Bitcoin Central Licensed as Bank | Hacker News Reader

Bitcoin Central Licensed as Bank

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78 pointsenmaku18 comments

Are accounts insured in BTC or EUR? It seems to me that closing the bank (and let's face it, that does happen in the real world from time to time) could cause a run on BTC since the supply is so limited compared to traditional currencies. If all accounts are actually insured in EUR, on the other hand, BTC deposits are either not covered or are treated as equivalent to EUR via an exchange rate, which implies actual equivalence.

Only Euro deposits are insured. It's like a trading account for stocks. You cash is safe, but if your investments in stocks loose value then that's your problem.

Quite interesting that Bitcoin appears to be making inroads into the mainstream financial system (which being registered a bank would seem to imply). The primary issue with Bitcoin is that because it is issued by no one, and is no one's primary currency, there is no incentive or ability by any organization to regulate it through monetary policy. It's value is set only by the market. The flaws with such a system is obvious, and Bitcoin experienced it itself when it went through that massive devaluation a few years back. Even with automated banking systems, the market structures used throughout the world are based on currencies having a measure of stability to them in terms of pricing, or, at the very least, that a central bank of some sort will give ample notice before a massive change will occur. With Bitcoin, that all goes out the window, and pricing becomes a major challenge. As such, I don't see anyway Bitcoin can move into the mainstream marketplace. It has to be a niche provider. So this step is very interesting and counter-intuitive.

Should note, when I say no regulation, I mean it can't be regulated according to market movements. It's regulated by a pre-set system of release, not one that can react to changing circumstances.

> Bitcoin experienced it itself when it went through that massive devaluation a few years back.

When?

I remember one major dump taken by the price of Bitcoin, and it was a few days into a great big bubble.

http://bitcoincharts.com/charts/mtgoxUSD#tgSzm1g10zm2g25zv

If you were counting on the price to keep going up and up, maybe then you saw it as a massive devaluation. I myself would have called it a bubble that burst... compare the price in May of last year to the price in May of this year, or September-to-September, and it just looks a bit volatile, but on average rising.

EDIT: OK, so when I look at the chart and stop trying to argue a point, I do see a protracted devaluation. I remember hearing it was because a large account was hacked and the hacker dumped a large number of coins on the market. That was after that peak in last June. No explanation why the price would have soared so high, but for folks who weren't on the scene, that might explain the downturn.

Exactly. "No explanation why the price would have soared so high" is the exact reason why Bitcoin will have issues trying to tie into the larger financial structure without series difficulties.

Ever seen Trading Places? The stock market scene at the end where they make a killing is based (fundamentally, forgetting about the fraud) on the fact that the value of the Frozen OJ drops to 25% of its former value in a single moment. The normal financial system has things in place, both internally and externally, so that (fraud not withstanding) such a rapid (de)valuation increase doesn't happen regularly (when it does, you get 1873, 1929, 2008, etc). Bitcoin doesn't have the internal measures, as it isn't issued by a central authority, which can alter the amount of currency in the market at will. As such, it would need some many external controls, such as say a 24-hour transaction period, to be useable on the open market, which would in turn make it unreasonable for the open market.

And if you're wondering why Bitcoin is being seriously studied by economists, that's why. No one has seen anything like this ever, and what happens, and how that can influence general economic models, is fascinating.

I understand your point, but I think you've successfully argued against it when you told me that there is "no such authority on Bitcoin who can alter the amount of currency on the market at will"...

What would a 24-hour transaction period do exactly? Bitcoin is supposed to be used like cash. If you spend it then it's gone, most immediately, and if you value it highly then you keep it in a safe.

Price goes up, price goes down, safe is still safe. Until it gets cracked, then if you're a real player, the market is flooded with (illegally obtained, but generally not really tainted and otherwise fairly easy to clean) pile of coins.

I'm no economist, but I understand "redistribution of large collections of wealth can lead to rapid deflation without countermeasures." That's equally harmful to big-time owners as well as little guys.

We should be thinking about the countermeasures.

The points I'm making don't have anything to do with transactions in a primarily Bitcoin marketplace. The issue is that there is nothing in place to maintain price rates, even including that, as you note, its primarily digital existence and small size make it highly susceptible to fraud. This is a major issue for converting Bitcoin to other currencies.

That Bitcoins are supposed to function as cash doesn't mean they are automatically stable. Consider that Bitcoins are becoming more accepted by online retailers, and lets say that, for instance, Amazon decided one day to not only accept them, but, because of the simplicity of Bitcoin transactions (e.g., you don't have to pay eBay to implement PayPal), any and all Amazon products would be 5% off using Bitcoins. Such a situation is unlikely, but if you imagine instead of Amazon, a number of small players, like how Wordpress is doing it, it's feasible. Then, suddenly, the government steps in and forces Amazon to pay sales tax, and, because Bitcoin isn't accepted by the US Government as a full currency, they decide to set some arbitrarily low Bitcoin to USD rate, and Amazon stops taking Bitcoin. Such a series of events would lead initially to a massive increase in demand for Bitcoin, then a massive decrease. Again, fiat currencies have systems built in place to protect against such an occurrence, including scale. Bitcoin does not, and so its interaction with the general market will scare people off unless there is some sort of holding policy in place (like a 24-hour transaction period) to secure the Bitcoin's value.

Not a great example, but it will do.

Thanks for that! It sounds more plausible than a regular house of cards. I never even think of sales tax. It makes things a lot more complicated than just having income tax.

For instance, should you collect sales tax when selling bitcoins? If you are in a jurisdiction that collects sales tax, then I don't see why not. Also pay income tax on your mining rewards. Now, good luck making a profit! *(without adding a secondary business, unrelated to mining. hey, at least you can be paid in bitcoins!)

Bitcoin needs no monetary policy for the same reason that gold needs no (and has no) monetary policy. Do you consider gold as a "flawed" market? Of course not.

People feel confident using gold as a store of value, because gold, like Bitcoin, is not tied to the activity of a single country or economic zone. Therefore the valuation of Bitcoin should average out speculation/sentiments on the worldwide financial markets, and this alone should provide sufficient stability.

Sudden changes of value can only happen when there is not enough liquidity. Bitcoin was not very liquid last year, which explains the valuation bubble of June 2011. But as Bitcoin's user base grows, liquidity should continue to improve, and should reduce the risk of the same bubble re-occurring again.

Gold has a number of internal checks to massive price swings that Bitcoin does not, however. First, and most notably, it is a fully developed market that has been around for thousands of years. As such, it is easier to get a handle on for investors. Currently, gold is seen as a fantastic investment, primarily because of the economic emergence of India, where gold is seen as a marker of social status and is one of the most sought after products. Generally gold, as a luxury item, runs essentially concurrent with overall market trends. People buy it when they have the money, and don't when they don't. As such, it isn't all that difficult to predict in the long term, although you also don't get much increase in value, even over the long term. Gold will always have value in markets that have a base layer of wealth, and time has confirmed that you can be pretty certain that places like the US and Europe will have that base layer. Gold also, as a physical object, is not subject to the same extent that Bitcoin is to fraud, an important point considering its history. In a purely theoretical sense, no Bitcoin is not any worse then gold as a means of investment, although Bitcoin being a currency, and notably one that is only narrowly used, does hurt it, due to the ability for sellers to turn on and off their acceptance of it.

One last thing to remember. Even with gold's predictability and high price (assuming the US doesn't dump its cache on the market at some point) the US decided in the early 70's it wasn't secure enough of a product to base the US currency on. Bitcoin is significantly less stable then gold by a factor of thousands, and that's not even including its susceptibility to hacking (or, more precisely, to hacking its marketplaces). Bitcoin is also to small to ever have the amount of liquidity necessary to assuage the rest of the financial markets. Again, the issue with Bitcoin isn't internal. The issue is with it being strong enough economically to not scare off the rest of the world's financial system.

I agree with all that. Yes, the only reason that gold is a stable investment is because of its large, mature market.

My point is that time will naturally take care of this for Bitcoin: volatility will reduce as its use around the world increases. And since Bitcoin has already proven it could survive its first 4 years where volatility was at its highest, then it is likely to continue to survive and grow without a monetary policy. Boostrapping Bitcoin was the hardest part, and this was accomplished successfully.

This is a huge step backwards. I don't understand why anyone wants this to be done.

Banks are already great for things that banks do, like insuring deposits and putting your account within reach of authorities. Presenting an ID to get a Bitcoin account which is regulated by central authorities, both private and government, seems antithetical to the purpose of Bitcoin.

This isn't to say one organization going mainstream PSP will hurt Bitcoin. I simply don't see the point, that's all.

The rest of us will continue using Bitcoin through Tor and i2p, keeping our money safe and anonymous.

> This is a huge step backwards.

I don't understand this mentality. There is only an additional service on the market, nobody forces you to use it if you don't see the need. If somebody else finds it useful, how it is your problem?

My comment was not to ask anyone to stop forcing a service on me, or to point out that it's harming me. As I said:

> This isn't to say one organization going mainstream PSP will hurt Bitcoin. I simply don't see the point, that's all.

> The rest of us will continue using Bitcoin through Tor and i2p, keeping our money safe and anonymous.

Good for you. But you can already buy drugs with bitcoin. That problem has been solved; for a while now. What's not solved is being able to use it for everything else. That's only going to happen with more legitimacy and general use.

I disagree that joining with traditional banks and government regulators is the only way for Bitcoin to go mainstream.

The government regulators are the ones who cause fees, delays, or spying on international transfers. Bitcoin has solved this problem, and international transfers can be done just as easily and quickly as any other transaction.

At some point this is sure to change for Bitcoin Central customers, as the government starts making decisions about how Bitcoin transactions should be handled.

Again, I'm not complaining of a detriment to myself or anyone else. I just don't see the point.

Perhaps calling it a "huge step backwards" was misguided. What I meant by that was, if I were a customer of Bitcoin Central it would feel like a huge step backwards for me, and if the general Bitcoin community went this direction it would feel like a huge step backwards.

EDIT: grammar

What kind of bank make a test on an FAQ page ?! https://bitcoin-central.net/s/faq

Bitcoin Central to be hacked in 3...2...1.....

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