Could Bitcoin Go Legit?

Velcroman1 writes "On May 15, the Department of Homeland Security seized a digital bank account used by 'MtGox,' the world's largest exchange, where people buy and sell bitcoins. DHS alleged, and a judge agreed, that there is 'probable cause' that MtGox is an 'unlicensed money service business.' If proven, the penalty for operating such a business is a fine and up to 5 years in jail. FoxNews.com caught up with several bitcoin exchanges, including CampBX, MtGox, CoinLab and more, to ask them how they've navigated the regulatory waters — and how to go legit." In other shady bitcoin news, it appears the demise of Liberty Reserve has caused hackers to find a new alternative. twoheadedboy writes "Despite suggestions Bitcoin might be the ideal currency for dealers on the dark web, it appears Perfect Money, a Panama-based operation, is proving the most popular alternative to the now-defunct Liberty Reserve. A source working the underground forums told TechWeekEurope that, for now, fraudsters are rapidly migrating to Perfect Money. Many vendors have started accepting it, having previously primarily used Liberty Reserve, which was shut down following the arrest of its founder and four other members this past week. Internet fraudsters might be interested in Perfect Money as it has distanced itself from the U.S., cutting off all new American registrations. However, one forum user said he was turned down by Perfect Money as their 'type of activity is not welcome.' Other currencies may yet win out."

Comments

Bitcoin is already legit

[Anonymous Coward]

Bitcoin, whether you are a believer in government funny money or not, is a legitimate currency, like any other currency that is used as a substitution or a value representation for goods and services.

Also, the economic impact of Bitcoin is huge. People are spending millions developing ASICs to mine what bitcoins remain, even though more than half of them have already been awarded and it endeavors to be a scarce new resource. And, it's still barely profitable to mine with GPUs, so that is also a thriving industry.

I, for one, am waiting for the Bitcoin GPU bust when the ASICs come out in volume and used GPUs flood the market for cheap as people scramble to buy ASICs.

Like it or not, there are people who accept BTC as payment for goods and services, and there is a somewhat thriving market for them. That is legitimacy.

Re:Feathercoin - Bitcoin Alternative

[Anonymous Coward]

http://forum.feathercoin.com/index.php?topic=1059.0

[IMMEDIATE ACTION NEEDED] Post some Feathercoin Love over at Slashdot

Looks like crypto-currencies are to be the new pyramid scheme/multi-level marketing. BitCoin has a chance because it was the first of it's kind, so people were all going to choice it. A million new crypto-currencies will never take off.

Offshore

[LordLucless]

"Legit" is a meaningless qualifier. If a currency is legitimate when it can be exchanged for goods and services, then Bitcoin is already legit. If a currency is legitimate when it's approved of by your government of choice, then no, Bitcoin will never be "legitimate". If that's your definition, though, the real question is "why is legitimacy necessary?"

What will happen is probably what has already happened to other areas that have been persecuted by the US government at the behest of incumbent industries: they'll just move off-shore.

Re:Offshore

[UnknownSoldier]

> > If that's your definition, though, the real question is "why is legitimacy necessary?"

That's exactly the root of the problem!

Why do we need a government to decide what is Legitimate Digital Currency?

In many countries citizens ARE allowed to use a local currency:
      http://en.wikipedia.org/wiki/Local_currency

It seems to me that governments are trying to hold onto an archaic model of control based on fear. People need to stand up and tell the government to literally "But Out" of their business. The same shit happened with encryption before the government got a clue stick and realized that they have absolutely NO business trying to regulate how people use Math.

It seems to me that the design of Bitcoins is designed for both accountability and authority. I've yet to see a better digital design. What are _valid_ criticism of bitcoins?

Re:Offshore

[girlintraining]

"why is legitimacy necessary?"

Because money laundering operations, like drugs and other black market trade, is one of the ways terrorists fund their activities. That's the short answer. The longer answer is more complicated. The problem with draconian enforcement options like this is it drives things underground. Organized crime got its start in this country due to the Prohibition; By making a popular activity illegal and driving it underground, they forced people to turn to the underground. Cigarettes and other "sin products" are showing similar trends; Where I live, trucks are now arriving from Canada carrying nothing but cartons of cigarettes because the tax rates have become so high that some people have started turning to the black market to purchase them. The historical 'Boston tea party' incident was another such reaction to this -- while the mantra at the time was 'no taxation without representation,' what it was really about was an overly burdensome tax, and people started seeking out alternatives, as well as publicly venting their frustration. File sharing is another example -- the product has become so grossly-overpriced that it has fueled all kinds of technologies dedicated to getting around what could be termed the 'RIAA/MPAA tax'.

I forget the name, but in Macroeconomics, there's a theory that suggests that whenever you raise the tax rate, you get diminishing returns because more people look for ways to avoid the tax. Beyond a certain point, a higher tax rate actually results in less tax collected. To paraphrase a US Supreme Court Justice, "The power to tax is the power to destroy."

But what does all this have to do with Bitcoin and making it legitimate? When you have currencies not controlled by the government like Bitcoin, taxes aren't being collected. Yes, there may also be criminal activity associated with the currency, but that's only because criminal activity is like water -- it seeks the lowest point, the most efficient path. Government creates resistance in market forces for both legal and illegal, legitimate and illegitimate goods and services alike. In the 60s, numerous grass-roots efforts were made to create alternative currencies, and all of them were aggressively attacked by the FBI and Secret Service, for the same reasons Bitcoin is being hit today. There is an old saying; Don't believe what they tell you, follow the money.

Now, all that said, these government actions have the effect of driving things underground where they can't be tracked. The problem is though that the guy who wants to buy a dime sack of weed is not really a threat to anyone; but the guy who wants to buy shoulder-mounted missiles and bomb components is. But when you drive the hundreds of thousands of people who just want a dime sack underground, it gives the terrorists a place to hide. That's the problem with the black market: When it targets something that's popular, socially acceptable, or whatever, for political reasons rather than as a reflection of the people's will, you create an area for undesireable elements to flourish.

Take file sharing; All of this encryption and peer to peer networking would never have arisen if the government hadn't started punishing grandmas and college kids for doing it. The response was so disproportionate to the harm to society, and it was against commonly-held values by the general public, that it resulted in an immediate creation of a digital underground. And within a few years, the technologies developed to fend off the government found their way into the hands of "cyber" criminals; witness the rise of advanced persistent threats, botnets, and nation-funded espionage and sabotage, much of which uses the same technology created for a much less nefarious purpose: People just wanted to listen to music. Now our power grid, hospitals, dams, and other industrial infrastructure is at risk.

And now we have a real big problem. The government is correct: Bitcoin does attract the criminal element. In large numbers. What they

Re:Do your part to kill it

[Anonymous Coward]

You do realize that is exactly what people who mine BitCoin want you to do, right? They make 0.0005 BTC (currently 6.5 cents) each time you move money. If you elect not to include the transaction fee, miners will typically drop your transaction on the floor.

I know I won't stop you, but then again, I mine BitCoins and could use your money. Have fun!

BTW: Weird you got a +1 for your dumb idea. Typical slashdot retard moderators.

Re:Feathercoin - Bitcoin Alternative

[marcello_dl]

In fact I guess most virtual currency schemes are inherently less pyramidal and electricity wasting than bitcoin.
OTOH those things I perceive as shortcomings make bitcoin more popular (at present) for "opportunity driven" people.

Re:Could Bitcoin Go Legit?

[xenoc_1]

Right, and e-gold before it. Only criminals and terrorists have any need for an alternative, secure, somewhat anonymous, non-government-controlled (really non-Corporatocracy Bankster-controlling-government-controlled) currency. Think of the children. Think of the Homeland! Do the right thing, Citizen!

Re:Could Bitcoin Go Legit?

[gmuslera]

The main reason is that laws will keep moving to outlaw all companies behind it at all cost. The ones that control the law don't want anything looking like a currency outside their control.

What makes Bitcoin different

[dkleinsc]

The key thing to understand about government-backed currency is this: You have to pay your taxes in them. If you don't, said government can and will force you to do so. The government may also force a creditor to accept your currency to pay whatever debt you may have. In other words, it's backed up by the long arm of the law, and has value because if you choose to ignore its value guys with guns will show up to help explain the situation to you.

By contrast, Bitcoin is backed by absolutely nothing. It has no inherent value, and unlike government-backed currencies there's no use of force to back it up. In Hyper-inflation World that many Bitcoin enthusiasts think is America's future, you still have the guys with guns to demand that you use dollars to pay for certain things. By contrast, if Bitcoin goes belly-up, you have nothing except a bunch of bits that are of no use to anyone.

A question to the community

[Okian Warrior]

I'm curious about something, maybe the community here can point out an answer.

There's a sizeable audience of slashdot readers that are interested in the technical aspects of digital currency, the economic aspects of using such currency, the legal aspects of such currency, the social effects of using such currency, and it's importance in combating tyrrany (the political aspects of such currency).

It would appear that some techies realized that currency control is a tool to unjustly oppress people, and decided to do something about it. The engineering (ie math) seem to be solid, the economic rationale is logically sound (more so than standard economic mantras such as "a little inflation is good"), and the potential to protect human rights is enormous.

What we have here is a rare example of people recognizing a problem and doing something about it.

Despite this, all early posts are negative. Paraphrasing, "Oh, look, it's the weekly Bitcoin post", "Bitcoins will never rise to the status of a real currency", "it'll never work because you will never be able to pay US taxes in bitcoins", "it's a joke", "it's a scam", and so on.

So far (relatively early) there are about a dozen dismissive articles, all by anonymous coward.

What's with BitCoin? Why all the negative press? I've seen no named commenter put forth a rational argument as to why it won't work - that can stand up to logical scrutiny. All arguments so far have been handily shot down by subsequent responses. (You're welcome to try, though.)

Does the government hire astroturfers to guide discussions on this site for selected topics or something? (I'm not saying that there is - I'm asking if this is a well-known fact and I missed it.)

Why all the unfounded dismissive posts about BitCoin?

Re:A question to the community

[tftp]

It would appear that some techies realized that currency control is a tool to unjustly oppress people

All money issuers were using money to oppress people, to some extent. Why was the privilege of minting coins given only to the top aristocracy? Gold coins often were the sole privilege of the king. Lacking some advantage, why would aristocracy bother with a metalworking business?

The engineering (ie math) seem to be solid

The crypto scheme appears to be reasonably well done. However in practice there are several attack vectors, and they are possible to execute if you want to. It will cost you, but governments can do that already. It's just the matter of commitment and resources. BTC also has several usability problems, like the long time to clear a transaction (with 6 recommended confirmations, it's between 15 and 30 minutes.) Are you willing to stand in limbo at the grocery store for that much? There are no trusted BTC terminals; and if they were, they could be subverted because BTC depends on access to the network to calculate hashes - and the merchant does not control the network. Plug this merchant's network cable into your own router, run a hundred pet peers, and you can confirm any transaction you want. (On an open Internet you need to subvert the majority of hosts.)

the economic rationale is logically sound

It is debatable, and that's what is always debated in every article about BTC. In essence, there is no rationale that would work for pretty much anyone except Silk Road users. BTC transactions are not even free; but a Visa c/c pays me for using it. Why would I want to pay in BTC?

"it's a scam"

Scam or not, but early miners mined millions of BTCs when mining was good. Where are those BTCs? If the exchange rate of one BTC goes to $10K, for example, those early miners will become richer than Bill Gates. Will that be fair? I think not. Those guys (still anonymous!) may have done good for the society, but the society cannot value the formula (that doesn't even save lives!) that high. BG's Windows does save lives, as part of many computers.

Re:A question to the community

[hibiki_r]

Even if we ignored every other problem (and it has many), the supply of Bitcoin does nothing to try to adapt to monetary demand. Modern economics will tell you that there's a base demand for money, that is dependent on economic activity. Therefore, if we do not change the money supply, the value of a currency changes along with said levels of economic activity. Today, central bankers change the money supply levels to try to keep the value of a currency relatively stable : Most target a 2% inflation. This makes most contracts, and holding currency, relatively simple. When the value of money changes unpredictably, an economy will not work anywhere near as well: Keeping any contract working on nominal term becomes a pretty big gamble. Imagine being paid 200 BitPesos an hour. when one week the loaf of bread costs 20 BitPesos, but next week could go to just 0.1 BitPesos: It'd be quite the nightmare.

Now, Bitcoin is built to be naturally deflationary due to the way the supply curve is defined. A naturally deflationary currency is a very bad idea, because, in essence, keeping it in your hand is a form of investment. This means you are always better off keeping it in your hand than spending it. So, over time, the number of Bitcoins actually in circulation would naturally decrease, which would only make the prices spiral, until in the end, there's so few bitcoins out there, that people abandon it as a currency. At that point, the currency collapses.

Neither of those are features me, or any economist, would want in a currency.

Re:A question to the community

[dbIII]

What's with BitCoin? Why all the negative press?

Because it is none of those things you've mentioned above and is instead a pyramid scam targeted at people that are interested in digital currency. When somebody is deliberately targeting YOU with a scam it's hard not to take it personally, hence the negativity.

Does the government hire astroturfers to guide discussions on this site

Perhaps you think they could afford them due to all the money they saved due to hoaxing the moon landing? I'm sorry little pyramid scam participant looking for extra marks to exploit, we're not going to swallow this stupid conspiracy theory.

Re:A question to the community

[diamondmagic]

Fatal flaw with your logic: If people anticipated prices going up, then prices would already be that high, minus the price of time. This is a mathematical theorem. Likewise, if people know that Bitcoin will achieve mass adoption in the future, they will buy the currency and hold it, until they believe it reaches its peak, at which point they spend it. This is how new money effectively enters circulation, or to be more accurate, this is how price levels remain stable, regardless of the method of money allocation (the reason that central bank inflation is wrong is, even if predictable, the created money effectively steals from the existing base of savings to be given to creditors, banks, and the politically well-connected -- the so-called inflation tax). If Bitcoin's price is far below this level, this is due to the perceived risk: People holding Bitcoin will be greatly rewarded if it does achieve adoption, at the risk that they lose everything.

Another way to put it is: The total amount of natural resources at our disposal isn't increasing, why should the money supply?

Before a US central bank oversaw the money supply, prices largely remained stable, the price of commodities remained stable or went down (as manufacturing methods improved). Post-gold-standard, though? Prices go through the roof.

Your description of prices suggests that they somehow form a positive feedback loop. They most certainly do not. The only aspect of prices that could be spoken of in this form is speculation, and since there are limited resources to speculate with, bubbles always burst.

Re:Do your part to kill it

[tftp]

An AC who replied to you should be moderated up. Bitcoin transactions are not always free! Small amounts of BTC (hardcoded in the software) cannot be even transferred without a fee. If you want to transfer just a fraction of a BTC then all your money will be spent on the fee, and nothing remains. Large transactions may or may not be processed, also per the will of soneone else.

This is extremely important because supplies of BTC are finite, and the currency has built-in deflation. It is already $100 USD per BTC or something - this means you have to subdivide your BTC into thousands of smaller units. Numerically, you can do it. Financially, these units are useless.

That's one of the less obvious reasons why government-issued cash is the king for legal (and not so much) transactions. Cash is sufficiently secure, is untraceable, requires no Internet, and the transaction completes in seconds instead of 30 minutes. And on top of that, you don't need to pay a fee for the privilege of transferring cash.

But, of course, if everyone starts generating transaction noise just to confuse the watchers, then BTC will grind to a halt and will be entirely unusable for payments.

Re:Feathercoin - Bitcoin Alternative

[Embrionic]

You do realize Litecoin wasn't the first scrypt coin right? Could you please explain AC your pump-and-dump theory when Feathercoin has one of the most active alt coin communities?

Idiots
Pump-and-dump
Joke this, joke that

It's no wonder the 'hardcore' crypto community is often seen as kids just hitting puberty. Come spend a few minutes in our forums and form an opinion.

Re:Feathercoin - Bitcoin Alternative

[Anonymous Coward]

The pattern of these alternative bitcoin forks has been to fork bitcoin (or in your case, litecoin), mine a bunch of coins for the founders, then generate a lot of buzz, including spamming Slashdot (which you and your buddies are doing), let the price go up for a while, then at some point people will see the project isn't going anywhere and flee, and the founders will cash out their XYZ-coins before the entire currency devalues to nothingness.

I don't know that your bitcoin fork falls into this category but given how much you guys are spamming and shilling, it sure isn't looking good. I'm going to stay the hell away from it.

Re:Feathercoin - Bitcoin Alternative

[Entropius]

That is exactly the biggest weakness of these things. The goal of an electronic currency isn't to "make money mining"; it's to create a medium of exchange.

Re:Could Bitcoin Go Legit?

[pla]

Only criminals and terrorists have any need for an alternative, secure, somewhat anonymous, non-government-controlled
"Need" has nothing to do with it.

I count as neither a criminal[*] nor a terrorist, but recognize the ongoing dilution of US currency by (currently) 83 billion dollars a month (and that just from a single source!). I recognize that the government acts only in slightly better faith than the likes of Paypal, randomly seizing the assets of anyone it deems big enough to bother but weak enough not to fight back. I recognize that today's donations to a group of brave "freedom fighters" (c.1980, Taliban-vs-Soviets) becomes tomorrow's financial support for a "terrorist organization" (c.Now, half the planet including PETA).

People have a million and one reason to use an anonymous non-nationally-controlled currency. They have only corporatocratic protectionist laws against doing exactly that as a reason not to do so. And if that makes me a tinfoil-hat wearer, well, hand me my complimentary beanie, because GS' pet Geithner has the Aluminum-foil market cowering in Detroit begging for mercy.


* Insomuch as any of us can make that claim, given that we have a legal structure designed such that any of us, at any given time, have committed some crime TPTB can use to make us disappear for a very, very long time.

Re: actually if the fee is only 6.5 cents...

[Kal Zekdor]

Doesn't actually work like that. Each "coin" or wallet does not maintain it's own separate chain. There is one block chain which contains all transactions. New transactions are added to the chain with each block mined. That's simplified a bit, but more or less accurate.

Specifically what happens is a miner (disregarding mining pools for now, as a pool can be treated as a single miner for the purposes of the mechanics of bitcoin) gets a list of transactions from other miners and clients in the peer-to-peer network, each with a transaction fee attached. The miner uses this transaction list in conjunction with the most recent block hash to generate a hash of a new block which meets certain requirements (based on the current difficulty of mining, which is self-regulated by the network). This new block is sent off to the network, and once that block is used to generate another, the transactions in the created block are "verified", including the 25BTC (currently) transaction to the address of the miner, from nowhere. The miner also gets all transaction fees for transactions in the block. Not counting attempts to manipulate the block chain (i.e. forking, making a series of fake blocks and attempting to pass them off as legitimate), there is only ever the one block chain, just many copies of it.

Re:Feathercoin - Bitcoin Alternative

[Embrionic]

Valid question. I find it interesting that Litecoin gets a pass on this exact question. Litecoin's "innovation" was adding scrypt, however, there were coins before it that used scrypt. If you follow Coblee's original launch post, Litecoin's biggest difference was the number of coins and the fair launch. Somehow a new crop of alt currency enthusiasts missed that transition.

Aside from our 504 block retarget (max of 41.4% difficulty change), we have a strong network of miners/developers available on the official forums. We're completely revamping the client, adding in new protections and are community driven. We have 11 different leads running groups ranging from development to merchant services. We have a development group that's putting together test coins for us to experiment. It's a different feel, we're heading in a different direction than BTC/LTC.

While I'm looking forward to the new client features, I'm more excited about the direction we're taking involving musicians and gamers.

Re:Could Bitcoin Go Legit?

[Sir_Sri]

, but recognize the ongoing dilution of US currency by (currently) 83 billion dollars a month

And yet you do not recognize this as the feature that it is.

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

Despite the (virtual) printing of ~83 billion dollars a month the dollar is not magically dropping. Liquidity trap and all that. The ability to print more money as needed is a *feature* of the system. Any currency where you cannot do this is seriously lacking in long term sustainability and is essentially only a pyramid scheme for early 'investors' and currency manipulators.

People have a million and one reason to use an anonymous non-nationally-controlled currency

Sure, move the ability to manipulate to an unregulated self interest rather than a fiscal and monetary based system balanced by elected officials and shareholders. Brilliant.

But yes, there are millions of reasons to use a currency other than your own governments, and mostly that boils down to various iterations on 1: business in that country. 2: to avoid tax. 3: to evade tax or 4: illegal sale of goods.

I recognize that today's donations to a group of brave "freedom fighters" (c.1980, Taliban-vs-Soviets) becomes tomorrow's financial support for a "terrorist organization" (c.Now, half the planet including PETA).

This doesn't really change anything. Paying taxes to the US government while it was invading Iraq and torturing people was supporting terrorism too. Whether you had to pay in bars of gold, gold certificates, a fiat currency or something else you still had to pay it. Whether you have a bitcoin being donated or a slab of US dollars you anonymity is not impacted particularly. You only know who controls the value of one of those though.

Re:Feathercoin - Bitcoin Alternative

[Kjella]

I want to make sure I understand your thought process.

1. Create new crypto mining scheme
2. Mine lots of early, practicially free coins
3. Increase mining complexity
4. Convince everyone this is the next big thing
5. Watch dollar value soar
6. Cash out your free coin for real money
7. Leave suckers with worthless bits nobody wants for anything

Or in short, why be a peon in BitCoin when you can be king of a new currency?

Re:Could Bitcoin Go Legit?

[roman_mir]

"Magically", so everybody please pay attention. The poster I am replying to believes in magic, because that's the only way he thinks the dollar would be 'dropping' in case of printing - just by magic.

Tell me, oh the wizzardly one, why does the government even bother with counterfeiting laws at this point?

I'll tell you: they don't like the competition.

Printing 85 Billion a month is inflation by definition, what you don't see is WHERE it's going, where the inflation is causing the bubbles to appear, but just because YOU don't see, it doesn't mean there is no inflation.

There is inflation, MASSIVE inflation in the gov't bond market, in the stock market, some inflation is spilling into the housing market again, plenty of it is going into the 'education' market. Plenty of it is going into the various commodities markets and the foreign markets that are providing USA with its consumer goods are absorbing that inflation by responding with money printing of their own and buying up all the extra supply of the dollars.

But it's already collapsing, even before you realise that there is inflation, it's already collapsing. The interest rates in the bond market are going up, the Chinese are buying up USA properties and companies, dumping the collected dollars back INTO USA, and of-course just like with the last bubble that burst and then all these people on TV and in government said: nobody could see this coming, same thing is going to play out this time.

It's going to be a much more spectacular collapse this time, you are going to notice it when it really implodes, but until that, just like Ben Bernanke, the Federator, you think that dumping dollars from the helicopters actually achieves anything BUT inflation.

are millions of reasons to use a currency other than your own governments

- yes, being a free individual, free person that's the main reason.

Of-course people trade currencies for gain all the time, and it has nothing even to do with 'evading taxes', not that taxes shouldn't be avoided and evaded in the first place, anybody paying taxes is destroying the economy, not helping it.

The government wants to fund something? Let it cut the spending it already has.

Re:Feathercoin - Bitcoin Alternative

[DrXym]

Exactly. It's like pyramid schemes. Why join at the bottom when mathematically you're bound to be a loser when you could kick off a new pyramid scheme, populate the top 3 layers with phony / shill names and then cash out with enormous fortunes long before the thing collapses.

Re:Feathercoin - Bitcoin Alternative

[DrXym]

MLMs and pyramid schemes also have active communities behind them too, all VERY enthusiastic to recruit new "investors". Doesn't mean it's a sound idea to invest in such things. Same for bitcoin et al. Their communities comprise miners who cheaply mined out coins and now want to see the value of those coins increase. Can't trust a damned word they say on the subject.