Are deation and depression empirically linked? No, concludes a broad historical study of ination and real output growth rates. Deation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link.
just like cash, the only way to trust a transaction is when you implicitly trust the other party.
Wait, that's not right. Most forms of payment today (credit cards, paypal, even ACH) are quite reversible. That means that if you are trying to sell something you have to trust the buyer not to take their money back. If you're a buyer it means you need less trust in the seller. However, this is a problem because typically sellers are well known and have developed a trusted brand, whereas buyers have not, so it's much easier for a buyer to judge the trustworthyness of a seller than the other way around. This fact is the foundation of an entire industry of risk analysis firms which simply aren't needed if you sell for cash. And it's not theoretical. My brother had a laptop stolen from him because he didn't understand how reversible PayPal is, and there are professional scammers who exploit that.
With Bitcoin, if you sell you don't need trust in the buyer. OK, so what about buyers? Well, if you trust the seller, you can just send them the money. For big, trusted brands that's nice and cheap - everyone wins. If you don't trust the seller then you can use escrow - except that as we've seen, big online wallets tend to become targets for hacking. The Bitcoin system anticipated this problem years ago and the protocol supports dispute mediation techniques that prevent the mediator from stealing the money, which obviously also means you don't have to worry about them being hacked either. It's not fully implemented today (no GUI), which is unfortunate, but these things will come with time.
I wouldn't generalize too much if I were you. MtGox allows you to configure various levels of security (up to and including a YubiKey second factor) for different kinds of actions. That's a better standard than what many US banks provide. Just because Bitfloor wasn't up to speed on this stuff doesn't mean all exchanges suck - MtGox has 90%+ market share for a reason!
LOL, like I said, "Bob's online brokerage"... why should I trust them? They're completely unregulated, outside of the normal banking system, and not really accountable to anybody. What could possibly go wrong?
That's actually not correct at all.
Firstly, Bitcoin exchanges are regulated, that's why Mt Gox requires you to do ID verification and other such things. Not that regulations are a magic wand - US banks routinely get pillaged due to their pathetically weak (often single factor!) security systems. And whilst many European banks at least use dedicated 2-factor calculators, that hasn't stopped massive bank runs in Spain and Greece as people fear different kinds of failure mode.
Secondly, they are not outside the normal banking system. The whole point of a centralized exchange like Mt Gox is to interface with the banking system. They have bank accounts, accept and send bank wires, etc.
Thirdly, they are accountable in the same way any company is accountable. But they go further, publishing transparency reports that detail exactly how their business is operating. You'll note that Mt Gox is very different to Bitfloor. It is a real company (albiet a small one), not a one-man operation anymore. They have staff processing support tickets. They have redundant datacenters and the ability to withstand 100Gbps DoS attacks. Most crucially 90%+ of their Bitcoins on deposit are stored in offline wallets in various places that can only be accessed physically. Bitfloor (with a whopping 2% of the market) was a one-man job that ran on Linode, a provider that has been completely rooted in the past! That right there should have been an indication that maybe he wasn't really serious.
Let me be clear, anything Bitcoin related is risky right now. That's not because of some inherent flaw of Bitcoin, it's because it's very new and so the ecosystem is immature. In particular the fact that it's an open system with open APIs means a lot of programmers just jump right in and start creating services without fully thinking things through. If you're going to run an exchange you need to have your shit together and there are just way too many people who don't. Now is that their fault, the fault of people who then hand them money, or both?
Given the incarceration rate in California I don't think the aggression of law enforcement has a whole lot to do with anything. Remember that the only reason this whole incident has happened is that Assange is afraid of the USA - not the UK or Sweden.
Why not both? London to Cambridge by train is only 50 minutes. Silicon Valley, meanwhile, refers to the bay area between San Francisco and San Jose. It takes more than an hour on the Caltrain to go from one end to the other. The USA is just really huge.
Your summary of the article is stupid. None of those sentences are quotes. In fact the article states at the end that SVs great weakness is that it's a crap place to live, directly contradicting what you wrote. Here's an actual quote:
For all its power, Silicon Valley has a great weakness: the paradise Shockley found in 1956 is now one giant parking lot. San Francisco and Berkeley are great, but they're forty miles away. Silicon Valley proper is soul-crushing suburban sprawl.
Yes, yes it is. Having lived temporarily in the Valley and grown up in the UK, I'm pretty sure I don't want to live along the US-101. I'd do it if there was some really compelling reason, but otherwise no thanks - love the sun, hate the driving. Rents and property prices in London are absurd and most likely still a bubble, but other than that it's not a bad place to live at all.
Your other points (not quotes) are also pretty stupid. There are a ton of well educated people in London, as well as many Brits working for Silicon Valley based companies. The UK has a long history of computer science, you know about Bletchley Park, right? The BBC Micro? The government doesn't deserve any credit for it (the BBC does!) but there were a ton of people growing up in the 80s and 90s who had access to really good computers and lots of educational material about them. It certainly got me started. At 28 I'm now a senior engineer at Google (in Switzerland).
BTW I think it's really great that companies like Amazon, Facebook and the big G have set up shop in London. These companies are great at training people who can then develop the confidence and skills to go do their own companies (Facebook was practically made of ex-Googlers back in the day, don't know if it still is). Especially anything internet related that might scale up fast will benefit a lot from the pool of skilled workers these companies will attract and create.
Huh, I find it interesting you think what I said is wrong, because I think the same about what you're saying:)
You need to be very precise about how you're using words. If the value of a currency fluctuates against another, that is not inflation by any standard definition of the word. Inflation is typically defined as an increase in prices over time, averaged over the whole economy (typically approximated using an ever-changing basket of goods and services). Obviously if you only look at imports, prices can rise a lot without any money printing, but that's not what economists refer to as inflation so I don't see why you brought it up.
Likewise, your point about GDP is not helpful. It's obvious I was referring to the size of the Bitcoin economy. Imagine a country were to adopt Bitcoin as its formal currency if it helps. I wouldn't suggest anyone tries to save money with Bitcoin today, that's an absurd strawman. I was talking about what would happen if an entire economy in which people spend their whole lives adopted a currency with a fixed monetary base.
The rest of your post is just more of the same - you seem to be deliberately trying to miss the point I was making. Most dollars aren't sitting in currency exchanges either, do you believe that makes the dollar illiquid? That the "whole economy must fit inside a fraction of total dollars"? What does that even mean? You finish with a prediction of a flash crash to zero after "hoarders stampede", a prediction which I've seen so many times, but it hasn't happened. The currency started out being worth zero, remember?
So, there's no way to fix this with BitCoin because that's the great thing about BitCoin: no government regulation or government backing.
No, that's (yet another) gross and dangerous misunderstanding that gets repeated in the internets echo chamber.
Securities laws do not have some magic exception for Bitcoin. If you are running an investment scheme you're supposed to register and follow those laws. Now we can argue how useful these regulations are, but they certainly do apply to this scheme by "pirateat40". But saying Bitcoin has "no government regulation" just distorts reality. MtGox follows the AML/KYC regulations and if somebody wants to run an investment scheme they would need to follow their countries securities regulations. As I mentioned in another post, a Brazilian guy already got fined for not doing so.
And the logic for this is quite simple. If you don't protect idiots, then idiots can't use your currency. Since much of the population is idiots, you need to protect them from the really bad stuff that comes along with capitalism
I find this argument fascinating because it actually doesn't apply to Bitcoin, though I suspect you don't realize why. Firstly, you don't have to invest in shady "funds" in order to use Bitcoin. Using the currency does not imply using investment vehicles so it's quite possible for idiots to use it, though I'd not recommend it just due to the general immaturity of the software. So - your logic is simple but wrong.
It may not be immediately apparent that your logic is wrong because with currencies like USD and EUR, using the currency does practically (if not theoretically) require investment due to rampant inflation, so if you don't invest then your savings shrivel up and die. The absolute, hard requirement to invest rather than save means everyone (idiots included) ends up giving all their money to third parties who claim to be able to beat inflation. So regulation of these third parties does make a lot of sense.
However Bitcoin has limited and predictable inflation which eventually stops entirely, so (in theory) it's quite possible to just build up savings. With a stable monetary base the value of your savings basically tracks overall change in GDP. If the economy grows at 2% per year, the value of your savings does too. No investment required, though obviously nothing stops you investing if you want to try and beat general economic growth.
By the way, don't put too much faith in regulators. They don't have a great track record and there are worse things to come. For instance, go check out the web site of a typical hedge fund. Observe it is virtually empty. The reason is that the regulations say you have to publish information about your investment strategies if and only if you solicit for customers. Hedge funds do not solicit (hence the empty websites) so they can keep their strategies secret, which is one reason they can make a lot of money. So where do they get their customers? Well, a lot of personal contacts and backroom deals, very often with pension funds. Pension funds are supposed to be conservative and heavily regulated, which they are, but to get the returns they need to outrun inflation they have actually ended up just putting their money into unregulated entites - effectively acting as proxies.
This argument comes up repeatedly, but it's ridiculous. It's very often the case that new technologies reward early adopters who do nothing beyond "leech", but practical experience shows that the big winners are always people who create real value.
Maybe an example makes things clearer. If you were an early adopter of the internet then you would have had the chance to obtain huge IP blocks and tons of domain names for virtually nothing, these are scarce resources that would later become very valuable. But if you asked the man on the street to name some internet millionaires, chances are they would name people like Mark Zuckerberg, Larry Page, Sergey Brin, maybe Marc Andreseen and so on. People who built real businesses and real value. In practice although domain speculators did and do exist, the world is not awash in a lazy elite of people who just camped on scarce resources for decades. Nor does the existence of a small number of these people make the internet "behave similar to a ponzi scheme".
Whilst Bitcoin certainly does have people who did nothing beyond buy up coins early and sell them later, there are also tons of early adopters (like me) who are creating real value by writing software, running services, being merchants, mining and so on. These people risk something very real - usually their time and capital - to build the system, and they may or may not do very well financially out of it. Just like any new technology. Your grist with miners is particularly bizarre because the people who mined on Bitcoin when the coins were worth little/nothing were actually sacrificing real capital (for electricity/cpus) to provide security to a system that was extremely small and unlikely to go anywhere.
By the way, the people who mined coins when it was very easy didn't know Bitcoin would take off. A lot of the early coins have been lost because for around 1.5 years Bitcoin was merely an interesting piece of open source software. The coins had no value and there were no exchanges, but mining had real cost in terms of electricity, pegged CPUs and so on. So people would mine or get some coins, get bored and delete the software/not back up their wallets, etc.
Every time there's a BitCoin story, people loudly claim it's a Ponzi scheme. Maybe they're right.
Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.
Bitcoin, being a currency, is not an investment (although some people may be tempted to use it that way). It does not claim to offer any particular returns. There is no secrecy or obfuscation, you can read the papers and check the code to see exactly what it's doing.
It might be the case that this Ponzi scheme couldn't have been conducted using (say) US$ because of financial regulation.
Given that by the time the SEC forcibly closed ZeekRewards it was reported to have had over a million investors and $600 million at play, I think it's safe to say that regulation is not a guarantee against getting scammed. At any rate, Bitcoin is not unregulated. If you're running an investment scheme in the USA you'd be required to register with the SEC regardless of currency used, and in fact one unregistered Bitcoin investment scheme operator in Brazil was already fined by the Brazilian equivalent for failing to do so.
Email mostly transits the backbone unencrypted, so no crypto breakthroughs are necessary to do that. All the evidence points towards huge data collection and mining operations by the NSA that are only getting bigger, so I'm pretty sure that yes, the NSA does "read" my mail (in the sense that it is probably run against a large list of regular expressions or something).
It seems that quantum computing has consistently been viewed as harder than it really is, judging by the ever-decreasing timescales between breakthroughs. Judging from the history of cryptography, and the military value of being able to break RSA, it's not unreasonable to expect that the NSA may have been trying to build such a chip for some time and could potentially have succeeded.
Some months ago James Bamford, who is the premier chronicler of the NSA and has a history of being given accurate leaks, claimed the NSA had made a "huge breakthrough" in its ability to break codes - and that the datacenter they're currently building is a part of the solution. The NSA denied everything of course. But if academics are now able to build a working implementation of Shors algorithm for small numbers, that strongly implies that a focussed team with practically infinite budgets could have already succeeded in building one that can handle crypto-sized numbers.
Let's try an analogy. Imagine if the way you received email from somebody was by giving them the password to your email account, and then they logged in and uploaded a message directly to your inbox. There would be no SMTP, just IMAP upload/download. Nobody sane would design email in such a way because it'd mean to receive a message from somebody you'd have to trust them to not read your mail, which is unrealistic. But that's exactly how credit cards work. To buy something you give out what is effectively a long password, anyone who has it can spend money as you.
Over time the credit card companies are trying to change this, by introducing things like Verified by VISA which lets your bank introduce an actual password or more, but deployment is extremely slow. Fundamentally the problem is banks and CC companies don't have any incentive to fix this for real because they don't pay for the fraud costs, merchants do and they then have to pass it on to back to buyers via increased prices.
Keeping your bitcoins at home in a wallet or on paper is more secure, but then you can't use them with interbanking products, like a fancy Bitinstant international debit card.
According to the info provided by Shrem, the cards balance will update after only one or two block confirmations, so you could transfer money from your laptop/phone/smart card/whatever and have it spendable on your card a very short time later. But yes, you're right, if you need to interface with the traditional banking system then you have to maintain a balance with some third party, that reliance on third parties is the very problem Bitcoin tries to solve. Don't like it - stay entirely within the P2P Bitcoin economy.
As for sites getting routinely hacked, yes, maintaining large sums of money on a server paints a big red target on your back. That's why I don't give my money to a third party I don't know anything about for safe keeping - it's not complicated. So far my losses from these sorts of hacks have been zero.
Yeah, the problems the financial industry have are really more about how it's organized and run rather than specific concepts like arbitrage. Arbitrage isn't bad, it's the reason we can say something like "Bitcoins are worth $10 each at the moment" and have it be accurate, even though in reality there are many different exchanges each with their own rate. If those rates start to drift too much arbitrageurs bring them back into line. And basically anyone can do this, it's a very competitive market so in theory the margins on arbitrage should end up very low. Hardly a way to make it big.
If you look at the financial industry, the problems are really varied. A lot of the issues boil down to the fact that there aren't very many banks and starting a new one is virtually impossible for a variety of reasons, so when existing banks misbehave or are generally asshattish you can't solve the problem by starting a competitor and trying to be cleaner/more trustworthy/cheaper/faster/whatever. With Bitcoin there are no banks. Today it only handles routing of payments and (not very well) storage of value. But there are designs that extend it to other services banks provide, like credit and investment funds. A decentralized financial system would still have speculation, HFT, arbitrage and so on, but you eliminate the problem of institutions that are "too big to fail" - the root of much injustice in todays setup.
Because if you receive some money via Bitcoin it's a convenient way to spend it down at your local store, for example. The alternative is using an exchange and then wiring the money to your account, which can take days and have much higher fees (banks are really slow sometimes).
AML laws do indeed have thresholds on them. They have to otherwise they'd be unworkable. Do you want to require somebody to provide a passport and utility bill any time you use cash?
BitCoin's supposed to be this anonymous fiat currency system.
This is a really common misconception. The point of Bitcoin is not to be an anonymous currency. The point of Bitcoin is to be a peer to peer decentralized currency that has limited and slowly decreasing inflation. Let me quote the original description Satoshi had on the website (nowadays it's on the front page of the wiki):
Bitcoins are sent easily through the Internet, without needing to trust any third party. Transactions:
Are irreversible by design
Are fast. Funds received are available for spending within minutes.
Cost very little, especially compared to other payment networks.
The supply of bitcoins is regulated by software and the agreement of users of the system and cannot be manipulated by any government, bank, organization or individual. The limited inflation of the Bitcoin system's money supply is distributed evenly (by CPU power) to miners who help secure the network.
You'll note there's nothing in there about being anonymous. Bitcoin is designed to provide privacy (or call it anonymity if you want), because it's a financial system and people demand financial privacy. Would you use a payment system that published a public record of everything you purchased? In the current banking system, privacy is provided by your bank and credit card company (ignoring the fact that they often waive that privacy for governments both domestic and foreign, with or without legal due process). But in a financial system that doesn't have banks, that approach obviously doesn't work.
As a result, nothing requires you to be anonymous if you use Bitcoin. Most people would like to keep their transaction history private but are happy to identify themselves to merchants and financial service providers (for instance, I do that, as does any user of Mt Gox).
The fraud problem is not with Bitcoin. Bitcoins security model is very simple and easy to understand - you have private keys, protect them. If they're stolen, so is your money. There are no chargebacks. How secure you make those keys is entirely up to you. I have most of my money stored in an offline wallet encrypted under a very long passphrase, which is very secure but somewhat inconvenient. Then I have a smaller amount of money stored on my phone which doesn't require any passwords to use and I just accept that if my phone is stolen or lost somehow then I lose that money, but it's very convenient.
The fraud problem comes from the world of credit cards and traditional banking which are hopelessly insecure. Rather than give people the tools they need to secure their money, the managers of these systems simply shift the pain onto merchants who can do nothing about it beyond try and protect themselves with strict transaction limits, complicated risk analyses and just accepting that they'll lose some of the time.
There are also other reasons which you conveniently elided, such as government regulations that forbid / complicate large transactions.
It probably involved email and HTTP too. Do you trust them?
I think in the next 6-12 months we'll see botnets largely stop mining on Bitcoin because the rollout of ASIC mining hardware will make virus-infected PCs hopelessly un-competitive, even though the electricity is free. They're already worthless for doing CPU mining even if you have thousands of them and soon even if you have a lot of infected gaming machines the return will probably not be worth the time.
On a side note. Let me guess, another Windows IT infrastructure.
Absolutely. That's not because Saudi Aramco is incompetent. I believe they would actually be one of the largest companies in the world, if they weren't state owned. They run operations on a truly mind blowing scale with very few problems or disruptions (when was the last time you heard about them?).
The reason is unfortunately far more depressing than one incompetent company. The reason is that the industrial process control world long ago standardized on Microsoft DCOM as the protocol used for monitoring and controlling large systems. DCOM is an insanely complicated protocol - trust me on this, I'm one of the very few people in the world who has reimplemented it. Therefore it's natural to use Microsofts implementation, which means Windows. Technically the protocol is called "OLE for Process Control" (OPC). In particular Saudi Aramcos Abqaiq stabilization facility, through which around 1/8th of the worlds oil supply flows, uses OPC extensively.
Incidentally Abqaiq, like all of Aramcos big facilities, is defended by some pretty insane security. The guards there are heavily armed and shoot first, ask questions later. They need to - a few years ago suicide bombers attempted to detonate a truck inside the complex. I've read they also have SAM sites and fighter jets on 24/7 standby in case somebody tries to crash a plane into it.
I think it's very likely that this is an extension of America and Israels war against Iran, targeting their industrial/economic infrastructure instead of just uranium enrichment. The MO matches that of Stuxnet and we know that they're rather careless about letting their creations escape and cause havoc outside the intended targets. The stories we saw recently about code encrypted under a hash of various file paths sounds strongly like it was intended to match an unknown computer that performs a specific function, rather than a specific computer that was already reconned, otherwise the key could just be a hash of the HDD serial numbers/MAC addresses or other things that are less likely to change. One can imagine that the target computer might be inside an Arabic speaking oil refinery. Typically these refineries and facilities are built by a small number of western contractors. One can also imagine that computers meeting the target configurations exist not only in Iranian facilities but also other countries.
But I wonder if the government really, in its heart, wants to do that. The complete eradication of anonymous transactions changes the game entirely, and it would alter society in ways that are hard to predict.
"The government" is a huge thing full of people who disagree strongly on almost everything. In any given government you will find every angle on this issue. Law enforcement typically wants more power and more tracking not because they're evil or anything, but because they're judged on how well they tackle crime and naturally want any tools they can get. Financial regulators definitely want more power because it's their job to build the AML system and their personal career advancement basically depends on ever-increasing reach and complexity of their rules. Then you have people in intelligence services, they may or may not want to see this sort of thing because they want the ability to run large black programs and covert ops, which is more or less at odds with every value flow being identified and investigated.
Then finally you have politicians who are the least consistent and predictable of the lot, mostly because they're trying to figure out and respond to the general publics views on these issues, and those views are themselves mixed. Currently cash is still an everyday thing and for practical reasons it's rare to use it for large transactions anyway, so the effective elimination of cash for those transactions doesn't raise many eyebrows and many would support it on anti-crime grounds. Attempting to push the system a lot further will, IMHO, encounter heavy resistance as existing e-payment systems aren't very good: high fees, poor security/usability, inflexible protocols and high fraud rates are all common. And societies attitudes towards governments and government tracking evolve over time too.
However, these two points are what gives gives MintChip it's real world advantages: the currency is linked to a real currency and controlled by an authority that is overseen by the democratic institutions of the nation state, so it has value. Double spending is an unfortunate reality of allowing offline transactions, but in the real world being able to do offline transactions (like real cash) is very desirable.
Hi, Bitcoin fan here (actually, a Bitcoin developer).
First up, let me say that I'm very happy to see MintChip and would happily have beers with the developers any day. I don't think it's stupid at all. MintChip is great because it's the first time a major government institution has stepped up and said, hey you know, cash has some pretty cool advantages, maybe we should replicate that in the digital world. Every other government simply wants to eliminate cash entirely (and free, irreversible, private transactions along with it) for tax collection / crime prevention / power / control reasons.
That said, I'd like to address your points.
Let's tackle your second point first, offline transactions. You can do offline transactions with Bitcoin. In fact, I implemented this in the Android wallet software along with Andreas at a recent hackathon in Berlin. The support hasn't shipped yet, it needs some polish and tuning, but basically it lets you send transactions to the recipient phone via Bluetooth. If the recipient has internet they can then relay it, or they can just keep it around until one of you reaches an internet access point. This obviously opens up the potential for double spends, but if you trust the sender to not defraud you, the system does work fine. One way you could get that trust, if you don't know the sender, would be via secure hardware (eg the sending phone could do a remote attestation to the receiving phone). There haven't been many use cases for remote attestation on phones in the past so unfortunately Androids generally can't do it, but there's no technical reason it can't be added. MintChip requires deployment of new hardware anyway, so they're equivalent in this respect.
As to your first point, I think it's fairly critical to point out that in most modern countries, issuance of the currency is explicitly not under the control of democratic institutions! That's the whole point of having an independent central bank with unelected heads. Historically the power to print money, when owned by governments, has been used to buy support or votes (eg by printing money then using it to fund work creation schemes in areas of the country suffering unemployment). This kind of inflation is effectively a silent tax on savers, but people don't tend to realize that, so it makes for very effective politics. When governments are forced to stop doing this you get "austerity" which is almost universally described in the press as painful, but what it actually means is, governments are under pressure to stop buying votes with newly created money.
The fact that whoever gets elected will naturally feel a desire to print money in order to pay for their campaign trail promises is the reason most countries have tried to build walls between elected representatives and heads of central banks. Making the situation even less democratic is the fact that private banks can also create new money, via the issuance of private loans. So you really can't get a situation less democratic than that.
Human society has always struggled with the question of how to control the power of those who can print money, and despite many attempts never found a truly satisfying solution. Bitcoin, for all its faults, does try to address this.
MintChip doesn't try and tackle this problem. That is not an issue for me. I think it's totally fine to tackle the smaller and arguably more achievable problem of building electronic cash. However, I wouldn't try and cast it as a strength beyond it being simpler and therefore more easily deployed.
Actually if you check the regulations, any movement of value which is over-threshold for which you don't perform the relevant ID checks and investigations is also defined as money laundering. You can be a money launderer without even realizing you're a criminal if you simply don't file the right paperwork, where "right paperwork" is unfortunately somewhat vague. For example if you sell a house or run a pawnshop you may need to follow AML regulations and try and figure out where the purchaser/seller gets their income from, otherwise you too can be a money launderer even if no other crime was committed!
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Bitcoin can scale actually. Take a look at some of the latest calculations here.
The deflationary argument is simple, neat and wrong. But you don't have to believe me. Read what economists at the Minneapolis Fed found when they studied it.
Wait, that's not right. Most forms of payment today (credit cards, paypal, even ACH) are quite reversible. That means that if you are trying to sell something you have to trust the buyer not to take their money back. If you're a buyer it means you need less trust in the seller. However, this is a problem because typically sellers are well known and have developed a trusted brand, whereas buyers have not, so it's much easier for a buyer to judge the trustworthyness of a seller than the other way around. This fact is the foundation of an entire industry of risk analysis firms which simply aren't needed if you sell for cash. And it's not theoretical. My brother had a laptop stolen from him because he didn't understand how reversible PayPal is, and there are professional scammers who exploit that.
With Bitcoin, if you sell you don't need trust in the buyer. OK, so what about buyers? Well, if you trust the seller, you can just send them the money. For big, trusted brands that's nice and cheap - everyone wins. If you don't trust the seller then you can use escrow - except that as we've seen, big online wallets tend to become targets for hacking. The Bitcoin system anticipated this problem years ago and the protocol supports dispute mediation techniques that prevent the mediator from stealing the money, which obviously also means you don't have to worry about them being hacked either. It's not fully implemented today (no GUI), which is unfortunate, but these things will come with time.
I wouldn't generalize too much if I were you. MtGox allows you to configure various levels of security (up to and including a YubiKey second factor) for different kinds of actions. That's a better standard than what many US banks provide. Just because Bitfloor wasn't up to speed on this stuff doesn't mean all exchanges suck - MtGox has 90%+ market share for a reason!
That's actually not correct at all.
Firstly, Bitcoin exchanges are regulated, that's why Mt Gox requires you to do ID verification and other such things. Not that regulations are a magic wand - US banks routinely get pillaged due to their pathetically weak (often single factor!) security systems. And whilst many European banks at least use dedicated 2-factor calculators, that hasn't stopped massive bank runs in Spain and Greece as people fear different kinds of failure mode.
Secondly, they are not outside the normal banking system. The whole point of a centralized exchange like Mt Gox is to interface with the banking system. They have bank accounts, accept and send bank wires, etc.
Thirdly, they are accountable in the same way any company is accountable. But they go further, publishing transparency reports that detail exactly how their business is operating. You'll note that Mt Gox is very different to Bitfloor. It is a real company (albiet a small one), not a one-man operation anymore. They have staff processing support tickets. They have redundant datacenters and the ability to withstand 100Gbps DoS attacks. Most crucially 90%+ of their Bitcoins on deposit are stored in offline wallets in various places that can only be accessed physically. Bitfloor (with a whopping 2% of the market) was a one-man job that ran on Linode, a provider that has been completely rooted in the past! That right there should have been an indication that maybe he wasn't really serious.
Let me be clear, anything Bitcoin related is risky right now. That's not because of some inherent flaw of Bitcoin, it's because it's very new and so the ecosystem is immature. In particular the fact that it's an open system with open APIs means a lot of programmers just jump right in and start creating services without fully thinking things through. If you're going to run an exchange you need to have your shit together and there are just way too many people who don't. Now is that their fault, the fault of people who then hand them money, or both?
Given the incarceration rate in California I don't think the aggression of law enforcement has a whole lot to do with anything. Remember that the only reason this whole incident has happened is that Assange is afraid of the USA - not the UK or Sweden.
Why not both? London to Cambridge by train is only 50 minutes. Silicon Valley, meanwhile, refers to the bay area between San Francisco and San Jose. It takes more than an hour on the Caltrain to go from one end to the other. The USA is just really huge.
Your summary of the article is stupid. None of those sentences are quotes. In fact the article states at the end that SVs great weakness is that it's a crap place to live, directly contradicting what you wrote. Here's an actual quote:
Yes, yes it is. Having lived temporarily in the Valley and grown up in the UK, I'm pretty sure I don't want to live along the US-101. I'd do it if there was some really compelling reason, but otherwise no thanks - love the sun, hate the driving. Rents and property prices in London are absurd and most likely still a bubble, but other than that it's not a bad place to live at all.
Your other points (not quotes) are also pretty stupid. There are a ton of well educated people in London, as well as many Brits working for Silicon Valley based companies. The UK has a long history of computer science, you know about Bletchley Park, right? The BBC Micro? The government doesn't deserve any credit for it (the BBC does!) but there were a ton of people growing up in the 80s and 90s who had access to really good computers and lots of educational material about them. It certainly got me started. At 28 I'm now a senior engineer at Google (in Switzerland).
BTW I think it's really great that companies like Amazon, Facebook and the big G have set up shop in London. These companies are great at training people who can then develop the confidence and skills to go do their own companies (Facebook was practically made of ex-Googlers back in the day, don't know if it still is). Especially anything internet related that might scale up fast will benefit a lot from the pool of skilled workers these companies will attract and create.
Huh, I find it interesting you think what I said is wrong, because I think the same about what you're saying :)
You need to be very precise about how you're using words. If the value of a currency fluctuates against another, that is not inflation by any standard definition of the word. Inflation is typically defined as an increase in prices over time, averaged over the whole economy (typically approximated using an ever-changing basket of goods and services). Obviously if you only look at imports, prices can rise a lot without any money printing, but that's not what economists refer to as inflation so I don't see why you brought it up.
Likewise, your point about GDP is not helpful. It's obvious I was referring to the size of the Bitcoin economy. Imagine a country were to adopt Bitcoin as its formal currency if it helps. I wouldn't suggest anyone tries to save money with Bitcoin today, that's an absurd strawman. I was talking about what would happen if an entire economy in which people spend their whole lives adopted a currency with a fixed monetary base.
The rest of your post is just more of the same - you seem to be deliberately trying to miss the point I was making. Most dollars aren't sitting in currency exchanges either, do you believe that makes the dollar illiquid? That the "whole economy must fit inside a fraction of total dollars"? What does that even mean? You finish with a prediction of a flash crash to zero after "hoarders stampede", a prediction which I've seen so many times, but it hasn't happened. The currency started out being worth zero, remember?
No, that's (yet another) gross and dangerous misunderstanding that gets repeated in the internets echo chamber.
Securities laws do not have some magic exception for Bitcoin. If you are running an investment scheme you're supposed to register and follow those laws. Now we can argue how useful these regulations are, but they certainly do apply to this scheme by "pirateat40". But saying Bitcoin has "no government regulation" just distorts reality. MtGox follows the AML/KYC regulations and if somebody wants to run an investment scheme they would need to follow their countries securities regulations. As I mentioned in another post, a Brazilian guy already got fined for not doing so.
I find this argument fascinating because it actually doesn't apply to Bitcoin, though I suspect you don't realize why. Firstly, you don't have to invest in shady "funds" in order to use Bitcoin. Using the currency does not imply using investment vehicles so it's quite possible for idiots to use it, though I'd not recommend it just due to the general immaturity of the software. So - your logic is simple but wrong.
It may not be immediately apparent that your logic is wrong because with currencies like USD and EUR, using the currency does practically (if not theoretically) require investment due to rampant inflation, so if you don't invest then your savings shrivel up and die. The absolute, hard requirement to invest rather than save means everyone (idiots included) ends up giving all their money to third parties who claim to be able to beat inflation. So regulation of these third parties does make a lot of sense.
However Bitcoin has limited and predictable inflation which eventually stops entirely, so (in theory) it's quite possible to just build up savings. With a stable monetary base the value of your savings basically tracks overall change in GDP. If the economy grows at 2% per year, the value of your savings does too. No investment required, though obviously nothing stops you investing if you want to try and beat general economic growth.
By the way, don't put too much faith in regulators. They don't have a great track record and there are worse things to come. For instance, go check out the web site of a typical hedge fund. Observe it is virtually empty. The reason is that the regulations say you have to publish information about your investment strategies if and only if you solicit for customers. Hedge funds do not solicit (hence the empty websites) so they can keep their strategies secret, which is one reason they can make a lot of money. So where do they get their customers? Well, a lot of personal contacts and backroom deals, very often with pension funds. Pension funds are supposed to be conservative and heavily regulated, which they are, but to get the returns they need to outrun inflation they have actually ended up just putting their money into unregulated entites - effectively acting as proxies.
This argument comes up repeatedly, but it's ridiculous. It's very often the case that new technologies reward early adopters who do nothing beyond "leech", but practical experience shows that the big winners are always people who create real value.
Maybe an example makes things clearer. If you were an early adopter of the internet then you would have had the chance to obtain huge IP blocks and tons of domain names for virtually nothing, these are scarce resources that would later become very valuable. But if you asked the man on the street to name some internet millionaires, chances are they would name people like Mark Zuckerberg, Larry Page, Sergey Brin, maybe Marc Andreseen and so on. People who built real businesses and real value. In practice although domain speculators did and do exist, the world is not awash in a lazy elite of people who just camped on scarce resources for decades. Nor does the existence of a small number of these people make the internet "behave similar to a ponzi scheme".
Whilst Bitcoin certainly does have people who did nothing beyond buy up coins early and sell them later, there are also tons of early adopters (like me) who are creating real value by writing software, running services, being merchants, mining and so on. These people risk something very real - usually their time and capital - to build the system, and they may or may not do very well financially out of it. Just like any new technology. Your grist with miners is particularly bizarre because the people who mined on Bitcoin when the coins were worth little/nothing were actually sacrificing real capital (for electricity/cpus) to provide security to a system that was extremely small and unlikely to go anywhere.
By the way, the people who mined coins when it was very easy didn't know Bitcoin would take off. A lot of the early coins have been lost because for around 1.5 years Bitcoin was merely an interesting piece of open source software. The coins had no value and there were no exchanges, but mining had real cost in terms of electricity, pegged CPUs and so on. So people would mine or get some coins, get bored and delete the software/not back up their wallets, etc.
Or maybe they're just spewing buzzwords without understanding what they mean. Bitcoin itself is not a ponzi scheme and that's obvious to anyone with a dictionary. A ponzi scheme is a scheme where "investors" are paid from deposits from new investors. Obviously such a scheme must always grow in order to make payments and that means it is guaranteed to eventually collapse. As nobody sane would invest in something that explicitly advertised itself as a ponzi, such schemes always involve secrecy and obfuscation.
Bitcoin, being a currency, is not an investment (although some people may be tempted to use it that way). It does not claim to offer any particular returns. There is no secrecy or obfuscation, you can read the papers and check the code to see exactly what it's doing.
Given that by the time the SEC forcibly closed ZeekRewards it was reported to have had over a million investors and $600 million at play, I think it's safe to say that regulation is not a guarantee against getting scammed. At any rate, Bitcoin is not unregulated. If you're running an investment scheme in the USA you'd be required to register with the SEC regardless of currency used, and in fact one unregistered Bitcoin investment scheme operator in Brazil was already fined by the Brazilian equivalent for failing to do so.
Email mostly transits the backbone unencrypted, so no crypto breakthroughs are necessary to do that. All the evidence points towards huge data collection and mining operations by the NSA that are only getting bigger, so I'm pretty sure that yes, the NSA does "read" my mail (in the sense that it is probably run against a large list of regular expressions or something).
It seems that quantum computing has consistently been viewed as harder than it really is, judging by the ever-decreasing timescales between breakthroughs. Judging from the history of cryptography, and the military value of being able to break RSA, it's not unreasonable to expect that the NSA may have been trying to build such a chip for some time and could potentially have succeeded.
Some months ago James Bamford, who is the premier chronicler of the NSA and has a history of being given accurate leaks, claimed the NSA had made a "huge breakthrough" in its ability to break codes - and that the datacenter they're currently building is a part of the solution. The NSA denied everything of course. But if academics are now able to build a working implementation of Shors algorithm for small numbers, that strongly implies that a focussed team with practically infinite budgets could have already succeeded in building one that can handle crypto-sized numbers.
Compared to any reasonable system design.
Let's try an analogy. Imagine if the way you received email from somebody was by giving them the password to your email account, and then they logged in and uploaded a message directly to your inbox. There would be no SMTP, just IMAP upload/download. Nobody sane would design email in such a way because it'd mean to receive a message from somebody you'd have to trust them to not read your mail, which is unrealistic. But that's exactly how credit cards work. To buy something you give out what is effectively a long password, anyone who has it can spend money as you.
Over time the credit card companies are trying to change this, by introducing things like Verified by VISA which lets your bank introduce an actual password or more, but deployment is extremely slow. Fundamentally the problem is banks and CC companies don't have any incentive to fix this for real because they don't pay for the fraud costs, merchants do and they then have to pass it on to back to buyers via increased prices.
According to the info provided by Shrem, the cards balance will update after only one or two block confirmations, so you could transfer money from your laptop/phone/smart card/whatever and have it spendable on your card a very short time later. But yes, you're right, if you need to interface with the traditional banking system then you have to maintain a balance with some third party, that reliance on third parties is the very problem Bitcoin tries to solve. Don't like it - stay entirely within the P2P Bitcoin economy.
As for sites getting routinely hacked, yes, maintaining large sums of money on a server paints a big red target on your back. That's why I don't give my money to a third party I don't know anything about for safe keeping - it's not complicated. So far my losses from these sorts of hacks have been zero.
Yeah, the problems the financial industry have are really more about how it's organized and run rather than specific concepts like arbitrage. Arbitrage isn't bad, it's the reason we can say something like "Bitcoins are worth $10 each at the moment" and have it be accurate, even though in reality there are many different exchanges each with their own rate. If those rates start to drift too much arbitrageurs bring them back into line. And basically anyone can do this, it's a very competitive market so in theory the margins on arbitrage should end up very low. Hardly a way to make it big.
If you look at the financial industry, the problems are really varied. A lot of the issues boil down to the fact that there aren't very many banks and starting a new one is virtually impossible for a variety of reasons, so when existing banks misbehave or are generally asshattish you can't solve the problem by starting a competitor and trying to be cleaner/more trustworthy/cheaper/faster/whatever. With Bitcoin there are no banks. Today it only handles routing of payments and (not very well) storage of value. But there are designs that extend it to other services banks provide, like credit and investment funds. A decentralized financial system would still have speculation, HFT, arbitrage and so on, but you eliminate the problem of institutions that are "too big to fail" - the root of much injustice in todays setup.
Because if you receive some money via Bitcoin it's a convenient way to spend it down at your local store, for example. The alternative is using an exchange and then wiring the money to your account, which can take days and have much higher fees (banks are really slow sometimes).
AML laws do indeed have thresholds on them. They have to otherwise they'd be unworkable. Do you want to require somebody to provide a passport and utility bill any time you use cash?
This is a really common misconception. The point of Bitcoin is not to be an anonymous currency. The point of Bitcoin is to be a peer to peer decentralized currency that has limited and slowly decreasing inflation. Let me quote the original description Satoshi had on the website (nowadays it's on the front page of the wiki):
You'll note there's nothing in there about being anonymous. Bitcoin is designed to provide privacy (or call it anonymity if you want), because it's a financial system and people demand financial privacy. Would you use a payment system that published a public record of everything you purchased? In the current banking system, privacy is provided by your bank and credit card company (ignoring the fact that they often waive that privacy for governments both domestic and foreign, with or without legal due process). But in a financial system that doesn't have banks, that approach obviously doesn't work.
As a result, nothing requires you to be anonymous if you use Bitcoin. Most people would like to keep their transaction history private but are happy to identify themselves to merchants and financial service providers (for instance, I do that, as does any user of Mt Gox).
You have failed the understand the problem here.
The fraud problem is not with Bitcoin. Bitcoins security model is very simple and easy to understand - you have private keys, protect them. If they're stolen, so is your money. There are no chargebacks. How secure you make those keys is entirely up to you. I have most of my money stored in an offline wallet encrypted under a very long passphrase, which is very secure but somewhat inconvenient. Then I have a smaller amount of money stored on my phone which doesn't require any passwords to use and I just accept that if my phone is stolen or lost somehow then I lose that money, but it's very convenient.
The fraud problem comes from the world of credit cards and traditional banking which are hopelessly insecure. Rather than give people the tools they need to secure their money, the managers of these systems simply shift the pain onto merchants who can do nothing about it beyond try and protect themselves with strict transaction limits, complicated risk analyses and just accepting that they'll lose some of the time.
There are also other reasons which you conveniently elided, such as government regulations that forbid / complicate large transactions.
It probably involved email and HTTP too. Do you trust them?
I think in the next 6-12 months we'll see botnets largely stop mining on Bitcoin because the rollout of ASIC mining hardware will make virus-infected PCs hopelessly un-competitive, even though the electricity is free. They're already worthless for doing CPU mining even if you have thousands of them and soon even if you have a lot of infected gaming machines the return will probably not be worth the time.
Absolutely. That's not because Saudi Aramco is incompetent. I believe they would actually be one of the largest companies in the world, if they weren't state owned. They run operations on a truly mind blowing scale with very few problems or disruptions (when was the last time you heard about them?).
The reason is unfortunately far more depressing than one incompetent company. The reason is that the industrial process control world long ago standardized on Microsoft DCOM as the protocol used for monitoring and controlling large systems. DCOM is an insanely complicated protocol - trust me on this, I'm one of the very few people in the world who has reimplemented it. Therefore it's natural to use Microsofts implementation, which means Windows. Technically the protocol is called "OLE for Process Control" (OPC). In particular Saudi Aramcos Abqaiq stabilization facility, through which around 1/8th of the worlds oil supply flows, uses OPC extensively.
Incidentally Abqaiq, like all of Aramcos big facilities, is defended by some pretty insane security. The guards there are heavily armed and shoot first, ask questions later. They need to - a few years ago suicide bombers attempted to detonate a truck inside the complex. I've read they also have SAM sites and fighter jets on 24/7 standby in case somebody tries to crash a plane into it.
I think it's very likely that this is an extension of America and Israels war against Iran, targeting their industrial/economic infrastructure instead of just uranium enrichment. The MO matches that of Stuxnet and we know that they're rather careless about letting their creations escape and cause havoc outside the intended targets. The stories we saw recently about code encrypted under a hash of various file paths sounds strongly like it was intended to match an unknown computer that performs a specific function, rather than a specific computer that was already reconned, otherwise the key could just be a hash of the HDD serial numbers/MAC addresses or other things that are less likely to change. One can imagine that the target computer might be inside an Arabic speaking oil refinery. Typically these refineries and facilities are built by a small number of western contractors. One can also imagine that computers meeting the target configurations exist not only in Iranian facilities but also other countries.
"The government" is a huge thing full of people who disagree strongly on almost everything. In any given government you will find every angle on this issue. Law enforcement typically wants more power and more tracking not because they're evil or anything, but because they're judged on how well they tackle crime and naturally want any tools they can get. Financial regulators definitely want more power because it's their job to build the AML system and their personal career advancement basically depends on ever-increasing reach and complexity of their rules. Then you have people in intelligence services, they may or may not want to see this sort of thing because they want the ability to run large black programs and covert ops, which is more or less at odds with every value flow being identified and investigated.
Then finally you have politicians who are the least consistent and predictable of the lot, mostly because they're trying to figure out and respond to the general publics views on these issues, and those views are themselves mixed. Currently cash is still an everyday thing and for practical reasons it's rare to use it for large transactions anyway, so the effective elimination of cash for those transactions doesn't raise many eyebrows and many would support it on anti-crime grounds. Attempting to push the system a lot further will, IMHO, encounter heavy resistance as existing e-payment systems aren't very good: high fees, poor security/usability, inflexible protocols and high fraud rates are all common. And societies attitudes towards governments and government tracking evolve over time too.
Hi, Bitcoin fan here (actually, a Bitcoin developer).
First up, let me say that I'm very happy to see MintChip and would happily have beers with the developers any day. I don't think it's stupid at all. MintChip is great because it's the first time a major government institution has stepped up and said, hey you know, cash has some pretty cool advantages, maybe we should replicate that in the digital world. Every other government simply wants to eliminate cash entirely (and free, irreversible, private transactions along with it) for tax collection / crime prevention / power / control reasons.
That said, I'd like to address your points.
Let's tackle your second point first, offline transactions. You can do offline transactions with Bitcoin. In fact, I implemented this in the Android wallet software along with Andreas at a recent hackathon in Berlin. The support hasn't shipped yet, it needs some polish and tuning, but basically it lets you send transactions to the recipient phone via Bluetooth. If the recipient has internet they can then relay it, or they can just keep it around until one of you reaches an internet access point. This obviously opens up the potential for double spends, but if you trust the sender to not defraud you, the system does work fine. One way you could get that trust, if you don't know the sender, would be via secure hardware (eg the sending phone could do a remote attestation to the receiving phone). There haven't been many use cases for remote attestation on phones in the past so unfortunately Androids generally can't do it, but there's no technical reason it can't be added. MintChip requires deployment of new hardware anyway, so they're equivalent in this respect.
As to your first point, I think it's fairly critical to point out that in most modern countries, issuance of the currency is explicitly not under the control of democratic institutions! That's the whole point of having an independent central bank with unelected heads. Historically the power to print money, when owned by governments, has been used to buy support or votes (eg by printing money then using it to fund work creation schemes in areas of the country suffering unemployment). This kind of inflation is effectively a silent tax on savers, but people don't tend to realize that, so it makes for very effective politics. When governments are forced to stop doing this you get "austerity" which is almost universally described in the press as painful, but what it actually means is, governments are under pressure to stop buying votes with newly created money.
The fact that whoever gets elected will naturally feel a desire to print money in order to pay for their campaign trail promises is the reason most countries have tried to build walls between elected representatives and heads of central banks. Making the situation even less democratic is the fact that private banks can also create new money, via the issuance of private loans. So you really can't get a situation less democratic than that.
Human society has always struggled with the question of how to control the power of those who can print money, and despite many attempts never found a truly satisfying solution. Bitcoin, for all its faults, does try to address this.
MintChip doesn't try and tackle this problem. That is not an issue for me. I think it's totally fine to tackle the smaller and arguably more achievable problem of building electronic cash. However, I wouldn't try and cast it as a strength beyond it being simpler and therefore more easily deployed.
The reason most peopl
Actually if you check the regulations, any movement of value which is over-threshold for which you don't perform the relevant ID checks and investigations is also defined as money laundering. You can be a money launderer without even realizing you're a criminal if you simply don't file the right paperwork, where "right paperwork" is unfortunately somewhat vague. For example if you sell a house or run a pawnshop you may need to follow AML regulations and try and figure out where the purchaser/seller gets their income from, otherwise you too can be a money launderer even if no other crime was committed!