Want to read Slashdot from your mobile device? Point it at m.slashdot.org and keep reading!

 



Forgot your password?
typodupeerror
Bitcoin Government The Almighty Buck

Why Bitcoin Is Doomed To Fail, In One Economist's Eyes 537

Posted by timothy
from the wish-I-had-some-to-whine-about dept.
Hugh Pickens DOT Com writes "Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state. 'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.' Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas. The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation because tax evasion would be too easy in a parallel economy. 'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological — this is a cool idea. And part is speculative — gamblers bet that bitcoin's value will increase,' concludes Hadas. 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'" Could be there's something good about money that can't be manipulated by law. Some people at least think there's plenty of value in Bitcoin and similar currencies, despite the risks. And those risks at present probably aren't enough to comfort the unfortunate Welsh fellow who (HT to reader judgecorp) "has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. It is now under four feet of garbage in a landfill site the size of a football pitch."
This discussion has been archived. No new comments can be posted.

Why Bitcoin Is Doomed To Fail, In One Economist's Eyes

Comments Filter:
  • Re:Explain "Private" (Score:5, Informative)

    by DeathToBill (601486) on Thursday November 28, 2013 @11:21AM (#45549071) Journal

    This is utter crap. With very, very few exceptions, money has always been issued by government. Governments have always imposed currency by requiring that taxes are paid in using it. Governments have always set standards for the production of money. Governments have always punished those who attempt to interfere with money.

    Gold and silver standards were exactly a system of money imposed by governments, effectively legislating the price of the underlying metal. Such standards caused problems exactly because it was a government attempting to impose money at a fixed price to a commodity where the market (ie the people) tried to push to a different price for that commodity.

    I guess you're thinking of 19th century banknotes, issued by private banks, but they are not money as such, just a promissory note which the bank would exchange for a fixed number of coins which were the state-imposed money. Once they became government-backed legal tender they were subsumed into the existing money system (although you might argue that eg UK bank notes are still only promissory notes redeemable for coins, at least in theory). They were never an independent, floating-exchange currency like bitcoin is.

  • Re:Control (Score:4, Informative)

    by Calavar (1587721) on Thursday November 28, 2013 @11:29AM (#45549149)

    No bank or financial institution will ever be able to do as much harm to a population as a bad government.

    The Panic of 1857 was caused by the irresponsible printing of paper currency by private banks, and the Panic of 1837 (which in urban areas saw unemployment rates on the level of the Great Depression) was greatly exacerbated by it, so history would indicate otherwise.

  • Re:Tulips (Score:4, Informative)

    by lxs (131946) on Thursday November 28, 2013 @11:58AM (#45549393)

    Don't you mean the second Bitcoin panic? The fork fears in April led to the first panic.

  • Re:Explain "Private" (Score:3, Informative)

    by DeathToBill (601486) on Thursday November 28, 2013 @12:08PM (#45549477) Journal

    US Dollars aren't "issued by government." The US monetary supply is completely in control by a private banking system called the Federal Reserve System.

    Not quite sure how you see the FRS as 'private' - it's a national reserve bank established by legislation. It also, crucially for this discussion, is not responsible for issuing US dollars - that's the US Department of the Treasury.

    Gold and silver standards pre-existed state control of money.

    I'd be interested to see proof of this. I agree that it seems likely to have been the case, but I don't think we can actually point to a culture where it was true. Issue of coinage by governments goes back a long way in human history, and for the majority of that it consisted of a gold or silver standard - initially by minting coins from fixed quantities of the metal in question, later by legislating a fixed ratio of metal to coins.

    Not the 19th century. This century starting in 1913. That's what we (in the US) have now: a private bank issuing private banknotes.

    There is a lot of confusion here. 1 - 1913 is not in this century, it's in the last century. 2 - The FRS is not private. Its operations are independent of the other organs of government, but that doesn't make it a private organisation. 3 - The FRS does not issue currency (see above).

  • Re:Explain "Private" (Score:2, Informative)

    by Anonymous Coward on Thursday November 28, 2013 @12:13PM (#45549519)
    You sound like someone who doesn't understand how the banking system works. The Federal Reserve is about as "private" as the Post Office. There's some language about being private, but the non-governmental bank ownership is completely symbolic. All the power is in the hands of the Presidentially appointed Board of Governors and the Federal Open Market Committee, which is also mostly political appointees.
  • Re: Nope (Score:2, Informative)

    by peragrin (659227) on Thursday November 28, 2013 @12:25PM (#45549635)

    That's just it there aren't 12 million more bitcoins to mine.

    There are a finite number of bitcoins and once they are mined bitcoins are done.

    The author is an idiot. The real issue with bitcoins is that losses can't be replaced. Just yesterday some one reported throwing out a wallet with 75,000 bitcoins. Those coins are permantly out of circulation. While it helps boost the value today eventually enough coins will be lost that bitcoins will become useless.

  • Re:Nope (Score:5, Informative)

    by maxwell demon (590494) on Thursday November 28, 2013 @01:01PM (#45549879) Journal

    No, BitCoins are not backed by valuable goods (there's no guarantee from anyone that you'll get this or that amount of this or that valuable good for it). It's just that they are traded for valuable goods (that is, there are people willing to give you valuable goods for them — or money in other currencies for which other people will give you valuable goods —, and therefore people will only give them to you for valuable goods — or other currencies —, too). In that respect they are no better than the usual fiat currencies.

  • Re:Explain "Private" (Score:2, Informative)

    by Curunir_wolf (588405) on Thursday November 28, 2013 @01:17PM (#45550003) Homepage Journal

    Not quite sure how you see the FRS as 'private' - it's a national reserve bank established by legislation.

    Because it is wholly owned by a consortium of private banks, and not subject to government audits?

  • Re:Control (Score:3, Informative)

    by XcepticZP (1331217) on Thursday November 28, 2013 @01:30PM (#45550069)

    Your original claim was that "no bank or financial institution will ever be able to do as much harm to a population as a bad government." Of course the Weimar Repulic screwed up, but I'm saying that private banks in the US were able to screw up just as badly.

    You misunderstood what the guy said. He didn't say that the private banking institutions don't mess up as much as a bad government. What he did say is that private banking institutions will never be able to do as much harm to a population as a bad government. Private entities can't put you into jail for not obeying their demands/directives, whereas a government can. Leaving aside issues where private entities collude with the government, btw. But even in that scenario, the harm is facilitated by the presence of a state, even if it was done on behalf of a private entity.

  • Offer/Demand Law (Score:5, Informative)

    by DrYak (748999) on Thursday November 28, 2013 @03:07PM (#45550613) Homepage

    If they aren't reported lost then how would they know if I didn't just put them under my mattress? If they have been reported lost, can they be reinstated later when they are found?

    The value of Bitcoin fluctuate depending on demand/supply.

    Currently the supply of bitcoin is low and only slowly increasing (only 25 BTC per mined block are shared across all the users of the mining pool which successfully validated the block, and the total number can be computer around 12 mio).
    Currently the demand is expanding (bitcoins can be used as payment medium in an ever increasing number of shops. The days where Silk Road was the main place were you could buy/sell using BTC are long over [and in fact, during some time, Silk Road was down due to being seized by authorities. At that time the BTC market barely noticed]. Also BTC are in demand by traders [although again given the low impact of various pump-n-dump attempts, traders don't have as much an influence today as back then] ).
    Hence currently the price is globally heading up (with more or less some small very localised perturbations).

    But globally, BTC evolve according to demand/supply AND ONLY demande/supply. (Unlike fiat currencies which can be manipulated by printing more or less bills by the controlling state).

    If some coins stop circulating (either because you destroyed the harddrive cointaining the private keys to spent them, or simply because you forgot about them, or because you're hiding them as a reserve for later) the total number of "coins currently available on the market" will get a bit lower (a bit under the current 12 mio). Because of that, simply following the demand/supply rule, the price of bitcoin will increase a little bit.
    If suddenly you brought them back into circulation (you remembered that damn password, found the old laptop that you though was thrown away, or simply decide to use your reserve) the number of circulating coins increases, and because of the slightly increased supply, its price decreases a bit.

    Now the "magic" of bitcoin is that its a decentralised currency.
    - In a centralized currency, the issuer can massively print new money. Or destroy gigantic amount of bills. Such large scale variation of the supply can cause big changes in the value of the money, and thus the state can manipulate its own money. Create inflation or deflation depending on needs. Thus value of money is not only influenced by pure demand/supply rule in the market, but also very directly by government and politics.
    - In a decentralized currency, *nobody* owns the system and nobody in particular decides, instead all agree. (Nobody will accept your mined block if you granted yourself 1000 BTC instead of the current 24+fees)
    Also, most of the people only own a small part of the whole amount of bitcoins. So any "bitcoins pulled out of circulation" by 1 single individual will only concern a very small amount, a small fraction from the whole stash, and thus barely have any registrable effect (the theoretical effect of you not spending your 100 BTC on the value of the whole 12 mio will be smaller than the noise).
    A single individual (or government body) can't influence much the value of bitcoins. (For influence to be successful, that would require massive coordination of a sizeable proportion of all bitcoin holder. Which would be near to impossible given how much the money is spread).
    The only influence of bitcoin going in and out of market that can be sizeable is the total influence of all bitcoins getting lost.
    If over the first 10 years of bitcoin lifetime 1 million total of coins get completely lost for ever, the overall price will jump up by 5-10% accordingly.

    So it's a situation of "the market will heal itself".

  • Re:WD et al. (Score:4, Informative)

    by erpbridge (64037) <<steve> <at> <erpbridge.com>> on Thursday November 28, 2013 @10:17PM (#45552621) Journal

    The coins themselves are not lost, as they are not themselves stored on the drive. Rather, the drive contains the user's key and their respective addresses, to which they match themselves up to the network. This is why if the file wallet.dat is stolen, someone can easily open the Bitcoin client with the stolen copy, authorize the transmission of coins from that key to another address, and then just wait for the transmission to be validated.

    There is, however, no mechanism for the recovery by the network for addresses and keys which have been lost or destroyed. I personally mined slightly more than 4 bitcoins out of curiosity back in 2011, then stopped as I ran the power cost to income calculations. I eventually rebuilt that system, but accidentally destroyed that wallet.dat. Although I know the public receive address, I don't have the key associated with it to claim those transactions in the network that indicate the 4BTC. The claim to the transactions which represent those coins collectively are essentially irrevocably lost, with no way of the network as a whole reclaiming them due to inactivity as the system currently stands. The transactions are still present in the Blockchain, just no one can claim them.

The most exciting phrase to hear in science, the one that heralds new discoveries, is not "Eureka!" (I found it!) but "That's funny ..." -- Isaac Asimov

Working...