Slashdot Mirror
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"
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
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".
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.
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.