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Comment by piokoch | Hacker News Reader

Nice document. It shows well the way of thinking of our governments.

"detecting suspicious activity, identifying users, and obtaining transaction records is problematic for law enforcement." - That must deeply hurts FBI people :)

"Despite the virtual nature of Bitcoin, users value the currency for many of the same reasons people trust Federal Reserve notes: they believe they can exchange the currency for goods, services, or a national currency at a later date."

People do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it.

But it is good, that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals.

If one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax.

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> People do not trust "Federal Reserve notes"

Really? There I was thinking foreign governments liked holding their reserves in US dollars...

> that at least some people realize that there is no such a thing like US dollar, only those "notes" printed by Ben Bernanke and his pals

Wake up, SHEEPLE!

"foreign governments liked holding their reserves in US dollars"

Yes every government has to keep dolar reserve because this is the only currency you can buy oil with. USA managed to force oil suppliers to accept only US dollars.

This is the source of the dollar power and enable FED to print as much dollars as they want. People all over the World must purchase dollars.

Ok why do foreign governments also hold Euros, British Pounds, Chinese Yuan, Japanese Yen and Canadian Dollars as reserve currency? You're tinfoil hatting bit too hard here man.

Minor snark, but 'the Fed', as in 'The Federal Reserve Bank of the United States of America' is an abbreviation, not an acronym. If you really want to use a TLA, 'FRB' (Federal Reserve Bank) might work, but 'FED' is meaningless. This undermines the credibility of your pronouncements on monetary economics.

You really do not have a clue how our monetary system works, do you?

So enlighten us all, rather than posting snarky comments.

The last time on HN that I responded to blatant ignorance with a three-paragraph summarization of a complex system, I was called rude because I said, "You don't seem to know how X works."

Obligatory link to Irwin Schiff's 'How an Economy Grows and Why it Doesnt' http://freedom-school.com/money/how-an-economy-grows.pdf

But regarding your original point, foreign govts and banks hold the US dollar because historically it has been strong, stable and accepted everywhere. It has no intrinsic value and recently governments are moving away from solely pegging their currencies to the US dollar as it has weakened relative to other currencies in the past few decades (eg Euro).

Another reason they take the US dollar is that they have no other choice. If China or Saudi Arabia were to say 'we want gold!' or 'we want resources!', trade relations would have stopped a long time ago.

> Wake up, SHEEPLE!

Obligatory XKCD ref: http://xkcd.com/1013/.

If one day Bitcoin gets truly popular governments will be in trouble. How to tax that beast? I wonder if there is any other solution then poll tax.

You would tax Bitcoins in the same way you tax transactions in USD, EUR, and so on. There really is no difference, once you stop to think about it.

Even with the USD, taxation does not work by the government subpoenaing your bank's records. Instead, it is your (or your employer's) responsibility to report your income and related data according to the legal requirements. The same applies to Bitcoin transactions.

Obviously there are some differences in the investigation of tax evasion. But there will still be records somewhere, and prosecution is used to deal with similar problems when transactions are cash-only.

>People do not trust "Federal Reserve notes"

I trust Federal Reserve notes. US currency has high barriers to counterfeiting and can be exchanged for goods and/or services with actual rather than virtual anonymity. I may be a cave man, but I'm not alone. US banknotes are the 'gold standard' of black and grey markets around the world.

Governments are cracking down on the use of cash in ways that will only help the promotion of Bitcoin. http://www.forbes.com/sites/jonmatonis/2012/10/17/large-cash...

While I am ignorant of the situation in Spain, it is interesting to note that the two other governments detailed in the linked Forbes article have extreme organized crime problems. I am sure this says something about the role of the rule of law in the bootstrapping of trust.

Integrating licit and illicit revenue streams will always be a foundational issue for any illegal enterprise. I have not looked deeply into the implementation details, but Bitcoin does not strike me as a viable money laundering solution. At the point you move large amounts of value out of the ecosystem and into the 'straight' economy, you require the complicity of bankers.

The problem in Spain is this: http://en.wikipedia.org/wiki/Informal_sector

Estimated to be 20% to 25% of GDP compared to an average of 15% to 20% in the neighborhood.

Edit: as an extra fact, "we" (I've never seen one) hold most of 500€ bills that have been printed.

Thank you for the link. An English translation of the referenced title (Hernando de Soto's 'El otro sendero') is available in the extended network of my public library system, and I have placed a hold on it.

At present there isn't much you can buy with BTC. If the day came when EBay, Amazon and your local shops accepted BTC then that would change, especially if the local shops didn't require ID when you bought something.

People do not trust "Federal Reserve notes" (or any other official currency) - they are forced to use it, since they must pay taxes in it.

That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, or why criminals who aren't expecting to pay tax at all still deal in official currency.

Because it's easy to spend since others accept it. Money itself has absolutely no value at all. It's more a promise that somebody will accept it when you want to buy something with it.

Which is precisely what the FBI report was describing: "they believe they can exchange the currency for goods, services, or a national currency at a later date."

That's the whole point of fiat money, isn't it?

It't the whole point of money, period.

> That doesn't explain why people continue to accept official currency in excess of their anticipated tax bill, ...

It is legal tender for debts. Offering currency to a creditor extinguishes the debt, whether or not they accept it.

Exactly. We trust USD to be accepted as legal tender for debts.

LOL.

Most people do trust cash, within certain limits, because they're not crazy libertarians. The value of bitcoin is every bit as illusory and consensual as paper money.

That it's not under central control and has a fixed supply is interesting, but doesn't give it intrinsic value.

Actually the fixed supply is part of what does give it intrinsic value. Value is fundamentally anything that has utility _and_ scarcity. If the supply of BTC was infinite, it would have essentially no value (or at least it's value would diminish at such a rate that it would be useless for anything).

Value is just what people think something is worth, it's a shared illusion, not an intrinsic property of ... anything much.

Having a static, fixed supply and independence from central control makes something valuable to you, not so much to me.

>If the supply of BTC was infinite, it would have essentially no value

But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.

edit: Probably not the best example, but either way, value is a perception.

You misunderstand. Independence from central control has nothing to do with it.

I'm not defining value in the philosophical sense, which as you point out is entirely subjective, but you seem to be arguing against the generally accepted definition of value as applied to a system where something is exchanged in return for something else.

> But there are many other circumstances that could result in BTC having no value, regardless of scarcity. For instance if people stopped using it, at all. There would be no value in being the only one with bitcoin, regardless of how scarce they are.

Perhaps you need to re-read my comment. I never said scarcity alone was enough - if no one used it, it wouldn't have utility. You need both, hence my use of the word 'and'.

And thanks for the completely unnecessary downvote.

> And thanks for the completely unnecessary downvote.

Have another, for whining about it!

There are two obvious ways in which expanding the money supply can go wrong.

1) Bernake et al. are feckless idiots and will leave the money presses running long after inflation rears its head, a la Zimbabwe, causing hyper inflation and the destruction of the world economy

2) The economy picks up a bit and they stop printing. However, that huge pool of money they have created is enough to drive inflation so high that they are either faced with allowing a period of high inflation 70's style or breaking the economy again with restrictive monetary policy.

Outside wild conspiracy theories I don't think 1 is plausible and 2 is hardly likely to lead to the huddled masses attempting to warm themselves around a pile of burning trillion dollar notes. So I think confidence in the dollar is safe for the interim.

1) is not plausible unless it happens. Hyperinflations tend to happen only once in a history of a fiat currency.

It sounds a little bit crazy to propose that hyperinflation would happen to one of the really big world currencies (euro, dollar, yen...). But I don't see any technical reasons why it couldn't happen at some point in the future.

You may be interested in this paper on hyperinflation: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102

The tl;dr version: The root cause of hyperinflation has never in history been runaway printing of money. Rather, the root cause is always some mixture of foreign-currency denominated debt, political chaos, and collapse of a country's productive capacity.

To give a bit more detail: This analysis applies to both the Weimar republic hyperinflation (excessive reparations demanded by the victors of World War I denominated in real goods and foreign currencies, combined with a military occupation of Germany's steel and coal industrial center) and the recent Zimbabwe hyperinflation (high USD-denominated government debt combined with a collapse of domestic production due to stupid economic reforms).

The hyperinflation is simply a result of such untenable economic situations. They tend to be "cleansing fires" in some sense: especially in the Weimar republic case, the hyperinflation made it very obvious to everybody that the war debts need to be backed off.

IMO true hyperinflation is extremely unlikely since the US can also "unprint" money at will due to it being mostly digital debt. They will however continue to inflate as much as they think they can.

Related, "gold bugs" may have had a good decade but I also believe that gold's value comes from nothing more than tradition: you can't eat it and you can't defend yourself with it.

> they are forced to use it, since they must pay taxes in it.

Last I checked, people use US Dollars for a fuck load more than paying taxes.

> How to tax the beast.

Cash is and was even more so in the past harder to track than bitcoin and yet somehow the "hooligans" managed to collect taxes.

With so few people - in Germany at least - having their assets in Gold etc. but in bank accounts in $,EUR,... I assume most people trust the currency.

Doesn't Germany hold a huge amount of gold? Additionally, the only euro country not collapsing on itself?

The US Dollar area (i.e. the US) has come closer to default than the Eurozone.

yep. But can the largest military power really default?

Easier than anyone else, I'd say.

"Hi Everyone, POTUS here. About those treasury bonds a lot of you are holding... we're not going to pay interest on them. Or pay back the princiapl. Ever. On a totally unrelated note, here are some pictures of our 11 carrier strike groups. Impressive, aren't they?"

"Hey, POTUS, you got us. BTW, we'll never lend you money again. Or vote for your party again."

The US would never need to default on its debt, since its debt is in USD. Worst case, it would just print more money, leading to inflation.

Argentina is a serial defaulter yet investors still lend money to the government there.

If the U.S. decided to completely default on it's debt it would be more destructive to the U.S. economy since the majority of the debt is held by U.S. citizens & institutions. Insurance companies & banks would collapse instantly since the a very large percent of their asset bases would be wiped out.

We (meaning U.S. citizens) owe more to ourselves than to any foreign entity. Default is, at least right now, a political non-starter.

Ask the Germans and the British before the WWII.

They were the largest military power at the time, Germany in land, British Empire(India,Pakistan, Afghanistan, Ethiopia...) on the sea.

They started getting in debt and a little country called United States became the biggest creditor of the world.

They they killed each other in a stupid war trying to reign supreme, and someone else did.

Now this someone else had started thinking their power will be forever. We will see...

Well the European Union is the largest economy by GDP (not sure of eurozone). Can it 'collapse'? If it can collapse, what makes you think the largest military can't?

If by "default" you mean "voluntary default", perhaps yes, in the context of the debt ceiling debate.

However, since the US government cannot be forced into default - after all, the US government runs the USD system, and all its obligations are denominated in USD - this is all just political posturing.

It's kind of depressing how effective this posturing is. It's a testament to the terrible state of public education about fundamentals of our monetary systems.

The only? Greece may be collapsing. To say that other Euro countries are also collapsing would at this point be hyperbole.

Spain's economy is headed for a depression, Ireland's credit is shot after their bailout, Portugal collapsed almost immediately and is suffering high unemployment even after a bailout, Cyprus's credit rating is junk and they've applied for a bailout. So it's not just Greece. Several other countries were headed for trouble but seem to have things under control now: Italy, Belgium, France, the UK, Switzerland, Germany, and Slovenia.

Source: http://en.wikipedia.org/wiki/European_sovereign-debt_crisis

That’s not collapse in any sense of the word.

Even if I were to agree with you on the collapse, that’s not all Euro countries. Germany, for example, had never any problems or trouble that could by any sane person be described as collapse.

CBS says it's a collapse. http://www.cbsnews.com/8301-505123_162-57406006/spains-colla...

I think describing a recession or even depression as a collapse is wrong.

€144 billion currently it is assumed, but no one really knows as no one has counted - and weighted - the gold for a long time, at least the Govt didn't. But 144B is not nearly enough to provide any currency stability.

[edit] "But not even the owners are allowed to view their own gold. According to the Federal Audit Office report, the Fed explained that "in the interest of security and of the control process" no "viewings" are possible." http://www.spiegel.de/international/germany/german-politicia...

I am Russian. Years ago I had strange experience: my friend invited me as unofficial expert.

I was amazed: the guys whom I talked were "right guys". One of them told me: "From the call log I can tell more than a guy think himself" (Excuse me for bad English) M

People arguably trust FRN's since the majority continue to save in FRN's/bank credits (I agree the trust is misplaced).

Nice document. It shows well the way of thinking of our governments.

Yea, it sure does reveal how silly the FBI is. I mean, why would the organization tasked with domestic security & stability analyze the potential threats of Bitcoin? Bitcoin is made of lollipops and rainbows; it could never be used maliciously.

Seriously, analyzing it critically doesn't mean they are afraid of it. It just means it is an unknown that they want to understand.

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