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Bitcoin Releases Version 0.3
Teppy writes "How's this for a disruptive technology? Bitcoin is a peer-to-peer, network-based digital currency with no central bank, and no transaction fees. Using a proof-of-work concept, nodes burn CPU cycles searching for bundles of coins, broadcasting their findings to the network. Analysis of energy usage indicates that the market value of Bitcoins is already above the value of the energy needed to generate them, indicating healthy demand. The community is hopeful the currency will remain outside the reach of any government." Here are the FAQ, a paper describing Bitcoin in more technical detail (PDF), and the Wikipedia article. Note: a commercial service called BitCoin Ltd., in pre-alpha at bitcoin.com, bears no relation to the open source digital currency.
As someone pointed out, this article is light enough on source material that it may count as more of a slashvertizement. That said, if Bitcoin, or any micropayment and/or e-cash plan scales beyond a certain level, it's gonna attract both criminals and government interest and intervention, much as age-old Islamic halawa got a lot more notice when used by gangs like Al-Qaeda.
Luke, help me take this mask off
Could we just get a random reddit submitter instead? Please?
Often wrong but never in doubt.
I am Jack9.
Everyone knows me.
Given that the gold standard is gone, I'd like to see those guarantees too. Your paper money is virtual as well.
Shhhh...you'll disrupt their feelings of self-righteousness!
Monstar L
So this system requires CPUs to burn scarce, real electricity in order to generate virtual electronic tokens whose only purpose is to simulate the scarcity of rare metals, so that we can continue to use the old 'exchange value' economic model in the realm of information where by definition, it does not apply.
This seems like basing an economy on burning one's food crops to prove wealth and using the ash to buy things. I'm sure it would 'work', for some definition of work, but it doesn't seem particularly... efficient. Or sensible. Granted, humans do indulge in self-destructive behaviour, but do we really have to port all our bad habits into the digital world?
Is there some actual upside to this system which I'm not getting?
You are not a brain: http://books.google.com/books?id=2oV61CeDx-YC
In practice the quantity of gold/silver/etc available is not fixed.
Tomorrow someone builds better mining equipment and suddenly there's 5 times as much available.
A ship loaded with a significant quantity sinks over the mid atlantic trench?
well in practice it has gone beyond where humans can practically access it and so might as well no longer exist.
Alternatively someone might build some kind of Von Neumann machine which can extract your precious metal from seawater or mine asteroids and suddenly the value of your precious metal would drop close to zero.
Whenever someone invents a cheaper way to mine gold you're going to experience price inflation as the gold in your safe becomes less valuable.
gold is only special to people who delude themselves that it's somehow special.
Food, clean water, tools, feminine hygiene products, useful information.
If you're convinced fiat currencies are going to collapse these are what you should be filling your underground bunker with, not some shiny metal which will only be worth anything if people believe it has any intrinsic value.
Tying fiscal policy to the amount of shiny stuff we can dig out of the ground is far sillier.
If the amount is fixed, then as the economy expands the available value per coin increases and prices drop: instant, guaranteed deflation, getting worse as the rate of value growth increases. If you want to sell something new into a stable economy, everyone else has to drop their prices to make room for you.
Fiat currency may require us to appoint agents to keep the money supply and the value supply roughly in sync, but at least it provides the mechanism to do it. With the ooooh-pritty-shiny-stuff system, so appealing to people who can't think when there's pritty shiny stuff in sight, money and value are absolutely guaranteed to get out of sync, badly. very fast, with no remedy at all. Unless of course the economy is totally stagnant, with no new wealth being created. Yeah, that's what we want.
As always, all IMO. Insert "I think" everywhere grammatically possible.
Good luck with that...
If there is a hard limit to the total amount of currency that can exist, then what you have is a situation where the currency will not scale with the economy. That means deflation and there's no faster way to kill an economy than that.
To me it seems like the people who created it are the same kind of gold standard 'tards who cry on and on about inflation without understanding it. They see inflation as "eating up your savings" (which is doesn't so long as you put them in an interest bearing account) and thus think deflation would just be great. I mean you have more buying power for doing nothing! Wonderful!
Except it badly fucks over an economy. For one, it simply drives down spending. If you can get something for a dollar today, or two of that something for a dollar next week, it makes sense to wait as long as you can. Non-essential purchases are discouraged since the longer you wait, the more your money gets you. While that sounds like it encourages savings what it really does is screw over trade. Money only works if people spend it. People can have as much money as you want if nobody spends it it is worthless, regardless of the form it takes.
Then there's loans. The ability to make and receive loans goes to hell in a situation of continual deflation. Unless the loan is extremely short term, it won't work. Take a house loan. This is doable because even with minimal to no inflation, you know you can afford it. You know your cost will not go up in percentage terms. However with deflation? No such luck. In a situation of continual deflation, the amount of money you receive for work will go down with time. As such the payments on a loan will be a larger and larger part of income, growing until you can't afford them. To make it work, the loan would have to be offered with a negative interest. But nobody will do that, they'd simply not loan out their money instead as that is a higher rate of return and is guaranteed. Currently people will make loans because the risk of the loan is balanced against having a positive return.
I could go on, but deflation is an extremely bad thing in the long run, and with a fix currency supply you have guaranteed it. Sounds like your project needs less gold standard survivalist geeks and more economists. Tell you what, run your idea by Dr. Gerry Swanson, you get him to sign off on it, maybe I'll reexamine it. As it stands now it sounds like an extremely bad idea just from an economics standpoint, never mind any technical arguments.
Most people don't understand economics other than having the largest pile of money compared to their neighbors (or complaining that their neighbor has a bigger pile than they do). Wealth creation isn't generating the money itself, but rather what you can do with that money in order to get others to do things for you. If you don't understand that distinction, then it is a hopeless cause at trying to understand economics at its most basic form.
Wealth is ultimately the blood, sweat, and tears of somebody working their behind off to make something, and all of the rest of money flows from that effort. There may be physical materials involved along the way, but you are paying either directly or indirectly for somebody to extract those materials, to shape it and mold it or do something with it. The currency then becomes a more or less averaged value of whatever it is that you are doing compared to what everybody else is doing. Yes, governments can get in the way via taxes and subsidies to screw the system up and give incentives and disincentives for certain kinds of activities... and to suck up some of that wealth by the "rulers" of that society in exchange for hopefully some civil tranquility, but it all ends up being an exchange of goods (made with labor) or services (simply paying for somebody's time more directly).
It really makes no difference in the long run between a fiat currency and a commodity currency anyway. Both require acts of faith, and the medium is relatively neutral in terms of whatever it is that you are trying to obtain above and beyond the pile of money in the first place. Even gold requires faith that somebody will accept it in the future, and it has the additional problems of extreme weight and being useful only for major transactions (due to its high intrinsic value). Any concentration of gold also requires couriers and potentially body guards and other sorts of security that end up simply costing more money than it is worth. It is also placing faith that the gold won't be devalued at some point in the future.
If, for example, somebody discovers a gold nugget on an asteroid that is the size of a house and can relatively cheaply bring it to the Earth, it would cause the gold markets to crash real hard. Gold would still have some value afterward, but it wouldn't be pretty for those who have invested large amounts of their labor into gold.