Bitcoin - A Primer [pdf]
chicagofed.org
chicagofed.org
And the traditional banking system is not opaque and vulnerable? Let us recall that -- despite its vaunted regulatory system -- the banking system nearly destroyed the global economy back in 2007, exactly because it was (and is) opaque and vulnerable.
Sometimes, I wonder if people stop and think about what they're writing.
Saying that Bitcoin "may need government regulation" is like saying that Bittorrent "may need government regulation." The question is, how on earth can you regulate such things, when they are designed to be resistant to such threats?
Let's not forget also, that policy consists of political decisions regarding the use and threat of force. Therefore we can never actually regulate Bitcoin. At best, we can only regulate how we plan to use violence against people who use Bitcoin.
I heavily disagree with your assessment that regulation is to blame. If anything the removal of regulation, specifically the repeal of the parts of Glass-Steagall that separated commercial and investment banks, is what caused the banking catastrophe.
> Saying that Bitcoin "may need government regulation" is like saying that Bittorrent "may need government regulation." The question is, how on earth can you regulate such things, when they are designed to be resistant to such threats?
No, despite using (sort of) similar protocols and having (sort of) similar names, these are not similar at all. Bitcoin will be regulated in these two, and probably more, ways: 1) It will be categorized as an instrument of value, in which case it can be taxed in USD, require licenses to transact with it etc. 2) It will be regulated at the point of currency exchange.
> Let's not forget also, that policy consists of political decisions regarding the use and threat of force. Therefore we can never actually regulate Bitcoin. At best, we can only regulate how we plan to use violence against people who use Bitcoin.
I'm not even sure I understand fully what you mean here. What do we regulate that can't be swapped for "bitcoin" in that sentence? IE: we can't regulate drugs, at best we can only regulate how we plan to use violence against people who use drugs.
This is like saying that pulling a card from a house of cards is what "caused" its collapse. When in fact, the imposition of the unsustainable system onto us in the first place was the true problem. Everything else is just consequences.
> despite using (sort of) similar protocols and having (sort of) similar names, these are not similar at all.
Both are p2p protocols designed to enable censorship-resistance by eliminating centralized points of failure.
Just as Napster was replaced by Bittorrent, so also E-Gold is replaced by Bitcoin. The persecution is actually what is driving the development of these liberating protocols.
> What do we regulate that can't be swapped for "bitcoin" in that sentence? IE: we can't regulate drugs, at best we can only regulate how we plan to use violence against people who use drugs.
This is exactly true! We can never "regulate" drugs (or Bitcoin) -- we can only regulate how we use _violence_ against people who use drugs (or Bitcoin.)
But the question is, do we have a _right_ to use violence against people who are not thieves and murderers? And is it even possible to delegate such powers?
For example, I have a right to defend myself using force. Therefore I have a right to hire a _bodyguard_ to defend me. Therefore we have the right to elect a _sheriff_ to defend us. (In fact it is the same right -- delegated.)
But I do NOT have a right to beat and rob people. Therefore, neither do I have any right to hire a _bodyguard_ to beat and rob people.
...Therefore, neither does our _sheriff_ have any right to beat and rob people -- even if we voted for him to do so! Because you cannot delegate powers you never had.
Perhaps you should be asking what makes us believe, as a society, that we have any right to use violence at all, except in defense from violence. Because if the authorities use violence for any other purpose, then aren't they the true criminals?
Careful not to throw out the precedent from the Nuremberg Trials -- that just because someone is in authority, doesn't give them the right to victimize people. (Even if they were voted into power.)
No it's more like saying removing one pylon from a bridge is what caused it to collapse.
> Both are p2p protocols designed to enable censorship-resistance by eliminating centralized points of failure.
This is simply not true about Bitcoin, nor Bittorrent. Especially with Bitcoin the people who seem to be taken seriously in that community do not seem to feel that the transgressive aspect of it is either true or valuable.
There is no free market in money. Therefore the problems we see in banking are not problems of a free market.
The entire market is sewn up vertically. The Federal Reserve, at the bottom, consists of the member banks. At the top, it consists of those who regulate those banks.
Therefore The System represents the ultimate "public/private partnership" where the entity that regulates, is the same entity being regulated.
The true purpose of their actions? To protect their cartel.
I'd say that removing the regulation that separated investment banking from deposit banking also contributed to the collapse of one deposit bank after another in the aftermath, banks that were relying on insurance companies that barely held any capital to cover their swaps.
The fact that either no one in the financial industry committed a crime during the housing bubble, or there was no one to prosecute for crimes that were committed is proof that the financial industry is either effectively unregulated, or that there is no body that has an interest in enforcing any regulations that exist.
===> In that case, deny it. Go ahead, present your case that banking and finance isn't the most cartelized, regulated, corrupt industry on earth.
The financial industry: http://en.wikipedia.org/wiki/List_of_financial_regulatory_au...
The software industry: [Google] No results found for "list of software development regulatory bodies by country".
In fact, this is my whole point: that finance (and healthcare) are heavily-regulated, and that this is precisely the cause of their problems.
You could never claim that our healthcare problems are the result of a free market, because there is no free market in healthcare -- just a giant cartel of heavily-regulated (protected) bureaucracies.
Similarly, you could never claim that our monetary issues are the result of a free market, because there is no free market in money.
You could never claim that our healthcare problems are the result of a free market, because there is no free market in healthcare -- just a giant cartel of heavily-regulated (protected) bureaucracies.
Well, I wasn't making that claim, but you appear to have a curiously binary view of these things. Healthcare in Europe, where I'm from, is in many ways far less competitive and far more heavily regulated, yet Europeans seem to have better outcomes despite lower public expenditure on healthcare. I attribute this primarily to the information asymmetries mentioned above.
My definition would be, "one without violence and coercion, enabling decisions to be made based on voluntary choices."
> Healthcare in Europe, where I'm from, is in many ways far less competitive and far more heavily regulated, yet Europeans seem to have better outcomes despite lower public expenditure on healthcare.
"Competitive" ?
I know a doctor in Alaska who was aghast at the high prices charged by the monopoly hospital in his region. He decided to open a surgery center, so as to offer better service at lower prices.
Unfortunately he discovered that competition is illegal. You cannot open operating rooms, you see, without first obtaining a "certificate of need" from the State, certifying that your community "needs" more operating rooms. And of course, such certificates are never actually handed out, since the state boards are always manned by hospital flunkies.
Does that sound like a free market to you? There is no competition in American health care.
I'm also surprised at your characterization of European health care as being "far more heavily regulated" in contrast to American health care. You must not realize just how heavily regulated American health care is.
The American health care system is a combination of socialism and fascism, and has been for quite some time. It features all manner of central planning, forced subsidies, regional monopolies, welfare programs, hospitals and insurance "companies" protected from any competition by legislation, unfunded mandates, price charts, and tax authorities.
The problems of health care in America are the problems of socialism and fascism, because that is what we practice. We do not have the benefits of the free market because we do not have a free market.
> yet Europeans seem to have better outcomes
Saying that Europeans have "better outcomes" than Americans (with regards to health care) is like saying that Cubans have "better food" than North Koreans. You are comparing two authoritarian systems, neither of which have any semblance of a free market.
Coercion does not innovate -- it does not lower prices, nor does it improve service. Even in Europe:
"While Sweden is a first world country, its health care system - at least in regards to access - is closer to the third world. Because the health care system is heavily-funded and operated by the government, the system is plagued with waiting lists for surgery. Those waiting lists increase patients' anxiety, pain and risk of death."
http://www.nationalcenter.org/NPA555_Sweden_Health_Care.html
Clearly you have an axe to grind, so I'm not expecting this discussion to go anywhere, unless you want to get back on the point and provide some evidence for your original claim that finance is the most heavily regulated industry there is. Meanwhile, I suggest you move to Singapore, Hong Kong, or New Zealand, the three countries which the world bank considers to have even more business-friendly regulatory environments than the US. http://data.worldbank.org/indicator/IC.BUS.EASE.XQ?order=wba...
If my credit card is stolen or even used in a strange manner I get a phonecall and a hold put on my account. How many people have recovered money from their stolen Bitcoin wallets?
In some countries, this is as high as 20%.
Are your savings earning more than 4% a year, wherever they're invested in? If not, it's losing money, and if it is, subtract 4% from it and that's your "real" interest.
What do you think is going to happen once a bunch of countries with really crappy currency systems get wind of Bitcoin in any meaningful way? Do you think the value might rise? :)
Just imagine back in the early days of the Internet when someone said, “I’ll shop at the brick and mortar store down the street any day of the week over an online store thank you very much.” It was a legitimate concern back then but we moved past it to the point that it sounds ridiculous today. Just wait :)
This usually comes from them being vulnerable to an actor who you believe will wield force on your behalf if they break contract. This then means you're stuck trying to find an actor who
1. you trust to wield force on your behalf (i.e. they're not just some cutout established by your counterparty)
2. who you are sure has means to wield the force against the counterparty (perhaps they can prove that they know where the counterparty lives)
Those are difficult criteria to fill, which is among the reasons why over a long period of time, we've invented governments we can put up with.
I can imagine two other scenarios where you might be able to generate the level of trust you want:
1. If the counterparty can somehow prove that it's not in their short-term interest (because sometimes people run successful and profitable services for years and then abscond with the money suddenly) to just take all your money and run.
2. If you have insurance with an insurer that you are sure could pay you if everyone transacting with that counterparty made a claim at once. (But then, how can you trust that insurer unless they are vulnerable to someone you can trust to wield force against them on your behalf if they break contract?)
I think any future where bitcoin organisations are as trusted as banks is a future where they are registered with the government as financial bodies and regulated in such fashion.
On traditional banking, It also depends on where you live. I doubt people in Cyprus, Zimbabwe, Venezuela and a couple other places feel that safe with their life savings in banks post 2007. I know JPM recently put capital controls on transfers greater than 50k outgoing from the US (but accepting incoming), I wonder what that is all about.
In most countries in the world local currencies are unstable and subject to the whim of politicans (would you keep your life savings in argentinian pesos? Neither would Argentinians!), there are no easy ways to accept online payments, there are no easy ways to transfer money to/from abroad etcetera. I would argue that adopting Bitcoin is an immediate quality of life improvement for a big portion of the world population, moreso when/if it value stabilizes.
For the record, BIP 0038 https://en.bitcoin.it/wiki/BIP_0038 was released just a few days ago (although it was a working draft for a while). You can, right now, create a BIP38 encrypted paper wallet (finally!) over at bitaddress.org which means that someone with access to your paper wallet can't just sweep it unless they know the key, and the key uses scrypt so it's quite resistant to brute forcing.
I recently moved most of my btc savings into this type of paper (or in my case, pdf) wallet and entrusted the key (broken into pieces of course) to trusted people. Much better peace of mind. I set the public addresses as "Watch Only" on blockchain.info/wallet so even if blockchain is hacked, nobody can get to those wallets, they are effectively airgapped, and I can monitor any activity on them from anywhere.
Bernanke stated at the FOMC Press Conference in March that such a haircut was possible.
Resolving Globally Active, Systemically Important, Financial Institutions.
"...An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities...the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution."
===> Sounds like what happened in Cyprus. They got stock in return for the haircut. No exception is indicated for "insured deposits" in the U.S.
Bloomberg: "...Bank of America’s holding company...held almost $75 trillion of derivatives at the end of June..."
===> I don't know where you get your news, but I'm willing to bet that the sources you trust are not going to be talking about this until your haircut is complete. And when they do, they will probably blame it on "deregulation."
People only need to know your credit card number, name, and expiration date to use your credit card to purchase something online. Since you give those information to many merchants, it is very easy for those info to leak out.
For someone to use your bitcoin to purchase something, they have to have your private key. When you make a purchase, you do not give out your private key to anyone. bitcoin and credit card are two very different things.
Credit card was not designed for internet, while bitcoin is.
Whether or not they accomplish those goals is obviously a matter of serious debate, but Velde's reasoning there is consistent with all other arguments for government intervention.
There's no point in trying to spin that statement into him giving the traditional banking system a pass.
with a whole lot of loopholes .
Eloquent summary from a skeptic :)
the person who wrote this is a senior economist?
First of all, you don't must wait ten minutes or one hour, you wait iff you want confirmations from other peers saying that the transaction is actually included in the blockchain, more time you wait more confirmations you get. But in the practice you only do this when you can't trust the other party, and many times the other party is using an well-known online wallet that let you use a green address (https://en.bitcoin.it/wiki/Green_address). So, you can have almost instant transactions with Bitcoin.
Actually credit cards don't takes just "a few seconds to charge", that's what the final user thinks, but the reality is that it may take weeks to process and transfer the money to the seller bank account. And also the level of fraud with CC's is astounding; that's why we have to pay a lot of fees (I mean, CC's intrinsically needs insurance). Here is a interesting series of articles about CC: http://boss.blogs.nytimes.com/2013/03/25/what-you-need-to-kn...
By the way, with real cash the time for a transaction is equal to the time of one party giving one or more bills to the other party + the other party verifying if those bills aren't fake + (not always but usually) give the change. :)
> Fiduciary currencies—in contrast with commodity-based currencies (such as gold coins or bank notes redeemable in gold)—have no intrinsic value, and derive their value in exchange either from government fiat or from the belief that they may be accepted by someone else. They are inherently fragile; government orders can be ignored or doubted, and a currency that has value only because of the belief that it will have value may have no value at all (for instance, if I believe that no one will accept it, I will not accept it either).
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This article displays a lack of understanding of bitcoin, gold, and other market-driven assets. Quantifying bitcoin in terms of computing power and electricity is a clueless perspective. Conversely, the author doesn't attempt to quantify gold by the same standards of its minimum measurable cost to produce and mere industrial scope. Gold, in his mind, I suspect, is long established and therefore above the same logic.
Bitcoin and gold are each greater than the sum of their cost to produce, obviously. Demand drives this. Stability drives this. Intrinsic value is contained in bitcoin and gold for varying reasons. If the author doesn't appreciate (or understand) the intrinsic worth and applications of a peer-to-peer, cryptographically-secure, fungible transactional system that's becoming increasingly hard to defeat by any central authority and increasingly used in the real world -- then so be it. Many people won't value that. Hell, some people don't value the internet. Not valuing something doesn't mean it's not valued. To me, gold is a pretty element and good for electronics. I don't seek it out for fashion. Yet, I can fully appreciate why others do and why it's a stable way to store value.
Bitcoin has intrinsic value. It is not a "fiduciary currency." The "currency" of it is far removed from any guarantee of value and far separate from its functionality.
Rather, both are valued by men for their unique properties.
Gold is: Divisible. Fungible. Value dense. (Scarce.) Recognizable. Durable. Zero counter-party risk. Stable in supply, yet minable. Liquid. International. Non-manipulatable. (Non-centralized.)
By comparison: Diamonds, while valuable, are NOT divisible, nor are they fungible. Water, while valuable and divisible, is not value-dense enough to compete with gold as a form of money, on the free market. Food, while valuable, is not durable. Dollars, while liquid, do not represent zero-counter-party-risk (rather, they are debt-based.) Dollars, while recognizable, are not stable in supply (inflation is a worry). Dollars are also not minable. (Production is available only to a monopoly cartel, versus gold, which anyone can produce.) Food, which anyone can produce, is not liquid, especially in comparison to dollars or gold. Dollars, while you can hold them in your pocket, a board of bankers still has the power to reach into your pocket and manipulate its value. (This is not the case with gold.) Soon it becomes very clear that gold was never “declared” to be a form of money by any “authorities” but rather, became money due to natural market forces.
If gold became money strictly due to natural market forces (as a result of its unique properties) then clearly the only reason it has been supplanted by dollars is due to artificial restraints imposed on the market by government force. (Such as legal tender “laws”, tax “laws”, money laundering “laws”, etc.)
Such forces must be constantly active, otherwise, natural market forces would immediately resolve back to gold again as they have for thousands of years.
Now let’s consider Bitcoin’s unique properties:
Divisible. Fungible. Value dense. Recognizable. Durable. Zero counter-party risk. Stable in supply, yet minable. Liquid. International. Non-manipulatable. (Non-centralized.)
AS WELL AS: Non-confiscatable. Accounts cannot be frozen. Anonymity is possible. Electronically transferrable.
As you can see, Bitcoin’s unique properties are similar to those of gold, although it adds new properties due to its ethereal nature.
Those new properties (non-confiscatable, non-freezable, pseudonymous, transferrable electronically) all serve to route-around the artificial forces that are currently being used to supplant gold with the dollar. After all, the various immoral, legal-tender legislation in place today uses the force of a gun to impose fiat money onto an economy that would otherwise resolve to gold by natural forces. That artificial force depends on the government’s collusion with banks and their collective monopoly on the ability to issue, store, freeze, confiscate, track, and transfer dollars.
Yeah, as I noted, bitcoin is no less rational or irrational than gold for what it is (or rather for what it's becoming). The whole "intrinsic value" debate is a moot, endless point because both sides are equally arguable. Anything clearly valued by others holds intrinsic value, I could argue. I could also conversely say that its value is not derived intrinsically. However, in an argument where gold is given the status of having intrinsic value, I'll gladly argue that so too should bitcoin be given that status.
Many statists get caught up in the argument about whether or not gold has "intrinsic" value, which is why I like to redirect their focus to the concept of substances with unique properties.
Because, whether or not value is "intrinsic", no one can disagree that specific substances have specific properties, and that some substances have properties more likely to be selected as currency by the Invisible Hand, than others.
And thus it becomes undeniable that gold and Bitcoin have quite a bit in common.
Quote:
The Open-Transactions project is a collaborative effort to develop a robust, commercial-grade, fully-featured, free-software toolkit implementing the OTX protocol as well as a full-strength financial cryptography library, API, CLI, and prototype server.
Open-Transactions democratizes financial and monetary actions. You can use it for issuing currencies/stock, paying dividends, creating asset accounts, sending/receiving digital cash, writing/depositing cheques, cashier's cheques, creating basket currencies, trading on markets, scripting custom agreements, recurring payments, escrow, etc.
Open-Transactions uses strong crypto. The balances are unchangeable (even by a malicious server.) The receipts are destructible and redundant. The transactions are unforgeable. The cash is unlinkable. The cheques are non-repudiable. Etc.
I mean 'greater' in the philosophical sense. Attributing worth by components alone is narrow. Animals, we are: greater than the sum of our parts. It's greatness not in terms of expense but in terms of people valuing the worth and utility of an idea and its embodiment. For instance, many people spent and spend money on bitcoin and mining, at a net loss, not out of a certainty of return. Rather, they love the idea. They want to support the cause.
http://www.bitcoinbeginner.com
If you'd like a copy, gratis, just send me an email - john@bitcoinbeginner.com
Has anyone thought of making a service to eliminate the ten minute delay? You would operate as a sort of Bitcoin credit agency, temporarily lending funds to credible buyers. You could market this on the merchant side (receive money instantly) or the purchaser side (send money instantly). Take a transaction fee to cover the risk.
Behind the scenes, the process of settling a credit card transaction after committing to it can take days. This is known as clearing.
Accepting a credit card after a few seconds is more like accepting a Bitcoin transaction as soon as you see it on the network (a 0-confirmation transaction), which is what some merchants do.
A 0-confirmation bitcoin transaction is more like writing down someone's credit card number and charging it later when you have access to your credit card terminal, which was common (in the form of those carbon copy credit card impressioning machines, which are why credit cards have raised digits) in the days before ubiquitous mobile Internet.
This is what open transactions & ripple aim to address partly:
Not to mention that it's success assures that there is a weird shadowy cabal of people who end up insanely rich because they created it. Doesn't seem like currency should work that way...
===> You are referring to the U.S. Dollar?
At the top, it consists of those regulating those banks.
Therefore the entity being regulated, is the same entity doing the regulating.
This Octopus has a monopoly -- unconstitutional and granted by government force -- on the creation of our money supply. Anyone who competes with them in this regard is imprisoned.
How is it that the act of counterfeiting -- an otherwise criminal act -- is perfectly legal for one specific entity to commit?
North Korea is known for printing dollars; the only difference between them and the Fed is that they do not charge us interest on those dollars.
How is this true. Gold has no use to the average person. The only real use for gold is in semi-conductors. Other than that gold derives its worth from the fact that is very scarce, like bitcoins.
The answer is: we, as a species, value gold far beyond its usefulness as a metal.
Do you remember the article posted earlier this year about how DeBeers literally invented the market for diamonds out of thin air? Before their campaign, diamonds were relatively cheap and not considered to be that special.
Like the dollar, or Euro, or gold, or even Bitcoin, the value of something is set by those who desire it.