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The Bitcoin Strikes Back
smitty777 writes "Slashdot readers are no doubt informed of the infamous crash of Bitcoin. In fact, its demise was followed closely here. Wired has a recent article tracking Bitcoin's climb out of chaos. Valued at $17 before the crash, it had lost 90% of its value due to the hacking incident, down to a low of $2. It climbed back up to $3 in December, and is currently valued at $4. From the article: 'Bitcoin boosters have traditionally suggested that Bitcoin is an alternative to [the world's] currencies. But we'll suggest an alternative explanation: that Bitcoin is not so much an alternative currency as a "metacurrency" that allows low-cost and regulation-free transfer of wealth between nations. In other words, Bitcoin's major competitors aren't national currencies, but wire-transfer services like Western Union.' Still, Bitcoin has significant obstacles to overcome, such as covert mining, criminal uses, and other security issues."
Amir Taaki of the Bitcoin Consultancy (who did an interview here a while back) disputes the reasoning and the conclusions in the Wired article.
Regular money has criminal uses. The security concerns are also a non-issue as regular wallets and bank accounts are routinely stolen and money diverted.
The speculators push the price up, pay for press releases and stories, put up blogs talking about how awesome Bitcoin is... then they get out as soon as it starts selling for enough. They've done it once, judging from this article they're doing it again, are people going to fall for it again?
Pay attention to what is going on here, because you will start to see it in other areas as well.
The establishment (through the media) is attempting to build a consensus that Bitcoin is not a legitimate currency, but a "money transfer service". "Money transfer" is a service that carries with it the implication of guarantee against loss of value during that transfer. It is a regulated industry.
By branding Bitcoin a "money transfer service" in the eyes of the public, powerful banking interests will then be able to begin loading Bitcoin down with regulations. Large Bitcoin institutions may even go along willingly. Regulations create monopolies, and monopolies bring higher rents.
This is the classical method in which the free market is subverted by government regulation, and creeping nanny-statism benefits large, risky centralized corporate interests at the expense of main street. It is the prisoner's dilemma in action. So pay attention as it plays out.
"I assumed blithely that there were no elves out there in the darkness"
What was the peak (notional) value? A few tens of millions of dollars? That's just noise. A few nerds, pimps and pushers got all excited, played with it for a while, then got bored. The number of bitcoin nodes has been dropping steadily even before the Bit Sploit, and that's coming from the true believers on the bitcoin forums.
Sure, it's fun to discuss the theory, but can we please stop pretending that it was or could ever be a real currency used by actual folks.
If you were blocking sigs, you wouldn't have to read this.
It has value because we pretend it does.
So stop pretending about the US $, then.
Please, PLEASE add "BitCoin" to the "Exclude stories by topic" /. site option.
#DeleteChrome
"It has value because we pretend it does."
absolutely true!
fiat currencies are just as much a shared hallucination as bitcoin.
at least bitcoins may provide more privacy...
Yes, because relative value of a Bitcoin vs USD is really what's holding the currency back, and not, in fact, the massive price instability.
Realistically, people don't want to use a currency that gains 1000% in value, then drops again, then up 200% in only a few months. Until you can pay your taxes in Bitcoin, you're going to have to convert money out of Bitcoin ASAP after getting it, to ensure you can actually meet future obligations, and that makes it a right pain to deal with.
Bitcoin is a very new technology, even though the concept that it brings to life is decades old. The double spending problem has been solved; this means that it is possible to use a digital certificate to stand in the place of money and be sure that no one else can spend that certificate other than you as long as you hold it. This is an unprecedented paradigm shift, the implications of which are not yet fully understood, and for which the tools do not yet exit to fully take advantage of this new idea.
This new technology requires some new thinking when it comes to developing businesses that are built upon it. In the same way that the pioneer providers of email did not correctly understand the service they were selling for many years, new and correct thinking about Bitcoin is needed, and will emerge, so that it reaches its full potential and becomes ubiquitous.
Hotmail used familiar technologies (the browser, email) to create a better way of accessing and delivering email; the idea of using an email client like Outlook Express has been superseded by web interfaces and email ‘in the cloud’ that provides many advantages over a dedicated client with your mail in your own local storage.
Bitcoin, which will transform the way you transfer money, needs to be understood on its own terms, and not as an online form of money. Thinking about Bitcoin as money is as absurd as thinking about email as another form of sending letters by post; one not only replaces the other but it profoundly changes the way people send and consume messages. It is not a simple substitution or one dimensional improvement of an existing idea or service.
As I have explained previously, Bitcoin is not money. Bitcoin is a protocol. If you treat it in this way, with the correct assumptions, you can start the process of putting Bitcoin in a proper context, allowing you to make rational suggestions about the sort of services that might be profitable based on it.
If Bitcoin is a protocol and not money, then setting up currency exchanges that mimic real world money, stock and commodity exchanges to trade in it doesn’t make any sense. You would not set up an email exchange to buy and sell email, and the same thing applies to Bitcoin.
Staying with this train of thought, when you type in an email on your Gmail account, you are inputting your ‘letter’. You press send, it goes through your ISP, over the internets, into the ISP of your recipient and then it is outputted on your recipient’s machine. The same is true of Bitcoin; you input money on one end through a service and then send the Bitcoin to your recipient, without an intermediary to handle the transfer. Once Bitcoin does its job of moving your value across the globe to its recipient it needs to be ‘read out’, i.e. turned back into money, in the same way that your letter is displayed to its recipient in an email.
In the email scenario, once the transfer happens and the email you have received conveys its information to you, it has no use other than to be a record of the information that was sent (accounting), and you archive that information. Bitcoin does this accounting in the block chain for you, and a good service built on it will store extended transaction details for you locally, but what you need to have as the recipient of Bitcoin is money or goods not Bitcoin itself.
Bitcoin’s true nature is as an instant way to transmit money anywhere in the world. It is not an investment, or money itself, and holding on to it in the hopes that it will become valuable is like holding on to an email or a PDF in the hopes it will be come valuable in the future; it doesn’t make any sense.
Despite the fact that you cannot double spend them and each one is unique, Bitcoins have no inherent value, unlike a book or any physical object. They cannot appreciate in value. Mistaken thinking about Bitcoin has spread because it behaves like money, due to the fact it cannot be double spent. This fact however has masked Bi
ATH0 Bitcoin: 1DnwFLXczVZV8kLJbMYoheUrpqHesjxrSi
You sound smart. Do you think the price is gunna go up or down?
The US $ is backed by guns. Domestically, by the IRS, which accepts payment only in $, even for bartered goods and labor. Internationally, by the U.S. military if an oil-producing country tries to go off the petro-dollar.
Granted, the US $ has no intrinsic value the way gold does, but there is more pretend going on with BitCoin than with the US $. Even with the pretend, I'm a fan of BitCoin due to its scarcity, anonymity, and digital transfer -- the trifecta of "digital cash" (normally only two of the three are possible). For the past ten years, I've argued to transportation departments that digital cash is a privacy-preserving alternative to EZ-Pass et al, only to deaf ears. The ability to subpoena time and location data is too valuable to police departments.
If you want to offer a contradictory viewpoint from a less-biased observer, that's fine. But if you go straight to the maximally biased source, it's suggestive that there isn't an unbiased source with that perspective in the first place. Maybe there is, but if so, use them. If not, don't bother with "balance".
I found your post interesting, even though it appears to plagiarise this blog post, but I'll give you the benefit of the doubt and assume it's your work.
Anyway, your point is sort-of valid. I too find Bitcoin far more interesting as a protocol than as a real currency, because as a currency it is flawed, but it is a substantial step forward in the application of cryptography to seemingly unrelated problems.
You posit Bitcoin as not-a-currency, but a protocol for the exchange of currency. This doesn't making sense. Let me highlight the errors of logic in your argument by replacing all of your mentions of "dollars" with "valuable goods" and all mentions of "Bitcoin" with "dollars". Your post would now be saying (at first) perfectly valid things about money, and then coming to a conclusion that the end result is not-money, because... it doesn't work as money, so I don't want it used as money. E.g.:
Dollars are a very new technology, even though the concept that it brings to life is decades old. The double spending problem has been solved; this means that it is possible to use a paper certificate to stand in the place of valuable goods and be sure that no one else can spend that paper certificate other than you as long as you hold it. This is an unprecedented paradigm shift, the implications of which are not yet fully understood, and for which the tools do not yet exit to fully take advantage of this new idea.
Compared to exchanging good and services by trying to remember who owes what, dollars are a great improvement. It solves a lot of problems. You either have your money or you don't -- solving the "double spending problem".
Paper currency, which will transform the way you transfer goods and services, needs to be understood on its own terms, and not as a good. Thinking about dollars as a good is as absurd....
Still perfectly true, see? Money is not a good in and of itself. It's a piece of paper, and these days, not even that.
If dollars are a protocol and not goods, then setting up currency exchanges that mimic real world exchanges to trade in it doesn't make any sense.
This is where your argument breaks down. So far, Bitcoin has described something identical to money. Now, there are exchanges for money because there's more than one kind of money. There wouldn't be foreign exchanges if there was only one global currency. You also mixed up other sort of markets (e.g.: stock) with foreign exchange -- they're fundamentally different, because they buy and sell shares, and wait for it... cash is used only as an intermediary -- a protocol to facilitate the exchange.
The same cow is sent to India, whether you use $10,000 or $1. The price of dollars is irrelevant to the good that is being transmitted...
Now, again, that seems sort-of OK on the surface. It's true of dollars too, not just bitcoins. You can "send" a good to someone in another country by sending them enough cash to buy that good locally. This transfers real value, irrespective of the instantaneous "value" of the currency. Makes sense. Except that we know that it doesn't. The dollar would not be useful if its value suddenly dropped to "near zero". This has happened with real currencies before, and almost always results in massive economic damage and the permanent discontinuation of the currency.
The dollar's true nature is as an instant way to transmit the value of goods anywhere in the world. It is not an investment, or the good itself, and holding on to it in the hopes that it will become valuable is like holding on to an email or a PDF in the hopes it will be come valuable in the future; it doesn't make any sense.
Gold doesnt have any intrinsic value in the sense that you are using the word. It has intrinsic value in its usefulness (alloying, electronics, etc), but those are wholly out of line with its monetary value.
If we wanted to get all semantic and argue it, I could point out that a US dollar also has intrinsic worth, since I can write notes on it, and in the event of a global extinction event, the ability to transmit messages on paper would be of far more value than the ability to make gold-plated electrical connectors.
So long as governments define myriad victimless activities and mere attempts to keep their prying nose out of your private financial transaction as "crimes," I would say Bitcoin's "criminal uses" are a feature, not an obstacle.
Liberty in your lifetime
Bitcoin is the most traceable "currency" in the world. It's just that bitcoin accounts don't have names attached, making them less tracable than bank account transfers, credit cards, etc., but certainly you can trace them, and ask the first legit possessor how they obtained them.
There should probably be an anti-fraud protocol that attempts to trace the paths of fraudulently transferred bitcoins. You could establish "super" civil rights protections around it that complied with the tightest civil liberties rules in various countries, much like wikileaks did for journalism, but ultimately provided a sensible framework for ex-post-facto dispute resolution.
The Christian religion has been and still is the principal enemy of moral progress in the world. -- Bertrand Russell
I should have clarified that I think Bitcoin intrinsically lacks qualifications for a currency capable of buying a car.
For instance, a break through in prime factorization (or however bitcoins are created) that is kept secret could mean that someone generates a ton of money out of thin air, which are impossible to identify apart from normal bitcoins (as they would be legitimate bitcoins). Think the counterfeiting problem, except a breakthrough here means an exponentially bigger problem.
Further, the problem of the wildly fluctuating prices: why would I want to store money in a currency whose value can wildly fluctuate from $17 ea, to $2, to 4, all in the span of a year? Why would a bank want to give out loans in a currency when they could end up receiving far less than they loaned out? Why would I want to loan from them when my debt could skyrocket in price?
Further, I can think of very few usecases for the anonymous features of Bitcoin. Every scenario I can think of involves activity that is internationally illegal (ie, money laundering). How would you like seeing Big Corp, Inc have $1B in bitcoins from venture funding, then "losing" $500 mil to "unforseen contingencies", and knowing there is no possibility of tracing what happened? Hmmm, doesnt sound so good now does it?
And my understanding is that we moved away from a gold standard precisely so that we could regulate the economy to some degree by controlling the flow of money. We gave up the stability of having some real-world backing (gold) so that we could have more flexibility. Bitcoin has the worst of both worlds: its "backing" is a mathematical function, the supply is uncontrollable, and its value is unstable. Wooo, where can I sign up?
Bitcoin transactions are very traceable and there is no indirection or anonymization built into the software. The GP doesn't know what he is talking about.
Bitcoin can't compete with Western Union Money Transfer, let alone forex trading, because the total volume in bitcoins is tiny. Yesterday's Bitcoin volume was about $50,000. (Some days are higher, but that's mostly the same money trading back and forth. There are trading programs running.) If one business the size of a typical supermarket converted a day's receipts in Bitcoins to dollars, the Bitcoin market would crash.
Bitcoin is behaving like a penny stock. It crashed from $31 to $2, and now it's noodling around in the $2 to $4 range.
Anyone remember Beenz? Flooz? DigiCash? CyberCoin? This isn't the first try at a "digital currency". I suspect that someone will probably make this work, but that somebody will be Facebook. Apple, or a telco.
For instance, a break through in prime factorization (or however bitcoins are created) that is kept secret could mean that someone generates a ton of money out of thin air, which are impossible to identify apart from normal bitcoins (as they would be legitimate bitcoins).
They're created through brute forcing SHA256 hashes to meet a specific criteria. As the global hashrate rises, a difficulty factor is automatically adjusted to keep generation constant at 300 per hour.
If you invent an inexpensive piece of hardware that can push several orders of magnitude more SHA256 hashes per joule, you will successfully capture a disproportionate percentage of those 300 coins per hour. You do not get to generate unlimited coins - you just asymptotically approach 300/hour.
In fact, this has already happened: hashing used to be done on CPUs at about 10-20 MHash/s per core; then the RadeonHD happened. Suddenly some people had access to hundreds / thousands of "cores" (they're vector processors, practically miniature Crays for $200 a pop for this problem), pushing 500-1000 MH/s per GPU. Hashrate surged by orders of magnitude as people bought 58xx and 59xx cards as fast as they could make them, and difficulty rose in lockstep. End result: CPUs are now irrelevant and Radeons are marginally profitable if you have cheap power. It wasn't a problem.
It's also easy to switch to a new proof-of-work if someone completely breaks SHA256.
There are some significant weaknesses in Bitcoin, but this isn't one of them.
If you invent an inexpensive piece of hardware that can push several orders of magnitude more SHA256 hashes per joule, you will successfully capture a disproportionate percentage of those 300 coins per hour. You do not get to generate unlimited coins - you just asymptotically approach 300/hour.
On the other hand, if you can push significantly more SHA256 hashes than the rest of the Bitcoin network you can rewrite history in a way that lets you spend the same Bitcoins multiple times. (There's also a subtle security flaw in some versions of the Bitcoin software that allow you to spend other people's Bitcoins if you can do this. This should be impossible due to the ECDSA signatures in transactions, but for speed reasons the software doesn't actually bother to check them under certain circumstances.)
Crash course in laize faire capitalism.
I'm a bitcoin speculator, I believe in the value of the currency and the extrication of the information world from the policed world.
The truth about bitcoin is that significantly more money has been invested in bitcoin than the current total value of the currency. This is not because it's a ponzi scheme, it's because it has opponents. People who are willing to lose money to keep out other investors and drive the price down. Who? Well obviously I can't tell for sure but it makes sense that the U.S. government, major hedge funds, and billionaire diversification wealth management services are involved. Why? Well first to maintain the value of existent wealth, if you have billions that's a level of money that you simply can't spend... you and your great great great great grandchildren will be wealthy... unless something changes. These people diversify into gold and resources when any chance of real social change comes on into the picture, these funds are geared to this... not profit.
But why not just buy it all up? Why drop the price and keep people thinking it's worth $4? Well the really terrifying thing for these groups is that people would have a realistic notion of how much money there is in the system. People, particularly middle class people, are aghast when they begin to understand how much conventional currency actually exists. There are hundreds of people who could pay you through your great great great great great great grandchildren (all of them) a good wage to bash your face against a wall. With a finite currency, you'd KNOW that you have less than 1/10,000,000,000 of total USD (assuming a solid retirement savings and decent home, for example). That spells rebellion against existent currencies.
How? Buy high, sell low. Not difficult, and surprisingly, not very expensive (especially when you can sell to yourself). And in addition make strategic sells when speculators buy large lots so that many of the high volume trades appear to be people unloading when in fact most of the transaction was people buying (50,000 price goes up 50c strategic sell right at the end of 2,000 and the overall price trade blip goes red) People are willing to accept the price on offer in most cases, there are always amounts trickling in from people who accepted donations, sold goods (for the current price), or are forced to give up their speculation for financial reasons. Speculators like myself are more than happy to buy in at the current value, and people who don't care (or know better) simply accept the exchange rated value as the actual.
I saw an example of this while watching the market on the 21st, when it went up to $4.50 and then dropped to $4 in less than 1 second, with a huge heap of available coins suddenly appearing, available in the evacuated space. It looked like the price had never moved.
Personally I think the brains have been stolen from again and again by the cult of personality and back door individualistic crony capitalism. We NEED our own capital pool, not just because of the many options bitcoins make available but because we'll never be free to create, invent and work together seamlessly if we can get backstabber by anyone with a hand in government, fiscal policy etc. Regulations have never helped us, the people buying change and directing the regulators have never been brains, they've always been the wealthy and the politicians. The ability to sabotage our and each other's projects is at the core of why billionaires struggle to get more billions, so they can fight one another. It takes time, effort, and brains to build something... it takes nothing to pull a fire alarm. The problem is people who think it takes a lack of ethics, they think that's a real thing, god help them.
Me and other speculators who really believe in bitcoin are holding on to our coins, and I imagine the pool of coins available to the people trying to lower their value is going down. In the coming weeks we'll see more and more articles of this nature. With even o