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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.'"
TFA doesn't really counter Stross's arguments much (besides arguing about carbon footprint, but really BTC is small potatoes even if you care about such things). The authors instead focus on why his objections just aren't important, and I tend to agree with that.
In terms of actual economics, Stross is much in favor of state control of things, especially economic things (read his blog to get the best insight on his views), and BTC is the opposite of that. TFA primary argument, and one I'm quite sympathetic to is "well, who knows!" Economists argue over everything, and there's certainly no uniform agreement over what makes a good currency.
As Feynman would say "one experiment is worth 1000 expert opinions". BTC is quite worthwhile IMO as an experiment. Personally, I think it's misguided and solves only unimportant problems, but hey, lets run the experiment and find out who's right. If bitcoin really becomes mainstream then it is a good currency, because the best currency is the one people want to use. And if instead it's crap, then it will never realy matter outside of eternal /. stories, and so no significant harm done.
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No. The power that Bitcoin may or may not have is not at all related to using it as a payment processing network.
People obsess over Bitcoin's price (in dollars, yuan, whatever) because a Bitcoin only has value if people agree it's worth an exchange for goods and/or services, and can reasonably expect to exchange a received Bitcoin for other goods and services.
Right now if I get 100 dollars, or 100 euro, or 100 yuan, or 100 yen, in payment for some services I render or product I sell, I can reasonably expect to go down the street and exchange that currency for hookers (services) and/or blow (goods), within a reasonable timeframe (say 1-5 years in the future.) Right now if I get 100 Bitcoin, I might be able to buy Michael Jordan's $16 million mansion in Chicago in 1-5 years - but it's equally likely that I won't be able to exchange them for anything in 1-5 years.
Most government-backed currencies (with the recent notable exception of the Zimbabwe dollar and several other currencies over the last 50 years) pass this test. Bitcoin, as of yet, does not. Many people would have to choose to use Bitcoin over a government-backed currency (think 60-80% of the population in your local country - in the US, that would be around 200-230 million.) In order to get that many people to switch, there would have to be a significant compelling reason for them to hold their wealth in Bitcoin instead of the government-backed currency. I have yet to see a compelling reason to switch. Not only that, there are high barriers to overcome yet: security, convenience of exchange, and relative durability all spring to mind as specific examples.
Given the above, coupled with the fact that the Bitcoin exchange rate is being manipulated by speculators, and the number of knock-off alternative currencies floating around, why would any rational person think about holding their wealth in Bitcoin at any given moment?
I know how bitcoin works, but I'm missing a couple elements:
Once the last coins are mined, what happens?
How do you convince people who sold theirs to keep giving away computing power in exchange for nothing? I know that fees can be added, but in a distributed semi-ananymous network, how do you set fee levels such that people will validate little transactions as well as big ones?
And even before all the coins are mined, has anyone calculated yet what is the ceiling for BTC? That'd be the value over which some country's national labs or universities turn on their supercomputers and mine almost everything (publications might bring revenue, but mining apparently does), preventing individuals from getting any return from their hardware, thus discouraging them from participating?
The transaction fees already exist. It's not like the designers never thought about what will happen after all bitcoins are minted.
And even before all the coins are mined, has anyone calculated yet what is the ceiling for BTC? That'd be the value over which some country's national labs or universities turn on their supercomputers and mine almost everything (publications might bring revenue, but mining apparently does), preventing individuals from getting any return from their hardware, thus discouraging them from participating?
A) The maximum number of bitcoins was publicly predetermined from the start. It's 21 million.
B) Bitcoin mining requires specialized hardware to be profitable to mine, so this isn't something that anyone with a supercomputer can just decide to mine effectively on a whim any more.
C) Why would it be bad that most individuals couldn't mine? Bitcoin mining isn't supposed to be an egalitarian "everyone gets free money" system. It's a reward for using your computational power to help secure the system. If a hundred groups with supercomputers / mining machines can mine more than 100,000 people using desktop machines, then the former group pushing out the latter from the market is the way things should be. (However there is a problem if any group colluding gets more than 50% of mining power together.)
I dunno, I think Silk Road kept it more stable than it is now. For awhile, there were lots of people that needed to buy bitcoins to get real goods and one big guy needing to sell them to get real money.
Now you've got much less of that. The speculators, hoarders and idealists have more weight than the actual market, and the price jumps and crashes.
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