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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?)
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.
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
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.
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.
. 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!
A beowulf cluster being held by Natalie Portman covered in grits.
>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 *