Ask Slashdot: Do You Still Trust Bitcoin?

Nerval's Lobster writes "It hasn't been a great week for Bitcoin. Cruise the Web, and you'll find stories from people who lost thousands (even millions, in some cases) of paper value when the Mt.Gox exchange went offline for still-mysterious reasons. (Rumors have circulated for days about the shutdown, ranging from an epic heist of the Bitcoins under its stewardship, to financial improprieties leading the exchange to the edge of bankruptcy.) But as one Slashdotter pointed out in a previous posting, Mt.Gox isn't Bitcoin (and vice versa), and it's likely that other exchanges will take up the burden of helping manage the currency. Even so, all currencies depend on a certain amount of stability and trust in order to survive, and Bitcoin faces something of a confidence crisis in the wake of this event. So here's the question: do you still trust Bitcoin?"

Comments

As Frontalot says

[geekoid]

"You can't hide secrets from the future with math."

Re:As Frontalot says

[Qwertie]

The mathematics of bitcoin are sound enough. The issue I have with it is the possibility of hacks.

We all know that most computer systems are insecure. In the past, cracking a computer could only yield things like names, addresses, passwords (hashed and salted, one hopes), confidential files... in short, information. But with Bitcoin, crackers now enjoy the tantalizing possibility of stealing money! That makes Bitcoin exchanges (and, if bitcoin becomes popular, all ordinary PCs with bitcoin wallets) highly attractive hacking targets. So how can we be sure that an exchange won't be hacked? How can we be sure that our PCs won't be hacked? This issue--my inability to know that my coins are secure--has made me reluctant to buy them in the past.

Also, what regulations exist to ensure exchanges are secure? What incentives exist to encourage exchanges to be bulletproof against against hacks (or scams / social engineering)? And finally, how can we know that the exchange itself is entirely legitimate?

And by the way, I'm sure conventional large banks and financial institutions occasionally have hacks too, which reminds me of another difference between bitcoin and traditional money management. The difference is that you can mostly trust traditional institutions to compensate customers for any funds stolen from customer accounts (as long as it wasn't blatantly the customer's fault). To what extent is this assurance available in the bitcoin world?

Re:As Frontalot says

[Anonymous Coward]

forget hacking: what's to stop an exchange from just closing and keeping all the BTC?

Oh, right

Nothing

Re:As Frontalot says

[greg_barton]

And believing in bitcoin would make this better?

Re: As Frontalot says

[AudioEfex]

Exactly. I'm sorry, I'm not Mr. I Love and Completely Trust The Government, but reading what some of these folks say is just astounding. The level of fear and suspect is simply irrational. Now, when I say that, they will say I am a sheep or naive or what have you - but as you said, the dollar survived the last crisis, it survived previous issues, and even though it's not as absolutely strong as it once was, it's still the most a secure currency in the civilized world.

I don't know what makes these folks so scared, and the only defense they can give about BitCoin when confronted with it's obvious flaws as a "currency", pointing out the ways in which it is simply an investment scheme, is to try to say "yeah but the dollar is just as bad!" when clearly, it is not. Or they quote you Iceland or Cypress and ignore that the USD is far different than the currency in those places. Desperate attempts at deflection are the only "ammo" they have to retort with because, frankly,I do nt think most of them actually understand it for what it is - a pyramid scheme with a novel twist. While nothing is 100% certain, I know I would feel a hell of a lot more secure with $100,000 in cash in a fireproof safe, or even at a bank, than I would with the same amount in BitCoins sitting in an exchange or even in "cold storage" that's based on untested (and obviously flawed) protocols and trust in a completely unregulated private company in another country (or even our own). It's not even comparable. The value of BitCoin is really based in what someone is willing to pay you in legal tender in exchange for it, otherwise it's worthless. That's the pyramid part - it depends on new folks coming in and willing to buy your existing stock with legal tender which can then be used for goods and services. Without people actively buying into it with real currency, it's utterly useless and has no value.

BitCoin is the result of a lot of supposedly educated folks who are disillusioned with the government and, dare I say, mostly seem to be in their 20's and products of upper income homes who grew up in the 90's during all the "you deserve it!" entitlement trend in child rearing. I'm a product of the 80's, when we were all told we were "special" - but we were also told that we had to work for it and not to expect a free ride. The popularity of BitCoin among these folks is due to the "get rich quick" aspect that they always felt they deserved and believed they had finally found their golden ticket.

Ugh, you know you are getting older when you start to so clearly see the generational differences - every generation has it's quirks, and BitCoin is the manifestation of young smart folks with too much disposable income who think they are smarter than they actually are, and those that haven't taken their winnings and run yet are in for a very, very rude awakening when this all completely collapses and their money is gone.

Re:As Frontalot says

[PopeRatzo]

Oh, you misunderstand me. I think Bitcoin is a neo-libertarian utopian fantasy, based on the same thing all neo-libertarian philosophy relies, the "If only..."

"If only we had perfect information. If only we had perfect competition. If only we could have a free market that existed outside of government."

The problem is, markets are a function of government. There are no markets in nature. They only exist when there is someone to enforce contracts and guard transactions.

The entire philosophy is a scam perpetrated by the economic elite to draw off the energy of talented young people and make it easier to steal from them, while appealing to their egos. And the easiest people to manipulate via ego are talented young people, and those who see themselves that way.

Bitcoin is an undergrad economics project, writ large, and co-opted by criminals and the elite. I knew it would be co-opted eventually, just didn't think it would happen this quickly. Bitcoins will exist, in some form, until the willingness of those talented young people to part with their wealth is exhausted, which won't take long.

Do you have any idea how many Bitcoins were purchased between $1000 and $800? Wait until the people who bought them there realize that a 50% gain after a 50% loss puts you in the hole.

Re:As Frontalot says

[E-Rock]

Gox had an implementation flaw in their transaction reconcilement and a clear lack of auditing. Of course, the only source of this information is Gox. So, that's their version of what happened.

Long before this happened there were complaints about Gox being difficult about withdrawing funds, and speculation that they had been running as a fractional reserve and the run up in price was driving them to insolvency.

Without an independent investigation it's impossible to say what actually happened. That said, both versions point to a problem with one exchange, not with Bitcoin itself, and so far not a problem with any other exchanges.

Re:As Frontalot says

[Bender0x7D1]

But that's the problem - Bitcoin isn't "real" money. If it were, there would be a huge number of regulations to follow, sinking it as an anonymous currency. However, if it isn't "real" currency, thefts and/or fraud will not be investigated by law enforcement agencies. So, pick what you want: An anonymous currency with no support of law enforcement, or a "real" currency where regulations such as requiring a photo ID to open an account apply.

Re: As Frontalot says

[Icarium]

I think the truest test of whether Bitcoin can be regarded as a currency is: Would you be willing to be paid in it?

I don't speak for everyone, but my answer to that is a resounding no. When I get paid in the old fashioned currency of my land, I have a reasonable expectation that my purchasing power isn't going to vary widly from day to day. What I can buy with my salary today, I will still be able to buy with my salary in a day, or a month, roughly speaking.

The same can't be said of Bitcoin, at least not any time soon. Until then, I won't regard it as a currency.

Re:As Frontalot says

[rev0lt]

Wait until the people who bought them there realize that a 50% gain after a 50% loss puts you in the hole.

There is also another point *against* Bitcoin. Because it is deflationary by nature, it promotes hoarding of the currency (eg. if Bitcoin is low now, and if you believe in it, just hang on to it until hopefully will gain more value). Current capitalist systems are inflationary, so if you sit on your pile of cash it will decrease value over time, not increase. This gives a huge incentive to invest that money - like deposit in a bank, buy some stock or bonds, do riskier high-return investments, etc. Thats how you increase your capital - you just don't sit on it, you make things happen that will generate profit. And this keeps the world turning, regardless of personal preferences of who's in charge of it. With deflationary currencies, eg. companies don't need to invest to have profit (eg. you would not have Internet, because why spend 300 billion on undersea cables when you can just sit on that money until it increases in value?). And with unregulated currencies, the loan system cannot work reliably - and this is essential to make the world as we know work.
My opinion is, Bitcoin is a ponzi scheme. Even if it gets adopted officially. (Yeah I know, fiat currency isn't that far from a ponzi scheme, either)

Kinda implies

[Enry]

that I ever trusted Bitcoin in the first place. I didn't.

Re:Kinda implies

[goombah99]

What I dislike about bitcoin is that if someone steals your money, you can't get it back even if you catch them. They have the password. Magic The Gathering Online eXchange, was a stupid place to entrust your passwords.

Never Did Trust it

[icebike]

Its a passtime, and a toy. I never did have any trust in it. It seemed ripe for running afoul of governments sooner or later.

The idea of wasting perfectly good electricity creating something of value out of nothing at all never head any of my interest, even when I did manage to buy a book with bitcoin once. (I earned the bitcoin by selling a piece of software that I wrote, so easy come, easy go).

Re:Never Did Trust it

[roc97007]

> The idea of wasting perfectly good electricity creating something of value out of nothing at all [...]

Don't let De Beers hear you talking like that.

Re:Never Did Trust it

[ewibble]

sort of like the government printing "real" money. except you are also wasting paper, and ink.

Re:Never Did Trust it

[Anonymous Coward]

Except the "real" money is backed by the full faith and credit of the government. Many governments aren't very trustworthy, but the US has been generally acceptable in that regard (there's a reason people stuck in bad economies want dollars, and it's not because they like how they look.) Unless you want to carry around your goods and barter for everything, you have to trust somebody to be the middleman.

Re: Never Did Trust it

[Anonymous Coward]

Paper currency is a small fraction of the money supply. The Fed simply presses a button on a computer to create money.

Objection!

[carou]

I never trusted Bitcoin.

Still?!?

[ackthpt]

I've never trusted it. If I mine a coin I'll sell it, tout suite!

Only one player

[Anonymous Coward]

Let me answer your question with a question. Do you trust the US Dollar less because of the Leaman Brothers collapse? Trusting or not trusting a currency (virtual, or fiat) based on the actions of one player, regardless of how large, makes no sense. I believe in what Bitcoin is about, I trust it more than I trust the banks and government. I still need fiat money to pay my bills, but would prefer to live without the banks who have already shown to not be trustworthy.

Re:Only one player

[Enry]

Let me answer your question with a question. Do you trust the US Dollar less because of the Leaman Brothers collapse? Trusting or not trusting a currency (virtual, or fiat) based on the actions of one player, regardless of how large, makes no sense. I believe in what Bitcoin is about, I trust it more than I trust the banks and government. I still need fiat money to pay my bills, but would prefer to live without the banks who have already shown to not be trustworthy.

*headdesk*

I'm going to say this as simply as I can:

Bitcoin is also fiat currency

There's nothing backing it. Zero, zip, zilch. At least the US dollar is backed by the full faith and credit of the US government, and it's been that way for 40 years. Bitcoin hasn't lasted 10.

This is not a simple question

[SampleFish]

BitCoin, by nature, is as trustworthy as SHA256 which is used by TLS, SSL, PGP, SSH, S/MIME, and IPsec. So the math behind BitCoin is trusted by most of the world whether or not you are aware of that fact.

As a currency it is just as trustworthy as any other imaginary money system. It's value is highly speculative, like the NYSE. Nobody really trusts the NYSE just as you shouldn't trust the value of BitCoin.

That being said, cryptocurrencies have the potential to be more stable than fiat currencies. BitCoin may not be the final solution but behold as we are watching the future of money unfold. History is in the making.

Re:I trust bitcoin itself just fine....

[ackthpt]

I trust bitcoin itself just fine... it's the third party exchanges I don't trust.

Foo.

That's preposterous. It's like saying you trust Dollars just fine, but don't trust the banks...

...

'k, I'll shut up now.

As compared to what..?

[geekmux]

Do I still trust bitcoin?

How much trust did you have in our financial system circa 2008, right after the financial meltdown?

After you watched the most notorious criminals of our time (a.k.a. bankers) get away with financial genocide and got to keep their jobs and their bonuses, how much trust should you have in the current system? We don't arrest or prosecute financial criminals. We reward them.

Sorry, but bitcoin is no more stable than any other currency. Only the criminals in charge want you to believe it is. And we pay them millions to do so, so might as well STFU about stability. We don't even give a shit about the current system to protect it from crashing again, much less any new ones.

History repeating

[AdamHaun]

Oh look, a bank-like entity failed and people lost money. Good thing the FDIC is there to--

Oops.

If cryptocurrencies are going to repeat the last 100+ years of economic history, can they hurry up and rediscover monetary policy too?

I've never trusted BitCoin

[JMZero]

There was money to be made at certain points, sure - and there may be more money to be made in the future. I'm sure some people have done quite well. But that doesn't mean any significant involvement with BitCoin going forward is a good idea.

Trusting "BitCoin" isn't exactly what's important. To invest in or use BitCoins significantly, you'll end up trusting other people - and how do you know to trust those people, especially as the stakes get higher and higher? Banking and securities trading have a web of trust and regulation that's been built out over centuries. There's failure states and scandals, sure, but you have reasonable tools to decide who to trust and how much.

What I see in people's experience with BitCoin is often a long string of red flags - difficulties doing withdrawals and transfers, huge fluctuations in value, varying exchange rates that nobody is able to arbitrage - all met with too few questions and far too much exuberance.

What if?

[TsuruchiBrian]

What if you went to an Indian casino, exchanged your dollars for chips, and when you went to leave and cash out your remaining chips, they refused to exchange the chips for dollars, and instead decided to close shop. Would you still trust the dollar?

That's essentially analogous to what this article is asking. Maybe bitcoin has porblems. It's too volatile to be an effective unit of cost. Those are separate issues from the problems Mt. Gox is having.

Even the dollar has problems with corruption and cronyism involving the treasury, the fed, wallstreet, and too big to fail banks, that doesn't mean that an indian casino deciding to steal your money is due to any weakness in the dollar. That's just a business failing to uphold a promise either through theft or incompetence.

Mt Gox is a financial institution that didn't have it's shit together. Yes it dealt in bitcoins. It also dealt equally in dollars and other currencies (i.e. because it was an exchange). That doesn't mean it the dollar or bitcoin is weak. They still could be, but it's not because of Mt. Gox.

Re:What if?

[DogDude]

What if you went to an Indian casino, exchanged your dollars for chips, and when you went to leave and cash out your remaining chips, they refused to exchange the chips for dollars, and instead decided to close shop. Would you still trust the dollar?

I think you've got your analogy backwards and upside-down. The correct question would be, "Would you still trust the casino chips?"

Re:I trust bitcoin itself just fine....

[evan.teran]

Not exactly a fair comparison. I only trust banks because they are insured and if they "lose" my money then I will have recourse to recover it. With the online bitcoin exchanges, there is no such thing.

Re:I trust bitcoin itself just fine....

[ackthpt]

Not exactly a fair comparison. I only trust banks because they are insured and if they "lose" my money then I will have recourse to recover it. With the online bitcoin exchanges, there is no such thing.

2008 should teach you one thing - when the banks screw up, the execs make sure they never have to pay for their poor decision making - they pull the strings and make the representatives they own dance to their tune. It's not that nothing was learned from 1929, something was, it's to make sure the people at the top continue to line their nests and their lackeys in government make sure they can continue to do whatever. The belief that the banks are now all square is an illusion, they've borrowed from the Federal Reserve to pay back the government loans. With the government borrowing like a gambling addict to prop the economy up, one thing was lost - value of the dollar, it's nowhere as strong as it once was, nor buys as much as it did in early 2008.

Re:My guess

[MickLinux]

You know, money is a commodity of value that is used as a medium of exchange.

So there's the difference between bitcoin and national fiat currencies: national fiat currencies have as their commodity the mutual defense of the nation, which in turn makes for more reliable business, and thus profits.

With bitcoin, the valuable commodity is... finding a greater fool. In other words, bitcoin is entirely bubble.

Maybe I'm wrong. Bitcoin's valuable commodity could be laundering. But if that is the case, then I still have no value for it.
No, I never did trust bitcoin.