For example:
Let’s say you want to buy a car for 1 bitcoin.
Last week a bitcoin was worth about $6600
Today it’s work only $6200 and changes every 15 seconds.
Could a currency this volatile work in real life situations?
Well, the world already has multiple major currencies, all of which are perceived as sufficiently reliable stores of value, yet which do still move a remarkable amount relative to one another. Since the turn of the century the EUR/USD exchange rate has gone from about 0.80 to 1.60 and back down to 1.05. It’s quite weird when you think about it - the entire value of Europe doubled in $ terms in a few years before collapsing again. Okay, that’s not quite true, because the value of multinational businesses in local currency terms is inversely correlated to the exchange rate; but it’s pretty much true for all other assets.
So you are completely correct that it’s desirable to have a stable and reliable store of value as the basis for your economy in order to foster confidence and growth. But we do seem to accommodate some pretty wild swings among major currencies under the current system.
With bitcoin, of course, the volatility is orders of magnitude greater, since nobody really take the idea that it’s a reliable store of value seriously. It trades more like tulips in the seventeenth century. And no, it cannot possibly be the basis for anything unless that changes.
In general they would price the car in dollars, even if they accept payment in bitcoin. So they priced it at $6600 last week. Today you go to pay and it is $6600/$6200 = 1.0645 bitcoins you need to pay.
Right. And the same would be true if you asked if you could pay for the car in tulips. If the dealer says - sure I’ll accommodate you, but I need to end up with $20,000, because I care about dollars not tulips. So we’ll check the tulip market, find out how many tulips are worth $20,000 today, and that’s how many tulips you will have to give me for the car. Then the transaction is not really taking place in tulips, is it?
Bitcoin would only become a meaningful medium of exchange if some significant portion of transactions in the economy were based in it. Only if a car dealer were paying its bills and expenses for stable amounts of bitcoin would it be inclined to set fixed bitcoin prices for his cars.
The vision for bitcoin taking over as the global medium of exchange is presumably that existing fiat currencies become debased through inflation. Look at what is happening somewhere like Venezuela at the moment. With the Bolivar debased by hyperinflation, a lot of business is no doubt already being conducted with prices specified in USD instead. If the US went the way of Venezuela, in a similar way some stable medium of exchange would be required as the basis for rebooting the economy. A more traditional notion in such an apocalyptic scenario would be a return to the gold standard. Just as people in Venezuela today have more confidence in the USD than the solvency of their nation, I think bitcoin fantasists imagine a future where we’ll all have more confidence in the value of a bitcoin than the solvency of the United States.
In practice, you take payment in the currency you set the price with and don’t give a fuck what the customer needs to convert on their end to pay the bill. The customer is the one to convert the currency, usually through their bank.
When I worked for import companies, we had various strategies to handle the swings in currencies since we were paying in dollars, Pounds, Marks and later Euros.
Or if a significant percentage of its customers paid in that. Not terrible likely for now.
You can use bitcoins with the online retailer NewEgg.
Basically how it works is when you get to the checkout screen NewEgg calculates the amount of BTC needed at the current rate and sets that for the transaction amount. You approve it when you scan their transaction code with your wallet app.
Isn’t there an issue with speed when making bitcoin transactions? People behind you in line at the grocery store are not going to be happy waiting for the data miners to check that you really can buy that box of donuts.
Not really. The transaction can be immediately approved even thought it may take a while to actually be integrated into the chain.
True.
I’ve got a bitcoin miner running on a spare computer. When I initiate a payout, it appears in my Coinbase account within a minute. (I’m rich… I can afford a Starbucks coffee now!!)
And agreeing with what everyone else says: if you’re selling something for bitcoin, you don’t care how many dollars that is - it’s the buyer’s responsibility to turn enough dollars / rubles / rupees / lire into the needed number of bitcoins.
Really? If you’re selling a house and you put it under contract for 1000 bitcoins, you don’t care if Bitcoin loses 20% against your local fiat currency in a month?
As a seller, if your expenses aren’t mostly denominated in Bitcoin, then you very much care about the exchange rate governing the inputs you buy to make money.
At least one of us is misinterpreting that statement. I read it as meaning that nobody is actually selling things in bitcoins, because nobody is doing that.
As Chronos said, I think Mama is agreeing with you. She’s saying if you were really selling something for bitcoin, you wouldn’t care how many dollars it equated to. Implying that currently, there are no true bitcoin-denominated transactions, because everyone does care about the dollar equivalent.
In other words, the same thing as you’re saying: current pseudo-bitcoin transactions are not really denominated in bitcoin, the economy isn’t really pricing any goods and services for fixed amounts of bitcoin, except as an occasional gimmick.
Can you explain that distinction? When currency changes hands, what distinguishes a “really” motivated transaction versus (I guess) an “unreal” one?
Doesn’t have to be currency.
Say you have 10 heads of lettuce, and I’m willing to trade you 2 of my chickens for them.
Does it really matter if the chickens can be sold at the farmer’s market for $10 today and $5 tomorrow?
If you are actually interested in the chickens for themselves, it doesn’t matter how much the chickens can be sold for. If you are actually interested in dollars but willing to take chickens, you may have a problem.
Now, substitute bitcoins for chickens in the above example and that’s the point. Somebody interested in the bitcoins themselves, rather than how many dollars they can be traded for may not care about the fluctuations.
But who, besides speculators in bitcoin, really wants bitcoin?
Well, pretty much the entire point of money is that it allows an economy to function far more efficiently than barter, because the currency is widely recognized as a stable measure of value. Everything in our economy has a fairly stable price in $, making it easy to value and compare things. If one guy quoted you the price of a car in chickens, and another guy in apples, things would be much more complicated and inefficient.
Not every economy in the world uses the same currency, but every stable economy only uses one currency.
If I’m doing business in the U.S., I’m going to be running my business in , with salaries and expenses stable amounts. So I obviously I price the goods that I sell at stable prices to generate a consistent profit margin. If somebody comes along and wants to pay in bitcoin, practically speaking they are offering a barter transaction, no different from offering to pay in chickens. I might facilitate them, but only on the basis of the market price at which I can immediately sell the chickens or bitcoin they give me for . If the value of bitcoin is volatile relative to the $, I’m not going to offer stable prices in bitcoin. Although the transaction nominally might take place in bitcoin, no part of the economy is really functioning in bitcoin, any more than it would be functioning in chickens if someone offered to barter chickens for my product.
The economy in Europe really does operates in a different currency, of course. All transactions there are denominated at stable prices in Euros. So we’ll see that effect if we do business internationally. If we want to import something from Europe, the price in will go up and down substantially if the exchange rate moves. If the Euro rises 10% vs the , European products get 10% more expensive in $ terms.
But there is no equivalent place or part of any economy where transactions are really happening at stable bitcoin prices. If the value of bitcoin drops 25% relative to the dollar, there is no product or service anywhere on earth that remains at the same bitcoin price, i.e. that gets 25% cheaper in dollar terms.
If you’re arguing that the price of Bitcoin would be stable if there were a nation-sized economy of Bitcoin users, then yes, that seems reasonable and obvious.
I could be wrong but I seem to hear multiple people suggesting a hypothetical where people don’t care about bitcoin fluctuations because they just want bitcoin in and of itself. Nobody wants currency itself for anything other than the conversion value for goods and services (unless the actual instruments have some value as a collectible).
6600 to 6200 is a change of about 6% in one day. There are certainly foreign currencies that have had moves like that, and no doubt some people in those countries (e.g. importers) are buying items from the United States.
What businesses do in “real life situations” is try to hedge their currency risk, for example by locking in a rate in advance with an FX futures or option contract. I don’t think we’re at the point where there is a mature bitcoin futures/options market yet, though.
Sure, but there are people willing to accept extreme short (for some given values of “extreme” and “short”) term variability in bitcoin prices because of some belief they have in bitcoin stability and/or value over the longer term.
Clearly you don’t. And I don’t (I have never owned any bitcoin and probably never will). But that’s a different idea from the one that everybody has to think that way.
Right - which is why, as a seller, I would NOT list the place for sale in Bitcoin; I’d list it in the local fiat currency.
Until Bitcoin is more stable, it will not be a useful tool for any kind of legitimate commerce.