Ask Slashdot: Time To Get Into Crypto-currency? If So, Which?

Qbertino writes: With the ever-looming cyberpunk future in close proximity, I'm starting to wonder if it isn't time to get myself familiar with crypto currency as a means of trade. Bitcoin is all the hype, but the blockchain has flaws, in that it isn't as anonymous as one would hope for — you can track past transactions. Rumors of Bitcoin showing cracks are popping up and also there are quite a few alternatives out there. So I have some questions: Is getting into dealing with crypto currency worthwhile already? Is Bitcoin the way to go, or will it falter under wide use / become easily trackable once NSA and the likes adapt their systems to doing exactly that? What digital currency has the technical and mind-share potential to supersede bitcoin? Are there feasible cryptocurrencies that have the upsides of Bitcoin (such as a mathematical limit to their amount) but are fully anonymous in transactions? What do the economists and digi-currency nerds here have to contribute on that? What are your experiences with handling and holding cryptocurrency? And does Bitcoin own the market or is it still flexible enough for an technology upgrade?

Comments

depends on what you're looking for

[Trepidity]

For the short/medium-term future Bitcoin is really the only option if you want a cryptocurrency that you have any hope of using like a currency, to you know, exchange value with other people. The others, aka "altcoins", are mostly still at the stage of tech demos or niche experiments. Which can be fine if you find investigating that scene to be interesting as a hobby.

Boat still hasn't left port

[Solandri]

Bitcoin made a lot of progress on the technological front, but its economics is flawed because it limits the number of bitcoins which can be mined, and makes them progressively harder to mine as more are found. This is the same flaw behind using gold as your currency standard, and will cause the same problem - economic instability via repeated bouts of deflation. Basically, because the amount of gold (bitcoins) doesn't grow as quickly as the size of the economy, prices for things in that currency start to go down.

Vastly simplifying the economy into one currency and one product, today there are x bitcoins and you make y widgets. The price for a widget is thus proportional to x/y. Tomorrow, the number of bitcoins hasn't increased as quickly as your economic activity is increasing. There are 1.2x bitcoins, but you make 1.5 widgets. The price for a widget becomes proportional to 1.2x/1.5y = 0.8x/y. In other words, deflation - a widget is only worth 80% what it was yesterday.

Now apply the same principle to all goods and services, and the price of everything is going down (actually the price of bitcoins is going up). Once people start to understand what's happening, they stop buying things. They want to wait until the last possible minute, until they absolutely need an item, to buy it because the longer they wait (the longer they hold onto their bitcoins), the less it will cost. This slowdown in economic activity causes a recession, which decreases the number of widgets that are made until once again their price goes up (because not enough are being made to meet demand), which starts the same process over again. Economic instability.

That's why every major economy has abandoned the gold standard for a fiat currency. Yes a fiat currency can be abused if the people in charge of it are corrupt. But used properly with the money meted out at about the rate the economy is growing, prices remain stable and so is the economy. Just look at the list of recessions in the U.S. pre-1933 and post-1933 when the U.S. went off the gold standard. The economy has been much more stable with a fiat currency. That's what needs to happen with a cryptocurrency for the "boat to leave port." If someone can come up with a cryptocurrency which is independent of central control, yet its supply increases at roughly the same rate the economy expands, that is the boat you want to get on. It just won't be as lucrative for early adopters as bitcoin because it won't be a ponzi scheme.

Re:Boat still hasn't left port

[shurdeek]

This post mixes several phenomena and omits other factors relevant for the positions. For example, "Once people start to understand what's happening, they stop buying things.". There are situations where a falling price level and a drop in consumer expenditures correlated positively, but there are also situations where they correlate negatively. I for example tend to behave exactly the opposite way as you describe: when the price of bitcoin is falling, I tend to cut my expenditures, and when it's rising, I tend to increase the expenditures. It's not the only factor influencing my decisions of course.

A while ago, two economists working at the Minneapolis Fed published a paper: https://ideas.repec.org/p/fip/... where they analyse the empirical link between deflation (i.e. a falling price level) and depression, and find that outside of the Great Depression in the 1930s they can't find such a connection. They write: "A broad historical look finds many more periods of deflation with reasonable growth than with depression and many more periods of depression with inflation than with deflation."

As the Austrian school explains, the business cycle is caused by fractional reserve banking, and the recession is a necessary consequence of the misallocations that happen during the boom preceding the recession. But since mainstream economic schools lack a theory of capital, instead they view the business cycle through aggregate values, they can't assess the argument this way.

Ethereum for general purposes, more details within

[JeffreyBPetersen]

Bitcoin is all the hype, but the blockchain has flaws, in that it isn't as anonymous as one would hope for — you can track past transactions. Is Bitcoin the way to go, or will it falter under wide use / become easily trackable once NSA and the likes adapt their systems to doing exactly that? Are there feasible cryptocurrencies that have the upsides of Bitcoin (such as a mathematical limit to their amount) but are fully anonymous in transactions?

There are a number of properly anonymous cryptocurrencies now. Dash (formerly Darkcoin) and Monero are current market leaders. Zerocoin is a notable new contender as it uses zero-knowledge proofs which are as good as you can get on anonymity. Bitcoin on the other hand would require dramatic changes which are very unlikely to receive support from the institutions involved with it.

So I have some questions: Is getting into dealing with crypto currency worthwhile already?

Only if you're a fan of economics and programming. It's still very much in the experimental phase of technological maturity.

Rumors of Bitcoin showing cracks are popping up and also there are quite a few alternatives out there. And does Bitcoin own the market or is it still flexible enough for an technology upgrade?

There's currently a holy war going on between different groups of Bitcoin developers on how to upgrade network protocol, which is sorely needed given Bitcoin's dinosaur status in the field. Looking at that there's definitely not much flexibility. There's also not much of a market to own yet, so despite its network effects, Bitcoin could easily be dethroned by a cryptocurrency with actual momentum in becoming useful beyond largely experimental purposes.

What digital currency has the technical and mind-share potential to supersede bitcoin? What do the economists and digi-currency nerds here have to contribute on that?

Ethereum has by far the strongest development community at the moment. It's also designed to maximize flexibility in what it can be used for, giving it abilities to adopt new features as needed without requiring agreement among those using it (pick and choose which features you want to use for all but the most fundamental).

What are your experiences with handling and holding cryptocurrency?

Dodged a couple exchange collapses, scary stuff. Keeping wallets local, encrypted, and with multiple backups is a considerably safer experience and doesn't require too much involvement. Getting holdings in the first place is also a hassle.

Re:Monero

[shurdeek]

Well I'm a different guy but I also mostly live on crypto.

> Where do you spend your bitcoin for day to day living kind of stuff?
If I need to pay for something and the recipient doesn't have a facility to process bitcoins, I use one of the payment processors to do the transaction on my behalf or trade bitcoins for fiat myself and then pay with fiat.

> How do you avoid problems with significant value swings that the market experiences since almost no one denominates their goods in bitcoins as the primary price.
I don't care about the fluctuations. I view bitcoin as a superiour source of liquidity and that's more important to me than day-to-day pricing accuracy.

Yes

[DoctorBit]

The best time to get into crypto-currency is six years ago. The second-best time is today.