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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."
"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.
When a bank is robbed, its customers don't lose money. When a bitcoin repository is robbed... ?
The Cloud - because you don't care if your apps and data are up in the air.
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.
Ah, the weekly obligatory Bitcoin article. I expect that another Raspberry Pi article should follow shortly.
The world's burning. Moped Jesus spotted on I50. Details at 11.
Oh for god's sake....
This is also one of the main flaws in bitcoin. There are a set amount, therefore there must be deflation if it ever takes off. Deflation encourages hoarding because money is likely worth more tomorrow than today. Hoarding encourages further deflation, and we go round.
A small inflationary pressure encourages use, rather than hoarding, of money, and helps grow economic activity. Furthermore, having a central control on currency allows the adjustment of the amount of money to ensure there is enough of it to keep the economy rolling.
A bitcoin-based county-sized economy would be as much a failure as the old gold-based ones were. You, as a hoarder, may feel that inflation is theft. I, as a realist, see moderate inflation as essential.
Ha!
The currency generation function in bitcoin is a shift operator. Bitcoins are limited to a precise discrete value. A move to wider registers could allow that number to be higher by a tiny, tiny, tiny amount. There is no "indefinitely" about it.
The rest of your post is just Keynesian nonsense. We get the message. You love debt. You want to reward debtors, which is the same thing as punishing savers.
Deflation is the natural state of an advancing world. Computers have deflated massively against other technologies, and we are all cheering about it. The only people that think that inflation is better are statists and bankers (when they own the statists). Banks create money out of thin air, and they get to sell it (to you!) right away, before it starts chasing assets and driving their prices up. If inflation came from a different mechanism, bankers would hate it too, since it would devalue their holdings then, just like it devalues yours and mine.
It doesn't matter why governments devalue currency, what matters is that they do. Always and without fail. In practical terms, Congress really likes having a bottomless checkbook. That it destroys the value of our currency is a problem for someone else to solve, like our kids.
See that "Preview" button?
Now the problem with barter is inefficiency, that you can't really pay me in chickens for software with effective granularity. So we really need a unit of exchange that can be broken down into small parts that are easily tradable. Say rice. Well the problem with rice if you have a bumper crop you have massive inflation in rice, and anyone who can grow rice will grow rice rather than something actually useful, since they think they're printing money. If crops fail there's not enough rice to supply both food and currency needs and everyone goes broke. So then we try gold. Gold has it's perks. It can be broken down a lot, it doesn't degrade, it has only limited commercial value which derives mostly from it's being money at all (jewelry). But then there's a constant tick of inflation in gold assuming production can keep up with inflation, and since china, south africa and australia produce a crap load of gold (and especially the latter two who out produce the US), you can end up with one country controlling the value of gold in the US or China or wherever, offering to supply gold cheap, or flooding the market with gold, preventing the US from buying goods abroad or the reverse, making things prohibitively expensive. Oh and since they have gold, they can pay for an army to defend themselves.
Since rice, and gold don't work. lets come up with a new system. The Bimetal, erm.. bigood system, which uses both as a currency, but their individual problems remain. So now lets add into the mix iron, silver, nickel, oil and a few other things, a giant aggregate basket of things to barter with. So to buy a video game from me you need to give me 1 chicken, 25g of silver, 10g of iron, and 250ml of oil. Or just one half of a barrel of oil, but since a barrel of oil is 158 litres, trying to carry around 79 litres of oil is kind of a pain, I'd rather the chicken and the metal, a barbecued chicken sounds good right now. .
So now we've done this for a while, and you get sick of carrying around a large jar of oil, and having to have armed guards for your 2 bricks of gold in your basement, and the equipment needed to shave off slices for payments for valuable things. We agree that we're going to just write down these transactions. But since I don't trust you, because you're a raving fucking loon, and you don't trust me, because I'm an asshole who makes software we need a 3rd party to do it. You and I agree that Okian Warrior is a sufficiently neutral party that any exchanges we make we'll file with him on paper, and it's up to him to decide how much value things have. We start by having everything considered as 'equivalent to gold' but since everything in our wagons full of things used as money fluctuates relative to gold and frankly, we don't want to think about this shit anymore, we have actual work to do, we leave it up to him. He decides that the best way to do this is to only have official notes that he issued and tracked, of course this takes time for him, so he takes a cut. But then, we don't have to pay for armed guards for our gold, so we're net ahead. In the course of this little experience I've had kids, and they're in the software business, and you've had kids and they're in the gold/rice/oil/iron business. And Okian now has to make sure they can get enough of his notes to account for the fact that they have increased the production of software and other goods. More people = more production. So he starts making more notes. The problem with this plan is that he's not really sure how productive my kid is. Lines of code is a terrible metric. So he decides it's better to err on the side of caution, and create a little bit more money than we need, rather than to little. Because if he creates too little you and I can't fulfill our contracts, and never will, but if he creates just a little bit too much we can still fulfill our contracts and we've only lost out a little bit. We still don't need to lug around jars of oil and bricks of gold, or have personal guards for our gold, and we just pay a lit
You are wrong. The "hoarding" argument has been beaten to death. Current evidence shows that people are NOT hoarding the coins: every day, 40 thousand coins change hands on the single largest exchange: http://bitcoincharts.com/markets/mtgoxUSD.html This is six times the number of coins created daily by the network (7 thousand).
In other words, people are not hoarding them, but are trading them very, very frequently.
And this is just measuring MtGox's volume. Other trades (merchant sales, other exchanges, etc) are likely doing even bigger volume...
Inflation is a feature not a bug. In fact, you have listed the main benefits yourself without realizing it.
Imagine a world where your currency didn't devalue. Let's take an extreme example, where your currency actually increased in value. Sounds great, doesn't it? Put money under your mattress and in 10 years time it's worth a lot more than when you got it. Except, how would that work? Let's say that the world produces an amount of goods and services which we'll call X. Let's say we have a perfect economy where people receive money equivalent to the goods and services they produce -- also X. So in year 1 we sell all our goods and services and have X dollars.
The next year we don't produce any more money since we don't want it to devalue. Everyone is expecting the currency to go up in value so they save 10% of what they earned (0.1X) and spend 90% (0.9X). Since there is less money for the same amount of goods, this means that the currency goes up in value. Hurray! Everyone again saves 10%. Now there is 0.19X saved and 0.81X in circulation. Let's do this for 10 years. At that point we have about 0.65X in savings and about 0.35X in ciculation. And the currency is worth nearly 3 times it's original. Hurray! Hurray! Hurray! Let's spend our savings!
But the entire output of the economy is 0.35X and we have 0.65X in savings to spend. If we spend it, it causes the value of the currency to crash dramatically. The problem is that the currency value was being kept artificially high by limiting its availability. As soon as we want to spend it, we're in big trouble.
The point of a currency from an economic point of view is to ease trade. If you can not get access to the resources you need, you can't produce. We want to distribute as much money as we can to people who can use it to produce something. Saving (some call it "hording" to distinguish it from investing) causes massive problems when you reintroduce the money into the economy. So you want to encourage people to either spend or invest money rather than putting it under a mattress.
Another major issue is borrowing. If you have a job to do but do not have the resources you need, you won't produce value. If you have money, you can buy the resources. What do you do if you don't have money? Ideally we want to be able to borrow the money. Remember we want as many people as possible to have money if they are able to use it productively. What happens if we have a currency without inflation?
Let's say I borrowed Y on year one. In the first year I can afford to pay back 0.1Y. But in the second year there is less currency around (people are saving) so I can only pay back 0.09Y. The next, I can only pay 0.081Y, etc etc. By year 10 I can only pay back 0.035Y. I'm paying back the same amount of value each year, but since the currency is deflating, I get to a point where I may never be able to pay back the loan fully.
To avoid this problem, people will avoid borrowing money. This means that they will not be productive and society suffers.
Deflationary currencies are extremely bad. Currencies with moderate inflation are exactly what we want. Our current fiscal problems do not come from the inflationary nature of the currency. They come because of bad loans. Money was lent to people who were not going to be productive with the money (for example they simply invested it in an overstocked property market that was at the height of it's price). Our problems really *are* due to unscrupulous and stupid commercial banks. It is highly regretteble that we were forced to bail out most of them. It is even more regrettable that the average voter can not understand the issue well enough to ensure that the government doesn't allow it to happen again.
If the money supply is hoarded then more and more economic power goes to the hoarders, who are doing nothing but sitting on it.
If you wish to reward inactivity then be my guest. This is not a system I feel I can endorse.
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.
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.
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.
next week RaspberryP cluster used to farm Bitcoins
---Saying gnome 3 is better than windows 8 not so much a compliment as it is damning with light praise.
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.
. You want to reward debtors, which is the same thing as punishing savers.
Surely this only applies is wealth is fixed. But wealth is created. My understanding of this is that by turning a much of bits of metal and oil into a refrigerator, we create "wealth", since a fridge is worth a lot more than its raw materials.
But the economics of this require someone owes someone something at some point. Given that a borrower pays back the loan with interest, and the savers get a share of that interest, debt rewards savers and debtors.
next week RaspberryP cluster used to farm Bitcoins
Imagine a Beowulf cluster of those!
Ah, the obligatory remark on something that is mentioned a lot.
As long as you dont have some heavily armed marines knocking at your front door FORCING you to read BC/RPi articles, or any article for that matter, I believe you have the freedom to ignore it. I dont disagree with you that some issues get more attention than others, and that that might be unfair, but hey... leave it in peace man!
rm -rf --no-preserve-root /
A beowulf cluster being held by Natalie Portman covered in grits.
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.
"And if they only use a little bit at a time, their relative economic power is relatively minimal."
Not if those little bits keep growing, as they must if the bitcoin economy is going to grow. No, anyone who can acquire a few BTC now can grab them and then become a burden on productive society for the rest of their lives, if it's going to take off.
We're already nearly at the halfway point of BTC generation. Everyone likes to laugh at the greek economy at the moment, but lets look at what happens if the BTC economy rises to the size of that one - all of a sudden the value of 1BTC has to increase by a factor of around 4000 (based on greek GDP of around 200 billion, current BTC market cap of around 50 million). Major incentive to hoard and then leech, if you think BTC has any chance at all of getting there.
The effect? A whole bunch of people get rich off the labour of others because of the way BTC is structured. This is not a feature of a currency I'm interested in participating in.
Who's worrying? I'm not participating in a currency that has this as a real possibility, especially when one guy ('Satoshi') may hold around 8% of the currency supply.
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.
Actually there was an inflation spike in Spain (and England) caused by South American gold.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Wouldn't any increase in legitimacy be a boost? I mean, when you have zero legitimacy to begin with, having even the smallest of rounding errors that usually falls into the noise defined by calculus's Theory of Limits would be a "boost."
Slashdot still doesnâ(TM)t support Unicode after it was added to the HTML standard in 1997.
>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.
Unicode killed the ASCII-art *