Basically Michel, the value of any commodity is determined by whether people believe it is of value.

The fact that you can buy and sell something establishes a base-line value for it. The value is a balance between how much of the stuff is available, and how much demand there is for it from potential buyers. Economists called it the law of supply and demand.

In the case of bitcoin, we are looking at a commodity (exchangeable electronic "coins") that is scarce - there are only so many coins in existence, and making more of them is a slow, difficult prcess - and for which there is a demand. People are looking around for some kind of means of exchange that can de-link them from the official currencies. Potentially, we have a great demand for bitcoins ... if the idea of using them as a means of payment ever really catches on. Even as it is, there is enough of a demand for bitcoins to "feel their scarcity", and thus, to make them valuable. A price is being set for bitcoins in exchange services. The price is entirely dependent on how badly people want bitcoins, and it seems that the price is on the upswing. 

This is really the same mechanism as with any kind of money. As long as there are people who want to use it to conduct their business (or to put away for future use), and as long as there is a restricted amount of it, money can be said to have value.

The value of any commodity or any kind of money will go up if 1) more people want it or 2) some of it is destroyed or withdrawn from circulation, making it more scarce.

Similarly, the value of any commodity or any kind of money will go down if 1) less people want it or 2) more of it is put into circulation, making it comparatively more abundant.

That is the mechanism that determines the value of money - ANY kind of money.

Sepp
 

On Jan 19, 2011, at 2:19 PM, Michel Bauwens wrote:

there are still basic aspects of bitcoin I don't understand

how can a self-invented coin have any value at all,

who determines that value?

what makes people accept that it has the value it says

which bank is willing to give me other types of money in exchange for that value?

On Mon, Jan 17, 2011 at 8:04 PM, Samuel Rose <samuel.rose@gmail.com> wrote:
On Mon, Jan 17, 2011 at 5:40 AM, Sepp Hasslberger <sepp@lastrega.com> wrote:
> Although I have misgivings about the stability of bitcoin, I support its
> use. (It's the only thing out there that is completely de-linked from
> official currencies and from things like precious metals, that is workable
> for more than just local exchange).
> To explain my perplexity on bitcoin stability, I quote from the site
> cyclonite linked:
> "How much is a Bitcoin worth?
>
> More all the time...
>
> As you can see, over a 4 week period, recently...
>
> The value of  ฿1.00 BTC (one Bitcoin), went from  US$0.06  to
>  US$0.50  ...within only about 4 weeks.   Yes...   That was an 833% increase
> in it's value.   Wow."
> (http://www.bitcoinme.com/)
> For me, a currency that is to be widely used, should be stable. Stable means
> it doesn't go down in value, but it also doesn't go up in value excessively.
> It should be roughly keeping its value. Going up as much as bitcoin
> evidently does, is a form of instability that will bring disturbance to a
> marketplace using bitcoin as its means of exchange.

bitcoin does seem to have stabilized after that initial jump. I think
the initial jump was due to the network effect of how fast the current
group of adopters jumped on board and started using bitcoin.

Still, this is a of course a valid point. Although, the value increase
seems to have been mostly beneficial to the early adopters. But, I
could see how if the system stabilized, then a new wave of adopters
jumped on board, it could suddenly become very unbalanced for the
initial participants if various scenarios unfold.

Although, I am not sure *if* the bitcoin system would automatically
inflate in an exponential way each time a new wave of participants
joins the system.

One real potential problem is making sure that "honest nodes" control
the majority of CPU power. So far, so good. It won't be easy for
anyone to spoof this system. But, if a group of people wants to
intentionally attack the system, there could be problems. Bitcoin is a
good candidate for complex systems models as a means to put more
foresight into stability, health, etc

> This instability could and should be remedied by adjusting the target total
> of bitcoin creation with an algorithm that takes into account the number of
> active bitcoin users. As the number of users increases, the total target
> amount of bitcoins to be created (which currently is fixed at 21,000,000)
> should increase, slowly creeping up to accomodate the demand of new users
> for bitcoins, in a way to keep the value of one single coin roughly stable.
> I do not know whether the creators of bitcoin would be willing to do this.
> For me, such an adjustment will be necessary to take bitcoin from
> experimental status to widely-used alternative means of payment status.

Sepp, this is a great point.

One of the nice things about bitcoin is that it is F/LOSS, so it is
ultimately fork-able. If bad decisions are made about the growth, the
project could be forked, a different governance scheme could be
implemented, etc.

I don't yet know enough about bitcoin to be 100% sure, but the system
at least for the time being does seem to have stabilized (it could
simply mean that participation has stabilized).

Bit coin claims:

"Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees
and be completely inflation
free."

And yes Michel, I will post this on the blog and in wiki :)


> Kind regards
> Sepp
>
>
>
>
> On Jan 17, 2011, at 4:44 AM, Samuel Rose wrote:
>
> Cyclonite, personally I am ready to work with bitcoin today, although
> the rest of p2pf may not be, which I'll respect
>
> On Sun, Jan 16, 2011 at 5:17 PM, Cyclonite <cyclonite@safe-mail.net> wrote:
>
> Hi Guys,
>
> I think there is some kind of misunderstanding here, you do not need to
> manually generate any kind of public/private keys as with OpenPGP.
>
> You can even sign up in a website as mybitcoin.com and start making or
> receiving donations.
>
> In my opinion the best available info for beginners is http://bitcoinme.com.
> Please take a look and you will get your doubts clear.
>
> Best regards,
>
> Cyclonite.
>
> --
>
> Secure Email contact: https://privacybox.de/cyclonite.msg
>
> Bitcoin donations jar: 16FVZweaaJLvhAy91oDugqaf84kXiDJ9PG
>
>
>
> -------- Original Message --------
>
> From: Samuel Rose <samuel.rose@gmail.com>
>
> To: james burke <lifesized@gmail.com>
>
> Cc: Michel Bauwens <michelsub2004@gmail.com>, cyclonite@safe-mail.net,
> p2p-foundation <p2p-foundation@lists.ourproject.org>, Sepp Hasslberger
> <sepp@lastrega.com>, Georg Pleger <g.pleger@yahoo.de>
>
> Subject: Re: Bitcoin donation
>
> Date: Sat, 15 Jan 2011 09:30:23 -0500
>
> On Sat, Jan 15, 2011 at 5:54 AM, james burke <lifesized@gmail.com> wrote:
>
> Hi Michel,
>
> Yes, I do have a public key, but yet again,
>
> another nice idea with terrible interaction design and userbility
>
> - most people have no clue about public private keys, so this keeps it a
>
> geek thing
>
> I agree, although as far as I can see, the application at least takes
>
> care of this for the user. Still, your point is valid in that some
>
> people may not understand what is happening.
>
>
> Most of the users of bitcoin now are early adopters, however. So, if
>
> p2pf did support donation via bitcoin, it would be joining an ecology
>
> of early adopters, and would likely only receive donation from those
>
> early adopters.
>
> - the actual app upon launch is unclear. Where to click, what to do,gah!
>
> I can't really support this even if it is a p2p solution.
>
> James
>
>
> Seems reasonable. If p2pf changes it's mind, I'm willing to
>
> participate in any experiments with bitcoin
>
>
> On Sat, Jan 15, 2011 at 5:57 AM, Michel Bauwens <michelsub2004@gmail.com>
>
> wrote:
>
> James,
>
> do you have a public key?
>
> Michel
>
> On Sat, Jan 15, 2011 at 11:20 AM, Samuel Rose <samuel.rose@gmail.com>
>
> wrote:
>
> This is a p2p application, so we would need to post your's or James's
>
> public key, and people who want to donate bitcoins would need then
>
> send you the bitcoins by downloading the bitcoin application and
>
> sending it to you
>
> quote:
>
> "Bitcoin utilizes public/private key digital signatures (ECDSA). A
>
> coin has its owner's public key on it. When a coin is transferred from
>
> user A to user B, A adds B’s public key to the coin and signs it with
>
> his own private key. Now B owns the coin and can transfer it further.
>
> To prevent A from transferring the already used coin to another user
>
> C, a public list of all the previous transactions is collectively
>
> maintained by the network of Bitcoin nodes, and before each
>
> transaction the coin’s unusedness will be checked."
>
>
>
> On Fri, Jan 14, 2011 at 11:17 PM, Michel Bauwens
>
> <michelsub2004@gmail.com> wrote:
>
> Sam, can you help us install it on the wiki and blog?
>
> On Sat, Jan 15, 2011 at 11:16 AM, Samuel Rose <samuel.rose@gmail.com>
>
> wrote:
>
> I've downloaded and installed and am game to try with p2pf network
>
> folks.
>
> This could actually be really useful for lots of local economy efforts
>
> too.
>
>
>
> On Fri, Jan 14, 2011 at 5:32 AM, Michel Bauwens
>
> <michelsub2004@gmail.com>
>
> wrote:
>
> Dear,
>
> thanks a lot for this email,
>
> it seems that it is worthwhile for us to experiment with this, but I
>
> will
>
> forward this to James Burke for possible implementation
>
> James, I think we should do this, what do  you think?
>
> Michel
>
> On Thu, Jan 13, 2011 at 11:42 PM, <cyclonite@safe-mail.net> wrote:
>
> -----BEGIN PGP SIGNED MESSAGE-----
>
> Hash: SHA1
>
> Dear friends,
>
> I have been looking in your site for any reference to Bitcoin for
>
> making a
>
> small donation.
>
> As  you  probably  know,  Bitcoin  (bitcoin.org)  is  a  new kind
>
> of a
>
> P2P
>
> crypto-currency in which the general public can  make donations,
>
> macro
>
>  or
>
> micropayments   in  a  secure  and   anonymous  way  usually
>
>  without
>
>  any
>
> transaction fee involved.
>
> You can change Bitcoins for real money (eg: https://mtgox.com) or
>
> purchase
>
> services or goods in an increasing number of sites.
>
> In  order to  receive  donations you  only have  to  publish  one
>
>  of
>
> your
>
> accounts  as generated  by the  bitcoin client  or any specialized
>
> bitcoin
>
> trader (eg: mybitcoin.com).
>
> Currently  some   projects  as  www.i2p2.de,
>
>  www.torrentservers.net
>
> and
>
> organizations like the EFF are accepting donations.
>
> In  my  opinion  this  kind  of decentralized solution without the
>
> need
>
> to
>
> trust  any  middlemen  is much better than  Paypal, Visa or
>
> Mastercard
>
> for
>
> security-minded people as most of your donors are.
>
> If  you  are  interested in  pushing  Bitcoin forward,  do not
>
> hesitate
>
> to
>
> contact me if you have any doubt.
>
> Yours,
>
> Cyclonite
>
>



--
--
Sam Rose
Future Forward Institute and Forward Foundation
Tel:+1(517) 639-1552
Cel: +1-(517)-974-6451
skype: samuelrose
email: samuel.rose@gmail.com
http://forwardfound.org
http://futureforwardinstitute.org
http://hollymeadcapital.com
http://p2pfoundation.net
http://socialmediaclassroom.com

"The universe is not required to be in perfect harmony with human
ambition." - Carl Sagan



--
P2P Foundation: http://p2pfoundation.net  - http://blog.p2pfoundation.net

Connect: http://p2pfoundation.ning.com; Discuss: http://listcultures.org/mailman/listinfo/p2presearch_listcultures.org

Updates: http://del.icio.us/mbauwens; http://friendfeed.com/mbauwens; http://twitter.com/mbauwens; http://www.facebook.com/mbauwens

Think tank: http://www.asianforesightinstitute.org/index.php/eng/The-AFI