For Sale: 29,656.51306529 Bitcoins
usmarshals.gov
usmarshals.gov
Or if you're up for a long read: http://www.newyorker.com/reporting/2013/08/12/130812fa_fact_...
It's worse, though. While it's possible to get the property back, you have to prove by a preponderance of the evidence that the property had no connection to a crime. That's a difficult thing to do.
Seems to me that only BTC that are directly linked to SR that are sold.
We can argue the merits of returning the coins to the last previously associated wallets; but I don't think the U.S. Gov has any intention of returning drug money to drug buyers the same way they wouldn't give gun money back to arms buyers.
An online shop selling clothing also happens to sell firearms illegally. Its assets are seized. What about money from pending orders for the clothing? It seems to me it's obvious in this case. Couldn't SR users start a class action lawsuit against gov for seizing their assets stored on SR servers? This is assuming not everything sold there was illegal (this might be wrong).
Presumably they've made an assessment and come to the conclusion that either the percentage of assets held that belong to customers of SR that said customer may have a claim to is small enough that it's easier/cheaper to deal with that if/when anyone makes a demand than trying to sort it out before auctioning off the BTC.
Especially given that presumably very few customers of SR have only bought/sold legal goods, and so presumably most of them won't want to identify themselves.
The moment I transfer a bitcoin to Silk Road, it's no longer my bitcoin. It's theirs. I've exchanged it for a promise from Silk Road to pass on the bitcoin to someone else or return it to me when I ask.
The government never seized my bitcoin. They seized Silk Road's bitcoin. This means Silk Road has more liabilities than assets. And since Silk Road hasn't given me a promissory note in exchange for my bitcoin, I'm an unsecured general creditor - and unsecured general creditors cannot establish standing to recover seized assets.
I'm not sure that I like the sort of thinking that would put those two words together, ever.
It would appear as though you think it possible that a flea market should be responsible for the conduct of its buyers and sellers, or that a public bulletin board be responsible for all material posted there.
I dislike the idea that a government that nominally prohibits itself from abridging freedom of speech, or of the press, or peaceful assembly could ever declare an information service operating over the Internet to be "illegal", seize all of its assets, shut it down, and then sell off whatever it seized, all without ever establishing any crime or criminal intent to the public.
By the same reasoning that led to the seizure and shutdown of Silk Road, since some drug dealers arrange sales with mobile phones, the antennas and backhaul used by the likes of Verizon, Sprint, AT&T et al should be seized, the phone networks shut down, and the equipment auctioned off, all for facilitating prohibited activities.
Whether people knew they were committing crimes or not, the site itself was little more than a warehouse building filled with unmonitored flea market stalls, and a common cashier. While the intent of establishing the market was undoubtedly to facilitate commerce in crime and contraband, we still have some expectation that crimes be prosecuted to conviction prior to the application of punishments.
What, then, has Silk Road been convicted of? Maintaining a public nuisance?
In any sane society, the police would use Silk Road, posing as ordinary customers to collect evidence of crimes, and then prosecute the people that committed them individually. That probably would have eventually resulted in Silk Road becoming more like the semi-legit flea market of Bitcoin, like eBay is for PayPal. What they actually did showed that their actions were targeted at Bitcoin rather than at the drugs. At the time, they did not want Bitcoin to have a common marketplace for goods of any kind, whether contraband or not, and moved to destroy it utterly using the drugs as pretext.
If you only bought legal goods from Silk Road, you were not doing anything more than threatening dollar hegemony. And that is why you lost your Bitcoin. Innocent of any crime (except possibly something related to taxes), you suffered a loss, thanks to people trying to enforce one law by breaking another.
You don't find pounds and pounds of cocaine in flea markets. The site was illegal, to the extent that any site can be, because its owners were aware of the illegal activity and, rather than reporting it, acted to facilitate it. Flea market owners in the same position would be just as liable.
> What, then, has Silk Road been convicted of? Maintaining a public nuisance?
Nothing yet, but you can ask again next year.
Silk Road implemented some countermeasures aimed at preventing dragnet-style arrests and mass prosecutions based on casual scraping of the site and analysis of the blockchain, but it was still completely vulnerable to a buyer-informant attack. The real world metaphorical equivalent is that the flea market did not require shoppers to register their real names and addresses, and declare the serial numbers of any cash they might be using to make purchases. I do not know of any flea market that does this, or any that could even survive if it tried.
Was there anything inherent to Silk Road that prevented cops from using exactly the same buyer-informant model to prosecute contraband trafficking that they use for physical street-level buys? No.
And we are not the Stasi. We are not required to inform upon one another. Any duty to report is usually associated with exercising a privilege granted by the state. Actual misprision requires not only that the crime be a felony, the witness be aware that it is occurring, and that they take active steps to conceal it. Misprision itself is only a misdemeanor, and protection against self-incrimination still applies. If reporting the crime would implicate you in a crime, it is not a crime to not report the original crime.
You are suggesting that it is acceptable to seize a person's entire business and sell off its assets before they are duly convicted of their misdemeanor.
Thanks to the decreasing popularity of misprision among Common Law jurisdictions, it is usually only applied to actual agents of the state with some measure of public trust or responsibility. The flea market would likely only be liable for crimes committed by tenant-sellers if the conditions of their business license specified a duty to police and report and they did not.
Silk Road, as a business with no physical premises, could never be subject to such conditions, as there is no one with authority to license it to operate. The fact remains that even if there were tons of cocaine, Silk Road was not selling it, and had no particular interest in the details of the transaction beyond the amount of the commission.
It is very easy to say that Silk Road was a den of criminals, but we expect them to be sleazy and untrustworthy. The cops that we throw at them in the pursuit of law and order must themselves be lawful and orderly. When they steal from suspects, and establish by their attitude that everyone is a suspect, they present an existential threat to the security of private property, independent of any other crimes that may be occurring.
This auction is a slap in the face to anyone at all concerned about police powers.
(Of course in practice what you'd do is a credit card chargeback - but bitcoin is specifically designed to make that impossible. If you choose to send an irreversible "currency" to an anonymous recipient, frankly you deserve what you get)
In this case, no one submitted petitions.
Most of the business there was drugs, obviously, but some amount of that money would have bought legitimate items. So what gives them the right to sell off that money?
1) the government filed "US v. A Wad of Cash Found in the Pocket of Danny Drugdealer"
2) the wad of cash was found to be subject to forfeiture
3) Danny Drugdealer didn't contest that he was innocent of drug dealin' or he attempted to and lost
4) The government posted that the wad of cash was subject to forfeiture at www.forfeiture.gov.
You'd then be entitled to make the case that ten dollars in Danny Drugdealer's wad of cash actually belonged to you and were not subject to forfeiture. You might've even won!
No one filed a claim to block forfeiture of all or part of the Silk Road bitcoins. Not even DPR. I think everyone knows why that is.
They did it because they had the capability. Civil forfeiture is an absolute perversion of the justice system, and is a direct contributor to police corruption. The damage it causes to the integrity of our rule of law is far greater than any deterrent effect it may have upon crimes.
Come on guys, is it so hard to understand that if you exchange an asset for a security, you don't own the asset anymore?
In this case this fact is directly contrary to a worldview held by many at HN, so I suspect everyone pointing out how property law actually works is in for a long slog.
No government should be making money this way.
What you are suggesting would be a centralized backdoor in a decentralized protocol.
// TODO: remove after FBI auctionThis introduces serious problems with the question of "who is everyone" (when you say, agreed upon by everyone). In other words, is the community going to set up a centralized board to hear complaints and reverse transactions? Does this turn into "I bought a trinket on ebay and the guy didn't send me the thing, reverse the transaction"?
Part of the strength of bitcoin is a permanent historical record. There's been some suggestion that the true long-term benefit of bitcoin is not in the "money" part, but the blockchain itself. As soon as the blockchain becomes mutable, then this value becomes suspect, and the line for "how bad does it have to be before we edit the blockchain" might get weaker and weaker.
Bitcoin is pretty fungible, almost like cash. If it turns out that he's innocent, he can sue the government for the money. It's not like they're selling some unique piece of art, or his family seat.
Civil forfeiture is not confiscation of your property as punishment for committing a crime. It's a determination that the property was never yours to begin with, because it was obtained in an illegal transaction.[1] That's why the standard for civil forfeiture isn't whether the person is guilty "beyond a reasonable doubt" but rather whether the property is the fruits of a crime by the "preponderance of the evidence." Any civil dispute over the rightful ownership of property is evaluated according to a preponderance of the evidence standard, and the dispute about the status of the property can be resolved without resolving the issue of criminal guilt.
The very important distinction to make here is that the issue of whether Ulbricht is guilty is distinct from whether the money is the proceeds of illegal activity. Maybe Ulbricht gets acquitted because he creates enough reasonable doubt that he isn't DPR, as he claims. Or because he succeeds in getting key evidence excluded because of a procedural failure by the feds. His acquittal doesn't mean that the money wasn't the product of illegal activity. Indeed, he has tremendous incentive to try and prove that he never owned these Bitcoins, because that goes to proving he isn't DPR!
[1] At least when we're talking about cash. There's a whole host of more questionable issues when it comes to things like forfeiture of vehicles and guns used in crimes. See: http://scholarworks.gsu.edu/cgi/viewcontent.cgi?article=1459...; see also: http://ij.org/pennsylvania-judge-calls-civil-asset-forfeitur... (for a particularly egregious example).
That way of thinking opens up our current problems of police seizing everything within grasp during an arrest or traffic stop claiming the property is the result of illegal activity. "Hello, I pulled you over because it's late at night and I'm wondering if you're okay. Oh, you happen to have $10,000 in cash on hand? Drug money, I'll take that."
If this is the way the law is being interpreted then we gave up property rights a long time ago.
If you are a cab driver and you have a client that you know is riding your cab to perform illegal trade. Does the police have right to seize your fare?
Isn't that something court should determine?
That said, my understanding is yes, if you know that the purpose of the travel is illegal, then you are aiding and abetting. If they can show it to a "preponderance of evidence" standard, they have the power (not "right") to seize your fare. If they can show it beyond a reasonable doubt, they have the power to punish you as well.
As rayiner mentioned previously, the preponderance of evidence standard is actually not terribly out of place here, being that disputes about ownership of property are generally settled that way.
And yes, it is something for a court to determine.
http://www.wbur.org/2012/11/14/tewksbury-motel-owner-fights-...
A hotel owned by someone who has no criminal record or charges is being seized because some of its guests have used it to commit their crimes.
Edit: Seems like the Judge ended up dismissing this specific attempt but the key to take away from this is that the government will try and also sometimes win such cases.
In some circumstances, it's legitimate - "Yeah, I'll be getaway driver for your heist for $X..."
For assets to be forfeited the government literally sues the property[1] and is required to show the item is subject to forfeiture. If the asset is eligible for forfeiture the owner can claim that they are innocent[2] and prevent the property from being forfeited.
In this case DPR is not claiming that the wallet is his. Because if he did he'd likely harm the criminal case against himself.
You can read the order here: http://www.justice.gov/usao/nys/pressreleases/January14/Silk...
Note how the government filed suit against "all assets of Silk Road" - not DPR.
This isn't some secret thing that only the government knows about. You can go to http://www.forfeiture.gov right now and read required notices of forfeiture for all sorts of assets.
--
[1] This is how we get court cases with fun names like "United States v. $124,700 in U.S. Currency" and "United States v. Forty Barrels and Twenty Kegs of Coca-Cola"
Proof beyond reasonable doubt doesn't mean you're definitely guilty. But if it seems reasonably likely (to the judge, or better the jury) that something was legitimately purchased for legitimate reasons, it should be yours.
Campervan fitted out as a mobile meth lab? That should get seized. The house your kid sold drugs from, but is your primary place of residence, and you paid for it with legally obtained money? That should be yours.
The problem is, US police forces seem to want to seize anything that's remotely connected with illegal activities, to raise revenue.
And the government has said, "Hey, if you own this wallet, which we have tied multiple controlled buys to, you're more than welcome to claim it, or we'll sell it. We might want to have a little chat to you about it, though."
Ross said "Nope. Not mine." He relinquished all claim to it, so his innocence or conviction is irrelevant.
It is the way the law is interpreted, and we've given up a lot of rights in the name of the drug war.
However, in the case of SR they actually may have a pretty good case that those are money intended to buy drugs, etc. - it's not like SR ever hidden what they're selling and the buyers hid what they are buying, and looks like the law enforcement has these records. So since under the current law drug trade is a crime, and they would have absolutely no trouble proving the money is actually the drug money, in this case it is hard to classify this as abuse, at least without venturing into the whole topic of drug legalization and so on, which is beyond the point.
Yes, it would mean stepping up and funding things currently funded with proceeds from seizures, but it would remove significant incentive to overreach.
With a fiat currency, it's not actually destroying anything. I'd rather no one feel it as part of their bottom line, or there will be pressure. Certainly, moving it far from law enforcement would be an improvement, but I think destruction is better.
Putting that person further away from the police probably improves things, as I said, but better that we just build such hospitals and fund such social programs as we actually need, and not rely on people doing bad things (either the people whose stuff is being confiscated, or the police confiscating property of innocents) to make it happen.
Note again that at this scale cash isn't really a resource - it's a claim on resources. Destroying it doesn't destroy those resources, it releases the claim which winds up sort of distributed over other dollars.
http://www.newyorker.com/reporting/2013/08/12/130812fa_fact_...
http://www.justice.gov/usao/nys/pressreleases/January14/Silk...
Criminal trial requires "beyond reasonable doubt" while civil forfiture requires "balance of probabilities"?
Market started going crazy earlier today when DPR's seized coins started to move. https://blockchain.info/address/1FfmbHfnpaZjKFvyi1okTjJJusN4... The downtrend is only accelerating.
The current sharp price decrease is because people are worried that whoever wins this auction (and the subsequent auction of DPR's coins) will want to exit that position. Thus their will be an oversupply in the market and cause the price to decrease. Expecting this, people are taking that into account and trying to get out before the oversupply, causing a self fulfilling prophecy based on bad underlying analysis.
Why would someone go long bitcoins (i.e. buy them and in such quantity) through such a difficult process as dealing with the US gov't to so quickly exit their position?
My hypothesis is that it will be either rich institutional investors, hedge funds, or similar large investors who see this as an opportunity to acquire bitcoins at an undermarket price.
I think many of those groups would sit on their position (and not sell them). Further, if they were to sell them, they would want to do so in a way that didn't dramatically affect the price (thus over many days, weeks, or months). Given that 30K bitcoins is far less than the total bought/sold on exchanges every day, it should be presumed that they can exit this position over a sufficient timeline in order to not cause negative pressure on the price (if the auction winners even want to sell -- which as I analyzed above, I don't think they would).
Then there is the fact that it is not a limited good-- someone could quite easily come along with a BetterCoin making BTC almost useless-- there are various things that could be improved, eg privacy, or the slow confirmation times.
E: also, there will be an 'oversupply'-- Whoever buys these bitcoins won't be buying other BTC because of it -- it's irrational to think that the auction is creating a significant new demand that wouldn't have existed otherwise! Selling over weeks/months would still affect the price, although more in the normal supply/demand manner than causing a crash/panic. But that could be happening before any of these BTC are sold anyway!
The volatility is the greatest hindrance to it being a viable transaction system. I'm hopeful that well functioning derivatives (futures, options, etc) will help to stabilize the price (as is the purpose of a futures market); however, that would rely on the traders having effective forecasts on supply and demand which I view as unlikely.
Related to that, I thought of an idea a while ago for a non-profit to create a new cryptocurrency that is by design pegged to the USD. Whenever anyone wants a unit of this currency, they can buy one from the non-profit for $1 and the non-profit will mint a new coin.
Similarly, if you want to sell the currency, the non-profit will always buy it for $1. The non-profit must keep the appropriate reserves (ideally, they would keep 100% of the US dollars bought or have always sufficient credit lines).
With this design, the proposed cryptocurrency will always maintain a $1 peg, removing the insane amounts of volatility. I know that is will be hated by all those in the btc community as it brings in a centralized monetary authority who controls minting coins; however, there is a huge value to an extremely low cost transaction system that is decentralized and pseudo-anonymous (which this would still be).
The central authority would not be capable of destroying coins or changing blockchain history, only minting new coins (and as per their charter, only when they are provided $1USD for the coin).
People would not have any obligation to use this monetary authority to exchange coins, and surely other exchanges which were more user friendly would appear. Simply, by an entity existing which will always buy at a given price or sell at a given price, it will cause the intended effect without having to have any central role in the decentralized transaction system.
but what on earth did you have in mind for a mechanism to do a peg without centralization?
Of course, if it's known that the currency will correct itself in the long term, market makers would be expected to keep it stable in the short term.
Countless other details, but that's the gist...
[1] Unfortunately, this is not completely trust-free, but a level of decentralization is maintained by encouraging multiple such institutions, and of course people can broadly recognize and react when one becomes untrustworthy, and it should be fairly observable when they do.
I'm not so sure about that. The mining process is required for the decentralized consensus over transaction history and ordering. The incentive for investing resources into the mining process is the block reward - without that, people won't mine. If you have a centralized authority that controls minting, you have no block reward to offer.
Using mining for the initial distribution of coins isn't just a way to decentralize the initial distribution - its also a big part of Bitcoin's security model, and without that, pretty much everything breaks.
(At some point, transaction fees should replace the block reward - but that requires significant usage of the currency and is only possible far into the future. Block rewards are required for bootstrapping, until you get to that point.)
The only viable way to accomplish this that I can think of is to have a large government run the system, not a non-profit. And since you're tying the value of your cryptocurrency to the USD, perhaps having the United States government run the thing isn't a bad idea. Although it's hard to imagine what the US government would stand to benefit by enabling this system.
https://en.wikipedia.org/wiki/Digital_gold_currency#Manageme...
What if there were two separate entities? One for the currency, and another one for the exchanges? Only exchanges would be considered money transmitters in such a case, right?
[1] https://github.com/ethereum/wiki/wiki/%5BEnglish%5D-White-Pa...
1. As the use of Bitcoin increases over time, as the exchange markets become bigger and deeper, as economic activity is surpassing speculative activity, etc, the effect of speculation are becoming smaller and smaller. There is evidence that this happening right now: graphs showing the volatility level of Bitcoin (at a coarse level: 6 months) is decreasing... I can't find a link at this moment unfortunately.
2. Although deflation is, as of today, "generally" believed to be detrimental, it is disputed. For example the very famous 1939 paper "A Program for Monetary Reform" argues (amongst many things) that deflation is healthy and normal[1]. One thing is certain: our understanding of financial systems is imperfect, and just because more economists think, today, that deflation is generally negative, does not mean it is true. Bitcoin is an experiment that will perhaps disprove it.
[1] "Some authorities regard prices falling, to some extent at least, with technological improvements, as a proper result of a successful monetary policy" http://en.wikipedia.org/wiki/A_Program_for_Monetary_Reform
@1: A trade alone does not help BTC stabilise. We ARE seeing an increase in BTC trade, but all of this is pegged to local currency, and usually traded out for that immediately. As it is held for a very short period, there is no real effect on price, and is essentially the same as cashing out.[1] What might help BTC stabilise would be if there were a true, significant BTC economy, that is, items priced in BTC, rather than pegged to local currency. When I wake up tomorrow I can reasonably expect my loaf of bread is going to cost the same as it did when I went to bed. But that can't happen (yet) with BTC, because pegging goods to BTC carries far too much risk due to the volatility. Frankly, I can't see an attractive way to get to a situation where there is a substantial, viable BTC-first economy-- displacing local currencies as the first-choice isn't going to be easy. The only thing affecting the price of BTC is people buying and continuing to hold BTC (ie, in the absence of a real BTC economy-- speculators).
Further, I’m sure you can paint BTC stability as improving/worsening based simply on altering the time frame involved. The fact is the volatility is way too high (for consistent pricing), and we certainly don't have enough evidence to predict the future. You might have thought it was stabilising in October of last year before all hell broke loose.
@2: Not really a coherent argument there. An upward price trend (existing for whatever reason) encourages hoarding, which reduces liquidity. This creates a feedback loop, resulting in bubbles and crashes. Deflationary + speculation inherently leads to this, and we've seen it over and over already with BTC. Again, there is a chicken/egg problem because only speculators are interested in it, making it volatile, making it no good for non-speculators, which keeps it volatile! I think the best we could hope for is a little worse than gold (as it continues to be mined), which AFAIK still carries a significant amount of instability.
All this is not to say that bitcoin can't, or won't, be a long term success. It may well be; it has first-mover advantage, there is significant vested interest in it succeeding from those who have bought in, and it has a vast computing army. But it could be displaced. Or marginalised by an unlimited number of clones.
1. Ironically it is in a way simply passing half the transaction cost onto the customer.
2: "encouraging hoarding": no, this is not what was observed in practice with Bitcoin. I can't remember if it was Bitpay or Coinbase, but they have explained in a blog post seeing the exact opposite effect: during a Bitcoin bubble, people tend to spend or sell more bitcoins (to cash in on their newfound fortunes).
While run-away inflation and run-away deflation are both awful, an economy which slowly inflates is better than one that slowly deflates.
http://www.nytimes.com/2010/10/17/world/asia/17japan.html?pa...
http://www.businessweek.com/magazine/content/11_06/b42140145...
http://www.bis.org/publ/bppdf/bispap70c.pdf
http://www.kyotobank.co.jp/houjin/report/pdf/201305_02_e.pdf
- Japan's GDP grew by 12% between 1990 and 2010, from 430 to 482 billion Yen (the NYT author incorrectly assimilates it to "an economy remaining the same size"?!)
- GDP per capita is 16% higher in Japan in 2010 than it was in 1990 [1]
- The NYT article gives absolutely zero other economic numbers, no objective evidence, nothing (it merely gives annecdotal evidence as in "so and so lost their house")
Why is this NYT article so bad and vague, when economic indicators I quoted above ARE actually (slightly) improving? I am not the only one to criticize it, see this response by the Center for Economic and Policy Research: http://www.cepr.net/index.php/blogs/beat-the-press/deflating...
[1] http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weor...
A downward price trend encourages splurging, which provides excessive liquidity. This creates a feedback loop, resulting in Zimbabwe. Bitcoin opponents have a vested interest; the desire to attack something you missed out on due to your own lack of foresight is a known psychological effect. I don't necessarily believe all of the above, but it's a pretty symmetric mirror image of the opposite argument. You could go up a notch and make the case that inflation is worse because at least an upward bubble has to end eventually whereas a downward crash can keep going down forever until the currency is replaced. I'm known for my stance that finite supply cryptocurrency is probably more deflationary than optimal (though my concerns are more about wealth concentration and the potential for use of seignorage revenue for secondary purposes rather than some idea that spending is good), but there are good reasons why one might think otherwise.
As for gold, an important point is that gold's volatility is quite recent. Before 1971, and especially before 1913, it was actually quite stable:
http://www.zerohedge.com/news/charting-price-gold-all-way-ba...
Yes, that's a 6x margin that maintained itself over six centuries. The 18th century fall and the 16th century fall can likely be attributed to the sudden introduction of new supply in North America; that's an uncertainty that cryptocurrencies do not have. I don't know why gold was stable before but is not now; perhaps it's the fact that a fixed-supply commodity is stable if used as a currency but not stable if used as a form of black-swan insurance. The former use case might have more constant demand, or price stickiness might play a role.
I'm honestly not sure what will happen. Maybe cryptocurrencies will die, maybe BTC will die but others succeed, maybe BTC will become gold 2.0 and other currencies will take on other roles (if this happens, environmentalists at least would be quite happy given gold miners' current track record), or maybe something else entirely. I do agree one-world-currency domination is exceedingly unlikely though.
Actually, the best we could hope for has much, much higher volatility than gold: there are vast reserves of gold available and the oceans contain about 9 pounds of gold for each person on earth, 100x the total amount of gold mined throughout human history. There are many old mines that could be reopened in a few months or years if the price would justify it.
On the demand side, there are technical uses of gold, medical and jewelry. So we clearly have demand and supply curves that are pretty flat and a price driven by fundamentals, yet we see significant volatility, especially related to gold's speculative and monetary use.
On the other hand, Bitcoin is a digital asset designed purely for speculative and monetary use. It has NO fundamental demand and an almost vertical supply curve. There's no way to price a Bitcoin on it's fundamentals, the only driving factor is "what other people think". As a future PhD in economics, let me tell you that is not conducive to stabilization, quite the opposite, it's prone to violent and self-sustaining boom and boost cycles.
If it continues to become more useful as a payment network, the value will grow and the volatility will go down.
Bitcoin's volatility is a direct result of this feature.
>Bitcoin is an experiment that will perhaps disprove it.
The hilarious thing is that the experiment already proved it.
You want a cryptocurrency that isn't absurdly volatile? Make it steadily inflationary, not steadily deflationary.
Bitcoin isn't inherently deflationary. It isn't even a fixed supply, it will grow for the foreseeable future. For short periods of time it was deflationary as people speculated that it was actually worth a lot more, but that seems to have stopped.
An inflating currency would never catch on. It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
People do indeed have a tendency to do exactly that. Take gold hoarders, for instance.
>An inflating currency would never catch on. It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
The point of the inflation would be to offset the natural hoarding instinct with an incentive to actually spend it.
If inflation goes TOO high, you will, of course, end up with everybody trying to dump the currency off on to everybody else.
There is a sweet spot in the middle, however.
http://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule
Most mainstream economists agree with a steady expansion of the money supply (which does not necessarily lead to inflation unless the monetary supply grows faster than demand).
Cryptocoins are an interesting example of rule-based monetary policy, I hope economists will learn a lot from them.
Moneys based upon industrial processes, most notably mining of metals and coin minting, would then naturally increase the money supply at about the right rate, assuming improvements in the relevant disciplines occurred at about the same rate as everything else.
Obviously, Moore's Law pushes certain specific disciplines a lot faster than the rest of the economy. Computing hardware tech advances about 40% every year, over the last 50 years. Kryder's Law and Butters's Law, for hard disks and network bandwidth, goes even faster. Those, in turn, make automation and computerization of other industries cheaper, and they continue to improve in productivity.
When the increase in money supply is tied to increases in productivity, naturally, the people providing the innovations and advances reap the benefits by getting the new money first.
This does not imply that the controller of a fiat currency should set a target inflation rate. That new money is going to the wrong people. It goes to the bankers who happen to be robbing the economy at exactly the same rate that inventors and innovators are adding to it. They are now treading water to stay right where they were before, and everyone else loses ground.
If you have no mechanism to ensure that the growth in the money supply goes directly to the people growing the economy, you are better off establishing a completely fixed money supply. That allows innovators to gain as they should, but with steadily falling prices rather than stable prices. That complicates the business math somewhat, but if everyone just assumes the same 2.5% annual growth in the economy over the same fixed money supply, it isn't that hard to work out.
If people can use Quickbooks to run their business, they can handle a fixed-quantity money supply. What no one likes is a steadily inflating money supply where only the people running like mad on the treadmill can stay in the same place, while fat cats in motorized carts throw pennies at them.
Bitcoin has a bit of a compromise, in that the people reaping the inflation windfall are the ones covering the actual operating costs of the system. But it is unfortunately not tied to the value of goods and services in the Bitcoin economy. Fixing the money supply increase in advance requires that you predict how quickly suppliers and consumers will adopt the medium of exchange. I think the guesser guessed wrong. But even so, the proof of concept is pretty darned good, for the first iteration. The only real danger is that it is good enough that people will never migrate to anything better.
I also hope that Bitcoin is a proof of concept for a better system :) .
Thanks for the lengthy post. It's worth the read.
So then why aren't all rich people hoarding gold and destroying the economy? The argument can be generalized into "any resource deflating is bad", there is nothing special about currency. It would at most be one more resource which is deflating.
That sounds like a great currency. Not a great asset, or investment, but a great currency, one that is useful as a medium of exchange, not something people can just sit on and expect to get rich from.
While the supply will keep growing for quite a while, eventually it will stop growing. And lost coins will ensure that the supply keeps dropping beyond that point. Bitcoin can only avoid being deflationary in the long run if demands drops faster than supply.
> An inflating currency would never catch on.
Like US dollars? Or Euro?
Both of which are not just used where they are legal tender, but are also widely used for international trade, by choice.
> It's a hot potato situation of "I don't actually want to own it because it's decreasing in value. If I do have some, I want to dump it on the next sucker as fast as possible to minimize my losses."
This is an issue if the inflation is rapid. If the inflation is slow and steady, it's a benefit: It means the value of currency that is inactive - because someone put cash in their mattress for example - steadily diminishes, which gives you a reason to ensure your currency holdings are put to use, whether by spending them, investing them, or lending them to someone who will invest them (e.g. in the form of bank deposits). It helps stimulate economic activity.
As long as the rate of inflation is low enough, people are relatively insulated from the negative effects - you won't really notice price changes from day to day or month to month much -, and the yearly inflation can be accommodated when your salary is adjusted.
That's a very long time in the future. Some coins may be lost, but not enough to have a significant force on the price.
> An inflating currency would never catch on.
>Like US dollars? Or Euro?
US dollars were backed by gold. I'm not sure about Euros but I believe they were probably initially backed in an established currency.
>This is an issue if the inflation is rapid. If the inflation is slow and steady, it's a benefit: It means the value of currency that is inactive - because someone put cash in their mattress for example - steadily diminishes, which gives you a reason to ensure your currency holdings are put to use, whether by spending them, investing them, or lending them to someone who will invest them (e.g. in the form of bank deposits). It helps stimulate economic activity.
People do save money by putting in the bank. If bitcoin got large enough there would likely be bitcoin banks. There is also nothing preventing people from doing this with other resources. E.g. rich people buying oil rights or something to store their wealth in, just like they hypothetically would with deflating cash. Spending money also isn't inherently good for the economy. See the broken window fallacy. Prices are flexible. If someone takes money out of the economy, prices will just go down by that much to make up for it. Reverse with spending.
>As long as the rate of inflation is low enough, people are relatively insulated from the negative effects - you won't really notice price changes from day to day or month to month much -, and the yearly inflation can be accommodated when your salary is adjusted.
Wages are generally the last price to change in response to inflation. Wages are the least liquid market. (Artificial) inflation hurts the general population to benefit whatever group receives the printed money first, before prices rise.
There are cryptocurrencies that do this, PeerCoin and Dogecoin for example, and they don't seem to work out, maybe because there is a lack of incentive to be an early investor if your investment steadily loses value.
There is no significant barrier to entry for creating a cryptocurrency that represents your economic ideals, so far however, only Bitcoin seems to have the right mix of incentives.
They seem to have been the "next big" currency for market cap after BTC and LTC for the last 9 months, which would point in the direction of, at least, inflationary nature not being such a big deal.
Besides, the characteristics of a "good coin" depend entirely on who you are and what your goals are. Some people want to gamble and get rich, others are looking for a reliable store of value, others are looking to transact. The ideal coin will have different properties for each of these people, but no coin will be able to satisfy all three groups completely. They all need one another and they all have competing goals.
Particularly the deflation argument does not predict that Bitcoin will fail, it states that if Bitcoin replaces traditional currency, the economy will fail. If you choose to believe it however, it's an argument to hoard Bitcoin from a rational economic perspective.
People looking to criticize Bitcoin should rather focus on the centralized mining problem.
That then leaves the question of why not simply use the non-volatile currency directly. Bitcoin would still have the advantage of being able to transfer money more easily than a wire transfer, but that wouldn't matter for the use case of paying for lunch.
Addition: I once read that off-shore accounts and hidden illegal USD dollars are estimated in the trillions of dollars. If such amount of money were input into the system immediately, it would definitely tank the dollar in comparison to the EURO. Even worse, it would have way more side effects, like inflation and such ,that bitcoin doesnt have because its not a primary "currency".
It just takes a lot less to tank bitcoin than the dollar.
Even for BTC scale, this amount shouldn't be a big deal by itself. $20m or 30k BTC simply is not big in the financial market sense - it's a big amount for an individual or a single small company; but that's not a significant amount at all for supply/demand of any currency with supposedly millions of BTC in circulation.
If reality matches the published BTC market data, then 30k BTC should be a drop in a bucket with no meaningful change to the market. And if that kind of money actually does mean "a dump of a large amount", then the currently popularized BTC market estimates, capitalization, etc are exaggerating reality thousandfold.
For example, bitstamp traded 16 million dollars in the last 24hs. The sale would mean as much as an entire daily trade! http://markets.blockchain.info/
To put it in perspective, Apple stock trades 71 million avg daily volume. At 90 dollars, its 6 billion dollars a day.
If someone were to sell 6 billion dollars of apple stock in one day, remain assured that the price would tank quickly as well, regardless of apple sales or cashflow or any of its "intrinsic" value. http://www.dailyfinance.com/quote/nasdaq/apple/aapl
Even for such a small coin, $5k was well below the typical daily trade volume. But here's the thing: He very rapidly bought off pretty much all the sell orders at 4 satoshi, and everyone started speculating what happened and prices shot through the roof, even though more coin than that enters the supply in no-time through mining still.
Point being that coins worth a typical daily trade volume can be enough to trigger large reactions in markets that are priced so extensively based on speculation about how other speculators will behave (take a look at the chat at various exchanges, and see the amount of chatter about which coin to buy into because they expect a pump or other forms of manipulation - very little of the chat seems to be related to non-speculative uses of the currencies).
They have no conception of how to value the underlying asset because the underlying asset has absolutely no value. Bitcoin is one of the purest scams that has ever been conceived. Even subprime real estate, pets.com stock, dutch Tulip Bulbs etc. had some value. You're buying and selling a hash - a number. It's absolutely worthless. That people are being suckered into buying these, ASICs costing tens of thousands and backordered to make them etc. is a real close-up seat to how a bubble works, how a scam works, and how the luminaries in the tech field can be lined up in a row to endorse the scam. Is there a tech bubble? "Bitcoin" is the word that can answer that question as easily as "pets.com" and "Webvan" did 15 years ago. At least those companies actually performed a valuable service, Bitcoins are worthless.
I think ever since people have stopped using gold and silver bullion (after arrowheads and knives) as currency items, there has been this consensus that money has the value that people give to it, not the value of its material (or, in BTC's case, immaterial) representations.
What exists with BTC is 21 million or so unique valid hashes and no others can be created. With money, say USD, there exist trillions and no guarantee that some party (the government) will not create massive amounts of additional units.
Would the BTC become completely worthless immediately?
But the algorithms behind Bitcoin are agreed on literally by consensus, the clients in the network which reach a majority are in control.
If it became clear that something in Bitcoin was about to be broken, the algorithm could be changed to something more secure, if a majority agreed.
Past transactions would not be affected - they are immutable - and new ones would become safe.
True, but discovering prices for things that otherwise have no price is something markets do routinely every day.
>>The current sharp price decrease is because people are worried that whoever wins this auction (and the subsequent auction of DPR's coins) will want to exit that position. Thus their will be an oversupply in the market and cause the price to decrease. Expecting this, people are taking that into account and trying to get out before the oversupply, causing a self fulfilling prophecy based on bad underlying analysis.
There's nothing unique about this situation from the standpoint of how markets work; the only unique thing is nature of the asset itself. Even so, bitcoins are not fundamentally different from a precious metal like gold. The price of gold isn't based on the value of the products you could make from it; very little gold gets put to any actual use. Gold is valuable primarily as a result of it's being scarce and the fact that people have given it value arbitrarily, just like bitcoin.
What I read in to the price shock is that the U.S. Marshalls probably should have anticipated this result of dumping the entire quantity at once, and they probably should have released it gradually to smooth out the effect on prices. The Marshalls may not have had the right backgrounds and somebody at the top failed to see it coming.
One of the genius aspects of the Bitcoin scam is the limited output and increasing difficulty as it goes on. This keeps the scam going longer. If it were like tulip bulbs, or subprime real estate, or pets.com type stocks, the bubble would eventually burst. With the types of bubbles we've seen, and the big names in tech willing to associate their names with this scam, keeping a <$15 billion market cap going is feasible for a little while.
Also keep in mind that the float is not all that high. Many bitcoins have never been traded, especially early ones. That 30k of Bitcoins are going on the market can tank the price so much shows how weak demand is for this worthless "currency".
One aspect of the pied pipers of this scam is that their theories of its value are not falsifiable. My theory is falsifiable - Bitcoins are going to go from a current market cap of over $7 billion to well below $1 billion. There theory is not falsifiable "it's valuable because it's valuable". So if it goes up they're right, if it goes down they're right.
Why are Bitcoins valuable? Anyone thinking of buying an ASIC or a Bitcoin should read from the Bitcoin boosters the answer to this question. There is no answer. Which is why Bitcoin is bound to crash.
It's possible a real online currency might happen. The Bitcoin scam is certainly postponing that day. When Bitcoin crashes, possibly with much legal involvement afterward, VCs will be very hesitant to fund an online currency for years to come.
To me the real currency would have to be something in the realm of Folding@home. I'm not sure how it would work of if its computationally feasible, but I do know people would pay for the results of useful computations such as that.
I would short Bitcoins if I could find a reliable party to do it with, and it were easier to do. That doing that is so difficult is another sign how it's not a real currency.
That this post and any post not buying into the Bitcoin hype is bound to be downvoted is yet another sign of the scam. I rarely have posts downvoted on HN, but any time I am slightly skeptical of Bitcoin's value, the Bitcoin hucksters pile on and downvote anyone questioning the scam into oblivion. It reminds me of how MLM people act on the Internet.
There is an eventual fixed supply of coins (21 million), with currently ~13 million in circulation (http://blockexplorer.com/q/totalbc). Given that the 13 million isn't increasing at any meaningful rate as it relates to the money supply, we can almost consider the supply fixed (at least on any short term perspective).
With this fixed supply, if more people become interested in using bitcoin as a unit of exchange and buy it in order to use it, then they will increase the demand and thus the price. If they used it to transfer money back home (i.e. remittances), and their family their exited the position back into cash, then the demand would be neutral. In reality, their is some cost of carry where by holding it for a period, you still increase the demand.
That would an explanation for the price were it governed by an actual underlying value.
In reality, the price is mainly governed by speculators hoping that it will be used by people as a unit of exchange eventually and thus the speculators are buying and holding coins.
That factor alone obviously doesn't prevent every currency collapse, but it is a key difference between "government fiat" and "geek fiat" currencies.
If that's the long term future for Bitcoin (as many people believe it is, and ignoring the value of the blockchain as a contract / consensus based negotiation mechanism for a moment), then the Bitcoin's value will eventually settle on a level that reflects its long term transactional use and "time in flight" - there is a non-zero period of time between when I purchase the bitcoin, and the recipient translates it back into local currency, in which the bitcoin will need to be purchased. Take your total daily transaction volume, and that time in flight - and you start to get a good sense of what the inherent value of bitcoin is.
That's the simple story as to why people are comfortable purchasing and holding it - it's going to be the global digital currency of choice, and as transaction volume increases, the value of the bitcoin will increase.
I'm pretty amazed that people still think it's a scam when huge companies with massive legal departments are accepting it. That's some pretty extreme skepticism.
BTW, there are plenty of easy, legitimate ways to short Bitcoin, but given your extraordinarily high threshold for "non-scam", I won't bother mentioning them.
PS: Bitcoins are valuable because people are willing to buy them. Despite what most people think, money is not magic, it's just an agreement.
People always overestimate the short term consequences and underestimate the long term consequences of such technologies.
Currency is only one way to express the protocol.
If someone accepts PayPal while insuring against the possibility of not being paid "not accept PayPal"?
If a non-US vendor uses forward/option contracts to maintain cash flow in the local currency, do they "not accept" USD?
I chuckled a little bit when he said hashes people are willing to pay hundreds of dollars for... annd those dollars are printed on paper with old dead guys on it. Ahh the world this guy lives in must be an interesting one.
You can commit nearly anonymous transactions over long distances with it. It's value over international currencies is in proportion to the size of the black market transacted via BtC.
There are many people out there who don't try to get rich, they simply mine a handful to buy small amounts of drugs on the internet. The "convenience" of that service raises the utility and value of BtC over e.g. dollars.
Of course, I say nearly b/c a dedicated sleuth could investigate a transaction, but ask yourself as a practical matter, will federales go after an 18-year buying a gram of weed via BtC? of course not. The complexity of the BtC transacation obscures such small transactions well into the realm of "safety."
Fast, nearly anonymous and free long distance transactions are a pretty big deal for non-criminals as well.
Did you ever try transferring a bigger amount of money to a country outside the EU and US? You'd be astonished by the fees and timescales involved.
Services like Western Union and Moneygram are not just used by criminals.
Interest is the keyword here. Banks collect it on their customers' money while they declare it to be 'in-flight'. This is the main reason why transactions that should take seconds are still deliberately delayed for days.
Eh, I think in the long run that will be more of a hindrance than a help, as it will give governments in many places a plausible reason to attempt to ban or limit its use (which would tend to lead to a vicious cycle of only criminals--however you define that--using it).
On a more practical level, I can't remember a time my credit card has been refused for local or international transactions (and any additional fees are largely invisible to me, the consumer). Paying with a credit card also carries certain advantages: If the goods aren't delivered, I spend 2 minutes on the phone and get my money back.
For the vast majority of consumers, the headache of converting local currency to BtC, learning how to use it, and finding a reliable escrow service will greatly outweigh the benefits of being able to buy drugs (especially as states decriminalize drugs). That keeps BtC firmly in the grasp of speculators.
I donated to wikileaks. Except I didn't, because the US put pressure on VISA+MC, and reversed my transaction. That whole business convinced me of the need for decentralised currency.
Sub-prime real estate was a scam. Huge companies with massive legal departments protected themselves from the illegal part of the scam - all those loan officers telling people to lie on their loan applications. In fact these banks got their lobbyists to get them TARP bailouts after the scam had run its course.
Banks are willing to trade subprime "liar loans" once legally insulated, so big companies willing to deal with Bitcoin doesn't really mean much.
I didn't say it was impossible to short Bitcoins. They are not FX traded alongside the dollar, euro, yen etc. though.
The central question is, why do Bitcoins have value? Why did subprime real estate loans, pets.com stock and Dutch tulip blubs have value? Actually, both these things were hypothetically more valuable than Bitcoins. Bitcoins are worthless.
When the price of a Bitcoin drops below $100, are people here going to learn a lesson about how value works? I don't think they will. That's the thing - Bitcoin will crash, and those talking it up here won't have learned a thing. If they did, these scams (subprime, pets.com stock, dutch Tulip Bulbs) couldn't keep popping up over time suckering people in. People have no concept of the relation of price to value, and thus are easily fooled.
I mean, at least Prof. Bitcorn gave us a date. An open ended "it's a scam and you people are going to learn...someday" is not very useful.
And speaking of value, after years of paying $30 a pop to receive a few thousand dollars from Europe in 3-5 business days, being able to effortlessly send a few digits, pay a few cents, and receive that money in less than an hour is...highly valuable.
For Bitcoin I need to:
* Get the requisite amount of bitcoins, plus a percentage extra to protect against fluctuations (BTC crashed is not a valid excuse for non-payment of rent)
* Help said friend set up a BTC wallet, plus security
* Find a trustworthy person willing to exchange USD for BTC at some agreed value
* Send friend to person and hope the exchange goes as planned.
I'd love to use BTC in place of IMT but it's just not easy enough yet.
That number of Bitcoin users is only increasing with each passing day.
- Investigate which PC she should buy
- Find someone willing to sell a PC at a fair price. This is a problem because PCs get old really quick, and some vendors will try to sell you old PCs at their original prices. I don't know how they expect PCs to be useful if they go down in value so fast. Why buy a PC today, when you can buy it at half its price in a year?
- Ask someone for help to connect all the wires
- Fail to send an email. Learn that she also needs an internet connection
- Investigate which ISP she should hire
- Etc...
With traditional mail, she just writes the letter and drops it in the post office.
When someone tries to use bitcoin and fails, they can lose their home. When silk road 2 lost their users' bitcoins to theft, there was a comment on Reddit about a silk road user who became homeless because they had converted their savings into bitcoin and stored the coins in silk road's webwallet. When the coins were lost, so was their home, since they could no longer afford rent.
Bitcoin needs to become pro-consumer with strong protections and convenience. There are dozens of ways to lose your money, so no one wants to convert a sizable portion of their wealth into bitcoin, which means no one has bitcoin on hand to spend at a whim. Eventually merchants are going to start wondering why they're bothering to let people buy their products via bitcoin since very few people buy anything via bitcoin.
If bitcoin becomes safe and convenient, bitcoin adoption will follow.
The value of any fiat, piece of gold, diamond etc isn't falsifiable either. You are assuming that other types of currency has inherent value. They don't.
You are confusing historical with universal facts.
For example, Gold is more readily worked than other metals and it's relative inertness makes it useful for carrying charge without causing a reaction (such as oxidation), additionally it has low resistance - these innate properties give it an inherent value by virtue of it's suitability for electrical connections.
If you're speaking on a the level of "value is a human construct"; well that's as may be but doesn't really aid in the discussion of human economics. I'm more than happy to discuss that but it seems we should stay within the locus of human experience here.
Or ...?
For instance for remittance Bitcoin has immense value compared to for instance gold.
Context defines value not the thing itself.
The fact that gold now has industrial uses makes it less suitable as money or a store of wealth than it had been for thousands of years, because saving/hoarding/speculating artificially reduces supply and increases its cost.
I can grant that people might be more trusting of bitcoin if it had some kind of intrinsic value to insure against collapsing 100%, but realistically it wouldn't be more than a tiny fraction of the market value, anyway. And as with gold, those other applications would be more expensive than they ought to be.
One might argue that the use of crypto hashes to certify documents or perform escrow-like services is comparable to the physical utility of gold and "paper" money. That seems a more apposite objection to my point, but hey ...
With my theory of value, Bitcoin has to collapse. Keynes talked about how markets could remain irrational longer than he was able to remain solvent, but that said, with my theory of value it has to collapse. So my theory of value is falsifiable.
The theory which says Bitcoin is valuable is "its valuable because its valuable". It's not really falsifiable. They say it's valuable because people find it valuable. If it loses value, they'll say it was because people stopped finding it valuable. How is that theory falsifiable? Whether it goes up or down, they can claim they were right. It's a tautological argument.
Gold is valuable because it is useful. It can be used to fill teeth, it can be used in electronics, for industrial purposes etc. Geologists spend time looking for where gold might be, then speculators spend time looking there, and if they're right, miners spend time mining it. As gold has a use, and has been useful for thousands of years, investors have a fairly certain (but not absolute) idea that they can exchange the gold they mine for other things.
Gold does have an inherent value. Compare an ounce of gold to a 1971 dollar. The 2014 dollar is worth a fifth of what the 1971 dollar was. An ounce of gold did not have it's value removed. Gold has an inherent useful value. The Papiermark, dollar etc. depend on the shifting winds of governments. The US government can fire up the printing presses and half the value of the dollar in a few days. You can't half the value of gold as easily, you'd have to make some kind of major scientific breakthrough.
There's absolutely no risk to a vague claim like that. It's unfalsifiable. Either we witness Bitcoin collapse, in which case you made an amazing prediction, or we don't witness Bitcoin collapse, and on your deathbed you can be proud that you haven't been proven wrong yet.
To make a meaningful prediction, name a time (preferably within most of our expected lifetimes) and a market price. Of course, if you could do that with any confidence, you should also trade with that same confidence.
This is the fundamental answer to "why is any representative money valuable?" If people don't have confidence that they can offer the money in the future, they won't accept the money today.
> To me the real currency would have to be something in the realm of Folding@home. I'm not sure how it would work of if its computationally feasible, but I do know people would pay for the results of useful computations such as that.
As far as I know, that can't happen, at least not in a proof of work system. The work in a proof of work system can't be severable from the specific information it is designed to secure (in Bitcoin, that would be transactions on the block chain). This isn't exactly a scholarly source, but it's from the "Chief Cryptographer for the Ripple protocol": http://bitcoin.stackexchange.com/questions/11649/intrinsical...
I'm not very familiar with other cryptocurrency systems, like proof of stake, but I know there are some attempts at cryptocurrencies that use computation with unrelated useful side effects.
The US government is a powerful entity that levies taxes and accepts tax payments only in dollars. Gold has various uses in industry and fashion and therefore a certificate entitling one to ownership of gold would have some value independent of gold's use as a currency. None of these are true for bitcoin.
Right. That's just a more detailed explanation for why most people are willing to accept USD in exchange for their goods. There are similarly detailed explanations for why people are willing to accept bitcoins. The reasons are different, but they still (obviously) exist. If no reasons existed, then people would not be willing to accept bitcoins in trade.
Simple answer: Supply and demand. There is demand, you just have to research for more than 20 minutes to find the reasons for the demand aside from the artificial one created from people using it as a means for returns in investment.
Why do you jump to conclusions on topics in which you are clearly uninformed?
Ross William Ulbricht hasn't yet been convicted of anything. I know that they aren't selling his personal bitcoins, but in the (highly unlikely) event that he is found innocent, wouldn't that mean that the Silk Road assets need to be returned to him? How then can they sell them now?
Take a look at this well written article by the New Yorker Taken: The Use and Abuse of Civil Forfeiture http://www.newyorker.com/reporting/2013/08/12/130812fa_fact_...
Its a case where Ulbricht chose to assert a claim on certain seized property and not on others, either because he is not, in fact, DPR (which is what he claims) and didn't want to steal property that wasn't his, or because he is actually is DPR but admitting that he owned the Silk Road servers and bitcoins would make his conviction more likely because it would make it harder for him to deny being the guy behind Silk Road.
-They operate from fixed headquarters
-Some of them are elected
-They have a complaints department
-Certain social services are provided
Allowing forfeiture statutes of this nature likely motivates departments to increase their usage to get more revenues.
It is a disgusting practice and can only lead to something bad.
You can try to prove your innocence but it doesn't really work in practice.
Again, there are obviously situations where civil forfeiture is improperly utilized. This is not one of them, in my opinion.
The process here was that government announced forfeiture action, people were given a chance to claim a property interest and fight the forfeiture, and no one chose to do so.
Ulbricht was clearly aware of it, and did assert a claim to other property that was the subject of the same forfeiture action. The seizure was a default judgement because there was no property owner to contest the forfeiture.
What additional process is due, and to whom is it due?
You can't have a trial with only one party.
The owner of the bitcoins had an opportunity to contest the forfeiture, and didn't step forward to do that. Given the value of the bitcoins and the public nature of the seizure and forfeiture actions, its hardly likely that that was due to lack of effective notice, or it not being worth expending effort to protect the assets.
My bet would be that Ulbricht has denied any connection to those servers as part of his defense since claiming to own/control them would make it too easy for the government to prove its case. If, at this point, those servers belong to anyone else, they're free to come forward and claim to own them...that would stop the sale.
So if no one claims to own them, they're fair game for the government to sell.
However, if he is found not guilty, then the presumption is that he was not involved and therefore would not be the "rightful owner" of the seized property anyway.
If they aren't his bitcoins, why would they return them to him? The assets they are selling aren't the ones he has claimed a property interest in, they are the ones that were unclaimed (by him or anyone else) when the forfeiture action was initiated.
http://www.justice.gov/usao/nys/pressreleases/January14/Silk...
There is no doubt in anyone's mind that the bitcoin sitting inside the silkroad wallets was free for the taking by U.S. authorities.
Whether or not Ross Ulbricht's wealth is owed to the U.S. government they're not sure, so they're keeping them until the trial has completed.
I guess the law would see that as belonging to the business holding them, but I'm not sure that's morally correct.
And if it's the property of Silk Road, then no matter what their deal was with the users, when it closes shop then the due process generally doesn't involve giving parts of their assets to users or creditors - the due process is to auction off those assets (as they're doing now) and settle those liabilities with US dollars; so again, people can claim that Silk Road owes them bitcoins, and they can get paid an appropriate share of this sale.
But seriously, I'm a bit suspicious about what gov would do with the list of all the people willing to buy those coins.
I'd wager it will sell for much less, likely 3/4 of that street price.
ie. they just want to get rid of the assets and move on.
Aside from this, there's also a transaction cost component.. it takes time and some money to transact (think opportunity cost of the 200k deposit, lawyer fees, etc.) and this would be reflected. The sale price would reflect both of these.
Now, if the good was completely fungible, risk-free and totally liquid (think cash), there would be no expected discount because of risk.. just transaction cost.
How is that not the case here?
It is apparently hard to trade that many bitcoins for the equivalent amount of government-backed currency or goods.
To be fair to Bitcoin, it's not the only "currency" with that problem... during the Argentinean crisis, many local governments paid their workers with alternative currencies ("patacones" and others) which rapidly devalued.
As a result, a buyer would be willing to pay market price - transaction costs - risk transfer cost.
Pricing the risk is of course tough as future volatility is especially tough to predict for BTC. But this is the fundamental rubric for how one would view the transaction.
Individual sales mean nothing to overall valuations unless the saleable item is truly unique. Bitcoins aren't.
Potential bidders must have $200,000 USD Deposit sent to the U.S. Marshalls from a U.S. bank account by 9am June 16th (~2 business days from now).
That disqualifies a good 99.9999% of the world from being eligible to bid.
Yes, however it doesn't disqualify a single person/party who actually has the capability (and interest) to purchase the minimum block of 3,000 btc (~$1.5M dollars).
There are people who know exactly how to buy seized goods from the government. They make money doing so. If you think they are making Too Much Money, then you can raise money from your friends and start competing with them.
It's very similar to buying distressed houses. You can make a killing there, or end up bankrupt. The market figures out the risk premiums on its own.
Street value this morning: $18,752,406.34
Street value now (2014-06-12 @ 7pm NYC time): $17,220,321.22 (it lost $110,000 in value in the hour since you posted)
I'd wager it will sell for around 1/2 its street value when the auction is completed.
The USMS will not transfer bitcoins to an obscene public address, a public address apparently in a country restricted by the Office of Foreign Assets Control (OFAC), a public address apparently associated with terrorism, other criminal activities, or otherwise hostile to the United States.
So, be sure to pre-calculate your auction-winning vanity-address to be some simple transformation of your obscene/anti-American message, rather than the message itself!
You couldn't ask for a better story - the opposite of what Bitcoin really is when you think of it - finance, computers - stuff that bores the hell out of most people. Instead: drugs! conspiracy! magic internet money! Now, add "Satoshi" - mysterious inventor who's vanished. Seriously, you can't write this stuff!
Money is used multiple times. The dollar you spend at the store is then split up and spent again, and again, and again. So the value of the whole currency is what is important, how much buying power the currency you have is based on how many dollars there are, what they can be spent for, how often they are spent, etc. By offering X dollars for Y bitcoins, what people really mean is: offering x% of all the dollars for y% of all the bitcoins.
This sale adds more bitcoins (because portions of the markets believed them unrecoverable, and they haven't been in circulation for a while), so Y bitcoins is now a smaller percentage of the whole buying power available for bitcoins, which means they are also worth less dollars. Similar effects are seen in fiat currency (like dollars) when more money is printed, it affects the money supply, and allows the government a modicum of control on inflation (when used correctly) but also can let the government to let inflation get out of control (re: most cases of Hyperinflation[1]).
The simpler explanation is simply: Because the supply of bitcoins went up, with a constant demand of bitcoins, the value goes down because more people are trying to sell them, and the price goes down due to competition etc (e.g. basic supply and demand).
If US treasury prints a billion dollars, then that doesn't trigger a 10% drop in value of a US dollar - it's a comparably tiny change with a tiny effect; similarly an extra 30k BTC is not by itself a reason for large fluctuation if the market is functioning properly.
A few reasons why your analogy is flawed. First, M0 (which is one of the more conservative definition of money, is about 4 trillion, so the value loss from a billion dollars is not going to be anywhere near 10% to start off with). Secondly, by printing money you're again only affecting M0, but there are a lot of debt-based instruments that are probably better characterizations of "total money", but since they are debt-based it creates some level of 'springiness' to the total money supply.
Finally, it's not clear to me what you mean by 'functioning properly'. Even if a small change triggers a bigger effect (it will, these things are categorized by cascading effects) - Is the market coordinating individual values with prices? Probably, it is: it's just that the individuals' value systems have gone a bit out of whack in a spate of mania. But who are we to judge if people get a little silly from time to time?
1. printing a billion dollars should be approximately just as [in]significant to USD supply as the 30k BTC to the BTC supply in circulation; that's why I said a billion, but not a million or a trillion;
2. market fluctions over/undershooting any corrections is reasonable, but not exaggerating them by multiple orders of magnitude - it may react to a 0.1% change as a 0.2% change, but not as 10% change;
3. a market that's "functioning properly" would be expected to correct for so huge overexaggerations - if some people get a little silly from time to time, then the market should (and would) take their money from them; but if most of the people get very silly frequently, then that's not a properly functioning market.
To add onto your analogy, if they government did print billions more than normal, then investors would project that behavior out, try to figure out what was wrong, and exasperate the effects.
Similarly, if USA government had now started to do sales like this (and larger) every other day, then it would be grounds for some major effects - but they are not; the government does not have many more bitcoins in custody, they have a few limited amounts like this one of less than $20m. Why should such a comparably small sale cause any market disruption? If some $20m re-entering the market does that, then that's a sign of a very, very small and illiquid market.
If any real scale business would start using BTC, gets a few thousand BTC in sales, and wants to swap them to another currency - do they have to think of themselves as 'market influncer' that should be careful on how to sell them so as not to rock the boat; instead of simply immediately getting the current exchange rate for that?
Until bitcoin achieves a critical mass among both consumers and merchants, searching for reasons for a price drop or jump may as well be numerology.
The trouble with opinions about the price of bitcoin is that they're very hard to disprove, because no one is privy to the information that's causing the price fluctuations except the people causing the price fluctuations. But remember, that's my point: you won't ever know why the price rises or falls. It's beyond your knowledge, unless your friends include those who are actually moving the price.
Until the price of bitcoin is determined by more than a couple hundred people, you simply cannot reason about its price in any meaningful way. Even talking about "downward price pressure due to mining costs" is mistaken at this point. The price of bitcoin is a function of the whims of those couple hundred people.
Before this announcement the balance was about $650. It means that greedy people think it will go higher than $650, and fearful people think it would go lower.
Now comes this announcement. About 30.000 bitcoins wil sometime in July come into the hands of someone who will have paid significantly below market rate for them.
Is this good news or bad news for the market? It's bad of course. In the most optimum case, the buyer will keep the bitcoin, and the market won't move at all. In the worst case, the buyer will sell all the bitcoin the second he receives the bitcoin.
Between these two extremes there is a range of possibilities, but you can see that the range is from 0 to negative something, so overall we predict a negative outcome for the market.
So, the fearful people will become a little stronger, and the balance will drop accordingly.
This is exactly what I meant by "you'll fool yourself into believing things that aren't true." You cannot reason about the price of bitcoin in terms of fundamentals. Not right now; not when the price is a function of a few hundred people (some of whom are maliciously manipulating the market).
I've been closely watching how the price of bitcoin reacts to announcements since mid last year. The price goes up? People come up with a reason that makes sense. The price goes down? People come up with a reason. The price has gone down; you've come up with a reason, and lo, it seems to make sense. Except none of these reasonings make any sense whatsoever because the market isn't logical. It doesn't pay any attention to your theories, or mine, or anyone else's. The price inexorably follows from the actions of fewer than a couple hundred people, almost all of whom are trying to prey off each other. That's the game. Buy to raise the price; sell after others follow your lead.
You can craft a theory that makes sense for any possible upswing or downswing. But what fools we were to think our theories mattered back in November, when the price was almost entirely due to Mt. Gox's market manipulation!
My opinion in this matter has been forged by the heavy hammer of experience. Don't make my mistake; don't delude yourself by having the hubris to think you alone can reason your way around an irrational gambler's market. Here's how it will go. You'll make some money, and you'll feel smart and elated. Then you'll risk a little bit too much on your "insight" and watch as it crumbles beneath your feet and you lose some money. But not too much; you're smart, after all. But then you'll hear stories of others who have fared Bette than you, and you'll start to get a bit jealous. It's just a matter of experience, you'll tell yourself. I'll do better now that I know not to do that again. So you'll try a new, more insightful theory. A theory based on sound fundamentals. And then you'll make a bunch of money, and you'll think you've got it all figured out. So you'll wager even more on your theory (which, somehow, everyone else has seemingly overlooked, but Nevermind that, our theory is based on logic so it must be correct!) and then when the market's irrationality catches up to your reality, you'll lose big.
Greed does indeed drive the market. And greed doesn't play by fair or logical rules.
This is exactly what I meant by "you'll fool yourself into believing things that aren't true." You cannot reason about the price of bitcoin in terms of fundamentals.
But what fools we were to think our theories mattered back in November, when the price was almost entirely due to Mt. Gox's market manipulation!
I don't say "It's bad of course" as some sort of guess, it's pure logical reasoning. I am not saying it is necessary that the balance goes down. Combine the information of the logical effect of this event with the actual effect that lies in the past and you can say that there was a likely relation.
Here's an example of a fundamental:
By looking at the economics of a business, the balance sheet, the income statement, management and cash flow, investors are looking at a company's fundamentals, which help determine a company's health as well as its growth prospects. A company with little debt and a lot of cash is considered to have strong fundamentals.
There are more kinds of fundamentals, of course. But all of them have a common theme: publicly available information, or logical reasoning (which depends on having publicly available information).
Bitcoin's market value is determined by insiders who hide all information from you. Therefore, there are no fundamentals right now. Not until the price is determined by something other than people like Karpeles.
You invested in a time of great volatility, and got hurt. That doesn't mean the game is broken. That MtGox manipulated the market is irrelevant.
I doubt most investors would agree. Gamblers, perhaps, since at that point "the game" is literally gambling, not investing.
The logic is that people (or algorithms that people put in control of their bitcoins) offered to sell bitcoins at a certain price, and other people (or algorithms) decided to accept that offer. One side decided that they prefer x USD to y bitcoins, and the other side decided that they prefer y bitcoins to x USD. So they agreed to swap. That is precisely the same logic that goes into literally every commercial transaction.
To look for some concise one-sentence explanation for the aggregate preferences of a bunch of people, however, is a fool's errand. And that doesn't change when "more than a couple hundred people" are trading.
This is tautology, though. It's just the definition of a market.
The couple hundred I refer to are those who (a) have thousands of bitcoins, and (b) enter and exit the market with some frequency. Those are the people who determine the current price of bitcoin. I say there are only a few hundred of them because bitcoins have been distributed according to a power curve (as is all wealth), and those few hundred are the ones who have the temperament to wager large sums of money on a monthly, weekly, or daily basis.
When one of them decides to exit the market, the price drops noticeably. When one of them decides to jump back in, the price jumps noticeably, causing others to follow their lead and buy in, which drives up the price even more.
If you have currency equivalent to thousands of bitcoins, you can place a large buy order, which triggers a price spike, which causes some upwards "momentum" because a bunch of other people will feel pressured to enter the market due to your large buy order, which of course makes the price rise even more; hence, momentum. Gamblers with thousands of bitcoins can take advantage of this phenomenon to grow their holdings: place a large buy order, wait for others to follow your lead, then sell. It's obviously not guaranteed to work, but nonetheless that seems to be what these gamblers are doing.
Announcements serve to trigger a bunch of these "gambler whales" into action all at once, so you get large fluctuations in price. But there isn't a fundamental reason for this price drop beyond the game theory presented above. The claim that the price movement is based on underlying fundamentals or logic simply doesn't match the available evidence. Evidence thus far indicates that the price fluctuation is due to a combination of market manipulation and gamblers with thousands of bitcoins actively trying to hoodwink their fellow gamblers.
I'd love to get your thoughts on the parts you disagree with, if you have the time. What do you think about bitcoin?
Increasing supply always reduces the market price.
It does. Although it has been critized, the quantitative theory of money [1] could perfectly explain the drop.
That would be like saying the supply of uranium in the universe hasn't increased, the only thing that increased was the free float of uranium (say due to new mining technologies, or the sale of previously restricted stocks).
Which I think has a more significant effect on the market price than the total amount that exists.
For example, if 100 bitcoins that were previously unavailable at any price, become available for $600, then supply at $600 (and above) increases by 100. The supply curve shifts to the right.
http://www.investopedia.com/university/economics/economics3....
Same goes for capital markets which is why only brokers and Warren Buffett "make money".
Those coins will then be linked to the winners' identities permanently in the block chain. Talk about painting a target on oneself.
They only made the announcement today and you have to be registered to bid by this coming monday?
Is this typical of government auctions?
And why shouldn't it be fast? There is a single person who holds over $1B USD of Bitcoin, so big Bitcoin positions are normal. If you have the US money on-hand, this is a 5 minute decision. No need to drag it out.
The real story is the losers dumping their Bitcoin positions as the market goes down, while the smart people buy up those coins too. I guess the forums and IRC channels are full of people telling you to sell cheap. And next week, they will be telling you to buy high.
What are the precedents here? Does this style of US government confiscation / sale have any analog in realms outside the net?
I'm honestly curious, I know that governments are completely within their (self defined, but generally accepted) rights to profit from these seizures, but what are the implications of profiting from the proceeds of crime, and has this raised it's head in more "traditional" areas before?
"THIS IS GREAT NEWS FOR BITCOIN!!"
- Price stays flat: "Obviously, market cap is too low to support a legitimate currency."
- Price goes up: "Obviously, it can't work because it's a deflationary currency."
- Price goes down: "Obviously it a bubble that's popping."
switch(news) {
case 'price goes up':
theskyisfalling();
case 'price goes down':
thegroundisrising();
case 'price stays the same':
quicklookoverthere();
default:
celebrate();
}(2) Having the US government treat bitcoin as an auctionable asset undercuts naysayers who say bitcoins are "tulips".
(3) We have a precedent with the original seizure leading to a bitcoin rally.
(4) The US government is now acting as a sort of "bitcoin exchange". This auction will give new actors a way to enter the bitcoin market without certain legal uncertainties.
It could help legitimize the coin, for some definition of legitimize, or it could tank the price if people feel a sizable chunk of those coins are going to be sold at discount.
It did tank ~10%, but maybe we will see a rally in the weeks to come?
Which dents my plan of offering to buy each of the BTC 3,000 blocks with an offer of BTC 2,000 each.
If the government somehow seized a giant comic book collection, they wouldn't try to sell them off individually on eBay. They would auction it off in 1 block, and interested parties who know how to maximize its value would bit on it.
It's basically "Storage Wars."
Also, is it possible to use these bitcoins in a transaction, or would you simply be paying for the still-encrypted wallet?
Fucking hell, individual instances of radon-222 are more predictable.
"Let's sell them all in blocks of 3000 and require a deposit of $200k to bid" ... yeah ...
[1] As to whether the government is morally, ethically, or legally entitled to the seized properties, I have no opinion. I don't know anything about the situation.
These coins were technically owned by all the people with accounts on the Silk Road and were not necessarily going to be used for illegal transactions. For all we know this is basically government stolen money from some guy who wanted to buy a sandwich with Bitcoin just for the laughs and to say he did.
I think the money in GP refers to the other side of the trade -- if you sell an asset on an exchange, you are going to then have money (received from the purchaser) that is yours on that exchange until you are able to extract it.
Ideally, that would be trivial, but that hasn't always been the case for BTC exchanges (Mt.Gox being a notable example for an extended period of time.)
-The government is probably not interested in taking a long time to sell these blocks.
-Lastly, I imagine there are easily more than 10 individuals who are both financially willing and able to purchase blocks of this size.
So the government makes it illegal to sell narcotics, regardless, some individuals take a risk and deal drugs to be able to sustain themselves or finance a lifestyle of their choice.
Now the government start prosecuting someone, seize their assets (Which were turned over through illicit methods) and release this dodgy money back to the market.
What's more disturbing about this whole scenario is the fact that someone is getting done over. What if the government kept prosecuting dealers and then selling their assets back to the market? Those assets should be "destroyed" - just the way narcotics are destroyed when dealers get caught.
This is a joke.
Bitcoins aren't what made Silk Road illegal.
The government has already stated that bitcoin is property, and they are treating it like any other legal property, selling it just like they would sell seized cars or houses.
You really want bitcoin to be on the same level as illegal narcotics? Why?
Why? You keep rephrasing the claim that what the government is doing is wrong and then say they ought to be destroying seized assets seized as instrumentalities or proceeds of crime the way they (generally) do seized items that are illegal-in-themselves like narcotics, but you actually don't make any argument for why this is the case.
Why should the government ever destroy property that is legal to own and possess and has value in the market? That seems to be a net loss to society anyway you slice it.
Dear officers, these are zero fee transactions, if there were any :)
It would have been far better to quietly sell these BTC evenly spread across the major exchanges at market prices.
If you have a plan to get 98% of the value of these Bitcoins and think that someone else will only get 70%, then dig through your couch cushions to raise 15 million bucks and outbid the other guy.
These are totally normal market mechanisms.
Nothing new here, carry on, carry on!!!
What's more amusing is that the auction is "cash only".
You have to wire the money, so it's not physical stacks of currency. But it does have to be US dollars.
It confirms that the government recognizes that bitcoins are real things which can be bought and sold, but that is both so patently obvious and so well established in legal actions that the government has taken around bitcoin already that confirming it is like confirming that the earth isn't flat.
It would prevent the feds from having an incentive to seize bitcoins.
No it wouldn't. Law enforcement seizes to deprive criminals of gain from illicit activities, not to make a profit. They sell because they can.
It also wouldn't be funny. The US Marshall's service is doing what it is supposed to. If you have problems with federal law enforcement try a country that lacks a professional police force.
Genius statements like these are why I read HN!
http://www.newyorker.com/reporting/2013/08/12/130812fa_fact_...
Downvote all you want but you don't seem that sharp.
Luckily a fork of Bitcoin that included these filter mechanism is unlikely to succeed. Let's keep law enforcement on a separate layer, we didn't put it into TCP either.
Just, the exchange voluntarily deciding whether or not to accept the trade?
Or did they mean that if the coins were tracked regardless of who they were passed to or through how many people?
I don't see how a person deciding not to trade with a given address(govt), or any address that traded directly with that address(person who bought from govt), is creating any sort of infrastructure.
It could be worked around with by additional transfers of course, or just used directly to purchase things,
But in at least one similar type of thing I don't think it would inherently cause or require any harmful infrastructure/modification to infrastructure, even if it would be pointless.