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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?)
And no one has ever robbed a bank of course.
Not sure what you mean by the latter part of your post.
Its not possible to exploit the system that way. Some of the websites or groups using Bitcoin perhaps, but not Bitcoin its self.
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?
When a bank is robbed, its customers don't lose money. When a bitcoin repository is robbed... ?
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Not necessarily true. Banks are only insured so much against failure. Including, for example, if they hold massive amounts of loans to construction companies and construction workers in spain and will not be able to collect those loans.
Thus far the Eurozone has, through various mechanisms, organized bailouts of banks to prevent them from collapsing and to prevent bank runs. However, there is not actual insurance system keeping the banks afloat. There's just the implicit expectation that eurozone governments will cough up the cash to keep all their banks from collapsing and taking the rest of the economy with them.
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.
That 2.4% inflationary loss isn't a good long term investment.
Losing 80%, like many have in bitcoin, is fucking retarded.
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.
So I want to open a widget factory. What do you propose I barter to get financing?
Money evolved precisely because bartering does not scale well. You cannot build a large scale economy with such a system. Even the Romans knew that. They didn't build an empire by trading chickens and bushels of wheat.
The world's burning. Moped Jesus spotted on I50. Details at 11.
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.
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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.
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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 banks in my country won't issue me any kind of credit card (secured or not) until I become a landed immigrant. The banks in my country of origin won't issue me any kind of credit card (secured or not) unless I am resident in the country.
I'm very happy that you are easily able to do online monetary transactions. Not everybody is you. That is why some people would really welcome a way to do electronic transactions without the intervention of a bank. Sure not everybody needs it, but some do.
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.
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!
The customers also don't lose money: "Both Palatinus and Tong have said they'll cover the loss for their customers.". At least if you choose a good broker. How to evaluate good brokers is left as an exercise to the reader.
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).
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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...
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I agree, you should have that kind of thing in the contract, and you should check what the terms are before you start doing buisness. This is easier with banks, who are bound by law to have certain levels of compensation (depending on local legislature), and who have a brand to protect. However, it is not impossible with bitcoins, just harder, so it isn't a dealbreaker, but another thing to remember when you evaluate the alternatives.
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.
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You don't seem to understand what a ponzi scheme is. Bitcoin is not set up to "make everyone a winner", nor has it ever been advertised that way. It's a currency that is issued at a steadily decreasing pace via a form of lottery in which anyone can take part. The value of that currency is arbitrary. It went up a lot last year and then came down again because it was very new, the market wasn't very deep and it got a ton of attention all at once. The value in recent times has been a lot more stable because the market got a lot bigger and deeper, inter-exchange arbitrage became better, and the attention of the press was elsewhere. This is a good thing.
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.
It's no more a "currency" than scientology is a religeon. Just because the item used in the scam deliberately has "coin" in it's name doesn't make it a currency, just like swapped computer parts are not a currency.
>However in the area of finance and banking, regulations seem to be usually there to impede the use of currency, to benefit banking oligarchy, and to reduce competition and transparency.
In the past 30 years, we have removed regulation from banking and all it's gotten is banking oligarchy. I don't know what planet you live on, but the "too big to fail" banks got that way because we refused to regulate how banking mergers happened.
"Too big to fail" = Too big to manage. They should have not gotten that big in the first place.
--
BMO
It's certainly interesting to look at what has happened with the value of bitcoin.
http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zvzl
up to about a year ago we saw a trenth of lots of volatility combined with a general expontential growth trend the value of bitcoin leading to a high of about $30 per bitcoin.
Then we saw a trend ot lots of volatility combined with a general exponential decay reaching a lot of arround $2 per bitcoin. After that we saw more peaks and troughs but each time they got smaller and it seems that bitcoin is now finally starting to settle on a stable value.
Looks like the fear and greed driven speculators are finally getting out of the market :)
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
>Who then pays for the insurance? Those who want to borrow money today in exchange of returning more money tomorrow. Without them banks would close their doors.
Wrong. In every single respect. Moneylending predates banking and banking developed independently of moneylending - the two only merged (in historical terms) quite recently. Moneylending is a way to fund the operation of banks but it's certainly not the only way and it's definitely not a requirement of the concept of banking. Banking isn't even about MONEY per se.
Banking is simply the provision of a secure storage service for other people's property - usually money, but most banks also offer things like safety-deposit boxes to protect other kinds of property.
Until quite recently in fact (as in - within my lifetime) in many countries it wasn't even LEGAL to call yourself a bank if you didn't have a deposit/secure-storage service - lending companies had to go by more descriptive names such as "bond associations".
There are many different funding models for banks that can and have been used. The first real banks were established by the Knights Templar to protect the money of pilgrims - they didn't do any lending, they just did it as religious charity. More recent models have included mutualisms and even non-profit mutualisms (sometimes such mutualisms would use the deposited money to give loans INTEREST FREE).
These are all valid forms of banking - lending is something else, it's only one model that combines them. In that model, of course, that source of income is how insurance is paid.
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