Cryptocurrency Exchange Vircurex To Freeze Customer Accounts

Powercntrl (458442) writes "Vircurex, an online exchange for Bitcoin as well as other cryptocurrencies is freezing customer accounts as it battles insolvency. While opinions differ on whether cryptocurrency is the future of cash, a Dutch tulip bubble, a Ponzi scheme, or some varying mixture of all three, the news of yet another exchange in turmoil does not bode well for those banking on the success of Bitcoin or its altcoin brethren, such as Litecoin and Dogecoin."

Comments

hmm, people out to make a quick buck

[Jmc23]

are frequently criminals.

Re:hmm, people out to make a quick buck

[GumphMaster]

Or day traders, or high frequency traders...

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Repetitve comment, that.

Re:hmm, people out to make a quick buck

[MobSwatter]

You're not taking into account that since the strength and credibility of the dollar is no longer what it was, the mob and gangs are trading in humans and blood money, this market is one they can fortify by attacking any substitute for the dollar.

Re:hmm, people out to make a quick buck

[chromaexcursion]

is there really that much of a difference?

making money without working for it.

Re:hmm, people out to make a quick buck

[ShanghaiBill]

Or day traders

Day trading has never been a way to make a quick buck. At the end of 1999, a brokerage survey found that most day traders had lost money over the previous year, despite the NASDAQ rising a record 85%. The day traders were just eaten alive by the transaction fees.

or high frequency traders...

HFT is much less profitable than it used to be. They made money by squeezing inefficiencies out of the system, but once everyone else was doing the same thing, that doesn't work anymore.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Day trading and HFT are not criminal activities.

Re:hmm, people out to make a quick buck

[Anna Merikin]

And until a hundred years ago, cartels were legal, too. Two hundred years ago, the slave trade was going strong in parts of the USA.

Just goes to show.

Re:hmm, people out to make a quick buck

[JDAustin]

People are 3 things: greedy, lazy, and stupid. Those out for a quick buck on the *coin exchanges prove this point.

Re:hmm, people out to make a quick buck

[PopeRatzo]

are frequently criminals.

And people involved in "cryptocurrency" are frequently a little questionable themselves.

http://en.wikipedia.org/wiki/S...

http://en.wikipedia.org/wiki/S...

Personally, I've decided to put my money in tulip bulbs. My tulip bulb fortune is the fastest growing in the world. Friday, I had two tulip bulbs and at the close of business today, I have fifty, having cleaned out the local garden shop. That's a 2500% increase in two days!!.

Clearly, tulip bulbs are the next big thing, since their value does not depend on any government and they can be used anonymously. I keep mine safely buried underground in my front yard.

Re:hmm, people out to make a quick buck

[GumphMaster]

Nobody is claiming they are, just that the participants intend to make a quick buck.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Goes to show what, exactly? Laws change? No disagreement there.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

>>>hmm, people out to make a quick buck are frequently criminals.
>>Or day traders, or high frequency traders...
>Repetitve comment, that.

In context that comment can easily be read to imply that day traders or HFTraders are criminals.
It could also be read to imply that day trading and HFT are redundant terms. (Some overlap, but they aren't the same thing either.)

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Clearly, tulip bulbs are the next big thing, since their value does not depend on any government and they can be used anonymously. I keep mine safely buried underground in my front yard.

That's what you think..... you didn't notice the two guys sneaking around, one with a shovel, and another carrying a great big box of harvested tulip bulbs?

Re: hmm, people out to make a quick buck

[VTBlue]

The strength and credibility of the dollar is unquestioned, and it will remain unquestioned so long as the federal government spends money and collects taxes without causing too much inflation.

Re:hmm, people out to make a quick buck

[invictusvoyd]

Nobody is claiming they are, just that the participants intend to make a quick buck.

Like the fellas at Enron . Just guys trying to do whatever they can to make some extra cash .. Al Capone was a criminal ! .

Re:hmm, people out to make a quick buck

[dbIII]

They made money by squeezing inefficiencies out of the system

Nice euphemism for a timing based man in the middle attack.
Alice asks for shares. Bob has shares for sale. Speedy buys shares from Bob and sells them to Alice before Bob can get the message that Alice is buying and before Alice can get the message that Bob is selling. Of course it can be argued that it's just a "sharp" business practice, the "American Way you commie" or whatever and that a man in the middle attack that adds zero value to the market is perfectly fine.

Re:hmm, people out to make a quick buck

[NFN_NLN]

Goes to show that sometimes it takes laws time to catch up.
What value does HFT provide to the economy? Are companies suppose to change direction every 1/100 of a second in response to trades -OR- is it just a method for skimming money?

Re: hmm, people out to make a quick buck

[MobSwatter]

Wouldn't be the first question I've seen the government refuse to explore. Credibility and confidence is not earned by the use of force, or martial law or any shade of gray in that they elect to impose.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Actually if the networks become fast enough companies would change direction every nanosecond

Re: hmm, people out to make a quick buck

[Anonymous Coward]

The US dollar is on the wane, once it loses reserve status it won't recover that position again. Also many countries such as China, Russia, India, Iran, Saudi Arabia, Japan, Australia and others are making trade deals without the dollar. It's getting weaker, just like the credibility of it's president looking weak geopolitically. This has been on the economic news, you'd have to be ignoring it to continue believing the fairy tale that the US has it's monetary (and fiscal) house in order.

Re:hmm, people out to make a quick buck

[Procrasti]

> Nice euphemism for a timing based man in the middle attack.
> Alice asks for shares. Bob has shares for sale. Speedy buys shares from Bob and sells them to Alice before Bob can get the message that Alice is buying and before Alice can get the message that Bob is selling. Of course it can be argued that it's just a "sharp" business practice, the "American Way you commie" or whatever and that a man in the middle attack that adds zero value to the market is perfectly fine.

That's not how it works... unless they are intercepting Alice and Bob's orders before they hit the exchange and placing their orders before Alice or Bob, they are taking a (tiny but existent) bit of risk and doing arbitrage in time, because the exchange is still processing the orders in the order they are received.

If they are intercepting Alice and Bob's orders I would agree with you, this should not be a legal practice... but if the exchange is genuinely processing orders in the order they arrived, you are wrong... they actually are making the markets more efficient, in some sense.

Re: hmm, people out to make a quick buck

[MobSwatter]

Not really much the people can do about it when the corporations have the government printing money in the basement just to cover deficit spending. Almost makes one wonder when they are going to start passing bad bills. There has been an imbalance of power for so long there is just no way that can take place without repercussions somewhere. The people in the finance industry I speak with tell me they are just holding off the fall until it becomes someone else's problem, and they know that can only happen so long.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

unless they are intercepting Alice and Bob's orders before they hit the exchange and placing their orders before Alice or Bob

You just described how most high frequency trading works. Those involved pay premium rates to get this kind of data access and buy/sell while Alice orders are still pending.

Re:hmm, people out to make a quick buck

[Anonymous Coward]

That would be the literal interpretation of an obtuse person. The obvious message is that HFT+day trading should be criminal, although I don't strictly agree with that: I just think the government shouldn't protect non-productive income.

Re:hmm, people out to make a quick buck

[Antonovich]

Great point. The question I always like to ask about HFT is - If we ask ourselves what the economic function of exchange platforms is, what value does it add to the system? I.e., how does it improve the process of the exchange of shares (commodities, etc.) between individuals and organisations? It seems to me that the fact that HFT is possible at all is a bug in the system. It is exploited by nefarious quasi-criminals, destabilising and creating distortions in one of the fundamental tools of our current economic system. I don't see any real difference between it and an (extra) tax on transactions, except that the taxation is done by external corporations not the government or the company running the exchange. I'd love to hear some counter-arguments though, there may be some really good value it adds that I haven't thought of... (IANAE).

Re:hmm, people out to make a quick buck

[dbIII]

there may be some really good value it adds that I haven't thought of

The house gets a cut to allow those with marked cards to play against the suckers without.

Re: hmm, people out to make a quick buck

[pla]

The strength and credibility of the dollar is unquestioned

Funny how this comment comes up (not by you personally) in every thread about either BTC or the Fed or the economy in general.

You realize, of course, that the very fact that you (and those holding a similar position) even need to make that argument in the first place, means that quite a few people very much do question the strength and credibility of the dollar.

That said, I don't think any of us expect it to vanish overnight in a Zimbabwe-esque hyperinflationary spiral. Instead, it will just continue its slow decline, year after year, decade after decade, as deliberately inflationary monetary policies make up for the inability of the asshats in DC to "keep it in their pants" (by which I mean the federal wallet).

The sad part of that? A slow, predictable decline does count as the best game in town. And you seriously have to wonder why some of us want to see a non-fiat currency succeed?

Re:hmm, people out to make a quick buck

[Procrasti]

If you have proof they can see the queue of pending orders and the ability to jump those orders in the queue, I would like to see it.

My understanding of HFT is that they have very fast access to the market book, and ability to place orders based on that information very quickly, but don't actually have access to the pending order queues or the ability to have their orders prioritised with in it.

The former is fully legal and expected out of an efficient trader, the second is probably illegal.

Re: hmm, people out to make a quick buck

[Anonymous Coward]

SPAM

Re:hmm, people out to make a quick buck

[JoeMerchant]

Day traders are only criminals if the IRS decides to audit them.

Re:hmm, people out to make a quick buck

[jythie]

I guess the point is that just because something is currently legal does not mean it is ethical, and there are many things socially we consider 'criminal' that do not meet the legal definition.

Re:hmm, people out to make a quick buck

[PopeRatzo]

Where do you think I got my tulip bulbs?

Re:hmm, people out to make a quick buck

[Anonymous Coward]

Slavery was never made illegal, just expanded to include everyone.

Re:hmm, people out to make a quick buck

[1s44c]

Day trading and HFT are not criminal activities.

You are quite correct. However they should be criminal activities, or at a minimum taxed in such a way they are not viable ways to extract money from markets.

Re:hmm, people out to make a quick buck

[r.freeman]

What value does an unrecognized/amateur pictures painter artist provide to econmy while he wastes time drawing some pictures? Is he also a "criminal"? What is this, communism, that every human action must bring some "benefit" to econym or it's a crime as decided by some commitet?

Re:hmm, people out to make a quick buck

[r.freeman]

Yeap...

Re:hmm, people out to make a quick buck

[u38cg]

So what? Shares don't have an exact price at any time. Sellers specify a range and so do buyers. If you can get in between them, so what? If you don't like it, narrow your spread.

Re: hmm, people out to make a quick buck

[Anonymous Coward]

You must not understand economics, trade, or politics well.

Re: hmm, people out to make a quick buck

[Anonymous Coward]

The strength of the dollar is unquestioned

"[I]n 1913 the CPI was 10 and today it's 229.4. This means the cost of a basket of goods has gone up by 22.94X in the last 99 years. To measure the loss of the dollar's value you simply divide 1/22.94 = .044 X 100 = 4.4%. In other words, the dollars has just 4.4% of it's value remaining and 95.6% of it's value has been lost. "

Yeah, that strength is unquestioned. Many question it, just because you don't, don't pretend that others don't see large problems.

The credibility of the dollar is unquestioned

QE3? Auto bailout? Housing market crash? $16 trillion in bank bailouts from the Federal Reserve, without over sight of the US Congress and Senate.

Yeah, that is unquestionable credibility of the US (Not to mention US military actions, NSA actions, and failure of so many programs). Many question it.

... And it will remain unquestioned

Can I borrow your crystal ball?

federal government spends money and collects taxes

Actually, that's part of the problem. They make up too much of the economy, and they constantly are spending money that they don't have.

Would you feel comfortable going into business with a a partner who has $180,000 in unsecured debt (credit cards) while making $27,000 a year, adding $10,000 in credit card debt a year, and making interest only payments on it? The Debt is almost 18 trillion dollars, actual federal revenue is 2.7 trillion dollars. The deficit for 2012 was over $1 trillion and 2013 was $901 billion (almost 1 trillion).

without causing too much inflation

Too late. 2-4% annual in means that checking and savings accounts are losing money. You need an investment making 6-8% to make a mere 2% profit. Means you are purposefully stealing money from workers to give low/no interest loans to the bankers. People complain about the low wages entry level employees make, but fail to be upset that the federal reserve steals value from the people and gives it to the banks, hurting the lowest income people (who don't have the money to invest) the most. They seem to think the solution is increasing the minimum wage, or pegging the minimum wage to the rate of inflation; but the rate of inflation is the problem.

All that said, investing in BitCoin at this point is gambling or day trading. It doesn't create any real value to mine them, though they are currently "valuable." It is a bubble and it will correct (crash) and will probably turn people away from crypto currency for a little while. Interesting alternative currencies are emerging though. Corporate "rewards" programs (Amazon coins, Starbucks Rewards, etc.), Tide soap (I don't get it, but drug dealers are dealing in the stuff), and some returning to some forms barter are very real things happening now.

Re:hmm, people out to make a quick buck

[NoImNotNineVolt]

And people involved in "US Dollars" are frequently a little questionable themselves.

http://en.wikipedia.org/wiki/Bernard_Madoff

http://en.wikipedia.org/wiki/Black_market

Re: hmm, people out to make a quick buck

[Agares]

Finally, someone with some common sense. Every time I say this myself I get a lot of people claiming that the dollar could never fail and all the government needs to do is keep printing more and more money. I would like to think they are trolling me, but I seriously think that these people believe that you can just keep printing more and more forever. Like you said at some point something has to give.

Re: hmm, people out to make a quick buck

[ComputerGeek01]

And you seriously have to wonder why some of us want to see a non-fiat currency succeed?

Yes I often do wonder why you think it's any different from your system. There are two inherent problems with a purely gold standard that at least some of the mineral backers would agree with. One, if you are only using gold, for example, then you are failing to diversify your countries wealth based on it's other mineral resources. Two, there is no granularity with gold, sometimes you only need 12 widgets and not 12,000 but no one is going to let you pay for it with smatterings of gold dust. These used to be solved problems, the US for instance used to use both gold and silver and before the Bessemer process I believe we used aluminium (pronounces 'Ah-Loo-Min-Uhm') as well. This provided granularity and stabilized market fluctuations. But what about our copper? What about our steel? You can't tell me that these other minerals are worthless to an industrialized nation. And if that is what everyone is buying from you then why not allow it to back your currency? The demand for that mineral raises it's market value, so why not allow it to raise the strength of your dollar along with it while providing yet more diversification and more granularity?

What you mineral-backers refuse to see, or consciously ignore I honestly don't know which, is that a countries labor force is just as monetizable as it's mineral wealth. That's the biggest difference between the two systems, that inclusion of the countries ability to provide more then just raw materials. If they want a car then they can buy a car, and the need for that car makes the dollar valuable.

You do realize that countries can still buy gold from us right? Gold Bullion is selling for around $1,300 USD right now and nothing is stopping other countries from exchanging the US dollar for gold if that is what they want.

Re: hmm, people out to make a quick buck

[pla]

There are two inherent problems with a purely gold standard that at least some of the mineral backers would agree with.

I agree with much of what you said, though I don't understand why you said it - BitCoin is not a commodity currency.

Re: hmm, people out to make a quick buck

[tacokill]

The strength and credibility of the dollar is unquestioned
A slow, predictable decline does count as the best game in town

Strength and credibility through slow and predictable decline.....that's rich!

Re: hmm, people out to make a quick buck

[msi]

The US dollar may or may not lose it's status as the worlds reserve currency however, their is still a massive gap between that and losing credibility as a currency.

There are somewhere between 189 and 204 countries in the world depending on how you count them and they have about 190 currencies. where you place the US dollar in the order of credibility is up to the individual but I don't think many people are going to rank it below the Sudanese pound.

Re:hmm, people out to make a quick buck

[PopeRatzo]

No question. Criminals are criminals and fools are fools.

Re: hmm, people out to make a quick buck

[Anonymous Coward]

The strength and credibility of the dollar is unquestioned
Funny how this comment comes up (not by you personally) in every thread about either BTC or the Fed or the economy in general.

You realize, of course, that the very fact that you (and those holding a similar position) even need to make that argument in the first place, means that quite a few people very much do question the strength and credibility of the dollar.

No, what's funny is that I can go to any shithole on the planet, or developed nation on the planet, even ones openly hostile to the US, and almost everyone will accept US currency in exchange for goods and services.
But people like you still try to claim that its value is questioned.

Re: hmm, people out to make a quick buck

[VTBlue]

Of course you can't keep printing more and more, the problem that most technology people have is that they have little operational clue as to how the financial system and monetary system actually work. Trying to understand the modern financial world through the lens of undergraduate macroeconomics is like trying to understand graph theory with only a background in algebra.

The reality is that the federal government can print/spend as much money as it wants. The only real constraint is whether this spending causes an untenable amount of inflation. The US National Debt is in fact simply a residual that has no real economic meaning. Even if it was twice as large and inflation doubled to 3.5% or even 5%, it would be absolutely fine.

Lastly, you have to remember that the federal government has another tool to combat inflation, which is taxes. Taxes hedge inflationary risks by removing money from circulation. Federal spending adds money to circulation.

Re: hmm, people out to make a quick buck

[VTBlue]

you should read economic theories that compare metallism vs. chartalism. Today we have a social and political class that think, behave, and operate as if we are under a metallist framework, when in fact there is no question that the US and most of the world operates under a chartalist framework. People have no clue what "the full faith and credit of the United States" actually means, and I wish this sentence would be abolished because all this really mean today is that as long as the federal government demands taxes paid in US dollars, and it alone is the sole issuer, there will always be a demand for US dollars. As long as the US government continues to effectively collect taxes and spend money, the US dollar will always have credibility. Even if no foreigners or private sector people buy US T-bills, the federal reserve will always buy them.

Re: hmm, people out to make a quick buck

[VTBlue]

everything you've said is essentially backwards from how the economy really works. Today inflation is under 2%. Interests rates/risk-free rates are the lowest ever which businesses like. The federal government does not make up too much of the economy. Your statement must be qualified with regard to the strength of the private sector and foreign sector. During a recession or depression you want the federal government to be bigger. Today its not spending nearly enough and as a society we are losing in real terms while people like you work about a number on a spreadsheet.

  As for your business partner example, the Federal government is not a business or a household. The Federal government is a sovereign issuer of the currency AND user of the currency, while state and local governments, businesses, and households are only the users of the currency.

The US Debt is a residual that has no economic meaning.

You understanding and application of CPI is completely wrong. It is not about what one single dollar can buy, but what all the dollars in a household can buy. In real terms, US households are far more wealthy today than in the early 20th century. No amount of dollars in 1920 could buy a telephone or electricity, or computers, or cheap high quality imports. The average US household went from spending over a quarter of its household income on food in the mid 20th century to less than 20% today. That is real wealth.

Re: hmm, people out to make a quick buck

[pla]

You should read economic theories that compare metallism vs. chartalism.

I have some familiarity with Knapp's work. He conveniently glosses over what happens when a government's spending grows at a higher rate than inflation of its issued currency, however. Fortunately, we have several modern examples of that... Greece, Cyprus, Ireland... Great clubs to join - They all have awesome beaches, right?

Chartalism "guarantees" the USD only while we keep our spending and foreign debt within certain bounds. Beyond that, we may as well use oak leaves as money for all the value the USD will have.

Re: hmm, people out to make a quick buck

[VTBlue]

All three countries you mentioned operate under the euro and do not have issuing authority. This means that the three countries essentially operate in a synthetic metallist framework, not chartalist. Contrast the situation with those same countries under their own sovereign currency. If Greece expanded their money supply too much, it's ability to import would decline because of currency devaluation; however as a financial tool, currency devaluation is far more preferable than austerity. Countries would gladly choose to import less in the short and medium-term rather than impose harmful austerity that has real negative impacts. Sure, if a country is resource constrained, too much devaluation will be harmful, but the US has virtually limitless resources compared to most countries. If tomorrow it chose to massively expand fiscal spending, the worst case scenario would be that the US would import less goods spurring domestic production from all our underutilized productive capacity and labor. Our real terms of trade would at the very worst be at balance.

Ponzi scheme

[Anonymous Coward]

Ponzi scheme, definitely. They have no backing to anything - not military force, or tangible goods, or any realistic form of scarcity control.

They purely operate on the next greater fool principle.

Re:Ponzi scheme

[Anonymous Coward]

That's not the definition of a Ponzi scheme, jackass.

Re:Ponzi scheme

[Anonymous Coward]

Nor does he seem to grasp what "scarcity control" is.
 

Re:Ponzi scheme

[Anonymous Coward]

Explain how Bitcoin isnt a Ponzi scheme, because it sure as fuck looks like one.

Re:Ponzi scheme

[Dagger2]

Copied and pasted from the Bitcoin FAQ, since the site seems to be broken at the moment:

Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

Re:Ponzi scheme

[wiredlogic]

So, basically the same as stock exchanges and future markets.

Re:Ponzi scheme

[Anonymous Coward]

Copied and pasted from the Bitcoin FAQ,

So, according to a website biased in favor of Bitcoin, it is not a Ponzi scheme. And you don't see any problem with that.

Re:Ponzi scheme

[rudy_wayne]

So, basically the same as stock exchanges and future markets.

Not really.

Yes, if you buy Bitcoins and then the price goes down you lose money, just like with stocks and futures. However, most of loses with Bitcoin has not been from normal trading activity. Almost all of the losses have been from the Bitcoin exchanges stealing people's money. That's very rare with stocks and futures due to regulation specifically designed to prevent that sort of thing. I'm not saying it never happens, but it's rare.

Re:Ponzi scheme

[Anonymous Coward]

Early adopters make their money purely from people coming in later on, the generation curve is skewed to give them a huge profit for much less work. When combined with the facts that there's no value being created and that the currency is designed to be massively deflationary, you wind up with really only the conclusion that it's a type of Ponzi scheme.

Re:Ponzi scheme

[Dagger2]

Not if it's not wrong -- and nobody who has ever said that to me has been able to explain why it was wrong.

Maybe you'll be the first. Can you explain why that FAQ entry is wrong, and explain what it is about Bitcoin that makes it a Ponzi scheme?

Re:Ponzi scheme

[Dagger2]

Do you really think there's no value in being able to move money around? To make payments to people who aren't in the same room as you?

If so, then I disagree; I believe that's useful. A lot of people use services to make payments online, so I don't think popular opinion is with you either.

Re:Ponzi scheme

[Anonymous Coward]

Do you really think there's no value in being able to move money around? .

Actual bitcoin transactions are extremely small when compared with the hype. Any look at any bitcoin forum proves that nearly everyone is involved as speculators. They're all looking for a bigger sucker to come along and buy their "investment". It might not be a classic ponzi scheme, but it reeks of a huge pump=n=dump.

In any case, bitcoins need only to be of minimal value to support the amount of network transactions needed. If they were $1 each, it would still work fine. The value (theft potential) is entirely based on hype and speculation.

Re: Ponzi scheme

[Anonymous Coward]

The (purely virtual and irrational) value of bitcoins are highly dependant on demand. More than normal currencies.

Bitcoiners remind me of religious cultists pretending that everything is alright, nothing ever wrong and you should be enlightened by buying into Bitcoins. All while everything around them burns and falls apart.

While its not a classic ponzi scheme, it certainly is stupid to buy and invest in bitcoins these days.

And to compare early cult members (bitcoin syphon anyone?) with investors is laughable at best. Without recruiting news believers those bitcoins would be the worthless bits they are.

Re: Ponzi scheme

[Anonymous Coward]

All this can be done with real money. And contrary to bitcoin trash, real money is accepted everywhere.

Contrary to nerd tunnel vision, most people don't have bitcoins, don't know what bitcoins are and most shops do not accept bitcoins. For a very good reason.

Re:Ponzi scheme

[dryeo]

Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

It depends on this sentence being true and so far it does not seem stable nor widely accepted.

Re:Ponzi scheme

[Anonymous Coward]

I wonder if that FAQ says anything about pre-mining.

Re:Ponzi scheme

[Sarten-X]

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

So they're not promising anything, therefore they can't break their promises. This does not affect anything about how the scheme actually works.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

This assumes that the "usefulness" actually exists and is beneficial. So far, Bitcoin hasn't been stable, fast, or widely-accepted, so the win-win scenario they propose isn't actually possible. I can just as easily say that by everyone giving me all of their money, society will benefit because I will donate everybody's money all at once to a charity, reducing the charity's overhead costs.

The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.

This is true, because the FAQ writer doesn't seem to understand what a Ponzi scheme is in the first place. In a Ponzi scheme, the investment capital of latecomers is used to pay the returns of the early investors.

When you invest in a company, your money is pooled with everyone else's to run the company. The company also has a pool of profit, which is often split proportionally for dividends. You can also get a return by selling your stake in the company to someone else who wants to be involved. At no point are investments used to pay out returns to earlier shareholders.

Bitcoin as a whole fits the Ponzi scheme pattern, because at the exchanges the money used to pay off the early miners comes directly from people now buying coins. Since the Bitcoin market is so much smaller than the price of the Bitcoin supply, the main mechanism that external value comes into the Bitcoin economy is by investors trying to get into the scheme for its high (not-guaranteed) returns.

The only real distinction between a Ponzi scheme and Bitcoin is that Bitcoin has no single master, that we know of. Ponzi schemes usually have a single person or small group promoting the investment. Bitcoin doesn't have any organized leadership, but rather relies on the self-sustaining marketing buzz of zealots. That makes it a better fit for an economic bubble, rather than an actual Ponzi scheme.

Re:Ponzi scheme

[Dagger2]

Are you attempting to claim that Bitcoin is a scam because there are people pulling scams with it? (In so much as "gambling on something with a volatile price" is a scam.) This is like arguing that US dollars are a scam because Charles Ponzi pulled his eponymous scam using them.

Bitcoins can actually be of any value and Bitcoin will still function just fine. The price is completely irrelevant, which means it doesn't matter if there's hype, speculation or whatever driving the price up (or down). Your $10 transaction is still a $10 transaction, whether it happened to use 10 BTC or 10 mBTC behind the scenes.

Re:Ponzi scheme

[bloodhawk]

Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

It depends on this sentence being true and so far it does not seem stable nor widely accepted.

interestingly it actually fails all its own tests. It isn't stable, certainly isn't fast or inexpensive and it most definitely isn't widely accepted. and assuming the early people will benefit from rise in value sounds dangerously close to being a Ponzi, the only thing saving them from being one is they aren't making a guarantee on the rise.

Re:Ponzi scheme

[Holi]

and exactly what is stable about bit coin? Certainly not it's value, and that one fact makes it almost useless as a currency today.

Re:Ponzi scheme

[bloodhawk]

Do you really think there's no value in being able to move money around? To make payments to people who aren't in the same room as you?

If so, then I disagree; I believe that's useful. A lot of people use services to make payments online, so I don't think popular opinion is with you either.

and what does bitcoin add that isn't already possible with the existing system? I can do all of that without bitcoins, don't get me wrong I see plenty wrong with the existing monetary systems and the way they are manipulated, but bitcoin adds absolutely nothing while taking away plenty of the benefits and safeguards.

Re: Ponzi scheme

[AudioEfex]

Precisely. The BitBelievers cannot actually defend (and in most cases I am finding, don't actually understand it enough to be able to do so), so they mire down in semantics trying to talk about everything but the facts of the matter.

Just the fact that a pro-BitCoin site has that question up as a FAQ is pretty telling on its own, written with slick marketing tricks, to boot.

I guess we need to start being ultra-specific for the BitBelievers. It is a Ponzi-like scheme. Broken down to its fundamentals, ignored in that FAQ question, a Ponzi scheme is generally understood to be a money making venture that is wholly dependent on new folks coming into the scheme in order to continue to fund the upper levels. If folks stop buying into the bottom, then things dry out all the way back up the chain until it fails.

That is precisely how BitCoin operates. It's just a new twist on it because it masquerades as a currency. Instead of trying to convince you that you are buying into something, it is quite up front about the fact that it's based on nothing. If folks stop bringing in legal currency to the BitCoin system by using it to purchase BitCoins, BitCoins become worthless. While the BitBelievers insist that it can be spent quite readily, it's a joke and everyone knows it - one can spend a dollar at literally millions of places, you can spend BitCoin directly at what, a few hundred? Maybe a thousand? The BitBelievers will then tell you about BitCoin ATMs, which, again, ignores the fact that when you use a BitCoin ATM, you are using it to pull legal tender out in order to be spent. It's worthless if one cannot turn it into legal tender (one way or another).

That's what makes it a Ponzi-like scheme, because if no one continued to exchange legal tender for BitCoin for people who have BitCoin, they have no intrinsic value on their own. It's based on nothingness. That's why that FAQ is so disingenuous - if people stopped trading Apple stock tomorrow, Apple stock is still worth money because people still buy Apple products. You would be stuck with the stock itself but you would collect dividends based on the performance of the company and the percentage of profit you get as a stockholder. BitCoin's only product is itself, and is wholly dependent on the willingness of people to give someone legal tender for the right to own a virtual property. Since BitCoin doesn't produce income aside from more people buying into the scheme, they can wrap it up any way you like, but it's still based on nothingness.

Just look at the curt, pithy replies from BitBelievers - they know this train has gone off the rails, so that's really all they can say. With MtGox they proclaimed that it was just a poorly run business, and their talking points (I swear they must distribute them like Fox News does) were "it hadn't been the go to exchange for quite some time". Now that another one has fallen into insolvency, and another domino has hit the table, it's already becoming harder to defend, hence the growth of childish retorts because it's getting increasingly difficult to deny that the motion behind the fall of MtGox wasn't the start of the domino chain falling, but an isolated incident.

Now it's clear that MtGox may have been the first to go because indeed it was run poorly, but that it didn't fall solely because of how poorly it was run as the BitBelievers would like to think.

I'll be very curious how history looks at this very strange episode - in some ways, it's quite predictable that something like this would happen as it's happened over and over throughout human history (if prostitution is the oldest profession, parting a fool from their money must run a close second), but on the other hand things like this usually target the weak, the old, the infirm, those who are easy prey. In this case, a lot of very educated, erudite folks were taken in - I guess that will just go to show that the lure of a quick buck is more deeply imb

Re: Ponzi scheme

[Dagger2]

If you said "real money" to mean bank notes or coins: yes, except not really. Giving some notes to somebody on another continent is an expensive business that involves flying over to them. I guess you could mail them through the post, but I don't see many people doing that.

Yeah, you're right, people don't have bitcoins and don't know what they are. That's how things should work; most people won't interact with bitcoins themselves, they'll do so via payment processors. For instance, these guys will take payments for you, and deposit dollars or euros into a bank account of your choice. On the customer side, the payment will be done by a similar provider who takes a credit card, bank transfer or whatever and makes the Bitcoin payment for you. Neither the customer or the merchant need to know anything about the protocol used to move money between their respective processors. This is similar to e.g. bank payments, where you can pay a bank account belonging to a different bank without knowing anything about the interbank protocol.

Re:Ponzi scheme

[Dagger2]

It's decentralized. There's no controlling entity that can tell you who you can or cannot pay.

Another thing it allows you to do is change which company you use for payments, and yet still make payments to all the same people you could before. If you want to buy something from somebody that uses Paypal to take payments, then you're kinda stuck with using Paypal. With a Bitcoin-based system, you could pay them via a different company.

This is like asking "what's the point of SMTP when we have Gmail?"

Re:Ponzi scheme

[Dagger2]

It's actually just about stable enough, but okay... if I make an investment in a company and the company hasn't become successful yet, was I scammed? Personally, I don't think the answer to this question is "it hasn't made me money so far, so yes" -- I think the answer depends more on whether the company was scamming me or not, and just because a particular investment hasn't been profitable so far isn't enough to make it a scam. In fact, even if the investment never becomes profitable, it doesn't necessarily mean the investment was a scam, it just means the investment failed.

"It hasn't reached its goals so far" isn't enough, by itself, to make Bitcoin a scam.

Re:Ponzi scheme

[Dagger2]

There is another significant distinction between Bitcoin and a Ponzi scheme. In a Ponzi scheme, you put money into it with the expectation of getting more money out than you put in. In Bitcoin, you don't do this -- or rather, nothing in Bitcoin will tell you that you can.

If you can point to the bit of Bitcoin that attempts to give you this expectation, then great: please do so. However, please don't point at a person pulling a scam involving Bitcoin -- that would be like pointing to Charles Ponzi to explain why the US dollar is a scam. Similarly, please don't point to all the speculators: they are essentially the same thing as Wall Street day traders, and they don't make the US dollar a scam either.

Bitcoin is a payment network. To make a payment using Bitcoin, you buy some bitcoins on an exchange, then you send them to the seller, who sells them on an exchange. Where is the scam in all this? You paid your $x, the seller got his $x. That's not a scam, that's mission accomplished.

Re: Ponzi scheme

[Anonymous Coward]

Can I send you a string I claim to represent a currency and you give me US-dollars or GBP for it? Just believe me. I will find others who believe me too. It's a real currency then isn't it?

Re:Ponzi scheme

[complete loony]

Classifying something as a Ponzi scheme, usually involves outright fraud. ie someone is claiming that there is a huge pile of cash somewhere that doesn't actually exist.

There may be individuals committing fraud using bitcoin. And bitcoin may be a speculative asset bubble with very similar outcomes to a Ponzi scheme. But it isn't *technically* a Ponzi scheme.

Re:Ponzi scheme

[bloodhawk]

So in other words, it has no protections from you being screwed over by banks, exchanges, other people etc and hence is a REALLY bad currency for the general population.

Re:Ponzi scheme

[Anonymous Coward]

It's decentralized. There's no controlling entity that can tell you who you can or cannot pay.

Another thing it allows you to do is change which company you use for payments, and yet still make payments to all the same people you could before. If you want to buy something from somebody that uses Paypal to take payments, then you're kinda stuck with using Paypal. With a Bitcoin-based system, you could pay them via a different company.

This is like asking "what's the point of SMTP when we have Gmail?"

WTF are you smoking. Companies DON'T accept paypal, they accept money. Bitcoin doesn't change that, if bitcoin was an accepted currency it would STILL be done via paypal. everything you describe their is basically why bitcoin is destined to never be adopted, decentralised = no authority to protect people from their own stupidity or other peoples malice /negligence. You really don't seem to have any understanding of economics or currency, perhaps do some research before trying to espouse the benefits of one over the other.

Re: Ponzi scheme

[serviscope_minor]

Just the fact that a pro-BitCoin site has that question up as a FAQ is pretty telling on its own, written with slick marketing tricks, to boot.

What it is telling about is that there are legions of numbnuts running aronud yelling "pozi scheme!!111one!1oneONEleven omglol" without having the faintest idea abut what a ponzi scheme is or what bitcoin is.

What your describing adequately describes not a ponzi scheme, but more or less anything tradable (i.e. anything). Even with gold, if people lose interest and stop buying, the last people in are left with something worthless. Same with dollars. In fact it has happened many times, one famous recent example being Zimbabwean Dollars. It works that way with shares too. If a company tanks, the ones in last are left holding worthless bits of paper.

Yet none of these things are ponzi shemes.

Re:Ponzi scheme

[Dagger2]

The general population won't interact with the bitcoin network at all. They'll make and receive payments via payment processors.

People will have the same protection from being screwed over by those payment processors as they currently do being screwed over by Paypal. (As I understand it, that's actually not very much protection at all... yet people still use Paypal.)

Re:Ponzi scheme

[oscrivellodds]

Amway will tell you Amway isn't a pyramid scheme, too. It's "multi level marketing".

Re:Ponzi scheme

[bloodhawk]

So as I said, what does bitcoin Add? Not a bloody thing. To be successful it will need to be regulated, once it is regulated it loses its one differentiator. The currency is an interesting experiment, but it certainly has failed pretty badly in its attempts to become a currency.

Re:Ponzi scheme

[Dagger2]

PayPal is not directly regulated by the US federal government, yet they seem to be fairly successful. I think this suggests that regulation isn't necessary for Paypal-like services to be successful.

Re:Ponzi scheme

[bloodhawk]

paypal is not a bank or exchange, nor do they issue a currency, they are just a business (even so they do operate under MANY regulations). So why are you using them as an example. Use The US Dollar and banks or any other currency and their associated financial institutions. You have basically singled out a business rather than part of the financial system to try to build your strawman.

Re: Ponzi scheme

[Anonymous Coward]

"if people stopped trading Apple stock tomorrow, Apple stock is still worth money because people still buy Apple products. You would be stuck with the stock itself but you would collect dividends based on the performance of the company and the percentage of profit you get as a stockholder."

Um, that is 100% incorrect. If people stopped trading Apple stock it would go to 0, no matter how much money Apple was making. OK, you might still get dividends, but that is worth 0.0001% of the price you paid for the stock. No one buys Apple stock for dividends.

I believe in BitCoins..I think they have potential of eventually being a viable payment system/currency. But I have never owned a single one. They are too volatile. Don't denigrate those that believe in a useful system.

Re:Ponzi scheme

[chr1sb]

There is another significant distinction between Bitcoin and a Ponzi scheme. In a Ponzi scheme, you put money into it with the expectation of getting more money out than you put in. In Bitcoin, you don't do this -- or rather, nothing in Bitcoin will tell you that you can.

If you can point to the bit of Bitcoin that attempts to give you this expectation, then great: please do so. However, please don't point at a person pulling a scam involving Bitcoin -- that would be like pointing to Charles Ponzi to explain why the US dollar is a scam. Similarly, please don't point to all the speculators: they are essentially the same thing as Wall Street day traders, and they don't make the US dollar a scam either.

Bitcoin is a payment network. To make a payment using Bitcoin, you buy some bitcoins on an exchange, then you send them to the seller, who sells them on an exchange. Where is the scam in all this? You paid your $x, the seller got his $x. That's not a scam, that's mission accomplished.

Bitcoin is in fact a clever Ponzi scheme, in that the founders can profit without even being identified. (It makes sense that they don't want to be identified now, doesn't it?)

Bitcoin's fundamental problem, and why it has all the hallmarks of a Ponzi scheme (if it walks like a duck...) is that it is a deflationary currency by design due to the deliberate reduction in the supply of bit coins over time and the consequent artificial scarcity. No, being able to divide bitcoins into smaller parts does not solve this problem! It remains deflationary. One can assume one of two things about the designer(s) of Bitcoin:

a. He/she/they did not understand economics well enough; or

b. He/she/they did understand economics well enough.

If (a), then the dangers of a deflationary currency (which encourages hoarding and not spending / investing) were unknown to him/her/them. If (b), then these consequences were understood and were therefore considered desirable.

Assumption (a) makes this an accidental Ponzi scheme, but a Ponzi scheme nevertheless. Assumption (b) makes this a deliberate Ponzi scheme. Either way, the net result is the same. The original miners (which will have included the founders) make a whole lot of money. Late entrants provide them the money and in so doing lose theirs.

Bitcoin cannot be used as an alternative currency because it is deflationary. End of story. If you think it can be, then please provide your new theory of economics, and we can all go back onto the gold standard.

I suggest getting out of Bitcoin now.

Re:Ponzi scheme

[multimediavt]

Classifying something as a Ponzi scheme, usually involves outright fraud. ie someone is claiming that there is a huge pile of cash somewhere that doesn't actually exist.

What, like MtGox? I will say this. BitCoin in and of itself may not be a Ponzi scheme, but it sure is a mighty fine developers kit and sandbox for one. It has way too much in common for it to be used by much of anyone other than as a mechanism to create a Ponzi. Plus, add the fact that it is unregulated and you add a dimension for nefarious activity nonexistent in any other legal financial instrument today. The foundation of this wanna-be currency is flawed and fracturing. It just wasn't as good an idea as it appeared to be in someone's head. Try again.

Re:Ponzi scheme

[multimediavt]

It's decentralized. There's no controlling entity that can tell you who you can or cannot pay.

Another thing it allows you to do is change which company you use for payments, and yet still make payments to all the same people you could before. If you want to buy something from somebody that uses Paypal to take payments, then you're kinda stuck with using Paypal. With a Bitcoin-based system, you could pay them via a different company.

This is like asking "what's the point of SMTP when we have Gmail?"

I have a bank account and bill pay. The bank account comes with a Visa debit card that is accepted everywhere Visa is for payment and my bank offers bill pay services via ACH transfer. BitCoin cannot do either without additional hoops or places that could add attack vectors to my finances. You're twisting yourself in knots trying to justify something that just isn't better for payments unless you're buying illegal goods. Cash is also perfectly anonymous.

Re: Ponzi scheme

[Anonymous Coward]

I agree with you on most points, and what you say about its insubstantial basis is correct. However, BitCoin (of which I own none, and have never mined) does have a legitimate use, albeit one that is "dubiously legitimate".

BitCoin allows for anonymous purchases that are, essentially, untraceable. This is where a curiosity of BTC arises: it could be based on the semi-translatable real-world value of anonymity, however, the value of anonymity is still ephemeral because it is has varied value. The value is then subjective to every owner--this makes every owner a kind of speculator.

It is perhaps even worse than it sounds, because every owner of BTC is also expecting the value of BTC to go up, so owners want to hold on to BTC instead of spend it. As such, BTC is going to be subject to a liquidity crisis when any of the following criteria are met:

A. The perceived utilitarian value of anonymity is undermined (when and not if it is cracked by the NSA, et al., or if the powers of the NSA are restrained)
B. When BTC can no longer be produced in any meaningful quantities.
C. When the next cryptocurrency comes out that is "better" than BTC.

Re:Ponzi scheme

[Dagger2]

Late entrants provide them the money and in so doing lose theirs. ... I suggest getting out of Bitcoin now.

See, this is a misconception that I've been trying to correct in this thread. You don't "get into Bitcoin" by buying up a bunch of bitcoin and sitting on it. You don't "get out of Bitcoin" by selling a bunch of bitcoin that you've been sitting on.

Bitcoin is a payment network. You use it to make payments. You don't buy bitcoin and sit on it; you buy it and then immediately send it to the person you're paying. They then sell it to convert it to whatever their normal currency is. I attempted to explain this in the post you responded to.

What you're describing is how you get into speculating on the bitcoin exchange rate. That's something completely different, and I won't stop you from getting involved in that if you want, but it's just like speculation on anything else: you might get burnt. However, if you just want to make a payment (which is what Bitcoin is for), then you don't need to do that.

Re:Ponzi scheme

[Dagger2]

I'm using them as an example because they do the same general thing Bitcoin is intended to do: move money around.

Bitcoin is not intended to replace the dollar -- it's intended to move your existing dollars around.

Re:Ponzi scheme

[Registered Coward v2]

Bitcoin is a payment network. To make a payment using Bitcoin, you buy some bitcoins on an exchange, then you send them to the seller, who sells them on an exchange. Where is the scam in all this? You paid your $x, the seller got his $x. That's not a scam, that's mission accomplished.

Not really. A viable payment system lets you get real money in exchange for something; with Bitcoin there is no assurance you will be able to get anything beyond some bits and bytes. You are at the mercy of the exchange and if they don't have the cash you don't get paid. One huge red flag is the seeming arbitrage opportunities with Bitcoin process varying exchgane to exchange. If Bitcoin were a viable transaction system those opportunities would disappear as people took advantage of the free money. That they don't says a lot about the liquidity, or rather lack of it, in the Bitcoin market. A currency that is touted as being easy to use for transactions anywhere with no transaction costs would quickly erase any arbitrage if it really was that easy to buy and sell.

All this noise about Ponzi Scheme: Yes or No? masks the real issues with Bitcoin. It is an illiquid, volatile commodity that lacks any assurance you will ever be able to get real money for it; as a result almost no one really takes Bitcoin, they simply let you "Pay" in Bitcoin by assuring they can immediately convert them to real money. While that may work for a handful of deals the lack of liquidity makes them unusable as a real payment system to take on PayPal or other electronic payment systems. Unlike Paypal, which mostly just moves money for a fee or holds it in a form that is easily turned back to cash as needed; Bitcoin "exchanges" take short positions that they can't cover since they lack the cash reserves to payout all the withdrawals.

As a result, Bitcoin became a nice place for speculators and people who are hoping to cash in on the "next big thing" and now the bubble is starting to burst. I wouldn't say it is a scam as much as one more chapter in the mass hysteria of crowds.

Re:Ponzi scheme

[Dagger2]

Right, they accept money via Paypal... or via Bitcoin. That's the position Bitcoin occupies: not a replacement for the e.g. dollar, but a way to move your dollars around.

Re: Ponzi scheme

[Anonymous Coward]

Such irony, coming from the slimy Brit that doesn't have the faitest idea about X and Wayland, yet trolls, spreads FUD, and slanders anyone who supports the development of Wayland and the much needed replacement of X. It's not a suprise you're a BitBeiliver. You clearly fit the mold.

Re: Ponzi scheme

[ed1park]

The same argument could be made for any currency. US dollar, Bitcoin or otherwise. All tender is based on faith much like religion. But it doesn't make it a Ponzi scheme.

Re:Ponzi scheme

[Anonymous Coward]

It is common knowledge that whoever OWNS a currency, becomes insanely rich or powerful beyond measure. Bitcoin being deflationary in nature and the nature of mining, IS a get-rich-fast scheme by its very own nature.

Bitcoin and cryptocurrencies will suffer from their own success, only until they become more POWERFUL than the PTB.

In short: Stay away, unless you see a real benefit with low risk. Frankly, Bitcoin is most interesting to shady activities, making it much less interesting for ordinary use.

Re: Ponzi scheme

[Anonymous Coward]

Gold = physical masses of metal. It has intrinsic value. You can still use gold for bartering, melting, jewelry, etc.

Currency = belief in a nasion's solvency. As long as the economy is healthy and the leaders interested in people's well being, it should be stable enough to hold. If not, sell.

Shares = ownership in a company. As long as the profits keep rising, it should be fairly profitable to hold. If leaders are corrupt or incompetent, or the company fails for any number of reasons, sell.

Bitcoin = fair attempt at creating a digital currency, but without the infrastructure required to dominate everything else. Bitcoins have no intrinsic value. It can be forked indefinitely, and therefore abandoned overnight. It is deflationary over time in nature due to limited mining capabilities. There is really no other reason to buy, other than from a belief that it will go up in price as more people want to go in. Beware of tulips!

ALL of these can become ponzi schemes when demand unjustly exceeds supply. Generally, if something is prized way too high, it is probably a good idea to get out.

Bitcoin being based on NO INTRINSIC VALUE, being limited and deflationary over time in nature and possibly abandoned overnight, very much sums up the definition of ponzi scheme. If something walks like a duck...

Re:Ponzi scheme

[Bramlet Abercrombie]

In a ponzi scheme, you give me your investment and I give you 120% of your investment back using the funds of later investors. In bitcoin you buy bitcoins for the market price and then if the price goes up you can profit. There is no conman guaranteeing that everybody that buys a bitcoin will be able to sell it for more than they paid.

Re:Ponzi scheme

[JDG1980]

PayPal is not directly regulated by the US federal government, yet they seem to be fairly successful.

PayPal is successful because it's required to use eBay. That's pretty much the only reason. A lot of people have run into trouble with it and wish they could get away from it permanently, but as long as eBay continues to have a monopoly in the online auction business, PayPal will continue to exist. This is why we used to have antitrust laws. (They're still on the books, but are essentially never enforced.)

Re:Ponzi scheme

[tompaulco]

interestingly it actually fails all its own tests. It isn't stable, certainly isn't fast or inexpensive and it most definitely isn't widely accepted. and assuming the early people will benefit from rise in value sounds dangerously close to being a Ponzi, the only thing saving them from being one is they aren't making a guarantee on the rise.

That and the fact that a rise also benefits the latecomers. and that the latecomers are not dependent upon even later-comers in order to benefit. And the fact that making money is not one of the purported benefits of using bitcoin, although it has turned out to be an unexpected bonus for some.

Re:Ponzi scheme

[tompaulco]

Bitcoin as a whole fits the Ponzi scheme pattern, because at the exchanges the money used to pay off the early miners comes directly from people now buying coins.

Wrong, nobody is paying off miners based on latecomers. Miners already got paid by the bitcoin they mined, and the same would happen if a latecomer started mining today. Miners also get some percentage of transaction fees for verifying transactions.

Re:Ponzi scheme

[bluefoxlucid]

Depends. Bitcoin seems to operate on the idea that the early adopters could mine tons of bitcoins, then sell them to later adopters. Constant inflation is built-in: it becomes more expensive to mine bitcoins over time, and there is a theoretical limit. So early adopters can sell to later adopters, who can sell to later adopters.

Re:Ponzi scheme

[tompaulco]

Bitcoin's fundamental problem, and why it has all the hallmarks of a Ponzi scheme (if it walks like a duck...) is that it is a deflationary currency by design due to the deliberate reduction in the supply of bit coins over time and the consequent artificial scarcity. No, being able to divide bitcoins into smaller parts does not solve this problem! It remains deflationary. One can assume one of two things about the designer(s) of Bitcoin:

Wrong, there is no reduction in the supply of bitcoins. In fact, the supply is increasing daily, up to a set limited amount.
It is deflationary, however, in that usage of bitcoin is increasing faster than the supply, and of course once they stop being mined the supply will be constant. However, there is nothing particularly evil about being deflationary. Gold is deflationary, for example.

Re: Ponzi scheme

[Anonymous Coward]

Based on your determination, gold is a ponzi scheme. Care to explain how it is not? Or, if it is, care to explain why your currency was likely once backed by a ponzi scheme, and why you continue to use it?

Re: Ponzi scheme

[gizmo2199]

Also, gold isn't worthless, it's a very good conductor and highly malleable and would probably see more wide-spread use in electronics, if it weren't so expensive. Bitcoin on the other hand...

Re: Ponzi scheme

[Fr33z0r]

MtGox, Vircurex or any other exchange getting hacked is a tragedy, but those are problems with their code rather than the underlying technology. Pointing at dead exchanges and proclaiming it to be the downfall of bitcoin, is like pointing at IIS when a new exploit comes out and yelling that HTTP is doomed.

Cryptocurrency is a genie that's out of its bottle, you would do well to try to understand it for what it is, rather than the get rich quick scheme you're interpreting it to be, because it really is a revolutionary technology, and it's not going away.

Re: Ponzi scheme

[Anonymous Coward]

Bitcoin is not a payment network. A payment network is actual infrastructure.

Bitcoins are nothing else than designed encryption strings. You actually believe some 0 and 1 are worth money. Only bitcoin cultists believe in bitcoins. Outside your jerkcircle they are worthless.

Here have a free catcoin fjcff478tjbdey37geyh

I just invented catcoins. Must be worth something, right?

Re: Ponzi scheme

[Anonymous Coward]

Quote : "Miners also get some percentage of transaction fees for verifying transactions."

Thanks for proving it is a ponzi scheme.

Re:Ponzi scheme

[tompaulco]

Early adopters make their money purely from people coming in later on,

Wrong, early adopters made money by mining and spending or converting to another currency. If they held on to their coins, they made money as well, by happenstance. But bitcoin is not intended to be an investment, so the fact that they made money by holding on to the coins must be dismissed.

the generation curve is skewed to give them a huge profit for much less work.

Wrong. When they did the work to mine these coins, the price point was such that the ROI is very similar to what it is now.

When combined with the facts that there's no value being created and that the currency is designed to be massively deflationary, you wind up with really only the conclusion that it's a type of Ponzi scheme.

Wrong. Ponzi schemes have nothing to do with deflationary currencies. They have to do with investments where incoming new investors directly pay off early investors.

Re: Ponzi scheme

[Anonymous Coward]

"and it's not going away."

According to participating bitcoin cultists.

It's neither technology nor revolutionary. They didn't invent a fuck. Generated crypto strings are not new. They only thing new is that brain dead and gullible people think they are worth something.

Re: Ponzi scheme

[Anonymous Coward]

</b>

I think you dropped this...

Re: Ponzi scheme

[Anonymous Coward]

If you think you're such a special snowflake that you would have timed it perfectly, then you're the one living in a fantasy world.

Fact of the matter is you're jealous and are now venting your rage to the (virtual) world.

Protip: no matter how loud you shout, no one cares.

Re:Ponzi scheme

[Anonymous Coward]

Then why not create a paypal alternative aka ePayment?
Oh wait. There are already lots of them like UKash, Google Wallet, Skrill,etc.
All of them don't require a pseudo-currency for the gullible. You know what they do? They do actually move currencies. Real ones.

There is absofuckinglutely no need for bitcoin. None.

Not even for anonymous reasons. Even your precious little cult you desperately try to convince people here is necessary and benign admits that on it's own site.

Re: Ponzi scheme

[Anonymous Coward]

There are already lots of them like UKash, Google Wallet, Skrill,etc.
All of them don't require a pseudo-currency for the gullible. You know what they do? They do actually move currencies. Real ones.

There is absofuckinglutely no need for bitcoin. None.

Not even for anonymous reasons. Even your precious little cult you desperately try to convince people here is necessary and benign admits that on it's own site

Re: Ponzi scheme

[scubamage]

Exactly. What people are missing is that this is still relatively new technology. With the big boom in mining over the past few months, we can consider this to be the true shakeout period. The exchanges that have problems will fall, and the ones that don't will be the cream rising to the top. This isn't something new. The fact is, a lot of vendors like cryptocurrencies because they don't require processing charges outside the occasional transaction fee when the transaction exceeds a certain size.

Re: Ponzi scheme

[scubamage]

You really have no idea how bitcoin works, do you?

Re:Ponzi scheme

[scubamage]

Pyramid schemes aren't ponzi schemes. They're different things, with a few similarities.

Re:Ponzi scheme

[scubamage]

Right now I can name about 4 local vendors who accept bitcoin because they prefer it to the 3% transaction fee charged for credit cards. And they're pulling in still more vendors. They're not involved as speculators, they're involved as people who want to accept it because it makes their cost of doing business lower.

Re: Ponzi scheme

[scubamage]

All currency, whether it's bank notes, hunks of gold, bitcoins, goats, glass beads, or anything else, is a commodity. The only thing that determines price of that commodity is demand and supply. If people think it has utility, it has value. If people stop thinking any of these items have value, then they become worthless. All of these are speculated on as well; that's what foreign exchange markets are, that's what commodities markets are. None of them have intrinsic value until we decide to put a price tag on them in order to exchange them for other things.

Re:Ponzi scheme

[scubamage]

Yup, just like all of those people had protections from being screwed over by banks in 2008. Real dollars are so much better, you've convinced me.

Re:Ponzi scheme

[scubamage]

You think normal currencies are stable? Google "forex." They're absolutely not stable.

Re: Ponzi scheme

[Anonymous Coward]

Explain the technicals of bitcoin to me, specifically how the network protocol works.
If you can do that, and still say the above is true then I will not argue with you.

Re: Ponzi scheme

[Xyrus]

I guess we need to start being ultra-specific for the BitBelievers. It is a Ponzi-like scheme. Broken down to its fundamentals, ignored in that FAQ question, a Ponzi scheme is generally understood to be a money making venture that is wholly dependent on new folks coming into the scheme in order to continue to fund the upper levels. If folks stop buying into the bottom, then things dry out all the way back up the chain until it fails.

This is your fundamental premise and it's wrong. BitCoin is not a money making venture. It was never intended to be an "investment". It was intended as a medium of exchange. And that's all currency is.

Places like Mt. Gox and Vircurex are similar to the money markets of other fiat currencies. You could buy, sell, and trade amongst the currencies. THAT is a money making venture, but that is completely independent from the currencies itself. And since there are no central or regulating authorities on the currencies any such exchange should be treated with extreme caution.

Bitcoin is not a ponzi scheme. Ponzi schemes can be perpetrated using bitcoin, but the same can be said for any currencies. Bitcoin and related cryptocurrencies are not regulated, nor are any business associated with them. As usual, people are the problem.

Re:Ponzi scheme

[bloodhawk]

No they don't, they are a business, paypal have no say how financial transactions are regulated, nor do they issue or control a currency system. You may as well start comparing bitcoin to a corner store. If you want to do a monetary comparison then you need to compare to an actual financial institution that is responsible for issuing a currency. The reason you are using paypal is that bitcoin compares VERY badly to any real insititution with government backing. You are now going completely against what bitcoin is supposed to be about by directly saying bitcoin is not a currency and that it is merely an unregulated business entity.

Re:Ponzi scheme

[david_thornley]

Okay, let's take a look at this. A Ponzi scheme is one where the schemer persuades investors that they'll profit, and is a zero-sum game. No institution is pushing Bitcoin as an investment, but plenty of people who own Bitcoins seem to be. There is a possible winning outcome for Bitcoin, but the FAQ simply says it's possible. This is technical nitpicking, rather than a repudiation of the concept.

Is Bitcoin "stable, fast, inexpensive, and widely accepted"? Its fans hope for widely accepted, and concede that that's necessary for it to fulfil its potential, so we'll go ahead and allow that. I have no idea what "inexpensive" means in a currency; if it means inexpensive to make transactions in, it's got a long way to go to be as inexpensive as most major national currencies. Any transaction requires that people process it into the block chain, and they aren't going to do that for free. Currently, those people are getting a few extra Bitcoin for their work, but eventually they'll get nothing but transaction fees. Similarly, it isn't "fast", for the same reason. I can walk up to a counter holding a book, slap down a paper rectangle, and consummate a transaction with dollars immediately with no data connection necessary, and I don't see how Bitcoin will ever be able to do that. As far as "stable" goes, well, it's showing no particular signs of stability at the moment.

Suppose I had owned Apple stock back when it was first publicly traded. Apple became successful because they made stuff people wanted, regardless of its stock market status. There were other companies, but they didn't make Apple IIs or Macintoshes or iDevices..For Bitcoin to be successful, it itself has to be popular, and giving the impression that it's similar to a Ponzi scheme isn't going to help. I've read that there are a large amount of Bitcoin suspected to be possessed by the really early adopters, and that will hang over Bitcoin like Damocles' sword. Moreover, there's no distinguishing feature of Bitcoin. It may well be an unusually well done cryptocurrency, but given the choice of Bitcoin and a cryptocurrency that doesn't look like a Ponzi scheme, say one that can produce more of itself to match takeup, I'm going with the other one.

Re:Ponzi scheme

[david_thornley]

A rise benefits Bitcoin holders, which includes the latecomers. This happens as even later-comers dump more dollars/euros/etc. into the Bitcoin economy, which mean the latecomers profit from the even later-comers. If you take a look at world M0 money supply, and visualize it replaced with Bitcoin, each Bitcoin would have to be worth an incredible amount of money, and people who bought in at $1K/Bitcoin and hung onto their Bitcoins will be fabulously wealthy. Do I want to encourage that by buying into Bitcoin?

Re:Ponzi scheme

[Anonymous Coward]

>Bitcoin is not intended to replace the dollar -- it's intended to move your existing dollars around.

I don't think so. If this were true, the price of a Bitcoin would not be so incredibly volatile. Furthermore, if Bitcoin were merely a system for moving existing dollars (or any other sovereign currency) around, you could not reasonably have a situation where a $1 input can become a $1,000 output.

Bitcoin is intended to be a currency that either replaces or is parallel to sovereign currencies. I am saying this from the perspective of a person who believes that Bitcoin will ultimately go the way of Dutch tulip bulbs.

Re:Ponzi scheme

[Dagger2]

I think the fact that the winning outcome is possible is pretty darn significant. That's enough by itself to make it not a Ponzi scheme.

As to the rest of your post... the use of absolutes in that FAQ answer was a terrible choice. It really should say "stable enough, fast enough, inexpensive enough".

bitpay.com exist and they charge a 1% transaction fee, which has to cover volatility in the exchange rate. That suggests that it's stable enough for them to do business without massive fees. Fast? Definitely not fast enough for immediate in-person transactions, especially without an internet connection available. Just use cash for those. Bitcoin doesn't have to be useful in every situation to be useful (for instance, Paypal wouldn't work well without an internet connection either, but people still use it.) If you're buying something online, the delivery time is often measured in days, so what's 20 minutes for the payment to go through?

Inexpensive... well, I can't predict miner fees, but miners will be competing for the fees, which will push them down as far as possible.

I've read that there are a large amount of Bitcoin suspected to be possessed by the really early adopters, and that will hang over Bitcoin like Damocles' sword.

What could those early adopters possibly do with all that bitcoin to stop Bitcoin from working? About the best they could do is tank the exchange rate, which would be really bad news for any day traders trying to gamble on the rate, but wouldn't actually mean anything at all for people using it for its intended use as a payment network.

Re:Ponzi scheme

[tompaulco]

If you take a look at world M0 money supply, and visualize it replaced with Bitcoin, each Bitcoin would have to be worth an incredible amount of money, and people who bought in at $1K/Bitcoin and hung onto their Bitcoins will be fabulously wealthy. Do I want to encourage that by buying into Bitcoin?

Umm....yes?

Re: Ponzi scheme

[tompaulco]

Quote : "Miners also get some percentage of transaction fees for verifying transactions."

Thanks for proving it is a ponzi scheme.

I'm sorry, but I was unable to prove it was a Ponzi scheme, because it isn't. ANY miner is compensated transaction fees for verifying transactions, whether they started mining bitcoins from the beginning or started yesterday. As a bonus, if the early adaptors STOPPED mining, they would NOT get transaction fees, while the latecomers would. Some Ponzi scheme.
Also, bitcoin is a currency and is not intended as an investment. In order for something to be a Ponzi scheme, it must first be an investment.

Re: Ponzi scheme

[Anonymous Coward]

You miss the entire fucking point. Calling it a currency is the scam, because without exchanges BitCoin is worth nothing because no one has any use for it unless you can exchange it for real currency. The onky reason anyone takes it at all is because it can be exchanged for real money. Do you think overstock.com pays their bills, taxes, etc with BitCoin? No, they take it so they can exchange it for real money and accept it as a novelty so bitfools will go there.

Re: Ponzi scheme

[AudioEfex]

Well, in spite of a few "overrated" and "troll" ratings, my post is still strongly sitting there with a +5, so yeah, a few people seem to care what I am saying.

And I do apologize that it turned bold, typing on a tablet sometimes it changes the p tags to b tags.

Regardless, now that we have that out of the way, Anonymous Coward, you didn't read properly so it's probably good you didn't use your actual account to post.

A blind, deaf, armless, monkey toddler would have "timed it right" if they weren't so enthralled with the BitCult. I said, the second MtGox fell, if I didn't lose BitCoin with them totally, I would have pulled out because it clearly was the first domino to fall, not an isolated incident. It doesn't take a "special snowflake" to see what was happening.

The only thing that has propped it up so far is that the BitBelievers keep dumping in more of their legit currency into BitCoin as folks are fleeing, thinking they are getting in on some fire sale. No one new is coming into BitCoin at this point, and once those folks who are so into the BitCult run out of real currency to keep dumping in, it's just a matter of time before the entire bottom falls out.

I freely admitted that sure, I wish I'd bought a bunch when it was $20, but to think I'm venting "rage" by pointing out how delusional folks are who think it's going to continue, that folks who now pay $700 for one will ever make any profit on it, is laughable. I'm not raging, I'm simply gobsmacked that there are still folks who are so enamored with BitCoin they simply cannot see reality. There is a reason you see folks repeatedly referring to it as a cult now, because the folks who are still BitBelievers exhibit all the signs that one is a member of one.

Re: Ponzi scheme

[AudioEfex]

The fact that you "believe" in it is why people are beginning to equate it as a cult-based money-making scheme. It takes a religion-like belief. The tired "it's just like every other currency" talking point is just that - a talking point, which folks believe if you say enough somehow becomes truth. It's not. Sure, at it's base level, conceptually, all currency is based on faith, yadda, yadda, but since I can take my dollars and walk into any store in the country and purchase their products without question, I don't need to have "faith" - it's reality.

And as another reply someone made pointed out, you missed my Apple comparison - a stock owned in Apple is a portion of ownership of the company, which produces items which people desire/buy. So even if you cannot resell your share, you still own something. With BitCoin, you don't "own" anything but a virtual number. It's like an augmented reality MMO currency. (Though at least MMO currency can buy you gameplay fun.)

Re: Ponzi scheme

[AudioEfex]

Oh, I forgot to mention the other "talking point" in my post - the "it's just like every other currency" fallacy. It's like you guys think if you say that enough times it somehow becomes true.

Forget about the academics behind currency and look at the reality. The dollar, for instance, is beyond "faith" at this point in practical use. I don't have to have faith that every store in the United States will take my legal currency and give me goods in exchange for it. They just do. And the chances of that suddenly not being true are extremely remote.

BitBelievers are so wrapped up in theory that they cannot see the practical realities of BitCoin - it is not a "currency". Although I found it rather crass, a really good example was made by another poster. Why can't he make his shit a "currency" - it's in limited supply, it's unique to him, no one else can make his shit, and someday, his supply of shit will be depleted and no longer available. That makes it a valuable currency, right? The only thing missing is the digital component - he'd have to actually ship it around. Other than that, it fits the definition of what folks say makes BitCoin a currency to a T.

Re: Ponzi scheme

[AudioEfex]

Actually, I didn't add it in the first place, intentionally, LOL. I was using a tablet which auto-corrected some p's to b's. And the version of /. that shows up on tablets doesn't have preview. My apologies.

Re: Ponzi scheme

[AudioEfex]

Intended or not, it is what it has become. Take a reality check here.

Money Markets are an off-shoot of legit currency. But I don't need to care about the money market when I go to the store to buy groceries with my dollars.

With BitCoin, the entire thing is dependent upon them, because without them, the BitCoin is worthless. Why do the (very few) businesses that accept them accept them? As a marketing ploy, and because they can exchange them for legit currency to pay their bills, buy wares to sell in their stores, etc.

Without exchanges, BitCoins can do nothing and are nothing. The "every other currency" fallacy is just that. You are talking about academic theory, not reality. The dollar would still work if money markets didn't exist. If BitCoin exchanges didn't exist, no one would purchase the virtual rights to a virtual coin to begin with.

Re:Ponzi scheme

[dryeo]

If you invest in a company who has as a sole product strings of numbers and a plan that they'll become more in demand and due to the strings of numbers being limited they'll go up in value, I'd say that you've invested in a scam. Scams do make people wealthy occasionally, especially the early investors, but it doesn't mean it is not a scam.
I'd guess you're an early investor and need more demand for your strings of numbers so they'll go up in value so naturally you're all in favour of the scam.

Re:Ponzi scheme

[dryeo]

One of the aspects of currency is that sometimes you do sit on it. I have an American $20 bill that someone gave me a year ago for payment. I haven't bothered to use it for payment anywhere and by chance that bill is now worth about $22 in local currency. Being accepted as currency most places, I can go into almost any store etc and trade it for goods. They'll take a couple of percent for the hassle of dealing in currency that is not legal tender but it works as currency and it is worth close to the same after a year.
Sounds like with bitcoin, better spend it quick as its value is not stable, but where do I spend it, I can't use it to buy food or gas at any of the local businesses and without being connected to the net it is useless.
The American dollar, even though not legal tender around here is currency. Bitcoin, not so much.

Re:Ponzi scheme

[chr1sb]

The problem with this reasoning is, you have no choice BUT to "speculate". At some point, Bitcoins must have a value relative to fiat currencies, either implicitly or explicitly, in order to be used as a "medium for exchange". Otherwise, they aren't anything. The value is either explicit (how many dollars a Bitcoin exchange will give you for a bitcoin) or implicit (how many dollars it costs to buy X vs. how many bitcoins it costs to by X). It doesn't matter which it is (in reality, it is both, and in a way they are the same thing). With a reducing supply of bitcoins, they remain a depreciating "currency". This is fatal for an economy based on such a currency, as I stated above. Of course there is infrastructure surrounding Bitcoin which allows it to be used as a "medium for exchange", i.e. a "payment network". That is only part of it, and is not the relevant part. The other, relevant part is its supply (generation). This is what is broken, whether deliberate or not.

Re:Ponzi scheme

[Dagger2]

Most people won't deal with Bitcoin directly, and so won't need to do any speculation. Payments will be handled by people like bitpay.com. Those people will need to speculate, but they'll only need to do it for short periods (because they only need to hold enough bitcoin to cover transactions for the next N hours) and they can cover any loses from transaction fees.

I don't think the deflationary aspect (the coin generation behavior) is a problem for its use as a payment network. The total number of bitcoins is arbitrary, and the only thing that happens when you change it is that the exchange rate changes to match.

If you reduce the total number of bitcoins available for transactions (either by destroying them, or by taking some out of circulation to speculate with them), all that happens is the exchange rate goes up, as people conduct transactions with the remaining coins. Similarly, if you increase the number available (e.g. via the per-block reward), the rate goes down as people do transactions using a larger pool of coins.

At no point does that make any difference for transactions. You can still do them just fine regardless of whether there's 21M or 210M or 0.21 BTC available for them. Who cares what number is attached to your $10 BTC transaction? It's still $10.

Deflation may well be bad for an economy, but Bitcoin is for making payments, not for being an economy.

Re:Ponzi scheme

[Dagger2]

Does the company claim there's a reason for the numbers to go up in value? Perhaps, for instance, the numbers can be used to do the same thing as an existing service that's pulling in lots of money? And is the design and behavior of those numbers appropriate for doing that service?

If so, that's not a scam. If they hid info about the design of those numbers, and it turns out they actually aren't appropriate for providing the service the company claimed they were appropriate for, then yeah, they'd be scamming you. But if that's not the case?

Re: Ponzi scheme

[Dagger2]

The Bitcoin p2p network is its infrastructure. It tracks who owns what, prevents people from spending bitcoin they don't own, or from spending it twice, prevents counterfeiting and provides compensation for the people who run it.

Do your catcoins have any of that?

Re:Ponzi scheme

[Dagger2]

The point of Bitcoin is to make a payment network. It doesn't work very well as a currency, because it's not meant to be a currency. Its goal is to be a way to move dollars around, not to replace them.

You won't deal in Bitcoin directly, you'll go via somebody that handles it for you. So you don't need to worry about any complications arising from holding it for a long time, because you won't be holding any. (They won't need to worry much either, because they'll only be holding onto it for short periods and they can cover any losses from their transaction fees.)

I don't get why Bitcoin is useless without a net connection. Paypal requires an internet connection to use, and tons of people still use them -- that requirement hasn't killed them.

First?

[Anonymous Coward]

I suspect the only reason no other comments are showing up yet, (at least for me) is that all the bitcoin fanboys are desperately trying to cash out their reserves before the bubble pops.

But it might just be another case of Slashdot being fucked up.

But there's nothing wrong with Bitcoin!

[oscrivellodds]

It's the people, goddammit!

Re:But there's nothing wrong with Bitcoin!

[chromaexcursion]

you mean all the criminals that have been arrested recently?

Re:But there's nothing wrong with Bitcoin!

[labnet]

It's the people, goddammit!

No, It's because Bitcoin is stupid.
It can't expand and shrink to fit economic use.
Money is convenient form barter and needs to represent the productive capital of its users and to remain stable for a given capital. (Eg an apple is worth 1 dollar from year to year, not 1 dollar today, then 10 dollars next week)
As more people use it, scarcity increases its value, making early adopters insanely rich. The crypto bit of bit coin may be sound, but it's economic utility is not.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

I have some tulip bulbs you might be interested in.

Re:But there's nothing wrong with Bitcoin!

[fnj]

an apple is worth 1 dollar from year to year, not 1 dollar today, then 10 dollars next week

Actually, capitalism only works because inflation is built in. An apple that is $1 this year, under GOOD conditions, will be ariund $1.05 next year, $1.10 the year after, year after year after year. There are variations. And sometimes hyperinflation, when there are times an apple is worth $1 this year and $1 million next year. Don't be so sure hyperinflation won't hit your home.

See if any of these mean anything to you: Weimar Republic 1923, Bolivia 1985, Greece 1944, Hungary 1946, Ukraine 1995. I could go on. The list is long.

Re:But there's nothing wrong with Bitcoin!

[Flwyd]

Bitcoin by itself has no intrinsic value. It only has value because people decide it should.
Money is just shorthand for people doing stuff.
Without people, there's no economy. Money is just a useful fiction.

Re:But there's nothing wrong with Bitcoin!

[Rick in China]

You're forgetting that any fiat currency is given value artificially and that includes BTC. As trust fades in BTC, value drops. It can be manipulated on the dime via cyber attacks - and there have been so many recent cases demonstrating how quickly lack of trust can set in - this article just being a recent example. What happens when all the trust in your currency of choice fades, and your BTC is no longer accepted by vendors - and there is no gov't backing that currency as an acceptable payment? Zero wealth? Enjoy.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

Then by your theory, NXTcoin should take off like a rocket, since it's a limited resource by definition.

Re:But there's nothing wrong with Bitcoin!

[oscrivellodds]

My poop is a limited resource. Only a small amount is produced per day and when I die there won;t be any more of it. Recent developments in the digital currency realm have caused a huge price increase- the going exchange for one day's production of my poop is now 200k BTC plus shipping and handling.

Re:But there's nothing wrong with Bitcoin!

[dnaumov]

It's the people, goddammit!

No, It's because Bitcoin is stupid.
It can't expand and shrink to fit economic use.

That's a feature, not a bug. A lot of Bitcoin proponents are backing Bitcoin PRECISELY BECAUSE it's a medium of exchange free of government meddling.

Re:But there's nothing wrong with Bitcoin!

[IamTheRealMike]

People who keep their coins on deposit with an exchange aren't even really Bitcoin users. What they've done is wire money to a company and received an IOU for bitcoins which they then have not exercised. Given that the whole point of the system is that you don't need to trust third parties, it's frustrating to see people turn around and do exactly that (then get burned by exactly the same kind of financial instability that's so common in the existing system).

Re:But there's nothing wrong with Bitcoin!

[squiggleslash]

No, it's a bug. The fact that many Bitcoin fans are too stupid to understand the need for the money supply to expand and contract according to demand doesn't change that. A currency that isn't stable (either no growth or having low, predictable, inflation) is virtually useless in the long term.

And if "Government meddling" is an issue for Bitcoin advocates, I suggest they think about how to make a non-government currency that's stable, rather than rejecting stable currencies in favor of useless ones because the currently available stable currencies are controlled by central entities.

Re:But there's nothing wrong with Bitcoin!

[Charliemopps]

What? Inflation has nothing to do with capitalism. Inflation requires currency to exist and capitalism does not. Capitalism would work if we were trading goats or something. If the price of goats sky rocketed I could decide to keep my goats and trade chickens instead (which I think is likely what the poor did during the tulip situation.) Most modern inflation is the result of governments trying to manipulate currency with socialism based mechanics. Look to Venezuela right now. They are doing what Jimmy Carter did and they are getting the exact same result. Capitalism works in a very predictable manner and the fact that we don't learn the clear lessons of history and continue to think we've found some end-run on how financial markets work (Allen Greenspan lol) is a joke and will be the ruin of us all.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

yes, much better to use shreds of paper produced at will by a megalomaniac. Nothing could possibly go wrong there.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

An apple that is $1 this year, under GOOD conditions, will be ariund $1.05 next year, $1.10 the year after, year after year after year.

I'd disagree. An apple that is $1 this year will rot and decompose, it will certainly not be anywhere near $1 next year. On the other hand, if you plant it and put in a bit of effort, you'll after quite some time get apple trees, and lots of apples to sell.

Re:But there's nothing wrong with Bitcoin!

[rvw]

People who keep their coins on deposit with an exchange aren't even really Bitcoin users. What they've done is wire money to a company and received an IOU for bitcoins which they then have not exercised. Given that the whole point of the system is that you don't need to trust third parties, it's frustrating to see people turn around and do exactly that (then get burned by exactly the same kind of financial instability that's so common in the existing system).

Given the fact that a normal desktop PC cannot generate bitcoins in a reasonable amount of time, isn't it a given fact that we need another party to create or transfer those bitcoins? When another party creates those bitcoins for me, how can I be sure that they won't keep a copy for later use?

Re:But there's nothing wrong with Bitcoin!

[dnaumov]

"Stable". You keep using that word but do not seem to know what it means.

Re:But there's nothing wrong with Bitcoin!

[squiggleslash]

I think you have a reading comprehension problem. Given the various definitions of "stable" that might apply, I made the effort to make the definition I was using explicit in my comment - that is a currency whose value stays the same or is subject to low inflation. That would be considered "stable" by the vast majority of economists of most disciplines, lunatic eye-swivling Austrian-school excepting (of course.)

If you were under the impression we were talking about horses, sorry but that's not under discussion here, we're talking about currencies, not equine homes. If you're under the impression stable could mean "subject to massive swings of value", then go jump off a short pier. And if you're under the impression stable means "stays the same all the time" then congratulations, you've siezed a useless definition not in use by anyone serious.

Re:But there's nothing wrong with Bitcoin!

[roman_mir]

Capitalism is private ownership and operation of property, so you are saying it "only works" because value of money can be diluted? You are delirious.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

used to call that "kiting checks"

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

Don't bother trying to explain stuff like that to statists. They'll just ignore you like a religious person.

Re:But there's nothing wrong with Bitcoin!

[MrNaz]

Given the fact that a normal desktop PC cannot generate bitcoins in a reasonable amount of time, isn't it a given fact that we need another party to create or transfer those bitcoins?

No and no. "Creating" bitcoins is not economically practical for individual users any more, however you do NOT need a third party to hold your bitcoins. You can run wallet software on your PC and send and receive bitcoins without the need for any third party.

When another party creates those bitcoins for me, how can I be sure that they won't keep a copy for later use?

Sending you the bitcoins is not just a matter of sending you a copy of the bitcoin "file". For your wallet (which is an application running on your PC) to receive the bitcoins, it must not only get the "file" from the sender, but also verify with the blockchain (the public record of transactions) that they have sent the BTC to you. Once the transaction has been logged on the blockchain, they cannot spend the bitcoins, as the blockchain will reject any attempt to do so.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

private ownership and operation of property

except that you just stated that you support wanton destruction of private property if it fits your religious beliefs. don't pretend to be a supporter of private property when you don't support private property rights...

Re:But there's nothing wrong with Bitcoin!

[JesseMcDonald]

... isn't it a given fact that we need another party to create or transfer those bitcoins?

If you don't wish to mine bitcoins yourself then yes, you'll need someone else to do that for you. At that point you can buy them directly from the miner (e.g. via localbitcoins.com) or you can trade for them on an exchange. In the latter case, you can immediately withdraw the bitcoins to your own private wallet. Either way, there is no need to leave yourself vulnerable to any third-party after the transaction is complete.

When another party creates those bitcoins for me, how can I be sure that they won't keep a copy for later use?

You can't copy bitcoins, only private keys. (There's nothing to copy; the bitcoin is an abstract unit of account, not data.) If you have the other party send the bitcoins to an address for which only you know the private key, then only you can spend those bitcoins.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

My poop is a limited resource.

Limited? You seem to be full of it... Hehehe...

Re:But there's nothing wrong with Bitcoin!

[roman_mir]

What an average type of a dumbass, you are, still completely oblivious that individuals are not the ones that violate rights. A right is protection from government abuse and has nothing to do with an individual breaking property. Anything an individual does can only violate laws or standards, but never rights, only governments can violate rights, you brainless amoeba.

Re:But there's nothing wrong with Bitcoin!

[Anonymous Coward]

You don't get it.
It is not currency.
Its a financial network.
It doesn't matter what the price is so long as it allows friction-less transfer of value.
Get it through your heads , its not currency, its a proof of ownership network that allows firctionless transfer of value.
It is the internet of money.
It will do for financial transactions, what the internet did for transfer of information.

WHY is it so hard for intelligent people that read Slashdot to grasp this?

I would think of all the places that talk about bitcoin ..Slashdot would get it .. but you guys are just as bad as cnn and fox.

Re:But there's nothing wrong with Bitcoin!

[damn_registrars]

Anything an individual does can only violate laws or standards, but never rights, only governments can violate rights

really? so when someone takes your private property off your person and destroys it in front of you, they are not violating your right to private property? you just tried to argue for private ownership of property, but now you say that is not a right?

or is it just that if they were doing it on order from your religion / government they would be doing it as a government agent and hence you could then describe them as fitting under your weird statement of

only governments can violate rights

nevermind the fact that your statement of

A right is protection from government abuse

makes absolutely no sense whatsoever. if that was the case then murdering someone or selling them into slavery would in no way be a violation of their rights.

Re:But there's nothing wrong with Bitcoin!

[tompaulco]

But the same people who decry bitcoin for not expanding or contracting also favor the gold standard in which one dollar was always equal to one fixed amount of gold. Since the supply of gold was constant, so also would the currency supply.

Re:But there's nothing wrong with Bitcoin!

[tompaulco]

If you have no bitcoins, you can buy them on an exchange. You are under no obligation to leave them sitting on that exchange as an IOU. They can send them directly to your PC, and you can be in complete control of them.
The whole "keep a copy for later use" is not even worth going into. When a coin is transferred, the transaction is validated by p2p and if they tried to "spend" that coin, it would not be allowed by the network.

Re:But there's nothing wrong with Bitcoin!

[rvw]

Thanks for explaining!

I mentioned several times..

[Rick in China]

In comments about the BitCoin exchanges in China, that this _is the norm_ for exchanges or wallets here, and if you're keeping any money in any BTC storage or transaction services in China, expect to get fleeced. Just another day another dollar for these sneaky bastards.

Re:I mentioned several times..

[mysidia]

Except in China... it's not just BTC exchanges... banking not so safe; it's normal banks defaulting on their loans, too.

depositors in some of Yancheng City's largest farmers' co-operative mutual fund societies ("banks") have been unable to withdraw "hundreds of millions" in deposits in the last few weeks. "Everyone wants to borrow and no one wants to save," warned one 'salesperson', "and loan repayments are difficult to recover." There is "no money" and the doors are locked.

Re:I mentioned several times..

[Rick in China]

Major difference. Banking _is_ safe - the first link you paste is investors who bought a wealth product who did not get the ROI they expected. They didn't understand what an investment risk is, that's different than *banking* in the sense you're depositing cash / expect to be able to withdraw it at a later date. The second link, that's a "farmers co-op". That's not a bank, even if the article mentions it as a "bank" in quotes. There's nothing normal about some small town's peasant created co-op - 'normal' banks in China are the likes of ICBC, BOC, etc.

Counter Party Risk

[Anonymous Coward]

This is nothing new, the new thing is that the news is covering all the bitcoin exchange drama. Bitcoin is designed specifically so people have the choice of whether to trust 3rd parties with their funds, force of habit due to the fiat systems is causing people to put undeserved trust into these exchanges. They will learn as their fingers get burnt.

Kevin Bacon

[Anonymous Coward]

Must be in this.

Tiny "Exchange"

[Bob9113]

Vicurex is tiny. They only did US$30,822 of business in the past 30 days. The corner pawnbroker is probably a bigger business. The corner gas station definitely is.

Bitcoin may be a future currency (though I doubt it is The Future of Currency). It may be a very bad high risk investment (though calling it a Ponzi scheme would be giving the players far too much credit). Whichever it is, or wherever in between, it is no more or less what it was in the (nearly imperceptible) wake of Vicurex's failure.

Re:Tiny "Exchange"

[Marginal Coward]

Vicurex is tiny. They only did US$30,822 of business [bitcoincharts.com] in the past 30 days. The corner pawnbroker is probably a bigger business. The corner gas station definitely is.

You forgot the corner hooker. Unless she's really ugly.

Re:Tiny "Exchange"

[mysidia]

Vicurex is tiny. They only did US$30,822 of business

Indeed they are... Why the heck is this even news?

Is it news because the final Goxing finally came, and Slashdot editors have an agenda to keep bringing up articles on the smallest negative event happening to anyone somehow related to Bitcoin?

Or is it news, in order to provide the Vircurex with free desperately needed advertising, or what?

Re:Tiny "Exchange"

[westlake]

The corner pawnbroker is probably a bigger business. The corner gas station definitely is.

and both are more likely to well-managed and solvent,

Re:Tiny "Exchange"

[dbIII]

Slashdot editors have an agenda to keep bringing up articles on the smallest negative event happening to anyone somehow related to Bitcoin

It used to be the smallest event that could be spun positively and it's a chicken or egg argument as to whether that was due to the ads for bitcoin mining rigs here or if the ads came because of the large number of bitcoin stories.
I think it's perspective - personally I think bitcoin is a disgusting old style ponzi scam with new window dressing to bait it for geek so I notice the positives and get annoyed. A participant or perpetrator would notice the negatives and get annoyed.

Re:Tiny "Exchange"

[Anonymous Coward]

VCX does not have any way to deposit or withdraw USD/EUR ("yet"), so their main volumes are between various crypto-currencies (I think they are one of the largest in DOGE-BTC), don't even look at the USD trade volumes.

Re:Tiny "Exchange"

[Roman Mamedov]

USDBTC is not their main market, their speciality is exchange between various crypto-currencies, e.g. the trade volume of Dogecoin to BTC should have been orders of magnitude larger.

I have these invisible objects

[Anonymous Coward]

They're relatively easy to come into possession of early on. But later, it will be very difficult to obtain these invisible objects and they total number of these objects is limited! So act now! Buy them up quickly before they are worth more than you can afford!

I have no vested interest at all in increasing the value of these invisible objects, save for the fact I have several thousand of them in my personal possession!

Please be sure to send me actual money for these as they most certainly will be more valuable than real money in good time!

Re:I have these invisible objects

[oscrivellodds]

No! Buy my poop! I make a limited quantity per day and when I die there won't be any more of my brand. It is scarce and will become even more so in time. My poop is worth more than your nothing! You can fertilize plants with my poop! You can play nasty pranks with my poop! You can collect it and exchange it with others! What can your nothing do?

Re:I have these invisible objects

[antifoidulus]

Eh, the same thing can be said about gold as well. There was a lot more gold in the ground 1000 years ago than there is today and every day it gets harder and harder to find more gold.

*Ok, unlike bitcoin gold does have some industrial applications(monster cables notwithstanding), but most people use gold much like they use bitcoin. Maybe if they could make bitcoin bling....

Re:I have these invisible objects

[Anonymous Coward]

Have you tried to make a necklace out of bitcoins? At least gold is pretty to look at if you're not using it industrially.

Re:I have these invisible objects

[Anonymous Coward]

Um... Eww?

Re:I have these invisible objects

[Anna Merikin]

Westerners are selling gold to Indians and Chinese because many of those people have no banks nor insurance policies for breadwinners; in this context, gold or silver in jewelry form has been a traditional source of security as well as bodily adornment.

In much of Asia, Africa, South America and the Caribbean, it is the custom for one to have gold tooth crowns to be sure to be able to pay for one's own burial.

It can be said, based on population figures, that the total world demand for jewelry/investment gold will be larger than the demand for crypto-currencies for some time to come.

Re:I have these invisible objects

[Bramlet Abercrombie]

Look, by not buying you are in fact taking a risk. If the world decides to use this as its global currency and all other currencies become worthless you may be forced into servitude working 70 hours a week for a tiny fraction of one of these invisible objects. People who got in early would be able to simply retire. There is a risk in not buying also. The only risk in buying is that the currency you buy gets less valuable and then you can just buy more. The risk in not buying, well, if you are young, let me come back in ten years and laugh in your stupid face and say I told you so as you shovel shit for a fraction of a bitcoin a year.

Re:I have these invisible objects

[oscrivellodds]

Yeah, and when gold was $1800 per oz there were all sorts of commercials on TV pounding the table telling me what a great investment it is. The commercials were, of course, produced by people who wanted me to buy gold from them. Now that gold is $1300 per oz where are all the TV commercials telling me what a great investment it is?

Re:I have these invisible objects

[tompaulco]

They're relatively easy to come into possession of early on. But later, it will be very difficult to obtain these invisible objects and they total number of these objects is limited! So act now! Buy them up quickly before they are worth more than you can afford!

They were easy to generate early on, but they also were not worth much either, so mining them was just about as lucrative then as it was now. If they had sold their coins as they were mined back then, they would have made the same gains as you would now if you decided to mine. The fact is, some people decided to sit on some of these worthless pieces of data, and today they are worth $650. That doesn't mean it is a Ponzi scheme, it just means that they took a risk (or forgot they had the BTC until it was suddenly worth a lot of money), and it paid off. They could just as easily have lost all of their CPU cycles when they whole thing flopped.

Basic Math

[laughingskeptic]

Any organization that attempts to provide exchange services between 'hard' currencies and an inflating virtual currency is doomed to insolvency in terms of the hard currency. The operations of such an organization will always amount effectively to a Ponzi scheme when viewed from the hard currency point of view. A little thought experiment: an exchange takes in $100 for 100 v-coins valued at $1 each. The v-coin value inflates to $2 and the investors decide to exchange their v-coins back to dollars ... how many v-coins can be exchanged before the exchange is insolvent? HALF! DUH! The moment a virtual currency becomes established enough to be treated as a valid investment it is doomed to increase its pace of inflation and then collapse. This can only be avoided if the exchanges charge fees that are greater than the future inflation rate. However if they do this, the virtual currency's advantages will quickly be less than simply trading in the original currency ... so what's the point?

Re:Basic Math

[ghn]

This is an Exchange. They are matching buyers and sellers together. The point where they meet determines the exchange value of the two involved currencies at that point in time.

The exchange provides services to facilitate the transaction and charges a transaction fee. If the exchange is properly managed, they rake a profit on every transactions and can't loose, no matter how the market sways.

Re:Basic Math

[Dagger2]

A little thought experiment: an exchange takes in $100 for 100 v-coins valued at $1 each. The v-coin value inflates to $2 and the investors decide to exchange their v-coins back to dollars ... how many v-coins can be exchanged before the exchange is insolvent? HALF! DUH!

This is not how exchanges work. Exchanges operate as markets; if somebody decides to sell their v-coins, they need a buyer to sell them to (that is, another user of the exchange, not the exchange itself.) If nobody else on the exchange is willing to pay that price, then nobody goes insolvent -- the seller just has to take their v-coins to wherever the people willing to pay $2 are.

Re:Basic Math

[mysidia]

Any organization that attempts to provide exchange services between 'hard' currencies and an inflating virtual currency is doomed to insolvency in terms of the hard currency.

No... that's totally false. A proper exchange always profits from every transaction, once they have build their business.

The exchange isn't a party to a trade. When two traders enter an order, and the seller's ASK is met (after adding half the exchange fee [spread] to the asking price) by a buyer's BID (after subtracting half the exchange fee [spread] from the buyer's bidding price), then a trade occurs, and the exchange pockets their fee from both sides of the trade.

An exchange might do some market making, where the exchange itself occassionally uses collected fees to act as a buyer or seller, for the purpose of facilitating liquidity on the exchange, BUT it is unnecesary that the Exchange itself take on any market risk regarding the direction that BTC/USD moves in.

Re:Basic Math

[laughingskeptic]

I don't think these exchanges are managed quite this simply. They seem to have large numbers of both dollars and bitcoins on-hand and in-process and lots of upset customers. It sounds like they are operating as both bank and exchange -- which is a bad thing.

Re:Basic Math

[hey!]

Well, sure. But if it were the kind of exchange you were talking about, then they wouldn't have any user funds on hand to freeze.

The fact that they *do* have customer funds to freeze means that even if they call themselves an exchange, they're functioning as a bank. They're taking deposits for customers which then have to be frozen when they lack sufficient reserves to cover current operations. If they accept only crypto currency deposits they can function like a bank without being regulated.

Re:Basic Math

[mysidia]

Well, sure. But if it were the kind of exchange you were talking about, then they wouldn't have any user funds on hand to freeze.

No.... because the major exchanges are essentially acting as an "escrow" agents as well. Settlement of the trade is "immediate" in that you have to deposit funds to be traded, before you can complete the trade.

Otherwise; there would be all sorts of abuses, like the seller side of the trade failing to deliver on the trade they agreed to -- when the market shifted into their favor; resulting in broken trades.

Instead: the person paying Fiat for cryptocurrency has to have a Fiat balance with the exchange, first. The person paying Cryptocurrency for Fiat has to have a Cryptocurrency balance with the exchange, first.

Re: Basic Math

[Anonymous Coward]

They do take in their clients' money and fail to manage them well, but the business model is still as what the GP says. So as far as the balance sheet goes any loss is due to security issues or accounting problems or simply operational costs. They are just middle-men. When done well they should never have to honor trades out of their own pockets. Maybe you should be getting your facts straight before laughing.

Re:Basic Math

[shutdown -p now]

Vircurex didn't even do USD/BTC on any meaningful scale. Their main purpose was to facilitate conversion between various existing coins - usually from the freshly mined popular coin of the day (LTC, FTC, DOGE etc) to BTC, which was then transferred elsewhere to exchange for USD.

Re:Basic Math

[guacamole]

By this logic, every exchange that trades in international currencies should be closed down.

Re:Basic Math

[squiggleslash]

The fact that they *do* have customer funds to freeze means that even if they call themselves an exchange, they're functioning as a bank.

It's almost as if people in the real world want banks, are treating the "next best thing" (Exchanges) as banks, and are finding - the very hard way - that the Bitcoin system - the mix of ideologies, get-rich-quick scammers, libertarian PHP programmers, absence of regulatory bodies, and irreversible transactions, might, just might, not be able to provide them with what they want and need.

Bad Analogy

[SuperKendall]

Saying that an exchange like this going going bad means Bitcoin is failing, is like claiming a small corner bank failing means the end of the U.S. dollar is nigh.

The exchanges dying is good for bitcoin, because the bad ones will be replaced by more solid and upright entities.

Dogecoin started as a joke, remains a joke, and should be treated as a joke.

Re:Bad Analogy

[ColaMan]

The exchanges dying is good for bitcoin, because the bad ones will be replaced by more solid and upright entities.

You hope.

Re:Bad Analogy

[Eskarel]

If it were just the exchange failing, that might not be a problem, but when the exchanges are, for all intents and purposes, either seizing assets from their customers or losing those assets to theft left right and center, it sure as hell does affect Bitcoin.

Keeping a private wallets require a degree of know how which is beyond most tech savy people, let alone regular folks, exchanges(banks) are as necessary to the Bitcoin ecosystem as they are to cash. When the banks can't be trusted and can't be prosecuted, the ecosystem and therefor the currency itself is hopelessly broken.

Re:Bad Analogy

[jhol13]

Track record this far is ... can I use enron as an adjective?

Re:Bad Analogy

[Anonymous Coward]

a private wallet is easy to set up for a person who can use a computer, just install bitcoin core. It just takes several days to get the blockchain and a few GB of hard disk space. But once it is there it is pretty straightforward.

Re:Bad Analogy

[Anonymous Coward]

Saying *an* exchange failing is indeed like saying *a* corner store is failing. When one can reliably say that, by volume, *most* exchanges are failing, then one gets into trouble.

BTC is indeed a bubble/ponzi scheme.

Re:Bad Analogy

[Anonymous Coward]

So just like every other blind fucking idiot, bad thing that happens to Bitcoin to you is Good Thing Happens! BITCOIN up Up UP!!!!

Fuuuuuck me, you people are more idiotic and blind that that Phelps guy.

Re:Bad Analogy

[Anonymous Coward]

Yeah, because Mt. Gox was such a minor player ... oh wait ....

Invest in shitcoin or any of the currency like it, get shit on like you deserve.

Re:Bad Analogy

[tlhIngan]

Keeping a private wallets require a degree of know how which is beyond most tech savy people, let alone regular folks,

We've hit the third evolution of malware.

First malware spammed people because spam was highly profitable. Second, malware infected people's computers because hijacking user data such as banking information was highly profitable.

Now, malware simply scans a computer for a bitcoin wallet. If it finds one, it merely empties it and moves onto the next PC. Because that's highly profitable - mining is gone, botnets are OK, but not as profitable, but stealing one or two bitcoins well, it's a jackpot.

The irony of the bitcoin situation is that governments can step in and fix the exchange problems because exchanges work under regulations. But then that raises a catch-22 because it means government gets involved in bitcoin, which a lot of people are against because it's the whole anti-government anti-snoop anonymous thing. And yeah, while it's anonymous, the government regulations can state that all transactions have verifiable information per regular banking regulations, which goes counter to the entire point.

The only way around it is to kickstart a completely bitcoin economy where everyone solely works in bitcoin, from the farmers that grow food, to the transport and logistics companies that move stuff around, to the raw materials, producers, landlors, etc., all done using bitcoin. Which is very difficult to do because it's globalized - it's way easier to kickstart if you had a small autonomous island to which everyting is done using bitcoins.

Re:Bad Analogy

[ArcadeMan]

Let's try using Bitcoins planet-wide right now. After all it's only one planet in one solar system in one galaxy.

Re:Bad Analogy

[Eskarel]

Yes, setting up a wallet is really easy. Setting that wallet up in such a way that it doesn't get emptied by malware or lost due to hardware failures is a whole different ball game. That's not even touching on setting it all up so you can do all that while still having the ability to pay for things with bitcoins when your not at your computer.

Keeping a private Bitcoin wallet is exactly like keeping your cash under the mattress in terms of risk, and it's simultaneously less portable. Bitcoin proponents think that we only use banks because of the convenience of things like ATMs and wire transfers, and that's certainly a part of it, but people have been using banks for just about as long as there has been money, nothing in Bitcoin's architecture removes the reasons banks were set up in the first place, that's why exchanges cropped up as pseudo banks to begin with, because there was a market need. The difficulty is that they were like the old Savings and Loans only more incompetent.

Re:Bad Analogy

[Chas]

The exchanges dying is good for bitcoin, because the bad ones will be replaced by more solid and upright entities.

Your "faith" is admirable.

Reality seldom works this way in an unregulated market though.

Re:Bad Analogy

[tompaulco]

You must be a bank. Setting up a wallet on your computer such that it can't be emptied or lost is quite easy. You encrypt your wallet so that no one else can access it. Then you have multiple copies of it, so that you can't lose it in a hardware failure.
Then, of course, you can always set up your client wherever you want in order to make payments. You can even do it from your phone.

Re:Bad Analogy

[Eskarel]

Yes of course, I can do that, you can probably do that too, most people however can't, or won't.

That's not even talking about things like borrowing money or earning interest, though I guess given that Bitcoin is destructively deflationary no one would do either of those things with Bitcon, but folks do like to do that stuff with functional currencies.

More proof that potheads and money don't mix

[Anonymous Coward]

We're talking about problems involving drug dealers, drug addicts, and the currency of choice for criminals.
No surprises that it's been nothing but an endless chain of fuck-ups.

Re:More proof that potheads and money don't mix

[Anonymous Coward]

We're talking about problems involving drug dealers, drug addicts, and the currency of choice for criminals.
No surprises that it's been nothing but an endless chain of fuck-ups.

The currency of choice for criminals is the US Dollar.

Currency vs. bank

[Todd Knarr]

I'd note that the question of the solvency/stability of a Bitcoin exchange has as much bearing on the viability of Bitcoin as a currency as the question of the solvency/stability of say Bank of America has on the viability of the US dollar as a currency. I can keep Bitcoins in my own wallet on my own computer just like I can keep dollars in my own wallet, use both to pay for things, and never be worried about whether any particular exchange or bank will go belly up. And if I choose an unstable institution to store my currency for me, I run the risk of losing my money whether it be Bitcoins or dollars or yen. The only reason banks don't deal with cryptocurrency is that, unlike most currency, cryptocurrency has a mathematical underpinning that makes it difficult for them to loan it out to other people and make money off it while you aren't actively using it.

Re:Currency vs. bank

[jerquiaga]

This argument is completely flawed. Using a currency like dollars is inherently safer because it is backed by the government of the United States. Consumer protections exist (in the form of the FDIC) that ensure that if you choose an institution that fails, your deposits are insured and will be returned to you. There is no such protection for Bitcoin, or any other crypto currency that lacks any form of backing. The reason that banks don't deal with crypto currency is that it's too risky. An asset that can gain/lose 30% of it's value in a given day isn't very worthwhile to a bank.

Re:Currency vs. bank

[Anonymous Coward]

Yeah, but no one can pick your pocket just because you saw a banner ad and got pwned by a zero-day wallet stealer. If some one wants to rob you, they have to physically interact with you. That makes it both easier to defend against as well as guarantees that SOMEONE has jurisdiction over the theft. Not to mention, CC's can be cancelled and have a liability limit of $50. Someone gaining access to your BTC can spend everything with NO way to reverse it. Even if the person is caught, they could always claim to have lost/spent the coins. Yeah, they might get a higher sentence (unlikely) and you might win a civil suit against them, but there's no way you're getting your money back any time soon.

Re:Currency vs. bank

[Todd Knarr]

So if I store my dollar bills in a jar and it gets destroyed in a fire, I can go to the FDIC and get my money restored by them? No, I can't. That's because the FDIC doesn't insure dollars. It insures deposits (in whatever currency, at it's value in dollars when it was deposited) at institutions that're equivalent to a Bitcoin exchange. As far as gaining/losing value, shall we discuss the bank and financial company bailouts? They were all needed precisely because the banks and financial companies did deal heavily in assets that could and did lose value that quickly and got burned by it. As far as backing, riddle me this: what precisely can you trade a dollar bill in to the US government in exchange for? Nothing but another dollar bill, or a note promising to pay you some number of dollar bills at some point in the future. We haven't had a hard currency in ages, it's all fiat money that's worth exactly what someone else will trade you for it. Just like Bitcoins. If someone won't accept Bitcoins then they're worthless, just like a New Zealand dollar would be in a grocery store here. Technically an NZ dollar's worth some number of US dollars, but if the merchant won't accept it as payment it's a piece of scrap paper for all the good it'll do you. And if someone will sell me a $2000 computer for BTC 4, then a Bitcoin's worth about 500 US dollars.

Re: Currency vs. bank

[DisquietHorizon]

I feel like there is a misunderstanding about what being "backed by the United States" means. It doesn't only mean that the currency is trusted and fluid internationally, it also means (perhaps most importantly) that American businesses are required absolutely to accept dollars. I can run a bar, or cafe, for example, and take tourist euros and yen and dinars if I want, and bitcoins too. But if I decided to only take euros, that would be illegal. In fact for tax purposes all those other currencies would have to be converted to dollars. The dollar is "trusted"partly because it is Legal Tender. Nothing will change that short of economic apocalypse, at which point things like gold, oil, whiskey, and bullets, is probably a much better investment. The idea that bitcoin will retain value as the dollar and euro and yen collapse seems laughable to me. No one will care how rich your computer says you are.

Re:Currency vs. bank

[squiggleslash]

So if I store my dollar bills in a jar and it gets destroyed in a fire, I can go to the FDIC and get my money restored by them? No, I can't. That's because the FDIC doesn't insure dollars

Correct, but there's no incentive for a manufacturer of glass jars to build glass jars that catch fire, and it would take a remarkable amount of incompetence to do so deliberately.

However, that's not really the issue. We're not talking about bitcoins in people's wallets being stolen - it happens, but there are always going to be times it's necessary to avoid any system. What we're talking about here are interactions that involve third parties.

In the real currency world, the major institutions you deal with are banks and variants thereof. Their job is to facilitate storing and moving money around. If they're run by crooks, and you don't know this, you're in deep shit if you trust your money to them. As a result, we have this framework we call "regulation" that involves groups like the FDIC and the Federal Reserve banking system, where everything these institutions do are monitored, and if they do truly screw up, you're (normally) covered by insurance.

In the Bitcoin world, you also have to deal with third parties. Right now, everyone has to deal with exchanges at some point, because virtually nothing non-virtual can be bought using Bitcoins (cue anecdotes about Teslas bought from Craigslist - I said virtually nothing not nothing), and exchanges are one major example of a third party required to make transactions. If Bitcoin is to take off, there's a lot of evidence to suggest too that:

- People would rather use some kind of analog to a bank than manage double-top-secret malware-stealable wallets
- People would like to take loans occasionally
- People would like to use credit cards and other similar devices like they do with normal cash.

That infrastructure exists in the real money world because of demand, not because of some conspiracy by the Illuminati-run Federal Reserve central bank aliens Kennedy-killing 777-stealing 9/11 truth is out there (etc) lizard people to steal your monies.

The equivalent, in Bitcoin world, of the FDIC does not exist. It does not exist for exchanges, online Bitcoin wallet operators, or any other third parties.

Which is why we're currently reading a story about people losing their Bitcoins to yet another operator too incompetent or sleazy to operate a reliable means to store Bitcoins. And it's why we're going to continue reading this EVERY FUCKING WEEK (as we've been doing) until Bitcoin's advocates either get their act together, or realize they can't have their cake and eat it and call the whole thing off.

The main problem with Bitcoin is the deflationary nature of it long term. But the second greatest problem is that its advocates can't deal with the consequences of lack of regulation and, indeed, refuse to either propose regulation or propose an alternative that would make it safe. Most insist, instead, on blaming the victim, on having faith that the free market will somehow filter out all the bad actors (despite no evidence the bad actors won't continue to be attracted to the currency) and on having faith that bad institutions will somehow be obvious to everyone concerned.

I even, today, continue to see the lie that "everyone" "knew" about Mt. Gox and it was never highly regarded.

Re:Currency vs. bank

[Anonymous Coward]

For posteriority, since I'm sure Minitruth will visit your link when they notice it:

Bitcoin Exchange - A bitcoin exchange is a place we people buy and sell bitcoins for other currencies. We recommend Mt.Gox and Intersango. Once you have signed up for an account you will be able to wire money directly into the exchanges bank account. You then need to create an "Ask" or "Buy" order and buy the appropriate amount of bitcoin (BTC) at the current exchange rate. When you have completed a trade withdraw to the bitcoins to the address from step 2.

Of course both the "recommended" exchanges have ran off with their user's money. Hopefully blockchain.info at least got a cut.

Re: Currency vs. bank

[david_thornley]

Businesses are not required to accept dollars. They are required to keep accounts in dollars, or something convertible, and they are required to pay taxes in dollars (in the US, anyway). If they get sued, and lose, a judge will require a certain number of dollars to be paid.

At that point, it becomes a matter of convenience. The business is going to have to deal with dollars for many things, and so it's just easier to sell things for dollars.

Mix drinks, not metaphors...

[fuzzyfuzzyfungus]

It's a trifle astonishing to watch how persistently people line up to make the same mistake with their crytopcurrency-of-the-moment again and again.

In theory, cryptocurrencies are secure-through-math and don't rely on flyblown banking institutions and so on, (and, in fairness, they have a decent track record as software goes); but their properties only apply if you use them correctly.

If you give the actual crypto keys that correspond to your cryptocurrency units to me, and I give you an account at First Bank of Fungus with 'X cryptocoins', guess what? From the perspective of all the neat math, I own the coins, and enjoy whatever properties they possess, and you own a not-particularly-distinguished private-label IOU, which offers absolutely no security by design, and probably quite limited security-by-legal-force.

Basically none of the special properties of cryptocurrencies extend beyond your personal grasp on them, and the surrounding institutions are... dubiously stable.

Re:Mix drinks, not metaphors...

[Anonymous Coward]

Well, people trust banks to be able to safeguard vaulable things in vaults (or keep money safe from robbers). With USB or EUR, people could also just keep huge piles of cash at home. But they don't want to have to make the effort of making their homes as secure from robbers and burglars as would be necessary then.
Similar, people did trust MtGox, etc to have sufficient security. Not everyone is an expert that trusts their own skills to keep a bitcoin wallet on their own computer secure from adversaries.

Of course, the banking system had time to evolve and improve. A hundred ow two hundred years ago, bank robberies were much more common, and deposits were much less safe than today. We will have to see how this evolves with Bitcoin (and if Bitcoin lasts long enough for it to happen).

Philipp

Re:Mix drinks, not metaphors...

[Slayer]

These people filling the coffers of fraudulent exchanges are not necessarily clueless people storing their assets there like they would in a regular bank account.

There has been a large amount of "tidal trading" - where you place buy orders at a low price together with sell orders at a high price, and hope that market volatility will eventually put through both orders with some profit. This way you can profit from rises and falls in exchange rate, well, until yet another a flaky exchange runs with all your assets.

Re:Mix drinks, not metaphors...

[fuzzyfuzzyfungus]

Certainly, banks are a major point of weakness at best (and actively malicious at worst) regardless of currency. That's why I find it so astonishing to watch people with supplies of their preferred cryptocoins line up to hand them over to one. Especially because real banks, long recognized as being both dangerous and potentially unstable, usually come with rather more legal cover than 'exchanges' do. (The exchanges don't have zero, in most jurisdictions they presumably still fall under whatever generic 'please minimize fraud during the course of business' and 'ordered list of creditors to pay in the event of your liquidation' regulations exist; and banks are sufficiently dangerous that they sometimes achieve regulatory capture, rather than regulations designed to reduce their risk.)

If there are actually nontrivial numbers of people who are using cryptocurrencies and living in locations where the local banking system is so fucked that 'banking' in bitcoins is actually safer, they have my sympathy and their behavior makes more sense; but the remainder confuse me: If you want the properties of a cryptocurrency you (with the present designs, at any rate) cannot 'bank' with it. If you do, you are essentially going from enjoying the properties of a cryptocurrency to enjoying the properties of the really, really, really lousy end of the money market pool (about the same security as commercial paper issued by god-knows-who; but generally not fixed term or with the same compensation for risk) mere denominated in your cryptocurrency of choice, something entirely different and notably worse.

If you want the properties of a bank or other financial institution, you have to either be in a seriously shitty location or moving hot assets to not be safer doing it in some accepted currency at whatever available institution seems closer to the 'lawful evil' side of the spectrum. Still plenty of good ways to lose money (anything from the assorted nickle-and-diming of retail banking, up to the sophisticated chicanery that requires a superb grasp of finance to dangerously misunderstand); but nobody even pretends that any fundamental structural properties will save them, because they won't, and so some safeguards, or at least signage about how deep the water is and where the sharks are, have been constructed.

That's the bit that confuses me: if you play by the rules of a cryptocurrency, certain structural guarantees hold relatively strongly; but (best case) you've got about as much legal cover as if Gamestop went out of business before the game you pre-ordered arrived. Frequently less.

If you play by the rules of some set of financial institutions, you have no structural guarantees; but you've got a wide variety of legal covers built to deal with the fact that there are no structural guarantees.

If you attempt to do both at the same time, with the same stuff, you get the worst of both. (Obviously, doing both at the same time with different assets is totally doable, but unrelated). Doing that, I just don't understand.

Making money without working for it

[Taco Cowboy]

making money without working for it

How many of them on the Congressional Hill work for the people who pay them their salaries ??

The last two POTUS also never had the interest of the Americans in their minds.

Silence from Bitcoin leaders

[Anonymous Coward]

Although your analysis is completely accurate, it's not surprising to see so much criticism of Bitcoin whenever exchanges collapse, and the reason isn't hard to identify. The developers and leaders of the Bitcoin community are almost totally silent on the stupidly insecure architecture of the exchanges and how this harms Bitcoin's reputation, and their silence gives tacit approval to the continued use of such a broken exchange model.

Why are they silent? There must be a reason why they choose not to criticize the design of the exchanges in the very strongest of terms, and the most likely one is that they profit from the exchanges operating, and maybe even from their collapse. Not surprisingly, this fuels highly critical speculation about their motives.

This highly negative perception of Bitcoin is only going to get worse, unless respected Bitcoin leaders make it crystal clear that the exchanges are a disgrace and a liability to the Bitcoin community if they continue to operate as centralized proxies instead of adhering to the original distributed security model.

Re:Silence from Bitcoin leaders

[IamTheRealMike]

Eh? I was drinking with the executive director of the Foundation and routinely work with Gavin, who is maintainer of the core software. I guess they are the closest you're going to get to "developers and leaders" by your description. Obviously they're concerned about all this. But the alternatives aren't there yet. One Bitcoin developer, Gregory Maxwell, has proposed protocols that allow exchanges to prove solvency - but they're complex and of course, do not address the root problem that large piles of coins make tempting targets for hackers.

Decentralised exchanges are very interesting and the way to go, but the technology to do them well isn't here yet.

Re:Silence from Bitcoin leaders

[Anonymous Coward]

Obviously they're concerned about all this

But not concerned enough to call out the operators of the centralized exchanges as damaging to the reputation of Bitcoin?

the root problem that large piles of coins make tempting targets for hackers.

That's the point I was making. As long as the exchanges hold centralized piles of Bitcoin, they are broken in their security model. This broken security model is being given tacit approval by the lack of high profile criticism of their design and operation. With every exchange that fails, the reputation of Bitcoin plummets further and the calls for regulation get stronger. The "official" silence from the leaders (or very low profile criticism only in private discussions) is playing into the hands of Bitcoin's detractors very effectively.

Decentralised exchanges are very interesting and the way to go, but the technology to do them well isn't here yet.

That's no reason for giving tacit approval to the broken centralized model. Solid criticism would result in people devoting time to working on the non-existing distributed exchange protocols, and would also prevent or at least dissuade more centralized exchanges being set up.

Re:Silence from Bitcoin leaders

[IamTheRealMike]

You appear to think criticising something without having any constructive suggestions for improvement is useful, and that people choose how to invest their spare time based on what "leaders" (there are none, really) pronounce. That's not how things work.

Re:Silence from Bitcoin leaders

[Anonymous Coward]

That's not how things work.

That's right, that's not how things work. How things work (currently) is to allow the ever-worsening situation to get bleaker and bleaker.

You seem to enjoy this status quo, which suggests either a vested interest in existing exchanges or else a desire to see them collapse. Neither is good.

"We don't have a replacement solution" is not an excuse for not pointing out to everyone who will listen that the existing centralized exchange model is broken and a blight on Bitcoin. There should be strongly worded blogs about it, and articles in simple language placed in the mass media and on social networking sites.

It's no different to making everyone aware about security faults in software so that users don't get burned before there's a new release. It's the socially responsible thing to do. Innocent people are losing money with each successive collapse or hack, and dragging Bitcoin's name into the mud through no fault of Bitcoin. Staying silent about the dangerous exchanges is extremely damaging to everyone, and it's socially irresponsible of the community's leading lights not to point it out publicly (even if they don't like being thought of as leaders).

An exchange should never lose money.

[thesandbender]

By definition a true exchange should never lose your money. You can lose your money, but they won't. An exchange is a barter system, you trade X for Y. Legitimate exchanges charge for a "seat" on the exchange, a percentage of the transaction, or both. However, they never just take your money. They may require that you put money in escrow to cover your position but this is set aside, usually drawing risk free interest (or as near as you can get to it) unless you specify otherwise.
No one should be able to prevent you from putting your money into unregulated vehicles/investments but if consider it any more than gambling and expect any protection then you're an idiot. In the US, gambling is actually more regulated than bitcoin transactions (at this time). If you hand off your "wealth" (of any kind) to any unregulated, un-vettted nob who managed to register a TLD then I would like to discuss a long-term, can't lose investment in the Brooklyn Bridge with you.

Let me repeat this. If you just hand over your wealth to someone with no legal safeguards in place, you're a dumba$$. Clear?

Why do people keep their bitcoins at exchanges?

[Anonymous Coward]

Could someone explain why people put bitcoins in an exchange? I mean isn't the point of bitcoin that you have a copy of the blockchain on your own computer?

Re:Why do people keep their bitcoins at exchanges?

[rudy_wayne]

Could someone explain why people put bitcoins in an exchange? I mean isn't the point of bitcoin that you have a copy of the blockchain on your own computer?

Why do people open an account with a stock broker? You're saying to someone "I want to buy (or sell) X, go find me someone who has X to sell (or who wants to buy it)". The whole point of an exchange, whether it's stocks or Bitcoins, is to do the work of finding buyers and sellers so you don't have to.

And it works reasonably well if the exchanges are honest (or forced to be honest by regulations). Bitcoin exchanges are not regulated in any way so they attract people who are specifically looking to rip you off. Just look at the past year. Nobody has lost any significant money from actual trading on Bitcoin exchanges. All the loses have been from exchanges taking people's money and then disappearing.

In days of yore...

[meglon]

Used to be, some years ago now, you could go onto Ebay and sell those Wu's Fighting Gauntlets for $4-5. The difference between those gloves and bitcoins is: bitcoins are absolutely useless against giant spiders the size of small huts.

A curious question ...

[Anonymous Coward]

or high frequency traders...

HFT is much less profitable than it used to be. They made money by squeezing inefficiencies out of the system, but once everyone else was doing the same thing, that doesn't work anymore

Are there other inefficiencies within the trading system that are still awaiting to be ironed out ?

If so, what ?

Re:A curious question ...

[pspahn]

The platoon player seems like it is becoming the next inefficiency to be exploited. You might have a guy that hits .220 against righties, but .312 against lefties. As long as you only put him in against lefties, he's going to be a .300 hitter.

Oh, wait ... my bad. Wrong thread.

The Exchanges Aren't Cryptocurrency

[Baldrson]

Cryptocurrency is a platform and the exchanges are an app built on the platform. The security problems have been with the apps built on the platform. The peer to peer architecture is not what is being exploited. Its reckless abandonment of P2P for client server.

Re:The Exchanges Aren't Cryptocurrency

[Anonymous Coward]

Cryptocurrency is a platform and the exchanges are an app built on the platform. The security problems have been with the apps built on the platform. The peer to peer architecture is not what is being exploited. Its reckless abandonment of P2P for client server.

And the 'client-server' parts are being implemented by complete retards ... I mean, who implements a fundamentally transactional system like a financial exchange using an 'eventually consistent' database ? (*looks sneeringly at LiteCoin*) ... it's just stupid. And in a deeply moronic, drooling way ... it's not an 'oversight' or a 'bad call made under pressure' ...

Re:The Exchanges Aren't Cryptocurrency

[Anonymous Coward]

Hey look ^ a person who understands.
What has happened to slashdot, I used to think there were mostly intelligent people here.
But anyway congratulations on actually understanding bitcoin before posting.
Now if they would enable btc tipping on Slashdot ... hmmm

Re:The Exchanges Aren't Cryptocurrency

[david_thornley]

Yes, and people in general don't go out and buy a computer platform in complete disregard of the apps available. The biggest single advantage Microsoft Windows has is its ability to run Windows-compatible applications. My Linux box exists because I want to run Linux- and Unix-compatible applications.

This means that, for Bitcoin to be generally adopted, there are going to have to be reliable banks and exchanges, because most people want such, and will buy into currencies that have them.

Re:The Exchanges Aren't Cryptocurrency

[hibiki_r]

But it doesn't matter: Imagine an unbreakable crypto: If you enter the right password, you are in. If you do not have it, infinite computer resources won't help you. Well, that environment is still an extremely dangerous environment for non-reversible transactions that cannot be manipulated by an authority, because most attacks on computer security work regardless of how good a cypher you use.

If you are attacking anything large, you just attack the keys. With no central authority, there is no way to recover keys, or ask for keys to be changed. Therefore, key management itself will be weakened due to how catastrophic it is to lose the keys. The harder you make it to lose all your bitcoins, the easier you make it to attack your keys.

So putting all the trust in the platform's security is like saying that a house is safe because you installed the best door money can buy. But there's still windows, and walls, and a roof, and a basement... Make them all perfectly secure, and you can't get into the house itself.

The cost of an unregulated currency

[gman003]

Bitcoin became popular in no small part because many people believe government-backed currencies are overregulated or poorly managed. Because there was a market demand for a non-government-controlled currency, Bitcoin took off. Other things definitely played bigger roles, but being unregulated was a feature, not a bug.

To an extent they were right. It's very difficult to handle money electronically without a middleman, and there are few enough middlemen that the costs can be prohibitive. That's just one thing that an unregulated currency could do better - there are dozens more, but they would be a bit complex to explain even though they boil down to "a managed currency can be ruined by bad management".

But an unregulated currency is also inherently risky, at a much lower level. Nobody with brains is saying that Bitcoin isn't risky to use. Bitcoin exchanges and banks will continue to fail, or be scams, or so on. While never good, they are a sign at least that the currency is working as designed - uncontrolled by any governing body. And eventually things may stabilize - the intense speculation is likely the driving force behind many recent failures and scams.

Is it worth it, to have a currency that is beyond the reach of all but the most oppressive of governments? I think it is, but that's a question that's subjective enough that there is no wrong answer.

Re:The cost of an unregulated currency

[rudy_wayne]

Bitcoin became popular in no small part because many people believe government-backed currencies are overregulated or poorly managed.

No, Bitcoin became popular because a bunch of crackpots bought into a bunch of anti-government bullshit. Despite all the problems and imperfections with governments and regulations, the bitcoin nutjobs are too busy drinking the anti-government kool-aid to understand that it's precisely those governments and regulations that create stability which in turn makes a currency actually worth something.

And a few speculators looking to get rich quick.

That's a biased source

[dbIII]

That's a biased source and I disagree. Look up Ponzi scheme on wikipedia (or anywhere) then compare it to Bitcoin for an unbiased perspective.
Personally I see it as a scam baited for geek - deliberately preying on people like us and those we work with. However I'm biased just as a sheepdog being asked about wolves would be biased.

Re:That's a biased source

[Dagger2]

I've been directed to that Wikipedia article many times, and the way it describes a Ponzi scheme as working just doesn't match up with how Bitcoin works.

Bitcoin is a payment network. To make a payment, you buy some bitcoins on an exchange, then you send them to someone, who sells them on an exchange. At the end of that, you've paid your $x and the other guy has his $x.

The Wikipedia article on Ponzi schemes describes them as being fraudulent investment operations. Payments in Bitcoin don't involve making investments (you send your bitcoin away immediately after buying it), and in any case they don't have any promise of magically giving you back more money than you put in. Given that, I don't see how you can describe it as a Ponzi scheme.

Re:That's a biased source

[dbIII]

Ponzi schemes describes them as being fraudulent investment operations

Yes.
You keep on popping up here a lot to recruit more marks with the same old stale sales pitch linking to a biased site and misdirection instead of answering questions so there probably isn't much new blood for you to take advantage of.

Re:That's a biased source

[oscrivellodds]

You're missing the forest for all the trees. Another popular ponzi/pyramid scheme, Amway, has "products" that get bought and sold. No one actually wants, or uses, or cares about the products- they are identical to the same stuff you can get at any grocery store or Walmart, and sales of them is not the main point of the scheme. The products exist to make the whole scheme look like a legitimate business, when the real meat of the scheme is in setting up pyramids by conning others into setting up more dealerships. Everyone of those dealerships has to pass money upwards toward the top of the pyramid. The emphasis is never on selling products- it is always on selling dealerships.

Bitcoin claims to be about making transactions across borders and currencies easier, cheaper, and faster, but that is the ruse to make it look legitimate. The real aim is to get people to buy bitcoins with real money (thinking it is an investment) so that people at the top (the ones with piles of bitcoins- i.e. the ones who came up with this scheme) can cash out in a big way.

Re:That's a biased source

[gnasher719]

The Wikipedia article on Ponzi schemes describes them as being fraudulent investment operations. Payments in Bitcoin don't involve making investments (you send your bitcoin away immediately after buying it), and in any case they don't have any promise of magically giving you back more money than you put in. Given that, I don't see how you can describe it as a Ponzi scheme.

Ponzi schemes also try hard to convince people that they are not Ponzi schemes and instead legitimate.

Re:That's a biased source

[Anonymous Coward]

" The real aim is to get people to buy bitcoins with real money (thinking it is an investment) so that people at the top (the ones with piles of bitcoins- i.e. the ones who came up with this scheme) can cash out in a big way"

You have proof of this of course? You have talked to the people "at the top" about this?

You could claim this about any kind of financial instrument, like stocks. Are stocks a Ponzi scheme?

Re:That's a biased source

[Dagger2]

I'm sure they do, but "denying that you're a Ponzi scheme" isn't enough to make you a Ponzi scheme.

Re:That's a biased source

[dbIII]

This is getting old. It must be close to the tenth time I seen you push this line and you've never put up anything to back it up other than the same FAQ from a major perpetrator of the bitcoin scam. Yes we get it, people who profit from bitcoin are telling us that it is no scam. We got it the first time. Putting it up over and over is looks just as dodgy as the inventor of Bitcoin being in hiding.

Even if it wasn't a ponzi scam the deflation and tracking aspects make it extremely undesirable as a bartering chip. I find it extremely funny that Silk Road was using something where the ownership of the bartering chip is trackable from person to person.

Re:That's a biased source

[Anonymous Coward]

real money

There is no real money. You could levy the same charges against paper notes by claiming that only gold coins are real money, and they'd make just as much sense. And indeed, in the earliest days of gold-note-based banking, you'd see the same arguments and same problems with early pseudo-banks being untrustworthy, uninsured, and so forth.

And if you think that government backing matters at all, go look up what's happened in all the major inflationary crises. The "real government pesos/marks/dollars" get thrown out and alternative currencies rush in.

Re:That's a biased source

[tompaulco]

Could you please inform me as to who my upline and my downline is for bitcoin, because when I "recruit" someone into using bitcoin, I am not aware of any way for me to profit from their "investment", nor do I know who is receiving profit from MY "investment". My investment, being, of course, some CPU cycles and some electricity cost. It's not like I plunked down cold hard USD for bitcoins. That is not the point anyway. It is not intended to be an investment vehicle at all.

Re:That's a biased source

[scubamage]

Tinfoil hat much?

Has anyone gotten real?

[Anonymous Coward]

Bitcoin has no read backing. So far, the bitcoin exchainges have done nothing but "shut down" and take what you think is money.

Re:Has anyone gotten real?

[r.freeman]

USD does not have "real" backing either. It is backed up by war, ACTA and other big government, or as some call it: "NWO". Bitcoin is backed by thousands of people willing to trade using this, instead bankster's system and instead USA's blood money.

Re:Has anyone gotten real?

[Anonymous Coward]

Totally wrong. The US dollar, as all real currencies, contrary to bit coin nonsense, are backed by the value and output of their nation (the so called gross national product), their infrastructure, their resources and deserves of resources and their credit ratings.

Mostly real, physical value.

Bitcoin has non of these. It is NOT a currency. It's a believe system that some crypto string is actually worth something.
It's the same as polynesian people trading with clam shells or back the 18th century when native american where paid in glass beads. They are absolutely worthless and not backed by anything real. Bitcoiners are like people scavenging the beaches for shells now pretending to be rich.

It's ridiculous.

Captcha : traders. Hilarious.

Re:Has anyone gotten real?

[Anonymous Coward]

Other than being backed by a global superpower with a very large army, with billions of people using it it has no "real" value. But a currency backed by a few thousand libertarian/anarchist computer nerds and their GPU's and ASICs counts as a "real" backing.

Ha! Ha! Ha!. You bitbelievers really are grandiose and delusional!

Badda bump bump bump. Another one bites the dust!

[Anonymous Coward]

And another one gone, and another one gone
Another one bites the dust
Hey, I'm gonna get you too
Another one bites the dust

Urgh

[Anonymous Coward]

So I'm not a capitalist or anything, but as I understand it HFT provide a market for people who wan't to buy or sell trades. Back before HFT, people had to go to established market makers, which would be large entities that hold on to large amounts of stock. This would not be held speculatively, but rather to harness the arbitrage opportunities in the difference between selling and buying price. These guys used to "skim" 10% of the price every time people traded, and they were old white guys, established players that could leverage their reputation and historical position to print money. HFQ now takes the place of market makers in many trading venues, and take much less off the top, as the rely on the frequency of trades.

So like I said I'm not a capitalist and I don't think that HFQs are really good. But they are no different than other elements of the capitalist system, and seem much fairer than what they replaced. This is kinda like when people complain about short selling. In a market, pricing is a mechanism to ensure the efficient production of goods across society. Without short selling, there is no mechanism to drop prices in capitalism. It isn't making money off of failure (well no more so than any element of the capitalist economy) it's providing a necessary pricing function.

Re:Urgh

[gl4ss]

hft doesn't provide that. that is a common misconception about hft and one that hft trading companies want you to believe.

in practice hft sits between the buyer and seller who would exist regardless of the hft existing. that is the whole point of hft. the hft skims money from both of those people, they longer term buyer and seller(even if the buyer is going to just hold the stocks for few hours), it would be far simpler for everyone involved if the stock brokerage would just take the cut without the hft sitting in the middle.. it would save resources, electricity etc. only thing it would change would be that certain people(hft trading companies/consultants/people sitting on the approve list for fast pipe access) would not get so much money.

now the broker house cut done through the hft is largely invisible and can't be measured easily... that's why wall street loves it, it gives them a way to skim money from people who want to trade stocks based on their expected values.. it would be really easy to fix the hft arms race, makes sales ticks every 10 secs for example or whatever, to make it so that it didn't matter if your processing had 1ms ping or 250ms ping.. but that would fuck up the very lucrative business of selling the short fast pipe to the stock exchange so they don't want to do that.

Re:Urgh

[gbjbaanb]

that's what they tell you... HFT is trading large sums very quickly in order to make a little bit off each tiny movement in shareprice - all controlled by computer.

It has nothing to do with electronic trade fulfilment (which is where you get to buy or sell automatically, by computer).

Your trades would still occur if there was a 10 second delay between posting your trade and it going through, but the HFT people could never work with that, as they trade hundreds of times a second.

Short selling.. it is a scam especially 'naked' shots - where you bet on the price before you have the contracts in place. So you short a stock and if it goes down, then you take your position. I think that's crazy and is not part of how capitalism works - that always has you taking a risky position, its how it self-regulates. Sure things are anticapitalist.

Oh, and they still skim 10% off, and they're still old white guys in charge of the exchanges. This is kind of the situation you want - if you had an exchange run by young guys, you;'d end up with situations like all these BitCoin exchanges that are rapidly going bust. Old and conservative guys like things that work reliably and maturely.

Re:Urgh

[Chatterton]

To kill hft, put a 0.001% tax on every transaction especially the cancelled ones. And hft will stop over the next nano second.

Re:Urgh

[pla]

Short selling.. it is a scam especially 'naked' shots - where you bet on the price before you have the contracts in place.

The idea of a "naked" short doesn't really exist. You have a standing contract with your broker. You don't "create" shares when you sell short, you borrow them from your broker on margin. And, if your broker doesn't consider your position solid enough, they can demand you cover the short at any time.

Short selling has a stigma of negativity around it, but keep in mind that once a company issues stock, it makes little difference what actually happens to that stock on the short term (beyond those few investors who own enough of it to actually have a real voice in shareholder voting). Yes, a short position bets against a company - But that company doesn't win or lose either way. Neither does the lender of the stock you short. Short selling merely serves to increase liquidity of a security that would otherwise have remained uselessly tied up in someone else's portfolio.


Oh, and they still skim 10% off, and they're still old white guys in charge of the exchanges.

Do you have any idea what you talk about here? Who skims 10% off, and how? To give you an idea of the reality of the situation, I reallocated a sizeable chunk of my IRA two weeks ago. "They", including all aggregate parties who could possibly count as "them", skimmed a total of 0.0391% ($7 trade and $0.04 bid/ask spread) from the transaction. Wow, those evil old white bastards! It'll take me at least two hours of my average expected return to cover that!

Re:Urgh

[Rockoon]

in practice hft sits between the buyer and seller who would exist regardless of the hft existing. that is the whole point of hft. the hft skims money from both of those people,

The hft doesnt get the sale unless it offers the best price. That price is better for the seller if the hft is dealing with the seller, and that price is better for the buyer if the hft is dealing with the buyer. Full stop.

Re:Urgh

[jythie]

I could easily see how traditional 'sales tax' laws could be applied here and probably have a significant positive effect. Even a tiny sales tax would lead to people buying and selling stocks only when there has been significant movement, which *gasp* might actually encourage long term investing.

Re:Urgh

[Anonymous Coward]

If high-frequency trading really acts as a market-maker, the "flash crash" of 2011 would not have occurred as market-making buyers would have stepped in.

Also, market makers do not place a bunch of fake orders (tens of thousands per second) and then quickly cancel them.

Re:Urgh

[Anonymous Coward]

I believe the stock price matters quite a bit to banks since they have to maintain certain equity ratios. Otherwise, why else would the U.S. government step in and *ban* short-selling of all banking stocks during the 2008 crash? It was perfectly OK to short Google, Wal-Mart, 3M, etc. but shorting of Citigroup, Goldman Sach, etc. were not allowed.

Re:Urgh

[Rockoon]

Your trades would still occur if there was a 10 second delay between posting your trade and it going through

..but the spread between bid and ask would be larger, ergo you would get worse prices on those trades that you rightly say "still occur."

I find it amazing how the argument against HFT's begins with how much money they are making "off of you" but never ends with anything talking about the dollars and cents of the alternative. The reason the arguments never end this way is that they are illogical. They hook the reader with "omg you are getting burned" but then conveniently never explain how you would actually do better with the proposed alternative or a reversion to old methods. Its because the proposed alternative is actually worse once you knuckle down and stick to talking about the money.

The gap between bids and asks is smaller now, due to HFT's. Instead of spreads like $0.95/$1.05 that were common decades ago, it is $0.99/$1.01. You save $0.04 per share, or make an extra $0.04 per share than what you could do decades ago. Its a different guy making the gap now, but the gap is much smaller. You benefit.

Re:Urgh

[njnnja]

To kill hft, put a 0.001% tax on every transaction especially the cancelled ones. And hft will move to another jurisdiction over the next nano second.

FTFY. But seriously, the cancelled trade issue that you point out is in some sense the real problem. The way things are structured now, I think that it is difficult to say exactly how being faster to the trade is somehow unfair or morally objectionable. However, that is not what HFT does. Rather, it pings all over the market to figure out where the market is, and takes advantage of 1) their speed and 2) their ability to cancel a trade to send out massive numbers of orders that are never intended to be filled, scooping up free options.

A more effective approach is the one listed in gp post. Discrete time auctions would maintain almost all of the liquidity in the markets today, without the unfairness of cancelling orders left and right.

Re:Urgh

[Anonymous Coward]

The idea of a "naked" short doesn't really exist. You have a standing contract with your broker. You don't "create" shares when you sell short, you borrow them from your broker on margin. And, if your broker doesn't consider your position solid enough, they can demand you cover the short at any time.

You misunderstand what a naked short is. You're describing a normal short. In a naked short, no borrowing of shares occurs. What you're selling is a virtual share. You have an obligation to either replace this share with a real share or to buy it back when sold.

In a sense, you could say this share is being borrowed from the person buying it. Since these naked shorts are easier to create, they make it easier for the traders to manipulate the market by selling any number of shares (way beyond the total shares outstanding). This is why naked shorts are so often vilified.

Re:Urgh

[pla]

You misunderstand what a naked short is. You're describing a normal short. In a naked short, no borrowing of shares occurs. What you're selling is a virtual share. You have an obligation to either replace this share with a real share or to buy it back when sold.

My apologies, I guess I didn't really explain my point well.

Yes, naked shorts do technically exist - In the same sense that people technically "get out of" paying their taxes by declaring themselves a sovereign nation. Namely, the system has built in protections against doing it, which people need to deliberately circumvent, and doing so (in virtually all cases) commits a crime.

The average Joe simply doesn't have the option of selling a naked short. When you hear about, for example, the two Florida professors recently busted for it, it took two people with multiple trading accounts each, to deliberately confuse the system enough to allow them to keep it floating for a while. For the most part, only actual brokerages have the ability to even try to pull off a naked short, much less do so without getting caught.

Perhaps I owe the GP an apology as well, but I took his putting it in the same context as HFT as intending to refer to it as another form of kosher-but-abusive trading technique, rather than an outright crime.

Because the above wasn't clear enough for some

[dbIII]

They are ACTING BEFORE Alice or Bob can which is why it is a TIME BASED man in the middle attack.

Re:Because the above wasn't clear enough for some

[Procrasti]

> They are ACTING BEFORE Alice or Bob can which is why it is a TIME BASED man in the middle attack.

Everybody is acting before the next order comes in... Kind of the definition of a QUEUE.

They get to see the state of the order book first and act on it faster because of their colo deals with the stock exchanges --- again, this changes nothing.

Only if they see Bob's order, then make the order, and it is on the queue before Bob's order, and therefore in the market book before Bob's order, are they doing anything that would actually damage the market and should be banned from.

Ie, they would have to have prioritised access to the QUEUE, not the MARKET BOOK.

And I'm 95% sure this is NOT the case. If you have proof otherwise, now is the time to show it.

Re:Because the above wasn't clear enough for some

[Hognoxious]

I think he might be talking about front running, which is similar but not really the same.

http://en.wikipedia.org/wiki/F...

Re:Because the above wasn't clear enough for some

[Procrasti]

Exactly right, HFT is NOT front running...

People just have a hard time understanding that HFT brings efficiencies to the system and they get paid to do it.

They can't understand the algorithms, see stuff happening on the millisecond time scales and assume that something like algorithmic front running is occurring, when it is not.

Re:Because the above wasn't clear enough for some

[Rockoon]

And I'm 95% sure this is NOT the case. If you have proof otherwise, now is the time to show it.

Even if this "HFT is bad, mmmmkay" sheep were to have proof of that, it would still be irrelevant. The hft only gets the trade when its bid or ask is equal to or better than the best on the market. You dont get any trades simply by being first and choosing your own arbitrary price. The price cannot be worse than the other folk that are also bidding or asking.

The basic situation is thus:

There exists a best BID and a best ASK. There is a gap between these two values or else a trade automatically happens.

As an example, the best BID is $0.95 while the best ASK is $1.05. If the HFT submits a BID that is only $0.94, then he never get a sale while that higher $0.95 BID is there. The same is true in the case of the ASK: The HFT must ask for less than $1.05 or he doesnt get the next trade.

So how does an HFT make money? The HFT makes money off the people shouting "buy! buy! buy!" or "sell! sell! sell!" without regard to price. The HFT makes money off of the people in a hurry because more often than not, both the best BID and the best ASK are an HFT. Nobody else is BIDing more, or ASKing less.

Lets examine who gets hurt:

BIDDERS do not get hurt because they have already chosen a price.
ASKERS do not get hurt because they have already chosen a price.
BUY NOW! folks don't get hurt because they are joined with the best ASK.
SELL NOW! folks don't get hurt because they are joined with the best BID.

So nobody gets hurt. How is it possible that the HFT can make a profit but nobody gets hurt? Its possible because the HFT's actually creates value..The market is more efficient because they exist, and that increased efficiency is spread out between all the players, of which the HFT is only one party.

Re:Because the above wasn't clear enough for some

[Procrasti]

Absolutely correct... and I have argued this many times before... on a fair and open exchange you literally cannot place a bid or ask that decreases the efficiency of the market.

Except the bit about front running... front running is illegal... because then the front runner could always guarantee that they were at the front of the queue regardless... but this is not the case, otherwise the HFT algorithms would be far simpler.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

System A:

Alice and Bob exchange money for shares - the deal goes down, commissions are paid, everybody got what they wanted.

System B:

Alice and Bob exchange money for shares with Speedy "ironing out the inefficiencies in the system." Unless the transaction price for Alice and Bob is unchanged relative to system A, I'd say somebody is getting screwed. If Speedy is getting the deal done and charging less commission, then great, who cares if the brokerage firm isn't getting paid as much, that's good capitalism. But, any talk about "understanding the algorithms" and "millisecond time scales" is just B.S. if Alice and Bob can't get the same deal they would have without HFT - and I don't think either Alice or Bob give a damn if their trade takes 10ms, 10s, or even 10 minutes to transact - if they're "normal" traders, they'd rather pay less commission and wait for it.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

I've traded some "thinly traded" shares in the past - this pretty much describes ALL options today...

Back in the 1990s, and even early 2000s, you could put out a "Bid" for 10,000 shares @ $1.00 per share max and frequently, you'd get a transaction that looked like:

5000 shares @ 0.95
3000 shares @ 0.97
2000 shares @ 1.00

That doesn't happen since HFT - now it's all 10,000 shares @ 1.00 - and since I pay fairly high commissions per transaction, I can't optimize my trade by making a bunch of small ones to match what's showing in the queue - back in the day, you couldn't even look at the queue anyway.

Re:Because the above wasn't clear enough for some

[dbIII]

Even if this "HFT is bad, mmmmkay" sheep

Yes we get that some underhanded people think we are all just pieces of meat to exploit by any trick that works. No need to rub it in.

Re:Because the above wasn't clear enough for some

[dbIII]

Please address the situation above instead of pretending to misunderstand and putting up a distraction.

Re:Because the above wasn't clear enough for some

[Sockatume]

Err, Speedy isn't in the middle of anybody. All three parties are trading, individual, with the same fourth party: the market.

Re:Because the above wasn't clear enough for some

[dbIII]

Its possible because the HFT's actually creates value..

After 2008 you really believe that shit?
It's artificially pumping up the price of a transaction for the two endpoints and they get nothing out of it for the lost money. It is a drain on the economy.

If the two endpoints wanted the HFT trader to act as a broker they would have asked, but instead the HFT trader sneaks in like a weasel.

Re:Because the above wasn't clear enough for some

[Procrasti]

Maybe you should understand how an exchange works... I've doubt you've ever traded, and don't really understand the system in the first place.

Either one or both of them will get their trade matched either faster or at a better price with S involved. These are the only mathematically possible outcomes of having more orders placed on a system.

Faster matching is generally considered value too... the fact that you don't value it is not anyone's problem... Would you wait a day, 10 days or 10 years for a match? Well then... you can see that going the other way is marginal improvement on value too.

Re:Because the above wasn't clear enough for some

[Procrasti]

No, you're misrepresenting the situation.

Do you understand how an exhange works?

Every single order added to a queue must be an improvement to the current available price if is to be matched or it is irrelevant.

No order can ever make an exchange LESS efficient. Therefore, all HFT is good.

You are speaking pure FUD.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

I have been trading since the early 1990s. I may not qualify as a "real trader" because most years, I only execute 5 or 6 "trades" and about half of them are for funds - which execute on a daily basis, not millisecond to millisecond. I have made, and lost, big multiples on options, and I have held individual company shares for anywhere from two days to twenty years.

Trades that execute in less time than it takes to read and comprehend the order confirmation screen are of no additional "marginal value" to the majority of people who have money in the market - they may be of some marginal value to the majority of the money in the market, but is the market there to serve the money, or the people?

If banks still paid interest like they did in the 1960s through 1980s, I probably wouldn't be in the market, but right now, the market is basically the only game available to attempt to preserve savings against inflationary devaluation. The regulations and policies have made the market what it is, and those same regulations should be shaped to serve the people who are more or less forced into the market to stop their savings from shrinking in value as the years go by.

Traders like us may be "ignorant of how the market really works" - but that doesn't mean that the market should be slanted to give "real traders" advantages at every turn. We don't spend our lives learning each new twist and turn of the financial markets, we spend our lives providing the goods and services that make the economy run, and when we save the money we are paid for that work, invest it in the markets as we are all advised to do, we deserve a fair and level playing field.

What I have seen since the advent of HFT is a more volatile and unpredictable market, with unpredictable 5% and larger swings in a single day - overall the growth of the market doesn't seem remarkably improved relative to the increases in the cost of living, even compared to 40 years ago. Volatility is risk, a negative value for the "typical" investor - dropping trade times from one minute to 10 milliseconds doesn't make up for that.

Re:Because the above wasn't clear enough for some

[Rockoon]

It's artificially pumping up the price of a transaction for the two endpoints

..eh? Do you even know what you are talking about?

..pumping up BOTH the bids and asks? Then doesnt the people that already had asks get their price?

It really doesnt seem that you know what you are talking about. The only way the HFT can get action is if they have the best bids and asks on the table. That means they have either improved on the existing prices, or picked up what the existing buyers and sellers had on the market. In the first case anyone looking to trade get better prices, and in the second case anyone that was previously looking to trade got the prices they asked for.

Re:Because the above wasn't clear enough for some

[Rockoon]

That doesn't happen since HFT - now it's all 10,000 shares @ 1.00

What you are observing is precisely what you would observe when all the players have a better overall idea of the current value of a stock. That is because the market is more efficient.

So HFT's are bad because the prices you see are less ignorant now? Think about it.

Re:Because the above wasn't clear enough for some

[dbIII]

WTF is it with deliberate failure of reading comprehension as some sort of weasel of a "mass debate" trick?
Here the important bit folks: "It's artificially pumping up the price of a transaction"
Now since I mentioned that there are two end points in the transaction the above piece of shit has decided to go for some drama and fake stupidity to try to confuse the issue and feel better about that good old claim salting American way where it's all fine until you get tarred, feathered and run out of town on a rail. Of course other people think the American way is about honesty, but those are just seen as suckers.

The man in the middle pushes in unwanted and takes their cut before the buyer and seller know what hit them. It's that simple. The details come down to a variety of tricks like spamming with fake trades then cancelling, but the object of each trick is to be the man in the middle before others can react. "Liquidity" is an empty copout when the buyer and seller are not even given a full second to find each other.

Re:Because the above wasn't clear enough for some

[Rockoon]

The man in the middle pushes in unwanted and takes their cut before the buyer and seller know what hit them.

You say this, but you don't show this.

That "man in the middle" had to beat the best price that was already there.

How do you get hurt while getting a better price?

omg I got paid more money than I otherwise would have... thats terrible!
omg I spent less money than I otherwise would have... thats terrible!

I mean seriously.. the only way you can have the reaction you are having is if you dont understand how trading works. When people pay less than they would have for a stock, that benefits those people. When people sell their stock for more money than they would have, that benefits those people. You seem to think that the HFT is causing the opposite, yet to the extent that that is possible does not require high frequency trading .. in fact it requires a completely different qualia .. it requires the entity trying to game the market in the manner that you (completely incorrectly) imagine HFT's to be doing to completely corner it. Cornering doesnt require HFT's.. HFT's actually mitigate cornering.

Prior to HFT's the spreads were larger. Study after study shows this to be true. The spreads are smaller... the HFT guy isnt taking an extra cut - he is reducing the cut that was already there.

Re:Because the above wasn't clear enough for some

[Procrasti]

5% swings sound like a great opportunity to profit which also stabilises the market.

Either way, the game theory of exchange operation clearly shows that all orders are of value... that each additional order can only improve on prices, or have no effect at worst.

People like you just complain that the market doesn't operate as you want it to... where prices are always fixed or increasing and the bid/ask spread always available in your favour.

No... the market should (and is) really be designed to serve the most money... because money is information... the most money provides the most information. It doesn't give two shits for a 'big time' trader like yourself.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

I call B.S. on the efficiency argument. For a reasonably sized purchase, the "inefficiency" of eating up the queue as it stands in a single transaction would often compensate the entire trade commission.

Trading commissions haven't decreased much in the last 10 years, but now, in addition to paying the broker, I also get to pay the sharks.

Same "efficiency tax" now applies on sell orders...

Re:Because the above wasn't clear enough for some

[JoeMerchant]

Circle back to the French Revolution, if you bothered to pay attention in classes like History.

Big money dumps a whole lot more than 'two shits' on the little people, and sooner or later, the sheer number of little people who are getting dumped on tips the balance against the small number of people who are holding the big money.

If big money can present at least a reasonable illusion of fairness, the backlash can be forestalled. When the masses of people are told "work all you lives, save money in the market where it can grow" and then see how their money shrinks in the market while big money grows...

And, 5% daily swings in a market that only makes an average of 5 to 10% forward progress per year isn't just a gambler's opportunity, it's also a gambler's risk. Invest for 10 years, but, depending on whether or not you got lucky on the day of investment and the day of withdrawal, you might get 11 years worth of planned returns, or 9. I thought that Las Vegas was the place to gamble....

Re:Because the above wasn't clear enough for some

[dbIII]

he is reducing the cut that was already there

To the clear disadvantage of the seller who would normally get that without a man in the middle disrupting the trade.

Re:Because the above wasn't clear enough for some

[Procrasti]

> And, 5% daily swings in a market that only makes an average of 5 to 10% forward progress per year isn't just a gambler's opportunity, it's also a gambler's risk. Invest for 10 years, but, depending on whether or not you got lucky on the day of investment and the day of withdrawal, you might get 11 years worth of planned returns, or 9. I thought that Las Vegas was the place to gamble....

And if you actually knew about investment you could profit everyday from the 5% daily swing... AND play a small role in dampening that swing...AND do better than just the base growth rate.

You need to learn Modern Portfolio Theory.

> Circle back to the French Revolution, if you bothered to pay attention in classes like History.

> Big money dumps a whole lot more than 'two shits' on the little people, and sooner or later, the sheer number of little people who are getting dumped on tips the balance against the small number of people who are holding the big money.

> If big money can present at least a reasonable illusion of fairness, the backlash can be forestalled. When the masses of people are told "work all you lives, save money in the market where it can grow" and then see how their money shrinks in the market while big money grows...

BLAH BLAH BLAH BLAH BLAH...

Yes, the rich get richer, the poor get the picture...

These are problems with WEALTH INEQUALITY... you deal with that problem DIRECTLY... but not by making markets less efficient.

Let markets do their job, solve wealth inequality (free markets can't solve this... it requires political will)... the free market is a distributed information signalling system... let it do its job.

I'm saying you're complaining about the wrong problem.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

And if you actually knew about investment you could profit everyday from the 5% daily swing... AND play a small role in dampening that swing...AND do better than just the base growth rate.

You need to learn Modern Portfolio Theory.

Sure, lots of people buy that book, how many of them make better than market average returns? Less than half.

If Modern Portfolio Theory actually existed (and I don't doubt there's something out there using that name), it will only work as long as it is an inside joke, once the majority of "the money" learns the best way to play the game, that way doesn't work any more. It's the same reason that monkeys painting newspapers and bulls taking dumps in a field consistently out-perform the best and brightest of Wall Street.

What I read you saying above here is that if the market is improving, the swings are getting dampened, but what I see in the historical record (no guarantee of future returns) is that, compared to the period from 1930 to 1970, the more modern "high speed trading" market has sucked balls.

I think the rapid access to quotes and information in general is a good thing, the competition in brokerage and reduced commissions are a great thing, but the high speed trading is costing (everyone who isn't "in" the HFT game) more than any marginal returns attributed to it.

Oh, and to circle back somewhere close to the topic of the thread- I know some "Bitcoin Traders"... these guys are playing at arbitrage, buying from one exchange and selling on another at a profit, and that kind of thing. They're taking big risks that all the players will make good on the contracts, execute in a timely fashion, not abscond with the funds, etc. but when things work as advertised, they're making nice profits.

And, to end the night on another tangent - if you can handle "classic" movies, there's a scene in "Key Largo" (Humphrey Bogart, et. al.) where two people are sitting at a bar, in the early 1900s, chatting about betting on the horse races... the parallels to "investing" in the stock market are astoundingly close.

Re:Because the above wasn't clear enough for some

[Procrasti]

Modern Portfolio Theory> is not a book, or a meme... It is taught at respectable universities.. It has limitations (and assumptions), of course... but someone who applies those principles will out perform (on average) someone who doesn't ceteris parabus (otherwise with the same initial conditions)... excepting maybe someone armed with an even better model of reality, and therefore wouldn't apply it.

Pretty much horse gambling theory applies to the stock markets and bitcoin arbiters too...

You can successfully do these things by applying the correct principles.

The fact that you have something better to do, or can afford to do, or can't afford to do, does not apply... If you make better returns doing something else, you should be doing something else.

> What I read you saying above here is that if the market is improving, the swings are getting dampened, but what I see in the historical record (no guarantee of future returns) is that, compared to the period from 1930 to 1970, the more modern "high speed trading" market has sucked balls.

Actually... I think maybe the price wanders within it's natural variance now... In the past, the prices may have been more stable... artificially... because people just kind of stuck with a price more... fewer of them, getting better returns on less liquidity.

Re:Because the above wasn't clear enough for some

[JoeMerchant]

Life, being about more than just money, leaves choices for the living. I'm glad that we don't all spend every waking hour attempting to optimize our personal returns out of the market, and that leaves room for people who do spend more time to get better performance.

If you could find an honest, hardworking, competent financial adviser to apply "the correct principles" to your investments (significant money, say, 10% of net income), do you think, after his necessary commissions to pay for his time invested in managing your money that the competent advisers' net return for you would out-perform, on average, a basket of index funds? Personally, I don't. But, personally, I've never met an honest, hardworking and competent financial adviser who also claims that they can, with any measurable reliability, out-perform random chance - all they can really do is give advice about risk and liquidity and charge you for it.

I've picked winners and losers over the years, stocks, options, funds, real-estate and a "grow trees in Costa Rica" boondoggle that currently looks like a total loss, or may yet turn out to be my best investment ever - time will tell, and it was money I was willing to put into an extreme risk. Funny thing is, in my experience, the high risk items average out to the same returns as the low risk items, and looking at my accounts over the long term, throwing all of my stocks, options and funds into a pool, my total ROI (10 year timescale) is almost always within +/- 2% of the same money invested into a S&P 500 or Nasdaq index.

It seems to me, un-necessary for investors working with multiple millions of dollars to vastly outstrip the smaller investors in terms of rate of return. Like Warren Buffet paying a lower effective tax percentage rate than his secretary. Small margins don't really matter, but when we're comparing 5% annual ROI to 20%, that's an unhealthily slanted playing field. I like the economy I grew up in, and the more I learn about the banana republics where 99% of the wealth is in 0.1% of the people's hands, the less attractive they are. Just look at Key Biscayne in Miami - it's being overrun by the wealthy from Columbia who are just so relieved that their children can play in the street without fear of kidnapping... the U.S. isn't close to that kind of wealth inequality, but I don't like it dismissed as a non-problem that we're headed in that direction.

Dogecoin

[Anonymous Coward]

As a currency Dogecoin's a joke, but as a community they've done some pretty cool things. Like donate their mined coins for resale to the tune of 30,000 dollars in a day for an animal rescue.
That was pretty impressive.

Re:Dogecoin

[gbjbaanb]

Dogecoin is different - its not a speculative 'currency' like Bitcoin wants to be.

Dogecoin knows this should not be taken too seriously, it also is an inflationary-based coin, ie you can always mine motre, so anyone who is hoarding coins will find their value falling over time (see bitcoin which was designed to become more expensive over time which encourages hoarding), and as a result means Dogecoins are meant to be spent.

So Dogecoin is the only true virtual currency as they are really used for simply, tiny transactions (eg reddits tip jar). Others like BC are corrupted by people thinking they can make a quick buck, or like NorrisCoin, run by scammers hoping to be top of a ponzi pyramid.

Re:Dogecoin

[edremy]

Dogecoin is different - its not a speculative 'currency' like Bitcoin wants to be.

Dogecoin knows this should not be taken too seriously, it also is an inflationary-based coin, ie you can always mine motre, so anyone who is hoarding coins will find their value falling over time (see bitcoin which was designed to become more expensive over time which encourages hoarding), and as a result means Dogecoins are meant to be spent.

So Dogecoin is the only true virtual currency as they are really used for simply, tiny transactions (eg reddits tip jar). Others like BC are corrupted by people thinking they can make a quick buck, or like NorrisCoin, run by scammers hoping to be top of a ponzi pyramid.

Actually, Dogecoin is still deflationary, just not as bad as all the rest. There are 100M Dogecoin in the first batch and ~5M/year afterwards. Since the number is fixed, the inflation rate goes down- it's 5% the first year, but only 2.5% 20 years from now. The world's GDP growth is running about 3%, so assuming that's constant (yeah, yeah) Dogecoin will turn deflationary in about 15 years and accelerate after that.

Godwin time

[Anonymous Coward]

Hitler started as a joke, was treated as a joke by the German political establishment of the time, but didn't remain a joke. If enough people take Dogecoin seriously, then what's to prevent it from overthrowing the reign of Bitcoin...which isn't to say that Bitcoin already rulez.

!bank

[Meneth]

As we have seen, keeping any amount of money at an exchange's account is a recipe for disaster. They can still be used, but only if you take care to move your money out of it as soon as possible.

Re:!bank

[QilessQi]

As we have seen, keeping any amount of money at an exchange's account is a recipe for disaster. They can still be used, but only if you take care to move your money out of it as soon as possible.

And yet, people keep their money in exchanges time and again, despite all the recent news and all warnings to the contrary. Why do you think that is?

Re:!bank

[Registered Coward v2]

As we have seen, keeping any amount of money at an exchange's account is a recipe for disaster. They can still be used, but only if you take care to move your money out of it as soon as possible.

The problem is the "exchange" really aren't exchanges. They do not simply facilitate transactions for a fee; rather they hold the Bitcoins, essentially creating their own short position. That works until people want real money for the Bitcoins they lent the exchange and they can't cover their position. Given Bitcoin's illiquidity they can't easily sell what they hold to cover withdrawals either. The ability to steal wallets compounds the risk since an exchange conceivably could not cover withdrawals in Bitcoin.

Bitcoin fanatics like to fantasize about getting rich and talk about their Bitcoin fortunes but until they can quickly and easily convert them to real money all they have is a bucket of bits and bytes.

Re:!bank

[Registered Coward v2]

As we have seen, keeping any amount of money at an exchange's account is a recipe for disaster. They can still be used, but only if you take care to move your money out of it as soon as possible.

And yet, people keep their money in exchanges time and again, despite all the recent news and all warnings to the contrary. Why do you think that is?

People are stupid.

Re:!bank

[QilessQi]

I'm not so certain about that, at least not in the case of people who are actively using Bitcoin (which does not include myself).

But I do think that people seek out the most convenient way of doing things, and unfortunately it appears that the most convenient places to keep a Bitcoin wallet are also the least-safe ones.

Re:!bank

[bluefoxlucid]

So this is how bitcoin goes out. Not with a whimper, but with a bang as poorly run brokerages short the living hell out of an inflating asset.

Re:!bank

[Xyrus]

As we have seen, keeping any amount of money at an exchange's account is a recipe for disaster. They can still be used, but only if you take care to move your money out of it as soon as possible.

Exactly. Exchanges are COMPLETELY UNREGULATED. There is nothing, absolutely nothing that prevents them from just closing up shop and taking the coins with them. This is exactly the same as walking up to a stranger on the street and handing them your wallet, and should have about the same trust level.

Keep transactions small, keep only what you absolutely need on the exchange, and move everything else out as quickly as possible. It never ceases to amaze me that people don't do this. They'll say "Oh it's too inconvenient to do that!" Well losing your coins is a hell of a lot more inconvenient in my opinion.

If you play fast and lose with your coins, expect to lose them.

Short selling is fine per se

[sjbe]

Short selling.. it is a scam especially 'naked' shots - where you bet on the price before you have the contracts in place.

Short selling is not a scam at all. In fact it is arguably very important to price discovery, providing a counterweight to excessive bullishness, ex-ante identification of asset bubbles and providing incentives to find fraud. Short selling in an of itself is just fine. That doesn't mean there aren't practical concerns that have to be addressed but the mere act of short selling certainly is not a scam.

Shorting is simply the act of selling something before you have bought it. Usually people buy something before they sell it but there is no fundamental reason it has to be done that way. In a short transaction you borrow the asset, sell it and then buy it back later and return it to the lender. The second order consequence of selling before you buy is that you tend to do it when you expect the price to fall because you want to sell high and buy low. Stock prices fall almost as often as they rise and there is no principled reason not to allow people to to bet on the directionality of stock prices. In fact when someone ends a long position, very often they are simply betting that the stock is going to fall. It's the same sale for the same reason, the only difference is that the buy occurred in the past instead of the future.

Now there are some practical issues that have to be addressed with short selling in order to have an orderly and reliable market. You are correct that an exchange whose procedures allow naked shorting to occur is asking for trouble because they can easily end up with a transaction that cannot be completed. It also opens a door to certain types of fraud. Naked short selling isn't illegal per-se because in some cases it isn't actually a problem but it's a type of transaction that tends to carry more risk than allowing it is worth.

Re:Short selling is fine per se

[Rockoon]

Naked short selling isn't illegal per-se because in some cases it isn't actually a problem but it's a type of transaction that tends to carry more risk than allowing it is worth.

But it should be illegal.

There have surely been millions, perhaps even billions of shorts that were both naked and unfulfilled by now. However we've set up the market so that nobody gets fucked in these cases... by the magic of simply pretending that they were fulfilled.

Sooner or later the numbers are going to have to add up. The entire system collapses on that day.

As in a debacle of Enronian proportions?

[rmdingler]

Track record this far is ... can I use enron as an adjective?

Perhaps you can, but perhaps not in regard to the Bitcoin. Enron used (and I mean used like a rented mule) accounting firm Arthur Anderson to audit and sign off on their creative bookkeeping to cover $billions (US) in losses to keep their operation afloat. They were able to corrupt a key step in the securities and exchange' system of checks and balances. Without A. Anderson's complicity, that house of cards would've fallen much sooner.

Bitcoin's strength and popularity rest with it's kinship to virtual cash with no ties to government. This is also it's weakness, as there is zero oversight.

Market making is just fine

[sjbe]

They are ACTING BEFORE Alice or Bob can which is why it is a TIME BASED man in the middle attack.

You are framing the issue in a way that isn't supported by the facts. What you are describing is EXACTLY the role a market maker plays. Market makers provide liquidity to the market by providing bid and ask (buy and sell) quotes and profiting on the difference between the two. Market makers are middle men who serve a useful role. There is nothing morally, practically or legally wrong with this. It is a practical action to create a liquid market. When it comes of market making HFTers who use market making strategies actually tend to reduce bid-ask spreads through competition which benefits Alice and Bob because both get better prices due to competition. It used to be that market making was provided by specialist firms but with HFT the role of specialist market makers is sometimes reduced.

There are some very real concerns regarding HFT but their (sometimes) role as a market maker isn't one of them unless we are talking about front running. Competition in market making demonstrably benefits buyers and seller by reducing spreads though competition. You WANT this to occur. Most high frequency trading has nothing whatsoever to do with market making and is really a form of statistical arbitrage based on news events and/or pricing models. They don't have or need privileged information the trade information and even if they do have such information so does everyone else engaged in HFT so any advantage they might have would be short lived and would benefit the traders at the end of the day anyway through reduced prices.

It's like having the first 50 spots in a queue

[dbIII]

So then, please explain to everyone all those quick bids with most of them cancelled before a human being could react? Nothing to do with manipulating the price by subverting the communications channel?

Re:It's like having the first 50 spots in a queue

[Procrasti]

Because the can only ever mathematically improve the bid/ask spread over them not existing at all.

You clearly don't understand the operation of an exchange, you just hear buzzwords like HFT and think oooohhh scary unknowns are bad!

Re:It's like having the first 50 spots in a queue

[dbIII]

Explain it then. How does just having a co-lo in a stock exchange add value to trades that were going to happen anyway to better financial advantage to the buyer or seller? How is it something other than equivalent to an exploit of those that didn't think to bribe the casino to let them use marked cards?

Re:It's like having the first 50 spots in a queue

[Procrasti]

Because the mathematics of an exchange state that every order is an improvement to what was available without it or it is irrelevant.n

The co-lo's allow them to act faster on the market book than those without... that efficiency means trades get matched faster, or at better prices.. for at least one party... the other only loses in that they didn't get the trade they wanted... and they shouldn't... because someone else actually made a better offer.

It's like arguing that you should be able to read last weeks newspaper and now is a good time to sell malaysian airways, you'll tell your stock broker via a letter and get the trade next week... and be disappointed that all these people with their new fangled internet trading got better prices when they got the news earlier...

HFT is just that exact same efficiency turned up several notches.

This is meant to be a technology website, where people see the value of applying technology to problems... but economics seems to be a really poorly understood subject here... it's a shame, because any understanding of economics shows that this is very good application for it.

Re:It's like having the first 50 spots in a queue

[dbIII]

So everyone wins according to you - of course ignoring the sucker that paid more for the shares than if they had time for direct contact and the sucker that sold at a lower price than if they had time for direct contact.
Your "last weeks newspaper" analogy is very misleading and insulting. Why not just be honest and admit it's a still legal loophole used to fleece people via being able to complete more actions in the same time?

Re:It's like having the first 50 spots in a queue

[Procrasti]

> Your "last weeks newspaper" analogy is very misleading and insulting. Why not just be honest and admit it's a still legal loophole used to fleece people via being able to complete more actions in the same time?

No, the analogy is apt. It's the normal operation and actual purpose of an exchange... If you're too slow to act, the information from the news release, represented in the price on the exchange, gets absorbed into that price, and you can no longer profit from it... The faster you can react, the more opportunity you have to 'correct' the price AND profit.

That is the way it SHOULD work.

HFTs do that every millisecond... I don't think you do it all.

Many HFTs not only decrease volatility, there are AI systems that 'read' the news and respond to it... Sure, Berkshire Hathaway Industry stock prices might temporarily become overvalued every time Anne Hathaway stars in a new movie, but those who know that can profit from it, and by profiting from it, fix the price... but the AI is profitable ON AVERAGE.. and therefore good... and a better AI that can solve this problem generally will be more profitable still!

> So everyone wins according to you - of course ignoring the sucker that paid more for the shares than if they had time for direct contact and the sucker that sold at a lower price than if they had time for direct contact.

If you studied exchanges, from a game theoretic point of view, or especially a free market theory point of view, the answer is clearly yes.

If there was some rule that somehow we could make the guy who bought too high last week, and the guy who sold too low today get together and come to an agreement at better prices for both of them... we would have punished the guy who, last week, at the right time, realised that the price was too high and sold, and we would have punished the guy who today, at the right time, realised the price was too low and bought! You can't help the first two EXCEPT by removing the opportunity for the latter two to have traded.

And we want more the of the latter two guys trading and less of the former ANYWAY... and this is actually what the market does...

So yes... everyone wins.

Re:It's like having the first 50 spots in a queue

[dbIII]

Funny how these HFT advocates like to pretend that timing does not provide an advantage.

Re:It's like having the first 50 spots in a queue

[Procrasti]

Not ONLY does timing provide an advantage...

IT DAMN WELL SHOULD!

Prices based on last week's information are less valuable than prices based on today's information... right up to instantaneous prices... and faster than light would be even better... we could know the price of bread next week... shame physics doesn't seem to allow us to do that.

Re:It's like having the first 50 spots in a queue

[dbIII]

shame physics doesn't

Shame that money has to be removed from someone's pocket. Why do you people persist in painting this loophole as being rainbows and unicorns making money by magic instead of pickpocketing?

BitCoin is not a Ponzi scheme

[OpenSourced]

What BitCoin is, is a money laundering vehicle. You buy bitcoins electronically with funds in a country, you sell them two seconds later in other country, for more or less the same price. You have not only extracted the money from the country, but deleted most traces of property. You probably have made a payment without looking like that, just with an e-mail.

The wild changes of valuation help you explain your sudden wealth, which is a problem when you get money from drugs or bribery. Hint: most bitcoin millionaires are really money launderers at big scale, their wealth suddenly legal by way of the bitcoin wizardry. They are taking advantage of the computer illiteracy in governments, but as the scheme is used by more and more people, the loophole is being slowly closed.

As for the closed exchanges, they most likely are stealing the bitcoins themselves, safe in the difficulty of anybody proving anything within such convoluted software schemes, specially when the damages are to people of so many different countries, with their own reasons not to raise too big a fuss about it.

Re:BitCoin is not a Ponzi scheme

[bluefoxlucid]

I think all the money laundering laws should come off the books. For example: having to report any transaction over $10k or any "suspicious" transaction like $9.99k transactions or two $5k transactions. Having to declare cash. And so on.

Re:BitCoin is not a Ponzi scheme

[Anonymous Coward]

Blah blah blah, whatever.

Nope

[Sockatume]

Alice, Bob and Speedy all know exactly where their transaction is going. It's classic arbitrage: whoever can identify an inefficiency and figure out how to place him/herself in a place to exploit it, wins.

The jury is still out

[sjbe]

The question I always like to ask about HFT is - If we ask ourselves what the economic function of exchange platforms is, what value does it add to the system?

That's a very good question for which all the answers are not yet clear. HFT does clearly provide some pressure in some cases to reduce bid-ask spreads which reduces costs for traders. It also may act to correct pricing inefficiencies more quickly which is demonstrably beneficial in some ways. In principle HFT is not doing anything that doesn't happen without it, albeit at a much slower rate. Arguably if it is fine slower the speeding things up should, in principle, not be a problem. In practice the jury is still out. Personally I think that HFT needs to be watched VERY carefully though I'm not optimistic this will happen until some disaster occurs. I don't see a problem with it in principle but there are some potential practical and fairness issues that worry me.

It seems to me that the fact that HFT is possible at all is a bug in the system. It is exploited by nefarious quasi-criminals, destabilising and creating distortions in one of the fundamental tools of our current economic system.

I think you are losing your objectivity here. You hint at some unspecified "nefarious quasi-criminals" but that's just FUD. There are practical arguments you can make against HFT but vague assertions of some criminal cabal engaged in unspecified activities to "distort" the economy is pointless scaremongering with little to back it up.

Most HFT is simply a sort-of clever attempt at arbitrage based on news or statistics. Nothing wrong with that in principle. That happens in pretty much every market even without HFT being involved. The relative speed of it in and of itself isn't objectively a problem. The question is whether the actions required to engage in HFT are causing practical or destabilizing problems for the marketplace. There is some evidence (such as flash crashes) that HFT might be introducing some new risks to the system which is certainly worthy of concern. There also are concerns that some parties are being given a privileged position in the market that they do not deserve since you or I as investors obviously cannot engage in HFT.

Re:The jury is still out

[Antonovich]

It seems to me that the fact that HFT is possible at all is a bug in the system. It is exploited by nefarious quasi-criminals, destabilising and creating distortions in one of the fundamental tools of our current economic system.

I think you are losing your objectivity here. You hint at some unspecified "nefarious quasi-criminals" but that's just FUD. There are practical arguments you can make against HFT but vague assertions of some criminal cabal engaged in unspecified activities to "distort" the economy is pointless scaremongering with little to back it up.

Completely fair point, though this is /. and a certain amount of emotion-based subjectivity is expected :-).

Most HFT is simply a sort-of clever attempt at arbitrage based on news or statistics. Nothing wrong with that in principle. That happens in pretty much every market even without HFT being involved. The relative speed of it in and of itself isn't objectively a problem. The question is whether the actions required to engage in HFT are causing practical or destabilizing problems for the marketplace. There is some evidence (such as flash crashes) that HFT might be introducing some new risks to the system which is certainly worthy of concern. There also are concerns that some parties are being given a privileged position in the market that they do not deserve since you or I as investors obviously cannot engage in HFT.

This is what I was trying to highlight. While I'm definitely not an economist, I think that's almost an advantage - I'm not blinded by the trees and can (attempt to) look at the forest. The crux to me seems to be the purpose of exchanges and arbitrage - to facilitate the efficient/optimal transfer of goods and services between individuals and/or corporations. We have sellers who have a product to sell, and buyers who want to buy said product. It is a system that (hopefully) allows us to do this in the optimal way, making sure the parties exchange at fair market value. What we shouldn't do is forget that there are real entities who are producing and consuming real goods. HFT (and many other practices and instruments) seem to me to be fundamentally parasitic - i.e., they extract value from the system without providing any back, and occasionally (often?) create distortions that positively impede efficient exchange. It is making money off certain aspects (faults?) of the system, and not contributing to the task at hand, which is making sure producers and consumers get the best price. Organisations may claim that X instrument will add Y desirable quality to the system but I doubt anything remotely resembling reasonable evidence is usually provided. Credit default swaps anyone?

Any systems we devise will have flaws that can be exploited but that doesn't mean we can't use common sense (in this case regulation) to make sure that the original goals of the system are maintained. I think of it like spam - a very useful system is there and with technology it is very easy to extract wealth from it without providing value. We have laws against spam, I don't see why we don't have better laws to stop gaming the financial system. You may counter that spam laws don't work very well and there are a lot of grey areas, and to that, alas, I have to agree.

No currency has intrinsic value

[sjbe]

Bitcoin by itself has no intrinsic value. It only has value because people decide it should.

No currency has "intrinsic value" and every asset only has value because people decide it should. Intrinsic value in finance refers to the value of something independent of its market value. Currency has no value independent of its market value and therefore by definition cannot have any intrinsic value. Doesn't matter if it is bitcoin, dollars or gold when used as a currency it cannot have intrinsic value.

Information has value.

[Anonymous Coward]

That this "Speedy" expends effort to know about the desires of "Bob" and "Alice" is not something to condemn. It might be that without them both Bob and Alice might lose.

Not a coward... Albert Turner.

[Anonymous Coward]

I saw no labeled spot to say who I was.

Not complicated

[sjbe]

Is it news because the final Goxing finally came, and Slashdot editors have an agenda to keep bringing up articles on the smallest negative event happening to anyone somehow related to Bitcoin?

The agenda of the slashdot editors is simple. To attract readers and comments. Articles on bitcoin seem to accomplish that agenda.

Name a POTUS who did.

[Anonymous Coward]

The closest I can come is Eisenhower but even that's a stretch.

In other news

[superwiz]

my local bakery shop went bankrupt because of employee fraud. Is it time to rethink the institution of purchasing bread?

No, it really isn't.

[Anonymous Coward]

No, if people stopped trading shares of Apple stock it would still be worth a percentage of the assets that Apple owns. Shares in a company represent ownership of any assets the company owns. Which is why back in olden times there were stocks that were guaranteed to show a profit because they had more assets on hand than was accounted for by the cap.

The price for Apple stock would remain at whatever the last trade was until such a time as somebody traded some shares.

As for believers, they're morons. I mean quite honestly, the whole thing is set up in such a way that it was never going to work. It's designed to be massively deflationary, the people advocating for it are mostly people that got in early and have a vested interest in getting suckers to buy in so that their bitcoins don't become worthless.

How is fractional banking Bitcoin's fault?

[Anonymous Coward]

Practitioners of fractional banking have screwed up lots of currencies, not just Bitcoin... don't throw the baby out with the bathwater.

Spooks in the wire

[ralphaostrander]

Were able to kill this with ease.

HFT is even cleverer than that!

[Anonymous Coward]

It is even worse:

Speedy looks at Alice's trading and thinks she might be wanting to buy, right at this moment. Speedy buys from Bob, and offers the shares to Alice at a markup. If Alice's order did indeed go through, she won't ever know about Bob and Speedy makes a small profit. But, if Alice's order didn't come through (didn't finalize, or whatever) then Speedy gets a rough deal as the shares bought from Bob are now a risky position. Well, no matter, because Speedy is right inside the transaction system and he just backs out of the transaction with Bob! Yes, Speedy now never did buy the shares from Bob, in fact, Bob knows nothing of this "Schrodingers Transaction".

So, by being the fastest trader in the exchange, Speedy takes a profit on the right transactions, and turns back the clock on failed transactions.Sounds like free money? It is, as long as you are the fastest one. When that new kid Zippy comes along with even less latency he quickly takes over the 'hood, and Speedy gets taken to the cleaners until he forks over a couple hundred million for a shorter connection to the exchange.

That, in a nutshell, is HFT.

Its blows my mind

[Anonymous Coward]

So almost everyone that is commenting really doesn't understand bitcoin at all.
Interesting given that this is Slashdot.
Would have thought there would be some critical thinkers here who would apply some of that mental prowess and research skills to learning what bitcoin is and isn't.

I have a hard time understanding why a supposedly bright group of individuals can't see the benefit of a friction less financial network.

I mean the bitcoin network is to finance what the internet is to the flow of information ... friction less, free, open .. open development at the edge. No barriers to entry into the network. I mean it literally is The internet of finance. I would think of all places that people on Slashdot would get it .. but I guess you guys get duped by the MSM too...

You do not know what a Ponzi scheme is.

[pupsocket]

You do not know the differences among Ponzi schemes, speculative investment, and currency.

You lack the elementary comprehension of the matters you so vehemently lecture others about.

You keep describing speculative investment and calling it a Ponzi scheme. A Ponzi scheme involves paying returns to earlier investors from the contributed capital of later investors, while misrepresenting the returns as new funds generated by the successful performance of financial investment. Bitcoin does not pretend to be a performing investment. It holds itself out as a marker in limited supply worth whatever equilibrium of value it holds among the collective traders who independently adopt it as a currency. You might think this scheme mad. You might argue that it could only be a fraud. But it is not remotely a Ponzi scheme.

By pretending to know what you're talking about when describing a Ponzi scheme, you are just shouting down others while you have nothing worthwhile to say on the subject.

You might eventually have something of value to say, but not until you stop polluting your analysis with false claims of superior knowledge.