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With Euro Zone Problems, Bitcoin Experiencing Boost In Legitimacy
derekmead writes "Despite being used for drugs and beef jerky, Bitcoin is finding legitimate purposes. Bitcoin's decentralized convenience means international efficiency, in areas where local restrictions on money transfers to foreign companies make legal businesses cumbersome. 'I've been able to have cash in my bank account in a matter of hours using Bitcoin, rather than three days with traditional banking,' one British businessman in China told Reuters. In embattled Europe, Bitcoin offers some a viable alternative against central banks, said a Greek owner of an island bar and restaurant who accepts payment in Bitcoin. 'I don't put money in the banks. I trust the euro as a note, but I don't trust banks. I don't want them making money out of my earnings.' Indeed, Europe's financial woes are caused an unprecedented surge of interest in the alternative currency, as the continent loses economic credibility with each new bailout, according to a report by the Financial Post."
Let me be first to say:
HAHAHAHAHAHAHAHAHAHAHA!!
You know what has more legitimacy than bitcoin? Zimbabwe Dollar!
"Despite being used for drugs and beef jerky, Bitcoin is finding legitimate purposes"
Is buying beef jerky NOT a legitimate purpose?
Or is "beef jerky" here a euphemism... and if so, dare I ask what for? ("prostitution" would be the obvious companion to drugs, and I'm familiar with a handful of "beef" related euphemisms, but jerky? Hookers with hard, dry vulvas that will abrade the skin off your dick?)
... the one about a month ago where someone stole lots of bitcoins or spoofed or whatever...
Yeh... sure... mod me vague, or offtopic for bringing it up, but if you know what link I'm too lazy andon-a-phone to dig up, you're probably right with me on the disbelief of bitcoin as a smart idea.
The gist of the article, IIRC, was that an exploit to the system existed that produced undeserved wealth for one guy and everyone else got devalued....
Who has the link???
I trust banks more than bitcoin and mattresses, coming from someone who has little credit, zero debt, and as the bank stated a "substantial" account (not that I am rich by any means I just dont go racking up debt ... mainly since I have never had much of any credit from 18 to 33)
life is not all peaches n cream like that either, its GREAT to be debt free ... when you have the crap you want, but more difficult when you sort of need it. Though times get rough its a comfort to know that there's a stash in the savings that may only be earning fractions of a percent a year for when the car blows up, or I break a leg versus HOPING bitcoin values are not tanked, if even still around.
As I understand it, inflation is when the government prints more money than the value of goods and services produced.
So for example, in a static economy with fixed production, the government prints 5% more currency per year and spends it, so that inflation is 5% and the value of peoples' money gradually diminishes. (The for-real economy grows with increases in efficiency of production etc, and money wears out and needs to be replaced, but the principle is the same.)
This is a hidden tax on money. It devalues savings, and encourages people to spend and invest rather than save.
It occurs to me that bitcoins can't be abused in this way. It's impossible for a government to blithely print money except by mining, for which there are diminishing returns.
Take away the governments ability to raise revenue by inflating the currency, and you take away a large portion of their income and some of their influence over the economy.
Hmmm... I wonder what will happen when governments eventually figure this out?
I hope bitcoin becomes a legitimate currency. My bank doesn't trust me with a credit card, so trying to do anything involving money online is a huge pain. I can't believe how incredibly difficult it is to spend your own money online. Why is the defacto standard to borrow someone elses and spend theirs? It's a crazy system.
There are plenty of problems with banks:
A) Capital controls. If you look at the places that have had currency troubles this is the first thing that happens. It starts innocently enough, first you have to "declare" that you have a "large" amount of cash and fill out a form. Next there are limits to how much cash can be brought in and out of the country. Next there are limits to how much money you can take out of the ATM and spend on your debit card.
B) Government reporting.
C) Possibility of collapse. I'm not just talking about a major economic crisis but minor ones such as 9/11 where many banks were not open and were not functioning fully.
D) Inflation will eat up your savings. How much interest is your savings account earning? My guess is ~.5% depending on your bank. The Federal Reserve's official (manipulated) inflation statistics say inflation is at 2.3%, using the older methods of calculating inflation which are not prone to manipulation, inflation is somewhere around 5%. That means you are taking a guaranteed loss. Of course putting cash in something else such as gold, silver, stocks, land, or heck, bitcoins carries some risk, there is at least a potential for reward, it is not a guaranteed loss.
Taxation is legalized theft, no more, no less.
...is buying beef jerky not a legitimate use of Bitcoin or is 'beef jerky' a euphemism for some nefarious deed in the Bitcoin world?
A hundred and twenty characters ought to be enough for anyone...
Bitcoin, bitcoin, rah rah rah!
Never mind that it's lost more of its value more suddenly than the Dollar or the Euro have in any of our lifetimes. Never mind that I can't spend them at the grocery, or Amazon, or Newegg, or any restaurant I eat at, or.... oh, very nearly *anywhere*.
Never mind any of that. Bitcoin, bitcoin, rah rah rah!
I wonder how much the bitcoin people are paying for these slashvertizements.
Tought that they were becoming widely used in Greece instead of euros, at least were a lot of talk about it... bitcoins werent even under the radar.
Money is losing its original meaning, going back to barter could have some sense.
Do you really want to carry around a bunch of gold in your pocket all the time? Do you think it'll be fun to split it up so you can hand someone a penny's worth of gold?
Need a Python, C++, Unix, Linux develop
None of these "problems" that you mention are best solved by using a made-up Internet currency. All of them are either inherent in government controlled money systems, or the fault of clueless individuals who still use commercial, for-profit banks.
I don't respond to AC's.
That 2.4% inflationary loss isn't a good long term investment.
Losing 80%, like many have in bitcoin, is fucking retarded.
So how many bitcoins do I need to plunk into the soda machine to get a coke, and what bank to I go to to have a few of them jingling in my pocket?
Time is what keeps everything from happening all at once.
Which is why people will also have copper and silver coins, exactly how they did when currency was real and had intrinsic value.
Taxation is legalized theft, no more, no less.
And do you want the value of your savings to tank because there's a spike in production of your particular precious metal? Think it doesn't happen, look when China began dumping silver because of the opium wars, causing a massive devaluation of silver prices in the West.
The world's burning. Moped Jesus spotted on I50. Details at 11.
its not my only investment, and like the ac stated below
That 2.4% inflationary loss isn't a good long term investment.
Losing 80%, like many have in bitcoin, is fucking retarded.
A) The limits on withdrawals on your debit card are for your own protection. You don't want someone cleaning you out because they stole your card. If bitcoin were to catch on (big if), it would need something equivalent to a debit card, and such cards would have limits. There are likewise good reasons to be suspicious of people carrying hundreds of thousands of dollars in cash across national borders.
B) "Government reporting" is pretty vague. What exactly is the problem?
C) Bitcoin can collapse just like any other currency. I'm not sure what could lead you to think otherwise.
D) Inflation affects bitcoin just like everything else. You're right that the GP is silly for thinking that his "fractions of a percent a year" is at all meaningful, but that 2-3% loss each year is a constant, and it will hit you regardless of whether or not you're investing your money. So it's always a guaranteed loss. It should be treated as a sunk cost, and investing versus not investing should be looked at separately.
And there are people who made 1000% gains investing in real estate in the mid 2000s. That doesn't mean its a good investment, it just means that some people will always be the lucky ones.
It's the height of irony, by the way, that you would tout 1000% gains and end by mocking the "stupid speculative bets" of others.
A government controlled currency is still "made up"...
There are not always alternatives to commercial banks.
http://spamdecoy.net - free throwaway anonymous email - avoid spam!
People have lost 80%, or even larger amounts investing in traditional financial systems too... Look at the large "safe" companies/banks that have collapsed in recent years.
A high risk investment is a high risk investment.
http://spamdecoy.net - free throwaway anonymous email - avoid spam!
I've never understood this argument, so perhaps you can explain it to me. Let's say I want worms for fishing. I have a buddy with a farm that is just crawling with worms. He really likes gumdrops. Everytime I ask him for worms, he says I can have them in exchange for gumdrops. This goes on for quite some time and I start to trust that I can get worms from the guy if I give him gum drops. So I stock some gum drops all the time, just in case I suddenly want to go fishing. Maybe you don't want to say that gum drops are a currency, but surely in this scenario gum drops have value (they are worth X worms).
In the same vein, if I want to buy drugs from the Silk Road or whatever, they want Bitcoins. It doesn't matter how many gold dubbloons I have in my house; I can't email them to the guys who are going to ship me drugs. The gold is worthless in this siuation and the Bitcoins have real value (X bitcoins are worth Y drugs).
In both scenarios, the value is risky. My buddy may suddenly stop liking gumdrops. The Silk Road may get taken down by the FBI. Then my stock of gum drops and Bitcoins is worthless. But they still have value until that point.
The argument that it doesn't have value unless you can pay your taxes wih it baffles me. I don't see how it is connected at all. I can't pay my taxes in saffron, but saffron is incredibly valuable to some people.
Bitcoin has value to some people. This is obvious because people are paying money for them. Actually quite a lot of money is exchanged for Bitcoin every day. They don't hold much value for me since I don't want the things you can buy with them, but that doesn't make them valueless. I tend to agree that Bitcoins will not become popular enough to be as widely accepted as other forms of currency, but that doesn't make them valueless.
Finally, while I touched on it briefly before, the reason why you don't want to use silver or gold is because you can't do electronic transfers of silver or gold with very low fees and without the intervention of banks.
The collective elite of geeks.
Gold and silver are of limited utility, since, as you pointed out, you can't pay your taxes with them. Indeed, taxes are the government's method of enforcing usage of the currency it issues. Taxes are not for raising money, as most governments that issue their own currency are not revenue constrained, including the US. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
"Politicians and diapers must be changed often, and for the same reason."
They'll do anything to avoid paying tax. It's the main reason why their economy is so fucked.
Example: A mate of mine is an RYA (Royal Yachting Association) Instructor, and has been asked to run a course down in Greece, so he has to book some accomodation - decides on a nice 4 star hotel. After he booked, he was called up and told that if he paid in cash it would be half price. There they are complaining of austerity measures, whilst not paying tax.
I LOLed in real life. That is, because I was assuming you were being sarcastic. If you were serious, I will probably cry.
"Politicians and diapers must be changed often, and for the same reason."
Millions of VC Capital?
Well, taht's not really an indicator of anything right now, we're in Web Bubble 2.0. And the businesses? I see exchanges, many of which fold after either hacks or just failing to become profitable.
BTC is an amusing experiment, but it has so many flaws built right into the design that it's nothing more than that - an interesting experiment in crypto-currency with few real world applications.
Why aren't people hoarding, if they know BitCoins are supposed to be more valuable tomorrow than they are today? My guess is people still don't trust that their BitCoins will be worth anything at all tomorrow.
From The Economist, "Leaving the euro: My big fat Greek divorce" http://www.economist.com/node/21556583
Some economists think that Greece could nonetheless avoid a sudden departure from the euro. The government could pay some of its bills by issuing its own IOUs direct to its domestic creditors. These notes (“scrip”) would start to circulate at a steep discount to euros. In effect, argues Thomas Mayer, an adviser to Deutsche Bank, Greece could create its own parallel and depreciated currency while still remaining in the monetary union.
Something similar happened in Argentina as it struggled to retain its rigid link between the peso and the dollar before the link eventually snapped in early 2002. Bankrupt regional governments started to pay their workers in scrip, such as the patacones issued by Buenos Aires Province. But these desperate measures were desperately unpopular because the patacones immediately fell in value. Within just a few months, the Argentine government restricted withdrawals of bank deposits, defaulted on its debts and broke the link with the dollar, allowing the peso to devalue.
Mario Blejer, who was Argentina’s central-bank governor in the middle of the crisis, says that resorting to scrip would be even worse than creating a new currency outright (which he thinks would be disastrous). It would create monetary chaos and generate inflationary pressure before the exit that would inevitably ensue.
So if you are in Greece, you seem to have a bad option for storing your cash, and an even worse one.
Take your pick.
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
Currency never had intrinsic value. You can't eat gold or silver. Their utilitarian value is miniscule compared to their value as a currency. And that comes purely from shared belief that it is worth something. Kind of like government or central bank issued notes, except the latter are institutionally-backed.
"Politicians and diapers must be changed often, and for the same reason."
The bank angle here is an irrelevant distraction to be used as a handy bit of misdirection. It really doesn't matter how good or bad the banks are, the question is whether it makes any sense at all to get involved in the old fashioned ponzi scheme in new clothes that is bitcoin or not.
The way bitcoin is set up the you can't have everyone as a winner - if someone makes a killing it is at the expense of a later participant in the pyramid scheme. It's a cynical ploy that relies on the expectation that currency is fiat and not a measure of useful production (sorry kids, the window dressing calculation in bitcoin is not useful production), so the scam relies on supposed invention of another fiat currency.
To sum up, this forced comparison is just designed to make people think that their little non-bank scheme is not bad simply by pointing at a bad bank and pretending to look more respectable than a badly run bank.
As for C), possibility of collapse, with a ponzi scheme that can be replaced by certainty of collapse. I'm sure many of the early adopters of bitcoin that get out in time will do well financially, but I don't think they necessarily deserve even the respect that a convicted embezzling banker or other financial criminal gets. That may sound harsh but wake up - it's an incredibly fucking obvious scam kids and a million miles away from the cool stuff you read about in "Cryptonomicon" that it pretends to be.
Any currency that can take a massive dive on the foreign exchange market due to Internet trolls posting on one single message board is a currency that will never have a single shred of credibility. Just because legitimate businesses accept it doesnt suddenly eliminate the huge amount of risk associated with trading in that currency. There are also plenty of other ways of transferring cash within a day.
You can see at Bitcoin Watch various running totals for Bitcoin. In the last 24 hours about 2.5 million bitcoins were sent. If you watch this site daily you will see a wide variance, up to 6 million bitcoins per day. The total number of bitcoins ever made is now just over 9.2 million, so you can see that every few days an amount of bitcoins is been sent that is greater than the total amount of bitcoins created.
Individuals can exchange bitcoins directly, without the use of any intermediary. This is a big advantage to bitcoin; no ridiculous transaction fees. So now you can see that MTGox is nowhere even close being "the main financial activity in bitcoin." In fact, the exchanges make only a small percentage of the total number of transactions, and has been growing non-stop.
The number of bitcoins increases by 30-50 thousand every day, so guess what that means? If your peanut-sized brain was able to deduce that adding bitcoins every day means inflation, you guessed right! Bitcoin is an inflationary currency (until 2021).
The way people like you pop on here and start spewing bullshit about bitcoin makes me wonder if you aren't anything more than a fucking sock-puppet for the banksters.
The "issuing bank" is the central bank and that for all practical purposes acts in unison with the treasury. http://bilbo.economicoutlook.net/blog/?p=11218 The restraint in question is then that of government, and indeed, government is the power base that backs its currency. This means that with a fiat currency, the government has two policy tools with which to intervene in an economic crisis: one fiscal and one monetary. The relative effectiveness of each is debatable and depends on whether you're an orthodox economist or an MMTer, but it certainly beats what happens when there is no such tool available at all. Two examples: the worsening of the Great Depression due to a gold-backed currency, and the dismal failure of the Euro experiment in which individual nations lack control of their own currencies and use a unified one instead without also having fiscal and economic unification (which, in a heterogeneous collection of states such as Europe, is impossible).
"Politicians and diapers must be changed often, and for the same reason."
D) Inflation affects bitcoin just like everything else. You're right that the GP is silly for thinking that his "fractions of a percent a year" is at all meaningful, but that 2-3% loss each year is a constant, and it will hit you regardless of whether or not you're investing your money. So it's always a guaranteed loss. It should be treated as a sunk cost, and investing versus not investing should be looked at separately.
Bitcoin is designed to be deflationary. That might not be a good thing, but inflation should not affect it, in other ways than it getting worth more in relation to inflationary currencies.
funny that... they're actually planning reducing the daily amount of cash you can withdraw as a means of preventing a run on the banks in Greece RIGHT NOW...
Donald 'Duck' Dunn: We had a band powerful enough to turn goat piss into gasoline.
There are plenty of problems with banks: A) Capital controls. If you look at the places that have had currency troubles this is the first thing that happens. It starts innocently enough, first you have to "declare" that you have a "large" amount of cash and fill out a form. Next there are limits to how much cash can be brought in and out of the country. Next there are limits to how much money you can take out of the ATM and spend on your debit card.
Funny. That was exactly the situation when I was a kid (gee, I'm getting old). No big deal. In fact, those measures kept the largest part of the money where it should be (in the real economy) while still permitting that it was taken abroad. Nowadays, most of the money is "invested" in "derivatives" (basically nothing more than an idea) on the other side of the world, so there is nothing left for you to take abroad.
B) Government reporting. C) Possibility of collapse. I'm not just talking about a major economic crisis but minor ones such as 9/11 where many banks were not open and were not functioning fully.
Yep, this is an interesting one. Banks are on the verge of collapse every day. That is how banks work these days. But for some reason the people are not allowed to see it. A bank is one of the least safe places to put your money. Your money is spent on loans as soon as possible, only at that time the bank calls your money its own. Banks count on the fact that you will not be asking your money back. And if you and your fellow customers do want your money back, you are accused of a "bank run".
D) Inflation will eat up your savings. How much interest is your savings account earning? My guess is ~.5% depending on your bank. The Federal Reserve's official (manipulated) inflation statistics say inflation is at 2.3%, using the older methods of calculating inflation which are not prone to manipulation, inflation is somewhere around 5%. That means you are taking a guaranteed loss. Of course putting cash in something else such as gold, silver, stocks, land, or heck, bitcoins carries some risk, there is at least a potential for reward, it is not a guaranteed loss.
Which is a good thing off course. One of the bad things of money is that it can be kept forever and there is no limit to collecting it. If you were paid in food, you would only want as much food as you could eat (with your family and friends perhaps). But anything more would be senseless. But with money, you can "earn" the living of a complete village for yourself, and still want more.
Nae king! Nae laird! Nae yurrupiean pressedent! We willna be fooled again!
A government controlled currency is still "made up"
As has been stated before, it's a question of backing. Government-issued currencies are backed up by a promise from the government that they will accept them in payment for taxes and, often, by a legal requirement for merchants to accept them within the relevant country's borders. This guarantees that you will be able to exchange them for goods or services in the future, for as long as the government survives, although it does not guarantee that they will retain the same value. BitCoin is backed by nothing. It depends entirely on the willingness of other users to accept it.
The simplest form of money is an IOU: you do something for me, and I give you a promise to do something of equal value in return. This is then backed by me, my promise, and the fact (or, at least, belief) that I am capable of doing something of value in the future. A typical currency is a form of group IOU, which says that you have done some work for someone in a group and that someone in the same group will do some work for you in the future. As long as there are people in the group willing and able to redeem the IOU, then it holds some value, and if an entire country requires these IOUs for taxes and is legally required to accept them in payment for goods or services then there is a very high chance that you will be able to redeem your IOU. With BitCoin, anyone can create new IOUs without doing any useful work, but no one is required to accept them.
I am TheRaven on Soylent News
Gold is going to keep going up in value for as long as the supply of people with a poor grasp of economics keeps increasing and until cheap elemental transmutation becomes possible. This makes it seem like a pretty good long-term investment...
I am TheRaven on Soylent News
I can't pay my taxes in saffron, but saffron is incredibly valuable to some people.
Yes but the value of saffron is because somebody out there is actually using it in foods and whatnot, while dollars and Bitcoins don't have any intrinsic value. Without an economy that accepts them as payment a dollar is just paper and ink and Bitcoins only farts of /dev/rand. Even gum drops would have value in a barter economy, so they don't belong to the same class.
Fiat currencies like dollars and Bitcoins depend on future demand, I need to know that between when I earn them and I want to spend them the value doesn't disappear in a puff of smoke. The difference is that taxes are involuntary, people must pay taxes and those taxes must be paid in that government's currency. That means people must have dollars, nobody must have Bitcoins.
Of course that's not a perfect system as government currencies have collapsed and your Zimbabwean dollars are worthless, maybe after the communist revolution they won't take your capitalist money but under all but the most extreme circumstances that a guarantee for future demand. Bitcoin has neither intrinsic value nor any involuntary demand, tomorrow everybody could be trading on Bitdubloons instead.
Live today, because you never know what tomorrow brings
That word does not mean what you think it does.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
... or until someone finds a load of it under the ground somewhere.
Actually what will cause it to drop will be the economy picking up; higher returns in property, shares etc will make gold relatively less attractive. The drop might be sharp & sudden if panic selling drives even more panic selling.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Can you pay a hooker with them? Good luck with that.
yes
Anytime anyone tells you they are forcing something upon you "for your own protection" they are obviously doing it for their own benefit. ATM withdrawal limits are there to reduce the bank's fraud liability; similarly the border blockade, police confiscations, the massive FBI spy network embedded in the banking system are not "keeping you safe", they are putting the government's interests above yours.
So they will replace the euro, a currency that locks multiple countries into a essentially a fixed exchange rate mechanism, which a central bank that refuses to issue sufficient liquidity to meet market requirements for transactional currency.... with.... Bitcoin, a currency that would also be essentially a fixed exchange rate mechanism (no different than euro spanning multiple countries), but even worse - not a chance of the central bank expanding money supply to meet requirements for a transational currency. Bitcoin is worse than the gold standard, because at least gold has a few industrial uses.
Uh, no. It can collapse even more dramatically than most other currencies. In fact, it will, simply because it works like a bad case of the gold standard.
The gold standard never collapsed so this analogy is fundamentally broken.
Perhaps its collapses will so drill into people some basic knowledge of modern economics. If, in the process, bitcoin also brings ruin and suffering to libertarians and gangsters, then so much for the better.
Such as people are ignorant of economics, if they don't adhere to my biases?
The fact of the matter is, it continues to exist and continues to be used DESPITE people saying that it's useless and will collapse and never be used again.
Despite all the naysayers (and I DON'T own any bitcoins) the supply continues to expand. One has to acknowledge the reality of what is actually happening with the currency vs what one thinks or would like to happen. (well, you don't have to but that's another argument)
No? I know some people bunker gold and feel smart about it, but that's it. Perhaps its more helpful to tell people like you that the economies built around the gold standard were not as successful as one might want, so it suffered from some lack of appreciation at some point. Since gold has some additional uses (which a bitcoin has not), such lack of appreciation will mean collapse. Until the next round of idiot libertarians find the idea appealing, and discover some absurd argument to justify to themselves trying the whole thing again.
Could you please make sure your sentences make at least a little bit of sense? Thank you.
Non-Nation-State controlled electronic money transfer will Greece the rails of the track to destruction.
The argument isn't that currency can only have value if it can be used to pay taxes. The argument is that being able to pay taxes with a currency is an advantage. Tax payments are an advantage to fiat currencies such as dollars and euros over fiat currencies such as bitcoin.
As you noted, gumdrops or bitcoins might not be accepted at some point. Partly because demand for them might dry up at some point. But a currency that is needed by everyone, because (nearly) everyone needs to pay taxes, helps maintain a currency as a store of value. For now and the foreseeable future.
In a sense, we've shifted from money backed by gold, to money backed by the IRS. Similar for government debt. It's not backed by gold. It's backed by governments' cut of future goods and services produced by tax payers.
The world is made by those who show up for the job.
A. If you're carrying over ten thousand dollars in cash around, you're either nuts or doing it for sinister purposes.
B. I wish I read your signature before writing this post.
C. Most developed (and some developing) countries have depositor's insurance on accounts, so unless you have more than a million USD sitting in a checking account, you should be fine. Unless, of course, it's the apocalypse, which means cash has no value and you should have invested heavily into bullets (or slingshots, depending on if it was a short term or long term plan).
D. If you are worried about inflation, you don't put your money in a savings account. You either buy Inflation protected securities or invest it in something that appreciates with inflation (gold).
http://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm
If you're saving anything substantial in any way, you're ultimately hoping that whatever it is will keep its value. Be it cash in a bank or bitcoins... there's really no difference in the fact that you're relying on something to keep its value.
That said, being Canadian (for better or worse), I also trust banks more than bitcoin (likewise for better or worse).
But I am also aware that according to statistics, given a fixed pile of wealth, spreading your wealth around is safer than "putting all your eggs in one basket".
People have been looking for gold for all of mankind's history, the chances of a true substantial deposit being found are slim, especially with all the regulations when it comes to mining in some of the richer deposit sites (California, South Africa)
Gold is not an investment. Gold is money. It has the same properties as money. Silver is both money and a investment (it has lots of industrial uses).
Taxation is legalized theft, no more, no less.
Lets see here, the industrial revolution and the Victorian era, two of the most productive and revolutionary eras in mankind's history was defined by the use of hard currencies (gold and silver) and while it didn't have a "technical" gold standard in most countries (bimetallism was much more common) we had none of this paper money crap.
If you look at the decline of civilizations the first thing to tell of their impending collapse is the decline of their currency. When Rome was prosperous, their main silver coin, the denarius was nearly pure silver. When a string of bad emperors, a welfare state and expensive wars happened, Rome reduced the denarius slowly until it was just a copper coin with a thin silver plating.
Look at the Athenian city state, its principle coin, the tetradrachm, was nearly pure silver during prosperity and became a copper coin with silver plating when Athens was troubled by wars and conflicts.
The US was in an unusual situation. When it abandoned the true gold standard in 1933, it managed to still dominate the financial world via the pseudo-gold Bretton Woods system, of course that collapsed in the early 1970s. So here is the financial situation of the US:
A) Abandoned the true gold standard in 1933, abandoned a pseudo-gold standard essentially in 1971, removed good silver from all coins in 1965 and abandoned all silver in circulating coins in 1971 (1965-1970 half dollars are 40% silver)
B) Currently have a number of expensive wars to pay for, a worldwide military presence, and other expenses related to being the "world's policeman"
C) The US has a huge debt problem
D) The US is increasingly becoming a welfare state
E) The only logical way out of this is by (hyper) inflating its currency.
Taxation is legalized theft, no more, no less.
With BitCoin, anyone can create new IOUs without doing any useful work
In fact, it's just the opposite. They waste electricity and computer cycles. That's my biggest problem with it. Surely we can do better than that if we're going to design an electronic currency from scratch.
Would you all shut up and buy more coins? I'm up almost 20% in the last 30 days and I want to see bitcoin hit 6 USD!
...As has been stated before, it's a question of backing. Government-issued currencies are backed up by a promise from the government that they will accept them in payment for taxes and, often, by a legal requirement for merchants to accept them within the relevant country's borders. This guarantees that you will be able to exchange them for goods or services in the future, for as long as the government survives, although it does not guarantee that they will retain the same value.
(emphasis mine)
I wanted to make the very important point that promises can be and are broken.
I would highly recommend the short book Fiat Money Inflation in France by Andrew D. White, the founder and first president of Cornell University. It can be read online for free at: https://mises.org/store/Fiat-Money-Inflation-in-France-P435C1.aspx but I would encourage you to purchase a print copy (for cheap) here: https://mises.org/store/Fiat-Money-Inflation-in-France-P435C1.aspx.
Regarding the assertion that governments and merchants will accept a currency as long as the government survives, I am glad you added the caveat about no guarantee of value, for that is important, but more importantly governments have and most probably will in the future completely change currencies. You may or may not have an opportunity to exchange.
Firstly, the period of 1800 to 1913 coincided with the industrial revolution and massive territorial expansion in the US. So, the massive increases in productivity and efficiency certainly cannot be attributed solely to deflation over a century. I'd say that the utterly massive technological improvements over that span, the opening up of vast untapped natural resources, plentiful immigration, and the shift from a nearly 100% agrarian economy (with only some manufacturing) to one with substantial industry probably also had something to do with it.
Also, the period of time you cite was hardly a period of uninterrupted economic stability. The repeated, severe, panics of that time span make the current recession look like the most minor blip on the proverbial economic radar.
I've pointed this out to you before, but you choose to utterly ignore it.
No, that's exactly what I said: they don't do any useful work. They increase the entropy of the universe, but there is no calculation performed that has a result that anyone cares about outside of the closed system of BitCoin. If it were a promise of future computational work, then that would be different.
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Maybe you don't want to say that gum drops are a currency, but surely in this scenario gum drops have value (they are worth X worms).
They have value, but a good isn't a currency until you start using it for indirect exchange. For that you need at least three people, so let's say that in addition to you and your friend there is a third member of this economy who runs a restaurant serving cooked fish. He buys fish from you, cooks it, and sells meals to you and your friend. You and the restaurant owner have no personal interest in gum drops, but you need them to buy worms, and he needs to pay you for the fish somehow. Ergo, you set up an indirect exchange where fish, cooked meals, and fish bait can all be traded for gum drops. Now gum drops have taken on the function of a currency, because you and the restaurant owner will accept them as payment simply to trade them again for what you really want, and not for direct use. (Your friend uses them both directly and indirectly, to eat and to pay for cooked meals.)
"The state is that great fiction by which everyone tries to live at the expense of everyone else." - Bastiat
This is getting rather pedantic, and I understand you are correct strictly speaking as to physics, but the connotation of what you originally said isn't the same as the point I made. One of the major points of Bitcoin is just how hard it is to "mine" them, as opposed to just conjuring them up like a public/private key pair.
I've reviewed all the responses to my post, and it's been quite illuminating. As a scientist, I'm used to examining my assumptions and checking for rationalizations and such, and it was quite interesting to sort out the chaff from the wheat.
In the manner of crowd-sourcing the answer to a problem, I've discovered the following are true:
1) No one knows the truth about anything in economics.
There is no general consensus as to whether inflation is good or bad, although standard economic theory states that it is good.
The simple fact that there is dissent, some of which is studied and eloquent (per references people have made to other schools of thought) indicates that the matter isn't settled. If it were, there would be a compelling logical argument which would not require rationalization. And there would be general consensus, as there is on, for example, plate tectonics.
2) Actual economists make predictions based on assumptions which never change.
A good example is the "get a house loan for $300,000 and if the dollar deflates you may never be able to pay back the loan".
This assumes that debt is based on currency instead of wealth. I could instead get a house loan for the purchase price of 1,000 refrigerators (chosen at the time of purchase), and then when the dollar deflates the price of refrigerators goes down. Once I've repaid enough money to purchase the refrigerators, at whatever their current price is, the loan is repaid.
If you separate debt from currency, you can use wealth as a measure of value and then currency is used for exchange, which is how it should be. Refrigerators are an inconvenient measure, of course, but I can imagine a "global average purchasing value of the dollar" which is calculated by taking everything into account and which adjusts the loan amount accordingly.
3) The results just don't make sense
Why is "a little" inflation good when "a lot" of inflation is bad? How is the cutoff point calculated? Is the formula flat (any inflation in this range is OK) or peaked (inflation has to be finely tuned to this specific value)?
There is no functional definition for "good" inflation versus "bad" inflation. Economists only make soft, hand-waving appeals to rationalizations: "if inflation were high, people would do *this*, and it would cause *that*, and the results would be bad".
Let's see, what's the term I'm looking for... oh yeah. It's sophistry.
3) From my own studies, economics has some major flaws in logic
One such flaw is the application of "small signal analysis" to non-linear functions. Double your sales outlets and you double your sales: simple and accurate at the small scale, and it assumes a potential ocean of market. Sell through Wal-Mart, however, and you're done. Wal-Mart is the entire ocean, and a lot of companies were caught unawares by this - Levi and Vlasic to take two examples.
Another one: outsourcing is good because it lowers costs overall. It assumes an ocean of employment opportunities.
The only point remaining that no one effectively disputes is the corruption in the system. The financial system (including governments) is screwing people over, essentially robbing wealth from the masses and concentrating it in the elite few.
So I guess that makes my decision for me.
Bitcoin will be better, because it eliminates a large slice of corruption present in the system. It may not be perfect, but it will be a major improvement over the system we currently have.
I'm not talking about physics at all. I get money by doing useful work for someone (or selling an asset, which was created by someone doing some useful work in the past). New money is introduced into the economy in a similar way, as loans that are contingent on future repayment (i.e. are the promise that the person getting the loan will do some work in the future that will allow them to repay the loan). Bitcoins are created by doing some useless computational work. The fact that it is harder to create them than a key pair affects their scarcity, not their value. It's hard to bottle pony farts, so they're quite scarce too, but basing a currency on them would be equally silly.
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by a legal requirement for merchants to accept them within the relevant country's borders
No such requirement exists in the US.
"I assumed blithely that there were no elves out there in the darkness"
I'm not talking about physics at all.
Then don't use phrases like "They increase the entropy of the universe". And my entire point, which you did not make, is that beyond not doing anything useful, they are actively wasting valuable resources.
We don't want to think about the microscropic price valuations. Following the price of oil is bad enough, following the price of oil, gold, nickel, iron, rice, lettuce, chicken, lines of code etc. is insane. When we set prices on our own we do so very inefficiently. That's not an insurmountable problem, but in part we collectivize some of that bargaining, the government sets the minimum wage for example, the government negotiates pay contracts for lots of services. If you think they pay to much for teachers and fire etc. you vote right with, if you think they pay too little you vote left wing. Fairly straightforward.
It's not that we don't think about it, it's that we don't think about it a lot. We hire someone else to think about it a lot.
I'm more worried of banks not ever crashing than them crashing, seeing as they own pretty much everything. By controlling all currency transactions, they can basically collect a tax on everything traded. This is the real problem with banks.
I'm still missing why you believe that 'wasting electricity and computer cycles' is the opposite of 'not doing any useful work'.
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Perhaps its more helpful to tell people like you that the economies built around the gold standard were not as successful as one might want,
I will grant that. In a growing economy where a relatively fixed amount of money is spread over more transactions and actors, you should see some deflation and that deflation probably would adversely affect marginal, remote areas (like rural areas). Similarly, late users will have less effective spending power than early users. That's pretty much the problem that is being complained about in this thread.
The work they do is cryptographically securing the transaction history and account ledger for Bitcoins (who owns how many coins). If that is not useful, then you must also believe that the internal work that banks do tracking transactions and account balances is useless.
First let me say that it's remarkable that too people in general agreement about the uselessness of Bitcoins are at such odds with each other.
I'm still missing why you believe that 'wasting electricity and computer cycles' is the opposite of 'not doing any useful work'.
You're interpreting that wrong. Let me rephrase: Not only do they not do any useful work, they do the opposite of useful work: they waste resources.
I most certainly do understand. Consider the built in major advantage to early adopters of bitcoin (for one of many factors) and then look at the wikipedia entry for "ponzi scheme" and you'll see why I've put that label on it.
I did, and I expect the mods did not. It is a completely incorrect label to apply to bit-coin. Ponzi scheme's involve one individual or organization fraudulently reporting non-existent profits to participators. Also, I really hate that particular argument that appears here so often: "I'm right and I leave it to you to work out why." (Is there a fallacy of logic about that?) The mods however really seem to like it.
Bit coin is not a Ponzi scheme.
swapped computer parts are not a currency
From wikipedia, our mutual friend:
In economics, currency refers to a generally accepted medium of exchange.
As I would totally barter computer parts and many are using bitcoin for transactions, I would say that both are currencies under this definition.
If bit coin is a "scam" please explain why. Trying ill-fitted labels like Ponzi scheme on it does not make it a scam anymore than calling it a scam does.
Corrected link, sorry: http://mises.org/books/inflationinfrance.pdf
Ah, I see. Apparently my reading comprehension requires more coffee.
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I do wonder how the amount of goods and services purchased with Bitconis compares to the amount of goods and services purchased with something that has a more intrinsic value like Tide liquid laundry detergent. Every time I see these various bitcoin articles I start to wonder if I should start hording laundry detergent, soap, rice, etc when it goes on sale.
Time to offend someone
https://en.wikipedia.org/wiki/Chiemgauer economy is creating jobs
Casteism
Principal=Collateral,
Collateral=Debt,
Debt=Principal + Interest!
http://bibocurrency.org/English/The%20Scam%20short%20form.htm
Casteism
Every nation need dollars to buy OPEC oil.
https://secure.wikimedia.org/wikipedia/en/wiki/Nixon_Shock
What happens if US doesn't need anything from rest of the world?
Casteism
There is no work for the early adopters involved such as in gold panning, and no risk such as in investment. Look at the bitcoin scam itself instead of the flawed analogies.
Gold has industrial uses too, so either they're both money or neither is.
In reality, they're both commodities like any other mineral.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."