Unlike cash, radical transparency is entirely possible with Bitcoin.
Bitcoin the protocol is as strong as ever, but customers of other sites should demand proof that their exchanges and online wallets actually control 100% of the BTC they claim to have in their custody.
"My schadenfreude is for all of the people who smugly told us for years that ARPANET is superior to our 'legacy' post office and ham radio in every way"
The whole point of Bitcoin that's been touted in pretty much every thread, hoisted up by Libertarians like a giant flag, is that it's unregulated. And now, they're all discovering why we regulated in the first place.
In 2008(?), Lehman investors were fucked, WaMu shareholders were fucked, but as a WaMu customer I was not inconvenienced in the slightest. My money was safe and I was able to freely access it every day during the transition to Chase ownership.
Now, I don't think that it is fair to compare MtGox to a bank. It was really an exchange for investors to speculate on fluctuations in exchange rates, so in the regulated financial industry you'd probably be just as fucked.
I think the take-home message from the failure of MtGox is that your risks don't just come from the volatility of the market you are investing in. You could lose your money through a crash in the market, yes, but you could also lose your money through the incompetence or malfeasance of your investment partners, through having your password stolen and your account hacked, through losing your private keys, ... If you only consider one type of risk, you will understate your total risk, and not hedge against it effectively.
Yeah, you money is there. Maybe it holds the same value as yesterday, or tomorrow. But over time, your taxes will go up, prices of things you buy will go up, inflation will rise, and the spending power of your $100 will become less and less.
Every bank failure, financial meltdown, and economic downturn robs your money of value. When a meltdown happens, and the FED has to prints more money to cover it up, your dollar loses value. When the price of merchandise goes up, because fees go up, because bank insurance premiums rise, because they keep losing your money, your dollar loses value.
It may happen slowly and indirectly, but make no mistake, you are losing you money. The best way to cook a frog is to do it slowly, so the frog doesn't jump out of the pot.
When every one of Bitcoin's characteristics (deflationary money supply, irreversibility of transactions, completely public record) is touted as an unmitigated advantage, it is irritating to those of us who see it as an interesting idea and cool technology with both plusses and minuses.
ARPANET isn't superior to post offices in every way; for example you can't send a package through ARPANET. And in fact one of the Internet's biggest winners Amazon.com built its success largely on being really good at shipping.
I actually agree with you, but if you're talking about me, I was being wildly sarcastic and riffing off of an old Communist slogan. I'm not aware of anyone who's ever said that sincerely, but if someone did it would be hilarious.
http://arstechnica.com/tech-policy/2011/10/bitcoin-implodes-...
They are beholden to no one and there is no way to punish them if they violate the rules. (rules in the BTC world?! blasphemy!)
We couldn't enforce rules, but if some people decided to set up a sort of "best practices" website saying it's "SAFE compliant or something (Sure Against Forged Equalities), in which case beginners guide would be "ALWAYS GO FOR SAFE COMPLIANT EXCHANGES!"
We couldn't punish them but it would allow some sort of feeling of safety(if minimal).
Fully resolving their books would require knowing identities of those entitled to receive Bitcoin from an exchange, as only one example, as otherwise an exchange could simply transfer the right amount to an account under their control and use those Silk Road-style money laundering schemes to transfer it to some wallet they actually care about.
To make sure the outlays went to the customers it's required to know which Bitcoin wallets belong to said customers. Are you going to sign up for an exchange that maps wallet IDs to customer identities for public transparency purposes?
Even if we can't, the government still can if it really wants to. They can still demand access to the software, the wallets, and they can fine or imprison people.
[0] http://www.reddit.com/r/Bitcoin/comments/1orvkc/do_not_use_m...
How could MtGox have been so big if everybody already knew for years that it was crap? The community failed to inform the new users about this very real danger.
How is it the bitcoin network's fault?
Not functioning technically but functioning pragmatically.
(honest question, I am an economic newbie)
Because the protocol is broken with regards to tracking transactions and that has been acknowledged. Even the official implementation got it wrong. It needs to be fixed because the workaround just does not scale.
before they are included in the blockchain, malleability aside, they aren't even necessarily valid (they could be double spend attempts, etc)
That is nonsense.
My understanding of the problem is that some people went to withdraw money and due to transaction malleability MtGox thought the transaction failed and resent repeatedly. But the first transaction didn't actually fail and they received their money multiple times.
Whether this happened to a lot of people a little or a few people a lot, and whether they were accidental beneficiaries or intentional instigators will probably never be known. But some number of people received a share of that missing 750k BTC, and I don't recall a one of them posting a "Hey, MtGox just sent me more BTC than it should have" blogpost that ended up here, so that's pretty interesting.
So the BTC aren't missing so much as illicitly redistributed.
In a lot of software engineering, Good Enough really is good enough. But a 5 cent discrepancy between what you actually have and what you thought you had need to be treated as seriously as a $5 million discrepancy.
The Fed has the backing of a sovereign power with its own currency and is central to the largest national economy in the world, as well as a great deal of the international economy. If MtGox's earned trust was an apple, you could see the Fed's from space.
Can you explain this a little more? How do I need to trust a 3rd party when I use, say, gold as money?
Anyway, Bitcoin does not require a trusted 3rd party any more so than gold does.
Gold is not generally accepted as payment for goods and services in any culture that I know of (excluding jewelry and metal stores, of course). I'd be genuinely interested to hear about places where you can still take a lump of gold to a store and pay with it.
I don't think I am. Something can be generally accepted as payment for goods and services without it being legal tender.
> But in any case, you can just travel to the Utah
That article is about coins produced by the US mint, not lumps of gold. And even so, the article says, "so far, it is hard to find anyone who is using gold or silver to buy anything."
Gold is money, it just has been superseded for most uses. And even so, when dollars are harder to use, gold is still used for some large transactions: http://online.wsj.com/news/articles/SB1000142412788732435200...
There's a reason Jesus through the money changers out of the temple - they were abusing that 3rd party trust.
Consider; what does using gold as money mean? Are we trading notional gold? Certificates that claim to represent gold in some vault? Obviously you need to trust the issuer of the certificates. Are you using minted gold coins? Obviously you need to trust the mint and more generally the entire financial system that equates those coins with a certain value. (The history of coin clipping, adulteration of coinage, and the results of having multiple currencies circulating at once[1] should show why this is important.) In fact, the only way that you don't actually need to trust a 3rd part is if...
...you're trading a known quantity of gold to someone else strictly for its value as gold. In which case you are actually trading in gold as a commodity; the technical term is barter. It simply does not fit the definition of money.
[1]: Eg, Gresham's Law: http://en.wikipedia.org/wiki/Gresham's_law
Even that generally needs a third party, unless you happen to be one of the world's experts in distinguishing counterfeit coin or bullion from gold of a certified purity.
Just ask the MtGox users about how completely ironclad that trust is. Sure, "transaction malleability" was identified in 2011, but that didn't help the users of MtGox, and the other exchanges had to take corrective action in 2014 as well.
If anything Bitcoin is even worse for the normal user; physical security is much much easier for most of us to grasp and implement. Is Aunt Tillie going to be able to ensure that she never gets too rich, so as to entice a cyberattack to steal all her Bitcoin wealth?
You have some apples, and Alice has some oranges. You would like some oranges, but Alice doesn't want any apples. So you go to Bob and sell Bob some apples for gold. You give Bob a bushel of apples, Bob gives you a bar of gold. Now you go take this bar of gold to Alice and try to trade it to Alice for a bushel of oranges. Alice tells you to fuck off, she doesn't want a bar of gold any more than she wants an apple. Bob doesn't want his bar of gold back, no backsies. No one in town wants a bar of gold, in fact.
Its a trusted third party with regard to most use of USD as money -- that is, its use by market participants in exchange for goods and services.
> the Fed is also the entity politically mandated to protect the money supply against inflation and deflation.
Well, yeah, that official role (combined with its past history of performance in the role) is a big part of why its a trusted third party in the use of USD as money.
banks interact directly with the Fed though. to them it is a first party.
The value of bitcoin is in many ways dependent on the irrational response of people who invest their money in it. Mt.Gox fails and many people are going to lose faith (at least temporarily) and consequently, the value has dropped significantly.
We're talking about an entity which at some point has held more than 5% of the BTC out there.
"God look at all the people killed by that airplane attack... let's get rid of skyscrapers and/or airplanes!"
"Man, alcohol sure does fuck over a lot of families, let's prohibit it!"
"That computer-based system led to millions of dollars being lost, we should stop using computers!"
Face it, now the same argument that you would use in support of still using Bitcoin exchanges (presumably run by more competent individuals?) would also work in support of regulated fiat systems (especially those run by more competent individuals!).
Unregulated currency by cryptography is novel, but doesn't create an inherently new concept any more than digital cryptography did not innovate encipherment or authenticity checking.
I lost my USDs from a mugging. Therefore, the USD is a failure.