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A Rebuttal To Charles Stross About Bitcoin
New submitter buddha379 writes "Over the holidays we discussed a story from SF author Charles Stross called 'Why I Want Bitcoin to Die in a Fire,' just as Bitcoin's price collapsed on news of the Chinese government's cautious approach to the fledgling internet currency. Well known economist Paul Krugman quoted the piece in a NY Times blog post called 'Bitcoin is Evil'. Now, with U.S. regulators reaffirming their hands off approach, U.S. companies embracing it and prices surging again, Bitcoin Magazine returns with a rebuttal called 'Why Charles Stross Doesn't Know a Thing about Bitcoin.' The article notes that like many other popular pieces, Stross' story seems to 'completely miss the point on why Bitcoin is a revolutionary concept.'"
http://slashdot.org/index2.pl?fhfilter=bitcoin
Over the last few months, we've been averaging a little more than 1 Bitcoin story every 2 days. Please - please, stop accepting every submission that has the word Bitcoin in it. At this point, I'd almost like them to start covering the 2016 Presidential Election. Enough.
So what? Why does the price of bitcoin even matter? Bitcoins strength lies in its ability to be used as a payment processing network - and at a fraction of the cost of traditional payment networks (visa, mastercard, paypal, SWIFT, etc).
Everyone is obsessed with the price of bitcoin (and therefore comparing it to a ponzi scheme because of its price) and treating it as a speculative investment scheme or get rich quick scheme. This is actually very detrimental to bitcoin.
But no. Bitcoins power lies in using it as a payment processing network not its price. It does need some more price stability, however, so this crazy speculation needs to stop.
You can tell how powerful someone is by the magnitude of the crime they can commit and be able to get away with.
You're partially right, but the vast majority of bitcoin users are speculators, gamblers and hoarders. It is not primarily used for transactions. Until this changes, which it probably won't, it is an electricity-wasting ponzi scheme.
But it's not a good payment network if the value of the payment are not stable.
The network exists to 'mine' coins and process transactions. It's cheap because there is a payout for participating in the network split two ways, you get to mine coins, which are worth something and you can charge transaction fees. If there is little worth in the coins, the network will either be tiny and easier to take over and control (if you control the majority of the processing power, you control the entire network) or the transaction fees will increase.
You are right though, New Zealand is the place to be.
From TFA:
Bitcoin is more of a hybrid system than a true deflationary system. The gold standard is considered deflationary and Bitcoin is often seen as the digital equivalent of gold. Gold has a limited supply, so it is scarce, just like a digital currency. But real gold can only be subdivided so far. It can only be chopped up so far before it’s nothing but dust. Bitcoin has no such limitations. Theoretically, it can be subdivided into fractions of a coin almost indefinitely, growing as needed with people’s demands. Its current limitation is eight decimal places. Even with only 21 million Bitcoins, that’s still 2000 trillion of the smallest unit. The protocol is designed to be upgradeable, so if we ever need to divide it further we can.
The problem with a deflationary system is not one of divisibility. The problem with a deflationary system is that the value of a given amount of currency is basically guaranteed to increase over time, as the total amount of possible currency has a hard limit--by design, in Bitcoin's case. Unless human civilization starts becoming less valuable as a whole (which is BAD), this is basically inevitable.
That you can chop your Bitcoins up into Nanobitcoins doesn't change the fact that the currency will simply continue to increase in real value. That's like saying you can make a ten-ton boulder less heavy by crushing it into pebbles.
That this is advanced as a serious counterargument to deflation should tell you everything you need to know about the author(s) of this piece.
Obliteracy: Words with explosions
Wrong. Bitcoins' strength lies in the starbursts in the eyes of it's biggest proponents, who will gladly and patiently explain to you how they'll reform the monetary system, end poverty and make them fabulously wealthy.
Nothing is stronger than a True Believer, especially when they are neo-libertarians on a mission from Ayn.
You are welcome on my lawn.
Wrong. Bitcoins' strength lies in the starbursts in the eyes of it's biggest proponents, who will gladly and patiently explain to you how they'll reform the monetary system, end poverty and make them fabulously wealthy.
Nothing is stronger than a True Believer, especially when they are neo-libertarians on a mission from Ayn.
Of course, because nicely formulated ad hominem is an excellent logical rebuttal.
Silence is a state of mime.
But it's not a good payment network if the value of the payment are not stable.
The price fluctuates widely because it is thinly traded. As it becomes more popular, the price will stabilize.
In the situation you're describing, all you're getting rid of is SWIFT. Banks processing Bitcoin payments in your situation can still create Bitcoin money through fractional reserve banking. Basically same as the gold system, but Bit-gold. There is nothing really innovative if you use Bitcoin that way.
If retail transactions are actually done on the Bitcoin network however, things get a bit more interesting, but the Bitcoin network will never scale to those transaction volumes.
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But is Bitcoin payment processing really that cheap?
Disclaimer: I started mining Bitcoins using the official client with CPUs. However, I don't really buy all of this blue-sky "to the moon" Bitcoin hype. For me it's more of a cool concept to test and mess around with.
Although the Bitcoin concept is revolutionary - if you use it as a payment network - as you can get rid of banking and payment processing industries, with such a peer-to-peer architecture, you have scalability issues that limit the amount of transactions that can be processed. Aside from the elephant-in-the-room technical limits (with the current 1MB blocksize, Bitcoin can process 10tx/s max. The VISA network can process a max of 25000tx/s) , you also have the question of why using Bitcoins is any better than current methods for the customer or merchant.
Fully decentralized peer-to-peer filesharing was hot back in the day because there was no digital content available on the net. It was also very slow on the completely decentralized systems. Now that the content industries have caught on, most people prefer to use those offerings (Youtube, Netflix, Spotify, etc.), due to the convenience and speed of those services.
With Bitcoin, it is the other way around. We have a very well developed retail financial services sector. You can pay people and businesses easily through many different means. The payment processors charges a comparatively small fee for commercial transactions - usually around 3%, and gets lower as volumes increase. Customer don't see this at all as credit card fees are paid by the merchant. From a customers point of view, why would I pay in Bitcoins, if I can much more protection by paying with a credit card? If you don't have any bitcoins, you will have to do a fiat-bitcoin conversion and then the merchant does a bitcoin-fiat conversion back for stabilty? That kills the values proposition of low rates. The spread for the two conversion will already be close to or over the 3% you pay your current payment processor. Not to mention the hassle. You can introduce a processor like Coinbase to optimize the process (and also increase transaction performance by keeping local transactions off-net), but then you've just introduced a middleman that will also charge you fees.
Wiring money overseas will cost customers a bigger fee, but this fee is usually fixed, so batch transfers are usually done. Furthermore, for people with frequent Forex needs, you can open an account with a dedicated Forex company that will give you much better rates and you can probably save on some fees with them as well as they have many local bank accounts in different countries accepting and sending money.
So all-in-all no, I don't think it's all smooth sailing for Bitcoin and once people wake up to the limitation of this particular and novel implementation or decentralized digital currency, it will be better for everybody involved. We will start asking the right questions (eg. is if possible at all to create a decentralized crypto-currency network with similar performance to commercial payment processing networks) and maybe incorporate some of the better ideas from Bitcoins to more practical applications.
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If you read posts from many Bitcoin supporters, you will discover that they actually believe that deflation is a good thing. They think that deflation will make the money in their piggy bank worth more, and thus they like it. They have a poor understanding of the overall economic impact so they believe it would be positive. They also tend to conflate the ideas of saving and hoarding so while Bitcoin encourages the latter, they believe that's the same thing as the former.
What's even funnier to me, is that these are often the same people that get mad about "the 1%". What they fail to realize is that deflation is something that would benefit the rich and the very most and harm the poor the very most. The more money you have, and the less debt you have, the better deflation would be for you. If you've got a massive bank account, more than you need for the rest of your life, deflation is great. You keep all your money in cash, spend it only as you need, and the remaining money gets worth more. You don't need to invest it or take any risk, just keeping cash increases your value.
On the other side, if you owe money, deflation is a big problem. A loan becomes increasingly difficult to pay back as your nominal payment stays the same, but the real value that you are having to pay out increases. It works to keep you poor and to make it more difficult for you to ever become financially self-sufficient.
Really what it comes down to is many Bitcoin supporters just have a very poor understanding of economics. They don't understand the downsides of Bitcoin, because they actually believe many of them to the upsides. Really, Bitcoin is a dream for the rich robber barons. They would love something outside of any government regulation, something that works to make the rich richer, something where there's no recourse if they take money from you, no chargeback that kind of thing. It really isn't something that the rest of us should be that interested in seeing.
The idea of a crypto currency is an interesting one, but Bitcoin is very poorly implemented from an economic standpoint, if nothing else.
Yes it does. Bitcoin needs up to 3.6 million dollars of fresh new suckers daily, for the price of Bitcoin to remain the same. Why is this so? Because miners have real costs that have to be paid in non-Bitcoin currencies, so they have to sell some on the exchanges.
Why 3.6 million, or perhaps a large chunk of that? Because, mining is basically a perfect competition situation, nobody can stop new miners from joining, and new miners will stop coming only when the cost of one Bitcoin more than the price on the exchange. This guarantees that mining will be a low profit business, and most of the value will be lost to electricity.
Who pays for that (large chunk) of 3.6 million daily? New suckers.