Bitcoins: The Second Biggest Ponzi Scheme in History
garynorth.com
garynorth.com
> North predicted a Y2K catastrophe in print and online,[31] and predicted that a Y2K date-rollover failure of the global Information Technology (IT) infrastructure would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse.
http://en.m.wikipedia.org/wiki/Gary_North_(economist)#Y2K_ca...
Edit: looks like he has a long history of claiming the sky is falling:
He definitely sounds like a nutbar.
But to insinuate with absolutely zero understanding that the creators of bitcoin did this to get rich is just plain nasty. Maybe they did want to get rich (in dollar terms) but there is nothing obvious on the block chain that proves that they cashed out. The argument seems to be that they can't cash it all out so they are waiting for something. Well, they haven't cashed anything out yet as far as anyone who looks at the block chain can tell. It's already possible to cash out $5-$10MM easily over bitstamp which would represent a fraction of their holdings. Why not do that and make sure your future is taken care of? At least that?
Furthermore, for several years it did not look like bitcoins were going anywhere. However, the people behind it continued to work on it, and still continue to do so, but under much new pressure because suddenly they are evil ponzi dealers.
Applying old school economics and psychology is great, but I must ask this question. What kind of value appreciation did gold see when people suddenly for no reason decided that it was worth a lot? Following this value appreciation did people not use it as a means of exchange as well as a store of value? Why can't bitcoin be thought of as gold 2.0? We started valuing dollars, pounds, euros, airplanes, cars, oil, and those didn't exist for much of human history.
Bitcoin isn't like something we've ever seen before and that includes Ponzi schemes. It may end up crashing and burning and it may end up doing really awesome stuff.
I just wish the naysayers would come up with better researched arguments instead of this crazy witch hunt.
None of these are new, bitcoin has been volatile, has had a large speculative market, and a problem with new users understanding it since 2009.
I meant to say that these problems have been exposed more by the general press, etc. lately.
There are other issues that the recent spike in value/volume have introduced:
- bitcoin clients, usage, security are too complex for the average consumer
- minimum miners fee is now too high ($0.10)
- some miners are cherry picking transactions with higher fees so some transactions are taking longer to confirm
- fear that the transaction bottleneck might be hit (imagine if all the internal movements on exchanges were on chain transactions, this would've already happened)
- a lot of ill feeling and negativity from tech folks who could've been early adopters but missed the bus. Truth is, it's still early times. Also, services still need to be built, tech folks can always do that! :)
Why is that "nasty"? Why even debate or get so defensive about this point?
For very strong reasons it does absolutely seem that the creator of Bitcoins did an early and heavy accumulation of the currency. The fact that they didn't "cash out" (which is rather irrelevant to whether it is "wealth" or not, as an aside) doesn't justify their mining, but actually makes it significantly more questionable -- they added no liquidity, instead actually restricting liquidity by doing a land grab of the easily mined coins. That is not altruistic.
Having a single, mystery figure holding a substantial quantity of a currency is absolutely worthy of debate.
Personally I think Bitcoin will be a v0.1 to something similar in the future. But I do absolutely believe it is effectively a pyramid scheme right now, and the rise in the currency is a combination of limited liquidity coupled with mainstream news and a gold rush mentality.
This is the equivalent of one American, someone like the head of the federal reserve owning 1.05 trillion US dollars. Even if one day we'll have 21 million Bitcoins out there, that's still around 5% of all wealth being owned by one man, the currencies creator. Sounds crazy to me.
Is there any sort of solution to that ? Seems like in order to become a currency, volatility at least will need to be reined in ? All the rest is like meh, no worse than cash and regular transaction on internet. But you can't use a currency seriously (one that does not have a country economy backing it) if its perceived value change that much.
Right now, the truth is that a negligible percentage of Bitcoin users care about its use as a currency (with the biggest exception being silk road type illegal uses). Almost everyone is focused on the price appreciation, and when that finally falters, it will collapse.
Which scammer is paying me for my bitcoins out of someone else's promised profits?
They are similar in that the price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse.
I am reminded of the story that Joseph Kennedy predicted the 1920's stock market crash after receiving stock tips from his shoe-shine boy. He realized that if his shoe shiner was also partaking in the rampant speculation, there were probably few fools left to join in.
>> price rise is being sustained by many new speculators/investors, and at some point, that will inevitably collapse
It may but I don't think its inevitable. Many speculators/investors are buying bitcoins because they believe bitcoins will be used in the future as an important currency. If that happens, there will be even more demand for bitcoin and the price will be high forever.
Its speculative, but it's not nonsensical.
Not really -- between the US government and the Federal Reserve banks, there's enough assets and turnover to unwind all the US dollars in existence in a fairly short amount of time, if there was a long-term decline in demand for dollars.
Robert Schiller, the Yale economist and bubble-proponent, suggests diagnosing bubbles based on a checklist-based approach similiar to the way depression or other medical issues are diagnosed, with the following indicators: - Sharp increases in the price of an asset like real estate or dot-com shares - Great public excitement about said increases - An accompanying media frenzy - Stories of people earning a lot of money, causing envy among people who aren’t - Growing interest in the asset class among the general public - “New era” theories to justify unprecedented price increases - A decline in lending standards
Bitcoin fits the above extremely well. I should note that Eugene Fama shared the Nobel prize with Schiller, but does not believe in the idea of bubbles or Schiller's claimed ability to predict them. After all, one might say that Google's stock fits the above criteria just as well, but that's clearly not a bubble. (I think I side with Schiller on this one though, although Fama raises good points.)
As I said in my first post, I agree that Bitcoin may eventually succeed as a currency and gain a high value. But it will be a slow process backed by fundamentals. The exponential growth taking place right now is pure bubble speculation. Very few really care about this future as an "important currency." Instead, you have people like me. I invested some money. It's now worth nearly 10x. I want it to keep going up, and I am currently letting it ride. I tell myself stories that it will replace gold; I read blog posts arguing that if it does it will be worth $10,000+ a coin. But at some point, the tide will begin to turn. Negative stories will increase. There will be price drops. And people like me, who pretend to themselves that they have a reasoned investment thesis, will say fuck it, and cash out in hordes. And from the ashes, we will then see what it can do as a currency. But the speculators are here, rapidly increasing, and will eventually, rapidly flee. (Although I hope I'm wrong, because I'm probably going to let my BTC's ride one way or the other...it's just too much fun being on this roller coaster.)
Put simply, I think the question is whether the fundamentals have a serious chance at overtaking the speculators before a big bust occurs. The speculators are increasing exponentially. And for all the talk of merchants beginning to use Bitcoin, or a random pizza or bar accepting bitcoins, the fundamentals don't really seem to be there or growing fast enough. I don't know anybody that seriously uses it in that manner, except for the few ardent Bitcoin evangelists. (Although if anyone has any interesting data, please link me!). Black markets and gambling sites seems to be the only real sectors seriously using it as a currency.
Disclaimer: I could be wrong, and change my opinion on BTC way too often to be trusted. :)
Unfortunately I don't think BTC is that currency, it's built in limit is a terrible idea conceived from the mind of someone who doesn't understand the difference between money and commodities. BTC will never be a good currency, it'll never be stable enough. BTC is e-gold, not e-cash, and it'll suffer the same fate as gold, that of a value holding commodity but not a currency. However, that's a petty flaw easily fixed and BTC paved the way for a whole market of crypto currencies by being open source with each trying slightly different approaches based on different ideas about how currencies work. This is awesome. Regardless of which few crypto currencies eventually dominate, it is the future.
That's a pretty accurate summary of what I did 20 minutes ago. I'm actually pretty optimistic about BTC in the long term, just don't want to ride the roller coaster in the short term.
My belief that people and corporations will still have a broadly similar demand for dollars next year isn't based on a graph with a rising value trend line that's known to be driven by amateur speculators, unlike "bubble" type assets.
This is a first bubble which is popular mainly among tech geeks :)
What is strange, nobody is asking what problem Bitcoin really solves. As far I know it failed as a protection for silk road types. Silk road was compromised and Bitcoin didn't helped them.
Are you sure? There were a lot of Bitcoin wallet servers compromised lately. I guess that for a really well secured wallet server you have to pay something. In case of thefts, people will want some kind of insurance and so on.
Bitcoin, compared to credit cards, functions as a decentralized system. Is it really cheaper than centralized system in terms of transaction costs? I mean computing power, required hardware and software.
The amount of currency should reflect GDP size. Otherwise there will be deflation.
Gold worked well as currency. Its yearly production increased total amount of mined gold by about 3%. Which was on GDP increase level.
Not by a long shot. Remember the early 2000 dotcom bubble burst?
I think most people heavily into bitcoins understand it only has real value if it's spent as currency, and there's been a lot of work on getting merchants involved. The easy way to handle things as an investor is just to keep your investment, but when you want to spend money on something, buy additional bitcoins with your dollars and spend those. This wouldn't be an option if bitcoin were the only currency, but if you've got dollars too then the bitcoin deflation isn't a problem as long as conversion is easy.
Or people will start using it as currency. That's already happening to some degree - it won't take much to tip it over into a viable currency for everyday use. With the games governments are playing with sovereign currencies, I think it's more likely we'll see the collapse of the RMB, euro, or dollar.
Bitcoin is revolutionary. THAT is most likely true. Is it doomed to fail? Perhaps it is, but things are not quite as grim.
Here is what is likely to happen as a result of bitcoin: 1. The future of banking transaction fees is bleak - The current financial systems will get threatened and adapt. Here bitcoin will succeed. 2. Bitcoin is used as proof of concept and paves the way for a world currency, think euro but global.
The two points above are definitely wins. If you have any problems with those playing out, its likely you have the same concerns about bitcoin and just haven't realized it yet.
Here is what would likely happen to bitcoin v1, it will fail to become a real currency.
Its currently morphing into a speculative store of value. I'd like to say its like tulips, but I'd be wrong, as it is definitely more useful than tulips. On the speculation front it may play out like the tulip mania/bubble, but I hope I'm wrong about that.
The reason for it to fail as a currency is the very reason for the spike in interest at the moment. Exchange rates seem to be soaring and may continue to soar which would make people vary of buying some thing worth $1000 USD for 1btc if there is a possibility that deferring a purchase by a couple of days could offer a notion discount of x% from the hope of the value of btc increasing. If you could wait a few days for the purchase and buy the $1000 item for 0.8btc, who wouldn't wait?
On the flip-side, if you bought 1btc for $1000 to buy something but the value of btc suffered a temporary squeeze to the effect that 1btc = $800, hence the same item now costs you 1.25btc or 25% premium to what you were willing to pay. Hence who would be willing to pay extra if you were sure the value of btc would rise?
This applies to all commercial transactions. In 90%+ of cases people will likely defer spending btc unless the value was at the same level +/- 5% as their purchase price.
Bitcoin as a currency/for commerce will leave every consumer in a constant state of buyers remorse and THAT will be the real reason for its failure.
The author of the article, Gary North, is the same guy who predicted a "failure of the global Information Technology (IT) infrastructure and that it would precipitate severe disruption and the complete collapse of the international economy, leaving American Christians to restore society following the collapse."
Also, he "favors capital punishment for a range of offenders; these include women who lie about their virginity, blasphemers, nonbelievers, children who curse their parents, male homosexuals, and other people who commit acts deemed capital offenses in the Old Testament. He also favors capital punishment for women who have abortions."
Everybody reading his article should take this into account.
I'm wondering where all the up votes came from though.
How can you make an assertion like that with no facts? Do you know that for sure? Do you have data to back that up?
We get it: You want to keep convincing yourself you didn't waste thousands of dollars on a huge, pointless bubble. Don't get pissed when it gets pointed out, though.
And another data point: Your account has 6 comments, all Bitcoin-related in different threads. I wonder what virtual currency you invested in?
I don't buy it. Yeah, Satoshi owns a stack. But if he sold out, the price would drop so hard it'd make your head spin... and I doubt Satoshi would be able to be rid of all of them in time before they bottom out. The market isn't large enough yet to pull that sort of scheme off.
Now, Bitcoin still seems like a good idea, with an implementation that seems to have some issues, and rampant speculation is going to stop the better ideas that it could embody from happening for a while. But a "Ponzi scheme"? Done deliberately for that reason? You're telling me that Satoshi knew it'd hit $1k per BTC? Pfft.
From Wikipedia: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation."
Social security does exactly that, and its recent failure predictions by the CBO are caused by the population failing to grow at rates that could sustain it. If more people aren't paying into it than those withdrawing from it, and it fails as a result, does that not match the definition of a Ponzi scheme?
Since there isn't yet a shortfall that can't be covered by existing funding sources, these solutions have not yet been implemented. Just like a private insurance company.
http://www.forbes.com/sites/richardsalsman/2011/09/27/social...
I live in the UK and generally think in GBP, but if I'm addressing an international audience, I'll usually refer to prices in USD.
(note: I agree with the general sentiment of the article, I'm just saying that people refer to USD because its a true global currency)
I don't think this says anything about Bitcoins as a currency. When the Euro was introduced in Germany, most restaurants, newspapers, politicians etc. kept on listing the Mark price alongside with the Euro price as a point of reference. After a few years this practice stopped when people got used to estimating the worth in Euros (my parents still translate everything into Mark).
I think that if Bitcoins ever become stable (who knows when - maybe once all coins are mined?) people might stop comparing USD to Bitcoins once they're used to the Bitcoin "worth", who knows.
Do we actually know how many large mining groups we need to make up 51% of the processing power of the block chain (hopefully that make sense, from my understanding of bitcoin).
There has been a number of changes to the bitcoin protocol, which have been made in a short amount of time and unanimously, from what I can see. That implies to me that bitcoin is in practice much more centralised than we are sometimes lead to believe, and that moving to bitcoin is just switching from one shadowy control group to another.
I would be happy to hear evidence that I am vastly overestimating this problem.
Two. GHash.io and BTCguild make up 27% each, for a total of 54%.
GHash.io had actually been acting maliciously according to some users on Bitcointalk, but the operator claims that was a rogue actor inside that has been dealt with. Double spends against betting sites in particular were involved with this one.
Yes, I know about the scrypt-based ones, but unfortunately they can still be mined 10x faster with a GPU, and I don't think that's much more preferable either. It needs to be CPU-only, because most people get as fast CPU's as they can, usually, but they don't really care about the GPU performance, other than needing it to support HD playback, which is a very low standard for a GPU these days.
I'm not sure how it can be done, but some of the ones that claim to be CPU-only are using multiple hashing algorithms and ciphers at once, presumably to ensure that the task is too complex for anything less "general purpose" than a CPU (at least until they start making chips with accelerators for each and every one of those hashing algorithms?! Maybe something to prevent that could be built-in).
The point is to make mining as decentralized as possible. I realize the danger of botnets, too, but I think the trade-off is worth it. I'd rather have that, than a few groups of people or governments owning a ton of ASIC's, or perhaps a few very expensive quantum computers in the future, that they can use to manipulate the currencies. At least if it's CPU only, everyone can have a say in it, in aggregate, which is really the whole point of decentralization, and empowering the individual in the Internet world.
> I'd rather have that, than a few groups of people or governments owning a ton of ASIC's, or perhaps a few very expensive quantum computers in the future, that they can use to manipulate the currencies.
Any government worth it's salt has server farms with more CPUs and a bigger budget than you can imagine. It's not really a defence at all. Back when it was profitable, the operators at CERN used to mine to keep the cost of their servers down to a minimum, filling the spare cycles between computations. I imagine their systems are nothing compared with that of someone like the NSA.
> I'm not sure how it can be done, but some of the ones that claim to be CPU-only are using multiple hashing algorithms and ciphers at one, presumably to ensure that the task is too complex for anything less "general purpose" than a CPU (at least until they start making chips with accelerators for each and every one of those hashing algorithms?!).
Won't stop them being GPU or FPGA accelerated. I doubt anybody will ever care enough to do a custom silicon chip for any of the "altcoins".
Granted, that's not actually viable yet, but if the world is going to move to a digital currency like Bitcoin, that implies it will be here for decades or centuries, and I think such a threat needs to be considered before it replaces most of the world's financial systems.
Even with ASIC's they could easily buy 1-10 million of them. It would only be a fraction of their annual budget, which will no doubt increase in the future, if nothing is done to rein in on their power. Normal people aren't going to buy ASIC's just to keep NSA in check.
Also, botnets would be there with or without Bitcoins. If they mine, at least they aren't doing something even more dangerous with the botnets, and keep them busy mining. Plus, it should be relatively easy to figure out you have a virus in your computer if your CPU is 100 percent 24/7 and the fans are spinning like crazy.
It does not require peer-to-peer creation and verification of tokens. It does not require mining, it does not require pseudo-anonymous transactions and a distributed public ledger of all past transactions. Those are all properties of Bitcoin but not of currencies in general.
Bitcoin has some interesting ideas, but it's hardly the only type of digital currency which can exist and mining is a concept particular to Bitcoin (and spin-offs) - it has the effect of enriching the devs and early adopters and transforming it into an appreciating asset rather than a currency.
If you have an idea of how it could be done, you may have a shot at dethroning Bitcoin.
I do think bitcoin solves a legitimate problem. But I don't think bitcoin itself will become the winner. Litecoin is vastly better than bitcoin because it solves the 51% problem and several other issues, but odds are litecoin will eventually be replaced by something better also.
Clearly a litecoin confirmation is weaker than a bitcoin confirmation, but 4 or 12 litecoin confirmations should be much stronger than 1 or 3 bitcoin confirmations.
The chance of me solving 4 litecoim blocks is the same as me solving 1 bit coin block, assuming the same hash power and difficulty. In reality Litecoin is quite low in both, so is substantially easier to abuse in the real world.
But look at it this way. If bitcoin blocks were once a day, then if you had a few percent of the network power you would get 1 day = 1 confirmation ahead of your opponent all the time. But with bitcoin blocks every few minutes, you have an infinitessimal chance of getting 1 day = hundreds of confirmations ahead.
The distribution of timings is much wilder when you're only taking a couple samples. The longest confirmations in the world won't make 2-confirmation transactions completely safe, but 20 confirmations is pretty secure with any length.
The truth about USD vs Bitcoin is that Bitcoins you can own and USD you cannot. http://blog.oleganza.com/post/67362431718/you-can-own-bitcoi...
When someone "cashes out" into USD he doesn't really want to cash out in a lot of USD as it's a poor store of value by design. It's controlled, monitored, expensive and leaks like crazy. You can cash out into Maserati, but it's also not a good store of value. Therefore we see that more and more investors remaining with BTC are making a huge bet - a bet on universally accepted money. People who want to cash out quickly do so already without bringing price much down.
You should see what crazy things bad monetary policies make possible:
http://www.bloomberg.com/news/2012-11-08/argentine-protectio...
cached version of an Economist article:
http://webcache.googleusercontent.com/search?q=cache:_MKsBta...
No, he really does want to cash out in a lot of USD, because its a very good medium of exchange, by design. They then proceed to use the USD to buy things that either provide immediate utility or provide a good store of value, but that's after "cashing out", which is an act designed to secure something useful in general exchange ("cash").
It's arguable that the 'unplanned' part is not a necessary feature of a currency. In fact, no fiat currency in circulation today has survived without a significant amount of planning.
In contrast, the planning which went into Bitcoin seems to have made it closely fit the theory's description of money. Arguing that its planned nature negates its 'moneyhood' (to coin a phrase... sorry...) seems a little like arguing that an artificial organ won't work due to not having been grown within the host, or that a genetically engineered organism will fail due to not having gone through an evolutionary process.
Is Bitcoin a Ponzi scheme?
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.
A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.
The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality.
Toni - trying to sell Jeremy on a pyramid scheme -- Peep Show, Season 1, Episode 2; "The Interview"
Admits that bitcoin is not a ponzi scheme in his own article.
> The money was siphoned off from the beginning. Somebody owned a good percentage of the original digits.
Implies that most bitcoins are owned by satoshi nakamoto, without substantiating this claim by any number to quantify the impact. The estimated stash of satoshi is about 1 million bitcoins: http://www.theverge.com/2013/5/6/4295028/report-satoshi-naka... . Today 11 million bitcoins are in existence. There will be an eventual cap at 21 million bitcoins, so satoshis stash is somewhere between 9% to 4% of all bitcoins. By comparision the winkelvii own about 1% of all bitcoins. I'm not qualifying the risk this presents, but I think it's important for an accurate critique to provide quantification.
> Money develops out of market exchanges. Money is the product of the market process. It arises out of an unplanned, decentralized process. This takes time. It takes a lot of time. It spreads slowly, Money has continuity of value. This is not intrinsic value. It is historic value.
These statements are provided by the author to explain the nature of money. Note that they do not contradict bitcoin, except perhaps in the haphazard and sometimes too fast adoption. However, the statement about the duration of the establishment of a monetary system derives largely from theory that was wholly written before there where computers or the internet. Historical observation cannot be a good guide when circumstances changed radically.
> Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money.
Volatility != Money, I find this a weak argument. Substantial volatility can manifest itself in established currency markets as well.
The remainder of the "critisism" of this author basically boils down to "It can't be, because I say so. Perhaps best exemplified by this statement:
> In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit.
Author offers scant real critisism beyond the observation that bitcoin is very volatile. Nobody is debating this fact. Nobody is objecting to the assertion that bitcoins, due to their volatility, are a difficult medium to use for exchange.
Sadly, author is missing an opportunity to examine what other prospects and drawbacks bitcoins have beyond a simple discussion of the nature "it's so volatile, you're crazy".
I don't think it would be possible to kickstart something entirely new, which has a massive potential as a technology, and not go trough phases of substantial volatility (many disruptive tech startups valuation goes trough phases of massive volatility, for instance like the early history of Microsoft). Now it's possible that this dooms bitcoin. However, it could be argued that if bitcoin didn't reward early adopters, and if it didn't had massive potential, which would invite the eventual hypes and busts and massive volatility, then it would linger forver in an obscure niche appreciated in it's abstract beauty by crypto and math geeks alone.
I think it's laudable to try, even if you don't succeed. But if you don't try, you're guaranteed to not succeed.
It should clear to everybody who holds bitcoin, that there is massive volatility, and that you might buy your coins at a time, which can be very dammaging.
I would argue however that this isn't an unsurmountable obstacle. A person can substantially lower the volatility he's exposed to at least in the buying phase by dollar cost averaging. An advise btw. that Warren Buffet has publicly given about the current stock market as well.
Certainly groups of two or three who all sell fairly large quantities of BitCoins around the same time, even just by coincidence, can trigger a panic sell-off.
The more BitCoins are distributed are among more people the less a few people selling can snowball into a price collapse.
BitCoin already seems to be much less volatile than it was even a few months ago. The up-and-down fluctuations are a much smaller percentage of the price. In the last few days it's been hovering around $1200, without falling below $1100 or rising above $1300. A year ago it was routine for BitCoin to lose half its price and then recover and then lose half again.
1. Single drug company selling the life changing drug = High near-fixed-global price | As soon as more drug companies can sell increase price competition, higher variance in generic pricing, different rates globally
2. All company valuations remain relatively steady until an IPO
3. If a man/woman suddenly gets a lot of suitors their current relationship if less than optimal may crash and burn , in the absence of alternatives the relationship may have a better chance of survival.
2. Big cap vs Small Cap != Necessarily More Relevant (its relevant to the principle of volatility, but requires more complex understanding. This understanding is absent for the OP of comment thread I replied to - to explain further the presence of market makers, prop desks/professional traders, institutional block trades, quant. systems, availability to borrow shares to short, short sqeezes etc. that are present in large cap equities/futures/opts markets reduce volatility and skew the data towards the hypothesis that more owners reduces volatility. A number of these influencer's make the topic relatively more complex to understand for a layman and the people who feed them information aka news media).
For comparison, the foreign exchange markets do trillions of dollars every day in volume. The daily volume of Bitcoin trading is around $100 million at times.
This also doesn't appear to be true: see David Graeber's book Debt: The First Five Thousand Years for his descriptions of how money actually emerges from religious ceremonies and temples, not barter (as most econ books have it) or "market exchanges."
(Incidentally, I don't agree with Debt's main implications about debt, but its anthropological work on money is fascinating! (https://jseliger.wordpress.com/2013/04/28/thoughts-on-debt-t...)
> Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages
but there are plenty others, an exhaustive list of which would be inappropriately long for a HN reply. This isn't one of those things where people don't understand computers, this is one of those things where someone just completely makes shit up. He's also a somewhat unhinged and deeply horrible person. Discussed here by Brad Delong who is about as far left as real economists come: http://delong.typepad.com/sdj/2013/04/david-graeber-april-fo...
1 http://www.businessweek.com/finance/occupy-wall-street/archi...
Graeber's response to the criticism doesn't instill much confidence in him. Though DeLong setting up a taunt-o-matic is a tad interesting....
As I said before: Graeber's premise is interesting, but he's definitely tainted goods from here on out, and I'll have to verify any of his claims/statements before using them elsewhere.
Pity.
http://crookedtimber.org/2012/04/02/seminar-on-debt-the-firs...
He does thoroughly deconstruct the barter origin story, by showing that barter economies were actually driven by credit (and thus credit pre-dates money).
The story about religious ceremonies and temples is that in pre-market societies, there was a social currency (wampum, copper rings, special cloths, etc) used for ceremonial purposes. It was when market economies (and market currencies) became entangled with the social currencies that you see the development of slavery.
Bitcoin is successful as a proof of concept of how you can create a modern currency that retains most the benefit of electronic and physical money. For the supply, I have just the opposite reaction. I used to think that the limited supply of bitcoin was a great idea, now I'm thinking all the clever people that wanted to get us out of the gold standard may have had a point after all.
It is also not a ponzi scheme, just a risky investment.
(no sarcasm intended) Are you saying that a currency that cannot be controlled (e.g. the money supply controlled by something like a federal reserve) is more dangerous than one that is?
What would be an example of the "wide range of issues" that policy-controlled inflation helps prevent?
The tl;dr on "inflation is good" is that it benefits people borrowing money. If your wages keep pace with inflation, then things like your car loan and mortgage ultimately cost less, leaving you with more inflation-adjusted money to lubricate the economy with. Inflation stalling (or even receding into deflation) means that it's much more expensive in terms of wage-hours to pay back an existing debt, which discourages people from taking on new debt. http://www.nytimes.com/2013/10/27/business/economy/in-fed-an... is a decent article on the concept.
A deflationary currency, by contrast, will heavily discourage borrowing. This analogy is a little stilted by the BTC<->USD conversion, but if I agree to loan you 10 BTC to be paid back over 5 years so you can buy a $10,000 car, and over the term of the car loan, let's say that the value of BTC is going to increase from $1000 to $4000 (that is, the amount of value traded in BTC is increasing faster than the amount of BTC in the market), then you'd be a fool to take my loan, since you would effectively end up paying me $40,000 worth of BTC for a $10,000 car. This would discourage you from taking my loan and buying the car, just because of the behavior of the currency.
(That said currently, since lenders get a chunk taken out of their loan by inflation, they make it up in the interest rate. In a consistently deflationary market, it seems to my non-economist brain that the answer would be a smaller - potentially even negative - interest rate, which would be pegged at a point that the lender still makes money over the course of the loan without being overly discouraging to borrowers.)
With that out of the way. I don't want to live in a country or principally trade in a currency that can react as bitcoin. I don't have a lot of cash sitting in my bank account, instead I have a small amount of debt (only Banker salary allow you to buy a flat cash in London) so I fail to see any situation where a 10,000 % deflation rate can affect me positively. (Similarly 10,000% inflation - actually 0% inflation is the stuff I can deal and be happy with)
So I don't mind a uncontrollable currency as I don't mind the wind being uncontrollable. I mind hurricane and if I cannot afford to deal with it, I simply prefer to live in an area without hurricane or as a last resort, government provided countermeasures. So in my situation, one I share with the majority of the first world, I prefer a currency controlled by FED-like central banks, than a currency without control that can increase my debt by 2 order of magnitude and at the same time likely put me out of work. So it is a choice 100% pragmatic rather than based on any type of economic theory.
I would not mind to be convinced otherwise, preferably without assumption like "when everybody uses it", or "if a country like China uses it as its currency".
But right now, it seems opinion are split between people in denial with 10,000 bitcoin in their wallet assuring me that what is happening with bitcoin right now is Good (sometime with the argument "deflanationary currency is good" as if that did not require further explanation). Others are blog like this one made by doomsayer simply angry they didn't buy 10,000 bitcoin last year.
Inflation and deflation only really impact you when a) your wages get out of sync with cost-of-living prices, or b) you are borrowing or lending money (or just have cash sitting around that isn't being utilized in any fashion). If your wages and prices all fell to 1/10000th of what they are today, your purchasing power (in terms of hours worked per loaf of bread gained) would remain the same.
Deflation would harm your ability to (responsibly) take on debt. But, it's arguable that our current economies are so heavily debt-fueled because of our inflationary policies, as well, so it's worth keeping in mind as a variable when processing the concept that deflation = less borrowing. Deflation is scary to Keynesian economists because the Keynesian model only works when people aren't significantly saving anything beyond what they invest - that is, their money is all either spent on goods, or is loaned to other people. Holding money in an inflating economy is irrational since it is constantly losing purchasing power; thus, since it is in your best interest to spend your money as soon as you make it (either on goods and services, or by investing it somewhere that will offer a return greater than the rate of inflation), money keeps on rolling around in the economy.
The theory is that once people start socking away money in their mattresses, you get recession or depression. Deflation would encourage lending (either directly or through investment), but since it discourages borrowing, people may end up unable to find people to accept their money, and the economy grinds to a halt.
One of the real dangers to Bitcoin is precisely that sort of public image.
Whether Bitcoin can be mined or not has absolutely nothing to do with whether it's a fiat currency or not, so your logic does not follow. Fiat doesn't mean "can easily manipulate". Any currency that isn't backed by (value derived from) a hard asset is a fiat currency. Burning electricity to create bitcoin's is not "backed by", that electricity is gone, used up, wasted. Other crypto currencies like peercoin or primecoin address bitcoins wasted energy, but they are all fiat currencies. Their value derives from confidence, not assets.
(I'm not a gold bug, I could care less about gold, if gold offends, substitute some other tangible commodity)
That's my point that Bitcoin is more of a commodity currency and is not (at present) a fiat currency. The fact that the electricity is gone doesn't make any difference. Mining gold requires fuel and labor which is gone, used up, and what remains is gold. This expense is what limits the production of and correlates the commodity to the underlying economy.
What is really interesting is your assertion that the value derives from confidence and not assets. I would argue that value derives from the fact that its supply is limited by the use of resources and labor.
Its limited supply doesn't give it value because it's but one of many crypto currencies[1] and its value is derived only from being the first mover and thus network effects and confidence. That money could easily abandon Bitcoin and flee into another crypto currency any time general confidence in it fails; for example if say LTC or PPC show more stability over time because of their differences from BTC and BTC fails to stabalize over time due to its deflationary nature.
I'm also aware of what happened to the term beyond its origins. And that is the problem.
Like, now, I'm free to accuse you of being a secret agent of the notorious hacker group named Anonymous, infiltrating this site under an assumed pseudonym. And worst of all, I could make that claim non-ironically, if I so desired.
Do you see how ridiculous this is all becoming?
Use of terms like "fiat currency" is, in my experience, similarly an attempt to mimic the behavior of people they've seen winning arguments, in hopes that doing so will result in winning arguments.
Btw: As the rules and mechanics of the Bitcoin network are enforced by the majority of clients it would be pretty simple to invalidate these bitcoins if the majority of the Bitcoin software authors would agree to do so. Just ignore any transaction regarding these old addresses.
In addition, everyone who bought in over the years implicitly accepted this deal. I'm sure if the inventor had claimed 50% of the total currency pool, there would have been less interest.
However I think you will find that really nobody wants to participate in such a scheme for a pretty simple reason.
Fungability is an important concept for money in order to work. A landmark case in scottland around 1750 (Crawfurd v. The Royal Bank) recognized that fungability is more important than the individual right in the money. The very same conclusion has been held up in virtually every juristiction imaginable since.
Miners, which very much depend on fungability to run their business, would be dammaging the very foundation on which they are running their business, if they would undermine fungability.
Since you would need the cooperation of the majority of miners, to do something that is not in their self-interest, a serious attack on fungability is not easy to pull off, although it gives credible threat to encourage debate.
The difference between cutting the Satoshi stack and the Crawfurd v. The Royal Bank case IMO is that in the latter invalidating money in active use greatly threatened the viability of the currency whereas in the former the money is just lying around anyway and its existence is a threat to the stability of the currency itself.
For real fungibility with bitcoin we need to add real anonymity, something like zerocoin or some bank like structures that provides huge scale money laundering (in the way this currently works with established money). At the moment bitcoins leave behind such a huge paper trail you can hardly describe any coin as equal to any other, except those freshly minted.
The majority of miners would need to adopt the new software, and in theory the "economic majority" would too: https://en.bitcoin.it/wiki/Economic_majority
I see the software engineers of the Bitcoin clients as a largely underestimated force in the network dynamics. Even one subtly placed bug could bring down the whole currency in the long run.
When I exchange Dollars for Rand, I can more easily use the Rand to purchase goods and services in South Africa. I'm not speculating the Rand will be worth more in 2 weeks time. I just want something more fungible.
It seems people who are buying bitcoins now aren't doing so to purchase goods/services. They are buying and hoping the price goes up.
I'm just guessing but I'd bet most of the transactions happening now are for speculative purposes and not for increased fungibility which I believe to have been the point.
If people keep buying as an investment, they'll eventually start cashing out and the herd will follow to avoid losses.
Bitcoin may recover after a future crash but because nothing is really backing it, it's likely it'll fade into history.
When bitcoin was first brought into existence it was worth nothing, and people invested anyway for mostly speculative reasons. Lets assume that at some point in the future it will be worth zero again, once the current batch of investors cash out. Why will it suddenly not have the speculative value it did before? If anything, it should have more, since it will have a more complete infrastructure and more momentum than it did when it was first created.
When I said that it'll fade into history I meant that sites like Amazon will never accept it. By definition, currency is "the fact or quality of being generally accepted or in use".
If it isn't widely accepted, it's just not currency IMO.
The primary benefit seems to be anonymity and the majority of people don't care about that. I live in the US and we already have an anonymous form of money (cash) and I rarely see that used.
Why would "normal" people start using a more difficult to use currency just to be anonymous?
Of course I really don't know what's going to happen but my best guess with what I know is that it'll fade into obscurity within a year.
Probably my #1 reason for BTC failing is that it's not fiat. All popular currencies are fiat for good reasons.
BTC sort of reminds me of the gold standard being finite and initially "mined". Maybe it's fate is similar. People who don't trust state backed currencies will find use but it will ultimately remain on the fringe for everyday trade.
The cross-border, "offshore", unseizable aspect was the biggest reason for my initial interest. Not the potential price gains (I always assumed price would top below $100 and remain a relatively tiny niche currency forever thereafter).
I cannot buy groceries, pay my mortgage, put gas in my car, etc as I do with the USD right now. Because I can't use BTC as easily as USD it is by definition less fungible.
It also seems seizable. Didn't Silk Road have their stuff taken?
It does seem more safe in BTC form but again to use it for most things requires an exchange back into a popular currency and state actors can easily control exchanges.
Paypal-USD is not fungible with Alipay-CNY, they are separate payment networks (if you don't believe me, try to find an exchanger). The situation is like the days before SMTP, when AOL and Compuserve had different e-mail networks and a user of one couldn't send an e-mail to a user of the other. But BTC is easily exchanged for either Alipay-CNY or for Paypal-USD, so it is more fungible than both.
At the increasingly slow rate that coins are produced, this won't happen for some. But assuming that bitcoins are still around and in use at the point in time in the future when this happens, what will be the effect of this?
The supply is fixed and no more can be produced; and since it's still around, chances are there is demand / usage that would likely grow. The likely result seems to be that from that point onwards, bitcoin's value would only grow to due an increase in its scarcity. Perhaps, this is a possible justification or rationalization for bitcoins as a (very) long term investment.
Also, not too familiar with the internal bitcoin protocol but what will happen to the network of miners who help with verifying / maintaining the transaction ledger? I think the reason they participate is that they are (proportionally) rewarded for their services in new bitcoins. When this is no longer the case, who will agree to do this work then?
The miners will still get transaction fees even after all the Bitcoins have been mined.
Nothing at all. There have been dozens of "competing" digital currencies for several years now. Litecoin came along in early 2011. And it's extraordinarily easy to change Bitcoin to other digital currencies (much easier than USD <> digital currencies).
So obviously being first counts for a lot here. The network effect is strong.
Or is there something that forces the null prefix lenght to change?
As an artificial scarcity, it strikes me similar to the king of an island who would collect all the shells, and distribut only a few of the as money.
Any would be king could start to collect square shaped pebbles, and do the same.
At least, the one who would choose to hoard coconuts would provide for money something that can be used, that has some intrinsic worth.
having thought about it - the argument that bitcoin is going to be worth a lot "because there are only 21 million" - we have to consider that bitcoin is just one of "n" virtual currencies.
while bitcoin may be limited, we already have 37 alternatives (at least) and there's no reason another hundred can't be started up within a year.
So, i see there will be a lot of virtual currency flying around, all of it as qualified as bitcoin (sharing similar source code) and the idea that it will all be worth 1,000 a unit (or more) forever just doesn't make sense.
Not to mention the safety - it's easier to pull a 51% attack on the other currencies (see the attack performed on Feathercoin)
It's really not a technical question. Bitcoin came first, it has the traction.
Getting traction into another chain is possible, but much more difficult than with Bitcoin. (Which only involved creating the first of a new, disruptive technology).
Simply said, why would I want to buy any of the alternate coins? As long as you can't give me a satisfying answer to that, your argument is moot.
So you'll buy them because of speculation. Hence the proliferation of these various currencies, the latest of which -- QuarkCoin -- is probably going to surge tomorrow on Bter.com and other exchanges :-P
Do you remember the time when twitter was the new hotness? And like everybody and his aunt where building a twitter clone. I mean, it's so simple, just a list of teensy messages, how hard can it be. And we joked how the operators of twitter had like a couple servers and some louse PHP scripts to glue it all together, it was just so laughable from the outset. And most laughable of all, people where flocking to it like mad.
Twitter is the remaining "twitter like" website, all the clones quietly shut their doors again and twitter went public with market cap valuation of $22 billion...
I could now ask: Are you kidding me? A website where people can post 140 character messages is now worth $22 billion.
Ah but the wonders of the network effect. You see the value isn't in twitter. The value is in who uses twitter. Because everybody uses it, it's valuable, and because nobody used the clones, they're not valuable.
while bitcoin does have a big user base, currency is a more personal thing and if people see too much volatility they'll just pick the one that is most stable, meaning without this flawed crazy dispersement scheme
i, for one, do think Bitcoin is a ponzi scheme but it's a more complex one with a lot of Game Theory involved. That's whats unique about the scheme -- it guarantees the founder and early adopters a ridiculous amount of wealth, while still having the ability to satiate the greed/hope of new buyers
Also people need to stop comparing this to company/stock valuations. Those are more like an estimate of a company's worth whereas in Bitcoin the figures given are always a supposed value of currency unit.
Consider this -- when companies sell stock it is to fuel more work and production within the company. When a Bitcoin is sold for $600, it is so some dude can by a Playstation 4. It's not attached to lifestyle in the same way as stock/investment in companies.
The source code is open but the processing power is not so quickly reproducible. I think this is the biggest argument for bitcoin's sustained dominance at the moment.
There could be many cryptocurrencies. Some issued by commercial entities like Amazon, some for use in a specific online game, others perhaps behave like an ETF and are backed by USD or Gold, may be even a cyptocurrency that magically(?) security-ignorant individuals can use. These currencies could all be subject to market exchanges and futures.
Bubbles are fermented in hysteria that if you don't buy now you will never get a chance again. Whenever I start hearing those arguments my interest in speculative investment begins to dissipate. A bubble will not deter me from my optimistic interest in bitcoin because I believe its properties are incredibly productive.
As for bitcoin and ponzi schemes, the withdraw caps and illiquid nature of certain exchanges right now make it very possible to conceal a ponzi scheme.
Here is my challenge: for those really bullish on bitcoin, build things that use it! When all you do is speculate, then you stand on equal ground as everyone else. Do something to get an advantage.
The other, more difficult problem is building trust in the underlying mechanism. The systems have to be open to take advantage of Linus's Law "given enough eyeballs, all bugs are shallow", but there has been such a proliferation of altcoins that I doubt there are enough skilled eyeballs to go around.
There are a lot of people jumping on the altcoin bandwagon hoping to be the next Satoshi. It is almost certain that some of those altcoins will have fundamental flaws. If they fail catastrophically, the reputational damage will, no matter how unfairly, impact upon all of the others. That will make the job more difficult, even for the worthy contenders.
The fact that he owns between 4-9% of all bitcoins that will ever exist... This fact is frankly outrageously frightening. We have no idea who this person or group is. They might end up being the wealthiest person in the world, by a large margin.
When I tell someone about Bitcoin for the first time, and that it is developed by some mysterious person who is completely unknown... the reaction without exception is "WTF!"
> He made this money out of digits.
No, he didn't. He made the protocol, miners made money out of WORK, not digits. Didn't even bother reading further.
Only true if we see Satoshi spending his Bitcoins.
We have an online store selling baby products and really want to accept Bitcoins but we can't at the moment since Bitcoin is not widespread and price fluctuates madly. Once everybody got some and price is predictable in the short run, we'll show the finger to the bank, the real one siphoning from our pocket as commissions without actually providing any reasonable service.
I suggest that you check out bitpay.com
They will bill your customers in bitcoin and will transfer out USD to you so that you don't have to worry about the exchange rate at all. You setup your items in USD as well and they handle the price fluctuations.
They do daily payouts to 30 countries in several currencies. I've been using them since April and it's amazing!
Sincerely, A happy bitpay customer :)
Edit: oh and I must add! They used to take 1% commission but have introduced new packages that have 0% commission from $30/month! Also, the daily bank withdrawals are free.
Look at it as training if you ever branch out into selling in (hyper)inflationary markets.
For example, in the 80s, people in Argentina continued to pop out kids and would theoretically be a market for your baby product store... if you have the infrastructure to handle "difficult market conditions" then you have an inherent competitive advantage in the future over your competitors.
About the only thing that's really certain about the future of hyperinflation is it'll continue to happen, so a return on the investment seems guaranteed; although when you'll get the return and if that makes it worthwhile is unpredictable. Perhaps you'd totally own the baby products market in .mx in 2017 or .us in 2020, who knows.
After all, the market may price bitcoins high today but even if they drop tomorrow, as long as they stabilize, they can be used as money.
Although it is true that whatever is the most liquid asset in the system becomes money, often that asset is liquid because of local law enforcement. Which is the case with fiat currencies.
Most money today is credit money. Bitcoin is not credit-money. The "underlying value" of bitcoins is not what's relevant. What's relevant in decentralized situation is the value TO SOMEONE of an asset is what they can trade it for of genuine use to them. So the value of a bitcoin today may be limited to speculating with it. But as more merchants accept bitcoin and the market is saturated and brings diminishing returns, the value of the bitcoin will stabilize.
Similar things happened with rapidly growing social networks, like Skype or Facebook. Those are the economics at play here. Initially maybe Facebook was a way to just put up your profile, because not all of your friends were on it. But eventually it became the way to stay in touch and update your friends on what's happening, because enough of your friends used it that it became useful.
When enough people trust bitcoin to accept it as money, then it will become money. Until then, the jury is out. But the network effect only grows stronger with the number of users...
Even if it was an investment scheme it hardly fits the definition of a ponzi scheme. In any new investment whether it's a startup or bitcoin the early investors make out better than later investors. That is not the definition of a ponzi scheme.
Something that is scarce, restricted in future supply, and of high demand will tend to serve as a magnet for speculation.
Given easy convertibility, bitcoin's deflationary effect is spread over the whole economy, not just bitcoin. So far, bitcoin's not big enough for that to be noticeable.
It's not a ponzi scheme, just an amusing bubble.
More & more companies announce that they accept Bitcoins on a daily basis, thus it has purchasing power & it creates value to the end consumer.
I don't know if bitcoin will succeed. I don't know if it will be used as everyday money. I know quite a few people who use it to buy drugs or takeout food. I know vast amounts of people who have never heard of it.
I don't think you can say anything about bitcoins future as money at the moment. Just that (as I explained in an earlier post) national governments might at some point have an incentive to restrict bitcoin, if it gets so successful it might make their financial policy ineffective. But this point (if it ever comes) is still far in the future.
Volatility is not permanent characteristic of bitcoin. It's like saying that a newborn child will never be able to walk, because now it's only crawling.
At a certain point Bitcoin will stabilize. Whether that will be at 0 or 1 million, no one knows. Not the haters nor the fanboys.
Bitcoin is as open, transparent and honest as anything can be. Everything from the protocol, through the implementation to the all the transactions themselves are public. No one hides the fact that the gains in bitcoin price come from people wanting to buy bitcoins more and more. No one promises that this will always be the case.
Lately there have been many people saying bad things about bitcoin. I think those are people who had bitcoin on their radar a few months ago but didn't invest. And now they are just grumpy because they missed the opportunity.
The people who set the price will be those who are interested in holding bitcoin. People who hold bitcoin instantaneously do not affect the value almost by definition.
1) it's blazing fast. Ten minutes and someone deep in African desert can wire money to a researcher on one of those scientific outposts. Try to do that with a bank.
2) If done right, Bitcoins are anonymous like cash. In light of the recent NSA scandal, I don't believe a second that the NSA/other governments will reduce their programs. If I wire a thousand dollars to Pakistan, I bet I'll land on some no-fly list, even if the money was support for my family. With Bitcoin, this would not be possible.
2) This is wishful thinking. Large currency transfers by law need to be reported by most states, whether Bitcoin or not. A thousand dollars is not large ($10k is typical).
Your scenario here is effectively saying it's easier to break the law with bitcoin. All you are doing is putting the legal burden on the exchange.
Is BTC considered 'currency' by the US government? Do its transfers necessitate reporting to the government? If I sent a thousand dog biscuits to my home land, does the government need to be involved? Under what law?
Almost certainly, under a variety of money laundering laws. You can't just convert cash into diamonds/gold/Bitcoins and thumb your nose at the authorities saying "look, no currency!"
I'm not suggesting you don't have a point, but the idea that BTC has value is, I think, arbitrary at this point. There are thousands of leaves littering the lawn in my back yard right now -- surely I could send those to a foreign land without having to declare it, right?
An argument could be made that they have more actual value than a crypto-currency at this point, as they're a tangible good.
Similarly, if I send $10,000 worth of virtual roses to friends on Facebook, the government is not interested, and I haven't seen anything that convinces me, at the moment, that BTC should be treated differently than any other all-digital good.
The government can and will assume bad faith in any transfer involving large amounts of money and/or items of value.
> Similarly, if I send $10,000 worth of virtual roses to friends on Facebook, the government is not interested, and I haven't seen anything that convinces me, at the moment, that BTC should be treated differently than any other all-digital good.
Actually, I believe Facebook would be required to report that transfer to the IRS.
I believe you're right, because there's a cash transaction there, and cash has intrinsic value.
But if I 'bought' LTC with BTC that I mined at a cost of idle CPU cycles, where's the intrinsic value? The market rate for CPU cycles is far less than the value of the equivalent BTC (or, at least was initially).
If I'm holding $1 million dollars in a bank, I would be subject to capital gains taxes on its interest earnings. If I'm holding 1 million BTC on my hard drive, I'm not. If I paid for those BTC, that's a bit different than if I mined them early.
I'm not trying to be difficult, so much as point out that there's still a long way to go before you can actually say that BTC is currency, and that even if we do determine that it is currency, that it's subject to the same rules and regulations as actual currency or commodities. If I paid capital gains taxes on BTC holdings yesterday, vs waiting til today, I'd have 'saved' approximately 15% due to market fluctuation.
As there's no real 'anchor' to the value of BTC at the moment, I think there are just more questions than answers, really.
Keep in mind it was illegal in the USA to actually export crypto source code for keys of a particular strength in the 1990s - it was viewed as a "munition". This is why web browsers had 40-bit and 128-bit SSL versions. Those were lifted eventually due to efforts from the software/web business lobby.
However, it still is also illegal to export many classes of goods and services to particular nation states that are undergoing US sanctions. if your homeland is Iran or Syria, for example, you're not going to be sending dog biscuits. If it were Pakistan, you probably could - but it would have to be reported as part of the export manifest with FedEx or DHL. Same goes for electronic transactions like bitcoin.
2) There are reasons you do not want the state knowing what you do. The less the state knows, the better.
Square Cash is faster than that, and the money on your debit card is significantly easier to spend than Bitcoin.
Try to do a debit or refund of 150,000,000$ on your card. Cannot be done.
Bitcoin will happily do it's thing, either with 1$ or 150 M$ without discrimination, questions, etc... There lies the true power of Bitcoins.
Because even if you take away the bitcoin to dollar conversion, you still have a huge number of people who would be willing to trade bitcoin for goods and services because they have a huge investment in the hardware and power it took to make their bitcoins.
I was curious if Bitcoin would become a good solution to the quest for a micropayment system but it has been a victim of its own success and has become too valuable. However if its value dropped but still held some value, it would then return to a valid micropayment system.
Just because people made a huge investment in hardware or power to make Bitcoins doesn't mean anyone else has the remotest bit of interest in accepting Bitcoins for goods and services they provided. The average Zimbabwean worked a lot harder for their Zimbabwean dollars before being forced to switch to other currencies that other people would actually accept.
Right now, some people will accept Bitcoins for real goods and services because they believe the chances of currency appreciation in future are greater than the lack of liquidity and threat of price crashes. Since Bitcoin isn't reliably convertible into anything else, people's willingness to accept it depends on it remaining that way in future (here, it's "deflationary" tendencies are actually a big advantage). People need dollars to meet certain financial obligations, whereas they merely want Bitcoins because they seem like an investment. Take away that anticipated growth in value and suddenly the risk to accepting BTC seems like far more of a downside than the transaction costs of conventional currency.
If crypto-currencies are bullshit because, as the author puts it: "...He made this money out of digits. He made it out of nothing...."Then all fiat currencies are bullshits.
What makes crypto-currency worthwhile is that the algorithm keeps it honest and it encourages saving
I hate this "BTC is not money" argument because the core foundation of liberalism states basically "money is what people voluntarily choose to use as money". So if they are convinced that BTC works (works at least better than some alternative) , why shouldn't they use it as money?
Volatility is not an argument. Before "adoption" of USD and gold as money, they most probably were volatile as well...
http://www.npr.org/blogs/money/2013/07/05/198413086/episode-...
One of the biggest problems is that the rate is constantly changing just like Bitcoin. And that rate is in US Dollars, the currency they're trying to abandon.
Also unlike a Ponzi Scheme, there's no single person that has the power to stop the whole operation. It's more like a drug than a Ponzi Scheme. And Bitcoin just hit the streets.
"In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy. A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency. The fact that early adopters benefit more doesn't alone make anything a Ponzi scheme. All good investments in successful companies have this quality."
Back to the article:
> somebody owned a good percentage of the original digits.
Ok, this sounds just like bitterness from somebody who didn't buy in early. See also https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_be...
I shared the author's view when BTC == $30, I'm tempering that now and starting to view it as a maturing alternative wealth store.
It may always be extremely volatile. However, now it has achieved a level of confidence, it will likely become another safe harbour in times of local currency disruption.
The bigger problem is that Bitcoin has intrinsically a deflationary nature. That's not a great property for a currency to have. Currency is meant to be spent. It's not meant to be buried in a backyard so that you can watch its value grow.
His points around the development of currencies are bunk. The fact that in the old days it took any currency decades or centuries to take a hold, is purely a function of that time. Bitcoin also does solve some big problems with the current financial system. Specifically today it's pretty friggen hard to move money around because of the insanely strict regulations around transfers. In an era of the internet and all that it enables, there is a huge pent-up demand for something compatible with "the internet way of thinking".
> In other words, bitcoins cannot possibly fulfill their supposed purpose: to serve as an unregulated currency unit.
Oh that's funny, because for many years they have been doing exactly that with no end in site. Again , I say, the mental dissonance of bitcoin's naysayers is becoming more comedic by the blog post.
Make no mistake, it will one day go down in flames, and 10 years from now people will write stories about bitcoin the same way they do today about how insane Iceland's banking system got, or Pets.com being worth $20 billion or whatever.
http://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines
VLM's law of economics commentary: anyone describing something as a Ponzi Scheme has no idea what a Ponzi Scheme is and is just trying to baffle/intimidate the reader.
(It might very well be a fraud / scam / ripoff / whatever but it sure as heck isn't a Ponzi Scheme)
This is a disease finance is unusually susceptible to. For a good laugh try to ask any joe 6 pack what a junk bond is, and all you'll get is babble about some hollywood actor said they're bad, or some vaguely anti-capitalist blather. You'll never, ever, get to hear what they actually were or how they fit into the context of finance during that era.
(It will never rival Social Security, however.)
Our real money is created out of thin air, backed by nothing for a long time. There is a lot of fantasy and conspiracy theories behind it, but it is a problem in the end of the day. When the money started to be electronic things got even harder to find out what exactly is backing up that money value. Humongous amount simply floats from bank to bank.
While with the existing money is difficult to get to it's primary root of source, with bitcoin this applies pretty much to every penny going around. In theory it's beautiful, but it's an utopia.
Bitcoin is a useful technology.
It's is in limited supply, as money pretty much has to be.
It's not backed by commodities, and can't be, if you want to avoid vulnerability to the sort of government attack that shut down E-gold.
When you're starting out with an intrinsic value of zero, and you have limited supply, there's no way for a currency to gain substantial real-world usefulness without a large price increase along the way.
People hoping for gain still spend bitcoins, they just replace them right away.
An adjustable and growing money supply is much more the norm.
So it is adjustable and it is growing. The price rise is caused by speculation and demand, not because new bitcoins aren't being produced.
Whereas a money supply typically requires different rates of creation or even destruction to respond to the market demand, partiularly in a time of currency hoarding (such as we are experiencing now in the real global economy).
There is also a strong argument for multiple currencies with different supplies of money rather than a single global supply, so there can be mutual adjustment of prices and wages without the social wreckage of a deflationary spiral (such as Southern Europe is currently experiencing because of the Euro).
What are the forces that have caused those requirements to arise with traditional currencies?
Did you mean inflationary spiral for Southern Europe? Or are prices for things dropping there right now? Not sure.. But again, a lot of what happens is because of constantly 'hacking' the system (raise the debt ceiling, print more money, etc.). Using that as the norm and presenting an argument against the 'hack ability' of the new system seems flawed. Maybe there needs to be better research into what happens, why it happens, and how it can be prevented. Inflationary currency most likely isn't the right answer considering the issues it has caused so far... Deflationary may not be either.
So what constitutes a "hack", vs "bug", vs "works as designed" is a matter for debate. You point to the debt ceiling - that's a non-economic political enomaly unique to the USA (and interestingly, iirc, Denmark). It's not so much a hack as a periodic configuration change.
You also mention inflation. Currently there's very little inflation anywhere in the world. We are printing money everywhere, and yet there is no real inflation, not a peep, completely contrary to over 5 years of dire warnings from inflation hawks. Why is that? You'd think there may be a lesson here.
Southern Europe had massive capital inflows from the North during the past 10 years, leading to wage and price inflation. Private excesses led to a massive crash in demand when the financial crisis hit, and a major outflow of capital. So now the South is uncompetitive relative to their Northern neighbors. The typical tool to get more competitive is to drop their exchange rates relative to their peers to bring export prices inline. but with the Euro, they can't do that. So they're stuck in a deflationary spiral - difficult (high unemployment, lowered workforce participation) and destructive (business and livelihoods destroyed and permananent damage to the country's wealth generating capacity) considering prices and wages tend to be sticky downwards and thus don't trend in a nice linear manner.
The above situation doesn't occur quite as suddenly and badly in the USA among its member states because they have fiscal integration, which enables Federal transfers to poorer states to shore them up relative to their peers. Decay and deflation still eventually happens if the underlying reason is structural (see the Detroit area). But Southern Europe itself was a growth story, not a case of mismanagement but rather a victim of reckless investment with no EU system to soften the blow when there is a crisis.
As for the requirements on the money supply, there is plenty of history out there discussing the trouble with previous eras of the gold standard (see the Great Depression), or decentralized free money (the USA had hundreds of currencies in the 18th century- the civil war reparations was the onus to coalesce into a standard Federal reserve currency).
We have switched between predominantly commodity (deflationary) currency and debt-issuance (inflationary) currency for thousands of years. There's dangers on both sides.
Keep in mind General Theory wasn't published until 1936. FDR didn't become a convert until 1938 -- after his attempt to balance the budget in 1937 led to a disastrous recession that undid a lot of the prior gains from the depression (the US government had a budget surplus!). WW2 spending was what wound up being the stimulus that dragged the world out of the recession.
Liaquat Ahamed's _Lords of Finance: The Bankers Who Broke the World_ goes into great detail as to why the great depression occurred (the Gold standard), and why it lingered.
I also think you may want to read more into Japan's economic policy and financial history. Japan's troubles started with a financial crisis and asset bubble bust twice - in the late 80's and late 90's, similar to the global 2008 crisis, Except Japan had a much, much weaker institutional response than the USA and even the UK did. They shuffled almost annually through a series of milquetoast PMs. Their central bank governors wouldn't commit to anything. Japan had to nationalize a lot of the private losses and bank bankruptcies that were occurring while contending with no growth and a deflationary spiral. Japan's debt was not the result of Keynesian stimulus (that would have required sudden and massive expenditure, given the size of Japan's economy), it was the result of "keeping the lights on" in an era of almost no growth.
Now, in 2013, Abe and Kuroda are finally attempting what looks like a quasi-Keynesian approach -- massive quantitative easing to drive inflation expectations skyward. I say "quasi" because it's not a fiscal stimulus (people are too nervous to try given their debt-to-GDP ratio). And this approach is more Krugman than Keynes. It will be interesting to watch.
Detroit was a case of structural problems combined with bad governance. Sorry if that was not clear. It was a side point to basically say that Southern Europe is not Detroit. They were a victim of private excesses fed by capital flows from the North and a lack of EU-wide fiscal integration to cushion their economy after the crisis.
In any case, I think there's no way to start from zero value, as Bitcoin did, and go to real value, without some serious price appreciation. The first transactions have to be for quite tiny amounts.
Aside from that, I see the deflation as a clever hack to drive adoption. Arguments that it prevents use in transactions would only really apply if it were our only money.
Madoff's fraud was to the tune of >60 billion.
Bitcoin's cap is at round 10 billion.
So the author expects btc to rise in value by at least 600%
To (unqualified) me, this seems the crucial question. If your money is not propped up by government fiat, it better have some non-monetary uses to succeed in the long run. (And it should not be possible to satisfy that non-monetary use by an arbitrarily small amount of "money".)
Anyone can share some information about the Bitcoin selling limitations?
This conversion limitation however should not affect the average joe.
I've recent been using bitcoin as money for lots of things. easiest way to cash them out
My answer: Volatility is inversely proportional to the wealth that has been exchanged into bitcoin. At the moment individual with few hundred million $ could swing bitcoin market up and down as he pleases. It will be much harder if people stuff trillion dollars or so into bitcoins.
Just the idea that markets pre-date states is so ingrained.
or they might just be kicking themselves for not buying coins sooner. lol.
Claiming Bitcoins won't follow economic theories is like claiming plastic money will work differently than paper money and coins.