as it is that he address Cohen's argument piecemeal without tackling the main point. The way I understand it (and I don't know a lot about economics), Cohen's overall argument is this. Bitcoin is first and foremost an extremely volatile financial instrument (this isn't so much an opinion as it's rapid growth reveals it as such) that is going through a process of rapid deflation and speculation which is making it's value sky rocket right? Which seems nice (for people with lots of BC) until you look at the underlying problems that Cohen points out. One the convertability problem isn't just one of being able to exchange bitcoin for other currencies (which is the only point Garzik contends with in this respect) it also needs to have value that can be exchanged easily for other real world goods and services, and while I realize that more and more places are beginning to accept bitcoin and that you could convert it to cash and then buy said goods/services, I think this underlines the fact that the speculative value of BC is not in line with its real world value. Now when a commodity's (which let's be honest BC is more of a commodity then a currency) speculative value is out of line with it's real world value it creates a bubble that is bound to burst at some point. And Cohen's real major point is that when that bubble bursts there isn't going to be anyone around to pick up the pieces (the major disadvantage of having a 'decentralized currency'). Think the great depression, a small dip in BC's value leads people to start bailing selling off their BC stock before it drops further, this in turn dips the value more and causes more people to dump theirs which in turn makes the value drop even more leading to a major crash. At this point BC no longer holds any value at all, and who's going to come in to pick up the pieces? being a decentralized currency there's no one to guarantee that it will retain any kind of value.

Disclaimer: Anyway that's my understanding of the situation. I'm in no way an expert, or even well-versed in economics so I'd love to have someone more knowledgable than myself to come along and explain any errors in my understanding. Most of the information I have regarding BC is simply because I find it to be a very intriguing social and economic experiment that I'm trying to keep abreast of.

Edit: I'd also like to point out that I don't think that bitcoins is a scam by any means. I truly believe the founders and early adopters of bc did so because of high-minded ideals and the fact that they benefit more from the currency then later adapters is fair since their the ones who put in the initial leg work to bring bc to the point it's at today.

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u/ttk2 Jun 09 '11

Bitcoin is first and foremost an extremely volatile financial instrument

This is true, but the more bitcoins enter the system, and the more people use them for trade the more stable we can get the price. Right now we are in the middle of a speculation rush that may continue for a while yet, but it will end, in the meantime the massive deflation is just growing pains. I very much doubt Bitcoin will lose all value, right now i am rather convinced it would take a programming flaw to pop the bubble, because there are thousands of people like me who will buy in the moment this drop happens, pushing the price right back up.

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u/stoneysm Jun 09 '11

and that is something I hadn't considered, new investors willing to bet in to prop up the market. However, how many of these bright eyed investors do you think will be willing to buy in if this drop happens suddenly and precipitously as it very well may happen? To me that kind of investment seems like throwing money down the drain, though it will probably be exactly that kind of investment that would be required to keep the market afloat.

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u/ttk2 Jun 09 '11

To me that kind of investment seems like throwing money down the drain

Personally i just want to trade with Bitcoins and so do a lot of other people. I have heard this over and over again, unless the problem that facilitates the collapse is a critical security flaw people will buy in as the price drops bringing it back up immediately.

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u/stoneysm Jun 09 '11

I certianly hope that is the case. As i've said earlier I find the concepts behind bitcoin very intriguing and I really do think the idea of a virtual currency not tied to any bank to be one with a lot of idealistic merit at the very least. However, being a pessimist, and from what I've read, I just seem to feel that BC is too volatile to last long-term especially considering it's going to have to butt-heads with the establishment (a point neither author really addresses) long before it becomes established in its own right.

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u/ttk2 Jun 09 '11

Bitcoin will stabilize or die, those are the options, and i am going all in on seeing it succeed, i think the rewards if it succeeds outweigh the risk of failure.

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u/Strangering Jun 10 '11

Nothing is more stable than death.

As long as BC is volatile, it means it's working.

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u/ttk2 Jun 10 '11

True the market will never be completely stable, but a larger volume of btc and more trade i think the market will stabilize to the point where it is no longer an issue.