Why Bitcoin Is Doomed To Fail, In One Economist's Eyes 537
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."
Nope (Score:3, Insightful)
He's just pissed he didn't mine bitcoins when it was still practical.
Re:Nope (Score:5, Insightful)
The author doesn't seem to understand how Bitcoin works. He seems to think that some mysterious computer programmer is the "issuer" of the currency. He says that governments will "take control", without explaining any mechanism for them to do so. His grasp of economics is questionable as well. He says that governments have always controlled currency. But prior to the American Civil War, private currency circulated. His claim that governments are better at protecting us from "monetary excess" made me laugh. Bitcoin may fail, but not because of the reasons he gives. But he hedges in his last paragraph, and says bitcoin will thrive "until the authorities do better", which means it may be around forever.
Re:Nope (Score:4, Interesting)
yeah it sounds like that.
if anything it's more legit legally now than when it started.. and yeah, monetary excess. tell that to zimbabwe. very good at protecting from that.
also, if you're dodging taxes you're dodging taxes.. it's not like using real money or not is affecting that. easy enough for government officials to pop in and check if your store has been declaring any income or not and hey fucking google, apple & all are all moving it through ireland anyways dodging taxes by phony on-paper valuations of their products or services so what new problems would we have again with this?
except that governments couldn't borrow money from people without asking people - that's what printing or creating more money ultimately is, diluting value of the money already out in circulation and if the money isn't a number on a computer or a stack of paper they print then they just would need to find someone to borrow from if they want to borrow, since they couldn't create bitcoins on a whim. why do governments tend to do that instead of taxing or finding someone to borrow from? well heck it's easier than raising taxes since people don't notice it as fast so you can snowball it for a while before the outrage..
on the subject of private currencies.. krupp gave out their own currency during the great inflation. normally I'd frown upon forcing you to buy from the company store with your paycheck but damn the government had really fucked up then.
bitcoin is funny in that it's just numbers, yet people give some value to it because creating the numbers is harder than it is for governments to issue mo' money.
ultimately it would be fine to have total separation of whoever handles the "money" and the state, which would help people separate their life savings from the state. would be useful. maybe we'll get something like that in a few hundred years.
Re:Nope (Score:5, Informative)
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.
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I didn't read this fine article, but having read some similar in the past it seems like some economists have horrible visceral reactions to Bitcoin because they they have firm stakes in how the status quo works. If something comes in and changes the rules then they their value will diminished or their way of life will be gone.
I don't know if Bitcoin will make it or fail, but something like it is in the works that will take hold and it's threatening to economists, some of which are the "prophets" of the cor
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Crikey! From now on I don't think I'll be able to think of economists without thinking of crocodiles :)
Re:Nope (Score:5, Insightful)
Moreover, even if bitcoin fails as a currency, it still works very very well as a means of money transfer. Which is one of the reasons I support it. Paypal takes a large chunk of any money transfered, Visa and Mastecard take a large chunk, etc. All can (and have) cut off payments to undesirables. Etc. There are so many issues with centralized payment processors.
Bitcoin though, is brilliant. Being decentralized, it is strongly resistant to attempts to prevent donations going to "undesirables". The fee charged is a small percentage of that the major companies charge (and is not even required at the moment, as most miners will still process transactions without a fee). Etc.
And, if you don't keep your money in bitcoin (which does mean you have to trust a thirdparty "exchange"), you don't have to worry about exchange rates either. Just have the bitcoin changed directly to the currency of your choice, and withdrawn immediately from the exchange.
Also, obviously this economist doesn't know enough about bitcoin to pass judgement. It is not an anonymous currency, at most it is pseudonymous. And, just as obviously, this economist doesn't know about history. As an AC has already said, private currencies were very popular before the 20thC. Around the world.
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Re:Nope (Score:4, Interesting)
A government could take control of Bitcoin in multiple ways:
1) use massive budget spending to fund an organization to stage a 51% attack on the network. The NSA has the capability to do this. They can coerce private industry to develop ASICs in larger volume production than what currently exists, and shutdown any other ASIC reseller.
2) give power to police services to setup busts on individuals looking to sell/buy Bitcoins for cash, and shut down Localbitcoins.com or any other website that provides such services. It would be a cat-and-mouse game if sites like Localbitcoins were only in the Tor network, however this increases the difficulty to 'cash out' so it could effectively devalue Bitcoins.
3) coerce ISPs to install multiple Bitcoin p2p nodes with preferential network conditions so non-sanctioned p2p nodes connect to them first within the data centre and monitor which IP addresses are sending or receiving Bitcoins. Kind of a combination of MITM and setting up multiple wave detectors in a pond, then correlating the point source of the ripple.
4) use information gleaned from this monitoring to tie Bitcoin addresses to IP addresses, then coerce ISPs to hand over the subscriber information.
A few ways to to stop this: further decentralize the internet and establish a truly global peer-to-peer mesh network. A massive wireless ad hoc network would work if it can cross the ocean somehow. The other possibility is white listing IP addresses within the Bitcoin p2p mesh, but a white listed IP could always get compromised by the state for some unknown length of time. Namecoin might offer a reasonable solution if it also had a tie-in for tunnelling and rerouting traffic and never allowing 'exit node' like Tor does, however everyone would need to use it. I see it suffering from the same problems as Tor though.
The author makes one solid implied argument: the state has the ability to resort to threat of violence, detention, financial ruin, seizure of assets over its citizenship.
Not that easy (Score:3)
1) use massive budget spending to fund an organization to stage a 51% attack on the network. The NSA has the capability to do this. They can coerce private industry to develop ASICs in larger volume production than what currently exists, and shutdown any other ASIC reseller.
That won't be easy.
The required hashing power is ridiculously high:
- Current hash power of the whole network is 6 Peta-hash/s (OMGWTF: it was still counted in Tera-hashes back when I looked).
- At the current trend of hashrate/difficulty increase, by the time the NSA puts their evil plan into production, they'll probably need to deploy several exa-hashes.
Next-gen mining machine are presumed to go into the Tera-hash range by unit. To control the whole network the NSA would need hundreds of thousands of them (
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The government can "take over" by passing laws that make it illegal to use or exchange bitcoins unless they are registered or have some other control feature. Private money is not illegal in the US, but it doesn't have to stay that way. That wouldn't stop the illegal usage of bitcoins, of course, but having the government go from indifferent or passively hostile all the way to actively hostile will be a serious problem. Even drug traffickers need to get their eventual profits into state-sponsored money f
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The author doesn't seem to understand how Bitcoin works. He seems to think that some mysterious computer programmer is the "issuer" of the currency. He says that governments will "take control", without explaining any mechanism for them to do so. His grasp of economics is questionable as well. He says that governments have always controlled currency. But prior to the American Civil War, private currency circulated.
Your misrepresenting what he said. His position is not that there never was private currency; rather that publicly issued currency inevitably replace them because of greater trust in government backed money as a store of value. As for governments taking control, not stating how doesn't mean they can't or won't do it. In fact, probably the best way to "take control" is destroy users' trust in them as an anonymous and secure way to conduct business. Attack the users, not the system.
His claim that governments are better at protecting us from "monetary excess" made me laugh. Bitcoin may fail, but not because of the reasons he gives. But he hedges in his last paragraph, and says bitcoin will thrive "until the authorities do better", which means it may be around forever.
Bitcoin, as he alludes, is
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Maybe something didn't click in your head... Bitcoin is a currency. Dollars are just the middlemen here. If you earn Bitcoin and spend Bitcoin, where do dollars enter the picture?
No, Bitcoin is merely a tool for barter. A currency is very liquid and accepted as legal tender where it is issued. Bitcoin is neither. That doesn't mean it can't be used as a way to engage in commerce; but many things can be used the same way that are not currency.
Re:Nope (Score:5, Insightful)
Economists who don't tell banks and governments what they want to hear don't have jobs for long. So, obviously, most of what they publically spout is complete nonsense.
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What about the economists who are employed by universities?
How long will they be employed if they start claiming that government and business economists are spouting nonsense? How many will get tenture if they don't go along with the status quo?
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Re:WD et al. (Score:4, Insightful)
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as I understand it Bitcoins are infinitely divisible so when coins are lost the value will go up for the remaining coins to compensate, so prices will simply adjust.
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That means bitcoin value will never be stable enough to become a useful mechanism for trade.
How many people are going to want to sell products for bitcoins when the value of those coins could slide 50% by the close of business that day?
I'm very sympathetic to the idea of cryptocurrency, and the idea of a private currency. However, I'm not sure I would ever want to participate in such a currency if it was anything but local. A worldwide private currency can never work, because
Offer/Demand Law (Score:5, Informative)
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".
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" How divisible are bitcoins?
A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. If necessary, the protocol and related software can be modified to handle even smaller amounts. "
Re:WD et al. (Score:4, Informative)
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.
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New gold is produced regularly through mining. Old gold is generally recovered and not lost. Gold has little utility, so the demand for it is for other purposes.
Bitcoins are limited in number forever. Lost bitcoins cannot be recovered like gold in watches or teeth can. Although Bitcoins have zero utility, too, they have near-zero liquidity at the moment in the physical world. I can sell my old gold Hamilton watch at any pawn shop in the world; what can I do if I need cash and I have bitcoins and no wor
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Re:WD et al. (Score:4, Insightful)
Bitcoins are limited in number forever.
Bitcoins are infinitely divisible.
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Re:Nope (Score:4, Insightful)
Arguments about inflation, deflation, changes in spot prices, deficits, debts, surpluses, and so on are a distraction because these things are not the problem; they are merely a measure that can indicate a systemic problem.
For instance, the problem in Zimbabwe isnt the hyperinflation, its that the government exists outside its means: they are using the inflation to rapidly transfer all the credits of accumulated goods and services (which is stored in "currency") to the government because it is not possible to transfer the amount needed any other way. You see that this does not mean that the problem only manifests when there is hyperinflation, nor is it only a problem when inflation exists at all. Accumulating large amounts of debt is another way to do it. The problem remains that the government exists outside its means. It generally only devolves into hyperinflation when the government can no longer issue enough debt, and that happens when it becomes obvious to enough people that its existing outside its means.
Bitcoin isn't flawed because of anything to do with "value" -- a bad argument the article (and many folks here) tries to make. Bitcoin is flawed because its an arbitrary choice. When the Germany switched to the Euro, the people of Germany happily continued to use Marks. It was not until Germany insisted that taxes be paid in Euros that the country rapidly switched to the new currency. The Euro was just an arbitrary choice that had no justification until the government demanded that taxes be paid in it, and then it instantly became a justified choice, and was rapidly adopted as the justification for the other choice disappeared.
So why Bitcoin instead of some other virtual currency? While you can find reasons not to use other specific virtual currencies, its still arbitrary to choose Bitcoin over SameAsBitcoinWithAnotherNameAndBlockchain.
Economist (Score:2, Interesting)
An economists view on this issue means about as much to me as an astrologist's. The whole subject of economy is a joke.
Re:Economist (Score:4, Funny)
Absolutely. The compex nature of money should be left to people who know more about it than economists.
Like... err...
Maybe Astrologists aren't such a bad idea...
Re:Economist (Score:4, Interesting)
Many years ago I compared the general economic forecasts of economists to those of the astrologers in what when then American Astrology magazine, a semi-scholarly attempt at presenting astrology as a legitimate field of scientific inquiry. I followed each of their predictions form five years. The results revealed that economists were right less than 1% of the time while astrologers were right about 10% of the time. Since we all know that astrology is bogus the results say a lot about economists. Maybe it's time to do the study again.
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References cited please before espousing something so ridiculous. By what measure would you call economist's predictions a failure? That the economy was adjusted by a range of basis points?
That said, the world is a very complicated organism, and predicting the economy has much in common with predicting the weather. We may not have an exact model of what the weather will be like tomorrow, but they understand the general patterns which get pretty darn close. Are they always 'right' in their predictions? No, d
Tulips (Score:5, Interesting)
We've played this game before.
I look forward to the first Bitcoin Panic, it should be interesting to see what happens...
Re:Tulips (Score:5, Insightful)
Tulips
http://en.wikipedia.org/wiki/Tulip_mania [wikipedia.org]
Thanks for that AC
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I look forward to the first Bitcoin Panic, it should be interesting to see what happens...
People will invest in tulip bulbs again, because they are great for sending money online?
Re:Tulips (Score:4, Informative)
Don't you mean the second Bitcoin panic? The fork fears in April led to the first panic.
Already happend multiple times (Score:3)
*erior (Score:4, Insightful)
Everything described here is what makes bitcoin a superior form of money, not inferior.
Re:*erior (Score:5, Insightful)
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The only problem I have with BitCoin at the moment is that it isn't something you want to hold on to.
I find that amusing, given that another of the criticisms about bitcoin is that they think the deflationary nature of bitcoin would result in hording.
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They are both fair criticisms, just being deflationary is a lesser criticism compared to the current state.
Re:*erior (Score:5, Insightful)
If it can go from $1 to $1000 in the space of a year, it can go from $10,000 to $0 in the space of a few miliseconds.
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True BitCoins are very volatile at the moment... But the only reason you think USD is stable is because you are inside the USA. All currencies are very volatile. The big point you are missing is that a currency is worth what people will sell for it as much as an item is worth what people will pay for it.
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All currencies are volatile, but typically only on the few-percent-per-year level; it's not common news to hear that, e.g., the Yen has changed value relative to the dollar by a factor of two over the past week. Just because all currencies are a little bit volatile doesn't mean that BTC's massive speculation-driven volatility isn't a big issue that sets it apart from currencies useful as currencies (rather than just gambling).
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Control (Score:5, Insightful)
That said he has a point regarding government interests in taking virtual currencies down or controlling them. The thing is, technologies evolve, and albeit bitcoin may find its end in government interventions, sooner or later other alternatives that are even harder for governments to control will appear. It was the same with file sharing and it will be always like this. People resent control and given the means to avoid it most will.
Re:Control (Score:4, Informative)
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:Control (Score:4, Insightful)
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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 presenc
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He's right, but wrongly. (Score:5, Insightful)
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If you're looking for famous examples of losing faith in money, there was a period in Germany where exactly that happened. And more recently, Zimbabwe. Both times involved people needing wheelbarrows full of money to buy groceries.
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If you're looking for famous examples of losing faith in money, there was a period in Germany where exactly that happened.
My favorite picture regarding this (saw it in a history textbook once, have never been able to find it again), was of 2 kids playing with literally (and I mean actually literally, not figuratively) brick-sized bundles of Papiermarks like they were building blocks.
Re:He's right, but wrongly. (Score:4, Insightful)
BitCoin had value because of SilkRoad, and the silk-roaders were willing to accept it for... something. Frankly I'm surprised BitCoin still has value after SilkRoad's demise. If something significant replaces SilkRoad, BitCoin will remain valuable. Until then bitcoin's going on momentum. May crash soon, may not. Will crash eventually.
The Silk Road bust put an end to underground drug trade, just like the Suprnova takedown put an end to copyright infringement online.
Also, there's a metric shitload of things you can legally buy with Bitcoins.
Re: Silk Road (Score:3)
Silk Road was only down for a month or two, following the arrest of one individual.
http://www.forbes.com/fdc/welcome_mjx.shtml
"On Wednesday morning, Silk Road 2.0 came online, promising a new and slightly improved version..."
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> Frankly I'm surprised BitCoin still has value after SilkRoad's demise.
You shouldn't be. The Silk Road indictment reveals their sales represented only 5% of total bitcoin transactions over the period they operated.
There are now at least 24,000 merchants using bitcoin - that's the number using the two largest payment processors, Coinbase and BitPay. You can also buy gift cards for hundreds of major stores with bitcoin through Gyft and eGifter. That's a big channel to spend bitcoins, even if the stores
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Since all States are doomed to failure, their currency will follow. When was the last time that Roman coins were used as legal tender?
You can't have legal tender without a government to declare it such. But I'm pretty sure there are people who'd happily accept Roman coins for payment, with a value based on their rarity and gold and silver content (which was massively debased by the government as the Empire decayed).
Statist gonna state (Score:2)
Money is by no means "inevitably a tool of the state." Of course, the state always acts to seize control of the mint or printing press, but money (e.g., gold, silver) would of course exist regardless of the state.
And if money is a tool of the state, why do we allow a private banking system to issue our money?
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If you mean the Federal Reserve, that may be technically private, but all the people in charge of it (the board of governors) are appointed by presidents and confirmed by the Senate. If you don't like what the Federal Reserve is doing, put your blame on the people who appointed those governors and accepted those appointments, and vote accordingly.
It is true that the Fed is somewhat insulated from politics. That's because otherwise it would be very very tempting for a president to make sure that the Fed did
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You're just trolling, but we (the US and most other countries) do allow a private banking system to control and issue our currency. It's called the Federal Reserve System and it is private. See Lews v. United States,680 F.2d 1239.
I never "listen" to "stupid media" - I read.
where?! (Score:2, Insightful)
"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."
dude, i want to know where this landfill is! for £4 million, you can automate the searching process or pay idiots to do the work for you! sensitive metal detectors can sure cut down the searching process. plus, think of all the other hard drives you will find and could sell on ebay as "used". ;D
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someone needs a history lesson (Score:2)
Centuries of history tell us differently, because throughout much of history, "money" was either stuff that was intrinsically valuable to people, or it was slips of paper referring to actual, valuable stuff stashed away in private vaults. In fact, it is governme
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or it was slips of paper referring to actual, valuable stuff stashed away in private vaults.
I'm assuming you're referring to gold convertability. It's nonsense: The reason gold is valuable is that societieshave historically used it as currency. The commodity price of gold has little to no reference to its actual uses (jewelry, electronics, etc), and everything to do with people thinking that if the US dollar collapses there will be people willing to exchange gold for other more-useful stuff.
For a very long time, bronze was an important and valuable currency. It isn't now, and that isn't primarily
Tax (Score:5, Insightful)
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umm... what part of anonymous currency didnt you understand? you can only be tracked by something that leaves a paper trail.
note: if the nsa can rapidly decrypt internet traffic then they may be able to track bitcoin exchanges at specific sites... or maybe they or the fbi will hack the servers. land of the free. ;_;
Is he confusing bitcoin and cash? (Score:4, Interesting)
'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.
Cash's value is uncertain, its legal status is ... well, not unclear, but situationally dependent in a pretty bad way[1], and like anything, it becomes valueless if nobody wants it.
1. In the US, at least, while it's legal to use arbitrarily large amounts of cash in any legal transaction, it's not legal to use it for drug deals, money laundering, etc.. Sounds reasonable so far, but there's a whole boatload of policy and precedent to the effect that having large amounts of cash constitutes evidence that you were using it for drug deals, money laundering, etc., which combined with civil forfeiture, means that having large amounts of cash permits the state to seize that cash, unless you can prove that you were doing something good with it. Short of being an employee of a bank, vending machine company, etc., that's pretty hard.
Missing the point (Score:3)
The selling feature of Bitcoin is that it is not backed, nor traceable by, governments. That's the main drive behind this boom - very little trust remains in the US government, or in many others. That covers the Silk Road-type drug-trade users - they have a very good reason not to trust the currency of a government that has declared war on them. That covers the technological side - tech-savvy people tend to be much less trusting of any government, and we in particular were betrayed by their widespread monitoring. And it even covers the investment bubble - the marketplace wants US monitoring of damn near everything to stop, and anything that steps in to fill that need will find a ready consumer base and investor backing. Those are the three groups *he* identifies as behind the Bitcoin boom, and each one is motivated, directly or indirectly, by a fear and hatred for the American government (note that it's specifically the government, not the American people, that are the target here).
Bitcoin will die as soon as we can get similar guarantees of security for official, government-backed currencies and banking systems. Oh, and not just from America - a currency that is secure not just from the issuing country, but all others.
Yeah, even if Bitcoin dies (I can see a big enough crash destroying the brand, and any currency is only as strong as the collective desire to use it), something else will come up to replace it.
Hard to reach consensus without central control (Score:2)
Even with the relatively still small subset of the population that is participating in it, they have made BitCoin untenable as a currency. It's simply too volatile. Over the last few hours, the 'value' has increased by 20%. Now that *sounds* to BitCoin advocates like awesome news, but it means I can't negotiate an annual salary or a reasonably establish terms for a loan or really much of any sort of long term planning.
While people may rail against a central bank manipulating a currency, the aggregate beh
Funny, you don't *look* like Uncle Sam's intern... (Score:3)
Way to miss the point, Ed.
The governments of the world have proven themselves much too irresponsible to manage fiscal policy. We-the-Fuckin'-People have, therefore, decided to take that power back from the government.
When a government can't keep its own spending in check, "raise taxes" does not count as a valid response, whether or not they have that power by virtue of having the biggest guns. The interests of the world's governments have drifted so far away from "public-minded" as to make your entire suggestion laughable. No, we obviously can't trust most private entities to act in our best interests - But I could name literally a hundred that do a hell of a lot better job than any world government.
The federal reserve and the ECB need to cease to exist, ASAP. No more of this "implicit taxation through inflation" crap - If governments can't play on the same monetary field as the rest of us, they need to go away and have something better able to live within its means replace them.
Re:Funny, you don't *look* like Uncle Sam's intern (Score:4, Insightful)
Implicit taxation through inflation? First, inflation is extremely low on the entire western world. Second, inflation only eats away at you if you are sitting on currency as assets, which is a terrible thing to do. If most of your wealth is being productive somewhere, changes in the medium of account shouldn't matter a bit.
Now, having zero inflation, or all the way into deflation, is not a good thing for an economy. We have this fundamental problem called Money Illusion. It's been measured in a whole lot of studies, just look it up. As long as there's money illusion, in practice, economies work better when economies grow in a predictable manner, which implies some mild inflation. Without said inflation, velocity drops, and with it economic activity. We really, really, don't want a shrinking GDP. A central bank is a compromise to make sure that someone, in some way, is actually altering the money supply to achieve that objective. What we need though is a way to make sure central banks are making less decisions that look like reading entrails, and more that are empirically testable and forward looking.
Translation: (Score:3)
in other words, state sanctioned VIOLENCE.
FTFY
Translation: Can't make money yet (Score:5, Insightful)
Bitcoin is just alternative currency. There are plenty of that around - most of them are pegged to some other currency though, but they are, for the most part alternative currency.
Think: Gift Cards (Amazon/Apple/Steam/Google/etc), alternative store currency (Canadian Tire Money), etc. Then there's non-traditional currency, like WoW Gold.
If anyone says Bitcoin isn't a "money" they're plain old lying. It can be used to facilitate trade (which is the purpose of currency).
Of course, there are a few fundamental problems with Bitcoin, but there are problems with all currencies.
When any economist, banker, etc., says Bitcoin is doomed, the real reason is them saying is "we haven't figured out a way to make money on it yet". No currency is invulnerable to making money by doing things of little value, Bitcoin included. It just means the quants haven't sat down to figure out schemes to exploit to get bitcoins for little effort. Either it's because the entire bitcoin market is too small so the benefits of skimming 1/1,000,000th of a Bitcoin from every transaction is barely worth the effort, or other reason.
That's the real message.
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"Gift Cards (Amazon/Apple/Steam/Google/etc) ... (Canadian Tire Money)"
All of these are pegged directly to real gov. currencies and hence are legislated to be honoured as an obligation for cash exchange within the bounds of their own rules. There may be terms on maintaining balance/etc, but it's illegal to withhold payment if in good standing. That's what makes these things a currency, and that is also what makes these tax free (gov's don't double dip by charging tax to 'purchase' the item), though if you ac
incoherent arguments throughout (Score:3)
First, a brief correction: the author of the op-ed is not an economist. He's a journalist [google.com] and former financial analyst who writes on economics topics for the NY Times.
Second, the op-ed makes a number of errors:
1. He asserts without evidence that non-government currency is inherently inferior to government currency, without defining the purposes for which it is supposedly inferior and in what ways. Medium of exchange? Unit of account? Store of value?
2. His argument relies upon his unsubstantiated belief that "no bank or bitcoin-emitter can be as public-minded as a government", and that "no private power can raise taxes or pass laws to unwind monetary excesses". This ignores the signficant body of research on the not-so-public-mindedness of public officials. It ignores the fact that the "monetary excesses" he needs to unwind are frequently caused by government monetary policy, rather than being inherent to currency. It also ignores the fact that Bitcoin's cap on supply was designed precisely to avoid such monetary excesses. Perhaps Bitcoin's design in this regard is deficient, but the author apparently could not be troubled to make any argument detailing how.
3. He criticizes "private money" such as Bitcoin for having uncertain value, and for its potential to lose value if users lose faith, despite these problems applying to state-backed currencies as well. It's not as if we've never seen runs on banks, unexpected inflation or even hyperinflation with government fiat currency.
4. He further criticizes Bitcoin for its alleged anonymity and thus a potential for tax evasion, neglecting the fact that Bitcoin is less anonymous than the goverment paper currency known as "cash".
5. He repeatedly makes the argument that because we've had state-backed currencies for a long time, they must be superior. This neglects the possibility that effective non-government currencies were not feasible at scale in the past simply due to a lack of technology (crypto and global instant communications). And it neglects the possibility that the future of currency is not either-or, but both.
This is what happens when the poltical-media establishment tries to shoehorn a story about technology and economics into the same tired left-vs-right, government-as-perfection vs. government-as-catastrophe narratives. You get an incoherent, poorly researched, poorly argued mess. The author may end up being right that Bitcoin won't last, but he's not given us any sound argument to support his claim.
its designed to be subversive... (Score:3)
...and once it gets (and its inevitable people) linked to a 1. worldwide child porn ring 2. high-viability murder-for-hire 3. terrorist act that kills many citizens in some random country or 4. large scale drug operations, it will be legislated away with the blessings of the state-run media, the banking system, and the average person in the street as something exotic and hard-to-understand-and-therefore dangerous.
so play in the sandbox while you can, its not going to be around for long....and for you people who say nothing can stop it? lol wait til they make it a 3rd degree felony to have a wallet on your harddrive.
Comment removed (Score:3, Insightful)
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Just as gold and silver standards which was always "privitized" and was never a "tool" that was "centrally owned" by one figure.
I'm pretty sure that there is an argument that gold and silver, as far as macroeconomics is concerned, has been "public" and centrally controlled for a long time.
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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.
Well, except of course the Federal Reserve.
Re:Explain "Private" (Score:5, Informative)
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:Explain "Private" (Score:4, Insightful)
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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.
Gold and silver standards pre-existed state control of money. Attempts to legislate the price of metal always failed because the state could never resist the temptation to inflate the currency base, making the price of th
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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.
I'd be interested to see proof of this. I agree that it seems lik
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Archeology certainly suggests that we've been taking shiny things seriously for a long time; and gold certainly has lots of properties t
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Because it is wholly owned by a consortium of private banks, and not subject to government audits?
No, because none of that is true. No one really "owns" the Fed. [factcheck.org]. The private banks are more like members than owners, government appointees have all the decision making power. Also, all the Fed banks are subject to audits [federalreserve.gov] by the GAO and independent entities.
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There are 4 countries[1] in the world where private banks still issue banknotes - Scotland, Northern Ireland, Hong Kong and Macau. But only government approved banks have a licence to print money, and they are required to deposit funds with the central bank to cover the notes they have issued.
[1] None of them are independent countries, and only Scotland is technically a country, but they all have their own parliaments and legal systems.
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What is money if not basically a promissory device? I promise to give you a certain amount of goods and services.
Moreover, different bank notes were worth different amounts. You might have a bank note from The Bank of Here with $5 on it, a bank note from The Bank of There with $5 on it, and a note from The Bank of Nowhere with $5. But, actually, a shopkeeper might not trust the Bank of Nowhere, and think that the Bank of There is too far away, and so will only provide $3 and $4 worth of goods respectively f
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"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."
The Ithaca HOUR is a local currency used in Ithaca, New York and is the oldest and largest local currency system in the United States that is still operating.
http://en.wikipedia.org/wiki/Ithaca_Hours [wikipedia.org]
BerkShares is a local currency that circulates in The Berkshires region of Massachusett
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Hyperinflation is a bad thing (money made yesterday is worthless compared to today), but normal inflation is quite a good thing.
Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run
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As long as interest/investments pay out at a rate higher than inflation
There we go.
Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run.
Because those two things are irrelevant to making an economy run. An economy will run whether the money it uses (or as the case may be, doesn't use) is inflationary or deflationary. It runs whether the population saves more or less.
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Meh. They were the ones who reported the CIA's deal with at&t to get call records for $millions a year [nytimes.com], so either the NYT isn't (fully) in bed with them or they were tacitly warning at&t to cough up this year's catch Or Else(tm).
Is it still a fiat currency ? No. (Score:3)
Due to its mathematical design, bitcoins are similar to a comodity [theatlantic.com], not a fiat currency.
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Bitcoin has proven itself of no such thing yet. It hasn't existed yet even for five years.
Wake me up when a country that uses it widely recovers from a full-on economic recession.
THEN it will have proven itself dependable.
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It hasn't existed yet even for five years.
This bears repeating. Even if BitCoin had shown remarkable stability over this period, it would still not be enough.
Secondly, BitCoin has failed dramatically to demonstrate said stability. It's shown just the opposite. [blockchain.info]
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it will be due to the collective stupidity of large numbers of people.
That is of course a very very likely thing. I think the first world nations are where they are because they strike the right balance. Not *too* few people in a position to completely change things, but not so many that it devolves to chaos.
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This is one area that government can provide some stability against inflation and outright scams.
Yes, they could, in theory, in a magical fantasy world run by benevolent overlords. But, in the real world, the US dollar has lost approximately 99% of its value since the Fed was founded and no longer has any value beyond the US government's promise to tax future generations to support it.
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at least bitcoin produces some type of mechanism for faith in it to even exist at all
What mechanism would that be? Do you refer to the notion that because it is not a fiat currency that it must be better? There's also a fixed quantity of helium in the world, why not use that as currency? That means gold must have tracked the average cost of things pretty closely... no wait, it hasn't. Well at least gold has always gone up lately so it's predictable in the deflationary effect, well except the rather sharp decline since the beginning of 2012. Or do you think that because it has the poten