Why bitcoin’s rise is nothing to celebrate
blogs.reuters.com
blogs.reuters.com
This is an interesting bit of rhetoric, but I don't follow the logic here. The author contends that banks are built on trust and Bitcoins are built on mistrust.
Don't the pages of legislation and regulation prove that we don't trust banks? What about what's happened in Cyprus recently?
Also, isn't the p2p model of Bitcoin the very crux of trust?
I agree Bitcoin has been volatile, but it isn't based on mistrust.
At least a blockchain isn't actively out to scam me out of money.
Or another way to put it might be trust versus faith.
Sounds very much like the author is attempting to engage in doublespeak...
A human being of machine transports paper and/or coins from one location to another.
2)the bank inventing new dollars through the practice of fractional reserve banking
No paper or coins are moved from one location to the other.
If you think fractional reserve banking in morally equal to stealing people's possessions then you know less about the banking system than you think you do. Fractional reserve banking is a practice that is something like 400 years old so if you want to trash it you have to think long and hard about how useful it must be to the economies of the world to have lasted this long.
If a currency like Bitcoin is adopted by too large a population of a given country and becomes a de facto currency it wrestles the fiat currency out of its position and eliminates any democratic control over currencies.
I understand that there are many, many hard-money libertarian types around here who see this and cry, "yes! freedom!" but my understanding of the scholarship on this sort of thing is that fiat currencies are very important for economic adjustments due to shocks. The Euro is showing us what a hard-money environment looks like as a natural experiment for Spain and Greece and it is not going well.
If I am an asset-holder I am a big fan of ensuring that devaluation can't take my riches away but if I am a technocrat trying to build a functioning economy for the long term that can deal will all sort of unexpected events and treat people without assets fairly I want a fiat currency. To me this is where the nihilism comes in, or at least Bitcoin represents an "I got mine Jack" view of the economy. That being said, now it is here and if it gain acceptance the world is going to need to deal with it. (A currency with a permanently tight supply sounds like a machine for creating constant recessions to me, but I'm no expert.)
A democratic government is a government that rules through the will of the people rather than by the might of an institution.
A democratic currency, then, would be a currency which derives its value from the willingness of the populace to accept it as tender rather than from governmental fiat.
I think a democratic currency should be the one selected by the democratic government in most cases. Otherwise, if you accept my premise above that a currency like Bitcoin is good for asset-holders, they could use their influence in the economy to force non-asset-holders to use Bitcoin. That would be the opposite of democratic since it would be more wealth = more votes.
Maybe we'll have to take some measures against these clogging the frontpage of HN.
I really liked The New Yorker's article on Bitcoin, which also served excellently to explain its history, purpose, and method: http://www.newyorker.com/online/blogs/elements/2013/04/the-f....
Instead I suspect Bitcoins will be used as a medium to ease transactions. At present it's both hard, time consuming and expensive to move money around (banks profit on the exchange rates, VISA taking 2.5% cut out of credit card transactions, paypal taking a cut etc etc).
The author is quite right that the incredible surge in price isn't good in terms of bringing about widespread adoption for Bitcions, but the rise in price is also inevitable. If Bitcoins are to be used as a transactional medium, then the value of bitcoins have to reflect some percentage (not all transactions will be in bitcoins!) of the amount of money in transit. At present the entire bitcoin economy is worth about $1.5B. I have no idea what say the value of say 1% of all the transactions in world which are taking place at the present moment is, but I suspect it is a great deal more than $1.5B.
And partly because (while commodity-backed currencies have a weaker version of this trait, in that there are environmental costs of extraction) its the only currency in the world based purely on the consumption of resources, which is a massively undesirable feature in a currency.
Watching your money frozen or being used to pay off for government's failures is no fun.
Hence - the result.
Horse-puckey!
To be fair, the effect of the actions in Cyprus weren't limited to Cypriot money -- much of the money involved was international, particularly Russian (and, reputedly, much of it was likely stashed in Cyprus by organized crime.)
Much of the money coming into Bitcoin being because it is perceived as a better place for organized crime to stash money than traditional banks I can believe, though, frankly, I'd see the events in Cyprus (while relevant to that consideration) as secondary to the comparative immaturity in regulation and anti-money-laundering monitoring affecting entities in the Bitcoin space as opposed to traditional banks.
The other one is more dynamic, fitting the demand of supplying commerce with enough monetary units to do business, which if successful should roughly match the population of the earth eventually.
20-some-odd million units for all of us. How much does it have to be worth? Much more than a hundred dollars.
So the rise in value might be a bad thing, it could be a simple expression of unbounded volatility. Or it could be a perfectly natural thing, seeking the greater attractor—the one of persistence over extinction. Proximity to that attractor diminishes volatility.
It's important to appreciate that the whole mess could come down, and it's important to know how that might come about and what the signs of trouble are. But asserting it is going to eventually fall under the weight of these weaknesses (without being able to show how or even what in particular it will succumb to) for anything other than hypothetical purposes is a mistake. I've seen a lot of articles framing it like that way lately, and no support for it.
Equating sharp upward trends with dangerous volatility is just confusing the signs of natural, healthy progression with the signs of trouble. What's needed is a more sophisticated way of thinking about it. Solid arguments for why a given amount in the right direction in a given period of time is a sign of trouble rather than progress toward the greater attractor. Without these you're just making up stories. But in all things money the trend is: it's better to lie than admit you don't know.
Yes, it's true. As of right now, there are 182 official currencies worldwide[1], most of which you've never heard of in your life, and many of which have total market capitalization lower than Bitcoin.[2] Others are subject to extreme sociopolitical, economic, or military-conflict risks. Would you rather own bitcoins, which are traded globally, or, say, Libyan dinars, North Korean wons, Syrian pounds, etc.?
Even the US dollar and euro, supposedly bastions of stability, have seen their exchange rate jump from US$0.80 per euro in 2002 to US$1.60 in 2008 (100% jump), only to drop back down to US$1.20 in 2010 (25% drop), then jump to US$1.45 in 2011 (20% jump), only to drop back down to around US$1.29 today.[3]
If Bitcoin survives the horrific economic crises in countries like Spain, Greece, and Cyprus, and the even more horrific military conflicts in countries like Syria and Sudan, it will continue gaining credibility as the currency of last resort -- the global digital commodity that will survive even if your country or economy goes to hell.
--
Edit: changed "most currencies in existence" to "many currencies in existence," which is what I actually intended to write.
--
[1] http://en.wikipedia.org/wiki/List_of_circulating_currencies_...
[2] http://reason.com/24-7/2013/04/01/at-1b-bitcoin-holds-more-v...
Also remember that there are two sides to currency volatility. If the USD/BTC rate is changing, it could indicate USD volatility.
In the end this would result in a much higher interest rate for $-denominated loans and near-zero interest rate for BTC-loans.
Is this comparison serious? See below
> their exchange rate jump from US$0.80 per euro in 2002 to US$1.60 in 2008 (100% jump)
that's over the course of 6 YEARS. the most recent 100% jump in BTCUSD took 14 DAYS.
> drop back down to US$1.20 in 2010 (25% drop)
that's over the course of 2 years. Last August, BTCEUR took a 25% tumble in 5 days.
But this is a false analogy. Bitcoins are analogous to cash, not to banks. Those involved in Bitcoin expect Bitcoin banks to spring up.
Those who are trading on Mt Gox are already trusting Mt Gox with their Bitcoin.
It would be the bitcoin dollar. It will first be backed by actual bitcoins. After a while, banks would negotiate the rights to lend out money they don't. They'd only need a small ratio. We then have the same situation as now ;)
The good thing about BTC is that it's a cheap fast and safe way to transfer money and the supply is limited
Demand savings accounts would have negative interest, meaning you would pay to have a regular savings account that you could access any time.
I understand that both currencies and commodities are undifferentiated and so are more easily traded, so I can see similarities.
But, from a common usage perspective, as well as from an economic viewpoint, a commodity is defined as a good, having value in itself. So the above claim seems rather misguided. Am I missing something?
It would also need to have the same difficulty increases of Bitcoin, to account for future mining technology, other if the difficulty stays too low, someone with some breakthrough hardware could generate and "print" a lot of new units.
1. Because that's not anarchist enough for some of the rabid anti-society supporters.
2. Perhaps a bigger deal, it's actually easier said than done. What metric will be used to determine value? If the network is tracking global GDP or US CPI or something, how will it avoid being tricked by some malicious party?
It would be a great idea. Inflation doesn't even have to be positive, it could just be fixed at a stable value. I think #2 is actually quite tricky though but I'd be really interested to hear people's thoughts on it.
It looks and feels like a bubble about to burst.
On the other hand it feels different because there is vested interest in owning bitcoins that differs from owning "regular" money, i.e. relative obscurity of spenders identity, etc.
But a currency is already a commodity. Many commodities have been used as currency through history - wheat, rice, cows etc. Precious metals like gold became popular as currencies because they make good currencies for a number of reasons - gold is not organic and deteriorates very slowly, gold is easy to divide and combine, it is easy to transport, one ounce of gold is no different than another ounce of gold, gold has value when used in industrial machinery etc.
US coins used precious metals for a long time, although that is being phased out. US currency was backed by gold until the 1970s. Historically, currencies delinked from having the real underlying value of a useful commodity have not lasted long. Two years before I was born the dollar was still backed by gold.
A paper currency and electronic currency with no underlying utility can always become worthless, gold has retained worth for thousands of years. There is a long list of useless and worthless electronic and paper currencies - Flooz, Beenz, Confederate dollars etc. German marks had a period of hyperinflation even before World War II ended, so they lost their value twice.
/sarc
Is this a fundamental flaw that's always going to plague Bitcoin? Or is it just a growing pain whilst the currency grows and stabilises?
It's like trading in gold rather than money, and all this current rush is going to do is force an eventual emulation of real-world banking systems.
...unless her income is also paid in Bitcoins.
...unless her employer has to buy them in and now can't afford to
...unless they charge customers in bitcoins and can afford to
...unless their customers can't now buy any bitcoins to pay them
...unless their customers are all miners!