Slashdot Mirror
Online Gambling Site Bets On Bitcoin To Avoid U.S. Laws
SomePgmr writes with a story about an online gambling site planning to use Bitcoin to sidestep U.S. regulations that effectively ban online gambling. From the article: "Michael Hajduk had sunk one year and about $20,000 into developing his online poker site, Infiniti Poker, when the U.S. online gambling market imploded. On April 15, 2011, a day now known in the industry as Black Friday, the U.S. Department of Justice shut down the three biggest poker sites accessible to players in the U.S., indicting 11 people on charges of bank fraud, money laundering, and illegal gambling. ... Infiniti Poker ... plans to accept Bitcoin when it launches later this month. The online currency may allow American gamblers to avoid running afoul of complex U.S. laws that prevent businesses from knowingly accepting money transfers for Internet gambling purposes. 'Because we're using Bitcoin, we're not using U.S. banks — it's all peer-to-peer,' Hajduk says. 'I don't believe we'll be doing anything wrong.'"
It'll be nice to have an established poker site taking Bitcoins. Not that I want to disparage the current bitcoin poker sites (I like seals with clubs) but they just don't have the polish and finish to which I've become accustomed.
Is 1563649 a prime number?
And good job. Base your business off a virtual currency with ZERO backing and no control whatsoever.
And it's worse than US Dollars exactly how now?
Science advances one funeral at a time- Max Planck
Because the right people don't make money with it.
Science advances one funeral at a time- Max Planck
So I pay for a product - someone signs over a certain amount of Bitcoin to my private key - and I receive the product (the ability to do the same to someone else). So I'm sorry, what's the scam, again? It's all there, in black and white mathematics.
Wonder what the public key field is for?
Because it doesn't involve horses?
People in cars cause accidents....accidents in cars cause people
yep -and I am sure that Vegas, Atlantic city and the mob are putting their money and politicians into making sure it stays illegal regardless of the currency used
-I'm just sayin'
No control? That's an interesting way to look at it. Bitcoin is controlled by the consensus system that underlies it, if you decide you want to violate the rules then you are split off automatically into a parallel universe where whatever you do won't be recognized by your trading partners. That is a much stronger form of control than traditional currencies have. To change the rules requires the economic majority to upgrade (and thus force everyone else to upgrade with them, so trade can continue). It's pretty democratic, in that sense.
Contrast this to, eg, the US dollar, where control has been deliberately passed to a quasi-private branch of government known as the central bank. Its unelected leader pulls the levers of monetary policy in an attempt to plan the economy.
So both types of currency are controlled, just in different ways.
And platinum...don't forget the platinum...
There is no God, and Dirac is his prophet.
Sounds like a dumb idea, until you realize that Chuck E. Cheese and similar businesses have, for decades, been using a similar tactic to avoid running afoul of gambling laws: You're not playing for gifts or money, you're playing for worthless tokens!
The fact that said worthless tokens can be exchanged for things with monetary value is, apparently, non sequitur.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Yep! This'll stop the government from coming after you! Not!
It should, actually.
Otherwise, the government could come after anyone who plays Monopoly, too. Or anyone who plays poker with virtual gold coins in an MMORPG.
The US hasn't been able to back its currency with gold since Nixon formally abandoned the gold standard (and in reality, much before that). Land? What currency has ever been backed with land? Can I go to the US government with a stack of $100 bills and say "ok, I'd like the land that backs this currency now please?". Er, no. The US, like most countries, doesn't back its currency with anything. The only thing that people can exchange dollars for with the government is .... more dollars.
It makes Jesus cry
Not too long after Black Friday I had the same idea of using Bitcoin currency instead of real moolah. A site called Betcoin had already done this using the jpoker/jspoker library. I frequented the site for a while and even went back to it months later. In both cases the volume of people on the site was extremely low and the amount of bitcoin compared to real USD value was paltry even in comparison to the Full Tilt Poker $0.25/$0.50 tables. There just wasn't enough money in circulation on the site and not many people wanted to stake their futures on the volatile Bitcoin currency in the poker world. Plus, anyone that did any decent research just found various overseas and Indian-owned online casinos (harder for the US Gov to prosecute Indian territory casinos in Canada) and could exchange money by select Visa merchants, cash proxy sites, or by money order.
It is selectively illegal. Games of chance are only illegal for those not associated with the government (in most areas). Investment/insurance gambling is legal but regulated enough that you need to be rich to be the "house" (on the good end).
Amazingly, casino games give house odds of 0.1%-20% per roll/hand. But PowerBall games give more than 50% house odds. Make the better ones illegal or limited in availability. And when they are there, tax the crap out of them and make them advertise gambling addiction prevention stuff.
We should not forget about the plutonium.
"No fear. No envy. No meanness." Liam Clancy
Proving Bitcoins have value is trivial - there are exchanges where they are traded against other currencies for non-trivial prices, so they clearly have value. What more proof could you demand?
Yes, you can charge back with credit cards. This is great for the credit card companies who then lose the incentive to make their systems more secure, because merchants (ie, the poker companies) lose the money. With Bitcoin you cannot, so the deck is metaphorically stacked in favor of the merchant vs the punter. It's a little better than the reverse because most merchants at least have reputations they want to protect and aren't going anywhere, unlike buyers who can disappear in an instant. But Bitcoin does have ways to offer buyer protection - it's discussed in the very first page of the white paper describing the systems design. The protocol allows for dispute mediators who can decide who gets the money (buyer or seller) but who cannot steal the money themselves.
whoops, the above is me, just to put my reputation a bit on the line so it's not thinking the above anon is a paid shill.
Dragon's Tale, an mmo/casino hybrid, has already been doing this for two years. As does seals with clubs(an eu betting site, sealswithclubs.eu).
If you're looking for hold'em style poker, Seals is awesome.
However Dragon's tales(http://www.dragons.tl/) is a bit unique in that it has a LOT of different styles of games. There's the standard "luck" based games, some slot machine style, some complex paytables with various interesting things. Coconut trees are roulette style red/black odds. But they also have quite a few games of skill, which means there are behaviors you can learn about the game to improve your odds, and price adjusts to reflect the average level of play. So if you're good and careful with betting, making money there on a regular basis is possible. I'll also point out they have a rakeback policy that goes up as you play, which they also use to encourage older players to teach younger ones (in the form of the house giving a small part of its share to mentors).
All in all, bitcoin has proven itself to be quite versatile for online gambling. And at $14USD per btc, you can't really say bitcoin is a failed experiment. :P Stop on by dragons or seals if you doubt and i'll show you around. Both have free options (seals does hourly free tournaments, and dragon's offers free seed money through various activities)
You never realize how much manually made unmanaged "linked" lists suck, till you have src.link.link.link.link...
Of course the government has to outlaw gambling. It is dangerous and addictive, encourages crime and exploits the poor. Except the state lotteries, of course - those are somehow none of the above.
The US backs its currency with a fleet of nuclear-powered aircraft carriers. That's far better backing than land or gold.
And then you and everyone else stops going there and their buisiness goes toes up. As a general rule, you don't stay in buisiness and make money when you fraud your customers. How many times have you picked the 3-star vendor with crappy feedback over the 5-star one?
I don't believe we'll be doing anything wrong
shortly to become
I didn't believe we were doing anything wrong
how many pairs of boxer shorts should you own?
There is more to online gambling law than that.
There are different laws for making bets, taking bets, facilitating payments (this is what usually gets prosecuted), accepting advertising for gambling, displaying advertising for gambling, and even differences in regulation between types of gambling (sports betting, gambling machines, card games, etc.)
Then there are issues with corruption (throwing the game), and money laundering. For better or worse, organized crime loves gambling because it is easy to casually shift funds from one account to another without a paper trail.
On top of that, the government wants their cut in tax revenue.
//TODO: Think of witty sig statement
Is the US going away tomorrow? No.
Are they going away next year? No.
Are they going away in 5-10 years? No.
Is "A. Random H@X0R" going away tomorrow? Who?
Are they going away next year? Who?
Are they gone in 5-10 years? Who?
Essentially currency is based on trust.
For anyone who's not a complete, gullible rube, Bitcoin fails the "smell test" there.
Chas - The one, the only.
THANK GOD!!!
Its not terribly useful in the real world?
I mean honestly, can I buy food with it? Gas? How many merchants within 50 miles of my home (DC area) are currently accepting bitcoins? What about amazon, or ebay / paypal? Newegg?
Sure, I could transfer it to other people, but its also a pretty volatile currency. I have no reason to believe the value sent will reflect anything near the value once I exchange it into dollars, if I can even perform the exchange (since it requires Bitcoin exchanges or a willing purchaser).
Its kind of like trying to transfer money by trading stock: sure, it sort of works, but who really wants that kind of volatility? What supermarket would ever want to do that?
Actually, like most countries the U.S. backs its currency with the authority to tax .
The dollar has value because it can pay a dollars worth of taxes.
When Germany jumped into the eurozone, adoption of the euro was extremely slow until the year that Germany required all taxes be paid in euros, and in that year almost everyone converted.
"His name was James Damore."
They pay you today's $50 worth of bitcoins. How confident are you that that will be $50 worth of bitcoins tomorrow?
Youre essentially bartering with stock; if that floats your boat go for it.
have a whole department gaming the bitcoin system.
funny how gambling is illegal -- unless you do it with other peoples money
Most of the currency that is circulating is really just accounting entries at banks, backed by the securities the banks hold for the loans they have issued. What's the most common security? Houses, or the land they are built on.
09F91102 no, 455FE104 nope, F190A1E8 uh-uh, 7A5F8A09 that's not it, C87294CE no. Ah! 452F6E403CDF10714E41DFAA257D313F.
I think BitCoins were poorly designed (from an economic standpoint), and will never be a serious form of payment for anyone NOT wanting to engage in currency speculation on the volatile rate, but for gambling, they totally make sense. That is, as long as they realize that their BitCoin exchange rate will be an additional element of their bet.
> Can anyone remind me as to why gambling is illegal?
To ensure a never-ending supply of new daytraders to supply Wall Street's liquidity needs?
The Rentenmark was backed by land.
That isn't what backing means. Every single reply to my post has the same issue. Backing does not mean "the issuing authority has assets they can sell" and it doesn't mean "the issuing authority can force me to use their tokens through the barrel of a gun".
To say a currency is backed by something has a very specific meaning, which is that there is an asset literally "behind" the currency. The currency itself is merely a proxy for the backing material, one can be exchanged for the other at a specific rate. The gold standard meant you could, at least in theory, go to a bank or the government, hand in some currency and walk out with gold bars.
So given this clear definition it's meaningless to say a currency is backed by "the authority to tax". That authority might incentivize a large population to obtain these tokens and thus give them some value - but that isn't backing. It's taxation. It's also wrong to say a currency is backed by the ability to sell something like land - OK, so the government sells some land it owns. What does it sell that land for? Oh, right, it sells the land for dollars. So if I lose confidence in the dollar and want to hand them in, in return for the asset that backs them, the government selling land and giving me back more dollars doesn't help. I'd need the actual land itself and there'd need to be an actual somewhat fixed exchange rate between dollars and land. But there isn't.
If you want to argue that dollars have value because the US government taxes its citizens in that way, go right ahead. That argument doesn't lead to "Bitcoins are worthless because no government taxes in them" though. Bitcoins obviously aren't worthless because they started out having no value when they were first created, and obtained value over time as people learned about them. The system is an existence proof that you'd be wrong.
Not really. In a normal casino, the casino itself trades the money for the chips (or Monopoly money in this example) and they also exchange them back to real currency.
There is a difference here. The user is not giving the casino real money, and the casino Is not giving the user back real money. All echanges of money to and from bitcoin happen on the users end without the involvement of the casino.
The US would have to, effectively, say that BitCoin is real currency in order to prosecute. Maybe they will, and will treat it no differently than if the casino were using Euros or Yen.
If you need web hosting, you could do worse than here
Bitcoin uses a global distributed transaction history and account book, known as the "block chain" (because it is a series of blocks of transactions). There are many copies of the transaction history - each user of the official client gets one. Therefore it is more secure against accidental loss or forgery than a typical bank database. Transactions have to be cryptographically signed by the account owner, or they get rejected. There also has to be enough balance in that account number, or they also get rejected. To say the Bitcoin network has no control whatsoever clearly shows you don't understand it. Distributed control is still control.
Most US dollars exist in electronic form in various accounts in the banking system. The majority of the backing of Federal Reserve Notes (the paper currency) is by Treasury debt which also only exists in electronic form (the Federal Reserve and the Treasury stopped using paper T-bonds decades ago). Therefore to attempt to say bitcoins are "virtual" being any different than the official US currency clearly shows you don't understand our monetary system either.
You claim Bitcoin is a scam. In that case, someone must be perpetrating a fraud. Who, exactly? The people verifying blocks of transactions (ie miners)? They are performing a useful service, one that every bank has to do. The exchanges that convert bitcoins for other currencies? How is that different than every stock exchange and bank foreign currency desk? For that matter, how is it different than any other commodity that is bought or sold? The network that makes it possible to send funds internationally with low fees? PayPal, Western Union, and bank wires have done that a long time. Bitcoin just does it cheaper.
What it seems like, to me, Chas, is you are projecting your failure to understand Bitcoin onto others. What gives it value is the ease of moving funds, and, for a business, the lower chance of getting ripped off by PayPal or chargebacks. Even if it is not perfect, if it is better than the alternatives, people will tend to use it.
Only if a debt is created actually. I can offer to sell anything I own for barter, gold, bitcoins, or even euros, and I can, quite legally, refuse any currenct, including US currency...so long as no debt is created. Should a debt be created, then I would have to accept some amount of US currency to settle it (though I am still not required to exclusively accept it).
"I opened my eyes, and everything went dark again"
I don't get it. What do you have against Bitcoin? Has it killed your dog or something?
Your post is a stream of non-sequiturs. Yes, the primary exchange was hacked ... once ... and it resulted in a minor loss that the exchange covered from their own profits. Users did not lose any money. Yes, very tiny ad-hoc "one man and his dream" exchanges have also been hacked, but hardly anyone used them, so again, impact was very minimal. Do you think US banks never get hacked or robbed? Think again.
Many US banks have unbelievably woeful security that results in accounts being routinely emptied. Consumer accounts are insured by the government but business and organizational accounts aren't, yet many of them are protected by nothing more than a password or secret question/answer. That's absurd. Now nothing stops you under-protecting your Bitcoins, but at least you can upgrade to more security if you want. You're not at the mercy of your local bank.
What on earth makes you think that starting a "virtual business is more trivial than a physical business"? Did you step out of a timewarp from the 70s? Do you think competing with Amazon is inherently easier than competing with your local supermarket? Exchanges, as you note, rely heavily on their users trust in their security (as do all financial institutions). That's what stops them "simply reforming under a new identity". They'd be starting from zero and have no advantage over anyone else. And FYI financial regulations do apply to Bitcoin exchanges as they would any other online currency exchange. That's one reason the big ones all demand government issued ID in the same way a bank would.
Feel free to laugh at people who are using a next-generation financial system. It's been many years and Bitcoin is still around and doing fine, so I doubt anyone will care.
Can anyone remind me as to why gambling is illegal?
it doesn't provide industrial meaningful benefit, so it's free game for the government to tax to hell(and to build monopolies on, just another way of taxing to hell) since there's no productivity involved in it in the first place. it doesn't create eggs for anyones omelet, it produces no milk, it produces no steel girders to be used in building butchering facilities.
you could argue any entertainment to go into this category though.. and largely it's all taxed to hell anyways, whilst some other fields are actively subsidized.
world was created 5 seconds before this post as it is.
Yeah, the US is more likely to fail in the next 5 years than Bitcoin.
Also, Obama's going to take your guns and put you into a FEMA camp.
Better start hoarding shit in your basement and storing your own urine in mason jars. You know...
just in case.
This space available.
1) I didn't appeal to authority.
That would have required me mentioning an authority. I said that the designer had no understanding of economics. Not that he/she was ignorant of the writings of this or that particular set of economists or economic theory.
2) I didn't say deflation led to depression.
What I did say is that the use of BitCoins was going to be constrained by their inherently deflationary nature. As in, if acceptance of BitCoins rises, deflation will occur as demand increases. Expectation of that deflation encourages hoarding, which discourages their use, and therefore, acceptance. Geek Translation: BitCoins are stuck in a Deflation/Acceptance/Supply race condition.
3) Credit IS the lifeblood of modern economies.
Improvements in productivity, technology, agriculture, lifestyle, etc., all require access to capital. There are three ways to accrue capital:
A) Save until you can buy it. While this sounds all wholesome and good, it makes, say, the expansion of a business, the research necessary to bring a new drug to market, or the purchase of an automobile required to transport yourself to a better job rather difficult. Puts you in kind of a Chicken and Egg problem without credit. (I can't make money until I buy/build X, but I can't buy/build X until I have money.) Therefore capital spending of all kinds would be reduced drastically.
B) Borrow it. Bonds, banks, your buddy down the street, whatever.
C) Acquire investors. Wow, is that expensive. Even the most brain-addled MBA can explain that selling a portion of your business is usually the most expensive way to raise money. There's a reason that companies rarely execute stock offerings past their IPO... You only sell stock to either execute an IPO (so your other investors can bail) or to raise money you cannot raise by borrowing it.
Just because a bunch of bankers lent out more money than they should have to unworthy borrowers at unsustainable rates does not mean credit is a bad thing.
you are not even required by any criminal law to accept legal tender in payment of debt.
should the debtor offer you legal tender and you refuse, then you attempt to collect the debt at a later time the debtor can (and will if they are smart) raise your refusal to accept payment as a defense to your subsequent attempt to collect payment.
Snowden and Manning are heroes.
Is the US going away tomorrow? No. Are they going away next year? No. Are they going away in 5-10 years? No.
Is the US going to print 80 billion dollars more next month? Yes.
Is the US going to print 80 billion dollars more the month after that? Yes.
Is the US going to print 80 billion dollars more the month after that? Yes.
Is the US going to print 80 billion dollars more the month after that? Yes.
It's not the 'going away' part that's the concern.
I'm pretty shocked by the generally disparaging remarks regarding bitcoin. Nearly *all* currencies are speculative to some degee, just think of the exchange market. Investing in euro's doesn't seem like such a great idea at the moment but that certainly wasn't the case before the credit crunch. As long as the supply is limited (which it is) and there's a demand, bitcoins will have value. Many of you are assuming there is no demand, clearly you haven't visited the silk road. Bitcoin serves a purpose, it's digital cash, pure and simple. As long as people value *relative* anonimity in digital transactions (and there will always be a section of the population that does), there will be a demand.
Because I saw Jesus and his brother Juan at the track in Miami, and when they lost all their money betting on Castro's Little Bastard to place, Jesus cried like a baby.
We don't have a state-run media we have a media-run state.
How confident are you that that will be $50 worth of bitcoins tomorrow?
Well, his customers came to his website because they wanted to gamble, didn't they?
No.
The Kruger Dunning explains most post on
Is the US going away tomorrow? No.
Is the US government and banks going to continue to manipulate the US dollar for the foreseeable future? Yes.
Is "A. Random H@X0R" going away tomorrow? It doesn't matter. Bitcoin is a decentralized currency. Bitcoin is not dependent upon "A. Random H@X0R" for it to be trusted.
Where does the trust in bitcoin come from? Well if you don't know anything about bitcoin, you probably shouldn;t trust it. If you know something about computer science and theory of computability, you'd know that bitcoins are actually much harder to acquire than a government issued currency, and is therefore much harder to manipulate (e.g. like gold). A trillion US dollars can be created virtually with a keyboard stroke. The only thing stopping this from happening is the people in charge. What stops a trillion bitcoins from being instantly created is the laws of physics and math.
A lot of currencies have collapsed from rampant inflation exactly because the people in charge could *not* be trusted.
Some people trust government officials more than the laws of physics and math. I personally don't.
The value of the dollar is what you can buy with said dollar in the united states which barring a bit of inflation here and there(some inflation is a good thing) is about the same as it was last year or the year before.
If you're talking about the currency exchange rate, that value is set by the currency exchange market and is therefor bound by no sense of reality or sanity whatsoever in much the same way as stocks. The Australian dollar was trading at about 93 cents to the US dollar right before Lehman brothers and two months after it was sitting at 58 cents. Our economy barely had a hiccup and the US one was in the toilet, but the value of the US dollar rose dramatically. The most important factor causing the US dollar to drop has dick all to do with quantitative easing or the trillion dollar coin(which actually won't affect inflation at all since the effect on the money supply is essentially zero), mostly it has to do with the fact that the US economy is in the toilet and US interest rates are near zero, with interest rates being the bigger factor.
People who invest in Bitcoins are idiots. It is absolutely worthless. And even though it is worthless, I will still buy your Bitcoins for $10 USD each just so you won't be stuck in a jam of holding onto those worthless Bitcoins.
If you are not allowed to question your government then the government has answered your question.
Bitcoin was created in 2009. Given that it is the first real attempt at a decentralized digital currency (something most people are completely unfamiliar with), I wouldn't expect rapid widespread adoption. That said, one of it's advantages is that it does not require maintenance from a central authority to function. Short of destroying the internet, bitcoin will remain a stable and easy to use digital currency for anyone who wants to use it.
I don't see any reason that there couldn't be places that would start accepting bitcoin as it becomes less scary.
Yes bitcoin is volatile, like I would expect any new currency to be, but it's not as if other currencies are completely stable, they are just slightly more stable, and that is only for now.
Why would a gorcery store or amazon take US dollars? Because they have trust in it. People don't trust bitcoin yet, but it's not because it's not trustworthy. If it works well, I don't see why people won't come to trust it. It took backing the US dollar with gold for like 200 years before people trusted it enough that it could be used as a fiat currency.
The reason people trust the dollar for the same reason that ancient people trusted that the sun would come up tomorrow (because it had done it for as long as the could remember and therefore would probably continue to, especially if they sacrificed some virgins to their god). The reason to trust bitcoin is a much better one. The laws of physics and math make it impossible to easily manipulate it. It will take time for people to realize how good a reason this is.
No, but the taxation often provides the tipping point.
A national currency is marked by 2 things: that you can (or must) pay your taxes with it, and that the employees of that government (most especially the military) accept it in payment. As long as both of those are true, even with serious inflation, the national currency has value.
Socialism: a lie told by totalitarians and believed by fools.
I don't "have anything against" Bitcoin.
I simply am not gullible enough to trust it. It's primary revenue generation platform is a pyramid scheme. And it's clearing system is an unregulated free-for-all and an absolute quagmire with no protections at all.
And look at what I've written. If a bank gets hacked or robbed, you still have your money. You're federally insured.
You get your bitcoins scammed or stolen? Your recourse is...what?
Yes. It's been many years. As for Bitcoin doing fine. Being a clearinghouse for money launderers and drug dealers? Uhm. Okay!
Chas - The one, the only.
THANK GOD!!!
When the dollar was backed with gold, it meant if the dollar crashed, you could always exchange it for X amount of gold (whatever that's worth). As long as gold was worth something, then that propped up the dollar.
Not always. When FDR needed to print vast sums of money (by the standards of the day) to pay for his social programs, he outlawed ownership of gold by US citizens, to prevent exactl that! Eventually the French called him on it, threatening to redeem vast amounts of US dollars for their gold, even if US citizens couldn't. Shortly thereafter, the dolar was "revalued", and the existing currency was suddenly redeemable for far less gold.
There's never been a form of currency that the government didn't hstorically start watering down as soon as they has a spending problem. There was a time when British shillings, depsite being silver coins in principle, were so bad they would actually rust. Actual gold might hold value, but gold-based currency has a very long track record of doing nothing to prevent a government from diluting the currency.
Socialism: a lie told by totalitarians and believed by fools.
I should have said harder to create, but the terminology is different. You create money, and you find or mine bitcoins, but these are essentially the same thing (adding money to the money supply). To create money you just need to have the authority to do it. To create (mine) bitcoins, you need to find the answer to an incredibly hard problem that is guaranteed on average to require a great deal of work (calculations) to be performed to come up with a correct answer. If you have a normal computer you will almost certainly spend more money on electricity to find this answer than how much a bitcoin is worth. The inventor of bitcoin doesn't have a secret way to make them faster. The people running the exchanges can't just edit some files in their own computers to give themselves more money.
How would you even run a shady exchange? I suppose you could pretend to be hacked and say all the bitcoins were stolen and you don't have enough bitcoins or real money to reimburse everyone, then move to a foreign country and spend the money there. But that's no different than what a shady banker could do with digital US dollars. That's not a failing of the bitcoin system.
There are 6 cases of theft and fraud listed in the wikipedia entry for bitcoin. How many times has US dollars been stolen from banks or currency exchanges? I have no idea. It has happened enough times where noting individual instances of theft on the wikipedia article for "US dollar" is ridiculous. People do not regard indiviudal instances of theft of US dollars at banks and exchanges by crooks as valid reasons to abandon the whole financial system.
People are legitimately concerned about bitcoin theft because it is new. The same thing happened when online banking first started and people were worried that it would be possible for criminals to steal all their money over this mysterious internet thing. That actually does happen, it's just not more prevalent than regular theft, so people got over their fears.
Right, so that is an instance of *saying* the dollar is backed by gold, when it really isn't.
My point was not that money *was* truly backed by gold at all times before the gold standard was officially abandoned. My point was that the US dollar is currently not backed by *anything*, and that this is in contrast to the idea of a gold standard which is a true currency backing, regardless of whether the US government would have been able to make a 100% gold payout for what it promised at any given point in history.
Firstly, if you didn't mean to be offensive, perhaps you should have avoided directly insulting my intelligence and education.
I had a much longer rant planned, but then I realized you misunderstand the nature of my objection to the economic understanding of the BtC designers. (And, to be fair to you, I didn't mention it in my original post.) I have no problem with the idea of an electronic currency of fixed, limited, pre-determined, supply. While unsuited as a national currency, (there's a reason every single modern economy uses fiat currency; though some economies do it better than others) it can, nonetheless, be a very useful tool, and the idea is certainly a worthy experiment in technology and economics. I merely believe that the particular expansion curve chosen was a stupid one. I believe that it ramped up too quickly, leveled off too soon, and the long-term increase in the supply is too low. A better-chosen curve would have struck a better balance between staving off deflation and inflation. (It started too quickly, and then became deflationary/economic growth limiting.) They were too optimistic about the uptake of BtC's, and did absolutely nothing to account for any kind of significant long-term growth in their use after the "intro" phase was complete. This is why the value of BtC's has been so unstable and deflating so much.
Now, on to my (now) shorter rant:
While a large portion of economics is indeed a large pile of untested bullshit, the same could be said about any branch of science. Just as we do not seriously question classic Newtonian mechanics as a useful model for predicting the behavior of masses, nobody seriously doubts things like the fundamental relationship of Supply and Demand (used as a general model.) Conversely, there are many unproven branches of physics (i.e. String Theory) for which the evidence is little stronger than the abstract theories produced by the egg-headed economist of your choice. We CAN do economic experiments to test theories (such experiments are done all the time at the micro level, and are also done at the macro level by central banks, although the results of those experiments take much longer and the results aren't usually very clear-cut.)
I ignore divisibility for the simple reason that I do not argue (as many BitCoin skeptics do) that BitCoins are illiquid simply due to the relatively high value of 1BtC. I know that is incorrect.
I ignore velocity (which is certainly a legitimate means of expanding an economy without increasing the supply of currency the economy is denominated in) because BitCoins have given us no reason to believe that their velocity will be higher than any other currency, (and reasons to think it would be lower, namely the lack of a functioning credit market.) and there is an upper bound to how much of an increase is possible. As a side-note, since the supply curve has leveled off too quickly, and will continue to get even flatter, almost ANY economic growth (over the small value of the BtC expansion curve) will have to come through velocity increases... that rather limits the total size of the economy, and therefore BtC adoption. The ability to adjust the money supply based on the current and expected size of the economy is why every modern economy uses fiat currency, although, as earlier mentioned, some do it better than others.
I don't know if you are one of the people that believe this (I'd like to think you aren't), but large increases in the value of a currency are NOT a good sign if you want it to be a viable currency. Increases ARE good if you are investing in said currency. A currency is most useful when it is STABLE, and, barring that, reasonably predictable and not severely deflating. That is, if you want a credit market at all. (Inflation of a steady doubling per year could theoretically be baked into interest rates, you can't do that with a currency deflating by a similar proportion, like BtC's did last year.) And the current intra-day volatility of several percent make it utt
Backing is for stuff that is not valuable in its own right, such as pieces of paper with pictures of presidents on them. Bitcoin is valuable for its properties, and it has numerous huge advantages over the fiat competition. Notice that these are not tiny advantages, but a large number of giant leaps forward:
Decentralised and free from control
Always running 24/7
International
No/low fees
New privacy model
Transparent system
Divisible
Secure
Fast transfers
No chargebacks
Environmentally friendly / efficient
Digital
I can spend them on over 2500 websites, donate $1 to wikileaks with no fee, instantly deposit/withdraw from poker/sportsbooks, get 5% off on amazon purchases, and do sub $1000 currency conversions for less than any other method. The IRS doesn't know about it, no one can sue me to take it, my wife doesn't get half of it in a divorce, and I don't have to worry about it being inflated away by the government. It increased in value by 1,750% in 2011 and 186% last year, more than any other asset class. This is a radically superior money compared to pieces of paper and gold, even if you only count what it can do right now, and this is just the beginning. All kinds of cool stuff is getting built into the protocol. The future will show the real potential of this disruptive technology.
More detail on these points at: http://bitcoinmedia.com/bulleted-advantages/
So don't buy them if you think it's a scam. In the meantime, I can make use of a nice currency that is not under the control of any country, both as a consumer and a merchant. It's fairly anonymous / not easily trackable. It sets a stoploss, like cash -- if you cheat me in a Bitcoin transaction, you get at most the Bitcoins I sent you and no method to get more of my money. We don't need a bank to use Bitcoins -- they can be sent over the Internet with no third party intermediary, and there are Bitcoin escrow services to verify I received the product before I release the payment to you. Political systems routinely use currency as a way to control people. If people do not need the currency of a political system, that particular weapon becomes impotent. That's why the establishment opposes Bitcoin. I personally think Bitcoin is a great currency that helps me right now, so I'll continue to use it, "gullible rube" or not.
Greed, huh? You know what happens to things that are based on greed, right? They grow..
The value of the dollar is what you can buy with said dollar in the united states which barring a bit of inflation here and there(some inflation is a good thing) is about the same as it was last year or the year before.
Barring a bit of inflation here and there? Seriously, what? Do you know what's happened and how much currency debasement there has been in the last five years? No inflation is ever a good thing. It massages the egos of humans into believing that their investments are going up and paint over that everything else is as well.
Our economy barely had a hiccup and the US one was in the toilet, but the value of the US dollar rose dramatically.
Comparing the price of one currency to another when they are all being debased is a fallacy. Over the last five years it is pretty clear that dollar has declined markedly in value. In case you hadn't noticed there are a lot of dollars around. Everyone has them and that doesn't make it terribly valuable.
No, but the taxation often provides the tipping point.
A national currency is marked by 2 things: that you can (or must) pay your taxes with it, and that the employees of that government (most especially the military) accept it in payment. As long as both of those are true, even with serious inflation, the national currency has value.
That is only pertinent to the internal market value of the currency and only to a limited degree. The North Korean won and Libyan dinar are pretty worthless outside of their native nation states. However a national currency can even internally spiral out of control even where there is still the requirement to pay ones taxes from it and have it accepted as payment (think Zimbabwean dollar).
Any currency can be massively devalued by the creation of more of itself in excess of the perceived value of the currency. The more notes that are printed, the less the value of those in circulation becomes. This is why quantitative easing and similar solutions will not work. Come back in 5 years if you do not recognise this fact today and we'll talk then.
The strength in Bitcoin in this matter is that one cannot just run a shell script to create a few million more Bitcoins. Because the release of the unit of exchange is fixed there is a certain degree of security to it. Okay, so there is no major tax-raising government entity behind the currency. Does that mean it is worthless as a medium of exchange? Of course not. A medium of exchange is just that and no more. The value of a one hundred dollar bill is only what you are able to exchange it for, which is entirely dependent upon the environment you find yourself in.
Personally I would even argue that the claimed weaknesses of Bitcoin (decentralised, no government backing) could be a foundational key strength of the currency.
Here is the difference between investment and gambling. When you gamble, you win or lose money arbitrarily. There is no net gain in value from a gambling transaction, only a transfer of wealth. When you factor in transaction costs, gambling becomes a deadweight loss to society. Gambling is a negative-sum game. Investment, by contrast, is expected to be a positive sum game, and to create wealth. The ideal investment will be Pareto efficient -- something that can never happen with gambling. This is why investing in a business is different from a casino. If I invest $100 in a business and that business grows by 10%, I make $10 and the business owner also makes money. If I win a $10 bet with you, I make $10, you lose $10, and we have both wasted the time it took to make the bet and roll the dice. The end result of all of this is that investments gain money in the aggregate over time, and gamblers always lose money in the aggregate over time.
When you get into derivative trading and actively managed funds, things start to look a lot less like investments and a lot more like gambling. Wealth is transferred (minus commissions), but it's hard to see where wealth is created. Indeed, actively managed funds tend to under-perform the market in the aggregate. Here's a nice little parable by Warren Buffet: http://davidatwood.com/files/The%20Gotrocks%20Family.pdf