Will Legitimacy Spoil Bitcoin?

New submitter F9rDT3ZE writes "Salon writer Andrew Leonard examines the U.S. Treasury's Financial Crimes Enforcement Network's (FinCEN) first 'guidance' regarding 'de-centralized virtual currencies,' noting that Bitcoin's supporters call it a 'currency of resistance,' while others suggest that 'the more popular Bitcoin gets, whether as a symbol of resistance or a perceived safe haven in financially troubled times, the more government attention it will inevitably draw, and the more inexorably it will be sucked into existing regulatory structures.'"

Comments

That's the price you pay

[allaunjsilverfox2]

No matter what you trade, if it has value, the state will look to control it's function.

Re:That's the price you pay

[Anonymous Coward]

If only we could put a tax on apostrophe's.

Re:That's the price you pay

[JustOK]

apostrophe's what?

Re:That's the price you pay

[ArcadeMan]

You would'nt bel'ieve how many t'imes Iv'e seen it use'd impro'perly.

Re:That's the price you pay

[Entropius]

The idea of Bitcoin, I think, is to give up on the idea of asking the state nicely not to control something, and make something that the state, whether it wants to or not, can't control.

Re:That's the price you pay

[Anonymous Coward]

And even then, only possible for a moment.

That processing power - by the way - is currently equivalent to about 613 PetaFLOPS.

Re:That's the price you pay

[shaitand]

"You have a bitcoin. Great! Now how do you know that it's unique? The transaction was signed? Fine. But how do you know that it was legit before you received it?

No matter how you slice it, there must be a central authority to indicate which are real, and which are false. A hack there can cause all flavors of theft, fraud, and forgery. If you have no central authority, then you risk fracturing your money supply at the exchange level, with each exchange becoming its own authority."

Having come up with a decentralized P2P solution to this problem is the reason people are so excited about this Bitcoin thing. ;)

Every piece of every Bitcoin ever to exist has a transaction trail from it's point of origin to the current address at which it resides. Verifying these trails is what miners do. It isn't simply that you send me some bitcoin and I trust it or I trust the hash. You send me Bitcoin and the network begins validating the transaction from the point it was mined to you to me over and over again with it eventually becoming part of that trail.

In order to have even the tiniest minute fraction of fake Bitcoin you'd have control >51% of all the mining power. The more people mining, the harder that feat is to accomplish. The Bitcoin network can determine if someone actually has >51% btw.

Re:That's the price you pay

[shaitand]

"What exactly stops the government from coming up with some other collection of numbers with different properties and claiming that they are also bitcoins?"

Other people agreeing with them? The "properties" of a Bitcoin aren't secret. Claiming something is a Bitcoin isn't something a person does, it is something a computer does. There is a complete transaction trail for every coin back to the moment it was mined including the ability to verify that it qualified at the moment it was mined and every client has a copy of it. When you send me a coin that trail is audited repeatedly by third party miners only becomes part of the audit trail with enough verification.

Every hacker and cryptographer and their dog has been trying to find a way to do what you suggest for the past four years (though most have already given up) and the best they've found is a theoretical way that requires controlling >51% of all mining power. A government that was willing to spend enough money might be able to do that (there is more demand than mining hardware as it stands so you can't just throw money at it) but the community can tell if someone actually has >51% of the mining power.

Re:That's the price you pay

[shaitand]

Party B would never need to sue Party A. The network would reject the fake transaction and it would never become part of the publicly viewable audit log. If you present the relevant address any judge could verify a transaction or lack of one along with anyone else who cared to.

The anonymity that people talk about with Bitcoin comes from the fact that there is nothing to indicate who any particular address is controlled by. The actual flows of coins between the addresses are all public record. That is why people use coin tumblers. With a coin tumbler you can get Bitcoin back out that is unrelated to the coin you put in. Even then, large transactions and conspicuous sums can be used for forensic accounting.

Re:That's the price you pay

[GreyWolf3000]

Tolkein? Is that you?

Re:That's the price you pay

[fuzzyfuzzyfungus]

No matter what you trade, if it has value, the state will look to control it's function.

So far, the main entanglements seem to occur because people what their bitcoins to be exchangeable with other currencies, particularly USD. Whether or not you think they are a terrible idea, the (copious) regulations that (sometimes, if you aren't big and important enough) cover bank-like institutions that deal in transactions large enough to be of money laundering concern aren't exactly new or surprising.

It would be a bit more novel if they were to go after bitcoin-only transactions floating around in the aether; but if the bitcoin system is going to link to conventional currencies, it isn't a huge surprise that regulations from conventional currencies will start to apply at those links. Not wholly unlike connecting a VOIP system to the local POTS. There are some ghastly hellholes where the VOIP simply isn't legal at all(though fewer of those can back it up); but a lot more where you can do whatever you damn well please so long as it's VOIP only; but once you start interconnecting with the POTS system, you get all the exciting legacy regulations associated with the incumbent copper for the last 50 years.

Re:That's the price you pay

[demonlapin]

This is one of the central insights of a book entitled Seeing Like a State, basically that all sorts of disastrous policies have been implemented not because they were likely to be successful at solving some particular problem (e.g., Stalinist collectivization of agriculture gave peasants a certain area of land, regardless of its quality, rather than the traditional division of best-medium-poor lands in roughly equal quantities to each family in a village even though this made it almost impossible for an outsider to identify who owned what) but because they made people's actions more visible to the state and thus more controllable (and more easily taxed).

Re:That's the price you pay

[Ol Biscuitbarrel]

M'or'e lik'e L'ov'e'craf't, Im' th'inki'ng.

Posted from ph'nglui mglw'nafh.

Re:That's the price you pay

[Anonymous Coward]

The death knell to bitcoin will be mass adoption. When millions of users are making transactions every day the miners will be unable to keep up with the transactions and the network will slow to an even more glaceral crawl. Already it often takes 20 minutes or more to validate a transaction.

Not to mention that the entire blockchain grows exponentially longer with every transaction and is already at 6GB. A few more years and it will be hundreds of terrabytes.

Re:That's the price you pay

[mestar]

This is a good question, and a normal thing for the network. You would have a temporary chain fork, and the branch that gets the next block first, wins. If the second blocks on two chains also happen at the same time, the third block will be the decider, and so on. That's why it's standard to wait 6 blocks before accepting the transaction.

So, the longer chain always wins, because, there is a very high probability that more processing power went into it.

Re:That's the price you pay

[vux984]

Same applies to VISA transactions. But nobody would ever commit 10^5 visa micro-transactions a day either for the same reason. Transaction fees would make it utterly pointless and counter productive. You'd inevitably switch to some sort of internal coins/points system for the majority of transaction and transact with VISA once a month or so.

Even iTunes already witholds processing puchases as they happen, and aggregates a day or two worth all at once to minimize their fees.

 

Re:That's the price you pay

[wonkey_monkey]

lol its sad that i get this.

*facepalm*

Re:That's the price you pay

[Abstrackt]

Looks like someone couldn't afford the apostrophe tax.

Re:That's the price you pay

[tehcyder]

The alternative way of looking at that is that the State is simply the legislative and administrative expression of the democratic will of the People, and that if goods are to be owned jointly and equally by all the people, then of course you need to make sure that no one is sneaking more than their fair share; and that, even if you don't have a communistic system and there is still private property, you need to be able to identify assets for tax and redistribution.

I don't imagine this interpretation will go down very well on slashdot.

Transactional Currency, not Safe Haven Storage

[billstewart]

Unlike gold or silver, bitcoins don't even have a vague amount of price stability that lets them be a store for value. They're purely transactional currency, designed to be hard enough to make that their value probably won't change very much very fast, but easy enough to make that the quantity can expand to support a growing market (at least for a while.) So they're useful for online drug deals, where the potential currency risk is a lot smaller than the profit from making convenient transactions possible, but they're not something that it makes sense to stash in your mattress as a hedge against inflation. Their value isn't backed by a useful commodity, like gold or oil, or by the ability of a government to tax its subjects, they're just backed by the fact that they're designed to be useful for some kinds of transactions that might not happen otherwise, and by the existence of exchanges where you can trade the things for cash at today's price, which is random but usually somewhat close to yesterday's.

Re:Transactional Currency, not Safe Haven Storage

[complete loony]

easy enough to make that the quantity can expand to support a growing market

Not even close. They are designed to be hard to make, to only be made at a pre-determined rate, and for new supplies to eventually run out. Bit-coins are designed to be limited in supply.

Re:Transactional Currency, not Safe Haven Storage

[Anonymous Coward]

You have a PROFOUND ignorance of economics, governance and politics.
Or, you've been steeped in the Fox Network view of the world.

Re:Transactional Currency, not Safe Haven Storage

[mysidia]

BTCs may have fewer risks than actual currencies, because while they are subject to competitive market forces; there is actually a cost to produce a BTC. There is guaranteed to be a finite amount of BTC that can ever be produced, as long as the Bitcoin network continues to function, and has not been subverted technologically. You can be relatively sure BTC will be a viable exchange medium into the future, absent governments banning it entirely.

While I appreciate, that these are a couple of risks -- it could very well be that coins and cash currencies also have risks, even greater market risks than BTC -- resulting in BTC being a safer long-term storage, and currencies such as USD being a better idea for consumers for short-term exchange. They have a different set of risks: With USD, for example, the US treasury can print a large amount of money at any time; they can declare certain bills worthless; if money is in the bank, there is a chance that it could be seized without the knowledge of the account holder (until one day, when you really need that money and coincidentally some creditor or ID thief took it today...); there is a risk of identity theft (traditional currencies placed with a bank could be stolen -- because when you have physical dollars, they are easily stolen by physical thieves or fraudsters, and social engineering and insecure secrets such as SSN digits could be used against a bank to coerce them to make unauthorized transfers).

The government may devalue the currency, through poor management. Your bank may change their policies, e.g. they may quietly start charging inactive account fees on your savings account.

With BTC, your wallet kind of is your bank account as well, and you are not so reliant on a specific third party providing you a service -- to maintain the account terms, deposit interest rates, no maintenance fees, etc.

Furthermore, your bank can make an accounting error, or an employeen can conduct a fraud in which the result is that money you did not spend is removed from your account. With BTC, you are assured this can't happen, without someone compromising cryptographic secrets that you can secure.

With BTC, while the possibility of theft through malware exists, you don't need a bank, and you have control over how you secure the cryptographic secrets required to transfer your Bitcoins, without requiring a specific third party to act -- if you are sufficiently paranoid, you can divide bitcoins into as many accounts as you like, and very effectively eliminate the possibility of large theft; even "legal" theft, without you're knowing about it until the check bounces -- when some creditor decided to levy your bank account.

Not even close. They are designed to be hard to make, to only be made at a pre-determined rate, and for new supplies to eventually run out. Bit-coins are designed to be limited in supply.

Indeed.. under the current design, the eventual amount of bitcoins available is guaranteed to be finite.

There are really only two forseeable long-term outcomes with regards to the value of bitcoins.... (1) They tend to become worth zero or less over time relative to their worth at previous times [either because of a flaw in the underlying crypto algorithms compromises the protocol, or, a significantly large number of people stop using the bitcoins, in sufficient number that Bitcoins become unusable as as an asset for trade/exchange, and therefore consumer demand for bitcoins eventually shrinks to a smaller amount at a given market clearing price] -- if there is a plentiful supply of people who have bitcoins (for example, through mining), and a very small amount of demanded product available for purchase that require Bitcoins to purchase, the demanded quantity for bitcoins will decrease, and they will eventually become worthless --- However, as long as there are demands for products that vendors will accept bitcoins for (ESPECIALLY services in demand for which v

Re:Transactional Currency, not Safe Haven Storage

[gd2shoe]

Actually, they're designed to be relatively easy to make. It's an ingredient of the snake-oil part of bitcoin.

People needed to use CPU cycles to "mine" them, thus they feel like they've accomplished something. They feel like they've contributed. They have earned something of value. It's a very nice, exciting, warm and fuzzy feeling. Having gotten something from nothing, they go from being skeptics, to converts.

There is a semi-legitimate social (not technological) reason for this. If I say I wanted to start an online currency, but I'm starting with all the cash, nobody is going to buy from me. On the other hand, if I say that other-people-not-me are the originating parties, people don't assume it's a thinly veiled money grab.

(To be perfectly clear, I do not believe Bit Coin to be a thinly veiled money grab. I do believe it to be ephemeral. I just can't figure out if it's unthinking zealotry, a complex scam, or an inevitable part of our zeitgeist - a word I swore I would never use.)

Re:Transactional Currency, not Safe Haven Storage

[complete loony]

Dollars *are* backed by debt. And that debt seemed to be ever increasing, at least up until 2007-ish when the housing market finally imploded.

The Fed doesn't really control or constrain the supply of money, though many economists still believe that they do. It's the double entry book-keeping rules of the banking industry that predominantly create and control the supply of money. A new loan creates both a future obligation and current spending power that didn't exist before. Sure the bank has to find a small amount of money to meet their deposit insurance, liquidity and capital requirements, but that's tiny in comparison to the value of new loans.

Since the level of debt is now such a huge factor in the economy, small accelerations and decelerations in the growth of debt have an enormous impact on the economy. And when everyone recently slammed on the debt brakes the economy practically died.

Re:Transactional Currency, not Safe Haven Storage

[swalve]

There is nothing more real about the faith that you'll be able to exchange gold for things you need than that you will be able to exchange dollars. Every currency is based, at some point, on the belief that it will be able to be exchanged for something. It doesn't matter if that faith is direct, as with fiat currency, or indirect, as with metal backed currency. The dollar has been more stable since we got off gold. Yes, inflationary, but stable. That's a good thing. Our currency is worth what people think it is worth, instead of being pegged to the whims of the gold market.

Re:Transactional Currency, not Safe Haven Storage

[shaitand]

Yes but if the Bitpenny is practically used like the dollar today that means 1 BTC is worth $100. This solves the same problem. We always have enough units of value to cover the volume of transactions being conducted in Bitcoin. Doing so indicates the economy has grown. If you do that by adding currency you create units by stealing value from all the existing currency units and then picking and choosing who to give them to. If you do that with a fixed amount of currency and create new units through division then you increase the value of the existing currency and thereby make using the smaller units feasible. The value is given to those who already hold currency instead of taken from them.

If the Bitcoin market continues to grow there will come a time when very few people are wealthy enough to have an entire whole BTC in their wallet.

Re:Transactional Currency, not Safe Haven Storage

[siride]

More like a tad full of shit. You can rattle off anecdotes about those hippie-dippie liberals who can't hold down a job or keep track of their money, and I can probably rattle off a longer list of liberal friends of money who do an amazing job of managing money or even starting and running business, while I have a list of conservative friends and acquaintances who are only a few steps away from being in the poverty line. Some people are responsible and some aren't, and it has little to nothing to do with broad political affiliations.

You claim to be an independent, but almost everything in your post is a talking point from the Fox News crowd. We have the myth that liberals like to blame other people for everything, that they can't manage money, that they don't have jobs, and that conservatives really *understand* economics, even though they propose ridiculous ideas like flat taxes and trickle-down, and believe that the Laffer Curve is a valid model to be used for serious tax and policy decisions.

No, you aren't a hypocrite. You're just another conservatard drone who is too chicken to admit it.

Re:bitcoin's value is for it's utopian idealizatio

[circletimessquare]

when you can only process opposition to your worldview in simpleminded cartoon stereotypes, you might have a problem

Legitimacy

[Grashnak]

I can't question its legitimacy until I see some evidence that it has any.

Re:What is their to spoil?

[Trepidity]

In what sense has U.S. currency been devalued? Its real purchasing power has remained quite strong over the past few decades; there hasn't been a significant erosion of real purchasing power (i.e. high inflation) since the late-70s/early-80s period of inflation.

bitcoin alternatives will emerge

[srk]

I think that a bunch of alternatives to bitcoin will eventually emerge so if government regulates one virtual currency there are going to be other safe havens.

Re:Quantum computing and bitcoins?

[Kal Zekdor]

The difficulty of mining bitcoins (and hence the speed that a given set of hardware mines bitcoins) is directly proportional to the amount of computing power mining bitcoins. If the amount of computational power in the system goes up, that means that (in the short term), the amount of bitcoins mined in a given period goes up. Every X number (I forget exactly how many) of blocks (the basic structure of bitcoin as a currency, currently each block "creates" 25 BTC, given to the block's solver. The amount of BTC earned per block is halved at distinct intervals, but that's not relevant here.), the bitcoin system (i.e., each client that is creating these blocks, as there is no central server) analyzes the length of time it took solve all X blocks. If that time is less than Y (again, don't recall the exact number, but I think it was a week), then the difficulty of mining blocks is increased by a proportional amount. If it was greater than Y, the difficulty is decreased.

What this all means is that if someone were to bring an astronomical amount of computing power to bear on mining bitcoins, the difficulty of mining bitcoins would automatically compensate, and the addition of new bitcoins into the marketplace would proceed at the same rate. Granted, the person at the head of all this computing power would be the recipient of most new bitcoins, but the currency would not be destabilized (at least through computing power alone.) There would be other things said person could do to destabilize bitcoins, though, through either Financial or Technical means. They could hoard all BTC they mine, causing the price of BTC to rise. They could sell BTC they mine at ridiculously low prices, causing the price of BTC to plummet. If they comprise more than 60% or so of all computing directed at bitcoin mining, they could hijack the blockchain, and would be able to spend bitcoins they don't own, or double spend their own bitcoins.

I'm fairly sure that anyone who attempts to hijack bitcoins through raw computing power would end up spending more on said computing power than they would earn from bitcoins. So unless a malicious billionaire or an intrepid hacker organization with a few supercomputers in their botnet decide one day that they really don't like bitcoins, it doesn't seem likely to happen.

Re:bitcoin's value is for it's utopian idealizatio

[circletimessquare]

i'm not entirely sure when faced with the same mental vomit over and over again why it is my responsibility to find a new creative path to sanity for the crackpot. it is the crackpot's responsibility to make fucking sense

It's all fun and games...

[gatkinso]

..until it becomes actual money.

At that point the suits take control, and there is absolutely nothing you can do about it.

Bitcoin Legitimacy

[fyngyrz]

The idea of Bitcoin, I think, is to give up on the idea of asking the state nicely not to control something, and make something that the state, whether it wants to or not, can't control.

That actually addresses the question in TFS: Will legitimacy spoil bitcoin?

First, you have to achieve legitimacy. In the USA, the power of currency, essentially, belongs to the federal government. If they perceive a threat (or simply a challenge) to that power, what do you think they will do? Hint: It's going to be directly related to the term "legitimate."

The thing about the assumption that the state "cannot" control something, is that it is almost always entirely wrong. This discovery is almost always accompanied by wailing and gnashing of teeth.

There is only one condition under which the state cannot control: When the state itself has been dismantled. And there is absolutely no sign of such a thing, even well out on the horizon.

Consequently, the answer to the question in TFS is: No. What's going to "spoil" bitcoin are actions of the state. Guaranteed. It won't be legitimacy, because that's permanently and irrevocably out of reach.

Re:Bitcoin Legitimacy

[paiute]

How long would it take the NSA to destroy the bitcoin by devaluing it?

Why would the NSA/CIA/ETC want to destroy a way for them to fund whatever they want wherever they want with a system they can game to be invisible to oversight? Hell, they probably funded the invention of bitcoin.

Re:Bitcoin Legitimacy

[Anonymous Coward]

The thing about the assumption that the state "cannot" control something, is that it is almost always entirely wrong. This discovery is almost always accompanied by wailing and gnashing of teeth.

On the other hand, the assumption that the state "can" control something is also almost always entirely wrong. This discovery is also almost always accompanied by wailing and gnashing of teeth.