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

[dan the person]

how can we be sure that an exchange won't be hacked?

Exactly. We can be sure traditional banks won't be hacked because they are regulated by the government appointed banking regulator.

And if they had loose security that somehow the regulators missed and loose billions in wire-fraud? In most countries the government guarantees your funds to a certain extent. So the question becomes, do you trust your government? (or the government in charge of the foreign currency you are storing).

This is the trouble with bit-coin. All currencies are based on faith. Faith that they will hold value (that the government wont print money), faith that they will be accepted for exchange (again, government mandated for most currencies). With bit-coin, to whom do you place your faith?

Re:As Frontalot says

[PopeRatzo]

We can be sure traditional banks won't be hacked because they are regulated by the government appointed banking regulator.

I'm pretty sure the housing bubble of the 2000s, which turned into the bank bust-out of 2008 and the subsequent taxpayer bailout could very accurately be described as "hacking the banks".

It was a process that started in the late 1990's, with Sen Graham's crusade to repeal Glass-Steagal. Even before the bailouts, it was the largest redistribution of wealth upward in all of human history. As a hack, it is one of the most audacious and effective. A pure example of social engineering. And its legacy is nothing short of the creation of a two-tier economy, in which there is one monetary system, one economy for the very elite, and another for the rest of us.

Oh yes, our "traditional banks" were hacked, but good.

Re:As Frontalot says

[PopeRatzo]

And we're all living in mud huts now as a result, right?

Well, not exactly, but many of us are renting the huts we live in which in 2005, we owned. Plus, the people who managed to hang on to their houses lost a significant portion of their savings in the form of equity when the prices crashed.

Further, six years of near-zero interest rates and $80 billion/month of free money going to banks has eroded our savings. If real inflation (not the adjusted numbers from the government) are near 8%, as many economists estimate, and your savings have netted 0%, you have lost a considerable amount of wealth and the value of your labor.

All this while the economic elite have seen enormous gains in their incomes.

You could continue and look at the social costs of this increasing disparity, which are substantial and include everything from disease rates to depression and family breakdown, but even without taking these externalities into account, the hacking of the banking system (which continues, by the way), has been enormously costly you to and me and the people who matter to you.

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.

Kinda implies

[Enry]

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

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.

I'm married to my drum kit

[smittyoneeach]

I'm married to my drum kit, you insensitive clod!

My guess

[goombah99]

I speculate that the real story behind mT Gox is not the one they are telling us. My guess is that back when bitcoins were worth pennies that Mt Gox needed a bridge loan to cover a shorfall in revenues wrt to expenses. I imagine they gave themselves a loan from their holdings intending to pay it back from downstream revenues. But then bit coin went 10,000 fold in exchange rate and they could never pay back the 400 million that was now due. Their only hope was to either wait for the market price to drop, or to act like a ponzi scheme where they paid demands out of other depositors money. All of which they could do because they controlled the coins. Even if they paid everything back but $4000 of an original bit coin loan, that would now be worth the 400 million they are short. Perhaps they also boofed the maliabile ID too at some point, but they would have easily detected that instantly because their total assets would be different that their total liabilities. Unless of course they already had a deficit in assets that was masking that.