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Why Bitcoin Is Doomed To Fail, In One Economist's Eyes
Hugh Pickens DOT Com writes "Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state. 'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.' Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas. The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation because tax evasion would be too easy in a parallel economy. 'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological — this is a cool idea. And part is speculative — gamblers bet that bitcoin's value will increase,' concludes Hadas. 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'" Could be there's something good about money that can't be manipulated by law. Some people at least think there's plenty of value in Bitcoin and similar currencies, despite the risks. And those risks at present probably aren't enough to comfort the unfortunate Welsh fellow who (HT to reader judgecorp) "has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. It is now under four feet of garbage in a landfill site the size of a football pitch."
He's just pissed he didn't mine bitcoins when it was still practical.
An economists view on this issue means about as much to me as an astrologist's. The whole subject of economy is a joke.
Money has never been a tool of the state, except for collecting taxations and using it for the people. It is their tool and the people's tool but never was "the government owns the tool".
Just as gold and silver standards which was always "privitized" and was never a "tool" that was "centrally owned" by one figure.
We've played this game before.
I look forward to the first Bitcoin Panic, it should be interesting to see what happens...
Privately issued currency was quite normal before the 20th century. It's just that they all eventually failed or were forced out of circulation. This is one area that government can provide some stability against inflation and outright scams. But Bitcoin is no different than those other currencies, and don't think for a second the behemoth US federal government is going to allow competitors.
“A government big enough to give you everything you want is a government big enough to take from you everything you have.”
Everything described here is what makes bitcoin a superior form of money, not inferior.
Liberty in your lifetime
Seems like this economist is too fond of governments to be really objective. The last quote in the summary was specially awful. No bank or financial institution will ever be able to do as much harm to a population as a bad government.
That said he has a point regarding government interests in taking virtual currencies down or controlling them. The thing is, technologies evolve, and albeit bitcoin may find its end in government interventions, sooner or later other alternatives that are even harder for governments to control will appear. It was the same with file sharing and it will be always like this. People resent control and given the means to avoid it most will.
He's right, but in the wrong way. All currencies are doomed to fail. As long as people are willing to exchange something for something else, both have value. Most FIAT money has value because governments are willing to exchange it for taxes, so then it has value to almost everyone. When a government collapses, or people lose faith in it, it's currency becomes worthless. Seashells are no longer values as currency, but they once were. Gold/Silver have boom/bust cycles. BitCoin had value because of SilkRoad, and the silk-roaders were willing to accept it for... something. Frankly I'm surprised BitCoin still has value after SilkRoad's demise. If something significant replaces SilkRoad, BitCoin will remain valuable. Until then bitcoin's going on momentum. May crash soon, may not. Will crash eventually.
Here's to losing my Karma Bonus again....
Money is by no means "inevitably a tool of the state." Of course, the state always acts to seize control of the mint or printing press, but money (e.g., gold, silver) would of course exist regardless of the state.
And if money is a tool of the state, why do we allow a private banking system to issue our money?
No Inflation Taxation without Representation
"has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. it is now under four feet of garbage in a landfill site the size of a football pitch."
dude, i want to know where this landfill is! for £4 million, you can automate the searching process or pay idiots to do the work for you! sensitive metal detectors can sure cut down the searching process. plus, think of all the other hard drives you will find and could sell on ebay as "used". ;D
Anons need not reply. Questions end with a question mark.
Maybe he should give up virtually mining for bitcoins and start literally digging for them.
Centuries of history tell us differently, because throughout much of history, "money" was either stuff that was intrinsically valuable to people, or it was slips of paper referring to actual, valuable stuff stashed away in private vaults. In fact, it is governments that usually deprive money of value for the purpose of financing wars and welfare.
Mostly what that says is that Hadas already views governments as entities separate from the people and has given up on democracy and reason. I still think that in the long term, the people tend to make good decisions and vote in representatives that do the right thing.
Besides, people can come up with new ways of doing things faster than governments can catch up with laws and enforcement to try to stop them. And when governments get too pushy, the people just ignore them, as they do when it comes to drugs, and taxes in much of the world.
I'm not sure why you think inflation is a bad thing. As long as interest/investments pay out at a rate higher than inflation, you are okay. And, if entitlements are not indexed to inflation, it is a way of making them work over time.
Hyperinflation is a bad thing (money made yesterday is worthless compared to today), but normal inflation is quite a good thing.
Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run.
while(1) attack(People.Sandy);
I'm just waiting for the first tax audits of BitCoin users who get dinged for not having paid capital gains tax. I give it a few years.
'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.
Cash's value is uncertain, its legal status is ... well, not unclear, but situationally dependent in a pretty bad way[1], and like anything, it becomes valueless if nobody wants it.
1. In the US, at least, while it's legal to use arbitrarily large amounts of cash in any legal transaction, it's not legal to use it for drug deals, money laundering, etc.. Sounds reasonable so far, but there's a whole boatload of policy and precedent to the effect that having large amounts of cash constitutes evidence that you were using it for drug deals, money laundering, etc., which combined with civil forfeiture, means that having large amounts of cash permits the state to seize that cash, unless you can prove that you were doing something good with it. Short of being an employee of a bank, vending machine company, etc., that's pretty hard.
Hadas most trenchant point is that governments will oppose Bitcoin if it becomes successful. He's correct, and his analysis is isomorphic with "The neighborhood thugs will rough you up if you conduct business without paying them protection".
This is an important concern; but not a reason to stop.
Meh. They were the ones who reported the CIA's deal with at&t to get call records for $millions a year, so either the NYT isn't (fully) in bed with them or they were tacitly warning at&t to cough up this year's catch Or Else(tm).
You can hold down the "B" button for continuous firing.
How can any limited resource be "the future"?
File under 'M' for 'Manic ranting'
Are you sure? BitCoin is a finite reserve of cash and, as the Welsh chap's story confirms, will be regularly lost down the back of the digital sofa as we go forward. The energy costs associated with mining the outlying end of the blockchain are also going up. What's the estimate of when we hit peak BitCoin, in terms of the number in circulation?
As long as interest/investments pay out at a rate higher than inflation
There we go.
Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run.
Because those two things are irrelevant to making an economy run. An economy will run whether the money it uses (or as the case may be, doesn't use) is inflationary or deflationary. It runs whether the population saves more or less.
The economist (http://www.economist.com/node/21551492) had an interesting article a while back on the Somali Shilling. here is a currency that is not backed by a government (the government does not exist) but has held its value remarkably well. This goes to show that government backing is not totally necessary for a currency to thrive.
Due to its mathematical design, bitcoins are similar to a comodity, not a fiat currency.
The selling feature of Bitcoin is that it is not backed, nor traceable by, governments. That's the main drive behind this boom - very little trust remains in the US government, or in many others. That covers the Silk Road-type drug-trade users - they have a very good reason not to trust the currency of a government that has declared war on them. That covers the technological side - tech-savvy people tend to be much less trusting of any government, and we in particular were betrayed by their widespread monitoring. And it even covers the investment bubble - the marketplace wants US monitoring of damn near everything to stop, and anything that steps in to fill that need will find a ready consumer base and investor backing. Those are the three groups *he* identifies as behind the Bitcoin boom, and each one is motivated, directly or indirectly, by a fear and hatred for the American government (note that it's specifically the government, not the American people, that are the target here).
Bitcoin will die as soon as we can get similar guarantees of security for official, government-backed currencies and banking systems. Oh, and not just from America - a currency that is secure not just from the issuing country, but all others.
Yeah, even if Bitcoin dies (I can see a big enough crash destroying the brand, and any currency is only as strong as the collective desire to use it), something else will come up to replace it.
Even with the relatively still small subset of the population that is participating in it, they have made BitCoin untenable as a currency. It's simply too volatile. Over the last few hours, the 'value' has increased by 20%. Now that *sounds* to BitCoin advocates like awesome news, but it means I can't negotiate an annual salary or a reasonably establish terms for a loan or really much of any sort of long term planning.
While people may rail against a central bank manipulating a currency, the aggregate behavior of any fixed currency without some regulatory hand has been too volatile for day to day use. People complain that the QE is going to, bound to lead to hyperinflation, but thus far that has not happened but we have seen hyper-deflation in terms of BitCoin overall and a lot of extreme booms and busts along the way. People are right to worry about QE going to far, but jumping on the gold or bitcoin bandwagon is betting on systems that have objectively demonstrated in practice worse behaviors than what has been observed in the central banks.
XML is like violence. If it doesn't solve the problem, use more.
Bitcoin has proven itself of no such thing yet. It hasn't existed yet even for five years.
Wake me up when a country that uses it widely recovers from a full-on economic recession.
THEN it will have proven itself dependable.
File under 'M' for 'Manic ranting'
it will be due to the collective stupidity of large numbers of people.
That is of course a very very likely thing. I think the first world nations are where they are because they strike the right balance. Not *too* few people in a position to completely change things, but not so many that it devolves to chaos.
XML is like violence. If it doesn't solve the problem, use more.
"it is now under four feet of garbage in a landfill site"
For anyone considering the idea of trawling through the landfill site the four foot of garbage isn't really the problem, it's that the description doesn't even narrow it down to anywhere in Wales specifically.
they might act out of self-preservation because tax evasion would be too easy in a parallel economy [...] no private power can raise taxes or pass laws to unwind monetary excesses.
Way to miss the point, Ed.
The governments of the world have proven themselves much too irresponsible to manage fiscal policy. We-the-Fuckin'-People have, therefore, decided to take that power back from the government.
When a government can't keep its own spending in check, "raise taxes" does not count as a valid response, whether or not they have that power by virtue of having the biggest guns. The interests of the world's governments have drifted so far away from "public-minded" as to make your entire suggestion laughable. No, we obviously can't trust most private entities to act in our best interests - But I could name literally a hundred that do a hell of a lot better job than any world government.
The federal reserve and the ECB need to cease to exist, ASAP. No more of this "implicit taxation through inflation" crap - If governments can't play on the same monetary field as the rest of us, they need to go away and have something better able to live within its means replace them.
It hasn't existed yet even for five years.
This bears repeating. Even if BitCoin had shown remarkable stability over this period, it would still not be enough.
Secondly, BitCoin has failed dramatically to demonstrate said stability. It's shown just the opposite.
in other words, state sanctioned VIOLENCE.
FTFY
Shoes for Industry. Shoes for the Dead.
at least bitcoin produces some type of mechanism for faith in it to even exist at all
What mechanism would that be? Do you refer to the notion that because it is not a fiat currency that it must be better? There's also a fixed quantity of helium in the world, why not use that as currency? That means gold must have tracked the average cost of things pretty closely... no wait, it hasn't. Well at least gold has always gone up lately so it's predictable in the deflationary effect, well except the rather sharp decline since the beginning of 2012. Or do you think that because it has the potential for anonymity roughly equivalent to cash that it has value? The two problems there are that, in practice, people would rather have a very clear claim to ownership than anonymity, and the transactions are actually more traceable than most cash transactions.
all other currency's faith is derived through "well everyone else is doing it."
I hate to break it to you, but that's true of *EVERY* currency that has ever existed, bitcoin included. Ever since growing beyond the feasibility of straight barter systems, our economies have relied on consensus agreement upon an arbitrary assignment of value to some 'thing', whether it be gold, silver, bitcoin or some made up but explicitly managed thing backed by a stable organization like most modern currencies in the developed world.. If walmart started accepting bitcoins exclusively, then bitcoins 'value' would increase, that's precisely because 'everyone else is doing' is the *singular* important thing in any 'currency'. If 90% of the people willing to accept bitcoin as 'payment' lost their faith, it would crash (and in fact enter a death spiral landing in zero).
XML is like violence. If it doesn't solve the problem, use more.
Bitcoin is just alternative currency. There are plenty of that around - most of them are pegged to some other currency though, but they are, for the most part alternative currency.
Think: Gift Cards (Amazon/Apple/Steam/Google/etc), alternative store currency (Canadian Tire Money), etc. Then there's non-traditional currency, like WoW Gold.
If anyone says Bitcoin isn't a "money" they're plain old lying. It can be used to facilitate trade (which is the purpose of currency).
Of course, there are a few fundamental problems with Bitcoin, but there are problems with all currencies.
When any economist, banker, etc., says Bitcoin is doomed, the real reason is them saying is "we haven't figured out a way to make money on it yet". No currency is invulnerable to making money by doing things of little value, Bitcoin included. It just means the quants haven't sat down to figure out schemes to exploit to get bitcoins for little effort. Either it's because the entire bitcoin market is too small so the benefits of skimming 1/1,000,000th of a Bitcoin from every transaction is barely worth the effort, or other reason.
That's the real message.
Since all States are doomed to failure, their currency will follow. When was the last time that Roman coins were used as legal tender?
You can't have legal tender without a government to declare it such. But I'm pretty sure there are people who'd happily accept Roman coins for payment, with a value based on their rarity and gold and silver content (which was massively debased by the government as the Empire decayed).
We have no idea what Satoshi's success criteria were. so how can Bitcoin be a failure?
Perhaps the aim was for Bitcoin to be routinely used by almost everyone in the world -- in which case, yes, it'll probably fail, but that would have been an outrageous target.
Perhaps the aim was for it to become useful to a few thousand niche users -- in which case it's already a success.
Perhaps the aim was just to see what happens -- in which case it can't fail.
Bitcoin is what it is -- and it's interesting to watch.
An economy will run whether the money it uses (or as the case may be, doesn't use) is inflationary or deflationary. It runs whether the population saves more or less.
It's not a matter of saving more or less, it's a matter of saving-by-investing, which happens to most money in the current system, or saving-by-stuffing-money-in-the-mattress, which is the safest and best way to save with a deflationary currency.
Loans in an deflationary currency are basically pointless for the creditor and crushing for the debtor.
Let's pick this nonsense apart.
> "Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state.
Money is a tool of trade, valuable because it is sanctioned by its users in society. The success of money is determined only by whether people other than the holder accept it.
Bitcoin seems to be riding a hype, but doing okay just in terms of growing acceptance as a payment scheme for actual products and services.
> 'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.'
Uncertain value and becomes useless if users lose faith? Sort of like fiat currencies? Except without "quantitative easing" causing inflation to kick the can on fiscal failures from decades of overspending.
The legal status is an open question, and a valid concern. Personally I think it's probably a red herring, but I'd keep an eye on the legal landscape if I was going deep in this.
> Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas.
How? What is his criteria for "take off"?
> The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation because tax evasion would be too easy in a parallel economy.
Didn't this guy just say it would be less stable than official sector currencies? Anyway, tax evasion may be harder with Bitcoin since transactions are public record.
> 'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological â" this is a cool idea. And part is speculative â" gamblers bet that bitcoin's value will increase,' concludes Hadas.
Part of the interest in legitimate trade is that it provides a convenient cloak for criminal activity.
I think Bitcoin has less anonymity than the author asserts, and protecting privacy on Bitcoin is non-trivial for the average user.
> 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'"
Gold. It's private, not backed by any authority other than natural scarcity, and was the dominant reserve currency for hundreds of years before modern fiat currencies. We have only had our modern fiat currencies since Bretton Woods in 1971 years and it is already unravelling.
I'm all for valid criticisms of Bitcoin e.g. criticisms of the mathematics behind the artificial scarcity or a murky legal landscape. This guy's comments strike me as vacuous.
Because no one has any other data they want to back up effectively in perpetuity? This is a totally new concept unique to Bitcoin?
"He's either a total idiot or a propaganda puppet."
Come now, come now. Surely he can be both.
HELP MY ACCOUNT HAS BEEN HACKED BY AN ILLIBERAL ART STUDENT SET TO DESTROY THE INTERWEBZ!
First, a brief correction: the author of the op-ed is not an economist. He's a journalist and former financial analyst who writes on economics topics for the NY Times.
Second, the op-ed makes a number of errors:
1. He asserts without evidence that non-government currency is inherently inferior to government currency, without defining the purposes for which it is supposedly inferior and in what ways. Medium of exchange? Unit of account? Store of value?
2. His argument relies upon his unsubstantiated belief that "no bank or bitcoin-emitter can be as public-minded as a government", and that "no private power can raise taxes or pass laws to unwind monetary excesses". This ignores the signficant body of research on the not-so-public-mindedness of public officials. It ignores the fact that the "monetary excesses" he needs to unwind are frequently caused by government monetary policy, rather than being inherent to currency. It also ignores the fact that Bitcoin's cap on supply was designed precisely to avoid such monetary excesses. Perhaps Bitcoin's design in this regard is deficient, but the author apparently could not be troubled to make any argument detailing how.
3. He criticizes "private money" such as Bitcoin for having uncertain value, and for its potential to lose value if users lose faith, despite these problems applying to state-backed currencies as well. It's not as if we've never seen runs on banks, unexpected inflation or even hyperinflation with government fiat currency.
4. He further criticizes Bitcoin for its alleged anonymity and thus a potential for tax evasion, neglecting the fact that Bitcoin is less anonymous than the goverment paper currency known as "cash".
5. He repeatedly makes the argument that because we've had state-backed currencies for a long time, they must be superior. This neglects the possibility that effective non-government currencies were not feasible at scale in the past simply due to a lack of technology (crypto and global instant communications). And it neglects the possibility that the future of currency is not either-or, but both.
This is what happens when the poltical-media establishment tries to shoehorn a story about technology and economics into the same tired left-vs-right, government-as-perfection vs. government-as-catastrophe narratives. You get an incoherent, poorly researched, poorly argued mess. The author may end up being right that Bitcoin won't last, but he's not given us any sound argument to support his claim.
I don't think you have any idea of the current network size, the top 500 supercomputer in the world don't have a chance against the current network. The NSA probably have a few super computer... so who care. And even if they managed to get equal to the network... they would mine half of the remaining and already half is mined... so 25% for the NSA and those super computer would stop spying on us :)
Dollar and Euro can be print at will from their central bank. Bitcoin cannot be print in mass, so yes it's fiat, but it's a limited fiat currency and it's value will not be destroyed by inflation.
...and once it gets (and its inevitable people) linked to a 1. worldwide child porn ring 2. high-viability murder-for-hire 3. terrorist act that kills many citizens in some random country or 4. large scale drug operations, it will be legislated away with the blessings of the state-run media, the banking system, and the average person in the street as something exotic and hard-to-understand-and-therefore dangerous.
so play in the sandbox while you can, its not going to be around for long....and for you people who say nothing can stop it? lol wait til they make it a 3rd degree felony to have a wallet on your harddrive.
never bring a twinkie to a food fight.
You might need to look at this as a systemic issue. If losing the data on a hard drive (and related backups) can render bitcoins unusable, then over time bitcoins will be lost. I think that means the theory that underpins bitcoin is wrong because it can't be a stable monetary supply if it has a finite number of coins each of which can be destroyed or lost.
Fanatically anti-fanatical
The summary lists the good things about bitcoins, but leaves out some important ones...
- Truly international. As opposed to most other systems, which have some friction when moving money between countries
- Free! You only pay for the bandwidth, and the CPU for verifying hashes (not talking about mining)
- Universally accessible. I suppose the article touches on this, but it's quite important that it's available to anyone who wants it. Not like credit cards which can shut down someone like wikileaks at will. You don't need a credit history etc to pay on line
using helium directly wouldn't quite work.
anyhow, plenty of currencies relied on the currency itself having(_being_) inherent usability value like copper, silver gold etc.
http://www.tomdahlstedt.se/oldswedish.htm
20 kilos of copper is a bit much to haul around for a trip to the shop though!
world was created 5 seconds before this post as it is.
What the economist doesn't consider in his argument that "currency is a tool of the state" is that states cannot control currency; take the USD usage outside of the US. In many countries there is an official currency that is in reality superseded by USD (Cuba, many African countries, etc). The local governments hate it but they can't do anything about it because citizens trust more us greenbacks than they do in worthless local currency. When volatility of bitcoin goes down (as it will when there will be more regular transactions and people using the currency) there will inevitably be people trusting more in bit coins than Ina government printing ever more debt and printing ever more notes (essentially debt to consumers). Bitcoin wins
Artificial intelligence is no match for natural stupidity
as I understand it Bitcoins are infinitely divisible so when coins are lost the value will go up for the remaining coins to compensate, so prices will simply adjust.
---Saying gnome 3 is better than windows 8 not so much a compliment as it is damning with light praise.
as I understand it Bitcoins are infinitely divisible so when coins are lost the value will go up for the remaining coins to compensate, so prices will simply adjust.
I could not find the website, email address, or phone number to report lost Bitcoins. If they aren't reported lost then how would they know if I didn't just put them under my mattress? If they have been reported lost, can they be reinstated later when they are found?
As soon as he starting saying things like right-money I realized what a joke this guy was. A hyper-partisan at best and completely ignorant of monetary history at worst.
I wonder how he squares his ideas with the fact 99.9% of "Government backed" money has failed (gone to zero) in the past 1000 years.
Er, wouldn't that apply to gold coins and such, too?
A while ago, a friend of mine came up with his own currency called Aeoni. The original version was the best: One Aeon was equal to one hour of whatever kind of work you like to do. You could trade them with friends as a formalized barter system, on a one for one basis, which avoids the legality problems that supply and demand can create. Later on, he decided that people could charge however many Aeoni they wanted per hour, and that was when the system fell apart.
The bitcoin already crashed multiple time read this forbes articles (http://www.forbes.com/sites/timothylee/2013/04/11/an-illustrated-history-of-bitcoin-crashes/) everytimes calling the end of the bubble.
If a lightning strike can take out your hard drive then what.
No proof you have any bitcoins, no way to retrieve the bitcoins?
What happens when the government say's "But you earned 2000 bitcoins last year and now owe us the tax on the dollar value?"
The FAQ already covers this.
It's not a matter of saving more or less, it's a matter of saving-by-investing, which happens to most money in the current system, or saving-by-stuffing-money-in-the-mattress, which is the safest and best way to save with a deflationary currency.
You can assert that all day, but it's not necessarily true. Safest depends on local crime rates, bank failure rates, and what sort of insurance depositors receive, but assuming typical values for the US, a bank is probably rather safer (for accounts below the $250,000 FDIC limit), and thus if offering zero-interest savings accounts, unambiguously better (same maximum return, better average return, less risk of losing it all); even at small negative rates, it's likely to have a better average return. And mattress-stuffing only becomes riskier once thieves realize how popular it's becoming and start planning their burglaries around cash rather than around big-screen TVs.
And it's very rare that the same investment is both safest and best -- it's generally considered wise to have a mix of low-risk and high-risk (with correspondingly higher yield) investment.
Loans in an deflationary currency are basically pointless for the creditor and crushing for the debtor.
You'll have to explain that. Suppose for the moment that deflation is 1% annually.
Suppose a student wishes to pursue a college education, but in his senior year he cannot (quite) afford to finish... he needs $1,000. So he applies for a loan, which is payable in full in one year, after he's (presumably) finished school and landed a well-paying job. The bank offers simple interest with a rate of 1% -- so after 1 year, he needs to pay back $1010. This corresponds to a real interest rate of ~2% (1% due to more dollars, 1% to the rising value of a dollar, and ~ due to the third term of 1.01 * 1.01 = 1+(0.01+0.01)+(0.01*0.01))
Now let's check your claims...
Loans in an deflationary currency are basically pointless for the creditor
Well, the bank started with $1000. At the end of a year, they have $1010 (worth $1020 and change in year 0 dollars). After a year of using your proposed "safest and best" investment strategy of locking the $1000 in the vault rather than loaning it out, they'd have $1000 ($1010 in year 0 dollars). If the default risk is less than 1%, that's the opposite of pointless. (If not, increase the interest rate to match.)
and crushing for the debtor.
Well, yeah, loans always are "crushing" to some degree -- that's why you don't take out a loan unless you need to! Maybe he should drop out of school, take a lower paying job, and keep the $1010 he'll have a year from now. But if the degree allows him to make over $10 more, he's better off taking it!
Would the scenario be different if the student needed, say, a $100,000 loan to pay for four years of schooling, instead of $1000 to cover the last semester's texbooks? For the bank, not much -- still pointful (although maybe at a higher interest rate, to accomodate the likely higher default rate). For the student, it gets a lot more complicated: 4 years of schooling, followed by a high-paying job and high loan payments, vs. 4 years of earning something in a non-degree job, hopefully getting raises along the way, and maybe the possibility to attend night school along the way and get the same degree over the course of a decade -- basically, the longer timescale means more options and more uncertainty in the outcomes of those options, but it's still likely to be a decent option.
And if not -- well, don't take out a loan that doesn't have a positive outcome! If some loans are neither pointless for the creditor, nor more crushing than the alternatives for the debtor, that's enough to refute your silly claim -- it's no more required to prove that other scenarios make sense for both parties in a deflationary regime than it is sane to assert that every
"it is now under four feet of garbage in a landfill site the size of a football pitch."
WHERE?? WHICH ONE, DAMNIT!!
Silk Road was only down for a month or two, following the arrest of one individual.
http://www.forbes.com/fdc/welcome_mjx.shtml
"On Wednesday morning, Silk Road 2.0 came online, promising a new and slightly improved version..."
Implicit taxation through inflation? First, inflation is extremely low on the entire western world. Second, inflation only eats away at you if you are sitting on currency as assets, which is a terrible thing to do. If most of your wealth is being productive somewhere, changes in the medium of account shouldn't matter a bit.
Now, having zero inflation, or all the way into deflation, is not a good thing for an economy. We have this fundamental problem called Money Illusion. It's been measured in a whole lot of studies, just look it up. As long as there's money illusion, in practice, economies work better when economies grow in a predictable manner, which implies some mild inflation. Without said inflation, velocity drops, and with it economic activity. We really, really, don't want a shrinking GDP. A central bank is a compromise to make sure that someone, in some way, is actually altering the money supply to achieve that objective. What we need though is a way to make sure central banks are making less decisions that look like reading entrails, and more that are empirically testable and forward looking.
New gold is produced regularly through mining. Old gold is generally recovered and not lost. Gold has little utility, so the demand for it is for other purposes.
Bitcoins are limited in number forever. Lost bitcoins cannot be recovered like gold in watches or teeth can. Although Bitcoins have zero utility, too, they have near-zero liquidity at the moment in the physical world. I can sell my old gold Hamilton watch at any pawn shop in the world; what can I do if I need cash and I have bitcoins and no working computer? Or no net connectiity?
There is no comparison. Literally. It's comparing oranges to quarks.
Government money fails because governments can't be trusted to meet their contractual obligations. The US dollar has had a pretty good run, but once FDR stole our gold and Nixon broke the Bretton Woods treaty, its eventual demise became inevitable.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
James Howells mined the virtual currency on his laptop in 2009 when it was trading for pennies, but today, one Bitcoin is valued at more than $1000. The hard drive containing this sizeable fortune has been tracked to a landfill in Newport, where it lies buried under four feet of rubbish. However, according to experts, the storage device is pretty much impossible to retrieve.
Perhaps difficult, but not impossible, if somebody is determined. How many people would be willing to sift through garbage for a year looking for a few million bucks?
Have you read my blog lately?
False analogy. It's like having wads and wads of US Dollars after a nuclear war. In the end, Nuka Cola caps are the only currency worth anything. (Except of course the Sierra Madre)
Science advances one funeral at a time- Max Planck
Bitcoins are limited in number forever.
Bitcoins are infinitely divisible.
The confusion many people make is between the Bitcoin network, which consists of nodes, software, custom hardware, and a big datbase, and "bitcoins" the unit of measure in the database. The network has value because it performs a useful function - delivering payments quickly and cheaply. The demand for using that network in turn gives database entries value for the part they play in delivering payments. But without the rest of the network, the database would be useless.
Thus the data itself doesn't have much value, any more than a random Excel spreadsheet does, in and of itself. If you *use* a spreadsheet as part of a venture capital deal, it now has value through use. Similarly the Bitcoin database (the block chain) only has value so long as it is used. When people stop using it (along with the rest of the network) the value will be zero, like old game software. Since use is rising quickly, so is the value. Since the number of units in the database is growing slower than usage, then the price per unit will also go up.
At least, this shouldn't concern you any more than using US dollars would.
With the current state of the US dollar, if you just "put it under your mattress" for a while and then pull it out to spend it? You've lost a considerable chunk of its buying power. All the government has really done is mask the reality of things. The fact is, your US dollar is backed by an exponentially increasing amount of debt and an arguably misguided faith in the long term viability of the currency.
I'm not going to link to all sorts of studies or graphs to make my point here. I'm sure you're capable of using Google yourself. But suffice it to say there's plenty of information out there showing you how most salaries haven't really gone up in decades for equivalent job positions/titles, yet inflation has. The recent outcries to raise the minimum wage (Maryland just voted to raise it to $11.50 in stages over the next couple years) are really a symptom of this problem, although not a solution -- since raising the minimum just means raising the entire pay scale across the board by an equal amount (if not immediately, inevitably over a short span of time - to fix the suddenly narrowed gap between doing basic labor and doing something far more advanced or demanding).
While yes, Bitxcoin values are wildly fluctuating at the moment, it's bound to settle down as it gets more established as a viable currency. When you don't have a whole lot of retailers willing to accept it for transactions, it's going to get treated more like a stock or investment property than a currency. But not a day goes by that I don't hear about at least one new merchant accepting it. There's a Jeep dealer in Kansas City, MO who lets you buy a new car with Bitcoin, and an antique shop in the French Quarter in New Orleans has the "Bitcoin accepted here" sign in its window. I don't think this is just going to fade away.
> some economists have horrible visceral reactions to Bitcoin because they they have firm stakes in how the status quo works
I think it has more to do with losing their investment of time and money to understand the current system. Bitcoin makes them as dumb as everyone else who is new to it.
that is the key to understand both. One printed trillions keeping the same value of everything, the other raised 100 times its value in few months. If people lose faith in any of them, they could lose value. And, at difference with he bitcoin, US is doing everything to make people lose faith in the dollar, and abandon it as international standard.
If they aren't reported lost then how would they know if I didn't just put them under my mattress? If they have been reported lost, can they be reinstated later when they are found?
The value of Bitcoin fluctuate depending on demand/supply.
Currently the supply of bitcoin is low and only slowly increasing (only 25 BTC per mined block are shared across all the users of the mining pool which successfully validated the block, and the total number can be computer around 12 mio).
Currently the demand is expanding (bitcoins can be used as payment medium in an ever increasing number of shops. The days where Silk Road was the main place were you could buy/sell using BTC are long over [and in fact, during some time, Silk Road was down due to being seized by authorities. At that time the BTC market barely noticed]. Also BTC are in demand by traders [although again given the low impact of various pump-n-dump attempts, traders don't have as much an influence today as back then] ).
Hence currently the price is globally heading up (with more or less some small very localised perturbations).
But globally, BTC evolve according to demand/supply AND ONLY demande/supply. (Unlike fiat currencies which can be manipulated by printing more or less bills by the controlling state).
If some coins stop circulating (either because you destroyed the harddrive cointaining the private keys to spent them, or simply because you forgot about them, or because you're hiding them as a reserve for later) the total number of "coins currently available on the market" will get a bit lower (a bit under the current 12 mio). Because of that, simply following the demand/supply rule, the price of bitcoin will increase a little bit.
If suddenly you brought them back into circulation (you remembered that damn password, found the old laptop that you though was thrown away, or simply decide to use your reserve) the number of circulating coins increases, and because of the slightly increased supply, its price decreases a bit.
Now the "magic" of bitcoin is that its a decentralised currency.
- In a centralized currency, the issuer can massively print new money. Or destroy gigantic amount of bills. Such large scale variation of the supply can cause big changes in the value of the money, and thus the state can manipulate its own money. Create inflation or deflation depending on needs. Thus value of money is not only influenced by pure demand/supply rule in the market, but also very directly by government and politics.
- In a decentralized currency, *nobody* owns the system and nobody in particular decides, instead all agree. (Nobody will accept your mined block if you granted yourself 1000 BTC instead of the current 24+fees)
Also, most of the people only own a small part of the whole amount of bitcoins. So any "bitcoins pulled out of circulation" by 1 single individual will only concern a very small amount, a small fraction from the whole stash, and thus barely have any registrable effect (the theoretical effect of you not spending your 100 BTC on the value of the whole 12 mio will be smaller than the noise).
A single individual (or government body) can't influence much the value of bitcoins. (For influence to be successful, that would require massive coordination of a sizeable proportion of all bitcoin holder. Which would be near to impossible given how much the money is spread).
The only influence of bitcoin going in and out of market that can be sizeable is the total influence of all bitcoins getting lost.
If over the first 10 years of bitcoin lifetime 1 million total of coins get completely lost for ever, the overall price will jump up by 5-10% accordingly.
So it's a situation of "the market will heal itself".
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
Moreover, even if bitcoin fails as a currency, it still works very very well as a means of money transfer. {...} And, if you don't keep your money in bitcoin (which does mean you have to trust a thirdparty "exchange"), you don't have to worry about exchange rates either. Just have the bitcoin changed directly to the currency of your choice, and withdrawn immediately from the exchange.
Which is reason number 1 why bitcoin could theoretically *crash* but won't probably *die*.
If suddenly for some reason the price of bitcoin went back to 5$, that would make traders *REALLY* sad, but shopper and merchant won't notice that much.
Shopper will still buy bitcoins and send them, merchant will still receive and cash them. Perhaps they'll notice that the amount of btc they are exchange is much higher than before for the same good. But that's about it. And shopper won't have the "magical change(*)" effect of bitcoin.
But still, bitcoins have a nice reason to flow around, and would still be cheaper than alternatives (some friend complained about the huge monthly fee that their bank requires for a credit card. Simply shopping online with bitcoin is much more affordable).
That's also why I don't believe that altcoins will ever crash, they're too valuable as an exchange medium and will always be in demand. At worst, the dominant position will come and go as newer/better alt-coins come and go. (who knows, maybe in 5 years Litecoin would be the dominant medium. Or Primecoin. Or something we haven't though about yet. But I could bet that decentralized currencies will be still around not only in 5 but in 15 or even 50 years).
(*): You need to buy stuff with bitcoins (my last example: a new Humble Bundle is out !!! Has your favorite game on sale !!!). You go on localbitcoin, find someone to exchange bitcoins with, buy some and then shop with bitcoins. You get some change bitcoins left into your wallet, because you bought more on localbitcoins than you used. You forget about your webcoin. A few months later you need more shopping (a web-shop that accept bitcoins has nice electronic gizmo on sale), you open wallet again to check how much change left you have and how much more bitcoins you need to buy... holy fuck, the BTC price is gone up! your change now is worth more in dollars than what was the case before!
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
The infinite divisiblity prevents damage from losses like this, but flexible value has historically not been enough to solve the real problem.
As the amount of value accounted for by bitcoin transactions grows, the numerical amount of bitcoin available to cover them remains the same. This means that the bitcoin economy cannot expand without making any given amount of bitcoin more valuable -- i.e. they're a recipe for unavoidable deflation. The trouble with this isn't just a matter of perception, the fixed cap is gold-plated incentive for hoarding and worse.
If prices have to drop to make room for new value in the market, nobody wants to be the one that has to cut prices, so nobody does, so there's no money to cover the new economic activity, so the economy stagnates until the pressure becomes great enough that there's a sudden correction. Do some digging If there were a way to make a capped supply workable, by revaluing the markers or any way else, we'd still be on the gold standard. Here's one article laying out this argument against capped supplies — there are many more.
As always, all IMO. Insert "I think" everywhere grammatically possible.
And gold can be (theoretically) divided down to one molecule chips. So what does that change? 0.0000001 bitcoins =/= 0.(insert avagadro's number here) kt.
Truly, we are in the realm of satire here, by now, aren't we?
If you need to exchange in and out of stable currencies on either end of the BTC transaction, then, while the BTC transfer may be nearly free, you end up paying your tithe to the moneychangers in exchange fees.
(Or simply the other bitcoin users if you go for a localbitcoin solution)
If I'm willing to muck about doing things online, I can easily circumvent Visa/Paypal by setting up moderately large personal money transfers through my bank for free.
Yup, me too. But not everyone lives in a SEPA country.
If you send money internationnally, you'll still get fees, and you'll still get money-change fees to convert your EUR into whatever the tager merchant use. (Or, in some situations, you can't even change the money due to strange policies in target country. Bitcoin took of in China because of complex restriction on USD/CNH trades)
In most developed countries outside the US, where the credit card industry has a stranglehold on individual-level finance, typically debit cards with near-zero fees are used (instead of cutting the credit monopolies in for 2.5% of every sale).
Again, that depends on your EC cards being accepted around. Again: not everybody lives in europe. (and even within EU, I've been regulary stuck with a bunch of cards, none of which is accepted by the merchant terminal, even if the terminal advertise the same brands of cards).
The low transfer fee feature of BTC is not particularly unique or novel --- anyone willing to put in the trouble needed to spend and accept BTC can find plenty of alternate low-transfer-fee mechanisms.
Still, that's one alternative more.
Other features of BTC are more interesting.
Yup. Pseudonimity can be appreciated by some. Publicly verifiable transactions, too. Non reversibility will be really appreciated by merchant who have been burned by back-charges. Impossibility to block would be appreciated by anyone who got a frozen Paypal account. etc.
The "I want to trade freely as if we were all Europeans living in SEPA countries" is only 1 aspect.
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
How much land is there on Earth? Are they making more of it? Nope. Seems to be a pretty good investment.
If you think short-selling is evil, wait till someone figures out how to short bitcoins.
You already can. Some exchanges (e.g. Kraken) allow you to short bitcoins, and future contracts also exist.
> "no bank or bitcoin-emitter can be as public-minded as a government,"
On the contrary, banks and governments can ignore the people, when they are too big or powerful. Bitcoin, and businesses that use it, have to compete on service and security else people will move to a better option. You can't ditch your government without a whole lot of effort.
Betamax was better than VHS.
Truly, we are in the realm of satire here, by now, aren't we?
If that's what you're calling your feigned ignorance, I guess so. Better than actually not understanding why Bitcoins are not finite I guess.
The Euro and Dollar are the largest world currencies. In the last 10 years the Euro has varied from $1.17 to $1.59, and made that rise in 2.75 years (+11.8%/year) The steepest drop seems to be 4 months from Jul to Nov 2008, when it dropped from $1.59 to $1.25 (-48.5%/year rate).
Admittedly, bitcoin has a long way to go to reach that level of stability, but currencies are not as stable as you think.
http://finance.yahoo.com/echarts?s=EURUSD%3DX+Interactive#symbol=;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=on;source=undefined;
1) use massive budget spending to fund an organization to stage a 51% attack on the network. The NSA has the capability to do this. They can coerce private industry to develop ASICs in larger volume production than what currently exists, and shutdown any other ASIC reseller.
That won't be easy.
The required hashing power is ridiculously high:
- Current hash power of the whole network is 6 Peta-hash/s (OMGWTF: it was still counted in Tera-hashes back when I looked).
- At the current trend of hashrate/difficulty increase, by the time the NSA puts their evil plan into production, they'll probably need to deploy several exa-hashes.
Next-gen mining machine are presumed to go into the Tera-hash range by unit. To control the whole network the NSA would need hundreds of thousands of them (if not million).
Also about shuting down:
- Good luck. As if the NSA had any power to shut down foreign ASIC makers.
- In fact its the opposite. I doubt that the USA alone has enough foundries to support the necessary production of chips. Very probably, its going to be the NSA which would have to beg foreign foundries to help the churn out the necessary chips.
And do you want to shut down the rest of the industry:
- re-purposing as much foundries as possible to make your massive number of ASICs would require diverting them from the current production of other useful stuff.
I don't think the last few remaining foundries would appreciate being forced to make miners and stop producing the CPU that all foreigners are still producing and make the lose market share.
Last but not least:
- this only affect bitcoins (and the other less popular SHA256^2 based coins).
- this will not affect the number 2 coin: Litecoin (and the other coins using Scrypt, which is notoriously bad on ASICs due to memory requirement)
- this will not affect primecoin (which is based on prime number factoring)
- this will not affect coins based on SHA-3 like Yacoin, nor Quark (uses all the SHA-3 candidate at the same time).
- this will not affect all the other coins that will pop-up with original proof-of-works between now and then.
2) give power to police services to setup busts on individuals looking to sell/buy Bitcoins for cash, and shut down Localbitcoins.com or any other website that provides such services.
Good luck to the *NSA* managing to shut down a site operated in *Finland*. Ever heard the word Jurisdiction ?
One of the biggest exchange, Mt.Gox, is Japanese.
It would be a cat-and-mouse game if sites like Localbitcoins were only in the Tor network, however this increases the difficulty to 'cash out' so it could effectively devalue Bitcoins.
A. in the USA.
B. the current population in the USA has been burned already enough by the NSA. Tor usage will probably rise anyway in the future, and barrier of entry will get lower too.
coerce ISPs to install multiple Bitcoin p2p nodes with preferential network conditions so non-sanctioned p2p nodes connect to them first within the data centre and monitor which IP addresses are sending or receiving Bitcoins.
Yup, that worked so well with peer-2-peer download back then... except not.
These node will get blacklisted.
US citizen could simply use web-wallets and similar.
The rest of the world either ignores or moves to tor.
The author makes one solid implied argument: the state has the ability to resort to threat of violence, detention, financial ruin, seizure of assets over its citizenship.
Which would be the best way for the USA to substract themselves from a growing and thriving market.
The US needs to ask them self:
- do they want to exclude themselves from what is apparently here to stay? Do they want to take part in it?
(See how well shuting down the internet has worked for dictatures)
"Sufficiently advanced satire is indistinguishable from reality." - [Tips: 1DrYakQDKCQ6y52z6QbnkxHXAocMZJE61o ]
Bitcoins are infinite. I get it. What you don't seem to get is in reality it doesn't matter.
Bitcoins are not in reality until they are traded for something tangible. If no one with something tangible wants an intangible bitcoin, it is valueless regardless of its infinite divisibility.
See definition of liquid, liquidity. Compare with definition of infinite divisibility. See any difference?
In a word, seignorage, the profit made by a government by issuing currency, esp. the difference between the face value of coins and their production costs. No government would sacrifice that.
It has many of the properties of gold, without being tied to matter.
It is not the monopoly money that the world currently runs on. If/when the monopoly-money bubble pops, the world crashes, and anything is good. But governments currently own enough actual gold and high-end trade-engineering enough to control the price of gold. Not (yet) so with Bitcoin.
impo.
If you have enough information to satisfactorily "report your lost Bitcoin", then you have the bitcoin itself.
For a bad analogy, think about a 20 dollar bill. You can't go into a bank and say "I a 20 dollar bill, can I have another 20?" and expect success. If you go into the bank and say "I lost a 20 dollar bill and I remember the serial number, can I have another 20?" you still won't succeed. If you could somehow go into the bank and say "I lost a 20 dollar bill and I remember the serial number, and I can prove that it is mine, and I can prove that I haven't already spent it, and that no-one else can spend it" then maybe you'd have a chance.
Once you can do all of that, you have enough information to "report your bitcoin lost"... but that means that you have enough information to rebuild your bitcoin.
A currency does not have to be universally accepted to be useful It's not a Boolean value where it must replace the national currency or it is totally without value. The fact that people are trading BTC for things of tangible value right now means that it certainly has some use to some group of people so I fail to see what point you're making here.
Coming up later: why bitcoin will make everything else obsolete within three years, in some other economist's eyes.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
The average lifespan of nation is 250 years. Better liquidate your fiat currency and put it into something that will weather the coming storm.
`Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state'
Then why is control of the US dollar under the privately owned Federal Reserve Bank?
it certainly has some use to some group of people
We agree it acts like a currency now; is it still a currency without a computer or a net connection?
> We have no idea what Satoshi's success criteria were
It's clearly stated in his original paper (http://bitcoin.org/bitcoin.pdf):
"What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any two willing parties to transact directly with each other without the need for a trusted
third party. Transactions that are computationally impractical to reverse would protect sellers
from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In
this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed
timestamp server to generate computational proof of the chronological order of transactions. The
system is secure as long as honest nodes collectively control more CPU power than any
cooperating group of attacker nodes."
If the actual Bitcoin network meets the above criteria, it is a success.
It can be.
Bitcoin is in simple terms an "artificial gold" (or any other commodity). It has artificially imposed scarcity, some exchange value, and is not tied to an individual (not traceable, can be lost etc). If you look at it that way - it only has value so long as those using it agree it has value. At least gold has also practical uses in technology/industry and in fashion.
Don't know if it's doomed to fail, perhaps not. But I don't own any gold and for the same reason do not plan to own any bitcoin. YMMV
Good investment, possibly... long term substitute for currency, probably not.
File under 'M' for 'Manic ranting'
That means bitcoin value will never be stable enough to become a useful mechanism for trade.
How many people are going to want to sell products for bitcoins when the value of those coins could slide 50% by the close of business that day?
I'm very sympathetic to the idea of cryptocurrency, and the idea of a private currency. However, I'm not sure I would ever want to participate in such a currency if it was anything but local. A worldwide private currency can never work, because it only exists as long as governments allow it. Further, a cabal of large bitcoin holders could easily manipulate the price, hurting a lot of people.
I'm afraid we're just going to have to accept that governments are necessary. That makes it more important than ever that we make sure our governments are accountable. And central banks have to be reined in, but good. If we can't agree to act to keep our governments accountable, what makes anyone think that we can keep bitcoin accountable just with our own collective good will?
You are welcome on my lawn.
I am just wondering, if people start to to shift to use Bitcoin, how would governments continue to operate? I see this on a long-term of course but don't governments operate based on the taxes of people. Companies may benefit and also the people but on the long term, neglecting the government from the economy is impossible?
'Truly private money is an inferior alternative to the money that comes with the backing of a political authority.
Authority to govern comes from the consent of the governed.
So anything that's true about "government money" is also true for private money.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
But there is no central force that regulates Bitcoins to ensure "safe" level of growth. What if the deflation was 2% a year? What if it was 10%?
There's two things to note here. First, I think that high levels of deflation are no better than high levels of inflation.
In the inflationary case, when inflation is high enough that it modifies the day-to-day behavior of currency holders, that's generally called "hyperinflation". I get a wheelbarrow of money and immediately rush it to the grocery or bank in order to get rid of it as soon as possible - because the money loses measurable value even while I wheel it along.
Similarly, high levels of deflation do, as you correctly note, modify how people use money. I hold onto the money as long as possible, until I really need to use it. I suppose this is called "hyperdeflation".
Just because high levels of deflation are bad, doesn't mean that low levels of deflation are bad.
You could buy seeds, plant them, till the soil, have a great harvest, and still be worse off than if you had just sat on the money for seeds and equipment.
This would be true in either an inflationary or deflationary environment.
If the deflation is at 1%, that's all investments that yield less than 1%.
No. Any investment that yields more than 1%, happens to earn more than 2% in value due to the concurrent increase in value of the underlying currency.
In theory, deflation and inflation are governed by money supply times velocity of money (plus it can be modified, if the currency becomes more or less useful as well, which increases or decreases demand for the currency). But I think with bitcoins, the issue is that a lot of people are putting money into bitcoins as a speculative gamble and greatly overvaluing their worth - classic asset bubble activity. I think most people here agree on that.
For example, bitcoins supposedly rose in value by a factor of ten from the beginning of the year. Did 90% of those coins get destroyed? No. Did they become a factor of ten more useful? No.
This is exactly what we're seeing with bitcoins today. Hardly any real investment in a bitcoin business have been as effective as simply buying bitcoins and riding the pyramid scheme would have been.
I agree mostly, but with an important distinction. Your claim that buying and holding bitcoins is the better strategy assumes that you can sell the bitcoins you're holding at some higher price. Some people have enough bitcoins that they can't sell them off without dropping the price of bitcoins a lot. And I think the bottom will drop out of the market at some point, leading to a substantial decline in the value of bitcoins.
Are dollars still a currency without credit card processors? printers? wallets? What is your point, that we need a physical transfer for "cash-n-carry" situations? Banks could issue notes backed by bitcoins. Shrugs.
You have to prove to "the network" that your Bitcoin was:
1. Mined and the network agrees (confirms the transaction).
2. Not spent and the ledger agrees.
There is no "reporting" lost Bitcoins - only reclaiming what was already yours to begin with, which the network already knows - it keeps track of every transaction from the very first bitcoin mined - your lost Bitcoin is in the ledger somewhere. Which is why security is so important, because if you lose your wallet address and someone else gets it - well the Bitcoins in that wallet now become "theirs". Much in the same way a tangible $20.00 bill in your pocket is yours until you lose it. It doesn't matter that you know the serial number and every little detail about your bill, if I have it in my hand, it's mine and no one cares. Except you of course.
Personally I think calling it a currency is like calling Scientology or Jedi a religion. We know where that stuff came from and we know they are only pretending.
Bitcoins are like limited edition my little pony dinner plates, something with an identifier that can be traded among the interested for items of value. It's a trade item and not a currency backed up by a promise from a group with a reputation of keeping promises. Without trust real currencies change into nothing but bits of paper, such as in Zimbabwe.
The plate analogy is of course not a perfect description of this pyramid scheme but it covers why bitcoins are seen to have value at this time. Extreme movements in bitcoins numbers or value or some sort of government intervention are likely to show up the lack of trust and render them worthless.
Here's my point: I retired in June. My computer broke moving to Oregon from San Francisco. My newly-bought motherboad does not have a PATA connection; my older backup hard disks were formatted PATA, so I cannot read them. I would be quite out of luck if I had my retirement funds in bitcoin on one of those PATA drives.
I live out in the beautiful countryside. My broadband makes 8 or ten over-the-air-hops from Medford to my house. That, combined with variable weather, makes my internet connection tenuous.
I'll guess you live in a hip, techy city where these requirements can be met; but, even so, I don't trust fiat currencies much and unproven, digital ones even less. Perhaps it is a suitable vehicle for wild value speculation, but, at my age, I have no desire to invest in so much risk.
I can trade beer for things of tangible value so you are going to need a better argument.
https://en.bitcoin.it/wiki/FAQ#How_divisible_are_bitcoins.3F
" How divisible are bitcoins?
A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. If necessary, the protocol and related software can be modified to handle even smaller amounts. "
"When life gives you lemons, don't make lemonade. Make life take the lemons back!" -- Cave Johnson
Sorry to jump on two of your posts, but, even totally ignoring the pyramid scheme stuff, I see it as a trade item exchanged between collectors and not a currency.
See the comments by others attached to just about every one of the weekly bitcoin stories that have been posted here for the last few years.
This "it's really a currency by my own personal definition" stuff is getting very old.
The coins themselves are not lost, as they are not themselves stored on the drive. Rather, the drive contains the user's key and their respective addresses, to which they match themselves up to the network. This is why if the file wallet.dat is stolen, someone can easily open the Bitcoin client with the stolen copy, authorize the transmission of coins from that key to another address, and then just wait for the transmission to be validated.
There is, however, no mechanism for the recovery by the network for addresses and keys which have been lost or destroyed. I personally mined slightly more than 4 bitcoins out of curiosity back in 2011, then stopped as I ran the power cost to income calculations. I eventually rebuilt that system, but accidentally destroyed that wallet.dat. Although I know the public receive address, I don't have the key associated with it to claim those transactions in the network that indicate the 4BTC. The claim to the transactions which represent those coins collectively are essentially irrevocably lost, with no way of the network as a whole reclaiming them due to inactivity as the system currently stands. The transactions are still present in the Blockchain, just no one can claim them.
Huh.
You mine both - and bitcoins deliberately were created to be analogous that way. There is an upper bound for how much gold is on Earth - and again, bitcoins were designed to have a similar sort of upper bound.
Gold isn't perfectly recoverable.
Seems more like differences of degree, not kind. But I could be wrong.
For every economist, there is an equal and opposite economist.
deflation isn't a problem until the deflation is faster than the growth of low-risk investments. When you make more money buying a bitcoin than stocks or bonds, then every bitcoin will be bought and held, and the economy will collapse. The benefit is that bitcoins will "inflate" in the crash. They would eventually stabilize, and would only fluctuate with rare losses of coins (and then less than the first crash).
Learn to love Alaska
Bitcoins are finite, even if they were infinitely divisible. It doesn't matter how many pieces you cut it into, it won't make a second one. Unless you have some weird rounding errors.
Learn to love Alaska
Considering the supply of neither is fixed (ever heard of mining? Both gold, and bitcoin...), your entire argument is built upon a straw man.
And the government doesn't "regulate the currency's value." They destroy it with inflation. That your dollar has lost over 90% of its purchasing power in the past century is a good thing to you? Maybe if the government kept the value of the dollar fixed, kept the money supply in sync with the size of the economy, rather than printing more and more and more dollars, you'd have a point. But instead what your "regulators" have done over the past century is proven that they are the last people who should be trusted to dictate the value of the currency.
Liberty in your lifetime
Bitcoins are finite, even if they were infinitely divisible.
This statement defies logic, math and common sense.
A better argument for what? If trading beer for other things works for you and you have enough other people who feel the same way, then by all means continue. The presence of a particular currency does not have to threaten other currencies.
The Fed has just legitimized bitcoin. Probably this is because it's even easier to track than USD, and what they have always wanted is for people to switch to digital currency that is easy to track.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
I would be quite out of luck if I had my retirement funds in bitcoin on one of those PATA drives
You do realize that, unlike cash, you can have as many copies of a bitcoin wallet as you desire, right? Your arguments along this line are specious, because you can trivially keep encrypted copies of your wallet on dropbox, burned on a cd, a USB stick, multiple hard drives, in GMail drafts, and so on.
I mean, your argument is equivalent to arguing against online banking because you might misplace the post-it note on which you wrote your password and therefore you might be locked out. Personally, to hedge against that kind of risk, I keep multiple copies of all that information in encrypted format, stored in multiple locations. I believe I could safely do the same thing with a bitcoin wallet data file.
Not that I would advocate having your retirement assets in bitcoin, if solely due to the volatility. I just wanted to set the record straight about this aspect of the technology.
"New gold is produced regularly through mining. Old gold is generally recovered and not lost."
There is a limited supply of gold on this planet, and while it is true that there is other gold elsewhere in the solar system, mining it in the asteroids or on other plnets and bringing it back to earth would be way more costly than it is worth.
Gold has little utility, so the demand for it is for other purposes."
How about electronics? Gold is an excellent conductor.
You do realize that, unlike cash, you can have as many copies of a bitcoin wallet as you desire, right? Your arguments along this line are specious, because you can trivially keep encrypted copies of your wallet on dropbox, burned on a cd, a USB stick, multiple hard drives, in GMail drafts, and so on.
No, actually, I didn't. If that is so, what is the point of TFA? How did the loss of a HD result in a $4-million loss? Was the owner also ignorant of this?
I need a link to this info. Not that I don't trust you. Just that I trust me.
Most of the time people appeal to common sense is because they don't have it, which is why it's such a common appeal.
I take a pie. I can trade one pie for one goat. If I cut the pie into an infinite number of pieces (necessarily infinitely small) it's still worth one goat, and assembled, would still be only one pie The number of pies is finite, even if the possible number of subdivisions of it is infinite. That works in logic, math, and uncommon sense. Unfortunately, you only have the common kind, and apparently missed the recall notice.
Learn to love Alaska
A share of equity is a fraction of something substantial in the real world.
This one is more like a commodity---but one intentionally designed to have no physical-world significance, but be very easily
Nobody has discussed the true reason why bitcoins aren't remotely useful as money. There's no bond market. That's what actually makes for useful money in the economic system and is the purpose of money---not just being a facilitation of bartering item X for item Y but for bartering time. The real-world modern uses of money all center around loans.
When you can get a mortgage in bitcoins then it has become money.
But it won't happen, because people can get income in bitcoins.
Another flaw. Now, the global limitation of bitcoins means that they will inevitably be deflationary. If the dynamics are deflationary then people prefer not to give away bitcoins---but the purpose of money is not to be hoarded but to be used. So the deflationary dynamics result in a contracting money supply which is a sign of economic collapse---and fortunately there is no significant economy attached to bitcoins, and there shouldn't ever be.
http://en.wikipedia.org/wiki/Hawala
Bitcoins are the geek form of hawala.
I don't care, I bought a bitcoin back in March, and just sold half of it for almost 10 times what I originally paid.
If the other half I still have drops in value, I'm still well up on the deal.
And to those who say "it's just numbers in a computer somewhere, it has no value!", all I've done is convert it to a slightly bigger number in my bank account, which is also just a number in a computer...
My point is that such a thing as beer as a trade good is not a currency unless you have a doubleplusgood newspeak dictionary that does not have very many words in it.
This is just like the crap about some Hollywood idiot talking about over twenty different "senses" because he had never heard of the word "perceptions" dealing with combinations of senses.
I'm wasting my time aren't I? You are fully aware that traded items are not a currency but you are pretending to be far more stupid than you are to try to win points in some sort of debating game aren't you? Which is it - stupid or playing a game? Do tell.
Really? Your employer doesn't tell you what's expected of you?
Being quite a large company, my employer has a fairly heavyweight goals management system, in which you and your manager set expectations, then measure yourself against them during the following year.
That's very good. I was thinking "Beanie Babies" but that's me showing my age.
You are welcome on my lawn.
Bitcoins are limited in number forever.
Bitcoins are infinitely divisible.
Isn't this the same as printing more physical money?
I thought I'd mention what I think the kids have now instead of Star Wars bubble gum cards to avoid showing my age :)
Also I can't forget the "ponies" April 1 page here.
Cash's value is uncertain
Its value is that you can pay taxes with it. Have fun figuring out VATs when doing business in bitcoin.
you are really wrong about math:
http://en.wikipedia.org/wiki/Banach-Tarski_paradox
And with an infinitely divisible currency, people do not need to pay 1 bit coin for a goat. in fact, at some point, people could start calling 0.1 bit coins a bit coin and the goal still costs 1 of the standard unit. There is nothing special about where you choose to put the decimal place.
Not exactly, no. A country has a certain wealth, and that wealth is divided over all the currency they issue. When they print more money, they dilute the value of the existing currency. There is no one deciding to "print more" Bitcoins. Being able to infinitely divide them just means that no matter how much value a Bitcoin holds, they can always be spent in a small enough quantity for any transaction.
My point is that such a thing as beer as a trade good is not a currency unless you have a doubleplusgood newspeak dictionary that does not have very many words in it.
A currency is simply something that is generally accepted in exchange for goods and services. Generally does not mean universally. I don't know why you're hung up on the word. Bitcon is just as good of a currency as, say, BerkShares. Beer would probably not make a very good currency due to the inconvenience, but I was simply making the point that it could be.
I'm wasting my time aren't I? You are fully aware that traded items are not a currency but you are pretending to be far more stupid than you are to try to win points in some sort of debating game aren't you? Which is it - stupid or playing a game? Do tell.
I guess if someone was trying to teach a pig physics people would think they're pretty stupid. So I guess I'm stupid. I'm sorry I tried to teach you something. Feel free to go back to wallowing and grunting.
Substitute gold for bitcoin in your reasoning, it makes exactly as much sense -- yet we've already tried the gold standard and know how it behaves. Reality doesn't honor plausibility and intuitive sense.
As always, all IMO. Insert "I think" everywhere grammatically possible.
you are really wrong about math:
Interesting statement, considering you have effectively provided the proof that I am correct.
And with an infinitely divisible currency, people do not need to pay 1 bit coin for a goat. in fact, at some point, people could start calling 0.1 bit coins a bit coin and the goal still costs 1 of the standard unit. There is nothing special about where you choose to put the decimal place.
No shit? Congratulations, you've explained the entire point of having an infinitely divisible currency to someone who was trying to explain it to you. Glad i could enlighten you so well you thought it was your own idea.
The number of bitcoins never changes. That is in conflict with what you were saying.
Learn to love Alaska
No it's not. The set of Bitcoins is countably infinite.
If I cut a pie in 3 pieces, how many pies do I have?
Learn to love Alaska
Because they are never wrong amiright?
Today I think they have about the respectability of less than a weatherman on a local news channel.
Prospective students should change their majors to something more reasonable like the "Dark Arts" or "Voodoo".
Seems to me the basic boiling down complex problems to very simply principles and mechanisms doesn't work so well.
Reminds me of the joke physics joke about a cow an a vacuum: "First assume the cow is perfectly spherical..."
Too funny...this story predates urban legend (as a term). Imagine how many mattresses full of GrandPa's cash currently reside in a landfill or burn pile...now it's hard drives...but the moral remains the same...cash is too risky...put your money in the bank...where it's safe.
Analogies to physical objects are impossible. A Bitcoin is the entire set of positive real numbers. Having one set or fifty sets doesn't give you any more or fewer numbers. I don't know how to explain this to you any more simplistically than that. A concept that cannot be explained by physical objects seems lost on you.
Bitcoin is meant to be deflationary. The bigger the bitcoin economy becomes, the more value a single BTC has. So loss of bitcoin will just hasten that process a little bit.
Plus, isn't there a mechanism whereby the previous transactions can be unwound?
Like all kinds of money, the real value depends on what is in circulation. Lost bitcoins would affect the price of bitcoin the same way lost gold affects the price of gold: very little.
I need a link to this info. Not that I don't trust you. Just that I trust me.
Cute. You do realize that a cursory google search would have satisfied your curiosity more quickly than posting a semi-sarcastic "citation needed" reply, right?
Since you were lazy, I won't bother hyperlinking you to one of the plethora of confirmations. You can copy/paste the url for yourself:
"http://bitcoin.stackexchange.com/questions/8320/what-files-do-i-need-for-backing-up-my-wallet"
If that doesn't satisfy you, please just go ahead and type "bitcoin wallet backup" into google and decide for yourself whether you will believe one of the multitudinous links that describe in detail processes by which you can securely back up a bitcoin wallet data file.
BTW, you trust your own ignorance? Do you also believe movie plots where someone steals data on a disk and then the rest of the movie is spent fighting over it as if no one could conceive of making a copy of digital data?
And finally, yes, the guy was a moron for not having multiple backups of his wallet. Especially due to the value involved and the trivial size of the wallet file (measured in KB).
Cheers!
If computers suddenly vanished, not only your bitcoins would vanish, but also the money on your bank account, which consists also of nothing but bits stored on a hard disk. You don't really think the bank holds cash for your stored amount, do you?
The Tao of math: The numbers you can count are not the real numbers.
It would certainly not be the first case of valuable data being lost due to a missing or not working backup strategy.
The Tao of math: The numbers you can count are not the real numbers.
Copper is a significantly better conductor than gold.
The Tao of math: The numbers you can count are not the real numbers.
Can anyone tell me where, in today's world, there is a government that issues its own money? I guess Valenzuela is one country that doesn't have a Central Bank. I can't think of any others. America sure doesn't issue its own money, it loans it (from the Federal Reserve). Just to be fancy I'll throw in a fancy word - Fiat. There you go! Which Bitcoins are also. /Stolzy
Bitcoin mining may take a new turn eh? Bitcoin Haxor^H^H^H^H^H^H Recovery?
You've posited a very small amount of deflation - 1% a year is almost stable.
Yes, I did.
Loans in an deflationary currency are basically pointless for the creditor and crushing for the debtor.
I missed where you said "a currency with deflation over x%" instead of "a deflationary currency".
I agree completely that too much deflation causes serious problems. But this doesn't justify your statements; even though there's no guarantee that bitcoin won't go into sufficient rates of deflation to be problematic, there's also no guarantee that it will -- the guarantee that it will be somewhat deflationary because of the attrition of bitcoins to bitrot and forgotten passwords isn't strong enough to justify the doom-and-gloom of bitcoin haters.
At the moment, the bitcoin economy is in a silly bubble. Long-term, there's no reason to suppose this will continue indefinitely -- once enough speculators lose their shirts in the bubble's collapse, there's no reason to suppose bitcoin will necessarily be excessively deflationary.
Thank you for your personal definition but I will go with the dictionary one thanks.
I really hate this "let's make it difficult to communicate just so I can trick others into misunderstanding what I mean and make it look like I've won an argument" shit that has been disgorged from the ugly end of US politics.
You can be a better person than that.
"no bank or bitcoin-emitter can be as public-minded as a government"
Ask the public in a totalitarian state, how public-minded their governments are.
Not all conservatives are stupid,
but it is true that most stupid people are conservative.
- Hume
Right now most bitcoin millionaires are either looking for a way to unload their fortunes or hoping to become bitcoin billionaires..
Liberty.
Yes, it's a fiat currency, called into being by somebody, not backed by anything, only tradeable for what other people will offer you. But the important difference from government fiat currencies is that it's designed so there's a limit on how much of it can be made, unlike traditional fiat currencies which were limited by the amount of cheap metal available for coinage, or modern fiat currencies which are limited by the number of zeroes you can fit on a piece of paper, i.e. limited only by the greed of the government and the people's unwillingness to overthrow them. It's not like Zimbabwe dollars which have had at least 30 zeroes dropped of them, leaving what a friend of mine referred to as "homeopathic quantities of money". Sure, Satoshi acquired a bunch of the coins for himself up front, and potentially he could still be mining more, but the number of them is never going to get above 22 million or whatever.
Bitcoins could still lose most of their value, like those once-valuable Beanie Babies, but they can't hyperinflate.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
No, it's correct, you are not. You are just pretending to misunderstand what is written there for your own convenience and do not appear to care that you look very stupid in the process. Your personal definition fails the obviousness test and relies upon taking a portion of a line out of context.
Most reporters miss the point. BitCoin's strength is not as a currency, it's too slow. It takes at least 10 minutes to confirm a transaction. You're not going to wait 10 mins to buy a coffee at Starbucks. BitCoin will not go away because it serves as an internet payment system. It's way less to pay because wallet-to-wallet it costs a fraction of a dollar, no matter what the amount. It's an incentive for internet sellers because there's no chargeback threat and they save 4% in fees otherwise charged by system like PayPal. ofcourse they could shift the 4% as a discount to the buyer as an incentive to shop with BitCoin.
How convenient for your pyramid scam then.
That's my point - no matter what twisted weasel verbal acrobatics you attempt your assertion completely fails the test of obviousness. I can't just take beer or bitcoin to any random vendor and negotiate a purchase.
I grasped your reason for being misleading all right - you are attempting to dumb down the concept to fool prospective marks. If I didn't get fooled then why should I get fooled now?
You are a very good example of why the kiddies should beware of confidence tricks baited for geek. I wonder if you'll get out of bitcoin before the bubble bursts and some of the perpetrators start doing time? Are you getting practice at playing the stupidity card for that so you can convince a Judge that you really believed the line you were selling to the kiddies?
And yet before people started inciting mass panic within the market to the uninformed 90%, the gold standard worked pretty good. And after we got rid of it, exactly the same thing happened with northern rock and in Greece.
The only real way to reduce volatility in currency is to get rid of other currency forms and have each currency backed by physical equivalent all times. Bitcoin by it's nature IS it's physical equivalent (you work for coins, not for goods you then sell for coins) and the market will stay as volatile as long as there is something volatile to trade the currency for. Unless Mt.Gox collapses tomorrow, demand will keep outstripping supply.
And if it did... demand would only increase once the price had gone down enough.
You wanna stabilize BTC, good luck. It's an emerging market.
You've put in a lot of time and debased yourself a lot here so how can you possibly be a disinterested party?