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."
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.
Explain "Private" (Score:1, Interesting)
Money has never been a tool of the state, except for collecting taxations and using it for the people. It is their tool and the people's tool but never was "the government owns the tool".
Just as gold and silver standards which was always "privitized" and was never a "tool" that was "centrally owned" by one figure.
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:Explain "Private" (Score:3, Interesting)
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.
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.
Re:Explain "Private" (Score:3, Interesting)
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 the metal unsupportably low.
Not the 19th century. This century starting in 1913. That's what we (in the US) have now: a private bank issuing private banknotes.
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: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.
Comment removed (Score:2, Interesting)
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.
Re:Nope (Score:3, Interesting)
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 really a form of barter and not currency. Unlike currency, it is not very liquid. Having a million dollars in Bitcoin can't be converted in one fell swoop to dollars. You can do it in stages, but sudden redemptions of large amounts by a lot of people will cause its value to drop and probably result in a lot of people unable to swap Bitcoin for cash. People are willing to accept it because they can trade it for something of value, but there is no assurance it will have any specified value nor that any particular person will accept it. Right now, it has value because people are willing to speculate in it and some people will accept it as payment. In addition, there is nothing to stop someone from creating Bitcoin2 and offering it up; unlike a government who has a monopoly on printing real money. If people have greater trust in it then Bitcoin will fade away.
Re:Nope (Score:1, Interesting)
If you need to exchange in and out of stable currencies on either end of the BTC transaction, then, while the BTC transfer may be nearly free, you end up paying your tithe to the moneychangers in exchange fees. If I'm willing to muck about doing things online, I can easily circumvent Visa/Paypal by setting up moderately large personal money transfers through my bank for free. In most developed countries outside the US, where the credit card industry has a stranglehold on individual-level finance, typically debit cards with near-zero fees are used (instead of cutting the credit monopolies in for 2.5% of every sale).
The low transfer fee feature of BTC is not particularly unique or novel --- anyone willing to put in the trouble needed to spend and accept BTC can find plenty of alternate low-transfer-fee mechanisms. Other features of BTC are more interesting.