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Bitcoin's Rise May Reflect a Monumental Transfer of Trust From Human Institutions Backed By Gov't To Systems Reliant on Well-Tested Code, Says Tim Wu (nytimes.com)
Tim Wu, a law professor at Columbia, writing for the New York Times: Yet as Bitcoin continues to grow, there's reason to think something deeper and more important is going on. Bitcoin's rise may reflect, for better or worse, a monumental transfer of social trust: away from human institutions backed by government and to systems reliant on well-tested computer code. It is a trend that transcends finance: In our fear of human error, we are putting an increasingly deep faith in technology (Editor's note: the link may be paywalled). What gives the Bitcoin bubble significance is that, like '90s tech, it is part of something much larger than itself. More and more we are losing faith in humans and depending instead on machines. The transformation is more obvious outside of finance. We trust in computers to fly airplanes, help surgeons cut into our bodies and simplify daily tasks, like finding our way home. In this respect, finance is actually behind: Where we no longer feel we can trust people, we let computer code take over. Bitcoin is part of this trend. It was, after all, a carnival of human errors and misfeasance that inspired the invention of Bitcoin in 2009, namely, the financial crisis. Banks backed by economically powerful nations had been the symbol of financial trustworthiness, the gold standard in the post-gold era. But they revealed themselves as reckless, drunk on other people's money, holding extraordinarily complex assets premised on a web of promises that were often mutually incompatible. To a computer programmer, the financial system still looks a lot like untested code with weak debugging that puts way too much faith in the idea that humans will behave properly. As with any bad software, it can be expected to crash when conditions change.
People are buying bitcoins because of the increase in price. However, bitcoin has a lot of similarities to a Ponzi scheme. When the value of bitcoins plummets, that trust will go away.
It simply shows that since 1637 nobody learned anything, and this was confirmed with the various pyramide scheme scandal from the last decade, with one of the most well kniown being bernard madoff. People never learn, what we are seeing is not a shift in trust , what we are seeing is sheer speculation on trying to invest and cash in before the others.
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>Bitcoin's rise may reflect, for better or worse, a monumental transfer of social trust: away from human institutions backed by government and to systems reliant on well-tested computer code.
No. It represents the dreams of foolish cryptoanarchists, libertarians, gamblers, and scam artists. The mainstream financial involvement currently underway is the industry safely siphoning some money from the bubble.
Any techie who is a proponent of a cryptocurrency is one who should not be employed in any capacity beyond desktop support.
If anything, it's a testament of how much money is accumulated on the supply side and cannot be invested in anything sensible because there is no demand due to a lack of purchasing power. If there was an actual economy still going on, investors would probably gladly invest into something more stable, but given the choice, what else can they pump their money into?
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Bitcoin is gambling meets unregulated financial market.
Even with that, the total global trading volume of bitcoin is approximately 1% of the NYSE. Given the performance, that's crazy low trading volume getting extrapolated to total value. Because it's a complete crapshoot. It's economy by mob rule, and history has shown that as we got more connected, unregulated economic systems swing very far and wide, which is great when it goes up, impossibly devastating when it inevitably corrects if it is important.
XML is like violence. If it doesn't solve the problem, use more.
It's a combination of money laundering, drug money and speculation. Everybody knows this. Sorry folks, but Bitcoin isn't going to be destroying and power structures you're unhappy with. The govt will step in and regulate shortly. As they should. Unregulated speculation is what causes market crashes.
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At least a Tulip has intrinsic value as a pretty flower. Cryptocurrency just takes up space on a disk if there is no network left to exchange them with.
Bitcoin is growing almost entirely due to speculation and its utility for illicit transactions. This has nothing to do with some abstract confidence in computer code. This is people who are greedy looking to make a fast buck. The simplest explanation is the correct one here and that is greed.
The thing is, bitcoins are without intrinsic value. Government issued money is, indeed, untrustworthy, but it has intrinsic value: the government promises to accept payoffs in its own currency for taxes so it won't confiscate your property, etc.
Now the government is untrustworthy, but it does have to power to enforce it's threats. Bitcoins are more trustworthy (not totally), but they have no intrinsic value. Their only value is whatever people are currently willing to exchange for them. I wan to call them bitcons rather than bitcoins.
Money is not just about trust and not just about intrinsic value. Things which only have intrinsic value make lousy currencies, and so do things without trust. This is why so many people are into gold, but most of them don't realize that folding paper promises of gold don't directly count. You need the actual metal. And it needs to be of a specific purity. And this is likely to get lost or stolen. But banks have also had their vaults pilfered.
There is noting in the world that has perfect trust. Looking for such is futile. But things that have value can be exchanged for other things with value, where things without intrinsic value can become totally worthless.
OTOH, how much was a Confederate dollar worth after the South lost? Value can be transitory. My old disk drive is worth more as a paperweight than as a disk drive. But it wasn't a bad investment, because I got use out of it for years.
And value is very personal. What is valuable to one person is valueless to another, and invaluable to a third. So it's difficult to use value as a currency. A currency needs to have an agreed value, which means it's own intrinsic value is only a floor to it's effective value. Bitcoin sure proves this, as it's current effective value is immense, but its intrinsic value is closer to nothing than to that of a piece of paper the size of a piece of government currency.
The closest stab I have to a reasonable "thing of constant value" is a bottle of whiskey. That would become more valuable if the government collapsed. Small amounts are easily packaged for portability. etc. Of course, some people would only value it for trade, except in cases of medical emergency and not medications. Wheat doesn't work because it doesn't store well and is too bulky. Also the value fluctuates too much during the course of a year.
Bitcoins, though.... their only value is that they are more trustworthy than governmental currency. But that's all, and it's not sufficient. At some point they will collapse, unless some major vendor of values turns them into a fiat currency. (Also they are vulnerable to centralized control if most of them are bought up by a small enough number of parties to from an oligarchy.)
I think we've pushed this "anyone can grow up to be president" thing too far.
Are you kidding me? People all over the world accept the US Dollar too. Far more than accept Bitcoin. You know how I know that? I can walk into any store in the United States and buy something with US Dollars. Can you go buy your groceries with Bitcoin? Can you fill a perscription, or pay for a medical service with Bitcoin? Can you use Bitcoin to ride public transit? When is the last time you walked into a shopping mall and seen even over 25% of the retailers accepting Bitcoin?
There are other countries that accept US Dollars as their second unofficial currency as well. Cambodia, for example, basically only uses their own currency as a replacement for coins to represent fractional dollars, and US Dollars are accepted as the standard. When I was there recently, I didn't see a single place accepting Bitcoin. Good luck getting a ride from the airport using Bitcoin, but they'll give you a lift for $3 no problem.
Much broader support. Hilarious.
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People are buying bitcoins because of the increase in price. However, bitcoin has a lot of similarities to a Ponzi scheme. When the value of bitcoins plummets, that trust will go away.
"To err is human, to really foul things up requires a computer"
Or their wallet gets lost or corrupted and they have no backup (we know how good people are at backups)
Or they forget their wallet passphrase.
These things are irrecoverable. There is no one to appeal to in order to recover your coins. Its not like you can take your ID and visit the bank manager or government agency to regain control of an account.
Or their exchange or online wallet provider gets hacked.
No too big to fail government bailouts. You wanted independence from governments, here is the downside.
Or a 51% attack occurs, one mining pool got to 50% a few years ago.
Or a government intervenes, 70% of miners are in a single country not known for a hands off approach.
Bitcoin has deviated from its design, its security compromised as a result. It assumed a large group of decentralized miners, we don't have that. Bitcoin must abandon its currently proof-of-work algorithm which is dominated by specialized and expensive ASIC hardware, it needs to switch to a GPU friendly ASIC resistant alrgorithm (repeat as necessary) or switch to proof-of-state as etherium will do. Only such changes can decentralize mining and get security back on the designed path.
This is true. But it's also only a problem with the choices currently built into the Bitcoin network itself, not with the basic technology, nor with distributed digital currencies in general.
Bitcoin strikes me as something like the moon landing - it proved that a decentralized currency really could be created, and changed the perceptual landscape of the world. All that remains is to figure out how to do it well enough to be more generally viable. Bitcoin even proved itself extremely useful for a while as a medium for wiring money, before it's value skyrocketed based on speculation. We'll see if it ever recovers, but in the meantime many other cryptocurrencies are drawing on it's technology and/or fame and attempting alternate solutions to the problem that will hopefully find better solutions than Bitcoin did.
And hey, unlike the space industry, the barriers to creating a new cryptocurrency are extremely low, so there's lots of room for experimentation and failure to let the good ideas rise rapidly to the surface.
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Planet Money did a great pieces on the intrinsic value of gold. It's intrinsic value is that it is an excellent metal for use as a store of value. It doesn't degrade. It doesn't react with anything. It's easily worked into coins. It's not poisonous. It's relatively easy to mine and extract from rock. It's common, but not too common. If you factor in all the requirements for a store of value / unit of trade, you end up with silver, gold, palladium... all the precious metals that are commonly used as stores of value.
It's almost as if thousands of years of economic activity figured out that these metals are valuable as a store of value.
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