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Five predictions for (Bit)coin
Contributor Tom Geller writes: "I recently wrote an article about Bitcoin and the law for Communications of the Association for Computing Machinery. In researching it I ran into plenty of wishful thinkers, ridiculous greedheads, and out-and-out nutbags promising a rosy future. I also found the expected blowback from vehement naysayers who think the best way to combat crazy is with more crazy. But despite that, I walked away believing that Bitcoin — or a decentralized cryptocurrency like it (let's call it "Coin") — is here to stay. As an interested outsider to the Coin economy, and a long-time technology commentator, here's what I think its future holds." Read on for Tom's predictions.
Coin's primary use will continue to be in international transactions.
While people wonder "When will I be able to pay for groceries and utilities with Bitcoin?", that use might never come. But Coin already shines in international transactions, where it provides a clear advantage over current systems, which are expensive and complicated hassles. That's why PayPal has become the go-to solution: it just works, albeit with typical fees around 3-5%.
Coin reduces that fee to a small fraction of 1% (when sent directly), and is available in places where PayPal fears to tread (Zimbabwe, Pakistan, etc.). Coin transactions occur instantly, with no intermediary, and — for better or worse — without recourse.
That leads to Coin's second primary use: to store liquid value in places where other stores (such as national currency) are unreliable. For all the cries that Bitcoin is "unstable", it seems to have settled quite nicely after its April spike. Certainly it looks appealing to anyone in an unstable country, and it's even tempting for those in places where the currency's been on a long, slow slide, like Argentina.
Coin's big vulnerability is its interface with national currencies ("real money").
None of this matters if you can't get your money out again. And that's where governments are taking a close look at Coin — with good reason. First, Coin exchanges have a terrible track record; second, such points of exchange are bottlenecks through which financial crimes often flow.
In the U.S., the government's Financial Crimes Enforcement Network (FinCEN) issued guidance asserting its right to regulate "Money Services Businesses", and defining exchanges dealing in virtual currencies (including Bitcoin) as such. That's a problem for many existing Coin exchanges, as the costs for complying with regulations are high. But if there's not a stable and reliable way to get national currency in and out of Coin, its value will plummet.
Conversely, Coin's value is likely to shoot up if this interface gets easier. Right now, it's surprisingly hard to buy Bitcoin (et al.) directly with U.S. dollars. Most methods require bank wires, tricky multi-step workarounds, and high fees. (I found Coinbase to be the most accessible, albeit with long delays and a bank verification procedure similar to PayPal's.) If Coin becomes as easy to buy as a gift card and redeemable at every bank, its practical utility will soar for everyday people.
No government will make Coin illegal.
Despite bloviation by a few politicians and baseless statements in the press, Coin is not per se illegal, and there have been no serious attempts to make it so. The FinCEN guidance mentioned earlier explicitly says that ordinary users — those who buy and sell using Coin — are "not subject to FinCEN's... regulations for MSBs". It's possible that other government agencies will continue to claim authority, but there doesn't seem to be much support for it.
A lot of noise has been made about Coin's use in illegal business, for example on Silk Road (where it's the only currency). But law enforcement is realizing that the currency isn't to blame, much as they've started to say that Craigslist isn't responsible for crimes organized through its ads. I predict that that distraction will continue to surface from time to time, but will essentially die soon.
Even if governments attempt to illegalize Coin, there's only so much they could do to criminalize ordinary users. Again, Coin's real vulnerabilities are higher up the chain. However....
If Coin succeeds, governments will get involved — for the better.
"Noooo!!!" scream the cryptoanarchists who are Coin's pioneers. "Keep the government out of this! Coin can't be controlled! Nobody can take away our freedoms!" What they don't realize is that this attitude doesn't reflect the values of Coin's future users. The benefits of "freedom" matter to the innovators; convenience and safety matter to those who follow.
"Government" in this case could also be a government-size corporation, syndicate, or other entity. The important thing is that it's big enough to administer, back, and enforce initiatives to protect the Coin economy. Whatever that "bully entity" is, Coin adopters will welcome it because of two major flaws currently in (Bit)Coin's design.
First, Coin is ridiculously easy to destroy by accident. If you lose the private cryptographic key that identifies your coin, it's gone. Not just stolen, but removed entirely from the economy, so nobody will ever own it again. Consider these stories on Bitcointalk.org, where within a few messages the cumulative total tops 10,000 BTC — currently valued around a million dollars. A central authority could address this in several ways such as tracking, restitution, etc.. People don't care that their cash is anonymous when the rent money disappears.
Second, the entire system is vulnerable to a brute-force attack. Without getting into the specifics, Coin (well, Bitcoin) works because it assumes that at least 50% of the computer power on the network is held by honest players. But a recent 51% attack on Feathercoin (a Coin with much lower capitalization) showed that it's possible for a single party (or syndicate) to trump that.
Let's do the math for Bitcoin, the Coin with by far the highest capitalization, at just north of USD$1 billion (1 x 10^9). To reliably overwhelm the network, you'd need computing power delivering about 100,000 gigahashes per second. Computers optimized for Bitcoin processing are currently available for about $1,000/gigahash, so sufficient computing power can be bought for $100 million. Electricity cost for the deed would be about $200,000/day.
O.K., it's not something a basement hacker could whip up. But there are over 400 people, and thousands of syndicates with a billion dollars in the U.S. alone. Perhaps at least one of them is crazy enough to drop 1% of the wealth to partially control (or completely destroy) a billion-dollar system. (Hell, one of them recently spent 1/10th of that price tag on his wedding.)
Those are only the two biggest technical concerns. Then there's the galaxy of financial services (such as insurance) that's available for fiat money, but which would be hard or impossible to provision for Coin without a central authority. Time could overcome these barriers; a bully entity would overcome them faster, and with greater public buy-in.
Bitcoin is not the end game.
Along those lines, I don't believe that Bitcoin will be the ultimate winner in this game. It's the 1.0, and a brilliant first effort at that. But it's not perfect, and several pretenders to the throne already claim to fix some of its bugs. In fact, shifting conditions may require periodic issuance of new Coin as a matter of course. (As I said before, I believe such issuances will involve a central authority.)
These predictions all assume that Coin will grow, and there are many reasons it might not. However, I'm bullish on it for the long-term. It's already proven its value in use; the public is used to handling Coin-like money (viz. Square Wallet); and its first major hurdles are in the past. Now it's ready to enter a fascinating future.
- - - - -
Tom Geller (tomgeller.com) writes about technology and business. He's best known for Drupal-related work that includes eight video courses for lynda.com, a book for Peachpit Press, and corporate work for Acquia, Commerce Guys, and others. He first became involved in computers as a grade-school student in 1976, playing "Hunt the Wumpus" on a 100-pound monster that spewed tractor-feed paper onto the floor. He lives in Oberlin, Ohio.
While people wonder "When will I be able to pay for groceries and utilities with Bitcoin?", that use might never come. But Coin already shines in international transactions, where it provides a clear advantage over current systems, which are expensive and complicated hassles. That's why PayPal has become the go-to solution: it just works, albeit with typical fees around 3-5%.
Coin reduces that fee to a small fraction of 1% (when sent directly), and is available in places where PayPal fears to tread (Zimbabwe, Pakistan, etc.). Coin transactions occur instantly, with no intermediary, and — for better or worse — without recourse.
That leads to Coin's second primary use: to store liquid value in places where other stores (such as national currency) are unreliable. For all the cries that Bitcoin is "unstable", it seems to have settled quite nicely after its April spike. Certainly it looks appealing to anyone in an unstable country, and it's even tempting for those in places where the currency's been on a long, slow slide, like Argentina.
Coin's big vulnerability is its interface with national currencies ("real money").
None of this matters if you can't get your money out again. And that's where governments are taking a close look at Coin — with good reason. First, Coin exchanges have a terrible track record; second, such points of exchange are bottlenecks through which financial crimes often flow.
In the U.S., the government's Financial Crimes Enforcement Network (FinCEN) issued guidance asserting its right to regulate "Money Services Businesses", and defining exchanges dealing in virtual currencies (including Bitcoin) as such. That's a problem for many existing Coin exchanges, as the costs for complying with regulations are high. But if there's not a stable and reliable way to get national currency in and out of Coin, its value will plummet.
Conversely, Coin's value is likely to shoot up if this interface gets easier. Right now, it's surprisingly hard to buy Bitcoin (et al.) directly with U.S. dollars. Most methods require bank wires, tricky multi-step workarounds, and high fees. (I found Coinbase to be the most accessible, albeit with long delays and a bank verification procedure similar to PayPal's.) If Coin becomes as easy to buy as a gift card and redeemable at every bank, its practical utility will soar for everyday people.
No government will make Coin illegal.
Despite bloviation by a few politicians and baseless statements in the press, Coin is not per se illegal, and there have been no serious attempts to make it so. The FinCEN guidance mentioned earlier explicitly says that ordinary users — those who buy and sell using Coin — are "not subject to FinCEN's... regulations for MSBs". It's possible that other government agencies will continue to claim authority, but there doesn't seem to be much support for it.
A lot of noise has been made about Coin's use in illegal business, for example on Silk Road (where it's the only currency). But law enforcement is realizing that the currency isn't to blame, much as they've started to say that Craigslist isn't responsible for crimes organized through its ads. I predict that that distraction will continue to surface from time to time, but will essentially die soon.
Even if governments attempt to illegalize Coin, there's only so much they could do to criminalize ordinary users. Again, Coin's real vulnerabilities are higher up the chain. However....
If Coin succeeds, governments will get involved — for the better.
"Noooo!!!" scream the cryptoanarchists who are Coin's pioneers. "Keep the government out of this! Coin can't be controlled! Nobody can take away our freedoms!" What they don't realize is that this attitude doesn't reflect the values of Coin's future users. The benefits of "freedom" matter to the innovators; convenience and safety matter to those who follow.
"Government" in this case could also be a government-size corporation, syndicate, or other entity. The important thing is that it's big enough to administer, back, and enforce initiatives to protect the Coin economy. Whatever that "bully entity" is, Coin adopters will welcome it because of two major flaws currently in (Bit)Coin's design.
First, Coin is ridiculously easy to destroy by accident. If you lose the private cryptographic key that identifies your coin, it's gone. Not just stolen, but removed entirely from the economy, so nobody will ever own it again. Consider these stories on Bitcointalk.org, where within a few messages the cumulative total tops 10,000 BTC — currently valued around a million dollars. A central authority could address this in several ways such as tracking, restitution, etc.. People don't care that their cash is anonymous when the rent money disappears.
Second, the entire system is vulnerable to a brute-force attack. Without getting into the specifics, Coin (well, Bitcoin) works because it assumes that at least 50% of the computer power on the network is held by honest players. But a recent 51% attack on Feathercoin (a Coin with much lower capitalization) showed that it's possible for a single party (or syndicate) to trump that.
Let's do the math for Bitcoin, the Coin with by far the highest capitalization, at just north of USD$1 billion (1 x 10^9). To reliably overwhelm the network, you'd need computing power delivering about 100,000 gigahashes per second. Computers optimized for Bitcoin processing are currently available for about $1,000/gigahash, so sufficient computing power can be bought for $100 million. Electricity cost for the deed would be about $200,000/day.
O.K., it's not something a basement hacker could whip up. But there are over 400 people, and thousands of syndicates with a billion dollars in the U.S. alone. Perhaps at least one of them is crazy enough to drop 1% of the wealth to partially control (or completely destroy) a billion-dollar system. (Hell, one of them recently spent 1/10th of that price tag on his wedding.)
Those are only the two biggest technical concerns. Then there's the galaxy of financial services (such as insurance) that's available for fiat money, but which would be hard or impossible to provision for Coin without a central authority. Time could overcome these barriers; a bully entity would overcome them faster, and with greater public buy-in.
Bitcoin is not the end game.
Along those lines, I don't believe that Bitcoin will be the ultimate winner in this game. It's the 1.0, and a brilliant first effort at that. But it's not perfect, and several pretenders to the throne already claim to fix some of its bugs. In fact, shifting conditions may require periodic issuance of new Coin as a matter of course. (As I said before, I believe such issuances will involve a central authority.)
These predictions all assume that Coin will grow, and there are many reasons it might not. However, I'm bullish on it for the long-term. It's already proven its value in use; the public is used to handling Coin-like money (viz. Square Wallet); and its first major hurdles are in the past. Now it's ready to enter a fascinating future.
- - - - -
Tom Geller (tomgeller.com) writes about technology and business. He's best known for Drupal-related work that includes eight video courses for lynda.com, a book for Peachpit Press, and corporate work for Acquia, Commerce Guys, and others. He first became involved in computers as a grade-school student in 1976, playing "Hunt the Wumpus" on a 100-pound monster that spewed tractor-feed paper onto the floor. He lives in Oberlin, Ohio.
Is "Coin" the hipster new way to say Bitcoin?
I think it would be a better investment to send my money to Barrister Mohammed Gandha from Nigeria.
sudo make me a sandwich
Judging by the name, some sort of electronic currency? Have you tried googling for it?
the entire reason for bitcoin to be the coin is that it is the coin, exactly because of the 51% attack. the popularity is the safety, in both that it's harder to take over and it's more probable you will not end up with so many of the coins that everyone else on the network just decides "fuck it" and leaves you with worthless bits. if one single entity had all the bitcoins in the world nobody would consider them worth anything.
what puts any credibility into bitcoin clones? wishful early adopters? why would anyone else after them adopt it - just to pay the early greedos?
was feathercoin tradeable to real currency? who in their right mind put any money into it.
world was created 5 seconds before this post as it is.
So the big advantage of bitcoin is that it lets you send money overseas without the traditionally high service fees, but US (and other countries) are looking to add expensive regulation to the system that will drive up the prices to something similar to what you would find with a traditional service, only without any of the protections a traditional service might provide (which are admittedly pretty slim when sending money overseas).
I can see why the author thinks bitcoin itself is going to wither away. I'm not sure why he thinks some alternate and somehow better scheme is going to take off in its place. He also kind of skips over one of the big markets for bitcoins today: suburban teenagers who are buying mail order drugs and getting their parents to pay for it through their power bill.
I read the internet for the articles.
It's the weekly bitcoin article, are we done with it yet? No? Damn it...
Om, nomnomnom...
We'll have two more bc articles on Slashdot this week.
Sheesh, evil *and* a jerk. -- Jade
Because no one calls it that, and it's actual name is cryptocurrency
His numbers on Bitcoin Hardware are way off with ASIC's. Just visit Butterfly Labs, I have a rig doing 11GH/s, cost about $260 USD and uses ~ 50 watt of electricity. It costs less than $5 a month to run. BFL has some other hardware that has not shipped yet that can do 500 GH/s.
They sell their ASIC chips for $75 each (50 each if you have a coin credits) with min orders of 100. I assume each chip can do 2.5GH.
His numbers seem to stem back about a year or so ago.
to cash in my Flooze stockpile when I retire! It's the future. Whoopi Goldberg told me herself!
you think regulated Wall Street and currency exchange is crooked, we are starting to see the slicks manipulate what I prefer to call BiteCon. because they will turn it into a con, and you will get the bite.
if this is supposed to be a new economy, how come they still want my old fashioned money?
People continue to be distracted by the 51% mining control issue when in fact that is not the issue, or it is not the issue they think it is. This sort of attack doesn't only happen at 51% it can happen at any level of computing power, but the probability of success increases and the attackers relative computing power increases.
https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power
Further once and attacker has such power the ability they have to do damage to the system is limited to specific things. Things that importantly don't include taking all your bitcoin savings.
Bitcoin has a huge smorgasboard of advantages over anything else out there that make it vastly superior: 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 It increased in value by 1,750% in 2011, 186% last year, and 1,000% this year, more than any other asset class. Time to load up imo. 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. He is right about it being able to destroy them if you handle them yourself though. Many solutions are being worked on for that problem.
BitCoin just sinks as the other virtual currencies : The boat sinks
A lot of crap. First we have this "Coin" business, instead of Bitcoin. If you want to talk about various *coins, say cryptocurrency or cryptocurrency based on Bitcoin.
Also, alternative bitcoin based currencies are mostly scams or failures for various reasons. There is no way there will be a 51% attack on Bitcoin. Sure your math says there could be. But it ain't happening. Sure Feathercoin got attacked. But what the fuck are they? What can I buy with that?
The transaction fee is 0% at present. Most miners will still accept your transaction, even if you don't pay a fee. And any fee is voluntary (except if you use the default client, in which case it will, in some cases, enforce a 0.005 bitcoin, I think, fee).
Oh, and its easy to lose your bitcoins. Gee, just like "paper" money. Whoops I ran my hundred dollar bill through the washer a few times. And now it's indistinguishable from lint. Or, hey, my house just burnt down, and I lost my life savings ('cause fuck banks). In fact, if you pay attention (i.e. take backups like you should with any digital stuff you want to keep; run a decent OS), it's harder to lose your bitcoins.
So Bitcoin is wonderful. Alternative cryptocurrencies may or may not be (but probably not). And the author should have done a little more research.
HELP MY ACCOUNT HAS BEEN HACKED BY AN ILLIBERAL ART STUDENT SET TO DESTROY THE INTERWEBZ!
Humans are stupid. You can tell this by what they "value".
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
The currency of deluded people and unicorns.
" Coin's primary use will continue to be in international transactions. While people wonder "When will I be able to pay for groceries and utilities with Bitcoin?", that use might never come. But Coin already shines in international transactions, where it provides a clear advantage over current systems, which are expensive and complicated hassles. That's why PayPal has become the go-to solution: it just works, albeit with typical fees around 3-5%."
The reason why existing systems cost so much and take non-trivial delays is because these systems can be attacked or exploited in ways that cost people real substantial amounts of money. If you see BitCoin carrying millions of dollars of transactions daily / hourly / in minutes, do you still think it'll be the hot sexy magical fairy of transactions that it is now? No, you'll have to raise fees to buff up the infrastructure against attack, and build in extra fees to compensate against fraud, or no legitimate business will deal with it.
There are a ton of bank to bank transfers that are generally a lot slower, but you're all but guaranteed against fraudulent transfers (and the ability to claw back accidental ones). BitCoin may be a fun geek interest area like HAM radios and DIY projects, but the realities of international commerce are fraught with realities that go far beyond any of the problems solved by this technical solution.
Bye!
How is bitcoin mining not a waste of electricity?
Most linux users don't know this, but the man pages were named after Chuck Norris. Chuck Norris fsck'ing hates noobs!
It is a scam that only the low IQ waste their money on.
Do not look at laser with remaining good eye.
It is basically a digital barter currency that people can trade. It has a cryptologic foundation so you can't just claim to own any without actually either being given some or 'mining' it. There's only a finite amount of bitcoins and mining it involves solving a mathematical problem that gets more difficult as each batch/block is solved and issued. Right now the hardware to effectively mine it is very specific and you basically will burn electricity at a cost roughly equivalent to the going rate of bitcoin. The early miners using just a standard PC to mine are theoretically sitting on bitcoins valued in the millions... if they haven't lost them after a crashed drive or such over the years.
I read the article, I think the conclusion is flawed. What the regulators want or can do is pretty much irrelevant.
Bitcoin is already out of the bag and is designed to make an end run around the "normal" ways of secured money transfers. I'm guessing they're not fighting this harder because they're trying to avoid the Streisand effect, as well as legitimize it as a threat to "normal" banking business by saying it is.
A rose by any other name... doesn't give a damn what it's called.
About the Streisand effect, the article mentions the recent jump in value from 20 to 250 to 120, but didn't mention the first jump over a year ago from 7 to 37 to 20 when senator Chuck Schumer pointed out how easy and untraceable it was to buy illegal drugs off silkroad using bitcoin through tor and how it should be stopped. Best bitcoin advertising ever!
The surge from having Cyprus banks skim value out of accounts will probably end up being a rather small bump once people realize that every time the US government creates more debt (and more money) by spending beyond what the collect in taxes, they are effectively pulling value out of the entire dollar-based-economy (everyone's pockets and savings). It will be interesting to see how they try to prevent people from moving their savings from one that perpetually looses value to one that is designed to perpetually grow in value.
Coin exchanges have a terrible track record...
Right. Many of them have gone bust, usually without returning the money. Bitcoin is the con man's dream - untraceable, irrevocable one-way money transfer from sucker to anonymous scammer. No worries about the mark coming back with the cops, or a few friends with baseball bats.
Getting money out of the various exchanges is hard. Even Mt. Gox has severe limits on withdrawal rates. That's suspicious. They should have 100% of the assets entrusted to them by their customers, and should be able to deliver them on demand. Because they resist that, I suspect they don't have all the assets they should. Withdrawal rate limits are commonly associated with Ponzi schemes and "high yield investment programs", where if the customers take out their money, the whole thing collapses.
Seriously, Google. Bitcoin.it. Khan Academy series of videos if you want the technical details presented a bit more clearly.
Unless you're okay with the usual replies;
It's a scam
It's for delusional people
It's for drugs
It's for fuck-the-government-I-don't-want-to-pay-taxes
It's doomed to fail
It's designed to fail
It's a pyramid scheme and guess what, you're not at the apex.
Alternatively...
It's the future
It's like money, but better
It's inherently deflationary
It's a pseudo-anonymous way to pay for whatever you want without anybody's approval.
It's a way to receive funds without having to fork over a percentage to payment processors.
It's like chickens. ( I guess asking the question you did means you wouldn't get the reference. )
Or the more neutral - or should I say, opportunistic: It's a stock, the value bounces up and down and if you buy right and sell right you can make some money off of it, but you should never put in more than you can stand to lose. Except you don't get to curse at a CEO for not squeezing the little guy enough to bring up the bottom line and increase the value.
Personally, I just like watching all that goes on around it. It's more interesting than the cryptocurrency itself, the main discussion of which at e.g. Reddit is "help get so-and-so to accept Bitcoin" because in the end all those Bitcoins are useless to have unless you can spend them somewhere, or easily get regular ol' currency for it. Kind of like wandering around the U.S. with a wallet full of Yen, really.. except nobody's suggesting stores should accept Yen. Maybe Pesos, though.
( On the vastly more technical hardware side, the ASIC miners' development is kind of interesting though. )
The currency of deluded people and unicoins.
There. Fixed that for you.
Not A Sig
We are of similar minds. :)
Tom Geller
Really... this virtual scrilla *still* has value? How?! It is backed by literally nothing in the real world? What you gonna do when the apocalypse, e-pocalypse, zom-pocalypse, etc, etc, etc happens? Your 'Coins' will be inaccessible or unusable. That's why I invest in bullets, guns, beer, and women. You girls can keep your nancy boy 'Coins' and throw your USB sticks or external hard drives at a zombie's head. I'll be plugging 'em from a distance, where it's safe, while eat a sno-cone, making out with my woman and drinking a beer.
Bitcoin, itself, will remain a niche currency. The author's point about places where banks fear to go is good. Otherwise, the built-in deflationary tendency will make it increasingly irrelevant in the larger economy.
Luke, help me take this mask off
Some use cases for bitcoins for the techies and privacy conscious people are
1) VPN payments (AirVPN, there are many others)
2) Server payments (PRQ, there are many others)
3) Game Server Privileges (Various) - Many gamers have rigs and may be young, they can mine a few fractions of bitcoins in a pool and donate for admin or VIP status without needing money or to be old enough for paypal/debit cards etc.
4) Debrid Services - Multi-host download services
5) Exchanging for goods or money, places like bitcoin-otc act as web of trust communities to trade for whatever you want. Most tx seem to be for currency, but I have done things like xbox live codes, etc.
6) Merchants, you can use bitcoins to purchase giftcards that can be used at online and brick and mortar locations.
7) Barter IRL - Many people who follow currency news has heard of bitcoins and are curious about it, but reluctant to invest in them directly or acquire mining hardware. I have successfully bartered for many services using bitcoins as payment. This also helps promote the idea of cryptocurrency to the general public.
Combine using Tor to register and transmit bitcoins and login to such services, you can keep the trail fairly clear.
Wallets such as electrum make it fairly quick and easy for people to get into bitcoins and provide a failover generation method to backup/rebuild your bitcoin wallet and not lose your bitcoins in case of losing your wallet.
It's a stock, the value bounces up and down and if you buy right and sell right you can make some money off of it, but you should never put in more than you can stand to lose. Except you don't get to curse at a CEO for not squeezing the little guy enough to bring up the bottom line and increase the value.
See, to me that's the opposite of a stock. A share of stock is ownership in a company, making a bet that the value of the company will increase - over the long term - faster than inflation will. What you're describing is much of a lottery, where you're trying to predict the public perception (and therefore the price of the stock) rather than the intrinsic value at all. I'd agree that that's probably a fair comparison to BitCoin, FWIW, but shouldn't really be compared to fractional corporate ownership.
You're special forces then? That's great! I just love your olympics!
The fact that a polynomial time algorithm can violate key properties of the system -- enabling double spending, preventing others from spending their money, killing the mining reward -- is fatal, at least from a cryptography standpoint. If it took half the users of Bitcoin to collude, that might be acceptable; but the fact that one user with lots of computing power can do this calls Bitcoin's value as a secure system into question.
Of course, the lack of a security definition for Bitcoin makes this point moot anyway.
Palm trees and 8
The cost to attack bitcoin is now much lower than the author's calculation. Using the retail price of ASIC machines it would cost about $7,000,000 to perform a 51% attack on the network. If you had a botnet ready to block the major pools with a DDOS attack then you could make your coordinated 51% attack for much less.
With any regular bank or brokerage, you can take your money out whenever you want, on fairly short notice. This applies even if you have tons of money in it. Now, if you have a lot, like lets say multiple billions of foreign exchange reserves, then placing a sell order on all of it will drop the value, the price will have to go down for all of it to sell, but you can do that, if you wish.
Heck that was part of the problem in the big downturn a few years ago. People were panicking and selling their whole portfolio at reduced prices, which of course feeds back on itself. A guy I know is a financial manager and he would try as hard as he could to convince people not to, since it would realize big losses for them, but they wanted none of that, they wanted it in cash (or bonds, or other safer stuff) and they wanted it NOW. So, he did as he had to and followed their wishes.
As the parent points out, the reason Bitcoin wouldn't let you is ponzi type reasons. If someone big cashes out all at once, that could cause the value to drop a lot, which could cause the whole thing to tumble down. They are trying to make sure that doesn't happen, to prop up the farce.
My prediction is that Amazon will create Amcoin or WalAmSearsCoin. Then we treat BTC like the Euro and exchange away. Thats my fear is that they just get another prime number and voila, new currency "Backed" by someone.
Get paid in Bitcoin to drive around.
I hadn't heard anything about bitcoin for a couple of months and was nearly surprised to hear about it again, which is probably a good thing for the stability of bitcoin but a bad thing for the speculator counting on rapid gains in value.
The two things that make me doubt bitcoin's long term value are:
-What happens once all bitcoins are mined. Once all bitcoins have mined there will no longer be an incentive for people to keep computing power in the network and it will then become viable for someone to conduct a brute force takeover of the system.
-It is not unique. There is nothing stopping other entities starting their own rival virtual currency, popularity and reputation seem ephemeral things to base value on.
If you did, you'd know you can take out as much of your money, any time you like. Things like ATMs have daily withdrawal limits to help prevent theft/fraud, but you can go in to a branch and cash out your balance, any time you like (or transfer it to another bank electronically).
Wasn't there a story on here already on here over the fact that governments have been targeting Bitcoins and that in turn will cause others to focus on different means of virtual money, pretty much killing off bitcoin.
If that was the case, this entire article is about 10 years to late.. This guy should work for the mainstream press because that's about how long it takes them to do "an in-depth report" over a subject.
.... A share of stock is ownership in a company, making a bet that the value of the company will increase - over the long term - faster than inflation will.
Remember the good old days when a share of stock was ownership in a company, making a bet that the company would make a profit and pay a dividend ...
Personally I don't really care about the cryptokeys issue; I can make a back-up and all will be well. If I lose a physical wallet then all the coins and bills in there will similarly be lost forever. The main difference is that bitcoin has a limited currency supply, where "fiat" can just make more. But that doesn't really matter for me as an end-user--only for the system as a whole it might become problematic.
But even there, a central authority doesn't actually help you recover much of anything: What happens is that the bank'll cover the loss and write it off somewhere else. You know, to keep you happy. Credit card companies similarly offset the loss, usually by stiffing the merchant who is now out both the money and the delivery.
If you want reimbursments, you can set up a bank that takes bitcoins, sure. But it doesn't have to be the some "central authority". In fact, an early bank started as a gold depository, where the receipts turned out to be easier to swap than bars of gold. It didn't have a monopoly on gold, nor did it need it.
Similarly I don't see why, say, insurance companies need a central authority. Basic insurance theory is relatively simple: Suppose houses in your neighbourhood have a 1% chance of burning down in a given year. 99 years all is well, that one year you're hit with a massive bill to rebuild it. So gather up your friends, and each puts 1% of the (rebuilding) value of their home in the big pot. Add a little for administration and such, and with a big enough pool the problem of the large bill is averted. That insurance pot isn't a central authority for the entire currency, nor does it need to be, nor does it need any such thing. All it needs to be able to do is gather some sort of way to pay for burnt-down houses. Might be in labour-IOYs, or as a large yard full of bricks, for all I care.
So, please explain why these concepts need some sort of central authority for the currency, for I fail to see what you're taking as self-evident.
Or the more neutral - or should I say, opportunistic: It's a stock, the value bounces up and down and if you buy right and sell right you can make some money off of it, but you should never put in more than you can stand to lose.
I think that (like shares and commodities) its use as a something you can trade in speculatively, is secondary.
If you own a share in a business, you get dividends and sometimes a say in how its run. It's also something you can sell, perhaps at a profit.
If you own a ton of bricks, or aluminium, or wheat you can use it to make something. It's also something you can sell, perhaps at a profit.
A Bitcoin's primary use is as *currency* - its utility is that you can cheaply and conveniently transfer wealth electronically. That you can also speculate with it, is a secondary property.
The people who see the least value in Bitcoin, are those who live in places where conventional banking makes transferring money easy and cheap (e.g. if you have a UK bank account, it's free to make a BACS transfer), and who seldom need to transfer money abroad. And people who are too lazy to look at how much PayPal etc. skim off.
Actually, Mtgox isn't that dominant any more, though it is still the biggest exchange. If counting by the number of individual exchange operations, it has been at about 35% recently. If you count by the fraction of bitcoins exchanged instead, you get a much higher number, about 70%. So clearly, the average transaction size on MtGox is higher than other places, probably because of more speculation happening there.
Which of these numbers are relevant for what would happen if MtGox were to disappear? I'm not sure, but I think the number of individual transactions, ignoring their size, might be the best one, as that could be closer to the number of individual users. If so, I think the disappearance of MtGox would be serious, but not a killing blow. I made some graphs of this based on some (incomplete) data I found:
http://folk.uio.no/sigurdkn/bitcoin/exch_count_rel.png
http://folk.uio.no/sigurdkn/bitcoin/exch_coins_rel.png
PS: Let's try not to invest so much emotion into these issues, shall we? Disinterested neutrality FTW.
The current efforts to combat tax evasion has created a need for a monetary system out of reach from greedy governments. Sure if everybody paid a small amount in tax and government spending was kept in check there would be no need to hide money. Now, governments wastes money like never before causing a high demand for taxes, and combined with various socialistic tax systems (progressive taxing for instance), create a need for those with larger incomes to hide some of it in order not to be taxed unfairly, and the negative spiral has begun.
The root issue is that we need to reduce government spending - reduce it a lot. That would of course kill off a lot of pet projects for various officials which would make it impossible to realize unless we get rid of them as well. Smaller government reduces the need for taxes which would reduce tax evasion which would increase the tax value which again would reduce the tax level and thus the tax evasion etc.
But until we get this almost utopian society with a truly minimal government, we need to keep as much money from their greedy hands and thus we need a monetary system that can hide all the money we don't want the governments to get their hands on. If they're denied the money they have to reduce spending in order to avoid piling on debt and that is a step in the right direction.
"For every complex problem, there is a solution that is simple, neat, and wrong." -- H.L. Mencken (1880-1956) --
I think you're underestimating the coordination and effort required in that "administration and such". That's the central authority.
Decentralized authority works for some things -- the Bitcoin system demonstrates that. But some (such as judging insurance payouts) require the human touch.
Tom Geller