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European Central Bank Casts Wary Eye Toward Bitcoin

Posted by Soulskill on from the new-is-scary dept.

An anonymous reader writes "Erik Voorhees blogs for bitinstant.com: 'On Oct 29, 2012, the European Central Bank (ECB) released an official (and very nicely prepared) report called "Virtual Currency Schemes (PDF)." The 55-page report looks at several facets of what virtual currencies are, how they're being used, and what they can do. As it happens, the term "Bitcoin" appears 183 times. In fact, roughly a quarter of the whole report is specifically dedicated to Bitcoin and it's probably a safe assumption that Bitcoin's growth over the past year was the catalyst for producing this study in the first place. The report from the ECB concludes, in part: Virtual currencies fall within central banks' responsibility due to their characteristics, and Virtual currencies could have a "negative impact on the reputation of central banks."' Could this be the first step toward regulation of the digital currency?"

53 of 301 comments (clear)

  1. Cast in a negative light, obviously by durrr · · Score: 4, Insightful

    Virtual currencies could have a "negative impact on the reputation of central banks."'

    By showing that the legion of morons and regulation and other peripheral bullshit associated with central banks are entirely unecessary and even counterproductive. Thus rendering, among others: the person that wrote the study potentially useless and unemployed.

    1. Re:Cast in a negative light, obviously by Twinbee · · Score: 5, Interesting

      I see banks, and their multiple saving schemes, and different types of credit/debit card, and cheque books, and different types of notes, and tedious forms to fill in, and different currencies with all the complicated mess that entails when converting, and I think how nice it would be to scrap it all and start again from scratch, done properly, with almost total automation, and no UWS (Unnecessary Work Syndrome).

      That would save billions or trillions of dollars per year probably.

      --
      Why OpalCalc is the best Windows calc
    2. Re:Cast in a negative light, obviously by MatthiasF · · Score: 2, Insightful

      "That would save billions or trillions of dollars per year probably."

      And put a lot of people out of a job, don't forget that.

      Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

      So you're stuck trying to balance efficiency with employment.

    3. Re:Cast in a negative light, obviously by fridaynightsmoke · · Score: 3, Insightful

      "That would save billions or trillions of dollars per year probably." And put a lot of people out of a job, don't forget that. Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible. So you're stuck trying to balance efficiency with employment.

      That must be why we subsidise the manufacture of buggy-whips and break all the windows every year to keep the glaziers in business, right?

      --
      This is a substitute for a clever sig that fits within the maximum number of characters.
    4. Re:Cast in a negative light, obviously by Twinbee · · Score: 4, Insightful

      And put a lot of people out of a job, don't forget that.

      Only in the same way that the number of professional glass makers would be reduced if vandals stopped breaking windows.

      Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

      I disagree. We need to keep or gain productivity, sure. But that's what counts, not the number of workers doing said work. And no, I'm not some hardcore capitalist, as I think a basic income for everyone would be a good idea (unconditional money on top of any regular work income). Even the rich are happier when the poor have a relatively decent standard of living.

      --
      Why OpalCalc is the best Windows calc
    5. Re:Cast in a negative light, obviously by Twinbee · · Score: 3, Informative

      I was referring to the Broken window fallacy, which could completely remove unemployment, if vandals decided to cooperate. The amount of time and effort wasted with banks and their red tape is pretty similar to that.

      --
      Why OpalCalc is the best Windows calc
    6. Re:Cast in a negative light, obviously by OrangeTide · · Score: 2

      Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

      They can be sent to work in the dilithium mines.

      --
      “Common sense is not so common.” — Voltaire
    7. Re:Cast in a negative light, obviously by jcr · · Score: 5, Insightful

      And put a lot of people out of a job, don't forget that.

      That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

      -jcr

      --
      The only title of honor that a tyrant can grant is "Enemy of the State."
    8. Re:Cast in a negative light, obviously by Znork · · Score: 5, Interesting

      Indeed, as the ultimate goal of humans is to work as much as possible. Almost everyone on their death bed regrets not having worked more. Or maybe not.

      We're rapidly leaving the age of scarcity. Within years whole swaths of current human fields of labour will be rendered obsolete, even now Chinese labour is getting replaced by robots, 3d printing will probably do a lot more in and we're on the cusp of losing vehicle piloting to automation which will wipe out large parts of the transportation industry. Increased demand is simply fulfilled by more automated processes, it doesn't create more need for labour to anywhere near the extent it used to.

      Ultimately we will have a choice. Either keep the few employed in productive necessary labour, while directly and indirectly taxing them like hell to support the rest of the population in meaningless make-work or outright welfare. Or we can cut working hours/days until equilibrium is restored and more equitable distribution of labour is achieved.

      Personally I prefer the latter. I can live with having more free time, but both working my ass off to keep everyone else fed or, to paraphrase Keynes, doing make-work by burying money and digging it up again just to keep 'money' flowing aren't among the more palatable ways of living life.

    9. Re:Cast in a negative light, obviously by Kergan · · Score: 2

      Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

      Ever heard of Milton Friedman?

      At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: "You don’t understand. This is a jobs program." To which Milton replied: "Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels."

    10. Re:Cast in a negative light, obviously by pla · · Score: 2

      Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

      Working to create goods or value does not equal working to shuffle goods or value around on paper (as distinct from physically relocating goods, ie shipping, which does create actual value).

      Some jobs just should not exist in the first place. Putting people out of them merely means having people available to do "real" work.

    11. Re:Cast in a negative light, obviously by spire3661 · · Score: 3, Insightful

      Who gives a fuck if a job is lost? I have no problem replacing men with machines. A competent man will find a new way to sustain himself without relying on holding back progress.

      --
      Good-bye
    12. Re:Cast in a negative light, obviously by Luckyo · · Score: 2

      Different banks. Central banks have little to nothing in common with savings banks.

    13. Re:Cast in a negative light, obviously by Luckyo · · Score: 3, Insightful

      Vast majority of "bank red tape" isn't something you can solve through technical means. That is because it's in place to control the human factor, also known as "opportunity makes a thief". And with rewards size of a bank, there are plenty of those looking for opportunities.

    14. Re:Cast in a negative light, obviously by ultranova · · Score: 3, Insightful

      I was referring to the Broken window fallacy, which could completely remove unemployment, if vandals decided to cooperate. The amount of time and effort wasted with banks and their red tape is pretty similar to that.

      The problem is, Broken Window Fallacy is only a fallacy in the sense that an economy which has to use lots of resources to deal with vandalism is less well of than an otherwise identical economy which instead uses these resource to expand. It says absolutely nothing about whether a statement like "our economy would collapse if vandalism stopped all of a sudden because a lot of glassmakers would be out of work" is true.

      Destruction or busywork may not create prosperity, but they can be used to spread it around; and while a more rational way might be to simply pay the unemployed glassmakers social security benefits and retrain them, that solution seems to strike those better off as unfair, so that leaves either letting them starve - which will lead to a revolution eventually - or making enough busywork through bureaucracy or breaking windows to ensure near-full employment and simply accept the resulting waste as a price to pay for people's irrationality.

      --

      Forget magic. Any technology distinguishable from divine power is insufficiently advanced.

    15. Re:Cast in a negative light, obviously by ultranova · · Score: 2

      That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

      All of which completely ignores the time and resource cost of the training required for that more important work, the fact that not everyone can do every job with any amount of training, and most importantly that people aren't spare parts that sit on a low-rent warehouse waiting for their next assignment between jobs, but fairly high-maintenance living creatures. Thus the end result is not more efficient division of labour for the betterment of all, the end result is fairytale riches for some and poverty and uncertainty for most. Which is not a good thing, no matter how many rich megalomaniacs complain they aren't getting enough worship from their slaves.

      Then again, if there's any group that deserves to be on the losing side of this dog-eat-dog battle, it's bankers.

      --

      Forget magic. Any technology distinguishable from divine power is insufficiently advanced.

    16. Re:Cast in a negative light, obviously by Chris+Mattern · · Score: 2

      My god, you're right.

      We must immediately set half the unemployed to digging ditches while the other half fill them up again. It'll save the economy! You're brilliant!

    17. Re:Cast in a negative light, obviously by icebraining · · Score: 2

      There's plenty of work to be done that most people could do. Elderly care, for example, is an important and growing sector.

      Then again, if there's any group that deserves to be on the losing side of this dog-eat-dog battle, it's bankers.

      There's no losing side. A person in the middle class today lives better than kings did in many ways (food balance, health, access to entertainment, etc).

      Sure, we need to push back against the imbalances, but that kind of zero-sum thinking is poisonous.

      --
      Dilbert RSS feed
    18. Re:Cast in a negative light, obviously by DanielRavenNest · · Score: 2

      Bitcoin in circulation are larger in value than the money supply of 7 countries. OK, they are small countries, but you have to start somewhere.

      Bitcoin current value: $110 million
      Samoa money supply: $110 million

      Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2214rank.html

    19. Re:Cast in a negative light, obviously by Luckyo · · Score: 2

      It's both funny and sad how it's usually people who never really had to handle the human factor on that scale that make this claim.

  2. Wonderful by skipkent · · Score: 5, Funny

    They're both in the business of creating money out of thin air, so of course they'd see a problem with it.

    1. Re:Wonderful by skipkent · · Score: 2

      At least when a business does it, I know they're doing it for profit. But when the government gets together with bankers on a private island then passes the law on Christmas Eve, you just get a little uneasy that it may be for some other reason.

    2. Re:Wonderful by Impy+the+Impiuos+Imp · · Score: 2

      A virtual currency has its prpblems, but keeping transactions encrypted and away from pryi (read: taxing) eyes is a government's worst nighmare.

      --
      (-1: Post disagrees with my already-settled worldview) is not a valid mod option.
    3. Re:Wonderful by arose · · Score: 3, Insightful

      All bitcoin transactions are publicly recorded, it's a cornerstone of the protocol. The only secrecy is that you are pseudonymous as a function of being identified by a public key.

      --
      Analogies don't equal equalities, they are merely somewhat analogous.
  3. first step to regulation of digital currency? by nurb432 · · Score: 5, Insightful

    No, its the first step toward eradication of it. The freedom of being able to buy something anonymously is soon coming to an end. Not only does it threaten banks and their empire, but governments too.

    --
    ---- Booth was a patriot ----
    1. Re:first step to regulation of digital currency? by nurb432 · · Score: 3, Insightful

      A private sale of a used product should not be a tax event ( which is what is mostly happening today with anonymous currency ). It doesn't matter what i bought or sold, I dont want my transactions 'officially recorded' its no ones business other than mine and the seller/buyer.

      If you want to talk about businesses not collecting tax on a new item, then that is not a problem of the currency, but of fraud and will be caught evenutally due to 'missing' inventory reports and such. ( and it should still be anonymous, no one needs to know i bought a candy bar.. )

      --
      ---- Booth was a patriot ----
    2. Re:first step to regulation of digital currency? by pla · · Score: 2

      The freedom of being able to buy something anonymously is soon coming to an end.

      I know, right? Like how they scanned my driver's license last time I bought something with cash; or how I had to register with the Bureau of Private Transactions this past week when I traded a friend a Snickers for a Milky Way.

      Bitcoin makes it easier to make semi-anonymous purchases online. It makes it easier to get around stupid government regulations on how I can spend my money, like anti-gambling laws. It makes it easier to engage in almost any transaction with someone from another country (or rather, "another currency", for those of you in the Eurozone), though that largely goes back to getting around insanely archaic pre-internet regulations.

      But anonymity? I'd like to see the governments of the world try to eliminate that from the markets, because it would effectively put an end to any support whatsoever for their useless-in-the-modern-world oversight.

    3. Re:first step to regulation of digital currency? by AmiMoJo · · Score: 2

      Did you read the report? It seems fairly clear that they are worried about the possibility of an unregulated virtual currency becoming popular enough to cause a financial meltdown in the wider economy. Unscrupulous people could do all the dodgy financial wrangling that we already banned in the real world, and in fact already are with ponzi schemes and totally unregulated and insecure banks.

      But hay, don't let TFA get in the way of your paranoia.

      --
      const int one = 65536; (Silvermoon, Texture.cs)
      SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
  4. Einen moment, bitte. by istvaan · · Score: 5, Interesting

    Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?
    That is, it's a currency designed from the ground up to exist without and outside of central regulation and interference.
    I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

    1. Re:Einen moment, bitte. by Sir_Sri · · Score: 3, Informative

      Well the central authority is built into how it was designed in the first place. You don't need a persistent authority because the core monetary rules of the currency exist from its inception and are unchangeable.

      This is of course one of the two fatal flaws of bit coins - like gold - you severely limit the flexibility of the currency to cope with a crisis. And secondly, alternate currencies are essentially a mechanism to dodge tax (including barter), they have other advantages and disadvantages*, but you can use them to dodge tax, which means governments are going to clamp down on it, as it undermines the basis of a functioning society when people are legally dodging large amounts of tax.

      And yes, much of this is like regulating the chips in a casino.

      *Those advantages and disadvantages matter a lot of course. The primary benefit of Bitcoins is anonymity, which can be accomplished other ways with regular currency (cash..). But that could potentially be a serious drawback if it can be used to circumvent sanctions for example.

    2. Re:Einen moment, bitte. by durrr · · Score: 4, Insightful

      People legally dodging large amounts of tax?
      You mean like the entire range of Fortune 500 companies and the associated persons?

    3. Re:Einen moment, bitte. by Sir_Sri · · Score: 2

      The US has had fine health care for a very long time. Better in quality and quantity than most of the rest of the world.

      As I said, the US is relatively honest, compared to say, north korea. If you would prefer, the US is relatively honest compared to most of the world, I'll grant you, but being the richest country in the world, and 8th per capita* means you should be able to reach goal higher than 'top half'. If I were to guess, the US i, top quarter or so, behind northern europe and a couple of other places, but well ahead of southern europe, south america and all of asia and africa. But the healthcare, wealth distribution and media are significantly worse than most of the countries with reasonably comparable GDP, and in large part that is because those countries are more functioning more honest societies.

      Quit confusing insurance with the care that insurance purchases.

      Depends. If you pay $1 for the same thing I get for $0.95 then you might have an argument, when you pay close to double for on average worse care, you're getting hosed. Medicare, medicaid and the US government health plans are actually pretty good I'll grant you.

      What I don't understand is this insistence from so many quarters that profitable (aka successful) business should be punished

      What you don't understand is that this is not what's happening, and so that's why you're confused. You've been convinced in the reality of a straw man, and now you're arguing with him. You're Clint Eastwood talking to an empty chair. But thanks for trying.
      The actual argument is that everyone should have opportunity, and very successful enterprises should be willing to kick it forward and help the next guy be as successful as they were. It's also a problem that if businesses are sitting on cash and not investing that you need to create product demand (so they will invest in growth to meet demand), the reason US interest rates are through the floor is that businesses have cash and aren't investing it. It would be better for everyone if they just spent the money, but on an individual basis they won't do that, so government could tax/borrow the money away to create jobs to create demand - at which point the government would need to borrow less money but there would be less available to borrow etc. There is quite a lot of very good analytical research on this topic.

      mediocre schemes guaranteed to be unable to handle the load that was formerly satisfied by the businesses that it replaced.

      Well the current US healthcare system spends more money than anyone else, and doesn't cover 50 million people, and covers millions more monstrously inefficiently. You've clearly bought into the misguided belief that just because it works in Switzerland and Japan and Massachusetts that there is no reason to believe it won't work for the entire US. Because... 'merica is different! Except, it isn't. Sorry to burst your bubble, which you, presumably, will choose to patch back up with false narratives and republican talking points and then continue to live in. Reality however, is moving on without you.

      *And I will point out many of the wealthier per capita counties, excepting Norway and Luxembourg and switzerland, are significantly worse places to live on average than the US. So the US should easily be top 4th or 5th in rankings like education and healthcare etc. But it isn't.

  5. Precisely by Anonymous Coward · · Score: 2

    Bit coin is a joke currency based on misusing my computers processing time, and the ECB is now operating like the FED with it's OMT's (Outright Monetary Transactions) The only real currencies are:

    family

    friends

    seeds / food / land

    survival equipment

    gold

    silver

    Bitcoin, though (arguably) well meaning, is a joke.

    1. Re:Precisely by biodata · · Score: 2

      You forgot the most important one - water.

      --
      Korma: Good
  6. Good luck with that by stevegee58 · · Score: 4, Insightful

    I'm not sure how a decentralized, electronic currency can be "regulated" at all.

    1. Re:Good luck with that by cmburns69 · · Score: 2

      You can "regulate" it by making laws against using it at all. Enforcing them may be difficult, but it could come to the point of it being a criminal offense to even have bitcoin software installed on your machine.

      --
      Online Starcraft RPG? At
      Dietary fiber is like asynchronous IO-- Non-blocking!
    2. Re:Good luck with that by betterunixthanunix · · Score: 2
      1. Barter is regulated in the United States. You are expected to report large barter transactions on your taxes, and if you fail to do so you could be caught in an audit.
      2. Good luck taking someone to court with a dispute involving an unregulated currency.

      Yeah I know, anarchist fantasies about the world of people living without the government. Except that we do not live in a fantasy, we live in the real world where disputes need to be settled and where settling disputes without courts degenerates into violence (see: gang war).

      --
      Palm trees and 8
    3. Re:Good luck with that by Richy_T · · Score: 2

      Between losing a few bucks now and then to disputes which aren't settled satisfactorily and losing more than a third of my income to the government each year, the choice is an easy one.

    4. Re:Good luck with that by betterunixthanunix · · Score: 4, Insightful

      Well, if you think the government is not going to protect you, I hope you live in a tactically advantageous location, have a stockpile of ammunition and guns, and a magic source of food. If not, then tell me this: what stops me and a group of my friends from coming to your home, killing you, and claiming your property as our own?

      See, if we have a dispute like this -- one in which I claim that I am actually the rightful owner of your things -- we can either ask the court (i.e. government) to settle the dispute, or we can let strength settle the dispute. In some places, where the courts are not respected, that is how disputes are settled, and people kill each other all the time (which actually leads to more disputes, and more killing). That is why we have courts, laws, and governments: so that we do not kill each other over disputes.

      --
      Palm trees and 8
  7. A threat to the printing machine by InPursuitOfTruth · · Score: 2

    Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years. Is it an outright threat? Only if your goal is to control people through virtual currency, and maintain the power to transfer wealth from the people to the government without the people being able to oppose it by printing money.

    Interestingly, while we compare it to western banking, it really undercuts more corrupt regimes that try to boalster their self-inflating currencies by putting up roadblocks to currency trade... e.g., Argentina's heavy restrictions on purchasing US Dollars with pesos in order to continue the wealth transfer to the government through currency inflation money printing. You'd think that western governments would be a bit more supportive of a decentralized virtual currency that helps people in countries like that.

    Perhaps people should just tell the ECB it is like a game currency (Linden dollars)...

    1. Re:A threat to the printing machine by betterunixthanunix · · Score: 2

      Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years.

      Nonsense. At no point in human history has a disorganized group of people had any meaningful currency. Currency is valuable because of authority; societies stay together because there are authorities keeping the peace.

      No, it is not fascist to say that. Courts have authority; the reason people don't go around killing each other when they feel like they are owed money or that they were cheated is that we have such authorities, and that we respect their decision. The point of democracy is to ensure that such authority is imposed with the permission of the people living under it.

      People did not use gold as currency because it is shiny. It was used because there was no better technology around to prevent counterfeiting, nor was there a good technology for printing money on paper (for that matter, there was no paper). Gold is not the only currency that was used prior to paper money; there is some evidence that clay was used to issue money in ancient Mesopotamia. Beyond very small, ad-hoc schemes, however, the commonality in money since the beginning of civilization is government: money has value because of government.

      Yes, see, "medium of exchange" is nice, but why gold over clay, or over tobacco, or some other medium? Why US dollars in the US, but Canadian dollars in Canada? It's not that the government has a gun pointed to your head telling you that you must only use US dollars. It's that things like taxes, court settlements, fees for government services, and so forth all require US dollars; that is where the demand for US dollars comes from. As long as that demand exists somewhere in the world, and as long as the supply of US dollars is not infinite, US dollars have value. Take the US government away, and pretty soon people will realize that US dollars are worthless.

      Yes, I know, inflation and blah blah blah. That's a supply issue. Bitcoin has no supply issue, but it has a serious demand issue. The demand for Bitcoin is dwarfed by the demand for government issued currency. Game currencies have more demand than Bitcoin. That is the reason Bitcoin is going to fail in the long run: eventually people are going to realize that they are selling their Bitcoin more than they are buying Bitcoin, and then the scheme will collapse (if deflationary spirals don't kill it first).

      --
      Palm trees and 8
  8. Bitcoin is doomed because of programmed deflation by MatthiasF · · Score: 4, Insightful

    Not many people realize why central banks exist, but their primary role to to assure a consistent monetary policy, specifically one encouraging minor inflation (1-4%). Why is that important and necessary? Because economies run best at a steady, expected pace. When inflation grows out of control, habits change with spending and investing (people buy less long term investments and more short-term riskier ones, or consumers horde goods) and we know from history that when an economy goes from inflation to deflation there is massive chaos not only in the markets but with consumer spending (as people sell off short-term investments for long term or consumers decide to hold off buying things knowing the cost will go down).

    So, economic systems need a slow upward progression for currency to assure the economy to be healthy and Bitcoin offers that with the algorithmic generation but if the coins are generated too quickly (by some advance in computer processing), horded by a few people or other circumstances that reduce the liquidity of the currency (like the massive exchange thefts we've seen), the currency itself will begin to shift from the programmed inflation to deflation.

    What's more is the fact that Bitcoin has a limit to the number of coins, which means when it hits that limit and the price of an apple goes from 1 coin to 0.1 coin, you just created programmed deflation and the behaviors of the users of the currency will change causing chaos against other world currencies that are targeting gradual inflation.

  9. 19th Century by TubeSteak · · Score: 5, Interesting

    But beyond any market-level incidents caused by a new currency, itâ(TM)s important to understand that virtual currencies can actually damage the faith people put into central banksâ"and fiat currenciesâ"as institutions themselves. People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didnâ(TM)t have a central bank). But, if it is demonstrated that money can work without central planning, and maybe even work better, then indeed the faith in central banks will be undermined, and with good reason.

    Why do we have centralized banking (aka the Federal Reserve System) in the USA?
    https://en.wikipedia.org/wiki/The_Panic_of_1907

    And you know what the solution to that panic was?
    A bunch of rich guys injected liquidity into the system because there was no central bank to do so.
    100 years later, when confronted with the same market situation, our central bank injected liquidity into the system and kept things from getting worse.
    Imagine that! Unelected ivory tower banking eggheads made the exact same move as laissez-faire capitalist J.P. Morgan and friends.

    The issues surrounding non-centralized banking isn't whether money works better or worse,
    it's about what happens during the edge cases, when shit hits the fan.

    --
    [Fuck Beta]
    o0t!
  10. Re:Bitcoin is doomed because of programmed deflati by Anonymous Coward · · Score: 2, Insightful

    I hear this tirade over deflation over and over again... but I see no actual evidence for it, and there is a spectacular counter-example: technology. The tech industry has been in constant deflation since its inception. You get more and more computer (memory, storage, processing, bandwidth, what-have-you) for less and less money every year (if not every month). Yet the tech industry has not come falling down because of rampant deflation. Where's the proof that deflation is bad?

  11. No,on the contrary ! by vikingpower · · Score: 2

    Could this be the first step toward regulation of the digital currency?

    This might be a further, albeit small, step toward further success of digital currencies in general and Bitcoin in particular. If and when a central bank reacts in such a way, such a reaction may betray it feels threatened. Which proves at least implicitly that virtual currencies in general and, particularly, Bitcoin fulfill their purpose. QFD.

    --
    Religous speak to God. Insane are spoken to by God. When all shut up, one can finally hear Shostakovich in peace
  12. Re:Bitcoin is doomed because of programmed deflati by Linsaran · · Score: 2

    It will be a long time until BitCoin reaches the maximum number of coins in circulation, specifically around 2140, and at the time, the number of bitcoins will be approximately 21 million. Since each bitcoin is currently divisible up to 8 decimal places, that means that when those last bitcoins are mined, there will be about 2.1 quadrillion individually accountable units of bitcoin currency available for use. That means that there is a controlled inflation value until 2140, and only after that point would deflation be inevitable. If we're still using bitcoins in 2135 or whenever that becomes a serious concern I'm sure some enterprising fellow will create a bitcoin clone, and encourage users to switch (which they will if they realize their money can only depreciate in value).

    Considering the gross world product for 2011 was just about $79 trillion USD, (or if we include the currently smallest common division of US currency in our calculations, the penny, we have aproximately 7.9 quadrillion individual units of currency) I think the number of potential bitcoins is plenty to compete with any other world currency. Especially since although the GDP figures above are listed in USD, the actual distribution of GDP is in USD, CAD, Euros, Yen, and whatever other currencies you can think of.

    --
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  13. Demand by betterunixthanunix · · Score: 2

    Now explain where the demand for Bitcoin comes from. People don't magically start accepting currency; there needs to be a compelling reason for them to do so. Compelling reasons for most currencies are: taxes, the court system, legal tender, and more generally the law. Now, what does Bitcoin have, other than the age-old scam phrase, "Other people will accept it!"

    --
    Palm trees and 8
  14. Re:Bitcoin is doomed because of programmed deflati by PhamNguyen · · Score: 2

    Well said, but I would like to clarify some things you said.

    Even though the exact nature of the price level (value of money) is still a bit murky to economists, it is generally agreed that the total value of money should have some relation to the total value of the economy. That is, the total value of money should be approximately equal to some fixed proportion of the total value of the economy. We can think of this as the equivalent of setting aside a percentage of the economy to use for barter.

    Now since the economy is always growing in real terms, this means that the total value of money must also grow.

    But if the number of bit coins is fixed, and it's value is growing in real terms (i.e. faster than interest rates), then it becomes a valuable investment. Or put another way, with rational investors the value of bit coin cannot grow over time. Fiat money doesn't suffer from this problem (gold may or may not) because central banks print money.

    In fact, this is the reason central banks print money, beginning with monetarism (growing the money supply at a constant rate) and moving on to modern methods which target inflation to a constant amount. I really wish more people would read about this instead of blindly following charismatic non-experts. It seems like anti-reserve banking is the new creationism.

  15. Re:Rare Metals? by pmontra · · Score: 3, Insightful

    They have no intrinsic value. Iron could be more valuable than gold as anybody would discover going to a fight with a golden sword against an iron one. People have been trained to believe that gold is precious. It will be as long as this belief lasts.

  16. Re:Bitcoin is doomed because of programmed deflati by Teancum · · Score: 2

    I've always though that the programmed maximum was silly, but largely irrelevant. There already are competing distributed alternate currencies to Bitcoin that use other allocation systems, so it is largely meaningless as well.

    The real threat to inflation will be the large number of Bitcoins in clients that are being hoarded but not used (often because somebody lost their wallet, their computer crashed, or had bitcoins and stopped using them), and if some alternate system can hack at those old hashes to "release" those bitcoins into the market suddenly. That wouldn't impact "current" transactions that would presumably be protected with updated hash algorithms, but if algorithms used in the past had a defect (like the MD5 hashes... to give an example... or they were protected with ROT-13), those could be "hacked" and used. It doesn't change the total number of coins in the system, but it could be the equivalent of finding a Spanish galleon and flooding a local market with a large amount of gold.

  17. 19th Century Financial Panics by westlake · · Score: 3, Interesting

    People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didn't have a central bank.

    The US went bust in 1819, 1837, 1857, 1873 and 1893.

    The Great Depression of the 1930s was called "great" for a reason. It followed a long series of depressions which afflicted the American economy throughout the 19th century.

    Crop failures, drops in cotton prices, reckless railroad speculation, and sudden plunges in the stock market all came together at various times to send the growing American economy into chaos. The effects were often brutal, with millions of Americans losing jobs, farmers being forced off their land, and railroads, banks, and other businesses going under for good.

    In early May 1893 the New York stock market dropped sharply, and in late June panic selling caused the stock market to crash.
    A severe credit crisis resulted, and more than 16,000 businesses had failed by the end of 1893. Included in the failed businesses were 156 railroads and nearly 500 banks.
    Unemployment spread until one in six American men lost their jobs.

    Financial Panics of the 19th Century: Severe Economic Depressions Occurred Periodically

  18. Re:Bitcoin is doomed because of programmed deflati by Linsaran · · Score: 2

    I know I'm over simplifying things here, but if someone wanted to 'release' lost bitcoins, they'd need the wallet file, in which case they'd no longer be lost. The wallet could be encrypted, but that's not really a lost wallet so much as a wallet locked up inside a safe that you don't know where the key is for. When bit coins are 'sent' what's really done is they are signed with a public key that matches the private key in your wallet file. For them to travel onto somewhere else you have to process them with your private key and resign them with the public key of where they're going next. Given current cryptographic complexities, the processing power to crack 'unspent' bitcoins would be so high, that it would be financially more profitable to devote those resources to mining new coins than to 'steal' them.

    --
    In a bit of shameless internet panhandling, I accept Litecoin Donations at Lbd2oH9QsthD1GfuUXPyka12YxvWJYnBVf
  19. Re:Bitcoin is doomed because of programmed deflati by Teancum · · Score: 2

    For many years people thought the MD5 hash algorithm was secure, but eventually a flaw was found that could crack that hash. See also http://en.wikipedia.org/wiki/MD5#Security

    You don't necessarily need the "wallet file" but you do need to be able to reconstruct it. This is all theoretical, but assuming that the current algorithm being used for Bitcoin had a similar mathematical vulnerability where you could crack a wallet some time in the future with ordinary computers in under a minute of effort, some of the older wallet files might be compromised. Don't go thinking that such things are flawless.

    If the issues with MD5 are any sort of precedent, there will be some warning in the community of software developers world-wide that the Bitcoin hash algorithms may be compromised, and some substitute will be found to hopefully improve the situation. It would be strongly recommended in that situation to move your bitcoins to a new wallet, but that doesn't stop older wallets to be harvested in some fashion. The processing power to crack these "unspent" coins may not be nearly so high as you may think. It would be a mad dash though to "harvest" as many of these older wallets as could be found as such a vulnerability is found.

    If quantum computers become common and high-Qbit computers (aka 500+ Qbits entanged together as a unit) are enabled, I would imagine that Shor's algorithm would be applied to older wallets and some sort of quantum encryption would thus be applied to future bitcoin transactions. This is a known vulnerability in the current structure of Bitcoin. As a practical matter, this is something you really don't need to worry about as such computers would not likely be built any time in mine or your lifetimes, but it is still something that could happen. Other problems might come up too.