MIT May Help Lead Bitcoin Standards Effort

gthuang88 writes: With everyone from PayPal merchants to Rand Paul starting to accept Bitcoins as payment, the race is on to develop technical standards for the virtual currency. Now MIT Media Lab director Joi Ito is getting ready to unveil a plan for MIT to become an independent, neutral home for standards development. Ito is enlisting cryptographer Ron Rivest and economist Simon Johnson to help with the effort, which could provide an academic alternative to the Bitcoin Foundation for conversations about the currency's future. Ito says, "I’m not pushing it, but I’m offering MIT as a neutral academic home for some of the conversations and the technical coordination. Which I think will give a lot more stability to Bitcoin, which right now is a little bit fragile."

Comments

"everyone from PayPal merchants to Rand Paul"

[Anonymous Coward]

1) I'm a "Paypal merchant" and I'm not accepting them;

2) Of course Rand Paul accepts them. He's just the kind of clueless that would. Yay let's go back to C18 banking! everyone was so rich and everything so stable.

Re:"everyone from PayPal merchants to Rand Paul"

[TWX]

I see Bitcoin having a twofold problem. First, a Bitcoin in of itself has no real-world value. Certainly it costs money and/or resources to create, but once created it has no worth of its own, its only worth is that of exchange. Second, it doesn't have any strong central backer with an authority to reinforce it like national currencies do.

All other currencies have at least one of these characteristics satisfied. Fiat currency is supported by a government. Not-government-supported currency like gold has value besides its means as an exchange rate. Bitcoin has neither. Right now it has some vigorous supporters, but those are truly very, very few in number, and my guess is that large entities that have chosen to accept Bitcoin do so for the purposes of engaging that community, and are well aware that there's risk that Bitcoin could come completely crashing down and the fees they've collected in Bitcoin could be completely worthless at any time.

Bitcoin is a nice experiment, but given all of the highly publicized thefts with the only prosecution seeming to be for government officials that got caught using their offices to get access to do the stealing, I don't think that Bitcoin as it is now will be the future. It might help direct us to where to go, but it is not the end result.

Re:"everyone from PayPal merchants to Rand Paul"

[itzly]

Fiat money also has no real value. Just like bitcoin it is based on trust, not on authority or enforcement.

Not-government-supported currency like gold has value besides its means as an exchange rate

Gold doesn't have much real value either.

Fiat currency is supported by a government

Didn't work well for Zimbabwe, or Weimar republic. Ultimately, fiat currency is simply based on trust that it will be accepted by others tomorrow like you accept it today. The government can help to provide stability, but the trust comes from the bottom, and can't be enforced when it's failing.

Re:"everyone from PayPal merchants to Rand Paul"

[PRMan]

I disagree. Bitcoin has major value in sending money worldwide without fees. Also, it can be used with only a cellphone and an account. Bitcoin could revolutionize 3rd world involvement in the world economy without the blockades that banks have traditionally put in their way.

Right now, Bitcoin is the only way to send money to Wikileaks or mega.co.nz. If you believe in free speech without the government bankrupting foreigners even before a trial just because the banking industry or the MAFIAA doesn't like them, then you should be pro-bitcoin.

Re:"everyone from PayPal merchants to Rand Paul"

[gox]

Bitcoin is an experiment in getting people to agree on something (be it notarization, settlement or just exchange value) without the need for a central enforcer.

It's not a bug, it's a feature, i.e. you won't see Bitcoin bombing children to "reinforce" the position of its currency. No one should be surprised that this brings many limitations with it.

So no matter what the majority of Bitcoin community thinks, it's a collective experiment and will always depend on actions that are just for the sake of it succeeding. Network effect just won't cut it. Fortunately, there is a lot that makes sense in leaving behind central enforcers and decision makers.

Another problem I find in your analysis is, publicized thefts and the mechanics of Bitcoin are completely separate. There is plenty of way to go, but the currently lacking advancements in these areas are naturally complementary.

Re:"everyone from PayPal merchants to Rand Paul"

[TWX]

That is the real-world value of bitcoins: Access to the Bitcoin network.

That is completely self-referential.

Re:"everyone from PayPal merchants to Rand Paul"

[itzly]

Fiat money is self referential too. You only accept it as a form of payment, because you know others will accept it from you.

Re:"everyone from PayPal merchants to Rand Paul"

[TWX]

At one point, Spanish "pieces of eight" was the de-facto world currency, even though they were not really controlled by the Spanish at all. You still saw wholesale slaughter if not outright genocide when that was the standard.

Fact of the matter is, if a group wants something that another group has badly enough, they'll engage in violence to get it. The particular medium of exchange won't make a damn bit of difference.

Re:"everyone from PayPal merchants to Rand Paul"

[itzly]

The industrial use of gold is fairly small on the total gold market. Most of the value comes from people's desire to possess it, and people like to possess it because it's valuable.

If it was just for the industrial use, the price of gold would be a lot lower.

Re:"everyone from PayPal merchants to Rand Paul"

[Anonymous Coward]

Uh I don't know what backwater banking system you have, but I can transfer funds internationally for free. It's harder to convert currencies for "free", but the bitcoin spread is non-zero too.

Don't know what the fuck you're on about with Wikileaks - there are many ways to send money to it. As for mega, why the fuck would I be sending multimillionaire Kim Schmitz anything?

Re:"everyone from PayPal merchants to Rand Paul"

[TWX]

There is a difference though, in the form of ubiquity. There have been attempts to use scrip through the years; there are cases where towns and cities will issue scrip when one uses parking meters that can be redeemed in lieu of dollars at participating vendors, and times where the US government has used scrip in warzones to reduce the proliferation of funding for nefarious purposes, and even sometimes businesses in a common area will attempt to use scrip to encourage return visits because that scrip is only redeemable in that area, but in the end, it's not widely enough accepted to last. Even when Wildcat Banks whose intent was to be universally accepted issued their own notes before the establishment of a central banking authority in the United States there were lots of problems; banks could go under and their notes would become worthless in the holders' hands.

We've watched Bitcoin jump all over the damn place. We've seen numerous scandals involving theft of what's considered to be a lot of money, using the very structure of the system as the means to orchestrate the theft. Bitcoin is not mature enough to be used as a true replacement currency.

Re:"everyone from PayPal merchants to Rand Paul"

[itzly]

Bitcoin is not mature enough to be used as a true replacement currency.

I don't think it will ever be used as a true replacement currency. At best, it will be an alternative currency, existing in parallel, and used for the some applications in which it works better. I've done some programming jobs for people in other continents, and got paid in bitcoin, and then used those bitcoin to order stuff from another continent. All in a matter of minutes, with very little overhead. I could have used wire transfers, but they take several days, and can be costly. I could have used paypal, and pay a substantial fee. So, bitcoin worked nicely for this application. However, I don't expect to be paying my rent in bitcoin at any time.

Re:"everyone from PayPal merchants to Rand Paul"

[CaptBubba]

Dollars have the value of being able to pay off your US Govt (and state) tax/tarriff/whatever obligations. Even if you barter bits of string in exchange for a chicken the chicken seller will need to convert some of that string into dollars to pay off their tax bill. Even if everyone switched to using something else day to day they would have to convert a whopping $3 trillion a year to pay off their government debts. So as long at there exists economic activity in the US which requires taxes the dollar will have some sort of value.

Then of course there are myriad other benefits to the dollar such as taxes are a heck of a lot easier to calculate for a transaction executed with dollars, the US court system basing judgements and awards in dollars, everyone in the US (and most trading partners in the world) having/accepting them which leads ease of use, etc.

Could the dollar go away or become worthless tomorrow or in a year? Perhaps, but any event of sufficient magnitude to completely wreck the value of the dollar in a short time would pretty much nuke (perhaps literally) the world economy. But I'd put better odds on someone breaking SHA-256 or figuring out a catalyst allowing extraction of gold from seawater. Also

Re:"everyone from PayPal merchants to Rand Paul"

[gox]

What I said does not have anything to with people using Bitcoin in their morally questionable endeavors.

I however said that Bitcoin does not require a centralized power's backing. Not only that, it is allergic to that sort of thing.

You can buy a gun with Bitcoin and kill a man. However, using it by itself does not require guns or killing.

Re:"everyone from PayPal merchants to Rand Paul"

[Pinky's Brain]

You need fiat money to pay taxes, there are people with guns who make you pay taxes.

Re:"everyone from PayPal merchants to Rand Paul"

[Pinky's Brain]

Bitcoin doesn't need centralized power, but it does allow it ... and has created it.

You use bitcoin at the mercy of the majority miner.

Re:"everyone from PayPal merchants to Rand Paul"

[ArcadeMan]

However, I don't expect to be paying my rent in bitcoin at any time.

Of course not. That would be stupid. You need Rentcoins for that.

Re:"everyone from PayPal merchants to Rand Paul"

[goose-incarnated]

Fiat money also has no real value. Just like bitcoin it is based on trust, not on authority or enforcement.

It has value in its jurisdiction. Try refusing to accept settlement of a debt in your local currency and see what happens.

Fiat currency is supported by a government

Didn't work well for Zimbabwe, or Weimar republic.

Neither did elections. Doesn't mean that they are a bad idea.

Ultimately, fiat currency is simply based on trust

Nope. Bitcoin supporters frequently make the mistake that all something needs to be a currency is trust. This is not true. It needs a sovereign government backed by men with guns who will force you to pay your bills only in that currency or face punishment. That is what ultimately makes a currency. Not trust. Since the invention of coinage there has never ever, not even once, been a currency based on trust.

Re:"everyone from PayPal merchants to Rand Paul"

[goose-incarnated]

Fiat money is self referential too. You only accept it as a form of payment, because you know others will accept it from you.

Not self-referential at all - I accept it as a form of payment because I can pay taxes with it. I "know" others will accept it for settlement of a debt because if they refuse they forfeit the debt.

Re:"everyone from PayPal merchants to Rand Paul"

[diamondmagic]

Since the invention of coinage there has never ever, not even once, been a currency based on trust.

This is absolutely not the case.

As little as 200 years ago, there were many competing currencies, typically backed in gold. There was even merchant's associations and regular publications on how much you should discount certain bank's currency because the redeeming bank was far away, or not as trustworthy. Wikipedia has a whole catalog of these notes.

Re:"everyone from PayPal merchants to Rand Paul"

[goose-incarnated]

Since the invention of coinage there has never ever, not even once, been a currency based on trust.

This is absolutely not the case.

As little as 200 years ago, there were many competing currencies, typically backed in gold. There was even merchant's associations and regular publications on how much you should discount certain bank's currency because the redeeming bank was far away, or not as trustworthy. Wikipedia has a whole catalog of these notes.

These are all bills/scrips backed by banks/companies, further backed by gold... how do you figure they were based on trust? Seems to me that a currency based on gold is not based on trust.

Re:"everyone from PayPal merchants to Rand Paul"

[diamondmagic]

There's a chance that the bank wouldn't be able to redeem the note, because of fractional reserve banking.

Besides other reasons for discounting notes at purchase time, like fake notes, or loss, or the bank being very far away.

Re:"everyone from PayPal merchants to Rand Paul"

[radarskiy]

"Fiat money also has no real value"

Even in the worst case, the value of fiat money is backed by a) the willingness of the issuing government to accept payments in that currency in lieu of using their monopoly of force to take your possessions, b) the willingness of the issuing government to prosecute as a criminal theft the appropriation of another's fiat money, and c) the effort individuals are willing to expend in stealing.

Re:"everyone from PayPal merchants to Rand Paul"

[kipsate]

Bitcoin in of itself has no real-world value

Some economists such as Carl Menger make a compelling argument that there is no such thing as "intrinsic value":

Principles of Economics by Menger, 1871
"Value is thus nothing inherent in goods, no property of them, nor an independent thing existing only by itself. It is a judgement economizing men make about the importance of goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men."

A crude way of interpreting this is coming to the realization that if all humans were dead, nothing would have any value left. Value thus exists because humans assign value to goods, but value is not an intrinsic property of any good itself.

it has no worth of its own

That is false - the market value of a bitcoin is USD 236 currently. This value is established through supply and demand. The demand is created because value is assigned to bitcoin for various reasons:

- Speculative: people are buying and holding on to bitcoin because they believe its price will rise in the future;
- International money transfers: bitcoin can be used to do cheaper cross border money transfers. This is currently mainly useful in remittance markets where Bitcoin based remittance startups offer lower prices than for instance Western Union and MoneyGram;
- Trading: people who like to trade currencies and currency derivatives can do so very easily using bitcoin. This happens a lot in China;
- Payment processing: companies such as Coinbase and BitPay let merchants accept bitcoin at significantly lower costs than accepting credit cards or PayPal. These benefits are sometimes handed back to the buyers in the form of discounts, which in turn increases the demand for bitcoin.

it doesn't have any strong central backer with an authority to reinforce it like national currencies do

This is the entire point of Bitcoin - it can not be manipulated by a central authority. This is exactly where bitcoin derives its speculative value from - the believe that a currency that cannot be manipulated (by means of unpredictable inflation or by manipulating interest rates) is a better form of currency than existing fiat currencies.

Right now it has some vigorous supporters, but those are truly very, very few in number

Citation needed. Hundreds of millions of venture capital and hundreds of bitcoin companies say otherwise.

Re:"everyone from PayPal merchants to Rand Paul"

[goose-incarnated]

There's a chance that the bank wouldn't be able to redeem the note, because of fractional reserve banking.

Besides other reasons for discounting notes at purchase time, like fake notes, or loss, or the bank being very far away.

That's trusting that the bank has your gold/commodity. Like the bitcoin supporters keep saying - mtgox is not bitcoin and bitcoin is not mtgox. In the same way, the bank is not gold and gold is not the bank. A currency based on gold is one based on MIStrust, because you don't trust the issuers bill and insist that their bill is backed by gold.

Currencies backed ultimately by gold by some bank are most definitely NOT backed by "trust". If you trusted them you wouldn't need the gold. Once again, I reiterate - since the invention of coinage no currency has existed that is based on trust. Not a single one. I fail to see why BTC, based soley on trust, will succeed. Even as an experiment, all it has shown thus far is that we have been inadequately teaching economics.

Re:"everyone from PayPal merchants to Rand Paul"

[gox]

Who is the majority miner?

Re:"everyone from PayPal merchants to Rand Paul"

[sanvila]

Indeed. We have been inadequately teaching economics. Fiat money is mostly backed by a debt of the same amount. For every $ I have at the bank, somebody owes 1$ to the bank. So, my money at the bank is as "real" as the debt backing it. I trust that my bank will be able to recover the value of an unpaid debt, and this is the reason why our banking system mostly works. By contrast, the value of 1 BTC is backed by nothing, because nobody "owes" me its value, and that's the reason its value may be $500 one day and $1000 another day. Calling this "money" is a joke.

Re:"everyone from PayPal merchants to Rand Paul"

[QilessQi]

People also like to possess it because it is rare and you can make beautiful jewelry from it, some of which is traditionally made from gold.

Re:"everyone from PayPal merchants to Rand Paul"

[DanielRavenNest]

> First, a Bitcoin in of itself has no real-world value.

Neither does a UPS shipping label. It's the network of trucks and distribution centers that give the shipping token (the label) value. They are what enable moving a package from one place to another. That's a useful service, and hence people are willing to pay for the label.

Similarly, a bitcoin is merely an entry of 1.0000 units in a big distributed ledger (the block chain). It's the network of relay nodes and miners that give the bitcoin token value. They are what enable moving monetary value from one place to another. That's a useful service, and hence people are willing to pay for the tokens. Other parts of the ecosystem add more usefulness, and thus more value. Websites, wallet software, custom hardware, smartphone apps, exchanges, merchants who accept bitcoin, etc.

The transaction protocol also includes a scripting language, so you can make your money programmable. How useful is that? People have only touched the surface of what you can do with that capability.

Re:"everyone from PayPal merchants to Rand Paul"

[DanielRavenNest]

> That is completely self-referential.

Nope. A "bitcoin" unit is just an entry of 1.0000 in the transaction ledger known as the "block chain". The block chain is just a bunch of files listing every bitcoin transaction ever. My copy is 36 GB at the moment.

The Bitcoin Network is what makes it possible to write new transactions into the ledger in a secure way. Secure means nobody can rewrite old entries in the ledger, and everybody can verify the contents are correct. Only the person with the private cryptographic key to an address can send the balance in that address to someone else. Without the network, the ledger could not be updated, making the balances recorded there useless.

Re:"everyone from PayPal merchants to Rand Paul"

[Anonymous Coward]

I agree, inadequate teaching. Hence, you confusing "fiat money" and "reserve banking".

Governments issuing currency, and banks giving/taking bills as part of fractional reserve banking, are two different things. So no, fiat money is not mostly backed by a debt.

Re:"everyone from PayPal merchants to Rand Paul"

[diamondmagic]

Currencies backed ultimately by gold by some bank are most definitely NOT backed by "trust".

Apparently we're misunderstanding the meaning of "trust". Trust is never something you can literally "back" a currency by. You can't walk up to a teller, hand them a note, and say "I'd like to redeem my 4 utils of trust, please."

Trust is one of the components that determines the value of a money - all money. It can be measured as a probability. Especially money backed by a commodity, since it's effectively an IOU: the value of the note is going to be roughly the same as the value of the debt listed on the note (e.g. "one ounce of silver"), times the amount of trust in the issuer (i.e. the probability they they will fill their obligation).

This is no different than buying/selling debt. I might have an IOU for $100, and I sell it for $80 because there's a small risk that the debtor will default.

Even if it was gold or silver coin, you have to "trust" that the precious metal content in the coin is actually the amount marked on the coin. Historically, mints have been known for debasing their currency, by reducing the precious metal content below its marked value (the origin of the term "inflation"), or shaving off the edges of the coin (why most coins now have ridged edges, even today).

Re:"everyone from PayPal merchants to Rand Paul"

[Canth7]

Bitcoin is indeed a nice experiment - one that has withstood attacks for 6+ years now. As far as vigorous supporters being few, this is true - however it is a slowly increasing number. Despite the negative press covering thefts and a recent decline in price, Bitcoin transactions per day are at a record high.

http://www.coindesk.com/data/bitcoin-daily-transactions/

One thing that Bitcoin detractors like to bring up is comparing BTC against USD with the 'you have to pay your taxes in USD' argument. I have no expectation that BTC replaces USD anytime within the next 20 or more years. However, it doesn't have to - BTC has value because it's more useful than the USD in a number of ways.

BTC is primarily used in manners that push the envelope of allowed activity. This includes illegal activity such as purchasing drugs, credit card data or other such flat out illegal transactions. However, it also includes legal transactions that are merely frowned upon by certain elements of society. As an example, BTC is more useful than the USD/Credit Cards/PayPal in most targeted industries listed here:

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

Investors may not like it, but this is what gives BTC most of the value it has today.

Re:"everyone from PayPal merchants to Rand Paul"

[Lennie]

"people also like to possess it because it is rare"

That is what Bitcoin also garantees, it's rare.

You can precisely known how many Bitcoins there were, are or will be at a certain time.

Re:"everyone from PayPal merchants to Rand Paul"

[QilessQi]

About the "make beautiful jewelry from it" though... not so much.

Re:"everyone from PayPal merchants to Rand Paul"

[Lennie]

For the few equity traders that buy Bitcoin that it is rare and that the Bitcoin economy is going to grow is enough. They just buy some Bitcoin and hold on to it.

Re:"everyone from PayPal merchants to Rand Paul"

[Hognoxious]

John Galt.

Re:"everyone from PayPal merchants to Rand Paul"

[QilessQi]

For the few equity traders that buy Bitcoin that it is rare and that the Bitcoin economy is going to grow is enough. They just buy some Bitcoin and hold on to it.

I'll just leave this here:

Value of Bitcoin over the last two years

Re:NSA wants its baby back...

[technosaurus]

[sarcasm] Great!!! [/sarcasm]
We need more standards like X11.

Aaron Schwartz

[Anonymous Coward]

I’m offering MIT as a neutral academic home for some of the conversations and the technical coordination.

Is MIT going to be extending the same "neutral" academic collegiality to the fiercely independent Bitcoin community which it so notably extended to the free-thinking Aaron Schwartz. If the Justice Department or other government agency starts seriously investigating Bitcoin, are we seriously expected to believe that MIT will have the currency's back?

If this passes without comment, we'll be better off with Dogecoin.

Re:Aaron Schwartz

[ArcadeMan]

And you can even get free Dogecoins by using the second link in my signature!

Re:Gold/Silver the only real money

[Pinky's Brain]

What that intrinsic value might be is anyone's guess.

My guess, the price of gold denominated in rolls of toilet paper will plummet by multiple orders of magnitude if society collapses ...

Neutral Academic Home

[Anonymous Coward]

Aaron Swartz might have a different opinion.

Bitcoin's lack of fees is temporary

[perpenso]

Bitcoin has major value in sending money worldwide without fees.

Bitcoin's lack of fees is temporary. As the awards for mining become less and less miners will need to make more and more off of transaction fees. Miners are essential to the Bitcoin ecosystem, they don't just generate new coins, they also create and validate the block chain. Without sufficient miners the block chain becomes untrustworthy and the system collapses.

As block awards diminish and mining hardware and overhead costs increase fees will have to increase.

Accepting bitcoins is NOT holding bitcoins

[perpenso]

Merchants can "accept" bitcoins without ever seeing or touching a bitcoin. Doing all their pricing and accounting in fiat, receiving only fiat.

They simply contract with a 3rd party bitcoin exchange that provides a payment address to the user, accepts the coins, converts to fiat and pays the merchant. The exchange operates like the credit card companies, processing the buyers payment.

Re:Accepting bitcoins is NOT holding bitcoins

[perpenso]

You are confusing people trading and using online wallets at exchanges with merchant services at an exchange. They are two very different things.

To get familiar with the sort of thing I am discussing see https://www.coinbase.com/clien...

Re:Accepting bitcoins is NOT holding bitcoins

[Antique Geekmeister]

The "merchant services" have turned out to be very difficult to manage without an online wallet, so I'm afraid they've blurred the "distinction" themselves.

Re:Accepting bitcoins is NOT holding bitcoins

[perpenso]

The "merchant services" have turned out to be very difficult to manage without an online wallet, so I'm afraid they've blurred the "distinction" themselves.

You seem to misunderstand the merchant services I am referring to. A merchant does not need an online wallet. The merchant never sees or touches a bitcoin, the payment address is the exchange's, the exchange pays out the merchant daily in fiat.

Re:Accepting bitcoins is NOT holding bitcoins

[Antique Geekmeister]

I'm afraid I do understand it. The whole point of the "merchant services" apps are to allow the merchants to handle payment in Bitcoin. I'm staring right at 20 or so "merchant services" for precisely such use at https://en.bitcoin.it/wiki/How....

Many of the apps seem to be horrible, and send far too much information to central money exchanges, many including online wallet systems, which should not be trusted. The overlap of such tools with online wallets is as unsurprising as in-store credit cards, and I'm afraid that due to their novelty and lack of regulatory awareness many are quite flawed if not outright corrupt.

Re:Accepting bitcoins is NOT holding bitcoins

[perpenso]

Perhaps you should look at the link I provide and note its a professional operation being used by various large corporations.

https://www.coinbase.com/merch...

Re:Accepting bitcoins is NOT holding bitcoins

[Antique Geekmeister]

Yes, perhaps you should read the "About" page at https://www.coinbase.com/about where they describe themselves as "a bitcoin wallet and platform where merchants and consumers can transact with the new digital currency bitcoin". So they've blurred the lines between a pure 'merchant service' and a bitcoin wallet, just as I described.

Being "professional" does not mean a company is legal or ethical, anymore than being rich does. Silk Road and MyCoin were "professoinal", and quite well known, and now are facing various well earned criminal prosecutions. Being bitcoin based did not make them criminal, but the bitcoin sub-economy doesn't have the historical regulations and protections real currency has, so the abuse is very real and not surprising at all.

Re:Accepting bitcoins is NOT holding bitcoins

[perpenso]

The fact that an exchange offers both online wallets and merchant services means nothing. Two different services, as your own quote points out they provide services to *both* merchants and consumers. What a consumer does on an exchange is irrelevant to a merchant.

The fact remains that a merchant does not need a bitcoin wallet, does not need to see or touch a bitcoin, does not need to take on any bitcoin price fluctuation risk, and gets paid out daily in fiat. Which has been my point and stands independently of your tangents.

My use of "professional" was in the context of being the provider chosen by Google, Dell, Paypal, etc.

Re:NSA wants its baby back...

[serviscope_minor]

We need more standards like X11.

You mean ones that (a) most people talking about don't have the faintest clue about and (b) ones that people make up and parrot vast amounts of FUD about? Because both X11 and bitcoin fit the bill perfectly for that.