Bitcoin money ≠ the Gold Standard.
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For instance, I think the idea of free software (RMS style) really is at odds with capitalism; but so what? This is not a good reason to agree or disagree with the idea.
That's not the point though.
Whether Free Software is at odds (or not) with capitalism shouldn't matter at all in any intelligent discussion.
But I don't think we should exclude the capitalism debate from an intelligent discussion since it has pretty huge implications. If you're advocating a system that is incompatible with capitalism, you have to first make the case for an alternative to capitalism.
It's not as though any idea that's at odds with capitalism will require "an alternative system". There's not gonna be any change to the system that requires a new theory of economics.
Suppose bitcoins are at odds with capitalism because they're just like gold (yes I know this is ridiculous, but just for argument's sake). What now? Should bitcoiners make a case for an "alternative to capitalism"? No. You will still be able to buy and sell and own property and trade and own factories and rent an office space and build a company and hire employees.
I just got this idea right now, but I think a pure capitalism will deteriorate very quickly into a dictatorship. All it takes is for someone to accumulate enough military power so that he can take over. Assuming you can buy/sell groups of armed people and/or hire them.
in a purely free market people won't want to do business with people who violate others' property rights since you have no guarantee they won't violate yours.
traditionally, guarantees against this have been ethnic. "well I know he won't enslave me since the norm is to only enslave blacks, therefore we can both happily profit from the slave trade and are no threat to each other."
No you wouldn't. All of those things are the exact opposite of capitalism, since they prevent voluntary association and threaten body, liberty and property.
Something can be problematic but that still doesn't make it a bad idea. It might be a brilliant idea which challenges you to modify your viewpoint - perhaps you end up questioning the particular form of capitalism which you think is good. Perhaps you end up endorsing your former viewpoint and discarding the new idea. hasenj's point is perfectly valid: "If an idea is at odds with capitalism, that doesn't necessarily make it a bad idea" (even if it might be problematic).
For instance, I think Open Source is a great idea, but this alone is not good enough reason to think that selling iPhone apps is evil.
Acting very cautious and defensive around capitalism makes it look like a holy untouchable ideology; this is what annoys me.
As a private owner of a "production" factory, you have control over your products, and through this control you gain profit.
Contrast this with communism, which views private control over things which are needed by the public (like food) as a bad idea because the person in charge gets to limit the freedom of others (or some idea similar to that).
Free Software is similar in this regard: software is ubiquitous, and so it's unethical (according to the philosophy of the FSF) to let it be under the control of corporations. Apple has complete control over iPhones, and they decide what you can and cannot do with it: this is "evil", according to FSF's philosophy.
From a purely capitalistic point of view: a software developer gets an incentive to create and evolve software if it was closed source and hard to crack so that he could sell it and get profit. From a market perspective, this is more efficient.
But, from RMS's perspective, market efficiency shouldn't matter here because the act of putting artificial restriction on software usage is unethical.
While I don't agree with RMS about this thing being necessarily unethical in and of itself; I do find his arguments very compelling, and I'm inclined to say that it's best if one was able to make money doing open source. However, I think one has to be realistic, and in reality developers need money, and so it's ok to sell closed apps (as in iPhone apps, or SaaS webapps like 37signals).
As you can see, my position doesn't have anything to do with capitalism as an ideology.
Copyright law legally prevents you from including someone else's software in your work, unless you get permission. The GPL grants you that permission so long as you follow the terms of the license. In other words, it isn't "your products", it's a joint product, and the other contributor wants a say on how the joint product is delivered.
If your product doesn't use anyone else's license, then the FSF does say that it's morally reprehensible to not have free software, but they stay well within copyright law to change the system from within.
Have you considered that perhaps it's copyright's temporary monopoly grant which is "at odds with certain capitalistic ideas"? After all, copyright in US law comes from promoting "the Progress of Science and useful Arts", not making profit.
I've already responded to this in another comment.
The GPL doesn't "simply grant you this right". FSF think this right is essential and that it's unethical to not grant this right. If RMS simply wanted to give you a permission, he could've used a variation of the BSD/MIT licenses.
> but they stay well within copyright law to change the system from within.
But they still think the system is wrong.
> Have you considered that perhaps it's copyright's temporary monopoly grant which is "at odds with certain capitalistic ideas"?
I've heard this argument, and I don't think it's very compelling, but really what's the point? Why should anyone feel compelled to make such an argument? As if capitalism is the religion of the state, and every ideology must be compatible with it, or else!! So you have to go around and make these interpretation about what "true" capitalism is all about.
With that in mind I think you can see how I interpreted your comment to mean that the legal expression of free software ideology embedded in the GPL, which depends on current strong copyright law, is at odds with capitalism. If that were the case then strong copyright is at odds with capitalism.
I personally can consider a set of laws in which distributed software must be distributed as free software. I agree that such would be a limitation of the sorts of economics decisions you can make. As such, I can agree that it would be against "certain capitalistic ideas."
However, since we (as a general culture) agree that Mr. Factory Owner may not employ child labor, may not have slaves, may not dump toxic wastes in the water system, must have a safe working environment, and so on, we are already at a point where we (as a culture) agree that "certain capitalistic ideas" are either morally toxic or at least subject to trajedy of the commons oversight.
Since we (as a culture) don't have, and don't want to have, a "purely capitalistic point of view", arguments grounded in that premise are at heart faulty.
At the level of globally integrated economies, I think the gold standard has been pretty well proven to be disastrous. It especially doesn't deal well with trade imbalances that unwind suddenly. The trouble you see in the Euro area can be seen as a microcosm of what a gold standard is like; countries like Greece, Ireland, Portugal, Spain don't control their money supply - more or less, it's like gold - so they're caught in an extremely painful bind, when what would be best for them is to devalue their currency some. Instead, they're having to struggle under huge debt burdens, and some might have to default, or leave the Euro (i.e. by analogy leave the gold standard).
Yes -- but by definition only if agreed upon mutually voluntarily.
But you're probably still right when saying that (almost) "nobody wants" that.
Those things are perfectly compatible with democracy but completely incompatible with capitalism. An inherent idea to capitalism is the protection of individual freedom which those things clearly violate in some way or another. On the other hand, those things are perfectly compatible with democracy given that 51% of the population are OK with it. In fact, what nobody believes in is democracy (that's why most democratic countries have a constitution).
Edit: Why the hell am I being down voted here?
I'm not making a "meat is murder" argument. I'm just pointing out that pretty much any conceivable capitalist system defines cows and horses to be property, not people. One can envision a capitalist system which does the same for slaves and assassination victims.
I.e., by tweaking the definition of "person" or "market participant", you can get all sorts of odd results.
(That said, capitalist advocates have never made such arguments, as far as I'm aware. Most early supply&demand types were abolitionists, and the phrase "the dismal science" was coined by a pro-slavery advocate.
Etc., etc. Free markets are amoral machines that discover price levels appropriate to supply and demand through transactions. They are not intrinsically good or bad; it is in the transactions that make them up that moral judgement comes in. But if the market is truly free, then there will be no limit on the kinds of transactions.
Hence, slavery not being compatible with capitalism is a fact, not a distortion of the free market nor a mere opinion.
The generally accepted term for everything, including murder and conspiracy to murder, being legal is "anarchy" and if people still have free markets in this anarchy thats generally referred to as "anarcho-capitalism". Though nothing about having a free market says that murder is legal and probably says that forcing another person to work for you using the threat of violence is illegal. I can certainly see arguing that a free market implies legal prostitution, however, since unmarried sex is legal in most places.
EDIT: And as to Capitalism, well to quote Wikipedia: "There is no consensus on the precise definition of capitalism, nor how the term should be used as an historical category."
People arguing for free trade are generally arguing for a particularly scoped subset of "free" trade, but they take as a relatively unexamined assumption that free trade is inherently good. Usually, there is some trade in particular that they would like to pursue, and they fight laws that inhibit it using free trade as a rallying cry, as if it were a self-evident justification. My point is that free trade by itself is not intrinsically desirable, and that we do in fact want all sorts of limits on what people are free to trade in.
As for your argument wrt gold, it's inconclusive to say the least. Specifically, PIIGS has failed not because they can't expand their money supply at will now, but because they could (and very much did) extend their money supply before (using ECB as a source of cheap money, which would be impossible on gold standard).
But that's a century old debate, Austrian school has made their very convincing case about fiat money w/ goverment controlled supply causing business cycles in, what, 1912? Something like that.
http://en.wikipedia.org/wiki/Voluntary_slavery etc.
I'm not familiar with the situation in all PIIGS, mostly just Ireland (I'm Irish). The money came from British, German, French banks, over the course of a decade. ECB was the source of emergency financing when the bubble collapsed; i.e. you have your order of events backwards.
The money came from British (banks, sponsored by artificially expanded money supply of BoE), German, French banks (sponsored by artificially expanded money supply of ECB), etc. I've got my order exactly correct. Then, when the crisis hit, more money come from ECB. It's a little surprise that the problem caused by excess money is not exactly fixed (in PIIGS) by more excess money.
Seriously, it's ABCT 101.
Re your selective fitting of crisis to monetary theory, I'm not going to comment; there are too many factors at work to be reductive about it.
The standards of traditional western contract law for what counts as a voluntary agreement (i.e. not one entered into under coercion or duress) are somewhere in between.
So what? People were and are always free to transact business in any way that they would like, but the coin of the realm that you are required to accept and pay taxes with is/was gold. That doesn't mean that I can't exchange a few bushels of wheat for a goat. Or some coupons for car washes for a sandwich. Or some bitcoin for a webhosting, or whatever you buy with bitcoin.
Bitcoin is only against capitalism in the sense that nobody is going to make a significant amount of money from it.
This will mean that once I open up a shop, I have to accept it as well, or I'll lose sales. Of course, in theory, nobody would force me to accept Bitcoins, but so is the case today - nobody forces me to use Dollars, or PayPal.
You still need a middleman to broker the transaction to whatever the legal tender currency is, so why not just exchange shares of GLD or SLV online?
Actually, if you're in the US, you do have to use dollars. See http://en.wikipedia.org/wiki/Legal_tender#United_States and http://en.wikipedia.org/wiki/Liberty_Dollar.
You and I can have a contract where I buy a cow from you today in exchange for an iPod next week, that's a valid contract. But if I cannot produce the iPod next week, you must allow me to give you a quantity of legal tender currency (US coins or paper dollars) to settle the debt.
If you require payment upon receipt, however, you can refuse to exchange the cow for cash.
The production curve for bitcoin, that starts steep and eventually levels off when total supply reaches 21M, is not at all like gold:
http://www.goldsheetlinks.com/production2.htm
At times gold production has exceeded population growth, at times it has lagged behind, but it certainly has not leveled off.
Also recall that Friedman called for a fixed 3% growth in the money supply, year on year, commensurate w/ long term rates of economic growth. So why would Bitcoin use a curve that starts steep and levels off?
I have heard two claims from Gavin: 1) it represents the pattern of natural resource extraction (easy it first, progressively harder until the marginal cost exceeds the margin gain), and 2) it encourages early adopters.
Now, I might wish it weren't so, but we're really good at natural resource extraction, and we get better over time, until demand falls. Plus, the general thinking goes, money supply should ideally grow at a constant rate, in line w/ long term economic averages. Maybe the extended long term view would restate that as a constant rate, relative to population growth. I don't know. The system has to reach equilibrium eventually, but we're not there yet, and for now the closest approximation is a constant percent, year-on-year.
So I'm afraid that reason (1), and Bitcoin resembling something fundamental in nature and the economy, is just not true. At best, Bitcoin is an entirely new kind of monetary system, with properties that don't resemble the gold standard or fiat currency, but will be beneficial in some fashion down the road. And at worst, it's just a Ponzi scheme.
I haven't seen (1) addressed substantively, so for now I'm tending towards bitcoin-as-ponzi-scheme.
The rant was based mostly on issues of economy disregarding the technical side completely. This response to the rant however disregards the economical side of the rant almost entirely. It's sad to see two groups of smart individuals talk completely past each other.
Most economists -- I wouldn't trust. In a similar way that I wouldn't trust most politicians.
Bitcoin hasn't proven itself to the degree of gold. It doesn't necessarily have to, though. It just has to look _better_ than alternatives, within some useful timeframe of economic activity(i.e. more than a year or two, but probably less than a century). And, as the original author wrote, it might fall apart suddenly, but then it is basically the same risk as a government-backed currency.
I think the chances of a flaw being found in the Bitcoin cipher system are a lot higher than e.g. a sudden disintegration of trust in the US dollar.
If this is so, then why have plundering governments consistently sought to replace gold with paper?
As to governments replacing gold with paper, that seems to be correlated with economic growth and modernity than anything else. A mercantile approach to gold would be something like that followed by the Spanish with their South American possessions, mining for gold, etc. It didn't serve them very well because they didn't understand that it's not some magical property of the gold that holds value.
Bitcoin claims to share the attributes of metals that make it different (ie. immutability, scarcity), but does so in a way that is impenetrable to the average person with the added flair of having do go through anonymous and shady middlemen to exchange bitcoin for an alternate currency in a highly volatile market.
So other than making the early bitcoin users who likely hold most bitcoin rich, what is the advantage of using it over other physical commodities whose use has been established for millennia?
Perhaps there's a way to partition/shard the historical data?
BitcoinJ (the Google 20% time project) uses a very compressed and less comprehensive block chain to make transactions but is not intended to be used to generate coins.
In other words, the problem is being mitigated. The level of innovation in the BTC community is jaw dropping.
That's not true. The Bitcoin protocol defines a "simplified payment verification" method that does not require clients to store the full block chain.
The Bitcoin network does need a sufficient number of full clients to ensure that an attacker cannot get access to over 50% of the processing power in the network, but the number of full clients could be much lower than the number of simple clients.
If Bitcoin ever becomes a major economy, the full clients will be sitting in data centers with lots of bandwidth, and most people will use simple clients.
Second. When accepting a coin, a node needs to check the coin was not spent since the last time it changed hands. If the buyer claims he got it 1 month ago (and shows a proof), then the seller needs to check a month worth of transactions, just in case it was double-spent. Note the terrible asymmetry of the attacker's and the defender's costs.
Third. Today I had to reread the paper (by Nakamoto) and I am surprised (again) by the level of wishfulness and naïveté. Sec 5 (page 3) says: "the nodes that were working on the other branch will then switch to the longer one". Does he realize that in a distributed system nodes might have totally different opinions on the number and length of those branches? And that those opinions might change. It is easy to imagine nodes hopping between branches with no global agreement possible. His very way of thinking has zero intuition about distributed/asynchronous systems, sorry.
Obviously, that may be cured by introducing well-provisioned central sites, as you say. But then, all that crypto-trickery becomes entirely meaningless and the system loses its raison d'être. Well-provisioned mutually-recognized sites/banks may do it exactly the way they do it these days.
Sorry for the rant.
It depends on how pedantic you are about the term "P2P". I guess you could argue that any P2P network that includes supernodes is not a true P2P network, but in practise I've never heard that objection.
"If the buyer claims he got it 1 month ago (and shows a proof), then the seller needs to check a month worth of transactions, just in case it was double-spent. Note the terrible asymmetry of the attacker's and the defender's costs."
Not really. Finding out whether an address can spend a coin is just a hashtable lookup. It's not like we have to use linked lists!
So the cost for the defender is trivial. An attacker, however, has to orphan the current block chain, which requires controlling at least 50% of the computational power in the Bitcoin network.
For instance, let's say Alice gives Bob 1 BTC. Bob waits for 6 confirmations before accepting it as valid, which is the standard length the official Bitcoin client uses. This means that there is a chain of 6 blocks verifying the transaction; if Alice wants to double-spend, she needs to get rid of that chain, which she can only do if she can produce a longer alternative block chain. This means she has to produce blocks at a faster rate than everyone else on the network, which requires that she possess over 50% of the computational resources.
"Does he realize that in a distributed system nodes might have totally different opinions on the number and length of those branches? And that those opinions might change. It is easy to imagine nodes hopping between branches with no global agreement possible."
No, because clients always choose the longest block chain. It's possible that for a little while the block chain will branch, but that situation is inherently unstable; eventually one branch will produce a block faster than the other, and everyone will switch to the winning branch.
Trying to follow your perspective. You likely assume that every node has a dossier tracking every single coin. That dossier is summarized as a hash table. Right?
there is a chain of 6 blocks verifying the transaction
Does it mean a transaction needs 1 hour to settle or I'm confusing something for something? (1 block is created in 10 minutes)
everyone will switch to the winning branch
Well... suppose I'm an attacker who briefly mobilized some significant CPU resources (a GPU cluster, a million zombie PCs). I make nodes face two chains of equal length. Once new block arrives and nodes rush to the "winner" branch, I help the other branch win, so they rush back. You see, it is far more serious than "using it to defraud people by stealing back his payments" (Sec 6, last paragraph). The strategy of "alerts" (Sec 8) might be open to attacks as well. "Bad" nodes might also do alerts. etc etc ...and that is just off the top of my head.
In very general terms, I also don't like the approach on the following reason. With strong crypto, I may encipher something, so even the biggest Google cluster will not be sufficient to break it any time soon. So, it is mathematically strong, in a sense. BitCoin weakens it to a majority vote in terms of CPU cycles uselessly burnt. That appears really weird to me.
Now I've had chance to think about it, it's probably a tree rather than a hash table, but the general idea is the same. There's no way you'd do a brute force O(N) search if N is very large.
"Does it mean a transaction needs 1 hour to settle or I'm confusing something for something?"
Yes, but it depends on how important the transaction is to you. If you receive the equivalent of $10, you may consider 1 confirmation enough, but if the amount was $10,000, then you'd probably want to wait for 6 confirmations just to make sure.
The Bitcoin client tends to err on the side of caution, and considers transaction unconfirmed until they have 6 confirmations.
"Well... suppose I'm an attacker who briefly mobilized some significant CPU resources (a GPU cluster, a million zombie PCs)"
You'd need a lot of resources. The Bitcoin network currently runs at 17190 Tflops, which is about equivalent to 2.5 million desktop CPUs. If bitcoin ever becomes a major currency, this value will be much higher, and out of the range of most botnets.
"I make nodes face two chains of equal length. Once new block arrives and nodes rush to the "winner" branch, I help the other branch win, so they rush back."
What would be the point in doing that?
"BitCoin weakens it to a majority vote in terms of CPU cycles uselessly burnt."
What's the alternative? A centralized server is likely to be far more vulnerable to attacks (just ask Sony!).
http://thisweekin.com/thisweekin-startups/
"Oh yes, we'll talk about poker and #bitcoin on Tuesday's #TWIST. Guest Amir Taaki has experience w/this business model." http://twitter.com/#!/TWistartups/status/66565296550457344
I'm assuming the host will be @Jason Calicanis.
Then I might think it's got something in it rather that looking like a volatile ponzi scheme that geeks are keen because they think they're in early and going to make mint.
But only on the side.
Not because it's a ponzi scheme, but because it's still in its early days.
> ponzi scheme that geeks are keen because they think they're in early and going to make mint.
I just learned about it yesterday, but I'm excited about it because it has the potential to become a "Free" currency (free from the central control of a powerful authority).
And if that thing doesn't exist, what is this apart from a more complicated way to waste electricity than Seti@Home?
No response to the Great Depression argument. No response to the governments will declare it illegal argument. No response to the offline argument. No response to the potential hackability of bitcoins.
Other then that it's a slam dunk.
tl;dr: http://www.youtube.com/watch?v=GTQnarzmTOc
"See, a bitcoin rant is almost too over-the-top for me. Asking why I think bitcoin won't work is like asking why the sky isn't red. I mean, wait, you think it is red? You actually took that seriously? Oh boy. Where do I even start?"
"For the record, I'm stupid and trolling. That's why it was hard to tell."
It appears a lot of HN readers like you took his comment too literally and killed the post. It's a shame because he makes some good points worthy of discussion. I'm not certain I agree with all of them, but there's certainly plenty of substance there. In contrast, this "rebuttal" adds little.
"Meanwhile, hardware enthusiasts all over the internet are rushing to buy GPUs to dedicate to mining. They don't seem to realize that the bitcoin system automatically adjusts to keep the bitcoin generation rate constant at 50 BTC per 10 minutes. As the mining market becomes flooded with new 'miners' the difficulty will climb rapidly, until it becomes unprofitable to run a GPU if you have to pay for electricity."
It get's more interesting if a company could calculate blocks faster than all the other nodes combined. Then that company could forge the complete chain of transactions.
I think there are even numbers floating around in the BitCoin forums as to how much it would cost to build such a server farm atm. So yeah - with enough money you could ruin BitCoin, but why would you be motivated to do so? Also, it gets harder every day, as the network of nodes grows.
Linden dollars didn't tried to replace US Dollars.
A bitcoin is actually designed not to be controlled by a central monetary authority.
So, of COURSE Bitcoins aren't the new gold standard. That's like comparing apples to giraffes.
> gold standard is a tool used by a central banking authority to promote stable prices.
This is the wrong way to look at it. The reason for central banks is to allow banks/governments to devalue/print money, i.e., to deviate from a gold standard.